The Government of Argentina identified its top economic priorities for 2022 as reaching an agreement with the IMF to renegotiate the 2018 Stand-By Arrangement, controlling inflation, and continuing the post-pandemic economic recovery. When the Fernandez administration took office in late 2019, the Ministry of Foreign Affairs, International Trade, and Worship became the lead governmental entity for investment promotion.  The Fernandez administration does not have a formal business roundtable or other dialogue established with international investors, although it does engage frequently with domestic and international companies.

Market regulations such as capital controls, trade restrictions, and price controls enhance economic distortion that hinders the investment climate in the country.

Foreign and domestic investors generally compete under the same conditions in Argentina. However, foreign investment is restricted in specific sectors such as aviation and media. Foreign ownership of rural productive lands, bodies of water, and areas along borders is also restricted.

Argentina has a National Investment and Trade Promotion Agency that provides information and consultation services to investors and traders on economic and financial conditions, investment opportunities, and Argentine laws and regulations. The agency also helps small and medium- sized companies (SMEs) export their products, provides matchmaking services, and organizes roadshows and trade delegations. Upon the change of administration, the government placed the Agency under the direction of the Ministry of Foreign Affairs (MFA) to improve coordination between the Agency and Argentina´s foreign policy. The Under Secretary for Trade and Investment Promotion of the MFA works as a liaison between the Agency and provincial governments and regional organizations. The new administration also created the National Directorate for Investment Promotion under the Under Secretary for Trade and Investment Promotion, making the Directorate responsible for promoting Argentina as an investment destination. The Directorate´s mission also includes determining priority sectors and projects and helping Argentine companies expand internationally and/or attract international investment.

The agency’s web portal provides information on available services ( https://www.inversionycomercio.org.ar/ ). The 23 provinces and the City of Buenos Aires also have their own provincial investment and trade promotion offices.

Foreign and domestic commercial entities in Argentina are regulated by the Commercial Partnerships Law (Law 19,550), the Argentina Civil and Commercial Code, and rules issued by the regulatory agencies. Foreign private entities can establish and own business enterprises and engage in all forms of remunerative activity in nearly all sectors.

Full foreign equity ownership of Argentine businesses is not restricted, for the most part, with exceptions in the air transportation and media industries. The share of foreign capital in companies that provide commercial passenger transportation within the Argentine territory is limited to 49 percent per the Aeronautic Code Law 17,285. The company must be incorporated according to Argentine law and domiciled in Buenos Aires. In the media sector, Law 25,750 limits foreign ownership in television, radio, newspapers, journals, magazines, and publishing companies to 30 percent.

Law 26,737 (Regime for Protection of National Domain over Ownership, Possession or Tenure of Rural Land) establishes that a foreigner cannot own land that allows for the extension of existing bodies of water or that are located near a Border Security Zone. In February 2012, the government issued Decree 274/2012 further restricting foreign land ownership to a maximum of 30 percent of national land and 15 percent of productive land. Foreign individuals or foreign company ownership is limited to 1,000 hectares (2,470 acres) in the most productive farming areas. In June 2016, the Government of Argentina issued Decree 820 easing the requirements for foreign land ownership by changing the percentage that defines foreign ownership of a person or company, raising it from 25 percent to 51 percent of the social capital of a legal entity. Waivers are not available.

Argentina does not maintain an investment screening mechanism for inbound foreign investment. U.S. investors are not at a disadvantage to other foreign investors or singled out for discriminatory treatment.

Argentina was last subject to an investment policy review by the OECD in 1997 and the fifth trade policy review by the WTO in September 2021 ( https://www.wto.org/english/tratop_e/tpr_e/tp512_e.htm ). The United Nations Conference on Trade and Development (UNCTAD) has not done an investment policy review of Argentina.

In 2019, automotive sector representatives, including the Association of Automobile Manufacturers (ADEFA, or Asociación de Fábricas de Automotores) and the Asociación of Auto Parts Manufacturers (AFAC, or Asociación de Fábricas Argentinas de Componentes), published Plan 2030, a strategic plan for investment and development in the automotive sector. (http://www.cafas.org.ar/assets/img/noticias/Plan2030.pdf ) In 2022, the Industrial Union of Argentina (UIA, or Unión Industrial Argentina) published a White Book of recommendations to promote development and increase productivity in Argentina. (https://www.uia.org.ar/general/3889/propuestas-para-un-desarrollo-productivo-federal-sustentable-e-inclusivo-libro-blanco/ ) The Rosario Board of Trade (BCR, or Bolsa de Comercio de Rosario) published regular reports and recommendations for agricultural trade and investment policies. ( https://www.bcr.com.ar/es )

In 2019, stemming from the country’s deteriorating financial and economic situation, the Argentine government re-imposed capital controls on businesses and consumers, limiting their access to foreign exchange.  The government continued to update and increase both capital controls and taxes on imports and exports throughout 2021, generating continued uncertainty in the business climate.

With the stated aim of keeping inflation under control and avoiding production shortages during the COVID-19 pandemic, the government increased market interventions in 2020, creating further market distortions that may deter investment. During 2021, bans and other limits on beef exports were introduced to address rising domestic prices. Argentina currently has s a consumer goods price control program, “Precios Cuidados,” a voluntary program established in 2014.The Argentine Congress also passed the Shelves Law (No. 27,545), which regulates the supply, display, and distribution of products on supermarket shelves and virtual stores. Key articles of the Law are still pending implementing regulations. Private companies expressed concern over the final regulatory framework of the Law, which could affect their production, distribution, and marketing business models.

In August 2020, the government issued an edict freezing prices for telecommunication services (mobile and land), cable and satellite TV, and internet services until December 2020, later extending the measure into 2021. Some telecommunication companies appealed through the courts and were granted protection from the edict. The health sector was also subject to limits on price increases. In February 2021, the Secretary of Trade took administrative action against major consumer firms and food producers for purportedly causing supermarket shortages by withholding production and limiting distribution. Companies are currently contesting this decision. In March 2021, the Secretary of Domestic Trade issued Resolution 237/2021 establishing a national registry to monitor the production levels, distribution, and sales of private companies. If companies fail to comply, they could be subject to fines or closure. Tighter import controls imposed by the Fernandez administration have affected the business plans of private companies that need imported inputs for production. The private sector noted increased discretion on the part of trade authorities responsible for both approving import licenses and obtaining access to the foreign exchange market to pay for imports.

The Ministry of Production eased bureaucratic hurdles for foreign trade through the creation of a Single Window for Foreign Trade (“VUCE” for its Spanish acronym) in 2016. The VUCE centralizes the administration of all required paperwork for the import, export, and transit of goods (e.g., certificates, permits, licenses, and other authorizations and documents). The Argentine government has not fully implemented the VUCE for use across the country.

Argentina subjects imports to automatic or non-automatic licenses that are managed through the Comprehensive Import Monitoring System (SIMI, or Sistema Integral de Monitoreo de Importaciones), established in December 2015 by the National Tax Agency (AFIP by its Spanish acronym) through Resolutions 5/2015 and 3823/2015. The SIMI system requires importers to submit detailed information electronically about goods to be imported into Argentina. Once the information is submitted, the relevant Argentine government agencies can review the application through the VUCE and make any observations or request additional information. The list of products subject to non-automatic licensing has been modified several times since the beginning of the SIMI system. Due to the Covid-19 pandemic, the government reclassified goods needed to combat the health emergency previously subject to non-automatic import licenses to automatic import licenses. During 2021, the number of non-automatic import licenses did not significantly change, although obtaining dollars from the Argentine Central Bank to pay for imports was often difficult for importers. Approximately 1,500 tariff lines are currently subject to non-automatic licenses.

The Argentine Congress approved an Entrepreneurs’ Law in March 2017, which allows for the creation of a simplified joint-stock company (SAS, or Sociedad por Acciones Simplificada) online within 24 hours of registration. However, in March 2020, the Fernandez administration annulled the 24-hour registration system. Industry groups said this hindered the entrepreneurship ecosystem by revoking one of the pillars of the Entrepreneurs’ Law.

In December 2020, the government issued the regulatory framework for the Knowledge Based-Economy Law, which was passed in October 2020. The Law establishes tax benefits for entrepreneurs until December 2029. The complete list of activities included in the tax benefit can be found at: http://servicios.infoleg.gob.ar/infolegInternet/verNorma.do;jsessionid=56625A2FC5152F34ECE583158D581896?id=346218 .

Foreign investors seeking to set up business operations in Argentina follow the same procedures as domestic entities without prior approval and under the same conditions as local investors. To open a local branch of a foreign company in Argentina, the parent company must be legally registered in Argentina. Argentine law requires at least two equity holders, with the minority equity holder maintaining at least a five percent interest. In addition to the procedures required of a domestic company, a foreign company establishing itself in Argentina must legalize the parent company’s documents, register the incoming foreign capital with the Argentine Central Bank, and obtain a trading license.

A company must register its name with the Office of Corporations (IGJ, or Inspección General de Justicia). The IGJ website describes the registration process, and some portions can be completed online (https://www.argentina.gob.ar/justicia/igj/guia-de-tramites ). Once the IGJ registers the company, the company must request that the College of Public Notaries submit the company’s accounting books to be certified with the IGJ. The company’s legal representative must obtain a tax identification number from AFIP, register for social security, and obtain blank receipts from another agency. Companies can register with AFIP online at www.afip.gob.ar  or by submitting the sworn affidavit form No. 885 to AFIP.

Details on how to register a company can be found at the Ministry of Productive Development’s website: https://www.argentina.gob.ar/produccion/crear-una-empresa . Instructions on how to obtain a tax identification code can be found at: https://www.argentina.gob.ar/obtener-el-cuit-por-internet .

The enterprise must also provide workers’ compensation insurance for its employees through the Workers’ Compensation Agency (ART, or Aseguradora de Riesgos del Trabajo). The company must register and certify its accounting of wages and salaries with the Secretariat of Labor, within the Ministry of Labor, Employment, and Social Security.

The Ministry of Productive Development offers attendance-based courses and online training for businesses. The training menu can be viewed at: https://www.argentina.gob.ar/produccion/capacitacion .

The National Directorate for Investment Promotion under the Under Secretary for Trade and Investment Promotion at the MFA assists Argentine companies in expanding their business overseas, in coordination with the National Investment and Trade Promotion Agency. Argentina does not have any restrictions regarding domestic entities investing overseas, nor does it incentivize outward investment.

The Secretary of Strategic Affairs under the Cabinet is in charge of transparency policies and the digitalization of bureaucratic processes as of December 2019.

Argentine government authorities and a number of quasi-independent regulatory entities can issue regulations and norms within their mandates. There are no informal regulatory processes managed by non-governmental organizations or private sector associations. Rulemaking has traditionally been a top-down process in Argentina, unlike in the United States where industry organizations often lead in the development of standards and technical regulations.  The Constitution establishes a procedure that allows for citizens to draft or propose legislation, which is subject to Congressional and Executive approval before being passed into law.

Ministries, regulatory agencies, and Congress are not obligated to provide a list of anticipated regulatory changes or proposals, share draft regulations with the public, or establish a timeline for public comment. They are also not required to conduct impact assessments of the proposed legislation and regulations.

All final texts of laws, regulations, resolutions, dispositions, and administrative decisions must be published in the Official Gazette (https://www.boletinoficial.gob.ar ), as well as in the newspapers and the websites of the Ministries and agencies. These texts can also be accessed through the official website Infoleg (http://www.infoleg.gob.ar/ ), overseen by the Ministry of Justice and Human Rights. Interested stakeholders can pursue judicial review of regulatory decisions.

In September 2016, Argentina enacted a Right to Access Public Information Law (27,275) that mandates all three governmental branches (legislative, judicial, and executive), political parties, universities, and unions that receive public funding are to provide non-classified information at the request of any citizen. The law also created the Agency for the Right to Access Public Information to oversee compliance.

During 2017, the government introduced new procurement standards including electronic procurement, formalization of procedures for costing-out projects, and transparent processes to renegotiate debts to suppliers. The government also introduced OECD recommendations on corporate governance for state-owned enterprises to promote transparency and accountability during the procurement process. The regulation may be viewed at: http://servicios.infoleg.gob.ar/infolegInternet/verNorma.do?id=306769 .

In April 2018, Argentina passed the Business Criminal Responsibility Law (27,041) through Decree 277. The decree establishes an Anti-Corruption Office in charge of outlining and monitoring the transparency policies with which companies must comply to be eligible for public procurement.

The Argentine government has sought to increase public consultation in the rulemaking process; however, public consultation is non-binding and has been done in an ad-hoc fashion. In 2017, the Government of Argentina issued a series of legal instruments that seek to promote the use of tools to improve the quality of the regulatory framework. Amongst them, Decree 891/2017 for Good Practices in Simplification establishes a series of tools to improve the rulemaking process. The decree introduces tools on ex-ante and ex-post evaluation of regulation, stakeholder engagement, and administrative simplification, amongst others. Nevertheless, no formal oversight mechanism has been established to supervise the use of these tools across the line of ministries and government agencies, which make implementation difficult and severely limit the potential to adopt a whole-of-government approach to regulatory policy, according to a 2019 OECD publication on Regulatory Policy in Argentina.

Some ministries and agencies developed their own processes for public consultation by publishing drafts on their websites, directly distributing the draft to interested stakeholders for feedback, or holding public hearings.

In November 2017, the Government of Argentina launched a new website to communicate how the government spends public funds in a user-friendly format (https://www.argentina.gob.ar/economia/transparencia/presupuesto ).

The Argentine government also made an effort to improve citizens’ understanding of the budget, through the citizen’s budget “Presupuesto Ciudadano” website: https://www.economia.gob.ar/onp/presupuesto_ciudadano/seccion6.php . The initiative aligns with the Global Initiative for Fiscal Transparency (GIFT) and UN Resolution 67/218 on promoting transparency, participation, and accountability in fiscal policy.

Argentina requires public companies to adhere to International Financial Reporting Standards (IFRS). Argentina is a member of UNCTAD’s international network of transparent investment procedures.

The government of Argentina does not promote or require environmental, social, and governance (ESG) disclosures to facilitate transparency and/or help investors and consumers distinguish between high and low-quality investments.

Argentina is a founding member of MERCOSUR and has been a member of the Latin American Integration Association (ALADI for Asociación Latinoamericana de Integración) since 1980.  Once any of the decision-making bodies within MERCOSUR agrees to apply a certain regulation, each of the member countries must incorporate it into its legislation according to its own legislative procedures. Once a regulation is incorporated in a MERCOSUR member’s legislation, the country must notify MERCOSUR headquarters.

Argentina has been a member of the WTO since 1995, and it ratified the Trade Facilitation Agreement in January 2018. Argentina notifies technical regulations, but not proposed drafts, to the WTO Committee on Technical Barriers to Trade.  Argentina submitted itself to an OECD regulatory policy review in March 2018, which was released in March 2019.  The Fernandez administration has not actively pursued OECD accession.  Argentina participates in all 23 OECD committees.

Additionally, the Argentine Institute for Standards and Certifications (IRAM) is a member of international and regional standards bodies including the International Standardization Organization (ISO), the International Electrotechnical Commission (IEC), the Pan-American Commission on Technical Standards (COPAM), the MERCOSUR Association of Standardization (AMN), the International Certification Network (i-Qnet), the System of Conformity Assessment for Electrotechnical Equipment and Components (IECEE), and the Global Good Agricultural Practice network (GLOBALG.A.P.).

Argentina follows a Civil Law system. In 2014, the Argentine government passed a new Civil and Commercial Code that has been in effect since August 2015. The Civil and Commercial Code provides regulations for civil and commercial liability, including ownership of real and intangible property claims. The current judicial process is lengthy and suffers from significant backlogs. In the Argentine legal system, appeals may be brought from many rulings of the lower courts, including evidentiary decisions, not just final orders, which significantly slows all aspects of the system. The Justice Ministry reported in December 2018 that the expanded use of oral processes had reduced the duration of 68 percent of all civil matters to less than two years.

According to the Argentine constitution, the judiciary is a separate and equal branch of government. In practice, there are continuous instances of political interference in the judicial process. Companies have complained that courts lack transparency and reliability, and that the Argentine government has used the judicial system to pressure the private sector. Media revelations of judicial impropriety and corruption feed public perception and undermine confidence in the judiciary.

Many foreign investors prefer to rely on private or international arbitration when those options are available. Claims regarding labor practices are processed through a labor court, regulated by Law 18,345 and its subsequent amendments, and implementing regulations by Decree 106/98. Contracts often include clauses designating specific judicial or arbitral recourse for dispute settlement.

According to the Foreign Direct Investment Law 21,382 and Decree 1853/93, foreign investors may invest in Argentina without prior governmental approval, under the same conditions as investors domiciled within the country. Foreign investors are free to enter into mergers, acquisitions, greenfield investments, or joint ventures. Foreign firms may also participate in publicly financed research and development programs on a national treatment basis. Incoming foreign currency must be identified by the participating bank to the Central Bank of Argentina (www.bcra.gob.ar ).

All foreign and domestic commercial entities in Argentina are regulated by the Commercial Partnerships Law (Law No. 19,550) and the rules issued by the commercial regulatory agencies. Decree 27/2018 amended Law 19,550 to eliminate regulatory barriers and reduce bureaucratic burdens, expedite and simplify processes in the public domain, and deploy existing technological tools to better focus on transparency. Full text of the decree can be found at: http://servicios.infoleg.gob.ar/infolegInternet/anexos/305000-309999/305736/norma.htm.  All other laws and norms concerning commercial entities are established in the Argentina Civil and Commercial Code, which can be found at: http://servicios.infoleg.gob.ar/infolegInternet/anexos/235000-239999/235975/norma.htm 

Further information about Argentina’s investment policies can be found at the following websites:

Ministry of Productive Development (https://www.argentina.gob.ar/produccion )

Ministry of Economy (https://www.argentina.gob.ar/economia )

The Central Bank of the Argentine Republic (http://www.bcra.gob.ar/ )

The National Securities Exchange Commission (https://www.argentina.gob.ar/cnv )

The National Investment and Trade Promotion Agency (https://www.inversionycomercio.org.ar/ )

Investors can download Argentina’s investor guide through this link: https://www.investargentina.org.ar/ 

The National Commission for the Defense of Competition and the Secretariat of Domestic Trade, both within the Ministry of Productive Development, have enforcement authority of the Competition Law (Law 25,156). The law aims to promote a culture of competition in all sectors of the national economy. In May 2018, the Argentine Congress approved a new Defense of Competition Law (Law 27,442), which would have, among other things, established an independent competition agency and tribunal. The new law incorporates anti-competitive conduct regulations and a leniency program to facilitate cartel investigation. The full text of the law can be viewed at: http://servicios.infoleg.gob.ar/infolegInternet/verNorma.do?id=310241 . The Government of Argentina, however, has thus far not taken steps to establish the independent agency or tribunal. In February 2021, a bill introducing amendments to the Defense of Competition Law was passed by the Senate and is currently under study in the Lower House. The main changes are related to the removal of the “Clemency Program,” which encourages public reports of collusive and cartel activities, and the elimination of public hearings to appoint members of the Competition Office. The private sector has expressed concern over this bill, stating these changes are contrary to transparency standards embodied in the Law.

In September 2014, Argentina amended the 1974 National Supply Law to expand the ability of the government to regulate private enterprises by setting minimum and maximum prices and profit margins for goods and services at any stage of economic activity. Private companies may be subject to fines and temporary closure if the government determines they are not complying with the law. Although the law is still in effect, the U.S. Government has not received any reports of it being applied since December 2015.  However, the Fernandez administration has expressed its potential use when resisted compliance with price control programs, even if the program was supposed to be voluntary.

In March 2020, the Government of Argentina enacted the Supermarket Shelves Law (Law 27,545) that states that any single manufacturer and its associated brands cannot occupy more than 30 percent of a retailer’s shelf space devoted to any one product category.  The law’s proponents claim it will allow more space for domestic SME-produced products, encourage competition, and reduce shortages. U.S. companies have expressed concern over the pending regulations, seeking clarification about issues such as whether display space percentages would be considered per brand or per production company, as it could potentially affect a company’s production, distribution, and marketing business model.

Section 17 of the Argentine Constitution affirms the right of private property and states that any expropriation must be authorized by law and compensation must be provided. The United States-Argentina BIT states that investments shall not be expropriated or nationalized except for public purposes upon prompt payment of the fair market value in compensation.

Argentina has a history of expropriations under previous administrations. The most recent expropriation occurred in March 2015 when the Argentine Congress approved the nationalization of the train and railway system. A number of companies that were privatized during the 1990s under the Menem administration were renationalized under the Kirchner administrations. Additionally, in October 2008, Argentina nationalized its private pension funds, which amounted to approximately one-third of total GDP and transferred the funds to the government social security agency.

In May 2012, the Fernandez de Kirchner administration nationalized oil and gas company Repsol-YPF. Most of the litigation between the Government of Argentina and Repsol was settled in 2016.  An American hedge fund still holds a claim against YPF and is in litigation in U.S. courts.

ICSID Convention and New York Convention

Argentina is signatory to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitration Awards, which the country ratified in 1989. Argentina is also a party to the International Center for Settlement of Investment Disputes (ICSID) Convention since 1994.

There is neither specific domestic legislation providing for enforcement under the 1958 New York Convention nor legislation for the enforcement of awards under the ICSID Convention. Companies that seek recourse through Argentine courts may not simultaneously pursue recourse through international arbitration.

Investor-State Dispute Settlement

The Argentine government officially accepts the principle of international arbitration. The United States-Argentina BIT includes a chapter on Investor-State Dispute Settlement for U.S. investors.

In the past ten years, Argentina has been brought before the ICSID in 7 cases involving U.S. or other foreign investors. Argentina currently has seven pending arbitration cases, three of them filed against it by U.S. investors. For more information on the cases brought by U.S. claimants against Argentina, go to: https://icsid.worldbank.org/en/Pages/cases/AdvancedSearch.aspx #.

Local courts cannot enforce arbitral awards issued against the government based on the public policy clause. There is no history of extrajudicial action against foreign investors.

Argentina is a member of the United Nations Commission on International Trade Law (UNCITRAL) and the World Bank’s Multilateral Investment Guarantee Agency (MIGA).

Argentina is also a party to several bilateral and multilateral treaties and conventions for the enforcement and recognition of foreign judgments, which provide requirements for the enforcement of foreign judgments in Argentina, including:

Treaty of International Procedural Law, approved in the South American Congress of Private International Law held in Montevideo in 1898, ratified by Argentina by law No. 3,192.

Treaty of International Procedural Law, approved in the South American Congress of Private International Law held in Montevideo in 1939-1940, ratified by Dec. Ley 7771/56 (1956).

Panama Convention of 1975, CIDIP I: Inter-American Convention on International Commercial Arbitration, adopted within the Private International Law Conferences – Organization of American States, ratified by law No. 24,322 (1995).

Montevideo Convention of 1979, CIDIP II: Inter-American Convention on Extraterritorial Validity of Foreign Judgments and Arbitral Awards, adopted within the Private International Law Conferences – Organization of American States, ratified by law No. 22,921 (1983).

International Commercial Arbitration and Foreign Courts

Alternative dispute resolution (ADR) mechanisms can be stipulated in contracts. Argentina also has ADR mechanisms available such as the Center for Mediation and Arbitrage (CEMARC) of the Argentine Chamber of Trade. More information can be found at: http://www.intracen.org. 

Argentina does not have a specific law governing arbitration, but it has adopted a mediation law (Law 24.573/1995), which makes mediation mandatory prior to litigation. Some arbitration provisions are scattered throughout the Civil Code, the National Code of Civil and Commercial Procedure, the Commercial Code, and three other laws. The following methods of concluding an arbitration agreement are non-binding under Argentine law: electronic communication, fax, oral agreement, and conduct on the part of one party. Generally, all commercial matters are subject to arbitration. There are no legal restrictions on the identity and professional qualifications of arbitrators. Parties must be represented in arbitration proceedings in Argentina by attorneys who are licensed to practice locally. The grounds for annulment of arbitration awards are limited to substantial procedural violations, an ultra petita award (award outside the scope of the arbitration agreement), an award rendered after the agreed-upon time limit, and a public order violation that is not yet settled by jurisprudence when related to the merits of the award. On average, it takes around 21 weeks to enforce an arbitration award rendered in Argentina, from filing an application to a writ of execution attaching assets (assuming there is no appeal). It takes roughly 18 weeks to enforce a foreign award. The requirements for the enforcement of foreign judgments are set out in section 517 of the National Procedural Code.

No information is available as to whether the domestic courts frequently rule in cases in favor of state-owned enterprises (SOE) when SOEs are party to a dispute.

Argentina’s bankruptcy law was codified in 1995 in Law 24,522. The full text can be found at: http://www.infoleg.gov.ar/infolegInternet/anexos/25000-29999/25379/texact.htm .

Under the law, debtors are generally able to begin insolvency proceedings when they are no longer able to pay their debts as they mature. Debtors may file for both liquidation and reorganization. Creditors may file for insolvency of the debtor for liquidation only. The insolvency framework does not require approval by the creditors for the selection or appointment of the insolvency representative or for the sale of substantial assets of the debtor. The insolvency framework does not provide rights to the creditor to request information from the insolvency representative, but the creditor has the right to object to decisions by the debtor to accept or reject creditors’ claims. Bankruptcy is not criminalized; however, convictions for fraudulent bankruptcy can carry two to six years of prison time.

Financial institutions regulated by the Central Bank of Argentina (BCRA) publish monthly outstanding credit balances of their debtors; the BCRA National Center of Debtors (Central de Deudores) compiles and publishes this information. The database is available for use of financial institutions that comply with legal requirements concerning protection of personal data. The credit monitoring system only includes negative information, and the information remains on file through the person’s life. At least one local NGO that makes microcredit loans is working to make the payment history of these loans publicly accessible for the purpose of demonstrating credit history, including positive information, for those without access to bank accounts and who are outside of the Central Bank’s system. Equifax, which operates under the local name “Veraz” (or “truthfully”), also provides credit information to financial institutions and other clients, such as telecommunications service providers and other retailers that operate monthly billing or credit/layaway programs.

Government incentives do not make any distinction between foreign and domestic investors.

The Argentine government offers a number of investment promotion programs at the federal, provincial, and municipal levels to attract investment to specific economic sectors such as capital assets and infrastructure, innovation and technological development, and energy, with no discrimination between national or foreign-owned enterprises. Some of the investment promotion programs require investments within a specific region or locality, industry, or economic activity. Some programs offer refunds on Value-Added Tax (VAT) or other tax incentives for local production of capital goods. The Investment and International Trade Promotion Agency provides cost-free assessment and information to investors to facilitate operations in the country. Argentina’s investment promotion programs and regimes can be found at: https://www.inversionycomercio.org.ar/es/inversores , https://www.investargentina.org.ar/, and https://www.argentina.gob.ar/produccion .

The National Fund for the Development of Micro, Small, and Medium Enterprises provides low- cost credit to small and medium-sized enterprises for investment projects, labor, capital, and energy efficiency improvement with no distinction between national or foreign-owned enterprises. More information can be found at: https://www.argentina.gob.ar/produccion/financiamiento 

The Ministry of Productive Development supports employment training programs that are frequently free to the participants and do not differentiate based on nationality.

Argentina has two types of tax-exempt trading areas: Free Trade Zones (FTZ), which are located throughout the country, and the more comprehensive Special Customs Area (SCA), which covers all of Tierra del Fuego Province and is scheduled to expire at the end of 2023.

Argentine law defines a FTZ as a territory outside the “general customs area” (GCA, i.e., the rest of Argentina) where neither the inflows nor outflows of exported final merchandise are subject to tariffs, non-tariff barriers, or other taxes on goods. Goods produced within a FTZ generally cannot be shipped to the GCA unless they are capital goods not produced in the rest of the country. The labor, sanitary, ecological, safety, criminal, and financial regulations within FTZs are the same as those that prevail in the GCA. Foreign firms receive national treatment in FTZs.

Merchandise shipped from the GCA to a FTZ may receive export incentive benefits, if applicable, only after the goods are exported from the FTZ to a third country destination. Merchandise shipped from the GCA to a FTZ and later exported to another country is not exempt from export taxes. Any value added in a FTZ or re-export from a FTZ is exempt from export taxes. For more information on FTZ in Argentina see: http://www.afip.gob.ar/zonasFrancas/ .

Products manufactured in the SCA may enter the GCA free from taxes or tariffs. In addition, the government may enact special regulations that exempt products shipped through the SCA (but not manufactured therein) from all forms of taxation except excise taxes. The SCA program provides benefits for established companies that meet specific production and employment objectives.

The Argentine national government does not have local employment mandates, nor does it apply such schemes to senior management or boards of directors. However, certain provincial governments do require employers to hire a certain percentage of their workforce from the provincial population. There are no excessively onerous visa, residence, work permit, or similar requirements inhibiting mobility of foreign investors and their employees. Under Argentine law, conditions to invest are equal for national and foreign investors. As of March 2018, citizens of MERCOSUR countries can obtain legal residence within five months and at little cost, which grants permission to work. Argentina suspended its method for expediting this process in early 2018.

Argentina has local content requirements for specific sectors. Requirements are applicable to domestic and foreign investors equally. Argentine law establishes a national preference for local industry for most government procurement if the domestic supplier’s tender is no more than five to seven percent higher than the foreign tender. The amount by which the domestic bid may exceed a foreign bid depends on the size of the domestic company making the bid. In May 2018, Argentina issued Law 27,437, giving additional priority to Argentine small and medium-sized enterprises and, separately, requiring that foreign companies that win a tender must subcontract domestic companies to cover 20 percent of the value of the work. The preference applies to procurement by all government agencies, public utilities, and concessionaires.  There is similar legislation at the sub-national (provincial) level.

In November 2016, the government passed a public-private partnership (PPP) law (27,328) that regulates public-private contracts. The law lowered regulatory barriers to foreign investment in public infrastructure projects with the aim of attracting more foreign direct investment. Several projects under the PPP initiative have been canceled or put on hold due to an ongoing investigation on corruption in public works projects during the last administration. The PPP law contains a “Buy Argentina” clause that mandates at least 33 percent local content for every public project.

Argentina is not a signatory to the WTO Agreement on Government Procurement (GPA), but it became an observer to the GPA in February 1997.

In July 2016, the Ministry of Production and Labor and the Ministry of Energy and Mining issued Joint Resolutions 123 and 313, which allow companies to obtain tax benefits on purchases of solar or wind energy equipment for use in investment projects that incorporate at least 60 percent local content in their electromechanical installations.  In cases where local supply is insufficient to reach the 60 percent threshold, the threshold can be reduced to 30 percent.  The resolutions also provide tax exemptions for imports of capital and intermediate goods that are not locally produced for use in the investment projects.

In 2016, Argentina passed law 27,263, implemented by Resolution 599-E/2016, which provides tax credits to automotive manufacturers for the purchase of locally produced automotive parts and accessories incorporated into specific types of vehicles. The tax credits range from 4 percent to 15 percent of the value of the purchased parts.  The list of vehicle types included in the regime can be found here: http://servicios.infoleg.gob.ar/infolegInternet/anexos/260000-264999/263955/norma.htm . In 2018, Argentina issued Resolution 28/2018, simplifying the procedure for obtaining the tax credits. The resolution also establishes that if the national content drops below the minimum required by the resolution because of relative price changes due to exchange rate fluctuations, automotive manufacturers will not be considered non-compliant with the regime. However, the resolution sets forth that tax benefits will be suspended for the quarter when the drop was registered.

The Media Law, enacted in 2009 and amended in 2015, requires companies to produce advertising and publicity materials locally or to include 60 percent local content. The Media Law also establishes a 70 percent local production content requirement for companies with radio licenses. Additionally, the Media Law requires that 50 percent of the news and 30 percent of the music that is broadcast on the radio be of Argentine origin. In the case of private television operators, at least 60 percent of broadcast content must be of Argentine origin. Of that 60 percent, 30 percent must be local news and 10 to 30 percent must be local independent content.

Argentina establishes percentages of local content in the production process for manufacturers of mobile and cellular radio communication equipment operating in Tierra del Fuego province.  Resolution 66/2018 maintains the local content requirement for products such as technical manuals, packaging, and labeling. The percentage of local content required ranges from 10 percent to 100 percent depending on the process or item. In cases where local supply is insufficient to meet local content requirements, companies may apply for an exemption that is subject to review every six months. A detailed description of local content percentage requirements can be found at: http://servicios.infoleg.gob.ar/infolegInternet/verNorma.do;jsessionid=0CA1B74C2D7EC353E66F1CC6CFD8B41D?id=255494 .

There are no requirements for foreign IT providers to turn over source code and/or provide access to encryption, nor does the government prevent companies from freely transmitting customer or other business-related data outside the country’s territory.

Argentina does not have forced localization of content in technology or requirements of data storage in country.

There is no discrimination between domestic and foreign investors in investment incentives. There are no performance requirements. A complete guide of incentives for investors in Argentina can be found at: https://www.inversionycomercio.org.ar/es/inversores .

Secured interests in property, including mortgages, are recognized in Argentina. Such interests can be easily and effectively registered. They also can be readily bought and sold. Argentina manages a national registry of real estate ownership (Registro de la Propiedad Inmueble) at http://www.dnrpi.jus.gov.ar/ . No data is available on the percent of all land that does not have clear title. There are no specific regulations regarding land lease and acquisition of residential and commercial real estate by foreign investors. Law 26,737 (Regime for Protection of National Domain over Ownership, Possession or Tenure of Rural Land) establishes the restrictions of foreign ownership on rural and productive lands, including water bodies. Foreign ownership is also restricted on land located near borders.

Legal claims may be brought to evict persons unlawfully occupying real property, even if the property is unoccupied by the lawful owner. However, these legal proceedings can be quite lengthy, and until the legal proceedings are complete, evicting squatters is problematic. The title and actual conditions of real property interests under consideration should be carefully reviewed before acquisition.

Argentine Law 26.160 prevents the eviction and confiscation of land traditionally occupied by indigenous communities in Argentina or encumbered with an indigenous land claim. Indigenous land claims can be found in the land registry. Enforcement is carried out by the National Institute of Indigenous Affairs, under the Ministry of Justice and Human Rights.

The Government of Argentina adheres to some treaties and international agreements on intellectual property (IP) and belongs to the World Intellectual Property Organization and the World Trade Organization. The Argentine Congress ratified the Uruguay Round agreements, including the provisions on intellectual property, in Law 24425 in 1995.

The U.S. Trade Representative (USTR)’s 2021 Special 301 Report listed Argentina on the Priority Watch List. Trading partners on the Priority Watch List present the most significant concerns regarding inadequate or ineffective IP protection or enforcement or actions that otherwise limit market access for persons relying on IP protection. For a complete version of the 2021 Report, see: https://ustr.gov/sites/default/files/2020_Special_301_Report.pdf .

Argentina continues to present long-standing and well-known challenges to intellectual property (IP)-intensive industries, including those from the United States.  A key deficiency in the legal framework for patents is the unduly broad limitations on patent eligible subject matter.  Pursuant to a highly problematic 2012 Joint Resolution establishing guidelines for the examination of patents, Argentina rejects patent applications for categories of pharmaceutical inventions that are eligible for patentability in other jurisdictions, including in the United States.  Additionally, to be patentable, Argentina requires that processes for the manufacture of active compounds disclosed in a specification be reproducible and applicable on an industrial scale.  Stakeholders assert that Resolution 283/2015, introduced in September 2015, also limits the ability to patent biotechnological innovations based on living matter and natural substances.  These measures have interfered with the ability of companies investing in Argentina to protect their IP and may be inconsistent with international norms.

Another ongoing challenge to the innovative agricultural chemical and pharmaceutical sectors is inadequate protection against the unfair commercial use, as well as unauthorized disclosure, of undisclosed test or other data generated to obtain marketing approval for products in those sectors.  Argentina made progress on eliminating the patent application backlog, however, this did not include the backlog for pharmaceutical or biotechnology innovations. The number of patent examiners remains insufficient with retention and recruitment hampered by low public sector salaries. Argentina did not extend the Patent Prosecution Highway signed between the National Institute of Industrial Property’s (INPI) and the U.S. Patent and Trademark Office, which expired in March 2020.

Enforcement of IP rights in Argentina continues to be a challenge, and stakeholders report widespread unfair competition from sellers of counterfeit and pirated goods and services.  La Salada in Buenos Aires remains the largest counterfeit market in Latin America and is cited in USTR’s 2021 Review of Notorious Markets for Piracy and Counterfeiting.  Argentine police generally do not take ex officio actions, prosecutions can stall and languish in excessive formalities, and, when a criminal case does reach final judgment, criminal infringers rarely receive deterrent sentences. Hard goods counterfeiting and optical disc piracy are widespread, and online piracy continues to grow due to nearly nonexistent criminal enforcement against such piracy.  As a result, IP enforcement online in Argentina consists mainly of right holders trying to convince Argentine internet service providers to agree to take down specific infringing works, as well as attempting to seek injunctions in civil cases, both of which can be time-consuming and ineffective.  Rights holders also cite widespread use of unlicensed software by Argentine private enterprises and the government.

Argentina made limited progress in IP protection and enforcement in a year marked by high inflation, sovereign debt negotiations with the IMF, and political conflicts within the ruling coalition.  The pressing economic situation led to an increase of counterfeit products sales in informal markets once the confinement measures enacted during the COVID-19 pandemic were relaxed in the second semester of 2020. Online sales of counterfeit products, especially apparel and footwear spiked amidst the pandemic. The Argentine Confederation of Small and Medium-Sized Enterprises noted an increase of national production of counterfeit sportswear, while sales of counterfeit luxury goods such as handbags decreased. Flight and border crossing restrictions applied during the COVID-19 health emergency prevented purchases of counterfeit products from China, Paraguay, and Bolivia, but were removed by November 2021.

INPI began accepting electronic filing of patent, trademark, and industrial designs applications in 2018. During 2020, the agency successfully transitioned to an all-electronic filing system.  Argentina continued to improve procedures for trademarks, with INPI reducing the time for a trademark opposition from an average of 3.5 years to one year.  On trademarks, the law provides for a fast-track option that reduces the time to register a trademark to four months.

Argentina formally created the Federal Committee to Fight Against Contraband, Falsification of Trademarks, and Designations, formalizing the work on trademark counterfeiting under the National Anti-Piracy Initiative launched in 2017.  In November 2020, Argentina and the United States held a virtual bilateral meeting under the Innovation and Creativity Forum for Economic Development, part of the U.S.-Argentina Trade and Investment Framework Agreement, to continue discussions and collaboration on IP topics of mutual interest.  The United States intends to monitor all the outstanding issues for progress and urges Argentina to continue its efforts to create a more attractive environment for investment and innovation.

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 Argentine Constitution sets as a general principle that foreign investors have the same status and the same rights as local investors. Foreign investors have free access to domestic and international financing.

After a three-year recession (2018-2020), the economy rebounded with 10.3 percent growth in 2021. However, the government did not ease the capital controls introduced in September 2019 to slow the outflow of dollars. Central Bank capital controls prohibiting transfers and payments are likely in conflict with IMF Article VIII. The government has maintained trade restrictions, price controls, distortive taxes, and high spending. Unable to access international capital markets (despite restructuring private debt in 2020) and with a shallow domestic market, the government relied on Central Bank money printing to finance the deficit. The excessive liquidity resulted in high inflation (50.9 percent in 2021) and deteriorating social conditions, with the poverty rate exceeding 40 percent.

In August 2020, the government of Argentina formally notified the International Monetary Fund (IMF) of its intent to renegotiate $45 billion due to the Fund from the 2018 Stand-By Arrangement. On March 3, 2022, IMF Staff and Argentine authorities reached a staff-level agreement on the economic and financial policies required for an Extended Fund Facility (EFF) Arrangement. In broad terms, the key objectives of the new EFF include a reduction in the fiscal deficit and monetary financing, tackling inflation, and the accumulation of foreign reserves. The IMF Executive Board approved the EFF on March 25, after the Argentine National Congress approved the measure.

The Argentine Securities and Exchange Commission (CNV or Comisión Nacional de Valores) is the federal agency that regulates securities markets offerings. Securities and accounting standards are transparent and consistent with international norms. Foreign investors have access to a variety of options on the local market to obtain credit. Nevertheless, the domestic credit market is small – credit is 11 percent of GDP. Private sector credit gained some momentum in 2021, driven by the reopening of the economy after the pandemic and government support measures such as subsidized credit lines for businesses. Nevertheless, the stock of credit shrank in real terms as the nominal credit growth increased by 41 percent in 2021, below the inflation rate of 50.7 percent. The Buenos Aires Stock Exchange is the organization responsible for the operation of Argentina’s primary stock exchange, located in Buenos Aires city. The most important index of the Buenos Aires Stock Exchange is the MERVAL (Mercado de Valores).

U.S. banks, securities firms, and investment funds are well-represented in Argentina and are dynamic players in local capital markets. In 2003, the government began requiring foreign banks to disclose to the public the nature and extent to which their foreign parent banks guarantee their branches or subsidiaries in Argentina.

Argentina has a relatively sound banking sector based on diversified revenues, well-contained operating costs, and a high liquidity level. Argentina’s banking sector has been resilient in the face of a multi-year economic recession (2018-2020). Limited financial intermediation combined with high inflation and interventionist interest rate regulations (mainly for small businesses) dented bank profitability in 2021. Banks compensated for this by controlling expenses and increasing digitalization of the sector. Non-performing private sector loans constitute 4.4 percent of banks’ portfolios. During 2021, financial entities maintained adequate solvency indicators. The banking sector is well positioned due to macro and micro-prudential policies introduced since 2002 that have helped to reduce asset-liability mismatches. The sector is highly liquid and its exposure to the public sector is modest, while its provisions for bad debts are adequate.

Private banks have total assets of approximately ARS 8.4 trillion (USD $83.3 billion). Total financial system assets are approximately ARS 13.7 trillion (USD $135.7 billion). The Central Bank of Argentina acts as the country’s financial agent and is the main regulatory body for the banking system.

Foreign banks and branches can establish operations in Argentina. They are subject to the same regulation as local banks. Argentina’s Central Bank has many correspondent banking relationships, none of which are known to have been lost in the past three years.

In November 2020, the Central Bank launched a new payment system, “Transfers 3.0,” seeking to reduce the use of cash. This system will boost digital payments and further financial inclusion in Argentina, expanding the reach of instant transfers to build an open and universal digital payment ecosystem. The government has expressed support for the process of digitization of payments to improve efficiency, reduce costs, and safeguard financial stability.

The Central Bank has enacted a resolution recognizing cryptocurrencies and requiring that they comply with local banking and tax laws. No implementing regulations have been adopted. Block chain developers report that several companies in the financial services sector are exploring or considering using block chain-based programs externally and are using some such programs internally.

Foreign Exchange

Beginning in September 2019, the Argentine government and Central Bank issued a series of decrees and norms to extend or amend the government’s ability to regulate and restrict access to foreign exchange markets.

As of October 2019, the Central Bank (Notice A6815) limits cash withdrawals made abroad with local debit cards to foreign currency bank accounts owned by the client in Argentina. Pursuant to Notice A6823, cash advances made abroad using local credit cards are limited to a maximum of USD $50 per transaction.

As of September 2020, and pursuant to Notice A7106, Argentine individuals must limit purchases of foreign currency (or of goods and services denominated in foreign currency) to no more than USD $200 per month on a rolling monthly basis. Individuals must receive Central Bank approval to purchase foreign currency in excess of the $200 quota. Purchases of goods and services abroad with credit and debit cards issued by Argentine banks count against the USD $200 per month quota. Although no limit on credit or debit card purchases is imposed, if monthly expenditures surpass the USD $200 limit, the card owner will be prevented from purchasing foreign currency in Argentina for the number of months needed to cover the amount of excess spending. Also, the regulation prohibits individuals who receive government assistance and high-ranking federal government officials from purchasing foreign exchange.

Pursuant to Public Emergency Law 27,541, issued December 23, 2019, all dollar purchases and individual expenses incurred abroad, in person or online, including international online purchases from Argentina, paid with credit or with debit cards will be subject to a 30 percent tax. Pursuant to AFIP Resolution 4815 a 35 percent withholding tax in advance of the payment of income and/or wealth tax is also applied.

Non-Argentine residents are required to obtain prior Central Bank approval to purchase more than USD $100 per month, except for certain bilateral or international organizations, institutions and agencies, diplomatic representation, and foreign tribunals.

Companies and individuals need to obtain prior clearance from the Central Bank before transferring funds abroad. In the case of individuals, if transfers are made from their own foreign currency accounts in Argentina to their own accounts abroad, they do not need to obtain Central Bank approval.

Per Notice A6869 issued by the Central Bank in January 2020, companies will be able to repatriate dividends without Central Bank authorization equivalent to a maximum of 30 percent of new foreign direct investment made by the company in the country. To promote foreign direct investment the Central Bank announced in October 2020 (Notice A7123) that it will allow free access to the official foreign exchange market to repatriate investments as long as the capital contribution was transferred and sold in Argentine Pesos through the foreign exchange market as of October 2, 2020, and the repatriation takes place at least two years after the transfer and settlement of those funds.

Exporters of goods are required to transfer the proceeds from exports to Argentina and settle in pesos in the foreign currency market. Exporters must settle according to the following terms: exporters with affiliates (irrespective of the type of good exported) and exporters of certain goods (including cereals, seeds, minerals, and precious metals, among others) must convert their foreign currency proceeds to pesos within 15 days (or 30 days for some products) after the issuance of the permit for shipment; other exporters have 180 days to settle in pesos. Despite these deadlines, exporters must transfer the funds to Argentina and settle in pesos within five business days from the actual collection of funds. Argentine residents are required to transfer to Argentina and settle in pesos the proceeds from services exports rendered to non-Argentine residents that are paid in foreign currency either in Argentina or abroad, within five business days from collection of funds.

Payment of imports of goods and services from third parties and affiliates require Central Bank approval if the company needs to purchase foreign currency. Since May 2020, the Central Bank requires importers to submit an affidavit stating that the total amount of payments associated with the import of goods made during the year (including the payment that is being requested). The total amount of payments for importation of goods should also include the payments for amortizations of lines of credit and/or commercial guarantees.

In September 2020, the Central Bank limited companies’ ability to purchase foreign currency to cancel any external financial debt (including other intercompany debt) and dollar denominated local securities offerings. Companies were granted access to foreign currency for up to 40 percent of the principal amount coming due from October 15, 2020, to December 31, 2020. For the remaining 60 percent of the debt, companies had to file a refinancing plan with the Central Bank. In February 2021, the Central Bank extended the regulation through 2021, and in March 2022 extended it again to include maturities through December 31, 2022. Indebtedness with international organizations or their associated agencies or guaranteed by them and indebtedness granted by official credit agencies or guaranteed by them are exempted from this restriction.

The Central Bank (Notice A7001) prohibited access to the foreign exchange market to pay for external indebtedness, imports of goods and services, and saving purposes for individuals and companies that have made sales of securities with settlement in foreign currency or transfers of these to foreign depositary entities within the last 90 days. They also should not make any of these transactions for the following 90 days.

Pre-cancellation of debt coming due abroad in more than three business days requires Central Bank approval to purchase dollars.

Per Resolution 36,162 of October 2011, locally registered insurance companies are mandated to maintain all investments and cash equivalents in the country. The Central Bank limits banks’ dollar-denominated asset holdings to 5 percent of their net worth.

In December 2021, the Central Bank presented its monetary, financial, lending, and foreign exchange program. On monetary policy, the Central Bank committed to I) manage liquidity to prevent any imbalances that may directly or indirectly affect the disinflation process; II) set the path of the policy interest rate to obtain positive real returns on investments in domestic currency and preserve monetary and foreign exchange stability; and III) contribute to the development of the capital market and adjust minimum reserve requirements to strengthen the channel of monetary policy transmission. On foreign exchange, the Central Bank will maintain the gradual crawling peg of the exchange rate consistent with the pace of inflation. With the goal of strengthening international reserves, the Central Bank will manage capital control regulations to ensure monetary and foreign exchange stability. The credit policy objectives include encouraging financial intermediation and promoting the growth of the peso credit market to boost lending to micro, small- and medium-sized enterprises (MSMEs) and to the sectors most affected by the pandemic.

Remittance Policies

In response to the economic crisis in Argentina, the government introduced capital controls in September 2019 and tightened them in 2020.  Under these restrictions, companies in Argentina (including local affiliates of foreign parent companies) must obtain prior approval from the Central Bank to access the foreign exchange market to purchase foreign currency and to transfer funds abroad for the payment of dividends and profits.  In January 2020, the Central Bank amended the regime for the payment of dividends abroad to non-residents. The new regime allows companies to access the foreign exchange market to transfer profits and dividends abroad without prior authorization of the Central Bank, provided the following conditions are met:

(1) Profits and dividends are to be declared in closed and audited financial statements.

(2) The dividends in foreign currency should not exceed the dividends determined by the shareholders’ meeting in local currency.

(3) The total amount of dividends to be transferred cannot exceed 30 percent of the amount of new capital contributions made by non-residents into local companies since January 2020.

(4) The resident entity must be in compliance with filing the Central Bank Survey of External Assets and Liabilities.

The Argentine government does not maintain a Sovereign Wealth Fund.

There is an increasing awareness of corporate social responsibility (CSR) and responsible business conduct (RBC) among both producers and consumers in Argentina. RBC and CSR practices are welcomed by beneficiary communities throughout Argentina. There are many institutes that promote RBC and CSR in Argentina, the most prominent being the Argentine Institute for Business Social Responsibility (http://www.iarse.org/ ), which has been working in the country for 20 years and includes among its members many of the most important companies in Argentina.

Argentina is a member of the United Nation’s Global Compact. Established in April 2004, the Global Compact Network Argentina is a business-led network with a multi-stakeholder governing body elected for two-year terms by active participants. The network is supported by the United Nations Development Program (UNDP) Argentina in close collaboration with other UN Agencies. The Global Compact Network Argentina is the most important RBC/CSR initiative in the country with a presence in more than 20 provinces. More information on the initiative can be found at: http://pactoglobal.org.ar .

Foreign and local enterprises tend to follow generally accepted CSR/RBC principles. Argentina subscribed to the Declaration on the OECD Guidelines for Multinational Enterprises in April 1997.

Many provinces, such as Mendoza and Neuquén, have or are in the process of enacting a provincial CSR/RBC law. There have been many previously unsuccessful attempts to pass a CSR/RBC law. Distrust over the State’s role in private companies had been the main concern for legislators opposed to these bills.

In February 2019, the Argentine government joined the Extractive Industries Transparency Initiative (EITI).  Argentina published its first report in 2020 (https://eiti.org/document/argentina-2018-eiti-report ). Argentina´s next Validation against the 2019 EITI Standard started January 1, 2022.

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;
• U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises; and;
• Xinjiang Supply Chain Business Advisory

Department of the Treasury

• OFAC Recent Actions

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

Climate Issues

The Government of Argentina created its national climate strategy, the National Plan for Adaptation and Mitigation (PANyMCC), to implement its Nationally Determined Contribution (NDC). This plan calls for developing a long-term strategy under the Paris Agreement as well as delineating the revision, improvement, and monitoring of the Sector Action Plans for the main emissions sectors. Multiple laws exist to control water and air pollution and to protect natural ecosystems. Despite the existing strategy and monitoring framework, stakeholders note limited transparency around both climate-related and energy sector planning and policymaking.

Challenges in the business and investment climate impact the country’s attractiveness for developing renewable energy projects, despite the potential for both wind and solar power. The fossil fuel industry is strongly supported by the government through public subsidies, which impair the cost-competitiveness of renewable energy technologies.

Renewable energy development is still a focus for the government. Law 27.191 set a goal that 20 percent of the energy matrix needed to come from renewable sources by 2025, this was later updated in the energy sector’s action plan under PANyMCC to 25 percent by 2030. The 2021 updated NDC submitted at COP26 set a goal of 30 percent by 2030. Several tax benefits exist to support renewable energy projects through Law 27.191. No new projects have been approved since the previous administration through the RenovAr program, which offered IFC funding and World Bank guarantees. The RenovAr program has faced multiple hurdles such as increased capital costs, currency volatility, and the impact of capital controls. Given the current state of energy transmission infrastructure in the country, smaller scale projects for on-site energy consumption are more likely to succeed.

The Government of Argentina has historically focused on the transportation sector by encouraging the use of biofuels and electric vehicles. The country requires all gasoline to be a mixture between petroleum products and biofuels. In 2021, the Biofuels Regulatory Framework extended tax exemptions and benefits for biofuel producers but at the same time reduced the quantity of biofuels that are required to be used. The reduction in biofuel use is inconsistent with the climate change mitigation commitments Argentina has made.

While still not approved, the draft Law for the Promotion of Sustainable Mobility includes incentives and objectives to promote the use of technologies with less environmental impact for mobility. The proposed scheme would be temporary but offers benefits over 20 years for the production and importation of electric vehicles and parts.

There are regulatory requirements for labelling of products according to energy efficiency standards. Products including home construction supplies, vehicles, gas powered appliances, and domestic electronics are required to be labeled, some with minimum efficiency standards. Additionally, incandescent light bulbs are no longer permitted to be produced or imported into the country to encourage the use of more energy-efficient lighting sources. More information on labeling standards can be found here: https://www.argentina.gob.ar/economia/energia/eficiencia-energetica/etiquetado-en-eficiencia-energetica

Argentina’s legal system incorporates several measures to address public sector corruption. The foundational law is the 1999 Public Ethics Law (Law 25,188), the full text of which can be found at: http://servicios.infoleg.gob.ar/infolegInternet/verNorma.do?id=60847 . A March 2019 report by the OECD’s Directorate for Public Governance underscored, however, that the law is heterogeneously implemented across branches of the government and that the legislative branch has not designated an application authority, approved an implementing regulation, or specified sanctions. It also noted that Argentina has a regulation on lobbying, but that it only applies to the executive branch, and only requires officials to disclose meetings with lobbyists. With regards to political parties, the report noted anonymous campaign donations are banned, but 90 percent of all donations in Argentina are made in cash, making it impossible to identify donors. Furthermore, the existing regulations have insufficient controls and sanctions, and leave gaps with provincial regulations that could be exploited.

Within the executive branch, the government institutions tasked with combatting corruption include the Anti-Corruption Office (ACO), the National Auditor General, and the General Comptroller’s Office. Public officials are subject to financial disclosure laws, and the Ministry of Justice’s ACO is responsible for analyzing and investigating federal executive branch officials based on their financial disclosure forms—which require the disclosure of assets directly owned by immediate family members. The ACO is also responsible for investigating corruption within the federal executive branch or in matters involving federal funds, except for funds transferred to the provinces. While the ACO does not have authority to independently prosecute cases, it can refer cases to other agencies or serve as the plaintiff and request that a judge initiate a case.

Argentina enacted a new Corporate Criminal Liability Law in November 2017 following the advice of the OECD to comply with its Anti-Bribery Convention. The full text of Law 27,401 can be found at: http://servicios.infoleg.gob.ar/infolegInternet/anexos/295000-299999/296846/norma.htm  . The new law entered into force in early 2018. It extends anti-bribery criminal sanctions to corporations, whereas previously they only applied to individuals; expands the definition of prohibited conduct, including illegal enrichment of public officials; and allows Argentina to hold Argentines responsible for foreign bribery. Sanctions include fines and blacklisting from public contracts. Argentina also enacted an express prohibition on the tax deductibility of bribes.

Official corruption remains a serious challenge in Argentina. In its March 2017 report, the OECD expressed concern about Argentina’s enforcement of foreign bribery laws, inefficiencies in the judicial system, politicization, and perceived lack of independence at the Attorney General’s Office, and lack of training and awareness for judges and prosecutors. According to the World Bank’s worldwide governance indicators, corruption remains an area of concern in Argentina. In the latest Transparency International Corruption Perceptions Index (CPI), Argentina ranked 96 out of 180 countries in 2020, dropping 12 places compared to 2019. Allegations of corruption in provincial as well as federal courts remained frequent. Few Argentine companies have implemented anti-foreign bribery measures beyond limited codes of ethics.

In September 2016, Congress passed a law on public access to information. The law explicitly applies to all three branches of the federal government, the public justice offices, and entities such as businesses, political parties, universities, and trade associations that receive public funding. It requires these institutions to respond to citizen requests for public information within 15 days, with an additional 15-day extension available for “exceptional” circumstances. Sanctions apply for noncompliance. As mandated by the law, the executive branch created the Agency for Access to Public Information in 2017, an autonomous office that oversees access to information. In early 2016, the Argentine government reaffirmed its commitment to the Open Government Partnership (OGP), became a founding member of the Global Anti-Corruption Coalition, and reengaged the OECD Working Group on Bribery.

Argentina is a party to the Organization of American States’ Inter-American Convention against Corruption. It ratified in 2001 the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (Anti-Bribery Convention). Argentina also signed and ratified the UN Convention against Corruption (UNCAC) and participates in UNCAC’s Conference of State Parties. Argentina also participates in the Mechanism for Follow-up on the Implementation of the Inter-American Convention against Corruption (MESICIC).

Since Argentina became a party to the OECD Anti-Bribery Convention, allegations of Argentine individuals or companies bribing foreign officials have surfaced. A March 2017 report by the OECD Working Group on Bribery indicated there were 13 known foreign bribery allegations involving Argentine companies and individuals as of that date. According to the report, Argentine authorities investigated and closed some of the allegations and declined to investigate others. The authorities determined some allegations did not involve foreign bribery but rather other offenses. Several such allegations remained under investigation.

Resources to Report Corruption

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

Felix Pablo Crous
Director
Government of Argentina Anti-Corruption Office
Oficina Anticorrupción, 25 de Mayo 544, C1002ABL, Ciudad Autónoma de Buenos Aires.
Phone: +54 11 5300 4100
Email:  anticorrupcion@jus.gov.ar  and http://denuncias.anticorrupcion.gob.ar/ 

Contact at a “watchdog” organization:
Poder Ciudadano (Local Transparency International Affiliate)
Piedras 547, C1070AAK, Ciudad Autónoma de Buenos Aires
Phone: +54 11 4331 4925 ext. 225
Fax: +54 11 4331 4925
Email: comunicaciones@poderciudadano.org 
Website: http://www.poderciudadano.org 

Demonstrations are common in metropolitan Buenos Aires and in other major cities and rural areas. Nevertheless, political violence is not widely considered a hindrance to the investment climate in Argentina.

Protesters regularly block streets, highways, and major intersections, causing traffic jams and delaying travel. While demonstrations are usually non-violent, individuals sometimes seek confrontation with the police and vandalize private property. Groups occasionally protest in front of the U.S. Embassy or U.S.-affiliated businesses. In March 2022, thousands protested in front of Congress against a bill approving a new agreement with the IMF.

In December 2017, while Congress had called an extraordinary session to address the retirement system reforms, several demonstrations against the bill turned violent, causing structural damage to public and private property, injuries to 162 people (including 88 policemen), and arrests of 60 people. The demonstrations ultimately dissipated, and the government passed the bill.

Union disputes and politicized worker movements are common in CABA and the Provinces. In 2019 and early 2020, foreign-owned diamond mining companies in Neuquén were targeted by work stoppages and insider attacks in failed attempts to intimidate and force employers to increase salaries and benefits. These protesters were seemingly allowed to act without fear of response from local police forces, even after direct requests for assistance had been made. The companies believe the unions and protesters feel emboldened by the government’s stance towards Western companies and were forced to shut down operations for weeks in December 2019 and January 2020, in fear of the safety of their personnel at the local headquarters.

Argentine workers are among the most highly educated and skilled in Latin America. Foreign investors often cite Argentina’s skilled workforce as a key factor in their decision to invest in Argentina. Argentina has relatively high social security, health, and other labor taxes, however, high labor costs are among foreign investors’ most often cited operational challenges. The unemployment rate dropped to 8.6 percent at the end of 2021, according to official statistics. The government estimated unemployment for workers below 29 years old as more than double the national rate. Exacerbated by the COVID-19 pandemic, analysts estimate informality that it stands between 20 to 40 percent.

During 2020, the Argentine government implemented measures to alleviate the impact of the COVID-19 pandemic on the economy and employment. The government introduced measures to stimulate the economy and employment through public works and price limits; to protect workers in the workplace by promoting telework and offering leave for workers; and to support jobs and worker income by prohibiting employers from terminating employment. The government also facilitated social dialogue between the private sector and unions. The government has postponed implementation of Argentina’s ambitious Teleworking Contracts Regime, Law 27555, passed by Congress on July 30, 2020, and ratified by President Fernandez on August 14, 2020. The law entered into force on April 1, 2021. This law provides the legal framework for teleworking in employment settings that allow it.

Labor laws are comparatively protective of workers in Argentina, and investors cite labor-related litigation as an important factor increasing labor costs in Argentina. For example, one of the first measures passed by President Fernandez after he took office was Decree 34/2019 which established that employees dismissed without cause have the right to double the legal severance payment, the measure was extended until December 31, 2021, through Decree 39/2021. There are no special laws or exemptions from regular labor laws in the Foreign Trade Zones. Organized labor plays an important role in labor-management relations and in Argentine politics. Under Argentine law, the Ministry of Labor recognizes one union per sector per geographic unit (e.g., nationwide, a single province, or a major city) with the right to negotiate a collective bargaining agreement for that sector and geographic area. Roughly 40 percent of Argentina’s formal workforce is unionized. The Ministry of Labor ratifies collective bargaining agreements. Collective bargaining agreements cover workers in a given sector and geographic area whether they are union members or not, so roughly 70 percent of the workforce was covered by an agreement. While negotiations between unions and industry are generally independent, the Ministry of Labor often serves as a mediator. Argentine law also offers recourse to mediation and arbitration of labor disputes.

During 2021, the Ministry of Labor registered 855 labor and collective bargaining agreements. These agreements covered approximately 5.4 million workers.

Tensions between management and unions occur. Many managers of foreign companies say they have good relations with their unions. Others say the challenges posed by strong unions can hinder further investment by their international headquarters. Depending on how sectors are defined, some activities such as oil and gas production or aviation involve multiple unions, which can lead to inter-union power disputes that can impede the companies’ operations.

The Fernandez government does not intend to pursue a broad labor reform bill, preferring instead to allow firms and workers to negotiate any adjustments to labor conditions through the collective bargaining process. The Ministry of Labor has indicated interest in proposing a “gig economy” bill (ley de plataformas) that would extend basic labor rights to, e.g., delivery workers coordinated through information technology applications. Labor-related demonstrations in Argentina occurred periodically in 2021. Reasons for strikes include job losses, high taxes, loss of purchasing power, and wage negotiations. Labor demonstrations may involve tens of thousands of protestors. Past demonstrations have essentially closed sections of a city for a few hours or impeded traffic.

The Ministry of Labor has hotlines and an online website to report labor abuses, including child labor, forced labor, and labor trafficking. The Superintendent of Labor Risk (Superintendencia de Riesgos del Trabajo) has oversight of health and safety standards. Unions also play a key role in monitoring labor conditions, reporting abuses and filing complaints with the authorities. Argentina has a Service of Mandatory Labor Conciliation (SECLO), which falls within the Ministry of Labor. Provincial governments and the city government of Buenos Aires are also responsible for labor law enforcement.

The minimum age for employment is 16. Children between the ages of 16 and 18 may work in a limited number of job categories and for limited hours if they have completed compulsory schooling, which normally ends at age 18. The law requires employers to provide adequate care for workers’ children during work hours to discourage child labor. The Department of Labor’s 2020 Worst Form of Child Labor for Argentina can be accessed here: https://www.dol.gov/agencies/ilab/resources/reports/child-labor/argentina 

The Department of State’s 2020 Human Rights Report for Argentina can be accessed here:

https://www.state.gov/reports/2020-country-reports-on-human-rights-practices/argentina/

Argentine law prohibits discrimination on the grounds of sex, race, nationality, religion, political opinion, union affiliation, or age. The law also prohibits employers, either during recruitment or time of employment, from asking about a worker’s political, religious, labor, and cultural views or sexual orientation. These national anti-discrimination laws also apply to labor relations and other social relations.

Argentina has been a member of the International Labor Organization since 1919.

* Source for Host Country Data: Not available

Economic Section
U.S. Embassy Buenos Aires
Avenida Colombia 4300
(C1425GMN)
Buenos Aires, Argentina
+54-11-5777-474
ECONBA@state.gov

Brazil was the world’s seventh-largest destination for foreign direct investment (FDI) in 2019, with inflows of $58 billion, according to the United Nations Conference on Trade and Development (UNCTAD). The GoB actively encourages FDI – particularly in the automobile, renewable energy, life sciences, oil and gas, mining, and transportation infrastructure sectors – to introduce greater innovation into Brazil’s economy and to generate economic growth. GoB investment incentives include tax exemptions and low-cost financing with no distinction made between domestic and foreign investors in most sectors. Foreign investment is restricted in the health, mass media, telecommunications, aerospace, rural property, maritime, and insurance sectors.

The Brazilian Trade and Investment Promotion Agency (APEX-Brasil) plays a leading role in attracting FDI to Brazil by working to identify business opportunities, promoting strategic events, and lending support to foreign investors willing to allocate resources to Brazil. APEX-Brasil is not a “one-stop shop” for foreign investors, but the agency can assist in all steps of the investor’s decision-making process, to include identifying and contacting potential industry segments, sector and market analyses, and general guidelines on legal and fiscal issues. Their services are free of charge. The website for APEX-Brasil is: http://www.apexbrasil.com.br/en . 

In 2016, the Ministry of Economy created the Direct Investments Ombudsman (OID) at the Board of Foreign Trade and Investments (CAMEX), to provide assistance to foreign investors through a single body for issues related to FDI in Brazil. This structure aims to help and eventually speed up foreign investments in Brazil, providing foreign and national investors with a simpler process for establishing new businesses and implementing additional investments in their current companies. Since 2019, the OID has acted as a “single window” of the Brazilian government for FDI. It supports and guides investors in their requests, recommending solutions to their complaints (Policy Advocacy) as well as proposing improvements to the legislation or administrative procedures to public agencies whenever necessary. The OID is responsible for receiving requests and inquiries on matters related to foreign investments, to be answered together with government agencies and entities (federal, state and municipal) involved in each case (Focal Points Network). This new structure provides a centralized support system to foreign investors, and must respond in a timely manner to investors’ requests.

A 1995 constitutional amendment (EC 6/1995) eliminated distinctions between foreign and local capital, ending favorable treatment (i.e. tax incentives, preference for winning bids) for companies using only local capital. However, constitutional law restricts foreign investment in healthcare (Law 8080/1990, altered by 13097/2015), mass media (Law 10610/2002), telecommunications (Law 12485/2011), aerospace (Law 7565/1986 a, Decree 6834/2009, updated by Law 12970/2014, Law 13133/2015, and Law 13319/2016), rural property (Law 5709/1971), maritime (Law 9432/1997, Decree 2256/1997), and insurance (Law 11371/2006).

Brazil does not have a national security-based foreign investment screening process. Foreign investors in Brazil must electronically register their investment with the Central Bank of Brazil (BCB) within 30 days of the inflow of resources to Brazil. In cases of investments involving royalties and technology transfer, investors must register with Brazil’s patent office, the National Institute of Industrial Property (INPI). Since the approval of the Doing Business Law in 2021, companies are no longer required to have an administrator residing in Brazil, but they must appoint a local proxy attorney to receive legal notifications. Portfolio investors must have a Brazilian financial administrator and register with the Brazilian Securities Exchange Commission (CVM). Brazil does not have an investment screening mechanism based on national security interests. A bill was proposed in the Chamber of Deputies in 2020 (PL 2491) to change the parameters under which to review foreign investments could be reviewed, but the bill has not yet been analyzed by the necessary commissions.

To enter Brazil’s insurance and reinsurance market, U.S. companies must establish a subsidiary, enter a joint venture, acquire a local firm, or enter a partnership with a local company. The BCB reviews banking license applications on a case-by-case basis. Foreign interests own or control 20 of the top 50 banks in Brazil, but Santander is the only major wholly foreign-owned retail bank.

Since June 2019, foreign investors may own 100 percent of capital in Brazilian airline companies.

While 2015 and 2017 legislative and regulatory changes relaxed some restrictions on insurance and reinsurance, rules on preferential offers to local reinsurers remain unchanged. Foreign reinsurance firms must have a representational office in Brazil to qualify as an admitted reinsurer. Insurance and reinsurance companies must maintain an active registration with Brazil’s insurance regulator, the Superintendence of Private Insurance (SUSEP), and maintain a solvency classification issued by a risk classification agency equal to Standard & Poor’s or Fitch ratings of at least BBB-.

Foreign ownership of cable TV companies is allowed, and telecom companies may offer television packages with their service. Content quotas require every channel to air at least three and a half hours per week of Brazilian programming during primetime. Additionally, one-third of all channels included in any TV package must be Brazilian.

The National Land Reform and Settlement Institute administers the purchase and lease of Brazilian agricultural land by foreigners. Under the applicable rules, the area of agricultural land bought or leased by foreigners cannot account for more than 25 percent of the overall land area in a given municipal district. Additionally, no more than 10 percent of agricultural land in any given municipal district may be owned or leased by foreign nationals from the same country. The law also states that prior consent is needed for purchase of land in areas considered indispensable to national security and for land along the border. The rules also make it necessary to obtain congressional approval before large plots of agricultural land can be purchased by foreign nationals, foreign companies, or Brazilian companies with majority foreign shareholding. In December 2020, the Senate approved a bill (PL 2963/2019; source: https://www25.senado.leg.br/web/atividade/materias/-/materia/136853 ) to ease restrictions on foreign land ownership and the Chamber of Deputies began to deliberate on the bill; however, the bill was shelved with no plans to advance it further after President Bolsonaro expressed concerns regarding the legislation.

Brazil is not yet a signatory to the World Trade Organization (WTO) Agreement on Government Procurement (GPA), but submitted its application for accession in May 2020. In February 2021, Brazil formalized its initial offer to start negotiations.  The submission establishes a series of thresholds above which foreign sellers will be allowed to bid for procurements. Such thresholds vary for different procuring entities and types of procurements. The proposal also includes procurements by some states and municipalities (with restrictions) as well as state-owned enterprises, but it excludes certain sensitive categories, such as financial services, strategic health products, and specific information technologies. Brazil’s submission is currently under review with GPA members.

By statute, a Brazilian state enterprise may subcontract services to a foreign firm only if domestic expertise is unavailable. Additionally, U.S. and other foreign firms may only bid to provide technical services when there are no qualified Brazilian firms. U.S. companies need to enter into partnerships with local firms or have operations in Brazil in order to be eligible for “margins of preference” offered to domestic firms participating in Brazil’s public sector procurement to help these firms win government tenders. Nevertheless, foreign companies are often successful in obtaining subcontracting opportunities with large Brazilian firms that win government contracts, and since October 2020 foreign companies are allowed to participate in bids without the need for an in-country corporate presence (although establishing such a presence is mandatory if the bid is successful). A revised Government Procurement Protocol of the trade bloc Mercosul (Mercosur in Spanish) signed in 2017 would entitle member nations Brazil, Argentina, Paraguay, and Uruguay to non-discriminatory treatment of government-procured goods, services, and public works originating from each other’s suppliers and providers. However, none of the bloc’s members have ratified the protocol, so it has not entered into force. Despite the restrictions within Mercosul, in January 2022 Brazil and Chile entered into an agreement which includes government procurement.

The Organization for Economic Co-operation and Development’s (OECD) December 2021 Economic Forecast Summary of Brazil summarized that with the COVID-19 vaccination campaign accelerating throughout the year, economic activity underpinned by reduced private consumption and investment restarted as restrictions were lifted, and exports benefited from the global recovery, the robust demand for commodities, and a weak exchange rate. However, supply bottlenecks, lower purchasing power, higher interest rates, and policy uncertainty have slowed the pace of recovery. The labor market is experiencing a lag in recovering from the pandemic, and by the end of 2021 unemployment remained above pre-pandemic levels. The residual effect of the government’s significant fiscal stimulus spending in 2020 to reinvigorate the economy contributed to inflationary pressure, further compounded by constrained global supply chains pushing prices up. In response, the COPOM chose to incrementally increase its benchmark SELIC rate from 2 percent in March 2021 to 11.75 percent in March 2022. The COPOM announced that it would continue tightening its monetary policy in an effort to curb inflation and anchor expectations. Prospects for economic growth are weak for 2022 and 2023. The OECD recommended that Brazil strengthen and adhere to its fiscal rules to increase market confidence in establishing sustainable finances and exercising more efficient public spending to create fiscal space for growth-enhancing policies, along with developing a more inclusive social protection program.

The IMF’s 2021 Country Report No. 2021/217 (published in September 2021) for Brazil highlighted that its economic performance for the year had been better than expected, partly due to the government’s fiscal response to the pandemic which propelled the economy back to pre-pandemic levels for most sectors. In addition, the IMF noted a favorable economic momentum supported by booming trade and robust private sector credit growth. The IMF assessed that currency depreciation and a surge in commodity prices had led to headline inflation, and that expectations remained negative. The report noted Brazil’s lagging labor market, especially among youths, women, and Afro-Brazilians. The IMF also expressed concerns that emergency cash transfers (which expired in December 2021) were only a short-term solution, and recommended addressing poverty and inequality by strengthening a more permanent social safety net. The IMF concluded that near-term fiscal risks were low, but the high level of public debt continued to pose a medium-term risk. Restoring high and sustained growth, increasing employment, raising productivity, improving living standards, and reducing vulnerabilities would require longer-term policy efforts to eliminate bottlenecks and foster private sector-led investment.

The WTO’s 2017 Trade Policy Review of Brazil noted the country’s open stance towards foreign investment, but also pointed to the many sector-specific limitations (see above). The three reports listed below, with links to the reports, highlight the uncertainty regarding reform plans as the most significant political risk to the economy.

1. OECD Report:
2. IMF Report:
3. WTO Report:

A company must register with the National Revenue Service (Receita Federal) to obtain a business license and be placed on the National Registry of Legal Entities (CNPJ). Brazil’s Export Promotion and Investment Agency (APEX) has a mandate to facilitate foreign investment in Brazil. The agency’s services are available to all investors, foreign and domestic. Foreign companies interested in investing in Brazil have access to many benefits and tax incentives granted by the Brazilian government at the municipal, state, and federal levels. Most incentives target specific sectors, amounts invested, and job generation. Brazil’s business registration website can be found at: https://www.gov.br/pt-br/servicos/inscrever-ou-atualizar-cadastro-nacional-de-pessoas-juridicas  .

Brazil enacted its “Doing Business” law, which entered into force on August 26, 2021. The law simplified the process to open a business, sought to facilitate foreign trade by eliminating redundancy as well as further automating its trade processes, and expand the powers of minority shareholders in private companies.

Adopted in September 2019, the Economic Freedom Law 13.874 established the Economic Freedom Declaration of Rights and provides for free market guarantees. The law includes several provisions to simplify regulations and establish norms for the protection of free enterprise and free exercise of economic activity.

On August 20, 2021, the Brazilian government included the Foreign Trade Secretariat (SECEX) in the Brazilian Authorized Economic Operator Program (Programa OEA), run by Receita Federal (Internal Federal Revenue service), allowing Government of Brazil-designated OEA certified operators to maintain a low-level risk to achieve benefits in their foreign trade operations related to drawback suspension and exemption regimes.

Through the digital transformation initiative in Brazil, foreign companies can open branches via the internet. Since 2019, it has been easier for foreign businesspeople to request authorization from the Brazilian federal government. After filling out the registration, creating an account, and sending the necessary documentation, business entities can make the authorization request on the Brazilian government’s online portal through a legal representative. The electronic documents will then be analyzed by the Brazilian National Department of Business Registration and Integration (DREI) team. DREI will inform the applicant of any missing documentation via the portal and e-mail and give a 60-day period for the applicant to submit any additional information. The legal representative of the foreign company, or another third party who holds a power of attorney, may request registration through this link: https://acesso.gov.br/acesso/#/primeiro-acesso?clientDetails=eyJjbGllbnRVcmkiOiJodHRwczpcL1wvYWNlc3NvLmdvdi5iciIsImNsaWVudE5hbWUiOiJQb3J0YWwgZ292LmJyIiwiY2xpZW50VmVyaWZpZWRVc2VyIjp0cnVlfQ%3D%3D    

The regulation of foreign companies opening businesses in Brazil is governed by article 1,134 of the Brazilian Civil Code and article 1 of DREI Normative Instruction 77/2020. English-language general guidelines to open a foreign company in Brazil are not yet available, but the Portuguese version is available at the following link: https://www.gov.br/economia/pt-br/assuntos/drei/empresas-estrangeiras  .

For foreign companies that will be a partner or shareholder of a Brazilian national company, the governing regulation is DREI Normative Instruction 81/2020 (https://www.in.gov.br/en/web/dou/-/instrucao-normativa-n-81-de-10-de-junho-de-2020-261499054 ). The contact information of the DREI is drei@economia.gov.br and +55 (61) 2020-2302.

References:

1. provides investment measures, laws and treaties enacted by selected countries.
2. provides links to business registration sites worldwide.

Brazil does not restrict domestic investors from investing abroad. APEX-Brasil supports Brazilian companies’ efforts to invest abroad under its “internationalization program”: http://www.apexbrasil.com.br/como-a-apex-brasil-pode-ajudar-na-internacionalizacao-de-sua-empresa  . APEX-Brasil frequently highlights the United States as a worthwhile destination for outbound investment. APEX-Brasil and SelectUSA (U.S. Department of Commerce) signed a memorandum of cooperation in February 2014 to promote bilateral investment.

Brazil incentivizes outward investment. APEX-Brasil organizes several initiatives aimed at promoting Brazilian investments abroad. The agency´s efforts include trade missions, business round tables, promoting the participation of Brazilian companies in major international trade fairs, and arranging technical visits for foreign buyers to Brazil as well as facilitating travel for decision-makers seeking to learn about the Brazilian market and performing other commercial activities designed to strengthen the country’s branding abroad.

The main sectors of Brazilian investments abroad are financial services and assets (totaling 62.9 percent of total investments abroad); oil and gas extraction (12 percent); and mineral metal extraction (6.5 percent). Including all sectors, Brazilian investments abroad totaled $448 billion in 2020. The regions that received the largest share of Brazilian outward investments are the Caribbean (43.3 percent), concentrated in the Cayman Islands, British Virgin Islands and Bahamas, and Europe (37.9 percent), primarily the Netherlands and Luxembourg.

Regulations on investments abroad are outlined in BCB Ordinance 3,689/2013 (foreign capital in Brazil and Brazilian capital abroad): https://www.bcb.gov.br/pre/normativos/busca/downloadNormativo.asp?arquivo=/Lists/Normativos/Attachments/48812/Circ_3689_v1_O.pdf

Sales of cross-border mutual funds are only allowed to certain categories of investors, not to the general public. In 2020, international financial services companies active in Brazil submitted a proposal to Brazilian regulators to allow opening these mutual funds to the general public, and the Brazilian Securities and Exchange Commission is expected to approve their recommendation by June 2022. Discussions with regulators about increasing the share percentages that pension funds and insurers can invest abroad (currently 10 percent for pension funds, 20 percent for insurers, and 40 percent for qualified investors) are ongoing, along with discussions about tax deferral mechanisms to incentivize Brazilian investment abroad.

According to the World Bank, it takes approximately 17 days to start a business in Brazil. Brazil is seeking to streamline the process and decrease the amount of time it takes to open a small- or medium-sized enterprise (SME) to only five days through its RedeSimples Program. Similarly, the government has reduced regulatory compliance burdens for SMEs through the continued use of the SIMPLES program, which simplifies the collection of up to eight federal, state, and municipal-level taxes into one single payment. The Doing Business law (14.195/2021) included provisions to streamline the process, such as unifying federal, state and municipal registrations and eliminating requirements such as address analysis and pre-checking business names.

In 2020, the World Bank noted that Brazil’s lowest-ranked component in its Ease of Doing Business score was the annual administrative burden for a medium-sized business to comply with Brazilian tax codes with an average of 1,501 hours per year, a significant improvement from 2019’s 1,958 hour average but still much higher than the 160.7 hour average of OECD high-income countries. The total tax rate for a medium-sized business in Brazil is 65.1 percent of profits, compared to the average of 40.1 percent in OECD high-income countries. Business managers often complain of not being able to understand complex and sometimes contradictory tax regulations, despite having large local tax and accounting departments in their companies.

Tax regulations, while burdensome and numerous, do not generally differentiate between foreign and domestic firms. However, some investors complain that in certain instances the processing of rebates for exported goods of the value-added tax collected by individual states (ICMS) favors local companies. Exporters in many states report difficulty receiving their ICMS rebates when their goods are exported. Taxes on commercial and financial transactions are particularly burdensome, and businesses complain that these taxes hinder the international competitiveness of Brazilian-made products.

Of Brazil’s ten federal regulatory agencies, the most prominent include:

1. ANVISA, the Brazilian counterpart to the U.S. Food and Drug Administration, which has regulatory authority over the production and marketing of food, drugs, and medical devices
2. ANATEL, the country’s telecommunications regulatory agency, which handles telecommunications as well as the licensing and assigning of radio spectrum bandwidth (the Brazilian FCC counterpart)
3. ANP, the National Petroleum Agency, which regulates oil and gas contracts and oversees auctions for oil and natural gas exploration and production
4. ANAC, Brazil’s civil aviation agency
5. IBAMA, Brazil’s environmental licensing and enforcement agency
6. ANEEL, Brazil’s electricity regulator that regulates Brazil’s power sector and oversees auctions for electricity transmission, generation, and distribution contracts

In addition to these federal regulatory agencies, Brazil has dozens of state- and municipal-level regulatory agencies.

The United States and Brazil conduct regular discussions on customs and trade facilitation, good regulatory practices, standards and conformity assessment, digital issues, and intellectual property protection. Discussions in all these areas occurred during the 19th plenary of the Commercial Dialogue which took place virtually in October 2021, and continue through ongoing regular exchanges at the working level between the U.S. Department of Commerce, Brazil’s Ministry of Economy, and other agencies and regulators throughout the year.

Regulatory agencies complete Regulatory Impact Analyses (RIAs) on a voluntary basis. The Brazilian congress passed Law 13.848 in June 2019 on Governance and Accountability (PLS 52/2013 in the Senate, and PL 6621/2016 in the Chamber). Among other provisions, the law makes RIAs mandatory for regulations that affect “the general interest.”

The Chamber of Deputies, the Federal Senate, and the Office of the Presidency maintain websites providing public access to both approved and proposed federal legislation. Brazil is seeking to improve its public comment and stakeholder input process. In 2004, the GoB opened an online “Transparency Portal” with data on funds transferred to and from federal, state, and city governments, as well as to and from foreign countries. It also includes information on civil servant salaries.

In December 2021, Brazil’s Securities and Exchange Commision (CMV) issued Resolution 59/2021, establishing the first transparency mechanism for environmental, social, and corporate governance (ESG) practices in the country. The goal of the change was to provide more comprehensive information to potential investors, therefore allowing the market environment to drive changes in business behavior. According to the resolution, starting in January 2023, listed companies will be required to inform the CVM whether they disclose information on ESG indicators and provide details on their reports, such as existence of independent audits, which indicators were used, and if UN Sustainable Development Goals (SDGs) have been considered. The new requirement will also include questions regarding the companies’ consideration of the Task Force on Climate Change-Related Financial Disclosures or other recognized entities’ recommendations, the existence of a gas emission inventory, and the role of management bodies in assessing climate-related risks. Regarding diversity issues, companies will be required to disclose information showing the diversity of the body of administrators and employees as well as salary disparities between executives and staff.

In 2022, the Department of State concluded in its annual 2021 Fiscal Transparency Report that Brazil had met minimum fiscal transparency requirements. The International Budget Partnership’s Open Budget Index ranked Brazil slightly ahead of the United States in terms of budget transparency in its most recent (2019) index. The Brazilian government demonstrates adequate fiscal transparency in managing its federal accounts, although there is room for improvement in terms of completeness of federal budget documentation. Brazil’s budget documents are publicly available, widely accessible, and sufficiently detailed. They provide a relatively full picture of the GoB’s planned expenditures and revenue streams. The information in publicly available budget documents is considered credible and reasonably accurate.

Brazil is a member of Mercosul – a South American trade bloc whose full members include Argentina, Paraguay, and Uruguay. Brazil routinely implements Mercosul common regulations.

Brazil is a member of the WTO and the government regularly notifies draft technical regulations, such as potential agricultural trade barriers, to the WTO Committee on Technical Barriers to Trade (TBT).

Brazil has a civil legal system with state and federal courts. Investors can seek to enforce contracts through the court system or via mediation, although both processes can be lengthy. The Brazilian Superior Court of Justice (STJ) must accept foreign contract enforcement rulings for the rulings to be considered valid in Brazil. Among other considerations, the foreign judgment must not contradict any prior decisions by a Brazilian court in the same dispute. The Brazilian Civil Code regulates commercial disputes, although commercial cases involving maritime law follow an older Commercial Code which has been otherwise largely superseded. Federal judges hear most disputes in which one of the parties is the Brazilian State, and also, rule on lawsuits between a foreign state or international organization and a municipality or a person residing in Brazil.

The judicial system is generally independent. The Supreme Federal Court (STF), charged with constitutional cases, frequently rules on politically sensitive issues. State court judges and federal level judges below the STF are career officials selected through a meritocratic examination process. The judicial system is backlogged, and disputes or trials frequently take several years to arrive at a final resolution, including all available appeals. Regulations and enforcement actions can be litigated in the court system, which contains mechanisms for appeal depending upon the level at which the case is filed. The STF is the ultimate court of appeal on constitutional grounds; the STJ is the ultimate court of appeal for cases not involving constitutional issues.

In 2019, Brazil established a “one-stop shop” for international investors. The one-stop shop, the Direct Investments Ombudsman (DIO), is a ‘single window’ for investors provided by the Executive Secretariat of CAMEX. It is responsible for receiving requests and inquiries about investments, to be answered jointly with the public agency responsible for the matter (at the federal, state and municipal levels) involved in each case (the Network of Focal Points). This new structure allows for supporting the investor via a single governmental body in charge of responding to investor requests within a short time. Private investors have noted the single window is better than the previous system, but does not yet provide all the services of a true “one-stop shop” to facilitate international investment. The DIO’s website in English is: http://oid.economia.gov.br/en/menus/8  

The Administrative Council for Economic Defense (CADE), which falls under the purview of the Ministry of Justice, is responsible for enforcing competition laws, consumer protection, and carrying out regulatory reviews of proposed mergers and acquisitions. CADE was reorganized in 2011 through Law 12529, combining the antitrust functions of the Ministry of Justice and the Ministry of Finance. The law brought Brazil in line with U.S. and European merger review practices and allows CADE to perform pre-merger reviews, in contrast to the prior legal framework that directed the government to review mergers after they had already been completed. In October 2012, CADE performed Brazil’s first pre-merger review.

In 2021, CADE conducted 611 total formal investigations. It approved 165 merger and/or acquisition requests and did not reject any requests.

Article 5 of the Brazilian Constitution assures property rights of both Brazilians and foreigners that own property in Brazil. The Constitution does not address nationalization or expropriation. Decree-Law 3365 allows the government to exercise eminent domain under certain criteria that include, but are not limited to, national security, public transportation, safety, health, and urbanization projects. In cases of eminent domain, the government compensates owners at fair market value.

There are no signs that the current federal government is contemplating expropriation actions in Brazil against foreign interests. Brazilian courts have previously ruled in U.S. citizens’ favor for some claims regarding state-level land expropriations. However, as states have filed appeals of these decisions, the compensation process for foreign entities can be lengthy and have uncertain final outcomes.

ICSID Convention and New York Convention

In 2002, Brazil ratified the 1958 Convention on the Recognition and Enforcement of Foreign Arbitration Awards. Brazil is not a member of the World Bank’s International Center for the Settlement of Investment Disputes (ICSID). Brazil joined the United Nations Commission on International Trade Law (UNCITRAL) in 2010, and its membership will expire in 2022.

Investor-State Dispute Settlement

Article 34 of the 1996 Brazilian Arbitration Act (Law 9307) defines a foreign arbitration judgment as any judgment rendered outside of the national territory. The law established that the Superior Court of Justice (STJ) must ratify foreign arbitration awards. Law 9307, updated by Law 13129/2015, also stipulates that a foreign arbitration award will be recognized or executed in Brazil in conformity with the international agreements ratified by the country and, in their absence, with domestic law. A 2001 Brazilian Supreme Federal Court (STF) ruling established that the 1996 Brazilian Arbitration Act, permitting international arbitration subject to STJ ratification of arbitration decisions, does not violate the federal constitution’s provision that “the law shall not exclude any injury or threat to a right from the consideration of the Judicial Power.”

Contract disputes in Brazil can be lengthy and complex. Brazil has both a federal and a state court system, and jurisprudence is based on civil code and contract law. Federal judges hear most disputes in which one of the parties is the State and rule on lawsuits between a foreign State or international organization and a municipality or a person residing in Brazil. Five regional federal courts hear appeals of federal judges’ decisions.

International Commercial Arbitration and Foreign Courts

Brazil ratified the 1975 Inter-American Convention on International Commercial Arbitration (Panama Convention) and the 1979 Inter-American Convention on Extraterritorial Validity of Foreign Judgments and Arbitration Awards (Montevideo Convention). Law 9307/1996 amplifies Brazilian law on arbitration and provides guidance on governing principles and rights of participating parties. Brazil developed a new Cooperation and Facilitation Investment Agreement (CFIA) model in 2015 (https://concordia.itamaraty.gov.br/  ), but it does not include ISDS mechanisms. (See sections on bilateral investment agreements and responsible business conduct.)

Brazil’s commercial code governs most aspects of commercial association, while the civil code governs professional services corporations. In December 2020, Brazil approved a new bankruptcy law (Law 14.112) which largely models the UNCITRAL Model Law on International Commercial Arbitration and addresses criticisms that its previous bankruptcy legislation favored holders of equity over holders of debt. The new law facilitates the judicial and extrajudicial resolution process between debtors and creditors and accelerates reorganization and liquidation processes. Both debtors and creditors are allowed to provide reorganization plans that would eliminate non-performing activities and sell-off assets, thus avoiding bankruptcy. The new law also establishes a framework for cross-border insolvencies that recognizes legal proceedings outside of Brazil.

The GoB extends tax benefits for investments in less-developed parts of the country, including the Northeast and the Amazon regions, with equal application to foreign and domestic investors. These incentives were successful in attracting major foreign plants to areas like the Manaus Free Trade Zone in Amazonas State, but most foreign investment remains concentrated in the more industrialized southeastern states in Brazil.

Individual states seek to attract private investment by offering tax benefits and infrastructure support to companies, negotiated on a case-by-case basis. Competition among states to attract employment-generating investment leads some states to challenge such tax benefits as beggar-thy-neighbor fiscal competition.

While local private sector banks are beginning to offer longer credit terms, the state-owned National Economic and Social Development Bank (BNDES) is the traditional Brazilian source of long-term credit as well as export credits. BNDES provides foreign- and domestically-owned companies operating in Brazil financing for the manufacturing and marketing of capital goods and primary infrastructure projects. BNDES provides much of its financing at subsidized interest rates. As part of implementing a fiscal tightening policy, in December 2014 the GoB announced its intention to scale back the expansionary activities of BNDES and ended direct treasury support to the bank. Law 13.483, from September 2017, created a new Long-Term Lending Rate (TLP) for BNDES. On January 1, 2018, BNDES began phasing in the TLP to replace the prior subsidized loan rates. After a five-year phase in period, the TLP will float with the market and reflect a premium over Brazil’s five-year bond yield (which incorporates inflation). Although the GoB plans to reduce BNDES’s role further as it continues to promote the development of long-term private capital markets, BNDES will continue to play a large role, particularly in concession financing, such as Rio de Janeiro’s water and sanitation privatization projects, in which BNDES can finance up to 65 percent of direct investments.

BNDES also established the Finame low carbon program, which provides financing for the acquisition and sale of solar and wind energy generation systems, solar heaters, buses and trucks that are either electric hybrids or powered exclusively by biofuel, and other machines and equipment with higher energy efficiency rates or that contribute to the reduction of greenhouse gas emissions. The program allows for the financing of up to 100 percent of the investment on energy efficient products with payment terms of up to ten years with a two-year grace period, however, the products must be new, manufactured in Brazil, and accredited by the Finame program. Financing conditions are defined with BNDES’s financial partners, which currently include seven commercial banks.

In December 2018, Brazil approved a new auto sector incentive package – Rota 2030 – providing exemptions from Industrial Product Tax (IPI) for research and development (R&D) spending. Rota 2030 replaced the Inovar-Auto program, which was found to violate WTO rules. Rota 2030 increases standards for energy efficiency, structural performance, and the availability of assistive technologies; provides exemptions for investments in R&D and manufacturing process automation; incentivizes the use of biofuels; and funds technical training and professional qualification in the mobility and logistics sectors. To qualify for the tax incentives, businesses must meet conditions including demonstrating profit, investing a minimum amount of funds in R&D, and not having any outstanding tax liabilities.

Brazil’s Special Regime for the Reinstatement of Taxes for Exporters, or Reintegra Program, provides a tax subsidy of two percent of the value of goods exported.

Brazil provides tax reductions and exemptions on many domestically-produced information and communication technology (ICT) and digital goods that qualify for status under the Basic Production Process (PPB). The PPB is product-specific and stipulates which stages of the manufacturing process must be carried out in Brazil in order for an ICT product to be considered produced in Brazil. Brazil’s Internet for All program, launched in 2018, aims to ensure broadband internet to all municipalities by offering tax incentives to operators in rural municipalities.

Law 12.598/2012 offers tax incentives to firms in the defense sector. The law’s principal aspects are to: 1) establish special rules for the acquisition, contract, and development of defense products and systems; 2) establish incentives for the development of the strategic defense industry sector by creating the Special Tax Regime for the Defense Industry (RETID); and 3) provide access to financing programs, projects, and actions related to Strategic Defense Products (PED).

In April 2020, the Brazilian Defense and Security Industry Association (ABIMDE) requested the Minister of Defense to consider implementing improvements to Law 12.598 by allowing all its members to: 1) have access to special bidding terms (TLE) for defense and security materials; and 2) automatically utilize their RETID status, rather than being required to individually apply to the Ministry of Defense for certification, per the current process. However, as of March 2022 the Ministry of Defense is still reviewing the proposed improvements to the law.

A RETID beneficiary, known as a Strategic Defense Company (EED), is accredited by the Ministry of Defense. An EED is a legal entity that produces or develops parts, tools, and components to be used in the production or development of defense assets. It can also be a legal entity that provides services used as inputs in the production or development of defense goods. RETID benefits include sale price credit and tax rate reduction for the manufacturing supply chain, including taxes on imported components. Additionally, RETID provides exemption from certain federal taxes on the purchase of materials for the manufacture of defense products and services provided by EEDs.

The federal government grants tax benefits to certain free trade zones. Most of these free trade zones aim to attract investment to the country’s relatively underdeveloped North and Northeast regions. The most prominent of these is the Manaus Free Trade Zone, in Amazonas State, which has attracted significant foreign investment, including from U.S. companies. Constitutional amendment 83/2014 extended the status of Manaus Free Trade Zone until the year 2073.

The GoB maintains a variety of localization barriers to trade in response to the weak competitiveness of its domestic tech industry. These include:

1. Tax incentives for locally-sourced information and communication technology (ICT) goods and equipment (Law 8248/1991, amended by Law 13.969/2019 and Decree 87/2013)
2. Government procurement preferences for local ICT hardware and software (2014 Decrees 8184, 8185, 8186, 8194, and 2013 Decree 7903); and the CERTICS Decree 8186, which aims to certify that software programs are the result of development and technological innovation in Brazil

In 2019, Brazil adopted the New Informatic Law which revised the tax and incentives regime for the ICT sector. The regime is aligned with the requirements of the World Trade Organization (WTO), following complaints from Japan and the European Union that numerous Brazilian tax programs favored domestic products in contravention of WTO rules.

The New Informatic Law provides tax incentives to ICT goods manufacturers that invest in research, development, and innovation (RD&I) in Brazil. To receive the incentives, the companies must meet a minimum nationalization requirement for production, but the nationalization content is reduced commensurate with increasing local RD&I investment. At least 60 percent of the production process is required to take place in Brazil to ensure eligibility.

The Institutional Security Cabinet (GSI) (an executive branch body that advises the presidency on security affairs) mandated the localization of all government data stored in the cloud during a review of cloud computing services contracted by the Brazilian government in Ordinance No. 9 (previously NC 14), issued in March 2018. While it does allow the use of cloud computing for non-classified information, it imposes a data localization requirement on all use of cloud computing by the Brazil government.

Investors in certain sectors in Brazil must adhere to the country’s regulated prices, which fall into one of two groups: prices regulated at the federal level by a federal company or agency, and prices set by sub-national governments (states or municipalities). Regulated prices managed at the federal level include telephone services, certain refined oil and gas products (such as bottled cooking gas), electricity, and healthcare plans. Regulated prices controlled by sub-national governments include water and sewage fees, and most fees for public transportation such as local bus and rail services. For firms employing three or more people, Brazilian nationals must constitute at least two-thirds of all employees and receive at least two-thirds of total payroll, according to Labor Law Articles 352 to 354. This calculation excludes foreign specialists in fields where Brazilians are unavailable. There is a draft bill in congress (PL 2456/2019) to remove the mandatory requirement for national employment; however, the bill would maintain preferential treatment for companies that continue to employ a majority of Brazilian nationals.

Decree 7174/2010, which regulates the procurement of information technology goods and services, requires federal agencies and parastatal entities to give preferential treatment to domestically produced computer products and goods or services with technology developed in Brazil based on a complicated price/technology matrix.

Brazil’s Marco Civil, the framework law governing internet user rights and company responsibilities, states that data collected or processed in Brazil must respect Brazilian law, even if the data is subsequently stored outside of the country. Penalties for non-compliance could include fines of up to 10 percent of gross Brazilian revenues and/or the suspension or prohibition of related operations. Under the law, internet connection and application providers must retain access logs for specified periods of time or face sanctions. Brazil’s General Law for Protection of Personal Data (LGPD) went into effect in August 2020. The LGPD governs the processing and transfer of the personal data of subjects in Brazil by people or entities, regardless of the type of processing, the country where the data is located, or the headquarters of the entity processing the data. It also established a National Data Protection Authority (ANPD) to administer the law’s provisions, responsible for oversight and sanctions (which will go into effect August 2021) which can total up to R$50 million (approximately $10 million) per infringement.

Brazil has a system in place for mortgage registration, but implementation is uneven and there is no standardized contract. Foreign individuals or foreign-owned companies can purchase real estate property in Brazil. Foreign buyers frequently arrange alternative financing in their own countries, where interest rates may be more attractive. Law 9514/1997 helped to boost the mortgage industry by establishing a legal framework for a secondary market in mortgages and streamlining the foreclosure process, but the mortgage market in Brazil is still underdeveloped, and foreigners may have difficulty obtaining local financing. Large U.S. real estate firms are, nonetheless, expanding their portfolios in Brazil.

Intellectual property (IP) rights holders in Brazil continue to face challenges. Brazil has remained on the “Watch List” of the U.S. Trade Representative’s (USTR) Special 301 Report since 2017. The U.S. Government has long-standing concerns about Brazil’s enforcement regime and specific problems like the excessively high rates of online piracy. Brazil has one physical market located in São Paulo that is listed on USTR’s 2021 Review of Notorious Markets for Counterfeiting and Piracy. The Rua 25 de Março area is identified in the review as a distribution center for counterfeit and pirated goods throughout São Paulo. Government officials continue to take enforcement actions in this region, and authorities have used these enforcement actions as a basis to take civil measures against some of the other stores that have been identified for selling counterfeit goods in the area. According to the National Forum Against Piracy, contraband, pirated, counterfeit, and stolen goods cost Brazil approximately $54 billion in 2020. (https://www.fncp.org.br/areas-de-atuacao.html#combate-ao-mercado-ilegal  ) (Yearly average currency exchange rate: 1 USD = 5.3 BRL)

For additional information about treaty obligations and points of contact at local IP offices, please see the World Intellectual Property Organization (WIPO)’s country profiles: http://www.wipo.int/directory/en .  Additional information is also available from the USPTO IP Attaché in Brazil: https://www.uspto.gov/ip-policy/ip-attache-program/regions/brazil .

The Brazil Central Bank (BCB) in October 2016 implemented a sustained monetary easing cycle, lowering the Special Settlement and Custody System (Selic) baseline reference rate from a high of 14 percent in October 2016 to a record-low 2 percent by the end of 2020. The downward trend was reversed by an increase to 2.75 percent in March 2021 and reached 10.75 percent in February 2022. Brazil’s banking sector projects that the Selic will reach 12.25 percent by the end of 2022. Inflation for 2021 ended at an annualized 10.06 percent, above the target of 4 percent plus/minus 1.5 percent. The BCB’s Monetary Policy Committee (COPOM) set the BCB’s inflation target at 3.5 percent for 2022 and .25 percent in 2023 (plus/minus 1.5 percent), but as of February 2022 the BCB estimates that inflation will reach 5.4 percent in 2022, above the target again. As of mid-March 2022, Brazil’s annual inflation rate is at 10.75 percent. Brazil’s muddled fiscal policy and heavy public debt burden factor into most analysts’ forecasts that the “neutral” policy rate will remain higher than target rates among Brazil’s emerging-market peers (around five percent) over the reporting period.

According to the BCB, in 2021 the ratio of public debt to GDP reached 81.1 percent, compared to a record 89.4 percent in 2020. Analysts project that the debt/GDP ratio may rise to around 85 percent by the end of 2023.

The role of the state in credit markets grew steadily beginning in 2008, but showed a reduction in 2020 due to the pandemic. As of January 2022, public banks accounted for about 50 percent of total loans to the private sector (compared to 48.9 percent in 2018). Directed lending (that is, to meet mandated sectoral targets) also rose, and accounts for almost half of total lending. Brazil is paring back public bank lending and trying to expand a market for long-term private capital.

While local private sector banks are beginning to offer longer credit terms, state-owned development bank BNDES is a traditional source of long-term credit in Brazil. BNDES also offers export financing. Approvals of new financing by BNDES decreased 4 percent in 2021 from 2020, with the infrastructure sector receiving the majority of new capital.

The sole stock market in Brazil is B3 (Brasil, Bolsa, Balcão), created through the 2008 merger of the São Paulo Stock Exchange (Bovespa) with the Brazilian Mercantile & Futures Exchange (BM&F), forming the fourth-largest exchange in the Western hemisphere, after the NYSE, NASDAQ, and Canadian TSX Group exchanges. In 2020, there were 463 companies traded on the B3 exchange. The B3’s broadest index, the Ibovespa, decreased 11.93 percent in valuation during 2021, due to economic uncertainties related to rising and persistent inflation, particularly in the second half of the year. Foreign investors, both institutional and individuals, can directly invest in equities, securities, and derivatives; however, they are limited to trading those investments only on established markets.

Wholly-owned subsidiaries of multinational accounting firms, including the major U.S. firms, are present in Brazil. Auditors are personally liable for the accuracy of accounting statements prepared for banks.

The Brazilian financial sector is large and sophisticated. Banks lend at market rates that remain relatively high compared to other emerging economies. Reasons cited by industry observers include high taxation, repayment risk, concern over inconsistent judicial enforcement of contracts, high mandatory reserve requirements, and administrative overhead, as well as persistently high real (net of inflation) interest rates. According to BCB data collected for 2020, the average rate offered by Brazilian banks to non-financial corporations was 11.7 percent.

The banking sector in Brazil is highly concentrated, with BCB data indicating that the five largest commercial banks (excluding brokerages) account for approximately 82 percent of the commercial banking credit market totaling $800 billion by the end of 2020. Three of the five largest banks by assets in the country, Banco do Brasil, Caixa Econômica Federal, and BNDES, are partially or completely federally-owned. Large private banking institutions focus their lending on Brazil’s largest firms, while small- and medium-sized banks primarily serve small- and medium-sized companies. Citibank sold its consumer business to Itaú Bank in 2016, but maintains its commercial banking interests in Brazil. It is currently the only U.S. bank operating in the country. Increasing competitiveness in the financial sector, including in the emerging fintech space, is a vital part of the Brazilian government’s strategy to improve access to and the affordability of financial services in Brazil.

On November 16, 2020, the BCB launched its instant payment system called “PIX”. PIX is a 24/7 system that offers transfers of any value for people-people (P2P), people-business (P2B), business-people (B2P), business-business (B2B), and government-government (G2G). Brazilian customers in 2021 overwhelmingly embraced PIX, particularly for P2P transfers (which are free), replacing both cash payments and legacy bank electronic transfers which charged relatively high fees and could only take place during business hours.

In February 2021, the BCB implemented the first two of four phases of its Open Banking Initiative in an effort to open Brazil’s insulated banking system dominated by relatively few players. The first phase required Brazilian financial institutions to facilitate digitized access to their customer service channels, products, and services related to demand deposit or savings accounts, payment accounts, and credit operations. The second phase of the initiative expanded sharing customer data across a widening scope of bank products including loans. The other two phases, which are scheduled to go into effect in 2022, seek to include sharing customer data on foreign exchange, investments, and pension funds. The BCB expects that increased access to customer information will allow other financial institutions, including competitor banks and fintechs, to offer better and cheaper banking services to incumbent banks’ clients, thereby breaking up the dominance of the six large, incumbent banking institutions.

In recent years, the BCB has strengthened bank audits, implemented more stringent internal control requirements, and tightened capital adequacy rules to reflect risk more accurately. It also established loan classification and provisioning requirements. These measures apply to private and publicly owned banks alike. In December 2020, Moody’s upgraded a collection of 28 Brazilian banks and their affiliates to stable from negative after the agency had lowered the outlook on the Brazilian system in April 2020 due to economic difficulties. As of March 2021, the rating remained as stable. The Brazilian Securities Commission (CVM) independently regulates the stock exchanges, brokers, distributors, pension funds, mutual funds, and leasing companies, assessing penalties in instances of insider trading.

To open an account with a Brazilian bank, foreign account holders must present a permanent or temporary resident visa, a national tax identification number (CPF) issued by the Brazilian government, either a valid passport or identity card for foreigners (CIE), proof of domicile, and proof of income. On average, this process from application to account opening can take more than three months.

Foreign Exchange

Brazil’s foreign exchange market remains small. The latest Triennial Survey by the Bank for International Settlements conducted in December 2019 showed that the net daily turnover on Brazil’s market for OTC foreign exchange transactions (spot transactions, outright forwards, foreign-exchange swaps, currency swaps, and currency options) was $18.8 billion, down from $19.7 billion in 2016. This was equivalent to around 0.22 percent of the global market in 2019, down from 0.3 percent in 2016.

On December 29, 2021, Brazil approved a new Foreign Exchange Regulatory framework, to go into effect in December 2022, which replaces more than 40 separate regulations with a single law and eases foreign investments in the Brazilian market incentivizing increased foreign investment and assisting Brazilian businesses in integrating into global value chains. The new law aims to streamline currency exchange operations and authorizes more enterprises, including fintechs and small businesses, to conduct operations in foreign currencies bypassing retail banks and increasing their competitiveness. In addition, the law expands the list of qualifying activities transacted in foreign-currency denominated accounts (previously restricted only to import/export firms and for loans in which the debtor or creditor was based outside Brazil).

Brazil’s banking system has adequate capitalization and has traditionally been highly profitable, reflecting high interest rate spreads and fees. According to an October 2021 Central Bank Financial Stability Report, the banking system remains solid, with growing capitalization indices, and continues to rebuild its capital base. All institutions are able to meet the minimum prudential requirements, and solvency does not pose a risk to financial stability. Stress testing demonstrated that the banking system has adequate loss-absorption capacity in all simulated scenarios.

There are few restrictions on converting or transferring funds associated with a foreign investment in Brazil. Foreign investors may freely convert Brazilian currency in the unified foreign exchange market, where buy-sell rates are determined by market forces. All foreign exchange transactions, including identifying data, must be reported to the BCB. Foreign exchange transactions on the current account are fully liberalized.

The BCB must approve all incoming foreign loans. In most cases, loans are automatically approved unless loan costs are determined to be “incompatible with normal market conditions and practices.” In such cases, the BCB may request additional information regarding the transaction. Loans obtained abroad do not require advance approval by the BCB, provided the Brazilian recipient is not a government entity. Loans to government entities require prior approval from the Brazilian senate as well as from the Economic Ministry’s Treasury Secretariat, and must be registered with the BCB.

Interest and amortization payments specified in a loan contract can be made without additional approval from the BCB. Early payments can also be made without additional approvals if the contract includes a provision for them. Otherwise, early payment requires notification to the BCB to ensure accurate records of Brazil’s stock of debt.

Remittance Policies

Brazilian Federal Revenue Service regulates withholding taxes (IRRF) applicable to earnings and capital gains realized by individuals and legal entities residing or domiciled outside Brazil. Upon registering investments with the BCB, foreign investors are able to remit dividends, capital (including capital gains), and, if applicable, royalties. Investors must register remittances with the BCB. Dividends cannot exceed corporate profits. Investors may carry out remittance transactions at any bank by documenting the source of the transaction (evidence of profit or sale of assets) and showing payment of applicable taxes.

Under Law 13.259/2016 passed in March 2016, capital gain remittances are subject to a 15 to 22.5 percent income withholding tax, with the exception of capital gains and interest payments on tax-exempt domestically issued Brazilian bonds. The capital gains marginal tax rates are 15 percent for up to $1,000,000 in gains; 17.5 percent for $1,000,000 to $10,000,000 in gains; 20 percent for $10,000,000 to $60,000,000 in gains; and 22.5 percent for more than $60,000,000 in gains.

Repatriation of a foreign investor’s initial investment is also exempt from income tax under Law 4131/1962. Lease payments are assessed a 15 percent withholding tax. Remittances related to technology transfers are not subject to the tax on credit, foreign exchange, and insurance, although they are subject to a 15 percent withholding tax and an extra 10 percent Contribution for Intervening in Economic Domain (CIDE) tax.

Brazil had a sovereign fund from 2008 – 2018, when it was abolished, and the money was used to repay foreign debt.

Most state-owned and private sector corporations of any significant size in Brazil pursue corporate social responsibility (CSR) activities. Brazil’s new CFIAs (see sections on bilateral investment agreements and dispute settlement) contain CSR provisions. Some corporations use CSR programs to meet local content requirements, particularly in information technology manufacturing. Many corporations support local education, health, and other programs in the communities where they have a presence. Brazilian consumers, especially the local residents where a corporation has or is planning a local presence, generally expect CSR activity. Corporate officials frequently meet with community members prior to building a new facility to review the types of local services the corporation will commit to providing. Foreign and local enterprises in Brazil often advance United Nations Development Program (UNDP) Sustainable Development Goals (SDGs) as part of their CSR activity, and will cite their local contributions to SDGs, such as universal primary education and environmental sustainability. Brazilian prosecutors and civil society can be very proactive in bringing cases against companies for failure to implement the requirements of the environmental licenses for their investments and operations. National and international nongovernmental organizations monitor corporate activities for perceived threats to Brazil’s biodiversity and tropical forests and can mount strong campaigns against alleged misdeeds. A common challenge for foreign businesses, especially as it relates to child and forced labor, is a lack of transparency in supply chains.

The U.S. diplomatic mission in Brazil supports U.S. business CSR activities through the +Unidos Group (Mais Unidos), a group of multinational companies established in Brazil, which support public and private CSR alliances in Brazil. Additional information can be found at: www.maisunidos.org  

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;
• U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises; and;
• Xinjiang Supply Chain Business Advisory

Department of the Treasury

• OFAC Recent Actions

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

Climate Issues

Brazil is the world’s 12th largest greenhouse gas emitter. At COP 26 in November 2021, Brazil committed to achieving net zero emissions by 2050, ten years ahead of its previous commitment, ending illegal deforestation by 2028, and announced a plan to implement a Brazilian carbon market in 2022. However, rates of illegal deforestation continue to rise from a 2012 low; in 2021, illegal deforestation increased by 22 percent from the previous year. Private sector operators, especially in the agricultural sector, are concerned that consumer reaction to environmental issues in Brazil, especially deforestation in the Amazon Basin, could result in the boycott of Brazilian exports and a loss of market share. Such boycotts have already occurred in some supermarket chains in Europe.

Brazil established a National Policy on Climate Change in 2009 for climate change mitigation, adaptation, and consolidation of a low carbon economy. During COP 26 in Glasgow, Brazil published guidelines to update its national climate strategy, focusing on consolidating various initiatives to develop a low carbon economy. The strategy includes goals such as eliminating illegal deforestation, restoring forests, a “National Green Growth Plan,” and financing directed at developing a green economy.

In biodiversity, the Brazilian Ministry of the Environment coordinates and supports actions aimed at identifying species of native fauna and flora, monitoring and evaluating the conservation status of an increasingly significant portion of these species. To ensure the conservation of native species, the Ministry creates development models that encourage the sustainable use of biodiversity, along the lines of what is encouraged under the Convention on Biological Diversity and the International Treaty on Plant Genetic Resources for Food and Agriculture.

In October 2021, the government launched the National Green Growth Program. The Program uses new resources from the BRICS Development Bank for forest conservation projects, the rational use of natural resources, and the generation of green jobs. The new program will have national and international resources, public and private, reimbursable and non-reimbursable impact funds and risk investments. The plan focuses on six areas: renewable energy, sustainable agriculture, low-emission industry, basic sanitation, waste treatment, and ecotourism. At the program launch, the Brazilian Ministry of Environment stated that the federal government has a total credit line of 411 billion reais ($82.2 million) allocated for green projects. However, critics argue that the program is just a repackaging of several initiatives that already existed in the government, claiming that of the 400 billion reais planned, only 12 billion ($2.4 million, 3 percent of the total) were new funds.

At COP 26, Brazil signed the Global Methane Pledge to reduce global methane emissions by 30 percent by 2030. In February 2022, the Ministry of Environment announced that it would soon present a “Methane Zero” plan that would incentivize biomethane capture/production from landfills, sugar cane waste, and dairy barns; however, as of March 2022 the plan has not been announced.

The government expects active participation from the private sector through contributions to the Ministry of Environment’s projects. For example, the “Adopt-a-Park” program was established to gather resources for the conservation of national parks and is directed at national and foreign companies or individuals that are interested in contributing to environmental protection in Brazil. Through the program, resources are invested by the adopter in services such as remote monitoring, wildland firefighting and prevention, actions against illegal deforestation, and recovery of degraded areas.

In 2019, Brazil launched the National Biofuels Policy (RenovaBio) to comply with its Paris Agreement commitments by promoting the expansion of biofuels in the energy matrix and the reduction of greenhouse gas emissions. The policy established annual national decarbonization targets for the fuel sector, divided into mandatory individual targets for fuel distributors. To comply with the targets, fuel distributors purchase Decarbonization Credits (CBIO), a financial asset tradable on the stock exchange since 2020 derived from the certification of the biofuel production process and that corresponds to one ton of carbon dioxide. According to the Brazilian government, the program reached 85 percent of its targets in 2021, preventing the emission of 24 million tons of greenhouse gases and trading $212 million-worth of CBIOs in the stock market.

Brazil has laws, regulations, and penalties to combat corruption, but enforcement activities against corruption are inconsistent. Several bills to revise the country’s regulation of the lobbying/government relations industry have been pending before Congress for years. Bribery is illegal, and a bribe by a Brazilian-based company to a foreign government official can result in criminal penalties for individuals and administrative penalties for companies, including fines and potential disqualification from government contracts. A company cannot deduct a bribe to a foreign official from its taxes. While federal government authorities generally investigate allegations of corruption, there are inconsistencies in the level of enforcement among individual states. Corruption is problematic in business dealings with some authorities, particularly at the municipal level. U.S. companies operating in Brazil are subject to the U.S. Foreign Corrupt Practices Act (FCPA).

Brazil signed the UN Convention against Corruption in 2003 and ratified it in 2005. Brazil is a signatory to the OECD Anti-Bribery Convention and a participating member of the OECD Working Group on Bribery. It was one of the founders, along with the United States, of the intergovernmental Open Government Partnership, which seeks to help governments increase transparency.

In 1996, Brazil signed the Inter-American Convention Against Corruption (IACAC), developed within the Organization of American States (OAS). It was incorporated in Brazil by Legislative Decree 152 and went into force in 2002.

In 2020, Brazil ranked 96th out of 180 countries in Transparency International’s Corruption Perceptions Index. The full report can be found at: https://www.transparency.org/en/cpi/2021 

From 2014-2021, the complex federal criminal investigation known as Operação Lava Jato (Operation Carwash) investigated and prosecuted a complex web of public sector corruption, contract fraud, money laundering, and tax evasion stemming from systematic overcharging for government contracts, particularly at parastatal oil company Petrobras. The investigation led to the arrests and convictions of Petrobras executives, oil industry suppliers, executives from Brazil’s largest construction companies, money launderers, former politicians, and political party operators. Appeals of convictions and sentences continue to work their way through the Brazilian court system. On December 25, 2019, Brazilian President Jair Bolsonaro signed a packet of anti-crime legislation into law, which included several anti-corruption measures. The new measures include regulation of immunity agreements – information provided by a subject in exchange for reduced sentence – which were widely used during Operation Carwash. The legislation also strengthens Brazil’s whistleblower mechanisms, permitting anonymous information about crimes against the public administration and related offenses. Operation Carwash was dissolved in February 2021. In March 2021, the OECD established a working group to monitor anticorruption efforts in Brazil.

In December 2016, Brazilian construction conglomerate Odebrecht and its chemical manufacturing arm Braskem agreed to pay the largest FCPA penalty in U.S. history and plead guilty to charges filed in the United States, Brazil, and Switzerland that alleged the companies paid hundreds of millions of dollars in bribes to government officials around the world. The U.S. Department of Justice case stemmed directly from the Lava Jato investigation and focused on violations of the anti-bribery provisions of the FCPA. Details on the case can be found at: https://www.justice.gov/opa/pr/odebrecht-and-braskem-plead-guilty-and-agree-pay-least-35-billion-global-penalties-resolve  

In January 2018, Petrobras settled a class-action lawsuit with investors in U.S. federal court for $3 billion, which was one of the largest securities class action settlements in U.S. history. The investors alleged that Petrobras officials accepted bribes and made decisions that had a negative impact on Petrobras’ share value. In September 2018, the U.S. Department of Justice announced that Petrobras would pay a fine of $853.2 million to settle charges that former executives and directors violated the FCPA through fraudulent accounting used to conceal bribe payments from investors and regulators.

In October 2020, Brazilian meatpacking and animal protein company JBS reached two settlements in the United States to pay fines to settle charges of corruption. The company is part of the J&F Group, which was also a part of the settlements. The group agreed to pay over $155 million in fines for violations of U.S. laws due to misconduct by J&F and failure to maintain accounting records by JBS. Lava Jato investigations also resulted in the arrest of several JBS executives who also signed plea bargains in the 2020 settlements.

Resources to Report Corruption

Secretaria de Cooperação Internacional – Ministério Público Federal

SAF Sul Quadra 04 Conjunto C Bloco “B” Sala 509/512

pgr-internacional@mpf.mp.br 
stpc.dpc@cgu.gov.br 
https://www.gov.br/cgu/pt-br/anticorrupcao 

Transparência BrasilR. Bela Cintra, 409; Sao Paulo, Brasil+55 (11) 3259-6986http://www.transparencia.org.br/contato

Strikes and demonstrations occasionally occur in urban areas and may cause temporary disruption to public transportation. Brazil has over 41,000 murders annually, with low rates of murder investigation case completions and convictions.

Non-violent pro- and anti-government demonstrations have occurred periodically in recent years.

Although U.S. citizens usually are not targeted during such events, U.S. citizens traveling or residing in Brazil are advised to take common-sense precautions and avoid any large gatherings or any other event where crowds have congregated to demonstrate or protest. For the latest U.S. State Department guidance on travel in Brazil, please consult www.travel.state.gov.

The Brazilian labor market is composed of approximately 107.8 million workers, including employed (95.7 million) and unemployed (12 million). Among employed workers, 38.95 million (40.7 percent) work in the informal sector. Brazil had an unemployment rate of 11.1 percent in the last quarter of 2021, although that rate was more than double (22.8 percent) for workers ages 18-24. Low-skilled employment dominates Brazil’s labor market. The nearly 40 million workers in the informal sector do not receive the full benefits that formal workers enjoy under Brazil’s labor and social welfare system. The informal market represents approximately 16.8 percent of Brazil’s GDP. In 2021, employees’ average monthly income reached the lowest level in recorded history, at R$ 2,587 ($488).

Since 2012, women have on average been unemployed at a higher rate than their male counterparts, a scenario worsened by the pandemic. Between 2012 and 2019, the difference in average employment rates between men and women was 3.3 percentage points. In 2020, the average rate difference reached 4.5 percentage points and in 2021, 5.8 percentage points. In the last quarter of 2021, the Brazilian men’s unemployment rate was 9 percent, while the women’s unemployment rate was 13.9 percent. This discrepancy in employment rates is also traditionally observed for people of color in Brazil: while unemployment rates for whites is 9 percent (below the national average), blacks and mixed-race unemployment rates are significantly higher, at 13.6 percent and 12.6 percent respectively.

Foreign workers made up less than one percent of the overall labor force, but the arrival of more than 305,000 economic migrants and refugees from Venezuela since 2016 has led to large local concentrations of foreign workers in the border state of Roraima and the city of Manaus. Since April 2018, the Brazilian government, through Operation Welcome’s voluntary interiorization strategy, has relocated more than 68,000 Venezuelans from the northern border region to cities with more economic opportunities. Migrant workers within Brazil play a significant role in the agricultural sector.

Workers in the formal sector contribute to the Time of Service Guarantee Fund (FGTS) the amount of one month’s salary over the course of a year. If a company terminates an employee, the employee can access the full amount of their FGTS contributions, or if the employee leaves voluntarily they are entitled to 20 percent of their contributions. Brazil’s labor code guarantees formal sector workers 30 days of annual leave and severance pay in the case of dismissal without cause. Unemployment insurance also exists for laid-off workers, equal to the country’s minimum salary (or more depending on previous income levels) for six months. The government does not waive any labor laws to attract investment.

Collective bargaining is common, and there are 17,630 labor unions operating in Brazil in 2022. Labor unions, especially in sectors such as metalworking and banking, are well organized in advocating for wages and working conditions. In some sectors, federal regulations mandate collective bargaining negotiations across the entire industry. A new labor law in November 2017 ended mandatory union contributions, which has reduced union finances by as much as 90 percent according to the Inter-Union Department of Statistics and Socio-economic Studies (DIEESE). According to the Brazilian Institute of Geography and Statistics (IBGE), the share of unionized workers dropped to 11.2 percent of the workforce in 2019. The Ministry of Labor reported 7,854 collective bargaining agreements in 2021, an increase compared to the 6,118 agreements reported in 2020. Employer federations also play a significant role in both public policy and labor relations. Each state has its own federations of industry and commerce, which report respectively to the National Confederation of Industry (CNI), headquartered in Brasilia, and the National Confederation of Commerce (CNC), headquartered in Rio de Janeiro.

Brazil has a dedicated system of labor courts that are charged with resolving routine cases involving unfair dismissal, working conditions, salary disputes, and other grievances. Labor courts have the power to impose an agreement on employers and unions if negotiations break down and either side appeals to the court system. As a result, labor courts routinely are called upon to determine wages and working conditions in various industries across the country. The labor courts system has millions of pending legal cases on its docket, although the number of new filings has decreased since November 2017 labor law reforms.

Strikes occur periodically, particularly among public sector unions. A strike organized by truckers’ unions protesting increased fuel prices paralyzed the Brazilian economy in May 2018 and led to billions of dollars in losses to the economy. Trucker strikes in 2021, however, had more limited impact.

Brazil has ratified 98 International Labor Organization (ILO) conventions and is party to the UN Convention on the Rights of the Child and major ILO conventions concerning the prohibition of child labor, forced labor, and discrimination. For the past four years (2018-2021), the Department of Labor, in its annual publication “Findings on the Worst forms of Child Labor,” has recognized Brazil for its moderate advancement in efforts to eliminate the worst forms of child labor. On July 28, 2021, President Jair Bolsonaro re-established the Ministry of Labor and Welfare as a separate ministry, reversing its January 2019 merger into the Ministry of Economy. In 2021, the GoB inspected 443 properties, resulting in the rescue of 1,937 victims of forced labor. Additionally, in 2020 GoB officials removed 810 child workers from situations of child labor, compared to 1,040 children in 2019.

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

ProColombia is the Colombian government entity that promotes international tourism, foreign investment, and non-traditional exports. ProColombia assists foreign companies that wish to enter the Colombian market by addressing specific needs, such as identifying contacts in the public and private sectors, organizing visit agendas, and accompanying companies during visits to Colombia. All services are free of charge and confidential. Priority sectors include business process outsourcing, software and IT services, cosmetics, health services, automotive manufacturing, textiles, graphic communications, agribusiness, and electric energy. ProColombia’s “Invest in Colombia” web portal offers detailed information about opportunities in agribusiness, manufacturing, and services in Colombia ( www.investincolombia.com.co/sectors ). The Duque administration – including senior leaders at the Presidency, ProColombia, and the Ministry of Commerce, Industry, and Trade – continue to stress Colombia’s openness to foreign investors and aggressively market Colombia as an investment destination. The government of Colombia does not have a national security-based investment screening mechanism in place.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Colombia is a member of UNCTAD’s international network of transparent investment procedures (see http://www.businessfacilitation.org  and Colombia’s websites http://colombia.eregulations.org  and https://www.colombiacompra.gov.co ). Foreign and national investors can find detailed information on administrative procedures for investment and income generating operations, including the number of steps, name, and contact details of the entities and people in charge of procedures, required documents and conditions, costs, processing time, and legal bases justifying the procedures. In general, Colombia does not promote or require environmental, social, and governance disclosure to help investors and consumers distinguish between high- and low-quality investments.

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

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

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

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

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

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

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

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

The Colombian government offers investment incentives such as income tax exemptions and deductions in specific priority sectors, including the so-called “orange economy” (creative industries), agriculture, and entrepreneurship. In 2020, the government announced additional incentive schemes that aim to attract large investments exceeding USD 350 million and create at least 250 local jobs, facilitate COVID-19 recovery, and generate investments in former conflict municipalities. Investment incentives through free trade agreements between Colombia and other nations include national treatment and most-favored-nation treatment of investors; establishment of liability standards assumed by countries regarding the other nation’s investors, including the minimum standard of treatment and establishment of rules for investor compensation from expropriation; establishment of rules for transfer of capital relating to investment; and specific tax treatment.

The government offers tax incentives to all investors, such as preferential import tariffs, tax exemptions, and credit or risk capital. Some fiscal incentives are available for investments that generate new employment or production in areas impacted by natural disasters and former conflict-affected municipalities. Companies can apply for these directly with participating agencies. Tax and fiscal incentives are often based on regional, sector, or business size considerations. Border areas have special protections due to currency fluctuations in neighboring countries which can impact local economies. National and local governments also offer special incentives, such as tax holidays, to attract specific industries.

The Colombian government introduced a variety of incentives for specific sectors as part of the 2019 tax reform. Among the incentives are:

• Income from hotels built, renovated, or extended through January 1, 2029 in municipalities of less than 200,000 inhabitants will be taxed at nine percent for 20 years. The same facilities in larger municipalities will be taxed at nine percent for 10 years.
• Income normally taxed at 33 percent that is invested in agricultural projects or orange (creative) economy initiatives will be tax free.
• Income from the sale of electric power generated by wind, biomass, solar, geothermal, or tidal movement will be tax free, provided carbon dioxide emission certificates are sold in accordance with the Kyoto Protocol and 50 percent of the income from the certificate sale is invested in social projects benefiting the region where the power was generated.

Foreign investors can participate without discrimination in government-subsidized research programs, and most Colombian government research has been conducted with foreign institutions. Investments or grants to technological research and development projects are fully tax deductible in the year the investment was made. R&D incentives include Value-Added Tax (VAT) exemptions for imported equipment or materials used in scientific, technology, or innovation projects, and qualified investments may receive tax credits.

In a tax reform passed in 2016, the Colombian government created two tax incentives to support investment in the 344 municipalities most affected by the armed conflict (ZOMAC). Small and microbusinesses that invest in ZOMACs and meet a series of other criteria will be exempt from paying any taxes through 2021, pay 25 percent of the general rate through 2024, and 50 percent through 2027. Medium and large-sized businesses will pay 50 percent of their normal taxes through 2021 and 75 percent through 2024. The second component is entitled “works for taxes” (“Obras por Impuestos”), a program through which the private sector can directly fund social investments and infrastructure projects in lieu of paying taxes.

To attract foreign investment and promote the importation of capital goods, the Colombian government uses a number of duty deferral programs. One example is free trade zones (FTZs). While DIAN oversees requests to establish FTZs, the Colombian government is not involved in their operations. Benefits under the FTZ regime include a single 20 percent tax rate (compared to 31 percent normally) and no customs value-added taxes or duties on raw material imports for use in the FTZ. Each FTZ must meet specific investment and direct job creation requirements, depending on their total assets, during the first three years. These incentives were maintained in the 2021 tax reform.

Colombia also has initiated Special Economic Zones for Exports in the municipalities of Buenaventura, Cucuta, Valledupar, and Ipiales to encourage investment. These zones receive the same import benefits of FTZs, and operators are exempt from some payroll taxes and surcharges. Infrastructure projects in the zones are also exempt from some income taxes.

Performance requirements are not imposed on foreigners as a condition for establishing, maintaining, or expanding investments. The Colombian government does not have performance requirements, local employment requirements, or require excessively difficult visa, residency, permission, or work permit requirements for investors. Under the f, Colombia grants substantial market access across its entire services sector.

The SIC, under the Deputy Office for Personal Data Protection, is the Data Protection Authority (DPA) and has the legal mandate to ensure proper data protection. It has defined adequate data protection and responsibilities with respect to international data transfers. The SIC requires data storage facilities that hold personal data to comply with government security and privacy requirements, and data storage companies have one year to register. The SIC enforces the rules on local data storage within the country through audits/investigations and imposed sanctions.

Software and hardware are protected by IPR. There is no obligation to submit source code for registered software.

The 1991 Constitution explicitly protects individual rights against state actions and upholds the right to private property. Secured interests in real property, and to a lesser degree movable property, are recognized and generally enforced after the property is properly registered. In terms of protecting third-party purchasers, existing law is inadequate. The concepts of a mortgage, trust, deed, and other types of liens exist, as does a reliable system of recording such secured interests. Deeds, however, present some legal risk due to the prevalence of transactions that have never been registered with the Public Instruments Registry. According to a survey made shortly before the signing of the FARC peace accord, some eight million hectares of land – 14 percent of the country – had been abandoned or acquired illegally. The government is working to title these plots and has started a formalization program for land restitution. The 2020 Doing Business report ranked Colombia 62nd for ease of registering property.

In Colombia, the granting, registration, and administration of intellectual property rights (IPR) are carried out by four primary government entities. The SIC acts as the Colombian patent and trademark office. The Colombian Agricultural Institute (ICA) is in charge of issuing plant variety protections and data protections for agricultural products. The Ministry of Interior administers copyrights through the National Copyright Directorate (DNDA). The Ministry of Health and Social Protection handles data protection for products registered through INVIMA. Primary responsibility for enforcement resides with the Fiscalia General de la Republica (FGR), DIAN, and the Fiscal and Customs Police (POLFA).

The Intersectoral Intellectual Property Commission (CIPI) serves as the interagency technical body for IPR issues. On June 22, 2021 the Colombian Congress approved the Law 2090 known as the Marrakech Treaty to facilitate access to published works for blind, visually impaired or otherwise disabled persons. On the Beijing Treaty, the Ministry of Interior and Foreign Affairs presented to the Colombian Congress the draft bill 461 of 2021 which seeks to ratify this treaty. As of February 2022 it has been approved in first debate and three other debates remain pending for its final approval. In December 2021 Colombia’s NPD approved Conpes 4066, also known as the “Conpes on IP,” Colombia’s roadmap for leveraging IP rights and facilitating policies for IP protection. Colombia is subject to Andean Community Decision 486 on trade secret protection, which is fully implemented domestically by the Unfair Competition Law of 1996.

Colombia grants utility patents that confer twenty years of protection for inventions, ten years of protection for process and design patents, and five years of protection for data collected during clinical trials. Colombia has been on the U.S. Trade Representative’s Special 301 Watch List every year since 1991, and in 2019 was upgraded from “Priority Watch List” to “Watch List” status.

The CTPA improved standards for the protection and enforcement of a broad range of IPR. Improvements include state-of-the-art protections for digital products such as software, music, text, and videos; stronger protection for U.S. patents, trademarks, and test data; and prevention of piracy and counterfeiting by criminalizing end-use piracy. However, Colombia has outstanding CTPA commitments related to IPR. Colombian officials continue discussing with the United States draft legislation regulating internet service providers on issues such as compulsory takedown of online content and the protection of intermediaries with “safe harbor” provisions for unintentional copyright infringement. The legislation has not yet been introduced to Congress. Colombia has not yet signed the International Union for the Protection of New Varieties of Plants (UPOV 91). Colombia maintains that the existing Andean Community Decision 345 is in effect and equivalent to UPOV 91, but this is not an interpretation shared by the United States. Colombia is a member of the Inter-American Convention for Trademark and Commercial Protection.

Colombia reformed its copyright law under Decree 1915 of July 2018. The bill extends the term of copyright protection, imposes civil liability for circumvention of technological protection measures, and strengthens enforcement of copyright and related rights. On July 31, 2019 the Colombian Constitutional Court issued ruling C-345-19 that recognizes the constitutionality of statutory damages for copyright infringement.

Colombia’s success combating counterfeiting and IPR violations, and enforcement in the digital space, remains limited. In March 2021, DNDA imposed an order requiring internet providers to block IP addresses used to transmit pirated digital content, the first such order in Colombia. Industry advocates called this an important precedent for combatting IP theft. A 2015 law increased penalties for those involved in running contraband, but more effective implementation is needed. Colombian authorities coordinate with the United States on investigations, but key agencies often do not have the requisite authorities or sufficient numbers of trained personnel to effectively inspect and seize merchandise and to investigate smugglers and counterfeiters. Despite high-profile seizures of counterfeit goods, such goods remain widely available in Colombia’s “San Andresitos” markets. No Colombian markets are listed in the U.S. Trade Representative’s (USTR) Review of Notorious Markets for Counterfeiting and Piracy.

U.S. stakeholders continue to raise concerns about Colombia’s regulation of the pharmaceutical sector, where regulatory barriers, a focus by the government on cost containment over health outcomes, delays in processing pharmaceutical registrations at INVIMA, and Congressional proposals to limit pharmaceutical IP restrict market entry and reduce the attractiveness of Colombia as a place to invest and do business.

Colombia is on the Watch List in USTR’s 2021 Special 301 Report.

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

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

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

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

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

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

Since 2015, the Government of Colombia has concentrated its industrial and commercial enterprises under the supervision of the Ministry of Finance. According to Ministry’s 2019 annual report, there are 105 state-owned companies, with a combined value of USD 20 billion. The government is the majority shareholder of 39 companies and a minority shareholder in the remaining 66. Among the most notable companies with a government stake are Ecopetrol (Colombia’s majority state-owned and privately-run oil company), ISA (electricity distribution), Banco Agrario de Colombia, Bancoldex, and Satena (regional airline). SOEs competing in the Colombian market do not receive non-market-based advantages from the government. The Ministry of Finance normally updates their annual report on SOEs every June. Decree 2111 of 2019, formalized the creation of financial holding company Grupo Bicenterario. The holding company seeks to optimize the administration of Colombia’s state-owned enterprises, centralize property rights, and incorporate recommendations from the OECD regarding the composition of their boards of directors.

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

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

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

In 2020, the Colombian government released its second National Action Plan on Business and Human Rights for the period 2020-2022, which responds to the UN Guiding Principles on Business and Human Rights and the OECD’s Guidelines for Multinational Enterprises. Colombia also adheres to the corporate social responsibility (CSR) principles outlined in the OECD Guidelines for Multinational Enterprises. CSR cuts across many industries and Colombia encourages public and private enterprises to follow OECD CSR guidelines. Beneficiaries of CSR programs include students, children, populations vulnerable to Colombia’s armed conflict, victims of violence, and the environment. Larger companies structure their CSR programs in accordance with accepted international principles. Companies in Colombia have been recognized on an international level for their CSR initiatives, including by the State Department.

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;
• U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises; and;
• Xinjiang Supply Chain Business Advisory 

Department of the Treasury

• OFAC Recent Actions

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.

Overall, Colombia has adequate environmental laws, is proactive at the federal level in enacting environmental protections, and does not waive labor or environmental regulations to attract investors. Colombian law also has provisions requiring consultations with indigenous communities before many large projects. However, the Colombian government struggles with enforcement, particularly in more remote areas. Geography, lack of infrastructure, and lack of state presence all play a role, as does a general shortage of resources in national and regional institutions. Environmental defenders face threats from narcotics traffickers, paramilitaries, and other illegal armed groups, particularly in areas with limited state presence. The Colombian government, activists, NGOs, and the international community all agree more can be done to protect environmental defenders. Threats against environmental defenders are often related to their advocacy against land grabbing, illegal mining, deforestation, extractive projects, and fracking, according to Colombian officials. Statistics regarding the assassinations of environmental defenders vary significantly depending on source, but contacts agree there is a need to improve protections.  Figures range from UN reports of six environmental defenders killed in 2020 to local NGOs reporting up to 340 killed the same year.

The Environmental Chapter of the CTPA requires Colombia to maintain and enforce environmental laws, protect biodiversity, and promote opportunities for public participation. Colombia participates in the Extractive Industries Transparency Initiative (EITI). In parallel with its accession, the Colombian government worked with the OECD to develop and implement the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas, especially related to gold mining. The Colombian government faces challenges in formalizing illegal gold mining operations. A 2021 UNODC report highlighted illegal gold output grew from 66 percent of the total gold produced in Colombia to 69 percent of the total for 2020; the proceeds from illegal gold mining are estimated at approximately USD 2.4 billion. Buyers, sellers, traders, and refiners of gold may wish to conduct additional due diligence as part of their risk management regimes to account for the influx of illegally-mined Colombian gold into existing supply chains. Throughout the country, Colombian authorities have taken some steps to dismantle illegal gold mining operations that are responsible for negative environmental, criminal, and human health impacts, and often employ forced labor. The Colombian government has focused its efforts on transnational criminal elements involved in the production, laundering, and sale of illegally-mined gold, and the fraudulent documentation that is used to obscure the origin of illegally-mined gold. Colombia is actively pursuing new policies, proposing new legislation, and changing mechanisms to enforce laws against illegal gold mining.

Colombia ratified the Minamata Convention on Mercury in 2018 and banned the use of mercury in mining. It has committed to phase out mercury use from all other industries by 2023. Colombia is still determining how to enforce laws to achieve this goal. Colombia has not signed the Montreux Document. In 2020, its National Organization for Accreditation (ONAC) and Institute for Technical Standards and Certification (ICONTEC) began ISO 18788 compliance certification processes for private security companies.

Colombia’s Road to Zero outlines how Colombia will reach net zero carbon emissions by 2050. It is also the Colombian policy instrument that guides national, sectoral, and territorial actions to build a climate-resilient future in Colombia, while demonstrating the country’s international commitment to the achievement of the global objectives embodied in the Paris Agreement. In addition, Colombia has the Climate Change Management Plan for the Commerce, Industry and Tourism Sector (Pigccs) aiming for the reduction of 7.7 million tons of CO2 in the country. Pigccs seeks to contribute to Colombia’s national goal established on December 29, 2020, to reduce Greenhouse Gas (GHG) emissions by 51 percent by 2030, which represents a decrease of 7.7 million tons of CO2 in the same period and produce a maximum of 38.6 million tons yearly. Colombia accounts for 0.6 percent of global emissions. Colombia has put in place instruments that internalize the social and environmental costs of climate change and incentivize companies to incorporate into their production costs the negative impacts caused by the generation of GHGs or carbon. Among the most recognized instruments in this area are the carbon tax and the Emissions Trading System (carbon bonds market).

Corruption, and the perception of it, is a serious obstacle for companies operating or planning to invest in Colombia. Analyses of the business environment, such as the WEF Global Competitiveness Index, consistently cite corruption as a problematic factor, along with high tax rates, inadequate infrastructure, and inefficient government bureaucracy. Transparency International’s latest “Corruption Perceptions Index” ranked Colombia 87nd out of 180 countries assessed and assigned it a score of 39/100, a slight improvement from the year prior. Customs, taxation, and public works contracts are commonly-cited areas where corruption exist and there are multiple corruption convictions and investigations involving the highest levels of government, including former Supreme Court Justices, ministers, and regional governors.

Colombia has adopted the OECD Convention on Combating Bribery of Foreign Public Officials and is a member of the OECD Anti-Bribery Committee. It also passed a domestic anti-bribery law in 2016. In 2021, Colombia implemented a law that increased private sector responsibilities to implement internal prevention procedures and liability for participating in acts of corruption related to public contracting. Colombia has signed and ratified the UN Anticorruption Convention and adopted the OAS Convention against Corruption. The CTPA protects the integrity of procurement practices and criminalizes both offering and soliciting bribes to/from public officials. It requires both countries to make all laws, regulations, and procedures regarding any matter under the CTPA publicly available. Both countries must also establish procedures for reviews and appeals by any entities affected by actions, rulings, measures, or procedures under the CTPA.

Useful resources and contact information for those concerned about combating corruption in Colombia include the following:

• The Transparency and Anti-Corruption Observatory is an interactive tool of the Colombian government aimed at promoting transparency and combating corruption available at http://www.anticorrupcion.gov.co/ 
• The National Civil Commission for Fighting Corruption, or Comisión Nacional Ciudadana para la Lucha Contra la Corrupción (CNCLCC), was established by Law 1474 of 2011 to give civil society a forum to discuss and propose policies and actions to fight corruption in the country. Transparencia por Colombia is the technical secretariat of the commission. http://ciudadanoscontralacorrupcion.org/es/inicio 
• The Presidential Secretariat of Transparency advises and assists the president to formulate, design, and coordinate the implementation of public policy about transparency and anti-corruption. http://wsp.presidencia.gov.co/secretaria-transparencia/Paginas/default.aspx/ 

Government Agency:

Secretary of Transparency
Calle 7 No.6-54, Bogota
(+57)1 562 9300
contacto@presidencia.gov.co

Watchdog Organization:

Transparencia Por Colombia (local chapter of Transparency International)
Cra. 45A No. 93 – 61, Barrio La Castellana, Bogota
(+57)1 610 0822
comunicaciones@transparenciacolombia.org.co

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

An OECD economic survey of Colombia was published in February 2022. The report mentions Colombia’s economy has recovered well from the COVID-19 crisis, but that the labor market remains weak. Colombia has one of the highest levels of poverty, income inequality, and labor market informality in Latin America. At the end of 2021, 46.8 percent of the urban workforce was working in the informal economy, with the national average hovering around 60 percent. The overall unemployment rate was 13.7 percent. The Colombian workforce has a wide range of skills, including managerial-level employees who are often bilingual, but faces large skills gaps and challenges in labor productivity. Colombia has made strong efforts to incorporate Venezuelan migrants into the formal economy, most notably the February 2021 announcement of ten-year Temporary Protected Status for the country’s estimated 1.8 million Venezuelan migrants.

Labor rights in Colombia are set forth in its Constitution, the Labor Code, the Procedural Code of Labor and Social Security, sector-specific legislation, and ratified international conventions, which are incorporated into national legislation. Colombia’s Constitution guarantees freedom of association and provides for collective bargaining and the right to strike (with some exceptions). It also addresses forced labor, child labor, trafficking, discrimination, protections for women and children in the workplace, minimum wages, working hours, skills training, and social security. Colombia has ratified all eight of the International Labor Organization’s (ILO’s) fundamental labor conventions, and all are in force. Colombia has also ratified conventions related to hours of work, occupational health and safety, and minimum wage.

The 1991 Constitution protects the right to constitute labor unions. Pursuant to Colombia’s labor law, any group of 25 or more workers, regardless of whether they are employees of the same company or not, may form a labor union. Employees of companies with fewer than 25 employees may affiliate themselves with other labor unions. Colombia has a low trade union density (9.5 percent). Where unions are present, multiple affiliation sometimes poses challenges for collective bargaining. The largest and most influential unions are composed mostly of public-sector employees, particularly of the majority state-owned oil company and the state-run education sector. Only 6.2 percent of all salaried workers are covered by collective bargaining agreements (CBAs), according to the OECD. The Ministry of Labor has expressed commitment to working on decrees to incentivize sectoral collective bargaining and to strengthen union representation within companies and regulate strikes in the essential public services sector. Strikes, when held in accordance with the law, are recognized as legal instruments to obtain better working conditions, and employers are prohibited from using strike-breakers at any time during the course of a strike. After 60 days of strike action, the parties are subject to compulsory arbitration. Strikes are prohibited in certain “essential public services,” as defined by law, although Colombia has been criticized for having an overly-broad interpretation of “essential.”

Foreign companies operating in Colombia must follow the same hiring rules as national companies, regardless of the origin of the employer and the place of execution of the contract. No labor laws are waived to attract or retain investment. In 2010, Law 1429 eliminated the mandatory proportion requirement for foreign and national personnel; 100 percent of the workforce, including the board of directors, can be foreign nationals. Labor permits are not required in Colombia, except for minors of the minimum working age. Foreign employees have the same rights as Colombian employees. Employers may use temporary service agencies to subcontract additional workers for peaks of production. Employers must receive advance permission from the Ministry of Labor before undertaking permanent layoffs. The Ministry of Labor typically does not grant permission to lay off workers who have enhanced legal protections (for example, those with work-related injuries or union leaders). The Ministry of Labor has committed to address using temporary or contract workers for jobs that are not temporary in nature, although significant challenges remain in this area.

Reputational risks to investors come with a lack of effective and systematic enforcement of labor law, especially in rural sectors. Homicides of unionists (social leaders) remain an ongoing concern. In January 2017, the U.S. Department of Labor issued a public report of review in response to a submission filed under Chapter 17 (the Labor Chapter) of the CTPA by the American Federation of Labor and Congress of Industrial Organizations and five Colombian workers’ organizations that alleged failures on the part of the government to protect labor rights in line with CTPA commitments. In October 2021, the Department of Labor published the second periodic review of progress to address issues identified in the submission report. For these reports and additional information on labor law enforcement see:

• Section 7 of Colombia’s Human Rights Report https://www.state.gov/j/drl/rls/hrrpt

• Department of Labor Findings on the Worst Forms of Child Labor https://www.dol.gov/agencies/ilab/resources/reports/child-labor/colombia 

• Lists of Goods Produced with Child or Forced Labor https://www.dol.gov/agencies/ilab/reports/child-labor/list-of-goods 

U.S. Embassy Bogota
Economic Section
Carrera 45 #22B-45, Bogota, Colombia
(+57)1 275-2000
BogotaECONShared@state.gov

Mexico is open to foreign direct investment (FDI) in most economic sectors and has consistently been one of the largest emerging market recipients of FDI.  Mexico’s proximity to the United States and preferential access to the U.S. market, macroeconomic stability, large domestic market, growing consumer base, increasingly skilled workers, and lower labor costs combine to attract foreign investors.  The COVID-19 economic crisis showed how linked North American supply chains are and highlighted new opportunities for partnership and investment.  Still, recent policy and regulatory changes have created doubts about the investment climate, particularly in the energy, agriculture, and the formal employment pensions management sectors.

The United States has been the largest source of FDI in Mexico, with 34 percent of the stock as of 2020 (IMF).  According to Mexico’s Secretariat of Economy, total FDI flows for 2021 were USD 31.6 billion, a 13.2 percent increase compared to 2020 (USD 27.9 billion).  The automotive, aerospace, telecommunications, financial services, and electronics sectors typically receive large amounts of FDI.

Most foreign investment is concentrated in northern states near the U.S. border, where most maquiladoras (export-oriented manufacturing and assembly plants) are located, or to Mexico City and the nearby “El Bajio” (e.g. Guanajuato, Queretaro, etc.) region.  In the past, foreign investors have overlooked Mexico’s southern states, although the administration is focused on attracting investment to the region, including through large infrastructure projects such as the Maya Train, the Dos Bocas refinery, and the trans-isthmus logistics and industrial corridor.  In 2021, the GOM ramped up public spending and widely promoted private investment in these projects.  In December 2021, President Lopez Obrador issued a controversial decree naming these projects “national security” priorities, allowing them to proceed before the completion of environmental and other impact studies.  Though courts enjoined the executive decree, it still generated concerns about the Lopez Obrador administration’s commitment to transparency.

The 1993 Foreign Investment Law, last updated in March 2017, governs foreign investment in Mexico, including which business sectors are open to foreign investors and to what extent.  It provides national treatment, eliminates performance requirements for most foreign investment projects, and liberalizes criteria for automatic approval of foreign investment.  Mexico is also a party to several Organization for Economic Cooperation and Development (OECD) agreements covering foreign investment, notably the Codes of Liberalization of Capital Movements and the National Treatment Instrument.

The GOM dissolved the former trade and investment promotion agency ProMexico in 2019, and Mexico’s Secretariat of Foreign Affairs (SRE) assumed most of its responsibilities with the establishment of the General Directorate for Global Investment (GDGI) in June 2021.  The GDGI launched three specific projects:  the California Economic Council; an interactive data base to attract FDI called the “Atlas Prospectivo;” and the U.S.-Mexico Task Force for Transport Electrification.  The GDGI works closely with Mexico’s state secretaries of economy to promote trade and attract FDI through partnerships with SRE’s diplomatic missions overseas.

Mexico reserves certain sectors, in whole or in part, for the State, including:  petroleum and other hydrocarbons; control of the national electric system, radioactive materials, telegraphic and postal services; nuclear energy generation; coinage and printing of money; and control, supervision, and surveillance of ports of entry.  Certain professional and technical services, development banks, and the land transportation of passengers, tourists, and cargo (not including courier and parcel services) are reserved entirely for Mexican nationals.  See section six for restrictions on foreign ownership of certain real estate.

Reforms over the past decade in the energy, power generation, telecommunications, and retail fuel sales sectors have liberalized access for foreign investors.  While reforms have not led to the privatization of state-owned enterprises such as Pemex or the Federal Electricity Commission (CFE), they have allowed private firms to participate.  Still, the Lopez Obrador administration has made significant regulatory and policy changes that favor Pemex and CFE over private participants.  The changes have led private companies to file lawsuits in Mexican courts and seek compensation through international arbitration.

Hydrocarbons:  Private companies participate in hydrocarbon exploration and extraction activities through contracts with the government under four categories:  competitive contracts, joint ventures, profit sharing agreements, and license contracts.  All contracts must include a clause stating subsoil hydrocarbons are owned by the State.  The government held nine auctions allowing private companies to bid on exploration and development rights to oil and gas resources in blocks around the country.  Between 2015 and 2018, Mexico auctioned more than 100 land, shallow, and deep-water blocks with significant interest from international oil companies.  The administration has since postponed further auctions but committed to respecting the existing contracts awarded under the previous administration.  Still, foreign players were discouraged when the GOM awarded operatorship of a major shallow water oil discovery made by a U.S. company-led consortium to Pemex.  The private consortium had invested more than USD 200 million in making the discovery and is seeking compensation through international arbitration.

Telecommunications:  Mexican law states telecommunications and broadcasting activities are public services and the government will at all times maintain ownership of the radio spectrum.  In January 2021, President Lopez Obrador proposed incorporating the independent Federal Telecommunication Institute (IFT) into the Secretariat of Communications and Transportation (SCT), to save government funds and avoid duplication.  Non-governmental organizations and private sector companies said such a move would potentially violate the USMCA, which mandates signatories to maintain independent telecommunications regulators.  As of March 2022, the proposal remains pending.  Mexico’s Secretary of Economy Tatiana Clouthier underscored in public statements that President López Obrador is committed to respecting Mexico’s obligations under the USMCA, including maintaining an autonomous telecommunications regulator.

Aviation:  The Foreign Investment Law limited foreign ownership of national air transportation to 25 percent until March 2017, when the limit was increased to 49 percent.

The USMCA, which entered into force July 1, 2020, maintained several NAFTA provisions, granting U.S. and Canadian investors national and most-favored-nation treatment in setting up operations or acquiring firms in Mexico.  Exceptions exist for investments restricted under the USMCA.  Currently, the United States, Canada, and Mexico have the right to settle any legacy disputes or claims under NAFTA through international arbitration for a sunset period of three years following the end of NAFTA.  Only the United States and Mexico are party to an international arbitration agreement under the USMCA, though access is restricted as the USMCA distinguishes between investors with covered government contracts and those without.  Most U.S. companies investing in Mexico will have access to fewer remedies under the USMCA than under NAFTA, as they will have to meet certain criteria to qualify for arbitration.  Sub-national Mexican governments must also accord national treatment to investors from USMCA countries.

Approximately 95 percent of all foreign investment transactions do not require government approval.  Foreign investments that require government authorization and do not exceed USD 165 million are automatically approved unless the proposed investment is in a legally reserved sector.

The National Foreign Investment Commission under the Secretariat of the Economy is the government authority that determines whether an investment in restricted sectors may move forward.  The Commission has 45 business days after submission of an investment request to decide.  Criteria for approval include employment and training considerations, and contributions to technology, productivity, and competitiveness.  The Commission may reject applications to acquire Mexican companies for national security reasons.  The Secretariat of Foreign Relations (SRE) must issue a permit for foreigners to establish or change the nature of Mexican companies.

There has not been an update to the World Trade Organization’s (WTO) trade policy review of Mexico since June 2017 covering the period to year-end 2016.

The October 2021 “Human Rights for a Just Energy Transition” report analyzes some of the energy policy decisions taken by the Mexican government in the last two years and provides investment-related recommendations: https://www.business-humanrights.org/en/latest-news/m%C3%A9xico-nuevo-informe-derechos-humanos-para-una-transici%C3%B3n-justa-destaca-regresi%C3%B3n-de-acci%C3%B3n-clim%C3%A1tica-y-derechos-humanos/

According to the World Bank, on average registering a foreign-owned company in Mexico requires 11 procedures and 31 days.  Mexico ranked 60 out of 190 countries in the World Bank’s most recent 2020 Doing Business report.  In 2016, then-President Pena Nieto signed a law creating a new category of simplified businesses called Sociedad for Acciones Simplificadas (SAS).  Owners of SASs are supposed to be able to register a new company online in 24 hours.  Still, it can take between 66 and 90 days to start a new business in Mexico, according to the World Bank.  The GOM maintains a business registration website, www.tuempresa.gob.mx, and one for general information on opening a business, https://www.gob.mx/tuempresa?tab=Abre. The Secretariat of Economy offers a one-stop shop website “Invest in Mexico” aimed at facilitating the administrative procedures for foreign investors: www.economia.gob.mx/invest-in-mx/.  Companies operating in Mexico must register with the tax authority (Servicio de Administracion Tributaria or SAT), the Secretariat of the Economy, and the Public Registry.  Additionally, companies engaging in international trade must register with the Registry of Importers, while foreign-owned companies must register with the National Registry of Foreign Investments.

Since October 2019, SAT has launched dozens of tax audits against major international and domestic corporations, resulting in hundreds of millions of dollars in new tax assessments, penalties, and late fees.  Multinational and Mexican firms have reported audits based on diverse aspects of the tax code, including adjustments on tax payments made, waivers received, and deductions reported during the Enrique Peña Nieto administration.  Private sector stakeholders reported a continuation of SAT’s aggressive tax auditing practices in 2021.

Various offices at the Secretariat of Economy and the Secretariat of Foreign Affairs handle promoting Mexican outward investment and assistance to Mexican firms acquiring or establishing joint ventures with foreign firms.  Mexico does not restrict domestic investors from investing abroad.

The National Commission on Regulatory Improvement (CONAMER), within the Secretariat of Economy, is the agency responsible for streamlining federal and sub-national regulation and reducing the regulatory burden on business.  Mexican law requires secretariats and regulatory agencies to conduct impact assessments of proposed regulations and engage in notice and comment rule making, which CONAMER carries out.  Impact assessments are made available for public comment via CONAMER’s website:  https://www.gob.mx/conamer.  The official gazette of state and federal laws currently in force in Mexico is publicly available via:  http://www.ordenjuridico.gob.mx/.  Mexican law provides for a 20-day public consultation period for most proposed regulations.  Any interested stakeholder can comment on draft regulations and the supporting justification, including regulatory impact assessments.  Certain measures are not subject to a mandatory public consultation period.  These include measures concerning taxation, responsibilities of public servants, the public prosecutor’s office executing its constitutional functions, and the Secretariats of National Defense (SEDENA) and the Navy (SEMAR).  In 2021, there was a rise in rule making with waiver of full notice and public comment processes as President Lopez Obrador rushed regulations through “in the national interest.”

Given SAT’s mandate to collect taxes and revenue from international trade, many of its regulations circumvent the notice and public comment process.  In 2021, SAT proposed a new requirement for a “digital waybill complement” or “complemento de carta porte” for nearly all goods shipments within Mexican territory effective January 1, 2022.  Mexican and U.S. private sector representatives called the digital document “onerous” as it requires 180 data points for shipments across all modalities—rail, truck, air, and maritime shipping—many of which are unknown at the onset of a shipment.  Despite the domestic nature of the new requirement, U.S. companies raised concerns about the “carta porte” as a technical barrier to trade given the potential delays it could cause for shipments to and from ports of entry.  The U.S. government has pushed for better SAT coordination with the private sector to address compliance challenges with the new requirement.  This advocacy led to the postponement of “carta porte’s” entry into force to October 1, 2022 and public-private working groups to discuss implementation in the interim.

The National Quality Infrastructure Program (PNIC) is the official document used to plan, inform, and coordinate standardization activities, both public and private.  The PNIC is published annually by the Secretariat of Economy in Mexico’s Official Gazette.  The PNIC describes Mexico’s plans for new voluntary standards (Normas Mexicanas; NMXs) and mandatory technical regulations (Normas Oficiales Mexicanas; NOMs) as well as proposed changes to existing standards and technical regulations.  Interested stakeholders can request the creation, modification, or cancelation of NMXs and NOMs as well as participate in the working groups that develop and modify these standards and technical regulations.  Mexico’s antitrust agency, the Federal Commission for Economic Competition (COFECE), plays a key role in protecting, promoting, and ensuring a competitive free market in Mexico as well as protecting consumers.  COFECE is responsible for eliminating barriers both to competition and free market entry across the economy (except for the telecommunications sector, which is governed by its own competition authority) and for identifying and regulating access to essential production inputs.  In September 2021, COFECE Commissioner President Alejandra Palacios stepped down following several months of public disagreements with President Lopez Obrador’s statist energy policy.  Lopez Obrador has not named substitutions for COFECE’s Commissioners since November 2020, leaving the institution without a quorum for resolutions related to barriers to competition or the issuance of regulatory provisions.

In addition to COFECE, the Energy Regulatory Commission (CRE) and National Hydrocarbon Commission (CNH) are both technical-oriented independent agencies that play important roles in regulating the energy and hydrocarbons sectors.  CRE regulates national electricity generation, coverage, distribution, and commercialization, as well as the transportation, distribution, and storage of oil, gas, and biofuels.  CNH supervises and regulates oil and gas exploration and production and issues oil and gas upstream (exploration/production) concessions.  In addition, the National Center for Energy Control (CENACE) is the independent electricity grid operator.  Energy experts assert that these agencies, particularly CRE, are no longer fully independent as they have favored Pemex and CFE with regulations and permits over private participants.

Mexico has seen a shift in the public procurement process since the onset of the COVID-19 pandemic.  Government entities are increasingly awarding contracts either as direct awards or by invitation-only procurements.  In addition, there have been recent tenders that favor European standards over North American standards.

Generally speaking, the Mexican government has established legal, regulatory, and accounting systems that are transparent and consistent with international norms.  Still, Mexico’s current executive administration has eroded the autonomy and publicly questioned the value of specific antitrust and energy regulators and has proposed dissolving some of them to cut costs.  Furthermore, corruption continues to affect equal enforcement of some regulations.  The administration rolled out an ambitious plan to centralize government procurement in an effort to root out corruption and generate efficiencies.  The administration estimated it could save up to USD 25 billion annually by consolidating government purchases in the Secretariat of Finance.  Still, the expedited rollout and lack of planning for supply chain contingencies led to several sole-source purchases.  The Mexican government’s budget is published online and readily available.  The Bank of Mexico also publishes and maintains data about the country’s finances and debt obligations.

Investors are increasingly concerned the administration is undermining confidence in the “rules of the game,” particularly in the energy sector, by weakening the political autonomy of COFECE, CNH, CENACE, and CRE.  Still, COFECE has successfully challenged regulatory changes in the electricity sector that favor state-owned enterprises over private companies.  The administration has appointed five of seven CRE commissioners over the Senate’s objections, which voted twice to reject the nominees in part due to concerns their appointments would erode the CRE’s autonomy.  The administration’s budget cuts resulted in significant government layoffs, which has reportedly hampered agencies’ ability to carry out their work, a key factor in investment decisions.  The independence of the CRE and CNH was further undermined by a memo from the government to both bodies instructing them to use their regulatory powers to favor state-owned Pemex and CFE.  Investors expressed concern over the current executive administration setting a fee ceiling for AFORES, or private pensions management firms, starting in 2022 using a fast-tracked regulatory process with little industry consultation.

Beginning with the Spanish conquest in the 1500s, Mexico had an inquisitorial criminal justice system adopted from Europe in which proceedings were largely carried out in writing and sealed from public view.  Mexico amended its Constitution in 2008 to facilitate change to an oral accusatorial criminal justice system to better combat corruption, encourage transparency and efficiency, and ensure respect for the fundamental rights of both the victim and the accused.  An ensuing National Code of Criminal Procedure passed in 2014 and is applicable to all 32 states.  The national procedural code is coupled with each state’s criminal code to provide the legal framework for the new accusatorial system, which allows for oral, public trials with the right of the defendant to face his/her accuser and challenge evidence presented against him/her, right to counsel, due process, and other guarantees.  Mexico fully adopted the new accusatorial criminal justice system at the state and federal levels in June 2016.

Mexico’s Commercial Code, which dates to 1889, was most recently updated in 2014.  All commercial activities must abide by this code and other applicable mercantile laws, including commercial contracts and commercial dispute settlement measures.  Mexico has multiple specialized courts regarding fiscal, labor, economic competition, broadcasting, telecommunications, and agrarian law.

The judicial branch and Prosecutor General’s office (FGR) are constitutionally independent from each other and the executive.  The Prosecutor General is nominated by the president and approved by a two-thirds majority in the Senate for a nine-year term, effectively de-coupling the Prosecutor General from the political cycle of elections every six years.  With the historic 2019 labor reform, Mexico also created an independent labor court system run by the judicial branch (formerly this was an executive branch function).  The labor courts are being brought online in a phased process by state with the final phase completed on May 1, 2022.

Mexico’s Foreign Investment Law sets the rules governing foreign investment into the country.  The National Commission for Foreign Investments, formed by several cabinet-level ministries including Interior (SEGOB), Foreign Relations (SRE), Finance (Hacienda), and Economy (SE) establishes the criteria for administering investment rules.

Mexico has two constitutionally autonomous regulators to govern matters of competition – the Federal Telecommunications Institute (IFT) and the Federal Commission for Economic Competition (COFECE).  IFT governs broadcasting and telecommunications, while COFECE regulates all other sectors.  For more information on competition issues in Mexico, please visit COFECE’s bilingual website at: www.cofece.mx.  As mentioned above, Lopez Obrador has publicly questioned the value of COFECE and his party unsuccessfully introduced a proposal last year which would have dramatically reduced its resources and merged COFECE and other regulators into a less-independent structure.  COFECE currently has the minimum quorum required of at least four commissioners in order to operate, out of a seven-members full board.  However, COFECE lacks the required quorum of five commissioners in order to issue final resolutions determining competition barriers as well as anti-competitive practices.  President Lopez Obrador has not appointed the remaining commissioners as required by law.

USMCA (and NAFTA) contain clauses stating Mexico may neither directly nor indirectly expropriate property, except for public purpose and on a non-discriminatory basis.  Expropriations are governed by international law and require rapid fair market value compensation, including accrued interest.  Investors have the right to international arbitration. The USMCA contains an annex regarding U.S.-Mexico investment disputes and those related to covered government contracts.

Mexico’s Reorganization and Bankruptcy Law (Ley de Concursos Mercantiles) governs bankruptcy and insolvency.  Congress approved modifications in 2014 to shorten procedural filing times and convey greater juridical certainty to all parties, including creditors.  Declaring bankruptcy is legal in Mexico and it may be granted to a private citizen, a business, or an individual business partner.  Debtors, creditors, or the Attorney General can file a bankruptcy claim.  Mexico ranked 33 out of 190 countries for resolving insolvency in the World Bank’s 2020 Doing Business report (that last it produced).  The average bankruptcy filing takes 1.8 years to be resolved and recovers 63.9 cents per USD, which compares favorably to average recovery in Latin America and the Caribbean of just 31.2 cents per USD.  The “Buró de Crédito” is Mexico’s main credit bureau.  More information on credit reports and ratings can be found at:  http://www.burodecredito.com.mx/.

Land grants or discounts, tax deductions, and technology, innovation, and workforce development funding are commonly used incentives.  Additional federal foreign trade incentives include: (1) IMMEX:  a promotion which allows manufacturing sector companies to temporarily import inputs without paying general import tax and value added tax (VAT); (2) Import tax rebates on goods incorporated into products destined for export; and (3) Sectoral promotion programs allowing for preferential ad-valorem tariffs on imports of selected inputs.  Industries typically receiving sectoral promotion benefits are footwear, mining, chemicals, steel, textiles, apparel, and electronics.  Manufacturing and other companies report it is becoming increasingly difficult to request and receive reimbursements from SAT of the VAT paid on inputs for the export sector, with significant reimbursement delays and arrears reaching tens of millions USD for some companies.

The administration renewed until December 31, 2024 a program launched in January 2019 that established a border economic zone (BEZ) in 43 municipalities in six northern border states within 15.5 miles from the U.S. border.  The BEZ program entails: 1) a fiscal stimulus decree reducing the Value Added Tax (VAT) from 16 percent to 8 percent and the Income Tax (ISR) from 30 percent to 20 percent; 2) a minimum wage increase to MXN 176.72 (USD 8.75) per day; and 3) the gradual harmonization of gasoline, diesel, natural gas, and electricity rates with neighboring U.S. states.  The purpose of the BEZ program was to boost investment, promote productivity, and create more jobs in the region.  Sectors excluded from the preferential ISR rate include financial institutions, the agricultural sector, and export manufacturing companies (maquilas).

On December 30, 2020, President Lopez Obrador launched a similar program for 22 municipalities in Mexico’s southern states of Campeche, Tabasco, and Chiapas, reducing VAT from 16 to 8 percent and ISR from 30 to 20 percent and harmonizing excise taxes on fuel with neighboring states in Central America.  Chetumal in Quintana Roo will also enjoy duty-free status.  The benefits extend from January 1, 2021 to December 31, 2024.

Mexico does not follow a “forced localization” policy—foreign investors are not required by law to use domestic content in goods or technology.  However, investors intending to produce goods in Mexico for export to the United States should take note of the rules of origin prescriptions contained within USMCA if they wish to benefit from USMCA treatment.  Chapter four of the USMCA introduced new rules of origin and labor content rules, which entered into force on July 1, 2020.

In 2020, the Central Bank of Mexico (or Banxico) and the National Banking and Securities Commissions (CNBV – Mexico’s principal bank regulator) drafted regulations mandating the largest financial technology companies operating in Mexico to either host data on a back-up server outside of the United States—if their primary is in the United States—or on physical servers in Mexico.  As of March 2022, the draft regulations remain pending public comment.  The financial services industry is concerned they could violate provisions of the USMCA financial services chapter prohibiting data localization.

Mexico’s government is increasingly choosing its military for the construction and management of economic infrastructure.  In the past two years, the government entrusted the Army (SEDENA) with building the new airport in Mexico City, and sections 6, 7, and part of section 5 of the Maya Train railway project in Yucatan state.  SEDENA created a state-owned company to operate and manage the newly completed Mexico City airport.  SEDENA is also issuing contracts for the construction of over 300 social development bank branches throughout Mexico.  The government announced plans to give to the Navy (SEMAR) the rights for construction, management, and operations of the Trans-Isthmic Train project to connect the ports of Coatzacoalcos in Veracruz state with the Salina Cruz port in Oaxaca state.  The government is in the process of transferring administration of land and sea ports from the Secretariat of Communications and Transportation (SCT) to SEDENA and SEMAR respectively and has appointed retired military personnel to port administrator positions at most ports.

Mexico ranked 105 out of 190 countries for ease of registering property in the World Bank’s 2020 Doing Business report, falling two places from its 2019 report.  Article 27 of the Mexican Constitution guarantees the inviolable right to private property.  Expropriation can only occur for public use and with due compensation.  Mexico has four categories of land tenure:  private ownership, communal tenure (ejido), publicly owned, and ineligible for sale or transfer.

Mexico prohibits foreigners from acquiring title to residential real estate in so-called “restricted zones” within 50 kilometers (approximately 30 miles) of the nation’s coast and 100 kilometers (approximately 60 miles) of the borders.  “Restricted zones” cover roughly 40 percent of Mexico’s territory.  Foreigners may acquire the effective use of residential property in “restricted zones” through the establishment of an extendable trust (fideicomiso) arranged through a Mexican financial institution.  Under this trust, the foreign investor obtains all property use rights, including the right to develop, sell, and transfer the property.  Real estate investors should be careful in performing due diligence to ensure that there are no other claimants to the property being purchased.  In some cases, fideicomiso arrangements have led to legal challenges.  U.S.-issued title insurance is available in Mexico and U.S. title insurers operate here.

Additionally, U.S. lending institutions have begun issuing mortgages to U.S. citizens purchasing real estate in Mexico.  The Public Register for Business and Property (Registro Publico de la Propiedad y de Comercio) maintains publicly available information online regarding land ownership, liens, mortgages, restrictions, etc.

Tenants and squatters are protected under Mexican law.  Property owners who encounter problems with tenants or squatters are advised to seek professional legal advice, as the legal process of eviction is complex.

Mexico has a nascent but growing financial securitization market for real estate and infrastructure investments, which investors can access via the purchase/sale of Fideicomisos de Infraestructura y Bienes Raíces (FIBRAs) and Certificates of Capital Development (CKDs) listed on Mexico’s BMV stock exchange.

Intellectual Property Rights (IPR) in Mexico are covered by the Mexican Federal Law for Protection of Industrial Property (Ley Federal de Protección a la Propiedad Industrial) and the Federal Copyright Law (Ley Federal del Derecho de Autor).  Responsibility for the protection of IPR is spread across several government authorities.  The Prosecutor General’s Office (Fiscalia General de la Republica or FGR) oversees a specialized unit that prosecutes intellectual property (IP) crimes.  The Mexican Institute of Industrial Property (IMPI), the equivalent to the U.S. Patent and Trademark Office, administers patent and trademark registrations, and handles administrative enforcement cases of IPR infringement.  The National Institute of Copyright (INDAUTOR) handles copyright registrations and mediates certain types of copyright disputes, while the Federal Commission for the Prevention from Sanitary Risks (COFEPRIS) regulates pharmaceuticals, medical devices, and processed foods.  The National Customs Agency of Mexico (ANAM) is responsible for ensuring illegal goods do not cross Mexico’s borders.

The process for trademark registration in Mexico normally takes six to eight months.  The registration process begins by filing an application with IMPI, which is published in IMPI’s Gazette for opposition by a third party.  If no opposition is filed, IMPI undertakes a formalities examination, followed by a substantive examination to determine if the application and supporting documentation fulfills the requirements established by law and regulation to grant the trademark registration.  Once the determination is made, IMPI then issues the registration.  A trademark registration in Mexico is valid for 10 years from the date of registration and is renewable for 10-year periods.  Any party with standing can challenge a trademark registration through a cancellation proceeding.  IMPI employs the following administrative procedures:  nullity, expiration or lapsing, opposition, cancellation, trademark, patent, and copyright infringement.  Once IMPI issues a decision, the affected party may challenge it through an internal reconsideration process or go directly to the Specialized IP Court for a nullity trial.  An aggrieved party can then file an appeal with a Federal Appeal Court based on the Specialized IP Court’s decision.  In cases with an identifiable constitutional challenge, the plaintiff may file an appeal before the Supreme Court.

To improve efficiency, in 2020 IMPI partnered with the United States Patent and Trademark Office (USPTO) to launch the Parallel Patent Grant (PPG) initiative.  Under this new work-sharing arrangement, IMPI will expedite the grant of a Mexican patent for businesses and individuals already granted a corresponding U.S. patent.  This arrangement allows for the efficient reutilization of USPTO work by IMPI.  The USPTO also has a Patent Prosecution Highway (PPH) agreement with IMPI.  Under the PPH, an applicant receiving a ruling from either IMPI or the USPTO that at least one claim in an application is patentable may request that the other office expedite examination of the corresponding application.  The PPH leverages fast-track patent examination procedures already available in both offices to allow applicants in both countries to obtain corresponding patents faster and more efficiently.

Mexico undertook significant legislative reform to comply with the USMCA.  The Mexican Federal Law for Protection of Industrial Property (Ley Federal de Protección a la Propiedad Industrial) went into effect November 5, 2020.  The decree issuing this law was published in the Official Gazette on July 1, 2020, in response to the USMCA and the CPTPP.  This new law replaced the Mexican Industrial Property Law (Ley de la Propiedad Industrial), substantially strengthening IPR across a variety of disciplines.  Mexico amended its Federal Copyright Law and its Federal Criminal Code to comply with the USMCA.  The amendments went into effect July 2, 2020.  These amendments should significantly strengthen copyright law in Mexico.  Still, there are concerns that constitutional challenges filed against notice and takedown provisions as well as TPMs in the amendments may weaken these. provisions.

Still, Mexico has widespread commercial-scale infringement that results in significant losses to Mexican, U.S., and other IPR owners.  There are many issues that have made it difficult to improve IPR enforcement in Mexico, including legislative loopholes; lack of coordination between federal, state, and municipal authorities; a cumbersome and lengthy judicial process; relatively widespread acceptance of piracy and counterfeiting, and lack of resources dedicated to enforcement.  In addition, the involvement of transnational criminal organizations (TCOs), which control the piracy and counterfeiting markets in parts of Mexico and engage in trade-based money laundering by importing counterfeit goods, continue to impede federal government efforts to improve IPR enforcement.  TCO involvement has further illustrated the link between IPR crimes and illicit trafficking of other contraband, including arms and drugs.

Mexico remained on the Watch List in the 2021 Special 301 report published by the U.S. Trade Representative (USTR).  Obstacles to U.S. trade include the wide availability of pirated and counterfeit goods in both physical and virtual notorious markets.  The 2021 USTR Out-of-Cycle Review of Notorious Markets for Counterfeiting and Piracy listed these Mexican markets:  Tepito in Mexico City, La Pulga Rio in Monterrey, and Mercado San Juan de Dios in Guadalajara.  Mexico is a signatory to numerous international IP treaties, including the Paris Convention for the Protection of Industrial Property, the Berne Convention for the Protection of Literary and Artistic Works, and the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights.

Intellectual Property Rights Attaché for Mexico, Central America and the Caribbean
U.S. Trade Center Liverpool No. 31 Col. Juárez
C.P. 06600 Mexico City
Tel: (52) 55 5080 2189

National Institute of Copyright (INDAUTOR)
Puebla No. 143
Col. Roma, Del. Cuauhtémoc
06700 México, D.F.
Tel: (52) 55 3601 8270
Fax: (52) 55 3601 8214
Web: http://www.indautor.gob.mx/

Mexican Institute of Industrial Property (IMPI)
Periférico Sur No. 3106
Piso 9, Col. Jardines del Pedregal
Mexico, D.F., C.P. 01900
Tel: (52 55) 56 24 04 01 / 04
(52 55) 53 34 07 00
Fax: (52 55) 56 24 04 06
Web: http://www.impi.gob.mx/

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 Mexican government is generally open to foreign portfolio investments, and foreign investors trade actively in various public and private asset classes.  Foreign entities may freely invest in federal government securities.  The Foreign Investment Law establishes foreign investors may hold 100 percent of the capital stock of any Mexican corporation or partnership, except in those few areas expressly subject to limitations under that law.  Foreign investors may also purchase non-voting shares through mutual funds, trusts, offshore funds, and American Depositary Receipts.

They also have the right to buy directly limited or nonvoting shares as well as free subscription shares, or “B” shares, which carry voting rights.  Foreigners may purchase an interest in “A” shares, which are normally reserved for Mexican citizens, through a neutral fund operated by one of Mexico’s six development banks.  Finally, Mexico offers federal, state, and local governments bonds that are rated by international credit rating agencies.  The market for these securities has expanded rapidly in past years and foreign investors hold a significant stake of total federal issuances.  However, foreigners are limited in their ability to purchase sub-sovereign state and municipal debt.  Liquidity across asset classes is relatively deep.

Mexico established a fiscally transparent trust structure known as a FICAP in 2006 to allow venture and private equity funds to incorporate locally.  The Securities Market Law (Ley de Mercado de Valores) established the creation of three special investment vehicles which can provide more corporate and economic rights to shareholders than a normal corporation.  These categories are: (1) Investment Promotion Corporation (Sociedad Anonima de Promotora de Inversion or SAPI); (2) Stock Exchange Investment Promotion Corporation (Sociedad Anonima Promotora de Inversion Bursatil or SAPIB); and (3) Stock Exchange Corporation (Sociedad Anonima Bursatil or SAB).  Mexico also has a growing real estate investment trust market, locally referred to as Fideicomisos de Infraestructura y Bienes Raíces (FIBRAS) as well as FIBRAS-E, which allow for investment in non-real estate investment projects.  FIBRAS are regulated under Articles 187 and 188 of Mexican Federal Income Tax Law.

Financial sector reforms signed into law in 2014 have improved regulation and supervision of financial intermediaries and have fostered greater competition between financial services providers.  While access to financial services – particularly personal credit for formal sector workers – has expanded in the past four years, bank and credit penetration in Mexico remains low compared to OECD and emerging market peers.  Coupled with sound macroeconomic fundamentals, reforms have created a positive environment for the financial sector and capital markets.  According to the National Banking and Stock Commission (CNBV), the banking system remains healthy and well capitalized.

Mexico’s banking sector is heavily concentrated and majority foreign-owned:  the seven largest banks control 85 percent of system assets and foreign-owned institutions control 70 percent of total assets.  The USMCA maintains national treatment guarantees.  U.S. securities firms and investment funds, acting through local subsidiaries, have the right to engage in the full range of activities permitted in Mexico.

Banxico maintains independence in operations and management by constitutional mandate.  Its main function is to provide domestic currency to the Mexican economy and to safeguard the Mexican Peso’s purchasing power by gearing monetary policy toward meeting a 3 percent inflation target over the medium term.

Mexico’s Financial Technology (FinTech) law came into effect in March 2018 and administration released secondary regulations in 2019, creating a broad rubric for the development and regulation of innovative financial technologies.  The law covers both cryptocurrencies and a regulatory “sandbox” for start-ups to test the viability of products, placing Mexico among the FinTech policy vanguard.  The reforms have already attracted significant investment to lending fintech companies and mobile payment companies.  However, industry stakeholders suggest insufficient clarity in the authorities’ implementation of the secondary regulations may be eroding the legal certainty the FinTech Law brought to the sector.  The CNBV has authorized fourteen fintechs under the FinTech Law to operate in the Mexican market and it is reviewing other applications.

The Mexican Petroleum Fund for Stability and Development (FMP) was created as part of 2013 budgetary reforms.  Housed in Banxico, the fund distributes oil revenues to the national budget and a long-term savings account.  The FMP incorporates the Santiago Principles for transparency, placing it among the most transparent Sovereign Wealth Funds in the world.  Both Banxico and Mexico’s Supreme Federal Auditor regularly audit the fund.  Mexico is also a member of the International Working Group of Sovereign Wealth Funds.  The Fund resources totaled MXN 23.4 billion (approximately USD 1.2 billion) in 2021.  The FMP is required to publish quarterly and annual reports, which can be found at www.fmped.org.mx.

There are two main SOEs in Mexico, both in the energy sector.  Pemex operates the hydrocarbons (oil and gas) sector, which includes upstream, mid-stream, and downstream operations.  Pemex historically contributed one-third of the Mexican government’s budget but falling output and global oil prices alongside improved revenue collection from other sources have diminished this amount over the past decade to about 8 percent.  The Federal Electricity Commission (CFE) operates the electricity sector.  While the GOM maintains state ownership, the 2013 constitutional reforms granted Pemex and CFE management and budget autonomy and greater flexibility to engage in private contracting.

As a result of Mexico’s 2013 energy reform, the private sector is now able to compete with Pemex or enter into competitive contracts, joint ventures, profit sharing agreements, and license contracts with Pemex for hydrocarbon exploration and extraction.  Liberalization of the retail fuel sales market, which Mexico completed in 2017, created significant opportunities for foreign businesses.  Given Pemex frequently raises debt in international markets, its financial statements are regularly audited.  The Natural Resource Governance Institute considers Pemex to be the second most transparent state-owned oil company after Norway’s Equinor.  Pemex’s ten-person Board of Directors contains five government ministers and five independent councilors.  The administration has identified increasing Pemex’s oil, natural gas, and refined fuels production as its chief priority for Mexico’s hydrocarbon sector.  Since taking office in 2018, the administration has taken numerous legal and regulatory steps to limit private competition for Pemex.

Changes to the Mexican constitution in 2013 and 2014 opened power generation and commercial supply to the private sector, allowing companies to compete with CFE.  Mexico held three long-term power auctions since the reforms, in which over 40 contracts were awarded for 7,451 megawatts of energy supply and clean energy certificates.  CFE remains the sole provider of transmission and distribution services and owns all distribution assets.  The 2013 energy reform separated CFE from the National Energy Control Center (CENACE), which controls the national wholesale electricity market and ensures non-discriminatory access to the grid for competitors, though recent actions call into question CENACE’s independence.  Legal and regulatory changes adopted by the Mexican government attempt to modify the rules governing the electricity dispatch order to favor CFE.  Dozens of private companies and non-governmental organizations have successfully sought injunctions against the measures, which they argue discriminate against private participants in the electricity sector.

Independent power generators were authorized to operate in 1992 but were required to sell their output to CFE or use it to self-supply.  Those legacy self-supply contracts have come under criticism with an electricity reform law and proposed constitutional amendment giving the government the ability to cancel contracts it deems fraudulent.  Under the 2013 reform, private power generators may now install and manage interconnections with CFE’s existing state-owned distribution infrastructure.  The 2013 reform also required the government to implement a National Program for the Sustainable Use of Energy as a transition strategy to encourage clean technology and fuel development and reduce pollutant emissions.  The executive administration has identified increasing CFE-owned power generation as its top priority for the utility, breaking from the firm’s recent practice of contracting private firms to build, own, and operate generation facilities.  CFE forced several foreign and domestic companies to renegotiate previously executed gas supply contracts, which raised significant concerns among investors about contract sanctity.

One of the main non-market-based advantages CFE and Pemex receive vis-a-vis private businesses in Mexico is related to access to capital.  In addition to receiving direct budget support from the Secretariat of Finance, both entities also receive implicit credit guarantees from the federal government.  As such, both are able to borrow funds on public markets at below the market rate their corporate risk profiles would normally suggest.  In addition to budgetary support, the CRE and SENER have delayed or halted necessary permits for new private sector gas stations, fuel terminals, fuel imports, and power plants, providing an additional non-market advantage to CFE and Pemex.

Mexico’s 2014 energy reforms liberalized access to these sectors but did not privatize state-owned enterprises.

Mexico’s private and public sectors have worked to promote and develop corporate social responsibility (CSR) during the past decade.  CSR in Mexico began as a philanthropic effort.  It has evolved gradually to a more holistic approach, trying to match international standards such as the OECD Guidelines for Multinational Enterprises and the United Nations Global Compact.

Responsible business conduct reporting has made progress in the last few years with more companies developing a corporate responsibility strategy.  The government has also made an effort to implement CSR in state-owned companies such as Pemex, which has published corporate responsibility reports since 1999.  Recognizing the importance of CSR issues, the Mexican Stock Exchange (Bolsa Mexicana de Valores) launched a sustainable companies index, which allows investors to specifically invest in those companies deemed to meet internationally accepted criteria for good corporate governance.

In October 2017, Mexico became the 53rd member of the Extractive Industries Transparency Initiative (EITI), which represents an important milestone in its Pemex effort to establish transparency and public trust in its energy sector.

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;
• U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises; and;
• Xinjiang Supply Chain Business Advisory 

Department of the Treasury

• OFAC Recent Actions

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.

Mexico published the National Strategy of Climate Change in 2013 with no further update since then and published the Special Program for Climate Change (PECC) in November 2021.  Mexico presented its sixth climate change communications report to the UNFCCC in 2018 and submitted its National Determination Contribution (NDC) to the UNFCCC in December 2020.

Mexico published its National Biodiversity Strategy in 2016.  Mexico published the second extensive country study of Natural Capital in 2006.  Mexico presented its Sixth National Report to the UN Convention on Biological Biodiversity in 2019.

Mexico has not released an official net-zero carbon emissions policy or strategy.

The PECC 2021 highlights include private sector climate change actions and fostering the inclusion of the private sector in the National Infrastructure Fund (Fonadin) to invest in sustainable infrastructure.

In October 2019, the Secretariat of Environment and Natural Resources (SEMARNAT) released an agreement to set the bases for a pilot program for a cap-and-trade emissions system for the energy and industry sectors.  SEMARNAT hasn’t reported updates on this pilot program.

The 2022 GOM budget allocated USD 3.84 billion for the Adaptation and Mitigation of the Effects of Climate Change and for the Promotion of the Use of Clean Technologies and Fuels.

Corruption exists in many forms in the GOM and society, including corruption in the public sector (e.g., demand for bribes or kickbacks by government officials) and private sector (e.g., fraud, falsifying claims, etc.), as well as conflict of interest issues, which are not well defined in the Mexican legal framework.

Government and law enforcement officials are sometimes complicit with criminal elements, posing serious challenges for the rule of law.  Some of the most common reports of official corruption involve government officials stealing from public coffers, creating fake companies to divert public funds, or demanding bribes in exchange for not prosecuting criminal activity or awarding public contracts.  The current administration supported anti-corruption reforms (detailed below) and judicial proceedings in several high-profile corruption cases, including former governors.  However, Mexican civil society asserts that the government must take more systematic, effective, and frequent action to address corruption at the institutional level.

Mexico adopted a constitutional reform in 2014 to transform the current Office of the Attorney General into an Independent Prosecutor General’s office to increase its independence.  President Lopez Obrador’s choice for Prosecutor General was confirmed by the Mexican Senate January 18, 2019.  In 2015, Mexico passed a constitutional reform creating the National Anti-Corruption System (SNA) with an anti-corruption prosecutor and a citizens’ participation committee to oversee efforts.  The system is designed to provide a comprehensive framework for the prevention, investigation, and prosecution of corruption cases, including delineating acts of corruption considered criminal acts under the law.  The legal framework establishes a basis for holding private actors and private firms legally liable for acts of corruption involving public officials and encourages private firms to develop internal codes of conduct.  After seven years of operation, commentators attribute few successes to the SNA.  The implementation status of the mandatory state-level anti-corruption legislation varies.

The reform mandated a redesign of the Secretariat of Public Administration to give it additional auditing and investigative functions and capacities in combatting public sector corruption.  Congress approved legislation to change economic institutions, assigning new responsibilities and in some instances creating new entities.  Reforms to the federal government’s structure included the creation of a General Coordination of Development Programs to manage the federal-state coordinators (“superdelegates”) in charge of federal programs in each state.  The law also created the Secretariat of Public Security and Citizen Protection, and significantly expanded the power of the president’s Legal Advisory Office (Consejería Jurídica) to name and remove each federal agency’s legal advisor and clear all executive branch legal reforms before their submission to Congress.  The law eliminated financial units from ministries, with the exception of the Secretariat of Finance, SEDENA, and SEMAR, and transferred control of contracting offices in other ministries to the Hacienda.  Separately, the law replaced the previous Secretariat of Social Development (SEDESOL) with a Welfare Secretariat in charge of coordinating social policies, including those developed by other agencies such as health, education, and culture.  The Labor Secretariat gained additional tools to foster collective bargaining, union democracy, and to meet International Labor Organization (ILO) obligations.

Mexico ratified the OECD Convention on Combating Bribery and passed its implementing legislation in May 1999.  The legislation includes provisions making it a criminal offense to bribe foreign officials.  Mexico is also a party to the Organization of American States (OAS) Convention against Corruption and has signed and ratified the United Nations Convention against Corruption.  The government has enacted or proposed laws attacking corruption and bribery, with average penalties of five to 10 years in prison.

Mexico is a member of the Open Government Partnership and enacted a Transparency and Access to Public Information Act in 2015, which revised the existing legal framework to expand national access to information.  Transparency in public administration at the federal level improved noticeably but expanding access to information at the state and local level has been slow.  According to Transparency International’s 2021 Corruption Perception Index, Mexico ranked 124 of 180 nations.  Civil society organizations focused on fighting corruption are high-profile at the federal level but are few in number and less powerful at the state and local levels.

Business representatives, including from U.S. firms, believe public funds are often diverted to private companies and individuals due to corruption and perceive favoritism to be widespread among government procurement officials.  The GAN Business Anti-Corruption Portal states compliance with procurement regulations by state bodies in Mexico is unreliable and that corruption is extensive, despite laws covering conflicts of interest, competitive bidding, and company blacklisting procedures.

The U.S. Embassy has engaged in a broad-based effort to work with Mexican agencies and civil society organizations in developing mechanisms to fight corruption and increase transparency and fair play in government procurement.  Efforts with specific business impact include government procurement best practices training and technical assistance under the U.S. Trade and Development Agency’s Global Procurement Initiative.  Mexico ratified the UN Convention Against Corruption in 2004.  It ratified the OECD Anti-Bribery Convention in 1999.

Contact at government agency:
Secretariat of Public Administration
Miguel Laurent 235, Mexico City
52-55-2000-1060

Contact at “watchdog” organization:
Transparencia Mexicana
Dulce Olivia 73, Mexico City
52-55-5659-4714
Email: info@tm.org.mx

Mass demonstrations are common in the larger metropolitan areas and in the southern Mexican states of Guerrero and Oaxaca. While political violence is rare, drug and organized crime-related violence has increased significantly in recent years. Political violence is also likely to accelerate in the run-up to the June 2022 elections as criminal actors seek to promote election of their preferred candidates. The national homicide rate dropped to 27 homicides per 100,000 residents in 2021 from 29 homicides per 100,000 residents in 2020, although aggregate homicides remain near all-time highs. For complete security information, please see the Safety and Security section in the Consular Country Information page at https://travel.state.gov/content/travel/en/international-travel/International-Travel-Country-Information-Pages/Mexico.html. Conditions vary widely by state. For a state-by-state assessment please see the Consular Travel Advisory at https://travel.state.gov/content/travel/en/traveladvisories/traveladvisories/mexico-travel-advisory.html.

Companies have reported general security concerns remain an issue for those looking to invest in the country. The American Chamber of Commerce in Mexico estimates in a biannual report that security expenses cost business as much as 5 percent of their operating budgets. Many companies choose to take extra precautions for the protection of their executives. They also report increasing security costs for shipments of goods. The Overseas Security Advisory Council (OSAC) monitors and reports on regional security for U.S. businesses operating overseas. OSAC constituency is available to any U.S.-owned, not-for-profit organization, or any enterprise incorporated in the United States (parent company, not subsidiaries or divisions) doing business overseas ( https://www.osac.gov/Country/Mexico/Detail ).

Mexican labor law requires at least 90 percent of a company’s employees be Mexican nationals. Employers can hire foreign workers in specialized positions as long as foreigners do not exceed 10 percent of all workers in that specialized category. Mexico’s 56 percent rate of informality remains higher than countries with similar GDP per capita levels. High informality, defined as those working in unregistered firms or without social security protection, distorts labor market dynamics, contributes to persistent wage depression, drags overall productivity, and slows economic growth. In the formal economy, there exist large labor shortages due to a system that incentivizes informality. Manufacturing companies, particularly along the U.S.-Mexico border and in the states of Aguascalientes, Guanajuato, Jalisco, and Querétaro, report labor shortages and an inability to retain staff due to wages sometimes being less that what can be earned in the informal economy, although the recent increases in the minimum wage are leading to increases in entry level wages which are attracting more workers. Shortages of skilled workers and engineers continue due to a mismatch between industry needs and what schools teach. Mexico has one of the lowest female labor participation rates in the OECD, 45 percent to a 76 percent male participation rate among people legally allowed to work (15 years or older). Barriers for female workers include the culturally assigned role for them as caretakers of children and the elderly. Most Mexican workers work for a micro business (41 percent) and 59 percent earn between USD 8.6 and USD 17 per day. The unemployment rate in Mexico has maintained a stable path ranging from 3.5 percent to 4.9 percent (its highest peak during the pandemic). This rate, however, masks the high level of underemployment (14.8 percent) in Mexico (those working part time or in the informal sector when they want full time, formal sector jobs). For 2020 the informal economy accounted for 22 percent of total Mexican GDP according to the National Institute of Statistics and Geography. Informal businesses span across all economic activities from agriculture to manufacturing. In Mexico labor informality also spans across all economic activities with formal businesses employing both formal and informal workers to reduce their labor costs.

On May 1, 2019, Lopez Obrador signed into law a sweeping reform of Mexico’s labor law, implementing a constitutional change and focusing on the labor justice system. The reform replaces tripartite dispute resolution entities (Conciliation and Arbitration Boards) with independent judicial bodies and conciliation centers. In terms of labor dispute resolution mechanisms, the Conciliation and Arbitration Boards (CABs) previously adjudicated all individual and collective labor conflicts. Under the reform, collective bargaining agreements will now be adjudicated by federal labor conciliation centers and federal labor courts.

Labor experts predict the labor reform will result in a greater level of labor action stemming from more inter-union and intra-union competition. The Secretariat of Labor, working closely with Mexico’s federal judiciary, as well as state governments and courts, created an ambitious state-by-state implementation agenda for the reforms, which started November 18, 2020, and will end during the second semester of 2022. On November 18, 2020 the first phase of the labor reform implementation began in eight states: Durango, State of Mexico, San Luis Potosi, Zacatecas, Campeche, Chiapas, Tabasco, and Hidalgo. On November 3, 2021 the second phase started in 13 additional states, and the third phase will start during 2022 in 11 states. Further details on labor reform implementation can be found at: www.reformalaboral.stps.gob.mx .

Mexico’s labor relations system has been widely criticized as skewed to represent the interests of employers and the government at the expense of workers. Mexico’s legal framework governing collective bargaining created the possibility of negotiation and registration of initial collective bargaining agreements without the support or knowledge of the covered workers. These agreements are commonly known as protection contracts and constitute a gap in practice with international labor standards regarding freedom of association. The percentage of the economy covered by collective bargaining agreements is between five and 10 percent, of which more than half are believed to be protection contracts. As of March 7, 2022, 3,267 collective bargaining contracts have been legitimized (reviewed and voted on by the workers covered by them), according to the Secretariat of Labor. The reform requires all collective bargaining agreements to be submitted to a free, fair, and secret vote every two years with the objective of getting existing protectionist contracts voted out. The increasingly permissive political and legal environment for independent unions is already changing the way established unions manage disputes with employers, prompting more authentic collective bargaining. As independent unions compete with corporatist unions to represent worker interests, workers are likely to be further emboldened in demanding higher wages.

The USMCA’s labor chapter (Chapter 23) contains specific commitments on union democracy and labor justice which relate directly to Mexico’s 2019 labor reform and its implementation. In addition, the USMCA’s dispute settlement chapter (Chapter 31) includes a facility-specific labor rapid response mechanism to address labor rights issues and creates the ability to impose facility specific remedies to ensure remediation of such situations.

According to the International Labor Organization (ILO), government enforcement was reasonably effective in enforcing labor laws in large and medium-sized companies, especially in factories run by U.S. companies and in other industries under federal jurisdiction. Enforcement was inadequate in many small companies and in the agriculture and construction sectors, and it was nearly absent in the informal sector. Workers organizations have made numerous complaints of poor working conditions in maquiladoras and in the agricultural production industry. Low wages, poor labor conditions, long work hours, unjustified dismissals, lack of social security benefits and safety in the workplace, and lack of freedom of association were among the most common complaints.

* data from the IMF’s Coordinated Direct Investment Survey (CCIS)
( https://data.imf.org/?sk=40313609-F037-48C1-84B1-E1F1CE54D6D5&sId=1482331048410 )

William Ayala
AyalaWM@state.gov
Economic Section
U.S. Embassy in Mexico
Paseo de la Reforma 305
Colonia Cuauhtemoc
06500 Mexico, CDMX