Policies Towards Foreign Direct Investment

The West Bank and Gaza received an overall ranking of 117 out of 190 in the World Bank’s 2020 Ease of Doing Business report, a slight decrease from 116 out of 190 in 2019. (World Bank rankings range from 1 to 190, with a lower rank representing greater ease of doing business. The 2021 Doing Business Report has been delayed.) In the 2020 Doing Business Report, the Getting Credit component achieved a score of 25. However, other areas that continue to rank poorly and where significant regulatory improvement is still needed fall under the critical business-enabling categories of Resolving Insolvency (168 of 190), Starting a Business (173 of 190), Protecting Minority Investors (114 of 190), and Dealing with Construction Permits (148 of 190). The ease of registering real property score fell from 84 to 91 out of 190.

The National Policy Agenda is both a national development policy and a political document outlining the PA’s aspirations in three pillars: the path to independence, government reform, and sustainable development. The last section highlights the need for economic independence, including domestic reform to promote economic growth with fewer regulatory restrictions, supporting business start-ups and micro, small, and medium enterprises, as well as looking ahead to economic opportunities following the resolution of the political conflict with Israel. The PA released its National Policy Agenda for 2017-2022 in 2017, replacing the 2014-2016 National Development Plan.

PA-Israeli government trade relations are governed by the 1994 Paris Protocol, which was intended to endure for five years until a final peace agreement was signed. Many of the stipulations are outdated or not fully implemented. Since 1995, the PA has taken steps to facilitate and increase foreign trade by signing free trade agreements. The PA has finalized trade agreements with Russia, Jordan, Egypt, the Gulf States, Morocco, Tunisia, Mercosur, Vietnam, and Germany, and is a member of the Greater Arab Free Trade Area. The PA’s signed trade agreements with the European Union, the European Free Trade Association (EFTA), Canada, and Turkey have not been recognized by Israel and therefore, cannot be implemented; however, the PA remains eligible for the benefits of the Free Trade Agreement signed between the United States and Israel. The PA participates roughly every other year in the World Trade Organization (WTO) Ministerial meetings as an ad hoc observer, most recently in 2017. The next WTO Ministerial meetings were planned for June 2020 but have been postponed indefinitely due to COVID-19.

Limits on Foreign Control and Right to Private Ownership and Establishment

The PA’s 2014 amendments to the Promotion of Investment in Palestine Law No. 1 of 1998 shifted promotional incentives from a focus on those that benefit from providing large capital investments to industrial projects to a focus on employment growth, development of human capital, increased exports, and local sourcing of machinery and raw materials (see Investment Incentives section below).

Under the Jordanian Company Law of 1966 (still in effect in the West Bank), a foreign investor should own no more than 49 percent of a company, with a local partner holding at least 51 percent. Currently, foreign investors can obtain exceptions to this law by working with PIPA and the Ministry of National Economy (MONE). Foreign and domestic private entities may establish and own business enterprises in areas under PA civil control. The PA’s draft of a new Company Law, which would replace the outdated 1966 law, is still under review. Once approved, it would introduce best practices from regional models for debt resolution/insolvency and protecting minority investors and would simplify the registration process for starting a business.

Certain investment categories require pre-approval by the Council of Ministers (PA Cabinet). These include investments involving (1) weapons and ammunition, (2) aviation products and airport construction, (3) electrical power generation/distribution, (4) reprocessing of petroleum and its derivatives, (5) waste and solid waste reprocessing, (6) wired and wireless telecommunication, and (7) radio and television. Purchase of land by foreigners also requires approval by the Council of Ministers. U.S. investors are not specifically disadvantaged or singled out by any of the ownership or control mechanisms, sector restrictions, or investment screening mechanisms, relative to other foreign investors.

Other Investment Policy Reviews

The Office of the Quartet (OQ), an international organization working to support Palestinian economic development, rule of law, and improved movement and access for goods and people, has continued to work on advancing economic initiatives and the application of the rule of law. The OQ gives priority to areas where accomplishments are most viable under current conditions. Its current priorities focus on: (i) energy; (ii) water; (iii) rule of law; (iv) movement and trade; and (v) telecommunication. The Organization for Economic Cooperation and Development (OECD), the WTO, and the United Nations Conference on Trade and Development (UNCTAD) do not provide investment policy reviews for the West Bank and Gaza.

Business Facilitation

Foreign companies may register businesses in the West Bank and Gaza according to the 1964 Companies Law (Gaza, under Hamas’s direction, passed a separate Companies Law in 2012). The PIPA provides information online about the business registration process at http://www.pipa.ps/page.php?id=1c1ba7y1842087Y1c1ba7  but the PA does not offer a business registration website.

The West Bank and Gaza rank low in Starting a Business on the World Bank’s Ease of Doing Business Report, with a score in 2020 of 173 out of 190. The PA is working to simplify the process of starting a business, which currently requires ten steps and 43.5 days to complete, according to the World Bank report. The timeline includes two days to register the company, one day to pay registration fees, two days to register for taxes, one day to register with the Chamber of Commerce, and 36 days to obtain the required business license from the Municipality. Foreign investors must also obtain approval from the MONE and submit the application for registration through a local attorney.

Foreign companies may work with PIPA to obtain the investment registration certificate and investment confirmation certificate. See http://pipa.ps/page.php?id=1c395fy1849695Y1c395f  and http://pipa.ps/page.php?id=1c1ba7y1842087Y1c1ba7 . In addition, foreign companies seeking to open branches in the West Bank or Gaza must submit registration documents certified by the Palestinian Liberation Organization (PLO) representative in their home country. Due to the closure of the PLO office in New York in 2018, U.S investors can use the PLO office in Canada. According to PIPA, the majority of Palestinian companies are small- and medium-sized enterprises (SMEs), and the PA has sought to support SME development and financing. The PA categorizes SMEs according to staff size: small enterprises employ up to nine people, while medium enterprises employ 10-19 people.

Outward Investment

The PA does not have any mechanism for tracking outward private investment.

The PA recognizes the international trade agreements listed below, which refer implicitly or explicitly to WTO rules. These include:

1. Paris Protocol Agreement with Israel (1994) – free trade in products between Israel and Palestinian markets
2. Technical and Economic Cooperation Accord with Egypt (1994)
3. Trade Agreement between the PA and Jordan (1995)
4. Duty Free Arrangements with the United States (1996)
5. The EuroMed Interim Association Agreement on Trade and Co-operation (1997)
6. Interim Agreement between European Free Trade Area (EFTA) states and the PLO (1997)
7. Joint Canadian-Palestinian Framework for Economic Cooperation and Trade (1999)
8. Agreement on Commercial Cooperation with Russia – extends MFN status
9. Greater Arab Free Trade Area, to which the PA is a party (2001)
10. Free Trade Agreement with Turkey (2004)
11. Trade Agreement with the EU – duty-free access for Palestinian agricultural and fishery goods (2011)
12. Free Trade Agreement with Mercosur (2011)
13. Unilateral acts by other Arab trade partners extending preferential treatment to trade with the Palestinians.

Since 1996, duty-free treatment has been available for all goods exported from the West Bank and Gaza to the United States, provided they meet qualifying criteria as spelled out in the U.S.-Israel Free Trade Area (FTA) Implementation Act of 1985, as amended. The benefits for imports provided by all of the trade agreements listed above are subject to the Israeli government’s application of the terms, since all goods destined for the West Bank or Gaza must enter through Israeli-controlled crossings or ports. The Israeli government generally applies duties and tariffs consistent with its trade agreements, not with the PA’s trade agreements.

The West Bank and Gaza do not have a bilateral taxation treaty with the United States.

Transparency of the Regulatory System

The PA Ministry of Justice, in cooperation with Birzeit University, publishes online the Official Gazette of all PA legislation since 1994 at http://muqtafi.birzeit.edu/en/index.aspx .

The PA established a sound legislative framework for business and other economic activity in the areas under its jurisdiction in 1994; however, implementation and monitoring of implementation needs to be strengthened, according to many observers. The PA Ministry of National Economy is in the process of drafting key pieces of economic legislation to improve business and commercial regulation, including an updated Companies Law (already under consideration by the President’s Office), new intellectual property rights protections, a Competition Law, and procedures for resolving bankruptcy. The PA President’s approval in May 2016 of the Secure Transactions Law, Leasing Law, and Moveable Assets Regulations, greatly improved Palestinians’ access to credit.

The PA Ministry of National Economy holds stakeholder meetings for draft commercial legislation to gather input from the private sector and publishes drafts of the proposed laws. Because the Palestinian Legislative Council (PLC) has not met since 2007, each law must be approved by the Cabinet and adopted as a Presidential decree, an effort that often delays reform efforts. The proposed laws will likely need to be approved by the PLC, should it reconvene in the future. On December 22, 2018, PA President Abbas announced that the PA Constitutional Court had issued a decision formally dissolving the PLC and calling for PLC elections within six months. As of April 2021, no PLC elections have taken place, but are now scheduled for May 2021. The PA budget execution reports are publicly available, including on the Ministry of Finance website ( http://www.pmof.ps/pmof/index.php ). A regulatory body governs the insurance sector, and the PA has adopted a telecommunications law that calls for establishment of an independent regulator. Establishment of the telecommunications regulator remains stalled, however.

The Palestinian Standards Institution (PSI) also has a website with information on standards for the business community ( http://www.psi.pna.ps/en  ).

International Regulatory Considerations

The PA is not a member of the WTO but has consistently expressed an interest in Permanent Observer status, having participated in the 2005, 2009, 2011, 2013, 2015, and 2017 WTO Ministerial meetings as an ad hoc observer.

Legal System and Judicial Independence

Commercial disputes can be resolved by way of conciliation, mediation, or domestic arbitration. Arbitration in the Palestinian territories is governed by PA Law No. 3 of 2000. International arbitration is accepted. The law sets out the basis for court recognition and enforcement of arbitral awards. Generally, every dispute may be referred to arbitration by agreement of the parties, unless prohibited by the law’s Article 4, including disputes involving marital status, public order issues, and cases where no conciliation is permitted. If the parties do not agree on the formation of the arbitration tribunal, each party may choose one arbitrator and those arbitrators shall then choose a presiding arbitrator, unless the parties agree to do otherwise.

Judgments made in other countries that need to be enforced in the West Bank and Gaza are honored, according to the prevailing law in the West Bank, primarily Jordanian Law No. 8 of 1952 as amended by the PA in 2005. Gazan courts refer back to Israeli and Egyptian laws, which were in force prior to 1993, for matters not covered by PA law; however, the de facto Hamas-led government in Gaza does not consistently apply PA, Egyptian, or Israeli laws.

Laws and Regulations on Foreign Direct Investment

Laws that govern foreign direct investment are overseen by the PA Ministry of National Economy.

Competition and Antitrust Laws

There is no Competition Law for the West Bank and Gaza currently. The PA drafted a law in 2003 that was not enacted. An effort to develop, draft, and implement a new Competition Law began in 2017 with the assistance of the U.S. Department of Commerce’s Commercial Law Development Program (CLDP). The PA’s resulting revised draft law has not yet been issued and is currently undergoing review and re-drafting before it can go to the cabinet. Because of the geographic divisions between and within the West Bank and Gaza, many firms have little to no competition, causing variations in both pricing and firm productivity between regions and sometimes between cities within a region.

Expropriation and Compensation

The Investment Law, as amended in 2014, prohibits expropriation and nationalization of approved foreign investments, other than in exceptional cases for a public purpose with a court decision and in return for fair compensation based on market prices and for losses suffered because of such expropriation.

PA sources and independent lawyers say that any Palestinian citizen can file a petition or a lawsuit against the PA. In 2011, the PA established independent, specialized courts for labor, chambers, customs, and anti-corruption. These courts are composed of judges and representatives from the Ministries of National Economy and Finance. There is general confidence in the judicial system and businesses rely on the courts and police to enforce contracts and seek redress, though alternative means of arbitration are still used to resolve some disputes.

Dispute Settlement

ICSID Convention and New York Convention

The PA signed the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) in January 2015, and the Convention entered into force in April 2015. The PA is not a member of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention). In 2014, the IMF reported an average of 540 days to resolve a standard commercial dispute through the courts, with 44 separate procedures required for dispute resolution. Litigants suggested that the decisions at different levels of the courts were inconsistent, prompting more appeals and a larger overall caseload.

Investor-State Dispute Settlement

The Investment Law, as amended in 2014, provides for dispute resolution between the investor and official agencies either via binding independent arbitration or by a Palestinian court decision. It has been reported that some contracts contain clauses referring dispute resolutions to the London Court of Arbitration. The Jerusalem Arbitration Center (JAC) provides a forum for resolving business disputes between Palestinian and Israeli companies.

International Commercial Arbitration and Foreign Courts

International arbitration is permitted and governed by Law No. 3 of 2000 (see section on Legal System and Judicial Independence above). Generally, every dispute may be referred to arbitration by the agreement of the parties, unless prohibited by law. Article 4 of the law states that certain disputes cannot be referred to arbitration, including those involving marital status, public order issues, and cases where no conciliation is permitted. In the event that parties do not agree on the formation of the arbitration panel, each party may choose an arbitrator and those arbitrators shall choose a presiding arbitrator unless the parties agree to proceed otherwise. Arbitral awards made in other countries that need to be enforced in the West Bank and Gaza are honored, according to the prevailing law in the West Bank, mainly Jordanian Law No. 8 of 1952 as amended by the PA in 2005. The law covers many issues in relation to the enforcement of foreign judgments.

Bankruptcy Regulations

The World Bank’s 2020 Doing Business Report did not cite any cases involving a foreclosure, liquidation, or reorganization proceedings filed in the last 12 months. According to that report, no priority is assigned to post-commencement creditors, and debtors may only file for liquidation. The PA Ministry of National Economy, with the assistance of international donors, is in the process of drafting several proposed laws related to bankruptcy, but no bankruptcy reform has been enacted. The pending Companies Law includes a chapter on insolvency.

Investment Incentives

To align the PA’s development priorities with the investment incentives provided by Palestinian law, in 2014, PA President Abbas enacted by decree amendments to the Promotion of Investment in Palestine Law No. 1 of 1998, also known as the investment and tax law. These amendments extended tax incentives to small and medium sized enterprises, exporters, and agriculture and tourism businesses; and shifted the focus towards incentives on human capital instead of fixed assets. The amendments added tourism and agricultural projects to qualifying industries and removed real estate development projects from the industries promoted through the incentives. The amendments also provided additional authority to the Palestine Investment Promotion Agency (PIPA) to create incentive packages targeted to individual business needs ( www.pipa.ps ). The PA is also currently working on a package of incentives in the information and communications technology (ICT), industrial, and energy sectors, in addition to those focused on development in Area C.

The 2014 amendment to Article 23 of the Promotion of Investment in Palestine Law No. 1 of 1998 granted the following incentives and exemptions for projects approved by PIPA:

• Income tax of zero percent for producers of agricultural products whose income is directly generated from land cultivation or livestock.
• Income tax of 5 percent commencing from the date of realizing profit, but not exceeding four years of operation, whichever is earlier.
• Income tax of 10 percent for a period of three years commencing from the end of the first phase. It will thereafter be calculated based on the applicable and in-effect percentages and segments.

Projects that may be targeted for taxation incentives and support services include the following:

• Industrial sector projects;
• Tourism sector projects;
• New projects within any sector that employ at least 25 workers during the period of benefit;
• Projects that increase their production exports ratio by more than 40 percent;
• Projects within any sector that use approximately 70 percent locally sourced machinery and raw materials;
• Any existing project that adds 25 workers to the number of existing workers;
• Developmental expansions of projects (to be based on percentage of paid-in capital but not land value);
• Projects in which the PIPA Board of Directors provides specific incentive packages that comply with special criteria, meet international environment conditions or alternative energy services, or are projects located within areas of developmental priorities.
• Any project determined by PIPA’s Board of Directors to advance the public interest (subject to the nature of a project’s activity, geographical location, the extent to which the project contributes to increasing exports, creating job opportunities, advancing development, transferring knowledge, and supporting research and development for the purposes of enhancing the public benefit).

Excluded from the incentives are:

• Commercial projects;
• Insurance companies;
• Banks;
• Money changers;
• Real estate projects;
• Some electricity projects;
• Telecommunication services;
• Commercial services;
• Crushers;
• Quarries;
• Any companies that obtained concessions contracts from the Council of Ministers and operate as monopolistic companies.

In cooperation with the Palestinian Industrial Estates & Free Zones (PIEFZA), PIPA in 2017 introduced incentive packages targeting investors in the Bethlehem Industrial Park and Jericho Agro Industrial Park. The packages extend incentives for three extra years, reducing income tax by 66 percent for eight years, followed by a 33 percent reduction for three years. Tax incentives are also included for financial institutions that provide financing for the enterprises within the industrial zones.

Foreign Trade Zones/Free Ports/Trade Facilitation

There are no foreign trade zones or free ports in the West Bank or Gaza.

Performance and Data Localization Requirements

The current performance requirements for investment incentives focus on job growth and locally sourced production. Under PA law, there are no data storage requirements for IT companies. The PA does not follow a forced localization policy and there are no requirements for foreign IT providers to turn over source code or provide access to surveillance.