Policies Towards Foreign Direct Investment

The government of Barbados, through Invest Barbados, welcomes foreign direct investment with the stated goals of creating jobs, earning foreign exchange, transferring technology, enhancing skills, and contributing to economic growth. In 2021, the government announced plans to focus on encouraging foreign direct investment in renewable energy, manufacturing, technology, and biogenetic engineering.

Barbados encourages investment in the following key sectors: international financial services, information technology, and ship registration, as well as developing areas like financial technology, creative industries, agricultural processing, medical schools, medical tourism, and renewable energy. In the international financial services sector, the government maintains regulatory oversight via the Central Bank of Barbados to prevent money laundering and tax evasion.

Through Invest Barbados, the government facilitates domestic and foreign private investment. Invest Barbados’ mandate is to actively promote Barbados as a desirable investment location, to provide advice, and to assist prospective investors. Invest Barbados also provides customized support for investors to assist with the expansion and sustainability of the initial investment. It also serves as the primary liaison for existing investors. In April 2020, the government established a Jobs and Investment Council charged with supporting economic activity during the COVID-19 pandemic and post-pandemic recovery. In March 2021, the government announced plans to establish a Barbados Free Zone to help attract foreign direct investment.

Investors interested in doing business in Barbados must register in person with the country’s Corporate Affairs and Intellectual Property Office. While this is a requirement for foreign and domestic investors, the continuing barriers to international travel posed by COVID-19 currently make it more difficult for foreign investors without established local partners and legal representation to comply with this requirement. The government of Barbados has announced plans to fully digitize the registration process before the end of 2021.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are no limits on foreign control in Barbados. Nationals and non-nationals may establish and own private enterprises and private property in Barbados. These rights extend to the acquisition and disposition of interests in private enterprises.

No industries are closed to private enterprise, although the government reserves the right not to allow certain investments. Some activities, such as telecommunications, utilities, broadcasting, franchises, banking, and insurance require a government license. There are no quotas or other restrictions on foreign ownership of a local enterprise or participation in a joint venture.

Other Investment Policy Reviews

Barbados has not conducted a trade policy review in the last three years.

Business Facilitation

Invest Barbados is the main investment promotion agency that attracts and facilitates foreign investment. Invest Barbados offers guidance and direction to new and established investors seeking to pursue investment opportunities in Barbados. The process is transparent and considers the size of capital investment as well as the economic impact of a proposed project.

Invest Barbados offers a website that is useful for navigating applicable laws, rules, procedures, and registration requirements for foreign investors. This is available at http://www.investbarbados.org . Invest Barbados’ iGuide website is an online guide which provides local and foreign investors with up-to-date information required to make certain investment decisions, including steps for setting up a business, opportunities for investment, labor and other business costs, and legal requirements, among other data. This is available at https://www.theiguides.org/public-docs/guides/barbados . The Corporate Affairs and Intellectual Property Office (CAIPO) maintains an online e-registry filing service for matters pertaining to the Corporate Registry. It is available to registered agents, who are usually attorneys. Information is available at www.caipo.gov.bb .

Barbados ranks 102nd out of 190 countries in the ease of starting a business, which takes seven procedures and approximately 16 days on average to complete, according to the 2020 World Bank Doing Business report. The general practice is to retain an attorney to prepare relevant incorporation documents. The business must register with CAIPO, the Barbados Revenue Authority, the Customs and Excise Department, and any relevant sector-specific licensing agencies.

The government of Barbados continues to facilitate programs and partnerships to assist entrepreneurs who are women and/or people with disabilities. The government of Barbados remains committed to working with civil society and other organizations to meet the UN Sustainable Development Goals by 2030.

Outward Investment

While no incentives are offered, Barbados generally encourages local companies to invest in other countries, particularly within the Caribbean region. Local companies in Barbados are actively encouraged to take advantage of export opportunities related to the country’s membership in the Caribbean Community (CARICOM) and the Caribbean Single Market and Economy (CSME). The Barbados Investment Development Corporation (BIDC) provides market development support for domestic companies seeking to enhance their export potential.

Real Property

There are no restrictions on foreign ownership of property in Barbados. Foreign investors and locals are treated equally regarding property taxes. Civil law protects physical property and mortgage claims. The CBB must verify real property purchases for non-residents. If a non-resident uses foreign funds and pays for the property in Barbados, the CBB will normally endorse the transaction. The sale of property is subject to a 2.5 percent property transfer tax in addition to a one percent stamp duty. Brokerage and legal fees are not included in these levies. Buyers should seek the advice of a local attorney when purchasing property.

Commercial, industrial, hotel, and villa properties are subject to a 0.95 percent land tax on the improved value of the property. Holders of a certificate from the Barbados Tourism Authority enjoy rebates of 50 percent for hotels and 25 percent from villas. The Commissioner of Land Tax charges an annual fee based on the assessed property value on residential property as follows: 0% on the first 75,000 USD (150,000 Barbados dollars)

• 0% on the first 75,000 USD (150,000 Barbados dollars)
• 0.1% on amounts between 75,001 USD and 225,000 USD (150,001 and 550,000 Barbados dollars)
• 0.7% on amounts between 225,001 USD and 425,000 USD (550,001 and 850,000 Barbados dollars)
• 1.0% on amounts greater than 425,000 USD (850,000 Barados dollars)
• 0.8% on vacant land under 4,000 square feet
• 1.0% on all other vacant lands

Barbados ranks 118th out of 190 countries in ease of registering property in the 2020 World Bank Doing Business Report. It takes approximately 50 days to complete seven procedures and the cost is about 4.5 percent of the property value. The government has included an additional procedure that has increased the time to record the conveyance at the Land Registry and pay transfer fees and stamp duties. This has made transferring property more onerous. The Land Registry has digitized records dating back to 1952 and plans to further digitize deeds dating back to 1640. A landowner may lose his or her title to land if a trespasser or squatter takes possession for a period of ten years.

Intellectual Property Rights

Barbados has a legislative framework governing intellectual property rights (IPR), though enforcement needs improvement. Barbados is a member of the World Intellectual Property Organization (WIPO) and is party to the Berne Convention for the Protection of Literary and Artistic Works, the Paris Convention for the Protection of Industrial Property, and the Nice Agreement Concerning the International Classification of Goods and Services for the Purposes of the Registration of Marks. The government of Barbados has enacted IPR legislation on topics including patents, copyrights, trademarks, industrial designs, integrated circuits topography, plant breeders’ rights, geographical indications, and protection against unfair competition. Barbados’ Trademark and Industrial Designs Act meets international standards.

Barbados remains on the Office of the United States Trade Representative (USTR) Special 301 Report Watch List in 2021. Barbados acceded to the WIPO Internet Treaties in 2019 and has convened a public-private Advisory Committee on Intellectual Property Rights to redraft its Copyright Act. Once passed by Parliament, this will enable Barbados to implement its WIPO Internet Treaties obligations. CAIPO will be reorganized into two separate entities, one for business registration and one for IPR registration. The former CAIPO director was appointed as Master of the High Court in 2020, which will deepen the court’s IPR expertise. These measures, along with the updates and upgrades to CAIPO’s database by the end of 2021, are intended to strengthen IPR enforcement.

Currently, Barbados’ judicial system is unable to provide timely and effective relief on IPR violations due to a serious case backlog across all types of civil and criminal matters. Ongoing cases include the unauthorized transmission of U.S. broadcasts and cable programming by local cable operators, including state-owned broadcasters, without adequate compensation to U.S. right holders, and the refusal of Barbadian television and radio broadcasters and cable and satellite operators to pay for public performances of music.

Article 66 of the Revised Treaty of Chaguaramas establishing the CSME commits all 15 members to implement stronger intellectual property rights protection and enforcement. The CARIFORUM-EU EPA contains the most detailed obligations regarding intellectual property in any trade agreement to which Barbados is a party. The EPA provides for protection and enforcement of IPR. Article 139 of the EPA requires parties to “ensure an adequate and effective implementation of the international treaties dealing with intellectual property to which they are parties and of the Agreement on Trade Related Aspects of Intellectual Property (TRIPS).”

It is the responsibility of the importer to pay for and destroy counterfeit goods. Failure to observe certain standards regarding the importation of goods may result in a recommendation to the Comptroller of Barbados’ Custom and Excises Department to have the goods destroyed. If the goods fall under the Ministry of Health’s jurisdiction, they are destroyed under that ministry’s guidance. If the goods are prohibited and do not pertain to the Ministry of Health, the Customs and Excise Department will destroy them as appropriate. Information on the prevalence of counterfeit goods in the local market is not readily available, as there is no tracking method in place to collect data. Barbados is listed in USTR’s 2020 Review of Notorious Markets for Counterfeiting and Piracy.

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

Capital Markets and Portfolio Investment

Barbados has a small stock exchange, an active banking sector, and opportunities for portfolio investment. Local policies seek to facilitate the free flow of financial resources, although some restrictions may be imposed during exceptional periods of low liquidity. The CBB independently raises or lowers interest rates without government intervention. There are a variety of credit instruments in the commercial and public sectors that local and foreign investors may access.

Barbados continues to review legislation in the financial sector to strengthen and improve the regulatory regime and attract and facilitate retention of foreign portfolio investments. The government continues to improve its legal, regulatory, and supervisory frameworks to strengthen the banking system. The Anti-Money Laundering Authority and its operating arm, the government’s Financial Intelligence Unit, review anti-money laundering policy documents and analyze prudential returns.

The Securities Exchange Act of 1982 established the Securities Exchange of Barbados, which was reincorporated as the Barbados Stock Exchange (BSE) in 2001. The BSE operates a two-tier electronic trading system comprised of a regular market and an innovation and growth market (formerly the junior market). Companies applying for listing on the regular market must observe and comply with certain requirements. Specifically, they must have assets of at least 500,000 USD (1 million Barbados dollars) and adequate working capital, based on the last three years of their financial performance, as well as three-year performance projections. Companies must also demonstrate competent management and be incorporated under the laws of Barbados or another regulated jurisdiction approved by the Financial Services Commission. Applications for listing on the innovation and growth market are less onerous, requiring minimum equity of one million shares at a stated minimum value of 100,000 USD (200,000 Barbados dollars). Reporting and disclosure requirements for all listed companies include interim financial statements and an annual report and questionnaire. Non-nationals must obtain exchange control approval from the CBB to trade securities on the BSE.

The BSE has computerized clearance and settlement of share certificates through the Barbados Central Securities Depository Inc., a wholly owned subsidiary of the BSE. Under the Property Transfer Tax Act, the FSC can accommodate investors requiring a traditional certificate for a small fee. The FSC also regulates mutual funds in accordance with the Mutual Funds Act.

The BSE adheres to rules in accordance with International Organization of Securities Commissions guidelines designed to protect investors; ensure a fair, efficient, and transparent market; and reduce systemic risk. Public companies must file audited financial statements with the BSE no later than 90 days after the close of their financial year. The authorities may impose a fine not exceeding 5,000 USD (10,000 Barbados dollars) for any person under the jurisdiction of the BSE who contravenes or is not in compliance with any regulatory requirements.

The BSE launched the International Securities Market (ISM) in 2016. It is designed to operate as a separate market, allowing issuers from Barbados and other international markets. To date, the ISM has five listing sponsors.

The BSE collaborates with its regional partners, the Jamaica Stock Exchange and the Trinidad and Tobago Stock Exchange, through shared trading software. The capacity for this inter-exchange connectivity provides a wealth of potential investment opportunities for local and regional investors. The BSE obtained designated recognized stock exchange status from the UK in 2019. It is also a member of the World Federation of Exchanges.

Barbados has accepted the obligations of Article VIII, Sections 2, 3, and 4 of the IMF Articles of Agreement and maintains an exchange system free of restrictions on current account transactions.

Money and Banking System

The government established the Central Bank of Barbados (CBB) in 1972. The CBB manages Barbados’ currency and regulates its domestic banks.

The Barbados Deposit Insurance Corporation (BDIC) provides protection for depositors. Oversight of the entire financial system is conducted by the Financial Oversight Management Committee, which consists of the CBB, the BDIC, and the FSC. The private sector has access to financing on the local market through short-term borrowing and credit, asset financing, project financing, and mortgage financing.

Commercial banks and other deposit-taking institutions set their own interest rates. The CBB requires banks to hold 17.5 percent of their domestic deposits in stipulated securities.

Bitt, a Barbadian company, developed digital currency DCash in partnership with the Eastern Caribbean Central Bank (ECCB). The first successful DCash retail central bank digital currency (CDBC) consumer-to-merchant transaction took place in Grenada in February following a multi-year development process. The CBB and the FSC established a regulatory sandbox in 2018 where financial technology entities can do live testing of their products and services. This allowed regulators to gain a better understanding of the product or service and to determine what, if any, regulation is necessary to protect consumers. Bitt completed its participation and formally exited the sandbox in 2019. Bitt has no immediate plans to launch DCash in Barbados, and will focus first on four of Barbados’ Eastern Caribbean neighbors. Bitt also offers a digital access exchange, remittance channel, and merchant-processing gateway available via mMoney, a mobile application.

The Caribbean region has witnessed a withdrawal of correspondent banking services by U.S., Canadian, and European banks in recent years due to concerns that the region is high-risk.

Foreign Exchange and Remittances

Foreign Exchange

Barbados’ currency of exchange is the Barbadian dollar (BBD). It is issued by the CBB. Barbados’ foreign exchange operates under a liberal system. The Barbadian dollar has been pegged to the U.S. dollar at a rate of BBD 2.00: USD 1.00 since 1975. This creates a stable currency environment for trade and investment in Barbados.

Remittance Policies

Companies can freely repatriate profits and capital from foreign direct investment if they are registered with the CBB at the time of investment. The CBB has the right to stagger these conversions depending on the level of international reserves available to the CBB at the time capital repatriation is requested.

The Ministry of Finance, Economic Affairs and Investment controls the flow of foreign exchange and the Exchange Control Division of the CBB executes foreign exchange policy under the Exchange Control Act. Individuals may apply through a local bank to convert the equivalent of 10,000 USD (20,000 Barbados dollars) per year for personal travel and up to a maximum of 25,000 USD (50,000 Barbados dollars) for business travel. The CBB must approve conversion of any amount over these limits. International businesses, including insurance companies, are exempt from these exchange control regulations.

Barbados is a member of the CFATF. In 2014, the government of Barbados signed an Intergovernmental Agreement in observance of FATCA, making it mandatory for banks in Barbados to report the banking information of U.S. citizens.

Sovereign Wealth Funds

Currently, the CBB does not maintain a sovereign wealth fund. In the past, the government announced plans to create a sovereign wealth fund to ensure national wealth is available for present and future generations of Barbados. Barbadians 18 years and older are expected to gain a stake in the fund after it is established. It is envisioned that the fund will hold governmental assets, including on- and offshore real property, revenues from oil and gas products, and non-tangible assets such as trademarks, patents, and intellectual property.

State-owned enterprises (SOEs) in Barbados work in partnership with ministries, or under their remit, and carry out certain ministerial responsibilities. There are 33 SOEs in Barbados operating in areas such as travel and tourism, investment services, broadcasting and media, sanitation services, sports, and culture. Pre-pandemic total net income was estimated at 60 million USD (120 million Barbados dollars).

SOEs in Barbados are not found in the key areas earmarked for investment. They are all wholly owned government entities. They are headed by boards of directors to which their senior management reports.

As part of the ongoing BERT program, the government of Barbados is addressing the expenditure position of the SOEs by defining clear objectives for SOE reforms, reducing the wage bill of these entities, and implementing other necessary reform measures.

Privatization Program

Barbados does not currently have a targeted privatization program. The government has announced plans for public-private partnerships in airport management and broadcasting services, which will still see the government retaining ownership of these entities. The process remains open to foreign investors and is transparent. More information can be obtained at http://www.gisbarbados.gov.bb .

Policies Towards Foreign Direct Investment

Cambodia has a liberal foreign investment regime and actively courts FDI. The primary law governing investment is the 1994 Law on Investment. The government permits 100 percent foreign ownership of companies in most sectors. In a handful of sectors, such as cigarette manufacturing, movie production, rice milling, and gemstone mining and processing, foreign investment is subject to local equity participation or prior authorization from authorities.  While there is little or no official legal discrimination against foreign investors, some foreign businesses report disadvantages vis-a-vis Cambodian or other foreign rivals that engage in acts of corruption or tax evasion or take advantage of Cambodia’s weak regulatory environment.

The Council for the Development of Cambodia (CDC) is the principal government agency responsible for providing incentives to stimulate investment. Investors are required to submit an investment proposal to either the CDC or the Provincial-Municipal Investment Sub-committee to obtain a Qualified Investment Project (QIP) status depending on capital level and location of the investment question.  QIPs are then eligible for specific investment incentives.

The CDC also serves as the secretariat to Cambodia’s Government-Private Sector Forum (G-PSF), a public-private consultation mechanism that facilitates dialogue within and among 10 government/private sector working groups. More information about investment and investment incentives in Cambodia may be found at: www.cambodiainvestment.gov.kh.

Cambodia has created special economic zones (SEZs) to further facilitate foreign investment. As of April 2021, there are 23 SEZs in Cambodia.  These zones provide companies with access to land, infrastructure, and services to facilitate the set-up and operation of businesses. Services provided include utilities, tax services, customs clearance, and other administrative services designed to support import-export processes. Cambodia offers incentives to projects within the SEZs such as tax holidays, zero rate VAT, and import duty exemptions for raw materials, machinery, and equipment. The primary authority responsible for Cambodia’s SEZs is the Cambodia Special Economic Zone Board (CSEZB). The largest of its SEZs is in Sihanoukville and hosts primarily Chinese companies.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are few limitations on foreign control and ownership of business enterprises in Cambodia. Foreign investors may own 100 percent of investment projects except in the sectors mentioned Section 1. According to Cambodia’s 2003 Amended Law on Investment and related sub-decrees, there are no limitations based on shareholder nationality or discrimination against foreign investors except in relation to investments in property or state-owned enterprises. For property, both the Law on Investment and the 2003 Amended Law state that the majority of interest in land must be held by one or more Cambodian citizens.  For state-owned enterprises, the Law on Public Enterprise provides that the Cambodian government must directly or indirectly hold more than 51 percent of the capital or the right to vote in state-owned enterprises.

Another limitation concerns the employment of foreigners in Cambodia. A QIP allows employers to obtain visas and work permits for foreign citizens as skilled workers, but the employer may be required to prove to the Ministry of Labor and Vocational Training that the skillset is not available in Cambodia. The Cambodian Bar has periodically taken actions to restrict or impede the work of foreign lawyers or foreign law firms in the country.

Other Investment Policy Reviews

The OECD conducted an Investment Policy Review of Cambodia in 2018. The report may be found at this  link .

The World Trade Organization (WTO) last reviewed Cambodia’s trade policies in 2017; the first review was done in 2011.  The 2017 report can be found at this link .

Business Facilitation

All businesses are required to register with the Ministry of Commerce (MOC) and the General Department of Taxation (GDT).  Registration with MOC is possible through an online business registration portal ( link ) that allows all existing and new businesses to register.  Depending on the types of business activity, new businesses may also be required to register with other relevant ministries.  For example, travel agencies must also register with the Ministry of Tourism, and private universities must also register with the Ministry of Education, Youth, and Sport.  The GDT also has an online portal for tax registration and other services, which can be located here .

The World Bank’s 2020 Ease of Doing Business Report ranks Cambodia 144 of 190 countries globally for the ease of starting a business. The report notes that it takes nine separate procedures and three months or more to complete all business, tax, and employment registration processes.

Outward Investment

There are no restrictions on Cambodian citizens investing abroad. Some Cambodian companies have invested in neighboring countries – notably, Thailand, Laos, and Myanmar.

Real Property

Mortgages exist in Cambodia and Cambodian banks often require certificates of property ownership as collateral before approving loans. The mortgage recordation system, which is handled by private banks, is generally considered reliable.

Cambodia’s 2001 Land Law provides a framework for real property security and a system for recording titles and ownership. Land titles issued prior to the end of the Khmer Rouge regime (1975-79) are not recognized due to the severe dislocations that occurred during that period. The government is making efforts to accelerate the issuance of land titles, but in practice, the titling system is cumbersome, expensive, and subject to corruption. Most property owners lack documentation proving ownership. Even where title records exist, recognition of legal titles to land has not been uniform, and there are reports of court cases in which judges have sought additional proof of ownership.

Foreigners are constitutionally forbidden to own land in Cambodia; however, the 2001 Land Law allows long and short-term leases to foreigners. Cambodia also allows foreign ownership in multi-story buildings, such as condominiums, from the second floor up.  Cambodia was ranked 129 out of 190 economies for ease of registering property in the 2020 World Bank Doing Business Report.

Intellectual Property Rights

Infringement of intellectual property rights (IPR) is prevalent in Cambodia. Counterfeit apparel, footwear, cigarettes, alcohol, pharmaceuticals, and consumer goods, and pirated software, music, and books are some of the examples of IPR-infringing goods found in the country.

Though Cambodia is not a major center for the production or export of counterfeit or pirated materials, local businesses report that the problem is growing because of the lack of enforcement. To date, Cambodia has not been listed by the Office of the U.S. Trade Representative (USTR) in its annual Special 301 Report, which identifies trade barriers to U.S. companies due to the IPR environment.

Cambodia has enacted several laws pursuant to its WTO commitments on intellectual property, including the Law on Marks, Trade Names and Acts of Unfair Competition (2002); the Law on Copyrights and Related Rights (2003); the Law on Patents, Utility Models and Industrial Designs (2003); the Law on Management of Seed and Plant Breeder’s Rights (2008); the Law on Geographical Indications (2014); and the Law on Compulsory Licensing for Public Health (2018).

Cambodia has been a member of WIPO since 1995 and has acceded to several international IPR protocols, including the Paris Convention (1998), the Madrid Protocol (2015), the WIPO Patent Cooperation Treaty (2016), The Hague Agreement Concerning the International Registration of Industrial Design (2017), and the Lisbon Agreement on Appellations of Origin and Geographical Indications (2018).

To combat the trade in counterfeit goods, the Cambodian Counter Counterfeit Committee (CCCC) was established in 2014 under the Ministry of Interior to investigate claims, seize illegal goods, and prosecute counterfeiters. The Economic Police, Customs, the Cambodia Import-Export Inspection and Fraud Repression Directorate General, and the Ministry of Commerce also have IPR enforcement responsibilities; however, the division of responsibility among each agency is not clearly defined. This causes confusion to rights owners and muddles the overall IPR environment.  Though there has been an increase in the number of seizures of counterfeit goods in recent years, in general such actions are not taken unless a formal complaint is made.

In October 2020, the U.S. Patent and Trademark Office concluded a memorandum of understanding (MOU) with Cambodia on accelerated patent recognition, creating a simplified procedure for U.S. patents to be registered in Cambodia.

For additional information about treaty obligations and points of contact at local IP offices, please see the World Intellectual Property Organization’s country profiles at this link .

Capital Markets and Portfolio Investment

In a move designed to address the need for capital markets in Cambodia, the Cambodia Securities Exchange (CSX) was founded in 2011 and started trading in 2012. Though the CSX is one of the world’s smallest securities markets, it has taken steps to increase the number of listed companies, including attracting SMEs. At the end of 2020, market capitalization stood at USD2.5 billion and the average daily trading value averages USD150,000. The CSX currently has seven listed companies: the Phnom Penh Water Supply Authority; Taiwanese garment manufacturer Grand Twins International; the Phnom Penh Autonomous Port; the Sihanoukville Autonomous Port; Phnom Penh SEZ Plc; ACLEDA Bank; and Pestech Plc.

In September 2017, the National Bank of Cambodia (NBC) adopted a regulation on Conditions for Banking and Financial Institutions to be listed on the Cambodia Securities Exchange. The regulation sets additional requirements for banks and financial institutions that intend to issue securities to the public. This includes prior approval from the NBC and minimum equity of KHR 60 billion (approximately USD15 million).

Cambodia’s bond market is at the beginning stages of development. The regulatory framework for corporate bonds was bolstered in 2017 through the publication of several regulations covering public offering of debt securities, the accreditation of bondholders’ representatives, and the accreditation of credit rating agencies. The country’s first corporate bond was issued in 2018 by Hattha Kaksekar Limited. Four additional companies have since been added to the bond market: LOLC (Cambodia) Plc.; Advanced Bank of Asia Limited; Phnom Penh Commercial Bank Plc; and RMA (Cambodia) Plc. RMA, which issued its bonds in early 2020, was the first non-bank financial institution to be listed.  There is currently no sovereign bond market, but the government has stated its intention of making government securities available to investors by 2022.

Money and Banking System

The NBC regulates the operations of banking systems in Cambodia. Foreign banks and branches are freely allowed to register and operate in the country. There are 44 commercial banks, 14 specialized banks (set up to finance specific turn-key projects such as real estate development), 74 licensed microfinance institutions (MFIs), and seven licensed microfinance deposit taking institutions in Cambodia. The NBC has also granted licenses to 12 financial leasing companies and one credit bureau company to improve transparency and credit risk management and encourage lending to small- and medium-sized enterprise customers.

Prior to the COVID-19 pandemic, Cambodia’s banking sector experienced strong growth. The banking sector’s assets, including those of MFIs, rose 21.4 percent year-over-year in 2018 to 139.7 trillion riel (USD34.9 billion), while credit grew 24.3 percent to 81.7 trillion riel (USD20.4 billion). Loans and deposits grew 18.3 percent and 24.5 percent respectively, which resulted in a decrease of the loan-to-deposit ration from 114 percent to 110 percent. The ratio of non-performing loans was measured at 1.6 percent in 2019.

The government does not use the regulation of capital markets to restrict foreign investment. Banks have been free to set their own interest rates since 1995, and increased competition  between local institutions has led to a gradual lowering of interest rates from year to year.  However, in April 2017, at the direction of Prime Minister Hun Sen, the NBC capped interest rates on loans offered by MFIs at 18 percent per annum. The move was designed to protect borrowers, many of whom are poor and uneducated, from excessive interest rates.

In March 2016, the NBC doubled the minimum capital reserve requirement for banks to USD75 million for commercial banks and USD15 million for specialized banks. Based on the new regulations, deposit-taking microfinance institutions now have a USD30 million reserve requirement, while traditional microfinance institutions have a USD1.5 million reserve requirement.

In March 2020, the NBC issued several regulations to ensure liquidity and promote lending amid the COVID-19 pandemic. They include: (1) delaying the implementation of Conservation Capital Buffer (CCB) for financial institutions; (2) reducing the minimum interest rate of Liquidity-Providing Collateralized Operations (LPCO); (3) reducing the interest rates of Negotiable Certificate of Deposit (NCD); (4) reducing the reserve requirement rate (RRR) from 8 percent (KHR) and 12.5 percent (USD) to 7 percent (KHR and USD) for 6 months starting from April 2020; and (5) reducing the liquidity coverage ratio.  The NBC also requested financial institutions to delay dividend payouts in order to preserve financial sector liquidity. The government has also encouraged banks to continue restructuring loans to help avoid defaults. In late 2020, the government announced that businesses in the garment and footwear, tourism, and aviation sectors would continue to receive tax incentives in 2021. In addition, financial institutions’ borrowings from both local and foreign sources will benefit from reduced tax withholdings in 2021.

Financial technology (Fintech) in Cambodia is still at early stage of development. Available technologies include mobile payments, QR codes, and e-wallet accounts for domestic and cross-border payments and transfers. In 2012, the NBC launched retail payments for cheques and credit remittances. A “Fast and Secure Transfer” (FAST) payment system was introduced in 2016 to facilitate instant fund transfers. The Cambodian Shared Switch (CSS) system was launched in October 2017 to facilitate the access to network automated teller machines (ATMs) and point of sale (POS) machines.

In February 2019, the Financial Action Task Force (FATF), an international intergovernmental organization whose purpose is to develop policies to combat money laundering, cited Cambodia for being “deficient” with regard to its anti-money laundering and countering financing of terrorism (AML/CFT) controls and policies and included Cambodia on its “grey list.”  The government committed to working with FATF to address these deficiencies through a jointly developed action plan, although progress to date has not been sufficient and Cambodia remains on the grey list in 2021. Should Cambodia not take appropriate action, FATF could move it to the “black list,” which could negatively impact the cost of capital as well as the banking sector’s ability to access international capital markets.

Foreign Exchange and Remittances

Foreign Exchange

Though Cambodia has its own currency, the riel (denoted as KHR), U.S. dollars are in wide circulation in Cambodia and remain the primary currency for most large transactions. There are no restrictions on the conversion of capital for investors.

Cambodia’s 1997 Law on Foreign Exchange states that there shall be no restrictions on foreign exchange operations through authorized banks. Authorized banks are required, however, to report the amount of any transfer equaling or exceeding USD100,000 to the NBC on a regular basis.

Loans and borrowings, including trade credits, are freely contracted between residents and nonresidents, provided that loan disbursements and repayments are made through an authorized intermediary. There are no restrictions on the establishment of foreign currency bank accounts in Cambodia for residents.

The exchange rate between the riel and the U.S. dollar is governed by a managed float and has been stable at around one U.S. dollar to KHR 4,000 for the past several years.  Daily fluctuations of the exchange rate are low, typically under three percent.  The Cambodian government has taken steps to increase general usage of the riel, including phasing out in June 2020 the circulation of small-denominated U.S. dollar bills; however, the country’s economy remains largely dollarized.

Remittance Policies

Article 11 of Cambodia’s 2003 Amended Law on Investment states that QIPs can freely remit abroad foreign currencies purchased through authorized banks for the discharge of financial obligations incurred in connection with investments. These financial obligations include payment for imports and repayment of principal and interest on international loans; payment of royalties and management fees; remittance of profits; and repatriation of invested capital in case of dissolution.

Sovereign Wealth Funds

Cambodia does not have a sovereign wealth fund.

Cambodia currently has 15 state-owned enterprises (SOEs):  Electricite du Cambodge; Sihanoukville Autonomous Port; Telecom Cambodia; Cambodia Shipping Agency; Cambodia Postal Services; Rural Development Bank; Green Trade Company; Printing House; Siem Reap Water Supply Authority; Construction and Public Work Lab; Phnom Penh Water Supply Authority; Phnom Penh Autonomous Port; Kampuchea Ry Insurance; Cambodia Life Insurance; and the Cambodia Securities Exchange.

In accordance with the Law on General Stature of Public Enterprises, there are two types of commercial SOEs in Cambodia: one that is 100 percent owned by the state; and another that is a joint-venture in which a majority of capital is owned by the state and a minority is owned by private investors.

Each SOE is under the supervision of a line ministry or government institution and is overseen by a board of directors drawn from among senior government officials. Private enterprises are generally allowed to compete with state-owned enterprises under equal terms and conditions.  SOEs are also subject to the same taxes and value-added tax rebate policies as private-sector enterprises. SOEs are covered under the law on public procurement, which was promulgated in January 2012, and their financial reports are audited by the appropriate line ministry, the Ministry of Economy and Finance, and the National Audit Authority.

Privatization Program

There are no ongoing privatization programs, nor has the government announced any plans to privatize existing SOEs.

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.

Real Property

The DRC’s Constitution protects private property ownership without discriminating between foreign and domestic investors.  Despite this provision, the GDRC has acknowledged the absence of enforcement protecting property rights.  Congolese law related to real property rights enumerates provisions for mortgages and liens.  Real property (buildings and land) is protected and registered through the Ministry of Land’s Office of the Mortgage Registrar.  Land registration may not fully protect property owners, as records are often incomplete and legal disputes over land deals are common.  Many owners lack a clear registered title to the land.  In addition, there is no specific regulation of real property lease or acquisition.

Less than 10 percent of land have a clear property title, but the GDRC is in the process of promoting and encouraging people to regularize property titles by buying a final title called a “Record Certificate” (Certificat d’Enregistrement).  Ownership interest in personal property (e.g., equipment, vehicles, etc.) is protected and registered through the Ministry of the Interior’s Office of the Notary.

Intellectual Property Rights

Intellectual property rights (IPR) are legally protected in the DRC, but enforcement of IPR regulations is limited.  The DRC’s intellectual property laws date from the 1980s and remain in force.  However, enforcement is weak, and IPR theft is common.  The country is a signatory to a number of relevant agreements with international organizations such as the World Intellectual Property Organization (WIPO) and the World Trade Organization (WTO) and is subject to the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).  Despite being officialy party to several international agreements that set minimum standards for IP, enforcement is lax due to low capacity, and a lack of awareness among consumers and businesses.  The government does not keep a record of IPR violations.

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

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

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.

Policies Towards Foreign Direct Investment

The Eritrean government professes a desire for more and more diversified FDI.  However, governmental control of the economy and the lack of robust business and investment legal code makes private investment difficult and financially risky.

The official 1994 Investment Proclamation No. 59/1994 states that all sectors (excluding domestic retail, domestic wholesale, import, and commission agency companies without a bilateral agreement of reciprocity) are open to any investors.  In practice, this law has been suspended and the ruling Popular Front for Democracy and Justice determines those sectors in which – and defines the terms under which – private investment is accepted.

The Investment Center, established in 1998, operates directly under the Office of the President; it does not publish any information related to its activities. In the past, the Center conducted public outreach to encourage members of the Eritrean diaspora to invest in Eritrea.  The Center has not conducted a large public event since 2012; senior Center officials have stated that the time for investments is not appropriate because investment developments must follow political developments.

There is no business ombudsman in Eritrea or other mechanisms to prioritize retention or maintain dialogue with existing investors.

Limits on Foreign Control and Right to Private Ownership and Establishment

In practice, there is no fundamental “right” for either foreign or domestic private entities to establish or run business enterprises free from government interference.  All sectors of the economy are tightly controlled by the GSE, most large enterprises are either entirely or partially owned by the government or the PFDJ, and the government can order a business to close without explanation or legal recourse.

There are both statutory and de facto limits on foreign ownership and control of enterprises.  All foreign-owned mines must give a 10% stake to the Eritrean National Mining Corporation (ENAMCO), and ENAMCO has the option to buy another 30% equity in the project.  Regulations in other fields are not well established.

With some exceptions, such as mining, investment is de facto prohibited in most sectors of the economy.  The government has encouraged investment in the mining sector, and mining-specific regulations were adopted in 2011.  There are few other large foreign investments in the country.  The few foreign enterprises operating in Eritrea do so under non-public agreements negotiated directly between the companies or countries and a small group of officials from the GSE and the ruling political party.

There is no transparent GSE screening mechanism for approving inbound foreign investment.

Other Investment Policy Reviews

The GSE has undergone no recent third-party investment policy review.

Business Facilitation

The government has made no known efforts to facilitate business in Eritrea.  The government does not have a business registration website.  Businesses are required to register with six government offices (the Business License Office, the Ministry of Information, the Inland Revenue Department, the Ministry of Trade and Industry, the Ministry of Labor and Social Welfare, and the local municipality), and the registration process usually takes 84 days, according to the World Bank’s Doing Business report.

Outward Investment

Given the low level of capital accumulation in the economy, Eritrea is not a likely provider of foreign capital.  As part of its efforts to direct capital towards development, the GSE’s laws strictly control capital flows, currency exchange, and restricts domestic investors from making large investments abroad.  For example, monthly bank withdrawals are limited to 5,000 Nakfa, and dollars are generally unavailable for withdrawal.

Real Property

All real property in Eritrea is technically owned by the GSE and leased out for use to individuals.  People and businesses can be summarily ejected from their property at any time.

As all real property belongs to the state and private Eritrean citizens acquire only the right to use the land, there are no concerns over titles.  Squatters obtain no legal rights to land.

Intellectual Property Rights

Under Eritrean law, the Copyright section of the Civil Code addresses intellectual property (IP) rights. Due to a lack of transparency, it is difficult to determine if and how IP rights are protected in practice.  Legal structures are weak, and IPR protection and enforcement are rare to non-existent.  The government does not maintain publicly available statistics on law enforcement or judicial actions.  Eritrea is not included in the United States Trade Representative (USTR) Special 301 Report or the Notorious Markets List.

Capital Markets and Portfolio Investment

There is no functioning public market for capital in Eritrea, nor is there an established stock market.

The GSE fully controls the banking and financial sectors; there are no transparent mechanisms to facilitate the free flow of financial resources into portfolio investments.  There is no transparency in decisions regarding credit allocation.  Transfers of foreign currency are heavily restricted due, in part, to government concerns about foreign terrorist financing.

The GSE does not respect the International Monetary Fund’s (IMP) Article VIII, regarding restrictions on payments and transfers for international transactions.

Money and Banking System

Due to restrictions on the use and hoarding of cash, most Eritreans now have bank accounts and use banking services.  However, there are excessive regulation on banking accounts (including low monthly limits on withdrawals and restrictions on sending foreign currency abroad) and obsolete technology at the banks.  There are no automated teller machines in Eritrea and there is no infrastructure to allow the use of credit or debit cards.

It is unclear what the estimated total assets of the country’s largest banks are.  The Bank of Eritrea is the country’s central bank.  Foreign banks are not allowed to open branches or establish operations in Eritrea.  Foreigners are able to establish bank accounts, but are subject to the same monthly Nakfa withdrawal limits as Eritreans.

Eritrea does not currently have any correspondent banking relationships.  Per a 1994 regulation, locally-based entities are forbidden from maintaining foreign bank accounts.

Foreign Exchange and Remittances

Foreign Exchange

Organizations in Eritrea have often found it difficult to move foreign currency into or out of Eritrea, even to pay essential bills abroad.  All fund transfers into and out of Eritrea must go through the National Bank of Eritrea.  Some international organizations have resorted to bringing money by courier.  Local funds are not freely convertible to any world currency.  The exchange rate is determined by the government, and the rate does not fluctuate.

Remittance Policies

As the major large investments in Eritrea are non-transparent collaborations with the GSE, the companies running them may be able to remit investment income in ways not available to the general public.  Small- and medium-sized enterprises often have difficulties moving investment income abroad due to strict withdrawal limitations (for cash) and the requirement that all electronic fund transfers be executed through the National Bank of Eritrea, which can arbitrarily deny fund transfers.

Sovereign Wealth Funds

Eritrea has no sovereign wealth fund.

The few large enterprises that operate in the economy are owned and operated by the GSE, the PFDJ, or are jointly operated with the GSE under an agreement with a foreign country or company.  There is no official list of state-owned enterprises (SOEs), but they dominate all sectors, especially agribusiness, construction, import/export, and financing.  The mining sector is dominated by joint ventures between foreign companies and the state-owned ENAMCO.

SOEs operating in the domestic market receive non-market-based advantages from the GSE, such as the right to import and export through the PFDJ-controlled import/export entity, and preferential access to goods imported by other SOEs and government offices.

Privatization Program

The government has often expressed its interest in privatizing the economy but has made no efforts yet to do so and is generally believed to be suspicious of private enterprise.

Policies Towards Foreign Direct Investment

Due to COVID-19 health crisis, the government’s COVID Safe Economic Recovery Framework creates significant hurdles for foreign investors who intend to travel to Fiji.  One measure within the framework calls for an additional assessment by the government’s COVID-19 Risk Mitigation Taskforce of all new investment ventures.  The Fiji government continues to review its investment policies to improve efficiency of doing business in Fiji.  Investment Fiji is responsible for the promotion of foreign investment in the interest of national development (its previous powers as a regulator were removed in 2020).  In addition to registering and assisting with the implementation of foreign investment projects, Investment Fiji hosts information seminars for visiting foreign business delegations and participates at investment missions overseas.

Limits on Foreign Control and Right to Private Ownership and Establishment

The Foreign Investment Act (FIA) and the 2009 Foreign Investment Regulation regulate foreign investment in Fiji.  All businesses with a foreign investment component in their ownership are required to register and obtain a Foreign Investment Registration Certificate (FIRC) from Investment Fiji.

Some investment activities are reserved for Fiji nationals or are subject to restrictions.  There is no minimum investment requirement.  There are 17 reserved activities exclusively for Fiji citizens, mainly in the services sector, and eight restricted activities.  Full listings of reserved and restricted areas can be found at:  http://www.investmentfiji.org.fj/pages.cfm/for-investors/doing-business-in-fiji/foreign-investment-act-foreign-investment-regulations.html.  Restricted activities in forestry, tobacco production, tourism (cultural heritage), real estate development, construction, earthmoving, and inter-island shipping or passenger service require minimum investments ranging from USD 250,000 – 2.5 million (FJD 500,00 – 5 million).  Investment in the fisheries sector also requires a 30 percent local equity in the project.  Investment Fiji helps vet foreign investment proposals to ensure that the projects are in the interest of national development and to support implementation of projects.

Other Investment Policy Reviews

Fiji has not undergone any third-party investment policy reviews in the past three years.  In 2016, Fiji completed its second WTO trade policy review (https://www.wto.org/english/tratop_e/tpr_e/tp430_e.htm) and ratified the Trade Facilitation Agreement (TFA) in 2017.  In 2015, UNCTAD undertook a voluntary peer review of Fiji’s competition law and policy, available at http://unctad.org/en/PublicationsLibrary/ditcclp2015d5_en.pdf.

Business Facilitation

The Fiji government’s bizFiji website (www.business-fiji.com) is an information portal for new and existing businesses, as well as foreign investors.  The portal provides information on the business registration process, how to obtain construction permits, and included application forms and links to all the required agencies, including the Registrar of Companies, Fiji Revenue and Customs Services (FRCS), Fiji National Provident Fund, National Occupational Health and Safety Services, and the Fiji National University.  The government’s reforms to improve the ease and reduce the cost of doing business include eliminating the business license requirement for low-risk businesses, reducing processing times for business licenses to 48 hours, and removing several requirements for existing businesses.  Since the launch of bizFiji in 2019, the government has worked to develop a single online clearance system to improve registration processes, but inefficiencies remain.

For foreign investors, the bizFiji website is also linked to the Investment Fiji website.  The registration form and procedures, and regulations for foreign investment is available at the Investment Fiji issue of the Foreign Investment Registration Certificate (FIRC).  Applications for a FIRC and payment of the requisite application fee of USD 1,336 (FJD 2,725) needs to be submitted to Investment Fiji.  Investors need to meet the requirements listed under the Foreign Investment Act (FIA) and the 2009 Foreign Investment Regulation as well as ensure that the investment activity does not fall under the reserved and restricted activities lists.  The registration process for investment applications takes at least five working days and sometimes longer if the paperwork is incomplete.

Investors are also required to obtain the necessary permits and licenses from other relevant authorities and should be prepared for delays.  There are no special services or preferences to facilitate investment and business operations by micro, small and medium sized enterprises, or by women.

Contact: Ministry of Commerce, Trade, Tourism and Transport, Level 2 and 3, Civic Tower, Victoria Parade, Suva; Telephone: (679) 330 5411; Website:  www.mcttt.gov.fj

Outward Investment

The Reserve Bank of Fiji (RBF) tightened exchange controls and any outward investment by individuals, companies, and non-bank financial institutions, including the Fiji National Provident Fund, require clearance from the RBF.

Real Property

Land tenure and usage in Fiji is a highly complex and sensitive issue.  Fiji’s Land Sales Act of 2014 restricts ownership of freehold land inside a city or town council boundaries areas to Fijian citizens.  There are exceptions to allow foreigners to purchase strata title land, which is defined as ownership in part of a property including multi-level apartments or subdivisions.  Foreigners are still allowed to purchase, sell, or lease freehold land for industrial or commercial purposes, residential purposes within an integrated tourism development, or for the operation of a hotel licensed under the Hotel and Guest Houses Act.  The Land Sales Act also requires foreign landowners who purchase approved land to build a dwelling valued at a minimum of USD   122,600 (FJD 250,000) on the land within two years or face an annual tax of 20 percent of the land value (applied as ten percent every six months).  Freehold land currently owned by a non-Fijian can pass to the owners’ heirs and will not be deemed a sale.

Foreign landowners criticized the government of Fiji for the speed at which the act was passed and the perceived lack of consultation with landowners and developers.  The application of the Land Sales Act continues to create uncertainty among foreign investors.  The Fiji government has yet to provide full clarification of the act, such as defining what constitutes an integrated tourism development.  The limited capacity of construction and architecture firms makes it difficult to comply with the two-year time frame for building a dwelling before tax penalties set in.

According to the pre-COVID-19 World Bank’s 2020 Doing Business Report, registering property took a total of 69 days and involved four main processes, including conducting title searches at the Titles Office, presenting transfer documents for stamping at the Stamp Duty office, obtaining tax clearance on capital gains tax, and settlement at the Registrar of Titles Office.

Ethnic Fijians communally hold approximately 87 percent of all land.  Crown land owned by the government accounts for four percent while the remainder is freehold land, which private individuals or companies hold.  All land owned by ethnic Fijians, commonly referred to as iTaukei land, is held in a statutory trust by the iTaukei Land Trust Board (TLTB) for the benefit of indigenous landholding units.

To improve access to land, the government established a land bank in the Ministry of Lands under the land use decree for the purpose of leasing land from indigenous landowning units (collections of households; under the indigenous communal landowning system, land is not owned by individuals) through the TLTB and subleasing the land to individual tenants for lease periods of up to 99 years.

The constitution includes other new provisions protecting land leases and land tenancies, but observers noted that the provisions had unintended consequences, including weakening the overall legal structure governing leases.

The availability of Crown land for leasing is usually advertised.  This does not, however, preclude consideration given to individual applications in cases where land is required for special purposes.  Government leases for industrial purposes can last up to 99 years with rents reassessed every ten years.  TLTB leases for land nearer to urban locations are normally for 50-75 years. Annual rent is reassessed every five years.  The maximum rent that can be levied in both cases is six percent of unimproved capital value.  Leases also usually carry development conditions that require lessees to effect improvements within a specified time.

Apart from the requirements of the TLTB and Lands Department, town planning, conservation, and other requirements specified by central and local government authorities affect the use of land.  Investors are urged to seek local legal advice in all transactions involving land.

Intellectual Property Rights

Fiji’s copyright laws are in conformity with World Trade Organization (WTO) Trade Related Aspects of Intellectual Property (TRIPS) provisions. Copyright laws adhere to international laws but are outdated.  In 2020, the government reviewed the trademark and patent laws; however, the enforcement of these laws remains weak.  There is no protection for designs or trade secrets.

Illegal materials and reproductions of films, sound recordings, and computer programs are widely available throughout Fiji.  The government is reviewing trademark and patent laws, but capacity is a challenge.

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

Capital Markets and Portfolio Investment

The capital market is regulated and supervised by the Reserve Bank of Fiji (RBF).  Twenty companies were listed on the Suva-based South Pacific Stock Exchange (SPSE).  At the end of September 2020, market capitalization was USD 1.7 billion (FJD 3.4 billion), an annual increase of 0.6 percent compared to September 2019.  To promote greater activity in the capital market, the government lowered corporate tax rates for listed companies to ten percent and exempted income earned from the trading of shares in the SPSE from income tax and capital gains tax.  The RBF issued the Companies (Wholesale Corporate Bonds) Regulations 2021 to develop the domestic corporate bond market by providing a simplified process for the issuance of corporate bonds to eligible wholesale investors only.

Foreign investors are permitted to obtain credit from authorized banks and other lending institutions without the approval of the RBF for loans up to USD 4.9 million (FJD 10 million), provided the debt-to-equity ratio of 3:1 is satisfied.

Money and Banking System

Fiji has a well-developed banking system supervised by the Reserve Bank of Fiji.  The RBF regulates the Fiji monetary and banking systems, manages the issuance of currency notes, administers exchange controls, and provides banking and other services to the government.  In addition, it provides lender-of-last-resort facilities and regulates trading bank liquidity.

There are six commercial banks with established operations in Fiji:  ANZ Bank, Bank of Baroda, Bank of South Pacific, Bred Bank, Home Finance Corporation (HFC), and Westpac Banking Corporation, with the HFC the only locally owned bank.  Non-banking financial institutions also provide financial assistance and borrowing facilities to the commercial community and to consumers.  These institutions include the Fiji Development Bank, Credit Corporation, Kontiki Finance, Merchant Finance, and insurance companies.  As of December 2020, total assets of commercial banks amounted to USD 5.2 billion (FJD 10.7 billion).  The RBF reported that liquidity reached USD 410.4 million (FJD 836.8 million) in December 2020 and that reserves were sufficient and did not pose a risk to bank solvency.  However, the RBF also noted that existing levels of non-performing loans could rise, with the ending of moratoriums offered by financial institutions to COVID-19 affected customers.  To open a bank account, foreign investors need to provide a copy of the Foreign Investment Registration Certificate (FIRC) issued by Investment Fiji.

Foreign Exchange and Remittances

Foreign Exchange

The Reserve Bank of Fiji (RBF) tightened foreign exchange controls to safeguard foreign reserves and prevent capital flight to mitigate the impact of COVID-19.  The Fiji dollar remains fully convertible.  The Fiji dollar is pegged to a basket of currencies of Fiji’s principal trading partners, chiefly Australia, New Zealand, the United States, the European Union, and Japan.

Although no limits were placed on non-residents borrowing locally for some specified investment activities, the RBF placed a credit ceiling on lending by commercial banks to non-resident controlled business entities.

Remittance Policies

The Reserve Bank of Fiji (RBF) tightened foreign exchange controls, requiring RBF approval for any investment profit remittances.  Prior clearance of withholding tax payments on profit and dividend remittances is required from the Fiji Revenue and Customs Service.  Tax compliance may restrict foreign investors’ repatriation of investment profits and capital.  A tax clearance certificate is required for remittances above USD9,808 (FJD 20,000) and audited accounts for amounts above USD 245,200 (FJD 500,000).  The processing time for remittance applications is approximately three working days, is contingent on all the required documentation submitted to the RBF.

Sovereign Wealth Funds

The Fiji government does not maintain a sovereign wealth fund or asset management bureau in Fiji.  The country’s pension fund scheme, the Fiji National Provident Fund, which manages and invests members’ retirement savings, accounts for a third of Fiji’s financial sector assets.  The fund invests in equities, bonds, commercial paper, mortgages, real estate and various offshore investments.

State-owned enterprises (SOEs) in Fiji are concentrated in utilities and key services and industries including aerospace (Fiji Airways, Airports Fiji Limited); agribusiness (Fiji Pine Ltd); energy (Energy Fiji Limited); food processing (Fiji Sugar Corporation, Pacific Fishing Company); information and communication (Amalgamated Telecom Holdings); and media (Fiji Broadcasting Corporation Ltd).  There are ten Government Commercial Companies which operate commercially and are fully owned by the government, five Commercial Statutory Authorities (CSA) which have regulatory functions and charge nominal fees for their services, seven Majority Owned Companies, and two Minority Owned Companies with some government equity.  The SOEs that provide essential utilities, such as energy and water, also have social responsibility and non-commercial obligations. A list of SOEs is published in government’s annual budget documentation.

Aside from the CSAs, SOEs do not exercise delegated governmental powers.  SOEs benefit from economies of scale and may be favored in certain sectors.  The Fiji Broadcasting Company Ltd (FBCL) is exempt from the Media Decree, which governs private media organizations and exposes private media to criminal libel lawsuits.  In some sectors, the government has pursued a policy of opening up or deregulating various sectors of the economy.

Privatization Program

The government is pursuing public private partnership (PPP) models in energy, aviation infrastructure, and public housing, often seeking technical assistance from development partners including the International Finance Corporation to implement these arrangements and to encourage more private sector participation. The government is in negotiations with a foreign investor to further divest ownership in energy company Energy Fiji Limited (EFL), following its divestment of 20 percent of its shares in EFL to Fiji’s pension fund, the Fiji National Provident Fund (FNPF) in 2019.  Foreign investors are already partnering in public-private partnership arrangements in the health and maritime port sectors.  In 2018, the government signed the first public private partnership agreement in the medical sector with Fiji’s pension fund and an Australian company to develop, upgrade, and operate the Ba and Lautoka hospitals, the country’s two major hospitals in the western region.  The PPP arrangements are on hold to July 2021 due to COVID-19 related disruptions to travel restrictions and supply chain management.  The Ministry of Economy publishes these opportunities as Tenders or Expressions of Interest (http://www.economy.gov.fj/).

Policies Toward FDI

Kazakhstan has attracted significant foreign investment since independence. As of January 1, 2021, the total stock of foreign direct investment (by the directional principle) in Kazakhstan totaled USD 166.4 billion, primarily in the oil and gas sector. International financial institutions consider Kazakhstan to be a relatively attractive destination for their operations, and international firms have established regional headquarters in Kazakhstan.

In 2017, Kazakhstan adhered to the OECD Declaration on International Investment and Multinational Enterprises, meaning it committed to certain investment standards, including the promotion of responsible business conduct..

In its Strategic Plan of Development to 2025, the government stated that bringing up the living standards of Kazakhstan’s citizens to the level of OECD countries is one of its strategic goals.

In addition to earlier approved program documents, the President adopted a National Development Plan to 2025 in February 2021. The Plan outlines objectives and parameters of a New Economic Course announced by President Tokayev in September 2020. The Course included seven priorities: a fair distribution of benefits and responsibilities, the leading role of private entrepreneurship, fair competition, productivity growth and the development of a more technologically advanced economy, human capital development, development of a green economy, and state accountability to the society. A favorable investment climate is a part of this course. To implement his program, the President established the Supreme Council for Reforms and the Agency for Strategic Planning and Reforms. The President chairs the Supreme Council for Reforms, while Sir Suma Chakrabarti, a former President of the European Bank for Reconstruction and Development will serve as Deputy Chairman.

In January 2021, the Prime Minister announced the government’s commitment to increase the share of annual FDI in GDP from 13.2 percent of GDP in 2018 to 19 percent of GDP in 2022.

The government of Kazakhstan has incrementally improved the business climate for foreign investors. Corruption, lack of rule of law and excessive bureaucracy, however, do remain serious obstacles to foreign investment.

Over the last few years, the government has undertaken a number of structural changes aimed at improving how the government attracts foreign investment. In April 2019, the Prime Minister created the Coordination Council for Attracting Foreign Investment. The Prime Minister acts as the Chair and Investment Ombudsman. In December 2018, the Investment Committee was transferred to the supervision of the Ministry of Foreign Affairs, which took charge of attracting and facilitating the activities of foreign investors. In January 2021, the Minister of Foreign Affairs received an additional title of Deputy Prime Minister due to the expanded portfolio of the Ministry. The Investment Committee at the Ministry of Foreign Affairs takes responsibility for investment climate policy issues and works with potential and current investors, while the Ministry of National Economy and the Ministry of Trade and Integration interact on investment climate matters with international organizations like the OECD, WTO, and the United Nations Conference on Trade and Development (UNCTAD). Each regional municipality designates a representative to work with investors. Specially designated front offices in Kazakhstan’s overseas embassies promote Kazakhstan as a destination for foreign investment. In addition, the Astana International Financial Center (AIFC, ) operates as a regional investment hub regarding tax, legal, and other benefits. In 2019, the government founded Kazakhstan’s Direct Investment Fund which became resident at the AIFC and aims to attract private investments for diversifying Kazakhstan’s economy. The state company KazakhInvest, located in this hub, offers investors a single window for government services.

In 2020-2021, the government attempted to improve the regulatory and institutional environment for investors. However, these changes have sometimes been associated with an over-structured system of preferences and an enhanced government role. For example, in January 2021 the Foreign Minister suggested for consideration establishment of an additional group, the Investment Command Staff (ICS) that would make decisions on granting special conditions and extending preferences for investors signing investment agreements. This Investment Command Staff is expected to consider project proposals after their verification by KazakhInvest and the Astana International Financial Center. The government maintains its dialogue with foreign investors through the Foreign Investors’ Council chaired by the President, as well as through the Council for Improving the Investment Climate chaired by the Prime Minister.

The COVID-19 pandemic and unprecedented low oil prices caused the government to amend the country’s mid-term economic development plans. In March 2020, the government approved a stimulus package of $13.7 billion, mostly oriented at maintaining the income of the population, supporting local businesses, and implementing an import-substitution policy.

Limits on Foreign Control and Right to Private Ownership and Establishment

By law, foreign and domestic private firms may establish and own certain business enterprises. While no sectors of the economy are completely closed to foreign investors, restrictions on foreign ownership exist, including a 20 percent ceiling on foreign ownership of media outlets, a 49 percent limit on domestic and international air transportation services, and a 49 percent limit on telecommunication services. Article 16 in the December 2017 Code on Subsoil and Subsoil Use (the Code) mandates that share of the national company KazAtomProm be no less than 50% in new uranium producing joint ventures.

As a result of its WTO accession, Kazakhstan formally removed the limits on foreign ownership for telecommunication companies, except for the country’s main telecommunications operator, KazakhTeleCom. Still, to acquire more than 49 percent of shares in a telecommunication company, foreign investors must obtain a government waiver. No constraints limit the participation of foreign capital in the banking and insurance sectors. Starting in December 2020, the restriction on opening branches of foreign banks and insurance companies was lifted in compliance with the country’s OECD commitments. However, the law limits the participation of offshore companies in banks and insurance companies and prohibits foreign ownership of pension funds and agricultural land. In addition, foreign citizens and companies are restricted from participating in private security businesses.

Foreign investors have complained about the irregular application of laws and regulations and interpret such behavior as efforts to extract bribes. The enforcement process, widely viewed as opaque and arbitrary, is not publicly transparent. Some investors report harassment by the tax authorities via unannounced audits, inspections, and other methods. The authorities have used criminal charges in civil litigation as pressure tactics.

Foreign Investment in the Energy & Mining Industries

Despite substantial investment in Kazakhstan’s energy sector, companies remain concerned about the risk of the government legislating or otherwise advocating for preferences for domestic companies and creating mechanisms for government intervention in foreign companies’ operations, particularly in procurement decisions.  In 2020, developments ranged from a major reduction to a full annulment of work permits for some categories of foreign workforce (see Performance and Data Localization Requirements.)   During a March 2021 virtual meeting with international oil companies, Kazakhstan’s President urged the government to ensure legal protection and stability of investments and investment preferences. He also tasked the recently established Front Office for Investors to address investor challenges and bring them to the attention of the Prime Minister’s Council.  Moreover, Kazakhstan supported the request of oil companies to remove a discriminatory approach to fines imposed on them for gas flaring.  Under the current legislation, oil companies pay gas flaring fines several times higher than those paid by other non-oil companies.

In April 2008, Kazakhstan introduced a customs duty on crude oil and gas condensate exports, this revenue goes to the government’s budget and does not reach the National Fund.  The National Fund is financed by direct taxes paid by petroleum industry companies, other fees paid by the oil industry, revenues from privatization of mining and manufacturing assets, and from disposal of agricultural land.  The customs duty on crude oil and gas condensate exports is an indirect tax that goes to the government’s budget.  Companies that pay taxes on mineral and crude oil exports are exempt from that export duty.  The government adopted a 2016 resolution that pegged the export customs duty to global oil prices – if the global oil price drops below $25 per barrel, the duty zeros.

The Code defines “strategic deposits and areas” and restricts the government’s preemptive right to acquire exploration and production contracts to these areas, which helps to reduce significantly the approvals required for non-strategic objects.  The government approves and publishes the list of strategic deposits on its website.  The latest approved list is dated June 28, 2018: https://www.primeminister.kz/ru/decisions/28062018-389.

The Code entitles the government to terminate a contract unilaterally “if actions of a subsoil user with a strategic deposit result in changes to Kazakhstan’s economic interests in a manner that threatens national security.”  The Article does not define “economic interests.”  The Code, if properly implemented, appears to streamline procedures to obtain exploration licenses and to convert exploration licenses into production licenses.  The Code, however, appears to retain burdensome government oversight over mining companies’ operations.

Kazakhstan is committed under the Paris Climate Agreement to reduce GHG emissions 15 percent from the level of base year 1990 down to 328.3 million metric tons (mmt) by 2030.  In the meantime, Kazakhstan increased emissions 27.8 percent to 401.9 mmt in the five years from 2013 to 2018. The energy sector accounted for 82.4 percent of GHG emissions, agriculture for 9 percent, and others for 5.6 percent.  The successor of the Energy Ministry for environmental issues, Ministry of Ecology, Geology, and Natural Resources, started drafting the 2050 National Low Carbon Development Strategy in October 2019. The Concept is scheduled for submission to the government in June 2021.

In November 2020, the government adopted a National Plan for Allocation of Quotas for Greenhouse Gas (GHG) Emissions for 2021. The emissions cap (a total number of emissions allowed) is set for 159.9 million. The power sector received the highest number of allowances, or 91.4 million, for 90 power plants.  The cap for the oil and gas sector is 22.2 million for 61 installations, while 24 mining installations get 7.3 million allowances, and 21 metallurgical facilities have 29.6 million.  The combined caps for the chemical and processing sectors are 9.3 million. In February 2018, the Ministry of Energy announced the creation of an online GHG emissions reporting and monitoring system.  The system is not operational, and it is likely to be launched after the Environmental Code comes into effect in July 2021.  Some companies have expressed concern that Kazakhstan’s trading system will suffer from insufficient liquidity, particularly as power consumption and oil and commodity production levels increase.

Other Investment Policy Reviews

The OECD Investment Committee presented its second Investment Policy Review of Kazakhstan in June 2017, available at: https://www.oecd.org/countries/kazakhstan/oecd-investment-policy-reviews-kazakhstan-2017-9789264269606-en.htm.

The OECD Investment Committee presented its second Investment Policy Review of Kazakhstan in June 2017, available at: https://www.oecd.org/countries/kazakhstan/oecd-investment-policy-reviews-kazakhstan-2017-9789264269606-en.htm.

The OECD review recommended Kazakhstan undertake corporate governance reforms at state-owned enterprises (SOEs), implement a more efficient tax system, further liberalize its trade policy, and introduce responsible business conduct principles and standards. The OECD Investment Committee is monitoring the country’s privatization program, that aims to decrease the SOE share in the economy to 15 percent of GDP by 2020.

In 2019, the OECD and the government launched a two-year project on improving the legal environment for business in Kazakhstan.

Business Facilitation

The 2020 World Bank’s Doing Business Index ranked Kazakhstan 25 out of 190 countries in the “Ease of Doing Business” category, and 22 out of 190 in the “Starting a Business” category. The report noted Kazakhstan made starting a business easier by registering companies for value added tax at the time of incorporation. The report noted Kazakhstan’s progress in the categories of dealing with construction permits, registering property, getting credit, and resolving insolvency. Online registration of any business is possible through the website https://egov.kz/cms/en.

In addition to a standard package of documents required for local businesses, non-residents must have Kazakhstan’s visa for a business immigrant and submit electronic copies of their IDs, as well as any certification of their companies from their country of origin. Documents should be translated and notarized. Foreign investors also have access to a “single window” service, which simplifies many business procedures. Investors may learn more about these services here: https://invest.gov.kz/invest-guide/business-starting/registration/.

According to the ‘Doing Business’ Index, it takes 4 procedures and 5 days to establish a foreign-owned limited liability company (LLC) in Kazakhstan. This is faster than the average for Eastern Europe and Central Asia and OECD high-income countries. A foreign-owned company registered in Kazakhstan is considered a domestic company for Kazakhstan currency regulation purposes. Under the law on Currency Regulation and Currency Control, residents may open bank accounts in foreign currency in Kazakhstani banks without any restrictions.

The COVID-19 pandemic triggered new measures for easing the doing business process. In 2021, the government introduced a special three-percent retail tax for 114 types of small and medium-sized businesses. Companies can switch to the new regime voluntarily. The government also introduced an investment tax credit allowing entrepreneurs to receive tax deferrals for up to three years. As a part of his new economic policy, President Tokayev stated that prosecution or tax audits against entrepreneurs should be possible only after a respective tax court ruling.

In 2020, the government approved new measures aimed to facilitate the business operations of investors and to help Kazakhstan attract up to $30 billion in additional FDI by 2025. For example, the government introduced a new notional an investment agreement (see details in Section 4) and removed a solicitation of local regional authorities for obtaining a visa for a business-immigrant.

In order to facilitate the work of foreign investors, the government has recommended to use the law of the Astana International Financial Center (AIFC) as applicable law for investment contracts with Kazakhstan and has planned some steps, including a harmonization of tax preferences of the AIFC, the International IT park Astana Hub, Astana Expo 2017 company and Nazarbayev University. Plans on the further liberalization of a visa and migration regime, and the development of international air communication with international financial centers were suspended due to the COVID-19 pandemic.

Utilizing the advantages of the Astana International Financial Center may bring positive results in attracting foreign investments. Nonetheless, there is still room for improvement in business facilitation in the rest of Kazakhstan’s territory. For example, foreign investors often complain about problems finalizing contracts, delays, and burdensome practices in licensing. The problems associated with the decriminalization of tax errors still await full resolution, despite an order to this effect issued by the General Prosecutor’s Office in January 2020. The controversial taxation of dividends of non-residents that came into force in January 2021, has additionally raised concerns of foreign investors.

Outward Investment

The government neither incentivizes nor restricts outward investment.

Real Property

With certain sectoral exceptions, private entities, both foreign and domestic, have the right to establish and own business enterprises, buy and sell business interests, and engage in all forms of commercial activity.

Secured interests in property (fixed and non-fixed) are recognized under the Civil Code and the Land Code. All property and lease rights for real estate must be registered with the Ministry of Justice through its local service centers. According to the World Bank’s Doing Business Report, Kazakhstan ranks 24 out of 190 countries in ease of registering property.

Under Kazakhstan’s constitution, agricultural land and certain other natural resources may be owned or leased only by Kazakhstani citizens. The Land Code: (a) allows citizens and Kazakhstani companies to own agricultural and urban land, including commercial and non-commercial buildings, complexes, and dwellings; (b) permits foreigners to own land to build industrial and non-industrial facilities, including dwellings, with the exception of agricultural lands and land located in border zones; (c) authorizes the government to monitor proper use of leased agricultural lands, the results of which may affect the status of land-lease contracts; (d) forbids private ownership of: land used for national defense and national security purposes, specially protected nature reserves, forests, reservoirs, glaciers, swamps, designated public areas within urban or rural settlements, except land plots occupied by private building and premises, main railways and public roads, land reserved for future national parks, subsoil use and power facilities, and social infrastructure. The government maintains the land inventory and constantly updates its electronic data base, though the inventory data is not exhaustive. The government has also set up rules for withdrawing land plots that have been improperly or never used.

In 2015, the government proposed Land Code amendments that would allow foreigners to rent agricultural lands for up to 25 years. Mass protests in the spring of 2016 led the government to introduce a moratorium on these provisions until December 31, 2021. The moratorium is also effective on other related articles of the Land Code that regulate private ownership rights on agricultural lands. In March 2021, President Tokayev initiated changes in the legislation to ban both the sale and lease of agricultural lands to foreigners. On March 17, the Mazhilis, the lower Chamber of the Parliament, started to consider the amended legislation, according to which, foreigners, persons without citizenship, foreign legal entities and legal entities with foreign participation, international organizations, scientific centers with foreign participation, and repatriated Kazakhs cannot own and take in temporary use agricultural lands. The amendments are expected to be adopted in the first half of 2021.

Intellectual Property Rights

The legal structure for intellectual property rights (IPR) protection is relatively strong; however, enforcement needs further improvement. Kazakhstan is not currently included in the United States Trade Representative (USTR) Special 301 Report. To facilitate its accession to the World Trade Organization (WTO) and attract foreign investment, Kazakhstan continues to improve its legal regime for protecting IPR. The Civil Code and various laws protect U.S. IPR. Kazakhstan has ratified 18 of the 24 treaties endorsed by the World Intellectual Property Organization (WIPO): https://wipolex.wipo.int/en/treaties/ShowResults?country_id=97C.

Kazakhstan’s IPR legislation has improved. The Criminal Code sets out punishments for violations of copyright, rights for inventions, useful models, industrial patterns, selected inventions, and integrated circuit topographies. The law authorizes the government to target internet piracy and shut down websites unlawfully sharing copyrighted material, provided that the rights holders had registered their copyrighted material with Kazakhstan’s IPR Committee. Despite these efforts, U.S. companies and associated business groups have alleged that 73 percent of software used in Kazakhstan is pirated, including in government agencies, and have criticized the government’s enforcement efforts.

To comply with OECD IPR standards, in 2018 Kazakhstan accepted amendments to its IPR legislation. The law set up a more convenient, one-tier system of IPR registration and provided rights holders the opportunity for pre-trial dispute settlement through the Appeals Council at the Ministry of Justice. In addition, the law included IPR protection as one of the government procurement principles that should be strictly followed by government organizations. Currently, the Parliament is considering a new bill on IPR issues. The bill introduces a notion of geographical indication, a short-term (up to three years) protection of unregistered industrial designs, an “opposition” system for challenging requests for registration of trademarks, geographical indications, and appellation of origin of goods. Also, the bill is expected to make copyright collective organizations more transparent and effective and to improve regulation of patent attorneys’ activity. In 2020, Kazakhstan ratified the Protocol on Protection of Industrial Designs of the Eurasian Patent Convention from September 1994 and signed the Agreement of the Eurasian Economic Union on trademarks, service marks, and appellation of origin of goods.

Kazakhstan’s authorities conduct nationwide campaigns called “Counterfeit”, “Hi-Tech” and “Anti-Fraud” that are aimed at detecting and ceasing IPR infringements and increasing public awareness about IP issues.  In 2020, these campaigns resulted in the seizing of 4.8 thousand units of counterfeit goods. The Ministry of Justice and law enforcement agencies regularly report the results of their inspections. However, the moratorium on inspections of small and medium-sized businesses that came into force in December 2019 reduced significantly the number of IPR-related inspections in 2020.

In 2020, the Ministry of Internal Affairs initiated 14 criminal cases for copyright violations and seven administrative cases, imposing penalties of USD 5,300. In addition, regional authorities reportedly seized 3,800 units of counterfeit goods worth around USD 4,000 and identified 24 foreign websites, selling pirated software. On the border, customs officials suspended the release of counterfeited goods in the amount of USD 20.1 million.

In 2020, the government agency on investigation of economic crimes identified and closed one illegal plant that produced counterfeited pharmaceuticals. Criminals fabricated packages using known trademarks and altered the expiry dates of the drugs. Although Kazakhstan continues to make progress to comply with WTO requirements and OECD standards, foreign companies complain of inadequate IPR protection. Judges, customs officials, and police officers also lack IPR expertise, which exacerbates weak IPR enforcement.

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

Capital Markets and Portfolio Investment

Kazakhstan maintains a stable macroeconomic framework, although weak banks inhibit the financial sector’s development , valuation and accounting practices are inconsistent, and large state-owned enterprises (SOEs) that dominate the economy face challenges in preparing complete financial reporting. Capital markets remain underdeveloped and illiquid, with small equity and debt markets dominated by SOEs and lacking in retail investors. Most domestic borrowers obtain credit from Kazakhstani banks, although foreign investors often find margins and collateral requirements onerous, and it is often cheaper and easier for foreign investors to use retained earnings or borrow from their home country. The government actively seeks to attract FDI, including portfolio investment. Foreign clients may only trade via local brokerage companies or after registering at Kazakhstan’s Stock Exchange (KASE) or at the AIFC.

KASE, in operation since 1993 and with 189 listed companies, trades a variety of instruments, including equities and funds, corporate bonds, sovereign debt, international development institutions debt, foreign currencies, repurchase agreements (REPO) and derivatives. Most of KASE’s trading is comprised of money market (84 percent) and foreign exchange (10 percent). As of January1, 2021, stock market capitalization was USD 45.3 billion, while the corporate bond market was around USD 35.2 billion. The Single Accumulating Pension Fund, the key source of the country’s local currency liquidity accumulated USD 30.7 billion as of January1, 2021.

In 2018, the government launched the Astana International Financial Center (AIFC), a regional financial hub modeled after the Dubai International Financial Center. The AIFC has its own stock exchange (AIX), regulator, and court (see Part 4). The AIFC has partnered with the Shanghai Stock Exchange, NASDAQ, Goldman Sachs International, the Silk Road Fund, and others. AIX currently has 88 listings in its Official List, including 30 traded on its platform.

Kazakhstan is bound by Article VIII of the International Monetary Fund’s Articles of Agreement, adopted in 1996, which prohibits government restrictions on currency conversions or the repatriation of investment profits. Money transfers associated with foreign investments, whether inside or outside of the country, are unrestricted; however, Kazakhstan’s currency legislation requires that a currency contract must be presented to the servicing bank if the transfer exceeds USD 10,000. Money transfers over USD 50,000 require the servicing bank to notify the transaction to the authorities, so the transferring bank may require the transferring parties, whether resident or non-resident, to provide information for that notification.

Money and Banking System

As of January 1, 2021, Kazakhstan had 26 commercial banks. The five largest banks (Halyk Bank, Sberbank-Kazakhstan, Forte Bank, Kaspi Bank and Bank CenterCredit) held assets of approximately USD 47.4 billion, accounting for 64.0 percent of the total banking sector.

Kazakhstan’s banking system remains impaired by legacy non-performing loans, poor risk management, weak corporate governance practices, and significant related-party exposures.  In recent years, the government has undertaken measures to strengthen the sector, including capital injections, enhanced oversight, and expanded regulatory authorities. In 2019, the National Bank of Kazakhstan (NBK) initiated an asset quality review (AQR) of 14 major banks, which combined held 87 percent of banking assets as of April 1, 2019. According to NBK officials, the AQR showed sufficient capitalization on average across the 14 banks and set out individual corrective measure plans for each of the banks to improve risk management. As of January 2021, the ratio of non-performing loans to banking assets was 6.8 percent, down from 31.2 percent in January 2014. The COVID-19 pandemic and the fall in global oil prices may pose additional risks to Kazakhstan’s banking sector.

Kazakhstan has a central bank system led by the NBK. In January 2020, parliament established the Agency for Regulation and Development of the Financial Market (ARDFM), which assumed the NBK’s role as main financial regulator overseeing banks, insurance companies, the stock market, microcredit organizations, debt collection agencies, and credit bureaus. The NBK retains its core central bank functions as well as management of the country’s sovereign wealth fund and pension system assets. The NBK, and ARDFM as its successor, is committed to the incremental introduction of the Basel III regulatory standard. As of January 2021, Basel III methodology applies to capital and liquidity calculation with required regulatory ratios gradually changing to match the standard.  Starting December 16, 2020, as a part of WTO commitments, Kazakhstan allowed foreign banks to operate in the country via branches (previously only local subsidiaries were allowed). To open a branch, foreign banks must have international credit ratings of BBB or higher, a minimum of $20 billion in global assets, and comply with other NBK and ARDFM norms and requirements.  Foreigners may open bank accounts in local banks as long as they have a local tax registration number.

Foreign Exchange and Remittances

Foreign Exchange

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

There are no restrictions or limitations placed on foreign investors in converting, transferring, or repatriating funds associated with an investment (e.g. remittances of investment capital, earnings, loan or lease payments, or royalties). Funds associated with any form of investment may be freely converted into any world currency, though local markets may be limited to major world currencies.

Foreign company branches are treated as residents, except for non-financial organizations treated as non-residents based on previously made special agreements with Kazakhstan.  With some exceptions, foreign currency transactions between residents are forbidden. There are no restrictions on foreign currency operations between residents and non-residents, unless specified otherwise by local foreign currency legislation. Companies registered with AIFC are not subject to currency and settlement restrictions.

Kazakhstan abandoned its currency peg in favor of a free-floating exchange rate and inflation-targeting monetary regime in August 2015, although the NBK has intervened in foreign exchange markets to combat excess volatility. Kazakhstan maintains sufficient international reserves according to the IMF. As of January 1, 2021, international reserves at the NBK, including foreign currency, gold, and National Fund assets, totaled USD 94.4 billion.  

Remittance Policies

The U.S. Mission in Kazakhstan is not aware of any concerns about remittance policies or the availability of foreign exchange conversion for the remittance of profits. Local currency legislation permits non-residents to freely receive and transfer dividends, interest and other income on deposits, securities, loans, and other currency transactions with residents. However, such remittances are subject to reporting requirements. There are no time limitations on remittances; and timelines to remit investment returns depend on the internal procedures of the servicing bank. Residents seeking to transfer property or money to a non-resident in excess of USD 500,000 are required to register the contract with the NBK. 

Sovereign Wealth Funds

The National Fund of the Republic of Kazakhstan was established to support the country’s social and economic development via accumulation of financial and other assets, as well as to reduce the country’s dependence on the oil sector and external shocks. The National Fund’s assets are generated from direct taxes and other payments from oil companies, public property privatization, sale of public farmlands, and investment income. The government, through the Ministry of Finance, controls the National Fund, while the NBK acts as the National Fund’s trustee and asset manager. The NBK selects external asset managers from internationally recognized investment companies or banks to oversee a part of the National Fund’s assets.  Information about external asset managers and assets they manage is confidential. As of January 1, 2021, the National Fund’s assets were USD 58.7 billion or around 34 percent of GDP.

The government receives regular transfers from the National Fund for general state budget support, as well as special purpose transfers ordered by the President. The National Fund is required to retain a minimum balance of no less than 30 percent of GDP.

Kazakhstan is not a member of the IMF-hosted International Working Group of Sovereign Wealth Funds.

According to the National Statistical Bureau, as of January 1, 2021, the government owns 25,386 state-owned enterprises (SOEs), including all forms of SOEs, from small veterinary inspection offices, kindergardens, regional departments for the protection of competition, and regional hospitals, to large national companies controlling energy, transport, agricultural finance, and product development.

A list of SOEs is available at: https://gr5.gosreestr.kz/p/ru/gr-search/search-objects.

SOEs plays a leading role in the country’s economy. According to the 2017 OECD Investment Policy Review, SOE assets amount to USD 48-64 billion, approximately 30-40 percent of GDP; net income was approximately USD 2 billion. In order to stop an expansion of the quasi-sovereign sector, President Tokayev introduced in 2019 a moratorium on establishing new parastatal companies that will be in effect until the end of 2021. A bill on improving the business climate adopted by Parliament in April 2020 disincentivizes the establishment of new parastatal companies.

In pursuance of his New Economic Course, President Tokayev proposed in September 2020 the creation of a unified information portal that would consolidate all information about the activity of quasi-sovereign companies (SOEs), including their financial statements. If this portal is established, it would improve transparency of the quasi-sovereign sector significantly. Portfolio investors are also required to have corporate governance standards and independent boards.

Despite these positive developments, the number of SOEs in the economy remains large. The preferential status of parastatal companies is also unchanged; for example, parastatals enjoy greater access to subsidies and government support.

The National Welfare Fund Samruk-Kazyna (SK) is Kazakhstan’s largest national holding company, and manages key SOEs in the oil and gas, energy, mining, transportation, and communication sectors. At the end of 2018, SK had 317 subsidiaries and employed around 300,000 people. By some estimates, SK controls around half of Kazakhstan’s economy, and is the nation’s largest buyer of goods and services. In 2019, SK reported USD 61 billion in assets and USD 3 billion in consolidated net profit. Created in 2008, SK’s official purpose is to facilitate economic diversification and to increase effective corporate governance.

In 2018, First President Nazarbayev approved a new SK strategy which declared effective management of its companies, restructuration and diversification of assets and investment projects, and compliance with principles of sustainable development as priority goals. SK stated its adherence to international standards of SOE management and its willingness to separate the role of the state as a main owner from its regulator’s role. To follow a new strategy, early in 2020, the SK removed the Prime Minister from the Board and elected four independent directors, one of whom became the Chair of the Board. Thus, the government is now represented by three members on the Board- an Aide to the President, the Minister of National Economy, and the CEO of Samruk-Kazyna. Regardless of these positive moves, in reality political influence continues to dominate SK. First President Nazarbayev is the life-long Chair of the Managing Council of SK, with the right to take strategically important decisions on SK activity. SK has special rights, such as the ability to conclude large transactions among members of its holdings without public notification. SK enjoys a pre-emptive right to buy strategic facilities and assets and is exempt from government procurement procedures. Critically, the government can transfer state-owned property to SK, easing the transfer of state property to private owners. More information is available at http://sk.kz/ .

Regardless of these positive moves, in reality political influence continues to dominate SK. First President Nazarbayev is the life-long Chair of the Managing Council of SK, with the right to take strategically important decisions on SK activity. SK has special rights, such as the ability to conclude large transactions among members of its holdings without public notification. SK enjoys a pre-emptive right to buy strategic facilities and assets and is exempt from government procurement procedures. Critically, the government can transfer state-owned property to SK, easing the transfer of state property to private owners. More information is available at http://sk.kz/ .

In addition to SK, the government created the national managing holding company Baiterek in 2013 to provide financial and investment support to non-extractive industries and to drive economic diversification. Baiterek is comprised of the Development Bank of Kazakhstan, the Investment Fund of Kazakhstan, the Housing and Construction Savings Bank – Otbassy Bank, the National Mortgage Company, KazakhExport, the Entrepreneurship Development Fund Damu and other financial and development institutions. In 2021, following the President’s request, Baiterek joined the other quasi-sovereign holding company – KazAgro. Thus, the financing of the agricultural sector will now be in the portfolio of Baiterek. Unlike SK, the Prime Minister remains Chairof the Baiterek Board, assisted by several cabinet ministers and independent directors. As of the end of September 2020, Baiterek had USD 14.3 billion in assets and earned USD 133.5 million in net profit. Please see https://www.baiterek.gov.kz/en .

Another significant SOE is the national holding company Zerde, which is charged with creating modern information and communication infrastructure, using new technologies, and stimulating investments in the communication sector (http://zerde.gov.kz/ ).

Officially, private enterprises compete with public enterprises under the same terms and conditions. In some cases, SOEs enjoy better access to natural resources, credit, and licenses than private entities.

In its 2017 Investment Review, the OECD recommended Kazakhstani authorities identify new ways to ensure that all corporate governance standards applicable to private companies apply to SOEs. Samruk-Kazyna adopted a new Corporate Governance Code in 2015. The Code, which applies to all SK subsidiaries, specified the role of the government as ultimate shareholder, underlined the role of the Board of directors and risk management, and called for transparency and accountability.

Privatization Program

Kazakhstan has stated the aim to decrease the SOE share in the economy to 15 percent by 2020, in line with OECD averages. The goal has not yet been reached, but the government continues a large-scale privatization campaign. According to a government report, 93 percent of the 2016-2020 plan has been implemented. In 2020, the government enacted a new comprehensive privatization program for 2021-2025. The government’s reports on both campaigns are available at: https://privatization.gosreestr.kz/.

As of March 30, 2021, out of 1,748 organizations planned for privatization, 729 had been sold for USD 1.7 billion. The government sells small, state owned and municipal enterprises through electronic auctions. The public bidding process is established by law. By law and in practice, foreign investors may participate in privatization projects. However, foreign investors may experience challenges in navigating the process.

SK has an important role in the privatization campaign and as of March 2021 had sold full or partial stakes in 88 subsidiaries of large national companies operating in the energy, mining, transportation, and service sectors. 53 subsidiaries have been liquidated or reorganized. In June 2020, SK completed the privatization of 25 percent of KazAtomProm by selling the remaining 6.28 percent of common shares via a dual-listed IPO on the London Exchange and the Astana International Stock Exchange. Although the pandemic affected the preliminary privatization timelines, SK plans to offer institutional investors non-controlling shares in eight national companies via initial public offerings (IPOs), secondary public offerings (SPO) and sale to strategic investors. These companies are: state oil company KazMunaiGas, Air Astana, national telecom operator Kazakhtelecom, railway operator Kazakhstan Temir Zholy, KazPost, and Samruk–Energy, Tau-Ken Samruk and Qazaq Air.

Policies Towards Foreign Direct Investment

The Lao government officially welcomes both domestic and foreign investment as it seeks to keep growth rates high and graduate from Least Developed Country status by 2026.  The pace of foreign investment has increased over the last several years.  According to Lao government statistics, mining and hydropower account for 95.7 percent of Foreign Direct Investment (FDI), and agriculture accounted for only 2 percent of FDI in 2019.  China, Thailand, France, Vietnam, and Japan are the largest sources of foreign investment, with China accounting for a significant share of all FDI in Laos.  The government’s Investment Promotion Department encourages investment through its website www.investlaos.gov.la, and the government also attempts to improve the business environment by facilitating a constructive dialogue annually with the private sector and foreign business chambers through the Lao Business Forum, which is managed by the Lao National Chamber of Commerce and Industry LNCCI).

The 2009 Law on Investment Promotion was amended in November 2016, with 32 new articles introduced and 59 existing articles revised.  Notably, the new law, an English version of which can be found at www.investlaos.gov.la, clarifies investment incentives, transfers responsibility for SEZs from the Prime Minister’s office to the Ministry of Planning and Investment (MPI), and removes strict registered capital requirements for opening a business, deferring instead to the relevant ministry.  Foreigners may invest in any sector or business except in cases where the government deems the investment to be detrimental to national security, health, or national traditions, or that have a negative impact on the natural environment.  Specifically, Article 12 (value-added tax and duty incentives) was improved in 2019 as the government wants to provide a mechanism to facilitate investment towards activities that enable production and export.  Nevertheless, even in cases where full foreign ownership is permitted, many foreign companies seek a local partner.  Companies involved in large FDI projects, especially in mining and hydropower, often either find it advantageous or are required to give the government partial ownership.

Foreign investors are typically required to go through several procedural steps prior to commencing operations.  Many foreign business owners and potential investors claim the process is overly complex and regulations are erratically applied, particularly to foreigner investors.  Investors also express confusion about the roles of different ministries, as multiple ministries become involved in the approval process.  In the case of general investment licenses (as opposed to concessionary licenses, which are issued by MPI, foreign investors are required to obtain multiple permits, including an annual business registration from the Ministry of Industry and Commerce (MOIC), a tax registration from the Ministry of Finance, a business logo registration from the Ministry of Public Security, permits from each line ministry related to the investment (i.e., MOIC for manufacturing, and Ministry of Energy and Mines for power sector development), appropriate permits from local authorities, and an import-export license, if applicable.  Obtaining the necessary permits can be challenging and time consuming, especially in areas outside the capital.

There are several possible vehicles for foreign investment.  Foreign partners in a joint venture must contribute at least 30 percent of the company’s registered capital.  Wholly foreign-owned companies may be entirely new or a branch of an existing foreign enterprise.  Equity in medium and large-sized SOEs can be obtained through a joint venture with the Lao government.

Reliable statistics are difficult to obtain, yet with the slowdown of the world economy, there is no question that foreign investment has begun to fluctuate in comparison to previous years.  According to the United Nations Conference on Trade and Development (UNCTAD), FDI inflows to Laos decreased 58 percent from USD 1.3 billion in 2018 to USD 557 million in 2019. Laos received around USD 1.07 billion in FDI from China in 2019.  Total FDI in Laos has increased from USD 5.7 billion in 2016 to USD 10 billion in 2019.

Limits on Foreign Control and Right to Private Ownership and Establishment

As discussed above, despite the fact that foreigners may invest in most sectors or businesses (subject to previously noted exceptions), many foreign companies seek a local partner in order to navigate byzantine official and unofficial processes.  Companies involved in large FDI projects, especially in mining and hydropower, often either find it advantageous or are required to give the government partial ownership.

Other Investment Policy Reviews

The OECD released its most recent investment policy review of Laos on July 11, 2017.  More details can be found at http://www.oecd.org/daf/inv/investment-policy/oecd-investment-policy-reviews-lao-pdr-2017-9789264276055-en.htm

Business Facilitation

Laos does not have a central business registration website yet, but the Ministry of Industry and Commerce (MOIC) has improved its online enterprise registration site, http://www.erm.gov.la, to accelerate the registration process.  As discussed above, the average time to attain an Enterprise Registration Certificate for general business activities decreased from 174 to 17 days. Nonetheless, the timeline and process for controlled and concession activities (see  https://www.laotradeportal.gov.la/kcfinder/upload/files/Legal_1571216364.pdf for a list) could vary considerably, as it requires the engagement of different government agencies to issue an operating license.  As a result, many investors and even locals often hire consultancies or law firms to shepherd the labor-intensive registration process.

The Lao government has attempted to streamline business registration through the use of a one-stop shop model.  Registration for general business activities can be done at the Department of Enterprise Registration and Management offices, MOIC (see http://www.erm.gov.la for more details), while the service for activities requiring a government concession is through the MPI.  For investment in SEZs, one-stop registration is run through the MPI or in special one-stop service offices within the SEZs themselves (under the authority of the MPI).

To promote and facilitate domestic and foreign investment, the Prime Minister issued Order 02 and Order 03 in 2018 and 2019 respectively to reform the ease of doing business and improve services on investment and operational licenses. This includes the improvement of the One Stop Service system and conducting business implementation associated with transparency in a uniform and timely manner.  The government also encourages the participation of both domestic and foreign investors to develop infrastructure and public services delivery projects by issuing a public-private partnership (PPP) decree in 2020 aiming to boost economic growth.

So far, business owners give the one-stop shop concept mixed reviews.  Many acknowledge that it is an improvement, but describe it as an incomplete reform with several additional steps that must still be taken outside of the single stop. Businesses also complain that there are often different registration requirements at the central and provincial levels.

Outward Investment

The Lao government does not actively promote, incentivize, or restrict outward investment.

Real Property

In 2020, the government published the revised Law on Land, which is available at https://www.laoofficialgazette.gov.la/index.php?r=site/index.  While restriction on the ownership rights of foreigners towards land remains unchanged, the revised law allows immovable properties to be owned and invested in by foreign nationals.  This significant change in the regulatory framework is expected to accelerate investment and development in the Lao PDR’s real estate sector.

Apart from the Land Law, Article 16 of the 2016 Law on Investment Promotion allows investors to obtain land for use through long-term leases or as concessions, and allows the ownership of leases and the right to transfer and improve leasehold interests.  Government approval is not required to transfer property interests, but the transfer must be registered and a registration fee paid.  According to the World Bank’s Doing Business Report, Laos ranked 88^th out of 190 countries in terms of registering property in 2020.

Under existing law, a creditor may enforce security rights against a debtor and the concept of a mortgage does exist.  The Lao government is currently engaged in a land parceling and titling project, but it remains difficult to determine if a piece of property is encumbered in Laos.  Enforcement of mortgages is complicated by the legal protection given mortgagees against forfeiture of their sole place of residence.

Laos provides for secured interests in moveable and non-moveable property under the 2005 Law on Secured Transactions and a 2011 implementing decree from the Prime Minister.  In 2013, the State Assets Management Authority at the Ministry of Finance launched a new Secured Transaction Registry (STR), intended to expand access to credit for individuals and smaller firms.  The STR allows for registration of movable assets such as vehicles and equipment so that they may be easily verified by financial institutions and used as collateral for loans.

Outside of urban areas, land rights can be even more complex.  Titles and ownership are not clear, and some areas practice communal titling.

Intellectual Property Rights

Intellectual property protection in Laos is weak, but steadily improving.  The USAID-funded Lao PDR-U.S. International and ASEAN Integration (USAID LUNA II) project assisted the Lao government’s efforts to increase its capacity in the area of IPR and to progress on the IPR-related commitments undertaken as a part of Laos’ 2013 WTO accession package.  USAID LUNA II worked with the Ministry of Science and Technology’s Department of Intellectual Property to establish an online portal that provides detailed information regarding the registration of copyrights, trademarks, Geographic Indicators and Plant Varieties, https://dip.gov.la.  Interested individuals can use the portal to complete the application forms online.  The portal officially launched in February 2019.  Additionally, USAID LUNA II provided technical support to the Lao government in amending the Law on Intellectual Property.

The government announced the dissolution of the Ministry of Science and Technology on February 2021.  Consequently, the MOIC is now responsible for the issuance of patents, copyrights, and trademarks.  Laos is a member of the ASEAN Common Filing System on patents but lacks qualified patent examiners. The bilateral Intellectual Property Rights (IPR) agreement between Thailand and Laos dictates that a patent issued in Thailand also be recognized in Laos.

Laos is a member of the World Intellectual Property Organization (WIPO) Convention and the Paris Convention on the Protection of Industrial Property but has not yet joined the Berne Convention on Copyrights.

In 2011 the National Assembly passed a comprehensive revision of the Law on Intellectual Property which brings it into compliance with WIPO and Trade-Related Aspects of Intellectual Property standards (TRIPS).  Amendments to the 2011 Law on Intellectual Property were made public in May 2018.  The consolidation of responsibility for IPR under the Ministry of Science and Technology is a positive development, but the Ministry lacks enforcement capacity.

Laos is not listed in USTR’s Special 301 Report or the Notorious Markets report.

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

Capital Markets and Portfolio Investment

Laos does not have a well-developed capital market, although government policies increasingly support the formation of capital and free flow of financial resources.  The Lao Securities Exchange (LSX) began operations in 2011 with two stocks listed, both of them state-owned – the Banque Pour l’Commerce Exterieur (BCEL), and the power generation arm of the electrical utility, Electricite du Laos – Generation (EDL-Gen).  In 2012, the Lao government increased the proportion of shares that foreigners can hold on the LSX from 10 to 20 percent.  As of March 2021, there are eleven companies listed on the LSX: BCEL, EDL-Gen, Petroleum Trading Laos (fuel stations), Lao World (property development and management), Souvanny Home Center (home goods retail), Phousy Construction and Development (Construction and real estate development), Lao Cement (LCC), Mahathuen Leasing (leasing), Lao Agrotech (palm oil plantation and extraction factory), Vientiane Center (property development and management), and Lao ASEAN Leasing (LALCO) ( financing and leasing).  News and information about the LSX is available at http://www.lsx.com.la/.

Businesses report that they are often unable to exchange kip into foreign currencies through central or local banks.  Analysts suggest that concerns about dollar reserves may have led to temporary problems in the convertibility of the national currency.  Private banks allege that the Bank of Lao PDR withholds dollar reserves.  The Bank of Lao PDR alleges that the private banks already hold sizable reserves and have been reluctant to give foreign exchange to their customers in order to maintain unreasonably high reserves.  The tightness in the forex market led to a temporary 9.1 percent divergence between official and gray-market currency rates in December 2020, and since 2017 the Lao kip has depreciated against both the dollar and Thai baht.

Lao and foreign companies alike, and especially small- and medium-sized enterprises (SMEs), note the lack of long-term credit in the domestic market.  Loans repayable over more than five years are very rare, and the choice of credit instruments in the local market is limited.  The Credit Information Bureau, developed to help inject more credit into markets, still has very little information and has not yet succeeded in mitigating lender concerns about risk.

Money and Banking System

The banking system is under the supervision of the Bank of Lao PDR, the nation’s central bank, and includes more than 40 banks, most of them commercial.  Private foreign banks can establish branches in all provinces of Laos.  ATMs have become ubiquitous in urban centers.  Technical assistance to Laos’ financial sector has led to some reforms and significant improvements to Laos’ regulatory regime on anti-money laundering and countering the financing of terrorism, but overall capacity within the financial governance structure remains poor.

The banking system is dominated by large, government-owned banks.  The health of the banking sector is difficult to determine given the lack of reliable data, though banks are widely believed to be poorly regulated and there is broad concern about bad debts and non-performing loans that have yet to be fully reconciled by the state-run banks, in particular.  The IMF and others have encouraged the Bank of Lao PDR to facilitate recapitalization of the state-owned banks to improve the resilience of the sector.

While publicly available data is difficult to find, non-performing loans are widely believed to be a major concern in the financial sector, fueled in part by years of rapid growth in private lending.  The government’s fiscal difficulties in 2013 and 2014 led to non-payment on government infrastructure projects.  The construction companies implementing the projects in turn could not pay back loans for capital used in construction.  Many analysts believe the full effects of the government’s fiscal difficulties have not yet worked their way through the economy.  In recent years, Laos is projected to continue running a budget deficit of 7.6 percent, which coupled with rising public or publicly held debt estimated to reach 69 percent of GDP, add to concerns about Laos’ fiscal outlook.  In 2018 Laos passed a new law on Public Debt Management aimed at reducing the debt-to-GDP ratio in the coming years.

Foreign Exchange and Remittances

Foreign Exchange

There are no published, formal restrictions on foreign exchange conversion, though restrictions have previously been reported, and because the market for Lao kip is relatively small, the currency is rarely convertible outside the immediate region.  Laos persistently maintains low levels of foreign reserves, which are estimated to cover only 1.1 months’ worth of total imports.  The reserve buffer is expected to remain relatively low due to structurally weak export growth in the non-resource sector and debt service payments.  The decline in reserves was due to a drawdown of government deposits primarily for external debt service payments, some intervention in the foreign exchange market to manage the volatility of the currency (notwithstanding a more flexible currency), and financing the continuing current account deficit. The Bank of the Lao PDR (BOL) occasionally imposes daily limits on converting funds from Lao kip into U.S. dollars and Thai baht, or restricts the sectors able to convert Lao kip into dollars, sometimes leading to difficulties in obtaining foreign exchange in Laos.

In order to facilitate business transactions, foreign investors generally open commercial bank accounts in both local and foreign convertible currency at domestic and foreign banks in Laos.  The Enterprise Accounting Law places no limitations on foreign investors transferring after-tax profits, income from technology transfer, initial capital, interest, wages and salaries, or other remittances to the company’s home country or third countries provided that they request approval from the Lao government.  Foreign enterprises must report on their performance annually and submit annual financial statements to the Ministry of Planning and Investment (MPI).

According to a recent report from Laos’ National Institute for Economic Research (NIER), the increasing demand for USD and Thai baht for the import of capital equipment for projects and consumer goods,  coupled with growing demand for foreign currency to pay off foreign debts has resulted in a depreciation of the exchange rate in 2020.  The official nominal kip/U.S. dollar reference rate depreciated 6.23 percent  in 2020, while the kip/baht exchange rate depreciated  8.15 percent.

Remittance Policies

There have been no recent changes to remittance law or policy in Laos.  Formally, all remittances abroad, transfers into Laos, foreign loans, and payments not denominated in Lao kip must be approved by the BOL.  In practice, many remittances are understood to flow into Laos informally, and relatively easily, from a sizeable Lao workforce based in Thailand.  Remittance-related rules can be vague and official practice is reportedly inconsistent.

Sovereign Wealth Funds

There are no known sovereign wealth funds in Laos.

The Lao government maintains ownership stakes in key sectors of the economy such as telecommunications, energy, finance, airlines, and mining.  Where state interests conflict with private ownership, the state is in a position of advantage.

There is no centralized, publicly available list of Lao State-Owned Enterprises (SOEs).  The Lao government’s most recent figures report that there are approximately 152 SOEs in Lao PDR.  133 SOEs are 51 – 100 percent owned by the state, and the registered capital is more than  USD 26 billion.  At the end of 2017 the total assets of 60 SOEs managed by the State Property Management Department of the Ministry of Finance was more than USD13 billion (80.51 percent of GDP).  The net profit from SOEs was around USD156 million of which USD105 million was in government dividends.

The government has not specified a code or policy for its management of SOEs and has not adopted OECD guidelines for Corporate Governance of SOEs.  There is no single government body that oversees SOEs.  Several separate government entities exercise SOE ownership in different industries.  SOE senior management does not uniformly report to a line minister.  Comprehensive information on boards of directors or their independence is not publicly available.  While there is scant evidence one way or the other, private businesses generally assume that court decisions would favor an SOE over another party in an investment dispute.

Privatization Program 

There is no formal SOE privatization program, though Prime Minister Thongloun has openly discussed subjecting some SOEs to greater competition and possible privatization, and the government has over the past several years occasionally floated ideas for increasing private ownership in some SOEs through partial listings on the LSX, or through spinning off and privatizing parts of others.  In the near future, the new government might take concrete action regarding this matter in order to accelerate investment and improve SOE performance.

Policies Towards Foreign Direct Investment

The Nicaraguan government seeks foreign direct investment to project normalcy and international support in a time when foreign investment has all but stopped following the government’s violent suppression of peaceful protests starting in April 2018. As traditional sources of foreign direct investment fled the ongoing political crisis, the government has increasingly pursued foreign investment from other countries such as Iran and China. Investment incentives target export-focused companies that require large amounts of unskilled or low-skilled labor.

In general, there are local laws and practices that harm foreign investors, but few that target foreign investors in particular. Investors should be aware that local connections with the government are vital to success. Investors have raised concerns that regulatory authorities act arbitrarily and often favor one competitor over another. Foreign investors report significant delays in receiving residency permits, requiring frequent travel out of the country to renew visas.

ProNicaragua, the country’s investment and export promotion agency, has all but halted its investment promotion activities. It has virtually no clients due to the ongoing political crisis. ProNicaragua, already heavily politicized, became more so after President Ortega installed his son, Laureano Ortega (who was designated for sanctions by the Office of Foreign Assets Control (OFAC)), as the organization’s primary public face. ProNicaragua formerly provided information packages, investment facilitation, and prospecting services to interested investors. For more information, see http://www.pronicaragua.org .

Personal connections and affiliation with industry associations and chambers of commerce are critical for foreigners investing in Nicaragua. Prior to the crisis, the Superior Council of Private Enterprise (COSEP) had functioned as the main private sector interlocutor with the government through a series of roundtable and regular meetings. These roundtables have ceased since the onset of Nicaragua’s 2018 crisis, as has collaboration between the government, private sector, and unions. Though municipal and ministerial authorities may enact decisions relevant to foreign businesses, all actions are subject to de facto approval by the Presidency.

The absence of commercial international flights—caused in part by the COVID-19 pandemic— significantly hinders international investment. Although a few commercial airlines are operating flights to and from Nicaragua, the government only permits those airlines to operate under charter flight regulations, including providing the government with full passenger manifests 36 hours before the arrival or departure of each flight. Currently there is only one non-stop flight per day between the United States and Nicaragua, with the exception of Saturday, when there are two non-stop flights to Miami.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities have the right to establish and own business enterprises and engage in all forms of remunerative activity. Any individual or entity may make investments of any kind. In general, Nicaraguan law provides equal treatment for domestic and foreign investment. There are a few exceptions imposed by specific laws, such as the Border Law (2010/749), which prohibits foreigners from owning land in certain border areas.

Investors should be cautious of the 2020 Foreign Agents Law—also commonly referred to as “Putin’s Law”—which places onerous reporting and registration burdens on all organizations receiving funds or direction from abroad. While the law purportedly exempts purely business entities, some companies have been required to register or end their social responsibility efforts to avoid scrutiny. The process to register as a foreign agent is overtly politicized, with the government outright refusing to register some entities for their perceived political leanings.

Nicaragua allows foreigners to be shareholders of local companies, but the company representative must be a Nicaraguan citizen or a foreigner with legal residence in the country. Many companies satisfy this requirement by using their local legal counsel as a representative. Legal residency procedures for foreign investors can take up to eighteen months and require in-person interviews in Managua.

The government can limit foreign ownership for national security or public health reasons under the Foreign Investment Law. The government requires all investments in the petroleum sector include one of Nicaragua’s state-owned enterprises as a partner. Similar requirements are in place for the mining sector as well.

The government does not formally screen, review, or approve foreign direct investments. However, President Daniel Ortega and the executive branch maintain de facto review authority over any foreign direct investment. This review process is not transparent.

Other Investment Policy Reviews

Nicaragua had a trade policy review with the WTO in 2021. The trade policy review did not resolve the many informal trade barriers faced by importers in Nicaragua.

Business Facilitation

The government is eager to draw more foreign investment to Nicaragua. Its business facilitation efforts focus primarily on one-on-one engagement with potential investors, rather than a systematic whole-of-government approach.

Nicaragua does not have an online business registration system. Companies must typically register with the national tax administration, social security administration, and local municipality to ensure the government can collect taxes. Those registers are typically not available to the public. Investors should be aware the social security system is close to insolvency, having engaged in a series of “investments” over the past decade that funnel social security funds into the hands of Ortega insiders. The government has sought to close the shortfalls by increasing social security taxes and contributions. This has caused many workers to flee the social security system to the informal sector, which economists estimate hold between 70 and 90 percent of Nicaragua’s workers.

According to the Ministry of Growth, Industry, and Trade (MIFIC), the process to register a business takes a minimum of 14 days. In practice, registration usually takes more time. Establishing a foreign-owned limited liability company takes eight procedures and 42 days.

Outward Investment

Nicaragua does not promote or incentivize outward investment and does not restrict domestic investors from investing abroad.

Real Property

Property rights and enforcement are notoriously unreliable in Nicaragua. The government regularly fails to enforce court decisions with respect to seizure, restitution, or compensation of private property. Legal claims are subject to non-judicial considerations and members of the judiciary, including those at senior levels, are widely believed to be corrupt or subject to political pressure. During the upheaval starting on April 18, 2018, members of the ruling Sandinista National Liberation Front (FSLN) party illegally took over privately owned lands, with implicit and explicit support by municipal and national government officials. Some land seizures were politically targeted and directed against individuals considered independent or against the ruling party. Under Ortega’s first government in the 1980s, the expropriation of 28,000 properties in Nicaragua from both Nicaraguans and foreign investors resulted in a large number of claims and counter claims involving real estate. Property registries suffer from years of poor recordkeeping, making it difficult to establish a title history, and in 2019 the Supreme Court modified the property registry rules to prohibit most from accessing these records. Mortgages and liens exist, but the recording system is not reliable.

Investors should conduct extensive due diligence and extreme caution before investing in real property. Unscrupulous individuals have engaged in protracted confrontations with U.S. investors to wrest control of prime properties, in particular in tourist areas. Judges and municipal authorities are known to collude with such individuals, and a cottage industry supplies false titles and other documents to those who scheme to steal land. In the Autonomous Caribbean Region, communal land cannot be legally purchased, although individuals sell communal land and lawyers and notaries will knowingly extend the apparent correct paperwork, only to have property buyers be stripped of their property by communal authorities.

Those interested in purchasing property in Nicaragua should seek experienced legal counsel early in the process. The Capital Markets Law (2006/587) provides a legal framework for securitization of movable and real property. There are no specific restrictions regarding foreign or non-resident investors aside from certain border and other properties considered important to national security.

Given the state of the public records registry, it is not possible to determine what percentage of land does not have clear title. There is no defined government effort to resolve this. Squatters can obtain ownership of unoccupied property, particularly if they are government-backed.

Intellectual Property Rights

Nicaragua established standards for the protection and enforcement of intellectual property rights (IPR) through CAFTA-DR implementing legislation consistent with U.S. and international intellectual property standards. While the written legal regime for protection of IPR in Nicaragua is adequate, enforcement has been limited. Piracy of optical media and trademark violations are common. The United States also has concerns about the implementation of Nicaragua’s patent obligations under CAFTA-DR, including: the mechanism through which patent owners receive notice of submissions from third parties; how the public can access lists of protected patents; and the treatment of undisclosed test data.

On March 24, 2020, the National Assembly approved two reforms to Law 1024 on the intellectual property registry and Patent Law. Members of the National Assembly’s Economic Commission emphasized updates to the fees for registering copyrights and patents, leading observers to assume the reforms are focused on continuing to raise funds to run the government amidst the ongoing political crisis.

Nicaragua does not publicly report on seizures of counterfeit goods and is not listed in the U.S. Trade Representative’s 2021 Special 301 Report or its 2020 Review of Notorious Markets for Piracy and Counterfeiting.

For additional information about national laws and points of contact at local IP offices, please see the World Intellectual Property Organization’s country profiles at http://www.wipo.int/directory/en/ .

Capital Markets and Portfolio Investment

There are no restrictions on foreign portfolio investment. Nicaragua does not have its own equities market and there is no regulatory structure to facilitate publicly held companies. There is a small bond market that traffics primarily in government bonds but also sells some corporate debt to institutional investors. In 2019 and 2020 this market has traded less than only 10 percent of the volume from before the political-economic crisis. The Superintendent of Banks and Other Financial Institutions (SIBOIF) supervises this fledgling market.

New policies threaten the free flow of financial resources into the product and factor markets, as well as foreign currency convertibility. Banks must now request foreign currency purchases in writing, 48 hours in advance, and the BCN reserves the right to arbitrarily deny these requests.

To shore up liquidity, banks have sharply restricted lending, increased interest rates, and implemented stricter collateral standards. The overall size and depth of Nicaragua’s financial markets and portfolio positions are very limited.

Money and Banking System

While the banking system has grown and developed in the past two decades, Nicaragua remains underbanked relative to other countries in the region. Only 19 percent of Nicaraguans aged 15 or older have bank accounts, and only 8 percent have any savings in such accounts, approximately half the rate of other countries in the region according to World Bank data. One-third of Nicaraguans continue to save their money in their home or other location while 49 percent have no savings. Nicaragua also has one of the lowest mobile banking rates in Central America.

After the sociopolitical crisis sharply slashed the National Financial System in 2018, the banking sector recovered slightly in 2019 and 2020. Liquidity ratios dipped 6 percent year-on-year to 41 percent (six percent less than 2019 levels) suggesting a credit portfolio recovery. However, the overall credit portfolio continued to contract, registering a $271 million reduction compared to 2019. The ratio of non-performing loans to banking sector assets reached 17 percent, five percent higher than 2019. The banking sector remains fragile and vulnerable to sociopolitical uncertainty.

The banking industry remains conservative and highly concentrated, with four banks (BANPRO, LAFISE Bancentro, BAC, and FICOHSA) constituting 77 percent of the country’s market share. The crisis sparked large withdrawals of deposits from the banking system. Those withdrawals have stabilized but total assets still lag pre-crisis levels—as of December 2020, the financial system had total assets worth $4.3 billion, a 10 percent increase over 2019 ($3.9 billion) but 22 percent lower than in March 2018 ($5.5 billion).

On April 17, 2019, the Department of Treasury designated BANCORP—a subsidiary of ALBA de Nicaragua (ALBANISA), a joint venture between the State-owned oil companies of Nicaragua (49%) and Venezuela (51%)—for money laundering and corruption. On April 22, BANCORP presented its dissolution to SIBOIF. BANCORP’s closure was secretive and outside the legal framework that governs financial institutions in Nicaragua.

The Central Bank of Nicaragua (BCN) was established in 1961 as the regulator of the monetary system with the sole right to issue the national currency, the Córdoba. Foreign banks can open branches in Nicaragua. The number of correspondent banking relationships with the United States shrank during the crisis as Wells Fargo Bank withdrew altogether and Bank of America withdrew correspondent services from a local bank. Recent amendments to the “Consumer Protection Law,” could force local banks to service suspicious account holders—including persons designated under international sanctions regimes—jeopardizing correspondent banking relationships.

Foreigners can open bank accounts if they are legal residents in the country. The Foreign Investment Law allows foreign investors residing in the country to access local credit and local banks have no restrictions accepting property located abroad as collateral.

Foreign Exchange and Remittances

Foreign Exchange

Nicaragua is a highly dollarized economy. The Foreign Investment Law (2000/344) and the Banking, Nonbank Intermediary, and Financial Conglomerate Law (2005/561) allow investors to convert freely and transfer funds associated with an investment. CAFTA-DR ensures the free transfer of funds related to a covered investment. However, as international sanctions target the Ortega regime’s corruption and money-laundering activities, investors should be aware that transactions with the Nicaraguan government may lead banks to reject related transactions. Transfers of funds over $10,000 requires additional paperwork and due diligence.

Local financial institutions freely exchange U.S. dollars and other foreign currencies, although there are reports that SIBOIF has taken steps to ensure more Nicaraguan Córdobas are in circulation to shore up the local currency. In October 2018, the BCN notified banks that in place of an on-line automated clearing house for foreign currency purchases, banks must now request such purchases in writing, 48 hours in advance, and provide the BCN with the names of savers who want to withdraw their foreign currency deposits, as well as the amount each individual requests.

The BCN adjusts the official exchange rate daily according to a crawling peg that devalues the Córdoba against the U.S. dollar at an annual rate. The devaluation rate remained stable at 5 percent from 2004 until October 28, 2019, when the BCN announced it would devalue the Córdoba by only three percent against the U.S. Dollar. On November 25, 2020, the BCN announced yet another downward adjustment in the official exchange rate, devaluing the Córdoba by another two percent. The official exchange rate as of December 31, 2020, was 34.82 Córdobas to one U.S. dollar. The daily exchange rate can be found on the BCN’s website. 

Remittance Policies

There are no limitations on the inflow or outflow of funds for remittances or access to foreign exchange for remittances. However, some U.S. and local banks refuse to process any transfers abroad by government officials, agencies, or State-owned entities (SOE) due to the high risk of corruption and laundering.

Sovereign Wealth Funds

Nicaragua does not have a sovereign wealth fund.

It is virtually impossible to identify the number of companies that the Nicaraguan government owns or controls, as they are not subject to any regular audit or accounting measures and are not fully captured by the national budget or other public documents. The Nicaraguan government uses a vast network of front men to control companies. Even the SOEs that the government officially owns are not transparent nor subject to oversight. Many of Nicaragua’s SOEs and quasi-SOEs were established using the now-OFAC-sanctioned ALBANISA. The Ortega family used ALBANISA funds to purchase television and radio stations, hotels, cattle ranches, electricity generation plants, and pharmaceutical laboratories. ALBANISA’s large presence in the Nicaraguan economy and its ties to the government put companies trying to compete in industries dominated by ALBANISA or government-managed entities at a disadvantage. On December 21, 2020, the government nationalized Nicaragua’s main electricity distributor Disnorte-Dissur, which was previously owned by ALBANISA (although this ownership was obscured through a presumed Spanish strawman company).

On January 28, 2019, OFAC designated PDVSA and as a result all assets and subsidiary companies of PDVSA operating in Nicaragua are subject to the same restrictions as those in Venezuela. This designation includes ALBANISA and its subsidiaries. For years, President Daniel Ortega and Vice President Rosario Murillo have engaged in corrupt deals via PDVSA that have pilfered the public resources of Nicaragua for private gain. U.S. persons should be cautious about doing business with Nicaraguan companies, which may be owned or controlled by OFAC-blocked entities such as ALBANISA.

The government owns and operates the National Sewer and Water Company (ENACAL), National Port Authority (EPN), National Lottery, and National Electricity Transmission Company (ENATREL). Private sector investment is not permitted in these sectors. In sectors where competition is allowed, the government owns and operates the Nicaraguan Insurance Institute (INISER), Nicaraguan Electricity Company (ENEL), Las Mercedes Industrial Park, Nicaraguan Food Staple Company (ENABAS), the Nicaraguan Post Office, the International Airport Authority (EAAI), the Nicaraguan Mining Company (ENIMINAS) and Nicaraguan Petroleum Company (Petronic). In February 2020, in the aftermath of the OFAC designation of state-owned petroleum distributor Distribuidor Nicaraguense de Petroleo (DNP), the government created overnight four new entities: the Nicaraguan Gas Company (ENIGAS); the Nicaraguan Company to Store and Distribute Hydrocarbons (ENIPLANH); the Nicaraguan Company for Hydrocarbon Exploration (ENIH); and the Nicaraguan Company to Import, Transport, and Commercialize Hydrocarbons (ENICOM).

Through the Nicaraguan Social Security Institute (INSS), the government owns a pharmaceutical manufacturing company, and other companies and real estate holdings. The Military Institute of Social Security (IPSM), a state pension fund for the Nicaraguan military, controls companies in the construction, manufacturing, and services sectors. Other companies have unclear ownership structures that likely include at least a minority ownership by the Nicaraguan government or its officials. There are few mechanisms to ensure the transparency and accountability of state business decisions. There is no comprehensive published list of SOEs.

State-controlled companies receive non-market-based advantages, including tax exemption benefits not granted to private actors. In some instances, these companies are given monopolies through implementing legislation. In other instances, the government uses formal and informal levers to advantage its businesses.

Privatization Program

Nicaragua does not have an active privatization program; on the contrary, the government attempts to dominate as many sectors as possible to enrich the Ortega family and its inner circle.

Policies Towards Foreign Direct Investment

Pakistan seeks inward investment in order to boost economic growth, particularly in the energy, agribusiness, information and communications technology, and industrial sectors.  Since 1997, Pakistan has established and maintained a largely open investment regime.  Pakistan introduced an Investment Policy in 2013 that further liberalized investment policies in most sectors to attract foreign investment and signed an economic co-operation agreement with China, the China-Pakistan Economic Corridor (CPEC), in April 2015.  CPEC Phase I, which concluded in late 2019, focused primarily on infrastructure and energy production.  CPEC Phase II, which is ongoing, is pivoting away from infrastructure development to mainly focus on promoting Pakistan’s industrial growth by establishing special economic zones throughout the country.  The PRC has also pledged to provide $1 billion in socio-economic initiatives focused on agriculture, health, education, poverty alleviation, and vocational training by 2024.  However, progress on Phase II is significantly delayed due to the COVID pandemic, fiscal constraints, and regulatory issues including the government’s inability so far to pass legislation formalizing the CPEC Authority (a centralized federal body charged with CPEC implementation across the country).  Some opportunities are only open to approved Chinese companies, and CPEC has ensured those projects and their investors receive the authorities’ attention.

To support its Investment Policy, Pakistan also has implemented sectoral policies designed to provide additional incentives to investors in those specific sectors.  The Automotive Policy 2016, Strategic Trade Policy Framework (STPF) 2015-18, Export Enhancement Package 2019, Alternative and Renewable Energy Policy 2019, Merchant Marine Shipping Policy 2019 with 2020 updates, the Electric Vehicle Policy 2020-2025, and the Textile Policy 2021 (still awaiting final approval) are a few examples of sector-specific incentive schemes.  Sector-specific incentives typically include tax breaks, tax refunds, tariff reductions, the provision of dedicated infrastructure, and investor facilitation services.  A new STPF 2020-25 and the Textile Policy 2021 have been approved by the Prime Minister but are still awaiting final Cabinet approvals.

In the absence of the new STPF 2020-2025, incentives introduced through STPF 2015-18 remain in place.  Nonetheless, foreign investors continue to advocate for Pakistan to improve legal protections for foreign investments, protect intellectual property rights, and establish clear and consistent policies for upholding contractual obligations and settlement of tax disputes.

The Foreign Private Investment Promotion and Protection Act (FPIPPA), 1976, and the Furtherance and Protection of Economic Reforms Act, 1992, provide legal protection for foreign investors and investment in Pakistan.  The FPIPPA stipulates that foreign investments will not be subject to higher income taxes than similar investments made by Pakistani citizens.  All sectors and activities are open for foreign investment unless specifically prohibited or restricted for reasons of national security and public safety.  Specified restricted industries include arms and ammunitions; high explosives; radioactive substances; securities, currency and mint; and consumable alcohol.  There are no restrictions or mechanisms that specifically exclude U.S. investors.

Pakistan’s investment promotion agency is the Board of Investment (BOI).  BOI is responsible for attracting investment, facilitating local and foreign investor implementation of projects, and enhancing Pakistan’s international competitiveness.  BOI assists companies and investors who seek to invest in Pakistan and facilitates the implementation and operation of their projects.  BOI is not a one-stop shop for investors, however.

Pakistan prioritizes investment retention through “business dialogues” (virtual or in-person engagements) with existing and potential investors.  BOI plays the leading role in initiating and managing such dialogues.  However, Pakistan does not have an Ombudsman’s office focusing on investment retention.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreigners, except Indian and Israeli citizens/businesses, can establish, own, operate, and dispose of interests in most types of businesses in Pakistan, except those involved in arms and ammunitions; high explosives; radioactive substances; securities, currency and mint; and consumable alcohol.  There are no restrictions or mechanisms that specifically exclude U.S. investors.  There are no laws or regulations authorizing domestic private entities to adopt articles of incorporation discriminating against foreign investment.

Pakistan does not place any limits on foreign ownership or control.  The 2013 Investment Policy eliminated minimum initial capital requirements across sectors so that there is no minimum investment requirement or upper limit on the allowed share of foreign equity, with the exception of investments in the airline, banking, agriculture, and media sectors.  Foreign investors in the services sector may retain 100 percent equity, subject to obtaining permission, a “no objection certificate,” and license from the concerned agency, as well as fulfilling the requirements of the respective sectoral policy.  In the education, health, and infrastructure sectors, 100 percent foreign ownership is allowed, while in the agriculture sector, the threshold is 60 percent, with an exception for corporate agriculture farming, where 100 percent ownership is allowed.  Small-scale mining valued at less than PKR 300 million (roughly $1.9 million) is restricted to Pakistani investors.

Foreign banks may establish locally incorporated subsidiaries and branches, provided they have $5 billion in paid-up capital or belong to one of the regional organizations or associations to which Pakistan is a member (e.g., Economic Cooperation Organization (ECO) or the South Asian Association for Regional Cooperation (SAARC).  Absent these requirements, foreign banks are limited to a 49-percent maximum equity stake in locally incorporated subsidiaries.

There are no restrictions on payments of royalties and technical fees for the manufacturing sector, but there are restrictions on other sectors, including a $100,000 limit on initial franchise investments and a cap on subsequent royalty payments of 5 percent of net sales for five years.  Royalties and technical payments are subject to remittance restrictions listed in Chapter 14, Section 12 of the SBP Foreign Exchange Manual (http://www.sbp.org.pk/fe_manual/index.htm).

Pakistan maintains investment screening mechanisms for inbound foreign investment.  The BOI is the lead organization for such screening.  Pakistan blocks foreign investments where the screening process determines the investment could negatively affect Pakistan’s national security.

Other Investment Policy Reviews

Pakistan has not undergone any third-party investment policy reviews over the past three years.

Business Facilitation

The government utilizes the World Bank’s “Doing Business” criteria to guide its efforts to improve Pakistan’s business climate.  The government has simplified pre-registration and registration facilities and automated land records to simplify property registration, eased requirements for obtaining construction permits and utilities, introduced online/electronic tax payments, and facilitated cross-border trade by expanding electronic submissions and processing of trade documents.  Starting a business in Pakistan normally involves five procedures and takes at least 16.5 days – as compared to an average of 7.1 procedures and 14.5 days for the group of countries comprising the World Bank’s South Asia cohort.  Pakistan ranked 72 out of 190 countries in the Doing Business 2020 report’s “Starting a Business” category.  Pakistan ranked 28 out of 190 for protecting minority investors.  (Note: the 2020 Doing Business Report is the last available report.  End Note.)

The Securities and Exchange Commission of Pakistan (SECP) manages company registration, which is available to both foreign and domestic companies.  Companies first provide a company name and pay the requisite registration fee to the SECP.  They then supply documentation on the proposed business, including information on corporate offices, location of company headquarters, and a copy of the company charter.  Both foreign and domestic companies must apply for national tax numbers with the Federal Board of Revenue (FBR) to facilitate payment of income and sales taxes.  Industrial or commercial establishments with five or more employees must register with Pakistan’s Federal Employees Old-Age Benefits Institution (EOBI) for social security purposes.  Depending on the location, registration with provincial governments may also be required.  The SECP website (www.secp.gov.pk) offers a Virtual One Stop Shop (OSS) where companies can register with the SECP, FBR, and EOBI simultaneously.  The OSS can be used by foreign investors.

Outward Investment

Pakistan does not promote nor incentivize outward investment.  Pakistan does not explicitly restrict domestic investors from investing abroad.  However, cumbersome and time consuming approval processes, involving multiple entities such as the SBP, SECP, and the Ministries of Finance, Economic Affairs, and Foreign Affairs, generally discourage outward investors.  Despite the cumbersome processes, larger Pakistani corporations have made investments in the United States in recent years.

Real Property

Although Pakistan’s legal system includes the enforcement of property rights and both local and foreign owner interests, it offers incomplete protection for the acquisition and disposition of real property.  There is no data with respect to the percentage of land with clear title and land title issues are common.  With the exception of the agricultural sector, where foreign ownership is limited to 60 percent, no specific regulations regarding the leasing of land or acquisition by foreign or non-resident investors exists.  Corporate farming by foreign-controlled companies is permitted if the subsidiaries are incorporated in Pakistan.  There are no limits on the size of corporate farmland holdings, and foreign companies can lease farmland for up to 50 years, with renewal options.

The 1979 Industrial Property Order safeguards industrial property in Pakistan against government use of eminent domain without sufficient compensation for both foreign and domestic investors.  The 1976 Foreign Private Investment Promotion and Protection Act guarantees the remittance of profits earned through the sale or appreciation in value of property.

Though protections for legal purchasers of land are provided, even if unoccupied, land titles remains a challenge.  Improvements to land titling have been made by the Punjab, Sindh, and Khyber Pakhtunkhwa provincial governments who have dedicated significant resources to digitizing land records.  In the newly merged tribal districts of Khyber Pakhtunkhwa, land rights are held collectively by the tribes, not privately by individuals and there are functionally no ownership records.  However, the provincial government is currently undertaking a long-term land registration process in the newly merged districts for tribally owned land.

In urban centers, undocumented possession of unoccupied land, squatting, is a continuing issue.  However, if it can be proven that the land was acquired legally, government agencies are supportive of the legal owner taking possession of their property.

Intellectual Property Rights

The Government of Pakistan has identified protecting intellectual property (IP) rights  as a reform priority and has taken concrete steps over the last two decades to strengthen its IP regime.  In 2005, Pakistan created the Intellectual Property Office (IPO) to consolidate government control over trademarks, patents, and copyrights.  IPO’s mission also includes coordinating and monitoring the enforcement and protection of IPR through law enforcement agencies.  Enforcement agencies include the local police, the Federal Investigation Agency (FIA), customs officials at the FBR, the CCP, the SECP, the Drug Regulatory Authority of Pakistan (DRAP), and the Print and Electronic Media Regulatory Authority (PEMRA).

Although the creation of IPO consolidated policy-making, confusion surrounding enforcement agencies’ roles still constrains performance on IP enforcement, leaving IP rights holders struggling to elicit action to address IP infringement.  Although IPO established ten enforcement coordination committees to improve IP enforcement, and has signed an MOU with the FBR, CCP, Collective Management Office, Pakistan Agricultural Research Council, and SECP to share information, the agency labors to coordinate disparate bodies under current laws.  Weak penalties and the agencies’ redundancies allow counterfeiters to evade punishment, while companies struggle to identify the correct forum in which to file a complaint.

The Intellectual Property Office as an institution has historically suffered from leadership turnover, limited resources, and a lack of government attention.  Since 2016, the Government of Pakistan has taken steps to improve the IPO’s effectiveness, starting with bringing IPO under the administrative responsibility of the Ministry of Commerce.  The IPO Act 2012 stipulates a three-year term, 14-person policy board with at least five seats dedicated to the private sector.  Section 8(2) of the IPO Act also stipulates, “the board shall meet not less than two times in a calendar year.”  2020 was a challenging year due to complications from the COVID-19 pandemic and resultant lockdowns.  As a result, no policy board meeting was held during the year.  IPO is severely under-resourced in human capital, currently working at only 52 percent of its approved staffing.  New hiring rules await final approval from the Ministry of Law.  IPO aims to start recruiting new staff once these rules are approved by the Ministry of Law.

The Intellectual Property Office is also charged with increasing public awareness of IP rights through collaboration with the private sector.  COVID-19 slowed IPO’s momentum in this area with only 20 webinars and virtual interactions concluded during 2020 (down from more than 100 in 2019) – a significant portion of which focused on Pakistan’s new Geographical Indication (GI) Law.  Academics and private attorneys have noted that the creation of the IPO has improved public awareness, albeit slowly.  While difficult to quantify, contacts have also observed increased local demand for IPR protections, including from small businesses and startups.  Private and public sector contacts highlight that the educational system is a “missing link” in IPR awareness and enforcement.  Pakistani educational institutions, including law schools, have rarely included IPR issues in their curricula and do not have a culture of commercializing innovations.  However, the International Islamic University now includes an IP rights-specific course in its curriculum and Lahore University of Management Sciences has content-specific courses as part of its MBA program.  IPO officials have expressed interest in collaborating with Pakistani universities to increase IPR awareness.  IPO is working with the Higher Education Commission to offer IPR curricula at other universities but has achieved limited traction.  In collaboration with the World Intellectual Property Organization (WIPO), Technology Innovation Support Centers have been established at 47 different universities in Pakistan.

In 2016, Pakistan established three specialized IP tribunals: in Karachi covering Sindh and Balochistan, in Lahore covering Punjab, and in Islamabad covering Islamabad and Khyber Pakhtunkhwa.  IPO had initiated a plan to create additional tribunals in 2019, however, the proposal is still awaiting approval from the Ministry of Law.  These tribunals have not been a priority in terms of assigning judges.  They have experienced high turnover, and the assigned judges do not receive any specialized technical training in IP law.

Pakistan’s IPR legal framework remains inadequate, consisting of 40-year-old subordinate IP laws on copyright, patents, and trademarks alongside the 2012 IPO Act.  The IPO Act provides the overall legal basis for IP licensing and enforcement while subordinate laws apply to specific IP fields, but inconsistencies in the laws make IP enforcement difficult.  Since 2000, Pakistan has made piecemeal updates to IPR laws in an incomplete bid to bring consistency to IPR treatment within the legal system.  With the help of Mission Pakistan, CLDP, and the U.S. Patent and Trademark Office (USPTO), IPO is updating Pakistan’s IPR laws to minimize inconsistencies and improve enforcement, but progress has been slow.

In February 2021, Pakistan acceded to the Madrid Protocol on Trademarks.

The U.S. Mission in Pakistan, with the support of USTR, the Department of Commerce, and USPTO, has engaged with the Government of Pakistan over several years seeking resolution of long-standing software licensing and IP infringements committed by offices within the Government of Pakistan which undermine Pakistan’s credibility with respect to IP enforcement.  In early 2021, several U.S. agencies, including the Commercial Law Development Program, United States Patent and Trademark Office, USAID, and the U.S. Food & Drug Administration, launched a six-month, 16-part capacity building series with Pakistani IP enforcement and relevant officials focused on curbing the flow of counterfeit pharmaceuticals within and through Pakistan.  The program provides instruction on forensic tools, pharmaceutical supply chain integrity, cyber intelligence, and the identification of transnational criminal organizations exploiting trade routes.  The program seeks to address intellectual property rights enforcement issues while protecting public health and safety.

Pakistan is currently on the Special 301 report Watch List.

Pakistan does not track and report on its seizures of counterfeit goods.

Resources for Intellectual Property Rights Holders:

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

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

Capital Markets and Portfolio Investment

Pakistan’s three stock exchanges (Lahore, Islamabad, and Karachi) merged to form the Pakistan Stock Exchange (PSX) in January 2016.  As a member of the Federation of Euro-Asian Stock Exchanges and the South Asian Federation of Exchanges, PSX is also an affiliated member of the World Federation of Exchanges and the International Organization of Securities Commissions.  Per the Foreign Exchange Regulations, foreign investors can invest in shares and securities listed on the PSX and can repatriate profits, dividends, or disinvestment proceeds.  The investor must open a Special Convertible Rupee Account with any bank in Pakistan in order to make portfolio investments.  In 2017, the government modified the capital gains tax and imposed a 15 percent tax on stocks held for less than 12 months, 12.5 percent on stocks held for more than 12 but less than 24 months, and 7.5 percent on stocks held for more than 24 months. The 2012 Capital Gains Tax Ordinance appointed the National Clearing Company of Pakistan Limited to compute, determine, collect, and deposit the capital gains tax.

The SBP and SECP provide regulatory oversight of financial and capital markets for domestic and foreign investors.  Interest rates depend on the reverse repo rate (also called the policy rate).

Pakistan has adopted and adheres to international accounting and reporting standards – including IMF Article VIII, with comprehensive disclosure requirements for companies and financial sector entities.

Foreign-controlled manufacturing, semi-manufacturing (i.e. goods that require additional processing before marketing), and non-manufacturing concerns are allowed to borrow from the domestic banking system without regulated limits.  Banks are required to ensure that total exposure to any domestic or foreign entity should not exceed 25 percent of a bank’s equity.  Foreign-controlled (minimum 51 percent equity stake) semi-manufacturing concerns (i.e., those producing goods that require additional processing for consumer marketing) are permitted to borrow up to 75 percent of paid-up capital, including reserves.  For non-manufacturing concerns, local borrowing caps are set at 50 percent of paid-up capital.  While there are no restrictions on private sector access to credit instruments, few alternative instruments are available beyond commercial bank lending.  Pakistan’s domestic corporate bond, commercial paper and derivative markets remain in the early stages of development.

Money and Banking System

The State Bank of Pakistan (SBP) is the central bank of Pakistan.

According to the most recent statistics published by the SBP (2021), only 24 percent of the adult population uses formal banking channels to conduct financial transactions while 25 percent are informally served by the banking sector; women are financially excluded at higher rates than men.  The remaining 51 percent of the adult population do not utilize formal financial services.

Pakistan’s financial sector has been described by international banks and lenders as performing well in recent years.  According to the latest review of the banking sector conducted by SBP in July 2020, improving asset quality, stable liquidity, robust solvency, and slow pick-up in private sector advances were noted.  The asset base of the banking sector expanded by 7.8 percent during 2020 due to a surge in banks’ investments, which increased by 22.8 percent (or PKR 2 trillion).  The five largest banks, one of which is state-owned, control 50.4 percent of all banking sector assets.

SBP conducted the 6th wave of the Systemic Risk Survey in August-2020.  The survey results indicated respondents perceived key risks for the financial system to be mostly exogenous and global in nature.  Importantly, the policy measures rolled out by SBP to mitigate the effects of COVID-19 have been very well received by the stakeholders.

The risk profile of the banking sector remained satisfactory and moderation in profitability and asset quality improved as non-performing loans as a percentage of total loans (infection ratio) was recorded at 9.7 percent at the end of FY 2020 (June 30, 2020).  In 2020, total assets of the banking industry were estimated at $151.9 billion and net non-performing bank loans totaled approximately $1 billion– 1.9 percent of net total loans.

The penetration of foreign banks in Pakistan is low, making a small contribution to the local banking industry and the overall economy.  According to a study conducted by the World Bank Group in 2018, (the latest data available) the share of foreign bank assets to GDP stood at 3.5 percent while private credit by deposit to GDP stood at 15.4 percent.  Foreign banks operating in Pakistan include Citibank, Standard Chartered Bank, Deutsche Bank, Samba Bank, Industrial and Commercial Bank of China, Bank of Tokyo, and the Bank of China.  International banks are primarily involved in two types of international activities: cross-border flows, and foreign participation in domestic banking systems through brick-and-mortar operations.  SBP requires foreign banks to hold at minimum $300 million in capital reserves at their Pakistani flagship location, and maintain at least an 8 percent capital adequacy ratio.  In addition, foreign banks are required to maintain the following minimum capital requirements, which vary based on the number of branches they are operating:

• 1 to 5 branches: $28 million in assigned capital;
• 6 to 50 branches: $56 million in assigned capital;
• Over 50 branches: $94 million in assigned capital.

Foreigners require proof of residency – a work visa, company sponsorship letter, and valid passport – to establish a bank account in Pakistan.  There are no other restrictions to prevent foreigners from opening and operating a bank account.

Foreign Exchange and Remittances

Foreign Exchange

As a prior action of its July 2019 IMF program, Pakistan agreed to adopt a flexible market-determined exchange rate.  The SBP regulates the exchange rate and monitors foreign exchange transactions in the open market, with interventions limited to safeguarding financial stability and preventing disorderly market conditions.  However, other government entities can influence SBP decisions through their membership on the SBP’s board; the finance secretary and the Board of Investment chair currently sit on the board.

Banks are required to report and justify outflows of foreign currency.  Travelers leaving or entering Pakistan are allowed to physically carry a maximum of $10,000 in cash.  While cross-border payments of interest, profits, dividends, and royalties are allowed without submitting prior notification, banks are required to report loan information so SBP can verify remittances against repayment schedules.  Although no formal policy bars profit repatriation, U.S. companies have faced delays in profit repatriation due to unclear policies and coordination between the SBP, the Ministry of Finance and other government entities.  Mission Pakistan has provided advocacy for U.S. companies which have struggled to repatriate their profits.  Exchange companies are permitted to buy and sell foreign currency for individuals, banks, and other exchange companies, and can also sell foreign currency to incorporated companies to facilitate the remittance of royalty, franchise, and technical fees.

There is no clear policy on convertibility of funds associated with investment in other global currencies.  The SBP opts for an ad-hoc approach on a case-by-case basis.

Remittance Policies

The 2001 Income Tax Ordinance of Pakistan exempts taxes on any amount of foreign currency remitted from outside Pakistan through normal banking channels.  Remittance of full capital, profits, and dividends over $5 million are permitted while dividends are tax-exempt.  No limits exist for dividends, remittance of profits, debt service, capital, capital gains, returns on intellectual property, or payment for imported equipment in Pakistani law.  However, large transactions that have the potential to influence Pakistan’s foreign exchange reserves require approval from the government’s Economic Coordination Committee.  Similarly, banks are required to account for outflows of foreign currency.  Investor remittances must be registered with the SBP within 30 days of execution and can only be made against a valid contract or agreement.

In September 2020, Prime Minister Imran Khan launched the Roshan Digital Account (RDA) project aimed at providing digital banking facilities to overseas Pakistanis.  Customers can use  both PKR and USD for transactions and the accounts receive special tax treatment.

Sovereign Wealth Funds

Pakistan does not have its own sovereign wealth fund (SWF) and no specific exemptions for foreign SWFs exist in Pakistan’s tax law.  Foreign SWFs are taxed like any other non-resident person unless specific concessions have been granted under an applicable tax treaty to which Pakistan is a signatory.

Pakistan has 197 state-owned enterprises (SOEs) in the power, oil and gas, banking and finance, insurance, and transportation sectors.  They provide stable employment and other benefits for more than 420,000 workers, but a number require annual government subsidies to cover their losses.

Three of the country’s largest SOEs include:  Pakistan Railways (PR), Pakistan International Airlines (PIA), and Pakistan Steel Mills (PSM).  According to the IMF, the total debt of SOEs now amounts to 2.3 percent of GDP – just over $7 billion in 2019.  Note: IMF and WB data for 2020 regarding SOEs is not yet available, however, according to SBP provisional data from December 2020, the total debt of Pakistani SOEs is $14.62 billion.  End Note.  The IMF required audits of PIA and PSM by December 2019 as part of Pakistan’s IMF Extended Fund Facility.  PR is the only provider of rail services in Pakistan and the largest public sector employer with approximately 90,000 employees.  PR has received commitments for $8.2 billion in CPEC loans and grants to modernize its rail lines.  PR relies on monthly government subsidies of approximately $2.8 million to cover its ongoing obligations.  In 2019, government payments to PR totaled approximately $248 million.  The government provided a $37.5 million bailout package to PR in 2020.  In 2019, the Government of Pakistan extended bailout packages worth $89 million to PIA.  Established to avoid importing foreign steel, PSM has accumulated losses of approximately $3.77 billion per annum.  The government has provided $562 million to PSM in bailout packages since 2008.  The company loses $5 million a week, and has not produced steel since June 2015, when the national gas company shut off supplies to PSM facilities due to its greater than $340 million in outstanding unpaid utility bills.

SOEs competing in the domestic market receive non-market based advantages from the host government.  Two examples include PIA and PSM, which operate at a loss but continue to receive financial bailout packages from the government.  Post is not aware of any negative impact to U.S firms in this regard.

The Securities and Exchange Commission of Pakistan (SECP) introduced corporate social responsibility (CSR) voluntary guidelines in 2013.  Adherence to the OECD guidelines is not known.

Privatization Program 

Terms to purchase public shares of SOEs and financial institutions are the same for both foreign and local investors.  The government on March 7, 2019 announced plans to carry out a privatization program but postponed plans because of significant political resistance.  Even though the government is still publicly committed to privatizing its national airline (PIA), the process has been stalled since early 2016 when three labor union members were killed during a violent protest in response to the government’s decision to convert PIA into a limited company, a decision which would have allowed shares to be transferred to a non-government entity and pave the way for privatization.  A bill passed by the legislature requires that the government retain 51% equity in the airline in the event it is privatized, reducing the attractiveness of the company to potential investors.

The Privatization Commission claims the privatization process to be transparent, easy to understand, and non-discriminatory.  The privatization process is a 17-step process available on the Commission’s website under this link http://privatisation.gov.pk/?page_id=88.

The following links provide details of the Government of Pakistan’s privatized transactions over the past 18 years, since 1991:  http://privatisation.gov.pk/?page_id=125