Policies Towards Foreign Direct Investment

The GOC’s policies towards foreign direct investment (FDI) are generally positive. Chad’s laws and regulations encourage FDI, and there are few formal restrictions on foreign trade and investment. Under Chadian law, foreign and domestic entities may establish and own business enterprises.

The National Investment Charter of 2008 permits full foreign ownership of companies in Chad. The only limit on foreign control is on ownership of companies deemed related to national security. The National Investment Charter guarantees both foreign companies and individuals equal standing with Chadian companies and individuals in the privatization process. In principle, tenders for foreign investment in state-owned enterprises (SOEs) and for government contracts are conducted through open international bid procedures. The National Investment Charter also offers incentives to certain foreign companies establishing significant operations in Chad, including up to five years of tax-exempt status.

Chad’s National Agency for Investment and Exports (ANIE, Agence Nationale des Investissements et des Exports), an agency of the Ministry of Industrial and Commercial Development & Private Sector Promotion, facilitates foreign investment. ANIE’s mandate is to contribute to the creation of a business environment that meets international standing, promote investment and exports, support the development of SMEs, and inform GOC decision makers about economic policy. ANIE acts as a one-stop shop for new investors.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are no limits on foreign ownership or control. There are no sector-specific restrictions that discriminate against market access for U.S. or other foreign investors, and no de facto anti-foreign discriminatory practices.

Other Investment Policy Reviews

UNCTAD published a French-language Investment Policy Review on Chad in July 2019 ( https://investmentpolicy.unctad.org/publications/1212/investment-policy-review-of-chad ).

The World Trade Organization (WTO) published a joint trade policy review for Chad, Cameroon, Republic of Congo, Gabon, and Central African Republic in 2013 ( https://www.wto.org/english/tratop_e/tpr_e/tp385_e.htm ), and a standalone trade policy review for Chad in 2007 ( https://www.wto.org/english/tratop_e/tpr_e/tp275_e.htm ).

The OECD has not published any investment policy reviews of Chad.

Business Facilitation

Foreign businesses interested in investing in or establishing an office in Chad should contact ANIE, which offers a one-stop shop for filing the legal forms needed to start a business. The process officially takes 72 hours and is the most important legal requirement for investment. ANIE’s website ( www.anie-tchad.com ) provides additional information. Online business registration is not yet available via the Global Enterprise Registration web site ( www.GER.co ) or the Business Facilitation Program ( www.businessfacilitation.org ).

The World Bank’s Doing Business 2020 report ranked Chad 182 out of 190 countries for ease of starting a business, which included factors beyond registration such as permitting and access to office space, energy, and capital.

Contracts are tailored to each investment and often include additional incentives and concessions, such as permissions to import labor or agreements to work with specific local suppliers. Some contracts are confidential. Occasionally, government ministries attempt to change the terms of contracts or apply new laws broadly, even to companies that have pre-existing agreements that exempt them. Chad’s judicial system is weak, and rulings, including those relating to contract disputes, are susceptible to government interference. There is limited capacity within the judiciary to address commercial issues, including contract disputes. Parties usually settle disputes directly or through arbitration provided by the Chamber of Commerce, Industry, Agriculture, Mining, and Crafts (CCIAMA) or through an outside entity, such as the International Chamber of Commerce (ICC) in Paris.

Outward Investment

The GOC does not offer any programs or incentives encouraging outward investment. The GOC does not restrict domestic investors from investing abroad.

Transparency of the Regulatory System

Chad implements laws to foster competition and establish clear rules based on Uniform Acts produced by the Organization for the Harmonization of Business Law in Africa (OHADA, Organisation pour l’Harmonisation en Afrique du Droit des Affaires, www.ohada.com ). However, certain Chadian and foreign companies may encounter difficulties from well-established companies with a corner on the market, discouraging competition.

Regulations and financial policies generally do not impede competition in the financial sector. Legal, regulatory, and accounting systems pertaining to banking are transparent and consistent with international norms. Chad began using OHADA’s accounting system in 2002, bringing its national standards into harmony with accounting systems throughout the region. Several international accounting firms have offices in Chad. However, while accounting, legal, and regulatory procedures are consistent with international norms, some local firms do not use generally accepted standards and procedures in their business practices.

Chad develops forward regulatory plans to encourage foreign investment and budget support. Government ministries draft regulations, subject to approval by the Secretary General of the Government, Council of Ministers, National Assembly, and President. National regulations are most relevant to foreign investors. There are no informal regulatory processes managed by nongovernmental organizations or private sector associations. The GOC occasionally provides opportunities for local associations, such as the National Council of Employers (CNPT, Conseil National du Patronat Tchadien) or the CCIAMA to comment on proposed laws and regulations pertaining to investment. All contracts and practices are subject to legal review, which can be weak.

The Government publishes all budget information, including on the Ministry of Finance and Budget website. Other proposed laws and regulations are not published in draft form for public comment. The Observatory on Public Finance is an online framework for the dissemination of public finance data and the operationalization of the Code of Transparency and Good Governance. This code is an implementation of one of the six CEMAC Directives on the new harmonized framework for public financial management.

The Presidential Council to Improve the Business Climate was announced in 2018, met once in late 2019, and formally launched in January 2021 due to the negative impact of COVID-19 in 2020. This effort to reform Chad’s investment climate and improve Chad’s performance in World Bank assessments is still in its embryonic stage.

Chad is not listed on www.businessfacilitation.org .

International Regulatory Considerations

Chad has been a member of the WTO since October 19, 1996 and a member of GATT since July 12, 1963. Chad is a member of OHADA and the CEMAC ( www.cemac.int ). Since 2017, Chad is gradually implementing business and economic laws and regulations based on CEMAC standards and OHADA Uniform Acts. Chad’s banking sector is regulated by COBAC (Commission Bancaire de l’Afrique Centrale), a regional agency.

Legal System and Judicial Independence

Chad’s legal system and commercial law are based on the French Civil Code. The constitution recognizes customary and traditional law if it does not interfere with public order or constitutional rights. Chad’s judicial system rules on commercial disputes in a limited technical capacity. The Chadian President appoints judges without National Assembly confirmation, and thus the judiciary may be subject to executive influence. Courts normally award monetary judgments in local currency, although it may designate awards in foreign currencies based on the circumstances of the disputed transaction.

Chad’s commercial laws are based on standards promulgated by CEMAC, OHADA, and the Economic Community of Central African States (CEEAC, Communaute Economique des Etats de l’Afrique Centrale, http://www.ceeac-eccas.org ). The Government and National Assembly are in the process of adopting legislation to comply fully with all these provisions.

Specialized commercial tribunal courts were authorized in 1998 and operationalized in 2004. These tribunals exist in five major cities but lack adequate technical capacity to perform their duties. Firms not satisfied with judgments in these tribunals may appeal to OHADA’s regional court in Abidjan, Ivory Coast, that ensures uniformity and consistent legal interpretations across its member countries. Several Chadian companies have done so. OHADA also allows foreign companies to utilize tribunals outside of Chad, generally in Paris, France, to adjudicate business disputes. Finally, CEMAC established a regional court in N’Djamena in 2001 to hear business disputes, but this body is not widely used.

Contracts and investment agreements can stipulate arbitration procedures and jurisdictions for settlement of disputes. If both parties agree and settlements do not violate Chadian law, Chadian courts will respect the decisions of courts in the nations where particular agreements were signed, including the United States. This principle also applies to disputes between foreign companies and the Chadian Government. Such disputes can be arbitrated by the International Chamber of Commerce (ICC). Foreign companies frequently choose to include clauses in their contract to mandate ICC arbitration.

Bilateral judicial cooperation is in effect between Chad and certain nations. Chad signed the Antananarivo Convention in 1970, covering the discharge of judicial decisions and serving of legal documents, with eleven other former French colonies (Benin, Burkina Faso, Cameroon, CAR, Congo-Brazzaville, Gabon, Cote d’Ivoire, Madagascar, Mauritania, Niger, and Senegal). Chad has similar arrangements in place with France, Nigeria, and Sudan.

Laws and Regulations on Foreign Direct Investment

The National Investment Charter encourages foreign direct investment. Chad is a member of CEMAC and OHADA. Since 2017, Chad is gradually implementing business and economic laws and regulations based on CEMAC standards and OHADA Uniform Acts.

Foreign investors using the court system are not generally subject to executive interference. In addition, the OHADA Treaty allows foreign companies to utilize tribunals outside of Chad, e.g., the ICC in Paris, France, to adjudicate any disputes. Companies may also access the OHADA’s court located in Abidjan, Côte d’Ivoire.

Foreign businesses interested in investing in or establishing an office in Chad should contact ANIE, which offers a one-stop shop for filing the legal forms needed to start a business. The process officially takes 72 hours and is the most important legal requirement for investment. ANIE’s website ( www.anie-tchad.com ) provides additional information.

Competition and Anti-Trust Laws

Regulation of competition is covered by the OHADA Uniform Acts that form the basis for Chadian business and economic laws and regulations. The Office of Competition in Chad’s Ministry of Industrial and Commercial Development & Private Sector Promotion reviews transactions for competition-related concerns.

Expropriation and Compensation

Chadian law protects businesses from nationalization and expropriation, except in cases where expropriation is in the public interest. There were no government expropriations of foreign-owned property in 2020. There are no indications that the GOC intends to expropriate foreign property in the near future.

Chad’s Fourth Republic Constitution adopted in May 2018 and amended in December 2020 prohibits seizure of private property except in cases of urgent public need, of which there are no known cases. A 1967 Land Law prohibits deprivation of ownership without due process, stipulating that the state may not take possession of expropriated properties until 15 days after the payment of compensation. The government continues to work on reform of the 1967 law.

Dispute Settlement

ICSID Convention and New York Convention

Chad has been a signatory and contracting state of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (“ICSID Convention”) since 1966.

Chad is not a contracting state of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Arbitration Convention”).

Investor-State Dispute Settlement

Chad is signatory to an investment agreement among the member states of CEMAC, CEAC, and OHADA. The OHADA Investment Arrangement, with provisions for securities, arbitration, dispute settlement, bankruptcy, recovery, and other aspects of commercial regulation, has defined the commercial rights of several economic stakeholders, e.g., the Chadian Treasury, and provides for the enforcement of foreign arbitral awards. Chad has no Bilateral Investment Treaty (BIT) or Free Trade Agreement (FTA) with an investment chapter with the United States.

There is no formal record of the government’s handling of investment disputes. Some U.S. and other foreign investors have been involved in disputes with the GOC, particularly over issues regarding taxes and duties, though there are no official statistics. Investment disputes involving foreign investors are frequently arbitrated by an independent body.

International Commercial Arbitration and Foreign Courts

In addition to independent courts, such as the ICC, Chad’s constitution recognizes customary and traditional law as long as it does not interfere with public order or constitutional rights. As most businesses operate in the informal sector, customary and traditional law function as alternative dispute resolution (ADR) mechanisms when parties are from the same tribe or clan and express their desire to settle outside of the formal court.

Specialized commercial tribunal courts were authorized in 1998 and became operational in 2004. These tribunals exist in five major cities but lack adequate capacity to perform their duties. The N’Djamena Commercial Tribunal has heard disputes involving foreign companies.

Foreign investors using the court system are not generally subject to executive interference. In addition, the OHADA Treaty allows foreign companies to utilize tribunals outside of Chad, e.g., the ICC in Paris, France, to adjudicate any disputes. Companies may also access OHADA’s court located in Abidjan, Côte d’Ivoire.

Bankruptcy Regulations

Chad’s bankruptcy laws are based on OHADA Uniform Acts. According to Section 3, Articles 234 – 239 of OHADA’s Uniform Insolvency Act, creditors and equity shareholders may designate trustees to lodge complaints or claims to the commercial court collectively or individually. These laws criminalize bankruptcy and the OHADA provisions grant Chad the discretion to apply its own sentences.

The World Bank’s Doing Business 2020 report ranked Chad’s ease of resolving insolvency at 155 of 190 ( http://www.doingbusiness.org/data/exploreeconomies/chad/#resolving-insolvency ).

Capital Markets and Portfolio Investment

Chad’s financial system is underdeveloped. There are no capital markets or money markets in Chad. A limited number of financial instruments are available to the private sector, including letters of credit, short- and medium-term loans, foreign exchange services, and long-term savings instruments.

Commercial banks offer credit on market terms, often at rates of 12 to 25 percent for short-term loans. Access to credit is available but is prohibitively expensive for most Chadians in the private sector. Medium-term loans are difficult to obtain, as lending criteria are rigid. Most large businesses maintain accounts with foreign banks and borrow money outside of Chad. There are ATMs in some major hotels, N’Djamena airport, and in most neighborhoods of N’Djamena, and in major cities.

Chad does not have a stock market and has no effective regulatory system to encourage or facilitate portfolio investments. A small regional stock exchange, known as the Central African Stock Exchange, in Libreville, Gabon, was established by CEMAC countries in 2006. Cameroon, a CEMAC member, launched its own market in 2005. Both exchanges are poorly capitalized.

Money and Banking System

Chad’s banking sector is small and continues to streamline lending practices and reduce the volume of bad debt accumulated before and during the 2016-2017 economic crisis. While Chad’s banking rate remains low due to low aggregate savings and limited exposure to and trust in banks, according to the World Bank it increased from 9 to 22 percent between 2009 and 2017.

Chad’s four largest banks have been privatized. The former Banque Internationale pour l’Afrique au Tchad (BIAT) became a part of Togo-based Ecobank; the former Banque Tchadienne de Credit et de Depôt was re-organized as the Societe Generale Tchad; the former Financial Bank became part of Togo-based Orabank; and the former Banque de Developpement du Tchad (BDT) was reorganized as Commercial Bank Tchad (CBT), in partnership with Cameroon-based Commercial Bank of Cameroon. There are two Libyan banks in Chad, BCC (formerly Banque Libyenne) and BSCIC (Banque Sahelo-Saharienne pour l’Investissement et le Commerce), along with one Nigerian bank — United Bank for Africa (UBA). In 2018, the GOC funded a new bank Banque de l’Habitat du Tchad (BHT) with the GOC as majority shareholder with 50 percent of the shares and two public companies, the National Social Insurance Fund (Caisse Nationale de Prevoyance Sociale, CNPS) and the Chadian Petroleum Company (Societe des Hydrocarbures du Tchad, SHT), each holding 25 percent.

Chad, as a CEMAC member, shares a central bank with Cameroon, Central African Republic, Republic of Congo, Equatorial Guinea, and Gabon – the Central African Economic Bank (BEAC, Banque des Etats de l’Afrique Centrale), headquartered in Yaounde, Cameroon.

Foreigners must establish legal residency in order to establish a bank account.

Foreign Exchange and Remittances

Foreign Exchange

The BEAC implemented foreign exchange regulation in 2019 that required full repatriation of export earnings and centralizing foreign currency holdings with the BEAC, though extractive industry companies received an exemption through December 2021.

The government does not restrict converting funds associated with an investment (including remittances of investment capital, earnings, loan repayments, lease payments, royalties) into a freely usable currency at legal market-clearing rates. There are currently no restrictions on repatriating these funds, although there are some limits associated with transferring funds. Individuals transferring funds exceeding 1,000 USD must document the source and purpose of the transfer with the local sending bank. Transactions of 10,000 USD or more for individuals and 50,000 USD or more for companies are automatically notified to the COBAC. Companies and individuals transferring more than 800,000 USD out of Chad need BEAC authorization to do so. Authorization may take up to three working days. To request authorization for a transfer, companies and individuals must submit contact information for the sender and recipient, a delivery timetable, and proof of the sender’s identity. Approvals are routine, although the Central Bank has occasionally temporarily restricted capital outflows. Businesses can obtain advance approval for regular money transfers.

Chad is a member of the African Financial Community (CFA) and uses the Central African CFA Franc (FCFA) as its currency. The FCFA is pegged to the Euro at a fixed rate of one Euro to 655.957 FCFA exactly (100 FCFA = 0.152449 Euro). There are no official restrictions on obtaining foreign exchange, but in practice foreign exchange can be difficult to acquire.

Remittance Policies

There are no recent changes to or plans to change investment remittance policies. There are no time limitations on remittances, dividends, returns on investment, interest, and principal on private foreign debt, lease payments, royalties, or management fees.

Chad does not engage in currency manipulation.

Chad is a member state of the Action Group against Money Laundering in Central Africa (GABAC), which is in the process of becoming a Financial Action Task Force (FATF)-style regional body. On the national level, the National Financial Investigation Agency (ANIF) has implemented GABAC recommendations to prevent money laundering and terrorist financing.

Sovereign Wealth Funds

The GOC does not currently maintain a Sovereign Wealth Fund.

All Chadian SOEs operate under the umbrella of government ministries. SOE senior management reports to the minister responsible for the relevant sector, as well as a board of directors and an executive board. The President of the Republic appoints SOE boards of directors, executive boards, and CEOs. The boards of directors give general directives over the year, while the executive boards manage general guidelines set by the boards of directors. Some executive directors consult with their respective ministries before making business decisions.

The GOC operates SOEs in several sectors, including Energy and Environmental Industries; Agribusiness; Construction, Building and Heavy Equipment; and Information and Communication. The percentage SOEs allocate to research and development (R&D) is unknown.

There were no reports of discriminatory action taken by SOEs against the interests of foreign investors in 2020, and some foreign companies operated in direct competition with SOEs. Chad’s Public Tender Code (PTC) provides preferential treatment for domestic competitors, including SOEs.

SOEs are not subject to the same tax burden and tax rebate policies as their private sector competitors and are often afforded material advantages such as preferential access to land and raw materials. SOEs receive government subsidies under the national budget; however, in practice they do not respect the budget. State and company funds are often commingled.

Chad is not a party to the Agreement on Government Procurement within the framework of the WTO. Chadian practices are not consistent with the OECD Guidelines on Corporate Governance for SOEs.

Privatization Program

Foreign investors are permitted and encouraged to participate in the privatization process. There is a public, non-discriminatory bidding process. Having a local contact in Chad to assist with the bidding process is important. To combat corruption, the GOC has recently hired private international companies to oversee the bidding process for government tenders. Despite the GOC’s willingness to privatize loss-making SOEs, there remain several obstacles to privatization.

The Chamber of Commerce submitted a ‘white paper’ (livre blanc) in 2018 with recommendations for the GOC to facilitate and simplify private sector operations, including establishing a Business Observatory and a Presidential Council, which would implement over 70 recommendations to improve the investment climate in Chad. The Presidential Council became operational in January 2021.

Chad is considering privatization in the following sectors:

• Information & Communication (SOTEL Tchad)
• Food Processing & Packaging (the Société Tchadienne de Jus de Fruit (STJF), which produces fruit juice in Doba; and the Société Moderne de Abbatoires (SMA), a slaughterhouse and meat packaging company in Farcha)

Chad has enjoyed political stability since 2008. There have been no reported incidents in recent years involving politically motivated damage to projects and/or installations, including during the 2008 disturbances. President Deby is completing his fifth elected presidential term and is eligible to participate in the next presidential elections, scheduled for April 2021. Socio-economic conditions occasionally spark demonstrations and protests against the Government. In many cases, the government either denied permits for demonstrations or suppressed them using tear gas, arresting participants and organizers. Extended periods of reduced oil revenues add to socioeconomic stress. The spread of the COVID-19 pandemic strains Chad’s limited medical infrastructure and disrupts trade routes with neighboring countries and international air travel.

Regional violent extremist organizations threaten Chadian and Western interests. Boko Haram’s violence has choked off vital trade routes with Nigeria and the road between N’Djamena and Douala, Cameroon, the principal port serving Chad. This has increased costs for imports and decreased exports. Violent extremist organizations may threaten foreign investments along the Lake Chad Basin.

For up-to-date information on political and security conditions in Chad, please refer to the Consular Affairs Bureau’s Travel Warning and Country Specific Information at http://www.travel.state.gov. The Embassy encourages all U.S. Citizens visiting Chad to register with the Embassy upon arrival or online via the STEP program.

U.S. businesses and organizations in Chad are welcome to inquire at the Embassy about joining the Overseas Security Advisory Committee (OSAC).

Please note that the following tables include FDI statistics from three different sources, and therefore will not be identical. Table 2 uses BEA data when available, which measures the stock of FDI by the market value of the investment in the year the investment was made (often referred to as historical value). This approach tends to undervalue the present value of FDI stock because it does not account for inflation. BEA data is not available for all countries, particularly if only a few US firms have direct investments in a country. In such cases, Table 2 uses other sources that typically measure FDI stock in current value (or, historical values adjusted for inflation). Even when Table 2 uses BEA data, Table 3 uses the IMF’s Coordinated Direct Investment Survey (CDIS) to determine the top five sources of FDI in the country. The CDIS measures FDI stock in current value, which means that if the U.S. is one of the top five sources of inward investment, U.S. FDI into the country will be listed in this table. That value will come from the CDIS and therefore will not match the BEA data.

* Source for Host Country Data: N/A.

Table 3: Sources and Destination of FDI
Data not available.

Table 4: Sources of Portfolio Investment
Data not available.

Policies Towards Foreign Direct Investment

For more than four decades, promoting inward FDI has been an essential part of the Chilean government’s national development strategy. The country’s market-oriented economic policy creates significant opportunities for foreign investors to participate. Laws and practices are not discriminatory against foreign investors, who receive treatment similar to Chilean nationals. Chile’s business climate is generally straightforward and transparent, and its policy framework has remained consistent despite developments such as civil unrest in 2019 and the COVID-19 pandemic starting in 2020. However, the permitting process for infrastructure, mining, and energy projects is contentious, especially regarding politically sensitive environmental impact assessments, water rights issues, and indigenous consultations.

InvestChile is the government agency in charge of facilitating the entry and retention of FDI into Chile. It provides services related to investment attraction (information about investment opportunities); pre-investment (sector-specific advisory services, including legal); landing (access to certificates, funds and networks); and after-care (including assistance for exporting and re-investment).

Regarding government-investor dialogue, in May 2018, the Ministry of Economy created the Sustainable Projects Management Office (GPS). This agency provides support to investment projects, both domestic and foreign, serving as a first point of contact with the government and coordinating with different agencies in charge of evaluating investment projects, which aims to help resolve issues that emerge during the permitting process.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign investors have access to all productive activities, except for the domestic maritime freight sector, in which foreign ownership of companies is capped at 49 percent. Maritime transportation between Chilean ports is open since 2019 to foreign cruise vessels with more than 400 passengers. Some international reciprocity restrictions exist for fishing.

Most enterprises in Chile may be 100 percent owned by foreigners. Chile only restricts the right to private ownership or establishment in what it defines as certain “strategic” sectors, such as nuclear energy and mining. The Constitution establishes the “absolute, exclusive, inalienable and permanent domain” of the Chilean state over all mineral, hydrocarbon, and fossil fuel deposits within Chilean territory. However, Chilean law allows the government to grant concession rights and lease agreements to individuals and companies for exploration and exploitation activities, and to assign contracts to private investors, without discrimination against foreign investors.

Chile has not implemented an investment screening mechanism for national security purposes. FDI is subject to pro forma screening by InvestChile. Businesses in general do not consider these screening mechanisms as barriers to investment because approval procedures are expeditious and investments are usually approved. Some transactions require an anti-trust review by the office of the national economic prosecutor (Fiscalía Nacional Económica) and/or sector-specific regulators.

Other Investment Policy Reviews

The World Trade Organization (WTO) has not conducted a Trade Policy Review for Chile since June 2015 (available here: https://www.wto.org/english/tratop_e/tpr_e/tp415_e.htm). The Organization for Economic Co-operation and Development (OECD) has not conducted an Investment Policy Review for Chile since 1997 (available here: http://www.oecd.org/daf/inv/investment-policy/34384328.pdf), and the country is not part of the countries covered to date by the United Nations Conference on Trade and Development’s (UNCTAD) Investment Policy Reviews.

Business Facilitation

The Chilean government took significant steps towards business facilitation during the past decade. Starting in 2018, the government introduced updated electronic and online systems for providing some tax information, complaints related to contract enforcement, and online registration of closed corporations (non-public corporations). In June 2019, the Ministry of Economy launched the Unified System for Permits (SUPER), a new online single-window platform that brings together 182 license and permit procedures, simplifying the process of obtaining permits for investment projects.

According to the World Bank, Chile has one of the shortest and smoothest processes among Latin American and Caribbean countries – 11 procedures and 29 days – to establish a foreign-owned limited liability company (LLC). Drafting statutes of a company and obtaining an authorization number can be done online at the platform https://www.registrodeempresasysociedades.cl/. Electronic signature and invoicing allow foreign investors to register a company, obtain a tax payer ID number and get legal receipts, invoices, credit and debit notes, and accountant registries. A company typically needs to register with Chile’s Internal Revenue Service, obtain a business license from a municipality, and register either with the Institute of Occupational Safety (public) or with one of three private nonprofit entities that provide work-related accident insurance, which is mandatory for employers. In addition to the steps required of a domestic company, a foreign company establishing a subsidiary in Chile must authenticate the parent company’s documents abroad and register the incoming capital with the Central Bank. This procedure, established under Chapter XIV of the Foreign Exchange Regulations, requires a notice of conversion of foreign currency into Chilean pesos when the investment exceeds $10,000 (USD). The registration process at the Registry of Commerce of Santiago is available online.

Outward Investment

The Government of Chile does not have an active policy of promotion or incentives for outward investment, nor does it impose restrictions on it.

Transparency of the Regulatory System

Chile’s legal, regulatory, and accounting systems are transparent and provide clear rules for competition and a level playing field for foreigners. They are consistent with international norms; however, environmental regulations – which include mandatory indigenous consultation required by the International Labor Organization’s Indigenous and Tribal Peoples Convention (ILO 169) – and other permitting processes have become lengthy and unpredictable, especially in politically sensitive cases.

Four institutions play key roles in the rule-making process in Chile: The General-Secretariat of the Presidency (SEGPRES), the Ministry of Finance, the Ministry of Economy, and the General Comptroller of the Republic. However, Chile does not have a regulatory oversight body. Most regulations come from the national government; however, some, in particular those related to land use, are decided at the local level. Both national and local governments are involved in the issuance of environmental permits. Regulatory processes are managed by governmental entities. NGOs and private sector associations may participate in public hearings or comment periods. The OECD’s April 2016 “Regulatory Policy in Chile” report asserts that Chile took steps to improve its rule-making process, but still lags behind the OECD average in assessing the impact of regulations, consulting with outside parties on their design and evaluating them over time.

In Chile, non-listed companies follow norms issued by the Accountants Professional Association, while publicly listed companies use the International Financial Reporting Standards (IFRS). Since January 2018, IFRS 9 entered into force for companies in all sectors except for banking, in which IFRS 15 will be applied. IFRS 16 entered into force in January 2019. On January 12, 2021, Chile’s Financial Market Commission (CMF) published for consultation a regulation to implement the IFRS 17 accounting standards in the Chilean insurance market.

The legislation process in Chile allows for public hearings during discussion of draft bills in both chambers of Congress. Draft bills submitted by the Executive Branch to the Congress are readily available for public comment. Ministries and regulatory agencies are required by law to give notice of proposed regulations, but there is no formal requirement in Chile for consultation with the general public, conducting regulatory impact assessments of proposed regulations, requesting comments, or reporting results of consultations. For lower-level regulations or norms that do not need congressional approval, there are no formal provisions for public hearing or comment. As a result, Chilean regulators and rulemaking bodies normally consult with stakeholders, but in a less formal manner.

All decrees and laws are published in the Diario Oficial (roughly similar to the Federal Register in the United States), but other types of regulations will not necessarily be found there. There are no other centralized online locations where regulations in Chile are published.

According to the OECD, compliance rates in Chile are generally high. The approach to enforcement remains punitive rather than preventive, and regulators still prefer to inspect rather than collaborate with regulated entities on fostering compliance. Each institution with regulation enforcement responsibilities has its own sanction procedures. Law 19.880 from 2003 establishes the principles for reversal and hierarchical recourse against decisions by the administration. An administrative act can be challenged by lodging an action in the ordinary courts of justice, or by administrative means with a petition to the Comptroller General of the Republic. Affected parties may also make a formal appeal to the Constitutional Court against a specific regulation.

Chile still lacks a comprehensive, “whole of government” regulatory reform program. The World Bank´s Global Indicators of Regulatory Governance project finds that Chile is not part of the countries that have improved their regulatory governance framework since 2017.

Chile’s level of fiscal transparency is excellent. Information on the budget and debt obligations, including explicit and contingent liabilities, is easily accessible online.

International Regulatory Considerations

Chile does not share regulatory sovereignty with any regional economic bloc. However, several international norms or standards from multilateral organizations (UN, WIPO, ILO, among others) are referenced or incorporated into the country’s regulatory system. As a member of the WTO, the Chile notifies draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT).

Legal System and Judicial Independence

Chile’s legal system is based on civil law. Chile’s legal and regulatory framework provides for effective means for enforcing property and contractual rights. Laws governing issues of interest to foreign investors are found in several statutes, including the Commercial Code of 1868, the Civil Code, the Labor Code and the General Banking Act. Chile has specialized courts for dealing with tax and labor issues.

The judicial system in Chile is generally transparent and independent. The likelihood of government intervention in court cases is low. If a state-owned firm is involved in the dispute, the Government of Chile may become directly involved through the State Defense Council, which represents the government interests in litigation cases related to expropriations.

Regulations can be challenged before the court system, the National Comptroller, or the Constitutional Court, depending on the nature of the claim.

Laws and Regulations on Foreign Direct Investment

Law 20,848, of 2015, established a new framework for foreign investment in Chile and created the Agency for the Promotion of Foreign Investment (APIE), successor to the former Foreign Investment Committee and which also acts under the name of “InvestChile.” The InvestChile website (https://investchile.gob.cl/) provides relevant laws, rules, procedures, and reporting requirements for investors. For more on FDI regulations and services for foreign investors, see the section on Policies Towards Foreign Direct Investment.

Competition and Antitrust Laws

Chile’s anti-trust law prohibits mergers or acquisitions that would prevent free competition in the industry at issue. An investor may voluntarily seek a ruling by an Anti-trust Court that a planned investment would not have competition implications. The national economic prosecutor (FNE) is an active institution in conducting investigations for competition-related cases and filing complaints before the Free Competition Tribunal (TDLC), which rules on those cases.

In April 2020, Chile’s Supreme Court ruled on a collusion case introduced by the FNE in 2016 and more than doubled sanctions previously decided by the TDLC in 2019. Supermarket chains Walmart, Cencosud, and SMU were fined USD 7.9 million, USD 8.2 million, and USD 4.9 million, respectively. The ruling established that these retailers set up a minimum price accord in the market for fresh poultry.

In March 2020 and March 2021, respectively, after completing separate anti-trust reviews, the FNE cleared a Chinese state-owned enterprise’s acquisitions of two Chilean energy companies. In May 2020, the FNE approved the acquisition of a domestic e-commerce and delivery services digital platformby a U.S. ridesharing technology technology company. In August 2020, the Supreme Court ruled on a collusion case related to maritime transportation of cars into Chile between 2010 and 2013. In April 2019, the TDLC previously applied fines on two Japanese shipping and transport companies. – The Court accepted FNE’s complaint and extended fines to three other Chilean, Japanese, and Korean firms that participated in the agreement. Total fines amount to USD 30.5 million.

In September 2020, the FNE requested fines amounting to USD 4.1 million on a U.S. entertainment company and its subsidiary for failing to provide accurate information and to adopt adequate mitigation measures during the approval process for its acquisition of a U.S. multimedia company.

In December 2020, the FNE approved the merger between Fiat Chrysler Automobiles and Peugeot, provided that some remedies provided by the companies would mitigate the risks to competition in the retail car market.

Expropriation and Compensation

Chilean law grants the government authority to expropriate property, including property of foreign investors, only on public interest or national interest grounds, on a non-discriminatory basis and in accordance with due process. The government has not nationalized a private firm since 1973. Expropriations of private land take place in a transparent manner, and typically only when the purpose is to build roads or other types of infrastructure. The law requires the payment of immediate compensation at fair market value, in addition to any applicable interest.

Dispute Settlement

ICSID Convention and New York Convention

Since 1991, Chile has been a member state to the International Centre for the Settlement of Investment Disputes (ICSID Convention). In 1975, Chile became a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).

National arbitration law in Chile includes the Civil Procedure Code (Law Num. 1552, modified by Law Num. 20.217 of 2007), and the Law Num. 19.971 on International Commercial Arbitration.

Investor-State Dispute Settlement

Apart from the New York Convention, Chile is also a party to the Pan-American Convention on Private International Law (Bustamante Code) since 1934, the Inter-American Convention on International Commercial Arbitration (Panama Convention) since 1976, and the Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States since 1992.

The U.S.-Chile FTA, in force since 2004, includes an investment chapter that provides the right for investors to submit claims under the ICSID Convention, the United Nations Commission on International Trade Law (UNCITRAL) arbitration rules, or any other mutually agreed upon arbitral institution. So far, U.S. investors have filed no claims under the agreement.

Over the past 10 years, there were only two investment dispute cases brought by foreign investors against the state of Chile before the World Bank’s International Center for Settlement of Investment Disputes (ICSID) tribunal. In the first case, a Spanish-Chilean citizen demanded USD 338.3 million in compensation for the expropriation of a Chilean newspaper company in 1975 by Chile’s military regime. Despite an ICSID decision from 2016 in favor of the Chilean state, the claimant requested the nullification of the ruling, which extended the total duration of the case to 22 years. On January 7, 2020, ICSID issued a final ruling in favor of the Chilean state and rejecting the claimant’s case. The second case was brought in 2017 by a Colombian firm, which held concession contracts as operators of Transantiago, the public transportation system in Santiago de Chile. The Columbian firm claimed USD 347 million for Chilean government actions that allegedly created unfavorable operating conditions for the claimants’ subsidiaries and resulted in bankruptcy proceedings. On January 7, 2021, ICSID ruled in favor of the Chilean state, rejecting the claims.

Local courts respect and enforce foreign arbitration awards, and there is no history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

Mediation and binding arbitration exist in Chile as alternative dispute resolution mechanisms. A suit may also be brought in court under expedited procedures involving the abrogation of constitutional rights. The U.S.-Chile FTA investment chapter encourages consultations or negotiations before recourse to dispute settlement mechanisms. If the parties fail to resolve the matter, the investor may submit a claim for arbitration. Provisions in Section C of the FTA ensure that the proceedings are transparent by requiring that all documents submitted to or issued by the tribunal be available to the public, and by stipulating that proceedings be public. The FTA investment chapter establishes clear and specific terms for making proceedings more efficient and avoiding frivolous claims. Chilean law is generally to be applied to all contracts. However, arbitral tribunals decide disputes in accordance with FTA obligations and applicable international law. The tribunal must also accept amicus curiae submissions.

In Chile, the Judiciary Code and the Code of Civil Procedure govern domestic arbitration. Local courts respect and enforce foreign arbitral awards and judgments of foreign courts. Chile has a dual arbitration system in terms of regulation, meaning that different bodies of law govern domestic and international arbitration. International commercial arbitration is governed by the International Commercial Arbitration Act that is modeled on the 1985 UNCITRAL Model Law on International Commercial Arbitration. In addition to this statute, there is also Decree Law Number 2349 that regulates International Contracts for the Public Sector and sets forth a specific legal framework for the State and its entities to submit their disputes to international arbitration.

No Chilean state-owned enterprises (SOEs) have been involved in investment disputes in recent decades. A Chilean government agency filed an arbitration case in February 2021 against a U.S. firm at the International Chamber of Commerce International Court of Arbitration. The case remains pending.

Bankruptcy Regulations

Chile’s Insolvency Law from 1982 was updated in October 2014. The current law aims to clarify and simplify liquidation and reorganization procedures for businesses to prevent criminalizing bankruptcy. It also established the new Superintendence of Insolvency and created specialized insolvency courts. The new insolvency law requires creditors’ approval to select the insolvency representative and to sell debtors’ substantial assets. The creditor also has the right to object to decisions accepting or rejecting creditors’ claims. However, the creditor cannot request information from the insolvency representative. The creditor may file for insolvency of the debtor, but for liquidation purposes only. The creditors are divided into classes for the purposes of voting on the reorganization plan; each class votes separately, and creditors in the same class are treated equally.

Capital Markets and Portfolio Investment

Chile’s authorities are committed to developing capital markets and keeping them open to foreign portfolio investors. Foreign firms offer services in Chile in areas such as financial information, data processing, financial advisory services, portfolio management, voluntary saving plans and pension funds. Under the U.S.-Chile FTA, Chile opened up significantly its insurance sector, with very limited exceptions. The Santiago Stock Exchange is Chile’s dominant stock exchange, and the third largest in Latin America. However, when compared to other OECD countries, it has lower market liquidity.

Existing policies facilitate the free flow of financial resources into Chile’s product and factor markets and adjustment to external shocks in a commodity export-dependent economy. Chile accepted the obligations of Article VIII (sections 2, 3 and 4) and maintains a free-floating exchange rate system, free of restrictions on payments and transfers for current international transactions. Credit is allocated on market terms and its various instruments are available to foreigners. The Central Bank reserves the right to restrict foreign investors’ access to internal credit if a credit shortage exists. To date, this authority has not been exercised.

Money and Banking System

Nearly one fourth of Chileans have a credit card from a bank and nearly one third have a non-bank credit card, but less than 20 percent have a checking account. However, financial inclusion is higher than banking penetration: a large number of lower-income Chilean residents have a CuentaRut, which is a commission-free card with an electronic account available for all, launched by the state-owned Banco Estado, also the largest provider of microcredit in Chile.

The Chilean banking system is healthy and competitive, and many Chilean banks already meet Basel III standards. The new General Banking Act (LGB), published in January 2019, defined general guidelines for establishing a capital adequacy system in line with Basel standards, and gave the CMF the authority to establish the capital framework. All Basel III regulations were published by December 2020. Due to the pandemic, the CMF decided on March 2020 to postpone the implementation of Basel III requirements for one year. The system’s liquidity position (Liquidity Coverage Ratio) remains above regulatory limits (70 percent). Capital adequacy ratio of the system equaled 14.3 percent as of October 2020 and remains robust even when including discounts due to market and/or operational risks. Non-performing loans decreased after August 2020 due to government relief measures for households, including legislation authorizing two rounds of withdrawals from pension accounts. As of December 2020, non-performing loans equaled 1.58 percent compared to 2 percent at the end of 2019) when measured by the standard 90 days past due criterion.

As of December 2020, the total assets of the Chilean banking system amounted to USD 454.3 billion, according to the Superintendence of Banks and Financial Institutions. The largest six banks (Banco de Crédito e Inversiones, Banco Santander-Chile, Banco Estado, Banco de Chile, Scotiabank Chile and Itaú-Corpbanca) accounted for 88 percent of the system’s assets. Chile’s Central Bank conducts the country’s monetary policy, is constitutionally autonomous from the government, and is not subject to regulation by the Superintendence of Banks.

Foreign banks have an important presence in Chile, comprising three out of the six largest banks of the system. Out of 18 banks currently in Chile, five are foreign-owned but legally established banks in Chile and four are branches of foreign banks. Both categories are subject to the requirements set out under the Chilean banking law. There are also 21 representative offices of foreign banks in Chile. There are no reports of correspondent banking relationships withdrawal in Chile.

In order to open a bank account in Chile, a foreigner must present his/her Chilean ID Card or passport, Chilean tax ID number, proof of address, proof of income/solvency, photo, and fingerprints.

Foreign Exchange and Remittances

Foreign Exchange

Law 20.848, which regulates FDI (described in section 1), prohibits arbitrary discrimination against foreign investors and guarantees access to the formal foreign exchange market, as well as the free remittance of capital and profits generated by investments. There are no other restrictions or limitations placed on foreign investors for the conversion, transfer or remittance of funds associated with an investment.

Investors, importers, and others are guaranteed access to foreign exchange in the official inter-bank currency market without restriction. The Central Bank of Chile (CBC) reserves the right to deny access to the inter-bank currency market for royalty payments in excess of five percent of sales. The same restriction applies to payments for the use of patents that exceed five percent of sales. In such cases, firms would have access to the informal market. The Chilean tax service reserves the right to prevent royalties of over five percent of sales from being counted as expenses for domestic tax purposes.

Chile has a free floating (flexible) exchange rate system. Exchange rates of foreign currencies are fully determined by the market. The CBC reserves the right to intervene under exceptional circumstances to correct significant deviations of the currency from its fundamentals. This authority was used in 2019 following an unusual 20.5 percent depreciation of the Chilean peso (CLP) after six weeks of civil unrest, an unprecedented circumstance that triggered a similarly unusual USD 20 billion intervention (half of the CBC foreign currency reserves) that successfully arrested the currency slide.

Remittance Policies

Remittances of profits generated by investments are allowed at any time after tax obligations are fulfilled; remittances of capital can be made after one year following the date of entry into the country. In practice, this permanency requirement does not constitute a restriction for productive investment, because projects normally need more than one year to mature. Under the investment chapter of the U.S.–Chile FTA, the parties must allow free transfer and without delay of covered investments into and out of its territory. These include transfers of profits, royalties, sales proceeds, and other remittances related to the investment. However, for certain types of short-term capital flows this chapter allows Chile to impose transfer restrictions for up to 12 months as long as those restrictions do not substantially impede transfers. If restrictions are found to impede transfers substantially, damages accrue from the date of the initiation of the measure. In practice, these restrictions have not been applied in the last two decades.

Sovereign Wealth Funds

The Government of Chile maintains two sovereign wealth funds (SWFs) built with savings from years with fiscal surpluses. The Economic and Social Stabilization Fund (FEES) was established in 2007 and was valued at USD 8.7 billion as of February 2021. The purpose of the FEES is to fund public debt payments and temporary deficit spending, in order to keep a countercyclical fiscal policy. The Pensions Reserve Fund (FRP) was built up in 2006 and amounted to USD 10.1 billion as of February 2021. The purpose of the FRP is to anticipate future needs of payments to those eligible to receive pensions, but whose contributions to the private pension system fall below a minimum threshold.

Chile is a member of the International Working Group of Sovereign Wealth Funds (IWG) and adheres to the Santiago Principles.

Chile’s government policy is to invest SWFs entirely abroad into instruments denominated in foreign currencies, including sovereign bonds and related instruments, corporate and high-yield bonds, mortgage-backed securities from U.S. agencies, and stocks.

Chile had 29 state-owned enterprises (SOEs) in operation as of 2019. Twenty-eight SOEs are commercial companies and the newest one (FOINSA) is an infrastructure fund that was created to facilitate public-private partnership projects. 26 SOEs are not listed and are fully owned by the government, while the remaining three are majority government owned. Ten Chilean SOEs operate in the port management sector, seven in the services sector, three in the defense sector, three in the mining sector (including CODELCO, the world’s largest copper producer, and ENAP, an oil and gas company), two in transportation, one in the water sector, one is a TV station, and one is a state-owned bank (Banco Estado). The state holds a minority stake in four water companies as a result of a privatization process. In 2019, total assets of Chilean SOEs amounted to USD 74.2 billion, while their total net income was USD 556.7 million. SOEs employed 50,208 people in 2019.

Twenty SOEs in Chile fall under the supervision of the Public Enterprises System (SEP), a state holding in charge of overseeing SOE governance. The rest – including the largest SOEs such as CODELCO, ENAP and Banco Estado – have their own governance and report to government ministries. Allocation of seats on the boards of Chilean SOEs is determined by the SEP, as described above, or outlined by the laws that regulate them. In CODELCO’s corporate governance, there is a mix between seats appointed by recommendation from an independent high-level civil service committee, and seats allocated by political authorities in the government.

A list of SOEs made by the Budget Directorate, including their financial management information, is available in the following link: http://www.dipres.gob.cl/599/w3-propertyvalue-20890.html.

In general, Chilean SOEs work under hard budget constraints and compete under the same regulatory and tax frameworks as private firms. The exception is ENAP, which is the only company allowed to refine oil in Chile. As an OECD member, Chile adheres to the OECD Guidelines on Corporate Governance for SOEs.

Privatization Program

Chile does not have a privatization program.

Pursuant to a political accord in response to the 2019 civil unrest, Chile held a plebiscite in October 2020 in which citizens voted to draft a new constitution. The process to create and ratify the new constitution will begin in 2021 and continue until at least mid-2022. Uncertainty over what changes could be made to Chile’s political and regulatory environment could negatively impact investor confidence. Importantly, the legislation enabling the constitutional reform process requires that the new constitution must respect Chile’s character as a democratic republic, its judicial sentences, and its international treaties (including the U.S.-Chile Free Trade Agreement). The coronavirus pandemic and government measures led to a reduction of vandalism and attacks on businesses that began in 2019.

Prior to 2019, there were generally a few incidents of politically motivated attacks on investment projects or installations with the exception of the southern Araucania region and its neighboring Arauco province in the southwest of Bio-Bio region. This area, home to nearly half a million indigenous inhabitants, has seen a growing trend of politically motivated violence and organized criminal activity. Land claims and conflicts with forestry companies are the main grievances underneath the radicalization of a relatively small number of indigenous Mapuche communities, which has led to the rise of organized groups that pursue their demands by violent means. Incidents include arson attacks on churches, farms, forestry plantations, forestry contractors’ machinery and vehicles, and private vehicles, as well as occupation of private lands, resulting in over a half-dozen deaths (including some by police forces), injuries, and damage to property. The indigenous issue has been further politicized due to anger among landowners, forestry transport contractors, and farmers affected by violence, as well as the illegal killing of a young Mapuche activist by special police forces in 2018 and the controversy over accusations of fraud by the police during the investigation of indigenous organized groups. In March 2020, a truck driver died in an arson attack on his vehicle.

Since 2007, Chile has experienced a number of small-scale attacks with explosive and incendiary devices, targeting mostly banks, police stations, and public spaces throughout Santiago, including ATM’s, metro stations, universities, and churches. Anarchist groups often claim responsibility for these acts, as well as violent incidents during student and labor protests. In January 2017, an eco-terrorist group claimed responsibility for a parcel bomb that detonated at the home of the chairman of the board of Chilean state-owned mining giant. The same group detonated a bomb of similar characteristics in 2019 at a bus stop in downtown Santiago, causing five injuries, and sent a letter bomb to the office of the president of the Metro system, which was defused by police. One suspect was arrested in 2019 and the investigation of the crimes is ongoing. Another group sent a package bombs to a police station in the Santiago metro area, wounding 8 police officers, and to a former Interior Minister, which was defused by police. Two suspects were arrested in 2020, and the investigation remains ongoing at the time of this report.

On occasion, illegal activity by striking workers resulted in damage to corporate property or a disruption of operations. Some firms have publicly expressed concern that during a contentious strike, law enforcement has appeared to be reluctant to protect private property.

Chilean civil society is active and demonstrations occur frequently. Although the vast majority of demonstrations are peaceful, protestors have veered off pre-approved routes. In a few instances, criminal elements have taken advantage of civil society protests to loot stores along the protest route and have clashed with the police. Demonstrations to mark March 29, the Day of the Young Combatant, and September 11, the anniversary of the 1973 coup against the government of President Salvador Allende, have resulted in damage to property.

* Source for Host Country Data: Central Bank of Chile.

According to the IMF’s Coordinated Direct Investment Survey (CDIS), total stock of FDI in Chile in 2019 amounted to USD 254.3 billion, compared to USD 251.9 billion in 2018. Spain, the United States and Canada are the main sources of FDI to Chile with USD 34.5 billion, USD 34.4 billion and USD 34.2 billion, respectively, concentrating 40.6 percent of the total.

Chile’s outward direct investment stock in 2019 remains concentrated in South America, where Brazil, Peru, Argentina and Colombia together represented 33.4 percent of total Chilean outward FDI. The United States accounted for 9.2 percent of the total.

The data below is consistent with host country statistics. Although not included in the table below, tax havens are relevant sources of inward FDI to Chile, with the Cayman Islands and Bermuda ranking sixth and eighth in inbound sources of FDI, respectively, according to the Central Bank of Chile. The British Virgin Islands and Panama rank sixth and seventh, respectively, among Chile´s main outward FDI destinations.

According to the IMF’s Coordinated Portfolio Investment Survey (CPIS), total stock of portfolio investment in Chile as of June 2020 amounted to USD 192.1 billion, of which USD 149.9 billion were equity and investment funds shares, and the rest were debt securities. The United States and Luxembourg (a tax haven) were the main sources of portfolio investment to Chile with US $69.3 billion and $54.3 billion, representing 36.1 percent and 28.3 percent of the total, respectively. Both countries also represent 68 percent of the total of equity investment. Ireland, the United Kingdom and Germany are the following top sources of equity portfolio investment to Chile, while the United States, Mexico and Japan are the top sources of debt securities investment.

FDI has historically played an essential role in China’s economic development. Chinese government officials have prioritized promoting relatively friendly FDI policies promising market access expansion and non-discriminatory, “national treatment” for foreign enterprises through general improvements to the business environment.  They also have made efforts to strengthen China’s regulatory framework to enhance broader market-based competition.

In 2020, China issued an updated nationwide “negative list” that made some modest openings to foreign investment, most notably in the financial sector, and promised future improvements to the investment climate through the implementation of China’s new FIL.  MOFCOM reported FDI flows grew by 4.5 percent year-on-year, reaching USD144 billion.  In 2020, U.S. businesses expressed concern over China’s COVID-19 restrictive travel restrictions, excessive cyber security and personal data-related requirements, increased emphasis on the role of CCP cells in foreign enterprises, and an unreliable legal system.  See the following: HYPERLINK “https://www.amchamchina.org/white_paper/2020-american-business-in-china-white-paper/” t “_blank” American Chamber of Commerce China 2020 American Business in China White Paper

• American Chamber of Commerce China 2020 American Business in China White Paper
• American Chamber of Commerce China 2020 Business Climate Survey

Limits on Foreign Control and Right to Private Ownership and Establishment

Entry into the Chinese market is regulated by the country’s “negative lists,” which identify the sectors in which foreign investment is restricted or prohibited, and a catalogue for encouraged foreign investment, which identifies the sectors in which the government encourages investment.

• (the “FTZ Negative List”) used in China’s 20 FTZs and one free trade port.
• (̈the “Nationwide Negative List”) came into effect on June 23, 2020.
•  released on December 27, 2020.  The PRC uses this list to encourage FDI inflows to key sectors, in particular semiconductors and other high-tech industries, to help China achieve MIC 2025 objectives.
• The “Encouraged list” is subdivided into a cross-sector nationwide catalogue and a separate catalogue for western and central regions, China’s least developed regions.

MOFCOM and NDRC also released on September 16 the annual  Market Access Negative List  to guide FDI. This negative list – unlike the previous lists that apply only to foreign investors – defines prohibitions and restrictions for all investors, foreign and domestic.  Launched in 2016, this list highlights what economic sectors are only open to state-owned investors.  In restricted industries, foreign investors face equity caps or joint venture requirements to ensure control is maintained by a Chinese national and enterprise.  Due to these requirements, foreign investors often feel compelled to enter into partnerships that require transfer of technology in order to participate in China’s market.  Foreign investors report fearing government retaliation if they publicly raise instances of technology coercion.

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

• Preschool to higher education institutes require a Chinese partner with a dominant role.
• Establishment of medical institutions require a Chinese JV partner.

Examples of foreign investment sectors requiring Chinese control include:

• Selective breeding and seed production for new varieties of wheat and corn.
• Basic telecommunication services and radio/television market research.

The 2020 negative lists made minor modifications to some industries, reducing the number of restrictions and prohibitions from 40 to 33 in the nationwide negative list, and from 37 to 30 in China’s pilot FTZs. Notable changes included openings in the services sector, yet most of these openings had previously been announced in 2019. In the service sector, the lists codified the removal of equity caps in financial services, eliminated requirements for investing in water and sewage systems for any city of half a million residents or fewer, and scrapped the ban on foreign investment in air traffic control.  While U.S. businesses welcomed market openings, foreign investors remained underwhelmed and disappointed by Chinese government’s lack of ambition and refusal to provide more significant liberalization.  Foreign investors noted these announced measures occurred mainly in industries that domestic Chinese companies already dominate.

Other Investment Policy Reviews

China is not a member of the Organization for Economic Co-Operation and Development (OECD), but the OECD Council established a country program of dialogue and co-operation with China in October 1995.  The OECD completed its most recent investment policy review for China in 2008 and published an update in 2013.

China’s 2001 accession to the World Trade Organization (WTO) boosted China’s economic growth and advanced its legal and governmental reforms.  The WTO completed its most recent investment trade review for China in 2018, highlighting that China remains a major destination for FDI inflows and a key market for multinational companies.

In 2020, China improved its rating in the World Bank’s Ease of Doing Business Survey to 31st place out of 190 economies.  This was partly due to regulatory reforms that helped streamline some business processes. This ranking does not account, however, for major challenges U.S. businesses face in China like IPR violations and market access.  Moreover, China’s ranking is based on data limited only to the business environments in Beijing and Shanghai.    HYPERLINK “https://www.doingbusiness.org/en/rankings?region=east-asia-and-pacific” t “_blank” World Bank Ease of Doing Business

• World Bank Ease of Doing Business

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

 Outward Investment

Since 2001, China has pursued a “going-out” investment policy.  At first, the PRC mainly encouraged SOEs to invest overseas but in recent years, China’s overseas investments have diversified with both state and private enterprises investing in nearly all industries and economic sectors.  While China remains a major global investor, total outbound direct investment (ODI) flows fell 4.3 percent year-on-year in 2019 to USD136.9 billion, according to 2019 Statistical Bulletin of China’s Outward Foreign Director Investment .

The Chinese government also created “encouraged,” “restricted,” and “prohibited” outbound investment categories to suppress significant capital outflow pressure in 2016 and to guide Chinese investors into “more” strategic sectors. While the Sensitive Industrial-Specified Catalogue of 2018  restricted Chinese outbound investment in sectors like property, cinemas, sports teams and non-entity investment platforms, they encouraged outbound investment in sectors that supported China’s industrial policy by acquiring advanced manufacturing and high-tech assets.  Chinese firms involved in MIC 2025 sectors often receive preferential government financing and subsidies for outbound investment.  The guidance also encourages investments that promoted China’s Belt and Road Initiative (BRI), which seeks to create cooperation agreements with other countries via infrastructure investment, construction projects, etc.

Transparency of the Regulatory System

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

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

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

International Regulatory Considerations

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

Legal System and Judicial Independence

The Chinese legal system borrows heavily from continental European legal systems, but with “Chinese characteristics.”  The rules governing commercial activities are found in various laws, regulations, administrative rules, and Supreme People’s Court (SPC) judicial interpretations, among other sources. While China does not have specialized commercial courts, it has created specialized courts and tribunals for the hearing of intellectual property disputes (IP), including in Beijing, Guangzhou, Shanghai, and Hainan.  In 2020, the original IP Courts continued to be popular destinations for both Chinese and foreign-related IP civil and administrative litigation, with the IP court in Shanghai experiencing a year-on-year increase of above 100 percent. China’s constitution and laws, however, are clear that Chinese courts cannot exercise power independent of the Party.  Further, in practice, influential businesses, local governments, and regulators routinely influence courts.  U.S. companies may hesitate in challenging administrative decisions or bringing commercial disputes before local courts due to perceptions of futility or fear of government retaliation.

Laws and Regulations on Foreign Direct Investment

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

In December 2020, China also issued a revised investment screening mechanism under the Rules on Security Reviews on Foreign Investments without any period for public comment or prior consultation with the business community. Foreign investors complained that China’s new rules on investment screening were expansive in scope, lacked an investment threshold to trigger a review, and included green field investments – unlike most other countries. Moreover, new guidance on Neutralizing Extra-Territorial Application of Unjustified Foreign Legislation Measures, a measure often compared to “blocking statutes” from other markets, added to foreign investors’ concerns over the legal challenges they would face in trying to abide by both their host-country’s regulations and China’s. Foreign investors complained that market access in China was increasingly undermined by national security-related legislation. In 2020, the State Council and various central and local government agencies issued over 1000 substantive administrative regulations and departmental/local rules on foreign investment. While not comprehensive, a list of published and official Chinese laws and regulations is available here .

FDI Requirements for Investment Approvals

Foreign investments in industries and economic sectors that are not explicitly restricted on China’s negative lists do not require MOFCOM pre-approval.  However, investors have complained that in practice, investing in an industry not on the negative list does not guarantee a foreign investor “national treatment,” or treatment no less favorable than treatment accorded to a similarly situated domestic investor.  Foreign investors must still comply with other steps and approvals such as receiving land rights, business licenses, and other necessary permits.  When a foreign investment needs ratification from the NDRC or a local development and reform commission, that administrative body is in charge of assessing the project’s compliance with a panoply of Chinese laws and regulations.  In some cases, NDRC also solicits the opinions of relevant Chinese industrial regulators and consulting agencies acting on behalf of Chinese domestic firms, creating potential conflicts of interest disadvantageous to foreign firms.

The Anti-Monopoly Bureau of the SAMR enforces China’s Anti-Monopoly Law (AML) and oversees competition issues at the central and provincial levels.  The agency reviews mergers and acquisitions, and investigates cartel and other anticompetitive agreements, abuse of a dominant market position, and abuse of administrative powers by government agencies.  SAMR also oversees the Fair Competition Review System (FCRS), which requires government agencies to conduct a review prior to issuing new and revising existing laws, regulations, and guidelines to ensure such measures do not inhibit competition. SAMR issues implementation guidelines and antitrust provisions to fill in gaps in the AML, address new trends in China’s market, and help foster transparency in enforcement. Generally, SAMR has sought public comment on proposed measures, although comment periods are sometimes less than 30 days.

In January 2020, SAMR published draft amendments to the AML for comment, which included, among other changes, stepped-up fines for AML violations and specified the factors to consider in determining whether an undertaking in the Internet sector has a dominant market position, when investigating the undertaking for abuse of market dominance. SAMR also issued four sets of AML guidelines. These guidelines addressed leniency in horizontal monopoly agreements, undertakings’ commitments to resolve Anti-Monopoly cases, the application of AML to the automobile industry, and the application of the AML to intellectual property rights. In February 2021, SAMR published (after public comment) the “Antitrust Guidelines for the Platform Economy.” The Guidelines address monopolistic behaviors of online platforms operating in China, most notably exclusionary agreements and abuses of a dominant market position. Contacts predicted the Guidelines would lead to an uptick in SAMR investigations of online platform behavior, particularly around M&A and variable interest entities.

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

Expropriation and Compensation

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

Dispute Settlement

ICSID Convention and New York Convention

China is a contracting state to the Convention on the Settlement of Investment Disputes (ICSID Convention) and has ratified the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention).  Chinese legislation that provides for enforcement of foreign arbitral awards related to these two Conventions includes the Arbitration Law, the Civil Procedure Law, and other laws with similar provisions that have embraced many of the fundamental principles of the United Nations Commission on International Trade Law’s Model Law on International Commercial Arbitration.

Investor-State Dispute Settlement (ISDS)

Initially, China was disinclined to accept ISDS as a method to resolve investment disputes based on its suspicions of international law and arbitration, as well as its emphasis on state sovereignty. China’s early BITs, such as the 1982 China–Sweden BIT, only included state–state dispute settlement. As China has become a capital exporter under its initiative of “Going Global” and infrastructure investments under BRI, its views on ISDS have shifted to allow foreign investors with unobstructed access to international arbitration to resolve any investment dispute that cannot be amicably settled within six months. Chinese investors did not use ISDS mechanisms until 2007, and the first known ISDS case against China was initiated in 2011 by Malaysian investors. China submitted a proposal on ISDS reform to the United Nations Commission on International Trade Law (UNCITRAL) Working Group III in 2019. Under the proposal, China reaffirmed its commitment to ISDS as an important mechanism for resolving investor-state disputes under public international law. However, it suggested various pathways for ISDS reform, including supporting the study of a permanent appellate body.

International Commercial Arbitration and Foreign Courts

Chinese officials typically urge private parties to resolve commercial disputes through informal mediation.  If formal mediation is necessary, Chinese parties and the authorities typically prefer arbitration to litigation.  Many contract disputes require arbitration by the Beijing-based China International Economic and Trade Arbitration Commission (CIETAC).  Established by the State Council in 1956 under the auspices of the China Council for the Promotion of International Trade (CCPIT), CIETAC is China’s most widely utilized arbitral body for foreign-related disputes.  Some foreign parties have obtained favorable rulings from CIETAC, while others have questioned CIETAC’s fairness and effectiveness.  Besides CIETAC, there are also provincial and municipal arbitration commissions.  A foreign party may also seek arbitration in some instances from an offshore commission.  Foreign companies often encounter challenges in enforcing arbitration decisions issued by Chinese and foreign arbitration bodies.  In these instances, foreign investors may appeal to higher courts.  The Chinese government and judicial bodies do not maintain a public record of investment disputes.  The SPC maintains an annual count of the number of cases involving foreigners but does not provide details about the cases.

In 2018, the SPC established the China International Commercial Court (CICC) to adjudicate international commercial cases, especially cases related to BRI. The CICC has established three locations in Shenzhen, Xi’an, and Suzhou. As of June 2020, the courts have accepted a total of 213 international commercial cases, with most cases filed in Suzhou. Despite its international orientation, CIIC’s 16 judges are all PRC citizens and Mandarin Chinese is the court’s working language. Parties to a dispute before the CICC can only be represented by Chinese law-qualified lawyers, as foreign lawyers do not have a right of audience in Chinese courts; and unlike other international courts, foreign judges are not permitted to be part of the proceedings. Judgments of the CICC, given it is a part of the SPC, cannot be appealed from, but are subject to possible “retrial” under the Civil Procedure Law.

China has bilateral agreements with 27 countries on the recognition and enforcement of foreign court judgments, but not with the United States. Under Chinese law, local courts must prioritize the Party’s needs, China’s laws and other regulatory measures above foreign court judgments.

Bankruptcy Regulations

China introduced formal bankruptcy laws in 2007, under the Enterprise Bankruptcy Law (EBL), which applies to all companies incorporated under Chinese laws and subject to Chinese regulations.  After a decade of heavy borrowing, China’s growth has slowed and forced the government to make needed bankruptcy reforms. China now has more than 90 U.S.-style specialized bankruptcy courts. In 2020 the government added new courts in Nanjing, Suzhou, Jinan, Qingdao and Xiamen.  Court-appointed administrators – law firms and accounting firms that help verify claims, organize creditors’ meetings, list, and sell assets online – look to handle more cases and process them faster.  China’s SPC recorded over 19,000 liquidation and bankruptcy cases in 2019, double the number of cases in 2017.  National data is unavailable for 2020, but local courts have released some information that suggest an over 40 percent increase in liquidation and bankruptcy cases in cities such as Shanghai and Shandong. While Chinese authorities are taking steps to address mounting corporate debt and are gradually allowing some companies to fail, companies generally avoid pursing bankruptcy because of the potential for local government interference and fear of losing control over the bankruptcy outcome. According to experts, Chinese courts not only lack the resources and capacity to handle bankruptcy cases, but bankruptcy administrators, clerks, and judges lack relevant experience.

In May 2020, China released the Civil Code, one of the most important set of contract and property rights rules that will have a direct impact to upcoming amendments to China’s bankruptcy laws, especially the EBL. The National People’s Congress (NPC) has listed amendments to the EBL as the top work priority for 2021. In August 2020, Shenzhen released the Personal Bankruptcy Regulations of Shenzhen Special Economic Zone, to take effect on March 1, 2021. This is China’s first regulation on personal bankruptcy.

Capital Markets and Portfolio Investment

China’s leadership has stated that it seeks to build a modern, highly developed, and multi-tiered capital market.  Since their founding over three decades ago, the Shanghai and Shenzhen Exchanges, combined, are ranked the third largest stock market in the world with over USD11 trillion in assets, according to statistics from World Federation of Exchanges.  China’s bond market has similarly expanded significantly to become the second largest worldwide, totaling approximately USD17 trillion.  In 2020, China fulfilled its promises to open certain financial sectors such as securities, asset management, and life insurance. Direct investment by private equity and venture capital firms has increased but has also faced setbacks due to China’s capital controls, which obfuscate the repatriation of returns. As of 2020, 54 sovereign entities and private sector firms, including BMW and Xiaomi Corporation, have since issued roughly USD41 billion in “Panda Bonds,” Chinese renminbi (RMB)-denominated debt issued by foreign entities in China.  China’s private sector can also access credit via bank loans, bond issuance, trust products, and wealth management. However, the vast majority of bank credit is disbursed to state-owned firms, largely due to distortions in China’s banking sector that have incentivized lending to state-affiliated entities over their private sector counterparts.  China has been an IMF Article VIII member since 1996 and generally refrains from restrictions on payments and transfers for current international transactions.  However, the government has used administrative and preferential policies to encourage credit allocation towards national priorities, such as infrastructure investments.

Money and Banking System

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

The CBIRC oversees China’s 4,607 lending institutions, about USD49 trillion in total assets.  China’s “Big Five” – Agricultural Bank of China, Bank of China, Bank of Communications, China Construction Bank, and Industrial and Commercial Bank of China – dominate the sector and are largely stable, but over the past year, China has experienced regional pockets of banking stress, especially among smaller lenders.  Reflecting the level of weakness among these banks, in November 2020, the PBOC announced in “China Financial Stability Report 2020” that 12.4 percent of the 4400 banking financial institutions received a “fail” rating (high risk) following an industry-wide review in 2019.  The assessment deemed 378 firms, all small and medium sized rural financial institutions, “extremely risky.”  The official rate of non-performing loans among China’s banks is relatively low: 1.92 percent as of the end of 2020.  However, analysts believed the actual figure may be significantly higher.  Bank loans continue to provide the majority of credit options (reportedly around 60.2 percent in 2020) for Chinese companies, although other sources of capital, such as corporate bonds, equity financing, and private equity are quickly expanding in scope, reach, and sophistication in China.

As part of a broad campaign to reduce debt and financial risk, Chinese regulators have implemented measures to rein in the rapid growth of China’s “shadow banking” sector, which includes wealth management and trust products.  These measures have achieved positive results. In December 2020, CBIRC published the first “Shadow Banking Report,” and claimed that the size of China’s shadow banking had shrunk sharply since 2017 when China started tightening the sector. By the end of 2019, the size of China’s shadow banking by broad measurement dropped to 84.8 trillion yuan from the peak of 100.4 trillion yuan in early 2017. Shadow banking to GDP ratio had also dropped to 86 percent at the end of 2019, yet the report did not provide statistics beyond 2019. Foreign owned banks can now establish wholly-owned banks and branches in China, however, onerous licensing requirements and an industry dominated by local players, have limited foreign banks market penetration. Foreigners are eligible to open a bank account in China but are required to present a passport and/or Chinese government issued identification.

Foreign Exchange and Remittances

Foreign Exchange

While the central bank’s official position is that companies with proper documentation should be able to freely conduct business, in practice, companies have reported challenges and delays in obtaining approvals for foreign currency transactions by sub-national regulatory branches. Chinese authorities instituted strict capital control measures in 2016, when China recorded a surge in capital flight.  China has since announced that it would gradually reduce those controls, but market analysts expect they would be re-imposed if capital outflows accelerate again. Chinese foreign exchange rules cap the maximum amount of RMB individuals are allowed to convert into other currencies at approximately USD50,000 each year and restrict them from directly transferring RMB abroad without prior approval from the State Administration of Foreign Exchange (SAFE).  SAFE has not reduced the USD50,000 quota, but during periods of higher-than-normal capital outflows, banks are reportedly instructed by SAFE to increase scrutiny over individuals’ requests for foreign currency and to require additional paperwork clarifying the intended use of the funds, with the intent of slowing capital outflows. China’s exchange rate regime is managed within a band that allows the currency to rise or fall by 2 percent per day from the “reference rate” set each morning.

Remittance Policies

According to China’s FIL, as of January 1, 2020, funds associated with any forms of investment, including profits, capital gains, returns from asset disposal, IPR loyalties, compensation, and liquidation proceeds, may be freely converted into any world currency for remittance. Based on the “2020 Guidance for Foreign Exchange Business under the Current Account” released by SAFE in August, firms do not need any supportive documents or proof that it is under USD50,000. For remittances over USD50,000, firms need to submit supportive documents and taxation records.  Under Chinese law, FIEs do not need pre-approval to open foreign exchange accounts and are allowed to retain income as foreign exchange or convert it into RMB without quota requirements. The remittance of profits and dividends by FIEs is not subject to time limitations, but FIEs need to submit a series of documents to designated banks for review and approval.  The review period is not fixed and is frequently completed within one or two working days of the submission of complete documents.  For remittance of interest and principal on private foreign debt, firms must submit an application, a foreign debt agreement, and the notice on repayment of the principal and interest.  Banks will then check if the repayment volume is within the repayable principal.  There are no specific rules on the remittance of royalties and management fees. Based on guidance for remittance of royalties and management fees, firms shall submit relevant contracts and invoice.  In October 2020, SAFE cut the reserve requirement for foreign currency transactions from 20 percent to zero, reducing the cost of foreign currency transactions as well as easing Renminbi appreciation pressure.

Sovereign Wealth Funds

China officially has only one sovereign wealth fund (SWF), the China Investment Corporation (CIC), which was launched in 2007 to help diversify China’s foreign exchange reserves. CIC is ranked the second largest SWF by total assets by Sovereign Wealth Fund Institute (SWFI). With USD200 billion in initial registered capital, CIC manages over USD1.04 trillion in assets as of 2020 and invests on a 10-year time horizon.  CIC has since evolved into three subsidiaries:

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

China also operates other funds that function in part like sovereign wealth funds, including: China’s National Social Security Fund, with an estimated USD372 billion in assets; the China-Africa Development Fund (solely funded by the China Development Bank), with an estimated USD10 billion in assets; the SAFE Investment Company, with an estimated USD417.8 billion in assets; and China’s state-owned Silk Road Fund, established in December 2014 with USD40 billion in assets to foster investment in BRI partner countries.  Chinese state-run funds do not report the percentage of their assets that are invested domestically.  However, Chinese state-run funds follow the voluntary code of good practices known as the Santiago Principles and participate in the IMF-hosted International Working Group on SWFs. While CIC affirms that they do not have any formal government guidance to invest funds consistent with industrial policies or designated projects, CIC is still expected to pursue government objectives.

China has approximately 150,000 wholly-owned SOEs, of which 50,000 are owned by the central government, and the remainder by local or provincial governments.  SOEs, both central and local, account for 30 to 40 percent of total gross domestic product (GDP) and about 20 percent of China’s total employment.  Non-financial SOE assets totaled roughly USD30 trillion.  SOEs can be found in all sectors of the economy, from tourism to heavy industries.  State funds are spread throughout the economy and the state may also be the majority or controlling shareholder in an ostensibly private enterprise.  China’s leading SOEs benefit from preferential government policies aimed at developing bigger and stronger “national champions.” SOEs enjoy favored access to essential economic inputs (land, hydrocarbons, finance, telecoms, and electricity) and exercise considerable power in markets like steel and minerals.  SOEs have long enjoyed preferential access to credit and the ability to issue publicly traded equity and debt.  A comprehensive, published list of all Chinese SOEs does not exist.

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

Privatization Program

Since 2013, the PRC government has periodically announced reforms to SOEs that included selling SOE shares to outside investors or a mixed ownership model, in which private companies invest in SOEs and outside managers are hired.  The government has tried these approaches to improve SOE management structures, emphasize the use of financial benchmarks, and gradually infuse private capital into some sectors traditionally monopolized by SOEs like energy, finance, and telecommunications.  In practice, however, reforms have been gradual, as the PRC government has struggled to implement its SOE reform vision and often preferred to utilize a SOE consolidation approach.  Recently, Xi and other senior leaders have increasingly focused reform efforts on strengthening the role of the state as an investor or owner of capital, instead of the old SOE model in which the state was more directly involved in managing operations.

Foreign companies operating in China face a low risk of political violence.  However, the ongoing PRC crackdown on virtually all opposition voices in Hong Kong and continued attempts by PRC organs to intimidate Hong Kong’s judges threatens the judicial independence of Hong Kong’s courts – a fundamental pillar for Hong Kong’s status as an international hub for investment into and out of China.  The CCP also punished companies that expressed support for Hong Kong protesters – most notably, a Chinese boycott of the U.S. National Basketball Association after one team’s general manager expressed his personal view supporting Hong Kong protesters. Apart from Hong Kong, the PRC government has also previously encouraged protests or boycotts of products from countries like the United States, South Korea, Japan, Norway, Canada, and the Philippines, in retaliation for unrelated policy decisions such as the boycott campaigns against Korean retailer Lotte in 2016 and 2017 in response to the South Korean government’s decision to deploy the Terminal High Altitude Area Defense (THAAD); and the PRC’s retaliation against Canadian companies and citizens for Canada’s arrest of Huawei’s Chief Financial Officer Meng Wanzhou. PRC authorities also have broad authority to prohibit travelers from leaving China and have imposed “exit bans” to compel U.S. citizens to resolve business disputes, force settlement of court orders, or facilitate PRC investigations. U.S. citizens, including children, not directly involved in legal proceedings or wrongdoing have also been subject to lengthy exit bans in order to compel family members or colleagues to cooperate with Chinese courts or investigations. Exit bans are often issued without notification to the foreign citizen or without clear legal recourse to appeal the exit ban decision.     11. Labor Policies and Practices

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

* Source for Host Country Data:

Table 3: Sources and Destination of FDI

Table 4: Sources of Portfolio Investment

Policies Towards Foreign Direct Investment

The Colombian government actively encourages foreign direct investment (FDI). The economic liberalization reforms of the early 1990s provided for national treatment of foreign investors, lifted controls on remittance of profits and capital, and allowed foreign investment in most sectors. Colombia imposes the same investment restrictions on foreign investors that it does on national investors. Generally, foreign investors may participate in the privatization of state-owned enterprises without restrictions. All FDI involving the establishment of a commercial presence in Colombia requires registration with the Superintendence of Corporations and the local chamber of commerce. All conditions being equal during tender processes, national offers are preferred over foreign offers. Assuming equal conditions among foreign bidders, those with major Colombian national workforce resources, significant national capital, and/or better conditions to facilitate technology transfers are preferred.

ProColombia is the Colombian government entity that promotes international tourism, foreign investment, and non-traditional exports. ProColombia assists foreign companies that wish to enter the Colombian market by addressing specific needs, such as identifying contacts in the public and private sectors, organizing visit agendas, and accompanying companies during visits to Colombia. All services are free of charge and confidential. Priority sectors include business process outsourcing, software and IT services, cosmetics, health services, automotive manufacturing, textiles, graphic communications, and electric energy. ProColombia’s “Invest in Colombia” web portal offers detailed information about opportunities in agribusiness, manufacturing, and services in Colombia (www.investincolombia.com.co/sectors ). The Duque administration – including senior leaders at the Presidency, ProColombia, and the Ministry of Commerce, Industry, and Trade – continue to stress Colombia’s openness to foreign investors and aggressively market Colombia as an investment destination.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign investment in the financial, hydrocarbon, and mining sectors is subject to special regimes, such as investment registration and concession agreements with the Colombian government, but is not restricted in the amount of foreign capital. The following sectors require that foreign investors have a legal local representative and/or commercial presence in Colombia: travel and tourism agency services; money order operators; customs brokerage; postal and courier services; merchandise warehousing; merchandise transportation under customs control; international cargo agents; public service companies, including sewage and water works, waste disposal, electricity, gas and fuel distribution, and public telephone services; insurance firms; legal services; and special air services, including aerial fire-fighting, sightseeing, and surveying.

According to the Colombian constitution and foreign investment regulations, foreign investment in Colombia receives the same treatment as an investment made by Colombian nationals. Foreign investment is permitted in all sectors, except in activities related to defense, national security, and toxic waste handling and disposal. There are no performance requirements explicitly applicable to the entry and establishment of foreign investment in Colombia.

Foreign investors face specific exceptions and restrictions in the following sectors:

Media: Only Colombian nationals or legally constituted entities may provide radio or subscription-based television services. For National Open Television and Nationwide Private Television Operators, only Colombian nationals or legal entities may be granted concessions to provide television services. Foreign investment in national television is limited to a maximum of 40 percent ownership of an operator.

Accounting, Auditing, and Data Processing: To practice in Colombia, providers of accounting services must register with the Central Accountants Board and have uninterrupted domicile in Colombia for at least three years prior to registry. A legal commercial presence is required to provide data processing and information services in Colombia.

Banking: Foreign investors may own 100 percent of financial institutions in Colombia, but are required to obtain approval from the Financial Superintendent before making a direct investment of ten percent or more in any one entity. Foreign banks must establish a local commercial presence and comply with the same capital and other requirements as local financial institutions. Every investment of foreign capital in portfolios must be through a Colombian administrator company, including brokerage firms, trust companies, and investment management companies.

Fishing: A foreign vessel may engage in fishing activities in Colombian territorial waters only through association with a Colombian company holding a valid fishing permit. If a ship’s flag corresponds to a country with which Colombia has a complementary bilateral agreement, this agreement shall determine whether the association requirement applies for the process required to obtain a fishing license. The costs of fishing permits are greater for foreign flag vessels.

Private Security and Surveillance Companies: Companies constituted with foreign capital prior to February 11, 1994 cannot increase the share of foreign capital. Those constituted after that date can only have Colombian nationals as shareholders.

Transportation: Foreign companies can only provide multimodal freight services within or from Colombian territory if they have a domiciled agent or representative legally responsible for its activities in Colombia. International cabotage companies can provide cabotage services (i.e. between two points within Colombia) “only when there is no national capacity to provide the service.” Colombia prohibits foreign ownership of commercial ships licensed in Colombia. The owners of a concession providing port services must be legally constituted in Colombia, and only Colombian ships may provide port services within Colombian maritime jurisdiction, unless there are no capable Colombian-flag vessels.

Other Investment Policy Reviews

The WTO most recently reviewed Colombia’s trade policy in June 2018. https://www.wto.org/english/tratop_e/tpr_e/tp472_e.htm 

Business Facilitation

New businesses must register with the chamber of commerce of the city in which the company will reside. Applicants also register using the Colombian tax authority’s (DIAN) portal at: www.dian.gov.co  to obtain a taxpayer ID (RUT). Business founders must visit DIAN offices to obtain an electronic signature for company legal representatives, and obtain – in-person or online – an authorization for company invoices from DIAN. In 2019, Colombia made starting a business a step easier by lifting a requirement of opening a local bank account to obtain invoice authorization. Companies must submit a unified electronic form to self-assess and pay social security and payroll contributions to the Governmental Learning Service (Servicio Nacional de Aprendizaje, or SENA), the Colombian Family Welfare Institute (Instituto Colombiano de Bienestar Familiar, or ICBF), and the Family Compensation Fund (Caja de Compensación Familiar). After that, companies must register employees for public health coverage, affiliate the company to a public or private pension fund, affiliate the company and employees to an administrator of professional risks, and affiliate employees with a severance fund.

According to the World Bank’s “Doing Business 2020” report, recent reforms simplified starting a business, trading across borders, and resolving insolvency. According to the report, starting a company in Colombia requires seven procedures and takes an average of 10 days. Information on starting a company can be found at http://www.ccb.org.co/en/Creating-a-company/Company-start-up/Step-by-step-company-creation ; https://investincolombia.com.co/how-to-invest.html ; and http://www.dian.gov.co .

Outward Investment

Colombia does not incentivize outward investment nor does it restrict domestic investors from investing abroad.

Transparency of the Regulatory System

The Colombian legal, accounting, and regulatory systems are generally transparent and consistent with international norms. The written commercial code and other laws cover broad areas, including banking and credit, bankruptcy/reorganization, business establishment/conduct, commercial contracts, credit, corporate organization, fiduciary obligations, insurance, industrial property, and real property law. The civil code contains provisions relating to contracts, mortgages, liens, notary functions, and registries. There are no identified private-sector associations or non-governmental organizations leading informal regulatory processes. The ministries generally consult with relevant actors, both foreign and national, when drafting regulations. Proposed laws are typically published as drafts for public comment, although sometimes with limited notice. Information on Colombia’s public finances and debt obligations is readily available and is published in a timely manner.

Enforcement mechanisms exist, but historically the judicial system has not taken an active role in adjudicating commercial cases. The Constitution establishes the principle of free competition as a national right for all citizens and provides the judiciary with administrative and financial independence from the executive branch. Colombia has transitioned to an oral accusatory system to make criminal investigations and trials more efficient. The new system separates the investigative functions assigned to the Office of the Attorney General from trial functions. Lack of coordination among government entities as well as insufficient resources complicate timely resolution of cases.

Colombia is a member of UNCTAD’s international network of transparent investment procedures (see http://www.businessfacilitation.org  and Colombia’s websites http://colombia.eregulations.org  and https://www.colombiacompra.gov.co). Foreign and national investors can find detailed information on administrative procedures for investment and income generating operations, including the number of steps, name, and contact details of the entities and people in charge of procedures, required documents and conditions, costs, processing time, and legal bases justifying the procedures.

International Regulatory Considerations

Colombia became the 37th member of the OECD in April 2020. Colombia is part of the World Trade Organization (WTO). The government generally notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade. In August 2020, Colombia fully joined the WTO Trade Facilitation Agreement (TFA). Regionally, Colombia is a member of organizations such as the Inter-American Development Bank (IADB), the Pacific Alliance, and the Andean Community of Nations (CAN).

Legal System and Judicial Independence

Colombia has a comprehensive, civil law-based legal system. Colombia’s judicial system defines the legal rights of commercial entities, reviews regulatory enforcement procedures, and adjudicates contract disputes in the business community. The judicial framework includes the Council of State, the Constitutional Court, the Supreme Court of Justice, and various departmental and district courts, which collectively are overseen administratively by the Superior Judicial Council. The 1991 Constitution provided the judiciary with greater administrative and financial independence from the executive branch. Regulations and enforcement actions are appealable through the different stages of legal court processes in Colombia. The judicial system in general remains hampered by time-consuming bureaucratic requirements.

Laws and Regulations on Foreign Direct Investment

Colombia has a comprehensive legal framework for business and FDI that incorporates binding norms resulting from its membership in the Andean Community of Nations and the WTO, as well as other free trade agreements and bilateral investment treaties.

Colombia’s official investment portal explains procedures and relevant laws for those wishing to invest (see https://investincolombia.com.co/en/how-to-invest).

Competition and Antitrust Laws

The Superintendence of Industry and Commerce (SIC), Colombia’s independent national competition authority, monitors and protects free economic competition, consumer rights, compliance with legal requirements and regulations, and protection of personal data. It also manages the national chambers of commerce. The SIC has been strengthened in recent years with the addition of personnel, including economists and lawyers. The SIC has recently investigated companies, including U.S.-based technology firms and Colombian banks, for failing to protect customer data. Other investigations include those related to pharmaceutical pricing, “business cartelization” among companies supplying public entities, and misleading advertising by a major brewing company. One U.S. gig-economy platform was temporarily barred from operating in Colombia in early 2020, although other similarly-situated companies remained; a court overturned the prohibition on appeal. U.S. companies have expressed concern about limited ability to appeal SIC orders and the SIC’s increasing reliance on orders to remedy perceived problems. Other U.S. companies have noted that SIC investigations can be drawn-out and opaque, similar to the judicial system in general.

Expropriation and Compensation

Article 58 of the Constitution governs indemnifications and expropriations and guarantees owners’ rights for legally-acquired property. For assets taken by eminent domain, Colombian law provides a right of appeal both on the basis of the decision itself and on the level of compensation. The Constitution does not specify how to proceed in compensation cases, which remains a concern for foreign investors. The Colombian government has sought to resolve such concerns through the negotiation of bilateral investment treaties and strong investment chapters in free trade agreements, such as the CTPA.

Dispute Settlement

ICSID Convention and New York Convention

Colombia is a member of the New York Convention on Investment Disputes, the International Center for the Settlement of Investment Disputes (ICSID), and the Multilateral Investment Guarantee Agency. Colombia is also party to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. The National and International Arbitration Statute (Law 1563), modeled after the UNCITRAL Model Law, has been in effect since 2012.

Investor-State Dispute Settlement

Domestic law allows contracting parties to agree to submit disputes to international arbitration, provided that: the parties are domiciled in different countries; the place of arbitration agreed to by the parties is a country other than the one in which they are domiciled; the subject matter of the arbitration involves the interests of more than one country; and the dispute has a direct impact on international trade. The law permits parties to set their own arbitration terms, including location, procedures, and the nationality of rules and arbiters. Foreign investors have found the arbitration process in Colombia complex and dilatory, especially with regard to enforcing awards, and slow and unresponsive at times. However, some progress has been made in the number of qualified professionals and arbitrators with ample experience on transnational transactions, arbitrage centers with cutting-edge infrastructure and administrative capacity, and courts that are progressively more accepting of arbitration processes.

There were several pending investment disputes in Colombia in 2020, including:

• A project management consultant contract with a state-owned entity related to the refurbishment of an oil refinery. Claims arise out of a $2.4 billion liability imposed by the national comptroller general.
• Two separate shareholder claims related to a Colombian bank that Colombia put under new management and ultimately seized in 1998.
• Three separate claims related to ownership and mining rights related to the Constitutional Court’s decision to ban mining in a range of high-altitude wetlands.
• Ownership of a mobile communications subsidiary, with claims arising out of the government’s order that certain assets revert to State control on expiration of a concession.
• Majority shareholder claims arising out of the government’s decision to seize and liquidate an electricity provider.

According to the Doing Business 2020 report, the time from the moment a plaintiff files a lawsuit until actual payment and enforcement of the contract averages 1,288 days. Traditionally, most court proceedings are carried out in writing and only the evidence-gathering stage is carried out through hearings, including witness depositions, site inspections, and cross-examinations. The government has accelerated proceedings and reduced the backlog of court cases by allowing more verbal public hearings and creating alternative court mechanisms. The Code of General Procedure that entered into force in 2014 also establishes oral proceedings that are carried out in two hearings, and there are now penalties for failure to reach a ruling in the time limit set by the law. Enforcement of an arbitral award can take between six months and one and a half years; a regular judicial process can take up to seven years for private parties and upwards of 15 years in conflicts with the State. Thus, arbitration results are cheaper and much more efficient. According to the Doing Business report, Colombia has made enforcing contracts easier by simplifying and speeding up the proceedings for commercial disputes. In 2020, Colombia’s global ranking in the enforcing contracts category of the report held at 177.

International Commercial Arbitration and Foreign Courts

Foreign judgments are recognized and enforced in Colombia once an application is submitted to the Civil Chamber of the Supreme Court. In 2012, Colombia approved the use of the arbitration process via adoption of new legislation (Law 1563) based on the UNCITRAL Model Law. The statute stipulates that arbitral awards are governed by both domestic law as well as international conventions (New York Convention, Panama Convention, etc.). This has made the enforcement of arbitral awards easier for all parties involved. Arbitration in Colombia is completely independent from judiciary proceedings, and, once arbitration has begun, the only competent authority is the arbitration tribunal itself. The CTPA protects U.S. investments by requiring a transparent and binding international arbitration mechanism and allowing investor-state arbitration for breaches of investment agreements if certain parameters are met. The judicial system is notoriously slow, leading many foreign companies to include international arbitration clauses in their contracts.

Bankruptcy Regulations

Colombia’s 1991 Constitution grants the government the authority to intervene directly in financial or economic affairs, and this authority provides solutions similar to U.S. Chapter 11 filings for companies facing liquidation or bankruptcy. Colombia’s bankruptcy regulations have two major objectives: to regulate proceedings to ensure creditors’ protection, and to monitor the efficient recovery and preservation of still-viable companies. This was revised in 2006 to allow creditors to request judicial liquidation, which replaces the previous forced auctioning option. Now, inventories are valued, creditors’ rights are considered, and either a direct sale takes place within two months or all assets are assigned to creditors based on their share of the company’s liabilities. The insolvency regime for companies was further revised in 2010 to make proceedings more flexible and allow debtors to enter into a long-term payment agreement with creditors, giving the company a chance to recover and continue operating. Bankruptcy is not criminalized in Colombia. In 2013, a bankruptcy law for individuals whose debts surpass 50 percent of their assets value entered into force.

Restructuring proceedings aim to protect the debtors from bankruptcy. Once reorganization has begun, creditors cannot use collection proceedings to collect on debts owed prior to the beginning of the reorganization proceedings. All existing creditors at the moment of the reorganization are recognized during the proceedings if they present their credit. Foreign creditors, equity shareholders (including foreign equity shareholders), and holders of other financial contracts (including foreign contract holders) are recognized during the proceeding. Established creditors are guaranteed a vote in the final decision. According to the Doing Business 2020 report Colombia is ranked 32nd for resolving insolvency and it takes an average of 1.7 years – the same as OECD high-income countries – to resolve insolvency; the average time in Latin America is 2.9 years.

Capital Markets and Portfolio Investment

The Colombian Securities Exchange (BVC after its acronym in Spanish) is the main forum for trading and securities transactions in Colombia. The BVC is a private company listed on the stock market. The BVC, as a multi-product and multi-market exchange, offers trading platforms for the stock market, along with fixed income and standard derivatives. The BVC also provides listing services for issuers.

Foreign investors can participate in capital markets by negotiating and acquiring shares, bonds, and other securities listed by the Foreign Investment Statute. These activities must be conducted by a local administrator, such as trust companies or Financial Superintendence-authorized stock brokerage firms. Direct and portfolio foreign investments must be registered with the Central Bank. Foreigners can establish a bank account in Colombia as long as they have a valid visa and Colombian government identification.

The market has sufficient liquidity for investors to enter and exit sizeable positions. The central bank respects IMF Article VIII and does not restrict payments and transfers for current international transactions. The financial sector in Colombia offers credit to nationals and foreigners that comply with the requisite legal requirements.

Money and Banking System

In 2005, Colombia consolidated supervision of all aspects of the banking, financial, securities, and insurance sectors under the Financial Superintendence. Colombia has an effective regulatory system that encourages portfolio investment, and the country’s financial system is strong by regional standards. Commercial banks are the principal source of long-term corporate and project finance in Colombia. Loans rarely have a maturity in excess of five years. Unofficial private lenders play a major role in meeting the working capital needs of small and medium-sized companies. Only the largest of Colombia’s companies participate in the local stock or bond markets, with the majority meeting their financing needs either through the banking system, by reinvesting their profits, or through credit from suppliers.

Colombia’s central bank is charged with managing inflation and unemployment through monetary policy. Foreign banks are allowed to establish operations in the country, and must set up a Colombian subsidiary in order to do so. The Colombian central bank has a variety of correspondent banks abroad.

Foreign Exchange and Remittances

Foreign Exchange

There are no restrictions on transferring funds associated with FDI. Foreign investment into Colombia must be registered with the central bank in order to secure the right to repatriate capital and profits. Direct and portfolio investments are considered registered when the exchange declaration for operations channeled through the official exchange market is presented, with few exceptions. The official exchange rate is determined by the central bank. The rate is based on the free market flow of the previous day. Colombia does not manipulate its currency to gain competitive advantages.

Remittance Policies

The government permits full remittance of all net profits regardless of the type or amount of investment. Foreign investments must be channeled through the foreign exchange market and registered with the central bank’s foreign exchange office within one year in order for those investments to be repatriated or reinvested. There are no restrictions on the repatriation of revenues generated from the sale or closure of a business, reduction of investment, or transfer of a portfolio. Colombian law authorizes the government to restrict remittances in the event that international reserves fall below three months’ worth of imports. International reserves have remained well above this threshold for decades.

Sovereign Wealth Funds

In 2012, Colombia began operating a sovereign wealth fund called the Savings and Stabilization Fund (FAE), which is administered by the central bank with the objective of promoting savings and economic stability in the country. Colombia is not a member of the International Forum of Sovereign Wealth Funds. The fund can administer up to 30 percent of annual royalties from the extractives industry. Its primary investments are in fixed securities, sovereign and quasi-sovereign debt (both domestic and international), and corporate securities, with just eight percent invested in stocks. The government transfers royalties not dedicated to the fund to other internal funds to boost national economic productivity through strategic projects, technological investments, and innovation. In 2020, the government authorized up to 80 percent of the FAE’s USD 3.9 billion in assets to be lent to the Fund for the Mitigation of Emergencies (FOME) created in response to the pandemic.

Since 2015, the Government of Colombia has concentrated its industrial and commercial enterprises under the supervision of the Ministry of Finance. According to Ministry’s 2019 annual report, the number of state-owned companies is 105, with a combined value of USD 20 billion. The government is the majority shareholder of 39 companies and a minority shareholder in the remaining 66. Among the most notable companies with a government stake are Ecopetrol (Colombia’s majority state-owned and privately-run oil company), ISA (electricity distribution), Banco Agrario de Colombia, Bancoldex, and Satena (regional airline). SOEs competing in the Colombian market do not receive non-market-based advantages from the government. The Ministry of Finance normally updates their annual report on SOEs every June.

Privatization Program

Colombia has privatized state-owned enterprises under article 60 of the Constitution and Law Number 226 of 1995.  This law stipulates that the sale of government holdings in an enterprise should be offered to two groups:  first to cooperatives and workers’ associations of the enterprise, then to the general public.  During the first phase, special terms and credits have to be granted, and in the second phase, foreign investors may participate along with the general public.  A series of privatizations planned for 2020 were postponed to 2021 due to the pandemic.  The government views stimulating private-sector investment in roads, ports, electricity, and gas infrastructure as a high priority.  The government is increasingly turning to concessions and using public-private partnerships (PPPs) to secure and incentivize infrastructure development.

In order to attract investment and promote PPPs, Colombian modified infrastructure regulations to clarify provisions for frequently-cited obstacles to participate in PPPs, including environmental licensing, land acquisition, and the displacement of public utilities.  The law puts in place a civil procedure that facilitates land expropriation during court cases, allows for expedited environmental licensing, and clarifies that the cost to move or replace public utilities affected by infrastructure projects falls to private companies.  However, infrastructure development companies considering bidding on tenders have raised concerns about unacceptable levels of risk that result from a law (Ley 80) establishing a framework for public works projects.  Interpretations of Ley 80 do not establish a liability cap on potential judgments and view company officials equal to those with fiscal oversight authority when it comes to criminal liability for misfeasance.

Municipal enterprises operate many public utilities and infrastructure services.  These municipal enterprises have engaged private sector investment through concessions.  There are several successful concessions involving roads.  These kinds of partnerships have helped promote reforms and create a more attractive environment for private, national, and foreign investment.

Security in Colombia has improved significantly over recent years, most notably in large urban centers. Terrorist attacks and powerful narco-criminal group operations pose a threat to commercial activity and investment in some rural zones where government control is weak. In 2016, Colombia signed a peace agreement with the FARC to end half a century of confrontation. Congressional approval of that peace accord put in motion a disarmament, demobilization, and reintegration process, which granted the FARC status as a legal political organization and took over 13,000 combatants off the battlefield. Currently the peace negotiations with the National Liberation Army (ELN), which began in 2017, are suspended. This terrorist group continues a low-cost, high-impact asymmetric insurgency, including an attack on the Colombian police academy in 2019 that killed 22 cadets. The ELN often focuses attacks on oil pipelines, mines, roads, and electricity towers to disrupt economic activity and pressure the government. The ELN also extorts businesses in their areas of operation, kidnaps personnel, and destroys property of entities that refuse to pay for protection.

*Data from the Colombian Statistics Departments, DANE, (https://www.dane.gov.co/) and the Colombian central bank (http://www.banrep.gov.co). Note: U.S. FDI reported by Banco de la Republica is not historically adjusted.

Table 3: Sources and Destination of FDI

Colombian data is not available from the IMF’s coordinated direct investment survey.

Policies Towards Foreign Direct Investment

Costa Rica actively courts FDI, placing a high priority on attracting and retaining high-quality foreign investment. There are some limitations to both private and foreign participation in specific sectors, as detailed in the following section.

PROCOMER and CINDE lead Costa Rica’s investment promotion efforts. CINDE has had great success over the last several decades in attracting and retaining investment in specific areas, currently services, advanced manufacturing, life sciences, light manufacturing, and the food industry. In addition, the Tourism Institute (ICT) attends to potential investors in the tourism sector. CINDE, PROCOMER, and ICT are strong and effective guides and advocates for their client companies, prioritizing investment retention and maintaining an ongoing dialogue with investors.

Limits on Foreign Control and Right to Private Ownership and Establishment

Costa Rica recognizes and encourages the right of foreign and domestic private entities to establish and own business enterprises and engage in most forms of remunerative activity. The exceptions are in sectors that are reserved for the state (legal monopolies – see #7 below “State Owned Enterprises, first paragraph) or that require participation of at least a certain percentage of Costa Rican citizens or residents (electrical power generation, transport services, professional services, and aspects of broadcasting). Properties in the Maritime Zone (from 50 to 200 meters above the mean high-tide mark) may only be leased from the state and with residency requirements. In the areas of medical services, telecommunications, finance and insurance, state-owned entities dominate, but that does not preclude private sector competition. Costa Rica does not have an investment screening mechanism for inbound foreign investment, beyond those applied under anti-money laundering procedures. U.S. investors are not disadvantaged or singled out by any control mechanism or sector restrictions; to the contrary, U.S. investors figure prominently among the various major categories of FDI.

Other Investment Policy Reviews

The OECD accession process for Costa Rica, which began in 2015, resulted in a wide swath of legal and technical changes across the economy that should help the economy function in a more just and competitive manner. Toward that goal, the OECD will continue to monitor Costa Rican progress in a number of areas and will publish periodic progress updates and sector analysis that may be useful to prospective investors. A comprehensive review of the Costa Rican economy was published by the OECD at the conclusion of the accession process, which offered valuable insights into challenges faced by the economy, “OECD Economic Surveys Costa Rica 2020: https://www.oecd.org/countries/costarica/oecd-economic-surveys-costa-rica-2020-2e0fea6c-en.htm  . In the same context, the OECD offers a review of international investment in Costa Rica: https://www.oecd.org/countries/costarica/OECD-Review-of-international-investment-in-Costa-Rica.pdf .

Additionally, in recent years the OECD has published a number of reports focused on specific aspects of economic growth and investment policy – several of these reports are referenced elsewhere in this report. For the index of OECD reports on Costa Rica, go to https://www.oecd.org/countries/costarica/3/ .

The World Trade Organization (WTO) conducted its 2019 “Trade Policy Review” of Costa Rica in September of that year. Trade Policy Reviews are an exercise, mandated in the WTO agreements, in which member countries’ trade and related policies are examined and evaluated at regular intervals: https://www.wto.org/english/tratop_e/tpr_e/tp492_e.htm  .

The United Nations Conference on Trade and Development (UNCTAD) produced in 2019 the report Overview of Economic and Trade Aspects of Fisheries and Seafood Sectors in Costa Rica: https://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=2583  .

https://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=2583  .

Business Facilitation

Costa Rica’s single-window business registration website, crearempresa.go.cr  , brings together the various entities – municipalities and central government agencies – which must be consulted in the process of registering a business in Costa Rica. A new company in Costa Rica must typically register with the National Registry (company and capital registry), Internal Revenue Directorate of the Finance Ministry (taxpayer registration), National Insurance Institute (INS) (basic workers’ comp), Ministry of Health (sanitary permit), Social Security Administration (CCSS) (registry as employer), and the local Municipality (business permit). Legal fees are the biggest single business start-up cost, as all firms registered to individuals must hire a lawyer for a portion of the necessary paperwork. Crearempresa is rated 17th of 33 national business registration sites evaluated by “Global Enterprise Registration” ( www.GER.co ), which awards Costa Rica a relatively lackluster rating because Crearempresa has little payment facility and provides only some of the possible online certificates.

Traditionally, the Costa Rican government’s small business promotion efforts have tended to focus on participation by women and underserved communities.  The National Institute for Women (INAMU), National Training Institute (INA), the Ministry of Economy (MEIC), and PROCOMER through its supply chain initiative have all collaborated extensively to promote small and medium enterprise with an emphasis on women’s entrepreneurship. In 2020, INA launched a network of centers to support small and medium-sized enterprises based upon the U.S. Small Business Development Center (SBDC) model.

Within the World Bank’s “Doing Business” evaluation for 2020, http://www.doingbusiness.org , Costa Rica is ranked 144/190 for “starting a business”, with the process taking 10 days.

Outward Investment

The Costa Rican government does not promote or incentivize outward investment. Neither does the government discourage or restrict domestic investors from investing abroad.

Transparency of the Regulatory System

Costa Rican laws, regulations, and practices are generally transparent and meant to foster competition in a manner consistent with international norms, except in the sectors controlled by a state monopoly, where competition is explicitly excluded. Rule-making and regulatory authority is housed in any number of agencies specialized by function (telecom, financial, health, environmental) or location (municipalities, port authorities). Tax, labor, health, and safety laws, though highly bureaucratic, are not seen as unfairly interfering with foreign investment. It is common to have Professional Associations that play a regulatory role. For example, the Coffee Institute of Costa Rica (ICAFE), a private sector organization, promotes standardization of production models among national producers, roasters and exporters, as well as setting minimum market prices.

Costa Rica is a member of UNCTAD’s international network of transparent investment procedures ( http://www.businessfacilitation.org ). Within that context, the Ministry of Economy compiled the various procedures needed to do business in Costa Rica: https://tramitescr.meic.go.cr/ . Accounting, legal, and regulatory procedures are transparent and consistent with international norms. The stock and bond market regulator SUGEVAL requires International Accounting Standards Board for public companies, while the Costa Rican College of Public Accountants (Colegio de Contadores Publicos de Costa Rica -CCPA) has adopted full International Financial Reporting Standards for non-regulated companies in Costa Rica; for more, see the international federation of accountants IFAC: https://www.ifac.org/about-ifac/membership/country/costa-rica .

Regulations must go through a public hearing process when being drafted. Draft bills and regulations are made available for public comment through public consultation processes that will vary in their details according to the public entity and procedure in question, generally giving interested parties sufficient time to respond. The standard period for public comment on technical regulations is 10 days. As appropriate, this process is underpinned by scientific or data-driven assessments. A similarly transparent process applies to proposed laws. The Legislative Assembly generally provides sufficient opportunity for supporters and opponents of a law to understand and comment on proposals. To become law, a proposal must be approved by the Assembly by two plenary votes. The signature of 10 legislators (out of 57) is sufficient after the first vote to send the bill to the Supreme Court for constitutional review within one month, although the court may take longer.

Regulations and laws, both proposed and final, for all branches of government are published digitally in the government registry “La Gaceta”: https://www.imprentanacional.go.cr/gaceta/ . The Costa Rican American Chamber of Commerce (AmCham – http://amcham.co.cr  ) and other business chambers closely monitor these processes and often coordinate responses as needed.

The government has mechanisms to ensure laws and regulations are followed. The Comptroller General’s Office conducts operational as well as financial audits and as such provides the primary oversight and enforcement mechanism within the Costa Rican government to ensure that government bodies follow administrative processes. Each government body’s internal audit office and, in many cases, the customer-service comptroller (Contraloria de Servicios) provide additional support.

There are several independent avenues for appealing regulatory decisions, and these are frequently pursued by persons or organizations opposed to a public sector contract or regulatory decision. The avenues include the Comptroller General (Contraloria General de la Republica), the Ombudsman (Defensor de los Habitantes), the public services regulatory agency (ARESEP), and the constitutional review chamber of the Supreme Court. The State Litigator’s office (Procuraduria General) is frequently a participant in its role as the government’s attorney.

Costa Rica is transparent in reporting its public finances and debt obligations, including explicit and contingent liabilities. The Ministry of Finance provides updates on public debt through the year, with the debt categorized as Central Government, Central Government and Non-Financial Sector, and Central Bank of Costa Rica: https://www.hacienda.go.cr/contenido/12519-informacion-de-la-deuda-publica 

https://www.hacienda.go.cr/contenido/12519-informacion-de-la-deuda-publica 

The following chart covers contingent debt as of December 31, 2020: https://www.hacienda.go.cr/docs/60088ea554e11_12-2020%20Resumen%20Deuda%20Contingente%20publicar.xlsx

https://www.hacienda.go.cr/docs/60088ea554e11_12-2020%20Resumen%20Deuda%20Contingente%20publicar.xlsx

The General Controller’s Office produced the following 2019 report on unregistered debt, summing to 1.27 percent of GDP: https://cgrfiles.cgr.go.cr/publico/docs_cgr/2019/SIGYD_D_2019015487.pdf

https://cgrfiles.cgr.go.cr/publico/docs_cgr/2019/SIGYD_D_2019015487.pdf

The review and enforcement mechanisms described above have kept Costa Rica’s regulatory system relatively transparent and free of abuse, but have also rendered the system for public sector contract approval exceptionally slow and litigious. There have been several cases in which these review bodies have overturned already-executed contracts, thereby interjecting uncertainty into the process. Bureaucratic procedures are frequently long, involved and can be discouraging to new investors.

Furthermore, Costa Rica’s product market regulations are more stringent than in any other OECD country, according to the OECD’s 2020 Product Market Regulations Indicator, leading to market inefficiencies. Find this explanation as well as a detailed review of the regulatory challenges Costa Rica faces in the September 2020 OECD report on regulatory reform: https://www.oecd.org/countries/costarica/enhancing-business-dynamism-and-consumer-welfare-in-costa-rica-with-regulatory-reform-53250d35-en.htm 

https://www.oecd.org/countries/costarica/enhancing-business-dynamism-and-consumer-welfare-in-costa-rica-with-regulatory-reform-53250d35-en.htm 

International Regulatory Considerations

While Costa Rica does consult with its neighbors on some regulations through participation in the Central American Integration System (SICA) ( http://www.sica.int/sica/sica_breve.aspx ), Costa Rica’s lawmakers and regulatory bodies habitually refer to sample regulations or legislation from OECD members and others. Costa Rica’s commitment to OECD standards and practices through the ongoing OECD accession process has accentuated this traditional use of best-practices and model legislation. Costa Rica regularly notifies all draft technical regulations to the WTO Committee on Technical Barriers in Trade (TBT).

Legal System and Judicial Independence

Costa Rica uses the civil law system. The fundamental law is the country’s political constitution of 1949, which grants the unicameral legislature a particularly strong role. Jurisprudence or case law does not constitute legal precedent but can be persuasive if used in legal proceedings. For example, the Chambers of the Supreme Court regularly cite their own precedents. The civil and commercial codes govern commercial transactions. The courts are independent, and their authority is respected. The roles of public prosecutor and government attorney are distinct: the Chief Prosecuting Attorney or Attorney General (Fiscal General) operates a semi-autonomous department within the judicial branch while the government attorney or State Litigator (Procuraduria General) works within the Ministry of Justice and Peace in the Executive branch. The primary criminal investigative body “Organismo de Investigacion Judicial” OIJ, is a semi-autonomous department within the Judicial Branch. Judgments and awards of foreign courts and arbitration panels may be accepted and enforced in Costa Rica through the exequatur process. The Constitution specifically prohibits discriminatory treatment of foreign nationals. The Costa Rican Judicial System addresses the full range of civil, administrative, and criminal cases with a number of specialized courts.  The judicial system generally upholds contracts, but caution should be exercised when making investments in sectors reserved or protected by the Constitution or by laws for public operation. Regulations and enforcement actions may be, and often are, appealed to the courts.

Costa Rica’s commercial code details all business requirements necessary to operate in Costa Rica. The laws of public administration and public finance contain most requirements for contracting with the state.

The legal process to resolve cases involving squatting on land can be especially cumbersome. Land registries are at times incomplete or even contradictory. Buyers should retain experienced legal counsel to help them determine the necessary due diligence regarding the purchase of property.

Laws and Regulations on Foreign Direct Investment

Costa Rican websites are useful to help navigate laws, rules and procedures including that of the investment promotion agency CINDE, http://www.cinde.org/en  (“essential info”), the export promotion authority PROCOMER, http://www.procomer.com/ (incentive packages), and the Health Ministry, https://www.ministeriodesalud.go.cr/  (product registration and import/export). In addition, the State Litigator’s office ( www.pgr.go.cr ) the “SCIJ” tab compiles relevant laws.

Competition and Antitrust Laws

Two public institutions are responsible for consumer protection as it relates to monopolistic and anti-competitive practices. The “Commission for the Promotion of Competition” (COPROCOM), an autonomous agency housed in the Ministry of Economy, Industry and Commerce, is charged with investigating and correcting anti-competitive behavior across the economy. The Telecommunications Superintendence (SUTEL) shares that responsibility with COPROCOM in the Telecommunications sector. Both agencies are charged with defense of competition, deregulation of economic activity, and consumer protection. COPROCOM has traditionally been underfunded and weak, although a law passed in 2019 is designed to change that by giving COPROCOM greater regulatory independence and sufficient operating budget.

For an analysis of opportunities for improvement in Costa Rica’s regulatory environment, including in competition and antitrust, see: https://www.oecd.org/countries/costarica/enhancing-business-dynamism-and-consumer-welfare-in-costa-rica-with-regulatory-reform-53250d35-en.htm . For the OECD assessment of competition law and policy in Costa Rica, see: https://www.oecd.org/countries/costarica/costarica-competition.htm .

Expropriation and Compensation

The three principal expropriating government agencies in recent years have been the Ministry of Public Works – MOPT (highway rights-of-way), the state-owned Costa Rican Electrical Institute – ICE (energy infrastructure), and the Ministry of Environment and Energy – MINAE (National Parks and protected areas). Expropriations generally conform to Costa Rica’s laws and treaty obligations, but there are allegations of expropriations of private land without prompt or adequate compensation.

Article 45 of Costa Rica’s Constitution stipulates that private property can be expropriated without proof that it is done for public interest. The 1995 Law 7495 on expropriations further stipulates that expropriations require full and prior payment. The law makes no distinction between foreigners and nationals. Provisions include: (a) return of the property to the original owner if it is not used for the intended purpose within ten years or, if the owner was compensated, right of first refusal to repurchase the property back at its current value; (b) detailed provisions for determination of a fair price and appeal of that determination on the part of the former owner; (c) provision that upon full deposit of the calculated amount the government may take possession of land despite the former owner’s dispute of the price; and (d) provisions providing for both local and international arbitration in the event of a dispute. The expropriations law was amended in 1998, 2006, and 2015 to clarify and expedite some procedures, including those necessary to expropriate land for the construction of new roads. (For full detail go to https://PGRweb.go.cr/SCIJ  . When reviewing the articles of the law go to the most recent version of each article.)

There is no discernible bias against U.S. investments, companies, or representatives during the expropriations process. Costa Rican public institutions follow the law as outlined above and generally act in a way acceptable to the affected landowners. However, when landowners and government differ significantly in their appraisal of the expropriated lands’ value, the resultant judicial processes generally take years to resolve. In addition, landowners have, on occasion, been prevented from developing land which has not yet been formally expropriated for parks or protected areas; the courts will eventually order the government to proceed with the expropriations but the process can be long.

Dispute Settlement

ICSID Convention and New York Convention

In 1993, Costa Rica became a member state to the convention on International Center for Settlement of Investment Disputes (ICSID Convention). Costa Rica paid the awards resulting from unfavorable ICSID rulings, most recently in 2012 regarding private property belonging to a German national within National Park boundaries.

Costa Rica is a signatory of the convention on the Recognition and Enforcement of Arbitral Awards (1958 New York Convention). Consequently, within the Costa Rican legal hierarchy the Convention ranks higher than local laws although still subordinate to the Constitution. Costa Rican courts recognize and enforce foreign arbitral awards. Judgments of foreign courts are recognized and enforceable under the local courts and the Supreme Court.

Investor-State Dispute Settlement

Disputes between investors and the government grounded in the government’s alleged actions or failure to act – termed investment disputes ‒ may be resolved administratively or through the legal system.

Under Chapter 10 of the CAFTA-DR agreement, Costa Rica legally obligated itself to answer investor arbitration claims submitted under ICSID or the United Nations Commission on International Trade Law (UNCITRAL), and accept the arbitration verdict. To date there have been two claims by U.S. citizen investors under the provisions of CAFTA-DR. Extensive documentation for both cases is filed on the Foreign Trade Ministry (COMEX) website: http://www.comex.go.cr/tratados/cafta-dr/ , under “documentos relevantes”. No local court denies or fails to enforce foreign arbitral awards issued against the government.

In some coastal areas of Costa Rica, there is a history of invasion and occupation of private property by squatters who are often organized and sometimes violent. It is not uncommon for squatters to return to the parcels of land from which they were evicted, requiring expensive and potentially dangerous vigilance over the land. Nevertheless, in recent years the Supreme Court has refused title to squatters on land already titled, thus removing some incentive for persistent squatters.

International Commercial Arbitration and Foreign Courts

The right to solve disputes through arbitration is guaranteed in the Costa Rican Constitution. For years, the practical application was regulated by the Civil Procedural Code, which made it ineffective with no arbitration cases until 1998, the year the local arbitration law #7727 was enacted. A 2011 law on International Commercial Arbitration (Law 8937), drafted from the UNCITRAL model law (version 2006), brought Costa Rica to a dual arbitration system, with two valid laws, one law for local arbitration and one for international arbitration. Under the local act, arbitration has to be conducted in Spanish and only attorneys admitted to the local Bar Association may be named as arbitrators.  All cases brought before an arbitration panel, under the rules of local arbitration centers, will normally be resolved within two months of the closing arguments hearing.  Parties can withdraw their case or reach an out-of-court settlement before the arbitral tribunal delivers an award.  If the award meets the review criteria, the losing party has the option to request that the Costa Rican Supreme Court examine the award, but only on procedural matters and never on the merits. Under the local Law for International Arbitration, proceedings may be held in English and foreign attorneys are authorized to serve as arbitrators. The following arbitration centers are in operation in Costa Rica:

Centro de Conciliacion y Arbitraje. Costa Rican Chamber of Commerce (CCA)

Centro de Resolución de Controversias. Costa Rican Association of Engineers and Architects (CFIA)

Centro Internacional de Conciliacion y Arbitraje (CICA). Costa Rican American Chamber of Commerce (AMCHAM)

Centro de Arbitraje y Mediacion/Centro Iberoamericano de Arbitraje (CAM). Costa Rican Bar Association.

Beyond such arbitration options, law #7727 also facilitates courts’ enforcement of conciliation agreements reached under the law. Some universities and municipalities operate “Casas de Justicia” (Justice Houses) open to the public and offering mediation and conciliation at no cost. Law #8937 empowered local arbitration centers, beginning with that pertaining to the Engineers and Architects’ Association, to implement Dispute Board regulations, as a method to address construction disputes. Dispute Boards have acquired importance lately in construction contracts; with CFIA implementing new by-laws favoring the use of Dispute Boards in such contracts.

Outcomes in local courts do not appear to favor state-owned enterprises (SOEs) any more or less than other actors.  SOEs can sign arbitral agreements, but must follow strict public laws to obtain the permissions necessary and follow correct procedures, otherwise the agreement could be voided. Once SOEs find themselves in arbitration, they are subject to the same standards and treatment as any other actor.

U.S. companies cite the unpredictability of outcomes as a source of rising judicial insecurity in Costa Rica. The legal system is significantly backlogged, and civil suits may take several years from start to finish. In the tax arena, several U.S. businesses have objected to the Ministry of Finance’s aggressive stance in interpreting transfer pricing principles, compounded by what the businesses perceive as a lack of specialized judges to competently address such cases. Some U.S. firms and citizens satisfactorily resolved their cases through the courts, while others see proceedings drawn out over a decade without a final resolution. Commercial arbitration has become an increasingly common dispute resolution mechanism.

Bankruptcy Regulations

The Costa Rican bankruptcy law, addressed in both the commercial code and the civil procedures code, has long been similar to corresponding U.S. law. In February 2021, Costa Rica’s National Assembly approved a comprehensive bankruptcy law reform #21.436 “LEY CONCURSAL”. As of late March 2021, the bill was waiting to be signed by the President and published in the official Gazette. It will come into effect six months after publication.

The new law will ease bankruptcy processes and help companies in financial distress to move through the “administrative intervention” intended to save the companies. The previous law too often ended with otherwise viable companies ceasing operations, rather than allowing them to recover, due to a bias towards dissolution of companies in distress. The new law simplifies processes in court, reduces time and costs, and allows judges to act fast, with a system that is clear and expeditious.

As in the United States, penal law will also apply to criminal malfeasance in some bankruptcy cases. In the World Bank’s “resolving insolvency” ranking within the 2020 “Doing Business” report, Costa Rica ranked #137 of 190 (http://www.doingbusiness.org/rankings ).

Capital Markets and Portfolio Investment

The Costa Rican government’s general attitude towards foreign portfolio investment is cautiously welcoming, seeking to facilitate the free flow of financial resources into the economy while minimizing the instability that might be caused by the sudden entry or exit of funds. The securities exchange (Bolsa Nacional de Valores) is small and is dominated by trading in bonds. Stock trading is of limited significance and involves less than 10 of the country’s larger companies, resulting in an illiquid secondary market. There is a small secondary market in commercial paper and repurchase agreements. The Costa Rican government has in recent years explicitly welcomed foreign institutional investors purchasing significant volumes of Costa Rican dollar-denominated government debt in the local market. The securities exchange regulator (SUGEVAL) is generally perceived to be effective.

Costa Rica accepted the obligations of IMF Article VIII, agreeing not to impose restrictions on payments and transfers for current international transactions or engage in discriminatory currency arrangements, except with IMF approval. There are no controls on capital flows in or out of Costa Rica or on portfolio investment in publicly traded companies. Some capital flows are subject to a withholding tax (see section on Foreign Exchange and Remittances). Within Costa Rica, credit is largely allocated on market terms, although long-term capital is scarce. Favorable lending terms for USD-denominated loans compared to colon-denominated loans have made USD-denominated mortgage financing popular and common. Foreign investors are able to borrow in the local market; they are also free to borrow from abroad, although withholding tax may apply.

Money and Banking System

Costa Rica’s financial system boasts a relatively high financial inclusion rate, estimated by the Central Bank by August 2020 at 81.5 percent (the percentage of adults over the age of 15 holding a bank account). Non-resident foreigners may open what are termed “simplified accounts” in Costa Rican financial institutions, while resident foreigners have full access to all banking services.

The banking sector is healthy, although the 2020 non-performing loan ratio of 2.46 percent of total loans as of December 2020 would be significantly higher if not for Covid-19 temporary regulatory measures allowing banks to readjust loans. The state-owned commercial banks had a higher 3.24 percent average. The country hosts a large number of smaller private banks, credit unions, and factoring houses, although the four state-owned banks are still dominant, accounting for just under 50 percent of the country’s financial system assets. Consolidated total assets of those state-owned banks were approximately USD 29.5 billion in December 2020, while consolidated total assets of the eleven private commercial and cooperative banks were about USD 21.5 billion. Combined assets of all bank groups (public banks, private banks and others) were approximately USD 63.1 billion as of December 2020. As of February 2020, Costa Rica adopted a deposit guarantee fund and bank resolution regime for the financial system, ending the previous much-criticized situation in which only publicly owned banks benefitted from de-facto state guarantees.

Costa Rica’s Central Bank performs the functions of a central bank while also providing support to the four autonomous financial superintendencies (Banking, Securities, Pensions and Insurance) under the supervision of the national council for the supervision of the financial system (CONASSIF). The Central Bank developed and operates the financial system’s transaction settlement and direct transfer mechanism “SINPE” through which clients transfer money to and from accounts with any other account in the financial system. The Central Bank’s governance structure is strong, having benefitted in 2019 from reforms that increase the Bank’s autonomy from the Executive Branch.

Foreign banks may establish both full operations and branch operations in the country under the supervision of the banking regulator SUGEF. The Central Bank has a good reputation and has had no problem maintaining sufficient correspondent relationships. Costa Rica is steadily improving its ability to ensure the efficacy of anti-money laundering and anti-terrorism finance. The Costa Rican financial sector in broad terms appears to be satisfied to date with the available correspondent banking services.

The OECD 2020 report “review of the financial system” for Costa Rica is an excellent resource for those seeking more detail on the current state of Costa Rica’s financial system: https://www.oecd.org/countries/costarica/Costa-Rica-Review-of-Financial-System-2020.pdf .

Foreign Exchange and Remittances

Foreign Exchange

No restrictions are imposed on expatriation of royalties or capital except when these rights are otherwise stipulated in contractual agreements with the government of Costa Rica. However, Costa Rican sourced rents and benefits remitted overseas, including royalties, are subject to a withholding tax (see below). When such remittances are paid to a parent company or related legal entity, transfer pricing rules and certain limitations apply.

There are no restrictions on receiving, holding, or transferring foreign exchange. There are no delays for foreign exchange, which is readily available at market clearing rates and readily transferable through the banking system. Dollar bonds and other dollar instruments may be traded legally. Euros are increasingly available in the market. Costa Rica has a floating exchange rate regime in which the Central Bank is ready to intervene, if necessary, to smooth any exchange rate volatility.

Remittance Policies

Costa Rica does not have restrictions on remittances of funds to any foreign country; however, all funds remitted are subject to applicable withholding taxes that are paid to the country’s tax administration.  The default level of withholding tax is 30 percent with royalties capped at 25 percent, dividends at 15 percent, professional services at 25 percent, transportation and communication services at 8.5 percent, and reinsurance at 5.5 percent (different withholding taxes also apply for other types of services).  By Costa Rican law, in order to pay dividends, procedures need to be followed that include being in business in the corresponding fiscal year and paying all applicable local taxes.  Those procedures for declaring dividends in effect put a timing restriction on them.  Withholding tax does not apply to payment of interest to multilateral and bilateral banks that promote economic and social growth, and companies located in free trade zones pay no dividend withholding tax.  Spain, Germany, and Mexico have double-taxation tax treaties with Costa Rica, lowering the withholding tax on dividends paid by companies from those countries.

Sovereign Wealth Funds

Costa Rica does not have a Sovereign Wealth Fund.

Costa Rica’s total of 28 state-owned enterprises (SOEs) are commonly known by their abbreviated names. They include monopolies in petroleum-derived fuels (RECOPE), lottery (JPS), railroads (INCOFER), local production of ethanol (CNP/FANAL), water distribution (AyA), and electrical distribution (ICE, CNFL, JASEC, ESPH). SOEs have market dominance in insurance (INS), telecommunications (ICE, RACSA, JASEC, ESPH) and finance (BNCR, BCR, Banco Popular, BANHVI, INVU, INFOCOOP). They have significant market participation in parcel and mail delivery (Correos) and ports operation (INCOP and JAPDEVA). Six of those SOEs hold significant economic power with revenues exceeding 1 percent of GDP: ICE, RECOPE, INS, BNCR, BCR and Banco Popular. The 2020 OECD report “Corporate Governance in Costa Rica” reports that Costa Rican SOE employment is 1.9% of total employment, somewhat below the OECD average of 2.5%. Audited returns for each SOE may be found on each company’s website, while basic revenue and costs for each SOE are available on the General Controller’s Office (CGR) “Sistema de Planes y Presupuestos” https://www.cgr.go.cr/02-consultas/consulta-pp.html . The Costa Rican government does not currently hold minority stakes in commercial enterprises.

No Costa Rican state-owned enterprise currently requires continuous and substantial state subsidy to survive. Many SOEs turn a profit, which is allocated as dictated by law and boards of directors. Financial allocations to and earnings from SOEs may be found in the CGR “Sistema de Informacion de Planes y Presupuestos (SIPP)”.

U.S. investors and their advocates cite some of the following ways in which Costa Rican SOEs competing in the domestic market receive non-market-based advantages because of their status as state-owned entities.

• According to Law 7200, electricity generated privately must be purchased by public entities and the installed capacity of the private sector is limited to 30 percent of total electrical installed capacity in the country: 15 percent to small privatelyowned renewable energy plants and 15 percent to larger “buildoperatetransfer” (BOT) operations.
• Telecoms and technology sector companies have called attention to the fact that government agencies often choose SOEs as their telecom services providers despite a full assortment of privatesector telecom companies. The Information and Telecommunications Business Chamber (CAMTIC) has been advocating for years against what its members feel to be unfair use by government entities of a provision (Article 2) in the public contracting law that allows noncompetitive award of contracts to public entities (also termed “direct purchase”) when functionaries of the awarding entity certify the award to be an efficient use of public funds. CAMTIC has compiled detailed statistics showing that while the yearly total dollar value of Costa Rican government direct purchases in the IT sector under Article 2 has dropped considerably from USD 226 million in 2017, to $72.5 million in 2018, USD 27.5 million in 2019, and USD 7.1 million in 2020, the number of purchases has actually increased from 56 purchases in both 2017 and 2018 to 86 in 2019 and 83 in 2020.
• The stateowned insurance provider National Insurance Institute (INS) has been adjusting to private sector competition since 2009 but in 2020 still registered 70 percent of total insurance premiums paid; 13 insurers are now registered with insurance regulator SUGESE: ( https://www.sugese.fi.cr/SitePages/index.aspx ). Competitors point to unfair advantages enjoyed by the stateowned insurer INS, including a strong tendency among SOE’s to contract their insurance with INS.

Costa Rica is not a party to the WTO Government Procurement Agreement (GPA) although it is registered as an observer. Costa Rica is working to adhere to the OECD Guidelines on Corporate Governance for SOEs ( www.oecd.org/daf/ca/oecdguidelinesoncorporategovernanceofstate-ownedenterprises.htm ). For more information on Costa Rica’s SOE’s, see the OECD Accession report “Corporate Governance in Costa Rica”, dated October 2020: https://www.oecd.org/countries/costarica/corporate-governance-in-costa-rica-b313ec37-en.htm  .

Privatization Program

Costa Rica does not have a privatization program and the markets that have been opened to competition in recent decades – banking, telecommunications, insurance and Atlantic Coast container port operations – were opened without privatizing the corresponding state-owned enterprise(s). However, in response to the growing fiscal deficit, the current administration has signaled willingness to privatize two relatively minor state owned enterprises: the state liquor company (Fanal), and the International Bank of Costa Rica (Bicsa).

Since 1948, Costa Rica has not experienced significant domestic political violence. There are no indigenous or external movements likely to produce political or social instability. However, Costa Ricans occasionally follow a long tradition of blocking public roads for a few hours as a way of pressuring the government to address grievances; the traditional government response has been to react slowly, thus giving the grievances time to air. This practice on the part of peaceful protesters can cause logistical problems.

Crime increased in Costa Rica in recent decades and U.S. citizen visitors and residents are frequent victims.  While petty theft is the main problem, criminals show an increased tendency to use violence. Some crime in Costa Rica is associated with the illegal drug trade.  Please see the State Department’s Travel Advisory page for Costa Rica for the latest information- https://travel.state.gov/content/travel/en/traveladvisories/traveladvisories/costa-rica-travel-advisory.html

Policies Towards Foreign Direct Investment

The government actively encourages Foreign Direct Investment (FDI) and is committed to increasing it. Foreign companies are free to invest and list on the regional stock exchange Bourse Régionale des Valeurs Mobilières (BRVM), which is based in Abidjan and covers the eight countries of the West African Economic and Monetary Union (WAEMU). WAEMU members are part of the Regional Council for Savings and Investment, a regional securities regulatory body.

In most sectors, there are no laws that limit foreign investment. There are restrictions, however, on foreign investment in the health sector, law and accounting firms, and travel agencies.

Land tenure is a complicated and sensitive issue. Land tenure disputes exist all over the country owing to multiple forms of traditional collective tenure and the lack of formal private land ownership in most areas. Companies that wish to purchase land must have the property surveyed before obtaining title. Surveying is tightly controlled by a small group of companies and can often cost more than the value of the parcel of land. Freehold land tenure in rural areas is difficult to negotiate, however, and can inhibit foreign investment. Most businesses, including agribusinesses and forestry companies, circumvent the complicated land purchase process by acquiring long-term leases instead. There are regulations designed to control land speculation in urban areas, but they do not prevent foreigners from owning land.

The Ivoirian government’s investment promotion agency, the Center for the Promotion of Investment in Côte d’Ivoire (CEPICI), promotes and attracts national and foreign investment. Its services are available to all investors, provided through a one-stop shop intended to facilitate business creation, operation, and expansion. CEPICI ensures that investors receive incentives outlined in the investment code and facilitates access to industrial land. More information is available at http://www.cepici.gouv.ci/ .

Côte d’Ivoire maintains an ongoing dialogue with investors through various business networks and platforms, such as CEPICI, the Ivoirian Chamber of Commerce (CCI-CI), the association of large enterprises (CGECI), and the bankers’ association.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign investors generally have access to all forms of remunerative activity on terms equal to those enjoyed by Ivoirians. The government encourages foreign investment, including state-owned firms that the government is privatizing, although in most cases of privatization the state reserves an equity stake in the new company.

There are no general, economy-wide limits on foreign ownership or control, and few sector-specific restrictions. There are no laws specifically directing private firms to adopt articles of incorporation or association that limit or prohibit foreign investment, participation, or control in those firms, and no such practices have been reported.

Banks and insurance companies are subject to licensing requirements, but there are no restrictions designed to limit foreign ownership or to limit establishment of subsidiaries of foreign companies in this sector. Investments in health, law and accounting, and travel agencies are subject to prior approval and require appropriate licenses and association with an Ivoirian partner. The Ivoirian government has, on a case-by-case basis, mandated using local providers, hiring local employees, or arranging for eventual transfer to local control.

The government does not have an official policy to screen investments, and its overall economic and industrial strategy does not discriminate against foreign-owned firms. There are indications in some instances of preferential treatment for firms from countries with longstanding commercial ties to Côte d’Ivoire.

Other Investment Policy Reviews

Côte d’Ivoire has not conducted an investment policy review (IPR) through the OECD. The WTO last conducted a Trade Policy Review in October 2017, which can be found at https://www.wto.org/english/tratop_e/tpr_e/tp462_e.htm .

UNCTAD published an Investment Policy Review for Côte d’Ivoire in February 2020, which can be found at https://unctad.org/webflyer/investment-policy-review-cote-divoire 

The Government of Côte d’Ivoire provides information about sector policies and business opportunities in publicly available reports. More information can be found at: https://www.cepici.gouv.ci/ .

Business Facilitation

The CEPICI manages Côte d’Ivoire’s online information portal containing all documents dedicated to business creation and registration ( https://cotedivoire.eregulations.org/ ). All the necessary documentation for registration is available online, however actual registration must be done in person. Further information on business registration is also available on CEPICI’s website ( http://www.cepici.gouv.ci/ ).

Businesses can register at the CEPICI’s One-Stop Shop (Guichet Unique) in Abidjan. The One-Stop Shop allows businesses to register with the commercial registrar (Registre du Commerce et du Crédit Immobilier), the tax authority (Direction Générale d’Impôts) and the social security institute (Caisse Nationale de Prévoyance Sociale). The One-Stop Shop also publishes the legal notice of incorporation on CEPICI’s website. All necessary documents for registration are also available on the website. Registration takes between one and three days. The business licensing process, controlled by sector-specific governing bodies, is separate from the registration process.

Women have equal access to the registration process. There have not been any reports of discrimination in that regard.

Outward Investment

Côte d’Ivoire does not promote or incentivize outward investment.

However, the government does not restrict domestic investors from investing abroad.

Transparency of the Regulatory System

The government aims for transparency in law and policy to foster competition and provide clear rules of the game and a level playing field for domestic and foreign investors. Transparency of the Ivoirian regulatory system is a concern; both foreign and Ivoirian companies complain that new regulations are issued with little warning and without a period for public comment.

There are no informal regulatory processes managed by non-governmental organizations or private-sector associations.

Regulatory authority and decision-making exist only at the national level. Sub-national jurisdictions do not regulate business. For most industries or sectors, regulations are developed through the ministry responsible for that sector. In the telecommunications, electricity, cocoa, coffee, cotton, and cashew sectors, the government has established control boards or independent agencies to regulate the sector and pricing. Companies have complained that rules for buying prices determined by the agriculture commodity regulatory agencies tend to be opaque and local prices are set arbitrarily without reference to world prices.

Côte d’Ivoire’s accounting, legal, and regulatory procedures are consistent with international norms, though both foreign and Ivoirian businesses often complain about the government’s poor communication. Côte d’Ivoire is a member of the Organization for the Harmonization of African Business Law (OHADA), which is common to 16 countries and adheres to the WAEMU accounting system. In accounting, companies use the WAEMU system, which complies with international norms and is a source of economic and financial data.

Draft legislation and regulations are not published or made available for public comment. The government, however, often holds public seminars and workshops to discuss proposed plans with trade and industry associations.

Regulatory actions are published in the Journal Officiel de la République de Côte d’Ivoire (Official Journal of the Republic of Côte d’Ivoire), which is available for purchase at newsstands and by subscription on the Journal’s website http://www.sgg.gouv.ci/jo.php  and at https://abidjan.net/ .

The Autorité Nationale de Régulation des Marchés Publics (National Regulatory Authority for Public Procurement; ANRMP), polices transparency in public procurement and private sector compliance with public procurement rules. Consumers, trade associations, private companies, and individuals have the right to file complaints with ANRMP to hold the government to its own administrative processes.

The U.S. Government does not have any knowledge of regulatory system reforms that have been announced since the last ICS report, including enforcement reforms. The government has fully implemented regulatory reforms announced in prior years, with the goal of creating an enabling business environment, fostering competition, and building investor confidence.

Public and private institutions tasked with controlling and regulating various sectors make regulatory enforcement mechanisms available to the public.

Regulatory bodies regularly publish and promote access to their data for the business community and development partners, allowing for scientific and data-driven reviews and assessments. Quantitative analysis and public comments are made available.

The Ivoirian government promotes transparency of public finances and debt obligations (including explicit and contingent liabilities) with the publication of this information through the following websites: http://budget.gouv.ci 

https://www.tresor.gouv.ci/tres/fr_FR/rapport-de-la-dette-publique/ 

International Regulatory Considerations

The Ivoirian government incorporates WAEMU directives into its public procurement bidding policy, processes, and auditing. This includes separating auditing and regulating functions and increasing advance payment for the initial procurement of goods and services from 25 to 30 percent. The ANRMP regulates public procurement with a view to improving governance and transparency. It has the authority to sanction private-sector entities that do not comply with public-procurement regulations and to provide recommendations to ministries to address irregularities.

Ivoirian laws, codes, professional-association standards, and regional-body membership obligations are incorporated in the country’s regulatory system. The private sector often follows European norms to take advantage of the Ivoirian trade agreement with the EU – Côte d’Ivoire’s largest market.

Côte d’Ivoire has been a WTO member since 1995 but has not notified all draft technical regulations to the WTO Committee on Technical Barriers to Trade. Côte d’Ivoire signed the Trade Facilitation Agreement (TFA) in December 2013 and ratified it in December 2015. The National TFA Committee (NTFC) coordinates TFA implementation.

Legal System and Judicial Independence

The Ivoirian legal system is based on the French civil-law model. The law guarantees to all the right to own and transfer private property. Rural land, however, is governed by a separate set of laws, which makes ownership and transfer very difficult. The court system enforces contracts.

Côte d’Ivoire is a signatory to OHADA, which provides common corporate law and arbitration procedures for the 16 member states. The Commercial Court of Abidjan adjudicates corporate law cases and contract disputes. Mediation is also available through the Ivoirian legal framework in addition to the Commercial Court and the Arbitration Tribunal. The Commercial Court of Abidjan retains jurisdiction for the entire country.

The Ivoirian judicial system is ostensibly independent, but magistrates are sometimes subject to political or financial influence. Judges sometimes fail to prove that their decisions are based on the legal or contractual merits of a case and often rule against foreign investors in favor of entrenched interests. The greatest complaint from investors is the slow dispute-resolution process. Cases are often postponed or appealed without a reasonable explanation, moving from court to court for years or even decades. Regulations or enforcement actions are appealable and adjudicated through the national court system.

Laws and Regulations on Foreign Direct Investment

The 2018 Investment Code is the primary governing authority for investment conduct. The Code does not restrict foreign investment or the repatriation of funds. The Code offers a mixture of fiscal incentives, combining tax exoneration and tax credits to encourage investment. The government also offers incentives to promote small businesses and entrepreneurs, low-cost housing construction, factories, and infrastructure development, which the government considers key to the country’s economic development. Some sectors have additional laws that govern investment activity in those sectors. In mining, for example, the Mining Code allows a period for holding permits for ten years with a possibility to extend for two more years on a limited permit area of 400 square kilometers.

As of January 2021, the Government of Côte d’Ivoire has been preparing a bill detailing local content requirements for the petroleum sector for consideration by the legislature (see also Performance and Data Localization Requirements).

The CEPICI provides a one-stop shop website to assist investors. More information on Côte d’Ivoire’s laws, rules, procedures, and reporting requirements can be found at: www.apex-ci.org/ 

www.cepici.gouv.ci/ 

Competition and Antitrust Laws

The Ministry of Commerce, Industry and Small Business Promotion, through the Commission on Anti-Competition Practices, is responsible for reviewing competition–related concerns under the 1991 competition law, which was updated in 2013. ANRMP is responsible for reviewing the awarding of contracts.

No significant competition cases were reported over the past year.

Expropriation and Compensation

The Ivoirian constitution guarantees the right to own property and freedom from expropriation without compensation. The government may expropriate property with due compensation (fair market value) at the time of expropriation in the case of “public interest.” Perceived corruption and weak judicial and security capacity, however, have resulted in poor enforcement of private property rights, particularly when the entity in question is foreign and the plaintiff is Ivoirian or a long-established foreign resident.

Dispute Settlement

ICSID Convention and New York Convention

Côte d’Ivoire is a signatory to the International Center for Settlement of Investment Disputes (ICSID) and a signatory to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.

In cases where a firm does not meet the nationality conditions stipulated by Article 25 of the Convention, the dispute must be resolved within the provisions of the supplementary mechanisms approved by the ICSID.

Investor-State Dispute Settlement

Côte d’Ivoire is a signatory to investment agreements subject to binding international arbitration of investment disputes. Côte d’Ivoire recognizes and has been known to enforce foreign arbitral awards, but enforcement is inconsistent.

Côte d’Ivoire does not have a Bilateral Investment Treaty (BIT) or a Free Trade Agreement (FTA) with the United States.

In the past 10 years, foreign investors have had investment disputes, which have often been resolved through arbitration or amicable settlement. There have been no reported disputes involving U.S. firms in the past 10 years. As Côte d’Ivoire is a signatory to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards, local courts are obliged to enforce foreign arbitral awards.

The U.S. government is not aware of any history of extrajudicial action against foreign investors, including U.S. firms.

International Commercial Arbitration and Foreign Courts

The Abidjan-based regional Joint Court of Justice and Arbitration (CCJA) provides a means of solving contractual disputes. The arbitration tribunal has the ability to enforce awards more quickly, but most business contracts are written to specify that disputes will be settled in Ivoirian courts, thus the Ivoirian court system is the first resort.

Côte d’Ivoire is a member of OHADA, whose provisions adopted in 1999 have replaced domestic law on arbitration. The unified law is based on the model law of the United Nations Commission on International Trade Law (UNICITRAL).

Judgments of foreign courts are recognized but difficult to enforce in local courts. To avoid being forced to work through the Ivoirian legal system, some investors stipulate in contracts that disputes must be settled through international commercial arbitration. Yet, even if stipulated in the contract, decisions reached through OHADA are sometimes not honored by local courts.

The U.S. government is not aware of cases in which Côte d’Ivoire’s domestic courts have shown preferential treatment for state-owned enterprises involved in investment disputes.

Bankruptcy Regulations

Côte d’Ivoire is ranked 85 out of 190 countries for ease of resolving insolvency, according to the World Bank’s Doing Business Report. As a member of OHADA, Côte d’Ivoire has both commercial and bankruptcy laws that address the liquidation of business liabilities. OHADA is a regional system of uniform laws on bankruptcy, debt collection, and rules governing business transactions. OHADA permits three different types of bankruptcy liquidation: an ordered suspension of payment to permit a negotiated settlement; an ordered suspension of payment to permit restructuring of the company, similar to Chapter 11; and the complete liquidation of assets, similar to Chapter 7. Creditors’ rights, irrespective of nationality, are protected equally by the Act. Bankruptcy is not criminalized. Court-ordered monetary settlements resulting from declarations of bankruptcy are usually paid out in local currency.

The joint venture Credit Info – Volo West Africa manages regional credit bureaus in WAEMU.

Capital Markets and Portfolio Investment

Government policies generally encourage foreign portfolio investment.

The Regional Stock Exchange (BRVM) is located in Abidjan and the BRVM lists companies from the eight countries of the WAEMU. The existing regulatory system effectively facilitates portfolio investment through the West African Central Bank (BCEAO) and the Regional Council for Savings Investments (CREPMF). There is sufficient liquidity in the markets to enter and exit sizeable positions.

Government policies allow the free flow of financial resources into the product and factor markets.

The BCEAO respects IMF Article VIII on payment and transfers for current international transactions.

Credit allocation is based on market terms and has increased to support the private sector and economic growth, specifically for large businesses. Foreign investors can acquire credit on the local market.

Money and Banking System

As of December 2020, there were 29 commercial banks and two credit institutions in Côte d’Ivoire. Banks are expanding their national networks, especially in the secondary cities outside Abidjan, as domestic investment has increased up-country. The total number of bank branches has more than doubled from 324 in 2010 to 725 branches in 2019 (latest data available). According to the World Bank, in 2017 (latest data available) 41 percent of the population over the age of 15 have a bank account. Alternative financial services available include mobile money and microfinance for bill payments and transfers. Many Ivoirians prefer mobile money over banking, but mobile money does not yet offer the same breadth of financial services as banks.

Most Ivoirian banks are compliant with the BCEAO’s minimum capital requirements. Some public banks have large numbers of nonperforming loans. The government has been restructuring and privatizing the commercial banking sector over the past decade in order to remove low performers from government accounts.

The estimated total assets of the five largest banks are around USD 14 billion and account for more than half of total bank assets in the country.

The BCEAO is common to the eight member states of the WAEMU and manages banking regulations.

Foreign banks are allowed to operate in Côte d’Ivoire; at least one has been in Côte d’Ivoire for decades. They are subject to the WAEMU Banking Commission’s prudential measures and regulations. There have been no reports of Côte d’Ivoire losing any correspondent banking relationships in the past three years. No correspondent banking relationships are known to be in jeopardy.

Foreign Exchange and Remittances

Foreign Exchange

There are no restrictions on the transfer or repatriation of capital and income earned, or on investments financed with convertible foreign currency. Once an investment is established and documented, the government regularly approves the remittances of dividends and/or repatriation of capital. The same holds true for requests for other sorts of transactions (e.g. imports, licenses, and royalty fees).

Funds associated with investments funded with convertible currency are freely convertible into any world currency.

Côte d’Ivoire is a member of WAEMU, which uses the West African CFA Franc (XOF). The French Treasury holds the foreign exchange reserves of WAEMU member states and supports the fixed exchange rate of 655.956 CFA to the Euro. In December 2019, the Ivoirian President, concurrently serving as chairman of WAEMU, announced in the presence of the French President the forthcoming transition from the CFA to a new common regional currency to be called the Eco; details about the timeline or modalities of the change have not yet been published.

Remittance Policies

There are no recent changes or plans to change investment remittance policies.

There are no time limitations on remittances. Total personal remittances received by Ivoirians were about USD 338 million in 2019 or 0.6 percent of GDP.

Sovereign Wealth Funds

Côte d’Ivoire does not have a sovereign wealth fund, although there are reports as of late 2020 that the government is in the process of creating one.

Companies owned or controlled by the state are subject to national laws and the tax code. The Ivoirian government still holds substantial interests in many firms, including the refinery SIR (49 percent), the public transport firm (60 percent), the national television station RTI (98 percent), the national lottery (80 percent), the national airline Air Côte d’Ivoire (58 percent), and the land management agency Agence de Gestion Foncière AGEF (35 percent). Total assets of State-Owned Enterprises (SOEs) were USD 796 million and total net income of SOEs was USD 116 million in 2018 (latest figures). Of the 82 SOEs, 28 are wholly government-owned, 12 are majority government-owned, in seven the government has a blocking minority, and in 35 the government has a minority of shares. Each SOE has an independent board. The government has begun the process of divestiture for some SOEs (see next section). There are active SOEs in the banking, agri-business, mining, and telecom industries.

The published list of SOEs is available at https://dgpe.gouv.ci/ind ex.php?p=portefeuille_etat 

SOEs competing in the domestic market do not receive non-market-based advantages from the government. They are subject to the same tax burdens and policies as private companies.

Côte d’Ivoire does not adhere to OECD guidelines for SOE corporate governance (it is not a member of OECD).

Privatization Program

The government has been pursuing SOE privatization for decades. Most recently, in 2017, the government sold 90 percent of its shareholdings in the Ivoirian Textile Development Company (Compagnie Ivoirienne du Développement du Textile; CIDT) as well as in the Ity Mining Company (Société des mines d’Ity; SMI). In 2018, the government sold 51 percent of the Housing Bank of Côte d’Ivoire (Banque d’Habitat de Côte d’Ivoire; BHCI).

Contracts for participation in SOE privatization are competed through a French-language public tendering process, for which foreign investors are encouraged to submit bids. The Privatization Committee, which reports to the Prime Minister, maintains a website at: http://privatisation.gouv.ci .

In 2016, the country adopted a new constitution, creating the position of Vice-President (currently vacant), and a Senate, which first convened in April 2018. In the period around elections in 2018 and 2020, demonstrations and protests by political parties and their supporters were common and occasionally led to vandalism, destruction of public and private property, and violent clashes with security forces and with other civilians. Unions also engage in protests that sometimes become violent. President Alassane Ouattara was elected to a third term in October 2020. In the run up to the 2020 presidential election, the lack of political party-consensus on the composition of the country’s Independent Electoral Commission, the contentious reform of the Electoral Code, the constitutional validation of the incumbent president’s eligibility for a third term, and the exclusion of significant opposition figures from the race, aggravated political divides within the country. National Assembly elections in March 2021, however, passed largely peacefully, and the opposition won a substantial number of seats.

Côte d’Ivoire’s security situation has significantly improved since its 2010-2011 post-electoral violence. In early 2017, some Ivoirian soldiers mutinied, demanding payment of bonuses. The government responded by largely acceding to their demands and pledging to improve living and working conditions for armed and security forces, which it has steadily done over the ensuing years. Côte d’Ivoire suffered a terrorist attack in March 2016 in the popular tourist town of Grand Bassam in which attackers killed 22 people. Al-Qaeda in the Islamic Maghreb claimed responsibility for the attack. In June 2020 and March 2021, the country experienced other attacks in the Ivoirian-Burkinabe border town of Kafolo, which the government attributed to unidentified terrorists. Al-Qaeda and other extremist organizations continue to pose a major terrorism risk to the region. Côte d’Ivoire continues to cooperate with international partners to combat the increasing terrorism/extremist threat emanating from the Sahel to its immediate North.

Table 4: Sources of Portfolio Investment
Data not available.

Policies Towards Foreign Direct Investment

Croatia is generally open to foreign investment and the Croatian government continues to make efforts, through financial incentives, to attract foreign investors.  All investors, both foreign and domestic, are guaranteed equal treatment by law, with a handful of exceptions described below.  However, bureaucratic and political barriers remain.  Investors agree that an unpredictable regulatory framework, lack of transparency, judicial inefficiencies, lengthy administrative procedures, lack of structural reforms, and unresolved property ownership issues weigh heavily upon the investment climate.

Croatia is partnered with the World Bank on the “Croatia Business Environment Reform” project which intends to help Croatia implement various business reforms. The Ministry of Economy and Sustainable Development Directorate for Internationalization assists investors.  For more information, see:  http://investcroatia.gov.hr/ .  The Strategic Investment Act fast-tracks and streamlines bureaucratic processes for large projects valued at USD 10.7 million or more on the investor’s behalf.  Various business groups, including the American Chamber of Commerce, Foreign Investors’ Council, and the Croatian Employers’ Association, are in dialogue with the government about ways to make doing business easier and to keep investment retention as a priority.

Limits on Foreign Control and Right to Private Ownership and Establishment

Croatian law allows for all entities, both foreign and domestic, to establish and own businesses and to engage in all forms of remunerative activities.  Article 49 of the Constitution states all entrepreneurs have equal legal status.  However, the Croatian government restricts foreign ownership or control of services for a handful of strategic sectors:  inland waterways transport, maritime transport, rail transport, air to ground handling, freight-forwarding, publishing, ski instruction, and primary mandated healthcare.  Apart from these, the only regulatory requirements to market access involve occupational licensing requirements (architect, auditor, engineer, lawyer, veterinarian, etc.), about which detailed information can be found at  http://psc.hr/en/sectoral-requirements/ .  Over 90 percent of the banking sector is foreign owned.

Croatia does not have a foreign investment screening mechanism, but the government designated the Ministry of Economy and Sustainable Development Internationalization Directorate as the “National Contact Point” for reviewing direct investments and responding to requests for information from EU Member States or the European Commission, per European Union Directive 2019/452.

Other Investment Policy Reviews

The Organization for Economic Cooperation and Development (OECD) last published an investment climate review for Croatia in June 2019: https://www.oecd.org/publications/oecd-investment-policy-reviews-croatia-2019-2bf079ba-en.htm .

The latest available World Bank Group “Doing Business” Economic Profile of Croatia was published in 2020: https://www.doingbusiness.org/content/dam/doingBusiness/country/c/croatia/HRV.pdf .

The European Commission’s Country Report Croatia 2020 assesses the country’s economic situation and outlook: https://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1584545612721&uri=CELEX%3A52020SC0510 .

Business Facilitation

The Croatian government offers two e-government options for on-line business registration,  www.hitro.hr   and  start.gov.hr  , both of which provide 24-hour access.  Start.gov.hr provides complete business registration for a limited liability company (d.o.o.), simple limited company (j.d.o.o.) or company, without any need to physically enter a public administration office.  The procedure guarantees a short turnaround on requests and provides deadlines by which the company can expect to be registered.  The Start.gov.hr procedure eliminates fees for public notaries, proxies, seals, and stamps, and reduces court registration fees by 50 percent.  Hitro.hr also provides on-line services but maintains offices in 60 Croatian cities and towns for those who want to register their business in person.

In 2020, the Global Enterprise Registration website ( www.GER.co ) rated Croatia’s business registration process 4 out of 10, while the latest available 2020 World Bank Ease of Doing Business report ranks Croatia as 114 out of 190 countries in this category.  The government pledged to improve conditions for business registration and continues to identify areas for removing burdensome regulations and processes.   Croatia’s business facilitation mechanism provides for equitable treatment to all interested in registering a business, regardless of gender or ethnicity.

The United Nations Conference on Trade and Development (UNCTAD) provides an outline of investment facilitation proposals at  https://investmentpolicy.unctad.org/country-navigator/53/croatia .

Outward Investment

Croatian foreign direct investment totals approximately USD 24.6 million in the United States, according to Croatian National Bank figures.  The government does not promote or incentivize outward investment.  Croatia has no restrictions on domestic investors who wish to invest abroad.

Transparency of the Regulatory System

Croatian legislation, which is harmonized with European Union legislation (acquis communautaire), affords transparent policies and fosters a climate in which all investors are treated equally. Nevertheless, bureaucracy and regulation can be complex and time-consuming, although the government is working to remove unnecessary regulations. The complete text of all legislation is published both on-line and in the National Gazette, available at:  www.nn.hr  .  There are no informal regulatory processes, and investors should rely solely on government-issued legislation to conduct business.

The Croatian Parliament promulgates national legislation, which is implemented at every level of government, although local regulations vary from county to county.  Members of Government and Members of Parliament, through working groups or caucuses, are responsible for presenting legislation.  Responsible ministries draft and present new legislation to the government for approval. When the Government approves a draft text, it is sent to Parliament for approval.  The approved act becomes official on the date defined by Parliament and when it is published in the National Gazette. Citizens maintain the right to initiate a law through their district Member of Parliament.  New legislation and changes to existing legislation which have a significant impact on citizens are made available for public commentary at https://esavjetovanja.gov.hr/ECon/Dashboard .  The Law on the Review of the Impact of Regulations defines the procedure for impact assessment, planning of legislative activities, and communication with the public, as well as the entities responsible for implementing the impact assessment procedure.

Croatia adheres to international accounting standards and abides by international practices through the Accounting Act, which is applied to all accounting businesses.  Publicly listed companies must adhere to these accounting standards by law.

Croatian courts are responsible for ensuring that laws are enforced correctly.  If an investor believes that the law or an administrative procedure is not implemented correctly, the investor may initiate a case against the government at the appropriate court.  However, judicial remedies are frequently ineffective due to delays or political influence.

The Enforcement Act defines the procedure for enforcing claims and seizures carried out by the Financial Agency (FINA), the state-owned company responsible for offering various financial services to include securing payment to claimants following a court enforced order.  FINA also has the authority to seize assets or directly settle the claim from the bank account of the person or legal entity that owes the claim. Enforcement proceedings are regulated by the Enforcement Act, last amended in 2017, and by laws regulating its execution, such as the Act on Implementation of the Enforcement over Monetary Assets, amended in 2020.  The legislation incorporates European Parliament and European Commission provisions for easily enforcing cross-border financial claims in both business and private instances.  Enforcement proceedings are conducted on the basis of enforcement title documents which specify the creditor and debtor, the subject, type, scope, and payment deadline.

More information can be found at  www.fina.hr  . Various types of regulation exist, which prescribe complicated or time-consuming procedures for businesses to implement.  Reports on public finances and public debt obligations are available to the public on the Ministry of Finance website at:  http://www.mfin.hr/en  .

Public finances and debt obligations are transparent and available on the Ministry of Finance website, in Croatian only, at  https://mfin.gov.hr/proracun-86/86  .

International Regulatory Considerations

Croatia, as an EU member, transposes all EU directives.  Domestic legislation is applied nationally and – while local regulations vary from county to county — there is no locally-based legislation that overrides national legislation.  Local governments determine zoning for construction and therefore have considerable power in commercial or residential building projects.  International accounting, arbitration, financial, and labor norms are incorporated into Croatia’s regulatory system.

Croatia has been a member of the World Trade Organization (WTO) since 2000. Croatia submits all draft technical regulations to the WTO, in coordination with the European Commission.

Legal System and Judicial Independence

The legal system in Croatia is civil and provides for ownership of property and enforcement of legal contracts.  The Commercial Company Act defines the forms of legal organization for domestic and foreign investors. It covers general commercial partnerships, limited partnerships, joint stock companies, limited liability companies and economic interest groupings.  The Obligatory Relations Act serves to enforce commercial contracts and includes the provision of goods and services in commercial agency contracts.

The Croatian constitution provides for an independent judiciary.  The judicial system consists of courts of general and specialized jurisdictions.  Core structures are the Supreme Court, County Courts, Municipal Courts, and Magistrate/Petty Crimes Courts.  Specialized courts include the Administrative Court and High and Lower Commercial Courts.  A Constitutional Court determines the constitutionality of laws and government actions and protects and enforces constitutional rights. Municipal courts are courts of first instance for civil and juvenile/criminal cases.  The High Commercial Court is located in Zagreb and has appellate review of lower commercial court decisions.  The Administrative Court has jurisdiction over the decisions of administrative bodies of all levels of government. The Supreme Court is the highest court in the country and, as such, enjoys jurisdiction over civil and criminal cases.  It hears appeals from the County Courts, High Commercial Court, and Administrative Court. Regulations and enforcement actions are appealable and adjudicated in the national court system.

On January 1, 2021 the government established a High Criminal Court, headquartered in Zagreb, which will be responsible for adjudication of second instance appeals against decisions made by County Courts in cases that involve criminal acts.

The Ministry of Justice and Public Administration continues to pursue a court reorganization plan intended to increase efficiency and reduce the backlog of judicial cases.  The World Bank approved a USD 110 million loan to Croatia for the Justice for Business Project in March 2020, specifically for the purpose of supporting ICT infrastructure upgrades, court process improvements, and other reforms that will improve justice sector services to improve the business climate.  This effort will be led by the Ministry of Justice and Public Administration, in coordination with the Economy Ministry and the Construction Ministry, from 2020 to 2024.

Reforms are underway, but significant challenges remain in relation to land registration, training court officers, providing adequate resources to meet the court case load, and reducing the backlog and length of bankruptcy procedures.  Investors often face problems with unusually protracted court procedures, lack of clarity in legal proceedings, contract enforcement, and judicial efficiency.  Croatian courts have decreased the number of civil, criminal. and commercial cases and decreased the disposition time for resolution of those cases, however there is still a significant case backlog.  The 2020 European Commission Country Report for Croatia assessed that the length of court proceedings continues to be a burden for business.

Laws and Regulations on Foreign Direct Investment

There are no specific laws aimed at foreign investment; both foreign and domestic market participants in Croatia are protected under the same legislation. The Company Act defines the forms of legal organization for domestic and foreign investors. The following entity types are permitted for foreigners: general partnerships; limited partnerships; branch offices; limited liability companies; and joint stock companies. The Obligatory Relations Act regulates commercial contracts.

The Ministry of Economy and Sustainable Development Internationalization Directorate ( https://investcroatia.gov.hr/en/ ) facilitates both foreign and domestic investment. The directorate’s website offers relevant information on business and investment legislation and includes an investment guide.

According to Croatian commercial law a number of significant or “strategic” business decisions must be approved by 75 percent of the company’s shareholders.  Minority investors with at least 25 percent ownership plus one share have what is colloquially called a “golden share,” meaning they can block or veto “strategic” decisions requiring a 75 percent vote. The law calls for minimum 75 percent shareholder approval to remove a supervisory board member, authorize a supervisory board member to make a business decision, revoke preferential shares, change company agreements, authorize mergers or liquidations, and to purchase or invest in something on behalf of the company that is worth more than 20 percent of the company’s initial capital. (Note: This list is not exhaustive.)

Competition and Anti-Trust Laws

The Competition Act defines the rules and methods for promoting and protecting competition.  In theory, competitive equality is the standard applied with respect to market access, credit, and other business operations, such as licenses and supplies.  In practice, however, state-owned enterprises (SOEs) and government-designated “strategic” firms may still receive preferential treatment. The Croatian Competition Agency is the country’s competition watchdog, determining whether anti-competitive practices exist and punishing infringements.  It has determined in the past that some subsidies to SOEs constituted unlawful state aid, however state aid issues are now handled by the Ministry of Finance.  Information on authorities of the Agency and past rulings can be found at  www.aztn.hr .  The website includes a “call to the public” inviting citizens to provide information on competition-related concerns.

Expropriation and Compensation

Croatian Law on Expropriation and Compensation gives the government broad authority to expropriate real property in economic and security-related circumstances, including eminent domain. The Law on Strategic Investments also provides for expropriation for projects that meet the criteria for “strategic” projects.  However, it includes provisions that guarantee adequate compensation, in either the form of monetary compensation or real estate of equal value to the expropriated property, in the same town or city.  The law includes an appeals mechanism to challenge expropriation decisions by means of a complaint to the Ministry of Justice and Public Administration within 15 days of the expropriation order.  The law does not describe the Ministry’s adjudication process.  Parties not pleased with the outcome of a Ministry decision can pursue administrative action against the decision, but no appeal to the decision is allowed.

Article III of the U.S.-Croatia Bilateral Investment Treaty (BIT) covers both direct and indirect expropriations.  The BIT bars all expropriations or nationalizations except those that are for a public purpose, carried out in a non-discriminatory manner, in accordance with due process of law, and subject to prompt, adequate, and effective compensation.

Dispute Settlement

ICSID Convention and New York Convention

In 1998 Croatia ratified the Washington Convention that established the International Center for the Settlement of Investment Disputes (ICSID).  Croatia is a signatory to the following international conventions regulating the mutual acceptance and enforcement of foreign arbitration: the 1923 Geneva Protocol on Arbitration Clauses; the 1927 Geneva Convention on the Execution of Foreign Arbitration Decisions; the 1958 New York Convention on the Acceptance and Execution of Foreign Arbitration Decisions; and the 1961 European Convention on International Business Arbitration.

Investor-State Dispute Settlement

The Croatian Law on Arbitration addresses both national and international proceedings in Croatia. Parties to arbitration cases are free to appoint arbitrators of any nationality or professional qualifications and Article 12 of the Law on Arbitration requires impartiality and independence of arbitrators.  Croatia recognizes binding international arbitration, which may be defined in investment agreements as a means of dispute resolution.

The Arbitration Act covers domestic arbitration, recognition and enforcement of arbitration rulings, and jurisdictional matters.  Once an arbitration decision has been reached, the judgment is executed by court order.  If no payment is made by the established deadline, the party benefiting from the decision notifies the Commercial Court, which becomes responsible for enforcing compliance. Arbitration rulings have the force of a final judgment but can be appealed within three months.

In regard to implementation of foreign arbitral awards, Article 19 of the Act on Enforcement states that judgments of foreign courts may be executed only if they “fulfill the conditions for recognition and execution as prescribed by an international agreement or the law.”  The Act on Enforcement serves to decrease the burden on the courts by passing responsibility for the collection of financial claims and seizures to the Financial Agency (FINA), which is responsible for paying claimants once the court has rendered a decision ordering enforcement.  FINA also has the authority to seize assets or directly settle the claim from the bank account of the person or legal entity that owes the claim. More information can be found at  www.fina.hr .

Article Ten of the U.S.-Croatia BIT sets forth mechanisms for the resolution of investment disputes, defined as any dispute arising out of or relating to an investment authorization, an investment agreement, or an alleged breach of rights conferred, created, or recognized by the BIT with respect to a covered investment.

Croatia has no history of extra-judicial action against foreign investors. There are currently two known cases, pending for years, regarding U.S. investor claims before Croatian courts. Both investors have also announced plans to file claims at international arbitration courts, citing the U.S.-Croatia BIT as the basis for the action.

International Commercial Arbitration and Foreign Courts

Alternative dispute resolution is implemented at the High Commercial Court, at the Zagreb Commercial Court, and at the six municipal courts around the country.  In order to reduce the backlog, non-disputed cases are passed to public notaries.

Both mediation and arbitration services are available through the Croatian Chamber of Economy. The Chamber’s permanent arbitration court has been in operation since 1965.  Arbitration is voluntary and conforms to UNCITRAL model procedures.  The Chamber of Economy’s Mediation Center has been operating since 2002 – see  http://www.hok-cba.hr/hr/center-za-mirenje-hoka  .

There are no major investment disputes currently underway involving state-owned enterprises, other than a dispute between the Croatian government and a Hungarian oil company over implementation of a purchase agreement with a Croatian oil and gas company. There is no evidence that domestic courts rule in favor of state-owned enterprises.

Bankruptcy Regulations

Croatia’s Bankruptcy Act corresponds to the EU regulation on insolvency proceedings and United Nations Commission on International Trade Law (UNCITRAL) Model Law on Cross-Border Insolvency.  All stakeholders in the bankruptcy proceeding, foreign and domestic are treated equally in terms of the Bankruptcy Act.  The last available World Bank Ease of Doing Business 2020 rating for Croatia in the category of resolving insolvency was 63 out of 190 countries.  Bankruptcy is not considered a criminal act.

The Financial Operations and Pre-Bankruptcy Settlement Act helps expedite proceedings and establish timeframes for the initiation of bankruptcy proceedings.  One of the most important provisions of pre-bankruptcy is that it allows a firm that has been unable to pay all its bills to remain open during the proceedings, thereby allowing it to continue operations and generate cash under financial supervision in hopes that it can recover financial health and avoid closure.

The Commercial Court of the county in which a bankrupt company is headquartered has exclusive jurisdiction over bankruptcy matters. A bankruptcy tribunal decides on initiating formal bankruptcy proceedings, appoints a trustee, reviews creditor complaints, approves the settlement for creditors, and decides on the closing of proceedings.  A bankruptcy judge supervises the trustee (who represents the debtor) and the operations of the creditors’ committee, which is convened to protect the interests of all creditors, oversee the trustee’s work and report back to creditors.  The Act establishes the priority of creditor claims, assigning higher priority to those related to taxes and revenues of state, local and administration budgets.  It also allows for a debtor or the trustee to petition to reorganize the firm, an alternative aimed at maximizing asset recovery and providing fair and equitable distribution among all creditors.

In April 2017, the Croatian government passed the “Law on Extraordinary Appointment of Management Boards for Companies of Systematic Importance to the Republic of Croatia,” when it became clear that Croatia’s largest corporation, Agrokor, was in crisis and would likely go bankrupt. The Law allowed the Government, in this instance, to install an Emergency Commissioner to restructure the company, which resulted in the creation of the Fortenova Group that took on the core business of the former Agrokor food and retail company.

Capital Markets and Portfolio Investment

Croatia’s securities and financial markets are open equally to domestic and foreign investment. Foreign residents may open non-resident accounts and may do business both domestically and abroad.  Specifically, Article 24 of the Foreign Currency Act states that non-residents may subscribe, pay in, purchase, or sell securities in Croatia in accordance with regulations governing securities transactions.  Non-residents and residents are afforded the same treatment in spending and borrowing.  These and other non-resident financial activities regarding securities are covered by the Foreign Currency Act, available on the central bank website ( https://www.hnb.hr/en/ ).

Securities are traded on the Zagreb Stock Exchange (ZSE), established in 1991.  Regulations that govern activity and participation in the ZSE can be found (in English) at:  https://zse.hr/en/legal-regulations/234 .  There are three tiers of securities traded on the ZSE.  The Capital Markets Act regulates all aspects of securities and investment services and defines the responsibilities of the Croatian Financial Services Supervisory Agency (HANFA). The Capital Market Act was amended in 2019 and went into force on February 22, 2020.  The amendments include the increase from USD 5.4 million to USD 8.7 million for mandatory publication of share prospectus, changes to administrative obligations, and a decrease in fees for issuing securities.  These amendments also give HANFA more authority over corporate management of those companies listed on the capital market.  All legislation associated with the Capital Market act can be found (in English) at:  http://www.hanfa.hr/regulations/capital-market/ .

There is sufficient liquidity in the markets to enter and exit sizeable positions.  There are no policies that hinder the free flow of financial resources.  There are no restrictions on international payments or transfers.  As such, Croatia is in accordance with IMF Article VIII.  The private sector, both domestic and foreign owned, enjoys open access to credit and a variety of credit instruments on the local market, on market terms.

Money and Banking System

The banking sector is mostly privatized and is highly developed, competitive, and increasingly offering diverse products to businesses (foreign and domestic) and consumers.  French, German, Italian, and Austrian companies own over 90 percent of Croatia’s banks. In 2016, Addiko Bank became the first U.S. bank registered in Croatia by taking over all of Hypo Bank’s holdings in Croatia.  The banking sector suffered no long-term consequences during the 2008 global banking crisis. According to conclusions from an IMF Virtual Visit with Croatia in November 2020, the banking sector is generally considered to be one of the strongest sectors of the Croatian economy, “comparable to other Central and Eastern European Countries.”   As of September 2020, there were 20 commercial banks and three savings banks, with assets totaling USD 68.24 billion.

The largest bank in Croatia is Italian-owned Zagrebacka Banka, with assets of USD 18.4 billion and a market share of 27.01 percent. The second largest bank is Italian-owned Privredna Banka Zagreb, with assets totaling USD 14.02 billion and 20.54 percent market share.  The third largest is Austrian Erste Bank, with assets totaling USD 10.9 billion and a 15.96 percent market share.  According to a December 2020 European Commission report, the non-performing loans (NPL) ratio for Croatia was 5.5 percent in the second quarter of 2020, putting Croatia among the top ten of EU countries for NPL in 2020. The country has a central bank system and all information regarding the Croatian National Bank can be found at  https://www.hnb.hr/en/ . Non-residents are able to open bank accounts without restrictions or delays.  The Croatian government has not introduced or announced any current intention to introduce block chain technologies in banking transactions.

Foreign Exchange and Remittances

Foreign Exchange

The Croatian Constitution guarantees the free transfer, conversion, and repatriation of profits and invested capital for foreign investments. Article VI of the U.S.-Croatia Bilateral Investment Treaty (BIT) additionally establishes protection for American investors from government exchange controls. The BIT obliges both countries to permit all transfers relating to a covered investment to be made freely and without delay into and out of each other’s territory.  Transfers of currency are additionally protected by Article VII of the International Monetary Fund (IMF) Articles of Agreement ( http://www.imf.org/External/Pubs/FT/AA/index.htm#art7  ).

The Croatian Foreign Exchange Act permits foreigners to maintain foreign currency accounts and to make external payments.  The Foreign Exchange Act also defines foreign direct investment (FDI) in a manner that includes use of retained earnings for new investments/acquisitions, but excludes financial investments made by institutional investors such as insurance, pension and investment funds.  The law also allows Croatian entities and individuals to invest abroad.  Funds associated with any form of investment can be freely converted into any world currency.

The exchange rate is determined by the Croatian National Bank through “managed floating.”  The National Bank intervenes in the foreign exchange market to ensure the Euro-Croatian kuna rate remains stable as an explicit and longstanding policy.  On July 10, 2020 the European Central Bank and European Commission announced that Croatia had fulfilled its commitments and the Croatian kuna (HRK) was admitted into the Banking Union and European Exchange Rate Mechanism (ERM II), with the exchange rate between the kuna and the euro (EUR) pegged at EUR 1 to 7.53450 HRK. Any risk of currency devaluation or significant depreciation is generally low.

Remittance Policies

No limitations exist, either temporal or by volume, on remittances.  The U.S. Embassy in Zagreb has not received any complaints from American companies regarding transfers and remittances.

Sovereign Wealth Funds

Croatia does not own any sovereign wealth funds.

There are currently a total of 58 state-owned enterprises (SOEs) that are either wholly state-owned or in which the state has a majority stake.  The SOEs are managed through the Ministry of Physical Planning, Construction, and State Assets or the Center for Restructuring and Sale (CERP).  The Ministry of Physical Planning, Construction, and State Assets oversees 39 “special state interest” SOEs, including 19 wholly state-owned, 13 majority state-owned companies, six listed as “legal entities of special interest,” and one with less than 50 percent state ownership.  CERP oversees the other 19 SOEs, of which 11 are wholly state-owned and eight are majority state-owned.

These SOEs cover a range of sectors including infrastructure, energy, real estate, finance, transportation, and utilities.  The latest figures available, from 2019, show that SOEs employ a total of 72,256 people and have net revenues totaling USD 9.95 billion and assets of USD 46.6 billion.  The government appoints the members of SOE management and supervisory boards, making the companies very susceptible to political influence.

CERP also oversees 306 companies; of these, the state owns up to 10 percent of 220 companies, from 10 to 49 percent of 67 companies,50-99 percent of 8 companies, and 100 percent of 11 companies.  By statute, CERP must divest the state from these companies.  Lists of SOEs are published on the websites of the Ministry of Physical Planning, Construction, and State Assets at  https://imovina.gov.hr/  and on CERP’s website at  http://www.cerp.hr/ .

County and city level governments have majority ownership in approximately 500 companies, mostly utilities; however, exact data is not available.  The latest available European Commission 2020 Country Report for Croatia assesses that Croatia made slow progress in selling off holdings in non-strategic companies, and its targets are not ambitious.  The European Commission and the European Bank for Reconstruction and Development (EBRD) continue to provide support to Croatia through the Structural Reform Support Program for strengthening the functioning of state-owned enterprises and improvement of corporate governance: https://ec.europa.eu/info/funding-tenders/funding-opportunities/funding-programmes/overview-funding-programmes/structural-reform-support-programme-srsp_en . The EC notes that this project created an early warning system to allow Croatian authorities to “identify when a state-owned enterprise is having financial difficulties and to prepare and implement plans to improve financial and operational performance.”  The EC concluded “this reform will make state-owned enterprises more resilient and allow the State to act as an informed and active owner.”

The International Monetary Fund (IMF) Staff Virtual Visit with Croatia in November 2020 concluded that “streamlining the role of the state, predominantly through improved SOE governance is necessary.”

The Corporate Governance Code is available at https://zse.hr/en/corporate-governance-code/1780 .   Croatia is not a member of the OECD but adheres to OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict Affected and High-Risk Areas.

Privatization Program

Croatia continues to slowly pursue privatization of SOEs through the Ministry of Physical Planning, Construction, and State Assets and the CERP.  There are no restrictions against foreigners participating in privatization tenders.  When Croatia initiated its privatization process in the late 1990’s foreign investors purchased assets in the banking and telecommunications sectors, as well as Croatia’s largest pharmaceutical company. The bidding process is public, tenders are published online, and terms are clearly defined in tender documentation, however, problems with bureaucracy and timely judicial remedies can significantly slow progress for projects.  There is no privatization timeline; however, the government views privatization as a means to reduce the budget deficit and increase output.  The Ministry of Physical Planning, Construction, and State Assets drafted the 2021 plan for Management of State Owned Property, as part of the National Strategy for Management of State Owned Property 2019-2025 (only in Croatian: https://narodne-novine.nn.hr/clanci/sluzbeni/2019_10_96_1863.html ).

Tenders are in Croatian and can be found at  https://imovina.gov.hr/vijesti/8 .

The risk of political violence in Croatia is low.  Following the breakup of Yugoslavia and the subsequent wars in the region, Croatia has emerged as a stable, democratic country and is a member of NATO and the EU.  Relations with neighboring countries are generally fair and improving, although some disagreements regarding border demarcation and residual war-related issues persist.

* GDP for 2019  and FDI at www.hnb.hr. Note:  U.S. Bureau of Economic Analysis (BEA) does not have GDP or FDI data available for 2020 at time of publishing. 2018 is the last available date for Host Country FDI in the U.S.

*FDI at www.hnb.hr

Table 4: Sources of Portfolio Investment
Data not available.

Policies Towards Foreign Direct Investment

Cyprus has a favorable attitude towards FDI and welcomes U.S. investors.  There is no discrimination against U.S. investment; however, there are some ownership limitations and licensing restrictions set by law on non-EU investment in certain sectors, such as private land ownership, media, and construction (see Limits on Foreign Control, below).  The ROC promotes FDI through a dedicated agency, Invest Cyprus, which is tasked with attracting FDI in the key economic sectors of shipping, education, real estate, tourism and hospitality, energy, investment funds, filming, and innovation and startups.  Invest Cyprus is the first point of contact for investors, and provides detailed information on the legal, tax, and business regulatory framework.  The ROC and Invest Cyprus also promote an ongoing dialogue with investors through a series of promotion seminars each year.  The Cyprus Chamber of Commerce and Industry (CCCI) is a robust organization with country-specific bilateral chambers, including the American Chamber (AmCham Cyprus), that is dedicated to promoting FDI and serving the business interests of foreign companies and trade partners operating in Cyprus.

For more information:

Invest Cyprus
9 Makariou III Avenue
Severis Building, 4^th Floor
1965 Nicosia, Cyprus
Tel: +357 22 441133
Fax: +357 22 441134
Email: info@investcyprus.org.cy
Website: https://www.investcyprus.org.cy

Cyprus Embassy Trade Center – New York
13 East 40^th Street
New York, NY 10016
Phone: (212) 213-9100
Fax: (212) 213-9100
Website: https://www.cyprustradeny.org/

AREA ADMINISTERED BY TURKISH CYPRIOTS

Turkish Cypriots welcome FDI and are eager to attract investments, particularly those that will lead to the transfer of advanced technology and technical skills.  Priority is also given to investments in export-oriented industries.  There are no laws or practices that discriminate against FDI.  The “Turkish Cypriot Investment Development Agency (YAGA)” provides investment consultancy services, guidance on the legal framework, sector specific advice and information about investor incentives.

“Turkish Cypriot Development Agency” (“YAGA”)
Tel: +90 392 – 22 82317
Website: https://yaga.gov.ct.tr/en-us/

Limits on Foreign Control and Right to Private Ownership and Establishment

REPUBLIC OF CYPRUS

The ROC does not currently have a mandatory foreign investment screening mechanism that grants approval to FDI other than sector-specific licenses granted by relevant ministries.  Invest Cyprus does grant approvals for investment under the film production incentive scheme.  Invest Cyprus often refers projects for review to other agencies.

The following restrictions apply to investing in the ROC:

• Non-EU entities (persons and companies) may purchase only two real estate properties for private use (two holiday homes or a holiday home and a shop or office). This restriction does not apply if the investment property is purchased through a domestic Cypriot company or a corporation elsewhere in the EU.  S. investment in such companies is welcome.
• Non-EU entities cannot invest in the production, transfer, and provision of electrical energy. The Council of Ministers may refuse granting a license for investment in hydrocarbons prospecting, exploration, and exploitation to a third-country national or company if that third country does not allow similar investment by Cyprus or other EU member states.  ROC hydrocarbon exploration is currently led by two U.S. companies.
• Individual non-EU investors may not own more than five percent of a local television or radio station, and total non-EU ownership of any single local TV or radio station is restricted to a maximum of 25 percent.
• The right to register as a building contractor in Cyprus is reserved for citizens of EU member states. Non-EU entities are not allowed to own a majority stake in a local construction company.  Non-EU physical persons or legal entities may bid on specific construction projects but only after obtaining a special license by the Council of Ministers.
• Non-EU entities cannot invest directly in private tertiary education institutions but may do so through ownership of Cypriot or EU companies.
• The provision of healthcare services on the island is subject to certain restrictions, applying equally to all non-residents.
• The Central Bank of Cyprus’s prior approval is necessary before any individual person or entity, whether Cypriot or foreign, can acquire more than 9.99 percent of a bank incorporated in Cyprus.

AREA ADMINISTERED BY TURKISH CYPRIOTS

According to the “Registrar of Companies Office,” all non-Turkish Cypriot ownership of construction companies is capped at 49 percent.  Currently, the travel agency sector is closed to foreign investment.  Registered foreign investors may buy property for investment purposes but are limited to one parcel or property.  Foreign natural persons also have the option of forming private liability companies, and foreign investors can form mutual partnerships with one or more foreign or domestic investors.

Other Investment Policy Reviews

Nothing to report.

Business Facilitation

REPUBLIC OF CYPRUS

The Ministry of Energy, Commerce and Industry (MECI) provides a “One Stop Shop” business facilitation service, as per contact details below.  The One-Stop-Shop offers assistance with the logistics of registering a business in Cyprus to all investors, regardless of origin and size.  Additionally, since September 2020, MECI offers a Fast Track Business Activation mechanism to provide efficient business registration services to eligible foreign investors who want to establish a physical presence on the island.  This program has already generated interest from abroad, attracting several firms in the technology, IT, and communications sectors.  Eligibility criteria and benefits are described here:

https://www.businessincyprus.gov.cy/fast-track-business-activation/

One-Stop-Shop & Point of Single Contact
Ministry of  Energy, Commerce, and Industry (MECI)
13-15 Andreas Araouzos
1421 Nicosia, Cyprus
Tel. +357 22 409318 or 321
Fax: +357 22 409432
Email 1: onestopshop@mcit.gov.cy
Email 2: psccyprus@mcit.gov.cy
Website: www.businessincyprus.gov.cy

MECI’s Department of the Registrar of Companies and Official Receiver (DRCOR) provides the following services: Registration of domestic and overseas companies, partnerships, and business names; bankruptcies and liquidations; and trademarks, patents, and intellectual property matters.

Domestic and foreign investors may establish any of the following legal entities or businesses in the ROC:

• Companies (private or public);
• General or limited partnerships;
• Business/trade name;
• European Company (SE); and
• Branches of overseas companies.

The registration process takes approximately two working days and involves completing an application for approval/change of name, followed by the steps outlined in the following link: http://www.businessincyprus.gov.cy/mcit/psc/psc.nsf/All/A2E29870C32D7F17C2257857002E18C9?OpenDocument.

At the end of 2019, there were a total of 223,282 companies registered in the ROC, 12,781 of which had been registered in 2019 (for more statistics on company registrations, please see: https://www.companies.gov.cy/en/knowledgebase/statistics).

In addition to registering a business, foreign investors, like domestic business owners, are required to obtain all permits that may be necessary under Cypriot law.  At a minimum, they must obtain residence and employment permits, register for social insurance, and register with the tax authorities for both income tax and Valued Added Tax (VAT).  In order to use any building or premises for business, including commerce, industry, or any other income-earning activity, one also needs to obtain a municipal license.  Additionally, town planning or building permits are required for building new offices or converting existing buildings.  There are many sector-specific procedures.  Information on all the above procedures is available online at: http://www.businessincyprus.gov.cy/mcit/psc/psc.nsf/eke08_en/eke08_en?OpenDocument.

The World Bank’s 2020 Doing Business report (http://www.doingbusiness.org/rankings) ranked Cyprus 54th out of 190 countries for ease of doing business.  Among the ten sub-categories that make up this index, Cyprus performed best in the areas of protecting minority investors (21/190) and paying taxes (29/190), and worst in the areas of enforcing contracts (142/190) and dealing with construction permits (125/190).  Cyprus has recorded small gains in almost all subcategories since the 2019 report, with a substantial improvement in the area of paying taxes, achieving a small overall climb in its ranking since last year.  Using another metric, in the Global Competitiveness Index, issued by the World Economic Forum, Cyprus maintained its ranking of 44^th out of 141 countries in the 2019 edition.  The two areas where Cyprus performed the worst in this report were in terms of its small market size and relatively low innovation capability.

The ROC follows the EU definition of micro-, small- and medium-sized enterprises (MSMEs), and foreign-owned MSMEs are free to take advantage of programs in Cyprus designed to help such companies, including the following:

• EUROSTRS Cyprus:  http://www.fundingprogrammesportal.gov.cy/easyconsole.cfm/page/programme/fsId/18/lang/en;
• EBRD Small Firm Competitiveness Program: http://www.ebrd.com/cs/Satellite?c=Content&cid=1395266780410&d=Mobile&pagename=EBRD%2FContent%2FContentLayout.

Foreign investors can take advantage of the services and expertise of Invest Cyprus, an agency registered under the companies’ law and funded mainly by the state, dedicated to attracting investment.

Invest Cyprus
9A Makarios III Ave
Severis Bldg., 4th Flr.
1065 Nicosia
Tel. +357-22-441133
Fax: +357-22-441134
Email: info@investcyprus.org.cy
Website: http://www.investcyprus.org.cy/

Additionally, the Association of Large Investment Projects, under the Cyprus Chamber of Commerce and Industry, can provide useful information on large ongoing investment projects:

Association of Large Investment Projects
38 Grivas Dhigenis Ave. & 3 Deligiorgis Str.,
P.O.Box 21455
1509 Nicosia
Tel: +357 22889890
Fax: +357 22667593
Email: bigprojects@ccci.org.cy

Lastly, the Cyprus Country Profiler website offers some useful background on Cyprus: https://www.cyprusprofile.com/

AREA ADMINISTERED BY TURKISH CYPRIOTS

Information available on the “Registrar of Companies’” website is available only in Turkish: http://www.rkmmd.gov.ct.tr/.  An online registration process for domestic or foreign companies does not exist and registration needs to be completed in person.

The “YAGA” website ( https://yaga.gov.ct.tr/en-us/ provides explanations and guides in English on how to register a company in the area administrated by Turkish Cypriots.

As of August 2020, the “Registrar of Companies Office” statistics indicated there were 21,626 registered companies, of which 16,557 were Turkish Cypriot majority-owned limited liability companies; 433 foreign companies; and 493 offshore companies.

The area administered by Turkish Cypriots defines MSMEs as entities having fewer than 250 employees.  There are several grant programs financed through Turkish aid and EU aid targeting MSMEs.

The Turkish Cypriot Chamber of Commerce (KTTO) publishes an annual Competitiveness Report on the Turkish Cypriot economy, based on the World Economic Forum’s methodology.  KTTO’s 2019-2020 report ranked Northern Cyprus 107 among 141 economies, dropping eighteen places from its ranking in 2019.

For more information and requirements on establishing a company, obtaining licenses, and doing business visit:

“Turkish Cypriot Development Agency” (“YAGA”)
Tel: +90 392 – 22 82317
Website: https://yaga.gov.ct.tr/en-us/

Turkish Cypriot Chamber of Commerce (KTTO)
https://www.ktto.net/en/
Tel: +90 392 – 228 37 60 / 228 36 45
Fax: +90 392 – 227 07 82

Outward Investment

REPUBLIC OF CYPRUS

The ROC does not restrict outward investment, other than in compliance with international obligations such as specific UN Security Council Resolutions.  In terms of programs to encourage investment, businesses in Cyprus have access to several EU programs promoting entrepreneurship, such as the European Commission’s InvestEU Programme (2021-2027) aiming to support sustainable infrastructure, innovation and small businesses, or the Erasmus program for Young Entrepreneurs, in addition to the European Investment Bank’s guarantee facilities for SMEs for projects under USD 4.8 million (EUR 4 million)^[1].

AREA ADMINISTERED BY TURKISH CYPRIOTS

Turkish Cypriot “officials” do not incentivize or promote outward investment.  The Turkish Cypriot authorities do not restrict domestic investors.

[1] Converted at EUR 1 = USD 1.20 per the exchange rate March 5, 2021.

Transparency of the Regulatory System

REPUBLIC OF CYPRUS

The ROC achieved a score of 4 out of 6 in the World Bank’s composite Global Indicators of Regulatory Governance score (based on data collected December 2015 to April 2016) designed to explore good regulatory practices in three core areas: publication of proposed regulations, consultation around their content, and the use of regulatory impact assessments.  For more information, please see: http://rulemaking.worldbank.org/en/data/explorecountries/cyprus.

U.S. companies competing for ROC government tenders have noted concerns about opaque rules and possible bias by technical committees responsible for preparing specifications and reviewing tender submissions.  Overall, however, procedures and regulations are transparent and applied in practice by the government without bias towards foreign investors.  The ROC actively promotes good governance and transparency as part of its administrative reform action plan.

In line with the above plan and EU requirements, the ROC launched in 2016 the National Open Data Portal (www.data.gov.cy) to increase transparency in government services.  Government agencies are now required to post publicly available information, data, records, on the entire spectrum of their activities.  The number of data sets available through this portal has been growing rapidly in recent months, although much of it is in Greek only.

Several agencies and non-governmental organizations (NGOs) share competency on fostering competition and transparency, including the ROC Commission for the Protection of Competition (www.competition.gov.cy), the Competition and Consumer Protection Service, under MECI (https://meci.gov.cy/en/departments-services/consumer-protection-service), the Cyprus Consumers Association (www.cyprusconsumers.org.cy), and the Cyprus Securities and Exchange Commission (www.cysec.gov.cy).

Most laws and regulations are published only in Greek and obtaining official English translations can be difficult, but expert analysis in English is generally available from local law and accounting firms when the regulation affects international investment or business activity.  When passing new legislation or regulations, Cypriot authorities follow the EU acquis communautaire – the body of common rights and obligations that is binding on all EU members.  A formal procedure of public notice and comment is not required in Cyprus, except for specific types of laws.  In general, the ROC will seek stakeholder feedback directly.  Draft legislation must be published in the Official Gazette before it is debated in the House to allow stakeholders an opportunity to submit comments.  The ROC House of Representatives typically invites specific stakeholders to offer their feedback when debating bills.  Draft regulations, on the other hand, need not be published in the Official Gazette prior to being approved.

In an effort to contribute to global tax transparency, the ROC has adopted the Standard of Automatic Exchange of Information developed by the Organization for Economic Co-Operation and Development (OECD) known as Common Reporting Standard (CRS).  Since January 1, 2016, the ROC Tax Department requires all financial institutions to confirm their clients’ jurisdiction(s) of Tax Residence and Respective Tax Identification Number, if applicable.  Additionally, the ROC has signed the U.S. Foreign Account Tax Compliance Act (FATCA), allowing Cypriot tax authorities to share information with U.S. counterparts.

Public finances and debt obligations are published as part of the annual budget process.

AREA ADMINISTERED BY TURKISH CYPRIOTS

The level of transparency for “lawmaking” and adoption of “regulations” in the “TRNC” lags behind U.S. and EU standards.  There are no informal regulatory processes managed by nongovernmental organizations or private sector associations.  Draft legislation or regulations are made available for public comment for 21 days after the legislation is sent to “parliament.”  Almost all legislation and regulations are published only in Turkish.

International Regulatory Considerations

REPUBLIC OF CYPRUS

As an EU member state since May 1, 2004, the Republic of Cyprus must ensure compliance with the acquis communautaire.  The acquis is constantly evolving and comprises of Treaties, international agreements, legislation, declarations, resolutions, and other legal instruments.  EU legislation, for its part, is subdivided into:

• Regulations, which are directly applicable to member states and require no further action to have legal effect;
• Directives, which are addressed to and are binding on member states, but the member state may choose the method by which to implement the directive.  Generally, a member state must enact national legislation to comply with a directive;
• Decisions, which are binding on those parties to whom they are addressed; and
• Recommendations and opinions, which have no binding force.

When there is conflict between European law and the law of any member state, European law prevails; the norms of national law have to be set aside, under the principle of EU law primacy or supremacy.  The ROC is often slow to transpose EU directives into local law, but transposition is generally consistent with EU intent when it happens.

AREA ADMINISTERED BY TURKISH CYPRIOTS

The entire island of Cyprus is considered EU territory, but the acquis communautaire is suspended in the areas administered by Turkish Cypriots and the north is not considered to be within the EU customs area.

Legal System and Judicial Independence

REPUBLIC OF CYPRUS

Cyprus is a common law jurisdiction and its legal system is based on English Common Law for both substantive and procedural matters.  Cyprus inherited many elements of its legal system from the United Kingdom, including the presumption of innocence, the right to due process, the right to appeal, and the right to a fair public trial.  Courts in Cyprus possess the necessary powers to enforce compliance by parties who fail to obey judgments and orders made against them.  Public confidence in the integrity of the Cypriot legal system remains strong, although long delays in courts, and the perceived failure of the system collectively to punish those responsible for the island’s financial troubles in 2013 have tended to undermine this trust in recent years.

International disputes are resolved through litigation in Cypriot courts or by alternative dispute resolution methods such as mediation or arbitration.  Businesses often complain of court gridlock and judgments on cases generally taking years to be issued, particularly for claims involving property foreclosure.

AREA ADMINISTERED BY TURKISH CYPRIOTS

Investors should note the EU’s acquis communautaire is suspended in the area administered by the Turkish Cypriots.

The “TRNC” is a common law jurisdiction.  Judicial power other than the “Supreme Court” is exercised by the “Heavy Penalty Courts,” “District Courts,” and “Family Courts.”  Turkish Cypriots inherited many elements of their legal system from the British colonial rule before 1960, including the right to appeal and the right to a fair public trial.  There is a high level of public confidence in the judicial system in the area administrated by Turkish Cypriots.  The judicial process is procedurally competent, fair, and reliable.

Foreign investors can make use of all the rights guaranteed to Turkish Cypriots.  Commercial courts and alternative dispute resolution mechanisms are not available in the “TRNC.”  The resolution of commercial or investment disputes through the “judicial system” can take several years.  The Turkish Cypriot administration has trade and industry “law” and contractual “law.”  The Turkish Cypriot administration has several trade and economic cooperation agreements with Turkey.  For more information about “legislation,” visit https://yaga.gov.ct.tr/en-us/.   Because the “TRNC” is not recognized internationally, “TRNC court” decisions and orders may be difficult to enforce outside of the area administered by Turkish Cypriots or Turkey.

Laws and Regulations on Foreign Direct Investment

REPUBLIC OF CYPRUS

For more information on laws affecting incoming foreign investment see:

• http://www.investcyprus.org.cy/en/media-center;

AREA ADMINISTERED BY TURKISH CYPRIOTS

Visit the “YAGA” website, for more information about laws and regulations on FDI: https://yaga.gov.ct.tr/en-us/

Competition and Antitrust Laws

REPUBLIC OF CYPRUS

The oversight agency for competition is the Commission for the Protection of Competition:

http://www.competition.gov.cy/competition/competition.nsf/index_en/index_en?OpenDocument

AREA ADMINISTERED BY TURKISH CYPRIOTS

The oversight “agency” for competition is the “Competition Board:”  http://www.rekabet.gov.ct.tr/.

Expropriation and Compensation

REPUBLIC OF CYPRUS

Private property may, in exceptional instances, be expropriated for public purposes, in a non-discriminatory manner, and in accordance with established principles of international law and consistent with EU law, rights, and directives.  The expropriation process entitles investors to proper compensation, whether through mutual agreement, arbitration, or the local courts.  Foreign investors may claim damages resulting from an act of illegal expropriation by means other than litigation.  Investors and lenders to expropriated entities receive compensation in the currency in which the investment was made.  In the event of any delay in the payment of compensation, the Government is also liable for the payment of interest based on the prevailing six-month interest rate for the relevant currency.  Like most other jurisdictions, the ROC is expected to complete the switch from the London Inter-Bank Offered Rate (LIBOR) to the Secured Overnight Financing Rate (SOFR) by the end of 2021.

Following a financial crisis in 2013, the ROC took extraordinary steps as part of the Memorandum of Understanding (MOU) between the Republic of Cyprus and international lenders (European Commission, European Central Bank, and the IMF – the “troika”).  Depositors in two of the largest Cypriot banks were forced to take a “haircut” on almost half of their deposits exceeding insured limits.  This action sparked 3,000 lawsuits against the ROC and the banks, but the European Court of Justice ruled that the MOU with the troika was not an unlawful act and dismissed actions for compensation.  The ROC has not taken any similar extraordinary actions since.

AREA ADMINISTERED BY TURKISH CYPRIOTS

Private property may be expropriated for public purposes.  The expropriation process entitles investors to proper compensation.  Foreign investors may claim damages resulting from an act of illegal expropriation by means other than litigation.

In expropriation cases involving private owners, they are first notified, the property is then inspected, and, if an agreement is reached regarding the amount, then the owner is compensated.  In cases where the owner declines the compensation package, the case relegated to local “courts” for a final decision.

Because the “TRNC” is not recognized internationally, “TRNC court” decisions and orders may be difficult to enforce outside of the area administered by Turkish Cypriots or Turkey.

Dispute Settlement

ICSID Convention and New York Convention

N/a

Investor-State Dispute Settlement

N/a

International Commercial Arbitration and Foreign Courts

N/a

ICSID Convention and New York Convention

N/a

Investor-State Dispute Settlement

N/a

International Commercial Arbitration and Foreign Courts

N/a

REPUBLIC OF CYPRUS

ICSID Convention and New York Convention

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

Investor-State Dispute Settlement

There have been no reports of investment disputes in Cyprus involving U.S. persons over the past 10 years, and there is no history of extrajudicial action against foreign investors.  Local courts recognize and enforce foreign arbitral awards issued against the government.

International Commercial Arbitration and Foreign Courts

Cyprus offers several different means of Alternative Dispute Resolution (ADR), although, in practice, recourse to ADR is not common.  The ROC Ministry of Justice and Public Order offers a publicly-available Register of Mediators for both commercial and civil disputes at: http://www.mjpo.gov.cy/mjpo/mjpo.nsf/All/093DD5FE0E4342E7C225861400498853?OpenDocument.

Some of the key mediators locally and abroad are the following:

• The Cyprus Chamber of Commerce and Industry (CCCI): http://www.ccci.org.cy/;
• The Scientific and Technical Chamber of Cyprus: http://www.etek.org.cy;
• The ROC Financial Ombudsman’s office, offers mediation services between banks and customers since 2015: www.financialombudsman.gov.cy;
• The European Court of Arbitration in Cyprus: http://cour-europe-arbitrage.org/contacts/;

EU citizens and businesses can also use SOLVIT, a free, online service, to resolve problems pertaining to internal EU market issues, like visa and residence rights, pension rights, and VAT refunds, within 10 weeks from the day the problem is reported: http://ec.europa.eu/solvit/what-is-solvit/.

Under the Arbitration Law of Cyprus, if the parties are unable to reach a settlement an arbitrator can be appointed.  Arbitration rulings are fully enforceable, and the court may settle an arbitral award in the same way as a judgment.  Mediation is not fully enforceable, unless the settlement agreement explicitly stipulates that the parties can apply to court for enforcement.  The ROC honors the enforcement of foreign court judgments and foreign arbitration awards.  Domestic legislation on binding international arbitration is modeled after internationally accepted regulations, such as the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration, which the ROC adopted in 1985.  The ROC’s bilateral investment treaties with several countries also include dispute settlement provisions (see Section 3, Bilateral Investment Agreements).

AREA ADMINISTERED BY TURKISH CYPRIOTS

Investor-State Dispute Settlement

Foreign investors can make use of all the rights guaranteed to Turkish Cypriots.  Alternative dispute resolution mechanisms are not available in the “TRNC.”  The resolution of commercial or investment disputes through the “judicial system” can take several years.

Because the “TRNC” is not recognized internationally, “TRNC court” decisions and orders may be difficult to enforce outside of the area administered by Turkish Cypriots or Turkey.

Bankruptcy Regulations

REPUBLIC OF CYPRUS

New insolvency legislation introduced in 2015 has helped overhaul bankruptcy procedures, with a view to resolve the island’s high levels of non-performing loans (NPLs).  Bankruptcy procedures can be initiated by a creditor through compulsory liquidation or by the debtor through voluntary liquidation.  The court can impose debt rescheduling, in cases where aggregate liabilities do not exceed USD 409,500 (EUR 350,000) and individuals with minimal assets and income may apply to the court via the Insolvency Service for a debt relief order of up to USD 29,250 (EUR 25,000).  Discharge from bankruptcy is automatic after three years, provided all debtor assets are sold and the proceeds distributed to creditors.  Fraudulent alienation of assets prior to bankruptcy and non-disclosure of assets draws criminal sanctions under the new legislation.  Cypriot authorities are closely monitoring implementation of the new insolvency framework.  Despite concerted efforts by Cypriot authorities and the banks NPLs remained stubbornly high at 28.5 percent of total loans at the end of 2019, compared to 30.3 percent a year earlier, although two major banks are in the process of selling significant NPL portfolios to investors.

The World Bank’s 2020 Doing Business report ranked Cyprus 31st from the top among 190 countries in terms of the ease with which it resolves insolvency.  For additional information, please see: https://www.doingbusiness.org/en/data/exploreeconomies/cyprus#DB_ri .

AREA ADMINISTERED BY TURKISH CYPRIOTS

In 2013, the “TRNC” passed a debt restructuring “law” aimed at providing incentives to restructure debts and NPLs separately.  Turkish Cypriots also have a bankruptcy “law” that defines “collecting power;” conditions under which a creditor can file a bankruptcy application; and the debtor’s bankruptcy application, and agreement plans.

As of the end of the third quarter of 2020, NPLs increased by 34.3 percent, reaching 1.4 billion Turkish Lira (USD 20 million) compared to the same period of the previous year.

Capital Markets and Portfolio Investment

REPUBLIC OF CYPRUS

The Cyprus Stock Exchange (CSE), launched in 1996, is one of the EU’s smallest stock exchanges, with a capitalization of USD 4.2 billion (EUR 3.5 billion) as of March 2021.  The CSE and the Athens Stock Exchange (ASE) have operated from a joint trading platform since 2006, allowing capital to move more freely from one exchange to the other, even though both exchanges retain their autonomy and independence.  The joint platform has increased capital available to Cypriot firms and improved the CSE’s liquidity, although its small size remains a constraint.  The private sector has access to a variety of credit instruments, which has been enhanced through the operation of private venture capital firms.  Credit is allocated on market terms to foreign and local investors alike.  Foreign investors may acquire up to 100 percent of the share capital of Cypriot companies listed on the CSE with the notable exception of companies in the banking sector.

AREA ADMINISTERED BY TURKISH CYPRIOTS

There is no stock exchange in the area administrated by Turkish Cypriots and no foreign portfolio investment.  Foreign investors are able to get credit from the local market, provided they have established domestic legal presence, majority-owned (at least 51 percent) by domestic companies or persons.

Money and Banking System

REPUBLIC OF CYPRUS

At the end of November 2020, the value of total deposits in ROC banks was USD 54.7 billion (EUR 48.0 billion), and the value of total loans was USD 35.7 billion (EUR 31.3 billion).  More details on local monetary and financial statistics are available at: https://www.centralbank.cy/en/publications/monetary-and-financial-statistics/year-2020.  Currently, there are seven local banks in Cyprus offering a full range of retail and corporate banking services – the largest two of which are the Bank of Cyprus and Hellenic Bank – plus another two dozen or so subsidiaries or branches of foreign banks offering more specialized services.  The full list of authorized credit institutions in Cyprus is available on the Central bank of Cyprus website: https://www.centralbank.cy/en/licensing-supervision/banks/register-of-credit-institutions-operating-in-cyprus.

The banking sector has made significant progress since the 2013 financial crisis resulted in a “haircut” of uninsured deposits, followed by numerous bankruptcies and consolidation.  The island’s two largest banks – Bank of Cyprus and Hellenic – are now adequately capitalized and have returned to profitability.  However, the profitability of the banking sector as a whole is challenged by low interest margins, a high level of liquidity, and a still elevated volume of NPLs.  NPLs in Cyprus are the second highest in the EU at 19.1 percent of total loans at the end of November 2020, compared to 28.6 percent a year earlier, albeit considerably lower than in 2014, when they reached 47.8 percent.  Banks continue striving to reduce NPLs further, either by selling off portfolios of NPLs or using recently amended insolvency and foreclosure frameworks.  The economic impacts of the COVID-19 pandemic and political pressure to protect citizens under current extraordinary circumstances makes reducing NPLs difficult at this time.

Cyprus has a central bank – the Central Bank of Cyprus – which forms part of the European Central Bank.  Foreign banks or branches are allowed to establish operations in Cyprus.  They are subject to Central Bank of Cyprus supervision, just like domestic banks.  JPMorgan, Citibank, Bank of New York Mellon, and HSBC currently provide U.S. dollar correspondent banking services to ROC banks.

Opening a personal or corporate bank account in Cyprus is straightforward, requiring routine documents.  But because of a history of money-laundering concerns, banks now carefully scrutinize these documents and can conduct extensive due diligence checks on sources of wealth and income.  A local bank account is not necessary for personal household expenses.  Opening a corporate bank account is mandatory when registering a company in Cyprus.

Cyprus has taken steps since 2018 to address recognized regulatory shortcomings in combatting illicit finance in its international banking and financial services sector, tightening controls over non-resident shell companies and bank accounts.  Cyprus’ first National Risk Assessment (NRA) of money laundering and terrorist financing, released in November 2018, is available at: http://mof.gov.cy/en/press-office/announcements/national-risk-assessment-of-money-laundering-and-terrorist-financing-risks-cyprus.  Cyprus is a member of the Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL), a FATF-style regional body.  Its most recent mutual evaluation report of the Cypriot banking sector, released February 2, 2020, can be found at: https://www.coe.int/en/web/moneyval/-/cyprus-should-pursue-money-laundering-from-criminal-proceeds-generated-outside-of-the-country-more-aggressively.

AREA ADMINISTERED BY TURKISH CYPRIOTS

The “Central Bank” oversees and regulates local, foreign, and private banks.  In addition to the “Central Bank” and the “Development Bank”, there are 21 banks in the area administrated by Turkish Cypriots, of which 16 are Turkish Cypriot-owned banks, and five are branch banks from Turkey.  Banks are required to follow “know-your-customer” (KYC) and AML “laws,” which are regulated by the “Ministry of Economy and Energy,” and supervised by the “Central Bank,” but AML practices do not meet international standards.  Due to non-recognition issues, Turkish Cypriot banks do not qualify for a SWIFT number to facilitate international transactions.  All international transfers depend on routing through Turkish banks.  According to a September 2020 “Central Bank” report, the total number of deposits increased by 32.74 percent in one year and amounted to 40 billion Turkish Lira (USD 5.2 billion) at the end of September 2020. The “Central Bank” claimed 96.7 percent liquidity, assessing this as sufficient to withstand a crisis.  As of the end of the third quarter of 2020, NPLs increased by 34.3 percent, reaching 1.4 billion Turkish Lira (USD 20 million) compared to the same period the previous year.

More information is available at the “Central Bank” website: http://www.kktcmerkezbankasi.org/.

Foreign Exchange and Remittances

Foreign Exchange

REPUBLIC OF CYPRUS

The ROC is a member of the Eurozone.  The Eurozone has no restrictions on the transfer or conversion of its currency, and the exchange rate is freely determined in the foreign exchange market.  There is no difficulty in obtaining foreign exchange.  Since the 2008 global financial crisis, the European Commission has pursued several initiatives aimed at creating a safer and sounder financial sector, known as the Banking Union.  These initiatives, which include stronger prudential requirements for banks, improved depositor protection and rules for managing failing banks, form a single rulebook for all financial actors in the member states of the EU.  For more info, please refer to: http://ec.europa.eu/finance/general-policy/banking-union/index_en.htm.

AREA ADMINISTERED BY TURKISH CYPRIOTS

The “TRNC” has a separate financial system from the ROC, linked closely with that of Turkey.  The Turkish Lira is the main currency in use, although the Euro, U.S. dollar, and British pound are commonly accepted.  The vast majority of business borrowing is derived from domestic and Turkish sources.

A devaluation of the Turkish Lira against foreign exchange rates (or the opposite) has a strong effect on the economy of the area administered by Turkish Cypriots.  Wages across sectors are generally paid in Turkish Lira, but almost all real estate, rents, electronic goods, vehicles, and other expensive products are valued in foreign currency.  Banks in the Turkish Cypriot administered areas provide lower interest rates for Euro or British pound loans than for Turkish Lira loans.  Foreign investors are authorized to repatriate all proceeds from their investments and business.

Banks are free to keep foreign currency, act as intermediary in import and export transactions, accept foreign currency savings, engage in purchase and sale of foreign currency, and give foreign currency loans.  All international correspondent banking services must route through Turkish banks.

Remittance Policies

REPUBLIC OF CYPRUS

There are no restrictions or delays on investment remittances or the inflow or outflow of profits.  Remittances may be moved through the regular banking system or through licensed Payment Institutions (PIs) or Electronic Money Institutions (EMIs), also regulated by the Central Bank of Cyprus.

The Central Bank of Cyprus maintains two public registers, listing both PIs and EMIs, whether authorized by the Central Bank of Cyprus or authorized in other EU Member States with the right of freedom to provide services in the ROC.

The two relevant CBC registers are:

Register of Licensed Payment Institutions: https://www.centralbank.cy/en/licensing-supervision/payment-institutions/licensing-and-supervision-of-payment-institutions

Register of Electronic Money Institutions: https://www.centralbank.cy/en/licensing-supervision/electronic-money-institutions/licensing-and-supervision-of-electronic-money-institutions

Sovereign Wealth Funds

REPUBLIC OF CYPRUS

The Parliament passed legislation March 1, 2019 providing for the establishment of a National Investment Fund (NIF) to manage future offshore hydrocarbons and other natural resources revenue.  Section 29 of the NIF Law specifies that the Corporation to be set up shall invest the Fund in a diversified manner with a view to maximizing risk-adjusted financial returns and in a manner consistent with the portfolio management by a prudent institutional investor.  The Fund is precluded from investing in securities issued by a Cypriot issuer (including the state) or in real estate located in Cyprus.  This provision safeguards against the possibility of speculative development catering to the Fund and political interference favoring domestic investments for purposes other than the best interests of the Fund and the Cypriot people as a whole.  Additionally, Section 30 of the law provides that the fund cannot invest, directly or indirectly, to acquire more than five percent of any one company or legal entity. The fund is not yet operational.  Regulations for the NIF are being drafted and will require legislative approval, and it will be several years before there are any revenues generated from the ROC’s hydrocarbon assets.

AREA ADMINISTERED BY TURKISH CYPRIOTS

There is no established sovereign wealth fund.

REPUBLIC OF CYPRUS

The ROC maintains exclusive or majority-owned stakes in more than 40 SOEs and is making slow progress towards privatizing some of them (see sections on Privatization and OECD Guidelines on Corporate Governance of SOEs).  There is no comprehensive list of all SOEs available but the most significant are the following:

• Electricity Authority of Cyprus (EAC)
• Cyprus Telecommunications Authority (CyTA)
• Cyprus Sports Organization
• Cyprus Ports Authority
• Cyprus Broadcasting Corporation (CyBC)
• Cyprus Theatrical Organization
• Cyprus Agricultural Payments Organization

These SOEs operate in a competitive environment (domestically and internationally) and are increasingly responsive to market conditions.  The state-owned EAC monopoly on electricity generation and distribution ended in 2014, although competition remains difficult given the small market size and delays in implementing new market rules.  As an EU Member State, Cyprus is a party to the WTO Government Procurement Agreement (GPA).

OECD Guidelines on Corporate Governance are not mandatory for ROC SOEs, although some of the larger SOEs have started adopting elements of corporate governance best practices in their operating procedures.  Each of the SOEs is subject to dedicated legislation.  Most are governed by a board of directors, typically appointed by the government at the start of its term, and for the duration of its term in office.  SOE board chairs are typically technocrats, affiliated with the ruling party.  Representatives of labor unions and minority shareholders contribute to decision making.  Although they enjoy a fair amount of independence, they report to the relevant minister.  SOEs are required by law to publish annual reports and submit their books to the Auditor General.

AREA ADMINISTERED BY TURKISH CYPRIOTS

In the area administrated by Turkish Cypriots, there are several “state-owned enterprises” and “semi-state-owned enterprises,” usually common utilities and essential services.

In the Turkish Cypriot administered area, the below-listed institutions are known as “public economic enterprises” (POEs), “semi-public enterprises” and “public institutions,” which aim to provide common utilities and essential services.

Some of these organizations include:

• Turkish Cypriot Electricity Board (KIBTEK);
• BRTK – State Television and Radio Broadcasting Corporation;
• Cyprus Turkish News Agency;
• Turkish Cypriot Milk Industry;
• Cypruvex Ltd. – Citrus Facility;
• EMU – Eastern Mediterranean Foundation Board;
• Agricultural Products Corporation;
• Turkish Cypriot Tobacco Products Corporation;
• Turkish Cypriot Alcoholic Products LTD;
• Coastal Safety and Salvage Services LTD; and
• Turkish Cypriot Development Bank.

Privatization Program

REPUBLIC OF CYPRUS

The ROC has made limited progress towards privatizations, despite earlier commitments to international creditors in 2013 to raise  USD 1.6 billion (EUR 1.4 billion) from privatizations by 2018.  In July 2017, opposition parties passed legislation abolishing the Privatizations Unit, an independent body established March 2014.  A bill providing the transfer of Cyprus Telecommunications Authority (CyTA) commercial activities to a private legal entity, with the government retaining majority ownership, has been pending since March 2018.  In December 2015, under the threat of strikes, the government reversed earlier plans to privatize the Electricity Authority of Cyprus (EAC).  However, in recent years, the EAC has been forced to unbundle its operations in line with Cyprus Energy Regulatory Authority (CERA) recommendations and EU regulations.  The EAC has created independent units for its core regulated activities, namely Transmission, Distribution, Generation, and Supply.  Private firms have been offering renewable energy generation since 2003 and electricity supply since January 1, 2021.

Despite slow progress in electricity and telecommunications, the current administration continues pursuing privatizations in other areas.  On August 3, 2020, the ROC announced an agreement with a Cyprus-Israeli consortium for a USD 1.2 billion (EUR 1.0 billion) Larnaca marina and port privatization project and related mixed-use development.  The government also continues efforts to sell the state lottery, find long-term investors to lease state-owned properties in the Troodos area, and forge a strategic plan on how to handle the Cyprus Stock Exchange.

AREA ADMINISTERED BY TURKISH CYPRIOTS

The airport at Ercan and K-Pet Petroleum Corporation have been converted into public-private partnerships.  The concept of privatization continues to be controversial in the Turkish Cypriot community.

In March 2015, Turkish Cypriot authorities signed a public-private partnership agreement with Turkey regarding the management and operation of the water obtained from an underwater pipeline funded by Turkey.  Within the area administrated by Turkish Cypriots, there has also been discussion about privatizing the electricity authority “KIBTEK”, Turkish Cypriot telecommunications operations, and the seaports.

REPUBLIC OF CYPRUS

There have been no incidents of politically-motivated damage to foreign projects and or installations since 1974. U.S. companies have not been the target of violence. There were numerous relatively peaceful protests against the ROC government following the financial crisis of March 2013 and in response to the forced conversion of deposits into equity. Since then, protests against additional austerity measures have been fairly calm.

AREA ADMINISTERED BY TURKISH CYPRIOTS

There have been no incidents of politically-motivated damage to foreign projects and or installations since 1974. U.S. companies have not been the target of violence. Protests and demonstrations, usually targeting the “government,” are commonplace. They are generally peaceful and well-regulated; however, some demonstrations result in scuffles with police or minor damage to buildings.

Policies Towards Foreign Direct Investment

The Czech government actively seeks to attract foreign investment via policies that make the country a competitive destination for companies to locate, operate, and expand.  The Czech investment incentives legislation (amended Act No. 72/2000 Coll., effective as of September 6, 2019) creates incentive payments for high value-added investments that focus on R&D and create jobs for university graduates.  The law eliminates incentives for investments targeting low-skilled labor and establishes more favorable rules for technological investments in sectors such as aerospace, information and communication technology, life sciences, nanotechnology, and advanced segments of the automotive industry.  In addition, due to COVID-19, the government approved November 30, 2020 an amendment to this statute, which enables producers of personal protective equipment, medical devices, and pharmaceuticals to more easily obtain investment incentives.

CzechInvest, the government investment promotion agency that operates under the Ministry of Industry and Trade (MOIT), negotiates on behalf of the Czech government with foreign investors.  In addition, CzechInvest provides assistance during implementation of investment projects, consulting services for foreign investors entering the Czech market, support for suppliers, and assistance for the development of innovative start-up firms.  There are no laws or practices that discriminate against foreign investors.

The Czech Republic is a recipient of substantial FDI.  Total foreign investment in the Czech Republic (equity capital + reinvested earnings + other capital) equaled USD171.3 billion at the end of 2019, compared to USD164 billion in 2018.

As a medium-sized, open, export-driven economy, the Czech market is strongly dependent on foreign demand, especially from EU partners.  In 2020, 83.5 percent of Czech exports went to fellow EU member states, with 32.6 percent to the Czech Republic’s largest trading partner, Germany, according to the Czech Statistical Office.  Since emerging from recession in 2013, the economy had enjoyed some of the highest GDP growth rates of the European Union until the COVID-19 outbreak. While GDP growth reached 2.4 percent in 2019, there was a 5.6 percent GDP decline in 2020.  The Ministry of Finance is forecasting 3.1 percent growth for 2021.

The Czech Republic has no plans to adopt the euro as it believes having its own currency and independent monetary policy is helpful to manage an economic crisis like the current one caused by the COVID-19 pandemic.

The slow pace of legislative and judicial reforms has posed obstacles to investment, competitiveness, and company restructuring.  The Czech government has harmonized its laws with EU legislation and the acquis communautaire.  This effort involved positive reforms of the judicial system, civil administration, financial markets regulation, protection and enforcement of intellectual property rights, and in many other areas important to investors.

While there have been many success stories involving American and other foreign investors, a handful have experienced problems, for example in the media industry.   Both foreign and domestic businesses voice concerns about corruption.

Long-term economic challenges include dealing with an aging population and diversifying the economy away from  manufacturing toward a more high-tech, services-based, knowledge economy.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign individuals or entities can operate a business under the same conditions as Czechs.  Foreign entities need to register their permanent branches with the Czech Commercial Register.  Some professionals, such as architects, physicians, lawyers, auditors, and tax advisors, must register for membership in the appropriate professional chamber.  In general, licensing and membership requirements apply equally to foreign and domestic professionals.

In response to the European Commission’s September 2017 investment screening directive, the Czech government drafted foreign investment screening legislation.  The law will come into effect on May 1, 2021 and gives the government the ability to review greenfield investments and acquisitions by non-EU foreign investors.  The law allows MOIT to screen FDI in virtually any sector of the Czech economy but specifies four high-risk sectors for which investment screening is mandatory: critical infrastructure, ICT systems used for critical infrastructure, military equipment, and sensitive dual use items.  Outside these critical sectors, non-EU investors are under no obligation to report acquisitions or greenfield investments, but MOIT can retroactively review investments at any point within five years according to security concerns that may arise.  Screening of acquisitions is triggered when a non-EU buyer attempts to make a purchase that would give it at least 10% of the voting rights of a Czech company.  However, screening is possible at an even lower threshold in cases where the foreign investor has additional means of exerting potentially malign control over a Czech company, such as through appointment of staff to key positions.  Furthermore, the law gives regulators considerable leeway to designate an investor as “non-EU” if the investor is “indirectly controlled” by non-EU business or individuals.

As of early 2012, U.S. and other non-EU nationals could purchase real estate, including agricultural land, in the Czech Republic without restrictions.  However, following the implementation of the investment screening law as of May 1, 2021, land purchases by non-EU investors may be screened if located near critical infrastructure, such as military installations.  Enterprises are permitted to engage in any legal activity with the previously noted limitations in sensitive sectors.  The right of foreign and domestic private entities to establish and own business enterprises is guaranteed by law.  Laws on auditing, accounting, and bankruptcy are in force, including the use of international accounting standards (IAS).

Other Investment Policy Reviews

The OECD last conducted an economic survey of the government in 2020.

Business Facilitation

Individuals must complete a number of bureaucratic requirements to set up a business or operate as a freelancer or contractor.  MOIT provides an electronic guide on obtaining a business license, presenting step-by-step assistance, including links to related legislation and statistical data, and specifying authorities with whom to work (such as business registration, tax administration, social security, and municipal authorities), available at: https://www.mpo.cz/en/business/licensed-trades/guide-to-licensed-trades/.  MOIT also has established regional information points to provide consulting services related to doing business in the Czech Republic and EU.  A list of contact points is available at:  https://www.businessinfo.cz/en/starting-a-business/starting-up-points-of-single-contact-psc/addresses-points-of-single-contact-psc/.

The average time required to start a business is 25 days according to the World Bank’s ‘Doing Business’ Index.  The Czech Republic’s Business Register is publicly accessible and provides details on business entities including legal addresses and major executives.  An application for an entry into the Business Register can be submitted in a hard copy, via a direct entry by a public notary, or electronically, subject to meeting online registration criteria requirements.  The Business Register is publicly available at:  https://or.justice.cz/ias/ui/rejstrik.  The Czech Republic’s Trade Register is an online information system that collects and provides information on entities facilitating small trade and craft-oriented business activities, as specifically determined by related legislation.  It is available online at:  http://www.rzp.cz/eng/index.html.

Outward Investment

The Czech government does not incentivize outward investment.  The volume of outward investment is lower than incoming FDI.  According to the latest data from the Czech National Bank, Czech outward investments amounted to USD 45.1 billion in 2019, compared to inward investments of USD 171.3 billion.  However, according to the Export Guarantee and Insurance Corporation (EGAP), Czech companies increasingly invest abroad to get closer to their customers, save on transport costs, and shorten delivery times. As part of EU sanctions, there is a total ban on EU investment in North Korea as of 2017.

Transparency of the Regulatory System

Tax, labor, environment, health and safety, and other laws generally do not distort or impede investment.  Policy frameworks are consistent with a market economy.  Fair market competition is overseen by the Office for the Protection of Competition (UOHS) (http://www.uohs.cz/en/homepage.html).  UOHS is a central administrative body entirely independent in its decision-making practice.  The office is mandated to create conditions for support and protection of competition and to supervise public procurement and state aid.

All laws and regulations in the Czech Republic are published before they enter into force.  Opportunities for prior consultation on pending regulations exist, and all interested parties, including foreign entities, can participate.  A biannual governmental plan of legislative and non-legislative work is available online, along with information on draft laws and regulations (often only in the Czech language).  Business associations, consumer groups, and other non-governmental organizations, including the American Chamber of Commerce, can submit comments on laws and regulations.  Laws on auditing, accounting, and bankruptcy are in force.  These laws include the use of international accounting standards (IAS) for consolidated corporate groups.  Public finances are transparent.  The government’s budget and information on debt obligations are publicly available and published online.

International Regulatory Considerations

Membership in the EU requires the Czech Republic to adopt EU laws and regulations, including rulings by the European Court of Justice (ECJ).

Czechoslovakia was a founding member of the GATT in 1947 and a member of the World Trade Organization (WTO).  Since the Czech Republic’s entry into the EU in 2004, the European Commission – an independent body representing all EU members – oversees Czech equities in the WTO and in trade negotiations.

Legal System and Judicial Independence

The Czech Commercial Code and Civil Code are largely based on the German legal approach, which follows a continental legal system where the principal areas of law and procedures are codified.  The commercial code details rules pertaining to legal entities and is analogous to corporate law in the United States.  The civil code deals primarily with contractual relationships among parties.

The Czech Civil Code, Act. No. 89/2012 Coll. and the Act on Business Corporations, Act No. 90/2012 Coll. (Corporations Act) govern business and investment activities.  The Act on Business Corporations introduced substantial changes to Czech corporate law such as supervision over the performance of a company’s management team, decision-making process, and remuneration and damage liability.  Detailed provisions for mergers and time limits on decisions by the authorities on registration of companies are covered, as well as protection of creditors and minority shareholders.

The judiciary is independent of the executive branch.  Regulations and enforcement actions are appealable, and the judicial process is procedurally competent, fair, and reliable.

Laws and Regulations on Foreign Direct Investment

The Foreign Direct Investment agenda is governed by the Civil Code and by the Act on Business Corporations.  In addition, the newly adopted investment screening law, which comes into effect on May 1, 2020, will give the government the ability to screen greenfield investments and acquisitions by non-EU investors for national security considerations.

The Czech Ministry of Industry and Trade maintains a “one-stop-shop” website available in Czech only at https://www.businessinfo.cz/ which aids foreign companies in establishing and managing a foreign-owned business in the Czech Republic, including navigating the legal requirements, licensing, and operating in the EU market.

Competition and Anti-Trust Laws

The Office for the Protection of Competition (UOHS) is the central authority responsible for creating conditions that favor and protect competition.  UOHS also supervises public procurement and monitors state aid (subsidy) programs.  UOHS is led by a chairperson who is appointed by the president of the Czech Republic for a six-year term.

Expropriation and Compensation

Government acquisition of property is done only for public purposes in a non-discriminatory manner and in full compliance with international law.  The process of tracing the history of property and land acquisition can be complex and time-consuming, but it is necessary to ensure clear title.  Investors participating in privatization of state-owned companies are protected from restitution claims through a binding contract with the government.

Dispute Settlement

ICSID Convention and New York Convention

The Czech Republic is a signatory and contracting state to the Convention on the Settlement of Investment Disputes between States and Nations of Other States (ICSID Convention).  It also has ratified the Convention on the Recognition and Enforcement of Arbitral Awards (New York Convention of 1958), which obligates local courts to enforce a foreign arbitral award if it meets the legal criteria.

Investor-State Dispute Settlement

The 1993 U.S.-Czech Bilateral Investment Treaty contains provisions regarding the settling of disputes through international arbitration.  In the past 10 years the Czech Republic has been involved in 29 known arbitral disputes with foreign investors.

International Commercial Arbitration and Foreign Courts

Mediation is an option in nearly every area of law including family, commercial, and criminal.  Mediators can be contracted between the parties to the dispute and found through such sources as the Czech Mediators Association, the Czech Bar Association, or the Union for Arbitration and Mediation Procedures of the Czech Republic.  A number of other non-governmental organizations (NGOs) and entities work in the area of mediation.  Directive 2008/52/EC allows those involved in a dispute to request that a written agreement arising from mediation be made enforceable.  The results of mediation may be taken into account by the public prosecutor and the court in their decision in a given case.  The local courts recognize and enforce foreign arbitral awards issued against the government.

Bankruptcy Regulations

The government amended the bankruptcy law on June 1, 2019, expanding the categories of debtors qualified for debt discharge.   In addition, to protect businesses affected by COVID-19 from bankruptcy, the government passed in April 2020 a law that puts a moratorium on filings for debt collection against all companies until the end of August 2020. This period was later extended through June 30, 2021.  The law also suspended companies’ obligations to file for bankruptcy until the end of June 2021 if they are not able to meet their liabilities.  Furthermore, in response to an EU directive on insolvency, the Czech government proposed an amendment to the bankruptcy law which is currently subject to approval by the Parliament.  The amendment would shorten the debt relief period for individuals from five to three years.  The directive requires the Czech Republic to update its legislation by July 17, 2021.

The Czech Republic ranked 16th in the 2020 edition of the World Bank’s Doing Business Report for ease of resolving insolvency.

Capital Markets and Portfolio Investment

The Czech Republic is open to portfolio investment.  There are 55 companies listed on the Prague Stock Exchange (PSE).  The overall trade volume of stocks decreased from CZK142.55 billion (USD6.5 billion) in 2018 to CZK108.78 billion (USD5 billion) in 2019, with an average daily trading volume of CZK435.12 million (USD19.9 million).

In March 2007, the PSE created the Prague Energy Exchange (PXE), which was later re-named to Power Exchange Central Europe, to trade electricity in the Czech Republic and Slovakia and, later, Hungary, Poland, and Romania.  PXE’s goal is to increase liquidity in the electricity market and create a standardized platform for trading energy.  In 2016, the German power exchange EEX acquired two thirds of PXE shares.  Following the acquisition, the PXE benefited from both an increased number of traders and increased trade volume.

The Czech National Bank, as the financial market supervisory authority, sets rules to safeguard the stability of the banking sector, capital markets, and insurance and pension scheme industries, and systematically regulates, supervises and, where appropriate, issues penalties for non-compliance with these rules.

The Central Credit Register (CCR) is an information system that pools information on the credit commitments of individual entrepreneurs and legal entities, facilitating the efficient exchange of information between CCR participants.  CCR participants consist of all banks and branches of foreign banks operating in the Czech Republic, as well as other individuals included in a special law.

As an EU member country, the local market provides credits and credit instruments on market terms that are available to foreign investors.

The Czech Republic respects IMF Article VIII.

Money and Banking System

Large domestic banks belong to European banking groups.  Most operate conservatively and concentrate almost exclusively on the domestic Czech market.  Despite the COVID-19 crisis, Czech banks remain healthy.  Results of regular banking sector stress tests, as conducted by the Czech National Bank, repeatedly confirm the strong state of the Czech banking sector which is deemed resistant to potential shocks.  Results of the most recent stress test conducted by the Czech National Bank are available at https://www.cnb.cz/en/financial-stability/stress-testing/banking-sector/.  As of January 31, 2021, the total assets of commercial banks stood at CZK8,661 billion (approximately USD395 billion), according to the Czech National Bank.  Foreign investors have access to bank credit on the local market, and credit is generally allocated on market terms.

The Czech National Bank has 10 correspondent banking relationships, including JP Morgan Chase Bank in New York and the Royal Bank of Canada in Toronto.  The Czech Republic has not lost any correspondent banking relationships in the past three years, and there are no relationships in jeopardy.

The Czech Republic does not currently regulate cryptocurrencies.

Foreign Exchange and Remittances

Foreign Exchange Policies

The COVID-19 outbreak caused the Czech crown to significantly depreciate, primarily in Q1 – Q2 2020.  Between February and May 2020, the Crown depreciated from CZK25 to CZK27.3 per EUR and from CZK22.9 to CZK25 per USD.  However, the crown recovered to CZK25.8 per EUR and CZK21.4 per USD by February 2021.

The CZK is fully convertible and floats freely.  The Czech National Bank supervises the foreign exchange market and its compliance with foreign exchange regulations.  The law permits conversion into any currency.

Remittance Policies

All international transfers of investment-related profits and royalties can be carried out freely.  The U.S.-Czech Bilateral Investment Treaty guarantees repatriation of earnings from U.S. investments in the Czech Republic.  However, a 15 percent withholding tax is charged on the repatriation of profits from the Czech Republic.  This tax is reduced under the terms of applicable double taxation treaties.  There are no administrative obstacles to removing capital.  The average delay for remitting investment returns meets the international standard of three working days.

Sovereign Wealth Funds

The Czech government does not operate a sovereign wealth fund.

The Ministry of Finance administers state ownership policies.  State-owned enterprises (SOEs) are structured as joint-stock companies, state enterprises, national enterprises, limited liability companies, and limited partnerships.  SOEs are owned by the individual ministries but are managed according to their business organizational structure as defined by law and are required to publish an annual report, disclose their accounting books, and submit to an independent audit.  Potential conflicts of interest are covered by existing Act No. 159/2006 on Conflicts of Interest, and Act No. 14/2017 on Amendments to the Act on Conflict of Interest.  Legislation on the civil service, which took effect January 1, 2015, established measures to prevent political influence over public administration, including operation of SOEs.

Private enterprises are generally allowed to compete with public enterprises under the same terms and conditions with respect to access to markets, credit, government contracts and other business operations.  SOEs purchase or supply goods and services from private sector and foreign firms.  SOEs are subject to the same domestic accounting standards, rules, and taxation policies as their private competitors, and are not given any material advantages compared to private entities.  State-owned or majority state-owned companies are present in several (strategic) sectors, including the energy, postal service, information and communication, and transport sectors.

The Czech Republic has 52 wholly owned SOEs and three majority owned SOEs (excluding those in liquidation).  Wholly owned SOEs employ roughly 78,000 people and own more than CZK487 billion (approximately USD 22.2 billion) in assets.  A list of all companies with a percentage of state ownership is available in Czech at:  https://www.komora.cz/legislation/167-19-strategie-vlastnicke-politiky-statu-t-20-12-2019/.

As an OECD member, the Czech Republic promotes the OECD Principles of Corporate Governance and the affiliated Guidelines on Corporate Governance for SOEs.  SOEs are subject to the same legislation as private enterprises regarding their commercial activities.

Privatization Program

As a result of several waves of privatization, the vast majority of the Czech economy is now in private hands.  Privatizations have generally been open to foreign investors.  In fact, most major SOEs were privatized with foreign participation.  The government evaluates all investment offers for SOEs.  Many competitors have alleged non-transparent or unfair practices in connection with past privatizations.

The risk of political violence in the Czech Republic is extremely low.  Two historic political changes – the Velvet Revolution, which ended the communist era in 1989, and the division of Czechoslovakia into the Czech Republic and Slovakia in 1993 – occurred without loss of life or significant violence.  The political institutions underpinning parliamentary democracy generally function smoothly.  Elections have resulted in orderly and peaceful changes of government.

As of 2015, the Czech National Bank records cross-border equity capital stocks for quoted shares (in line with the ESA 2010 and BPM6 international manuals) at market value instead of book value, rather than valuing FDI as the sum of historical flows, which is the methodology used by the United States.  This explains the large discrepancy between U.S. and Czech figures for 2019.

The IMF rankings for the top five sources and destinations of FDI stock are consistent with data from the Czech National Bank.  IMF and Czech National Bank figures for inward direct investment vary by up to 4 percent and figures for outward direct investment vary by up to 16 percent.  These statistical distortions are a result of the global adoption of the revised OECD Benchmark Definition for FDI, which is designed to discount investment flows from special purpose entities.

The top sources and destinations of Czech FDI represent a combination of major EU trading partners and favored tax regimes.  In the early 1990s, the Netherlands became a popular location for corporate registration for domestic and foreign businesses active in the Czech Republic.  In recent years, the main rationale for registering a business in the Netherlands was favorable corporate income taxes, stimulating rapid development of offshore corporate structures in the Czech Republic.  While this has dissipated (corporate income tax rates in the Czech Republic and Netherlands are nearly equal), the Netherlands remains a popular platform for large corporations given its robust network of investment agreement protections.  Luxembourg attracts Czech businesses for similar reasons.  Among other FDI partner countries, Cyprus offers one of the lowest corporate income tax rates in the EU (currently 12.5 percent) and tax exemption of dividends.

The Czech National Bank does not provide its own statistical data on portfolio investments by individual countries but provides a reference to IMF data on its website.  As far as portfolio investment assets for all countries, the 2019 IMF results are consistent with the Czech National Bank’s data.

Policies Towards Foreign Direct Investment

The ascension of Felix Tshisekedi to the Presidency in January 2019 and his welcoming attitude toward foreign direct investment (FDI), particularly from the United States, have raised hopes that the DRC government (GDRC) can impose and follow through on favorable FDI policies.  Favorable FDI laws exist, but the judicial system is slow to protect investors’ rights and is susceptible to political pressure and corruption.  Investors hope Tshisekedi can create a more favorable enabling environment by business climate reform, better rule of law, and tackling corruption. The DRC’s rich endowment of natural resources, large population and generally open trading system provide significant potential opportunities for U.S. investors.

The major regulations governing FDI are found in the Investment Code Act (No. 004/2002 of 21 February 2002). Current regulations reserve the practice of small retail commerce in DRC to nationals and ban foreign majority-ownership of agricultural concerns.  The ordinance of August 8, 1990, clearly stipulates that “small business can only be carried out by Congolese.”  Foreign investors should limit themselves to import trade as well as wholesale and semi-wholesale trade. Investors have expressed concern that the ban on foreign agricultural ownership will stifle any attempts to kick-start the agrarian sector.

The National Investment Promotion Agency (ANAPI) is the official investment agency, which provides investment facilitation services for initial investments over USD 200,000.  It is mandated to promote the positive image of the DRC and specific investment opportunities; advocate for the improvement of the business climate in the country and provide administrative support to new foreign investors who decide to establish or expand their economic activities on the national territory.  More information is available at https://www.investindrc.cd/.

The GDRC maintains an ongoing dialogue with investors to hear their concerns. There are several public and private sector forums which speak to the government on the investment climate in specific sectors.  In 2019 President Tshisekedi created the business climate cell (CCA) to monitor the improvement of the economic environment and the business climate in the DRC, and to interface with the business community.  The CCA in June 2020 presented a roadmap for reform.  The public-private Financial and Technical Partners (PTF) mining group represents countries with significant mining investments in the DRC. The Federation of Congolese Enterprises (FEC), which is a privileged partner of the government and the workers’ unions, has a dialogue on business interests with the government.  The FEC has relayed information to the government about the effects of the COVID-19 pandemic on the private sector.  The FEC is also tracking post-Covid-19 investment sectors.

Limits on Foreign Control and Right to Private Ownership and Establishment

The GDRC provides the right for foreign and domestic private entities to establish and own business enterprises and engage in all forms of remunerative activity.

The DRC law reserves small commerce exclusively for Congolese nationals and does not allow foreign investors to own more than 49 percent of an agribusiness.  Many investors note that in practice the GDRC requires foreign investors to hire local agents and participate in a joint venture with the government or local partners.

The GDRC promulgated a mining code in 2018 which increased royalty rates from two to ten percent, raised tax rates on “strategic” metals, and imposed a surcharge on “super profits” of mining companies.  The government unilaterally removed a stability clause contained in the previous mining code protecting investors from any new fees or taxes for ten years.  Removal of the stability clause may deter future investment in the mining sector.  The Tshisekedi government has indicated that it is willing to reopen discussions on the new mining code.

The GDRC does not maintain an organization to screen inbound investment.  The Presidency and the ministries serve this purpose de facto.

Other Investment Policy Reviews

The DRC has not undergone a World Trade Organization (WTO), Organization for Economic Cooperation and Development (OECD), or a United Nations Conference on Trade and Development (UNCTAD) Investment Policy Review in the last three years.  Cities with high custom clearance traffic use Sydonia https://asycuda.org/wp-content/uploads/Etude-de-Cas-SYDONIA-Contr%C3%B4le-de-la-Valeur-RDC.pdf, which is an advanced software system for custom administrations in compliance with ASYCUDA WORLD. (ASYCUDA is a large technical assistance software program recommended by UNCTAD for custom clearance management.)

Business Facilitation

The GDRC operates a “one-stop-shop” for Business Creation (GUCE) that brings together all the government entities involved in the registration of a company in the DRC.  The goal is to permit the quick and simple registration of companies through one office in one location.  In October 2020, President Tshisekedi instructed the government to restructure GUCE in order to ease its work with the various state organizations involved in its operation.  More information is available at https://guichetunique.cd/.

At the one-stop-shop, companies fill in a “formulaire unique” in order to register with the: Commercial Registry (GUCE); tax administration (Direction Générale des Impots); Ministry of Labor; and National Institute for Social Security (Institut National de Sécurité Sociale (“INSS”)).  The Labor Inspection Department and the National Office of Employment (l’Office National de l’Emploi (“ONEM”)) are also to be notified of the establishment of the company.  Companies may also need to obtain an operating permit, as required from some municipal councils.  The registration process now officially takes three days, but in practice it can take much longer.  Some businesses have reported that the GUCE has considerably shortened and simplified the overall process of business registration.

Outward Investment

The GDRC does not prohibit outward investment, nor does it particularly promote or incentivize it.

There are no current government restrictions preventing domestic investors from investing abroad, and there are no currently blacklisted countries with which domestic investors are precluded from doing business.

Transparency of the Regulatory System

Passed in 2019, the Law on Pricing, Freedom and Competition (the “Competition Act”) created a new Competition Commission charged with limiting control by one party over a market.  DRC law mandates review if the turnover achieved is equal to or exceeds the amount determined by Decree of the Prime Minister upon proposal of the Minister of the Economy; if the parties hold a combined market share of 25% or more; or if the contemplated transaction creates / reinforces an already dominant position.  DRC law requires notification prior to a corporate merger. It is unclear what penalties apply if there is no pre-notification.

The DRC is a member of the regional competition bodies, COMESA and OHADA. OHADA does not have an operational merger control regime in place, while COMESA does have merger control. Merger activities in the DRC should be conducted with COMESA in mind.

There are no informal regulations run by private or nongovernmental organizations that discriminate against foreign investors.  However, some U.S. investors perceive the regulations in the mining code on local content as discriminatory against foreign investment.

The GDRC authority on business standards, the Congolese Office of Control (OCC), oversees and develops regulations relevant to foreign businesses engaged in the DRC.

There are no formal or informal provisions systematically employed by the GDRC to impede foreign investment.  Companies most often complain of facing administrative hurdles as laws and regulations are often poorly or unevenly applied.

Proposed laws and regulations are rarely published in draft format for public discussion and comment; discussion is typically limited to the governmental entity that proposes the draft law and Parliament prior to enactment.  Sometimes the government will hold a public hearing after public appeals.

The Official Gazette of the DRC is a specialized service of the Presidency of the Republic, which publishes and disseminates legislative and regulatory texts, judicial decisions, acts of companies, associations and political parties, designs, industrial models, trademarks as well as any other act referred to in the law.  More information is available at http://www.leganet.cd/.

There are no formal or informal provisions systematically employed by the GDRC to impede foreign investment.  Companies often complain of facing administrative hurdles as laws and regulations are often poorly or unevenly applied.

By implementing the OHADA system, the GDRC strengthened its legal framework in the areas of contract, company, and bankruptcy law and set up an accounting system better aligned to international standards.  For this purpose, a Coordination Committee was established internally in the GDRC to monitor OHADA implementation.

Tshisekedi created the Business Climate Unit (CCA) by a presidential order issued in February 2020. The mission of the CCA is to monitor the national business climate and enact regulatory reforms.  The CCA announced a roadmap for reform in June 2020, but has yet to implement the recommended reforms.

In November 2020, the GDRC launched the construction of the first Special Economic Zone, with the aim of attracting foreign investment and stimulating the creation of local businesses. This free zone offers tax and regulatory advantages for investors and entrepreneurs including a 5-to-10-year tax exemption. More information is available at https://www.azes-rdc.com/.

The roadmap details priority and urgent reforms and awaits action by the Prime Minister and the new cabinet. In the long term, the first Special Economic Zone will promote exports and create 3,500 direct jobs.

The DRC is a member of the Extractive Industries Transparency Initiative (EITI), a multi-stakeholder initiative to increase transparency in transactions between governments and companies in the extractive industries.  The DRC’s validation process for compliance with the EITI Standard commenced in November 2018.  The initial report published by the International EITI Secretariat in April 2019 stated that the DRC EITI failed to adequately address 13 of the requirements of the EITI Standard, with two of these assessed as unmet with inadequate progress.  The report also stressed the need to clarify the financial flows of state-owned enterprises (SOEs) in the DRC’s extractive sector.

In 2020, the DRC failed to meet the minimum requirements of fiscal transparency according to the State Department’s Fiscal Transparency report.  While the DRC publishes budgets that are publicly available and timely, the published budgets were not reliable indicators of actual government spending.

International Regulatory Considerations

The DRC is a member of several regional economic blocs, including the Southern African Development Community (SADC), the Common Market for Eastern and Southern Africa (COMESA), the Organization for the Harmonization of Business Law in Africa (“OHADA”), the Economic Community of Central African States (ECCAS), and the Economic Community of the Great Lakes Countries (ECGLC).

According to the Congolese National Standardization Committee, the DRC has adopted 470 harmonized COMESA standards, which are based on the European system.

The DRC is a member of the World Trade Organization (WTO) and seeks to comply with Trade Related Investment Measures (TRIM) requirements, including notifying regulations to the WTO Committee on Technical Barriers to Trade (TBT).

Legal System and Judicial Independence

The DRC is a civil law country, and the main provisions of its private law can be traced to the Napoleonic Civil Code.  The general characteristics of the Congolese legal system are similar to those of the Belgian system.  Various local customary laws regulate both personal status laws and property rights, especially the inheritance and land tenure systems in traditional communities throughout the country.  The Congolese legal system is divided into three branches: public law, private law, and economic law.  Public law regulates legal relationships involving the state or state authority; private law regulates relationships between private persons; and economic law regulates interactions in areas such as labor, trade, mining, and investment.

The DRC has written commercial and contractual law.  In 2018, the DRC established thirteen commercial courts located in DRC’s main business cities, including Kinshasa, Lubumbashi, Matadi, Boma, Kisangani, and Mbuji-Mayi.  These courts are designed to be led by professional judges specializing in commercial matters and exist in parallel to the judicial system.  A lack of qualified personnel and reluctance by some DRC jurisdictions to fully recognize OHADA law and institutions have hindered the development of commercial courts.  Legal documents in the DRC can be found at: http://www.leganet.cd/index.htm.

The current executive branch has generally not interfered with judicial proceedings.  The current judicial process is not procedurally reliable and its rulings are not always respected.

The national court system provides an appeals mechanism under the OHADA framework.

Laws and Regulations on Foreign Direct Investment

The 2002 Investment Code governs most foreign direct investment (FDI), providing for the protection of investments.  In practice, an inadequate legal system has insufficiently protected foreign investors in the event of a dispute.  Mining, hydrocarbons, finance, and other sectors have sector-specific investment laws.

ANAPI is the DRC agency with the mandate to simplify the investment process, make procedures more transparent, assist new foreign investors, and improve the image of the country as an investment destination (www.investindrc.cd).

The GDRC has a “Guichet Unique,” which is a one-stop shop to simplify business creation, cutting processing time from five months to three days, and reducing incorporation fees from $3,000 to $120. (www.guichetunique.cd ). A “one-stop-shop” also exists for import-export business, covering aspects such as the collection of taxes and transshipment operations. (https://segucerdc.cd/ ).

Competition and Antitrust Laws

There is no national agency that reviews transactions for competition or antitrust-related concerns.  As a member of COMESA, the DRC follows the COMESA Competition Regulations and rules, and the COMESA competition body regulates competition.  In May 2020, Tshisekedi instructed the cabinet to better defend the GDRC’s interests in outstanding investor disputes, including if necessary, by agreeing to a settlement.  This decision followed the announcement of two international court decisions unfavorable to the GDRC, which put the government liable for hundreds of millions of dollars.

Expropriation and Compensation

The GDRC may proceed with an expropriation when it benefits the public interest, and the person or entity subject to an expropriation should receive fair compensation.

Companies report that the GDRC levies heavy fines in a form of financial expropriation.  A government agency imposes fines due to a company’s failure to pay a tax, though often the tax regime is unclear and multiple government bodies impose different taxes.  Companies that appeal these fines through the courts often encounter a long wait.  There has not been an expropriation of property in the past three years, but there are a number of existing and long-standing claims made against the GDRC.

Some claims have been taken to arbitration, though many arbitral judgments against the GDRC are not paid in a timely manner, if at all.

Dispute Settlement

ICSID Convention and New York Convention

The DRC is a member of the International Center for Settlement of Investment Disputes (ICSID) Convention and a Contracting State to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention).

There is no specific domestic legislation providing for the enforcement of awards under the New York Convention.  It is important to note that the New York Convention does not apply toward disputes relating to immovable property, which includes mining rights.

Investor-State Dispute Settlement

The DRC is subject to international arbitration.  A U.S. mining company sued under the BIT to recover losses suffered when FARDC troops sacked its mine in Kasai Central Province in 1995. The arbitration courts ruled the GDRC liable for damages totaling $13 million, and the GDRC started paying back the awarded amount plus interest to the U.S. Company.

There have been charges of extrajudicial action against foreign investors, including levying fines and imprisonment.  In one case an investor left the country after being jailed on charges of corruption.

International Commercial Arbitration and Foreign Courts

The DRC adopted the OHADA Uniform Act on Arbitration (the UAA).  The UAA sets out the basic rules applicable to any arbitration where the seat of arbitration is located in an OHADA member state.  The requirements set out under Article 5 of the New York Convention for the recognition and enforcement of foreign awards applies where the seat of any arbitration is outside an OHADA member state, or where the parties choose arbitration rules outside the UAA.

OHADA‘s UAA offers an alternative dispute resolution mechanism for settling disputes between two parties where the place of arbitration is situated in a Member State.  Disputes must be submitted to the Common Court of Justice and Arbitration (CCJA) in Abidjan in accordance with the provisions of the OHADA Treaty and the OHADA Arbitration Rules.

The UAA, while not directly based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law, is similar in that it provides for the recognition and enforcement of arbitration agreements and arbitral awards and supersedes the national laws on arbitration to the extent that any conflict arises.  Arbitral awards with a connection to an OHADA member state are given final and binding status in all OHADA member states, on par with a national court judgment.  Support is provided by the CCJA which can rule on the application and interpretation of the UAA.

Arbitral awards rendered in any OHADA Member State are enforceable in in the domestic courts of any other OHADA member state, subject to obtaining an exequatur (a legal document issued by a sovereign authority allowing a right to be enforced in the authority’s domain of competence) of the competent court of the State in which the award is to be made.  Exequaturs are granted unless the award clearly affects public order in that State.  Decisions granting or refusing to grant an exequatur may be appealed to the CCJA.

In general, companies which fail to find a favorable judgment in domestic courts go to international courts for relief.  This often drags the judicial process on for years.  For domestic cases involving SOEs the courts often rule in favor of the SOEs.  One attorney estimated that  about five percent of cases have any transparency.

Bankruptcy Regulations

The OHADA Uniform Act on Insolvency Proceedings provides a comprehensive framework not only for companies encountering financial difficulties and seeking relief from the pressing demands of creditors, but also for creditors to file their claims.  The GDRC judiciary system has agreed to enforce the OHADA Insolvency Act.  Bankruptcy is not criminalized.

According to the World Bank’s Doing Business Report, there were no foreclosure, liquidation or reorganization proceedings filed in the country in 2020, making it impossible to assess the time, cost or outcome for an insolvency proceeding.  According to the World Bank, the DRC ranked 168th out of 190 countries on ease of resolving insolvency.

Capital Markets and Portfolio Investment

Portfolio investment is nonexistent in the DRC and there is no domestic stock market.  A small number of private equity firms are actively investing in the mining industry.  The institutional investor base is not well developed, with only an insurance company and a state pension fund as participants.  There is no market for derivatives in the country.  Cross-shareholding and stable shareholding arrangements are also not common.  Credit is allocated on market terms, but there are occasional complaints about unfair privileges extended to certain investors in profitable sectors such as mining and telecommunications.

Although reforms have been initiated, the Congolese financial system remains small, heavily dollarized, characterized by fragile balance sheets, and cumbersome to use.  Further reforms are needed to strengthen the financial system, support its expansion, and spur economic growth.  Inadequate risk-based controls, weak enforcement of regulations, low profitability, and excessive reliance on demand deposit undermine the shock resilience of the financial system.

The Central Bank of Congo (BCC) refrains from payments and transfers on current international transactions.  The DRC’s capital market remains underdeveloped and consists mainly of the issuance of treasury bonds.  In 2019, the BCC issued its first domestic bond in 24 years, which was oversubscribed.  Most of the buyers were local Congolese banks.

It is possible for foreign firms to borrow from local banks, but their options are limited.  Maturities for loans are usually limited to 3-6 months, and interest rates are typically around 16-21 percent.  The inconsistency of the legal system, the often-cumbersome business climate, and the difficulty in obtaining inter-bank financing discourages banks from providing long-term loans.  There are limited possibilities to finance major projects in the domestic currency, the Congolese franc (CDF).

Money and Banking System

The Congolese financial system is improving but remains fragile.  The BCC controls monetary policy and regulates the banking system.  Banks are concentrated primarily in Kinshasa, Kongo Central, North and South Kivu, and Haut Katanga provinces. Banking rate penetration is roughly 7 percent or about 4.1 million accounts, which places the country among the most under-banked nations in the world.  Mobile banking has the potential to greatly increase banking customers as an estimated 35 million Congolese use mobile phones.

There is no debt market. The financial health of DRC banks is fragile, reflecting high operating costs and exchange rates. The situation improved in a weak economic environment in 2019 as deposits have increased, which could point to a better year in 2020 considering the asset quality measures taken by the BCC, allowing banks to absorb the economic impact of the covid-19 pandemic.  Fees charged by banks are a major source of revenue.

The financial system is mostly banking-based with aggregate asset holdings estimated at USD 5.1 billion.  Among the five largest banks, four are local and one is controlled by foreign holdings.  The five largest banks hold almost 65 percent of bank deposits and more than 60 percent of total banks assets, about $3.1 billion.  There are no statistics on non-performing loans, as many banks only record the balance due instead of the total amount of their non-performing loans.

Citigroup is the only correspondent bank. All foreign banks accredited by the BCC are considered Congolese banks with foreign capital and fall under the provisions and regulations covering the credit institutions’ activities in the DRC.  There are no restrictions on foreigners establishing an account in a DRC bank.

Foreign Exchange and Remittances

Foreign Exchange

The international transfer of funds is permitted when channeled through local commercial banks.  On average, bank declaration requirements and payments for international transfers take less than one week to complete.  The Central Bank is responsible for regulating foreign exchange and trade.  The only currency restriction imposed on travelers is a $10,000 limit on the amount an individual can carry when entering or leaving the DRC.

The GDRC requires the BCC to license exporters and importers.  The DRC’s informal foreign exchange market is large and unregulated and offers exchange rates slightly more favorable than the official rate.  BCC regulations set the Congolese franc (CDF) as the main currency in all transactions within the DRC, required for the payment of fees in education, medical care, water and electricity consumption, residential rents, and national taxes.  Exceptions to this rule occur where both parties involved, and the appropriate monetary officials, agree to use another currency.  The CDF exchange rate floats freely, but the BCC carefully monitors the rate and intervenes to shore up the exchange rate.

Remittance Policies

There are no legal restrictions on converting or transferring funds.  Exchange regulations require a 60-day waiting period for in-country foreigners to remit income.  Foreign investors may remit through parallel markets when they are legally established and recognized by the Central Bank.

Sovereign Wealth Funds

The DRC does not have any reported Sovereign Wealth Funds, though the 2018 Mining Code discusses a Future Fund to be capitalized by a percentage of mining revenues.

There are 20 DRC state-owned enterprises (SOEs) operating in the mining, transportation, energy, telecommunications, finance, and hospitality sectors.  In the past, Congolese SOEs have stifled competition and have been unable to provide reliable electricity, transportation, and other important services over which they have monopolies.  Some SOEs and other Congolese parastatal organizations are in poor financial and operational state due to indebtedness and the mismanagement of resources and employees.  The list of SOEs can be found at: http://www.leganet.cd/Legislation/Droit%20Public/EPub/d.09.12.24.04.09.htm

There is limited reporting on the assets of SOEs and other parastatal enterprises, making valuation difficult.  DRC law does not grant SOEs an advantage over private companies in bidding for government contracts or obtaining preferential access to land and raw materials.  The government is often accused of favoring SOEs over private companies in contracting and bidding.

The DRC is not a party to the WTO’s procurement agreement (GPA), but nominally adheres to the OECD guidelines on Corporate Governance for SOEs. The DRC is a Participating Country in the Southern Africa SOE network, with the Ministry of Portfolio and the Steering Committee for SOE reforms designated as Regularly Participating Institutions.

Privatization Program

The DRC has no official privatization program.

In January 2019, Felix Tshisekedi became President in the DRC’s first peaceful transition of power. Following President Felix Tshisekedi’s establishment of a new political alliance known as the “Sacred Union”, the former Prime Minister stepped down in February 2021.  On February 15, a week after he was sworn in as Head of the African Union, President Tshisekedi appointed Jean-Michel Lukonde as Prime Minister.  Maintaining public support for the Tshisekedi government will ultimately require the administration to deliver on the campaign slogan of “the people first.”

The security situation continues to be a concern and the U.S. Embassy through its travel advisory (https://travel.state.gov/content/travel/en/international-travel/International-Travel-Country-Information-Pages/DemocraticRepublicoftheCongoDRC.html) keeps a list of areas where it does not recommend travel by U.S. citizens.  Thousands of members of armed groups have been disarming and turning themselves in to the United Nations’ DRC peacekeeping operation (MONUSCO) and the GDRC since President Tshisekedi’s election, according to international observers, with inconsistent demobilization processes and high recidivism rates.  International statistics indicate that over 140 small and medium sized armed groups and organized criminal groups continue to operate in 17 of the DRC’s 26 provinces, primarily in the east of the country.  The foreign terrorist organization-designated ISIS-DRC (a.k.a the Allied Democratic Forces (ADF) rebel group) in eastern DRC is one of the country’s most notorious and intractable armed groups and its members have shown no interest in demobilizing.  ISIS-DRC has been spreading violence throughout the eastern part of DRC fat an increasing pace since 2014 and killed at least 840 people in 2020 President Tshisekedi is cognizant of the important role security plays in attracting foreign investment, and has encouraged the Congolese army to work with MONUSCO to eliminate armed groups.

US citizens and interests are not being specifically targeted by armed groups but can easily fall victim to violence or kidnapping by being in the wrong place at the wrong time.  The Armed Conflict Location and Event Dataset tracks political violence in developing countries, including the DRC, http://www.acleddata.com/.  Kivu Security Tracker (www.kivusecurity.org) is another database for information on attacks in eastern DRC.  The Department of State continues to advise U.S. citizen travelers to review the Embassy’s Travel Advisory and country information page (https://travel.state.gov/content/travel/en/international-travel/International-Travel-Country-Information-Pages/DemocraticRepublicoftheCongoDRC.html) for the latest security information.

Table 3: Sources and Destination of FDI
Data not available.

Table 4: Sources of Portfolio Investment
Data not available.

Policies Towards Foreign Direct Investment

As a small country with an open economy, Denmark is highly dependent on foreign trade and investment. Exports comprise the most significant component (55 percent) of GDP. The Economist Intelligence Unit (EIU) ranks Denmark as the world’s second-most attractive business location after Singapore and the leading nation in the Nordic region. The EIU characterizes Denmark’s business environment as among the most attractive globally, reflecting an excellent infrastructure, a friendly policy towards private enterprise and competition, low bureaucracy, and a well-developed digital sector. Principal concerns include low productivity growth, a high personal tax burden, and limited competition in the retail sector. Overall, however, operating conditions for companies are broadly favorable. Denmark ranks highly in multiple categories, including its political and institutional environment, macroeconomic stability, foreign investment policy, private enterprise policy, financing, and infrastructure.

As of January 2021, the EIU rated Denmark an “AA” country on its Country Risk Service, with a stable outlook. Sovereign risk is rated “A,” and political risk “AAA.” Denmark ranked tenth out of 140 on the World Economic Forum’s 2019 Global Competitiveness Report, fourth on the World Bank’s 2020 Doing Business ranking, and seventh on the EIU 2020 Democracy Index. Denmark has an AAA rating from Standard & Poor’s, Moody’s, and Fitch Group. “Invest in Denmark,” an agency of the Ministry of Foreign Affairs and part of the Danish Trade Council, provides detailed information to potential investors. Invest in Denmark has prioritized six sectors in its strategy to attract foreign investment: Tech, Cleantech, Life Science, Food, Maritime, and Design & Innovation. The website for the agency is www.investindk.com .

Corporate tax records of all companies, associations, and foundations that pay taxes in Denmark were made public beginning in December 2012 and are updated annually. The corporate tax rate is 22 percent.

Limits on Foreign Control and Right to Private Ownership and Establishment

As an EU member state, Denmark is bound by EU rules on the free movement of goods, capital, persons, and certain services. Denmark welcomes foreign investment and does not distinguish between EU and other investors. There are no additional permits required by foreign investors, nor any reported bias against foreign companies from municipal or national authorities.

Denmark’s central and regional governments actively encourage foreign investment on a national-treatment basis, with relatively few foreign control limits. The Danish government has presented legislation to establish a foreign investment screening mechanism, which is expected to come into force on July 1, 2021.

A foreign or domestic private entity may freely establish, own, and dispose of a business enterprise in Denmark. The capital requirement for establishing a corporation (Aktieselskab A/S) or Limited Partnership (Partnerselskab P/S) is DKK 400,000 (approx. USD 61,000) and for establishing a private limited liability company (Anpartsselskab ApS) DKK 40,000 (approx. USD 6,100).

As of April 15, 2019, it is no longer possible to set up an “Entrepreneurial Company” (IVS). This company type, which required a starting capital of only DKK 1 (USD 0.15), was structured to allow entrepreneurs a cheap and straightforward way to incorporate with limited liability. Due to repeated instances of fraud and unintended use of the IVS, this vehicle was abolished within Denmark but is still available in Greenland. In 2019, the capital requirements to set up a Private Limited Company were lowered, which brought Denmark more in line with other Scandinavian countries. No restrictions apply regarding the residency of directors and managers.

Since October 2004, any private entity may establish a European public limited company (SE company) in Denmark. The legal framework of an SE company is subject to Danish corporate law, but it is possible to change the nationality of the company without liquidation and re-founding. An SE company must be registered at the Danish Business Authority if its official address is in Denmark. The minimum capital requirement is EUR 120,000 (approx. USD 137,000).

Danish professional certification and/or local Danish experience are required to provide professional services in Denmark. In some instances, Denmark may accept equivalent professional certification from other EU or Nordic countries on a reciprocal basis. EU-wide residency requirements apply to the provision of legal and accountancy services.

Ownership restrictions apply to the following sectors:

• Oil and Gas: Requires 20 percent Danish government participation on a “non-carried interest” basis.

• Defense: The Minister of Justice must approve foreign investment in defense companies doing business in Denmark if such investment exceeds 40 percent of the equity or more than 20 percent of the voting rights, or if the investment gives the foreign interest a controlling share. This approval is generally granted unless there are security or other foreign policy considerations weighing against approval.

• Maritime Services: There are foreign (non-EU resident) ownership requirements on Danish-flagged vessels other than those owned by an enterprise incorporated in Denmark. Ships owned by Danish citizens, Danish partnerships, or Danish limited liability companies are eligible for registration in the Danish International Ships Register (DIS). Vessels owned by EU or European Economic Area (EEA) entities with a genuine, demonstrable link to Denmark are also eligible for registration. Foreign companies with a significant Danish interest can register a ship in the DIS.

• Civil Aviation: For an airline to be established in Denmark, it must have majority ownership and be effectively controlled by an EU state or a national of an EU state, unless otherwise provided for through an international agreement to which the EU is a signatory.

• Financial Services: Non-resident financial institutions may engage in securities trading on the Copenhagen Stock Exchange only through subsidiaries incorporated in Denmark.

• Real Estate: Ownership of holiday homes, also known as summer houses, is restricted to Danish citizens. Such homes are generally located along the Danish coastline and may not be used as full-year residences. On a case-by-case basis, the Ministry of Justice may waive the citizenship requirement for those with close familial, linguistic, cultural, or other close connections to Denmark or the specific property. In general, EU and EEA citizens may purchase full-year residential property or real estate that supports self-employment without obtaining prior authorization from the Ministry of Justice. Companies domiciled in an EU or an EEA Member State that have set up or will set up subsidiaries or agencies or will provide services in Denmark may, in general, also purchase real property in Denmark without prior authorization. Non-EU/EEA citizens must obtain authorization from the Ministry of Justice to purchase real estate in Denmark, which is generally granted to those with permanent residence in Denmark or who have lived in Demark for a consecutive period of five years.

Other Investment Policy Reviews

The most recent United Nations Conference on Trade and Development (UNCTAD) review of Denmark occurred in March 2013 and is available here:  unctad.org/en/PublicationsLibrary/webdiaeia2013d2_en.pdf . There is no specific mention of Denmark in the latest WTO Trade Policy Review of the European Union, revised in December 2019.

The EU Commission’s European Semester documents for Denmark are available here:  ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/eu-economic-governance-monitoring-prevention-correction/european-semester/european-semester-your-country/denmark_en  while a 2017 Foreign Investment Regulation review by DLA Piper can be found here:  www.dlapiper.com/~/media/files/insights/publications/2017/11/denmark.pdf

Denmark ranked first out of 180 in Transparency International’s 2020 Corruption Perceptions Index. It received a ranking of four out of 190 for “Ease of Doing Business” in the World Bank’s 2020 Doing Business Report, placing it first in Europe. In the World Economic Forum’s Global Competitiveness report for 2019, Denmark was ranked 10 out of 141 countries.

The World Intellectual Property Organization’s (WIPO) Global Innovation Index ranked Denmark 6 out of 131 in 2020.

Business Facilitation

The Danish Business Authority (DBA) is responsible for business registrations in Denmark. As a part of the Danish Business Authority, “Business in Denmark,” provides information on relevant Danish rules and online registrations to foreign companies in English. The Danish business registration website, www.virk.dk , is the principal digital tool for licensing and registering companies in Denmark and offers a business registration process that is clear and complete.

Registration of sole proprietorships and partnerships is free of charge. For other types of businesses, online registration costs DKK 670 (approx. USD 103). Registration by email or post costs DKK 2150 (approx. USD 329).

The process for establishing a new business is distinct from that of registration. The Ministry of Foreign Affairs’ “Invest in Denmark” program provides a step-by-step guide to establishing a business at www.investindk.com/-/media/invest-in-denmark/publications/business-conditions/investindk-fact-sheet-step-by-step-web.ashx , along with other relevant resources at . The services are free of charge and available to all investors, regardless of country of origin.www.investindk.com/Downloads. The services are free of charge and available to all investors, regardless of country of origin.

Processing time for establishing a new business varies depending on the chosen business entity. Establishing a Danish Limited Liability Company (ApS), for example, generally takes four to six weeks for a standard application. Establishing a sole proprietorship (Enkeltmandsvirksomhed) is more straightforward, with processing generally taking about one week.

Those providing temporary services in Denmark must provide their company details to the Registry of Foreign Service Providers (RUT). The website ( www.virk.dk ) provides English guidance on registering a service with RUT. A digital employee’s signature, referred to as a NemID, is required for those wishing to register a foreign company in Denmark. A CPR number (a 10-digit personal identification number) and valid ID are needed to obtain a NemID. Danish citizenship is not a requirement.

Denmark defines small enterprises as those with fewer than 50 employees. Annual revenue or the yearly balance sheet total must be lower than DKK 89 million (approx. USD 13.6 million) or DKK 44 million (approx. USD 6.7 million), respectively. Medium-sized enterprises cannot have more than 250 employees. Limits on annual revenue or the yearly balance sheet total are DKK 313 million (approx. USD 47.9 million) or DKK 156 million (approx. USD 23.9 million).

Outward Investment

Danish companies are not restricted from investing abroad, and Danish outward investment has exceeded inward investments for more than a decade.

Transparency of the Regulatory System

Denmark’s judicial system is highly regarded and considered fair. Its legal system is independent of the government’s legislative branch and includes written and consistently applied commercial and bankruptcy laws. Secured interests in property are recognized and enforced. The World Economic Forum’s (WEF) 2019 Global Competitiveness Report ranked Denmark as the world’s tenth most competitive economy and fourth among EU member states, characterizing it as having among the best functioning and most transparent institutions in the world. Denmark ranks high on specific WEF indices related to macroeconomic stability (1st), labor market (3rd), business dynamism (3rd), institutions (7th), ICT adoption (9th), and skills (3rd).

To facilitate business administration, Denmark maintains only two “legislative days” per year—January 1 and July 1—as the only days when new laws and regulations affecting the business sector can come into effect. Danish laws and policies granting national treatment to foreign investments are designed to increase FDI in Denmark. Denmark consistently applies high standards to health, environment, safety, and labor laws. Danish corporate law is generally in conformity with current EU legislation. The legal, regulatory, and accounting systems are relatively transparent and follow international standards.

Bureaucratic procedures are streamlined and transparent; proposed laws and regulations are published in draft form for public comment. Public finances and debt obligations are transparent.

The Ministry of Taxation publishes and updates annually all companies’ corporate tax records. Greenland and the Faroe Islands retain autonomy for their respective tax policies.

The government uses transparent policies and effective laws to foster competition and establish “clear rules of the game,” consistent with international norms and applicable equally to Danish and foreign entities. The Danish Competition and Consumer Authority works to make markets well-functioning so that businesses compete efficiently on all parameters. The Authority is a government agency under the Danish Ministry of Industry, Business, and Financial Affairs. It enforces the Danish Competition Act. This Act, along with Danish consumer legislation, aims to promote efficient resource allocation in society, promote efficient competition, create a level playing field for enterprises, and protect consumers.

Publicly listed companies in Denmark must adhere to the Danish Financial Statements Act when preparing their annual reports. The accounting principles are International Accounting Standards (IAS), International Financial Reporting Standards (IFRS), and Danish Generally Accepted Accounting Principles (GAAP). Financial statements must be prepared annually. The Danish Financial Statements Act covers all businesses.

Private limited companies, public limited companies, and corporate funds are obliged to prepare financial statements under accounting classes determined by company size:

• Small businesses (Class B): Less than an annual average of 50 full-time employees and total assets not exceeding DKK 44 million (USD 6.7 million) or net revenue not exceeding DKK 89 million (USD 13.6 million) during the fiscal year.

• Medium-sized enterprises (Class C medium): Less than an annual average of 250 full-time employees and total assets not exceeding DKK 156 million (USD 23.9 million) or net revenue not exceeding DKK 313 million (USD 47.9 million) during the fiscal year.

• Large companies (Class C large): Companies that are neither small nor medium companies.

According to the Danish Financial Statements Act, personally owned businesses, personally owned general partnerships (multiple owners), and general funds are characterized as Class A; there is no requirement to prepare financial statements unless the owner voluntarily chooses to do so.

All government draft proposed regulations are published at “Høringsportalen” ( www.hoeringsportalen.dk ) and are available for comment from interested parties. Following the comment period, the government may revise draft regulations before publication on the Danish Parliament’s website ( www.ft.dk ). Final regulations are published at www.lovtidende.dk  and www.ft.dk . All ministries and agencies are required to publish proposed regulations. Denmark has a World Bank composite score of 4.75″ for the Global Indicators of Regulatory Governance, on a zero to five scale. Concerning governance, the World Bank suggests the following areas for improvement:

• Affected parties cannot request reconsideration or appeal adopted regulations to the relevant administrative agency.

• There is no existing requirement that regulations be periodically reviewed to see whether they should be revised or eliminated.

International Regulatory Considerations

Denmark adheres to the WTO Agreement on Trade-Related Investment Measures (TRIMs); no inconsistencies have been reported.

Legal System and Judicial Independence

Denmark’s decision-making power is divided into the legislative, executive, and judicial branches. The principles of separation of power and an independent judiciary help ensure democracy and Danish citizens’ legal rights. The district courts, the high courts, and the Supreme Court represent the Danish legal system’s three basic levels. The legal system also comprises other institutions with special functions, e.g., the Maritime and Commercial Court.

For further information, please see:  domstol.dk/om-os/english/the-danish-judicial-system/  

Laws and Regulations on Foreign Direct Investment

The government agency “Invest in Denmark” is part of the Danish Trade Council and is situated within the Ministry of Foreign Affairs. The agency provides detailed information to potential investors. The website for the agency is  investindk.com . The Faroese government promotes Faroese trade and investment through its website  faroeislands.fo/economy-business . For further information concerning Greenland’s investment potential, please see Greenland Holding at  www.venture.gl  or the Greenland Tourism & Business Council at  visitgreenland.com .

As an EU member state, Denmark is bound by EU rules on the free movement of goods, capital, persons, and certain services. Denmark welcomes foreign investment and does not distinguish between EU and other investors. There are no additional permits required of foreign investors, nor any reported biases against foreign companies from municipal or national authorities.

The Danish government has presented legislation to establish a foreign investment screening mechanism, which is expected to enter into force on July 1, 2021. The screening mechanism would be in line with the EU investment screening framework encouraging member states to screen foreign investments in critical infrastructure and other sensitive sectors.

Competition and Anti-Trust Laws

The Danish Competition and Consumer Authority (CCA) reviews transactions for competition-related concerns. According to the Danish Competition Act, the CCA requires notification of mergers and takeovers if the aggregate annual revenue in Denmark of all undertakings involved is more than DKK 900 million (USD 137.7 million) and the aggregate yearly revenue in Denmark of each of at least two of the undertakings concerned is more than DKK 100 million (USD 15.3 million), or if the aggregate annual revenue in Denmark of at least one of the undertakings involved is more than DKK 3.8 billion (USD 581.5 million) and the aggregate yearly worldwide revenue of at least one of the other undertakings concerned is more than DKK 3.8 billion (581.5 million). When a merger results from the acquisition of parts of one or more undertakings, the calculation of the revenue referred to shall only comprise the share of the revenue of the seller or sellers that relates to the assets acquired. Merger control provisions are contained in Part Four of the  Danish Competition Act and in the Executive Order on the Notification of Mergers . Revenue is calculated under the Executive Order on the Calculation of Turnover in the Competition Act .

A full notification of a merger must include the information and documents specified in the full notification form, Annex 1 – Information for Full Notification of Mergers . A simplified notification of a merger must include the information and documents specified in the simplified notification form, Annex 2 – Information for Simplified Notification of Mergers . From August 1, 2013, merger fees are payable for merger notifications submitted to the Competition and Consumer Authority. The fee for a simplified notification amounts to DKK 50,000 (USD 7,650). The fee for a full notification amounts to 0.015 percent of the aggregate annual turnover in Denmark of the undertakings involved; this fee is capped at DKK 1,500,000 (USD 230,000).

Additional information concerning notification of mergers is available in the Guidelines to the Executive Order on Notification of Mergers and on Merger Fees . More general information on Danish merger control can be found in the Merger Guidelines .

A merger or takeover is subject to approval by the CCA. Large-scale mergers also require approval from EU competition authorities.

Expropriation and Compensation

By law, private property can only be expropriated for public purposes, in a non-discriminatory manner, with reasonable compensation, and under established principles of international law. There have been no recent expropriations of significance in Denmark.

Dispute Settlement

ICSID Convention and New York Convention

There have been no significant investment disputes in Denmark in recent years. Denmark has been a member of the World Bank-based International Center for the Settlement of Investment Disputes (ICSID) since 1968. The ICSID Convention has been extended to include the Faroe Islands. Denmark is a party to the 1958 (New York) Convention on the Recognition and Enforcement of Foreign Arbitral Awards, meaning local courts must enforce international arbitration awards that meet specific criteria. Subsequent Danish legislation makes international arbitration of investment disputes binding in Denmark. Denmark declared in 1976 that the New York Convention applies to the Faroe Islands and Greenland. Denmark is a party to the 1961 European Convention on International Commercial Arbitration and to the 1962 Agreement relating to the application of this Convention. Denmark adopted the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration in 1985.

Investor-State Dispute Settlement

N/A

International Commercial Arbitration and Foreign Courts

N/A

Bankruptcy Regulations

Monetary judgments under the bankruptcy law are made in freely convertible Danish Kroner. The bankruptcy law addresses creditors’ claims in the following order: (1) costs and debt accrued during the treatment of the bankruptcy; (2) costs, including the court tax, relating to attempts to find a solution other than bankruptcy; (3) wage claims and holiday pay; (4) excise taxes owed to the government; and (5) all other claims. In the World Bank’s 2020 Doing Business Report, Denmark ranks 6th in “resolving insolvency.”

Capital Markets and Portfolio Investment

Denmark has fully liberalized foreign exchange flows, including those for direct and portfolio investment purposes. Credit is allocated on market terms and is freely available. Denmark adheres to its IMF Article VIII obligations. The Danish banking system is under the regulatory oversight of the Financial Supervisory Authority. Differentiated voting rights – A and B stocks – are used to some extent, and several Danish companies are controlled by foundations, which can restrict potential hostile takeovers, including foreign takeovers.

The Danish stock market functions efficiently. In 2005, the Copenhagen Stock Exchange became part of the integrated Nordic and Baltic marketplace, OMX Exchanges, which is headquartered in Stockholm. Besides Stockholm and Copenhagen, OMX also includes the stock exchanges in Helsinki, Tallinn, Riga, and Vilnius. To increase the access to capital for primarily small companies, the OMX in December 2005 opened a Nordic alternative marketplace – “First North” – in Denmark. In February 2008, the exchanges were acquired by the NASDAQ-OMX Group. In the World Economic Forum 2019 report, Denmark ranks 11th out of 141 on the metric “Financial System”.

The Danish stock market is divided into four different branches/indexes. The C25 index contains the 25 most valuable companies in Denmark. Other large companies with a market value exceeding EUR 1 billion (USD 1.1 billion) are in the group of “Large Cap,” companies with a market value between EU 150 million (USD 171) and 1 billion Euro (USD 1.14 billion) belong to the “Mid Cap” segment, while companies with a market value smaller than EU 150 million belong to “Small Cap” group.

Money and Banking System

The major Danish banks are rated by international agencies, and their creditworthiness is rated as high by international standards. The European Central Bank and the Danish National Bank reported that Denmark’s major banks have passed stress tests by considerable margins.

Denmark’s banking sector is relatively large; based on the ratio of consolidated banking assets to GDP, the sector is three times bigger than the national economy. By January 2021, the total of Danish shares valued DKK 3.82 trillion (USD 584 billion) and were owned 52.5 percent by foreign owners and 47.5 percent by Danish owners, including 13 percent held by households and 7 percent by the government. The three largest Danish banks – Danske Bank, Nordea Bank Danmark, and Jyske Bank – hold approximately 75 percent of the total assets in the Danish banking sector.

The primary goal of the Central Bank (Nationalbanken) is to maintain the peg of the Danish currency to the Euro – with allowed fluctuations of 2.25 percent. It also functions as the general lender to Danish commercial banks and controls the money supply in the economy.

As occurred in many countries, Danish banks experienced significant turbulence in 2008 – 2009. The Danish Parliament subsequently passed a series of measures to establish a “safety net” program, provide government lending to financial institutions in need of capital to uphold their solvency requirements, and ensure the orderly winding down of failed banks. The Parliament passed an additional measure, the fourth Bank Package, in August 2011, which sought to identify systemically important financial institutions, ensure the liquidity of banks which assume control of a troubled bank, support banks acquiring troubled banks by allowing them to write off obligations of the troubled bank to the government, and change the funding mechanism for the sector-funded guarantee fund to a premiums-based, pay-as-you-go system. According to the Danish Government, Bank Package 4 provides mechanisms for a sector solution to troubled banks without senior debt holder losses but does not supersede earlier legislation. As such, senior debt holder losses are still a possibility in the event of a bank failure.

On October 10, 2013, the Danish Minister for Business and Growth concluded a political agreement with broad political support which, based on the most recent financial statements, identified specific financial institutions as “systemically important” (SIFI). The SIFI in Denmark at the end of 2019 were Danske Bank A/S, Nykredit Realkredit A/S, Jyske Bank A/S, Nordea Kredit Realkredit A/S, Sydbank A/S, Spar Nord Bank A/S and DLR Kredit A/S. These were identified based on three quantitative measures: 1) a balance sheet to GDP ratio above 6.5 percent; 2) market share of lending in Denmark above 5 percent; or 3) market share of deposits in Denmark above three percent. If an institution is above the requirement of any one of the three measures, it will be considered systemically important and must adhere to the stricter requirements on capitalization, liquidity, and resolution. The Faroese SIFI are P/F BankNordik, Betri Banki P/F and Norðoya Sparikassi, while Grønlandsbanken is the only SIFI in Greenland.

Experts expect a revision of the Danish system of troubled financial institution resolution mechanisms in connection with a decision to join the EU Banking Union. The national payment system, “Nets” was sold to a consortium consisting of Advent International Corp., Bain Capital LLC, and Danish pension fund ATP in March 2014 for DKK 17 billion (USD 2.60 billion). Nets went public with an IPO late 2016.

Foreign Exchange and Remittances

Foreign Exchange

Exchange rate conversions throughout this document are based on the 2020 average exchange rate where Danish Kroner (DKK) 6.5343703 = 1 USD.

There are no restrictions on converting or transferring funds associated with an investment into or out of Denmark. Policies in place are intended to facilitate the free flow of capital and to support the flow of resources in the product and services markets. Foreign investors can obtain credit in the local market at normal market terms, and a wide range of credit instruments is available.

Denmark has not adopted the Euro currency. The country meets the EU’s economic convergence criteria for membership and can join if it wishes to do so. Denmark conducts a fixed exchange rate policy with the Danish Krone linked closely to the Euro within the ERM II framework. The Danish Krone (DKK; plural: Kroner, in English, “the Crown”) has a fluctuation band of +/- 2.25 percent of the central rate of DKK 746.038 per 100 Euro. The Danish Government supports inclusion in a European Banking Union, if it can be harmonized with the Danish Euro opt-out and there is a guarantee that the Danish mortgage finance system will be allowed to continue in its present form.

The Danish political reservation concerning Euro participation can only be abolished by national referendum, and Danish voters have twice (in 1992 and 2000) voted it down. The government has stated that it supports adopting the Euro in principle, but no referendum is expected for the foreseeable future. Regular polling on this issue shows a majority of public opinion remains in favor of keeping the Krone. According to the Stability and Growth Pact, a Euro country’s debt to GDP ratio cannot exceed 60 percent and budget deficit to GDP ratio cannot exceed three percent.

Denmark’s debt to GDP ratio is projected to have increased from 33.3 percent in 2019 to 43.5 percent in 2020 (final statistics for 2020 were pending when this report was published). Denmark is also projected to have run a 3.5 percent budget deficit in 2020, after running a 3.8 percent budget surplus in 2019 and a 0.7 percent surplus in 2018.

Remittance Policies

N/A

Sovereign Wealth Funds

Denmark maintains no sovereign wealth funds.

Denmark is party to the Government Procurement Agreement (GPA) within the framework of the World Trade Organization (WTO). State owned entities (SOEs) hold dominant positions in rail, energy, utilities, and broadcast media in Denmark. Large-scale public procurement must go through public tender in accordance with EU legislation. Competition from SOEs is not considered a barrier to foreign investment in Denmark. As an OECD member, Denmark promotes and upholds the OECD Corporate Governance Principals and subsidiary SOE Guidelines.

Privatization Program

Denmark has no current plans to privatize its SOEs.

Denmark is a politically stable country. Incidents involving politically motivated damage to projects or installations are very rare. The EIU rates Denmark “AAA” for political risk.

Policies Towards Foreign Direct Investment

Djibouti’s laws encourage FDI, with state-run media providing favorable coverage of projects funded by foreign entities. The government sees FDI as a driving force behind Djibouti’s economic growth. Faced with a high unemployment rate of over 47%, FDI is expected to generate jobs.

There are no laws, practices, or mechanisms that discriminate against foreign investors. Navigating the bureaucracy, however, can be complicated. Certain sectors, most notably public utilities, are state-owned and are not open to investors. The state-owned enterprise (SOE) Djibouti Electricity (EDD) had a monopoly on electricity production for decades, however in July 2015, the Djiboutian government approved a bill liberalizing the production of electricity. The energy sector is now open to competition through Power Purchase Agreements, however EDD retains all rights to the transmission and distribution of electricity. The liberalization of production has resulted in the private development of wind, solar, and waste to energy resources.

Djibouti’s National Investment Promotion Agency (NIPA), created in 2001 under the Ministry of Finance, promotes private-sector investment, facilitates investment operations, and works to modernize the country’s regulatory framework. NIPA assists foreign and domestic investors by disseminating information and streamlining administrative procedures. In March 2017, NIPA’s one-stop-shop was officially inaugurated. The NIPA is the main coordinator of the one-stop-shop which houses several agencies. NIPA has identified several priority sectors for investment, including infrastructure and renewable energy.

A new Minister of Investment position was created in 2016 to further attract and reach out to potential investors. The Minister reports directly to the presidency.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities have equal rights in establishing and owning business enterprises and engaging in all forms of remunerative activity. Furthermore, foreign investors are not required by law to have a local partner except in the insurance industry, and there, only if the company is registered as a local company and not a branch of an existing foreign company. There is no established screening process for FDI; it is encouraged and given favorable tax status. Specific terms are negotiated on a case-by-case basis. Many companies therefore have a unique status created by agreement with varying preferences and advantages. Some foreign companies choose to have a local partner to help them better navigate the local bureaucracy and cultural sensitivities.

Other Investment Policy Reviews

The OECD, WTO, and the UNCTAD have not conducted an investment policy review (IPR) for Djibouti in the last three years. Post is not aware of any other multilateral organization having an IPR for Djibouti in the last three years.

Business Facilitation

The government of Djibouti has facilitated the registration of business by reducing the capital needed for investment, simplifying the formalities needed to register with the Intellectual Property office, and simplifying certain tax procedures. The most important result is the finalization of a one-stop shop, called Guichet Unique, managed by NIPA. The Guichet Unique ( http://www.guichet-unique.dj ) brings together all the agencies with which a company must register.

Typically, a company registers with the following Djiboutian offices: Office of Intellectual Property, Tax office, and the Social Security office. Online registration is not possible; the normal registration process takes 14 days, according to the World Bank. In Djibouti, new businesses must have every document notarized to begin operations.

Outward Investment

The government neither promotes nor restricts outward investment.

Transparency of the Regulatory System

Government policies are sometimes not transparent, and do not foster competition on a non-discriminatory basis. Likewise, the legal, regulatory, and accounting systems are not always transparent nor are they consistent with international norms. Rule-making and regulatory authority exists at the state level.

The Djiboutian accounting system is loosely based on the French accounting system as it existed at independence (1977) and has been updated since that time. Legal and regulatory procedures are complex and unevenly enforced. Draft bills are initiated in a process of public consultation in which stakeholders participate. Regulatory actions including laws and decrees are available online at the following site: https://www.presidence.dj/recherchetexte.php .

The State General Inspection (SGI) is tasked with ensuring human and material resources in the public sector are properly utilized. It also acts as the enforcement mechanism.

The regulatory regime is written in a way that promotes open competition, at least in the sectors that are open to private investment. Implementation of the law is sometimes not transparent, and public functions such as licensing and issuing permits are not always done in a systematic fashion. Application of the rules is not always consistent. The laws are proposed by the ministry, and then debated and passed by the parliament. The promulgation by the president is the last stage. Public finances and the terms of debt obligations are opaque. Ministries and regulatory agencies do not develop forward regulatory plans – that is, a public list of anticipated regulatory changes or proposals intended to be adopted/implemented within a specified time frame

International Regulatory Considerations

Djibouti is a member of the Intergovernmental Authority on Development (IGAD) and the Common Market for Eastern and Southern Africa (COMESA). The regulatory systems in these countries are not yet harmonized. European norms and standards, especially French, are referenced in Djibouti. Djibouti is a member of the WTO.

Legal System and Judicial Independence

Djibouti’s legal system is based on Civil law, inherited from the French Napoleonic Code. It consists of three courts: a Court of First Instance presided over by a single judge; a Court of Appeals, with three judges; and the Supreme Court. In addition, Islamic law (shariah) and traditional law is practiced. Djibouti has a written commercial code and specialized courts, including commercial, criminal, administrative, and civilian courts.

The court system is de jure independent from executive power. However, this is not always the case in practice so most investors in the market request the right to counsel, including agreements for arbitration, in a recognized international court. International lawyers practicing in Djibouti have reported effective application of maritime and other commercial laws, but in the past, foreign companies operating in Djibouti have reported that court deliberations were biased or delayed.

Laws and Regulations on Foreign Direct Investment

The country’s legal system has no discriminatory policy against foreign investment, and frequently negotiates extended tax breaks and other incentives to attract larger investments. The NIPA website has useful information and acts as a guide for investors:  www.djiboutinvest.com. The agency oversees the “guichet unique”, which acts as the one stop shop for investing in Djibouti: www.guichet-unique.dj .

The Djibouti Office of Industrial and Commercial Protection (ODPIC) is the agency in charge of registering businesses. Its website contains information about the registration process:  https://odpic.net/ .

Competition and Antitrust Laws

In 2008, Djibouti adopted a law on competition and consumer protection, which does not cover state-owned enterprises. Under this law, the Government of Djibouti regulates prices in areas where competition remains limited. For example, the government regulates postal services, telecommunications, utilities, and urban transport services. Djibouti does not have an agency that specifically promotes competition and does not have a comprehensive strategy to restrict market monopolies

Expropriation and Compensation

Foreign companies enjoy the same benefits as domestic companies under Djibouti’s Investment Code. The Investment Code stipulates that “no partial or total, temporary or permanent expropriation will take place without equitable compensation for the damages suffered.” There are no known recent cases of U.S. companies in Djibouti being subject to expropriation. There have been cases of foreign companies facing de facto expropriation via fines, while other companies have had their concession to run a public service unilaterally revoked. The government may expropriate land when it is needed for public utility. In that case, the government will compensate the landowner by providing land at a different location or by cash settlement.

Dispute Settlement

ICSID Convention and New York Convention

Djibouti recently became a member state of ICSID. On April 12, 2019, Djibouti signed the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention, also known as the Washington Convention). Djibouti made its deposit of ratification on June 9, 2020 for an entry into force on July 9, 2020.

Djibouti is a contracting member of the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.

Investor-State Dispute Settlement

Djibouti’s government has had only a few investment disputes in the past several years, none with U.S. businesses. In some cases, the disputes have been settled in international arbitration courts and the government has abided by those decisions. In other cases, there has been de facto expropriation through large fines. As in any country, a strong, enforceable contract is important.

The government passed a law in November 2017 permitting the government to unilaterally alter or terminate contracts. Using this law, in February 2018, Djibouti’s president issued a decree abrogating the government’s contract with the Emirati company, DP World, concerning the Doraleh Container Terminal, later nationalizing the equipment, physical assets, and land. DP World continued to hold 33.33% of shares until July 2018, when the government terminated the shareholders’ agreement with DP World and later nationalized all shares. Throughout, DP World has continued to claim that the 30-year 2006 Doraleh Container Terminal concession agreement remains in force.

In January 2020, the London Court of International Arbitration decided Djibouti should restore DP World’s rights to operate Doraleh Container Terminal for 25 years, in line with the original deal. It was the court’s fifth ruling in favor of DP World since Djibouti nationalized the port. In response, Djibouti’s president released an official communiqué rejecting the court ruling, stating “As the Republic of Djibouti has consistently indicated since the termination of the concession, the only possible outcome is allocation of fair compensation in accordance with international law.”

International Commercial Arbitration and Foreign Courts

There is no domestic arbitration body within the country. In February 2014, the IGAD countries agreed to set up an international Business Arbitration Center in Djibouti. This institution provides a mechanism for resolving business disputes and helps create a more transparent business environment in the region by reinforcing the principles of contract law and increasing the number of lawyers practicing commercial and contract law in Djibouti. Djibouti’s rule of law is weak as it relates to business disputes involving non-Djiboutian. Investment dispute cases are not made public.

Bankruptcy Regulations

Djibouti has bankruptcy laws, and bankruptcy is not criminalized. Insolvency laws are a bright spot in Djibouti’s investment climate, as the country ranked 44 out of 190 by the World Bank in 2020 in this area.

Capital Markets and Portfolio Investment

In recent years, Djibouti has relied heavily on foreign investment, and the government is open and receptive to foreign investors. Portfolio investment in Djibouti is primarily done through private equity. Some multinational companies with investments in Djibouti are publicly traded. Investments in Djibouti are inherently illiquid for that reason, and the purchase or sale of any sizeable investment in Djibouti affects the market accordingly. Djibouti does not have its own stock market. Existing policies facilitate the free flow of financial resources into the product and factor markets.

Credit is allocated on market terms, and foreign companies do not face discrimination in obtaining it. Generally, however, only well-established businesses obtain bank credit, as the cost of credit is high. Credit is available to the private sector, whether foreign or domestic. Where credit is not available, it is primarily due to the associated risk and not structural factors.

Money and Banking System

Three large banks, Bank of Africa, Bank for Commerce and Industry – Mer Rouge, and CAC bank dominate Djibouti’s banking sector. While these 3 banks account for the majority share of deposits in-country, there are 13 total banks, all established in the last 14 years. In 2011 a new banking law went into effect, fixing the minimum capital requirement for financial institutions at DJF 1 billion (USD 5,651,250) and extended the scope of the law to include financial auxiliaries, such as money transfer agencies and Islamic financial institutions. In addition to the three names banks above, foreign banks include Silkroad Bank, Bank of China the Burkina Faso-based International Business Bank.

The banking sector suffers from a lack of consistent supervision, but it has been improving. Non-performing loans decreased from 16.26% in 2019 to 13.31% in 2020. The total assets of all the banks were estimated to be USD 3.1 billion in 2020, of which 80% were held by the 4 largest banks. The country has a Central Bank, which is in charge of delivering licenses to banks and supervising them. Foreign banks or branches are allowed to establish operations in the country. They are subject to the same regulations as local banks. Djibouti has not announced that it intends to implement or allow the implementation of blockchain technologies in its banking transactions. Some banks have begun to provide mobile and e-banking services. In June 2020, Djibouti Telecom launched D-Money, a new Digital Mobile Money service which allows users to make digital money transfers and payments directly from mobile phones.

Foreign Exchange and Remittances

Foreign Exchange

Djibouti has no foreign exchange restrictions. Businesses are free to repatriate profits. There are no limitations on converting or transferring funds, or on the inflow and outflow of cash. The Djiboutian franc, which has been pegged to the U.S. dollar since 1949, is stable. The fixed exchange rate is 177.71 Djiboutian francs to the U.S. dollar. Funds can be transferred by using banks or international money transfer companies such as Western Union, all monitored by the Central Bank.

Remittance Policies

There are no recent changes or plans to change investment remittance policies. There are no time limitations on remittances. The government does not issue bonds on the open market, and cash-like instruments are not in common use in Djibouti, so direct currency transfers are the only practical method of remitting profits.

Sovereign Wealth Funds

In mid-2020 the Djiboutian government announced the creation of a Sovereign Wealth Fund. According to a government statement, the state-owned fund will target investments locally and in neighboring countries in the Horn of Africa. It will focus on industries including telecommunications, technology, energy, and logistics. The fund will act as a long-term investor and is required to reinvest the entire net profits of its activity. The government aims to fund it to $1.5 billion within ten years. Article 12 of Law N° 75/AN/20/8th L creating the Sovereign Fund of Djibouti states the fund adopts and implements best practice in terms of transparency and performance reporting in accordance with the Santiago Principles. As of mid-2021, the fund was not yet operational.

• Law No. 75/AN/20/8th L establishing the Sovereign Fund of Djibouti – https://www.presidence.dj/texte.php?ID=75&ID2=2020-03-29&ID3=Loi&ID4=6&ID5=2020-03-31&ID6=n
• Decree No. 2020-127/PRE approving the statutes and determining certain initial resources of the Sovereign Fund of Djibouti – https://www.presidence.dj/texte.php?ID=2020-127&ID2=2020-06-30&ID3=D%E9cret&ID4=12&ID5=2020-06-30&ID6=n
• Decree No. 2020-111/PRE appointing the members of the Board of Directors and the Director General of the Sovereign Fund of Djibouti – https://www.presidence.dj/texte.php?ID=2020-111&ID2=2020-06-24&ID3=D%E9cret&ID4=12&ID5=2020-06-30&ID6=n

Wholly owned SOEs control telecommunications, water, and electricity distribution in Djibouti. Major print, television, and radio outlets are also state-run. Additionally, Djibouti’s ports, airport, and free zones are managed by an SOE. There is a state-owned national airline that is wholly managed by the ports and free zones authority. SOEs are required by law to publish an annual report. The Court of Auditors is charged with auditing SOEs, but they have not yet released assets, income, employment, or other details about the SOEs. There is no publicly available list of SOEs.

State-run services, such as municipal garbage collection and real estate, do not hold legal monopolies, but are afforded material advantages by the government, e.g., government-backed loan guarantees for the real estate sector. Djibouti is not party to the Government Procurement Agreement (GPA) within the framework of the World Trade Organization (WTO).

In order to exercise ownership in SOEs, the government uses several laws and decrees, most of which were promulgated in the 1990s. The established practices are not consistent with OECD guidelines. No centralized ownership entity exists. SOE senior management reports directly to the relevant line ministry. There is also an independent board of directors whose members are chosen from other ministries

Privatization Program

A few SOEs have been privatized, such as a milk factory several years ago and a water bottling plant in 2015. No particular sector is targeted. The bidding process is not clear and transparent, which makes the participation of foreign investors difficult.

Djibouti has seen only very limited episodes of political violence over the last two decades.  In the last ten years, there have been no known incidents of political violence leading to damage to foreign investments.  Both the ruling coalition party and the recognized opposition parties favor foreign direct investment into Djibouti and local attitudes towards foreigners are positive.

Djibouti held presidential elections April 09, 2021, with President Ismael Omar Guelleh winning a fifth consecutive term with 98% of the vote. His 22-year reign has contributed to stability and economic growth, but questions of succession and subsequent instability remain. The country unilaterally seized, in February 2018, DP World’s 33% stake in the Doraleh Container Terminal, a case DP World continues to pursue in international courts.

Djibouti was recently awarded the International Peace Award by the journal Jeune Afrique for its secure environment, despite being surrounded by countries facing instability.  According to data acquired by the Armed Conflict Location and Event Data Project, Djibouti’s instances of violence and disordered has significantly declined in the past three years.

* Ministry of Finance and Economy

Table 3: Sources and Destination of FDI
Data not available.

Table 4: Sources of Portfolio Investment
Data not available.

Policies Towards Foreign Direct Investment

The Government of Dominica strongly encourages foreign direct investment, particularly in industries that create jobs, earn foreign currency, and have a positive impact on local citizens.

Through the Invest Dominica Authority (IDA), the government instituted a number of investment incentives for businesses considering locating in Dominica.  Government policies provide liberal tax holidays, duty-free import of equipment and materials, exemption from value added tax on some capital investments, and withholding tax exemptions on dividends, interest payments, and some external payments and income.  The IDA additionally provides support to approved citizenship by investment (CBI) projects.

In late December 2020, the IDA announced plans to launch a new Investment Promotion Strategy in 2021.  The new strategy will focus on four broad areas: agriculture and agri-business, renewable energy, tourism and knowledge services such as business processing operations.  Other sectors include film, music, and video production, manufacturing, bulk water export and bottled water operations, medical and nursing schools, and English language training services.  The government continuously reviews these sectors and has signaled that it is also willing to consider additional sectors.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are no limits on foreign control in Dominica.  Foreign investment in Dominica is not subject to any restrictions, and foreign investors are entitled to receive the same treatment as nationals of Dominica.  Foreign investors are entitled to hold up to 100 percent of their investment.  The only restriction is the requirement to obtain an Alien Landholders License for foreign investors seeking to purchase property for residential or commercial purposes.  Local enterprises generally welcome joint ventures with foreign investors in order to access technology, expertise, markets, and capital.

Other Investment Policy Reviews

The OECS, of which Dominica is a member, has not conducted a World Trade Organization (WTO) trade policy review since 2014.

Business Facilitation

The IDA is Dominica’s main business facilitation unit.  It facilitates foreign direct investment into priority sectors and advises the government on the formation and implementation of policies and programs to attract investment in Dominica.  The IDA provides business support services and market intelligence to all investors.  It offers an online tool useful for navigating laws, rules, procedures, and registration requirements for foreign investors.  Its website is http://investdominica.com.

All potential investors applying for government incentives must submit their proposals for review by the IDA to ensure the project is consistent with the national interest and provides economic benefits to the country.

The Companies and Intellectual Property Office (CIPO) maintains an e-filing portal for most of its services, including company registration on its website.  However, this only allows for the preliminary processing of applications prior to the investor physically making a payment at the Supreme Court office.  Investors are advised to seek the advice of a local attorney prior to starting the process.  Further information is available at http://www.cipo.gov.dm.

The World Bank’s Doing Business Report for 2020 ranks Dominica 71st out of 190 countries in the ease of starting a business.  It takes five procedures and about 12 days to complete the process.  The general practice is to retain an attorney who prepares all the relevant incorporation documents.  A business must register with CIPO, the Tax Authority, and the Social Services Institute.

Outward Investment

There is no restriction on domestic investors seeking to do business abroad.  Local companies in Dominica are actively encouraged to take advantage of export opportunities specifically related to the country’s membership in the OECS Economic Union and the Caribbean Community Single Market and Economy (CSME), which enhance the competitiveness of the local and regional private sectors across traditional and emerging high-potential markets.

Transparency of the Regulatory System

The Government of Dominica provides a legal framework to foster competition and establish clear rules for foreign and domestic investors in the areas of tax, labor, environment, health, and safety.  The Ministry of Finance and the IDA provide oversight of the transparency of the system as it relates to investment.

Rule-making and regulatory authority lies within the unicameral parliament.  The parliament has 21 members elected for a five-year term in single-seat constituencies, nine appointed members, one Speaker, and one clerk.

Relevant ministries develop laws which are drafted by the Ministry of National Security and Home Affairs.  FDI is governed principally through the laws that oversee the IDA and CBI.  Laws are available online at http://www.dominica.gov.dm/laws-of-dominica.

Although some draft bills are not subject to public consultation, the government generally solicits input from various stakeholder groups in the formulation of laws.  In some instances, the government convenes a special committee to make recommendations on provisions outlined in the law.  The government uses public awareness campaigns to sensitize the general population on legislative reforms.  Copies of proposed regulations are published in the official gazette just before the bills are taken to parliament.  Although Dominica does not have legislation guaranteeing access to information or freedom of expression, access to information is generally available in practice.  The government maintains a website and an information service on which it posts information such as directories of officials and a summary of laws and press releases.

Accounting, legal, and regulatory procedures are generally transparent and consistent with international norms.  The International Financial Accounting Standards, which stem from the General Accepted Accounting Principles, govern the accounting profession in Dominica.

The Office of the Parliamentary Commissioner or Ombudsman guards against excesses by government officers in the performance of their duties.  The Ombudsman is responsible for investigating any complaint relating to any decision or act of any government officer or body in any case in which a member of the public claims to be aggrieved or appears to the Ombudsman to be the victim of injustice as a result of the exercise of the administrative function of that officer or body.

Dominica’s membership in regional organizations, particularly the OECS and its Economic Union, commits it to implement all appropriate measures to ensure the fulfillment of its various treaty obligations.  For example, the Banking Act, which establishes a single banking space and the harmonization of banking regulations in the Economic Union, is uniformly in force in the eight member territories of the ECCU, although there are some minor differences in implementation from country to country.

The enforcement mechanisms of these regulations include penalties or legal sanctions.  The IDA can revoke an issued Investment Certificate if the holder fails to comply with certain stipulations detailed in the Act and its regulations.

International Regulatory Considerations

As a member of the OECS and the ECCU, Dominica subscribes to a set of principles and policies outlined in the Revised Treaty of Basseterre.  The relationship between national and regional systems is such that each participating member state is expected to coordinate and adopt, where possible, common national policies aimed at the progressive harmonization of relevant policies and systems across the region.  Thus, Dominica is obligated to implement regionally developed regulations, such as legislation passed under OECS authority, unless specific concessions are sought.

The Dominica Bureau of Standards develops, maintains, and promotes standards for improving industrial development, industrial efficiency, promoting the health and safety of consumers, protecting the environment, and facilitating trade.  It also conducts national training and consultations in international standards practices.  As a signatory to the World Trade Organization (WTO) Agreement on the Technical Barriers to Trade, Dominica, through the Dominica Bureau of Standards, is obligated to harmonize all national standards to international norms to avoid creating technical barriers to trade.

Dominica ratified the WTO Trade Facilitation Agreement (TFA) in 2016.  Ratification of the Agreement is an important signal to investors of the country’s commitment to improving its business environment for trade.  The TFA aims to improve the speed and efficiency of border procedures, facilitate trade costs reduction, and enhance participation in the global value chain.  Dominica has already implemented a number of TFA requirements.  A full list is available at https://tfadatabase.org/members/dominica/measure-breakdown.

As a member of CARICOM, Dominica utilizes the Advanced Cargo Information System which is a computer-based system developed by the United Nations Conference on Trade and Development (UNCTAD) to harmonize and standardize electronic cargo information to improve the capability to track cargo efficiently and to support regional and international trade. The Advance Cargo Information System forms a critical part of the World Customs Organization SAFE Framework of Standards. Dominica has also fully implemented the Automated System for Customs Data (ASYCUDA).

Legal System and Judicial Independence

Dominica bases its legal system on British common law.  The Attorney General, the Chief Justice of the Eastern Caribbean Supreme Court, junior judges, and magistrates administer justice in the country.  The Eastern Caribbean Supreme Court Act establishes the Supreme Court of Judicature, which consists of the High Court and the Eastern Caribbean Court of Appeal.  The High Court hears criminal and civil matters and makes determinations on the interpretation of the Constitution.  Parties may appeal to the Eastern Caribbean Supreme Court, an itinerant court that hears appeals from all OECS members.

The Caribbean Court of Justice (CCJ) is the regional judicial tribunal.  The CCJ has original jurisdiction to interpret and apply the Revised Treaty of Chaguaramas.  In 2015, Dominica acceded to the CCJ, making the CCJ its final court of appeal.

The United States and Dominica are both parties to the WTO.  The WTO Dispute Settlement Panel and Appellate Body resolve disputes over WTO agreements, while courts of appropriate jurisdiction in both countries resolve private disputes.

Laws and Regulations on Foreign Direct Investment

The main laws concerning investment in Dominica are the Invest Dominica Authority Act (2007), the Tourism Act (2005), and the Fiscal Incentives Act.  Regulatory amendments have been made to the Income Tax Act, the Value Added Tax Act, the Title by Registration Act, the Alien Landholding Regulation Act, and the Residential Levy Act. The IDA provides a full list of the relevant legislation on their website.

The IDA reviews all proposals for investment concessions and incentives to ensure the project is consistent with the national interest and provides economic benefits to the country.  The Cabinet makes the final decision on investment proposals.

Under Dominica’s CBI program, qualified foreign investors may obtain citizenship without voting rights.  Applicants can contribute a minimum of $100,000 to the Economic Diversification Fund for a single person or invest in designated real estate with a value of at least $200,000.  Applicants must also provide a full medical certificate, undergo a background check, and provide evidence of the source of funds before proceeding to the final stage of an interview.  The government introduced a Citizen by Investment Certificate in order to minimize the risk of unlawful duplication.  Further information is available at http://cbiu.gov.dm.

Competition and Anti-Trust Laws

Chapter 8 of the Revised Treaty of Chaguaramas outlines the competition policy applicable to CARICOM States.  Member states are required to establish and maintain a national competition authority for implementing the rules of competition.  CARICOM established a Caribbean Competition Commission to apply rules of competition regarding anti-competitive cross-border business conduct.  CARICOM competition policy addresses anti-competitive business conduct such as agreements between enterprises, decisions by associations of enterprises, and concerted practices by enterprises that have as their object or effect the prevention, restriction, or distortion of competition within CARICOM, and actions by which an enterprise abuses its dominant position within CARICOM.  Dominica does not have domestic legislation to regulate competition.

Expropriation and Compensation

There are no known pending expropriation cases involving American citizens.  In such an event, Dominica would employ a system of eminent domain to pay compensation when property must be acquired in the public interest.  There were no reported tendencies of the government to discriminate against U.S. investments, companies, or landholdings.  There are no laws mandating local ownership in specified sectors.

Dispute Settlement

ICSID Convention and New York Convention

Dominica is not a party to the Convention on the Settlement of Investment Disputes.  However, it is a member of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the New York Arbitration Convention.  The Arbitration Act of 1988 is the main legislation that governs arbitration in Dominica.  It adheres to the New York Arbitration Convention.

Investor-State Dispute Settlement

Investors are permitted to use national or international arbitration for contracts entered into with the state.  Dominica does not have a Bilateral Investment Treaty or a Free Trade Agreement with an investment chapter within the United States.

The country ranks 95^th out of 190 countries in resolving contract disputes in the 2020 World Bank Doing Business Report, twelve spots lower than the previous year.  Dispute resolution in Dominica takes an average of 741 days.  The slow court system and bureaucracy are widely seen as the main hindrances to timely resolution of commercial disputes.  Through the Arbitration Act of 1988, the local courts recognize and enforce foreign arbitral awards issued against the government.  Dominica does not have a recent history of investment disputes involving a U.S. person or other foreign investors.

International Commercial Arbitration and Foreign Courts

The Eastern Caribbean Supreme Court is the domestic arbitration body.  Local courts recognize and enforce foreign arbitral awards.  The Eastern Caribbean Supreme Court’s Court of Appeal also provides mediation.

Bankruptcy Regulations

Under the Bankruptcy Act (1990), Dominica has a bankruptcy framework that grants certain rights to debtor and creditor.  The 2020 Doing Business Report ranks Dominica 136th out of 190 countries in resolving insolvency.

Capital Markets and Portfolio Investment

Dominica is a member of the ECCU.  As such, it is a member of the Eastern Caribbean Securities Exchange (ECSE) and the Regional Government Securities Market.  The ECSE is a regional securities market established by the ECCB and licensed under the Securities Act of 2001, a uniform regional body of legislation governing the buying and selling of financial products for the eight member territories.  In 2020, the ECSE listed 155 securities, comprising 135 sovereign debt instruments, 13 equities, and seven corporate debt securities.  Market capitalization stood at $1.8 billion. Dominica is open to portfolio investment.

Dominica has accepted the obligations of Article VIII of the International Monetary Fund (IMF) Agreement, Sections 2, 3, and 4 and maintains an exchange system free of restrictions on making payments and transfers for current international transactions.  Dominica does not normally grant foreign tax credits except in the case of taxes paid in a British Commonwealth country that grants similar relief for Dominica taxes or where an applicable tax treaty provides a credit.  The private sector has access to credit on the local market through loans, purchases of non-equity securities, and trade credits and other accounts receivable that establish a claim for repayment.

Money and Banking System

The eight participating governments of the ECCU have passed the Eastern Caribbean Central Bank Agreement Act.  The Act provides for the establishment of the ECCB, its management and administration, its currency, relations with financial institutions, relations with the participating governments, foreign exchange operations, external reserves, and other related matters. Dominica is a signatory to this agreement and the ECCB controls Dominica’s currency and regulates its domestic banks.

The Banking Act is a harmonized piece of legislation across the ECCU.  The Minister of Finance usually acts in consultation with, and on the recommendation of, the ECCB with respect to those areas of responsibility within the Minister of Finance’s portfolio.

Domestic and foreign banks can establish operations in Dominica.  The Banking Act requires all commercial banks and other institutions to be licensed in order to conduct any banking business.  The ECCB regulates financial institutions.  As part of ongoing supervision, licensed financial institutions are required to submit monthly, quarterly, and annual performance reports to the ECCB.  In its latest annual report, the ECCB listed the commercial banking sector in Dominica as stable.  Assets of commercial banks totaled $781.8 million (2.1 billion Eastern Caribbean dollars) at the end of 2019. Dominica is well served by bank and non-financial institutions.  There are minimal alternative financial services.

The Caribbean region has witnessed a withdrawal of correspondent banking services by the U.S. and European banks.  CARICOM remains committed to engaging with key stakeholders on the issue and appointed a Committee of Ministers of Finance on Correspondent Banking to monitor the issue.

In 2019, the ECCB launched an 18-month financial technology pilot to launch a Digital Eastern Caribbean dollar (DXCD) with its partner, Barbados-based Bitt Inc.  An accompanying mobile application, DCash was officially launched on March 31, 2021 in four pilot countries.  The DCash pilot phase will run for 12 months.  The pilot program is expected to become operational in Dominica later in the year.  The digital Eastern Caribbean currency will operate alongside physical Eastern Caribbean currency.  Dominica does not have any specific legislation to regulate cryptocurrencies.

Foreign Exchange and Remittances

Foreign Exchange

Dominica is a member of the ECCU and the ECCB.  The currency of exchange is the Eastern Caribbean dollar (denoted as XCD).  As a member of the OECS, Dominica has a fully liberalized foreign exchange system.  The XCD has been pegged to the United States dollar at a rate of 2.7 to $1.00 since 1976.  As a result, the XCD does not fluctuate, creating a stable currency environment for trade and investment in Dominica.

Remittance Policies

Companies registered in Dominica have the right to repatriate all capital, royalties, dividends, and profits free of all taxes or any other charges on foreign exchange transactions.  There are no restrictions on the repatriation of dividends for totally foreign-owned firms.  However, a mixed foreign-domestic company may repatriate profits to the extent of its foreign participation.

As a member of the OECS, there are no exchange controls in Dominica and the invoicing of foreign trade transactions are allowed in any currency.  Importers are not required to make prior deposits in local funds and export proceedings do not have to be surrendered to government authorities or to authorized banks.  There are no controls on transfers of funds.  Dominica is a member of the Caribbean Financial Action Task Force (CFATF).

Sovereign Wealth Funds

Neither the Government of Dominica, nor the ECCB, of which Dominica is a member, maintains a sovereign wealth fund.

State-owned enterprises (SOEs) in Dominica work in partnership with ministries, or under their remit to carry out certain specific ministerial responsibilities.  There are currently 20 SOEs in Dominica operating in areas such as tourism, investment services, broadcasting and media, solid waste management, and agriculture.  There is no published list of these SOEs.  They are all wholly owned government entities.  Each is headed by a board of directors to which senior management reports.  The SOE sector is affected by financial sustainability challenges, with resources insufficient to cover capital replacement.

Privatization Program

Dominica does not currently have a targeted privatization program.

Dominica held parliamentary elections in December 2019.  Voting was held under heightened security following weeks of protests and legal challenges seeking electoral reform.  The protests were led by the United Workers’ Party, which lost the election in a landslide to the ruling Dominica Labour Party.

Dominica’s economy has been strongly affected by the COVID-19 crisis.  The IMF has projected that Dominica’s GDP will grow -0.4 percent in 2021.  In May 2020, the government unveiled a disaster resilience strategy that was based on three key pillars: structural resilience, financial resilience and post-disaster resilience.  Both IMF and the World Bank have provided support to address the challenges posed by the COVID-19 pandemic.

Table 3: Sources and Destination of FDI
Data not available.

Table 4: Sources of Portfolio Investment
Data not available.

Policies Towards Foreign Direct Investment

The Dominican Republic presents both opportunities and challenges for foreign investment. The government strongly promotes inward FDI and has prioritized creating a sound enabling environment for foreign investors. While the government has established formal programs to attract FDI, a lack of clear rules and uneven enforcement of existing rules can lead to difficulties.

The Dominican Republic provides tax incentives for investment in tourism, renewable energy, film production, Haiti-Dominican Republic border development, and the industrial sector. The country is also a signatory of CAFTA-DR, which mandates non-discriminatory treatment, free transferability of funds, protection against expropriation, and procedures for the resolution of investment disputes. However, some foreign investors indicate that the uneven enforcement of regulations and laws, or political interference in legal processes, creates difficulties for investment.

There are two main government agencies responsible for attracting foreign investment, the Export and Investment Center of the Dominican Republic (CEI-RD) and the National Council of Free Trade Zones for Export (CNZFE). CEI-RD promotes foreign investment and aids prospective foreign investors with business registration, matching services, and identification of investment opportunities. It publishes an annual “Investment Guide of the Dominican Republic,” highlighting many of the tools, incentives, and opportunities available for prospective investors. The CEI-RD also oversees “ProDominicana,” a branding and marketing program for the country launched in 2017 that promotes the DR as an investment destination and exporter. CNZFE aids foreign companies looking to establish operations in the country’s 75 free trade zones for export outside Dominican territory.

There are a variety of business associations that promote dialogue between the government and private sector, including the Association of Foreign Investor Businesses (ASIEX).

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign Investment Law No. 16-95 states that unlimited foreign investment is permitted in all sectors, with a few exceptions for hazardous materials or materials linked to national security. Private entities, both foreign and domestic, have the right to establish and own business enterprises and engage in all legal remunerative activity. Foreign companies are not restricted in their access to foreign exchange, there are no requirements that foreign equity be reduced over time or that technology be transferred according to defined terms, and the government imposes no conditions on foreign investors concerning location, local ownership, local content, or export requirements. See Section 3 Legal Regime for more information.

The Dominican Republic does not maintain a formalized investment screening and approval mechanism for inbound foreign investment. Details on the established mechanisms for registering a business or investment are elaborated in the Business Facilitations section below.

Other Investment Policy Reviews

The Dominican Republic has not been reviewed recently by multilateral organizations regarding investment policy. The most recent reviews occurred in 2015. This included a trade policy review by the World Trade Organization (WTO) and a follow-up review by the United Nations Conference on Trade and Development (UNCTAD) regarding its 2009 investment policy recommendations.

2009 UNCTAD – https://unctad.org/en/pages/PublicationArchive.aspx?publicationid=6343 

2015 WTO – https://www.wto.org/english/tratop_e/tpr_e/s319_e.pdf

2015 UNCTAD – https://unctad.org/en/PublicationsLibrary/diaepcb2016d2_en.pdf

Business Facilitation

Foreign investment does not require any prior approval in the Dominican Republic, but once made it must be registered with the CEI-RD. Investments in free zones must be registered with the CNZFE, which will notify the CEI-RD.  Foreign investment registration is compulsory, but failure to do so is not subject to any sanction.  In the World Bank’s “Doing Business” report, the Dominican Republic’s overall ranking for ease of doing business fell from 102 in 2019 to 115 in 2020, reflecting stagnant performance in several of the indicator categories.

Law No. 16-95 Foreign Investment, Law No. 98-03 on the Creation of the CEI-RD, and Regulation 214-04 govern foreign investment in the Dominican Republic and require an interested foreign investor to file an application form at the offices of CEI-RD within 180 calendar days from the date on which the foreign investment took place. The required documents include the application for registration, containing information on the invested capital and the area of the investment; proof of entry into the country of the foreign capital or physical or tangible goods; and documents of commercial incorporation or the authorization of operation of a branch office through the setting up of legal domicile in the country.  The reinvestment of profits (in the same or a different firm) must be registered within 90 days. Once the documents have been approved, the CEI-RD issues a certificate of registration within 15 business days subject to the payment of a fee which varies depending on the amount of the investment.

Lack of registration does not affect the validity of the foreign investment; but the fact that it is needed to fulfil various types of procedures, makes registration necessary in practice. For example, the registration certificate has to be presented to repatriate profits or investment in the event of sale or liquidation and to purchase foreign exchange from the authorized agencies for transfers abroad, as well as to process the residency of the investor.  In April 2021, CEI-RD launched an online Registry of Foreign Direct Investment, which aims to streamline and make the registration processes more transparent to investors. For more information on becoming an investor or exporter, visit the CEI-RD ProDominicana website at https://prodominicana.gob.do .

The Dominican Republic has a single-window registration website for registering a limited liability company (SRL by its Spanish acronym) that offers a one-stop shop for registration needs ( https://www.formalizate.gob.do/ ). Foreign companies may use the registration website. However, this electronic method of registration is not widely used in practice and consultation with a local lawyer is recommended for company registrations. According to the “Doing Business” report, starting a SRL in the Dominican Republic is a seven-step process that requires 16.5 days. However, some businesses advise the full incorporation process can take two to three times longer than the advertised process.

In order to set up a business in a free trade zone, a formal request must be made to the CNZFE, the entity responsible for issuing the operating licenses needed to be a free zone company or operator. CNZFE assesses the application and determines its feasibility. For more information on the procedure to apply for an operating license, visit the website of the CNZFE at http://www.cnzfe.gov.do .

Outward Investment

There are no legal or government restrictions on Dominican investment abroad, although the government does little to promote it. Outbound foreign investment is significantly lower than inbound investment. The largest recipient of Dominican outward investment is the United States.

Transparency of the Regulatory System

The national government manages all regulatory processes. Information about regulations is often scattered among various ministry and agency websites and is sometimes only available through direct communication with officials. It is advisable for U.S. investors to consult with local attorneys or advisors to assist with locating comprehensive regulatory information.

On the 2020 Global Innovations Index, the Dominican Republic’s overall rank was 90 out of 131 nations analyzed. In sub-sections of the report, the Dominican Republic ranks 101 out of 131 for regulatory environment and 78 out of 131 for regulatory quality. In the same year, the World Bank’s “Doing Business” report ranked the Dominican Republic 133 out of 190 economies with respect to enforcing contracts, 124 out of 190 for resolving insolvency, and 74 out of 190 regarding registering property.

The World Bank Global Indicators of Regulatory Governance report states that Dominican ministries and regulatory agencies do not publish lists of anticipated regulatory changes or proposals intended for adoption within a specific timeframe. Law No. 200-04 requires regulatory agencies to give notice of proposed regulations in public consultations and mandates publication of the full text of draft regulations on a unified website: https://saip.gob.do/ . Foreign investors, however, note that these requirements are not always met in practice and many businesses point out that the scope of the website content is not always adequate for investors or interested parties as not all relevant Dominican agencies provide content, and those that do often do not keep the content up to date. U.S. businesses also reported years’ long delays in the enactment of regulations supporting new legislation, even when the common legal waiting period is six months.

The process of public consultation is not uniform across government. Some ministries and regulatory agencies solicit comments on proposed legislation from the public; however, public outreach is generally limited and depends on the responsible ministry or agency. For example, businesses report that some ministries upload proposed regulations to their websites or post them in national newspapers, while others may form working groups with key public and private sector stakeholders participating in the drafting of proposed regulations. Often the criteria used by the government to select participants in these informal exchanges are unclear, which at a minimum creates the appearance of favoritism and that undue influence is being offered to a handpicked (and often politically-connected) group of firms and investors. Public comments received by the government are generally not publicly accessible. Some ministries and agencies prepare consolidated reports on the results of a consultation for direct distribution to interested stakeholders. Ministries and agencies do not conduct impact assessments of regulations or ex post reviews. Affected parties cannot request reconsideration or appeal of adopted regulations.

The Dominican Institute of Certified Public Accountants (ICPARD) is the country’s legally recognized professional accounting organization and has authority to establish accounting standards in accordance with Law No. 479-08, which also declares that (as amended by Law No. 311-14) financial statements should be prepared in accordance with generally accepted accounting standards nationally and internationally. The ICPARD and the country’s Securities Superintendency require the use of International Financial Reporting Standards (IFRS) and IFRS for small and medium-sized entities (SMEs).

By law, the Office of Public Credit publishes on its website a quarterly report on the status of the non-financial public sector debt, which includes a wide array of information and statistics on public borrowing ( www.creditopublico.gov.do/publicaciones/informes_trimestrales.htm ).

In addition to the public debt addressed by the Office of Public Credit, the Central Bank maintains on its balance sheet nearly $10 billion in “quasi-fiscal” debt. When consolidated with central government debt, the debt-to-GDP ratio is over 60 percent, and the debt service ratio is over 30 percent.

International Regulatory Considerations

As of the end of 2020, the Dominican Republic was involved in 17 dispute settlement cases with the WTO: one as complainant, seven as respondent, and nine as a third party. In recent years, the Dominican Republic has frequently changed technical requirements (e.g., for steel rebar imports and sanitary registrations, among others) and has failed to provide proper notification under the WTO TBT agreement and CAFTA-DR.

Legal System and Judicial Independence

The judicial branch is an independent branch of the Dominican government. According to Article 69 of the Constitution, all persons, including foreigners, have the right to appear in court. The basic concepts of the Dominican legal system and the forms of legal reasoning derive from French law. The five basic French Codes (Civil, Civil Procedure, Commerce, Penal, and Criminal Procedure) were translated into Spanish and passed as legislation in 1884. Some of these codes have since been amended and parts have been replaced, including the total derogation of the Code of Criminal Procedure in 2002. Subsequent Dominican laws are not of French origin.

In year 2020, the World Bank’s “Doing Business” report gave the Dominican Republic a score of 6.5 out of 18 in the quality of its judicial processes. In the 2020 Global Innovations Index, the Dominican Republic ranked 86 out of 131 countries for rule of law.

There is a Commercial Code and a wide variety of laws governing business formation and activity. The main laws governing commercial disputes are the Commercial Code; Law No. 479-08, the Commercial Societies Law; Law No. 3-02, concerning Business Registration; Commercial Arbitration Law No. 489-08; Law No. 141-15 concerning Restructuring and Liquidation of Business Entities; and Law No. 126-02, concerning e-Commerce and Digital Documents and Signatures.

Some investors complain of long wait times for a decision by the judiciary. While Dominican law mandates overall time standards for the completion of key events in a civil case, these standards frequently are not met. The World Bank’s 2020 “Doing Business” report noted that resolving complaints raised during the award and execution of a contract can take more than four years in the Dominican Republic, although some take longer. Dominican nationals and foreigners alike have the constitutional right to present their cases to an appeal court and to the Supreme Court to review (recurso de casación in Spanish) the ruling of the lower court. If a violation of fundamental rights is alleged, the Constitutional Court might also review the case. Notwithstanding, foreign investors have complained that the local court system is unreliable, is biased against them, and that special interests and powerful individuals are able to use the legal system in their favor. Others that have successfully won in courts, have struggled to get their ruling enforced.

While the law provides for an independent judiciary, businesses and other external groups have noted that in practice, the government does not respect judicial independence or impartiality, and improper influence on judicial decisions is widespread. Several large U.S. firms cite the improper and disruptive use of lower court injunctions as a way for local distributors to obtain more beneficial settlements at the end of contract periods. To engage effectively in the Dominican market, many U.S. companies seek local partners that are well-connected and understand the local business environment.

Laws and Regulations on Foreign Direct Investment

The legal framework supports foreign investment. Article 221 of the Constitution declares that foreign investment shall receive the same treatment as domestic investment. Foreign Investment Law No. 16-95 states that unlimited foreign investment is permitted in all sectors, with a few exceptions. According to the law, foreign investment is not allowed in the following categories: a) disposal and remains of toxic, dangerous, or radioactive garbage not produced in the country; b) activities affecting the public health and the environmental equilibrium of the country, pursuant to the norms that apply in this regard; and c) production of materials and equipment directly linked to national defense and security, except for an express authorization from the Chief Executive.

The Export and Investment Center of the Dominican Republic (ProDominicana, formally known as CEI-RD) aims to be the one-stop shop for investment information, registration, and investor after-care services. ProDominicana maintains a user-friendly website for guidance on the government’s priority sectors for inward investment and on the range of investment incentives ( https://prodominicana.gob.do ).

In February 2020, the Dominican government enacted the Public-Private Partnerships (PPP) Law No. 47-20 to establish a regulatory framework for the initiation, selection, award, contracting, execution, monitoring and termination of PPPs in line with the 2030 National Development Strategy of the Dominican Republic. The law also created the General Directorate of Public-Private Partnerships (DGAPP) as the agency responsible for the promotion and regulation of public-private alliances and the National Council of Public-Private Partnerships as the highest body responsible for evaluating and determining the relevance of the PPPs. The PPP law recognizes public-private and public-private non-profit partnerships from public or private initiatives and provides for forty-year concession contracts, five-year exemptions of the tax on the transfer of goods and services (ITBIS), and accelerated depreciation and amortization regimes. The DGAPP website has the most up to date information on PPPs ( https://dgapp.gob.do/en/home/  ).

Competition and Antitrust Laws

The National Commission for the Defense of Competition (ProCompetencia) has the power to review transactions for competition-related concerns. Private sector contacts note, however, that strong public pressure is required for ProCompetencia to act.

Expropriation and Compensation

The Dominican constitution permits the government’s exercise of eminent domain; however, it also mandates fair market compensation in advance of the use of seized land. Nevertheless, there are many outstanding disputes between U.S. investors and the Dominican government concerning unpaid government contracts or expropriated property and businesses. Property claims make up the majority of cases. Most, but not all, expropriations have been used for infrastructure or commercial development. Many claims remain unresolved for years.

Investors and lenders have reported that they typically do not receive prompt payment of fair market value for their losses. They have complained of difficulties in the subsequent enforcement even in cases in which the Dominican courts, including the Supreme Court, have ordered compensation or when the government has recognized a claim. In other cases, some indicate that lengthy delays in compensation payments are blamed on errors committed by government-contracted property assessors, slow processes to correct land title errors, a lack of budgeted funds, and other technical problems. There are also cases of regulatory action that investors say could be viewed as indirect expropriation. For example, they note that government decrees mandating atypical setbacks from roads or establishing new protected areas can deprive investors of their ability to use purchased land in the manner initially planned, substantially affecting the economic benefit sought from the investment.

Many companies report that the procedures to resolve expropriations lack transparency and, to a foreigner, may appear antiquated. Government officials are rarely, if ever, held accountable for failing to pay a recognized claim or failing to pay in a timely manner.

Dispute Settlement

ICSID Convention and New York Convention

In 2000, the Dominican Republic signed the International Center for the Settlement of Investment Disputes (Washington Convention; however, the Dominican Congress did not ratify the agreement as required by the constitution). In 2001, the Dominican Republic became a contracting state to the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). The agreement entered into force by Congressional Resolution No. 178-01.

Investor-State Dispute Settlement

The Dominican Republic has entered into 11 bilateral investment treaties that are in force, most of which contain dispute resolution provisions that submit the parties to arbitration.

As a signatory to CAFTA-DR, the Dominican Republic is bound by the investment chapter of CAFTA-DR, which submits the Parties to arbitration under either the ICSID or the United Nations Commission on International Trade Law (UNCITRAL) rules. There have been three U.S. investor-state dispute cases filed against the Dominican Republic under CAFTA-DR. One case was settled; in the other two, an arbitration panel found in favor of the government.

Dual nationals of the United States and Dominican Republic should be aware that their status as a Dominican national might interfere with their status as a “foreign” investor if they seek dispute settlement under CAFTA-DR provisions. U.S. citizens who contemplate pursuing Dominican naturalization for the ease of doing business in the Dominican Republic should consult with an attorney about the risks that may be raised by a change in nationality with regard to accessing the dispute settlement protections provided under CAFTA-DR.

According to the Knowyourcountry’s “Dominican Republic: Risk and Compliance Report” from 2018, U.S. investors have had to resort to legal action against the Dominican government and parastatal firms to seek relief regarding payments, expropriations, contractual obligations, or regulatory obligations. Regardless of whether they are located in a free-trade zone, companies have problems with dispute resolution, both with the Dominican government and with private-sector entities. The investors range from large firms to private individuals.

International Commercial Arbitration and Foreign Courts

Law 489-08 on commercial arbitration governs the enforcement of arbitration awards, arbitral agreements, and arbitration proceedings in the Dominican Republic. Per law 489-09, arbitration may be ad-hoc or institutional, meaning the parties may either agree on the rules of procedure applicable to their claim, or they may adopt the rules of a particular institution. Fundamental aspects of the United Nations Commission on International Trade (UNCITRAL) model law are incorporated into Law 489-08. In addition, Law 181-09 created an institutional procedure for the Alternative Dispute Resolution Center of the Chamber of Commerce Santo Domingo ( http://www.camarasantodomingo.do/ ).

Foreign arbitral awards are enforceable in the Dominican Republic in accordance with Law 489-09 and applicable treaties, including the New York Convention. U.S. investors complain that the judicial process is slow and that domestic claimants with political connections have an advantage.

Bankruptcy Regulations

Law 141-15 provides the legal framework for bankruptcy. It allows a debtor company to continue to operate for up to five years during reorganization proceedings by halting further legal proceedings. It also authorizes specialized bankruptcy courts; contemplates the appointment of conciliators, verifiers, experts, and employee representatives; allows the debtor to contract for new debt which will have priority status in relation to other secured and unsecured claims; stipulates civil and criminal sanctions for non-compliance; and permits the possibility of coordinating cross-border proceedings based on recommendations of the UNCITRAL Model Law of 1997. In March 2019, a specialized bankruptcy court was established in Santo Domingo.

The Dominican Republic scores lower than the regional average and comparator economies on resolving insolvency on most international indices.

Capital Markets and Portfolio Investment

The Dominican Stock Market (BVRD by its Spanish acronym) is the only stock exchange in the Dominican Republic. It began operations in 1991 and is viewed as a cornerstone of the country’s integration into the global economy and domestic development. It is regulated by the Securities Market Law No. 249-17 and supervised by the Superintendency of Securities, which approves all public securities offerings. Since many companies do not wish to sell shares to the public (a common theme among family-owned companies in Latin America), the majority of activity has been in the capital and fixed income markets.

The private sector has access to a variety of credit instruments. Foreign investors are able to obtain credit on the local market but tend to prefer less expensive offshore sources. The Central Bank regularly issues certificates of deposit using an auction process to determine interest rates and maturities.

In recent years, the local stock market has continued to expand, in terms of the securities traded on the BVRD. There are very few publicly traded companies on the exchange, as credit from financial institutions is widely available and many of the large Dominican companies are family-owned enterprises. Most of the securities traded in the BVRD are fixed-income securities issued by the Dominican State.

Money and Banking System

Dominican Republic’s financial sector is relatively stable, and the IMF declared the financial system largely satisfactory during 2019 Article IV consultations, citing a strengthened banking system as a driver of solid economic performance over the past decade. According to a Global Partnership for Financial Inclusion report from 2017, approximately 56 percent of Dominican adults have bank accounts. However, financial depth is relatively constrained. Private lending to GDP (around 27 percent, according to the IMF) is low by international and regional standards, representing around half the average for Latin America. Real interest rates, driven in part by large interest rate spreads, are also relatively high. The country’s relatively shallow financial markets can be attributed to a number of factors, including high fiscal deficits crowding out private investment; complicated and lengthy regulatory procedures for issuing securities in primary markets; and high levels of consolidation in the banking sector.

Dominican banking consists of 113 entities, as follows: 48 financial intermediation entities (including large commercial banks, savings and loans associations, financial intermediation public entities, credit corporations), 40 foreign exchange and remittance agents (specifically, 36 exchange brokers and 6 remittances and foreign exchange agents), and 24 trustees. According to the latest available information (January 2021), total bank assets were $40.8 billion. The three largest banks hold 69.5 percent of the total assets – Banreservas 30.0 percent, Banco Popular 23.1 percent, and BHD Leon 16.4 percent. While full-service bank branches tend to be in urban areas, several banks employ sub-agents to extend services in more rural areas. Technology has also helped extend banking services throughout the country.

The Dominican Monetary and Banking system is regulated by the Monetary and Financial Law No. 183-02, and is overseen by the Monetary Board, the Central Bank, and the Superintendency of Banks. The mission of the Dominican Central Bank is to maintain the stability of prices, promote the strength and stability of the financial system, and ensure the proper functioning of payment systems. The Superintendency of Banks carries out the supervision of financial intermediation entities, in order to verify compliance by said entities with the provisions of the law.

Foreign banks may establish operations in the Dominican Republic, although it may require a special decree for the foreign financial institution to establish domicile in the country. Foreign banks not domiciled in the Dominican Republic may establish representative offices in accordance with current regulations. To operate, both local and foreign banks must obtain the prior authorization of the Monetary Board and the Superintendency of Banks. Major U.S. banks have a commercial presence in the country, but most focus on corporate banking services as opposed to retail banking. Some other foreign banks offer retail banking. There are no restrictions on foreigners opening bank accounts, although identification requirements do apply.

Foreign Exchange and Remittances

Foreign Exchange

The Dominican exchange system is a market with free convertibility of the peso. Economic agents perform their transactions of foreign currencies under free market conditions. There are generally no restrictions or limitations placed on foreign investors in converting, transferring, or repatriating funds associated with an investment.

The Central Bank sets the exchange rates and practices a managed float policy. Some firms have had repeated difficulties obtaining dollars during periods of high demand. Importers may obtain foreign currency directly from commercial banks and exchange agents. The Central Bank participates in this market in pursuit of monetary policy objectives, buying or selling currencies and performing any other operation in the market to minimize volatility.

Remittance Policies

Law No. 16-95 on Foreign Investment in the Dominican Republic grants special allowances to foreign investors and national individuals residing abroad who make contributions to a company operating in the Dominican Republic. It regulates the types of investments, the areas of investment, and the rights and obligations of investors, among others. Decree No. 214-04 on the Registration of Foreign Investment in the Dominican Republic establishes the requirements for the registration of foreign investments, the remittance of profits, the repatriation of capital, and the requirements for the sale of foreign currency, among other issues related with investments.

Foreign investors can repatriate or remit both the profits obtained and the entire capital of the investment without prior authorization of the Central Bank. Article 5 of the aforementioned decree states that “the foreign investor, whose capital is registered with the CEI-RD, shall have the right to remit or repatriate it…”

Sovereign Wealth Funds

The Dominican government does not maintain a sovereign wealth fund.

State-Owned Enterprises (SOEs) in general do not have a significant presence in the economy, with most functions performed by privately-held firms. Notable exceptions are in the electricity, banking, and refining sectors. In the partially privatized electricity sector, private companies mainly provide electricity generation, while the government handles the transmission and distribution phases via the Dominican Electric Transmission Company (ETED) and the Dominican Corporation of State Electrical Companies (CDEEE). CDEEE is the largest SOE in terms of government expenditures. However, the government participates in the generation phase, too (most notably in hydroelectric power) and one of the distribution companies is partially privatized. In the financial sector, the state-owned BanReservas is the largest bank in the country, with a 32 percent market share by assets. In the refining sector, the government is the majority owner of the only refinery in the country; Refinery Dominicana (Refidomsa) operates and manages the refinery, is the only importer of crude oil in the country, and is also the largest importer of refined fuels, with a 60 percent market share. Sanctioned-Venezuelan firm Petróleos de Venezuela, S.A. (PDVSA by its Spanish acronym) is the minority shareholder.

Law No. 10-04 requires the Chamber of Accounts to audit SOEs. Audits should be published at https://www.camaradecuentas.gob.do/index.php/auditorias-publicadas , but audits from the SOEs could not be found. All audits should also be available upon request.

Privatization Program

Privatization of electricity distribution is part of a major reform planned for the electricity sector and outlined in the National Pact for Energy Reform signed February 2021. Plans are also being discussed for dissolving the CDEEE. While not yet expressly stated whether foreign firms will be invited to participate in these efforts, the Abinader administration has welcomed U.S. investment in the sector, generally. Questions should be directed toward the Ministry of Energy and Mines ( https://mem.gob.do/ ).

Partial privatization of state-owned enterprises (SOEs) in the late 1990s resulted in foreign investors obtaining management control of former SOEs engaged in activities such as electricity generation, airport management, and sugarcane processing.

Despite political stability and strong pre-pandemic economic growth, citizen and public security concerns in the Dominican Republic impose significant costs on businesses and limit foreign and domestic investment. There are no known national security threats affecting foreign investment within the Dominican Republic.

Citizen Security

The U.S. Department of State has assessed Santo Domingo as a critical-threat location for crime. According to the Latin American Public Opinion Project, there is a steady increase in crime-related victimization and a growing perception of insecurity in the Dominican Republic since 2010. In 2020, Fund for Peace ranked the Dominican Republic 110 out of 176 countries in its security threats index, and 71 for human rights and rule of law. Other than domestic violence, criminal activity is mostly associated with street-level incidents consisting of robberies and petty larcenies. Of these, street robbery is particularly concerning as criminals often use weapons to coerce compliance from victims. In addition, the Dominican Republic faces challenges with organized crime. Mob schemes in the Dominican land, airspace, and territorial waters include transshipment of South American drugs destined for the United States and Europe, transshipment of ecstasy from the Netherlands and Belgium destined for United States and Canada, substantial money laundering activity particularly by Colombian narcotics traffickers, and significant amphetamine consumption.

Public Security

The U.S. Department of State has assessed the Dominican Republic as being a low-threat location for terrorism and a medium-threat location for political violence. There are no known organized domestic terrorist groups in the Dominican Republic. Nonetheless, the Dominican Republic is a likely transit point for extremists from within the Caribbean, Africa, and Europe.

Politically motivated protests, demonstrations, and general strikes occur periodically, particularly during general election years. In February and March of 2020, there were multiple, mostly peaceful protests throughout the country over the Dominican electoral authority’s decision to suspend national municipal elections after widespread failure of its electronic voting system. Sabotage of electrical facilities for political purposes also allegedly occurred during the 2020 electoral cycle. In addition, civil unrest has become a common occurrence in the last several years due to the lack of adequate electricity, water resources, and the public opinion from certain groups that the government is not actively protecting the national interest.

Border porosity remains an ongoing concern for the Dominican Republic as the security situation with Haiti has arguably been complicated by the withdraw of the United Nations Stabilization Mission in Haiti (MINUSTAH) in 2017. Dominican officials have expressed concerns about the potential for widespread civil unrest or instability in Haiti contributing to illegal flows of people and illicit goods across the border.

National Security

There are no known national security threats menacing the survival of the Dominican Republic state. Therefore, its armed forces define a series of citizen and public security concerns as their priority security interests. The Dominican government uses its armed forces to support the police and border security forces within the framework of the Dominican Republic constitution. In this context, the military has deployed through citizen security programs in collaboration with the police and plays an important role in securing the border with Haiti, alongside border security forces.

* Source for Host Country Data: Central Bank of the Dominican Republic (BCRD). The BCRD does not report investment stock positions.

No information for the Dominican Republic is available on the IMF’s Coordinated Direct Investment Survey (CDIS) website. According to the Dominican Central Bank (BCRD), total inward flows of FDI for 2020 were $2.6 billion. The BCRD provides a breakdown of FDI to the Dominican Republic by individual source country for the top investing countries. The five largest investing countries accounted for 82.3 percent of total inward FDI in 2019. Neither World Bank nor Dominican sources break down FDI from the Dominican Republic to individual destination countries.

* Source for Host Country Data: Central Bank of the Dominican Republic (BCRD), 2020 FDI inward flows.

Table 4: Sources of Portfolio Investment
No information for the Dominican Republic is available on the IMF’s Coordinated Portfolio Investment Survey (CPIS) site and the Dominican government only publishes information on general investment flows ( https://www.bancentral.gov.do/a/d/2532-sector-externo ).

Policies Towards Foreign Direct Investment

Hong Kong is the world’s second-largest recipient of foreign direct investment (FDI), according to the United Nations Conference on Trade and Development’s (UNCTAD) World Investment Report 2020, with a significant amount bound for mainland China.  The HKG’s InvestHK encourages inward investment, offering free advice and services to support companies from the planning stage through to the launch and expansion of their business.  U.S. and other foreign firms can participate in government financed and subsidized research and development programs on a national treatment basis.  Hong Kong does not discriminate against foreign investors by prohibiting, limiting, or conditioning foreign investment in a sector of the economy.

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

According to HKG statistics, 3,983 overseas companies had regional operations registered in Hong Kong in 2020.  The United States has the largest number with 690.  Hong Kong is working to attract more start-ups as it works to develop its technology sector, and about 26 percent of start-ups in Hong Kong come from overseas.

Hong Kong’s Business Facilitation Advisory Committee is a platform for the HKG to consult the private sector on regulatory proposals and implementation of new or proposed regulations.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign investors can invest in any business and own up to 100 percent of equity.  Like domestic private entities, foreign investors have the right to engage in all forms of remunerative activity.

The HKG owns virtually all land in Hong Kong, which the HKG administers by granting long-term leases without transferring title.  Foreign residents claim that a 15 percent Buyer’s Stamp Duty on all non-permanent-resident and corporate buyers discriminates against them.

The main exceptions to the HKG’s open foreign investment policy are:

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

Legal Services – Foreign lawyers at foreign law firms may only practice the law of their jurisdiction.  Foreign law firms may become “local” firms after satisfying certain residency and other requirements.  Localized firms may thereafter hire local attorneys but must do so on a 1:1 basis with foreign lawyers.  Foreign law firms can also form associations with local law firms.

Other Investment Policy Reviews

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

Business Facilitation

The Efficiency Office under the Innovation and Technology Bureau is responsible for business facilitation initiatives aimed at improving the business regulatory environment of Hong Kong.

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

Outward Investment

As a free market economy, Hong Kong does not promote or incentivize outward investment, nor restrict domestic investors from investing abroad.  Mainland China and British Virgin Islands were the top two destinations for Hong Kong’s outward investments in 2019 (based on most recent data available).

Transparency of the Regulatory System

Hong Kong’s regulations and policies typically strive to avoid distortions or impediments to the efficient mobilization and allocation of capital and to encourage competition.  Bureaucratic procedures and “red tape” are usually transparent and held to a minimum.

In amending or making any legislation, including investment laws, the HKG conducts a three-month public consultation on the issue concerned which then informs the drafting of the bill.  Lawmakers then discuss draft bills and vote.  Hong Kong’s legal, regulatory, and accounting systems are transparent and consistent with international norms.

Gazette is the official publication of the HKG.  This website https://www.gld.gov.hk/egazette/english/whatsnew/whatsnew.html is the centralized online location where laws, regulations, draft bills, notices, and tenders are published.  All public comments received by the HKG are published at the websites of relevant policy bureaus.

The Office of the Ombudsman, established in 1989 by the Ombudsman Ordinance, is Hong Kong’s independent watchdog of public governance.

Public finances are regulated by clear laws and regulations.  The Basic Law prescribes that authorities strive to achieve a fiscal balance and avoid deficits.  There is a clear commitment by the HKG to publish fiscal information under the Audit Ordinance and the Public Finance Ordinance, which prescribe deadlines for the publication of annual accounts and require the submission of annual spending estimates to the Legislative Council (LegCo).  There are few contingent liabilities of the HKG, with details of these items published about seven months after the release of the fiscal budget.  In addition, LegCo members have a responsibility to enhance budgetary transparency by urging government officials to explain the government’s rationale for the allocation of resources.  All LegCo meetings are open to the public so that the government’s responses are available to the general public.

On March 29, 2021, the Hong Kong Financial Services and Treasury Bureau submitted to Hong Kong’s Legislative Council plans to restrict the public from accessing certain information about executives in the Company Registry.  If passed, companies will be allowed immediately to withhold information on the residential addresses and identification numbers of directors and secretaries.  Corporate governance and financial experts warned that the proposal could enable fraud and further hurt the city’s status as a transparent financial hub.   Media organizations criticized the plan for undermining transparency and freedom of information.

International Regulatory Considerations

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

Legal System and Judicial Independence

Hong Kong’s common law system is based on the United Kingdom’s, and judges are appointed by the Chief Executive on the recommendation of the Judicial Officers Recommendation Commission.  Regulations or enforcement actions are appealable, and they are adjudicated in the court system.

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

The imposition of the NSL and pressure from the PRC authorities raised serious concerns about the longevity of Hong Kong’s judicial independence.  The NSL authorizes the mainland China judicial system, which lacks judicial independence and has a 99 percent conviction rate, to take over any national security-related case at the request of the Hong Kong government or the Office of Safeguarding National Security.  Under the NSL, the Hong Kong Chief Executive is required to establish a list of judges to handle all cases concerning national security-related offenses.  Although Hong Kong’s judiciary selects the specific judge(s) who will hear any individual case, some commentators argued that this unprecedented involvement of the Chief Executive weakens Hong Kong’s judicial independence.

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

Laws and Regulations on Foreign Direct Investment

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

The Hong Kong Code on Takeovers and Mergers (1981) sets out general principles for acceptable standards of commercial behavior.

The Companies Ordinance (Chapter 622) applies to Hong Kong-incorporated companies and contains the statutory provisions governing compulsory acquisitions.  For companies incorporated in jurisdictions other than Hong Kong, relevant local company laws apply.  The Companies Ordinance requires companies to retain accurate and up to date information about significant controllers.

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

Competition and Antitrust Laws

The independent Competition Commission (CC) investigates anti-competitive conduct that prevents, restricts, or distorts competition in Hong Kong.  In December 2020, the CC filed Hong Kong’s first abuse of substantial market power case in the Competition Tribunal against Linde HKO and its Germany-based parent company Linde GmbH for leveraging substantial market power in the production and supply of medical oxygen, medical nitrous oxide, Entonox, and medical air to maintain a stranglehold over the downstream maintenance market.

Expropriation and Compensation

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

Dispute Settlement

ICSID Convention and New York Convention

The Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention) and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) apply to Hong Kong.  Hong Kong’s Arbitration Ordinance provides for enforcement of awards under the 1958 New York Convention.

Investor-State Dispute Settlement

The U.S. Consulate General is not aware of any investor-state disputes in recent years involving U.S. or other foreign investors or contractors and the HKG.  Private investment disputes are normally handled in the courts or via private mediation.  Alternatively, disputes may be referred to the Hong Kong International Arbitration Center.

International Commercial Arbitration and Foreign Courts

The HKG accepts international arbitration of investment disputes between itself and investors and has adopted the United Nations Commission on International Trade Law model law for domestic and international commercial arbitration.  It has a Memorandum of Understanding with mainland China modelled on the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) for reciprocal enforcement of arbitral awards.

Under Hong Kong’s Arbitration Ordinance emergency relief granted by an emergency arbitrator before the establishment of an arbitral tribunal, whether inside or outside Hong Kong, is enforceable.  The Arbitration Ordinance stipulates that all disputes over intellectual property rights may be resolved by arbitration.

The Mediation Ordinance details the rights and obligations of participants in mediation, especially related to confidentiality and admissibility of mediation communications in evidence.

Third party funding for arbitration and mediation came into force on February 1, 2019.

Foreign judgments in civil and commercial matters may be enforced in Hong Kong by common law or under the Foreign Judgments (Reciprocal Enforcement) Ordinance, which facilitates reciprocal recognition and enforcement of judgments based on reciprocity.  A judgment originating from a jurisdiction that does not recognize a Hong Kong judgment may still be recognized and enforced by the Hong Kong courts, provided that all the relevant requirements of common law are met.  However, a judgment will not be enforced in Hong Kong if it can be shown that either the judgment or its enforcement is contrary to Hong Kong’s public policy.

In January 2019, Hong Kong and mainland China signed a new Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of the mainland and of Hong Kong to facilitate enforcement of judgments in the two jurisdictions.  The arrangement, which as of February 2021 is still pending implementing legislation, will cover the following key features: contractual and tortious disputes in general; commercial contracts, joint venture disputes, and outsourcing contracts; intellectual property rights, matrimonial or family matters; and judgments related to civil damages awarded in criminal cases.

Bankruptcy Regulations

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

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

The Commercial Credit Reference Agency collates information about the indebtedness and credit history of SMEs and makes such information available to members of the Hong Kong Association of Banks and the Hong Kong Association of Deposit Taking Companies.

Hong Kong’s average duration of bankruptcy proceedings is just under ten months, ranking 45th in the world for resolving insolvency, according to the World Bank’s Doing Business 2020 rankings.

Capital Markets and Portfolio Investment

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

Assets and wealth managed in Hong Kong posted a record high of USD 3.7 trillion in 2019 (the latest figure available), with two-thirds of that coming from overseas investors.  To enhance the competitiveness of Hong Kong’s fund industry, OFCs as well as onshore and offshore funds are offered a profits tax exemption.

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

Under the Insurance Companies Ordinance, insurance companies are authorized by the Insurance Authority to transact business in Hong Kong.  As of February 2021, there were 165 authorized insurance companies in Hong Kong, 70 of them foreign or mainland Chinese companies.

The Hong Kong Stock Exchange’s total market capitalization surged by 24.0 percent to USD 6.1 trillion in 2020, with 2,538 listed firms at year-end.  Hong Kong Exchanges and Clearing Limited, a listed company, operates the stock and futures exchanges.  The Securities and Futures Commission (SFC), an independent statutory body outside the civil service, has licensing and supervisory powers to ensure the integrity of markets and protection of investors.

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

In 2020, a total of 291 Chinese enterprises had “H” share listings on the stock exchange, with combined market capitalization of USD 906 billion.  The Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connects allow individual investors to cross trade Hong Kong and mainland stocks.  In December 2018, the ETF Connect, which was planned to allow international and mainland investors to trade in exchange-traded fund products listed in Hong Kong, Shanghai, and Shenzhen, was put on hold indefinitely due to “technical issues.” However, China approved two cross-listings of ETFs between Shanghai Stock exchange and the Tokyo Stock Exchange in June 2019, and between Shenzhen Stock Exchange and Hong Kong Stock Exchange in October 2020.

By the end of 2020, 50 mainland mutual funds and 29 Hong Kong mutual funds were allowed to be distributed in each other’s markets through the mainland-Hong Kong Mutual Recognition of Funds scheme. Hong Kong also has mutual recognition of funds programs with Switzerland, Thailand, Ireland, France, the United Kingdom, and Luxembourg.

Hong Kong has developed its debt market with the Exchange Fund bills and notes program.  Hong Kong Dollar debt stood at USD 292 billion by the end of 2020.  As of November 2020, RMB 1,203.5 billion (USD 180.5 billion) of offshore RMB bonds were issued in Hong Kong.  Multinational enterprises, including McDonald’s and Caterpillar, have also issued debt.  The Bond Connect, a mutual market access scheme, allows investors from mainland China and overseas to trade in each other’s respective bond markets through a financial infrastructure linkage in Hong Kong.  In the first eight months of 2020, the Northbound trading of Bond Connect accounted for 52 percent of foreign investors’ total turnover in the China Interbank Bond Market.  In December 2020, the HKMA and the People’s Bank of China (PBoC) set up a working group to drive the initiative of Southbound trading, with the target of launching it within 2021.

In June 2020, the PBoC, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission, the State Administration of Foreign Exchange, the HKMA and the Monetary Authority of Macau announced that they decided to implement a cross-boundary Wealth Management Connect pilot scheme in the Greater Bay Area (GBA), an initiative to economically integrate Hong Kong and Macau with nine cities in Guangdong Province.  Under the scheme, residents in the GBA can carry out cross-boundary investment in wealth management products distributed by banks in the GBA.  These authorities are still working on the implementation details for the scheme.

In December 2020, the SFC concluded its consultation on proposed customer due diligence requirements for OFCs.  The new requirements will enhance the anti-money laundering and counter-financing of terrorism measures with respect to OFCs and better align the requirements for different investment vehicles for funds in Hong Kong.  Upon the completion of the legislative process, the new requirements will come into effect after a six-month transition period.

In February 2021, the HKG announced it would issue green bonds regularly and expand the scale of the Government Green Bond Program to USD 22.5 billion within the next five years.

The HKG requires workers and employers to contribute to retirement funds under the Mandatory Provident Fund (MPF) scheme.  Contributions are expected to channel roughly USD five billion annually into various investment vehicles.  By September of 2020, the net asset values of MPF funds amounted to USD 131 billion.

Money and Banking System

Hong Kong has a three-tier system of deposit-taking institutions: licensed banks (161), restricted license banks (17), and deposit-taking companies (12).  HSBC is Hong Kong’s largest banking group.  With its majority-owned subsidiary Hang Seng Bank, HSBC controls more than 50.9 percent of Hong Kong Dollar (HKD) deposits.  The Bank of China (Hong Kong) is the second-largest banking group, with 15.4 percent of HKD deposits throughout 200 branches.  In total, the five largest banks in Hong Kong had more than USD 2 trillion in total assets at the end of 2019.  Thirty-five U.S. “authorized financial institutions” operate in Hong Kong, and most banks in Hong Kong maintain U.S. correspondent relationships.  Full implementation of the Basel III capital, liquidity, and disclosure requirements completed in 2019.

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

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

In November 2020, the HKG launched a three-month public consultation on its proposed amendments to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance.  Among other proposed changes, the HKG suggested introducing a licensing regime for virtual asset services providers and a two-tier registration regime for precious assets dealers.  The HKG will analyze feedback from the public before introducing a draft bill to the LegCo.

The NSL granted police authority to freeze assets related to national security-related crimes.  In October 2020, the HKMA advised banks in Hong Kong to report any transactions suspected of violating the NSL, following the same procedures as for money laundering.  Hong Kong authorities reportedly asked financial institutions to freeze bank accounts of former lawmakers, civil society groups, and other political targets who appear to be under investigation for their pro-democracy activities.

The HKMA welcomes the establishment of virtual banks, which are subject to the same set of supervisory principles and requirements applicable to conventional banks.  The HKMA has granted eight virtual banking licenses by the end of January 2021.

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

Foreign Exchange and Remittances

Foreign Exchange

Conversion and inward/outward transfers of funds are not restricted.  The HKD is a freely convertible currency linked via de facto currency board to the U.S. dollar.  The exchange rate is allowed to fluctuate in a narrow band between HKD 7.75 – HKD 7.85 = USD 1.

Remittance Policies

There are no recent changes to or plans to change investment remittance policies.  Hong Kong has no restrictions on the remittance of profits and dividends derived from investment, nor reporting requirements on cross-border remittances.  Foreign investors bring capital into Hong Kong and remit it through the open exchange market.

Hong Kong has anti-money laundering (AML) legislation allowing the tracing and confiscation of proceeds derived from drug-trafficking and organized crime.  Hong Kong has an anti-terrorism law that allows authorities to freeze funds and financial assets belonging to terrorists.  Travelers arriving in Hong Kong with currency or bearer negotiable instruments (CBNIs) exceeding HKD 120,000 (USD 15,385) must make a written declaration to the CED.  For a large quantity of CBNIs imported or exported in a cargo consignment, an advanced electronic declaration must be made to the CED.

Sovereign Wealth Funds

The Future Fund, Hong Kong’s wealth fund, was established in 2016 with an endowment of USD 28.2 billion.  The fund seeks higher returns through long-term investments and adopts a “passive” role as a portfolio investor.  About half of the Future Fund has been deployed in alternative assets, mainly global private equity and overseas real estate, over a three-year period.  The rest is placed with the Exchange Fund’s Investment Portfolio, which follows the Santiago Principles, for an initial ten-year period.  In February 2020, the HKG announced that it will deploy 10 percent of the Future Fund to establish a new portfolio, which is called the Hong Kong Growth Portfolio (HKGP), focusing on domestic investments to lift the city’s competitiveness in financial services, commerce, aviation, logistics and innovation.  Between December 2020 and January 2021, the HKMA conducted a market survey to better understand the profiles of private equity firms with interest to become a general partner for the HKGP.

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

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

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

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

Privatization Program

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

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

As of March 2021, police have carried out at least 100 arrests of opposition politicians and activists under the NSL, including one U.S. citizen, in an effort to suppress all pro-democracy views and political activity in the city.  Police have also reportedly issued arrest warrants under the NSL for approximately thirty individuals residing abroad, including U.S. citizens.  Since June 2019, police have arrested over 10,000 people on various charges in connection with largely peaceful protests against government policies.

Please see the July 16, 2021 business advisory issued by the Department of State, along with the Department of the Treasury, the Department of Commerce, and the Department of Homeland Security.

The Department of State assesses that Hong Kong does not maintain a sufficient degree of autonomy under the “one country, two systems” framework to justify continued special treatment by the United States for bilateral agreements and programs per the Hong Kong Policy Act.  As a result of Hong Kong’s lack of autonomy from China, the Department of Commerce ended Hong Kong’s treatment as a separate trade entity from China, including the removal of many of Department of Commerce’s License Exceptions.  U.S. Customs and Borders Protection (CBP) requires goods produced in Hong Kong to be marked to show China, rather than Hong Kong, as their country of origin.  This requirement took effect November 9, 2020.  It does not affect country of origin determinations for purposes of assessing ordinary duties or temporary or additional duties.  Hong Kong has requested World Trade Organization dispute consultations to examine the issue.  As of March 2021, the Department of Treasury has sanctioned 35 former and current Hong Kong and mainland Chinese government officials and 44 Chinese-military companies identified by the Department of Defense.

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

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

Under the President’s Executive Order on Hong Kong Normalization, which directs the suspension or elimination of special and preferential treatment for Hong Kong, the United States notified the Hong Kong authorities in August 2020 of its suspension of the Surrender of Fugitive Offenders Agreement and the Transfer of Sentenced Persons Agreement.  The Reciprocal Tax Exemptions on Income Derived from the International Operation of Ships Agreement was also suspended.  In response, the Hong Kong government suspended the Agreement Between the Government of the United States of America and the Government of Hong Kong on Mutual Legal Assistance in Criminal Affairs, which entered into force in 2000.

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