Policies Towards Foreign Direct Investment

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, 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.

Limits on Foreign Control and Right to Private Ownership and Establishment

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.

Other Investment Policy Reviews

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

Business Facilitation

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 (DIAN) portal at: www.dian.gov.co  to obtain a taxpayer ID (RUT). Business founders must visit DIAN 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 .

Outward Investment

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

Bilateral Investment Treaties and Free Trade Agreements: Colombia has free trade agreements or treaties with investment provisions with the United States, the European Union, the European Free Trade Association, MERCOSUR, CARICOM, Bolivia, Canada, Chile, Costa Rica, Cuba, Ecuador, El Salvador, Guatemala, Honduras, Israel, Mexico, Panama, Peru, the Republic of Korea, and Venezuela. Colombia has signed a trade agreement with the United Kingdom, but it is not yet in effect. Trade agreement negotiations are underway with Australia, Japan, New Zealand, and Singapore. Additionally, Colombia has stand-alone bilateral investment treaties with China, France, India, Japan, Peru, Singapore, Spain, Switzerland, Turkey, and the United Kingdom.

Bilateral Taxation Treaties: Colombia has active Agreements for the Elimination of Double Taxation in Income Tax Matters with the Andean Community of Nations, Canada, Chile, the Czech Republic, India, Mexico, Portugal, the Republic of Korea, Spain, Switzerland, and the United Kingdom. It has signed but not yet implemented additional treaties with France, Italy, Japan, and the United Arab Emirates, is currently negotiating agreements with Germany and the Netherlands, and has expressed interest in renewing negotiations with the United States. It has Agreements to Eliminate the Double Taxation of Air and Maritime Navigation Companies with Argentina, Brazil, Chile, Germany, Italy, Panama, the United States, and Venezuela.

Transparency of the Regulatory System

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 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.

International Regulatory Considerations

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).

Legal System and Judicial Independence

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.

Laws and Regulations on Foreign Direct Investment

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).

Competition and Antitrust Laws

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.

Expropriation and Compensation

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.

Dispute Settlement

ICSID Convention and New York Convention

Colombia is a member of the New York Convention on Investment Disputes, the International Center for the Settlement of Investment Disputes (ICSID), and the Multilateral Investment Guarantee Agency. Colombia is also party to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. The National and International Arbitration Statute (Law 1563), modeled after the UNCITRAL Model Law, has been in effect since 2012.

Investor-State Dispute Settlement

Domestic law allows contracting parties to agree to submit disputes to international arbitration, provided that: the parties are domiciled in different countries; the place of arbitration agreed to by the parties is a country other than the one in which they are domiciled; the subject matter of the arbitration involves the interests of more than one country; and the dispute has a direct impact on international trade. The law permits parties to set their own arbitration terms, including location, procedures, and the nationality of rules and arbiters. Foreign investors have found the arbitration process in Colombia complex and dilatory, especially with regard to enforcing awards, and slow and unresponsive at times. However, some progress has been made in the number of qualified professionals and arbitrators with ample experience on transnational transactions, arbitrage centers with cutting-edge infrastructure and administrative capacity, and courts that are progressively more accepting of arbitration processes.

There were several pending investment disputes in Colombia in 2020, including:

• A project management consultant contract with a state-owned entity related to the refurbishment of an oil refinery. Claims arise out of a $2.4 billion liability imposed by the national comptroller general.
• Two separate shareholder claims related to a Colombian bank that Colombia put under new management and ultimately seized in 1998.
• Three separate claims related to ownership and mining rights related to the Constitutional Court’s decision to ban mining in a range of high-altitude wetlands.
• Ownership of a mobile communications subsidiary, with claims arising out of the government’s order that certain assets revert to State control on expiration of a concession.
• Majority shareholder claims arising out of the government’s decision to seize and liquidate an electricity provider.

According to the Doing Business 2020 report, the time from the moment a plaintiff files a lawsuit until actual payment and enforcement of the contract averages 1,288 days. Traditionally, most court proceedings are carried out in writing and only the evidence-gathering stage is carried out through hearings, including witness depositions, site inspections, and cross-examinations. The government has accelerated proceedings and reduced the backlog of court cases by allowing more verbal public hearings and creating alternative court mechanisms. The Code of General Procedure that entered into force in 2014 also establishes oral proceedings that are carried out in two hearings, and there are now penalties for failure to reach a ruling in the time limit set by the law. Enforcement of an arbitral award can take between six months and one and a half years; a regular judicial process can take up to seven years for private parties and upwards of 15 years in conflicts with the State. Thus, arbitration results are cheaper and much more efficient. According to the Doing Business report, Colombia has made enforcing contracts easier by simplifying and speeding up the proceedings for commercial disputes. In 2020, Colombia’s global ranking in the enforcing contracts category of the report held at 177.

International Commercial Arbitration and Foreign Courts

Foreign judgments are recognized and enforced in Colombia once an application is submitted to the Civil Chamber of the Supreme Court. In 2012, Colombia approved the use of the arbitration process via adoption of new legislation (Law 1563) based on the UNCITRAL Model Law. The statute stipulates that arbitral awards are governed by both domestic law as well as international conventions (New York Convention, Panama Convention, etc.). This has made the enforcement of arbitral awards easier for all parties involved. Arbitration in Colombia is completely independent from judiciary proceedings, and, once arbitration has begun, the only competent authority is the arbitration tribunal itself. The CTPA protects U.S. investments by requiring a transparent and binding international arbitration mechanism and allowing investor-state arbitration for breaches of investment agreements if certain parameters are met. The judicial system is notoriously slow, leading many foreign companies to include international arbitration clauses in their contracts.

Bankruptcy Regulations

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 is 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.

Investment Incentives

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 $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.

Foreign Trade Zones/Free Ports/Trade Facilitation

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 commitments, depending on their total assets, during the first three years.

Colombia also has initiated Special Economic Zones for Exports in the municipalities of Buenaventura, Cucuta, Valledupar, and Ipiales in order 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 and Data Localization Requirements

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 CTPA, 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.

Real Property

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.

Intellectual Property Rights

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 the National Food and Drug Institute (INVIMA). Primary responsibility for enforcement resides with the Fiscalia General de la Republica (FGR), the Tax and Customs Authority (DIAN), and the Fiscal and Customs Police (POLFA).

The Intersectoral Intellectual Property Commission (CIPI) serves as the interagency technical body for IPR issues. Colombia aims to ratify the Treaty of Marrakesh in 2021, and CIPI has also mentioned progress toward ratification of the Beijing Treaty, the reactivation and update of the Anti-Piracy Agreement for Colombia, and the possible accession of Colombia to the Hague System on Industrial Designs. The last comprehensive interagency policy for IPR issues (Conpes 3533) was issued by the National Planning Department in 2008; the pandemic delayed its planned 2020 publication of a new national policy for IPR. 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 provides a 20-year protection period for patents, a 10-year term for industrial designs, and 20- or 15-year protection for new plant varieties, depending on the species. 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. On Colombia’s request, UPOV conducted a review and identified a non-conformity that Colombia asserts are addressed by two decrees, 2468 and 2687. 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, Colombia’s National Copyright Directorate (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/.

Capital Markets and Portfolio Investment

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.

Money and Banking System

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.

Foreign Exchange and Remittances

Foreign Exchange

There are no restrictions on transferring funds associated with FDI. Foreign investment into Colombia must be registered with the central bank in order to secure the right to repatriate capital and profits. Direct and portfolio investments are considered registered when the exchange declaration for operations channeled through the official exchange market is presented, with few exceptions. The official exchange rate is determined by the central bank. The rate is based on the free market flow of the previous day. Colombia does not manipulate its currency to gain competitive advantages.

Remittance Policies

The government permits full remittance of all net profits regardless of the type or amount of investment. Foreign investments must be channeled through the foreign exchange market and registered with the central bank’s foreign exchange office within one year in order for those investments to be repatriated or reinvested. There are no restrictions on the repatriation of revenues generated from the sale or closure of a business, reduction of investment, or transfer of a portfolio. Colombian law authorizes the government to restrict remittances in the event that international reserves fall below three months’ worth of imports. International reserves have remained well above this threshold for decades.

Sovereign Wealth Funds

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, the number of state-owned companies is 105, 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.

Privatization Program

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 have to 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 participate in PPPs, 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 to 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 a framework for public works projects.  Interpretations of Ley 80 do not establish a liability cap on potential judgments and view company officials equal 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 kinds of 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.

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 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 OECD accession, the Colombian government worked with the OECD in a series of assessments in order 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. 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.

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 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.

Additional Resources 

Department of State

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

Department of Labor

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

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 92nd 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 exists.

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. It 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.

Resources to Report Corruption

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 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 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 October 2019. The report mentions progress on labor market reforms, but cites a weakening of the labor market given decelerating economic growth, stalled progress on labor force participation, and persistently high income inequality. At the end of 2020, 49.2 percent of the urban workforce was working in the informal economy. The overall unemployment rate at that time was 17.3 percent. Both figures represent deteriorations due to the economic shock of the COVID-19 pandemic. Colombia has a wide range of skills in its workforce, including managerial-level employees who are often bilingual, but faces large skills gaps. 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 in order 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 been cracking down on using temporary or contract workers for jobs that are not temporary in nature, although 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 a 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 January 2018, the Department of Labor published the first periodic review of progress to address issues identified in the submission report. For 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

*Data from the Colombian Statistics Departments, DANE, (https://www.dane.gov.co/) and the Colombian central bank (http://www.banrep.gov.co). Note: U.S. FDI reported by Banco de la Republica is not historically adjusted.

Table 3: Sources and Destination of FDI

Colombian data is not available from the IMF’s coordinated direct investment survey.

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

Policies Towards Foreign Direct Investment

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

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

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

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

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

Limits on Foreign Control and Right to Private Ownership and Establishment

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

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

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

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

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

Other Investment Policy Reviews

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

Business Facilitation

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

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

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

Outward Investment

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

Nicaragua has signed and ratified bilateral investment treaties with Argentina, Belgium, Chile, the Czech Republic, Denmark, Finland, France, Germany, Italy, Iran, Luxembourg, the Netherlands, the Russian Federation, Spain, Switzerland, and the United Kingdom. Nicaragua also has treaties with investment provisions with Chile, Mexico, Panama, Taiwan, South Korea, and CAFTA-DR member states as part of free trade agreements.

Nicaragua does not have a bilateral income tax treaty with the United States or any other country. Tax authorities increased audits of foreign investors in 2017. During the political crisis, these audits became more aggressive and threatening, including reports of seven different government entities conducting audits on the same day, increased scope of audits (e.g., requesting seven years of documents instead of the usual practice of two years), and increased fines. Companies that participated in work stoppages organized by opposition leaders reported audits immediately following the work stoppages.

These audits nearly always result in findings that additional taxes are owed. The new tax bills are often accompanied by fines equal to the amount of taxes purportedly owed. These fines appear to lack a legal basis. The government has seized private property and jailed individuals for failure to pay these tax bills and fines, often while legal proceedings are still ongoing. These tax issues have impacted U.S. companies or companies owned by U.S. citizens.

The government’s tax reforms passed on February 27, 2019, continues to prejudice importers and U.S. businesses. The tax reforms tripled the alternative minimum tax rate from 1 to 3 percent for companies earning more than five million dollars in gross annual revenue, and it doubled (to 2 percent) the tax for businesses with incomes between $1.9 and five million dollars in gross revenue. The law also increased the selective consumption tax for many items. The selective consumption tax disadvantages importers because customs authorities charge the tax on imported goods at the border based on erroneous valuations that can triple the declared value of the goods. Domestic producers only pay the selective consumption tax at the actual point of sale. The government promised revisions to the reform after an observation period of 90 days, but as of April 2021—more than two years after the reform was implement—still has not proposed revisions. The reforms, combined with increases in employer contributions to social security, have narrowed profit margins and increased consumer prices.

Several large companies, including some U.S. companies and franchises, are involved in tax disputes with the government. The government is assessing income taxes based on gross revenue rather than net profit as provided by law. This new tax calculation imposed by the government could force the closure of these companies.

Transparency of the Regulatory System

The government does not have transparent policies to establish clear “rules of the game.” Legal, regulatory, and accounting systems exist but implementation is opaque. The government does not foster competition on a non-discriminatory basis. In fact, the Ortega regime maintains direct control over various sectors of the economy to enrich its inner circle. Ortega also controls the judicial system and there is no expectation of fair and objective rulings. Investors regularly complain that regulatory authorities are arbitrary, negligent, or slow to apply existing laws, at times in an apparent effort to favor one competitor over another.

The executive branch retains ultimate rule-making and regulatory authority. In practice, the relevant government agency is empowered to levy fines directly. In some instances, the prosecutor’s office may also bring enforcement actions. These actions are widely perceived to be controlled by the executive branch and are neither objective nor transparent.

NGOs and private sector associations do not manage informal regulatory processes. There have not been recent regulatory or enforcement reforms.

There is no accountancy law in Nicaragua. International accounting standards are not a focus for most of the economy, but major businesses typically use IFRS standards or U.S. GAAP. The national banking authority officially requires loans to be submitted using IFRS standards.

Draft legislation is ostensibly made available for public comment through meetings with associations that will be affected by the proposed regulations. Drafts are commonly not published on official websites or available to the public. The legislature is not required by law to give notice. The executive branch proposes most investment legislation; the Sandinista party has a supermajority in the National Assembly and seldom modifies such legislation.

Nicaragua publishes regulatory actions in La Gaceta, the official journal of government actions, including official summaries and the full text of all legislation. La Gaceta is available online. There are no effective oversight or enforcement mechanisms to ensure the government follows administrative processes.

Public finances and debt obligations are not transparent. The Central Bank has increasingly refused to publish key economic data starting in 2018, including public finances and debt obligations. The Central Bank published limited data in 2020 as a condition of funding from the International Monetary Fund. There is no accountability or oversight.

International Regulatory Considerations

All CAFTA-DR provisions are fully incorporated into Nicaragua’s national regulatory system. However, authorities willingly flout the national regulatory system, and investors claim that some customs practices violate CAFTA-DR provisions.

Nicaragua is a signatory to the Trade Facilitation Agreement and reported in July 2018 that it had implemented 81 percent of its commitments to date; however, Nicaragua’s trade facilitation progress remains beset with bureaucratic inefficiency, corruption, and lack of transparency. Nicaragua is a member of the WTO and notifies the WTO Committee on Technical Barriers to Trade of draft technical regulations.

In 2020 the government passed amendments to the “Consumer Protection Law” to treat financial services as a basic good and forbid commercial banks operating in Nicaragua from refusing financial services without a reason recognized in Nicaraguan law. If implemented, this provision could threaten commercial banks’ capacity to enforce international anti-money laundering compliance measure, avoid criminal or suspicious transactions, or meet their contractual or other legal obligations to implement international sanctions laws.

Legal System and Judicial Independence

Nicaragua is a civil law country in which legislation is the primary source of law. The legislative process is found in Articles 140 to 143 of the Constitution. However, implementation and enforcement of these laws is neither objective nor transparent. Contracts are ostensibly legally enforced through the judicial system, but extrajudicial factors are more likely to influence rulings than the facts at issue. The legal system is weak and cumbersome. Nicaragua has a Commercial Code, but it is outdated and rarely used. There are no specialized courts.

Members of the judiciary, including those at senior levels, are widely believed to be corrupt and subject to significant political pressure, especially from the executive branch. The judicial process is neither competent, fair, nor reliable. Regulations and enforcement actions are technically subject to judicial review, but appeals procedures are neither transparent nor objective.

Laws and Regulations on Foreign Direct Investment

Nicaragua has laws that relate to foreign investment but implementation, enforcement, and interpretation are subject to corruption and political pressure. The CAFTA-DR Investment Chapter ostensibly establishes a secure, predictable legal framework for U.S. investors in Central America and the Dominican Republic. The agreement provides six basic protections: (1) nondiscriminatory treatment relative to domestic investors and investors from third countries; (2) limits on performance requirements; (3) the free transfer of funds related to an investment; (4) protection from expropriation other than in conformity with customary international law; (5) a minimum standard of treatment in conformity with customary international law; and (6) the ability to hire key managerial personnel without regard to nationality. The full text of CAFTA-DR is available at http://www.ustr.gov/trade-agreements/free-trade-agreements/cafta-dr-dominican-republic-central-america-fta/final-text .

Nicaragua’s Foreign Investment Law (2000/344) defines the legal framework for foreign investment. It permits 100 percent foreign ownership in most industries. (See Limits on Foreign Control and Right to Private Ownership and Establishment for exceptions.) It also establishes national treatment for investors, guarantees foreign exchange conversion and profit repatriation, clarifies foreigners’ access to local financing, and reaffirms respect for private property.

MIFIC maintains an information portal regarding applicable laws and regulations for trade and investment at http://www.tramitesnicaragua.gob.ni , which includes detailed information on administrative procedures for investment and income generating operations such as the number of steps, contact information for relevant entities, required documents costs, processing time, and applicable laws. The site is available only in Spanish.

Competition and Antitrust Laws

The Institute for the Promotion of Competition (Procompetencia) investigates and disciplines businesses engaged in anticompetitive business practices but has no effective power. The Ortega regime controls decisions regarding competition.

Expropriation and Compensation

There is a long history of expropriations in Nicaragua and existing cases of the government expropriating property regardless of legal basis. As a result, considerable uncertainty remains in securing property rights (see Protection of Property Rights).

During the ongoing crisis, multiple landowners reported land invasions by government-affiliated actors. Landowners were sometimes able to resolve these invasions through government connections or bribes. In instances where the government actually claimed legal right to the land, offers of compensation—if any—are calculated on cadastral value, which vastly underestimates the actual value of the land. Ortega declared on numerous occasions that the government would not act to evict those who had illegally taken possession of private property.

There is generally no credible due process for land expropriations. Conflicting land title claims are abundant and judicial appeal in these cases is very challenging. Since 2018, the government has used proxies and its control over the judicial and executive branches to use land seizures to punish opposition actors and enrich government insiders. In 2020, the government increased seizures of property based on coercive tax bills.

Dispute Settlement

ICSID Convention and New York Convention

Nicaragua is a member of the Convention of the Settlement of Investment Disputes between States and Nationals of Other States (ICSID). It signed the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral awards in 2003. There is no specific domestic legislation providing for enforcement under the ICSID Convention or 1958 New York Convention.

Investor-State Dispute Settlement

CAFTA-DR establishes an investor-state dispute settlement mechanism. An investor who believes the government has breached a substantive obligation under CAFTA-DR or that the government has breached an investment agreement may request binding international arbitration in a forum defined by the Investment Chapter in the Agreement. There have only been two official claims or disputes by U.S. investors under CAFTA-DR, the most recent in April 2021. Both cases are still pending before the ICSID. Many U.S. investors reported customs and other procedures that they allege are not compliant with Nicaragua’s obligations under CAFTA-DR. Businesses operating in Nicaragua say the investor-state dispute settlement mechanism does not represent a viable means of due process to enforce CAFTA-DR obligations due to the high expense and likelihood of becoming a political target. Many companies facing Nicaragua’s noncompliance with CAFTA-DR simply pay the fines or increased taxes.

Embassy Managua is unaware of any instances of local courts recognizing and enforcing arbitral awards issued against the government. Given the judiciary’s lack of independence and vulnerability to political pressure, it is unlikely the courts would recognize such a judgment.

Investors should be aware that the government can take adverse action against them at any given time with limited basis or recourse. However, it does not appear that foreign investors have been targeted due to nationality.

International Commercial Arbitration and Foreign Courts

Alternative dispute resolution (ADR) is not common, and many Nicaraguans companies are unfamiliar with the practice. The Mediation and Arbitration Law (2005/540) is based on the UNCITRAL model law and established the legal framework for ADR. The Nicaraguan Chamber of Commerce and Services (CCSN) founded Nicaragua’s Mediation and Arbitration Center. CCSN conducts trainings and other events to promote the value of ADR and encourage its use. Arbitration clauses are included in some business contracts, but their enforceability has not been tested in Nicaraguan courts.

The Embassy is unaware of any local courts that have enforced foreign arbitral awards. In general, enforcement of court orders is frequently subject to non-judicial considerations. The Embassy is unaware of any recent domestic decisions involving investment disputes with state-owned entities (SOE).

Bankruptcy Regulations

Bankruptcy provisions are included in the Civil and Commercial Codes, but there is no tradition or culture of bankruptcy in Nicaragua. Companies simply close their operations and set up a new entity without going through a formal bankruptcy procedure, effectively leaving creditors unprotected. Creditors typically attempt to collect as much as they can directly from the debtor to avoid an uncertain judicial process or give up on any potential claims. Nicaragua’s rules on bankruptcy focus on the liquidation of business entities rather than on reorganization and do not provide equitable treatment of creditors.

Investment Incentives

The Social Housing Construction Law (2009/ 677) provides incentives for the construction of housing units 36–60m2 in size with construction costs less than $30,000 per unit. Developers are exempt from paying local taxes on the construction, purchase of materials, equipment, or tools.

The Hydroelectric Promotion Law (amended 2005/531) and the Law to Promote Renewable Resource Electricity Generation (2005/532) provide incentives to invest in electricity generation, including duty free imports of capital goods and income and property tax exemptions. Regulatory concerns limit investment despite these incentives (see Transparency of the Regulatory System). The National Assembly is required for all projects larger than 30 megawatts.

The Tourism Incentive Law (amended 2005/575) includes the following incentives for investments of $30,000 or more outside Managua and $100,000 or more within Managua: income tax exemption of 80 to 90 percent for up to 10 years; property tax exemption for up to 10 years; exoneration from import duties on vehicles; and value added tax exemption on the purchase of equipment and construction materials.

The Fishing and Fish Farming Law (2004/489) exempts gasoline used in fishing and fish farming from taxes. The Forestry Sector Law (2003/462) provides income, property, and municipal tax incentives for plantation investments and tax exemptions on importing wood processing machinery and equipment. The Special Law on Mining, Prospecting and Exploitation (2001/387) exempts mining concessionaires from import duties on capital inputs (see Transparency of the Regulatory System for additional information on the mining sector).

The government has at times issued sweeping tax incentives to promote one-time large investments, including a large foreign-owned power plant in 2020.

Nicaragua does not have a practice of issuing guarantees for foreign direct investment. It has jointly financed some infrastructure projects in the past. Nicaragua mandates joint ventures with government agencies in the energy sector.

Foreign Trade Zones/Free Ports/Trade Facilitation

Nicaragua’s Free Trade Zone (FTZ) has historically been a key driver of the Nicaraguan economy. Reduced demand in the United States due to the COVID-19 pandemic caused FTZ exports to fall 15 percent in 2020 and companies to suspend workers. However, by the beginning of 2021 employment had returned almost to 2019 levels (123,000 employees). The FTZ formerly enjoyed a good relationship with the government. During the crisis, however, investors report fewer interactions with the FTZ Commission, which regulates the FTZ. Due to political uncertainty, many FTZ investors delayed capital investments, while some have moved production lines and operations to other countries.

The Free Zones Incentive Law (Decree 46-91 and amendments) and Law 917 – Free Zone Export Law passed in 2015 (including Decree 12-2016) grants FTZ companies: a permanent exemption from all import duties and taxes for raw materials, equipment, and other materials necessary to operate the business, provided all products are exported; 100 percent income tax exemption for the first 10 years of operation, and 60 percent income tax exemption thereafter; and exemptions from all export, value added, consumption, municipal, transportation, and property transfer taxes. FTZ companies must pay a deposit to guarantee final salaries and other expenses if a company goes out of business. FTZ salaries are negotiated separately from other wage negotiations and are set for five-year periods. FTZ companies may employ foreign employees with the permission of the FTZ Commission. The majority of FTZ companies are foreign investors.

Performance and Data Localization Requirements

Article 14 of the Nicaraguan Labor Code states that 90 percent of any company’s employees must be Nicaraguan. The Ministry of Labor may make exceptions when justified for technical reasons. The Nicaraguan Labor Code does not explicitly mention mandated local employment for senior management and boards of directors.

Visas and work permit procedures are not excessively onerous for foreign investors and their employees, but Nicaraguan authorities have denied entry to or expelled foreigners, including U.S. government officials, NGO workers, academics, journalists, and others for reasons not clearly defined. The Embassy has received reports of government officials reviewing social media posts to justify refusing entry. Residency permit applications can take 18 months or longer to receive final approval. In 2020 some foreign nationals reported the government refused to renew their residency permits.

The government does not impose performance requirements, conditions on permission to invest, or force foreign investors to use domestic content in goods or technology. Nicaraguan tax and customs incentives apply equally to foreign and domestic investors.

In 2020, the government passed the “Special Cybercrime” law, which requires telecom providers to retain one year’s worth of data for all users, and to provide that data to the government when asked. Nicaragua does not impose measures that prevent or unduly impede freely transmitting customer or other business-related data outside the country.

Real Property

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

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

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

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

Intellectual Property Rights

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

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

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

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

Capital Markets and Portfolio Investment

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

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

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

Money and Banking System

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

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

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

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

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

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

Foreign Exchange and Remittances

Foreign Exchange

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

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

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

Remittance Policies

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

Sovereign Wealth Funds

Nicaragua does not have a sovereign wealth fund.

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

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

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

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

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

Privatization Program

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

Many large businesses have active Responsible Business Conduct (RBC) programs that include improvements to the workplace environment, business ethics, and community development initiatives. Prominent business groups such as CCSN and the Nicaraguan Union for Corporate Social Responsibility (UniRSE) are working to create more awareness for corporate social responsibility. The Foreign Agents Law has forced many businesses to curtail their corporate social responsibility operations to avoid the burdensome and intrusive registration process.

The government does not factor RBC policies or practices into its procurement decisions nor explicitly encourage RBC principles. The government does not participate in the Extractive Industries Transparency Initiative or the Voluntary Principles on Security and Human Rights. There are no domestic transparency measures requiring the disclosure of payments made to governments. Nicaragua is not a signatory to the Montreux Document on Private Military and Security Companies or a participant in the International Code of Conduct for Private Security Service Providers’ Association.

Additional Resources 

Department of State

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

Department of Labor

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

Nicaragua has a developed legislative framework criminalizing acts of corruption, but the rampant corruption in Nicaragua begins at the top and pervades every element of government, including the national police, judiciary, customs authorities, and tax authorities. There is no expectation that the framework be enforced other than token cases to pretend compliance. A general state of permissiveness, lack of strong institutions, ineffective system of checks and balances, and the FSLN’s complete control of government institutions create conditions for corruption to thrive. The judicial system remained particularly susceptible to bribes, manipulation, and political influence. Companies reported that bribery of public officials, unlawful seizures, and arbitrary assessments by customs and tax authorities were common.

The government does not require private companies to establish internal controls. However, Nicaraguan banks have robust compliance and monitoring programs that detect corruption and attempt to pierce the façade of front men seeking to process transactions for OFAC-sanctioned and other actors. Multiple government officials and government-controlled entities have been sanctioned for corruption.

Nicaragua ratified the United Nations Convention against Corruption (UNCAC) in 2006 and the Inter-American Convention Against Corruption in 1999. It is not party to the OECD Convention on Combatting Bribery of Foreign Public Officials in International Business Transactions.

Businesses reported that corruption is an obstacle to FDI, particularly in government procurement, licensing, and customs and taxation.

Resources to Report Corruption

Nicaragua’s supreme audit institution is the Contraloria General de la República de Nicaragua (CGR). The CGR can be reached at +505 2265-2072 and more information is available at its website www.cgr.gob.ni .

President Daniel Ortega and his wife and Vice President Rosario Murillo dominate Nicaragua’s highly centralized, authoritarian political system. Ortega is serving in his third consecutive term as president after the Ortega-controlled Supreme Court ruled that a constitutional ban on the re-election of a sitting president was unenforceable. Ortega’s rule has been marked by increasing human rights abuses, consolidation of executive control, and consolidation of strategic business sectors that enrich him and his inner circle.

These abuses of power came to a head in April 2018 when Ortega’s security forces killed over 300 peaceful protesters. Government tactics included the use of live ammunition, snipers, fire as a weapon, and armed vigilante forces. Protesters built makeshift roadblocks and confronted the national police (NNP) and parapolice with rocks and homemade mortars. The ensuing conflict left over 325 dead, thousands injured, and more than 100,000 exiled in neighboring countries. Hundreds were illegally detained and tortured. Beginning in August 2018, the Ortega government instituted a policy of “exile, jail, or death” for anyone perceived as regime opponents. It amended terrorism laws to include prodemocracy activities and used the legislature and justice system to characterize civil society actors as terrorists, assassins, and coup-mongers. Political risk has increased dramatically as a result, and the future of the country’s political institutions remains very uncertain.

The NNP presence is ubiquitous throughout Nicaragua, including with randomized checkpoints. Excessive use of force, false imprisonment, and other harassment against opposition leaders—including many private sector leaders—is common. On March 5, 2020, the United States sanctioned the NNP for its human rights abuses against the people of Nicaragua.

Widespread dissatisfaction with Ortega’s authoritarian rule continues. Elections are scheduled for November 2021, and Ortega plans to compete for a fourth consecutive presidential term, raising doubts whether the Ortega regime will permit elections that are free and fair. The Department of State’s Bureau of Consular Affairs advises that travelers reconsider travel to Nicaragua due to limited healthcare availability and arbitrary enforcement of laws.

Despite the absence of reliable government data, think tank FUNIDES estimates unemployment rose from 5.5 percent in 2019 to 6.2 percent in 2020 according to the government’s definition, which considers any individual who worked at least one hour in a month, regardless of remuneration, to be employed. FUNIDES’ estimate exceeds government estimates of 5.4 percent unemployment, virtually unchanged from 2019 despite the COVID-19 pandemic. These numbers are difficult to ascertain with three-quarters of all employment in the informal economy. According to INSS, as of December 2020 the number of enrolled employees had fallen by 19 percent (173,000 employees) from March 2018 for a total of 723,000 enrolled employees. FUNIDES estimates that 30 percent (2 million people) of the population lived below the poverty line in 2020.

Nicaragua lacks skilled and technical labor. Employers often import administrative or managerial employees from outside of the country, as permitted by law. However, there has also been a recent trend of multinational companies promoting Nicaraguan employees to regional positions, and success by tech-focused out-sourcing companies. The minimum wage is low and was historically revised every six months through a dialogue process between the private sector, labor unions, and the government. However, since the onset of the crisis, the government has not invited the private sector to participate in these discussions.

Nicaraguan labor law requires employers to pay at year-end an equivalent of an extra month’s salary. Upon termination of an employee, the employer must pay a month’s salary for each year worked, up to five months’ salary. There are no special laws or exemptions from regular labor laws, including in the free trade zones. The CAFTA-DR Labor Chapter establishes commitments to ensure effective labor law enforcement within the country and comply with commitments made to the International Labor Organization.

Nicaraguan law provides for the right of public and private sector workers, except for the military and police, to form and join independent unions of their choice without authorization and to bargain collectively. Workers can exercise this right in practice, though unofficial roadblocks exist for unions not affiliated with the Sandinista party. A collective bargaining agreement cannot exceed two years and is automatically renewed if neither party requests revision. Before the socio-political crisis, strikes were legal but rare due to the government’s control over unions. In the months following the beginning of the political crisis April 2018, the private sector organized four work stoppages in protest of human rights abuses.

Businesses reported government harassment and increased audits following participation in pro-democracy work stoppages, and a few participating businesses saw their operating licenses revoked.

For more information regarding labor conditions in Nicaragua, please see the annual Human Rights Report and the Department of Labor Child Labor report at https://www.state.gov/j/drl/rls/hrrpt/index.htm.

The U.S. International Development Finance Corporation (DFC) does not currently support projects in Nicaragua.

* Source for Host Country Data: https://www.bcn.gob.ni/publicaciones/periodicidad/anual/informe_anual/index.php

Table 3: Sources and Destination of FDI
Data not available.

Table 4: Sources of Portfolio Investment
Data not available.

Borchien Lai
Deputy Economic Counselor
Carretera Sur Vía Panamericana Kilómetro 5, 1/2 5.5, Managua, Nicaragua +505 7877-7600
+505 7877-7600
ManaguaEcon@state.gov