Transparency of the Regulatory System

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

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

Bureaucratic procedures are stream-lined and transparent, and proposed laws and regulations are published in draft form for public comment. Public finances and debt obligations are transparent.

As of December 19, 2012, the Ministry of Taxation made all companies’ corporate tax records public, and it updates and publicizes them annually. The publication is intended to increase transparency and public scrutiny of corporate tax payments. Greenland and the Faroe Islands retain autonomy with regards to tax policy.

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

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

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

• Small businesses (Class B): Total assets of DKK 44 million (USD 6.7 million), net revenue of DKK 89 million (USD 13.5 million), average number of full-time employees during the financial year of 50.

• Medium-sized enterprises (Class C medium): Total assets of DKK 156 million (USD 23.7 million), net revenue of DKK 313 million (USD 47.5 million), average number of full-time employees during the financial year of 250.

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

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

All government draft proposed regulations are published at the portal for public hearings, “Høringsportalen” (www.hoeringsportalen.dk ), to solicit input from interested parties. After receiving feedback and possibly undergoing amendments, proposed regulations are published at the Danish Parliament’s website (www.ft.dk). Final regulations are published at www.lovtidende.dk  and www.ft.dk . All ministries and agencies are required to publish proposed regulations. Denmark has a World Bank composite score of “4.75” for the Global Indicators of Regulatory Governance, on a 0 – 5 scale. With respect to governance, the World Bank suggests the following areas for improvement:

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

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

International Regulatory Considerations

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

Legal System and Judicial Independence

Since the adoption of the Danish constitution in 1849, decision-making power in Denmark has been divided into the legislative, executive and judicial branches. The principle of a three-way separation of power and the independence of courts of law help ensure democracy and the legal rights of the country’s citizens. The district courts, the high courts and the Supreme Court represent the three basic levels of the Danish legal system, but the legal system also comprises a range of other institutions with special functions.

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

https://domstol.dk/om-os/english/the-danish-judicial-system/ 

Laws and Regulations on Foreign Direct Investment

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

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

The Danish government plans to introduce legislation to establish a foreign investment screening mechanism, late in 2020. The screening mechanism would be in line with the EU investment screening framework encouraging member states to screen foreign investments in critical infrastructure and strategic sectors.

Competition and Anti-Trust Laws

The Danish Competition and Consumer Authority (CCA) reviews transactions for competition-related concerns. According to the Danish Competition Act, the CCA requires notification of mergers and takeovers if the aggregate annual turnover in Denmark of all undertakings involved is more than DKK 900 million and the aggregate annual turnover in Denmark of each of at least two of the undertakings concerned is more than DKK 100 million; or the aggregate annual turnover in Denmark of at least one of the undertakings involved is more than DKK 3.8 billion and the aggregate annual worldwide turnover of at least one of the other undertakings concerned is more than DKK 3.8 billion. Where a merger is a result of the acquisition of parts of one or more undertakings, the calculation of the turnover referred to shall only comprise the share of the turnover of the seller or sellers that relates to the assets acquired. The merger control provisions are contained in Part four of the Danish Competition Act  and in Executive Order on the Notification of Mergers . Turnover is calculated in a accordance with Executive Order on the calculation of turnover in the Competition Act.  

A full notification of a merger must include the information and documents specified in the full notification form; cf. Annex 1 – Information for full notification of mergers.  A simplified notification of a merger must include the information and documents specified in the simplified notification form; cf. Annex 2 – Information for simplified notification of mergers.   From 1st August 2013 merger fees are payable for merger notifications submitted to the Competition and Consumer Authority. The fee for a simplified notification amounts DKK 50,000. The fee for a full notification amounts 0,015 per cent of the aggregate annual turnover in Denmark of the undertakings involved, however maximum DKK 1,500,000. If the merger has already been notified through a simplified notification and the payment of DKK 50,000, but the Competition and Consumer Authority has required a full notification, a full notification shall be submitted together with a fee amounting 0,015 per cent of the aggregate annual turnover in Denmark of the undertakings involved, less DKK 50,000, however maximum DKK 1,500,000.

Further information concerning the notification of mergers is available in the Guidelines to the Executive Order on Notification of Mergers and on Merger Fees , and further information concerning Danish merger control in general in the Merger Guidelines – currently under revision. 

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

Expropriation and Compensation

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

Dispute Settlement

ICSID Convention and New York Convention

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

Bankruptcy Regulations

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

Investment Incentives

Performance incentives are available both to foreign and domestic investors. For instance, foreign and domestic investors in designated regional development areas may take advantage of certain grants and access to preferential financing. Investments in Greenland may be eligible for incentives as well. Foreign subsidiaries located in Denmark can participate in government-financed or subsidized research programs on a national-treatment basis.

Foreign Trade Zones/Free Ports/Trade Facilitation

The only free port in Denmark is the Copenhagen Free Port, operated by the Port of Copenhagen. The Port of Copenhagen and the Port of Malmo (Sweden) merged their commercial operations in 2001, including the free port activities, in a joint company named CMP. CMP is one of the largest port and terminal operators in the Nordic Region and one of the largest Northern European cruise-ship ports; it occupies a key position in the Baltic Sea Region for the distribution of cars and transit of oil. The facilities in the free port are mostly used for tax-free warehousing of imported goods, for exports, and for in-transit trade. Tax and duties are not payable until cargo leaves the Free Port. The processing of cargo and the preparation and finishing of imported automobiles for sale can freely be set up in the Free Port. Manufacturing operations can be established with permission of the customs authorities, which is granted if special reasons exist for having the facility in the Free Port area. The Copenhagen Free Port welcomes foreign companies establishing warehouse and storage facilities.

Performance and Data Localization Requirements

Performance requirements are applied only in connection with investment in hydrocarbon exploration, where concession terms normally require a fixed work program, including seismic surveys and in some cases exploratory drilling, consistent with applicable EU directives. Performance requirements are mostly designed to protect the environment, mainly through encouraging reduced use of energy and water. Several environmental and energy requirements are systematically imposed on households as well as businesses in Denmark, both foreign and domestic. For instance, Denmark was the first of the EU countries, in January 1993, to introduce a carbon dioxide (CO2) tax on business and industry. This includes certain reimbursement schemes and subsidy measures to reduce the costs for businesses, thereby safeguarding competitiveness.

Performance requirements are governed by Danish legislation and EU regulations. Potential violations of the rules governing this area are punishable by fines or imprisonment.

Performance requirements are applied uniformly to domestic and foreign investors.

The Danish government does not follow “forced localization” policies, nor does it require foreign IT providers to turn over source code and/or provide access to surveillance. The Danish Data Protection Agency, a government agency, the Ministry of Justice and the Ministry for Culture are the entities involved with data storage.

Real Property

Property rights in Denmark are well protected by law and in practice. Real estate is chiefly financed through the well-established Danish mortgage bond credit system, the security of which compares to that of government bonds. To comply with the covered bond definition in the EU Capital Requirements Directive (CRD), the Danish mortgage banking regulation was amended effective July 1, 2007. With the amended Danish mortgage banking regulation, commercial banks now have the same opportunities as mortgage banks and ship-financing institutions to issue covered bonds. Only issuers that have been granted a license from the Danish Financial Supervisory Authority (FSA) are able to issue Danish covered bonds.

Secured interests in property are recognized and enforced in Denmark. All mortgage credits in real estate are recorded in local public registers of mortgages. Except for interests in cars and commercial ships, which are also publicly recorded, other property interests are generally unrecorded. The local public registers are a reliable system of recording security interests. Denmark is ranked 11th in the World Bank’s Doing Business 2020 Report for its ease of “registering property.” Denmark ranked 13th out of 129 countries in the Property Rights Alliance’s International Property Rights Index 2019, and 7th in its region.

Intellectual Property Rights

Intellectual property rights (IPR) in Denmark are well protected and enforced. Denmark has ratified and adheres to key international conventions and treaties concerning protection of IP rights, including the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and a number of treaties administered by the World Intellectual Property Organization (WIPO), including the Berne Convention, the Paris Convention, the Patent Cooperation Treaty (PCT), the WIPO Copyright Treaty, and the WIPO Performances and Phonograms Treaty. In 2019, the Property Rights Alliance ranked Denmark 13th out of 131 countries overall in their International Property Rights Index and 7th in Western Europe.

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/ .

A list of attorneys in Denmark known to accept foreign clients can be found at https://go.usa.gov/xmkME . This list of attorneys and law firms is provided by the American Embassy as a convenience to U.S. citizens. It is not intended to be a comprehensive list of attorneys in Denmark, and the absence of an attorney from the list is in no way a reflection on competence. A complete list of attorneys in Denmark, Greenland and the Faeroe Islands may be found at the Danish Bar Association web site: www.advokatnoeglen.dk.

Capital Markets and Portfolio Investment

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

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

The Danish stock market is divided into four different branches/indexes. The C25 index contains the 25 most valuable companies in Denmark. Other large companies with a market value exceeding USD 1.1 billion (EUR 1 billion) are in the group of “Large Cap,” companies with a market value between USD 170 million (EU 150 million) and USD 1.1 billion belong to the “Mid Cap” segment, while companies with a market value smaller than USD 170 million belong to “Small Cap” group.

Money and Banking System

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

Denmark’s banking sector is relatively large; based on the ratio of consolidated banking assets to GDP, the sector is three times bigger than the national economy. Before 2020, the total of Danish shares valued DKK 3,190 billion, (USD 778 billion) and were owned 51.3 percent by foreign owners and 48.7 percent by Danish owners, including 12.5 percent held by households and 5,4 percent by the government. The assets of the three largest Danish banks – Danske Bank, Nordea Bank Danmark, and Jyske Bank – constitute approximately 75 percent of the total assets in the Danish banking sector.

Denmark’s biggest systemically important bank, Danske Bank, with assets that are roughly 1 1/2 times Denmark’s total GDP, is under criminal investigation in several jurisdictions amid accusations an Estonian branch became a European hub for money launderers from Russia. The bank has admitted that a significant part of about EUR 200 billion (USD 230 billion) that flowed through the non-resident portfolio of its tiny Estonian branch between 2007 and 2015 could have illicit origins. The scandal has led to significant tightening of financial regulation, including increasing penalties by up to 700 percent and increased funding for the Financial Supervisory Authority.

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

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

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

Experts expect a revision of the Danish system of troubled financial institution resolution mechanisms in connection with a decision to join the EU Banking Union. The national payment system, “Nets” was sold to a consortium consisting of Advent International Corp., Bain Capital LLC, and Danish pension fund ATP in March 2014 for DKK 17 billion (USD 2.58 billion). Nets went public with an IPO late 2016.

Foreign Exchange and Remittances

Foreign Exchange

Exchange rate conversions throughout this document are based on the 2019 average exchange rate where Danish Kroner (DKK) 6.6703 = 1 USD (USD)

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

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

The Danish political reservation concerning Euro participation can only be abolished by national referendum, and Danish voters have twice (in 1992 and 2000) voted it down. The government has stated that in principle it supports adopting the Euro, but no referendum is expected for the foreseeable future. Regular polling on this issue shows a majority of public opinion remains in favor of keeping the Krone. According to the Stability and Growth Pact, a Euro country’s debt to GDP ratio cannot exceed 60 percent and budget deficit to GDP ratio cannot exceed 3 percent. Denmark’s debt to GDP ratio was 33.2 percent by the end of 2019, down from 33.9 percent in 2018. Denmark ran a budget surplus of 3.7 percent in 2019 and of 0.7 percent in 2018, well within Stability & Growth Pact parameters.

Sovereign Wealth Funds

Denmark maintains no sovereign wealth funds.

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

Privatization Program

Denmark has no current plans to privatize its SOEs.

As an OECD member, Denmark promotes, through the Danish Business Authority, the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights. Denmark’s National Contact Point can be reached at: https://mneguidelines.oecd.org/National-Contact-Points-Website-Contact-Details.pdf 

From January 1, 2016, the largest companies, cf. the Danish Financial Statements Act section 99 a, must account for their responsible business conduct, including with respect to human rights and to reducing the climate impact of the company’s activities. At the same time, cf. section 99b target figures for the gender composition of the Board of Directors, as well as policies for increasing the proportion of the underrepresented gender at the company’s management levels, must be reported. From January 2018, the mandate also applies to medium sized businesses (exempting small- and micro- companies).

The Danish Business Authority published a National Action Plan to advance Corporate Social Responsibility (CSR) and Responsible Business Conduct (RBC) in Denmark in 2012, covering the 2012 – 2015 period. It contained 42 initiatives focusing on business-driven CSR. In October 2019, the government launched a public hearing process to “to investigate how reporting can be made more comparable and create more transparency for the benefit of society and the companies themselves. The purpose is to increase transparency about whether companies are living up to their corporate social responsibility, that sustainable companies have better access to investment and that companies experience a positive value from their CSR reporting.” The government expects the process to result in recommendations by fall 2020.The government hosts https://www.csrkompasset.dk/ , (English language version https://www.csrcompass.com/ ) a free online tool that can help companies implement responsible supply chain management. The tool is targeted at small and medium-sized production, trade and service companies. The structure of the CSR Compass and its advice and guidelines are in line with national and international trends and best practice standards, including the UN Global Compact, OECD’s guidelines for multinational companies, Business for Social Responsibility (BSR), Business Social Compliance Initiative (BSCI), the Danish Ethical Trading Initiative (DIEH) and the Danish Council on Corporate Social Responsibility’s guidelines for responsible supply chain management.

Denmark is perceived as the least corrupt country in the world according to the 2019 Corruption Perceptions Index by Transparency International, which has local representation in Denmark. The Ministry of Justice is responsible for combating corruption, which is covered under the Danish Penal Code. Penalties for violations range from fines to imprisonment of up to four years for a private individual’s involvement and up to six years for a public employee’s involvement. Since 1998, Danish businesses cannot claim a tax deduction for the cost of bribes paid to officials abroad.

Denmark is a signatory to the OECD Convention on Combating Bribery, the UN Anticorruption Convention, and a participating member of the OECD Working Group on Bribery. In the Working Group’s 2015 Phase 3 follow-up report on Denmark, the Working Group concluded “that Denmark has partially implemented most of its Phase 3 recommendations. However, concerns remain over Denmark’s enforcement of the foreign bribery offence.”

Resources to Report Corruption

Resources to which corruption may be reported:

The Danish State Prosecutor for Serious Economic and International Crime,
Kampmannsgade 1
1604 København V.
Phone: +45 72 68 90 00
Fax: +45 45 15 01 19
Email: saoek@ankl.dk

Ministry of Foreign Affairs of Denmark’s development assistance agency DANIDA to report any knowledge of corruption within DANIDA projects or among staff or DANIDA partners.

http://um.dk/en/danida-en/about-danida/Danida-transparency/anti-corruption/report-corruption/ 

“Watchdog” organization:

Transparency International Danmark
c/o CBS
Dalgas Have 15, 2. sal, lokale 2c008
2000 Frederiksberg

The Secretariat is manned by Julian Bøje Ekberg and Rosa Bisgaard who can be reached at sekretariatet@transparency.dk

Contact at Embassy Copenhagen responsible for combating corruption:

Aaron Daviet
Political Officer
U.S. Department of State
Dag Hammarskjolds Alle 24, 2100 Copenhagen, Denmark
+45 3341 7100
CopenhagenICS@state.gov

Denmark is a politically stable country. Incidents involving politically motivated damage to projects or installations are very rare. This is reflected in the EIU’s “AAA” rating of Denmark in terms of political risk.

The Danish labor force is generally well-educated and efficient. English language skills are good, and English is considered a natural second language among a very high proportion of Danes. The labor market is stable and flexible. U.S. companies operating in Denmark have indicated that Danish rules on the hiring and firing of employees generally enable employers to adjust the workforce quickly to changing market conditions.

The Danish labor force amounted to approximately 3 million people at the end of 2019. Of these, 891,000 (Q4, 2019) are employed in the public sector. Denmark’s OECD-harmonized unemployment rate was 4.8 percent in March 2020, relative to the EU-28 6.2 percent and OECD 5.56 percent averages.

The public sector in Denmark is large and accounts for about 25 percent of the employment at full-time equivalence. The labor force participation rate for women is among the highest in the world. In 2019, 76.1 percent of working-age women participated in the labor force and the employment rate was 72.0 percent. The male labor force participation rate and employment rate were 82.0 percent and 78.0 percent, respectively.

The Danish labor force is highly organized, with approximately 75 percent belonging to a union. Labor disputes and strikes occur only sporadically. In general, private sector labor/ management relations are excellent, based on dialogue and consensus rather than confrontation. Working conditions are laid down in a complex system of legislation and organizational agreements, where most aspects of wage and working conditions are determined through collective bargaining rather than legislation.

The contractual workweek for most wage earners is 37 and 1/2 hours. By law, employees are entitled to five weeks of paid annual leave. In practice, most of the labor force has the right to six weeks of paid annual leave, gained through other labor market agreements.

Denmark has well-functioning unemployment insurance and sick-pay schemes, self-financed or financed by the state. Maternity leave in Denmark is 52 weeks, 18 of which are reserved for the mother (4 weeks prior to birth, 14 after) and two for the father, while the remainder may be divided between the parents as they see fit. Employers are obliged to pay salary for at least 14 weeks, while the government supports the remainder of the leave. Forthcoming EU legislation will reserve 8 of the weeks’ leave to fathers. The legislation is expected to be enacted in member states before 2022.

Danish wages are high by international standards and have prompted the use of capital-intensive technologies in many sectors. Some investors report that the high average wage level is detrimental to Danish competitiveness. Although high wages and generous benefits including time off reduce competitiveness, high productivity and low direct costs to employers can result in per employee costs that are lower than in other industrialized countries. Nominal wages increased by 2.2 percent from Q4 2018 to Q4 2019, while inflation was 0.8 percent in 2019, unchanged from 2018, enhancing real wage increases. Nominal wages were forecast to increase significantly annually towards 2022, but the current situation makes forecasts highly uncertain.

Generally, personal income tax rates in Denmark are among the highest in the world. However, foreign employees making more than an amount specified annually by the Danish Immigration Service and certain researchers may choose to be subject to a 27 percent income tax rate, plus a labor market contribution amounting to 32.84 percent income tax in the first seven years of working in Denmark. Certain conditions must be fulfilled for key employees to be eligible for the 27 percent tax scheme: for example, since January 1, 2020, wages must total at least DKK 68,100 (USD 10,2000) per month before the deduction of labor market contributions, and after Danish labor market supplementary pension contributions. There are also limits based on an individual’s previous work history in the Danish labor market. Compared with the general Danish progressive income tax system, this is an attractive incentive. Further information can be obtained from Danish embassies or from the Danish Immigration Service (www.nyidanmark.dk ).

Danish work permits are not required for citizens of EU countries. U.S. companies have reported that in general, work permits for foreign managerial staff may be readily obtained. However, permits for non-managerial workers from countries outside the EU and the Nordic countries are granted only if substantial professional or labor-related conditions warrant. Special rules detailed by the Danish Immigration Service in its “Positive List Scheme” apply to certain professional fields experiencing a shortage of qualified manpower. The list is updated twice annually. Foreigners who have been hired in the designated fields will be immediately eligible for residence and work permits. The minimum educational level required for a position on the Positive List is a Professional Bachelor’s degree, e.g. pedagogue. In some cases, a Danish authorization must be obtained. This is explicitly stated on the Positive List. (E.g., non-Danish trained doctors must be authorized by the Danish Patient Safety Authority.) Professions covered by the Positive List Scheme included engineers, scientists, doctors, nurses, IT specialists, marine biologists, lawyers, accountants and a wide range of other master’s or bachelor’s degree positions. As of 2020, the Pay Limit Scheme extends to positions with an annual pay of no less than DKK 436,000 (USD 65,370), regardless of the field or specific nature of the job. Persons who have been offered a highly paid job have particularly easy access to the Danish labor market through the Pay Limit Scheme. The length of work and residence permits granted under the Pay Limit Scheme depends on the length of the employment contract in Denmark. For permanent employment contracts, work permits are granted for an initial period of 4 years. After this period the permit can be extended if the same job is held. There are several other schemes meant to make it easier for certified companies to bring employees with special skills or qualifications to Denmark. These schemes vary in duration and requirements.

Danish immigration law also allows issuance of residency permits of up to 18 months duration based on an individual evaluation, using a point system based on education, language skills and adaptability.

Denmark has ratified all eight ILO Core Conventions and been an ILO member since 1919.

As a high-income country, Denmark does not generally qualify for DFC support for projects. However, the European Energy Security and Diversification Act of 2019 permits DFC support for qualified European energy projects, as well as projects designed to preempt or counter efforts by a strategic competitor of the United States to secure significant political or economic leverage or acquire national security-sensitive technologies or infrastructure in a country that is an ally or partner of the United States.

DFC programs may also be used by at least 95 percent U.S.-owned subsidiaries in Denmark to support their investments in qualifying countries. Denmark is a member of the World Bank Group’s Multilateral Investment Guarantee Agency (MIGA).

Aaron Feit
Economic Officer
U.S. Embassy Denmark

Dag Hammarskjolds Alle 24,
2100 Copenhagen, Denmark
Email: CopenhagenICS@state.gov

Latvia and the United States share a bilateral investment treaty that came into force in December 1996.  Latvia has also concluded bilateral investment agreements with Armenia, Austria, Azerbaijan, Belarus, BLEU (Belgium-Luxembourg Economic Union), Bulgaria, Canada, China, Croatia, Czech Republic, Denmark, Egypt, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, Iceland, India, Israel, Kazakhstan, Korea, Kuwait, Kyrgyzstan, Lithuania, Moldova,  Netherlands, Norway, Poland, Portugal, Romania, Singapore, Slovakia, Spain, Sweden, Switzerland, Turkey, Ukraine, United Kingdom, Uzbekistan, and Vietnam.

Latvia has concluded the Treaty on Avoidance of Double Taxation with the United States, which entered into force on December 30, 1999.

Transparency of the Regulatory System

The Latvian government has amended its laws and regulatory procedures in an effort to bring Latvia’s legislation in compliance with the EU and WTO GPA requirements.  A number of legislative changes were aimed at increasing the transparency of the Latvian business environment and regulatory system.  At the same time, the massive legislative changes carried out in a short period of time have led to some laws and regulations that could be subject to conflicting interpretations.  The Latvian government has developed a good working relationship with the foreign business community (through FICIL) to streamline various bureaucratic procedures and to address legal and regulatory issues as they arise.  Additional information on the regulatory system in Latvia is available here: http://rulemaking.worldbank.org/en/data/explorecountries/latvia 

Public finance and debt obligations process is transparent. Detailed information on the national budget process is available on the website of the Latvian Ministry of Finance: https://www.fm.gov.lv/en/s/budget/ .

International Regulatory Considerations

As a member state of the EU, Latvia has incorporated European norms and standards into its regulatory system.  As a member of the WTO, Latvia has the duty to notify all draft technical regulations to the WTO Committee on Technical Barriers to Trade.  As a member of the European Union, Latvia is a signatory to the WTO Trade Facilitation Agreement.

Legal System and Judicial Independence

Latvia has a three-tier court system comprising district (city) courts, regional courts, and the Supreme Court.  In addition, the Constitutional Court reviews the compatibility of decrees and acts of the President of the Republic, the government, and local authorities with the constitution and the law.  Unless otherwise stipulated by law, district courts are the courts of first instance in all civil, criminal, and administrative cases.  Regional courts have appellate jurisdiction over district court cases and original jurisdiction for certain cases specified in the Civil Code, such as cases on the protection of patent rights, trademarks, and geographic indicators, as well as cases on the insolvency and liquidation of credit institutions.  The Supreme Court is the highest-level court in Latvia and – depending on the origin of the case – has either de novo review of both factual and legal findings or, in instances where it is the second appellate court reviewing a case, cassation review of only legal findings.

City and regional courts are administered by the Ministry of Justice (www.tm.gov.lv ), while the Supreme Court and Constitutional Court are independent.

Many observers have voiced concerns about the length of civil cases in Latvia, and the nature and opacity of judicial rulings have led some investors to question the fairness and impartiality of some judges.  These concerns are not specific to foreign or local investors, however, and the court system is generally viewed as applying the law equally to the interests of foreign and local investors.  Although the Ministry of Justice has enacted reforms designed to reduce the backlog of cases in the lower courts, improvements in the judicial system are still needed to accelerate the adjudication of cases, to strengthen the enforcement of court decisions, and to upgrade professional standards.

Laws and Regulations on Foreign Direct Investment

Incoming foreign investment in Latvia is regulated by the Commercial Law.  The website of the Latvian Investment and Development Agency is a helpful resource for navigating the rules and procedures governing foreign investment.  (http://www.liaa.gov.lv/en/invest-latvia/investor-business-guide/operating-environment  ).

Competition and Anti-Trust Laws

Competition-related concerns are supervised by the Competition Council (CC).  More information can be accessed at:  http://www.kp.gov.lv/en 

Expropriation and Compensation

Cases of arbitrary expropriation of private property by the Government of Latvia are extremely rare.  Expropriation of foreign investment is possible in a very limited number of cases specified in the Law on Expropriation of Real Property for Public Interest.  If the owner of the property claimed by the government deems the compensation inadequate, he or she may challenge the government’s decision in a Latvian court.

Dispute Settlement

ICSID Convention and New York Convention

Latvia has been a member of the International Center for the Settlement of Investment Disputes (ICSID) since 1997 and a member of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards since 1992.  Judgments of foreign arbitral courts that are made in accordance with either can therefore be enforced in Latvia.  The Civil Procedure Law stipulates that the judgments of foreign non-arbitral courts can be enforced in Latvia.

Investor-State Dispute Settlement

There have been no claims by U.S. investors under the Bilateral Investment Treaty against Latvia.

On December 22, 2017, the World Bank International Center for Settlement of Investment Disputes (ICSID) ruled that Latvia had violated its bilateral investment treaty with Lithuania and ordered Latvia to pay 3.7 million euros to a Lithuanian energy company in a dispute over the nationalization of a heating and hot water supply system.  According to a local law firm, this is the first decision on the merits in an ICSID case against the Republic of Latvia.  More information is available here: https://investmentpolicy.unctad.org/investment-dispute-settlement/cases/478/uab-v-latvia 

International Commercial Arbitration and Foreign Courts

On January 1, 2015, the Law on Arbitration courts came into force to regulate the establishment and operation of local arbitration courts in Latvia.  According to the information available in the register, there are 70 arbitration institutions registered in Latvia (https://www.ur.gov.lv/lv/registre/organizaciju/skirejtiesas/skirejtiesu-saraksts/ ).  In most commercial agreements, parties opt to refer their disputes to arbitration rather than to the Latvian courts.

The Civil Procedure Law contains a section on arbitration courts.  This section was drafted on the basis of the United Nations Commission on International Trade Law (UNCITRAL) model, thus providing full compliance with international standards.  The law also governs the enforcement of rulings of foreign non-arbitral courts and foreign arbitrations.  The full text of the law in English can be found here: https://likumi.lv/ta/en/id/50500-civil-procedure-law 

Bankruptcy Regulations

There are two laws governing bankruptcy procedure:  the Law on Insolvency and the Law on Credit Institutions (regulating bankruptcy procedures for banks and other financial sector companies).

According to the latest World Bank’s Doing Business Report Latvia ranked 55th out of 190 countries in terms of ease of resolving insolvency.  More information is available here: http://www.doingbusiness.org/data/exploreeconomies/latvia#resolving-insolvency .

The business community has expressed concerns over inefficiency and allegations of corruption in Latvia’s insolvency administration system.  To tackle the issue, the Latvian government has partnered with the European Bank for Reconstruction and Development and in September 2019 launched a project “Support for Debt Restructuring in Latvia”. More information available here: https://www.ebrd.com/news/2019/support-for-debt-restructuring-in-latvia-project-launched.html 

Investment Incentives

The Cross-Sectoral Coordination Center of Latvia is the main agency in charge of National Development Planning.  In accordance with the Law on the Development Planning System (https://likumi.lv/doc.php?id=175748 ), national development planning documents are prepared for a long-term (up to 25 years), medium-term (up to seven years) and short-term (up to three years). More information available here: https://www.pkc.gov.lv/en/national-development-planning/national-development-planning 

In addition, Latvia has identified the following sectors as having the highest potential for new investment: woodworking, metalworking and mechanical engineering, transport and storage, information technology (including global business services), green technology, health care, life sciences, and food processing.  The information is disseminated to the general public and potential investors via the Latvian Investment and Development Agency’s official website (http://liaa.gov.lv/invest-latvia/sectors-and-industries ), and through its representative offices (http://liaa.gov.lv/contacts/representative-offices ).

Because the Latvian government extends national treatment to foreign investors, most investment incentives and requirements apply equally to local and foreign businesses.  Latvia has three special economic zones and two free ports in which companies benefit from various tax rebates (real estate, dividend, and corporate income) and do not pay VAT.  The full list of investment incentives is available here: http://www.liaa.gov.lv/en/invest-latvia/investor-business-guide/business-incentives .

Latvia does not have a practice of issuing guarantees or jointly financing foreign direct investment projects.

Foreign Trade Zones/Free Ports/Trade Facilitation

There are five free trade areas in Latvia.  Free ports have been established in Riga and Ventspils.  Special economic zones (SEZ) have been created in Liepaja, a port city in western Latvia; Rezekne, a city in eastern Latvia; and an additional SEZ in Latgale, the poorest region in Latvia, which borders Russia and Belarus.

Somewhat different rules apply to each of the five zones.  In general, the two free ports provide exemptions from indirect taxes, including customs duties, VAT, and excise tax.  The SEZs offer additional incentives, such as an 80-100 percent reduction of corporate income taxes and real estate taxes.  To qualify for tax relief and other benefits, companies must receive permits and sign agreements with the appropriate authorities: the Riga and the Ventspils Port Authorities, for the respective free ports; the Liepaja SEZ Administration; the Rezekne SEZ Administration; or the Latgale SEZ Administration.  The SEZs are expected to be in place until 2035.

Performance and Data Localization Requirements

Except for specific requirements for investors acquiring former state enterprises through the privatization process, there are no performance requirements for a foreign investor to establish, maintain, or expand an investment in Latvia.  In the privatization process, performance requirements for investors, both foreign and domestic, are determined on a case-by-case basis.

Under Latvian Immigration Law, foreign citizens can enter and reside in Latvia for temporary business activities for up to three months in a six-month period.  For longer periods of time, foreigners are required to obtain residence and work permits.  The Latvian Investment and Development Agency, together with the Office of Citizenship and Migration Affairs, has created a guide to help third-country nationals interested in working in Latvia obtain work permits: http://workinlatvia.liaa.gov.lv/ 

A third-country national may obtain a five-year temporary residence permit if he or she has made certain minimum equity investments in a Latvian company, certain subordinated investments in a Latvian credit institution, or purchased real estate for certain designated sums, subject to limitations in each case.  More information is available here: http://www.liaa.gov.lv/en/trade-latvia/market-entry/working-and-living .

Latvia’s Law on Personal Data Processing, implementing the EU’s General Data Protection Regulation, entered into force in July 2018.  Full text of the Law available here: https://likumi.lv/ta/en/en/id/300099-personal-data-processing-law 

More information is available here:  https://www.dvi.gov.lv/en/ 

Real Property

Latvia recognizes the full spectrum of property rights, including mortgages and liens.  According to the latest World Bank Doing Business Report, Latvia is ranked 25th out of 190 countries in terms of ease of registering property.  Latvia does not have significant problems with unclear legal titles.  More information: http://www.globalpropertyguide.com/Europe/Latvia/Buying-Guide  and http://www.doingbusiness.org/data/exploreeconomies/latvia#registering-property .

Intellectual Property Rights

In an effort to harmonize its legislation with EU and WTO requirements, Latvia has established a legal framework for the protection of intellectual property rights (IPR), including legislation to protect copyrights, trademarks, and patents.  The Law on Copyrights strengthens the protection of software copyrights and neighboring rights.  Foreign owners may seek redress for violation of their IPR through the appellation council at the Latvian Patent Office, as well as through private litigation.  In copyright violation cases, aggrieved parties can request that the use of the pirated works be prohibited, pirated copies be destroyed, and violators compensate them for losses (including lost profits).  The criminal law stipulates penalties for copyright violations.

The United States has signed a Trade and Intellectual Property Rights Agreement with Latvia.  Latvia is a member of the World Intellectual Property Organization (WIPO) and party to the Paris Convention, the Berne Convention, the Patent Cooperation Treaty (PCT), the WIPO Copyright Treaty, the WIPO Performances and Phonograms Treaty, and the Geneva Phonograms Convention.  In addition, the Latvian government has amended all relevant laws and regulations to comply with the requirements of the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) to which Latvia acceded by joining the WTO.

The business community has raised concerns regarding the enforcement of IPR in Latvia.  As in much of Eastern and Central Europe, piracy rates are relatively high.  Latvian law enforcement authorities have the authority to investigate IPR infringement cases.

Every year, the European Commission publishes a report describing the customs detentions of articles suspected of infringing IPR.  These statistics are available here: https://ec.europa.eu/taxation_customs/business/customs-controls/counterfeit-piracy-other-ipr-violations/ipr-infringements-facts-figures_en  .

Latvia is not listed in USTR’s Special 301 Report or included in the Notorious Market 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/ .

Resources for Rights Holders

Clare Zimmerman
Economic Officer, U.S. Embassy Riga, Latvia
+371 6710-7000
ZimmermanCN@state.gov

List of Attorneys in Latvia, compiled by the Consular Section of the U.S. Embassy in Riga: https://lv.usembassy.gov/u-s-citizen-services/attorneys/.

American Chamber of Commerce of Latvia: http://www.amcham.lv/en/home 

Contact at Copyright Offices

Ms. Ilona Petersone
Director of Copyright Division, Ministry of Culture of the Republic of Latvia
+371 6733-0240
Ilona.Petersone@km.gov.lv

Contact at Industrial Property Offices

Mr. Sandris Laganovskis
Director of the Patent Office of the Republic of Latvia
+371 670 99 608
valde@lrpv.lv

Capital Markets and Portfolio Investment

Latvian government policies do not interfere with the free flow of financial resources or the allocation of credit.  Local bank loans are available to foreign investors.

Money and Banking System

Latvia’s retail banking sector, which is composed primarily of Scandinavian retail banks, generally maintains a positive reputation.  Latvian banks servicing non-resident clients, however, have come under increased scrutiny for inadequate compliance with anti-money laundering standards.  In 2018, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) identified Latvia’s third-largest bank as a “foreign bank of primary money laundering concern” and issued a proposed rule prohibiting U.S. banks from doing business with or on behalf of the bank.  The Latvian bank regulator has also levied fines against several non-resident banks for AML violations in recent years.

Latvia is a member of the Council of Europe Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL), a FATF-style regional body.  On August 23, 2018, MONEYVAL issued a report finding that Latvia’s AML regime was in substantial compliance with only one out of eleven assessment categories, was in moderate compliance with eight areas, but in low compliance with two areas.  In late 2019 and early 2020, MONEYVAL and the Financial Action Task Force (FATF) concluded that Latvia has developed and implemented strong enough reforms for combating financial crimes to avoid increased monitoring via the so-called “grey list.”  While it will continue enhanced monitoring under MONEYVAL to continue strengthening the system, with this decision, Latvia became the first member state under the MONEYVAL review to successfully implement all 40 FATF recommendations. The most recent MONEYVAL report can be found at: https://rm.coe.int/anti-money-laundering-and-counter-terrorist-financing-measures-latvia-/16809988c1 .

According to Latvian banking regulators, its regulatory framework for commercial banking incorporates all principal requirements of EU directives, including a unified capital and financial markets regulator.  Existing banking legislation includes provisions on accounting and financial statements (including adherence to international accounting), minimum initial capital requirements, capital adequacy requirements, large exposures, restrictions on insider lending, open foreign exchange positions, and loan-loss provisions.  An Anti-Money Laundering Law and Deposit Guarantee Law have been adopted.  An independent anti-money laundering unit (FIU) operates under the supervision of the Ministry of Interior.  Some of the banking regulations, such as capital adequacy and loan-loss provisions, reportedly exceed EU requirements.

According to the Finance Latvia Association, total assets of the country’s banks at the end of 2019 stood at 23.20 billion euros.  More information is available at: https://www.financelatvia.eu/en/industry-data/ .

Securities markets are regulated by the Law on the Consolidated Capital Markets Regulator, the Law on the Financial Instrument Market, and several other laws and regulations.

The NASDAQ/OMX Riga Stock Exchange (RSE) (www.nasdaqomxbaltic.com ) operates in Latvia, and the securities market is based on the continental European model.  Latvia, together with Estonia and Lithuania have agreed to create a pan-Baltic capital market by creating a single index classification for the entire Baltic region.  Latvia is currently rated by various index providers as a frontier market due to its small size and limited liquidity.  More information is available here: https://www.ebrd.com/news/2019/latvia-takes-next-step-toward-a-panbaltic-capital-market.html 

Foreign Exchange and Remittances

Foreign Exchange

The currency of Latvia is the euro.  There are no restrictions on exchanging currencies or capital movement and foreign investors are allowed to extract their profits in any currency with no restraints.  As of April 17, 2020, one euro is worth USD  1.0888.  Details available here: https://www.ecb.europa.eu/stats/policy_and_exchange_rates/euro_reference_exchange_rates/html/eurofxref-graph-usd.en.html 

Remittance Policies

Latvian law provides for unrestricted repatriation of profits associated with an investment.  Investors can freely convert local currency into foreign exchange at market rates, and have no difficulty obtaining foreign exchange from Latvian commercial banks for investment remittances.  Exchange rates and other financial information can be obtained at the European Central Bank web site:  https://www.ecb.europa.eu/stats/exchange/eurofxref/html/index.en.html .

Sovereign Wealth Funds

Latvia does not have a sovereign wealth fund.

Private enterprises may compete with public enterprises on the same terms and conditions with respect to access to markets, credit, and other business operations such as licenses and supplies.  The Latvian government has implemented the requirements of the EU’s Third Energy Package with respect to the electricity sector, including opening the electricity market to private power producers and allowing them to compete on an equal footing with Latvenergo, the state-owned power company.  The country’s natural gas market has also been liberalized, creating competition among privately owned gas suppliers.

SOEs are active in the energy and mining, aerospace and defense, services, information and communication, automotive and ground transportation, and forestry sectors.

Latvia as a member of the EU is a party to the Government Procurement Agreement within the framework of the World Trade Organization, and SOEs are covered under the agreement.

Detailed information on Latvian SOEs is available in the OECD Review of the Corporate Governance of State-Owned Enterprises in Latvia, which is available here:  http://www.oecd.org/daf/ca/oecd-review-corporate-governance-soe-latvia.htm .

Senior managers of major SOEs in Latvia report to independent boards of directors, which in turn report to the line ministries.  SOEs are operating under the Law On Public Persons Enterprises and Capital Shares Governance.  The law also establishes an entity that coordinates state enterprise ownership and requires annual aggregate reporting.  Detailed information on Latvian SOEs is available here: http://www.valstskapitals.gov.lv/en/  .

For additional information please see here: http://www.oecd.org/latvia/corporate-governance-in-latvia-9789264268180-en.htm .

Privatization Program

The Law on Privatization of State and Municipal Property governs the privatization process in Latvia. State JSC “Posessor” (https://www.possessor.gov.lv/ )  uses a case-by-case approach to determine the method of privatization for each state enterprise.  The three allowable methods are:  public offering, auction for selected bidders, and international tender.  For some of the largest privatized companies, a percentage of shares may be sold publicly on the NASDAQ OMX Riga Stock Exchange.  The government may maintain shares in companies deemed important to the state’s strategic interests.  Privatization of small and medium-sized state enterprises is considered to be largely complete.

Latvian law designates six State Joint Stock Companies that cannot be privatized:  Latvenergo (Energy and Mining), Latvijas Pasts (Postal Services), Riga International Airport, Latvijas Dzelzcels (Automotive and Ground Transportation), Latvijas Gaisa Satiksme (Aerospace and Defense), and Latvijas Valsts Mezi (Forestry).  Other large companies in which the Latvian government holds a controlling interest include airBaltic (Travel), TET (Information and Communication), Latvian Mobile Telephone (Information and Communication), and Conexus Baltic Grid (Energy).  While Latvia sold a 20 percent stake in national carrier airBaltic to a private investor in early 2016, the government to date has not been successful in finding a strategic investor for the airline.

Awareness of and implementation of due diligence principles of corporate social responsibility (CSR)/Responsible Business Conduct is developing among producers and consumers.  Two of the most active promoters of CSR are the American Chamber of Commerce in Latvia and the Employers’ Confederation of Latvia.  The Latvian Ministry of Welfare has also taken an active part in promoting CSR.  Several initiatives have been particularly active on CSR, including the Institute for Corporate Sustainability and Responsibility (https://www.incsr.eu/ ) the Corporate Social Responsibility Platform (http://www.ksalatvija.lv/en ), and the Human Development Award (http://www.cilvekaizaugsme.lv/home/ ).

Latvia adheres to the OECD Guidelines for Multinational Enterprises.  Latvia’s National Contact Point for the Guidelines can be contacted through this website: https://www.mfa.gov.lv/en/policy/economic-affairs/oecd/latvian-national-contact-point-for-the-oecd-guidelines-for-multinational-enterprises .  Latvia also promotes the United Nations Guiding Principles on Business and Human Rights, endorsed by the UN Human Rights Council in 2011.

Latvian law enforcement institutions, foreign business representatives, and non-governmental organizations have identified corruption and the perception of corruption as persistent problems in Latvia.  According to the 2019 Corruption Perception Index by Transparency International, Latvia ranks 44th out of 180 countries (in order from the lowest perceived level of public sector corruption to the highest).

In an effort to strengthen its anti-corruption programs, the Latvian government has adopted several laws and regulations, including the Law on Money Laundering and the Law on Conflicts of Interest.  The Conflicts of Interest Law imposes restrictions and requirements on public officials and their relatives.  Several provisions of the law deal with the previously widespread practice of holding several positions simultaneously, often in both the public and private sector.  The law includes a comprehensive list of state and municipal jobs that cannot be combined with additional employment.  Moreover, the law expanded the scope of the term state official to include members of boards and councils of companies with state or municipal capital exceeding 50 percent.  Latvia became a member of the OECD Anti-Bribery Convention in 2014.  In line with OECD recommendations the government is working to strengthen anti-corruption enforcement and improve the functioning of its independent agency, the Anti-Corruption Bureau (KNAB).

Under Latvian law, it is a crime to offer, accept, or facilitate a bribe.  Although the law stipulates heavy penalties for bribery, a limited number of government officials have been prosecuted and convicted of corruption to date.  The law also provides the possibility of withdrawing charges against a person giving a bribe in cases where the bribe has been extorted, or in cases where the person voluntarily reports these incidents and actively assists the investigation.  In addition, the Latvian government has adopted a whistleblower law that requires all government agencies and large companies to establish protocols to accept whistleblower complaints and protect whistleblowers from reprisals.

KNAB is the institution with primary responsibility for combating corruption and carrying out operational activities in response to suspected or alleged corruption.  The Prosecutor General’s Office also plays an important role in fighting corruption.

KNAB has also established a Public Consultative Council to help increase public participation in implementing its anti-corruption policies, increasing public awareness, and strengthening connections between the agency and the public.  More information is available here: https://www.knab.gov.lv/en/knab/consultative/public/ .

There is a perceived lack of fairness and transparency in the public procurement process in Latvia.  A number of companies, including foreign companies, have complained that bidding requirements are sometimes written with the assistance of potential contractors or couched in terms that exclude all but preferred contractors.

A Cabinet of Ministers regulation provides for public access to government information, and the government generally provided citizens such access.  There have been no reports the government has denied noncitizens or foreign media access to government information.

Resources to Report Corruption

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

Corruption Prevention and Combating Bureau
Citadeles iela 1, Riga, LV 1010, Latvia
+371 67356161
knab@knab.gov.lv

Contact at “watchdog” organization:

Delna (Latvian affiliate of Transparency International)
Citadeles iela 8, Riga, LV-1010
+371 67285585
ti@delna.lv

There have been no reports of political violence or politically motivated damage to foreign investors’ projects or installations.  The likelihood of widespread civil disturbances is very low.  While Latvia has experienced peaceful demonstrations related to internal political issues, there have been rare incidents when these have devolved into crimes against property, such as breaking shop windows or damaging parked cars.  U.S. citizens are cautioned to avoid any large public demonstrations since even peaceful demonstrations can turn confrontational.  The Embassy provides periodic notices to U.S. citizens in Latvia, which can be found on the Embassy’s web site: http://riga.usembassy.gov/.

The official rate of registered unemployment in February 2020, according to Eurostat, was 6.4 percent (https://ec.europa.eu/eurostat/statistics-explained/index.php/Unemployment_statistics ).  The Latvian State Employment Agency (LSEA) reported 6.8 percent unemployment at the end of March 2020.  Unemployment is significantly higher in rural areas.  A high percentage of the workforce has completed at least secondary or vocational education.  Foreign managers praise the high degree of language skills, especially Russian and English, among Latvian workers.  However, there is a shortage of mid- and senior-level managers with Western-style management skills.

Companies must keep wages above the legally specified minimum of 430 euros per month, as of April 2019.  Union influence on the wage setting process is limited.  Trade unions do not have significant influence on the labor market.  Additional information on trade unions in Latvia is available here: http://www.worker-participation.eu/National-Industrial-Relations/Countries/Latvia .

One challenge employers have faced since Latvia joined the EU is that many skilled employees can find better employment opportunities in other EU countries.  Unofficial statistics suggest that more than 240,000 people have moved from Latvia to other EU countries since May 1, 2004.  Despite the fact that the macroeconomic situation has stabilized, skilled and unskilled workers continue to emigrate.  The government is implementing a strategy to entice people who have left Latvia to return.

According to several reports, despite the relatively high unemployment rate by Western standards, there is a significant shortage of workers in manufacturing, wholesale and retail, transport and storage, and ICT sectors.  The largest share of registered unemployment is comprised of persons with only primary or secondary education who do not possess the needed, specialized skills.  To address this problem, the Latvian government has approved a list of highly skilled professions that employers may use to recruit professionals from abroad to work in Latvia: https://www.em.gov.lv/en/news/18513-the-government-supports-the-application-of-simplified-conditions-for-the-attraction-of-highly-qualified-foreign-professionals .

The Labor Law addresses discrimination issues, provides detailed provisions on the rights and obligations of employees’ representatives, and created the Conciliation Commission, a mechanism that can be used in the workplace to resolve labor disputes before going to arbitration.  Victims of sexual harassment in the workplace can also submit a complaint to the Office of the Ombudsman and the State Labor Inspectorate.

Full-time employees in Latvia work 40 hours a week.  Normally, there are five working days per week, but employers may schedule a sixth workday without offering premium pay.  Employees are entitled to four calendar weeks of annual paid vacation per year.  Employers are prohibited from entering into an employment contract with a foreign individual who does not have a valid work permit.

Latvia is a member of the International Labor Organization (ILO) and has ratified all eight ILO Core Conventions.

Due to the fact that Latvia is a high income country as defined by the World Bank, it only qualifies for DFC’s programs for energy infrastructure projects.

Latvia is a member of the World Bank Group’s Multilateral Investment Guarantee Agency (MIGA), which also provides risk insurance.

* Source for Host Country Data: http://www.fm.gov.lv/en/s/macroeconomics/main_macroeconomic_indicators/   https://statdb.bank.lv 
https://data.oecd.org/fdi/fdi-stocks.htm 

Luxembourg is considered a tax haven and it is believed that the ultimate source of this portfolio investment is primarily Russia.

Mike Ritchie
Economic Officer
Samnera Velsa iela 1, Riga, Latvia, LV-1510
+371 6710 7000
RigaCommerce@state.gov

Transparency of the Regulatory System

The regulatory system remains a challenge for some investors. Local business leaders report that bureaucratic procedures often are not user-friendly and that the interpretation of regulations is inconsistent and unclear. Businesses and private individuals complain of low-level corruption, including in the process of awarding government contracts and the granting of licenses and permits. Businesses also note that they would like to have more opportunity to consult with lawmakers regarding new legislation and that new legislation sometimes appears with little advance notice.

However, the government is making efforts to improve transparency using technology. For example, the parliament’s website contains all draft legislation, and public tenders must be published electronically in a central database. Ministries also post many, but not all, draft laws under consideration. All government procurement tenders are required to be posted on-line in a centralized database. In March 2014, Transparency International released a report recommending new laws aimed at protecting whistle-blowers, encouraging lobbying transparency, preventing and controlling conflicts of interest, and increasing transparency in political party funding. Some of the recommendations have already been addressed by introducing a whistleblower protection law and a new law on lobbying in 2017. The World Bank’s Doing Business Report ranked Lithuania 11th out of 190 in 2020. Lithuania scored especially high in the categories of Registering Property (4rd), Enforcing contracts (7th) Dealing with Construction Permits (10th) and Starting a Business (34st). It did less well in the categories of Resolving Insolvency (89th) and Getting Credit (48th).

International Regulatory Considerations

Since May 1, 2004, in accordance with its European Union membership, Lithuania has applied European Union trade policies, such as antidumping or anti-subsidy measures. The European Union import regime applies to Lithuania. The country is a member of the WTO and it notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade.

Legal System and Judicial Independence

The Lithuanian legal system stems from the legal traditions of continental Europe and complies with the EU’s acquis communautaire. New laws enter into force upon promulgation by the President (or in some cases the Speaker of the parliament) and publication in the official gazette, Valstybes Zinios (State News). Several possibilities exist for commercial dispute resolution. Parties can settle disputes in local courts or in the increasingly popular independent, i.e., non-governmental, Commercial Court of Arbitration. Lithuania also recognizes arbitration judgments by foreign courts. Domestic courts generally operate independently of government influence. Lithuania’s EU membership has given foreign firms the additional right to appeal adverse court rulings to the European Court of Justice.

The Lithuanian court system consists of courts of general jurisdiction that deal with civil and criminal matters, and includes the Supreme Court, the Court of Appeals, District Courts, and local courts. In 1999, Lithuania established a system of administrative courts to adjudicate administrative cases, which generally involve disputes between government regulatory agencies and individuals or organizations. The administrative court system consists of the High

Administrative Court and District Administrative Courts.

The Constitutional Court of Lithuania is a separate, independent judicial body that determines whether laws and legal acts adopted by the parliament, president, and the government violate the Constitution.

Laws and Regulations on Foreign Direct Investment

Lithuanian law provides that foreign entities may establish branches or representatives offices, and there are no limits on foreign ownership or control. A foreigner may hold a majority interest in a local company in Lithuania. However, there are some areas of the economy where investment is limited, such as in sectors related to national security and defense of the State, and licensing is necessary for activities related to human life and health, or which are deemed potentially risky. The national investment promotion agency Invest Lithuania provides a detailed overview of the relevant laws and regulations on foreign investment. http://www.investlithuania.com 

Competition and Anti-Trust Laws

There is a domestic Competition Council, which is responsible for the prevention of competition law violations. For more information:

Expropriation and Compensation

Lithuanian law permits expropriation on the basis of public need, but requires compensation at fair market value in a convertible currency. The law requires payment of compensation within three months of the date of expropriation in the currency the foreign investor requests. The compensation must include interest calculated from the date of publication of the notice of expropriation until the payment of compensation. The recipient may transfer this compensation abroad without any restrictions. There have been no cases of expropriation of private property by the Lithuanian government since 1991. There is an ongoing process to restitute property expropriated during World War II and the Soviet occupation. While the Lithuanian government returned most of this property, including Jewish communal property, in 2011, private property restitution remains incomplete.

Dispute Settlement

ICSID Convention and New York Convention

Lithuania is a member state to the International Centre for the Settlement of Investment Disputes (ICSID) Convention. It is also a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). Lithuania law recognizes and enforces arbitral body decisions.

Investor-State Dispute Settlement

According to Lithuanian law, State owned enterprises (SOE) have no privileges in conducting business, competing for supply, and/or in implementing projects, enforcing contracts, and accessing finance. While Baltic Institute for Corporate Governance (BICG) reports suggest that there have been cases of SOE executives extracting benefits for their own personal gain by way of guided tenders, exercising favoritism when selecting providers of goods or services, or giving business to friends and family members, the Embassy has no records of complaints from either foreign or domestic companies regarding the outcome of dispute settlement cases with state companies.

International Commercial Arbitration and Foreign Courts

According to the Lithuanian Arbitration Court, the arbitration process should be completed within six months, but depending on the complexity of a dispute and with the agreement of both parties, this period can be extended. Also, before a process starts, the Arbitration Court has 30 days to decide if it will accept the dispute and three months to prepare all the needed materials for the arbitration process. Decisions of the Lithuanian Arbitration Court may be appealed to international institutions, such as the International Court of Arbitration.

Bankruptcy Regulations

Lithuania passed the current Enterprise Bankruptcy Law in 2001 This law applies to all enterprises, public establishments, commercial banks, and other credit institutions registered in Lithuania. The law provides a mechanism to override the provisions of other laws regulating enterprise activities, assuring protection of creditors’ rights, recovery of debts, and payment of taxes and other mandatory contributions to the State. This law establishes the following order of creditors’ claims: claims by creditors that are secured by a mortgage/pledge of debtor; claims related to employment; tax, social insurance, and state medical insurance claims; claims arising from loans guaranteed or issued on behalf of the Republic of Lithuania or its government; and other claims. Bankruptcy can be criminalized in cases of intentional bankruptcy. The Law on the Bankruptcy of Natural Persons was introduced in Lithuania in 2013. The World Bank’s Ease of Doing Business survey ranks Lithuania 89th in the category of “resolving insolvency”.

Investment Incentives

The Lithuanian government taxes corporate income and capital gains at 15 percent and the personal income tax rate is 20 percent. The value added tax is 21 percent, and the annual real estate tax ranges from 0.3 to three percent, depending on the market value of a property. For more details, please visit https://investlithuania.com/investor-guide/running-your-business/ 

https://investlithuania.com/investor-guide/running-your-business/ 

Lithuanian municipalities provide special incentives to investors who create jobs or invest in infrastructure. Municipalities may tie designation criteria to additional factors, such as the number of jobs created or environmental benefits. Strategic investors’ benefits could include favorable tax incentives for up to ten years. Municipalities may grant special incentives to induce investments in municipal infrastructure, manufacturing, and services.

Foreign Trade Zones/Free Ports/Trade Facilitation

Lithuania has seven Free Economic Zones (FEZs) located near the cities of Kaunas,

Klaipeda, Siauliai, Kedainiai, Panevezys, Akmene, and Marijampole. The FEZs in Kaunas and Klaipeda have attracted the most business; there are more than one hundred companies from 17 countries operating in the Klaipeda FEZ, and 34 in the Kaunas FEZ. Companies operating in FEZs must follow the same accounting and reporting rules as companies operating in the rest of the country.

Companies that invest or are operating within the zones enjoy: – six years’ exemption from corporate income tax and a 50 percent reduction during the

• six years’ exemption from corporate income tax and a 50 percent reduction during the
• exemption from real estate tax;
• no tax on foreign company dividends.

Performance and Data Localization Requirements

In January 2017, the parliament passed legislation providing for a Startup Visa, designed for non-EU entrepreneurs wishing to start or expand information technology, biotech, nanotech, mechatronics, electronics, or laser technology businesses. For more information on the new Startup Visa, visit: http://www.startuplithuania.lt/en/news/lithuanias-startup-visa-scheme-explained .

Lithuania also participates in the EU BlueCard program, which simplifies the residency and work permit application process for highly-skilled non-EU citizens. Once secured, the BlueCard is valid for up to three years and can be extended for an additional three years. BlueCard holders are also eligible to apply for permanent residency after five years. For more information on the BlueCard program, visit: http://www.eubluecard.lt/ .

Nevertheless, foreign investors that do not qualify for these programs, including U.S. citizens, may face difficulties obtaining and renewing residency permits. U.S. citizens can stay in Lithuania no more than 90 days without a visa (and no more than 90 days in any six-month period). Those who stay longer face fines and deportation. However, foreigners may only submit residency permit applications after they arrive in Lithuania. Therefore, the Embassy recommends applicants work with Lithuanian embassies and consulates to review documentation required for a permit well in advance of their first visit to Lithuania. For more information on the various types of visas and their requirements, visit: http://www.migracija.lt/index.php?-1488882078 .

Lithuania provides special incentives to strategic investors. The criteria by which the national government or a municipality designates a strategic investor vary from project to project. In general, the national government requires that a strategic investor initially invest $50 million or more. Municipalities may tie the designation criteria to additional or other factors, such as the number of jobs created and the environmental benefits that accrue. Strategic investors’ rewards include special business conditions, such as favorable tax incentives for up to ten years. Significant tax incentives apply to foreign investments made before 1997. Municipalities may grant special incentives to induce investments in municipal infrastructure, manufacturing, and services.

The Lithuanian government does not follow “forced Localization” policy and foreign investors can use domestic and foreign content in goods or technology alike. As a member of the European Union, Lithuania follows the General Data Protection Regulation. Enforcement is carried out by the State Data Protection Inspectorate. Foreign IT providers are not required to turn over source code and/or provide access to the encryption.

Real Property

Lithuanian law protects foreign investments and the rights of investors in several ways:

• The Constitution and the Law on Foreign Capital Investment protect all forms of private
• International agreements, such as the 1958 New York Convention on the recognition and enforcement of foreign arbitral awards, offer protection.
• Bilateral agreements with the United States and other western countries on the mutual
• The Law on Capital Investment in Lithuania and other acts regulate customs duties, taxes, and relationships with financial and inspection authorities. This law also establishes dispute settlement procedures.
• In the event of justified expropriation, applicable law entitles investors to compensation

• Foreign investors may defend their rights under the Washington Convention of 1965 by

• State institutions and officials are obligated to keep commercial secrets confidential and must pay compensation for any loss or damage caused by illegal disclosure. Lithuania legalized the possibility of hiring private bailiffs to enforce court judgments in 2003.

Lithuania’s commercial laws conform to EU requirements, and include the principles of the free establishment of companies, protection of shareholders’ and creditors’ rights, free access to establishment of companies, protection of shareholders’ and creditors’ rights, free access to information, and registration procedures. Relevant laws include: the Company Law and Law on Partnerships (2004), the Law on Personal Enterprises (2004), the Law on Investments (1999), the Law on Bankruptcy of Enterprises (2001), and the Law on Restructuring of Enterprises (2001). The Civil Code of 2000 governs commercial guarantees and security instruments. It provides for the following types of guarantee and security instruments to secure fulfillment of contractual obligations: forfeiture, surety, guarantee, earnest money, pledge, and mortgage.

Intellectual Property Rights

Lithuania has significantly improved intellectual property rights (IPR) protection in recent years, and members of the innovation community report that IPR infringement and theft is infrequent. Lithuania joined the World Intellectual Property Organization (WIPO) in 2002 and it party to many of its treaties, including the Berne Convention, the Paris Convention, the Patent Cooperation Treaty, the WIPO Copyright Treaty, and the WIPO Performances and Phonograms Treaty. Lithuania joined the World Trade Organization in 2001 and so is party to the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

Following EU accession, Lithuania extended protection to member states’ trademarks, designs, and applications. Lithuania brought its national law protecting biological inventions into compliance with EU Directive 98/44 in June 2005.

In 2008, Lithuania was removed from USTR’s Special 301 Watch List and is not currently included in the Notorious Markets List.

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

The State Patent Bureau provides a list of patent attorneys at the following link: https://vpb.lrv.lt/en/ 

Capital Markets and Portfolio Investment

Government policies do not interfere with the free flow of financial resources or the allocation of credit. In 1994, Lithuania accepted the requirements of Article VIII of the Articles of Agreement of the International Monetary Fund to liberalize all current payments and to establish non-discriminatory currency agreements. Lithuania ensures the free movement of capital and does not plan to impose any restrictions. The government imposes no restrictions on credits related to commercial transactions or the provision of services, or on financial loans and credits. Non-residents may open accounts with commercial banks.

Money and Banking System

The banking system is stable, well-regulated, and conforms to EU standards. Currently there are 14 commercial banks holding a license from the Bank of Lithuania, nine foreign bank branches, two foreign bank representative offices, the Central Credit Union of Lithuania and 65 credit unions. Two hundred-eighty EU banks provide cross-border services in Lithuania without a branch operating in the country, and three financial institutions controlled by EU licensed foreign banks provide services without a branch. Nearly all foreign banks are headquartered in Sweden, Norway and Denmark. By the end of 2018 the total assets of major Lithuanian banks were $32.1 billion:

Swedbank – 32.9% (www.swedbank.lt )

SEB – 28.7% (www.seb.lt)

Luminor –20.8% (www.luminor.lt)

Other smaller banks:

• Citadele (www.citadele.lt )
• Siauliu Bankas (www.sb.lt )
• Medicinos Bankas (www.medbank.lt )
• Finasta (http://finasta.com/lit/lt )
• Revolut (www.revolut.com  )
• European Merchants Bank (www.europeanmerchantbank.com )
• Mano Bankas (www.mano.bank )

Effective January 1, 2015, all of the banks are controlled by the European Central Bank and the Bank of Lithuania. There is no restriction on portfolio investment. The right of ownership to shares acquired through automatically matched trades is transferred on the third working day following the conclusion of the transaction. The Vilnius Stock Exchange is part of the OMX group of exchanges and offers access to 80 percent of all securities trading in the Nordic and Baltic marketplace. OMX is owned by the U.S. firm NASDAQ and the Dubai Bourse. The supervisory service at the Bank of Lithuania oversees commercial banks and credit unions, securities market, and insurance companies. Lithuanian law does not regulate hostile takeovers.

Foreign Exchange and Remittances

Foreign Exchange

Lithuania has no restrictions on foreign exchange.

Remittance Policies

Lithuanian remittance policies allow free and unrestricted transfers.

Sovereign Wealth Funds

Lithuania does not maintain any Sovereign Wealth Funds.

At the beginning of 2019, the Lithuanian government was majority or full owner of 48 enterprises. Throughout 2017, the government consolidated many duplicative state-owned enterprises (SOEs) in response to OECD recommendations reducing the number of its companies from 130. The SOE sector is valued at approximately $5.8 billion and employs just over 42,000 people. The greatest number of SOEs by value are found in the electricity and gas sector (38%), followed by transportation (36%) and extractive industries including fishing, farming, and mining (21%). The transportation sector (which in Lithuania’s definition includes the postal service) accounts for over half of all SOE employment, followed by the electricity and gas sectors, which accounts for about one fifth. The largest SOE employers are Lithuanian Railways, Ignitis Group, and Lithuanian Post, which collectively employ over 23,000 people.

A list of SOEs is available at the Governance Coordination Center site: https://vkc.sipa.lt/apie-imones/vvi-sarasas/ 

In response to OECD recommendations issued during Lithuania’s accession process, the government passed several laws to reform SOE governance, addressing such issues as the hiring, firing, and oversight of top management, the introduction of independent board members to professionalize and depoliticize SOE boards and strengthen independent and pragmatic decision making, and a requirement for SOE CEOs to certify financial statements.

Privatization Program

The government has privatized most state enterprises and property, with foreign investors purchasing the majority of state assets privatized since 1990. These include companies in the banking and transportation sectors. Some foreign companies have complained about a lack of transparency or discrimination in certain privatization transactions. Major assets still under government control include the railway company (Lietuvos Gelezinkeliai), Lithuania’s three international airports (Vilnius, Kaunas, and Klaipeda), Lithuanian post (Lietuvos Pastas), as well as energy companies controlled by Ignitis Group holding company.

Although Lithuania’s high private sector contribution to GDP is evidence of a strong private sector, the concept of Corporate Social Responsibility (CSR) is still new in Lithuania, especially in rural areas where there is little or no foreign investment. The understanding of the concept is frequently linked to philanthropy, rather than partnership. The private sector appears more interested in its own business affairs rather than displaying a real commitment to social issues.

There are, however, an increasing number private-public partnerships, as well as social projects, where the private sector is involved in supporting volunteerism, environmental restoration, and scholarships. Furthermore, successful participation in the European Union market requires higher standards of CSR. Foreign investors in Lithuania have played a very important role in promoting CSR. In 2009, the government developed and approved a National Corporate Social Responsibility Development Program aimed at promoting CSR. Also, in the past few years there has been growing interest from both government and NGOs in promoting CSR values by organizing competitions and awards ceremonies such as the Social and Labor Ministry’s annual Socially Responsible Business Awards Ceremony, Confederation of Industrialists’ Awards, and others. Also, after Lithuania acceded to the OECD Anti-Bribery Convention in 2017, more business organizations and the legal community have started to promote the importance of companies adopting anti-bribery compliance programs.

A Eurobarometer survey on corruption conducted in 2017 showed that Lithuania lags behind other EU countries on scores concerning both perceptions and actual experience of corruption. Among the survey results: 93 percent of Lithuanian respondents said they think that corruption is widespread in Lithuania; 17 percent indicated that they were asked or expected to pay a bribe in the past 12 months; and 29 percent believe that the only way to succeed in business is to have political connections.

More than 50 governmental institutions regulate commerce in one way or another, creating opportunities for corrupt practices. Large foreign investors report few problems with corruption. On the contrary, most large investors report that high-level officials are often very helpful in solving problems fairly. In general, foreign investors say that corruption is not a significant obstacle to doing business in Lithuania and describe most of the bureaucrats they deal with in Lithuania as reasonable and fair. Small and medium enterprises (SMEs) perceive themselves as more vulnerable to petty bureaucrats and commonly complain about extortion. SMEs often complain that excessive red tape virtually requires the payment of “grease money” to obtain permits promptly. Business owners maintain that some government officials, on the other hand, view SMEs as likely tax-cheats and smugglers, and treat the owners and managers accordingly.

Paying or accepting a bribe is a criminal act. Lithuania established in 1997 the Special Investigation Service (Specialiuju Tyrimu Tarnyba) specifically to fight public sector corruption. The agency investigates approximately 100 cases of alleged corruption every year, but has yet to bring charges against high-level officials for corrupt practices. Lithuania ratified the UN Convention Against Corruption in December 2006. Transparency International (TI) also has a national chapter in Lithuania. TI ranked Lithuania 35th out of 180 in its 2019 Perceptions of Corruption Index with a score of 60 out of 100 (TI considers countries with a score below 50 to have serious problems with corruption.). Medical personnel, local government officials, among others, were cited by TI as prone to corruption.

Lithuania ratified the UN Anticorruption Convention in 2006 and acceded to the OECD Anti-Bribery Convention in 2017.

Resources to Report Corruption

Special Investigation Service
Jakšto g. 6, 01105 Vilnius, Lithuania
Tel: 370-5266333
Fax: 370-70663307
Email: pranesk@stt.lt

Transparency Internationa
Sergejus Muravjovas, Executive Director
Transparency International
Didžioji st. 5, LT–01128, Vilnius, Lithuania
Tel: 370 5 212 69 51
info@transparency.lt | skype: ti_lithuania

Since its independence in 1991, Lithuania has not witnessed any incidents involving politically motivated damage to projects and/or installations.

Lithuanian labor is relatively inexpensive compared to Western Europe. However, employment regulations are often stricter than those in other EU countries, according to some foreign investors. By law, white-collar workers have a 40-hour workweek. Blue-collar workers have a 48-hour workweek with premium pay for overtime. Maternity leave in Lithuania is granted for up to 126 days, and the government compensates 100 percent of the mother’s salary. A father is also allowed to take paternity leave for one month. His salary is compensated 100 percent as well. Sick leave in Lithuania is granted up to 14 days at any one time and no more than 90 days a year. For the first two days, the salary compensation is 80 – 100 percent, paid by the employer, with the rest of the days being compensated by SODRA (Lithuanian Social Security body) at 80 percent of salary. Lithuania is a member of International Labor Organization (ILO) and has ratified its core conventions.

The government adjusts the monthly minimum wage periodically. Since 2020, Lithuania’s minimum monthly wage is $679. The average monthly wage is approximately $1,522.

The ability of Lithuanians to work legally in EU countries generated a sizable outflow of labor, causing a domestic shortage of skilled construction workers, truck drivers, shop assistants, medical nurses, and medical specialists. In 2019 unemployment rate stood at 6.7 percent.

Lithuania’s management-labor relations are good. Labor unions are not considered overly influential in Lithuania, according to some foreign investors. There have been no major strikes or labor disruptions since 1991.

Lithuania has one of the best-educated workforces in Central and Eastern Europe. Lithuania ranks fourth among the EU states in terms of population with higher education and first in the Baltic States. Lithuania is one of the five EU members with the highest percentage of people speaking at least one foreign language. Ninety percent of Lithuanians can speak at least one other language – usually English, Polish, and/or Russian – apart from their mother tongue.

Major Lithuanian companies specializing in IT, biotechnology, laser technology, etc., cooperate closely with the leading Lithuanian technological universities, which provide companies with R&D services and offer students specialized on-the-job training programs. This way companies are able to attract a large number of qualified specialists for both local and international projects. Some technology companies, however, have noted challenges in finding highly- skilled workers with advanced technical degrees.

In 2017, the parliament passed a new Labor Code. These changes aim to encourage foreign investment and job creation by simplifying some employment conditions and clarifying other requirements. The new law decreases the advanced notice required when employers terminate an employment contract, and adds new contract options for employers, such as project-based contracts and job-sharing contracts. The law also clarifies previous informal practices by requiring non-union employers to form works councils to represent employee interests, and requiring employers to establish and publicize standard company compensation policies.

Coverage from the Overseas Private Investment Corporation (OPIC) (www.opic.gov) is available for U.S. investments in Lithuania.

* Source for Host Country Data: Lithuanian Statistics Department and Bank of Lithuania

Jonas Vasilevicius, Commercial Specialist
Tel: 370-5 2665671
VasileviciusJ@state.gov
U.S. Embassy Vilnius
Akmenu str. 6
Vilnius, Lithuania

Norway has concluded investment protection agreements with numerous countries. These agreements contain provisions for repatriation of capital, dispute settlement, and standards for expropriation and nationalization by the host country.

Norway and other members of the European Free Trade Association (EFTA) — Iceland, Liechtenstein and Switzerland — have 27 joint free trade agreements covering 40 countries that include investment protection provisions: Albania, Bosnia and Herzegovina, Canada, Central American States (Costa Rica and Panama), Chile, Colombia, Egypt, the Philippines, Georgia, Gulf Cooperation Council (GCC), Hong Kong, Israel, Jordan, Lebanon, Macedonia, Mexico, Montenegro, Morocco, the Palestinian Authority, Peru, Serbia, Singapore, Southern African Customs Union, The Republic of Korea, Tunisia, Turkey, and Ukraine. Norway also has bilateral FTAs with the Faroe Islands and Greenland. The agreements cover trade in goods and services, investment protections, dispute settlement, and other issues generally found in bilateral investment accords.

EFTA is currently negotiating FTAs with Algeria, India, Indonesia, Ecuador, Malaysia, the Eurasian Custom Union (Belarus, Kazakhstan and Russia), Thailand, Vietnam and Mercosur (Argentina, Brazil, Paraguay and Uruguay). Norway is negotiating a bilateral FTA with China.

Norway signed a bilateral taxation treaty with the United States in 1971, which can be found at: http://www.irs.gov/Businesses/International-Businesses/Norway—Tax-Treaty-Documents .

Transparency of the Regulatory System

The transparency of Norway’s regulatory system is generally on par with that of the EU. Norway is obliged to adopt EU directives under the terms of the EEA accord in the areas of social policy, consumer protection, environment, company law, and statistics.

All draft bills are made available for comment through a public consultation process. The Norwegian parliament, the Storting, exercises legislative power in Norway and must approve all formal laws (acts, directives and regulations). Draft bills are available at: https://www.regjeringen.no/en/find-document/consultations/id1763/  Norwegian laws and regulations are available at: https://lovdata.no/info/information_in_english 

Norway’s public finances and debt obligations are transparent. The Government publishes the National Budget and revised budget on the website www.statsbudsjettet.no  and an annual report to Parliament on the State’s account: https://www.regjeringen.no/no/dokumenter/meld.-st.-3-20192020/id2699198/ .  The Ministry of Finance has a webpage on Government debt: https://www.regjeringen.no/en/topics/the-economy/economic-policy/the-central-governments-outstanding-debt/id443404/ 

International Regulatory Considerations

Norway is a member of the European Economic Area (EEA) and as such implements applicable EU directives under the terms of the agreement.

Norway is a member of the World Trade Organization (WTO) and notifies draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT).

Legal System and Judicial Independence

The Norwegian legal system is similar to that of other Nordic countries, but does not consist of a single comprehensive civil code. Norwegian law is based on the principle of freedom of contract, subject only to limited restrictions. Contracts, whether oral or written, are generally binding on the parties.

Laws and Regulations on Foreign Direct Investment

Norway welcomes foreign investment as a matter of policy and generally grants national treatment to foreign investors. Ownership restrictions exist on some natural resources and on some activities (fishing/ maritime/ road transport).

A new National Security Act entered into force January 1, 2019 and provides the legal foundation for enhanced government screening of foreign investments based on national security concerns. Norway’s legal system is robust and trusted.

Competition and Anti-Trust Laws

Current legislation governing competition went into effect in 2004 and is enforced by the Norwegian Competition Authority (NCA). Under the authority of the Ministry of Trade, Industry and Fisheries the NCA is authorized to conduct non-criminal proceedings and impose fines, or “infringement fees,” for anti-competitive behavior. The size of the fees may vary according to a number of factors, including company turnover and severity of the offense. The 2004 legislation also empowers the NCA to halt mergers or acquisitions that threaten to significantly weaken competition. Companies planning such transactions are generally obliged by law to report their plans to the NCA, which may conduct a review. However, if the combined annual turnover in Norway does not exceed NOK 1 billion (USD 195 million) or the annual turnover of one of the companies NOK 100 million (USD 9.5. million), notification is not required.

Public Procurements

Pursuant to its obligations under the EEA, Norway implemented EU legislation on public procurements on January 1, 1994. Norway is also a signatory to the WTO Government Procurement Agreement (GPA). The EEA/EU legislation and WTO agreement oblige Norway to follow internationally recognized, transparent procedures for public procurements above certain threshold values.

All public procurement contracts exceeding certain threshold values must be published in the Official Journal of the European Union and in the EU’s Tenders Electronic Daily (TED) databank. Norway instituted an electronic notice database more than a decade ago and currently transmits all tender notices electronically through this database to the TED system.

The rules apply to procurement by the central government, regional or local authorities, bodies governed by public law, or associations formed by one or more such entities. In addition, special

rules apply to the procurement by certain entities in the “utilities” sectors of water, energy, transport, and telecommunications.

Public agencies must publish general annual plans for purchases of goods and services, as well as general information on any major building and construction projects planned. No later than two months after a contract has been awarded, a notice must be published stating which company won the contract. All notices must be published in an EU language.

Discriminatory technical specifications may not be used to tailor contracts for a local or national supplier. Any technical standards applied in the procurement process must be national standards that are harmonized with European standards. If no such standards exist, other international or national standards may be applied. All specifications that are to be used in evaluating tenders must be included in the notice or in the invitation to tender.

In general, public procurements are non-discriminatory and based on open, competitive bidding. There are exceptions, however, notably in defense procurements where national security concerns may be taken into account.

The Complaints Board, an independent review body, offers suppliers an inexpensive complaint process for bid challenges. The board can issue “non-binding opinions” and review the legality of the procurement in question. More serious disputes may be taken before the European Surveillance Authority (ESA), or the courts, but the decision making process can be lengthy.

Expropriation and Compensation

There have been no cases of questionable expropriation in recent memory. Government takings of property are generally limited to non-discriminatory land and property condemnation for public purposes (road construction, etc.). The Embassy is not aware of any cases in which compensation has not been prompt, adequate, and effective.

Dispute Settlement

ICSID Convention and New York Convention

Norway has ratified principal international agreements governing arbitration and settlement of investment disputes, including the 1958 New York Convention and the 1965 Washington Convention establishing the World Bank Group-based international center for the settlement of investment disputes (ICSID). The UN-based New York Convention requires courts of contracting states to recognize and enforce arbitration awards made in other contracting states.

Investor-State Dispute Settlement

Norway is party to 15 Bilateral Investment Treaties and 32 Treaties with Investment Provisions . The Embassy is not aware of any unresolved disputes between any U.S. investors and the government of Norway.

International Commercial Arbitration and Foreign Courts

Norway’s legal system provides effective means for enforcing property and contractual rights.

Bankruptcy Regulations

Norway has strong bankruptcy laws and is ranked 5 out of 190 for ease of “resolving insolvency” on the World Bank’s 2020 Doing Business Index. According to the World Bank, the average duration for bankruptcy proceedings in Norway is half that of the OECD average, at just under a year.

Investment Incentives

Norway’s SkatteFUNN research and development (R&D) tax incentive scheme is a government program designed to stimulate R&D in Norwegian trade and industry. Businesses and enterprises that are subject to taxation in Norway are eligible to apply for tax relief. For more information, see:  https://www.oecd.org/sti/RDTax%20Country%20Profiles%20-%20NOR.pdf 

Foreign Trade Zones/Free Ports/Trade Facilitation

Norway has no foreign trade zones and does not contemplate establishing any.

Performance and Data Localization Requirements

Norway generally does not impose performance requirements on foreign investors, nor offer significant general tax incentives for either domestic or foreign investors. There is an exception, however, for investments in sparsely settled northern Norway where reduced payroll taxes and other incentives apply. There are no free-trade zones, although taxes are minimal on Svalbard, a remote Arctic archipelago which is subject to special treaty provisions but administered by Norway. A state industry and regional development fund provides support (e.g., investment grants and financial assistance) for industrial development in areas with special employment difficulties or with low levels of economic activity.

Norway does not require “forced localization” nor impose requirements on data storage.

Real Property

Norway recognizes secured interests in property, both movable and real. The system for recording interests in property is recognized and reliable. Norway maintains an open and effective legal and judicial system that protects and facilitates acquisition and disposition of rights in property, including land, buildings, and mortgages.

Intellectual Property Rights

Norway adheres to key international agreements for the protection of intellectual property rights (IPR) (e.g., the Paris Union Convention for the Protection of Industrial Property, the Berne Copyright Convention, the Universal Copyright Convention of 1952, and the Patent Cooperation Treaty).  As a member of the World Trade Organization (WTO), this also includes the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

The chief domestic statutes governing IPR include: the Patents Act of December 15, 1967, as amended; the Designs Act of March 14, 2003; the Copyrights Act of May 12, 1961, as amended; the Layout-design Act of June 15, 1990, as amended; the Marketing Act of January 9, 2009; and the Trademarks Act of March 26, 2010.  The above legislation also protects trade secrets and industrial designs, including semiconductor chip layout design.  As a European Economic

Area (EEA) member, Norway adopted legislation intended to implement the 2001 EU Copyright Directive, though subsequent court cases exposed shortcomings in the legislation (see below).

Patents

The patent office (Patenstyret) grants patents for a period of 20 years (Acts of June 8, 1979 and May 4, 1985).  U.S. industry has expressed concern that Norway’s regulatory framework for process patents filed prior to 1992 denies adequate patent protection for a number of pharmaceutical products.  Although Norway introduced product patents for pharmaceuticals in 1992, the old system has left a difficult legacy for pharmaceutical companies, as competitors claiming to use non-patented processes entered the market. Several U.S. pharmaceutical companies filed successful patent infringement lawsuits in Norwegian courts to fend off these new entrants, but others lost their court cases and were later forced to restructure their Norwegian operations with loss of employment.  Norway was placed on the United States Trade Representative (USTR) Special 301 Watch List in 2008 due to concerns about pharmaceutical patent protection and has not been re-listed since its removal in 2013.

Copyright

In June 2005, Norway enacted legislation based on the EU’s 2001 Copyright Directive to combat Internet piracy, but subsequent court cases showed that the law did not give sufficient grounds for enforcement.  The Government of Norway has since amended the Copyright Act, which entered into force in July 2013.  The amended Act clarifies the process for gaining access to an infringer’s identity and  provides a site-blocking mechanism.  Positive developments on the enforcement side are complemented by the growing popularity of legal streaming alternatives like Spotify, Netflix, and HBO.

Piracy

Internet piracy in Norway is facilitated by high broadband internet penetration, which makes peer-to-peer downloads of video easy and common.  Groups that release early copies of new motion pictures on the Internet are active in the Norwegian market, and Norway has experienced some “camcording incidents,” where motion pictures are illegally recorded in cinemas.  Private organizations like the Motion Picture Association are attempting to raise public awareness of Internet and video piracy, including by running anti-pirating advertisements in movie theaters.  Norway is not included in the Notorious Markets List.

Enforcement

The Norwegian government does not consider itself obligated, under the EEA Agreement, to implement the European Union Enforcement Directive.  Norway does not expressly ban imports or exports of counterfeit or pirated goods for private use or consumption.  However, import or export for resale or other commercial purpose is controlled by Norwegian Customs and rights holders are notified.  Customs may seize and hold suspected counterfeit goods for up to five working days, during which time rights-holders may decide whether to files charges or pursue a settlement.  If the rights holder does not pursue the case or respond to the notice, the goods are released to the importer unless the goods are considered harmful.  By comparison, customs officials in the EU have wider powers to seize, hold, and destroy counterfeit shipments.  In 2010, Norwegian Customs established an IPR office to coordinate training and increase awareness.  In 2015, the Norwegian government launched a new website and an awareness campaign titled “Choose the Real Deal” (velgekte.no).  Rights holders report that law enforcement authorities have begun investigating major copyright infringement cases, which has resulted in the closure of several infringing websites.  However, rights holders contend that the authorities still do not give adequate priority to copyright and Internet piracy cases.

Resources for Rights holders

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/ .

Norwegian Industrial Property Office: http://www.patentstyret.no/en/ 

A list of local lawyers is available at http://norway.usembassy.gov/lawyers.html.

Capital Markets and Portfolio Investment

Norway has a highly-computerized banking system that provides a full range of banking services, including internet banking. There are no significant impediments to the free market-determined flow of financial resources.

Foreign and domestic investors have access to a wide variety of credit instruments. The financial regulatory system is transparent and consistent with international norms. The Oslo Stock Exchange facilitates portfolio investment and securities transactions in general.

Money and Banking System

Norwegian banks are generally considered to be on a sound financial footing, and the banking sector holds an estimated USD 530 billion in assets. Conservative asset/liquidity requirements limited the exposure of banks to the global financial crisis in 2008/9. The Ministry of Finance reduced the requirement for banks’ countercyclical capital buffer from 2.5% to 1% on March 12, 2020 as part of the government’s economic response to COVID-19.  This lower capital requirement is expected to help banks provide more liquidity to struggling businesses. Foreign banks have been permitted to establish branches in Norway since 1996.

Foreign Exchange and Remittances

Foreign Exchange

Norway’s currency is the Krone. Dividends, profits, interest on loans, debentures, mortgages, and repatriation of invested capital are freely and fully remissible, subject to Central Bank reporting requirements. Ordinary payments from Norway to foreign entities can normally be made without formalities through commercial banks. Norway is a member of the Financial Action Task Force.

Remittance Policies

See above, no restrictions.

Sovereign Wealth Funds

Norway’s sovereign wealth fund, the Government Pension Fund Global (GPFG), was established in 1990 and was valued at NOK 10,088 billion (USD 1.148 trillion) at year-end 2019. The management mandate requires the fund to be widely diversified, outside Norway. Petroleum revenues are invested in global stocks and bonds, and the current portfolio includes over 9,200 companies and approximately 1.5 percent of global stocks. The fund is invested across four asset classes. The fund aims to invest in most markets, countries, and currencies to achieve broad exposure to global economic growth. Close to 40 percent of the fund’s investments are in the United States, which is its single largest market. The fund tries to play an active role in its investments and aims at voting in almost all general shareholder meetings.

In 2004, Norway adopted ethical guidelines for GPFG investments that prohibit investment in companies engaged in various forms of weapons production, environmental degradation, tobacco production, human rights violations, and what it terms “other particularly serious violations of fundamental ethical norms.” In March 2019 the GON announced that companies classified by index provider FTSE Russell as being in the subsector “0533 Exploration & Production” in the sector “0001 Oil & Gas” no longer would be part of the GPFG portfolio. Current holdings in these companies will be phased out over time. More broadly-focused energy companies, which have investments in renewable and sustainable energy sources as well as oil & gas divisions, may still be included. The fund currently has over 100 companies on its exclusion list, at least 24 of which are U.S. companies. The ethical guidelines also highlight three focus areas in term of sustainability: children’s rights, climate change, and water management.

The fund adheres to the Santiago Principles and is a member of the IMF-hosted International Working Group on Sovereign Wealth Funds.

The government continues to play a strong role in the Norwegian economy through its ownership or control of many of the country’s leading commercial firms. The public sector accounts for nearly 60 percent of GDP. The Norwegian government is the largest owner in Norway, with ownership stakes in a range of key sectors (e.g., energy, transportation, finance, and communications). About 70 State-Owned Enterprises (SOEs) are managed directly by the relevant government ministries, and approximately 35 percent of the stock exchange’s capitalization is in government hands. State ownership in companies can be used as a means of ensuring Norwegian ownership and domicile for these firms.

Norway is party to the Government Procurement Agreement (GPA) within the framework of the World Trade Organization (WTO) and a signatory to all relevant annexes. SOEs are thus covered under the agreement.

Successive Norwegian governments have sustained stable levels of strong, transparent, and predictable government ownership. The previous center-left government increased its stake in companies like Equinor (formerly Statoil) ASA, Kongsberg Gruppen AS, and Yara International ASA, while selling off other holdings. The current center-right government has taken some limited steps to reduce ownership stakes.

The GON publishes the annual state ownership report, available in English here: https://www.regjeringen.no/en/topics/business-and-industry/state-ownership/statens-eierberetning-2013/the-state-ownership-report/id2395364/ 

Privatization Program

Norway has no current plans to privatize any SOEs.

Corporate Social Responsibility (CSR) is very much part of Norwegian corporate and political consciousness. Significant attention has been given to ethical and sustainable business practices over the last several years; the GON has issued a series of white papers, most recently in 2015, on promoting human rights through foreign policy and foreign development assistance. In 2009, a white paper laid out  responsibility of Norwegian businesses in the global economy and in 2006-2007, the GON set down guidelines for ethical and responsible conduct in state-owned enterprises, and incorporated climate policy, procurement policy, and development policy as parts of the GON’s broader CSR vision.

Norway adheres to the OECD Guidelines for Multinational Enterprises. Norway’s National Contact Point (NCP) for the OECD Guidelines raises awareness of the due diligence approach of the Guidelines and handles complaints against Norwegian businesses with international operations, in the event they are not behaving in accordance with the Guidelines. The NCP facilitates resolution of these complaints through dialogue and mediation. Kompakt is the Government’s consultative body on matters relating to CSR: https://www.regjeringen.no/en/topics/foreign-affairs/business-cooperation-abroad/innsikt/kompakt_en/id633619/ 

The Norwegian Accounting Act requires companies listed on the Oslo Stock Exchange to provide a report on their policies and practices for corporate governance. The Norwegian Corporate Governance Board, composed of nine independent organizations, issues and updates the Norwegian Code of Practice for the above mentioned companies. Transparency and disclosure are key to the development of corporate social responsibility. Large enterprises are required under Section 3-3c of the Accounting Act to report on their CSR activities. Public disclosure requirements are increasingly regulated. The work of the EU in this area may lead to the development of regulations of relevance to Norway.

In the mining sector, Norway encourages adherence to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas and participates in the Extractive Industries Transparency Initiative (EITI).

In order to prevent tax evasion and the use of tax havens to conceal financial information, large enterprises and public-interest entities that are active in the extractive industry or in the logging of primary forests are required to report on a country-by-country basis. In addition, Norway has entered into a number of new bilateral tax information exchange agreements in recent years.

Business is generally conducted “above the table” in Norway, and Norway ranks 7 out of 180 countries on Transparency International’s 2019 Corruption Perceptions Index. Corrupt activity by Norwegian or foreign officials is a criminal offense under Norway’s Penal Code. Norway’s anti-corruption laws cover illicit activities overseas, subjecting Norwegian nationals/companies who bribe officials in foreign countries to criminal penalties in Norwegian courts. In 2008, the Ministry of Foreign Affairs launched an anti-corruption initiative, focused on limiting corruption in international development efforts.

Norway is a member of the Council of Europe’s anti-corruption watchdog Group of States against Corruption (GRECO) and ratified the Criminal Law Convention on Corruption in 2004, without any reservations.  Norway has ratified the UN Anticorruption Convention (2006) and is a signatory of the OECD Convention on Combating Bribery.

Resources to Report Corruption

The Norwegian National Authority for Investigation and Prosecution of Economic and Environmental Crime (ØKOKRIM)
Address: Postboks 8193 Dep, 0034 Oslo
Telephone: +47 23 29 10 00
Email: post.okokrim@politiet.no

Contact at “watchdog” organization:

Guro Slettemark
Secretary General
Transparency International Norge
PB 582 Sentrum
0106 Oslo
slettemark@transparency.no
+47 90 87 46 26

Norway is a vibrant, stable democracy. Violent political protests or incidents are extremely rare, as are politically motivated attacks on foreign commercial projects or property. However, on July 22, 2011, a Norwegian individual motivated by extreme anti-Islam ideology carried out twin attacks on Oslo’s government district and on the Labor Party’s youth summer camp in Utøya, killing 77 people. The individual, now in prison, operated alone and this incident is not generally considered an indicator of increased political violence in the future.

Obtaining work permits for foreign labor, particularly for semi-skilled workers, can be cumbersome.

Skilled and semi-skilled labor is usually available in Norway. The labor force as of year-end 2019 totaled about 2.85 million persons, representing 70.6 percent of the working-age population.  2.74 million persons were employed at year end 2019, with unemployment at 3.7 percent.

Union membership is in excess of 1.9 million persons, over 50 percent of the labor force. The unions are independent of the government but some, such as the largest (LO), have close and historic ties with the Labor Party. Norway has a highly centralized and constructive system of collective bargaining. The government may impose mandatory wage mediation should strikes threaten key sectors of the economy, particularly the oil and gas and transportation sectors.  Mandatory wage mediation has been used 119 times since 1953, most recently in 2019 to end a strike among hospital nurses.

Employee benefits are generous, e.g., one year’s paid parental leave (shared between parents, and financed chiefly by the government), and unemployment benefits for up to 104 weeks. There are special provisions for layoffs linked to lower activity for the employer.

The average number of hours worked per week in one’s primary job, 33.9 in 2018, is the third lowest in the OECD, after Germany and Denmark. Productivity, however, is high – significantly higher than the EU average. Sickness and absenteeism rates have been between 6-8 percent over the last decade, and stood at 6.0 percent at the end of 2019. Relatively high disability rates, especially among young people, are a concern.

Norwegian blue-collar hourly earnings are comparatively high. High wages encourage the use of relatively capital-intensive technologies in Norwegian industry. Top-level executives and highly skilled engineers, on the other hand, are generally paid considerably less than their U.S. counterparts, which, when combined with relatively high wages at the bottom of the wage scale, contributes to Norway’s very high level of income equality relative to other OECD countries.

DFC does not operate in Norway. However, Norway is a member of the World Bank Group’s Multilateral Investment Guarantee Agency (MIGA).

The French Credit Insurer COFACE signed an agreement to acquire the Norwegian Guarantee Institute for Export Credits (GIEK), the central governmental agency responsible for issuing export credits and investment guarantees, in February 2020. The acquisition is pending approval from the European Free Trade Association Surveillance Authority (ESA).  GIEK’s primary function is to promote export of Norwegian goods and services, and Norwegian investment abroad. It underwrites exports to over 150 countries of all types of goods and services. The guarantees may encompass a single transaction or a series of transactions and cover not only commercial risk, i.e., bankruptcy on the part of the debtor or non-payment for other reasons, but also political risk, i.e., war, expropriation and actions by public authorities that prevent payment.

GIEK offers long-term guarantees for export of capital goods to most countries, including emerging markets. The guarantees are issued on behalf of the Norwegian government and can be used as security vis-à-vis banks and other financial institutions to facilitate funding. The Director General and a Board of seven Directors are responsible for day-to-day operations. GIEK guarantees the down payment on a loan raised by the buyer for financing deliveries from a Norwegian exporter. GIEK is a member of the Berne Union.

* Source for Host Country Data: Statistics Norway (http://ssb.no/en/ )

Per SOGGE
Economic Specialist
Embassy of the United States of America
Morgedalsvegen 36
0378 Oslo
Norway
+47 2130 8665
oslopolecon@state.gov

Poland has concluded bilateral investment agreements with the following countries: Albania (1993); Argentina (1992); Australia (1992); Azerbaijan (1999); Bangladesh (1999); Belarus (1993); Canada (1990); Chile (2000); China (1989); Egypt (1998); India (1997 – terminated in March 2017;   a 15 year sunset clause applies); Indonesia (1993); Iran (2001; although Poland supports international sanctions regimes); Israel (1992); Jordan; Kazakhstan (1995); Kuwait (1993); Macedonia (1997); Malaysia (1994); Moldova (1995); Mongolia (1996); Morocco (1995); Norway (1990); Serbia and Montenegro (1997); Singapore (1993); Slovakia (1996 termination under consultations); South Korea (1990); Switzerland (1990); Thailand (1993); Tunisia (1993); Turkey (1994); Ukraine (1993); United Arab Emirates (1994); the United States (1994); Uruguay (1994); Uzbekistan (1995); Vietnam (1994).

In May 2020, all EU-member states, except Sweden and Finland, signed an agreement of termination of intra-BITs concluded by the member states. This will terminate Poland’s final BIT, which is with Slovakia.  Sweden and Finland will sign bilateral agreements with Poland terminating the “sunset clauses.” in their existing BITs.  During the notice period, as stipulated in most of the intra-EU BITs, all the obligations assumed by Poland remain in force.  Moreover, most of the intra-EU BITs contain sunset clauses that prolong the treaty protections.

The United States and Poland signed a Treaty Concerning Business and Economic Relations in 1990 that was amended and re-ratified in October 2004 due to Poland’s entrance into the EU.  A current list of all Poland’s BITs, including the documents themselves, can be found at: http://investmentpolicyhub.unctad.org/IIA/CountryBits/168#iiaInnerMenu 

Poland has signed double taxation treaties with over 80 countries.  The United States shares a double taxation treaty with Poland; an updated bilateral tax treaty was signed in February 2013 and is awaiting U.S. ratification.  The “Agreement between the United States of America and the Republic of Poland on Social Security” prevents double taxation, enables resumption of payments to suspended beneficiaries, and allows transfer of benefit eligibility.

The Polish tax system underwent significant changes in 2018, many of which became effective in 2019 or will become effective in 2020.

In 2019, the most important changes involved:

• An obligatory split payment mechanism;

• A “White List” of VAT taxpayers (along with their VAT numbers and bank account details) and tax-deductible costs;

• Relief from income taxes for bad debts;

• Major changes to the processes for “withholding tax” (postponed until 1 July 2020);

• A new matrix of VAT rates;

• The replacement of VAT returns with a new Uniform Control File (JPK) structure;

• An agreement on cooperation in tax matters;

• Incentives for registering intellectual property, a.k.a. “IP Box” (See Section 5 for more details); and

• New rules for accounting for tax loss.

More information can be found at http://taxsummaries.pwc.com/ID/Poland-Overview 

Some U.S. investors have expressed concern that Poland’s tax authorities do not always consistently uphold presumably binding tax decisions and sometimes seek retroactive payments after a reversal.  In 2019, tax offices carried out nearly one-fifth fewer audits than in 2018. Irregularities were found more often, but the amount recovered to the budget was lower.  This trend has been observed for a few years and shows that the tax system is being effectively sealed and taxpayers are more accurately selected for audits. The double taxation treaty does not cover stock options as part of remuneration packages, according to some investors.

Transparency of the Regulatory System

The Polish Constitution contains a number of provisions related to administrative law and procedures.  It states administrative bodies have a duty to observe and comply with the law of Poland.  The Code of Administrative Procedures (CAP) states rules and principles concerning participation and involvement of citizens in processes affecting them, the giving of reasons for decisions, and forms of appeal and review.

As a member of the EU, Poland complies with EU directives by harmonizing rules or translating them into national legislation.  Rule-making and regulatory authority exists at the central, regional, and municipal levels.  Various ministries are engaged in rule-making that affects foreign business, such as pharmaceutical reimbursement at the Ministry of Health or incentives for R&D at the Ministry of Development.  Regional and municipal level governments can levy certain taxes and affect foreign investors through permitting and zoning.

Polish accounting standards do not differ significantly from international standards.  Major international accounting firms provide services in Poland.  In cases where there is no national accounting standard, the appropriate International Accounting Standard may be applied.  However, investors have complained of regulatory unpredictability and high levels of administrative red tape.  Foreign and domestic investors must comply with a variety of laws concerning taxation, labor practices, health and safety, and the environment.  Complaints about these laws, especially the tax system, center on frequent changes, lack of clarity, and strict penalties for minor errors.

Poland has improved its regulatory policy system over the last several years.  The government introduced a central online system to provide access for the general public to regulatory impact assessments (RIA) and other documents sent for consultation to selected groups such as trade unions and business.  Proposed laws and regulations are published in draft form for public comment, and ministries must conduct public consultations.  Poland follows OECD recognized good regulatory practices, but investors say the lack of regulations governing the role of stakeholders in the legislative process is a problem.  Participation in public consultations and the window for comments are often limited.

New guidelines for RIA, consultation and ex post evaluation were adopted under the Better Regulation Program in 2015, providing more detailed guidance and stronger emphasis on public consultation.  Like many countries, Poland faces challenges to fully implement its regulatory policy requirements and to ensure that RIA and consultation comments are used to improve decision making.  The OECD suggests Poland extend its online public consultation system and consider using instruments such as green papers more systematically for early-stage consultation to identify options for addressing a policy problem.  OECD considers steps taken to introduce ex post evaluation of regulations encouraging.

Bills can be submitted to the parliament for debate as “citizen’s bills” if authors collect 100,000 signatures.  NGOs and private sector associations most often take advantage of this avenue.  Parliamentary bills can also be submitted by a group of parliamentarians, a mechanism that bypasses public consultation and which both domestic and foreign investors have criticized.  Changes to the government’s rules of procedure introduced in June 2016 reduced the requirements for RIA for preparations of new legislation.

Administrative authorities are subject to oversight by courts and other bodies (e.g., the Supreme Audit Chamber – NIK), the Office of the Human Rights Ombudsman, special commissions and agencies, inspectorates, the Prosecutor and parliamentary committees.  Polish parliamentary committees utilize a distinct system to examine and instruct ministries and administrative agency heads.  Committees’ oversight of administrative matters consists of: reports on state budgets implementation and preparation of new budgets, citizens’ complaints, and reports from the NIK.  In addition, courts and prosecutors’ offices sometimes bring cases to parliament’s attention.  The Ombudsman’s institution works relatively well in Poland.  Polish citizens have a right to complain and to put forward grievances before administrative bodies.  Proposed legislation can be tracked on the Prime Minister’s webpage, https://legislacja.rcl.gov.pl/  and the parliament’s webpage: https://www.sejm.gov.pl/sejm9.nsf/proces.xsp 

Poland has consistently met or exceeded the Department of State’s minimum requirements for fiscal transparency: https://www.state.gov/e/eb/ifd/oma/fiscaltransparency/273700.htm.  Poland’s budget and information on debt obligations were widely and easily accessible to the general public, including online.  The budget was substantially complete and considered generally reliable.  NIK audited the government’s accounts and made its reports publicly available, including online.  The budget structure and classifications are complex and the Polish authorities agree more work is needed to address deficiencies in the process of budgetary planning and procedures.  State budgets encompass only part of the public finances sector.

The European Commission regularly assesses the public finance sustainability of Member States based on fiscal gap ratios.  In 2020, Poland’s public finances will be exposed to a high general government deficit, uncertainty in financial markets resulting primarily from the macroeconomic environment, the effects of the fight against the COVID-19 epidemic, and the monetary policy of the NBP and major central banks, including the European Central Bank and the U.S. Federal Reserve.

International Regulatory Considerations

Since its EU accession in May 2004, Poland has been transposing European legislation and reforming its regulations in compliance with the EU system.  Poland sometimes disagrees with EU regulations related to renewable energy and emissions due to its important domestic coal industry.

In 2018, Poland saw significant increases in wholesale electricity prices due largely to an increase in the price of coal and EU emissions permits.  The government’s initial plans of proposing a new law to protect household consumers from rising electricity prices put it at odds with the European for lack of notification of what amounted to state aid.  The Polish energy market regulator (URE) also criticized the proposed law for not reflecting the market rate for electricity and claimed the proposed law threatened URE’s independence.  In 2019, under EU State Aid rules, the European Commission approved Poland’s plan to compensate energy-intensive companies for higher electricity prices resulting from indirect emission costs under the EU Emission Trading Scheme (ETS).  Poland’s plan will cover the period 2019-2020 and will benefit companies active in Poland in sectors facing significant electricity costs and which are particularly exposed to international competition.

Poland participates in the process of creation of European norms.  There is strong encouragement for non-governmental organizations, such as environmental and consumer groups, to actively participate in European standardization.  In areas not covered by European normalization, the Polish Committee for Standardization (PKN) introduces norms identical with international norms, i.e., PN-ISO and PN-IEC.  PKN actively cooperates with international and European standards organizations and with standards bodies from other countries.  PKN has been a founding member of the International Organization for Standardization (ISO) and a member of the International Electro-technical Commission (IEC) since 1923.

PKN also cooperates with the American Society for Testing and Materials (ASTM) International and the World Trade Organization’s (WTO) Agreement on Technical Barriers to Trade (TBT).  Poland has been a member of the WTO since July 1, 1995 and was a member of GATT from October 18, 1967.  All EU member states are WTO members, as is the EU in its own right.  While the member states coordinate their position in Brussels and Geneva, the European Commission alone speaks for the EU and its members in almost all WTO affairs.  PKN runs the WTO/TBT National Information Point in order to apply the provisions of the TBT with respect to information exchange concerning national standardization.

Useful Links:

http://ec.europa.eu/growth/single-market/european-standards/harmonised-standards/ 

http://eur-lex.europa.eu/oj/direct-access.html?locale=en )

Legal System and Judicial Independence

The government has continued to implement and introduce new measures related to the judiciary that has drawn criticism from legal experts, NGOs, and international organizations.  Observers noted in particular the introduction of an extraordinary appeal mechanism in the 2017 Supreme Court Law.  The extraordinary appeal mechanism states:  final judgments issued since 1997 can be challenged and overturned in whole or in part for a three-year period starting from the day the legislation entered into force on April 3, 2018.  By the end of 2019, the Extraordinary Appeals Chamber had received 79 complaints.  The majority were submitted by the Justice Minister; nine were submitted by the Human Rights Ombudsman.  As of December 29, 2019, the Chamber had reviewed nine complaints, of which five were accepted, and four were rejected.  All five complaints which the chamber accepted regarded civil law.  Twenty-three cases were pending; the status of the remaining 47 cases was unavailable.

In April and May 2018, the Polish President signed into law amendments to the common courts law, the National Judiciary Council law, and the 2017 amendments to the Supreme Court law.  This was in response to the December 2017 European Commission rule of law recommendation and infringement procedure triggered under Article 7 of the Lisbon Treaty for what the Commission considered to be “systemic threats” to the independence of the Polish courts.  The key concerns focused on the Polish government’s ability to remove up to 40 percent of the Supreme Court’s judges and the justice minister’s power to discipline judges.  Separately, the Commission has sought redress through the European Court of Justice (ECJ).  The Polish government has countered that its reforms do not infringe judicial independence and are intended to make court operations more efficient and transparent.

On July 2, 2018, the European Commission launched an infringement procedure against Poland, two days before provisions of the revised Supreme Court law lowering the mandatory retirement age for judges went into effect (affecting 27 of the 74 Supreme Court justices at that time).  On September 24, 2018 the European Commission referred the country’s amended Supreme Court law to the ECJ, stating “the Polish law on the Supreme Court is incompatible with EU law as it undermines the principle of judicial independence, including the “irremovability” of judges.”   On October 19, 2018, the ECJ issued an interim injunction requiring the government to reinstate those judges who had been retired under the amended law.  On November 19, 2018, the government submitted legislation to automatically reappoint all justices retired under the Supreme Court law to fulfill the ECJ’s interim measures, and President Duda signed the legislation into law on December 17, 2018.  On June 24, 2019, the ECJ issued a final judgement regarding the Polish law on the Supreme Court, confirming in full the position of the Commission.

On April 3, 2019 the Commission launched an infringement procedure on the grounds that the disciplinary regime for judges undermines the judicial independence of Polish judges and does not ensure the necessary guarantees to protect judges from political control, as required by the ECJ.  On October 10, 2019 the Commission referred this case to the ECJ.  On January 14, 2020, the Commission asked the ECJ to impose interim measures on Poland, ordering it to suspend the functioning of the Disciplinary Chamber of the Supreme Court.  On April 8, 2020, the ECJ ruled that Poland must immediately suspend the application of the national provisions on the powers of the Disciplinary Chamber of the Supreme Court with regard to disciplinary cases concerning judges, confirming in full the position of the Commission.  This order applies until the Court will have rendered its final judgment in the infringement procedure.

A new law signed on December 20, 2019 amending a series of legislative acts governing the functioning of the justice system in Poland entered into force on February 14, 2020.  The law enables judges to be disciplined for public activities incompatible with the principles of the independence of the courts and the independence of judges, actions which may considerably impair the functioning of the justice system, and for actions which question the judicial appointments of other judges.  On April 29, 2020, the Commission sent a Letter of Formal Notice to Poland regarding this new law on the judiciary, the first step of infringement procedures.

The Polish legal system is code-based and prosecutorial.  The main source of the country’s law is the Constitution of 1997.  The legal system is a mix of Continental civil law (Napoleonic) and remnants of communist legal theory.  Poland accepts the obligatory jurisdiction of the European Court of Justice (ECJ), but with reservations.  In civil and commercial matters, first instance courts sit in single-judge panels, while courts handling appeals sit in three-judge panels. District Courts (Sad Rejonowy) handle the majority of disputes in the first instance.  When the value of a dispute exceeds a certain amount or the subject matter requires more expertise (such as those regarding intellectual property rights), Circuit Courts (Sad Okregowy) serve as first instance courts.  Circuit Courts also handle appeals from District Court verdicts.  Courts of Appeal (Sad Apelacyjny) handle appeals from verdicts of Circuit Courts as well as generally supervise the courts in their region.

The Polish judicial system generally upholds the sanctity of contracts.  Foreign court judgements, under the Polish Civil Procedure Code and European Community regulation, can be recognized.  However, there are many foreign court judgments which Polish courts do not accept or accept partially.  There can also be delays in the recognition of judgments of foreign courts due to an insufficient number of judges with specialized expertise.  Generally, foreign firms

are wary of the slow and over-burdened Polish court system, preferring other means to defend their rights.  Contracts involving foreign parties often include a clause specifying that disputes will be resolved in a third-country court or through offshore arbitration.  (More detail in Section 4, Dispute Settlement.)

Laws and Regulations on Foreign Direct Investment

Foreign nationals can expect to obtain impartial proceedings in legal matters.  Polish is the official language and must be used in all legal proceedings.  It is possible to obtain an interpreter.  The basic legal framework for establishing and operating companies in Poland, including companies with foreign investors, is found in the Commercial Companies Code.  The Code provides for establishment of joint-stock companies, limited liability companies, or partnerships (e.g., limited joint-stock partnerships, professional partnerships).  These corporate forms are available to foreign investors who come from an EU or European Free Trade Association (EFTA) member state or from a country that offers reciprocity to Polish enterprises, including the United States.

With few exceptions, foreign investors are guaranteed national treatment.  Companies that establish an EU subsidiary after May 1, 2004 and conduct or plan to commence business operations in Poland must observe all EU regulations.  However, in some cases they may not be able to benefit from all privileges afforded to EU companies.  Foreign investors without permanent residence and the right to work in Poland may be restricted from participating in day-to-day operations of a company.  Parties can freely determine the content of contracts within the limits of European contract law.  All parties must agree on essential terms, including the price and the subject matter of the contract.  Written agreements, although not always mandatory, may enable an investor to avoid future disputes.  Civil Code is the law applicable to contracts.

Useful websites (in English) to help navigate laws, rules, procedures and reporting requirements for foreign investors:

• Polish Investment and Trade Agency: https://www.paih.gov.pl/en 
• Polish Financial Supervision Authority (KNF): https://www.knf.gov.pl/en/ 

• Office of Competition and Consumer Protection (UOKIK):https://uokik.gov.pl/legal_regulations.php 

• https://www.biznes.gov.pl/en/przedsiebiorcy/ 

Competition and Anti-Trust Laws

Poland has a high level of nominal convergence with the EU on competition policy in accordance with Articles 101 and 102 of the Lisbon Treaty.  Poland’s Office of Competition and Consumer Protection (UOKiK) is well within EU norms for structure and functioning, with the exception that the Prime Minister both appoints and dismisses the head of UOKiK.  This is supposed to change to be in line with EU norms, however, as of January 2020 the Prime Minister was still exercising his right to remove and nominate UOKiK’s presidents. (EU directive 2019/1.)

The Act on Competition and Consumer Protection  was amended in mid-2019.  The most important changes, which concern geo-blocking and access to fiscal and banking secrets, came into force on September 17, 2019.  Other minor changes took effect in January 2020.  The amendments result from the need to align national law with new EU laws.

Starting in January 2020, UOKiK may intervene in cases when delays in payment are excessive.  UOKiK can take action when the sum of outstanding payments due to an entrepreneur for three subsequent months amounts to at least PLN 5 million (approx. USD 1.25 million).  In 2022, the minimum amount will decrease to PLN 2 million (approx. USD 500,000).

The President of UOKiK issues approximately 100 decisions per year regarding practices restricting competition and infringing on collective interests of consumers.  Enterprises have the right to appeal against those decisions to the court.  In the first instance, the case is examined by the Court of Competition and Consumer Protection and in the second instance, by the Appellate Court.  The decision of the Appellate Court may be challenged by way of a cassation appeal filed to the Supreme Court.  In major cases, the General Counsel to the Republic of Poland will act as the legal representative in proceedings concerning an appeal against a decision of the President of UOKiK.

All multinational companies must notify UOKiK of a proposed merger if any party to it has subsidiaries, distribution networks or permanent sales in Poland.

Examples of competition reviews can be found at:

https://www.uokik.gov.pl/news.php?news_id=15526   (battery market)

https://www.uokik.gov.pl/news.php?news_id=15987   (Agora Eurozet)

https://www.uokik.gov.pl/news.php?news_id=15941   (Nord Stream 2)

https://www.uokik.gov.pl/news.php?news_id=15685  (UPC)

https://decyzje.uokik.gov.pl/bp/dec_prez.nsf 

The President of UOKiK has the power to impose significant fines on individuals in management positions at companies that violate the prohibition of anticompetitive agreements.  The amendment to the law governing UOKiK’s operation, which entered into force on December 15, 2018, provides for a similar power to impose significant fines on the management of companies in the case of violations of consumer rights.  The maximum fine that can be imposed on a manager may amount to PLN 2 million (approx. USD 500,000) and, in the case of managers in the financial sector, up to PLN 5 million (approx. USD 1.25 million).

Expropriation and Compensation

Article 21 of the Polish Constitution states: “expropriation is admissible only for public purposes and upon equitable compensation.”  The Law on Land Management and Expropriation of Real Estate states that property may be expropriated only in accordance with statutory provisions such as construction of public works, national security considerations, or other specified cases of public interest.  The government must pay full compensation at market value for expropriated property.  Acquiring land for road construction investment and recently also for the Central Airport and the Vistula Spit projects has been liberalized and simplified to accelerate property acquisition, particularly through a special legislative act.  Most acquisitions for road construction are resolved without problems.  However, there have been a few cases in which the inability to reach agreement on remuneration has resulted in disputes.  Post is not aware of any recent expropriation actions against U.S. investors, companies, or representatives.

Dispute Settlement

ICSID Convention and New York Convention

Poland is not a party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (Washington Convention).  Poland is a party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).

Investor-State Dispute Settlement

Poland is party to the following international agreements on dispute resolution, with the Ministry of Finance acting as the government’s representative: the 1923 Geneva Protocol on Arbitration Clauses; the 1961 Geneva European Convention on International Trade Arbitration; the 1972 Moscow Convention on Arbitration Resolution of Civil Law Disputes in Economic and Scientific Cooperation Claims under the U.S.-Poland Bilateral Investment Treaty (BIT) (with further amendments).

The United Nations Conference on Trade and Development (UNCTAD) database  for treaty-based disputes lists four cases for Poland involving a U.S. party over the last decade.  The majority of Poland’s investment disputes are with companies from other EU member states.  According to the UNCTAD database, over the last decade, there have been 17 known disputes with foreign investors.

There is no distinction in law between domestic and international arbitration.  The law only distinguishes between foreign and domestic arbitral awards for the purpose of their recognition and enforcement.  The decisions of arbitration entities are not automatically enforceable in Poland, but must be confirmed and upheld in a Polish court.  Under Polish Civil Code, local courts accept and enforce the judgments of foreign courts; in practice, however, the acceptance of foreign court decisions varies.  Investors say the timely process of energy policy consolidation has made the legal, regulatory and investment environment for the energy sector uncertain in terms of how the Polish judicial system deals with questions and disputes around energy investments by foreign investors, and in foreign investor interactions with state-owned or affiliated energy enterprises.

A Civil Procedures Code amendment in January 2016, with further amendments in July 2019, implements internationally recognized arbitration standards and creates an arbitration-friendly legal regime in Poland.  The amendment applies to arbitral proceedings initiated on or after January 1, 2016 and introduced one-instance proceedings to repeal an arbitration award (instead of two-instance proceedings).  This change encourages mediation and arbitration to solve commercial disputes and aims to strengthen expeditious procedure.  The Courts of Appeal (instead of District Courts) handle complaints.  In cases of foreign arbitral awards, the Court of Appeal is the only instance.  In certain cases, it is possible to file a cassation (or extraordinary) appeal with the Supreme Court of the Republic of Poland.  In the case of a domestic arbitral award, it will be possible to file an appeal to a different panel of the Court of Appeal.

International Commercial Arbitration and Foreign Courts

Poland does not have an arbitration law, but provisions in the Polish Code of Civil Procedures of 1964, as amended, are based to a large extent on UNCITRAL Model Law.  Under the Code of Civil Procedure, an arbitration agreement must be concluded in writing.  Commercial contracts between Polish and foreign companies often contain an arbitration clause.  Arbitration tribunals operate through the Polish Chamber of Commerce, and other sector-specific organizations.  A permanent court of arbitration also functions at the business organization Confederation Lewiatan in Warsaw and at the General Counsel to the Republic of Poland (GCRP).  GCRP took over arbitral cases from external counsels in 2017 and began representing state-owned commercial companies in litigation and arbitration matters for amounts in dispute over PLN 5 million (approx. USD 1.5 million).  The list of these entities includes major Polish state-owned enterprises in the airline, energy, banking, chemical, insurance, military, oil and rail industries as well as other entities such as museums, state-owned media and universities.

The Court of Arbitration at the Polish Chamber of Commerce in Warsaw, the biggest permanent arbitration court in Poland, operates based on arbitration rules complying with the latest international standards, implementing new provisions on expedited procedure.  In recent years, numerous efforts have been made to increase use of arbitration in Poland.  In 2019, online arbitration courts appeared on the Polish market. The first such court, the Online Arbitration Court, became active in February 2019 and Ultima Ratio, which was set up by the Association of Polish Notaries, commenced operations in April 2019.  These new institutions operate entirely online, and their founders hope to offer low-cost and expedient venues for resolving small civil and commercial claims.  Due to their recent launch, it is not yet possible to judge their success.  However, the development itself reflects the need for reliable, fast and affordable alternatives to state courts in smaller disputes.

Polish state courts generally respect the wide autonomy of arbitration courts and show little inclination to interfere with their decisions as to the merits of the case.  The arbitral awards are likely to be set aside only in rare cases.  As a rule, in post-arbitral proceedings, Polish courts do not address the merits of the cases decided by the arbitration courts.  An arbitration-friendly approach is also visible in other aspects, such as in the broad interpretation of arbitration clauses.

In mid-2018, the Polish Supreme Court introduced a new legal instrument into the Polish legal field: an extraordinary complaint.  Although this new instrument does not refer directly to arbitration proceedings, it may be applied to any procedures before Polish state courts, including post-arbitration proceedings (see Section 3 for more details).

Bankruptcy Regulations

Poland’s bankruptcy law has undergone significant change and modernization in recent years.  There is now a bankruptcy law and a separate, distinct restructuring law.  Poland ranks 25th for ease of resolving insolvency in the World Bank’s Doing Business report 2020.  Bankruptcy in Poland is criminalized if a company’s management does not file a petition to declare bankruptcy when a company becomes illiquid for an extended period of time or if a company ceases to pay its liabilities.  https://www.paih.gov.pl/polish_law/bankruptcy_law_and_restructuring_proceedings 

Poland’s Plan for Responsible Development identifies eight industries for development and incentives: aviation, defense, automotive parts manufacturing, ship building, information technology, chemicals, furniture manufacturing and food processing.  More information about the plan can be found at  this link: https://www.gov.pl/web/fundusze-regiony/plan-na-rzecz-odpowiedzialnego-rozwoju .  Poland encourages energy sector development through its energy policy, outlined in the November 2018 published draft report “Polish Energy Policy to 2040” and updated and expanded in 2019.  While this strategy has not yet been finalized, the government has generally followed the directions of development in the policy.  The updated draft policy can be found at:  https://www.gov.pl/web/aktywa-panstwowe/zaktualizowany-projekt-polityki-energetycznej-polski-do-2040-r .  The draft policy foresees a primary role for fossil fuels until 2040 as well as strong growth in electricity production.  The government will continue to pursue developing nuclear energy and offshore wind power generation, as well as distributed generation, but may revise the time frame for reaching landmarks in these areas.  The draft policy remains skeptical of onshore wind.  Poland’s National Energy and Climate Plan for years 2021-2030 (NECP PL) has been developed in line with the EU Regulation on the Governance of the Energy and Climate Action and was submitted to the European Commission https://ec.europa.eu/energy/topics/energy-strategy/national-energy-climate-plans_en#the-process .

A government strategy aims for a commercial 5G network to be operational in all cities by 2025.

Investment Incentives

A company investing in Poland, either foreign or domestic, may receive assistance from the Polish government.  Foreign investors have the potential to access certain incentives such as:  income tax and real estate tax exemptions; investment grants of up to 50 percent of investment costs (70 percent for small and medium-sized enterprises); grants for research and development; grants for other activities such as environmental protection, training, logistics, or use of renewable energy sources.

Large priority-sector investments may qualify for the “Program for Supporting Investment of Considerable Importance for the Polish Economy for 2011-2030.”  The program, amended in October 2019, is one of the instruments enabling support for new investment projects, particularly relevant for the Polish economy.  Its main goal is to increase innovation and the competitiveness of the Polish economy.  Under the amended program, it is possible to co-finance large strategic investments as well as medium-sized innovative projects.  Projects that adapt modern technologies and provide for research and development activities are awarded.  The program is also conducive to establishing cooperation between the economic sector and academic centers.  The support is granted in the form of a subsidy, based on an agreement concluded between the Minister of Development and the investor.  The agreement regulates the conditions for the payment of subsidies and the investment implementation schedule.  Under the program, investment support may be granted in two categories: eligible costs for creating new jobs and investment costs in tangible and intangible assets.  Companies can learn more at: https://www.paih.gov.pl/why_poland/investment_incentives/programme_for_supporting_investments_of_major_importance_to_the_polish_economy_for_2011_-_2030 

https://www.gov.pl/web/rozwoj/program-wspierania-inwestycji-o-istotnym-znaczeniu-dla-gospodarki-polskiej-na-lata-2011-2030 

The Polish Investment Zone (PSI), the new system of tax incentives for investors which replaced the previous system of special economic zones (SEZ), was launched September 5, 2018.  Under the new law on the PSI, companies can apply for a corporate income tax (CIT) exemption for a new investment to be placed anywhere in Poland.  The CIT exemption is calculated based on the value of the investment multiplied by the percentage of public aid allocated for a given region based on its level of development (set percentage).  The CIT exemption is for 10-15 years, depending on the location of the investment.  Special treatment is available for investment in new business services and research and development (R&D).  A point system determines eligibility for the incentives.

The deadline for utilizing available tax credits from the previous SEZ system is the end of 2026 (extended from 2020).  The new regulations also contain important changes for entities already operating in SEZs, even if they do not plan new investment projects.  This includes the possibility of losing the right to tax incentives in the event of fraud or tax evasion.  Investors should consider carefully the potential benefits of the CIT exemption in assessing new investments or expansion of existing investments in Poland.

More information on government financial support:

https://www.paih.gov.pl/why_poland/investment_incentives 

The Polish government is seeking to increase Poland’s economic competitiveness by shifting toward a knowledge-based economy.  The government has targeted public and private sector investment in R&D to increase to 1.7 percent of GDP by 2020.  During the seven year period of 2014 to 2020, Poland will receive approximately USD 88.85 billion in EU Structural and Cohesion funds dedicated to R&D.  Businesses may also take advantage of the EU primary research funding program, Horizon 2020.

More information:

Ministry of Funds and Regional Development:

https://www.gov.pl/web/fundusze-regiony/otwarte-konkursy-nabory-dotacje-i-dofinansowania 

Ministry of Economic Development:

https://www.gov.pl/web/rozwoj/programy-i-projekty 

Ministry of Science and Higher Education:

http://www.nauka.gov.pl/horyzont-2020/ 

As of January 1, 2019, the Innovation Box, or IP Box, reduces the tax rate applicable to income derived from intellectual property rights to 5 percent.  Taxpayers applying the IP Box shall be entitled to benefit from the tax preference until a given right expires (in case of a patented invention – 20 years).  In order to benefit from the program, taxpayers will be obliged to separately account for the relevant income.  Foreign investors may take advantage of this benefit as long as the relevant  is registered in Poland.

The Polish government does not issue sovereign guarantees for FDI projects.  Co-financing may be possible for partnering on large FDI projects, such as the planned central airport project or a nuclear project.  For example, the state-owned Polish Development Fund (along with Singaporean and Australian partners) purchased 30 percent of the Gdansk Deepwater Container Terminal.

Foreign Trade Zones/Free Ports/Trade Facilitation

Foreign-owned firms have the same opportunities as Polish firms to benefit from foreign trade zones (FTZs), free ports, and special economic zones (since January 2019, they make up the Polish Investment Zone).  The 2004 Customs Law (with later amendments) regulates operation of FTZs in Poland.  The Minister of Finance establishes duty-free zones.  The Ministers designate the zone’s managing authorities, usually provincial governors, who issue operating permits to interested companies for a given zone.

Most activity in FTZs involves storage, packaging, and repackaging.  As of April 2019, there were seven FTZs: Gliwice, near Poland’s southern border; Terespol, near Poland’s border with Belarus; Mszczonow, near Warsaw; Warsaw’s Frederic Chopin International Airport; Szczecin; Swinoujscie; and Gdansk.  Duty-free shops are available only for travelers to non-EU countries.

There are bonded warehouses in:  Bydgoszcz-Szwederowo; Krakow-Balice; Wroclaw-Strachowice; Katowice-Pyrzowice; Gdansk-Trojmiasto; Lodz -Lublinek; Poznan-Lawica; Rzeszow-Jasionka, Warszawa-Modlin, Lublin, Szczecin-Goleniow; Radom-Sadkow, Olsztyn-Mazury.  Commercial companies can operate bonded warehouses.  Customs and storage facilities must operate pursuant to custom authorities’ permission.  Only legal persons established in the EU can receive authorization to operate a customs warehouse.

Performance and Data Localization Requirements

Poland has no policy of “forced localization” designed to force foreign investors to use domestic content in goods or technology.  Investment incentives apply equally to foreign and domestic firms.  Over 40 percent of firms in Special Economic Zones are Polish.  There is little data on localization requirements in Poland and there are no requirements for foreign information technology (IT) providers to turn over source code and/or provide access to surveillance (backdoors into hardware and software or turn over keys for encryption).  Exceptions exist in sectors where data are important for national security such as critical telecommunications infrastructure and in gambling.  The cross-border transfer rules in Poland are reasonable and follow international best practices, although some companies have criticized registration requirements as cumbersome.  In Poland, the Telecommunications Law (Act of 16 July 2004 – unified text, Journal of Laws 2018, item 1954) includes data retention provisions.  The data retention period is 12 months.

In the telecommunication sector, the Office of Electronic Communication (UKE) ensures telecommunication operators fulfill their obligations.  In radio and television, the National Broadcasting Council (KRRiT) acts as the regulator.  Polish regulations protect an individual’s personal data that are collected in Poland regardless of where the data are physically stored.  The Personal Data Protection Office (UODO) enforces personal data regulations.

Post is not aware of excessively onerous visa, residence permit or similar requirements inhibiting mobility of foreign investors and their employees, though investors regularly note long processing times due to understaffing at regional employment offices.  U.S. companies have reported difficulties obtaining work permits for their non-EU citizen employees.  Both regulatory challenges and administrative delays result in permit processing times of 3 to 12 months.  This affects the hiring of new employees as well as the transfer of existing employees from outside Poland.  U.S. companies have complained they are losing highly-qualified employees to other destinations, such as Germany, where labor markets are more accessible.  The problem is especially acute in southern Poland.

Generally, Poland does not mandate local employment, but there are a few regulations that place de facto restrictions e.g., a certain number of board members of insurance companies must speak Polish.

Polish law limits non-EU citizens to 49 percent ownership of a company’s capital shares in the air transport, radio and television broadcasting sectors as well as airport and seaport operations.  There are also legal limits on foreign ownership of farm and forest lands as outlined in Section 2 of this report under Limits on Foreign Control and Right to Private Ownership and Establishment.  Pursuant to the Broadcasting Law, a TV broadcasting company may only receive a license if the voting share of its foreign owners does not exceed 49 percent and if they hold permanent residence in Poland.  In the insurance sector, at least two members of management boards, including the chair, must speak Polish.

Real Property

Poland recognizes and enforces secured interests in property, movable and real.  The concept of a mortgage exists in Poland, and there is a recognized system of recording such secured interests. There are two types of publicly available land registers in Poland: the land and mortgage register (ksiegi wieczyste), the purpose of which is to register titles to land and encumbrances thereon; and the land and buildings register (ewidencja gruntow i budynkow), the function of which is more technical as it contains information concerning physical features of the land, class of land and its use.  Generally, real estate in Poland is registered and legal title can be identified on the basis of entries in the land and mortgage registers which are maintained by relevant district courts.  Each register is accessible to the public and excerpts are available on application, subject to a nominal fee.  The registers are available online.

Poland has a non-discriminatory legal system accessible to foreign investors that protects and facilitates acquisition and disposition of all property rights, including land, buildings, and mortgages.  However, foreigners (both individuals and entities) must obtain a permit to acquire property (See Section 1 Limits on Foreign Control and Right to Private Ownership and Establishment).  Many investors, foreign and domestic, complain the judicial system is slow in adjudicating property rights cases.  Under the Polish Civil Code, a contract to buy real property must be made in the form of a notary deed.  Foreign companies and individuals may lease real property in Poland without having to obtain a permit.

Widespread nationalization of property during and after World War II has complicated the ability to establish clear title to land in Poland, especially in major municipalities.  While the Polish government has an administrative system for reviewing claims for the restitution of communal property, former individual property owners must file and pursue claims in the Polish court system in order to receive restitution.  There is no general statute of limitations regarding the filing or litigation of private property restitution claims, but there are exceptions for specific cases.  For example, in cases involving the communist-era nationalization of Warsaw under the Bierut Decree, there were claims deadlines that have now passed, and under current law, those who did not meet the deadlines would no longer be able to make a claim for either restitution or compensation.  During 2019, Warsaw city authorities continued implementing a 2015 Law dubbed the Small Reprivatization Act.  This Law aimed to stop the problem of speculators purchasing Warsaw property claims for low values from the original owners or their heirs and then applying for a perpetual usufruct or compensation as the new legal owner.  Critics state the law might extinguish potential claims by private individuals of properties seized during World War II or the communist era, if no one comes forward to pursue a restitution claim within the time limit.  Any potential claimants who come forward within six months after publication of the affected property by the City of Warsaw will have an additional three months to establish their claim.  The city began publishing lists in 2017 and continued to do so during 2019.  The city’s website contains further information on these cases and the process to pursue a claim: http://bip.warszawa.pl/Menu_podmiotowe/biura_urzedu/SD/ogloszenia/default.htm?page=1 .

It is sometimes difficult to establish clear title to properties.  There are no comprehensive estimates of land without clear title in Poland.

The 2016 Agricultural Land Law banned for five years the sale of state-owned farmland under the administration of the National Center for Support of Agriculture (NCSA).  Long-term leases of state-owned farmland are available for farmers looking to expand their operations up to300 hectares.  Foreign investors can (and do) lease agricultural land.  The 2016 Agricultural Land Law also imposed restrictions on sales of privately-owned farmland, giving the NCSA preemptive right of purchase.

The 2016 Agricultural Land Law adversely affected tenants with long-term state-owned land leases.  According to the law, leaseholders who did not return 30 percent of the land under lease to NCSA would not be eligible to have their leases extended beyond the current terms of the contract.  Currently, over 400 entities, including U.S. companies, face the prospect of returning some currently leased land to the Polish government over the coming years.  Some of these entities appealed to the Ombudsman, who requested the Constitutional Tribunal to verify the law’s compliance with the constitution.  In June 2019, the Polish parliament amended the Agricultural Land Law to loosen land sale requirements.  The amendment increased the size of private agricultural land, from 0.3 to 1.0 hectare that could be sold without the approval of the NCSA.  The new owner is not allowed to sell the land for five years.  The 2019 amendment did not change the land lease situation for larger operators, many of whom continue to remain ineligible to have their land leases extended.  The Law on Forest Land similarly prevents Polish and foreign investors from purchasing privately-held forests and gives state-owned entities (Lasy Panstwowe) preemptive right to buy privately-held forest land.

Intellectual Property Rights

Polish intellectual property rights (IPR) law is stricter than European Commission directives require.  Poland is a member of the World Intellectual Property Organization (WIPO) and party to many of its treaties, including the Berne Convention, the Paris Convention, the Patent Cooperation Treaty, the WIPO Copyright Treaty, and the WIPO Performances and Phonograms Treaty.  Enforcement is improving across all sectors of Poland’s IPR regime.  Physical piracy (e.g., optical discs) is not a significant problem in Poland.  However, online piracy continues to be widespread despite progress in enforcement, and a popular cyberlocker platform in Poland is included on the 2019 Notorious Markets List.  Poland does not appear in the U.S. Trade Representative’s Special 301 Report.

Polish law requires a rights holder to start the prosecution process.  In Poland, authors’ and creators’ organizations and associations track violations and share these with prosecutors.  Rights holders express concern that penalties for digital IPR infringement are not high enough to deter violators.

In March 2019, amendments to the Act on Industrial Property Law came into force which are intended to implement  EU Trademark Directive 2015/2436.  The legislation introduced, inter alia, the abandonment of the graphical representation requirement, a new mechanism for trademark protection renewals, extended licensee’s rights, as well as remedies against counterfeit goods in transit and against infringing preparatory acts.  The changes provide new tools to fight against infringement of trademark rights.

In April 2019, the EU adopted two directives on copyright, including: 2019/790 on copyright in the digital single market and 2019/789 regarding online broadcasting and re-broadcasting.  Member states are required to transpose the reforms into national legislation by June 2021.  The Ministry of Culture and National Heritage is responsible for drafting and implementing the legislation which has not yet been made available for public consultations.

In February 2020, additional amendments to Act on Industrial Property entered into force which adapt Polish standards on inventions to those of the EU so as to streamline and speed up proceedings before the Polish Patent Office.  The amendments to the Act also extend the exemption from patent and trademark renewal fees to support start-up entrepreneurs.  The legislation complies with relevant provisions of the European Patent Convention and the Patent Cooperation Treaty.

In July 2020, amendments to the Code of Civil Procedure entered into force which, among other things, creates and operationalizes specialized IPR courts.  Poland’s new specialized courts will oversee casesrelated to all types of IPR, including copyright, and trademarks, industrial property rights, and unfair competition.  New departments for IP matters will be created at the District Courts in Gdansk, Katowice, Poznan, and Warsaw, and specialized departments will be established in the Courts of Appeal in Warsaw and Katowice.  This will replace the current system in which intellectual property matters, including those relating to highly specialized issues such as patents, plant varieties, and trademarks, are examined by commercial departments of common courts.

A specialized court that was previously established within the 22nd Department of the District Court in Warsaw for cases involving EU trademarks and community designs will lose the exclusive competence to deal with those cases and will consider IP claims regarding computer programs, inventions, designs utility, topography of integrated circuits, plant varieties, and trade secrets of a technical nature (i.e., matters of advanced complexity).  In order to conduct proceedings in these cases, it will be necessary to have highly trained judges who are familiar with IPR/IT issues.  The new rules also require parties in IPR cases to be represented by professional lawyers, legal advisers, and patent attorneys.  The changes represent a positive step for the court system, further contributing to the speed and efficiency of proceedings.

Tax incentives for IPR known collectively as “IP Box” or “Innovation Box,” included in the November 2018 tax amendment, have been applicable since January 2019.  See Section 4 – Investment Incentives.

Polish customs tracks seizures of counterfeit goods but statistics for the reporting period are currently unavailable.

General information on copyright in Poland: http://www.copyright.gov.pl/pages/main-page/copyright-in-poland/general-information.php 

Polish Patent Office: http://www.uprp.pl/o-urzedzie/Lead03,14,56,1,index,pl,text/ 

Ministry of Digitalization: https://www.gov.pl/cyfryzacja/co-robimy 

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/details.jsp?country_code=PL 

Capital Markets and Portfolio Investment

The Polish regulatory system is effective in encouraging and facilitating portfolio investment.  Both foreign and domestic investors may place funds in demand and time deposits, stocks, bonds, futures, and derivatives.  Poland’s equity markets facilitate the free flow of financial resources.  Poland’s stock market is the largest and most developed in Central Europe.  In September 2018, it was reclassified as developed market status by FTSE Russell’s country classification report.  The stock market’s capitalization amounts to around 48 percent of GDP.  Although the Warsaw Stock Exchange (WSE) is itself a publicly traded company with shares listed on its own exchange after its partial privatization in 2010, the state retains a significant percentage of shares which allows it to control the company.  WSE has become a hub for foreign institutional investors targeting equity investments in the region.

In addition to the equity market, Poland has a wholesale market dedicated to the trading of treasury bills and bonds (Treasury BondSpot Poland).  This treasury market is an integral part of the Primary Dealers System organized by the Finance Ministry and part of the pan-European bond platform.  Wholesale treasury bonds and bills denominated in PLN and some securities denominated in Euros are traded on the Treasury BondSpot market.  Non-government bonds are traded on Catalyst, a WSE managed platform.  The capital market is a source of funding for Polish companies.  While securities markets continue to play a subordinate role to banks in the provision of finance, the need for medium-term financial support for the modernization of the electricity and gas sectors is likely to lead to an increase in the importance of the corporate bond market.  The Polish government acknowledges the capital market’s role in the economy in its development plan.  Foreigners may invest in listed Polish shares, but they are subject to some restrictions in buying large packages of shares.  Liquidity remains tight on the exchange.

The Capital Markets Development Strategy, published in 2018, identifies 20 key barriers and offers 60 solutions.  Some key challenges include low levels of savings and investment, insufficient efficiency, transparency and liquidity of many market segments, and lack of taxation incentives for issuers and investors.  The primary aim of the strategy is to improve access of Polish enterprises to financing.  The strategy focuses on strengthening trust in the market, improving the protection of individual investors, the stabilization of the regulatory and supervisory environment and the use of competitive new technologies.  The strategy is not a law, it sets the direction for further regulatory proposals.  Poland is one of the most rigorously supervised capital markets in Europe according to the European Commission.

The Employee Capital Plans program (PPK)—which is designed to increase household saving to augment individual incomes in retirement—could provide a boost to Poland’s capital markets and reduce dependence on foreign saving as a source for investment financing.  The program has been halted due to the outbreak of the COVID-19 pandemic.

High-risk venture capital funds are becoming an increasingly important segment of the capital market.  The market is still shallow, however, and one major transaction may affect the value of the market in a given year.  The funds remain active and Poland is a leader in this respect in Central and Eastern Europe.

Poland provides full IMF Article VIII convertibility for current transactions.  Banks can and do lend to foreign and domestic companies.  Companies can and do borrow abroad and issue commercial paper, but the market is less robust than in Western European countries or the United States.  The Act on Investment Funds allows for open-end, closed-end, and mixed investment funds, and the development of securitization instruments in Poland.  In general, no special restrictions apply to foreign investors purchasing Polish securities.

Credit allocation is on market terms.  The government maintains some programs offering below-market rate loans to certain domestic groups, such as farmers and homeowners.  Foreign investors and domestic investors have equal access to Polish financial markets.  Private Polish investment is usually financed from retained earnings and credits, while foreign investors utilize funds obtained outside of Poland as well as retained earnings.  Polish firms raise capital in Poland and abroad.

Recent changes in the governance structure of the Polish Financial Supervisory Authority (KNF) are aimed at increasing cross governmental coordination and a better-targeted response in case of financial shocks, while achieving greater institutional effectiveness through enhanced resource allocation.  KNF’s supplementary powers have increased, allowing it to authorize the swift acquisition of a failing or likely to fail lender by a stronger financial institution.

Money and Banking System

The banking sector plays a dominant role in the financial system, accounting for about 70 percent of financial sector assets.  The sector is mostly privately owned, with the state controlling about 40 percent of the banking sector and the biggest insurance company.  Poland had 30 locally incorporated commercial banks at the end of December 2019, according to KNF.  The number of locally-incorporated banks has been declining over the last five years.  Poland’s 538 cooperative banks play a secondary role in the financial system, but are widespread.  The state owns eight banks.  Over the last few years, growing capital requirements, lower prospects for profit generation and uncertainty about legislation addressing foreign currency mortgages has pushed banks towards mergers and acquisitions.  KNF welcomes this consolidation process, seeing it as a “natural” way to create an efficient banking sector.

The Polish National Bank (NBP) is Poland’s central bank.  At the end of 2019, the banking sector was overall well capitalized and solid.  Poland’s banking sector meets European Banking Authority regulatory requirements.  The share of non-performing loans is close to the EU average and recently has been falling.  In December 2019, non-performing loans were 6.6 percent of portfolios.  According to the S&P Rating Agency, Poland’s central bank is willing and able to provide liquidity support to the banking sector, in local and foreign currencies, if needed.

The banking sector is liquid, profitable and major banks are well capitalized, although disparities exist among banks.  This was confirmed by NBP’s Financial Stability Report and stress tests conducted by the central bank.  Profitability increased 12.5 percent in 2019 as a result of solid GDP growth, a pickup in investments and low provisioning costs, and remained at a reasonable level (ROE at 7.0 percent in 2019).  Nevertheless, profits remain under pressure due to low interest rates, the issue of conversion of Swiss francs mortgage portfolios into PLN, and a special levy on financial institutions (0.44 percent of the value of assets excluding equity and Polish sovereign bonds).  The ECJ issued a judgement in October 2019 on mortgages in Swiss francs, taking the side of borrowers.  The ECJ annulled the loan agreements, noting an imbalance between the parties and the use of prohibited clauses.  An additional financial burden for banks resulted from the necessity to return any additional fees they charged customers who repaid loans ahead of schedule.

Since 2015, the Polish government established an active campaign aiming to increase the market share of national financial institutions.  Since 2017, Polish investors’ share in the banking sector’s total assets exceeds the foreign share in the sector.  The State controls around 40 percent of total assets, including the two largest banks in Poland.  These two lenders control about one third of the market.  Rating agencies warn that an increasing state share in the banking sector might impact competitiveness and profits in the entire financial sector. There is concern that lending decisions at state-owned banks could come under political pressure.  Nevertheless, Poland’s strong fundamentals and the size of its internal market mean that many foreign banks will want to retain their positions.

The financial regulator has restricted the availability of loans in euros or Swiss francs in order to minimize the banking system’s exposure to exchange risk resulting from fluctuations.  Only individuals who earn salaries denominated in these currencies continue to enjoy easy access to loans in foreign currencies.

In 2019, NBP had relationships with 26 commercial and central banks and was not concerned about losing any of them.

Foreign Exchange and Remittances

Foreign Exchange

Poland is not a member of the Eurozone; its currency is the Polish zloty.  The current government has shown little desire to adopt the Euro (EUR).  The Polish zloty (PLN) is a floating currency; it has largely tracked the EUR at approximately PLN 4.2-4.3 to EUR 1 in recent years and PLN 3.7 – 3.8 to USD 1.  Foreign exchange is available through commercial banks and exchange offices.  Payments and remittances in convertible currency may be made and received through a bank authorized to engage in foreign exchange transactions, and most banks have authorization.  Foreign investors have not complained of significant difficulties or delays in remitting investment returns such as dividends, return of capital, interest and principal on private foreign debt, lease payments, royalties, or management fees.  Foreign currencies can be freely used for settling accounts.

Poland provides full IMF Article VIII convertibility for currency transactions.  The Polish Foreign Exchange Law, as amended, fully conforms to OECD Codes of Liberalization of Capital Movements and Current Invisible Operations.  In general, foreign exchange transactions with the EU, OECD, and European Economic Area (EEA) are accorded equal treatment and are not restricted.

Except in limited cases which require a permit, foreigners may convert or transfer currency to make payments abroad for goods or services and may transfer abroad their shares of after-tax profit from operations in Poland.  In general, foreign investors may freely withdraw their capital from Poland, however, the November 2018 tax bill included an exit tax.  Full repatriation of profits and dividend payments is allowed without obtaining a permit.  A Polish company (including a Polish subsidiary of a foreign company), however, must pay withholding taxes to Polish tax authorities on distributable dividends unless a double taxation treaty is in effect, which is the case for the United States.  Changes to the withholding tax in the 2018 tax bill increased the bureaucratic burden for some foreign investors (see Section 2).  The United States and Poland signed an updated bilateral tax treaty in February 2013 that the United States has not yet ratified.  As a rule, a company headquartered outside of Poland is subject to corporate income tax on income earned in Poland, under the same rules as Polish companies.

Foreign exchange regulations require non-bank entities dealing in foreign exchange or acting as a currency exchange bureau to submit reports electronically to NBP at http://sprawozdawczosc.nbp.pl .  An exporter may open foreign exchange accounts in the currency the exporter chooses.

Remittance Policies

Poland does not prohibit remittance through legal parallel markets utilizing convertible negotiable instruments (such as dollar-denominated Polish bonds in lieu of immediate payment in dollars).  As a practical matter, such payment methods are rarely, if ever, used.

Sovereign Wealth Funds

The Polish Development Fund (PFR) is often referred to as Poland’s Sovereign Wealth Fund.   PFR is an umbrella organization pooling resources of several governmental agencies and departments, including EU funds.  A strategy for the Fund was adopted in September 2016, and it was registered in February 2017.  PFR supports the implementation of the Responsible Development Strategy.

The PFR operates as a group of state-owned banks and insurers, investment bodies, and promotion agencies.  The budget of the PFR Group initially reached PLN 14 billion (USD 3.5 billion), which managers estimate is sufficient to raise capital worth PLN 90-100 billion (USD 22-25 billion).  Various actors within the organization can invest through acquisition of shares, through direct financing, seed funding, and co-financing venture capital.  Depending on the instruments, PFR expects different rates of return.

In July 2019, the President of Poland signed the Act on the System of Development Institutions.  Its main goal is to formalize and improve the cooperation of institutions that make up the PFR Group, strengthen the position of the Fund’s president and secure additional funding from the Finance Ministry.  The group will have one common strategy.  The introduction of new legal solutions will increase the efficiency and availability of financial and consulting instruments.  An almost four-fold increase in the share capital will enable PFR to significantly increase the scale of investment in innovation and infrastructure and will help Polish companies expand into foreign markets.  While supportive of overseas expansion by Polish companies, the Fund’s mission is domestic.

PFR plans to invest PLN 2.2 billion (USD 520 million) jointly with private-equity and venture-capital firms and PLN 600 million (USD 140 million) into a so-called fund of funds intended to kickstart investment in midsize companies.

Since its inception, PFR has carried out over 30 capital transactions, investing a total of PLN 8.3 billion (approx. USD 2 billion) directly or through managed funds.  PFR, together with the support of other partners, has implemented investment projects with a total value of PLN 26.2 billion (approx. USD 6.5 billion).  The most significant transactions carried out together with state-controlled insurance company PZU S.A. include the acquisition of 32.8 percent of the shares of Bank Pekao S.A. (PFR’s share is 12.8 percent); the acquisition of 100 percent of the shares in PESA Bydgoszcz S.A. (a rolling stock producer); and the acquisition of 99.77 percent of the shares of Polskie Koleje Linowe S.A.  PFR has also completed the purchase, together with PSA International Ptd Ltd and IFM Investors, of DCT Gdansk, the largest container terminal in Poland (PFR’s share is 30 percent).

In April 2020, the President of Poland signed into law an amendment to the law on development institution systems, expanding the competencies of PFR as part of the government’s Anti-Crisis Shield.  The amendment expands the competences of PFR so that it can more efficiently support businesses in the face of the coronavirus epidemic.  The fund will provide PLN 100 billion (USD 25 billion), in financial support for companies, known as the Financial Shield.

State-owned enterprises (SOEs) exist mainly in the defense, energy, transport, banking and insurance sectors.  The main Warsaw stock index is dominated by state-controlled companies. The government intends to keep majority share ownership and/or state-control of economically and strategically important firms and is expanding the role of the state in the economy, particularly in the banking and energy sectors.  Some U.S. investors have expressed concern that the government favors SOEs by offering loans from the national budget as a capital injection and unfairly favoring SOEs in investment disputes.  Since Poland’s EU accession, government activity favoring state-owned firms has received careful scrutiny from Brussels.  Since the Law and Justice government came to power in 2015, there has been a considerable increase in turnover in managerial positions of state-owned companies (although this has also occurred in previous changes of government, but to a lesser degree) and increased focus on building national champions in strategic industries to be able to compete internationally.  SOEs are governed by a board of directors and most pay an annual dividend to the government, as well as prepare and disclose annual reports.

List of companies classified as “important for the economy” is at this link:  https://nadzor.kprm.gov.pl/spolki-z-udzialem-skarbu-panstwa 

Among them are companies of “strategic importance” whose shares cannot be sold, including:  Grupa Azoty S.A., Grupa LOTOS S.A., KGHM Polska Miedz S.A., and Energa S.A.

The government sees SOEs as drivers and leaders of its innovation policy agenda.  For example, several energy SOEs established a company to develop electro mobility.  The performance of SOEs has remained strong overall and broadly similar to that of private companies.  International evidence suggests, however, that a dominant role of SOEs can pose fiscal, financial, and macro-stability risks.

As of April 2020, there were over 370 companies in partnership with state authorities.  Among them there are companies under bankruptcy proceedings and in liquidation and in which the State Treasury held residual shares.  Here is a link to the list of companies, including under the control of which ministry they fall: http://nadzor.kprm.gov.pl/spolki-z-udzialem-skarbu-panstwa . 

The Ministry of State Assets, established after the October 2019 post-election cabinet reshuffle, has control over 200 enterprises.  Their aggregate value reaches several dozens of billions of Polish zlotys.  Among these companies are the largest chemical, energy, and mining groups; firms in the banking and insurance sectors; the Warsaw Stock Exchange; Poczta Polska (the national postal operator); and transport companies.  This list does not include state-controlled public media, which are under the supervision of the Ministry of Culture or the State Securities Printing Company (PWPW) supervised by the Interior Ministry.  Supervision over defense industry companies has been shifted from the Ministry of Defense to the Ministry of State Assets.

The value of stock owned by the state in publicly-held companies, many of which are the biggest companies in their sectors, was worth over PLN 113 billion (USD 30 billion) in 2017.  The same standards are generally applied to private and public companies with respect to access to markets, credit, and other business operations such as licenses and supplies.  Government officials occasionally exercise discretionary authority to assist SOEs.  In general, SOEs are expected to pay their own way, finance their operations, and fund further expansion through profits generated from their own operations.

On February 21, 2019, an amendment to the Act on the principles of management of state-owned property was adopted, which provides for the establishment of a new public special-purpose fund – the Capital Investment Fund.  The Fund is a source of financing for the purchase and subscription of shares in companies.  The Fund is managed by the Prime Minister’s office and financed by dividends from state-controlled companies.  In 2020, the Fund’s revenues are expected to reach PLN one billion PLN (USD 240 million).

A commission for the reform of corporate governance was established on February 10, 2020, by the Minister of State Assets.  The commission will develop recommendations regarding the introduction of a law on consortia/holdings; changes in the powers of supervisory boards and their members, with particular emphasis on the rights and obligations of parent companies’ supervisory boards; changes in the scope of information obligations of companies towards partners or shareholders; and other changes, including in the Commercial Companies Code.  According to the Deputy Minister of State Assets and Government Plenipotentiary for Reform of Ownership Supervision over State Treasury Companies, the new law will be realistic and attractive to foreign investors.

Since coming to power in 2015, the governing Law and Justice party has increased control over Poland’s banking and energy sectors.  In April 2020, it announced plans to tighten rules regarding takeovers of Polish companies by investors from outside the European Union.

OECD Guidelines on Corporate Governance of SOEs

In Poland, the same rules apply to SOEs and publicly-listed companies unless statutes provide otherwise.  The state exercises its influence through its rights as a shareholder in proportion to the number of voting shares it holds (or through shareholder proxies).  In some cases, an SOE is afforded special rights as specified in the company’s articles, and in compliance with Polish and EU laws.  In some non-strategic companies, the state exercises special rights as a result of its majority ownership but not as a result of any specific strategic interest.  Despite some of these specific rights, the state’s aim is to create long-term value for shareholders of its listed companies by adhering to the OECD’s SOE Guidelines.  State representatives who sit on supervisory boards must comply with the Commercial Companies Code and are expected to act in the best interests of the company and its shareholders.  The European Commission noted that “Polska Fundacja Narodowa” (an organization established to promote Polish culture worldwide and funded by Polish SOEs) was involved in the organization and financing of a campaign supporting the controversial judiciary changes by the government.  The commission stated this was broadly against OECD recommendations on SOE involvement in financing political activities.

SOE employees can designate two fifths of the SOE’s Supervisory Board’s members.  In addition, according to Poland’s privatization law, in wholly state-owned enterprises with more than 500 employees, the employees are allowed to elect one member of the Management Board.  SOEs are subject to a series of additional disclosure requirements above those set forth in the Company Law.  The supervising ministry prepares specific guidelines on annual financial reporting to explain and clarify these requirements.  SOEs must prepare detailed reports on management board activity, plus a report on the previous financial year’s activity, and a report on the result of the examination of financial reports.  In practice, detailed reporting data for non-listed SOEs is not easily accessible.  State representatives to supervisory boards must go through examinations to be able to apply for a board position.  Many major state-controlled companies are listed on the Warsaw Stock Exchange and are subject to the “Code of Best Practice for WSE Listed Companies.”

On September 30, 2015, the Act on Control of Certain Investments entered into force.  The law creates mechanisms to protect against hostile takeovers of companies operating in strategic sectors (gas, power generation, chemical, petrochemical and defense sectors) of the Polish economy (see Section 2 on Investment Screening), most of which are SOEs or state-controlled. In 2020, the government plans to introduce new legislation preventing hostile take overs.

The SOE governance law of 2017 (with subsequent amendments) is being implemented gradually.  The framework formally keeps the oversight of SOE supervision centralized, while transferring the responsibilities from the Ministry of the Treasury to the Prime Minister’s Office (PMO) and the Ministry of State Assets.  The Ministry of State Assets exercises ownership functions for the majority of SOEs.  A few sector-specific ministries (e.g., Culture and Maritime Economy) also exercise ownership for SOEs with public policy objectives.  The PMO oversees development agencies such as the Polish Development Fund and the Industry Development Agency.

Privatization Program

The Polish government has completed the privatization of most of the SOEs it deems not to be of national strategic importance.  With few exceptions, the Polish government has invited foreign investors to participate in major privatization projects.  In general, privatization bidding criteria have been clear and the process transparent.

The majority of SOEs classified as “economically important” or “strategically important” is in the energy, mining, media and financial sectors.  The government intends to keep majority share ownership of these firms, or to sell tranches of shares in a manner that maintains state control.  The government is currently focused on consolidating and improving the efficiency of the remaining SOEs.

Poland’s Ministry of Funds and Regional Development supports implementation of responsible business conduct (RBC) and corporate social responsibility (CSR) programs.  The Ordinance of the Minister of Investment and Development of May 10, 2018, established working groups responsible for sustainable development and corporate social responsibility.  The chief function of the working groups is to create space for dialogue and exchange of experiences between the public administration, social partners, NGOs, and the academic environment in CSR/RBC.  Experts cooperate within 5 working groups: 1) Innovation for CSR and sustainable development; 2) Business and human rights; 3) Sustainable production and consumption; 4) Socially responsible administration, and 5) Socially responsible universities.  The greater team issues recommendations concerning implementation of the CSR/RBC policy, in particular the objectives of the Strategy for Responsible Development – a strategic national policy document.

In 2017, on the initiative of the then existent Ministry of Economic Development, a partnership was established for the translation into Polish of the Due Diligence Guidance for Responsible Supply Chains in the Garment and Footwear Sector.  The parties involved included representatives of the business sector, industry organizations and NGOs.  The Polish version of the Guidelines was announced on June 29, 2018.  The document, available on the OECD NCP website , is a practical tool explaining how to implement the principles of due diligence, taking into account risks related to child labor, forced labor, water use, hazardous waste, etc.

In May 2017, the Council of Ministers adopted the National Action Plan (NAP) for the Implementation of the United Nations Guiding Principles on Business and Human Rights 2017-2020 (UNBHR-GPs).  In December 2018, the Midterm report from the implementation of National Action Plan for UN Business and Human Rights Guidelines was adopted by the Council of Ministers.  Here is the link to this document: https://www.gov.pl/documents/1149181/1150183/Raport_ percentC5 percent9Ar percentC3 percentB3dokresowy_z_realizacji_KPD.pdf/029a9586-2f1a-e655-4d18-00b6abe4a5a1 

An increasing number of Polish enterprises is implementing the principles of CSR/RBC in their activities.  One of these principles is to openly inform the public, employees, and local communities about the company’s activities by publishing non-financial reports.  Sharing experience in the field of integration of social and environmental factors in everyday business activities helps build credibility and transparency of the Polish market.

In Poland, provisions relating to responsible business conduct are contained within the Public Procurement law and are the result of transposition of very similar provisions contained in the EU directives.  For example, there is a provision for reserved contracts, where the contracting authority may limit competition for sheltered workshops and other economic operators whose activities include social and professional integration of people belonging to socially marginalized groups.

Independent organizations including NGOs, business and employee associations promote CSR in Poland.  The Responsible Business Forum (RBF), founded in 2000, is the oldest and largest NGO in Poland focusing on corporate social responsibility:  http://odpowiedzialnybiznes.pl/english/ .  CSR Watch Coalition Poland, part of the OECD Watch international network aims to advance respect for human rights in the context of business activity in Poland in line with the spirit of the UNBHR-GPs and the OECD Guidelines for Multinational Enterprises (MNEs): http://pihrb.org/koalicja/ 

Research shows that sustainability and CSR are increasingly translating into consumer choices in Poland.  According to SW Research for Stena Recycling, nearly 70 percent of Poles would like their favorite products to come from sustainable production and are willing to switch to more sustainably produced products.

Starting in 2018, approximately 300 Polish companies were required to publish a non-financial information statement alongside their business activity report.  This requirement is tied to the January 26, 2017, amendment of the Act on Accounting, which implements the directive 2014/95/UE into Polish law.  The rules of the act concern companies that fulfill two out of the three of the following criteria: the average annual number of employed persons numbers over 500; the company’s balance sheet totals over PLN 85 million (approx. USD 30 million), or gross earnings from the sale of commodities and products for the fiscal year amount to at least PLN 170 million (approx. USD 46 million).  Many companies voluntarily compile CSR activity reports based on international reporting standards.

In February 2020, the Responsible Business Forum presented its 2019 “Responsible Business in Poland. Good Practices” report, which is the most comprehensive CSR review in Poland, with a record number of responsible business activities featured.  In total, the 2019 report contains 1,696 practices reported by 214 companies.  Environmental practices are the most dynamically growing area – an increase of over 35% in relation to the previous report.  Examples of activities include activities related to reducing the consumption of plastic, a circular economy, conservation of biodiversity, environmental education, and counteracting the climate crisis.  Poland maintains a National Contact Point (NCP) for OECD Guidelines for Multinational Enterprises: https://www.gov.pl/web/fundusze-regiony/krajowy-punkt-kontaktowy-oecd 

The NCP promotes the OECD MNE Guidelines through seminars and workshops.  Investors can obtain information about the Guidelines and their implementation through Regional Investor Assistance Centers.

Information on the OECD NCP activities is under this link:

https://www.gov.pl/web/fundusze-regiony/oecd-ncp-activities 

Poland is not a member of the Extractive Industries Transparency Initiative (EITI) or the Voluntary Principles on Security and Human Rights.  The primary extractive industries in Poland are coal and copper mining.  Onshore, there is also hydrocarbon extraction, primarily conventional natural gas, with limited exploration for shale gas.  The Polish government exercises legal authority and receives revenues from the extraction of natural resources and from infrastructure related to extractive industries such as oil and gas pipelines through a concessions-granting system, and in most cases through shareholder rights in state-owned enterprises.  The Polish government has two revenue streams from natural resources: 1) from concession licenses; and 2) from corporate taxes on the concession holders.  License and tax requirements apply equally to both state-owned and private companies.  Natural resources are brought to market through market-based mechanisms by both state-owned enterprises and private companies.

Poland has laws, regulations, and penalties aimed at combating corruption of public officials and counteracting conflicts of interest.  Anti-corruption laws extend to family members of officials and to members of political parties who are members of parliament.  There are also anti-corruption laws regulating the finances of political parties.  According to a local NGO, an increasing number of companies are implementing voluntary internal codes of ethics.  In 2019, the Transparency International (TI) index of perceived public corruption ranked Poland as the 41^st (five places lower than in 2018 TI index) least corrupt among 180 countries/territories.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

The Polish Central Anti-Corruption Bureau (CBA) and national police investigate public corruption.  The Justice Ministry and the police are responsible for enforcing Poland’s anti-corruption criminal laws.  The Finance Ministry administers tax collection and is responsible for denying the tax deductibility of bribes.  Reports of alleged corruption most frequently appear in connection with government contracting and the issuance of a regulation or permit that benefits a particular company.  Allegations of corruption by customs and border guard officials, tax authorities, and local government officials show a decreasing trend.  If such corruption is proven, it is usually punished.

Overall, U.S. firms have found that maintaining policies of full compliance with the U.S. Foreign Corrupt Practices Act (FCPA) is effective in building a reputation for good corporate governance and that doing so is not an impediment to profitable operations in Poland.  Poland ratified the UN Anticorruption Convention in 2006 and the OECD Convention on Combating Bribery in 2000.  Polish law classifies the payment of a bribe to a foreign official as a criminal offense, the same as if it were a bribe to a Polish official.

At its March 2018 meeting, the OECD Working Group on Bribery urged Poland to make progress on carrying out key recommendations that remain unimplemented more than four years after its Phase 3 evaluation in June 2013.

For more information on the implementation of the OECD Anti-Bribery Convention in Poland, please visit:  http://www.oecd.org/daf/anti-bribery/poland-oecdanti-briberyconvention.htm 

Resources to Report Corruption

Centralne Biuro Antykorupcyjne (Central Anti-Corruption Bureau – CBA)
al. Ujazdowskie 9, 00-583 Warszawa
+48 800 808 808
kontakt@cba.gov.pl
www.cba.gov.pl ; link: Zglos Korupcje (report corruption)

The Public Integrity Program of the Batory Foundation, which served as a non-governmental watchdog organization, has been incorporated into a broader operational program (ForumIdei) run by the Foundation.  The Batory Foundation continues to monitor public corruption, carries out research into this area and publishes reports on various aspects of the government’s transparency.  Contact information for Batory Foundation is: batory@batory.org.pl; 22 536 02 20.

Poland is a politically stable country.  Constitutional transfers of power are orderly.  The last presidential elections took place in June 2020 and parliamentary elections took place in October 2019; observers considered both elections free and fair.  Prime Minister Morawiecki’s government was re-appointed in November 2019.  Local elections took place in October 2018.  Elections to the European Parliament took place in May 2019.  The next parliamentary elections are scheduled for the fall of 2023.  There have been no confirmed incidents of politically motivated violence toward foreign investment projects in recent years.  Poland has neither insurgent groups nor belligerent neighbors.  The Overseas Private Investment Corporation (OPIC) provides political risk insurance for Poland but it is not frequently used, as competitive private sector financing and insurance are readily available.

Poland has a well-educated, skilled labor force.  Productivity, however, remains below OECD averages but is rising rapidly and unit costs are competitive.  In the last quarter of 2019, according to the Polish Central Statistical Office (GUS), the average gross wage in Poland was PLN 5,198 (approx. USD 1,293 per month) compared to 4,864 (approx. USD 1,200) in the last quarter of 2018.  Poland’s economy employed roughly 16.619 million people in the third quarter of 2019.  Eurostat measured total Polish unemployment at 2.9 percent, with youth unemployment at 7.9 percent in December 2019.  GUS reports unemployment rates differently and tends to be higher than Eurostat figures.  Unemployment varied substantially among regions: the highest rate was 8.6 percent (according to GUS ) in the north-eastern part of Poland (Warmia and Mazury), and the lowest was 2.8 percent (GUS) in the western province of Wielkopolska, at the end of the third quarter of 2019.  Unemployment was lowest in major urban areas.  Polish workers are usually eager to work for foreign companies, in Poland and abroad.  Since Poland joined the EU, up to two million Poles have sought work in other EU member states.

A January 2018 revision of the Law on Promoting Employment and Labor Market Institutions introduced greater regulatory control over the “simplified procedure” of hiring foreigners from six countries (Ukraine, Belarus, Georgia, Armenia, Moldova and Russia), which allows foreigners from these countries to work in Poland without a work permit for six months.  According to the Ministry of Family, Labor and Social Policy, 1.6 million “simplified procedure” work declarations were registered in 2019, of which almost 1.5 million were for Ukrainian workers (approximately the same number as a year earlier).  Under the revised procedure, local authorities may verify if potential employers have actual job positions for potential foreign workers.  The law also authorizes local authorities to refuse declarations from employers with a history of abuse, as well as to ban employers previously convicted of human trafficking from hiring foreign workers.  The January 2018 revision also introduced a new type of work permit for foreign workers, the so-called seasonal work permit, which allow for legal work up to nine months in agriculture, horticulture, tourism and similar industries.  Ministry of Family, Labor and Social Policy statistics show that during 2019, 183,941 seasonal work permits of this type were issued, of which 179,466 went to Ukrainians.  Ministry of Family, Labor and Social Policy statistics also show that in 2019, 330,495 thousand Ukrainians received work permits, compared with 238,334 in 2017.

Polish companies suffer from a shortage of qualified workers.  According to a 2020 report by the Ministry of Family, Labor and Social Policy, several industries suffer shortages, including the construction, manufacturing, and transportation industries.  The most sought-after workers in the construction industry include concrete workers, steel fixers, carpenters, and bricklayers.  Manufacturing companies seek welders, woodworkers, machinery operators, locksmiths, electricians, and electromechanical engineers.  Employment has expanded in service industries such as information technology, manufacturing, and administrative and support service activities.  The business process outsourcing industry in Poland has experienced dynamic growth.  The state-owned sector employs about a quarter of the work force, although employment in coal mining and steel are declining.

Since 2017, the minimum retirement age for men has been 65, and 60 for women.  Labor laws differentiate between layoffs and dismissal for cause (firing).  In the case of layoffs (when workers are dismissed for economic reasons in companies which employ more than 20 employees), employers are required to offer severance pay.  In the case of dismissal for cause, the labor law does not require severance pay.

Most workers hired under labor contracts have the legal right to establish and join independent trade unions and to bargain collectively.  In January 2020, the revised law on trade unions entered into force, which expanded the right to form a union to persons who entered into an employment relationship based on a civil law contract and to persons who were self-employed.   Trade union influence is declining, though unions remain powerful among miners, shipyard workers, government employees, and teachers.  The Polish labor code outlines employee and employer rights in all sectors, both public and private, and has been gradually revised to adapt to EU standards.  However, employers tend to use temporary and contract workers for jobs that are not temporary in nature.  Employers have used short-term contracts because they allow firing with two weeks’ notice and without consulting trade unions.  Employers also tend to use civil instead of labor contracts because of ease of hiring and firing, even in situations where work performed meets all the requirements of a regular labor contract.

Polish law requires equal pay for equal work and equal treatment with respect to signing labor contracts, employment conditions, promotion, and access to training.  The law defines equal treatment as nondiscrimination in any way, directly or indirectly on the grounds of gender, age, disability, race, religion, nationality, political opinion, ethnic origin, denomination, sexual orientation, whether or not the person is employed temporarily or permanently, full time or part time.

The 1991 Law on Conflict Resolution defines the mechanism for labor dispute resolution.  It consists of four stages: first, the employer is obliged to conduct negotiations with employees; the second stage is a mediation process, including an independent mediator; if an agreement is not reached through mediation, the third stage is arbitration, which takes place at the regional court; the fourth stage of conflict resolution is a strike.

The Polish government adheres to the International Labor Organization’s (ILO) core conventions and generally complies with international labor standards.  However, there are several gaps in enforcing these standards, including legal restrictions on the rights of workers to form and join independent unions.  Cumbersome procedures make it difficult for workers to meet all of the technical requirements for a legal strike.  The law prohibits collective bargaining for key civil servants, appointed or elected employees of state and municipal bodies, court judges, and prosecutors.  There were some limitations with respect to identification of victims of forced labor.  Despite prohibitions against discrimination with respect to employment or occupation, such discrimination occurs.  Authorities do not consistently enforce minimum wage, hours of work, and occupational health and safety, either in the formal or informal sectors.

The National Labor Inspectorate (NLI) is responsible for identifying possible labor violations; it may issue fines and notify the prosecutor’s office in cases of severe violations.  According to labor unions, however, the NLI does not have adequate tools to hold violators accountable and the small fines imposed as punishment are an ineffective deterrent to most employers.

The United States has no FTA or preference program (such as GSP) with Poland that includes labor standards.

Poland is not eligible for DFC programs outside of energy infrastructure projects.  Post is not aware of any existing agreements between Poland and OPIC.

* In Poland, the National Bank of Poland (NBP) collects data on FDI.  An annual FDI report and data are published at the end of the following year.  GDP data are published by the Central Statistical Office.  Final annual data are available at the end of May of the following year.

Results of table are consistent with the data of the National Bank of Poland (NBP).  NBP publishes FDI data in October/November.
A number of foreign countries register businesses in the Netherlands, Luxemburg and Cyprus, hence results for these countries include investments from other countries/economies.

Note: NBP publishes only total amounts of portfolio investment assets.
Results of the table are consistent with data from the National Bank of Poland (NBP). NBP publishes FDI data in October/November.
A number of foreign countries register businesses in the Netherlands, Luxemburg and Cyprus hence results for these countries include investments from other countries/economies.

Tisha Loeper-Viti
Trade and Investment Officer
U.S. Embassy Warsaw
+48 22 504 2522
Loeper-VitiTR@state.gov