Policies Towards Foreign Direct Investment

The government of Iceland maintains an open investment climate.  The Act on Incentives for Initial Investments, which came into force in 2015, is intended to “promote initial investment in commercial operations, the competitiveness of Iceland and regional development by specifying what incentives are permitted in respect of initial investments in Iceland, and how they should be used.”  The Act does not apply to investments in airports, energy production, financial institutions, insurance operations, or securities.  For more information, see the English translation of the Act: (https://www.stjornarradid.is/leit/$LisasticSearch/Search/?SearchQuery=Act+on+incentives+for+initial+investments+in+Iceland).

As part of its investment promotion strategy, the Icelandic government operates a public-private agency called “Invest in Iceland” that facilitates foreign investment by providing information to potential investors and promotes investment incentives.  There is a debate, however, within Iceland over balancing energy-intensive FDI with the environmental impact associated with certain projects.  That said, energy-intensive industries, long dominated by aluminum smelting, have expanded to include silicon production plants and data centers.  For further resources see: (http://www.invest.is/doing-business/incentives-and-support).

Tourism has been a growing force behind Iceland’s economy in the past decade, with opportunities for investors in high-end tourism, including luxury resorts and hotels.  The number of tourists in Iceland grew by more than 400 percent between 2010 and 2018, reaching more than 2.3 million in 2018.  However, tourism in Iceland contracted in 2019 with visitors falling just below 2 million, which can be largely attributed to the bankruptcy of Icelandic budget airline WOW Air.  The COVID-19 pandemic has had drastic effects on tourism, as well as on Iceland’s overall economy, which contracted by 6.6 percent in 2020, according to Statistics Iceland.  The sector is facing numerous bankruptcies due to COVID-19 closures and travel bans.  The government has implemented measures to bolster the tourism economy and has committed to building out tourism-related infrastructure.

Isavia, a public company that handles the operation and development of Keflavik International Airport, is embarking on a $1-2 billion capital works project to expand the airport.  Projects include extension of buildings, baggage screening and baggage handling systems, self-check in stations, waiting areas and retail/dining areas, check-in areas, bag-drop off areas, security areas, airbridges/gates for remote stands, re-modelling of existing terminal, de-icing platforms, new runway, new taxiway, and a new ATC tower.  However, due to the COVID-19 pandemic, most tenders have been postponed.

The startup and innovation communities in Iceland are flourishing, with IT and biotech startups seeking investors.  Foreign investment in the fisheries sector is restricted, as well as in the energy sector (hydropower and geothermal exploitation rights other than for personal use and energy processing and transportation are limited to Icelandic citizens and legal persons, and individuals and legal persons who reside in the European Economic Area).  The wind energy sector is growing in Iceland, and the legal framework is still being developed for that sector.

Limits on Foreign Control and Right to Private Ownership and Establishment

The 1991 Act on “foreign investments for commercial purposes” limits foreign ownership of fishing rights and fish processing companies (only Icelandic citizens or companies that are controlled by Icelandic citizens and have less than 25 percent foreign shareholders can own or control fishing companies); of hydropower and geothermal exploitation rights other than for personal use and energy processing and transportation (only Icelandic citizens and legal persons, and individuals and legal persons who reside in the European Economic Area (EEA) can hold those rights); and of aviation operators (Icelandic ownership of aviation companies needs to be at least 51 percent, and this does not apply to individuals and legal persons that have EEA citizenship).  The law further stipulates that foreign states, sub-national governments, or other foreign authorities are prohibited from investing in Iceland for commercial purposes, although the Minister of Tourism, Industries, and Innovation may grant exemptions.  The responsibility to inform the relevant ministry of both new investments and investments in companies that the party in question has already invested in lies with the investor, or with the Icelandic company that the foreign individual or entity invested in (this does not apply to EEA citizens or residents).

However, the 1991 Act does not stipulate how foreign investment is screened or monitored by relevant authorities, only that the Minister of Tourism, Industries, and Innovation handles permits and monitors the execution of this legislation.  The Minister can block foreign investment if he/she considers it a “threat to national security or goes against public policy, public safety or public health or if there are serious economic, societal or environmental complications in specific industries or in specific areas, that is likely to persist…”  The law further states that the “Minister has the authority to stop foreign investment in systematically important companies if such investment entails systematic risk.”  If an investment has already taken place, the Minister of Tourism, Industries, and Innovation has the authority to compel the foreign person or entity in question to sell.

Other Investment Policy Reviews

Iceland has been a World Trade Organization (WTO) member since 1995 and a member of GATT since 1968.  The WTO conducted its fifth Trade Policy Review of Iceland in 2017 (https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S006.aspx?Query=((%20@Title=%20iceland)%20or%20(@CountryConcerned=%20iceland))%20and%20(%20(%20@Symbol=%20wt/tpr/s/*%20)%20or%20(%20@Symbol=%20wt/tpr/g/*%20))&Language=ENGLISH&Context=FomerScriptedSearch&languageUIChanged=true#).

The review notes that “with a small population and limited natural resources, apart from energy and fish, trade remains important but the range of exports is limited to tourism, fish and fish products, and aluminum and products thereof.  Therefore, the country remains vulnerable to shocks, including the appreciation of the ISK, overheating of the economy, and Brexit.  Furthermore, despite uncertainties relating to Brexit, as growth picks up in the EU, Iceland’s main trading partner, opportunities for trade in goods and services should continue to improve.”

The Organization for Economic Cooperation and Development (OECD) and UN Cooperation for Trade and Development (UNCTAD) have not conducted Investment Policy Reviews for Iceland.

Business Facilitation

Businesses are registered with Iceland Revenue and Customs (Skatturinn) (http://www.rsk.is/english/).  Applications for the registration of businesses can be filled in online, however some forms are in Icelandic only and it is therefore necessary for foreign businesses to contract a local representative to complete the paperwork.  The website of the Business Registry in Iceland is (http://www.rsk.is/fyrirtaekjaskra) (Icelandic only).  More information on establishing a business in Iceland can be found here (https://www.government.is/topics/business-and-industry/establishing-a-business-in-iceland/).

Services offered by Invest in Iceland, a public-private agency that promotes and facilitates foreign investment in Iceland (http://www.invest.is), are free of charge to all potential foreign investors.  Invest in Iceland can provide information on investment opportunities in Iceland; collect data on the business environment, arrange site visits and plan contacts with local authorities; arrange meetings with local business partner and professional consultants; influence legislation and lobby on behalf of foreign investors (https://www.invest.is/at-your-service/what-we-do).  Invest in Iceland offers detailed information on how to establish a company on its website (http://www.invest.is/doing-business/establishing-a-company). Its sister agencies, Business Iceland (formerly Promote Iceland) (https://www.businessiceland.is/) and Film in Iceland (http://www.filminiceland.com), aim to enhance Iceland’s reputation as a tourist destination and as a destination for filming movies and television productions.

According to the World Bank, Iceland’s GDP was $24.2 billion in 2019 (https://data.worldbank.org/country/iceland).  Iceland is currently ranked number 64 out of 190 economies on the World Bank’s starting a business list, and number 26 on the ease of doing business list (https://www.doingbusiness.org/en/data/exploretopics/starting-a-business#close).

Outward Investment

The Icelandic Government along with other stakeholders promote exports of Icelandic goods and services through the public-private agency Islandsstofa, also known as Business Iceland (https://www.businessiceland.is/).  Business Iceland assists Icelandic businesses in the main industry sectors export products and services, including fisheries (seafood and technology), agricultural produce (including organic lamb meat), high-tech products and solutions (software, prosthetics, etc.), and services (tourism).  Business Iceland has been increasingly active in the United States and Canada in recent years.  A trade commissioner represents the Icelandic Ministry of Foreign Affairs in New York, facilitating exports to the United States and promoting business relations between the two countries.  Business Iceland also promotes exports to the U.K., Northern and Southern Europe, and more recently to Asia (China and Japan).

Iceland imposed capital controls following the economic collapse in late 2008, which largely prevented Icelandic investors and pensions funds from investing outside of Iceland.  The government lifted capital controls on March 14, 2017.

The United States does not share either a bilateral investment treaty (BIT) or a free trade agreement (FTA) with Iceland, although the two countries signed a Trade and Investment Framework Agreement (TIFA) in January 2009 and have convened an annual Economic Dialogue.  The United States and Iceland do not have a treaty granting visas for commerce and navigation (i.e. E1/E2 visas for Treaty Traders and Treaty Investors).

Iceland is a member of the European Free Trade Association (EFTA), and therefore has access to the Norwegian, Swiss, and Liechtenstein markets, as well as the EU market through the EEA Agreement.  The 1994 EEA agreement unites the EFTA and EU member states into one single market with free movement of goods, capital, services, and persons.  The agreement further stipulates tariff-free trade of industrial products that originate from countries that are part of the agreement and reduced or eliminated tariffs on processed agricultural products and seafood. Iceland has a bilateral agreement with the EU dating back to 1972 with reduced or zero tariffs on Icelandic seafood exported to the EU.  In 2018, an agreement came into force between Iceland and the EU concerning reduced or eliminated tariffs, and increased tariff quotas on unprocessed agricultural products.  As part of this agreement, Iceland dropped tariffs of more than 340 categories of unprocessed agricultural products, and reduced tariffs of more than 20 categories.  U.S. agricultural products exported to Iceland face tariffs that are up to 30 percent higher than products from the EEA.

Iceland signed a trade agreement with the People’s Republic of China (entered into force in 2014) that offers reciprocal tariff-free treatment on a range of goods.  Iceland has an FTA with the Faroe Islands (entered into force in 2006).  Iceland signed a customs agreement with Denmark on behalf of Greenland (entered into force 1985).  The EFTA member states have collectively signed FTAs with Albania, Bosnia and Herzegovina, Chile, Egypt, Gulf Cooperation Council (GCC), Georgia, Hong Kong, Israel, Jordan, Canada, Columbia, Lebanon, Macedonia, Morocco, Mexico, Costa Rica, Guatemala, Panama, Peru, Palestine, Singapore, Serbia, South Korea, Montenegro, Southern African Customs Union (SACU), Tunisia, Turkey, and Ukraine (https://www.stjornarradid.is/verkefni/utanrikismal/utanrikisvidskipti/vidskiptasamningar/friverslunarsamningar/).

Iceland has signed Treaties with Investment Provisions (TIPs) with the following countries:  EFTA States and Indonesia EPA (signed but not in force), EFTA States and Ecuador FTA (signed but not in force), EFTA States and Philippines FTA, EFTA States and Gulf Cooperation Council FTA (signed but not in force), (https://investmentpolicy.unctad.org/international-investment-agreements/by-economy#iiaInnerMenu).

Iceland has signed Bilateral Investment Treaties (BITs) with the following countries:  Egypt, India (terminated), Mexico, Lebanon (signed but not in force), Chile, Vietnam, Lithuania, Latvia, and China (https://investmentpolicy.unctad.org/international-investment-agreements/by-economy#iiaInnerMenu).

The United States and Iceland have a double taxation treaty.  An intergovernmental agreement implementing the Foreign Account Tax Compliance Act (FATCA) in Iceland was signed May 26, 2015.  The United States and Iceland signed a social security totalization agreement, titled “Agreement on Social Security between the United States of America and Iceland,” and the accompanying legally binding administrative arrangement titled “Administrative Arrangement between the Competent Authorities of the United States of America and Iceland for the Implementation of the Agreement on Social Security between the United States of America and Iceland” (collectively the “Agreements”) in 2016, which entered into force on March 1, 2019.

Transparency of the Regulatory System

The regulatory system as a whole is transparent, although bureaucratic delays can occur.  All proposed laws and regulations are published in draft form for the public record and are open for comment.  Icelandic laws regulating business practices are consistent with those of most OECD member states.

The Competition Authority is responsible for enforcing anti-monopoly regulations and promoting effective competition in business activities.  This includes eliminating unreasonable barriers and restrictions on freedom in business operations, preventing monopolies and limitations on competition, and facilitating new competitors’ access to the market.  The Consumer Agency holds primary responsibility for market surveillance of business operators, transparency of the markets with respect to safety and consumers’ legal rights, and enforcement of legislation concerning protection of consumers’ health, legal, and economic rights.  For more information see the Competition Authority’s website: (https://en.samkeppni.is/) and the Consumer Agency website: (https://www.neytendastofa.is/English).

The Icelandic Parliament (Althingi) consists of a single chamber of 63 members; a simple majority is required for ordinary bills to become law.  All bills are introduced in the parliament in draft form.  Draft laws and regulations are open to public comment and are published in full on the parliament’s web page:  (http://www.stjornartidindi.is) and on the websites of the relevant ministries (often in English).  Invest in Iceland also maintains an information portal website that includes information on industry sectors, the business climate, and incentives that foreign investors may find useful (http://www.invest.is).

Ministries or regulatory agencies develop bills, which are available to the general public.  Ministries or regulatory agencies publish the text of the proposed regulations before their enactment on a unified website (https://www.stjornartidindi.is/).  Ministries or regulatory agencies solicit comments on proposed regulation from the general public.  Laws and regulations are published on both the parliament’s website (https://www.althingi.is/) and separate website managed by the Ministry of Justice (https://www.stjornartidindi.is/).

The OECD published a report on Iceland in September 2019.  One of the findings of the report was that regulatory barriers are high in Iceland.  “Regulation should be more commensurate with the needs of a small open economy.  Product market regulation is stringent and the administrative burden for start-ups is high, holding back investment and innovation.  Restrictions to foreign direct investment are among the highest of the OECD, limiting employment and productivity gains through international knowledge transfer.  The government should set up a comprehensive action plan for regulatory reform, prioritizing reforms that foster competition, level the playing field between domestic and foreign firms, and attract international investment.”  (http://www.oecd.org/economy/iceland-economic-snapshot/).  The Government of Iceland has since the report worked to reduce the regulatory burden.  The Minister of Tourism, Industries and Innovation and the Minister of Fisheries and Agriculture announced in October 2019 that they had eliminated more than a thousand regulations relevant to their ministries.

The Iceland Chamber of Commerce operates an independent arbitration institute, the Nordic Arbitration Centre (NAC).  The NAC provides for a dispute resolution mechanism, allowing parties to solve their dispute efficiently and safely.  Both the arbitration process and the Arbitral Tribunals final awards are strictly confidential.  There have been no known cases of discrimination against U.S. investors.  For more information visit the Iceland Chamber of Commerce’s website: (https://www.chamber.is/arbitration).

Iceland scores 4.75 on the World Bank’s Global Indicators of Regulatory Governance index (https://rulemaking.worldbank.org/en/data/explorecountries/iceland#).

International Regulatory Considerations

Icelandic laws regulating business practices are generally consistent with other OECD members.  Iceland’s laws are generally based on EU directives due to Iceland’s membership in the EEA, which legally obligates it to adopt EU directives and law concerning four freedoms of the EU:  free movement, goods, services, persons, and capital.

Iceland has been a member of the World Trade Organization (WTO) since January 1, 1995.  Iceland and the United States signed a Trade and Investment Framework Agreement (TIFA) in January 2009.

Legal System and Judicial Independence

The Icelandic civil law system enforces property rights, contractual rights, and the means to protect these rights.  The Icelandic court system is independent from the parliament and government.  Foreign parties must abide by the same rules as Icelandic parties, and they enjoy the same privileges in court; there is no discrimination against foreign parties in the Icelandic court system.  When trade or investment disputes are settled, the settlement is usually remitted in the local currency.

Iceland has a three-tier judicial system; eight District Courts (Héraðsdómstólar), the Court of Appeal (Landsréttur), and the Supreme Court (Hæstiréttur Íslands).  All court actions commence at the District Courts, and conclusions can then be appealed to the Court of Appeal.  In special cases the conclusions of the Court of Appeal can be referred to the Supreme Court.  A new public agency, the Judicial Administration (Dómstólasýsla), along with the Court of Appeal (Landsréttur) began operating on January 1, 2018.

The Landsdómur is a special high court or impeachment court to handle cases where members of the Cabinet of Iceland are suspected of criminal behavior.  The Landsdómur has 15 members — five supreme court justices, a district court president, a constitutional law professor, and eight people chosen by parliament every six years.  The court assembled for the first time in 2011 to prosecute a former Prime Minister for alleged gross misconduct in the events leading up to the 2008 financial crisis; he was found guilty of failing to hold regular cabinet meetings during the crisis but was not convicted of gross misconduct.

Laws and Regulations on Foreign Direct Investment

Icelandic laws regulating and protecting foreign investments are consistent with OECD and EU standards.  As Iceland is a member of the EEA, most EU commercial legislation and directives are in effect in Iceland.  The major law governing foreign investment is the 1996 Act on Investment by Non-residents in Business Enterprises, which grants national treatment to non-residents of the EEA.  The law dictates that foreign ownership of businesses is generally unrestricted, except for limits in the fishing, energy, and aviation sectors.  However, there are precedents of such restrictions being circumvented by non-EEA companies that establish holding companies within the EEA.  Icelandic law also restricts the ability of non-EEA-citizens to own land, but the Ministry of Interior may waive this.  The managers and the majority of the board of directors in an Icelandic enterprise must be domiciled in Iceland or another EEA member state, although exemptions from this provision can be granted by the Ministry of Interior.

Iceland has no automatic screening process for investments that trigger national security concerns (similar to the Committee on Foreign Investment in the United States), although bidders in privatization sales may be required to go through a pre-qualification process to verify they possess the financial strength to participate.  Investors that intend to hold more than 10 percent of shares (“active” shareholders) in financial institutions are subject to approval from the Central Bank of Iceland (http://en.fme.is/).

For information on incentives and doing business in Iceland see Invest in Iceland’s website: (https://www.invest.is/doing-business/incentives-and-support).

Competition and Antitrust Laws

Competition Law no. 44/2005 is currently in place to promote competition and to prevent unreasonable barriers on economic operations.  Depending on the turnover of the companies in question, the Icelandic Competition Authority is notified of mergers and acquisitions.  The Authority may annul mergers or set conditions to prevent monopolies and limitations on competition.  For more information see the Competition Authority’s website: (https://en.samkeppni.is/).

Expropriation and Compensation

The Constitution of Iceland stipulates that no one may be obliged to surrender their property unless required by the government to serve a public interest, and that such a measure shall be provided for by law and full compensation be paid.  A special committee is appointed every five years to review and proclaim the legality of expropriation cases.  If the committee proclaims a case to be legal, it will negotiate an amount of compensation with the appropriate parties.  If an amount cannot be agreed upon, the committee determines a fair value after hearing the case of all parties.

As far as the U.S. Embassy is aware, the Icelandic government has never expropriated a foreign investment.  However, some private investors described actions by the Icelandic government before and during the October 2008 financial crisis (related to the takeover of three major banks and offshore krona assets) as a type of indirect expropriation (https://www.cb.is/financial-stability/foreign-exchange/offshore-krona-assets/).

Dispute Settlement

ICSID Convention and New York Convention

Iceland is a member state to the International Center for the Settlement of Investment Disputes (Washington Convention), as well as a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention).

Investor-State Dispute Settlement

Iceland has ratified the major international conventions governing arbitration and the settlement of investment disputes.

There was a public dispute in 2016 and 2017 between hedge funds based in the U.S. and UK, and the Icelandic Government concerning offshore krona owned by these hedge funds and capital controls in effect following the economic collapse in 2008.  These hedge funds filed a case against the Government of Iceland at the EFTA courts, but later dropped the case.

An Icelandic company that operates airports in Iceland grounded an airplane owned by an American leasing company in April 2019, due to outstanding debt towards the airport operator that an airline had accumulated.  The airline had just declared bankruptcy and owed the airport operator around 2 billion ISK (approx. $15.8 million) in landing fees.  The airport operator decided to ground the American plane that had been leased by the airline and insisted that the American company settled the airline’s debt.  The American company took the airport operator to court and won the case and the plane was released.

International Commercial Arbitration and Foreign Courts

The Iceland Chamber of Commerce operates an independent arbitration institute, called the Nordic Arbitration Centre.  The awards of the Arbitral Tribunals are final and binding for the parties.  Furthermore, due to Iceland’s ratification of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards the Tribunals awards are enforceable in over 144 countries.  For more information see the Iceland Chamber of Commerce’s website: (http://chamber.is/services/NAC).

Bankruptcy Regulations

The Bankruptcy Act of 1991, No. 21, applies to a debtor who has a social security number and is domiciled in Iceland.  The debtor can be a person, a company, or an institution.  The debtor has to apply for a license of financial reorganization or for composition with creditors.  In the case of a registered company, its registered domicile must be in Iceland.  If the company is unregistered, then its venue must also be in Iceland according to its articles of establishment.  The same applies to institutions.

Bankruptcy is not criminalized in Iceland.  Iceland ranks number 12 out of 190 economies on the World Bank´s Doing Business List for resolving insolvency.

Investment Incentives

Iceland welcomes foreign direct investment.  Iceland has, through the public-private agency Invest in Iceland, identified the following “key sectors” in Iceland:  algae cultures; data centers; life sciences and tourism.  Iceland “focuses on favorable environment for businesses in general, including low corporate tax, availability of land and efficiency in a European legislative framework.”  For information on incentives for foreign investors see Invest in Iceland’s website: (https://www.invest.is/).

The 2015 Act on Incentives for Initial Investments in Iceland implemented to “promote initial investment in commercial operations, the competitiveness of Iceland and regional development by specifying what incentives are permitted in respect to initial investments in Iceland and how they should be used.”  For more information see the English translation of the act: (https://www.government.is/topics/business-and-industry/incentives-and-investment-agreements/).

There is significant debate regarding the appropriate types and level of FDI in Iceland, particularly within the energy sector and with regard to job creation and the environmental impact associated with certain projects.  Historically, foreign investment has been in energy-intensive industries, such as aluminum smelting, although investments in tourism, life sciences, and information technology have grown as a proportion of total FDI in recent years.

Subsidiaries of foreign companies are able to participate in government-subsidized research and development programs, but only to cover R&D costs that are borne in Iceland.  For further information see (http://en.rannis.is).

Foreign Trade Zones/Free Ports/Trade Facilitation

For information on free zones and customs procedures, please visit the Iceland Revenue and Customs website: (https://www.tollur.is/english/businesses/customs/procedural-aspects/importing-to-iceland/customs-procedures/).

Performance and Data Localization Requirements

Iceland follows the EU General Data Protection Regulation and is a member of the U.S.-EU Privacy Shield arrangement for transatlantic data transfers.  The Icelandic Data Protection Authority (DPA) monitors the implementation of Regulation 2016/679 of the European Parliament and of the Council on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and of the Act on Data Protection and the Processing of Personal Data no. 90/2018.  DPA’s law-enforcement work includes “monitoring data controllers and ensuring that they take appropriate security measures, in accordance with law”.  For more information see the Icelandic Data Protection Authority’s website (https://www.personuvernd.is/information-in-english/).

Iceland is a member of the EEA, allowing residents from any EEA country to work in Iceland.  For residents of third countries, a resident permit is required for anyone staying in Iceland for more than three months.  Please see the Icelandic Directory of Immigration web page for further information:  (http://www.utl.is/index.php/en/).

Real Property

Only Icelandic citizens and foreign citizens that have permanent residency in Iceland can acquire the right to own or use real property in Iceland, including fishing and hunting rights, water rights, or other real property rights, whether by free assignation or enforcement measures, marriage, inheritance, or deed of transfer.  However, special rules apply for citizens of the EEA.  The Minister of Interior may grant exemption from these conditions based on application showing the need of ownership for business activities.  The Minister’s permission is not necessary if leasing real property for less than three years or when the party involved enjoys rights in Iceland under the rules of the EEA.  For more information, please see the Act on the Right of Ownership and Use of Real Property

(https://www.government.is/Publications/Legislation/Lex/?newsid=353f66b8-f153-11e7-9421-005056bc4d74).

Property rights are generally enforced in Iceland.  There is good access to mortgages and other financing to purchase real property in Iceland from commercial banks, pension funds and private lenders.  Iceland is ranked number 16 out of 187 economies on the World Banks’s Doing Business Report in ease of registering property.

Intellectual Property Rights

Iceland adheres to key international agreements on intellectual property rights (IPR).  Trademarks, copyrights, trade secrets, and industrial designs are all protected under Icelandic law.  Iceland is a signatory of the Paris Convention for the Protection of Industrial Property, the Patent Cooperation Treaty (PCT), and of the European Patent Convention (EPC).  For further information see (https://europa.eu/youreurope/business/running-business/intellectual-property/patents/iceland/index_en.htm).  Iceland is also a member of the European Patent Organization, the World Intellectual Property Organization (WIPO), and a party to most WIPO-administered agreements.  For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at (http://www.wipo.int/directory/en/).

The Icelandic Intellectual Property Office’s (ISIPO) is a government agency under the auspices of the Minister of Industries and Innovation.  The institution was established on July 1, 1991, and assumed responsibility for the patent and trademark department from the Ministry of Industries.  In 2019, ISIPO took up its current name, as it used to be called the Icelandic Patent Office.  ISIPO’s scope of operation is defined by Advertisement No. 187/1991 and Regulation No. 188/1991.  ISIPO is responsible for “issues relating to patents, trademarks, design protection, municipal emblems, and other comparable rights as provided for by law, regulations, and international agreements on the protection of intellectual property rights in the field of industry.”  For more information visit, the ISIPO webpage in English (https://www.isipo.is/).  There is information on how to recognize counterfeit products on ISIPO’s webpage in Icelandic (https://www.hugverk.is/frumkvodlar/vidhald-og-stjornun-hugverka/falsanir-og-brot-hugverkarettindum).

Illegal downloading and distribution of films and TV shows has decreased in the past couple of years due to widespread access to international streaming services, such as Netflix and Disney Plus.  Purchasing cheap, counterfeit consumer goods on Chinese websites, namely AliEpxress.com, is popular in Iceland, although that trend has gone down somewhat due to increasing fees imposed by Iceland Post on incoming international deliveries.  Customs seize counterfeit products if found and contact the rightsholder who then decides whether to press charges against the importer.  If the owner of the intellectual property does not want to take legal actions, Customs clears the items and sends them to the importer.  Iceland Revenue and Customs have on a few occasions seized counterfeit consumer goods which lead to charges against the importer, including shipments containing counterfeit Nike shoes and Arco designer lamps in 2014.  Iceland Revenue and Customs participated in the United Nations Office on Drugs and Crime’s campaign against counterfeit products in 2014

(https://www.tollur.is/embaettid/frettir/frett/2014/03/13/Althjodlegt-atak-gegn-eftirlikingum/).  Iceland Revenue and Customs runs a “smuggling hotline” where people can report if counterfeit goods are imported to the country (https://www.tollur.is/english/individuals/customs/smuggling-hotline/).

Iceland is not listed in the USTR’s 2021 Special 301 Report, but it reportedly hosts servers for hosting provider FlokiNET, which is included in USTR’s 2020 Notorious Markets List.

Capital Markets and Portfolio Investment

Capital controls were lifted in March 2017 after more than eight years of restricting the free movement of capital.  New foreign currency inflows fall under the Rules on Special Reserve Requirements for new Currency Inflows, no. 223/2019 which took effect on March 6, 2019, and replaced the older Rules no. 490/2016 on the same subject.  The rules contain provisions on the implementation of special reserve requirements for new foreign currency inflows, including the special reserve base, holding period, special reserve ratio, settlement currency, and interest rates on deposit institutions’ capital flow accounts with the Central Bank of Iceland and Central Bank certificates of deposit.  The rules set the interest rate on capital flow accounts with the Central Bank of Iceland and Central Bank certificates of deposits at 0 percent and specify the Icelandic krona as the settlement currency.  The current rules set the holding period at one year and the special reserve ratio at 0 percent.  For more information see the Central Bank of Iceland’s website (https://www.cb.is/foreign-exch/capital-flow-measures/).

Foreign portfolio investment has increased significantly over the past few years in Iceland after being dormant in the years following the economic crash.  U.S. investment funds have been particularly active on the Icelandic stock exchange.  The Icelandic stock exchange operates under the name Nasdaq Iceland.  For companies listed on Nasdaq Iceland, follow this link:  (http://www.nasdaqomxnordic.com/hlutabref/Skrad-fyrirtaeki/iceland).

The private sector has access to financing through the commercial banks and pensions funds.

The IMF 2019 Article IV Consultation report states that “the de jure exchange rate arrangement is free floating, and the de facto exchange rate arrangement under the IMF classification system is floating.  In the period from November 2018 to October 31, 2019, the Central Bank of Iceland (CBI) intervened in the foreign exchange market on 14 of the 248 working days.  The CBI publishes daily data on its foreign exchange intervention with a lag.  Iceland has accepted the obligations under Article VIII, Sections 2(a), 3, and 4 and maintains no exchange restrictions subject to Fund jurisdiction under Article VIII, Section 2(a).  Iceland continues to maintain certain measures that constitute exchange restrictions imposed for security reasons based on UN Security Council Resolutions.”

(source:  https://www.imf.org/en/Publications/CR/Issues/2019/12/19/Iceland-2019-Article-IV-Consultation-Press-Release-and-Staff-Report-48891).

Money and Banking System

The Central Bank of Iceland is an independent institution owned by the State and operates under the auspices of the Prime Minister.  Its objective is to promote price stability, financial stability, and sound and secure financial activities.  The bank also maintains international reserves and promotes a safe, effective financial system, including domestic and cross-border payment intermediation. For more information see the Central Bank of Iceland’s website (https://www.cb.is/).

The Icelandic banking sector is generally healthy.  After the financial collapse of 2008, the Central Bank of Iceland introduced stringent measures to ensure that the financial system remains “safe, stable, and effective (https://www.cb.is/financial-stability/).”  There are three commercial banks in Iceland: Landsbankinn, Islandsbanki, and Arion Bank.  The Government of Iceland took over operations of the banks during the financial collapse in September and October 2008.  Landsbankinn (formerly known as Landsbanki Islands) and Islandsbanki (formerly known as Glitnir) are government owned (the government of Iceland owns 98.2 percent shares in Landsbankinn and 100 percent shares in Islandsbanki), while Arion Bank (formerly known as Kaupthing Bank) has been privatized.  Arion Bank is listed on the Icelandic stock exchange Nasdaq Iceland.  There is one investment bank in Iceland, Kvika, which is listed on Nasdaq Iceland.  The Minister of Finance is seeking to privatize Landsbankinn and Islandsbanki.  Icelandic pension funds offer loans and mortgages and are active investors in Icelandic companies.  There are no foreign banks operating in Iceland.

All companies have access to regular commercial banking services in Iceland.  Businesses have access to financing with the commercial banks, but  banks have reduced corporate lending in the past months due to the current economic climate (the Icelandic economy had started to cool in late 2019).

Establishing a bank account in Iceland requires a local personal identification number known as a “kennitala.”  Foreign nationals should contact Registers Iceland for more information on how to register in Iceland (https://www.skra.is/english/).

Foreign Exchange and Remittances

Foreign Exchange

The Act on Investment by Non-Residents in Business Enterprises no. 34/1991 and no. 46/1996 states that “non-residents who invest in Icelandic enterprises shall have the right to convert into any currency, for which the Central Bank of Iceland maintains a regular exchange rate any dividends received or other profits and proceeds from sales of investments.” (Source: https://www.government.is/search/$LisasticSearch/Search/?SearchQuery=The+Act+on+Investment+by+Non-residents+in+Business+Enterprises+).  In 2008, however, the Central Bank of Iceland temporarily imposed capital controls to prevent a massive capital outflow following the collapse of the financial sector; those restrictions were largely lifted in March 2017.  Transactions involving imports and exports of goods and services, travel, interest payments, contractual installment payments and salaries were still permitted under the capital controls.

The Annual Report on Exchange Arrangements and Exchange Restrictions 2018, published by the International Monetary Fund (IMF), states that “Iceland fully eliminated exchange restrictions on conversions and transfers related to current international transactions with bonds.” “Iceland progressively relaxed and finally eliminated restrictions on withdrawing foreign currency cash from resident’s domestic foreign exchange accounts and eased rules governing transfers abroad for some financial transactions.  It also gradually eased and eventually removed the requirement that residents repatriate foreign currency acquired abroad.”

(source: https://www.imf.org/en/Publications/Annual-Report-on-Exchange-Arrangements-and-Exchange-Restrictions/Issues/2019/04/24/Annual-Report-on-Exchange-Arrangements-and-Exchange-Restrictions-2018-46162).

The Central Bank of Iceland publishes the official exchange rate on its website (https://www.cb.is/statistics/official-exchange-rate/).  “The exchange rate of the Icelandic krona is determined in the foreign exchange market, which is open between 9:15hrs. and 16:00 hrs. on weekdays.  Once a day, the Central Bank of Iceland fixes the official exchange rate of the krona against foreign currencies, for use as a reference in official agreements, court cases, and other contracts between parties that do not specify another reference exchange rate; cf. Article 19 of the Act on the Central Bank of Iceland and fixes the official exchange rate index at the same time.  This is done between 10:45 hrs. and 11:00 hrs. each morning that regulated foreign exchange markets are in operation.  Under extraordinary circumstances, the Central Bank may temporarily suspend its quotation of the exchange rate of the krona.”

Remittance Policies

Most restrictions on foreign exchange transactions and cross-border movement of domestic and foreign currency were lifted on March 14, 2017, when capital controls were lifted.  New foreign currency inflows fall under the Rules on Special Reserve Requirements for new Currency Inflows, no. 223/2019 which took effect on March 6, 2019, and replaced the older rules no. 490/2016 on the same subject.  The rules contain provisions on the implementation of special reserve requirements for new foreign currency inflows, including the special reserve base, holding period, special reserve ratio, settlement currency, and interest rates on deposit institutions’ capital flow accounts with the Central Bank of Iceland and Central Bank certificates of deposit.  The rules set the interest rate on capital flow accounts with the Central Bank of Iceland and Central Bank certificates of deposits at 0 percent and specify the Icelandic krona as the settlement currency.  The Foreign Exchange Act no. 87/1992 and the Act no. 42/2016 Amending the Foreign Exchange Act state that the holding period may range up to five years and that the special reserve ratio may range up to 75 percent; however, the aforementioned rules set the holding period at one year and the special reserve ratio at 0 percent.  For more information see the Central Bank of Iceland’s website (https://www.cb.is/foreign-exch/capital-flow-measures/).

Sovereign Wealth Funds

The Government of Iceland has proposed establishing a sovereign wealth fund, called the National Fund of Iceland.  The bill to establish the fund has not passed through Parliament.  The stated purpose of the fund is “to serve as a sort of disaster relief reserve for the nation, when the Treasury suffers a financial blow in connection with severe, unforeseen shocks to the national economy, either due to a plunge in revenues or the cost of relief measures that the government has considered unavoidable to undertake.”

The Icelandic Government owns wholly or has majority shares in 37 companies, including systemically important companies such as energy companies, the Icelandic National Broadcasting Service (RUV) and Iceland Post. Other notable SOEs are Islandsbanki and Landsbankinn (two out of three commercial banks in Iceland), Isavia (public company that operates Keflavik International Airport), and ATVR (the only company allowed to sell alcohol to the general public).  Here is a list of SOEs: https://www.stjornarradid.is/verkefni/rekstur-og-eignir-rikisins/felog-i-eigu-rikisins/.  Total assets of SOEs in 2019 amounted to 5,293 billion ISK (approx. $41.7 billion) and SOEs employed around 6,000 people that same year.  In terms of assets and equity, Landsbankinn (one of three commercial banks in Iceland) is the largest SOE in Iceland, and Isavia employs the most people.

State-owned enterprises (SOEs) generally compete under the same terms and conditions as private enterprises, except in the energy production and distribution sector.  Private enterprises have similar access to financing as SOEs through the banking system.

As an OECD member, Iceland adheres to the OECD Guidelines on Corporate Governance.  The Iceland Chamber of Commerce in Iceland, NASDAQ OMX Iceland and the Confederation of Icelandic Employers have issued guidelines that mirror the OECD Guidelines on Corporate Governance.  Iceland is party to the Government Procurement Agreement (GPA) within the framework of the World Trade Organization (WTO).

For SOEs operating within the private sector in a competitive environment, the general guideline from the Icelandic government is that all decisions of the board of the SOE should ensure a level playing field and spur competition in the market.

In the midst of the banking crisis, the state, through the Financial Supervisory Authority (FME), took over Iceland’s three largest commercial banks, which collapsed in October 2008, and subsequently took over several savings banks to allow for uninterrupted banking services in the country.  The government has stated its intention to privatize Landsbanki and Islandsbanki.  The Bank Shares Management Company, established by the state in 2009, manages state-owned shares in financial companies.

The government of Iceland has acquired stakes in many companies through its ownership of shares in the banks; however, it is the policy of the government not to interfere with internal or day-to-day management decisions of these companies.  Instead, in 2009, the state established the Bank Shares Management Company to manage the state-owned shares in financial companies.  The board of this entity, consisting of individuals appointed by the Minister of Finance, appoints a selection committee, which in turn chooses the State representative to sit on the boards of the various companies.

While most energy producers are either owned by the state or municipalities, there is free competition in the energy market.  That said, potential foreign investment in critical sectors like energy is likely to be met by demands for Icelandic ownership, either formally or from the public.  For example, a Canadian company, Magma Energy, acquired a 95 percent stake in the energy production company HS Orka in 2010, but later sold a 33.4 percent stake to the Icelandic pension funds in the face of intense public pressure.

Iceland’s universal healthcare system is mainly state-operated.  However, few legal restrictions to private medical practice exist; private clinics are required to maintain an agreement regarding payment for services with the Icelandic state, a foreign state, or an insurance company.

Privatization Program

There are no privatization programs in Iceland at the moment.  However, the government of Iceland owns two commercial banks (Landsbankinn and Islandsbanki) and has stated that it intends to privatize both.  The government took ownership of the banks when the Icelandic banking system collapsed in 2008.  The Ministry of Finance and Economic Affairs reiterated on January 29, 2021 its intent to sell government of Iceland shares in Islandsbanki.

As an OECD member, Iceland adheres to the OECD Guidelines for Multinational Enterprises.  The Ministry for Industries and Innovation houses Iceland’s National Contact Point for the Guidelines, charged with promoting the due diligence approach of the Guidelines to the business community and to facilitate the resolution of any disputes arising in the context of the Guidelines  (https://www.stjornarradid.is/verkefni/atvinnuvegir/vidskipti/almenn-vidskiptamal/).

Business Iceland (formerly Promote Iceland), a public-private agency, has signed the United Nations’ Global Compact (GC) and raises awareness of corporate social responsibility in Iceland.  Festa, a non-profit organization which promotes sustainable development and corporate social responsibility, has over 120 associated members, including some of Iceland’s largest companies, public organizations, universities, and municipalities (www.samfelagsabyrgd.is/festa).  Gagnsaei, an NGO affiliated with Transparency International, is active in Iceland and is a voice against corruption and for responsible business practices (www.transparency.is).  There is a general awareness of corporate social responsibility among producers, companies, and consumers.

There was a high-profile case in 2018 and 2019 surrounding a private employment agency which has now been declared bankrupt, that allegedly mistreated migrant Romanian workers by failing to pay salaries and provide housing as per agreement.  The Directorate of Labor fined the company in 2019 for failing to register workers adequately.

As an OECD member state, Iceland adheres to the OECD Due Diligence Guidance recommendations to help companies respect human rights and avoid contributing to conflict through their mineral purchasing decisions and practices.  The Icelandic economy does not have a mining industry, other than extracting rocks and gravel for construction purposes.  In 2013, then Icelandic Prime Minister Sigmundur David Gunnlaugsson issued a joint statement with the other Nordic Prime Minister to reaffirm their support to the Extractive Industry Transparency Initiative (EITI).

Additional Resources

Department of State

• Country Reports on Human Rights Practices (https://www.state.gov/reports-bureau-of-democracy-human-rights-and-labor/country-reports-on-human-rights-practices/);
• Trafficking in Persons Report (https://www.state.gov/trafficking-in-persons-report/);
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities (https://www.state.gov/key-topics-bureau-of-democracy-human-rights-and-labor/due-diligence-guidance/) and;
• North Korea Sanctions & Enforcement Actions Advisory (https://home.treasury.gov/system/files/126/dprk_supplychain_advisory_07232018.pdf)

Department of Labor

• Findings on the Worst forms of Child Labor Report (https://www.dol.gov/agencies/ilab/resources/reports/child-labor/findings ) and;
• List of Goods Produced by Child Labor or Forced Labor (https://www.dol.gov/agencies/ilab/reports/child-labor/list-of-goods).
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World (https://www.dol.gov/general/apps/ilab) and;
• Comply Chain (https://www.dol.gov/ilab/complychain/).

In 2020 Iceland ranked 17 out of 180 economies on the Transparency International’s Corruption Perceptions Index, indicating low levels of public perceptions of corruption.  Isolated cases and allegations of corruption have been known to occur.  Iceland has signed the UN Convention against Corruption.  Iceland is a member of the OECD Convention on Combatting Bribery.

The Council of Europe body Group of States Against Corruption (GRECO) published its fifth evaluation report on Iceland on April 12, 2018.  Its key findings:  Iceland lacked a dedicated government-wide policy plan on anti-corruption and that its existing agency and institution-specific codes of conduct were not sufficiently detailed and are often implemented in an ad hoc manner.  For more information, see the GRECO report (https://rm.coe.int/fifth-evaluation-round-preventing-corruption-and-promoting-integrity-i/16807b8218).

In the wake of the financial collapse in Iceland in 2008, the Code of Conduct for Staff in the Government Offices of Iceland was established in 2012, “with the purpose of promoting professional methods and of confidence in public administration.”  The code of conduct addresses workplace relations and procedures; behavior and conduct; conflicts of interest and shared interests; communication with the media, public and surveillance bodies; and responsibility and monitoring for Government Offices staff.  For more information see the Government of Iceland’s website (https://www.government.is/ministries/prime-ministers-office/code-of-conduct-for-staff/).  The code does not extend to family members of officials or political parties.

Resources to Report Corruption

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

Ragna Bjarnadottir
Director
Ministry of Justice
Solvholsgata 7, 101 Reykjavik, Iceland
+354-545-9000
ragna.bjarnadottir@dmr.is / dmr@dmr.is

Contact at a “watchdog” organization:

Arni Muli Jonasson
Managing Director
Gagnsæi (Icelandic chapter of Transparency International)
Gimli, Haskolatorg, 101 Reykjavik, Iceland
transparency@transparency.is

Politically motivated violence in Iceland is rare, and Iceland consistently ranks among the world’s safest countries.  In early 2014, frustration among voters regarding the then-governing Progressive Party-Independence Party coalition government’s refusal to hold a referendum on EU accession led to the largest protests since the financial collapse; these protests did not include violence.  Non-violent protests also led to a governmental reorganization and early elections, following the 2016 “Panama Papers” scandal.  Following the collapse of the government of the Progressive Party and the Independence Party in the wake of the Panama Papers scandal, snap elections were called.  Since the November 2017 formation of the current coalition government comprising the Independence Party, Progressive Party, and the Left-Green Movement, there has been a high degree of political stability in Iceland.

There have been individual cases of politically motivated vandalism of foreign holdings in recent years, directed primarily at the aluminum industry.

The labor force in Iceland is highly skilled and educated.  In 2020, the labor force consisted of 202,200 people aged between 16 and 74 years old, according to Statistics Iceland.  Of them, 189,200 people were employed and 13,000 unemployed at the end of 2020.  According to the Directorate of Labor, unemployment reached 11.4 percent in February 2021, which can be largely attributed to the adverse effects that COVID-19 has had on Iceland’s most important industry, tourism.  Foreign labor plays a large role in unskilled and semi-skilled sectors such as tourism and construction.  In December 2020, 30,000 immigrants were employed in Iceland, according to Statistics Iceland.

Icelandic Labor Laws are taken seriously in Iceland and there are no waivers to attract or retain investment.  The labor unions and Directorate of Labor conduct spot inspections on worksites to monitor legal compliance.  The labor market is highly unionized, with 91.9 percent of the workforce members of trade unions in 2020, according to Statistics Iceland.

Icelandic labor unions are decentralized and not politically affiliated.  Collective bargaining power, in both the public and the private sectors, rests with individual labor unions.  The law does not establish a minimum wage, but the minimum wages negotiated in collective bargaining agreements apply automatically to all employees in those occupations, including foreign workers, regardless of union membership.  While the agreements can be either industry-wide, sector-wide, or in some cases firm-specific, the type of position defines the negotiated wage levels.  The government has sometimes imposed mandatory mediation to avert or end strikes in key economic sectors such as healthcare or fisheries.

The standard legal work week is 40 hours.  However, most office workers have 37.5 hour work weeks.  The law requires that employers compensate work exceeding eight hours per day as overtime.  Most employees are paid for overtime or allowed time off in lieu of paid compensation.  Collective bargaining agreements determine the terms of overtime pay, but they do not vary significantly across unions.  The law limits the total hours a worker may work, including overtime, to 48 hours a week on average during each four-month period.  Typical holiday and shift-work rates are 40 percent above the standard shift rate, and may be up to 45 percent more if total work hours exceed full-time employment.  The law entitles workers to 11 hours of rest in each 24-hour period and one full day off each week.  Under specially defined circumstances, employers may reduce the 11-hour rest period to no fewer than eight hours, but they must then compensate workers with corresponding rest time later.  They may also postpone a worker’s day off, but the worker must receive the corresponding rest time within 14 days.

Outside terminating an employee, employers are by law prohibited from making unilateral amendments to hiring contracts.  In the instances of mass layoffs, companies are mandated to report them to the Directorate of Labor.  However, the terminated employee retains the same rights to severance benefits regardless of whether they were part of a mass layoff, or fired.  For further information, see the Directorate of Labor website (https://vinnumalastofnun.is/en).

There are no current International Development Finance Corporation (DFC) or Overseas Private Investment Corporation (OPIC) operations in Iceland.  Political risk insurance and project financing have traditionally been available on the local and international markets.  Iceland is a member of the World Bank’s Multilateral Investment Guarantee Agency.

*Source for host country data: Statistics Iceland, GDP 2,940,638 million ISK, or $23,163.75 million using exchange rate on April 5, 2021 https://px.hagstofa.is/pxen/pxweb/en/Efnahagur/Efnahagur__thjodhagsreikningar__landsframl__1_landsframleidsla/THJ01102.px/table/tableViewLayout1/?rxid=c91a854e-8e6d-4ba1-aa3e-ba17655827ff

*Source for host country data: Central Bank of Iceland, foreign direct stocks in Iceland 7,581 million ISK, or $59.7 million using exchange rate on April 5, 2021 https://www.cb.is/statistics/statistics/2021/03/19/Direct-Investment/?stdID=5

*Source for host country data: Central Bank of Iceland, foreign direct investment position abroad, 34,065 million ISK, or $268.3 million using exchange rate on April 5, 2021.

*Source for host country data: Central Bank of Iceland, foreign direct investment stocks in Iceland, 1,011,131 million ISK, or $7,965 million using exchange rate on April 5, 2021.

Ester Halldorsdottir
Economic and Commercial Specialist
U.S. Embassy Reykjavik
Engjateigur 7, 105 Reykjavik
+354-595-2241
ReykjavikEconomic@state.gov

Policies Towards Foreign Direct Investment

The Latvian government actively encourages foreign direct investment (FDI) and works with investors to improve the country’s business climate. Latvia has a dedicated investment promotion agency – Latvian Investment and Development Agency – to provide a full scope of investment services to prospective investors: https://www.liaa.gov.lv/en  The Latvian government meets annually with the Foreign Investors Council in Latvia (FICIL), which represents large foreign companies and chambers of commerce, to improve the business environment and encourage foreign investment. The Prime Minister chairs the Coordination Council for Large and Strategically Important Investment Projects. In January 2021, FICIL published its Sentiment Index 2020 – a survey of current foreign investors’ assessments about the investment climate in Latvia. It is available at: https://www.ficil.lv/sentiment-index/  .

Limits on Foreign Control and Right to Private Ownership and Establishment

Latvian legislation, on the basis of national security concerns, requires governmental approval prior to transfers of significant ownership interests in the energy, telecommunications, and media sectors. The government is considering expanding this list of sectors. Detailed information is available here: https://investmentpolicy.unctad.org/country-navigator/118/latvia 

With these limited exceptions, physical and legal persons who are citizens of Latvia or of other EU countries may freely purchase real property. In general, physical and legal persons who are citizens of non-EU countries (third-country nationals) may also freely purchase developed real property. However, third-country nationals may not directly purchase certain types of agricultural, forest, and undeveloped land. Such persons may acquire ownership interest in such land through a company registered in the Register of Enterprises of the Republic of Latvia, provided that more than 50 percent of the company is owned by: (a) Latvian citizens and/or Latvian governmental entities; and/or (b) physical or legal persons from countries with which Latvia signed and ratified an international agreement on the promotion and protection of investments on or before December 31, 1996; or for agreements concluded after this date, so long as such agreements provide for reciprocal rights to land acquisition. The United States and Latvia have such an agreement (a bilateral investment treaty in force since 1996). In addition, foreign investors can lease land without restriction for up to 99 years. The Law on Land Privatization in Rural Areas allows EU citizens to purchase Latvia’s agricultural land and forests. Other restrictions apply (to both Latvian citizens and foreigners) regarding the acquisition of land in Latvia’s border areas, Baltic Sea and Gulf of Riga dune areas, and other protected areas.

In May 2017, the President of Latvia promulgated the amendments to the Law on Land Privatization in Rural Areas to simplify and clarify the process for local farmers to purchase land. The law, however, also prohibits foreigners who are not permanently residing in Latvia from purchasing agricultural land and required that any person wishing to purchase agricultural land must speak Latvian and be able to present plans for the future use of the land for agricultural purposes in Latvian.

The Latvian constitution guarantees the right to private ownership. Both domestic and foreign private entities have the right to establish and own business enterprises and engage in all forms of commercial activity, except those expressly prohibited by law.

Other Investment Policy Reviews

The Organization for Economic Cooperation and Development (OECD) published an Economic Survey of Latvia in December 2020 ( http://www.oecd.org/economy/latvia-economic-snapshot/ ). Although there have been no trade policy reviews specifically involving Latvia, the WTO completed its latest review of the European Union in February 2020. ( https://www.wto.org/english/tratop_e/tpr_e/tp495_e.htm ). Additionally, in October 2017, the World Bank published a review of Latvia’s tax system ( http://documents.worldbank.org/curated/en/587291508511990249/Latvia-tax-review ). Previously, the World Bank carried out a similar review of Latvia’s port infrastructure in 2013 ( http://www.worldbank.org/en/news/press-release/2013/11/27/world-bank-reviews-competitiveness-of-latvian-ports ).

Business Facilitation

In 2020, Latvia ranked 19 out of 190 countries in the World Bank’s Ease of Doing Business Report. A new business can be registered in Latvia in one day. The Latvian Investment and Development Agency has prepared a guide on starting a business in Latvia: https://www.liaa.gov.lv/en/invest-latvia/business-guide/operating-environment 

The official website of the Latvian Commercial Register provides detailed information in English on business registration process in Latvia: https://www.ur.gov.lv/en/ . The World Bank’s Doing Business project has a detailed review of the business registration process in Latvia, which is available here: http://www.doingbusiness.org/data/exploreeconomies/latvia/#starting-a-business .

Latvia has implemented special legislation to encourage startup ventures through favorable tax treatment. For more information please see here: http://www.liaa.gov.lv/en/invest-latvia/start-up-ecosystem  and here: https://labsoflatvia.com/en/resources .

Using the European Commission definitions of micro, small, and medium enterprises (MSMEs), Latvia has established a special tax regime for microenterprises. Under the microenterprise tax, qualifying businesses (those employing up to five employees and with less than 25,000 euros in revenue) pay a single tax that covers social security contributions, personal income tax, and business risk tax for employees, and includes corporate income tax if the micro business taxpayer is a limited liability company. This special tax regime is available to foreign nationals. Changes introduced in 2021, including an increased microenterprise tax rate, now make the tax regime less attractive for most small companies. For additional details on the microenterprise tax, see: https://www.vid.gov.lv/en/node/57223 

Outward Investment

The Latvian government does not incentivize outward investment nor restrict Latvians from investing overseas.

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 to bring Latvia’s legislation in compliance with the EU and WTO GPA requirements. Several 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 

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

International Regulatory Considerations

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

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. The newly established Economic Affairs Court began operating on March 31. This is an effort by the government to accelerate and improve adjudication of economic and financial-related cases.

Laws and Regulations on Foreign Direct Investment

Incoming foreign investment in Latvia is regulated by the Commercial Law. The Latvian Investment and Development Agency’s website 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 Antitrust Laws

Competition-related concerns are supervised by the Competition Council. 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 the Alienation of Immovable Property Necessary for Public Needs: ( https://likumi.lv/ta/en/en/id/220517-law-on-the-alienation-of-immovable-property-necessary-for-public-needs ) 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 ICSID ruled that Latvia had violated its bilateral investment treaty with Lithuania and ordered Latvia to pay $1.9 million 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 68 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 is available here: https://www.ebrd.com/news/2019/support-for-debt-restructuring-in-latvia-project-launched.html 

Investment Incentives

Latvia does not offer tax 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 

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: https://www.liaa.gov.lv/en/invest-latvia/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: https://www.liaa.gov.lv/en/invest-latvia/business-guide/operating-environment  .

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

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 that 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 WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) to which Latvia acceded by joining the WTO.

The business community has occasionally raised concerns regarding the enforcement of IPR in Latvia. Digital piracy is still a concern in Latvia, as it is in much of Eastern and Central Europe. Latvian law enforcement authorities have the authority to investigate IPR infringement cases. The Government of Latvia is working to tackle online/digital piracy, and has drafted respective policy guidelines: https://www.iem.gov.lv/en/article/tackle-copyright-infringements-digital-environment-more-effectively

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 67107000
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:

Ms. Baiba Graube
Acting Director of the Patent Office of the Republic of Latvia
+371 670 99 600
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 Financial Action Task Force (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 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, Latvia’s 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 Financial Intelligence 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 2020 stood at 24.56 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, 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 March 18, 2021, one euro is worth $1.1912. 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 website: https://www.ecb.europa.eu/stats/exchange/eurofxref/html/index.en.html .

Sovereign Wealth Funds

Latvia does not have a sovereign wealth fund.

State-owned enterprises (SOEs) are active in the energy and mining, aerospace and defense, services, information and communication, automotive and ground transportation, and forestry sectors. 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.

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

In 2015, the OECD published a review of the corporate governance of Latvia’s SOE and found that Latvia’s SOE sector relative to the size of the national economy was larger than the OECD average. The full report 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 line ministries. SOEs operate 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 joint stock company “Possessor” ( 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). Due to the pandemic, the government invested 250 million euros into airBaltic equity, thus increasing its stake in the airline to 96.14%. The airline plans to return the investment to the state, via an initial public offering, potentially in 2022-2023.

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 also promotes CSR. Several other initiatives promote CSR, such as 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 point of contact for the guidelines can be found here: 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.

Additional Resources 

Department of State

• Country Reports on Human Rights Practices;
• Trafficking in Persons Report;
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities and;
• North Korea Sanctions & Enforcement Actions Advisory

Department of Labor

• Findings on the Worst Forms of Child Labor Report;
• List of Goods Produced by Child Labor or Forced Labor.
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World and;
• Comply Chain.

Resources to Report Corruption

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 2020 Corruption Perception Index by Transparency International, Latvia ranks 42nd out of 180 countries (in order from the lowest perceived level of public sector corruption to the highest).

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. Several 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 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 few 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: https://lv.usembassy.gov/.

The official rate of registered unemployment in January 2021, according to Eurostat, was 8.5 percent ( https://ec.europa.eu/eurostat/statistics-explained/index.php/Unemployment_statistics ). The Latvian State Employment Agency reported 8.2 percent unemployment at the end of February 2021. 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, foreign managers have reported a shortage of mid- and senior-level managers with “Western” management skills.

Companies must keep wages above the legally specified minimum of 500 euros per month, as of January 2021. 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, 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 specialized skills. To address this problem, the Latvian government has approved a list of highly skilled professions that employers may use to recruit professionals 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.

* Source for Host Country Data:

http://www.fm.gov.lv/en/s/macroeconomics/main_macroeconomic_indicators/ 
https://statdb.bank.lv 
https://www.macroeconomics.lv/ 

Clare Zimmerman
Economic Officer
Samnera Velsa iela 1, Riga, Latvia, LV1510
+371 6710 7000
RigaCommerce@state.gov

Policies Towards Foreign Direct Investment

Malta seeks foreign direct investment (FDI) to increase its rate of economic growth. Malta provides incentives to attract investment in high-tech manufacturing (including plastics, precision engineering, electronic components, automotive components, and health technologies such as pharmaceuticals manufacturing and biotechnology), information and communications technology (ICT), research and development (R&D), aerospace and aviation maintenance, education and training, registration of ships and aircrafts, transshipment and related service industries, finance services, and digital technologies, including artificial intelligence technologies, blockchain, innovative technologies, and digital gaming.

Malta’s comparative advantages include membership in the EU, Eurozone, and Schengen Zone; proximity to European and North African markets; excellent telecommunications and transport connections; a fair and transparent business environment; a highly skilled, English-speaking labor force; and competitive wage rates (though the cost of living is high, labor costs are relatively low compared with other EU countries). Malta also offers financial, tax, and other investment incentives to attract FDI. Foreign investment plays an integral part in the Government of Malta’s policies to reduce the role of the state in the economy and increase private sector activity. It will also play a key role in building Malta’s economic recovery post-pandemic as the country is in the process of shaping an economic strategy based on tangible niche market opportunities that will help it recover in the new economic and health conditions.

Malta Enterprise, a government organization that promotes FDI in Malta, provides information to prospective investors, processes applications for government investment incentives, and serves as a liaison between investors and other government entities. The organization offers an attractive investment package for U.S. and other investors.

There are currently no legal prohibitions against FDI-oriented sales in Malta’s domestic market; however, the country is in the process of setting up an FDI screening mechanism in line EU regulation 2019/452 establishing a framework for the screening of foreign direct investments into the Union. The government seeks, as a top priority, companies operating in the following fields:

• High-end manufacturing (although virtually all manufacturing sectors are open to FDI);
• Information and communications technology, including electronic components, and digital gaming;
• Health technologies, medical equipment, pharmaceuticals, and emerging medical sectors (including medical cannabis);
• Back office and regional support operations;
• Digital technologies including blockchain, artificial intelligence, innovative technologies, e-sports, and fintech;
• Knowledge-based service, including aerospace and defense (aviation maintenance), education and training, and research and development;
• Logistics-based services, including marine technology, warehousing, and oil/gas services; and
• Film industry (Malta has one of the few sets in the world for water/boating scenes).

Limits on Foreign Control and Right to Private Ownership and Establishment

Private foreign investors are free to make equity arrangements as they wish, from joint ventures to full equity ownership.

The Government of Malta recognizes the right to private ownership in theory and in practice. Private entities are free to establish, acquire, and dispose of interests in business enterprises and engage in all forms of remunerative activity. Many U.S. firms sell their products or services in Malta through licensing, franchise, or similar arrangements. The government generally allows foreign companies to operate in merchandising areas, especially if they operate a licensing, franchising, or similar agreement through a local representative.

It is the government’s stated policy not to allow public enterprises to operate at the expense of private entities. Some sectors, such as electricity generation, are also open to private sector participation. The government provides private enterprises with the same opportunities as public enterprises for access to markets and other business operations.

Other Investment Policy Reviews

The Government of Malta has not undergone any third-party investment policy reviews through a multilateral organization in the last three years.

Business Facilitation

The Maltese Commercial Code provides for the establishment of several types of business entities according to the needs of an individual investor when setting up a company in Malta. The following are the available structures:

• Private limited liability companies;
• Public limited liability companies;
• General partnerships; and
• Limited partnerships.

Foreign companies can also open subsidiaries or branch offices in Malta.

When setting up a Maltese private company, the minimum share capital amount accepted is €1,165 ($1,300). The minimum for a public company is approximately €46,600 ($51,670), of which 25 percent must be deposited prior to registration. In case of private companies with an authorized share capital exceeding the minimum requirements, only 20 percent of the amount must be deposited.

The maximum number of shareholders for limited liabilities companies is 50 and minimum is two (although a single-member company may also be registered under the Companies Act).

The following are the main steps required to set up a company in Malta:

• Reserve a company name with the Maltese Business Registry;
• Draft the company’s memorandum and articles of association;
• Deposit the minimum share capital; and
• File the application with the Malta Business Registry.

The documents to be filed with the Malta Registrar of Companies are:

• The memorandum and articles of association;
• A confirmation of the company name reservation;
• The bank receipt confirming the share capital deposit; and
• Passport copies of the shareholders, directors, and company secretary.

The Malta Business Registry (MBR) is responsible for the registration of new commercial partnerships, the registration of documents related to commercial partnership, the issuing of certified documentation including certificates of good-standing amongst others, the reservation of company names, the collection of registration and other fees, the publication of notices, and the imposition and collection of penalties. The Registry also conducts investigations of companies and maintains the company and partnership register.

The Memorandum must be presented to the MBR, which offers an online system allowing users to register a company and submit commonly used forms (including a bank receipt as proof of payment of the initial share capital). All the statutory forms and notices are available on the website free of charge. The MBR may also request that due diligence on the directors, shareholders, and/or beneficial owners be provided before proceeding with the incorporation. Upon incorporation, companies must pay a registration fee payable to the MBR according to the amount of share capital held by the company.

Once all the requirements above are satisfied, the MBR will normally carry out incorporation of a company within two to three working days. Once incorporation is complete, the MBR will publish a Certificate of Incorporation that will also display the company registration number.

MBR website: https://mbr.mt/ 

The Government of Malta also offers a one-stop shop for businesses – Business First – that assists companies with all processing of services and information to establish a company. Business First brings more than 50 essential services from various government departments and entities under one roof. It assists all enterprises based in Malta, including micro enterprises, small and medium-sized enterprises (SMEs), larger companies, and foreign investors wishing to set up in the country.

Business First website: https://businessfirst.com.mt/ 

Outward Investment

TradeMalta, incorporated in 2014, is a public-private partnership between the government and the Chamber of Commerce to help Malta-based enterprises internationalize. TradeMalta is also the national organization tasked with marketing and coordinating both incoming and outgoing trade missions, promoting participation in international trade fairs, facilitating bilateral trade meetings, and researching new market opportunities. Although TradeMalta promotes outward investment and incentives for companies to seek international business, it does not provide financial incentives to set up FDI in other jurisdictions. This quasi-governmental organization is also tasked with maintaining business relationships with countries with whom Malta has a trading activity and dedicates its resources to identifying new markets, which are not considered as traditional trading partners. (For the past three years, it has targeted African countries for outgoing trade missions.)

The organization provides specialized training programs in international business development and marketing and administers incentive schemes and internationalization programs aimed at both novice and experienced exporters.

The government actively supports and promotes franchising, joint-ventures, and other forms of international business opportunities between Malta-based businesses and foreign companies.

In 2010, the United States signed a bilateral taxation agreement with Malta. Malta also benefits from treaties with investment provisions with ACP (African, Caribbean, and Pacific Group of States), Albania, Algeria, ANCOM (Andean Community), Armenia, ASEAN (Association of South-East Asian Nations), Azerbaijan, Bangladesh, Belarus, Bosnia and Herzegovina, Brazil,

CACM (Central American Common Market), Cambodia, Cameroon, Canada, CARICOM (Caribbean Community), Chile, China, Colombia, Côte d’Ivoire, Ecuador, EFTA (European Free Trade Association), Egypt, ESA (Eastern and Southern Africa), GCC (Gulf Cooperation Council), Georgia, India, Iraq, Israel, Jordan, Kazakhstan, Republic of Korea, Kyrgyzstan, Laos, Lebanon, Libya, Macao S.A.R., MERCOSUR (Mercado Común Sudamericano), Mexico, Moldova, Mongolia, Montenegro, Morocco, Nepal, North Macedonia, OCT (Overseas Countries and Territories), Pakistan, the Palestinian Territories, Paraguay, Peru, Russia, SADC (Southern African Development Community), Serbia, Singapore, South Africa, Sri Lanka, Tajikistan, Thailand, Tunisia, Turkey, Turkmenistan, Ukraine, Uruguay, Uzbekistan, Vietnam, and Yemen.

The United States has maintained a Commerce and Navigation Treaty with Malta since 1815, initially in its capacity as a British colony, and, upon Malta’s independence in 1964, on its own behalf. The primary aim of this agreement is to ensure non-discriminatory treatment for bilateral trade and investments. Malta has similar investor protection accords with Albania, Austria, Belgium/Luxembourg Economic Union, Bulgaria, China, Croatia, Cyprus, Czech Republic, Egypt, France, Germany, Italy, Kuwait, Libya, Montenegro, Netherlands, Serbia, Slovakia, Slovenia, Sweden, Switzerland, Tunisia, Turkey, and the United Kingdom.

There are currently no ongoing or upcoming changes to the taxation regime or ongoing systematic tax disputes between the government and foreign investors.

Transparency of the Regulatory System

Malta has transparent and effective policies and regulations to foster competition. It has revised labor, safety, health, and other laws to conform to EU standards.

Stakeholder engagement is currently required for all subordinate regulations as part of the Regulatory Impact Assessment (RIA) process as well as for some primary laws in selected policy areas. Each online consultation is accompanied by a feedback report, summarizing the views of participants and providing feedback on the comments received. According to OECD 2019 report on Indicators of Regulatory Policy and Governance, the transparency of the Maltese regulatory framework could be further strengthened by making RIAs available for consultations with stakeholders by systematically engaging with stakeholders during the development of primary laws, specifically at an early stage, before a preferred regulatory decision has been identified.

International Regulatory Considerations

Malta’s regulatory system is derived from the acquis communautaire, the body of laws, rights, and obligations that are binding on all EU member states. Consequently, trade and investment relations with third countries are an EU responsibility under the Common Commercial Policy. However, with respect to investment, Malta does have some competence in certain investment areas. In particular, where the EU does not have or is not negotiating an investment protection agreement, Malta can hold or negotiate one unilaterally. Malta also maintains competence in the areas of transport and portfolio investment, as well as corporate taxation. Malta is currently working on taking the necessary steps to implement the EU-wide mechanism for cooperation on investment as required by the new EU framework for investment screening which entered into force on April 10, 2019. The Malta draft bill still needs to be considered and passed in parliament.

Malta became a WTO member on January 1, 1995. However, all draft technical regulations to the WTO Committee on Technical Barriers to Trade are now made at the EU level.

Malta ratified the Trade Facilitation Agreement on October 5, 2015 and is in full compliance with its implementation commitments.

Legal System and Judicial Independence

Malta’s Commercial Code regulates commercial activities and related legislation, such as the Banking Act, the Central Bank of Malta Act, and bankruptcy. In cases of bankruptcy, the court appoints a curator to liquidate the assets of the bankrupt company, organization, or individual, and distributes the proceeds among the creditors.

The Maltese judiciary is independent, and courts are divided into superior courts, presided over by judges, and inferior courts, presided over by magistrates. Inferior courts have jurisdiction over minor offenses of a criminal nature and small civil matters. The judiciary traditionally functions through the Criminal, Civil, and Constitutional courts. The First Hall of the Civil Court hears commercial cases. Malta has a Criminal Court of Appeal and a second Court of Appeal for all other matters. The Constitutional Court has jurisdiction to hear and determine questions and appeals on constitutional issues. There are also a number of administrative tribunals, such as the Industrial Tribunal, the Rent Regulation Board, the Sanction Monitoring Board, and the Board of Special Commissioners (for income tax purposes). Malta adopted the European Convention of Human Rights as part of its domestic law in 1987.

The Maltese judiciary has a long tradition of independence. Once appointed to the bench, judges and magistrates have fixed salaries that do not require annual approval. Judges cannot be dismissed, except by a two-thirds vote in the House of Representatives for proven misbehavior or the inability to exercise properly their function. The Maltese Constitution guarantees the separation of powers between the executive and the judiciary and a fair trial. In December 2018, the European Commission for Democracy through Law, known as the Venice Commission, issued an opinion on the constitutional arrangements, separation of powers, and independence of the judiciary and law enforcement bodies of Malta. The Commission recommended setting up an office of an independent Director of Public Prosecutions with security of tenure, being responsible for all public prosecutions, subject to judicial review. The opinion also recommended abolishing the possibility that judges can be dismissed by Parliament and suggested modifications to the system of the judicial appointments. Malta is currently in the process of implementing changes in accordance with the Venice Commission recommendation and has thus far has achieved successfully separated the previous dual roles of the Attorney General as both the public prosecutor and the state attorney.

Laws and Regulations on Foreign Direct Investment

Several laws govern foreign investment in Malta. The Income Tax Act of 1948 (as amended in 1994) establishes a single rate of taxation of 35 percent on income for limited liability companies in Malta. In certain qualifying cases, this rate can fall to five percent through a system of tax refunds on dividends paid. The Business Promotion Act authorizes the Government of Malta to allocate fiscal and other incentives to companies engaged in manufacturing (including software development), repair, or maintenance activities. The Malta Enterprise Act of 2003 enables Malta Enterprise to develop and administer incentives and other forms of support to liberalize and update legislation relevant to FDI. The Companies Act of 1995 regulates the creation of limited liability companies. The Companies Act also provides for the establishment of investment companies with variable share capital (SICAVS) and companies with share capital denominated in a foreign currency. The Malta Financial Services Authority Act of 1989 established the Malta Financial Services Authority (MFSA), which is responsible for the regulation of banking and investment services in Malta. The Investment Services Act of 1994 regulates investment services in the banking and insurance sectors. In 2018, Malta enacted three new acts related to blockchain. The Malta Digital Innovation Authority Act (MDIA) establishes the Authority that oversees and regulates innovative technologies, along with the Innovative Technology Arrangement and Services Act (ITAS) that regulates Innovative Technology Arrangements and Services, such as the software and coding used in digital ledger technology (DLT), smart contract, and related applications, together with the technical administration and review services. In 2018, the MFSA was entrusted with the Virtual Financial Assets Act (VFA) that regulates Initial Virtual Financial Assets Offerings and delineates their licensing requirements.

Competition and Anti-Trust Laws

Malta is a free-trade, open-economy country. The government does not approve or restrict any FDI, so long as it complies with EU and national regulations. Malta Enterprise reviews FDI before granting any incentives to a private entity or business. A due diligence process is carried out prior to approving greenfield investments. The MFSA undertakes the filings and regulatory screenings on financial investments.

The Office for Competition, currently housed within the Malta Competition and Consumer Affairs Authority (MCCAA), is the office tasked with protecting competition in Malta. The Maltese Competition Act is modelled on EU competition law. The latest amendments to the Competition Act in 2011 strengthened its deterrent effect by widening the decision-making powers of the Office for Competition and further aligned both the substantive and procedural rules with those existing under EU law.

In 2017, the Office for Competition reviewed plans for a merger between telecommunications companies Vodafone Malta and Melita. When the parties were unable to satisfy the MCCAA’s requirements, they terminated their plans to merge.

Expropriation and Compensation

The Government of Malta, in exceptional instances, expropriates private property for public purposes. In such cases, the government must take action in a non-discriminatory manner and in accordance with established principles of international law. Investors and lenders of expropriated property receive prompt, adequate, and effective compensation. In 1993, the government’s Property Division started accepting expropriation requests by public bodies only if the requests were accompanied by the compensation due to the landowners. In 2002, this practice was made law. As a result, the government may only expropriate private property if the presidential decree also includes a deposit for the compensation due. In recent years, the government has appropriated land mainly for the widening of roads; however, no particular sectors are at risk for expropriation or similar actions, and no laws force local ownership.

Dispute Settlement

ICSID Convention and New York Convention

Malta signed the Convention on the Settlement of Investment Disputes (ICSID) in 2002. Malta is also a member of the New York Convention of 1958 on the recognition and enforcement of foreign arbitration awards (UNCITRAL).

Investor-State Dispute Settlement

There have been no significant investment disputes over the past few years involving U.S. or other foreign investors or contractors in Malta. In a limited number of cases, U.S. investors have identified difficulties in obtaining fair legal resolutions, especially in disputes with Maltese parties. Courts in Malta are slow in processing cases. Reforms to increase efficiency in the judicial system are part of an ongoing constitutional reform effort, including the recent progress Malta made on implementing the Venice Commission recommendations. In December 2019, the State Advocate Act came in effect, as part of the reform in the Maltese justiciary, which split the Attorney General’s (AG) dual government advisory and prosecutorial roles.

International Commercial Arbitration and Foreign Courts

Malta honors the enforcement of foreign court judgments and foreign arbitration awards. Bilateral investment treaties, which Malta has with several countries (see section 3, Bilateral Investment Agreements), provide for the acceptable methods of settling disputes connected with citizens of those countries.

Bankruptcy Regulations

The Companies Act and the Commercial Code Bankruptcy in Malta and the Set-off and Netting on Insolvency Act of 2003 regulate bankruptcy. The latter provides for the set-off and netting due to each party with respect to mutual credits, mutual debts, or other mutual dealings that are enforceable whether before or after bankruptcy or insolvency.

The Maltese insolvency law regime distinguishes between bankruptcies of a person and bankruptcies of a commercial partnership other than a company. When a company cannot pay its debts, it may initiate insolvency proceedings. In such a case, the court examines carefully whether the financial situation of the company justifies its insolvency or whether it could remain operational and continue to pay its debts.

Any officer of a company who, in the twelve months prior to the deemed date of dissolution, concealed assets or documents, disposed of assets, or otherwise acted in a fraudulent manner may be criminally liable. Separately, courts may find any such officers civilly liable for such acts and require them to pay back to the company any moneys due. The law also provides for proceedings in cases of wrongful trading by directors and fraudulent trading by any officer of the company.

The Malta Association of Credit Management, known as MACM, is a members-owned, not-for-profit organization, providing a central national organization for the promotion and protection of all credit interests pertaining to Maltese businesses. More information at: https://www.macm.org.mt/ .

Investment Incentives

The Government of Malta offers several investment incentives to attract FDI. All investment incentives are specified by law and cannot be made available in an ad hoc manner. However, the way in which incentives are designed allows the opportunity to offer relatively tailor-made solutions, even though treatment of domestic and non-Maltese investors is identical. There are no stated requirements that a foreign investor should transfer technology, employ Maltese nationals, or reduce shareholding interest over time. These factors might, however, influence Malta Enterprise’s decision regarding a firm’s application for assistance. Malta Enterprise monitors compliance with any conditions set by the government as a condition of government assistance. Investors are not required to disclose proprietary information.

Investment Tax Credits: Companies in a targeted sector are entitled to a tax credit calculated as follows:

• As a percentage of qualifying capital expenditure (currently granting 10 percent for a large enterprise, 20 percent for a medium enterprise, and 30 percent for a small to micro enterprise; or
• As a percentage of the wage cost for the first 24 months of a newly created job (currently, 15 percent for a large enterprise; 25 percent for a medium enterprise, and 35 percent for a small and micro enterprise).

Access to Finance:

• Soft Loans: Malta Enterprise supports enterprise though loans at low interest rates for partial financing of investments in qualifying expenditure.
• Loan Guarantees: Malta Enterprise may guarantee bank loans taken by a company to finance acquisition of additional assets to be employed in the company’s business.
• Loan Interest Subsidies: Malta Enterprise may subsidize the rate of interest payable on bank loans. Loan interest subsidies are not in addition to loan guarantees and applicable to loans provided by banks or other financial institutions.
• Micro Guarantee Scheme: Malta Enterprise aims to accelerate the growth of enterprises by facilitating access to debt finance for smaller business undertakings.

Employment and Training: Malta’s employment corporation JobsPlus, formerly known as ETC, supports enterprises in recruiting new employees and training their staff.

SME Development: Incentives through the Micro Invest Scheme assist SMEs in investing, innovating and expanding, or developing their operations. The Ministry for the Economy, Investment and Small Business can also facilitate access to newly developed crowd-funding platforms.

Enterprise Support: Malta Enterprise provides assistance to businesses to support development of international competitiveness, improve processes, and network with other businesses. Trade Malta, Malta’s export and trade promotion agency, offers support for trade promotion activities focused on exports.

Research and Development: Malta Enterprise offers incentives to support and encourage businesses to engage in industrial research and experimental development, including exploitation of intellectual property through the licensing of patented knowledge.

COVID-19 measures: The government announced several measures as part of financial packages to help the Maltese economy during the COVID-19 outbreak. The financial aid packages mainly aimed to protect jobs and businesses by injecting liquidity into the market through measures including subsidies for partial payment of salaries, deferring certain tax deadlines, and guarantees allowing banks to continue offering loans, grant moratoria, and low interest rates for customers. It has also introduced schemes to encourage teleworking for companies and an RDI fund for COVID-19 related projects.

More information on incentives offered by Malta Enterprise can be found at: https://www.maltaenterprise.com/support  and https://covid19.maltaenterprise.com/ 

Other Tax Benefits:

The Government of Malta offers generous incentives to trading and financial companies registered with the Malta Financial Services Authority. Legislative changes in 1994 removed the distinction between offshore and onshore companies, so all companies in Malta are subject to a 35 percent tax rate on profits. However, the fact that the Maltese tax system is a full imputation system – and the only one remaining in the EU – means that a tax paid by a company will essentially remain a prepaid tax on behalf of the tax liability of the shareholders. Shareholders then are entitled to claim a tax refund, which may be equivalent to roughly 85 percent (in the case of trading income) of the tax paid at the corporate level. Companies operating within the Malta Freeport, a customs-free zone, may also benefit from reduced rates of taxation and investment tax credits.

Research and Development

The Government of Malta offers specific incentives for companies to engage in industrial research and development (see “Investment Incentives” section above). The government does not differentiate between U.S. or foreign firms and local firms regarding participation in incentive programs.

U.S. companies also can partner with local firms to participate in Horizon 2020, the EU Framework program for funding research and innovation. Horizon 2020 will run until the end of 2020 and has a budget of €80 billion.

Foreign Trade Zones/Free Ports/Trade Facilitation

Malta’s Freeport container port offers modern transshipment facilities, storage, assembling and processing operations, as well as an oil terminal and bunkering facilities. Following a corporate restructuring from 1998 through 2001, Malta established a distinction between authority and operator of the Freeport. Malta Freeport Corporation Ltd. (“Malta Freeport Authority”) fulfils the role of landlord and authority, whereas Malta Freeport Terminals Ltd. (“Malta Freeport”) carries out the role of operator. Malta Freeport Terminals Ltd. is the single operating company of the warehousing facilities and two container terminals , handling container vessels at 20,000 TEU and larger. In October 2004, the Government of Malta granted a 30-year concession for operation and development of Malta Freeport Terminals CMA CGM, which transferred it half of shares in Malta Freeport Terminals Ltd. to the Yilidirim Group of Turkey in November 2011, and sold a 49% interest in port operator Terminal Link to China Merchant Holdings (International) Company Ltd. in June 2013.

For a company to carry out business within the Freeport zone, Malta Freeport Authority must grant it a license, and its operations must complement the Freeport’s activities. Through the utilization of these facilities, clients can engage in an extensive range of handling operations, including cargo consolidation, break-bulk, storage, re-packing, re-labelling and onward shipping. Malta Freeport also offers assembly and processing options in accordance with the Malta Freeports Act. The operator must ensure that it does not label goods that have been processed in the Freeport with Malta as their country of origin, unless their identity has been substantially transformed within the zone. Companies operating within the Freeport benefit from reduced tax rates, as well as investment tax credits without customs interventions.

Malta Freeport offers round-the-clock industrial storage operations supported by a highly developed, customized infrastructure, as well as extensive transport networks, which link Malta to various important markets on a regular basis, including port connections in North America, Central America, and South America. Warehousing facilities lie only six kilometers from the island’s international airport, offering excellent opportunities for sea and air links stretching worldwide. In late 2016, the government issued a call for expressions of interest for the development of a logistics hub – government still has not published a final decision on this call. The aim of the project is to attract local or international operators to submit their proposals for the concession of the design, construction, financing, operation, and maintenance of an international logistics center on 45,000 square meters of land in Ħal Far. The Government of Malta’s vision is to have a strategic hub for international trade, serving as a Free Zone or as a Custom Warehouse.

Performance and Data Localization Requirements

Currently, no performance requirements exist, other than the goals that the investors link to applications for assistance with Malta Enterprise. Foreign investors can repatriate or reinvest profits without restriction and take disputes before the International Center for the Settlement of Investment Disputes (ICSID).

The government does not require foreign investors to establish or maintain data storage in Malta. However, the Malta Gaming Authority (MGA), the independent regulatory body responsible for the governance of all gaming activities, does require gaming companies to hold their data in Malta.

Foreign IT providers incorporated in Malta that process personal data in the context of the activities of an establishment, qualifying as data controllers within the Data Protection Act, fall within the jurisdiction of the Office of the Data Protection Commissioner. The Data Protection Commissioner stated there has never been an instance where, during an investigation, the Commissioner has requested access to source code or to encryption functions.

Any transfer of personal data by a controller established in Malta to a third country that does not ensure an adequate level of data protection is subject to the authorization of the Data Protection Commissioner as required by the Data Protection Act. In an attempt to facilitate and harmonize the implementation of this requirement, the European Commission adopted model clauses (Standard Contractual Clauses and Binding Corporate Rules – the latter used for sharing of personal data within a group of companies) which controllers may use for this purpose. No authorization is required for transfers made to EU Member States, members of the EEA, third countries which are, from time to time, recognized by the European Commission to have an adequate level of protection, and to companies that are certified under the EU-U.S. Privacy Shield. Furthermore, any personal data shared (rather than transferred) between data controllers in Malta must rely on a legal basis.

The European Union’s General Data Protection Regulation (GDPR), enacted in 2016, entered into force on May 25, 2018. The GDPR, which succeeds the Data Protection Directive of 1995, aims to protect EU citizens’ personal data, harmonize data privacy laws across the EU, and provide for better coordination among EU Member State data protection authorities. U.S. companies wishing to operate in Malta or to do business with Maltese individuals or entities should ensure compliance with the regulation.

Data controllers processing personal data are subject to the rules emanating from the General Data Protection Regulation (GDPR). These rules must be observed to ensure that the processing activities are carried out fairly and lawfully and with respect to the data subjects’ fundamental rights and freedoms. The competent authority in Malta that regulates and monitors observance with this law is the Office of the Information and Data Protection Commissioner.

Real Property

Property and contractual rights are enforced by means of (a) legal warning; (b) warrants of seizure; (c) warrants of prohibitory injunction; (d) warrants of impediments of departures (if proceedings fall within the jurisdiction of the Criminal Court); and (e) sale of property by court auction. The Code of Organization and Civil Procedures lays out procedures for registering and enforcing judgments of foreign courts. Rights and secured interests over immovable property must be publicly registered in order to be enforceable. The Government of Malta has occasionally been a party to international arbitrations and has abided by tribunal decisions.

The 2006 Maltese Securitization Act provides for a range of securitization transactions within its secure regulatory framework and offers various legal and international tax benefits. Malta permits the creation of securitization cell structures, allowing for multiple cells with clear segregation of assets and liabilities between each cell. Foreign investors typically use securitization for passporting funds, which allows a firm registered in the European Economic Area (EEA) to do business in any other EEA state without the need for further authorization from each country, and for investment within the EU. Investors typically use this system over the securitization of property.

According to latest data collected by the World Bank Doing Business report, registering property in Malta generally takes 17 days and costs 13.5 percent of the property value, and includes seven different procedures to legally transfer title on immovable property. Malta made the transfer of a property more expensive by introducing the new property transfer tax. The Property transfer tax (PTT) is the default transaction-based tax that affects transfers of any real right over immovable property from one party to another. It is calculated at the rate of 12% of the transfer value of the immovable property involved in a given transaction. Globally, Malta stands at 152 in the ranking of 190 economies on the ease of resolving insolvency.

Intellectual Property Rights

The Maltese legal system adequately protects and facilitates acquisition and disposition of intellectual property rights (IPR). In 2000, Malta implemented the pertinent provisions of the WTO’s Agreement on Trade-Related Aspects on Intellectual Property Rights (TRIPS). Malta has fully incorporated EU and WTO rules into national law. Additional information on EU-wide provisions on copyright, patents, trademarks, and designs can be found at: https://ec.europa.eu/growth/industry/intellectual-property/industrial-design/protection_en 

https://ec.europa.eu/growth/industry/intellectual-property/industrial-design/protection_en 

In addition, Malta is a member of the World Intellectual Property Organization (WIPO), the Paris Convention for the Protection of Industrial Property, the Berne Convention for the Protection of Literary and Artistic Works, and the Universal Copyright Convention (UCC).

Malta is not listed included in the U.S. Trade Representative’s (USTR’s) Special 301 Rreport nor in the USTR’s Notorious Market ReportList. The Association against Copyright Theft claims that Malta’s local laws do not include high enough minimum fines to deter vendors from selling pirated material. For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at HYPERLINK “http://www.wipo.int/directory/en/” http://www.wipo.int/directory/en/.

Malta’s Commerce Department within the Ministry for the Economy, Investment, and Small Business is responsible for intellectual propertyIPR-related issues.

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/ .

Commerce Department
Tel: +356 2122 6688
Email: commerce@gov.mt
Website: http://commerce.gov.mt/en/Pages/Contact-Details.aspx 
Address: Commerce Department, Lascaris Bastion, Valletta, VLT 1933, Malta

Capital Markets and Portfolio Investment

Malta’s Stock Exchange was established in 1993. In 2002, the Financial Markets Act effectively replaced the Malta Stock Exchange Act of 1990 as the law regulating the operations and setup of the Malta Stock Exchange. This legislation divested the Malta Stock Exchange of its regulatory functions and transferred these functions to the Malta Financial Services Authority (MFSA). The Financial Markets Act also set up a Listing Authority, which is responsible for granting “Admissibility to Listing” to companies seeking to have their securities listed on the Exchange.

To date, the few companies publicly listed on the Malta Stock Exchange have not faced the threat of hostile takeovers. Malta has no laws or regulations authorizing firms to adopt articles of incorporation/association that would limit foreign investment, participation, or control. Legal, regulatory, and accounting systems are transparent and consistent with international norms; several U.S. auditing firms have local offices.

Money and Banking System

The Maltese banking system is considered sound. In recent years, local commercial banks expanded the scope of their lending portfolios. Capital is available from both public and private sources; both foreign and local companies can obtain capital from local lending facilities. Commercial banks and their subsidiaries can provide loans at commercial interest rates. It is possible for new investors to negotiate soft loans from the government covering up to 75 percent of the projected capital outlay.

No U.S. bank has a branch in Malta. BNF and HSBC Malta currently maintain direct correspondent banking relationships with U.S. banks. Some local banks act as correspondents of several U.S. banks via other EU banks, though such a relationship often results in higher transaction costs.

The majority of banks have stopped opening accounts for companies that do not operate in Malta, those that operate in the electronic gaming sector, and those operating in the cryptocurrency sector. The few banks that still offer these services have tightened their due diligence processes, resulting in long delays to open accounts.

Malta takes pride in being the first country to propose a legal framework for the creation of an Authority to regulate Blockchain, Artificial Intelligence, and Internet of Things (IOT) devices. In 2018, Government enacted three legislations that provide a regulatory framework on Distributed Ledger Technology, issuers of Initial Coin Offerings (ICOs), and related service providers dealing in virtual currencies, which currently fall outside the scope of a legislative and regulatory regime.

Foreign Exchange and Remittances

Foreign Exchange

As long as investors present the appropriate documents to the Central Bank of Malta, there are no limitations on the inflow or outflow of funds for remittances of profits, debt service, capital, capital gains, returns on intellectual property, or imported raw materials. There are no significant delays in converting investment returns to foreign currency after presentation of the necessary documents. Maltese regulations and practices affecting remittances of investment capital and earnings have been streamlined, as several foreign exchange controls were relaxed to conform to EU directives. Malta joined the Eurozone in January 2008.

Remittance Policies

A company incorporated under the laws of Malta is considered ordinarily resident and domiciled in Malta. Companies which are ordinarily resident and domiciled in Malta are subject to tax on their worldwide income. A company not incorporated in Malta, but managed and controlled in Malta, is subject to tax on a remittance basis on its foreign-sourced income.

Companies subject to tax on a remittance basis are taxed on:

• Income and capital gains deemed to arise in Malta
• Income deemed arise outside Malta and remitted to Malta

Companies subject to the remittance basis are not taxed on:

• Income deemed to arise outside Malta which is not remitted to Malta
• Capital gains arising outside Malta

Companies which are not incorporated in Malta are considered to be resident in Malta when their management and control is shifted to Malta.

Malta does not allow the application of the remittance basis of taxation to individuals who are either (a) domiciled but not ordinarily resident or (b) ordinarily resident but not domiciled in Malta, whose spouse is both ordinarily resident and domiciled in Malta. In this regard, such individuals will now become taxable on their worldwide income and capital gains, irrespective of receipt/remittance of such income to Malta not domiciled in Malta.

Sovereign Wealth Funds

Malta has recently established the National Development and Social Fund (NDSF) to manage and administer receipts from the country’s Individual Investor Programme. Since inception through October 2019, it raised a total of €544 million ($593 million). The Sovereign Wealth Fund Institute ranked Malta’s NDSF the 71st world’s largest sovereign wealth fund. The fund receives 70 percent of its contributions from the country’s citizenship program. It has future charitable commitments of €56 million and, funds will also be funneled into the economy to help soften the economic crises brought about by the COVID-19 pandemic. The mission of the NDSF is to contribute towards, promote, and support major projects and initiatives of national importance and public interest. These initiatives and projects are intended to develop and improve the economy, public services, and the general well-being of present and future generations.

The Malta Investment Management Company Limited (MIMCOL) was established in 1988 to manage, restructure, and selectively divest the Government of Malta from state-owned enterprises (SOEs). MIMCOL also promotes private sector investment using cost-effective business practices across various SOEs. MIMCOL created strategies leading to the dissolution of SOEs with limited commercial prospects, as well as the profitable spin-off of non-core operations with commercial potential. MIMCOL’s focus then turned to SOEs deemed of strategic national value, but whose inefficient operations were reflective of a lack of competition. Eventually, MIMCOL prepared most SOEs for privatization and sold them off. Today, MIMCOL’s role has evolved into specialized assignments, such as strategic reviews of the management and operations of important parastatal companies and corporations operating in various sectors.MIMCOL’s sister company Malta Government Investments (MGI) holds a portfolio of 17 companies (excluding companies falling under the responsibility of other ministries and investments held directly by the government). This portfolio is not well defined. Most government investments are held by either the Board of Trustees within the Ministry for the Economy, Investment, and Small Business, or by Malta Government Investments Limited (MGI) as an agent for the Government of Malta.

Privatization Program

In recent years, the Maltese government has privatized a number of state-controlled firms, including the country’s largest bank, the postal service, shipyards, energy generation plants, and the wireless telecommunications industry. Although no plans exist to privatize Air Malta, the national airline, the Government of Malta was considering options for a strategic minority partner, though these plans are currently on hold. Ryanair also operates a subsidiary airline called Malta Air that incorporated its 61 Ryanair routes to and from Malta. The Ryanair fleet will register with the Malta Aviation Authority.

In 2015, the Government of Malta set up Projects Malta and Projects Plus Ltd to coordinate and facilitate public private partnerships between government ministries and the private sector. The government welcomes private investors, Maltese and non-Maltese, in privatization projects. It affords foreign investors equal treatment with domestic investors and sets few limitations on their operations. The government recently finalized its first international public-private partnership in the healthcare industry. Foreign investors can repatriate or reinvest profits without restriction and take disputes before the International Center for the Settlement of Investment Disputes (ICSID).

Corporate social responsibility (CSR) has become more prevalent in Malta in recent years, as global concerns such as climate change have risen to the forefront and as the EU has raised expectations for its member states regarding CSR. An increasing number of companies in Malta recognize the importance of their role in society and the real benefits of adopting a proactive approach to CSR.

The Maltese government does not specifically request adherence to OECD Guidelines for Multinational Enterprises; however, it is expected that multinationals follow generally accepted CSR principles.

Under the Code of Good Corporate Governance Guidelines, issued by the Malta Financial Services Authority in 2006, boards should seek to adhere to accepted CSR principles in day-to-day management practices and work closely with “suppliers, customers, employees, and public authorities.” Although corporate governance guidelines are non-binding in nature, public interest companies should highlight the adherence to such corporate governance principles in their annual reports.

In line with recent amendments to the Companies Act, the directors’ report that accompanies the annual financial statements should include an analysis of both financial and non-financial key performance indicators relevant to the particular business, including information relating to environmental matters.

Additional Resources 

Department of State

• Country Reports on Human Rights Practices;
• Trafficking in Persons Report;
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities and;
• North Korea Sanctions & Enforcement Actions Advisory

Department of Labor

• Findings on the Worst Forms of Child Labor Report;
• List of Goods Produced by Child Labor or Forced Labor.
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World and;
• Comply Chain.

Maltese law provides criminal penalties for official corruption, and the government generally implements these laws effectively. The Malta Police and the Permanent Commission against Corruption are responsible for combating official corruption. Past news reports suggest a number of government corruption allegations; however, few have resulted in legal action or resignations.

Public sector corruption, including bribery of public officials, is not a significant challenge for U.S. firms operating in Malta. The Council of Europe’s Group of States against Corruption (GRECO) completed its fifth evaluation of Malta in the autumn of 2018 and its findings were published in September 2019. Following the four previous rounds of evaluation and a follow-up compliance review, Malta introduced a number of legislative measures to combat corruption and is currently in the process of introducing further measures to improve its financial oversight.

Malta has taken significant steps over the years to combat corruption, including the establishment in 2002 of the Financial Intelligence Analysis Unit (FIAU) to support domestic and international law enforcement investigative efforts. The Prevention of Money Laundering and Funding of Terrorism Regulations were transposed into Maltese law in July 2008, and conform to EU Directive 2005/60/EC (the Third Directive) and Directive 2006/70/EC. Malta transposed the Fourth Anti-Money Laundering Directive in December 2017 and, in April 2018, announced its first national Anti-Money Laundering and Countering the Funding of Terrorism (AML/CFT) Strategy.

The latest report by the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL) calls on Maltese authorities to strengthen their practical application of measures to combat money laundering and the financing of terrorism. MONEYVAL acknowledges that the authorities have demonstrated a broad understanding of the vulnerabilities within the system, but a number of important factors – notably predicate offences, financing of terrorism, legal persons and arrangements, and the development of new technologies and the use of cash – appear to be insufficiently analyzed or understood.

The report further notes that while Malta has a sound legal framework to fight the financing of terrorism, the report notes that few investigations have been conducted so far which have not resulted in any prosecutions or convictions. While noting recent progress, the report concludes that the actions undertaken by the authorities are not fully in line with the country’s exposure to possible terrorism financing risks. Based on the results of its evaluation, MONEYVAL decided to apply its enhanced follow-up procedure and invited Malta to report back in December 2020.

The latest MONEVAL report is available at https://rm.coe.int/moneyval-2019-5-5th-round-mer-malta/16809737c0 

Local Laws: U.S. firms should familiarize themselves with local anti-corruption laws, and, where appropriate, seek legal counsel. While the U.S. Department of Commerce cannot provide legal advice on local laws, the Department’s Foreign Commercial Service (FCS) can provide assistance with navigating the host country’s legal system and obtaining a list of local legal counsel.

Assistance for U.S. Businesses: The U.S. Department of Commerce offers several services to aid U.S. businesses seeking to address business-related corruption issues. For example, the FCS can provide services that may assist U.S. companies in conducting due diligence as part of the company’s overarching compliance program when choosing business partners or agents overseas. The FCS can be reached directly through its offices in major U.S. and foreign cities or through its website at www.trade.gov/cs . The Departments of Commerce and State provide worldwide support for qualified U.S. companies bidding on foreign government contracts through the Department of Commerce’s Advocacy Center and Department of State’s Office of Commercial and Business Affairs. Problems, including alleged corruption by foreign governments or competitors, encountered by U.S. companies in seeking such foreign business opportunities can be brought to the attention of appropriate U.S. government officials, including local embassy personnel and through the Department of Commerce Trade Compliance Center “Report a Trade Barrier” website at http://tcc.export.gov/Report_a_Barrier/index.asp .

Guidance on the U.S. Foreign Corrupt Practices Act (FCPA): The Department of Justice’s (DOJ) FCPA Opinion Procedure enables U.S. firms and individuals to request a statement of DOJ’s present enforcement intentions under the anti-bribery provisions of the FCPA regarding any proposed business conduct. The details of the opinion procedure are available on DOJ’s Fraud Section website: http://www.justice.gov/criminal/fraud/fcpa . Although the Department of Commerce has no enforcement role with respect to the FCPA, it supplies general guidance to U.S. exporters who have questions about the FCPA and about international developments concerning the FCPA. For further information, see the Office of the Chief Counsel for International Counsel, U.S. Department of Commerce website at https://ogc.commerce.gov/collection/office-chief-counsel-international-commerce .

Additional Anti-Corruption Resources:

Useful resources for individuals and companies regarding combating corruption in global markets include the following:

• Information about the OECD Anti-Bribery Convention, including links to national implementing legislation, good practice guidance and country monitoring reports, is available at: http://www.oecd.org/daf/anti-bribery/oecdantibriberyconvention.htm.
• Transparency International (TI) publishes an annual Corruption Perceptions Index (CPI). The CPI measures the perceived level of public-sector corruption in 180 countries and territories around the world. http://www.transparency.org/cpi2015.
• TI also publishes Global Corruption Barometer that provides a systematic evaluation of the state of corruption around the world according to the different regions. It includes an in-depth analysis of a focal theme, a series of country reports that document major corruption related events and developments from all continents, and an overview of the latest research findings on anti-corruption diagnostics and tools: https://www.transparency.org/en/gcb.
• The World Bank Institute publishes Worldwide Governance Indicators (WGI). These indicators assess six dimensions of governance in 212 countries, including Voice and Accountability, Political Stability and Absence of Violence, Government Effectiveness, Regulatory Quality, Rule of Law and Control of Corruption: http://info.worldbank.org/governance/wgi/index.aspx#home.
• The World Bank Business Environment and Enterprise Performance Surveys are available at http://www.enterprisesurveys.org/.
• The World Economic Forum publishes the Global Enabling Trade Report, which presents the rankings of the Enabling Trade Index and includes an assessment of the transparency of border administration (focused on bribe payments and corruption) and a separate segment on corruption and the regulatory environment. The latest reports are available at: http://reports.weforum.org/global-enabling-trade-report-2016/.
• Additional country information related to corruption can be found in the U.S. State Department’s annual Human Rights Report available at https://www.state.gov/reports-bureau-of-democracy-human-rights-and-labor/country-reports-on-human-rights-practices/.

UN Anticorruption Convention, OECD Convention on Combatting Bribery:

Malta signed the UN Anticorruption Convention in 2005 and ratified it in 2008, but it has not signed the OECD Convention on Combatting Bribery.

Resources to Report Corruption

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

Malta Police Commissioner
St. Calcedonius Square
Floriana FRN 1530
+356-2122 4001
cmru.police@gov.mt 

Mr. Charles Deguara
Auditor General of National Audit Office
Notre Dame Ravelin
Floriana FRN 1600
+356-2205 5555
nao.malta@gov.mt 

Contact at watchdog organization:

Permanent Commission Against Corruption
Chateau De La Ville
Archbishop Street
Valletta VLT 2000
+356-2567 4309
Pcac.mjcl@gov.mt 

Malta is considered to have a safe political system and is secure relative to other countries in the region.

Malta’s labor force at the end of 2019 stood at 258,064 (83.4 percent male). The country’s population is about 493,500, the smallest in the EU. For 2019, the national minimum monthly wage was $853 (€761.97). The estimated average gross annual salary of employees stood at $21,823 (€19,488); this amount refers to the basic salary and excludes extra payments such as overtime, bonuses, and allowances. In 2019, on a sectoral basis, the highest recorded average gross annual salary for employees was in financial and insurance activities. Social insurance contributions add ten percent to the wage bill, together with a 0.3 percent contribution to the government maternity fund. Free or subsidized meals, commuting allowances, and health insurance are the most common fringe benefits. In addition, employees are entitled to 25 days of annual leave and public holidays that fall on a weekday. National law establishes a minimum number of sick leave days.

Foreign companies that have invested in Malta have a high regard for the ability, productivity, and learning potential of Maltese workers, nearly all of whom speak English. In some industries, labor productivity is comparable to other countries in Western Europe. Maltese managers now run most of the foreign firms in Malta. Malta enjoys one of the lowest strike rates in Western Europe, and labor unrest is unlikely in the foreseeable future. The Government of Malta strictly adheres to the ILO convention protecting workers’ rights.

Although Malta, as a high-income country as defined by the World Bank, generally does not qualify for DFC support, energy infrastructure projects in Malta could qualify under the European Security and Energy Diversification Act. Malta’s leading trading partners (the United Kingdom, Germany, France, and Italy) offer risk insurance programs similar to DFC that likewise cover investments in Malta. Malta is a member of the World Bank’s Multilateral Investment Guarantee Agency (MIGA).

* Source for Host Country Data: Malta National Statistics Office

** Exchange rates: $1 = €0.893 (2019 figures); $1 = €0.848 (2018 figures)

Maria Cassar
Economic and Commercial Specialist
U.S. Embassy, Malta
+356 2561 4120
maltabusiness@state.gov 

Policies Towards Foreign Direct Investment

Singapore maintains a heavily trade-dependent economy characterized by an open investment regime, with some licensing restrictions in the financial services, professional services, and media sectors. The government was committed to maintaining a free market, but also actively plans Singapore’s economic development, including through a network of state wholly-owned and majority-owned enterprises (SOEs). As of March 31, 2021, the top three Singapore-listed SOEs accounted for 12.3 percent of total capitalization of the Singapore Exchange (SGX). Some observers have criticized the dominant role of SOEs in the domestic economy, arguing that they have displaced or suppressed private sector entrepreneurship and investment.

Singapore’s legal framework and public policies are generally favorable toward foreign investors. Foreign investors are not required to enter joint ventures or cede management control to local interests, and local and foreign investors are subject to the same basic laws. Apart from regulatory requirements in some sectors (See also: Limits on National Treatment and Other Restrictions), eligibility for various incentive schemes depends on investment proposals meeting the criteria set by relevant government agencies. Singapore places no restrictions on reinvestment or repatriation of earnings or capital. The judicial system, which includes international arbitration and mediation centers and a commercial court, upholds the sanctity of contracts, and decisions are generally considered to be transparent and effectively enforced.

The Economic Development Board (EDB) is the lead promotion agency that facilitates foreign investment into Singapore ( https:www.edb.gov.sg ). EDB undertakes investment promotion and industry development and works with foreign and local businesses by providing information and facilitating introductions and access to government incentives for local and international investments. The government maintains close engagement with investors through the EDB, which provides feedback to other government agencies to ensure that infrastructure and public services remain efficient and cost-competitive. The EDB maintains 18 international offices, including Chicago, Houston, New York, San Francisco, and Washington D.C.

Exceptions to Singapore’s general openness to foreign investment exist in sectors considered critical to national security, including telecommunications, broadcasting, domestic news media, financial services, legal and accounting services, ports, airports, and property ownership. Under Singaporean law, articles of incorporation may include shareholding limits that restrict ownership in such entities by foreign persons.

Telecommunications 

Since 2000, the Singapore telecommunications market has been fully liberalized. This move has allowed foreign and domestic companies seeking to provide facilities-based (e.g., fixed line or mobile networks) or services-based (e.g., local and international calls and data services over leased networks) telecommunications services to apply for licenses to operate and deploy telecommunication systems and services. Singapore Telecommunications (Singtel) – majority owned by Temasek, a state-owned investment company with the Minister for Finance as its sole shareholder – faces competition in all market segments. However, its main competitors, M1 and StarHub, are also SOEs. In April 2019, Australian company TPG Telecom began rolling out telecommunications services.  Approximately 30 mobile virtual network operator services (MVNOs) have also entered the market. The four Singapore telecommunications companies compete primarily on MVNO partnerships and voice and data plans.

As of April 2021, Singapore has 76 facilities-based operators offering telecommunications services. Since 2007, Singtel has been exempted from dominant licensee obligations for the residential and commercial portions of the retail international telephone services. Singtel is also exempted from dominant licensee obligations for wholesale international telephone services, international managed data, international intellectual property transit, leased satellite bandwidth (including VSAT, DVB-IP, satellite TV Downlink, and Satellite IPLC), terrestrial international private leased circuit, and backhaul services. The Infocomm Media Development Authority (IMDA) granted Singtel’s exemption after assessing the market for these services had effective competition. IMDA operates as both the regulatory agency and the investment promotion agency for the country’s telecommunications sector. IMDA conducts public consultations on major policy reviews and provides decisions on policy changes to relevant companies.

To facilitate the 5th generation mobile network (5G) technology and service trials, IMDA waived frequency fees for companies interested in conducting 5G trials for equipment testing, research, and assessment of commercial potential. In April 2020, IMDA granted rights to build nationwide 5G networks to Singtel and a joint venture between StarHub and M1. IMDA announced a goal of full 5G coverage by the end of 2025.  These three companies, along with TPG Telecom, are also now permitted to launch smaller, specialized 5G networks to support specialized applications, such as manufacturing and port operations.  Singapore’s government did not hold a traditional spectrum auction, instead charging a moderate, flat fee to operate the networks and evaluating proposals from the MVNOs based on their ability to provide effective coverage, meet regulatory requirements, invest significant financial resources, and address cybersecurity and network resilience concerns. The announcement emphasized the importance of the winning MVNOs using multiple vendors, to ensure security and resilience.  Singapore has committed to being one of the first countries to make 5G services broadly available, and its tightly managed 5G-rollout process continues apace, despite COVID-19.  The government views this as a necessity for a country that prides itself on innovation, even as these private firms worry that the commercial potential does not yet justify the extensive upfront investment necessary to develop new networks.

Media  

The local free-to-air broadcasting, cable, and newspaper sectors are effectively closed to foreign firms. Section 44 of the Broadcasting Act restricts foreign equity ownership of companies broadcasting in Singapore to 49 percent or less, although the act does allow for exceptions. Individuals cannot hold shares that would make up more than five percent of the total votes in a broadcasting company without the government’s prior approval. The Newspaper and Printing Presses Act restricts equity ownership (local or foreign) of newspaper companies to less than five percent per shareholder and requires that directors be Singapore citizens. Newspaper companies must issue two classes of shares, ordinary and management, with the latter available only to Singapore citizens or corporations approved by the government. Holders of management shares have an effective veto over selected board decisions.

Singapore regulates content across all major media outlets through IMDA. The government controls the distribution, importation, and sale of media sources and has curtailed or banned the circulation of some foreign publications. Singapore’s leaders have also brought defamation suits against foreign publishers and local government critics, which have resulted in the foreign publishers issuing apologies and paying damages. Several dozen publications remain prohibited under the Undesirable Publications Act, which restricts the import, sale, and circulation of publications that the government considers contrary to public interest. Examples include pornographic magazines, publications by banned religious groups, and publications containing extremist religious views. Following a routine review in 2015, the IMDA predecessor, Media Development Authority, lifted a ban on 240 publications, ranging from decades-old anti-colonial and communist material to adult interest content.

Singaporeans generally face few restrictions on the internet, which is readily accessible. The government, however, subjected all internet content to similar rules and standards as traditional media, as defined by the IMDA’s Internet Code of Practice. Internet service providers are required to ensure that content complies with the code. The IMDA licenses the internet service providers through which local users are required to route their internet connections. However, the IMDA has blocked various websites containing objectionable material, such as pornography and racist and religious-hatred sites. Online news websites that report regularly on Singapore and have a significant reach are individually licensed, which requires adherence to requirements to remove prohibited content within 24 hours of notification from IMDA. Some view this regulation as a way to censor online critics of the government.

In April 2019, the government introduced legislation in Parliament to counter “deliberate online falsehoods.” The legislation, called the Protection from Online Falsehoods and Manipulation Act (POFMA) entered into force on October 2, 2019, requires online platforms to publish correction notifications or remove online information that government ministers classify as factually false or misleading, and which they deem likely to threaten national security, diminish public confidence in the government, incite feelings of ill will between people, or influence an election. Non-compliance is punishable by fines and/or imprisonment and the government can use stricter measures such as disabling access to end-users in Singapore and forcing online platforms to disallow persons in question from using its services in Singapore. Opposition politicians, bloggers, and alternative news websites have been the target of the majority of POFMA cases thus far and many of them used U.S. social media platforms. Besides those individuals, U.S. social media companies were issued most POFMA correction orders and complied with them. U.S. media and social media sites continue to operate in Singapore, but a few major players have ceased running political ads after the government announced that it would impose penalties on sites or individuals that spread “misinformation,” as determined by the government.

Pay-Television 

Mediacorp TV is the only free-to-air TV broadcaster and is 100 percent owned by the government via Temasek Holdings (Temasek). Mediacorp reported that its free-to-air channels are viewed weekly by 80 percent of residents. Local pay-TV providers are StarHub and Singtel, which are both partially owned by Temasek or its subsidiaries. Local free-to-air radio broadcasters are Mediacorp Radio Singapore, which is also owned by Temasek Holdings, SPH Radio, owned by the publicly held Singapore Press Holdings, and So Drama! Entertainment, owned by the Singapore Ministry of Defense. BBC World Services is the only foreign free-to-air radio broadcaster in Singapore.

To rectify the high degree of content fragmentation in the Singapore pay-TV market and shift the focus of competition from an exclusivity-centric strategy to other aspects such as service differentiation and competitive packaging, the IMDA implemented cross-carriage measures in 2011, requiring pay-TV companies designated by IMDA to be Receiving Qualified Licensees (RQL) – currently Singtel and StarHub – to cross-carry content subject to exclusive carriage provisions. Correspondingly, Supplying Qualified Licensees (SQLs) with an exclusive contract for a channel are required to carry that content on other RQL pay-TV companies. In February 2019, the IMDA proposed to continue the current cross-carriage measures. The Motion Picture Association (MPA) has expressed concern this measure restricts copyright exclusivity. Content providers consider the measures an unnecessary interference in a competitive market that denies content holders the ability to negotiate freely in the marketplace, and an interference with their ability to manage and protect their intellectual property. More common content is now available across the different pay-TV platforms, and the operators are beginning to differentiate themselves by originating their own content, offering subscribed content online via personal and tablet computers, and delivering content via fiber networks.

Streaming services have entered the market, which MPA has found leads to a significant reduction in intellectual property infringements. StarHub and Singtel have both partnered with multiple content providers, including U.S. companies, to provide streaming content in Singapore and around the region.

Banking and Finance 

The Monetary Authority of Singapore (MAS) regulates all banking activities as provided for under the Banking Act. Singapore maintains legal distinctions between foreign and local banks and the type of license (i.e., full service, wholesale, and offshore banks) held by foreign commercial banks. As of April 2021, 30 foreign full-service licensees and 90 wholesale banks operated in Singapore. An additional 24 merchant banks are licensed to conduct corporate finance, investment banking, and other fee-based activities. Offshore and wholesale banks are not allowed to operate Singapore dollar retail banking activities. Only full banks and “Qualifying Full Banks” (QFBs) can operate Singapore dollar retail banking activities but are subject to restrictions on their number of places of business, ATMs, and ATM networks. Additional QFB licenses may be granted to a subset of full banks, which provide greater branching privileges and greater access to the retail market than other full banks. As of April 2021, there are 10 banks operating QFB licenses. China Construction Bank received the most recent QFB award in December 2020.

Following a series of public consultations conducted by MAS over a three year period, the Banking Act 2020 came into operation on February 14, 2020. The amendments include, among other things, the removal of the Domestic Banking Unit (DBU) and Asian Currency Unit (ACU) divide, consolidation of the regulatory framework of merchant banks, expansion of the grounds for revoking bank licenses and strengthening oversight of banks’ outsourcing arrangements. Newly granted digital banking licenses under foreign ownership apply only to wholesale transactions.

The government initiated a banking liberalization program in 1999 to ease restrictions on foreign banks and has supplemented this with phased-in provisions under the USSFTA, including removal of a 40 percent ceiling on foreign ownership of local banks and a 20 percent aggregate foreign shareholding limit on finance companies. The minister in charge of MAS must approve the merger or takeover of a local bank or financial holding company, as well as the acquisition of voting shares in such institutions above specific thresholds of 5, 12, or 20 percent of shareholdings.

Although Singapore’s government has lifted the formal ceilings on foreign ownership of local banks and finance companies, the approval for controllers of local banks ensures that this control rests with individuals or groups whose interests are aligned with the long-term interests of the Singapore economy and Singapore’s national interests. Of the 30 full-service licenses granted to foreign banks, three have gone to U.S. banks. U.S. financial institutions enjoy phased-in benefits under the USSFTA. Since 2006, only one U.S.-licensed full-service banks has obtained QFB status. U.S. and foreign full-service banks with QFB status can freely relocate existing branches and share ATMs among themselves. They can also provide electronic funds transfer and point-of-sale debit services and accept services related to Singapore’s compulsory pension fund. In 2007, Singapore lifted the quota on new licenses for U.S. wholesale banks.

Locally and non-locally incorporated subsidiaries of U.S. full-service banks with QFB status can apply for access to local ATM networks. However, no U.S. bank has come to a commercial agreement to gain such access. Despite liberalization, U.S. and other foreign banks in the domestic retail-banking sector still face barriers. Under the enhanced QFB program launched in 2012, MAS requires QFBs it deems systemically significant to incorporate locally. If those locally incorporated entities are deemed “significantly rooted” in Singapore, with a majority of Singaporean or permanent resident members, Singapore may grant approval for an additional 25 places of business, of which up to ten may be branches. Local retail banks do not face similar constraints on customer service locations or access to the local ATM network. As noted above, U.S. banks are not subject to quotas on service locations under the terms of the USSFTA.

Credit card holders from U.S. banks incorporated in Singapore cannot access their accounts through the local ATM networks. They are also unable to access their accounts for cash withdrawals, transfers, or bill payments at ATMs operated by banks other than those operated by their own bank or at foreign banks’ shared ATM network. Nevertheless, full-service foreign banks have made significant inroads in other retail banking areas, with substantial market share in products like credit cards and personal and housing loans.

In January 2019, MAS announced the passage of the Payment Services Bill after soliciting public feedback. The bill requires more payment services such as digital payment tokens, dealing in virtual currency, and merchant acquisition, to be licensed and regulated by MAS. In order to reduce the risk of misuse for illicit purposes, the new law also limits the amount of funds that can be held in or transferred out of a personal payment account (e.g., mobile wallets) in a year. Regulations are tailored to the type of activity preformed and addresses issues related to terrorism financing, money laundering, and cyber risks. In December 2020, MAS granted four digital bank licenses: two to Sea Limited and a Grab/Singtel consortium for full retail banking and two to Ant Group and the Greenland consortium (a China-based conglomerate).

Singapore has no trading restrictions on foreign-owned stockbrokers. There is no cap on the aggregate investment by foreigners regarding the paid-up capital of dealers that are members of the SGX. Direct registration of foreign mutual funds is allowed provided MAS approves the prospectus and the fund. The USSFTA relaxed conditions foreign asset managers must meet in order to offer products under the government-managed compulsory pension fund (Central Provident Fund Investment Scheme).

Legal Services 

The Legal Services Regulatory Authority (LSRA) under the Ministry of Law oversees the regulation, licensing, and compliance of all law practice entities and the registration of foreign lawyers in Singapore. Foreign law firms with a licensed Foreign Law Practice (FLP) may offer the full range of legal services in foreign law and international law, but cannot practice Singapore law except in the context of international commercial arbitration. U.S. and foreign attorneys are allowed to represent parties in arbitration without the need for a Singapore attorney to be present. To offer Singapore law, FLPs require either a Qualifying Foreign Law Practice (QFLP) license, a Joint Law Venture (JLV) with a Singapore Law Practice (SLP), or a Formal Law Alliance (FLA) with a SLP. The vast majority of Singapore’s 130 foreign law firms operate FLPs, while QFLPs and JLVs each number in the single digits.

The QFLP licenses allow foreign law firms to practice in permitted areas of Singapore law, which excludes constitutional and administrative law, conveyancing, criminal law, family law, succession law, and trust law. As of December 2020, there are nine QFLPs in Singapore, including five U.S. firms. In January 2019, the Ministry of Law announced the deferral to 2020 of the decision to renew the licenses of five QFLPs, which were set to expire in 2019, so the government can better assess their contribution to Singapore along with the other four firms whose licenses were also extended to 2020. Decisions on the renewal considers the firms’ quantitative and qualitative performance such as the value of work that the Singapore office will generate, the extent to which the Singapore office will function as the firm’s headquarter for the region, the firm’s contributions to Singapore, and the firm’s proposal for the new license period.

A JLV is a collaboration between a Foreign Law Practice and Singapore Law Practice, which may be constituted as a partnership or company. The director of legal services in the LSRA will consider all the relevant circumstances including the proposed structure and its overall suitability to achieve the objectives for which Joint Law Ventures are permitted to be established. There is no clear indication on the percentage of shares that each JLV partner may hold in the JLV.

Law degrees from designated U.S., British, Australian, and New Zealand universities are recognized for purposes of admission to practice law in Singapore. Under the USSFTA, Singapore recognizes law degrees from Harvard University, Columbia University, New York University, and the University of Michigan. Singapore will admit to the Singapore Bar law school graduates of those designated universities who are Singapore citizens or permanent residents, and ranked among the top 70 percent of their graduating class or have obtained lower-second class honors (under the British system).

Engineering and Architectural Services 

Engineering and architectural firms can be 100 percent foreign-owned. Engineers and architects are required to register with the Professional Engineers Board and the Board of Architects, respectively, to practice in Singapore. All applicants (both local and foreign) must have at least four years of practical experience in engineering, of which two are acquired in Singapore. Alternatively, students can attend two years of practical training in architectural works and pass written and/or oral examinations set by the respective board.

Accounting and Tax Services 

Many major international accounting firms operate in Singapore. Registration as a public accountant under the Accountants Act is required to provide public accountancy services (i.e., the audit and reporting on financial statements and other acts that are required by any written law to be done by a public accountant) in Singapore, although registration as a public accountant is not required to provide other accountancy services, such as accounting, tax, and corporate advisory work. All accounting entities that provide public accountancy services must be approved under the Accountants Act and their supply of public accountancy services in Singapore must be under the control and management of partners or directors who are public accountants ordinarily resident in Singapore. In addition, if the accounting entity firm has two partners or directors, at least one of them must be a public accountant. If the business entity has more than two accounting partners or directors, two-thirds of the partners or directors must be public accountants.

Energy 

Singapore further liberalized its gas market with the amendment of the Gas Act and implementation of a Gas Network Code in 2008, which were designed to give gas retailers and importers direct access to the onshore gas pipeline infrastructure. However, key parts of the local gas market, such as town gas retailing and gas transportation through pipelines remain controlled by incumbent Singaporean firms. Singapore has sought to grow its supply of liquefied natural gas (LNG), and BG Singapore Gas Marketing Pte Ltd (acquired by Royal Dutch Shell in February 2016) was appointed in 2008 as the first aggregator with an exclusive franchise to import LNG to be sold in its re-gasified form in Singapore. In October 2017, Shell Eastern Trading Pte Ltd and Pavilion Gase Pte Ltd were awarded import licenses to market up to 1 million tons per annum or for three years, whichever occurs first. This also marked the conclusion of the first exclusive franchise awarded to BG Singapore Gas Marketing Pte Ltd.

Beginning in November 2018 and concluding in May 2019, Singapore launched an open electricity market (OEM). Previously, Singapore Power was the only electricity retailer. As of October 2019, 40 percent of resident consumers had switched to a new electricity retailer and were saving between 20 and 30 percent on their monthly bills.  During the second half of 2020, the government significantly reduced tariffs for household consumption and encouraged consumer OEM adoption. To participate in OEM, licensed retailers must satisfy additional credit, technical, and financial requirements set by Energy Market Authority in order to sell electricity to households and small businesses. There are two types of electricity retailers: Market Participant Retailers (MPRs) and Non-Market Participant Retailers (NMPRs). MPRs have to be registered with the Energy Market Company (EMC) to purchase electricity from the National Electricity Market of Singapore (NEMS) to sell to contestable consumers. NMPRs need not register with EMC to participate in the NEMS since they will purchase electricity indirectly from the NEMS through the Market Support Services Licensee (MSSL). As of April 2020, there were 12 retailers in the market, including foreign and local entities.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and local entities may readily establish, operate, and dispose of their own enterprises in Singapore subject to certain requirements. A foreigner who wants to incorporate a company in Singapore is required to appoint a local resident director; foreigners may continue to reside outside of Singapore. Foreigners who wish to incorporate a company and be present in Singapore to manage its operations are strongly advised to seek approval from the Ministry of Manpower (MOM) before incorporation. Except for representative offices (where foreign firms maintain a local representative but do not conduct commercial transactions in Singapore) there are no restrictions on carrying out remunerative activities. As of October 2017, foreign companies may seek to transfer their place of registration and be registered as companies limited by shares in Singapore under Part XA (Transfer of Registration) of the Companies Act ( https://sso.agc.gov.sg/Act/CoA1967 ). Such transferred foreign companies are subject to the same requirements as locally incorporated companies.

All businesses in Singapore must be registered with the Accounting and Corporate Regulatory Authority (ACRA). Foreign investors can operate their businesses in one of the following forms: sole proprietorship, partnership, limited partnership, limited liability partnership, incorporated company, foreign company branch or representative office. Stricter disclosure requirements were passed in March 2017 requiring foreign company branches registered in Singapore to maintain public registers of their members. All companies incorporated in Singapore, foreign companies, and limited liability partnerships registered in Singapore are also required to maintain beneficial ownership in the form of a register of controllers (generally individuals or legal entities with more than 25 percent interest or control of the companies and foreign companies) aimed at preventing money laundering.

While there is currently no cross-sectional screening process for foreign investments, investors are required to seek approval from specific sector regulators for investments in certain firms. These sectors include energy, telecommunications, broadcasting, the domestic news media, financial services, legal services, public accounting services, ports and airports, and property ownership. Under Singapore law, Articles of Incorporation may include shareholding limits that restrict ownership in corporations by foreign persons.

Singapore does not maintain a formalized investment screening mechanism for inbound foreign investment. There are no reports of U.S. investors being especially disadvantaged or singled out relative to other foreign investors.

Other Investment Policy Reviews

Singapore underwent a trade policy review with the World Trade Organization (WTO) in July 2016, after which no major policy recommendations were raised. (https://www.wto.org/english/thewto_e/countries_e/singapore_e.htm )

The OECD and United Nations Industrial Development Organization (UNIDO) released a joint report in February 2019 on the ASEAN-OECD Investment Program. The program aims to foster dialogue and experience sharing between OECD countries and Southeast Asian economies on issues relating to the business and investment climate. The program is implemented through regional policy dialogue, country investment policy reviews, and training seminars. (http://www.oecd.org/investment/countryreviews.htm )

The OECD released a Transfer Pricing Country Profile for Singapore in June 2018. The country profiles focus on countries’ domestic legislation regarding key transfer pricing principles, including the arm’s length principle, transfer pricing methods, comparability analysis, intangible property, intra-group services, cost contribution agreements, transfer pricing documentation, administrative approaches to avoiding and resolving disputes, safe harbors and other implementation measures. (https://www.oecd.org/tax/transfer-pricing/transfer-pricing-country-profile-singapore.pdf)

The OECD released a peer review report in March 2018 on Singapore’s implementation of internationally agreed tax standards under Action Plan 14 of the base erosion and profit shifting (BEPS) project. Action 14 strengthens the effectiveness and efficiency of the mutual agreement procedure, a cross-border tax dispute resolution mechanism. (http://www.oecd.org/corruption-integrity/reports/singapore-2018-peer-review-report-transparency-exchange-information-aci.html )

As of April 2021, the United Nations Conference on Trade and Development (UNCTAD) has not conducted a policy review of Singapore’s intellectual property rights regime. (http://unctad.org/en/Pages/DIAE/Investment%20Policy%20Reviews/Investment-Policy-Reviews.aspx )

Business Facilitation

Singapore’s online business registration process is clear and efficient and allows foreign companies to register branches. All businesses must be registered with ACRA through Bizfile, its online registration and information retrieval portal ( https://www.bizfile.gov.sg/),  including any individual, firm or corporation that carries out business for a foreign company. Applications are typically processed immediately after the application fee is paid, but could take between 14 to 60 days, if the application is referred to another agency for approval or review. The process of establishing a foreign-owned limited liability company in Singapore is among the fastest in the world.

ACRA ( www.acra.gov.sg ) provides a single window for business registration. Additional regulatory approvals (e.g., licensing or visa requirements) are obtained via individual applications to the respective ministries or statutory boards. Further information and business support on registering a branch of a foreign company is available through the EDB ( https://www.edb.gov.sg/en/how-we-help/setting-up.html ) and GuideMeSingapore, a corporate services firm Hawskford ( https://www.guidemesingapore.com /).

Foreign companies may lease or buy privately or publicly held land in Singapore, though there are some restrictions on foreign property ownership. Foreign companies are free to open and maintain bank accounts in foreign currency. There is no minimum paid-in capital requirement, but at least one subscriber share must be issued for valid consideration at incorporation.

Business facilitation processes provide for fair and equal treatment of women and minorities, and there are no mechanisms that provide special assistance to women and minorities.

Outward Investment

Singapore places no restrictions on domestic investors investing abroad. The government promotes outward investment through Enterprise Singapore, a statutory board under the Ministry of Trade and Industry. It provides market information, business contacts, and financial assistance and grants for internationalizing companies. While it has a global reach and runs overseas centers in major cities across the world, a large share of its overseas centers are located in major trading and investment partners and regional markets like China, India, the United States, and ASEAN.

Transparency of the Regulatory System

The government establishes clear rules that foster competition. The USSFTA enhances transparency by requiring regulatory authorities to consult with interested parties before issuing regulations, and to provide advance notice and comment periods for proposed rules, as well as to publish all regulations. Singapore’s legal, regulatory, and accounting systems are transparent and consistent with international norms.

Rule-making authority is vested in the parliament to pass laws that determine the regulatory scope, purpose, rights and powers of the regulator and the legal framework for the industry. Regulatory authority is vested in government ministries or in statutory boards, which are organizations that have been given autonomy to perform an operational function by legal statutes passed as acts of parliament, and report to a specific ministry. Local laws give regulatory bodies wide discretion to modify regulations and impose new conditions, but in practice agencies use this positively to adapt incentives or other services on a case-by-case basis to meet the needs of foreign as well as domestic companies. Acts of parliament also confer certain powers on a minister or other similar persons or authorities to make rules or regulations in order to put the act into practice; these rules are known as subsidiary legislation.  National-level regulations are the most relevant for foreign businesses. Singapore, being a city-state, has no local or state regulatory layers.

Before a ministry instructs the Attorney-General’s Chambers (AGC) to draft a new bill or make an amendment to a bill, the ministry has to seek in-principle approval from the cabinet for the proposed bill. The AGC legislation division advises and helps vet or draft bills in conjunction with policymakers from relevant ministries.  Public and private consultations are often requested for proposed draft legislative amendments. Thereafter, the cabinet’s approval is required before the bill can be introduced in parliament.  All bills passed by parliament (with some exceptions) must be forwarded to the Presidential Council for Minority Rights for scrutiny, and thereafter presented to the President for assent. Only after the President has assented to the bill does it become law.

While ministries or regulatory agencies do conduct internal impact assessments of proposed regulations, there are no criteria used for determining which proposed regulations are subjected to an impact assessment, and there are no specific regulatory impact assessment guidelines. There is no independent agency tasked with reviewing and monitoring regulatory impact assessments and distributing findings to the public. The Ministry of Finance publishes a biennial Singapore Public Sector Outcomes Review (http://www.mof.gov.sg/Resources/Singapore-Public-Sector-Outcomes-Review-SPOR ), focusing on broad outcomes and indicators rather than policy evaluation. Results of scientific studies or quantitative analysis conducted in review of policies and regulations are not made publicly available.

Industry self-regulation occurs in several areas, including advertising and corporate governance.  Advertising Standards Authority of Singapore (ASAS) (https://asas.org.sg/), an advisory council under the Consumers Association of Singapore, administers the Singapore Code of Advertising Practice, which focuses on ensuring that advertisements are legal, decent, and truthful. Listed companies are required under the Singapore Exchange (SGX) Listing Rules to describe in their annual reports their corporate governance practices with specific reference to the principles and provisions of the Code. Listed companies must comply with the principles of the Code, and, if their practices vary from any provisions of the Code, they must note the reason for the variation and explain how the practices they have adopted are consistent with the intent of the relevant principle. The SGX plays the role of a self-regulatory organization (SRO) in listings, market surveillance, and member supervision to uphold the integrity of the market and ensure participants’ adherence to trading and clearing rules. There have been no reports of discriminatory practices aimed at foreign investors.

Singapore’s legal and accounting procedures are transparent and consistent with international norms and rank similar to the U.S. in international comparisons (http://worldjusticeproject.org/rule-of-law-index ). The prescribed accounting standards for Singapore-incorporated companies applying to be or are listed in the public market, Singapore Exchange, are known as Singapore Financial Reporting Standards (SFRS(I)), which are identical to those of the International Accounting Standards Board (IASB). Non-listed Singapore-incorporated companies can voluntarily apply for SFRS(I). Otherwise, they are required to comply with Singapore Financial Reporting Standards (SFRS), which are also aligned with those of IASB. For the use of foreign accounting standards, the companies are required to seek approval of the Accounting and Corporate Regulatory Authority (ACRA).

For foreign companies with primary listings on the Singapore Exchange, the SGX Listing Rules allow the use of alternative standards such as International Financial Reporting Standards (IFRS) or the U.S. Generally Accepted Accounting Principles (U.S. GAAP). Accounts prepared in accordance with IFRS or U.S. GAAP need not be reconciled to SFRS(1). Companies with secondary listings on the Singapore Exchange need only reconcile their accounts to SFRS(I), IFRS, or U.S. GAAP.

Notices of proposed legislation to be considered by parliament are published, including the text of the laws, the dates of the readings, and whether or not the laws eventually pass. The government has established a centralized Internet portal (www.reach.gov.sg ) to solicit feedback on selected draft legislation and regulations, a process that is being used with increasing frequency. There is no stipulated consultative period.  Results of consultations are usually consolidated and published on relevant websites. As noted in the “Openness to Foreign Investment” section, some U.S. companies, in particular in the telecommunications and media sectors, are concerned about the government’s lack of transparency in its regulatory and rule-making process.  However, many U.S. firms report they have opportunities to weigh in on pending legislation that affects their industries.  These mechanisms also apply to investment laws and regulations.

The Parliament of Singapore website (https://www.parliament.gov.sg/parliamentary-business/bills-introduced ) publishes a database of all bills introduced, read, and passed in Parliament in chronological order as of 2006. The contents are the actual draft texts of the proposed legislation/legislative amendments. All statutes are also publicly available in the Singapore Statutes Online website (https://sso.agc.gov.sg ). However, there is no centralized online location where key regulatory actions are published. Regulatory actions are published separately on websites of Statutory Boards.

Enforcement of regulatory offences is governed by both acts of parliament and subsidiary legislation. Enforcement powers of government statutory bodies are typically enshrined in the act of Parliament constituting that statutory body. There is accountability to Parliament for enforcement action through question time, where members of parliament may raise questions with the ministers on their respective ministries’ responsibilities.

Singapore’s judicial system and courts serve as the oversight mechanism in respect of executive action (such as the enforcement of regulatory offences) and dispense justice based on law. The Supreme Court, which is made up of the Court of Appeal and the High Court, hears both civil and criminal matters. The Chief Justice heads the Judiciary. The President appoints the Chief Justice, the Judges of Appeal and the Judges of the High Court if she, acting at her discretion, concurs with the advice of the Prime Minister.

No systemic regulatory reforms or enforcement reforms relevant to foreign investors were announced in 2020. The Monetary Authority of Singapore focuses enforcement efforts on timely disclosure of corporate information, business conduct of financial advisors, compliance with anti-money laundering/combatting the financing of terrorism requirements, deterring stock market abuse, and insider trading. In March 2019, MAS published its inaugural Enforcement Report detailing enforcement measures and publishes recent enforcement actions on its website (https://www.mas.gov.sg/regulation/enforcement/enforcement-actions ).

International Regulatory Considerations

Singapore was the 2018 chair of the Association of Southeast Asian Nations (ASEAN). ASEAN is working towards the 2025 ASEAN Economic Community (AEC) Blueprint aimed at achieving a single market and production base, with a free flow of goods, services, and investment within the region. While ASEAN is working towards regulatory harmonization, there are no regional regulatory systems in place; instead, ASEAN agreements and regulations are enacted through each ASEAN Member State’s domestic regulatory system.  While Singapore has expressed interest in driving intra-regional trade, the dynamics of ASEAN economies are convergent.

The WTO’s 2016 trade policy review notes that Singapore’s guiding principle for standardization is to align national standards with international standards, and Singapore is an elected member of the International Organization of Standardization (ISO) and International Electrotechnical Commission (IEC) Councils. Singapore encourages the direct use of international standards whenever possible. Singapore standards (SS) are developed when there is no appropriate international standard equivalent, or when there is a need to customize standards to meet domestic requirements. At the end of 2015, Singapore had a stock of 553 SS, about 40 percent of which were references to international standards. Enterprise Singapore, the Singapore Food Agency, and the Ministry of Trade and Industry are the three national enquiry points under the TBT Agreement. There are no known reports of omissions in reporting to TBT.

A non-exhaustive list of major international norms and standards referenced or incorporated into the country’s regulatory systems include Base Erosion and Profit Shifting (BEPS) project, Common Reporting Standards (CRS), Basel III, EU Dual-Use Export Control Regulation, Exchange of Information on Request, 27 International Labor Organization (ILO) conventions on labor rights and governance, UN conventions, and WTO agreements.

Singapore is signatory to the Trade Facilitation Agreement (TFA). The WTO reports that Singapore has fully implemented the TFA (https://www.tfadatabase.org/members/singapore ).

Legal System and Judicial Independence

Singapore’s legal system has its roots in English common law and practice and is enforced by courts of law. The current judicial process is procedurally competent, fair, and reliable. In the 2020 Rule of Law Index by World Justice Project, it is ranked overall twelfth in the world, first on order and security, third on regulatory enforcement, third in absence of corruption, sixth on civil and criminal justice, twenty-ninth on constraints on government powers, twenty-sixth on open government, and thirty-second on fundamental rights. Singapore’s legal procedures are ranked first in the world in the World Bank’s 2020 Ease of Doing Business sub-indicator on contract enforcement which measures speed, cost, and quality of judicial processes to resolve a commercial dispute. The judicial system remains independent of the executive branch and the executive does not interfere in judiciary matters.

Laws and Regulations on Foreign Direct Investment

Singapore strives to promote an efficient, business-friendly regulatory environment. Tax, labor, banking and finance, industrial health and safety, arbitration, wage, and training rules and regulations are formulated and reviewed with the interests of both foreign investors and local enterprises in mind. Starting in 2005, a Rules Review Panel, comprising senior civil servants, began overseeing a review of all rules and regulations; this process will be repeated every five years. A Pro-Enterprise Panel of high-level public sector and private sector representatives examines feedback from businesses on regulatory issues and provides recommendations to the government. (https://www.mti.gov.sg/PEP/About)

The Cybersecurity Act, which came into force in August 2018, establishes a comprehensive regulatory framework for cybersecurity. The Act provides the Commissioner of Cyber Security with powers to investigate, prevent, and assess the potential impact of cyber security incidents and threats in Singapore.  These can include requiring persons and organizations to provide requested information, requiring the owner of a computer system to take any action to assist with cyber investigations, directing organizations to remediate cyber incidents, and, if safeguards have been met, authorizing officers to enter premises, and installing software and take possession of computer systems to prevent serious cyber-attacks in the event of severe threat. The Act also establishes a framework for the designation and regulation of Critical Information Infrastructure (CII). Requirements for CII owners include a mandatory incident reporting regime, regular audits and risk assessments, and participation in national cyber security stress tests. In addition, the Act will establish a regulatory regime for cyber security service providers and required licensing for penetration testing and managed security operations center (SOC) monitoring services. U.S. business chambers have expressed concern about the effects of licensing and regularly burdens on compliance costs, insufficient checks and balances on the investigatory powers of the authorities, and the absence of a multidirectional cyber threat sharing framework that includes protections from liability. Under the law, additional measures, such as the Cybersecurity Labelling Scheme, continue to be introduced.  Authorities stress that, “in view of the need to strike a good balance between industry development and cybersecurity needs, the licensing framework will take a light-touch approach.”

Competition and Antitrust Laws

The Competition and Consumer Commission of Singapore (CCCS) is a statutory board under the Ministry of Trade and Industry and is tasked with administering and enforcing the Competition Act. The act contains provisions on anti-competitive agreements, decisions, and practices; abuse of dominance; enforcement and appeals process; and mergers and acquisitions. The Competition Act was enacted in 2004 in accordance with U.S-Singapore FTA commitments, which contains specific conduct guarantees to ensure that Singapore’s government linked companies (GLC) will operate on a commercial and non-discriminatory basis towards U.S. firms. GLCs with substantial revenues or assets are also subject to enhanced transparency requirements under the FTA. A 2018 addition to the act gives the CCCS additional administrative power to protect consumers against unfair trade practices.

The most recent infringement decision issued by CCCS occurred in January 2019 when three competing hotel operators, including a major British hospitality company, exchanged “commercially sensitive” information. The operators were fined a total financial penalty of $1.1 million for conduct potentially resulting in reduced competitive pressure on the market. No other cases tied to commercial behavior in 2019 or the first quarter of 2020 have received penalties from CCCS.

Expropriation and Compensation

Singapore has not expropriated foreign-owned property and has no laws that force foreign investors to transfer ownership to local interests. Singapore has signed investment promotion and protection agreements with a wide range of countries. These agreements mutually protect nationals or companies of either country against certain non-commercial risks, such as expropriation and nationalization and remain in effect unless otherwise terminated. The USSFTA contains strong investor protection provisions relating to expropriation of private property and the need to follow due process; provisions are in place for an owner to receive compensation based on fair market value. No disputes are pending.

Dispute Settlement

ICSID Convention and New York Convention

Singapore is party to the Convention on the Settlement of Investment Disputes (ICSID Convention) and the convention on the Recognition and Enforcement of Foreign Arbitration Awards (1958 New York Convention). Singapore passed an Arbitration (International Investment Disputes) Act to implement the ICSID Convention in 1968. Singapore acceded to the 1958 New York Convention in August 1986 and gives effect to it via the International Arbitration Act (IAA). The 1958 New York Convention is annexed to the IAA as the Second Schedule. Singapore is bound to recognize awards made in any other country that is a signatory to the 1958 New York Convention. ( http://www.lexology.com/library/detail.aspx?g=3f833e8e-722a-4fca-8393-f35e59ed1440 )

Domestic arbitration in Singapore is governed by the Arbitration Act (Cap 10). The Arbitration Act was enacted to align the laws applicable to domestic arbitration with the model law.

Singapore is also a party to the United Nations Convention on International Settlement Agreements Resulting from Mediation, further referred to as the “Convention.” This Convention provides a process for parties to enforce or invoke an international commercial mediated settlement agreement once the conditions and requirements of the Convention are met. Singapore has put in place domestic legislation, the Singapore Convention on Mediation Bill 2020, which was passed in Parliament on 4 February 2020. On 25 February 2020, Singapore and Fiji were the first two countries to deposit their respective instruments of ratification of the Convention at the United Nations Headquarters. The Convention will enter into force six months after the third State deposits its instrument of ratification, acceptance and approval or accession. Singapore’s arbitration center settled a record high number of cases in 2020 and opened a New York City office.

Investor-State Dispute Settlement

After Singapore’s accession to the New York Convention of 1958 on August 21, 1986, it re-enacted most of its provisions in Part III of the IAA. By acceding to the New York Convention, Singapore is bound to recognize awards made in any other country that is a signatory to the Convention. Singapore is a member of the Commonwealth of Nations and, under the Reciprocal Enforcement of Commonwealth Judgments Act (RECJA), recognizes judgments made in the United Kingdom, as well as jurisdictions that are part of the Commonwealth and with which Singapore has reciprocal arrangements for the recognition and enforcement of judgments. The Act lists the countries with which such arrangements exist, and of the 53 countries that are members of the Commonwealth, nine have been listed. ( https://sso.agc.gov.sg/SL/RECJA1921-N1?DocDate=19990701 ) Singapore also has reciprocal recognition of foreign judgements with Hong Kong Special Administrative Region of the People’s Republic of China.

Singapore is party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention). Singapore passed an Arbitration (International Investment Disputes) Act to implement the ICSID Convention in 1968. The ICSID Convention has an enforcement mechanism for arbitration awards rendered pursuant to ICSID rules that is separate from the 1958 arbitration awards rendered pursuant to ICSID rules that is separate from the 1958 New York Convention. Investor-State dispute settlement provisions in Singapore’s trade agreements, including the USSFTA, refer to ICSIID rules as one of the possible options for resolving disputes. Investor-State arbitration under rules other than ICSID’s would result in an arbitration award that may be enforced using the 1958 New York Convention.

Singapore has had no investment disputes with U.S. persons or other foreign investors in the past ten years that have proceeded to litigation. Any disputes settled by arbitration/mediation would remain confidential. There have been no claims made by U.S. investors under the USSFTA. There is no history of extrajudicial action against foreign investors. The government is investing in establishing Singapore as a global mediation hub.

International Commercial Arbitration and Foreign Courts

Dispute resolution (DR) institutions include the Singapore International Arbitration Centre (SIAC), Singapore International Mediation Centre (SIMC), Singapore International Commercial Court (SICC), and the Singapore Chamber of Maritime Arbitration (SCMA). Singapore’s extensive dispute resolution institutions and integrated dispute resolution facilities at Maxwell Chambers have contributed to its development as a regional hub for alternative dispute resolution mechanisms. The SIAC is the major arbitral institution and its increasing caseload reflects Singapore’s policy of encouraging the use of alternative modes of dispute resolution, including arbitration.

Arbitral awards in Singapore, for either domestic or international arbitration, are legally binding and enforceable in Singapore domestic courts, as well as in jurisdictions that have ratified the 1958 New York Convention.

The International Arbitration Act (IAA) regulates international arbitrations in Singapore. Domestic arbitrations are regulated by the Arbitration Act (AA). The IAA is heavily based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law, with a few significant differences. For example, arbitration agreements must be in writing. This requirement is deemed to be satisfied if the content is recorded in any form, including electronic communication, regardless of whether the arbitration agreement was concluded orally, by conduct, or by other means (e.g. an arbitration clause in a contract or a separate agreement can be incorporated into a contract by reference). The AA is also primarily based on the UNCITRAL Model Law. There have been no reported complaints about the partiality or transparency of court processes in investment and commercial disputes.

Bankruptcy Regulations

Singapore has bankruptcy laws allowing both debtors and creditors to file a bankruptcy claim. Singapore ranks number 27 for resolving insolvency in the World Bank’s 2020 Doing Business Index. While Singapore performed well in recovery rate and time of recovery following bankruptcies, the country did not score well on cost of proceedings or insolvency frameworks. In particular, the insolvency framework does not require approval by the creditors for sale of substantial assets of the debtor or approval by the creditors for selection or appointment of the insolvency representative.

Singapore has made several reforms to enhance corporate rescue and restructuring processes, including features from Chapter 11 of the U.S. Bankruptcy Code. Amendments to the Companies Act, which came into force in May 2017, include additional disclosure requirements by debtors, rescue financing provisions, provisions to facilitate the approval of pre-packaged restructurings, increased debtor protections, and cram-down provisions that will allow a scheme to be approved by the court even if a class of creditors oppose the scheme, provided the dissenting class of creditors are not unfairly prejudiced by the scheme.

The Insolvency, Restructuring and Dissolution Act passed in 2018, but the expected effective date of the bill has been delayed from the first half of 2019 into 2020. It updates the insolvency legislation and introduces a significant number of new provisions, particularly with respect to corporate insolvency. It mandates licensing, qualifications, standards, and disciplinary measures for insolvency practitioners. It also includes standalone voidable transaction provisions for corporate insolvency and, a new wrongful trading provision. The act allows ‘out of court’ commencement of judicial management, permits judicial managers to assign the proceeds of certain insolvency related claims, restricts the operation of contractual ‘ipso facto clauses’ upon the commencement of certain restructuring and insolvency procedures, and modifies the operation of the scheme of arrangement cross class ‘cram down’ power. Authorities continue to seek public consultations of subsidiary legislation to be drafted under the act.

Two MAS-recognized consumer credit bureaus operate in Singapore: the Credit Bureau (Singapore) Pte Ltd and Experian Credit Bureau Singapore Pte Ltd. U.S. industry advocates enhancements to Singapore’s credit bureau system, in particular, adoption of an open admission system for all lenders, including non-banks. Bankruptcy is not criminalized in Singapore. ( https://www.acra.gov.sg/CA_2017/ )

Investment Incentives

The EDB is the lead investment promotion agency facilitating foreign investment into Singapore ( https://www.edb.gov.sg ). The EDB undertakes investment promotion and industry development, and works with international businesses, both foreign and local, by providing information, connection to partners, and access to government incentives for their investments. The Agency for Science, Technology, and Research (A*STAR) is Singapore’s lead public sector agency focused on economic-oriented research to advance scientific discovery and innovative technology. ( https://www.a-star.edu.sg ) The National Research Foundation (NRF) provides competitive grants for applied research through an integrated grant management system. ( https://researchgrant.gov.sg/pages/index.aspx ) Various government agencies (including Intellectual Property Office of Singapore (IPOS, NRF, and EDB) provide venture capital co-funding for startups and commercialization of intellectual property.

Foreign Trade Zones/Free Ports/Trade Facilitation

Singapore has nine free-trade zones (FTZs) in five geographical areas operated by three FTZ authorities. The FTZs may be used for storage and repackaging of import and export cargo, and goods transiting Singapore for subsequent re-export. Manufacturing is not carried out within the zones. Foreign and local firms have equal access to the FTZ facilities.

Performance and Data Localization Requirements

Performance requirements are applied uniformly and systematically to both domestic and foreign investors. Singapore has no forced localization policy requiring domestic content in goods or technology. The government does not require investors to purchase from local sources or specify a percentage of output for export. There are no rules forcing the transfer of technology. There are no requirements for foreign IT providers to turn over source code and/or provide access to encryption. The industry regulator is the IMDA, a statutory board under the Ministry of Communications and Information.

In May 2020, Singapore tightened requirements for hiring foreign workers, including raising minimum salary thresholds and additional enforcement of penalties for employers not giving “fair consideration” to local applicants before hiring foreign workers. Personal data matters are independently overseen by the Personal Data Protection Commission, which administers and enforces the Personal Data Protection Act (PDPA) of 2012. The PDPA governs the collection, use, and disclosure of personal data by the private sector and covers both electronic and non-electronic data. Singapore is currently reviewing the PDPA to ensure that it keeps pace with the evolving needs of businesses and individuals in a digital economy such as introducing an enhanced framework for the collection, use, and disclosure of personal data and a mandatory data breach notification regime.

Singapore does not have a data localization policy. Singapore participates in various regional and international frameworks that promote interoperability and harmonization of rules to facilitate cross-border data flows. The ASEAN Framework on Digital Data Governance (FDFG) is one example. Under FDFG, Singapore will focus on developing model contractual clauses and certification for cross border data flows within the ASEAN region. Another is Singapore’s participation in the Asia-Pacific Economic Cooperation (APEC) Cross-Border Privacy Rules (CBPR) and Privacy Recognition for Processors systems, to facilitate data transfers for certified organizations across APEC economies.

Real Property

Property rights and interests are enforced in Singapore. Residents have access to mortgages and liens, with reliable recording of properties. In the 2020 World Bank Doing Business Report, Singapore ranks first in the world in enforcing contracts and number 21st in registering property.

Foreigners are not allowed to purchase public housing in Singapore, and prior approval from the Singapore Land Authority is required to purchase landed residential property and residential land for development. Foreigners can purchase non-landed, private sector housing (e.g., condominiums or any unit within a building) without the need to obtain prior approval. However, they are not allowed to acquire all the apartments or units in a development without prior approval. These restrictions also apply to foreign companies.

There are no restrictions on foreign ownership of industrial and commercial real estate. Since July 2018, foreigners who purchase homes in Singapore are required to pay an additional effective 20 percent tax on top of standard buyer’s taxes. However, U.S. citizens are accorded national treatment under the FTA, meaning only second and subsequent purchases of residential property will be subject to 12 and 15 percent additional duties, equivalent to Singaporean citizens.

The availability of covered bond legislation under MAS Notice 648 has provided an incentive for Singapore financial institutions to issue covered bonds. Under Notice 648, only a bank incorporated in Singapore may issue covered bonds. The three main Singapore banks: DBS, OCBC, and UOB, all have in place covered bond programs, with the issues offered to private investors. The banking industry has made suggestions to allow the use of covered bonds in repossession transactions with the central bank and to increase the encumbrance limit, currently at four percent. ( http://www.mas.gov.sg/regulations/notices/notice-648 )

Intellectual Property Rights

Singapore maintains one of the strongest intellectual property rights regimes in Asia. The chief executive of Singapore’s Intellectual Property Office was elected director general of the World Intellectual Property Organization (WIPO) in April 2020. However, some concerns remain in certain areas such as business software piracy, online piracy, and enforcement.

Effective January 1, 2020, all patent applications must be fully examined by the Intellectual Property Office of Singapore (IPOS) to ensure that any foreign-granted patents fully satisfy Singapore’s patentability criteria. The Registered Designs (Amendment) Act broadens the scope of registered designs to include virtual designs and color as a design feature and will stipulate the default owner of designs to be the designer of a commissioned design, rather than the commissioning party.

The USSFTA ensures that government agencies will not grant regulatory approvals to patent- infringing products, but Singapore does allow parallel imports. Under the Patents Act, with regards to pharmaceutical products, the patent owner has the right to bring an action to stop an importer of “grey market goods” from importing the patent owner’s patented product, provided that the product has not previously been sold or distributed in Singapore, the importation results in a breach of contract between the proprietor of the patent and any person licensed by the proprietor of the patent to distribute the product outside Singapore and the importer has knowledge of such.

The USSFTA ensures protection of test data and trade secrets submitted to the government for regulatory approval purposes. Disclosure of such information is prohibited. Such data may not be used for approval of the same or similar products without the consent of the party who submitted the data for a period of five years from the date of approval of the pharmaceutical product and 10 years from the date of approval of an agricultural chemical. Singapore has no specific legislation concerning protection of trade secrets. Instead, it protects investors’ commercially valuable proprietary information under common law by the Law of Confidence as well as legislation such as the Penal Code (e.g., theft) and the Computer Misuse Act (e.g., unauthorized access to a computer system to download information). U.S. industry has expressed concern that this provision is inadequate.

As a WTO member, Singapore is party to the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). It is a signatory to other international intellectual property rights agreements, including the Paris Convention, the Berne Convention, the Patent Cooperation Treaty, the Madrid Protocol, and the Budapest Treaty. The WIPO Secretariat opened a regional office in Singapore in 2005. ( http://www.wipo.int/about-wipo/en/offices/singapore/)  Amendments to the Trademark Act, which were passed in January 2007, fulfilled Singapore’s obligations in WIPO’s revised Singapore Treaty on the Law of Trademarks.

Singapore ranked 11th out of 53 in the world in the 2020 U.S. Chamber of Commerce’s International Intellectual Property (IP) Index. The index noted that Singapore’s key strengths include an advanced national IP framework and efforts to accelerate research, patent examination, and grants. The index also lauded Singapore as a global leader in patent protection and online copyright enforcement. Despite a decrease in estimated software piracy from 35 percent in 2009 to 27 percent in 2020, the index noted that piracy levels remain high for a developed, high-income country. Lack of transparency and data on customs seizures of IP-infringing goods is also noted as a key area of weakness.

Singapore does not publicly report the statistics on seizures of counterfeit goods and does not rate highly on enforcement of physical counterfeit goods, online sales of counterfeit goods or digital online piracy, according to the 2018 U.S. Chamber of Commerce’s International IP Index. Singapore is not listed in USTR’s 2020 Special 301 Report, but some Singapore-based online retailers are named in USTR’s 2019 Review of Notorious Markets. For additional information about national laws and points of contact at local IP offices, see WIPO’s country profiles at http://www.wipo.int/directory/en/ .

Capital Markets and Portfolio Investment

The government takes a favorable stance towards foreign portfolio investment and fixed asset investments. While it welcomes capital market investments, the government has introduced macro-prudential policies aimed at reducing foreign speculative inflows in the real estate sector since 2009. The government promotes Singapore’s position as an asset and wealth management center, and assets under management grew 5.4 percent in 2018 to USD 2.4 trillion (SD 3.4 trillion) – the latest year for which MAS conducted a survey.

The Government of Singapore facilitates the free flow of financial resources into product and factor markets, and the Singapore Exchange (SGX) is Singapore’s stock market. An effective regulatory system exists to encourage and facilitate portfolio investment. Credit is allocated on market terms and foreign investors can access credit, U.S. dollars, Singapore dollars (SGD), and other foreign currencies on the local market. The private sector has access to a variety of credit instruments through banks operating in Singapore. The government respects IMF Article VIII by refraining from restrictions on payments and transfers for current international transactions.

Money and Banking System

Singapore’s banking system is sound and well regulated by MAS, and the country serves as a financial hub for the region. Banks have a very high domestic penetration rate, and according to World Bank Financial Inclusion indicators, over 97 percent of persons held a financial account in 2017. (latest year available). Local Singapore banks saw net profits rise 27 percent in the last quarter of 2019. Banks are statutorily prohibited from engaging in non-financial business. Banks can hold 10 percent or less in non-financial companies as an “equity portfolio investment.” At the end of 2019, the non-performing loans ratio (NPL ratio) of the three local banks remained at an averaged 1.5 percent since the last quarter of 2018.

Foreign banks require licenses to operate in the country. The tiered licenses, for Merchant, Offshore, Wholesale, Full Banks and Qualifying Full Banks (QFBs) subject banks to further prudential safeguards in return for offering a greater range of services. U.S. financial institutions enjoy phased-in benefits under the USSFTA. Since 2006, U.S.-licensed full-service banks that are also QFBs have been able to operate at an unlimited number of locations (branches or off-premises ATMs) versus 25 for non-U.S. full service foreign banks with QFB status.

Under the OECD Common Reporting Standards (CRS), which has been in effect since January 2017, Singapore-based Financial Institutions (SGFIs) – depository institutions such as banks, specified insurance companies, investment entities, and custodial institutions – are required to: 1) establish the tax residency status of all their account holders; 2) collect and retain CRS information for all non-Singapore tax residents in the case of new accounts; and 3) report to tax authorities the financial account information of account holders who are tax residents of jurisdictions with which Singapore has a Competent Authority Agreement (CAA) to exchange the information. As of December 2019, Singapore has established more than 80 exchange relationships, include with the United States, established in September 2018.

U.S. financial regulations do not restrict foreign banks’ ability to hold accounts for U.S. citizens. U.S. citizens are encouraged to alert the nearest U.S. Embassy of any practices they encounter with regard to the provision of financial services.

Fintech investments in Singapore rose from USD 365 million in 2018 to USD 861 million in 2019. To strengthen Singapore’s position as a global Fintech hub, MAS has created a dedicated Fintech Office as a one-stop virtual entity for all Fintech-related matters to enable experimentation and promote an open-API (Application Programming Interfaces) in the financial industry. Investment in payments start-ups accounted for about 40 percent of all funds. Singapore has more than 50 innovation labs established by global financial institutions and technology companies.

MAS also aims to be a regional leader in blockchain technologies and has worked to position Singapore as a financial technology center. MAS and the Association of Banks in Singapore are prototyping the use of Distributed Ledger Technology (DLT) for inter-bank clearing and settlement of payments and securities. Following a five-year collaborative project to understand the technology, a test network launched to facilitate collaboration in the cross-border blockchain ecosystem. Technical specifications for the functionalities and connectivity interfaces of the prototype network are publicly available. ( https://www.mas.gov.sg/schemes-and-initiatives/Project-Ubin ).

Alternative financial services include retail and corporate non-bank lending via finance companies, cooperative societies, and pawnshops; and burgeoning financial technology-based services across a wide range of sectors including: crowdfunding, initial coin offerings, and payment services and remittance. In January 2020, the Payment Services Bill went into effect, which will require all cryptocurrency service providers to be licensed with the intent to provide more user protection. Smaller payment firms will receive a different classification from larger institutions and will be less heavily regulated. Key infrastructure supporting Singapore’s financial market include interbank (MEP), Foreign exchange (CLS, CAPS), retail (SGDCCS, USDCCS, CTS, IBG, ATM, FAST, NETS, EFTPOS), securities (MEPS+-SGS, CDP, SGX-DC) and derivatives settlements (SGX-DC, APS) ( https://www.mas.gov.sg/regulation/payments/payment-systems )

Foreign Exchange and Remittances

Foreign Exchange

The USSFTA commits Singapore to the free transfer of capital, unimpeded by regulatory restrictions. Singapore places no restrictions on reinvestment or repatriation of earnings and capital, and maintains no significant restrictions on remittances, foreign exchange transactions and capital movements.

Singapore’s monetary policy has been centered on the management of the exchange rate since 1981, with the stated primary objective of promoting medium term price stability as a sound basis for sustainable economic growth. As described by MAS, there are three main features of the exchange rate system in Singapore: 1) MAS operates a managed float regime for the Singapore dollar with the trade-weighted exchange rate allowed to fluctuate within a policy band; 2) the Singapore dollar is managed against a basket of currencies of its major trading partners; and 3) the exchange rate policy band is periodically reviewed to ensure that it remains consistent with the underlying fundamentals of the economy.

Remittance Policies

There are no time or amount limitations on remittances. No significant changes to investment remittance were implemented or announced over the past year. Local and foreign banks may impose their own limitations on daily remittances.

Sovereign Wealth Funds

The Government of Singapore has three key investment entities: GIC Private Limited (GIC) is the sovereign wealth fund in Singapore that manages the government’s substantial foreign investments, fiscal, and foreign reserves, with the stated objective to achieve long-term returns and preserve the international purchasing power of the reserves. Temasek is a holding company wholly owned by the Ministry of Finance with investments in Singapore and abroad. MAS, as the central bank of Singapore, manages the Official Foreign Reserves, and a significant proportion of its portfolio is invested in liquid financial market instruments.

GIC does not publish the size of the funds under management, but some industry observers estimate its managed assets may exceed $400 billion. GIC does not invest domestically, but manages Singapore’s international investments, which are generally passive (non-controlling) investments in publicly traded entities. The United States is its top investment destination, accounting for 34 percent of GIC’s portfolio as of March 2020, while Asia (excluding Japan) accounts for 19 percent, the Eurozone 13 percent, Japan 13 percent, and UK 6 percent. Investments in the United States are diversified and include industrial and commercial properties, student housing, power transmission companies, and financial, retail and business services. GIC is a member of the International Forum of Sovereign Wealth Funds. Although not required by law, GIC has published an annual report since 2008.

Temasek began as a holding company for Singapore’s state-owned enterprises, now GLCs, but has since branched out to other asset classes and often holds significant stake in companies. As of March 2020, Temasek’s portfolio value reached $226 billion, and its asset exposure to Singapore is 24 percent; 42 percent in the rest of Asia, and 17 percent in North America. According to the Temasek Charter, Temasek delivers sustainable value over the long term for its stakeholders. Temasek has published a Temasek Review annually since 2004. The statements only provide consolidated financial statements, which aggregate all of Temasek and its subsidiaries into a single financial report. A major international audit firm audits Temasek Group’s annual statutory financial statements. GIC and Temasek uphold the Santiago Principles for sovereign investments.

Other investing entities of government funds include EDB Investments Pte Ltd, Singapore’s Housing Development Board, and other government statutory boards with funding decisions driven by goals emanating from the central government.

Singapore has an extensive network of full and partial SOEs held under the umbrella of Temasek Holdings, a holding company with the Ministry of Finance as its sole shareholder. Singapore SOEs play a substantial role in the domestic economy, especially in strategically important sectors including telecommunications, media, healthcare, public transportation, defense, port, gas, electricity grid, and airport operations. In addition, the SOEs are also present in many other sectors of the economy, including banking, subway, airline, consumer/lifestyle, commodities trading, oil and gas engineering, postal services, infrastructure, and real estate.

The Government of Singapore emphasizes that government-linked entities operate on an equal basis with both local and foreign businesses without exception. There is no published list of SOEs.

Temasek’s annual report notes that its portfolio companies are guided and managed by their respective boards and management, and Temasek does not direct their business decisions or operations. However, as a substantial shareholder, corporate governance within government linked companies typically are guided or influenced by policies developed by Temasek. There are differences in corporate governance disclosures and practices across the GLCs, and GLC boards are allowed to determine their own governance practices, with Temasek advisors occasionally meeting with the companies to make recommendations. GLC board seats are not specifically allocated to government officials, although it “leverages on its networks to suggest qualified individuals for consideration by the respective boards,” and leaders formerly from the armed forces or civil service are often represented on boards and fill senior management positions. Temasek exercises its shareholder rights to influence the strategic directions of its companies but does not get involved in the day-to-day business and commercial decisions of its firms and subsidiaries.

GLCs operate on a commercial basis and compete on an equal basis with private businesses, both local and foreign. Singapore officials highlight that the government does not interfere with the operations of GLCs or grant them special privileges, preferential treatment or hidden subsidies, asserting that GLCs are subject to the same regulatory regime and discipline of the market as private sector companies. However, observers have been critical of cases where GLCs have entered into new lines of business or where government agencies have “corporatized” certain government functions, in both circumstances entering into competition with already existing private businesses. Some private sector companies have said they encountered unfair business practices and opaque bidding processes that appeared to favor incumbent, government-linked firms. In addition, they note that the GLC’s institutional relationships with the government give them natural advantages in terms of access to cheaper funding and opportunities to shape the economic policy agenda in ways that benefit their companies.

The USSFTA contains specific conduct guarantees to ensure that GLCs will operate on a commercial and non-discriminatory basis towards U.S. firms. GLCs with substantial revenues or assets are also subject to enhanced transparency requirements under the USSFTA. In accordance with its USSFTA commitments, Singapore enacted the Competition Act in 2004 and established the Competition Commission of Singapore in January 2005. The Competition Act contains provisions on anti-competitive agreements, decisions, and practices, abuse of dominance, enforcement and appeals process, and mergers and acquisitions.

Privatization Program

The government has privatized GLCs in multiple sectors and has not publicly announced further privatization plans, but is likely to retain controlling stakes in strategically important sectors, including telecommunications, media, public transportation, defense, port, gas, electricity grid, and airport operations. The Energy Market Authority is extending the liberalization of the retail market from commercial and industrial consumers with an average monthly electricity consumption of at least 2,000 kWh to households and smaller businesses. The Electricity Act and the Code of Conduct for Retail Electricity Licensees govern licensing and standards for electricity retail companies.

The awareness and implementation of corporate social responsibility (CSR) in Singapore has been increasing since the formation of the Global Compact Network Singapore (GCNS) under the United Nations Global Compact network, with the goals of encouraging companies to adopt sustainability principles related to human and labor rights, environmental conservation, and anti-corruption. GCNS facilitates exchanges, conducts research, and provides training in Singapore to build capacity in areas including sustainability reporting, supply chain management, ISO 26000, and measuring and reporting carbon emissions.

A 2019 World Wide Fund (WWF) for Nature survey showed a lack of transparency by Singapore companies in disclosing palm oil sources. However, there is growing awareness and the Southeast Asia Alliance for Sustainable Palm Oil (Saspo) has received additional pledges in by companies to adhere to standards for palm oil sourcing set by the Roundtable for Sustainable Palm Oil (RSPO). A group of food and beverage, retail, and hospitality companies announced in January 2019 what the WWF calls “the most impactful business response to-date on plastics.” The pact, initiated by WWF and supported by the National Environment Agency, is a commitment to significantly reduce plastic production and usage by 2030.

In June 2016, the Singapore Exchange (SGX) introduced mandatory, comply-or-explain, sustainability reporting requirements for all listed companies, including material environmental, social and governance practices, from the financial year ending December 31, 2017 onwards. The Singapore Environmental Council (SEC) operates a green labeling scheme, which endorses environmentally friendly products, numbering over 3,000 from 2729 countries. The Association of Banks in Singapore has issued voluntary guidelines to banks in Singapore last updated in July 2018 encouraging them to adopt sustainable lending practices, including the integration of environmental, social and governance (ESG) principles into their lending and business practices. Singapore-based banks are listed in a 2018 Market Forces report as major lenders in regional coal financing.

Singapore has not developed a National Action Plan on business and human rights, but promotes responsible business practices, and encourages foreign and local enterprises to follow generally accepted CSR principles. The government does not explicitly factor responsible business conduct (RBC) policies into its procurement decisions.

The host government effectively and fairly enforces domestic laws with regard to human rights, labor rights, consumer protection, environmental protections, and other laws/regulations intended to protect individuals from adverse business impacts. The private sector’s impact on migrant workers and their rights, and domestic migrant workers in particular (due to the latter’s exemption from the Employment Act which stipulates the rights of workers), remains an area of advocacy by civil society groups. The government has taken incremental steps to improve the channels of redress and enforcement of migrant workers’ rights; however, key concerns about legislative protections remain unaddressed for domestic migrant workers. The government generally encourages businesses to comply with international standards. However, there are no specific mentions of the host government encouraging adherence to the OECD Due Diligence Guidance, or supply chain due diligence measures.

The Companies Act principally governs companies in Singapore. Key areas of corporate governance covered under the act include separation of ownership from management, fiduciary duties of directors, shareholder remedies, and capital maintenance rules. Limited liability partnerships are governed by the Limited Liability Partnerships Act. Certain provisions in other statutes such as the Securities and Futures Act are also relevant to listed companies. Listed companies are required under the Singapore Exchange Listing Rules to describe in their annual reports their corporate governance practices with specific reference to the principles and provisions of the Code of Corporate Governance (“Code”). Listed companies must comply with the principles of the Code and if their practices vary from any provision in the Code, they must explain the variation and demonstrate the variation is consistent with the relevant principle. The revised Code of Corporate Governance will impact Annual Reports covering financial years from January 1, 2019 onward. The revised code encourages board renewal, strengthens director independence, increases transparency of remuneration practices, enhances board diversity, and encourages communication with all stakeholders. MAS also established an independent Corporate Governance Advisory Committee (CGAC) to advocated good corporate governance practices in February 2019. The CGAC monitors companies’ implementation of the code and advises regulators on corporate governance issues.

There are independent NGOs promoting and monitoring RBC. Those monitoring or advocating around RBC are generally able to do their work freely within most areas. However, labor unions are tightly controlled and legal rights to strike are granted with restrictions under the Trade Disputes Act.

Singapore has no oil, gas, or mineral resources and is not a member of the Extractive Industries Transparency Initiative (EITI). A small sector in Singapore processes rare minerals and complies with responsible supply chains and conflict mineral principles. Under the Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) framework, it is a requirement for Corporate Service Providers to develop and implement internal policies, procedures and controls to comply with Financial Action Task Force (FATF) recommendations on combating of money laundering and terrorism financing.

Additional Resources 

Department of State

• Country Reports on Human Rights Practices;
• Trafficking in Persons Report;
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities and;
• North Korea Sanctions & Enforcement Actions Advisory

Department of Labor

• Findings on the Worst Forms of Child Labor Report;
• List of Goods Produced by Child Labor or Forced Labor.
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World and;
• Comply Chain.

Resources to Report Corruption

Singapore actively enforces its strong anti-corruption laws, and corruption is not cited as a concern for foreign investors. Transparency International’s 2020 Corruption Perception Index ranks Singapore third of 178 countries globally, the highest-ranking Asian country. The Prevention of Corruption Act (PCA), and the Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act provide the legal basis for government action by the Corrupt Practices Investigation Bureau (CPIB), which is the only agency authorized under the PCA to investigate corruption offences and other related offences. These laws cover acts of corruption within Singapore as well as those committed by Singaporeans abroad. The anti-corruption laws extend to family members of officials, and to political parties. The CPIB is effective and non-discriminatory. Singapore is generally perceived to be one of the least corrupt countries in the world, and corruption is not identified as an obstacle to foreign direct investment in Singapore. Recent corporate fraud scandals, particularly in the commodity trading sector, have been publicly, swiftly, and firmly reprimanded by the government. Singapore is a signatory to the UN Anticorruption Convention, but not the OECD Anti-Bribery Convention.

Resources to Report Corruption

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

Corrupt Practices Investigation Bureau
2 Lengkok Bahru, Singapore 159047
+65 6270 0141  info@cpib.gov.sg

Contact at a “watchdog” organization:

Transparency International
Alt-Moabit 96
10559 Berlin, Germany +49 30 3438 200

Singapore’s political environment is stable and there is no recent history of incidents involving politically motivated damage to foreign investments in Singapore. The ruling People’s Action Party (PAP) has dominated Singapore’s parliamentary government since 1959 and currently controls 83 of the 89 regularly contested parliamentary seats. Singaporean opposition parties, which currently hold six regularly contested parliamentary seats and three additional seats reserved to the opposition by the constitution, do not usually espouse views that are radically different from mainstream public opinion.

In December 2020, Singapore’s labor market totaled 3.6 million workers; this includes about 1.4 million foreigners, of whom about 85 percent are basic skilled or semi-skilled workers. The labor market continues to be tight, with overall unemployment rate averaging in the 3.04 percent in 2020. The 2020 budget, announced in February and two subsequent supplementary budgets announced in March and April, provided for substantial wage and training support for all firms during the COVID-19 outbreak. In sectors, such as travel and tourism, the government offered temporary employment or training for workers placed on unpaid leave due to COVID-19. The 2021 budget continues this support, although at lower levels and in a more focused manner, since the government expects overall GDP growth to return. Local labor laws allow for relatively free hiring and firing practices. Either party can terminate employment by giving the other party the required notice. The Ministry of Manpower (MOM) must approve employment of foreigners.

Since 2011, the government has introduced policy measures to support productivity increases coupled with reduced dependence on foreign labor. In Budget 2019, MOM announced a decrease in the foreign worker quota ceiling from 40 percent to 38 percent on January 1, 2020 and to 35 percent on January 1, 2021. The quota reduction does not apply to those on Employment Passes (EPs) which are high skilled workers making above $33,100 per year. In Budget 2020, the foreign worker quota was cut further for mid-skilled (“S Pass”) workers in construction, marine shipyards, and the process sectors from 20 to 18 percent by January 1, 2021. The quota will be further reduced to 15 percent on January 1, 2023. Singapore’s labor force fell for the first time in a decade and is expected to face significant demographic headwinds from an aging population and low birth rates, alongside restrictions on foreign workers. Singapore’s local workforce growth is slowing, heading for stagnation over the next ten years.

To address concerns over an aging and shrinking workforce, MOM has expanded its training and grant programs. The government included a number of individual and company subsidies for existing and new programs in the Budget 2020 and 2021, as well as an unprecedented number of supplementary budgets during the COVID-19 outbreak. An example of an existing program is SkillsFuture, a government initiative managed by SkillsFuture Singapore (SSG), a statutory board under the Ministry of Education, designed to provide all Singaporeans with enhanced opportunities and skills-capacity building. SSG also administers the Singapore Workforce Skills Qualifications (WSQ), a national credential system that trains, develops, assesses, and certifies skills and competencies for the workforce.

All foreigners must have a valid work pass before they can start work in Singapore, with EPs (for professionals, managers and executives), S Pass (for mid-level skilled staff), and Work Permits (for semi-skilled workers), among the most widely issued. Workers need to have a job with minimum fixed monthly salary and acceptable qualifications to be eligible for the Employment Pass and S Pass. MOM has increased minimum salaries restricting the ability of some companies to hire foreign workers, including spouses of employment pass holders. The government further regulates the inflow of foreign workers through the Foreign Worker Levy (FWL) and the Dependency Ratio Ceiling (DRC). The DRC is the maximum permitted ratio of foreign workers to the total workforce that a company can hire and serves as a quota on the hiring of foreign workers. The DRC varies across sectors. Employers of S Pass and Work Permit holders are required to pay a monthly FWL to the government. The FWL varies according to the skills, qualifications and experience of their employees. The FWL is set on a sector-by-sector basis and is subject to annual revisions. FWLs have been progressively increased for most sectors since 2012.

MOM requires employers to consider Singaporeans before hiring skilled professional foreigners. The Fair Consideration Framework, implemented in August 2014, affects employers who apply for EPs, the work pass for foreign professionals working in professional, manager, and executive (PME) posts. Companies have noted inconsistent and increasingly burdensome documentation requirements and excessive qualification criteria to approve EP applications. Under the rules, firms making new EP applications must first advertise the job vacancy in a new jobs bank administered by Workforce Singapore (WSG), ( http://www.mycareersfuture.gov.sg ) for at least 28 days. The jobs bank is free for use by companies and job seekers and the job advertisement must be open to all, including Singaporeans. Employers are encouraged to keep records of their interview process as proof that they have done due diligence in trying to look for a Singaporean worker. If an EP is still needed, the employer will have to make a statutory declaration that a job advertisement on http://www.mycareersfuture.gov.sg had been made. Smaller firms with 10 or fewer employees and jobs, which pay a fixed monthly salary of $10,609 or more, are exempt from the requirements, which were newly tightened and took effect from July 2018. The minimum fixed salary will be raised to $14,145 on May 1, 2021.

Consistent with Singapore’s WTO obligations, intra-corporate transfers (ICT) are allowed for managers, executives, and specialists who had worked for at least one year in the firm before being posted to Singapore. ICT would still be required to meet all EP criteria, but the requirement for an advertisement on http://www.mycareersfuture.gov.sg would be waived. In April 2016, MOM outlined measures to refine the work pass applications process, looking not only at the qualifications of individuals, but at company-related factors. Companies found not to have a “healthy Singaporean core, lacking a demonstrated commitment to developing a Singaporean core, and not found to be “relevant” to Singapore’s economy and society, will be labeled “triple weak” and put on a watch list. Companies unable to demonstrate progress may have work pass privileges suspended after a period of scrutiny. Since 2016, MOM has placed approximately 1,200 companies on the FCF Watchlist. The Tripartite Alliance for Fair and Progressive Employment Practices have worked with 260 companies to be successfully removed from the watchlist.

The Employment Act covers all employees under a contract of service, and under the act, employees who have served the company for at least two years are eligible for retrenchment benefits, and the amount of compensation depends on the contract of service or what is agreed collectively. Employers have to abide by notice periods in the employment contract before termination and stipulated minimum periods in the Employment Act in the absence of a notice period previously agreed upon, or provide salary in lieu of notice. Dismissal on grounds of wrongful conduct by the employee is differentiated from retrenchments in the labor laws and is exempted from the above requirements. Employers must notify MOM of retrenchments within five working days after they notify the affected employees to enable the relevant agencies to help affected employees find alternative employment and/or identify relevant training to enhance employability. Singapore does not provide unemployment benefits, but provides training and job matching services to retrenched workers.

Labor laws are not waived in order to attract or retain investment in Singapore. There are no additional or different labor law provisions in free trade zones.

Collective bargaining is a normal part of labor-management relations in all sectors. As of 2018 about 20 percent of the workforce was unionized. Foreign workers constituted approximately 15 percent of union members. Almost all unions are affiliated with the National Trades Union Congress (NTUC), the sole national federation of trade unions in Singapore, which has a close relationship with the PAP ruling party and the government. The current NTUC Secretary General is also a Minister in the Prime Minister’s Office. Given that nearly all unions are NTUC affiliates, the NTUC has almost exclusive authority to exercise collective bargaining power on behalf of employees. Union members may not reject collective agreements negotiated between their union representatives and an employer. Although transfers and layoffs are excluded from the scope of collective bargaining, employers consult with unions on both problems, and the Taskforce for Responsible Retrenchment and Employment Facilitation issues guidelines calling for early notification to unions of layoffs. Data on coverage of collective bargaining agreements is not publicly available. The Industrial Relations Act (IRA) regulates collective bargaining. The Industrial Arbitration Courts must certify any collective bargaining agreement before it is deemed in effect and can deny certification on public interest grounds. Additionally, the IRA restricts the scope of issues over which workers may bargain, excluding bargaining on hiring, transfer, promotion, dismissal, or reinstatement of workers.

Most labor disagreements are resolved through conciliation and mediation by MOM. Since April 2017, the Tripartite Alliance for Dispute Management (TADM) under MOM provides advisory and mediation services, including mediation for salary and employment disputes. Where the conciliation process is not successful, the disputing parties may submit their dispute to the IAC for arbitration. Depending on the nature of the dispute, the court may be constituted either by the President of the IAC and a member of the Employer and Employee Panels, or by the President alone. The Employment Claims Tribunals (ECT) was established under the Employment Claims Act (2016). To bring a claim before the ECT, parties must first register their claims at the TADM for mediation. Mediation at TADM is compulsory. Only disputes which remain unresolved after mediation at TADM may be referred to the ECT.

The ECT hears statutory salary-related claims, contractual salary-related claims, dismissal claims from employees, and claims for salary in lieu of notice of termination by all employers. There is a limit of $21,200 on claims for cases with TADM mediation, and $14,100 for all other claims. In March 2019, MOM announced that 85 percent of salary claims had been resolved by TADM between April 2017 and December 2018. Salary-related disputes that are not resolved by mediation are covered by the Employment Claims Tribunals under the State Courts. Industrial disputes may also submit their case be referred to the tripartite Industrial Arbitration Court (IAC). The IAC composed has two panels: an employee panel and a management panel. For a majority of dispute hearings, a court is constituted comprising the President of the IAC and a member each from the employee and employer panels’ representatives and chaired by a judge. In some situations, the law provides for compulsory arbitration. The court must certify collective agreements before they go into effect. The court may refuse certification at its discretion on the ground of public interest.

The legal framework in Singapore provides for some restrictions in the registration of trade unions, labor union autonomy and administration, the right to strike, who may serve as union officers or employees, and collective bargaining. Under the Trade Union Act (TUA), every trade union must register with the Registrar of Trade Unions, which has broad discretion to grant, deny, or cancel union registration. The TUA limits the objectives for which unions can spend their funds, including for contributions to a political party or for political purposes, and allows the Registrar to inspect accounts and funds “at any reasonable time.” Legal rights to strike are granted with restrictions under TUA. The law requires the majority of affected unionized workers to vote in favor of a strike by secret ballot, as opposed to the majority of those participating in the vote. Strikes cannot be conducted for any reason apart from a dispute in the trade or industry in which the strikers are employed, and it is illegal to conduct a strike if it is “designed or calculated to coerce the government either directly or by inflicting hardship on the community.” Workers in “essential services” are required to give 14 days’ notice to an employer before conducting a strike. Although workers, other than those employed in the three essential services of water, gas and electricity, may strike, no workers did so since 1986 with the exception of a strike by bus drivers in 2012, but NTUC threatened to strike over concerns in a retrenchment process in July 2020. The law also restricts the right of uniformed personnel and government employees to organize, although the president may grant exemptions. Foreigners and those with criminal convictions generally may not hold union office or become employees of unions, but the ministry may grant exemptions.

The Employment Act, which prohibits all forms of forced or compulsory labor and the Prevention of Human Trafficking Act (PHTA), strengthens labor trafficking victim protection, and governs labor protections. Other acts protecting the rights of workers include the Occupational Safety and Health Act and Employment of Foreign Manpower Act. Labor laws set the standard legal workweek at 44 hours, with one rest day each week, and establish a framework for workplaces to comply with occupational safety and health standards, with regular inspections designed to enforce the standards. MOM effectively enforces laws and regulations establishing working conditions and comprehensive occupational safety and health (OSH) laws and implements enforcement procedures and promoted educational and training programs to reduce the frequency of job-related accidents. Changes to the Employment Act took effect on April 1, 2019, including for extension of core provisions to managers and executives, increasing the monthly salary cap, transferring adjudication of wrongful dismissal claims from MOM to the ECT, and increasing flexibility in compensating employees working during public holidays (for more detail see https://www.mom.gov.sg/employment-practices/employment-act  ). All workers, except for public servants, domestic workers and seafarers are covered by the Employment Act, and additional time-based provisions for more vulnerable employees.

Singapore has no across the board minimum wage law, although there are some exceptions in certain low skill industries. Generally, the government follows a policy of allowing free market forces to determine wage levels. In specific sectors where wages have stagnated and market practices such as outsourcing reduce incentive to upskill workers and limit their bargaining power, the government has implemented Progressive Wage Models to uplift wages. These are currently implementing in the cleaning, security, elevator maintenance, and landscape sectors. The National Wage Council (NWC), a tripartite body comprising representatives from the government, employers and unions, recommends non-binding wage adjustments on an annual basis. The NWC recommendations apply to all employees in both domestic and foreign firms, and across the private and public sectors. While the NWC wage guidelines are not mandatory, they are published under the Employment Act and form the basis of wage negotiations between unions and management. The NWC recommendations apply to all employees in both domestic and foreign law firms, and across the public and private sectors. The level of implementation is generally higher among unionized companies compared to non-unionized companies.

MOM is responsible for combating labor trafficking and improving working conditions for workers, and generally enforces anti-trafficking legislation, although some workers in low-wage and unskilled sectors are vulnerable to labor exploitation and abuse. PHTA sets out harsh penalties (including up to nine strokes of the cane and 15 years’ imprisonment) for those found guilty of trafficking, including forced labor, or abetting such activities. The government developed a mechanism for referral of potential trafficking-in-persons activities, to the interagency taskforce, co-chaired by the Ministry of Home Affairs and the Ministry of Manpower. Some observers note that the country’s employer sponsorship system made legal migrant workers vulnerable to forced labor, because they cannot change employers without the consent of the current employer. MOM effectively enforces laws and regulations pertaining to child labor. Penalties for employers that violated child labor laws were subject to fines and/or imprisonment, depending on the violation. Government officials assert that child labor is not a significant issue. The incidence of children in formal employment is low, and almost no abuses are reported.

The USSFTA includes a chapter on labor protections. The labor chapter contains a statement of shared commitment by each party that the principles and rights set forth in Article 17.7 of the ILO Declaration on Fundamental Principles and Rights at Work and its follow-up are recognized and protected by domestic law, and each party shall strive to ensure it does not derogate protections afforded in domestic labor law as an encouragement for trade or investment purposes. The chapter includes the establishment of a labor cooperation mechanism, which promotes the exchange of information on ways to improve labor law and practice, and the advancement of effective implementation.

See the U.S. State Department Human Rights Report as well as the U.S. State Department’s Trafficking in Persons Report. (https://www.state.gov/reports-bureau-of-democracy-human-rights-and-labor/country-reports-on-human-rights-practices/)

Under the 1966 Investment Guarantee Agreement with Singapore, the Overseas Private Investment Corporation (OPIC) offers insurance to U.S. investors in Singapore against currency inconvertibility, expropriation, and losses arising from war. Singapore became a member of the Multilateral Investment Guarantee Agency (MIGA) in 1998. In March 2019, Singapore and the United States signed a MOU aimed at strengthening collaboration between the infrastructure agency of Singapore, Infrastructure Asia, and OPIC. Under the agreement, both countries will work together on information sharing, deal facilitation, structuring and capacity building initiatives in sectors of mutual interest such as energy, natural resource management, water, waste, transportation, and urban development. The aim is to enhance Singapore-based and U.S. companies’ access to project opportunities, while building on Singapore’s role as an infrastructure hub in Asia.

Singapore’s domestic public infrastructure projects are funded primarily via Singapore government reserves or capital markets, reducing the scope for direct project financing subsidies by foreign governments. 12. U.S. International Development Finance Corporation (DFC) and Other Investment  Insurance and Development Finance Programs

Under the 1966 Investment Guarantee Agreement with Singapore, the Overseas Private Investment Corporation (OPIC) offers insurance to U.S. investors in Singapore against currency inconvertibility, expropriation, and losses arising from war.  Singapore became a member of the Multilateral Investment Guarantee Agency (MIGA) in 1998.  In March 2019, Singapore and the United States signed a MOU aimed at strengthening collaboration between the infrastructure agency of Singapore, Infrastructure Asia, and OPIC.  Under the agreement, both countries will work together on information sharing, deal facilitation, structuring and capacity building initiatives in sectors of mutual interest such as energy, natural resource management, water, waste, transportation, and urban development.  The aim is to enhance Singapore-based and U.S. companies’ access to project opportunities, while building on Singapore’s role as an infrastructure hub in Asia.

Singapore’s domestic public infrastructure projects are funded primarily via Singapore government reserves or capital markets, reducing the scope for direct project financing subsidies by foreign governments.

DFC maintains a regional office in Singapore to better coordinate with Southeast Asia’s leading financial institutions but has no projects in Singapore.

* Source for Host Country Data: https://www.singstat.gov.sg/ 

Martha Tipton
Economic Specialist
U.S. Embassy
27 Napier Road
Singapore 258508  +65 9069-8592
+65 9069-8592
Tiptonm@state.gov