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Executive Summary

Albania is an upper middle-income country with a GNI per capita of USD 4,300 (2015) and a population of approximately 2.8 million people, more than half of who live in rural areas. Real GDP grew by 3.3 percent through the third quarter of 2016, and growth is projected to reach 3.8 percent in 2017 on public spending increases. Albania received EU candidate status in June 2014 and is working to implement reforms necessary to open EU accession negotiations. In November 2016, Albania received a European Commission recommendation to open EU accession negotiations conditioned primarily upon implementation of a judicial reform package passed earlier the same year.

Despite the government’s stated desire to attract foreign direct investment, corruption in Albania is endemic, particularly in the judiciary, and sanctity of contract and respect for private property remain low. The implementation of the reform of the judicial system has recently begun, but the investment climate remains problematic and Albania is perceived as a difficult place to do business.

Investors report ongoing concerns that regulators use difficult-to-interpret or inconsistent legislation and regulations as tools to dissuade foreign investors and favor politically connected companies. Regulations and laws governing business activity change frequently and without meaningful consultation with the business community. Major foreign investors report pressure to hire specific, politically connected subcontractors and express concern about compliance with the Foreign Corrupt Practices Act while operating in Albania. Reports of corruption in government procurement are commonplace. Several U.S. companies complained last year that they were disqualified from public tenders despite offering the lowest qualified bid, only to see the government award the contract to a local company.

Property rights remain another challenge in Albania, as clear title is difficult to obtain. Some factors include unscrupulous actors who manipulate the corrupt court system to obtain title to land not their own. Compensation for land confiscated by the former communist regime is difficult to obtain and inadequate. Meanwhile, the agency charged with removing illegally constructed buildings often acts without full consultation and fails to follow procedures.

To attract FDI, the GOA approved a new Law on Strategic Investments in 2015. The new law outlines investment incentives and offers fast-track administrative procedures to strategic foreign and domestic investors, depending on the size of the investment and number of jobs created. The government also passed legislation creating Technical Economic Development Areas (TEDAs), similar to free trade zones, but the tender to develop the first TEDA failed and the process stalled. The tender has since reopened for the third time.

Albania climbed 36 notches in the World Bank’s 2017 Doing Business report, ranking 58th out of 190 countries, up from 90th in 2016. The lifting of a moratorium on building permits, which the government froze in 2013 to combat illegal construction, explained much of the improvement. While Albania fared well in the “Dealing with Construction Permits” category, jumping 80 places from 2016, the country lost points or improved only marginally in every other variable measured by the index. Albania continued to score poorly for enforcing contracts and registering property, ranking 116th and 106th, in the overall global rankings.

The Albanian legal system ostensibly does not discriminate against foreign investors. The U.S.—Albanian bilateral investment treaty entered into force in 1998 and ensures that U.S. investors receive most-favored-nation treatment. The Law on Foreign Investment outlines specific protections for foreign investors and allows 100 percent foreign ownership of companies except in the areas of international air passenger transport, electric power transmission, and television broadcasting.

Energy and power, water supply and sewerage, road and rail, mining, and information communication technology represent the best prospects for foreign direct investment in Albania over the next several years.

Table 1

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2016 83 of 176
World Bank’s Doing Business Report “Ease of Doing Business” 2017 58 of 190
Global Innovation Index 2016 92 of 128
U.S. FDI in partner country ($M USD, stock positions) 2014 $116 million Bank of Albania
(2014 data U.S. stock FDI in Albania – USD 116 million)
World Bank GNI per capita 2015 $4,280

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The government of Albania (GoA) understands that private sector development and increased levels of foreign investment are critical to increase opportunity and lower unemployment. Albania maintains a liberal foreign investment regime designed to help attract FDI. The Law on Foreign Investment outlines specific protections for foreign investors and allows 100 percent foreign ownership of companies in all but a few sectors. Albanian legislation does not distinguish between domestic and foreign investments.

The 2010 amendments to the Law on Foreign Investment introduced criteria specifying when the state would grant special protection to foreign investors involved in property disputes, providing additional guarantees for investors for investments of more than 10 million euros through December 2014. The 2017 amendments extended state protection for strategic investments, as defined under the 2015 Law on Strategic Investments, through December 2018.

The U.S.-Albania bilateral investment treaty entered into force in 1998 and obligates the GOA to provide U.S. investors with most-favored-nation treatment.

The Albanian Investment Development Agency (AIDA) is in charge of promoting foreign investments in Albania. Investors intending to invest in Albania should contact AIDA to learn more about the services AIDA offers for foreign investors 

The Law on Strategic Investments stipulates that AIDA, as the Secretariat of the Strategic Investment Council, serves as a one-stop window for foreign investors, from filing of the application form to granting the status of strategic investment/investor.

The deadline for application to receive the status of strategic investment/investor is December 2018. The legal framework regulating the strategic investments can be found at the Albanian Investment Development Agency page at 

Despite hospitable legislation, U.S. investors are challenged by rampant corruption and the perpetuation of informal business practices. Several major U.S. investors have left the country in recent years after contentious commercial disputes, including several that were brought before international arbitration.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are no restrictions on foreign ownership or control of domestic corporations. According to Albanian legislation, 100 percent foreign ownership of companies is allowed in nearly all sectors with a few exceptions, including:

  • International air passenger transport (foreign interest in airline companies is limited to 49 percent ownership for investors outside the Common European Aviation Zone);
  • Electric power transmission (must be 100 percent state owned);
  • Television broadcasting (no entity may own more than 40 percent of a television company).

Albanian law permits private ownership and establishment of enterprises and property. Foreign investors do not require additional permission or authorization beyond that required of domestic investors. The government applies restrictions only on the purchase of real estate: agricultural land cannot be purchased by foreign individuals or foreign companies, but may be rented for up to 99 years. Commercial property may be purchased, but only if the proposed investment is worth three times the price of the land. There are no restrictions on the purchase of private residential property. Foreigners can acquire concession rights on natural resources and on resources of the common interest, as defined by the Law on Concessions and Public Private Partnerships.

Foreign and domestic investors have numerous options available for organizing business operations in Albania. The 2008 ‘Law on Entrepreneurs and Commercial Companies,’ and ‘Law Establishing the National Registration Center’ (NRC) allow for the following legal types of business entities to be established through the NRC: Sole Entrepreneur; Unlimited Partnership; Limited Partnership; Limited Liability Company; Joint Stock Company; Branches and Representative Offices; and Joint Ventures.

Other Investment Policy Reviews

World Trade Organization (WTO) conducted a Trade Policy Review of Albania in March 2016: .

Business Facilitation

According to the 2017 World Bank Doing Business Report, it takes an average of five procedures over five days to start a company in Albania. The National Registration Center (NRC) serves as a one-stop shop for business registration. All required procedures and documents are published on-line at  The registration may be done in person, or online via the e-Albania portal at . Many companies choose to complete the registration process in person, as the online portal requires an authentication process and electronic signature and is only available in Albanian. Business licenses can be acquired through the Business Licensing Center at 

Outward Investment

Albania neither promotes nor incentivizes outward investment or restricts domestic investors from investing abroad.

2. Bilateral Investment Agreements and Taxation Treaties

The United States and Albania signed a bilateral investment treaty in 1995, which entered into force in January 1998. The treaty ensures that U.S. investors receive national or most-favored-nation treatment and provides for dispute settlement. There is no free trade agreement or bilateral taxation treaty between the two countries.

As of May 2017, Albania had concluded bilateral investment treaties with 44 countries. See a full list at the following page: Out of 44 agreements, eight are not yet in force. The BIT with the United States has been in force since 1998.

As of February 2017, Albania had signed treaties for the avoidance of double taxation with 41 countries. See a full list at the following page: 

Albania has also signed free trade agreements with the EU, CEFTA countries (Macedonia, Montenegro, Serbia, Bosnia and Herzegovina, Kosovo, and Moldova), EFTA countries (Switzerland, Liechtenstein, Norway, and Iceland), and Turkey. In addition, in 1992, Albania ratified the Agreement on Promotion, Protection and Guarantee of Investments among member states of the Organization of the Islamic Conference.

3. Legal Regime

Transparency of the Regulatory System

Albania’s regulatory system has improved in recent years, but faces challenges. Uneven enforcement of legislation, cumbersome bureaucracy, and a lack of transparency are all hindrances to the business community.

Albanian legislation includes rules on disclosure requirements, formation, maintenance, and alteration of capital, mergers and divisions, takeover bids, shareholders’ rights, as well as corporate governance principles. The Law on Accounting and Financial Statements includes reporting provisions related to international financial reporting standards for large companies, and national financial reporting standards for small and medium enterprises.

Other independent agencies and bodies, including the Energy Regulator (ERE), Telecom Regulator (AKEP), Natural Resources Bureau (AKBN), and other major institutions operate to ensure transparency in specific sectors.

State-owned oil company AlbPetrol retains some regulatory authority over legacy oilfields and is a consistent source of reports of corruption, predatory interpretation of regulations, and inefficiency in the hydrocarbons sector. Major foreign investors in this sector report difficulties in complying with often overlapping regulatory requirements and inconsistent and often conflicting interpretation of Albanian legislation and regulations governing oil exploration and extraction.

International Regulatory Considerations

Albania acceded to the WTO in 2000, and the country notifies the WTO Committee on Technical Barriers to Trade of all draft technical regulations.

The Albania legal system is based on the continental judicial system. The Albanian Constitution provides for the separation of legislative, executive, and judicial branches, thereby supporting the independence of the judiciary. The Civil Procedure Code enacted in 1996 governs civil procedure in Albania. The civil court system consists of district courts, appellate courts, and the Supreme Court. The district courts are organized in specialized sections according to the subject of the claim, including civil disputes, family disputes, and commercial disputes.

The administrative courts of first instance, the Administrative Court of Appeal, and the Administrative College of the High Court, now adjudicate administrative disputes. Administrative courts aim to adjudicate administrative cases quickly. The Constitutional Court reviews whether laws or subsidiary legislation comply with the Constitution, and in limited cases protects and enforces the constitutional rights of citizens and legal entities.

Parties may appeal the judgment of the first instance courts within 15 days; while appellate court judgments must be appealed to the Supreme Court within 30 days. A lawsuit against an administrative action is submitted to the administrative court within 45 days from notification and the law stipulates short procedural timeframes enabling faster adjudication of administrative disputes.

Albania does not have a specific commercial code, but defines commercial legislation through a series of relevant commercial laws including, the Foreign Investment Law, Commercial Companies Law, Bankruptcy Law, Environmental Law, Law on Corporate and Municipal Bonds, Transport Law, Maritime Code, Secured Transactions Law, Employment Law, Taxation Procedures Law, Banking Law, Insurance and Reinsurance Law, Concessions Law, Mining Law, Energy Law, Water Resources Law, Waste Management Law, Excise Law, Oil and Gas Law, Gambling Law, Telecommunications Law, Value Added Law, and Sports Law.

Corruption is endemic in the Albanian judicial system and U.S. investors are advised to include binding international arbitration clauses in agreements with Albanian counterparts. While the government has historically respected decisions by international arbitration courts, as noted above, the GoA recently ignored an injunction from such a court in a high-profile investment dispute (a decision that was later reversed). Albania is a signatory to the New York Convention and foreign arbitration awards may be enforced in local courts.

Laws and Regulations on Foreign Direct Investment

The Law on Foreign Investments seeks to create a hospitable legal climate for foreign investors and stipulates the following:

  1. No prior government authorization is needed for an initial investment;
  2. Foreign investment may not be expropriated or nationalized directly or indirectly, except for designated special cases, in the interest of public use and as defined by law;
  3. Foreign investors enjoy the right to expatriate all funds and contributions in kind from their investments;
  4. Foreign investors receive most favored nation treatment according to international agreements and Albanian law.

There are limited exceptions to this liberal investment regime, most of which apply to the purchase of real estate. Agricultural land cannot be purchased by foreigners and foreign entities, but may be rented for up to 99 years. Investors can buy agricultural land if registered as a commercial entity in Albania. Commercial property may be purchased, but only if the proposed investment is worth three times the price of the land. There are no restrictions on the purchase of private residential property.

In an effort to boost investments in strategic sectors, the government approved a new law on strategic investments in May 2015. Under the new law, a “strategic investment” as deemed by the government benefits from either “assisted procedure” or “special procedure” assistance by the government to help navigate the permitting and regulatory process. To date, no major investors have taken advantage of the law.

Major Laws Governing Foreign Investments:

  • Law 55/2015, “On Strategic Investments”: Defines procedures and rules to be observed by government authorities when reviewing, approving and supporting strategic domestic and foreign investments in Albania;
  • Law 9901/2008 “On Entrepreneurs and Commercial Companies”: Outlines general rules and regulations on the merger of commercial companies;
  • Law 110/2012 “On Cross-Border Mergers”: Determines rules on mergers when one of the companies involved in the process is a foreign company;
  • Law 9121/2003 “On Protection of Competition”: Stipulates provisions for the protection of competition, and the concentration of commercial companies;
  • Law 10198/2009 “On Collective Investment Undertakings”: Regulates conditions and criteria for the establishment, constitution, and operation of collective investment undertakings and of management companies;
  • Law 7764/1993 “On the Foreign Investments” amended by the Law 10316/2010.

Authorities responsible for mergers, change of control, and transfer of shares include, the Albanian Competition Authority (ACA) which monitors the implementation of the competition law and approves mergers and acquisitions when required by the law; and, the Albanian Financial Supervisory Authority (FSA)  which regulates and supervises the securities market and approves the transfer of shares and change of control of companies operating in this sector.

Investors in Albania are entitled to judicial protection of legal rights related to their investments. Foreign investors have the right to submit disputes to an Albanian court. In addition, parties to a dispute may agree to arbitration. Albania is a signatory to the New York Arbitration Convention and foreign arbitration awards are typically recognized by Albania, although the government refused to recognize an injunction from a foreign arbitration court in one high profile case, in 2016, calling into question the government’s commitment to arbitration (this refusal was later reversed). The Albanian Civil Procedure Code outlines provisions regarding domestic and international commercial arbitration. Many foreign investors complain that endemic judicial corruption and inefficient court procedures undermine judicial protection in Albania and seek international arbitration to resolve disputes.

Albania’s tax system does not distinguish between foreign and domestic investors. Informality in the economy (as high as 50 percent) presents challenges for tax administration.

Visa requirements to obtain residence or work permits are straightforward and do not pose an undue burden on potential investors. The only potential complication to obtaining a work permit is the requirement that a foreign employer maintain a certain number of local employees. The Law on Foreigners states that a foreign employer will be granted a work permit when the number of foreign employees does not exceed 10 percent of the total number of employees on the payroll over the 12 proceeding months.

The Law on Entrepreneurs and Commercial Companies sets guidelines on the activities of companies and the legal structure under which they may operate. The government adopted the law in 2008 to conform Albanian legislation to the European Union’s Acquis Communitaire. The most common type of organization for foreign investors is a limited liability company.

The Law on Concessions establishes the framework for promoting and facilitating the implementation of privately financed concessionary projects. Concessions may be identified by central or local governments or through third party unsolicited proposals. In the case of unsolicited proposals, the proposing company is entitled to receive a bonus of up to 10 percent of total points based on the technical and financial proposal.

Competition and Anti-Trust Laws

The Law on Protection of Competition governs incoming foreign investment whether through mergers, acquisitions, takeovers, or green field investments, irrespective of industry or sector. In the case of particular share transfers in insurance and banking industries, additional regulatory approvals may also be necessary. Transactions between parties outside Albania–foreign-to-foreign transactions–are covered by the competition law, which explicitly states that the transactions apply to all activities, domestic or foreign, that directly or indirectly affect the Albanian market.

Expropriation and Compensation

The Albanian Constitution guarantees the right of private property. According to Article 41, expropriation or limitation in the exercise of a property right can occur only if it serves the public interest and with fair compensation. During the post-communist period, expropriation has been limited to land for public interest, mainly infrastructure projects such as roads, energy infrastructure, water works, airports, and other facilities. Compensation has generally been below market value and owners have complained that the compensation process is slow and unfair. Civil courts are responsible for resolving such complaints.

Change of government can also be of concern to foreign investors. Following the 2013 elections and peaceful transition of power, the new government revoked or attempted to renegotiate numerous concession agreements, licenses, and contracts signed by the previous government with both domestic and international investors. This practice has occurred in years past, as well.

There are many ongoing disputes regarding properties confiscated during the communist regime. Identifying ownership is a longstanding problem in Albania that makes restitution for expropriated properties difficult. The restitution and compensation process started in 1993, but has been slow and marred by corruption. Many U.S. citizens of Albanian origin have suffered from long-running restitution disputes. Court cases drag on for years without a final decision, forcing many to refer their case to the European Court of Human Rights in Strasbourg, France. To date, the Court has issued approximately 29 decisions in favor of Albanian citizens in civil cases involving protection of property with an assessed financial cost of approximately $50 million. Reportedly, there are approximately 400 applications pending for consideration. Even after settlement in Strasbourg, enforcement of the decision is often slow or nonexistent.

The GOA has recently approved new property compensation legislation that aims to provide a solution to the pending claims for restitution and compensation. The legislation presents three methods of compensation for confiscation claims: restitution; compensation of property with similarly valued land in a different location; and cash settlement/financial compensation. The legislation sets a 10-year timeframe for the completion of the entire process.

The Albanian government has generally not engaged in expropriation actions against U.S. investments, companies, or representatives. There have been limited cases in which the government has revoked licenses, especially in the mining and energy sectors, based on contract violation claims.

Dispute Settlement

ICSID Convention and New York Convention

Under the Albanian Constitution, ratified international agreements prevail over domestic legislation. Albania is a member state to the International Centre for the Settlement of Investment Disputes (ICSID Convention). It also is a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). Albania has ratified the 1927 Convention and the European Convention on Arbitration (Geneva Convention).

For an arbitration award to be locally recognized, the claimant must enforce the award before the Court of Appeals. The procedure to recognize a foreign arbitral award typically lasts around one month and either party may appeal the Court’s decision to the Supreme Court. The appeal must be filed within 30 days from the date of decision or notification of the other party (if absent).

The possibility of bringing an action before the local court to avoid arbitration proceedings is remote. According to explicit provisions in the Albanian Code of Civil Procedure, if a party brings actions before local courts despite the parties’ agreement to arbitrate, the court would, upon motion of the other party, dismiss the case without entertaining the merits of the case. The decision of the court to dismiss the case can be appealed to the Supreme Court, which has 30 days to consider the appeal.

An alternative to dispute settlement via the courts is private arbitration or mediation. Parties can engage in arbitration when they have agreed to such a provision in the original agreement, when there is a separate arbitration agreement, or by mutual agreement at any time when a dispute arises. Legislation distinguishes arbitration of international disputes from arbitration of domestic disputes in that the parties involved in an international dispute may agree to settle through either a domestic or foreign arbitration tribunal. Mediation is also applicable in resolving all civil, commercial, and family disputes and is regulated by the law “On Dispute Resolution through Mediation.” Arbitral awards are final and enforceable and can be appealed only in cases foreseen in the Code of Civil Procedure. Mediation is final and enforceable in the same way.

There are no consolidated institutions for dispute resolution through arbitration and arbiters are appointed ad hoc in compliance with the provisions of the Code of Civil Procedure. The law provides for the National Chamber of Mediators and Chambers of Mediators as institutions to perform mediation. Mediators are licensed and registered at the Mediators Register at the Ministry of Justice, which maintains a list of mediators from which the parties can choose.

The provisions for arbitration procedures and the recognition and enforcement of foreign awards are stipulated in the Albanian Code of Civil Procedure. Albania does not have a separate law on arbitration. Although the arbitration chapter of the Code of Civil procedure stipulates only the rules for domestic arbitration, the country is signatory to the 1958 New York Convention, and as such, recognizes the validity of written arbitration agreements and arbitral awards in a contracting state.

The Albanian Code of Civil Procedure requires the courts to reach a judgment within a reasonable amount of time, but does not provide for a specific deadline to decide on commercial disputes. Reaching a final judgment in a commercial litigation may take several years to exhaust all stages of the process.

The procedure for the recognition of a foreign arbitral award should take on average approximately one month; however, in certain cases this decision may be appealable. An appeal against a court decision that recognizes a foreign arbitral award does not automatically suspend the effects of the enforcement.

International Commercial Arbitration and Foreign Courts

Over the past ten years, there have been six investment disputes between the Albanian government and U.S. companies, four of which resulted in international arbitration. Despite a stated desire to attract and support foreign investors, U.S. investors in disputes with the Albanian government report a lack of productive dialogue with government officials, who frequently display a reluctance to settle the disputes before they are escalated to the level of international arbitration, or before the international community exerts pressure on the government to resolve the issue. U.S. investors in Albania are encouraged to include strong binding arbitration clauses in any agreements with Albanian counterparts.

Bankruptcy Regulations

Albania maintains adequate bankruptcy legislation, though actual bankruptcies are rare in practice. Corrupt and inefficient bankruptcy courts make it difficult for companies to reorganize or discharge debts through bankruptcy.

The Bankruptcy Law governs the reorganization or liquidation of insolvent businesses. It sets out non-discriminatory and mandatory rules for the repayment of the obligations by a debtor in a bankruptcy procedure. The law establishes statutory time limits for insolvency procedures, professional qualifications for insolvency administrators, and an Agency of Insolvency Supervision to regulate the profession of insolvency administrators.

A bankruptcy procedure can be initiated by debtors, creditors, or tax authorities. Debtors and creditors can file for either liquidation or reorganization. Tax authorities can request a bankruptcy procedure when the subject reports losses three years consecutively. Bankruptcy proceedings may also be invoked when the debtor is unable to pay the obligations at maturity date or will be unable to pay in the near future.

According to the provisions of the Bankruptcy Law, the initiation of bankruptcy proceedings would suspend the enforcement of claims by all creditors against the debtor subject to bankruptcy. Creditors of all categories should submit their claims to the bankruptcy administrator in order to be treated under the bankruptcy proceeding. The Bankruptcy Law provides specific treatment for different categories, including, secured creditors, unsecured creditors, and unsecured creditors of lower ranking (i.e. those whose claims would be paid after all the secured and unsecured creditors were satisfied). The claims of the secured creditors will be satisfied by the assets of the debtor, which secure such claims under security agreements. The claims of the unsecured creditors will be paid out of bankruptcy estate excluding the assets used for payment of the secured creditors, following the priority ranking described under the Albanian Civil Code.

Pursuant to the provisions of the Bankruptcy Law, the creditors have the right to establish a creditors committee and the creditors’ assembly. The creditors’ committee is appointed by the Commercial Section Courts, before the first meeting of the creditors’ assembly. The creditors’ committee represents the secured creditors, the unsecured creditors with larger claims, and creditors with small claims. The committee has the right: (a) to support and supervise the activities of the insolvency administrator; (b) to request and receive information about the insolvency proceedings; c) to inspect the books and records; and, d) to order an examination of the revenues and cash balances.

In the event that the creditors and administrator agree that reorganization is the company’s best option, the bankruptcy administrator prepares a reorganization plan and submits it to the court for authorizing implementation.

According to the insolvency procedures, only creditors whose rights are affected by the proposed reorganization plan enjoy the right of vote and the dissenting creditors in reorganization receive at least as much as what they would obtain in a liquidation. Creditors are divided into classes for the purposes of voting on the reorganization plan and each class votes separately and creditors of the same class are treated equally.

The insolvency framework allows for the continuation of contracts supplying essential goods and services to the debtor, the rejection by the debtor of overly burdensome contracts, the avoidance of preferential or undervalued transactions, and the possibility of the debtor obtaining credit after commencement of insolvency proceedings. No priority is assigned to post-commencement creditors.

The creditor has the right to object to decisions accepting or rejecting creditors’ claims, and should approve the sale of substantial assets of the debtor. The creditor does not have the right to request information from the insolvency representative and the law does not require approval by the creditor for the selection of appointment of insolvency representative.

According to the law on bankruptcy, foreign creditors have the same rights as domestic creditors with respect to the commencement of, and participation in, a bankruptcy proceeding. The claim is valued as of the date the insolvency proceeding is opened. Claims expressed in foreign currency are converted into Albanian currency according to the official exchange rate applicable to the place of payment at the time of the opening of the proceeding.

The Albanian Criminal Code provides for several criminal offences in bankruptcy such as: (i) the bankruptcy was provoked intentionally; (ii) concealment of bankruptcy status; (iii) concealment of assets after bankruptcy; and, (iv) failure to comply with the obligations arising under bankruptcy proceeding.

According to the World Bank’s 2017 Doing Business Report, Albania ranked 43 out of 190 countries in the insolvency index. A reference analysis of ‘resolving insolvency’ can be found at: .

The number of bankruptcy requests in Albania is growing; as of November 2016, 132 companies had navigated through bankruptcy based on the register of the Taxation Department.

4. Industrial Policies

Investment Incentives

The Albanian Investment Development Agency ( is the best source to find incentives offered across a variety of sectors. Distinct from the incentives listed below, individual parties may negotiate additional incentives directly through AIDA or with the Ministry of Economy, Trade, Tourism and Entrepreneurship.

In an effort to boost investments in strategic sectors, the GoA approved a new law on strategic investments in May 2015 that outlines the criteria, rules, and procedures that state authorities use when approving a strategic investment. A strategic investment is an investment of public interest, based on several criteria, including, size of the investment, implementation time, productivity and value added, creation of new jobs, sectoral economic priorities, and regional and local economic development. The law does not discriminate between foreign and domestic investors.

The following sectors are defined as strategic sectors: Mining and Energy, Transport, Electronic Communication Infrastructure, Urban Waste Industry, Tourism, Agriculture (large farms) and Fishing, Economic Zones, and Development Priority Areas. The law foresees that investments in strategic sectors may benefit the status of Assisted Procedure and Special Procedure, based on the level of investment, which varies from one to 100 million euros, depending on the sector and other criteria stipulated in the law.

In the Assisted Procedure, the public administration coordinates, assists, and supervises the entire administrative process for the investment approval and makes available to the investor state-owned property needed for the investment. In the Special Procedure, the investor also enjoys state support for the expropriation of private property and the ratification of the contract by Parliament.

The law and bylaws that entered into force on January 1, 2016, foresee the establishment of the Strategic Investments Committee (SIC), a collegial body headed by the prime minister, whose members include ministers covering the respective strategic sectors, state advocate, and on a case-by-case basis ministers whose portfolios are impacted by the strategic investment. The Albanian Investment Development Agency (AIDA) serves as the Secretariat of SIC and is in charge of providing administrative support to investors. The SIC grants the status of Assisted Procedure and Special Procedure, for strategic investments/investors based on the size of investments and other criteria defined in the law.

Energy and Mining, Transport, Electronic Communication Infrastructure, and Urban Waste Industry: Investments greater than 30 million euros enjoy the status of assisted procedure, while 50 million euros or more enjoys special procedure status.

Tourism and Economic Areas: Investments equal or higher than 5 million euros enjoy the status of assisted procedure; and greater than 50 million euros enjoy the status of special procedure.

Agriculture (large agricultural farms) and Fishing: Investments greater than 3 million euros and which create at least 50 new jobs enjoy the status of assisted procedure; and greater than 50 million euros enjoy the status of special procedure.

Development Priority Areas: Investments greater than one million euros that creates at least 150 new jobs enjoy the status of assisted procedure. Investments greater than 10 million euros that create at least 600 new jobs enjoy the status of special procedure.

Energy sector: Some machinery and equipment imported for the construction of hydropower plants is VAT exempt.

Foreign tax credit: Albania applies foreign tax credit rights even in cases where no double taxation treaty exists with the country in which the tax is paid. If a double taxation treaty is in force, double taxation is avoided either through an exemption or by granting tax credits up to the amount of the applicable Albanian corporate income tax rate (currently 15 percent).

Corporate income tax exemption: Film studios and cinematographic productions, licensed and funded by the National Cinematographic Center, are exempt from paying corporate income tax.

Loss carry forward for corporate income tax purposes: Fiscal losses can be carried forward for three consecutive years (the first losses are used first). However, the losses may not be carried forward if more than 50 percent of direct or indirect ownership of the share capital or voting rights of the taxpayer is transferred (changed) during the tax year.

Incentives for manufacturing sector

Lease of public property: The government of Albania can lease public property of more than 500 m2, or grant a concession for the symbolic price of one euro if the properties will be used for manufacturing activities with an investment exceeding 10 million euros, or for inward processing activities. The GOA can also lease public property or grant a concession for the symbolic price of one euro for investments of more than two million euros on activities that address social and economic issues in a certain area, as well as activities related to sports, culture, tourism and cultural heritage. Criteria and terms are decided on an individual bases by the Council of Ministers.

Manufacturing activities are exempt from VAT on machinery and equipment.

The employer is exempt from the social security tax payment for one year for all new employees.

The state pays the salaries for four months for the new employees and offers various financing incentives for job training.

VAT credit for fuel: Taxpayers whose main business activity is production of bricks and tiles and the transport of goods with technological means are allowed to credit VAT on the purchase of fuel used wholly and exclusively for their business activities, up to the limit of a certain percentage of the taxpayer’s total annual turnover.

Manufacturing sector obtains VAT refunds immediately in the case of zero risk exporters, within 30 days if the taxpayer is an exporter, and within 60 days in the case of other taxpayers.

Apparel and footwear producers are exempt from 20 percent VAT on raw materials so long as the finished product is exported. In 2011, the GOA also removed customs tariffs for imported apparel and raw materials in the textile and shoe industries (e.g. leather used for clothes, cotton, viscose, velvet, sewing accessories, and similar items).

Technological and Development Areas (TEDA): The law on the economic development areas provides both fiscal and administrative incentives for companies investing in these areas. A full list of incentives can be found at the following page: .

Research and Development

The Agency for Research, Technology and Innovation (ARTI), is a public, legal institution whose mission is to evaluate, finance, monitor and manage programs and projects in the fields of science, technology and innovation in Albania. ARTI ( ) aims to fund projects in the field of small and medium enterprises, as well as transfer, modernization and renewal of their technologies. The Agency is funded by the state budget, donations by both domestic and foreign individuals and private sector, EU programs and projects, from specific countries and partner organizations. There are no restrictions to apply for research and development projects for foreign firms operating in Albania.

Foreign Trade Zones/Free Ports/Trade Facilitation

Albania has no functional duty free import zones, although legislation exists for the creation of such. The May 2015 amendments to the Law on the Establishment and Operation of Technical and Economic Development Areas (TEDA) established the legal framework for the establishment of TEDAs (a.k.a. free trade zones), defining the incentives for developers investing in the development of these zones as well as companies operating within the zones. The Ministry of Economic Development has announced three investment opportunities seeking private sector developers to obtain, develop, and operate three fully serviced areas, located in Koplik (61 ha) and Spitalla (100 ha). Interested investors and developers may find more information for the development of Technical and Economic Development Areas (TEDA) at the following site: 

Performance and Data Localization Requirements

Although visa, residence, and work permit requirements are straightforward and do not pose an undue burden on potential investors, the Law on Foreigners requires foreign investors to prove that foreign employees are less than 10 percent of the total workforce before granting a work permit.

According to current legislation in force, companies that have sensitive data (mostly in telecommunications, banking, energy, and other sector) are not authorized to transfer data abroad. In order to do so, they must receive approval and fulfill certain security criteria. As such, many companies operating in Albania are returning their data to Albania. The two largest private datacenters in Albania belong to telecom operator Albtelekom and Albanian Telecommunication Union (ATU).

5. Protection of Property Rights

Real Property

Real Estate is registered at the Immovable Property Registration Office (IPRO). The procedures are cumbersome and registrants have complained of corruption in the process. Recent changes to legislation allow a notary public to have access to real estate registers and confirm the legal ownership of property. The process of registering property remains cumbersome and difficult to navigate. For large transactions, it is advisable to hire an attorney to check documents and procedures for property registration.

Property legislation has developed in a piecemeal and uncoordinated way. The reform in the sector has not achieved the consolidation of property rights and the elimination of legal uncertainties. Immovable property rights enforcement is not efficient and is a common source of corruption allegations and lengthy legal procedures. Through international donor assistance, the registration system has improved. The initial property registration process has seen progress, but the finalization of the process has stalled in recent years. Approximately 15 percent of properties nationwide are not yet registered, mostly in urban and high value coastal areas.

Illegal construction is a major impediment to securing property titles. The legalization process to address large-scale illegal construction started in 2006, and is still ongoing. There are an estimated 440,000 illegal buildings in Albania, many have applied or are cases in process for legalization. In an attempt to legalize property and punish illegal construction, the government’s National Urban Construction Inspectorate (INUK) began a campaign of building demolition in late 2013. There were credible reports that the government demolished some homes without due legal process as part of a wider campaign to demolish illegally constructed buildings. Citizens also submitted complaints that INUK ignored citizens’ requests to demolish some illegal buildings while choosing to demolish other buildings about which citizens had not complained.

The civil court system manages property rights disputes. Decisions from civil courts often take many years and authorities often do not enforce court decisions. In 2010, there were amendments to the law on foreign investments, which granted special protection to foreign investors on property disputes. However, the new law on strategic investments aims to fill the gap and provide foreign investors with assistance on a variety of issues including property title. Foreigners and/or foreign entities can purchase commercial land only if the investment is more than three times the value of the land. In the case of farm land, it can only be leased, for 99 years.

According to the 2017 World Bank’s Doing Business Report, Albania performed poorly in the registering property category, ranking 106 out of 190 economies. It takes 19 days and six procedures to register property and the associated costs can reach 10 percent of the total property value.

Intellectual Property Rights

Albania is not and has never been listed on the USTR Special 301 Watch List or Priority Watch List, or Notorious Markets report. However, IPR infringement and theft are common due to weak legal structures and poor enforcement. Counterfeit goods, while decreasing, are present in some local markets ranging from software to garments and machines. Albanian law protects copyrights, patents, trademarks, stamps, marks of origin, and industrial designs, but significant gaps remain between the law’s intent and its enforcement. Regulators are ineffective at collecting fines and prosecutors rarely press charges for IP theft. U.S. companies should consult an attorney experienced in IPR issues and avoid potential risk by establishing solid commercial relationships and drafting strong contracts.

A new IPR law approved by the Parliament on March 31, 2016 entered into effect in November 2016. The law seeks to harmonize domestic legislation with EU law to strengthen IPR enforcement and address shortcomings in existing legislation. The main institutions responsible for IPR enforcement include the Albanian Copyright Office (ACO), Audiovisual Media Authority (AMA), the General Directorate of Patents and Trademarks (GDPT), the General Directorate for Customs, the Tax Inspectorate, the Prosecutor’s Office, police, and courts. The new law also stipulated the establishment of three new IPR bodies: the National Council of Copyrights, which is responsible to monitor the implementation of the law; the Agency for the Collective Administration, in charge of IPR administration; and the Copyrights Department within the Ministry of Culture.

While official figures are not available, Customs does report the quantity of counterfeit goods destroyed annually. In the case of seizure, the rights holder has the burden of proof and must first inspect the goods before any further action takes place. The rights holder is also responsible for the storage and destruction of the counterfeit goods.

Law enforcement on copyrights remains virtually nonexistent and copyright violations are rampant. Most IP-related fines are never collected and the few cases referred to prosecutors by regulatory agencies are rarely enforced. The number of copyright violation cases brought to court remains low. ACO sanctions are not effective and the low fines it levies are rarely collected and do not serve as an adequate deterrent.

Patents and Trademarks

The General Directorate for Patents and Trademarks (GDPT) is responsible to register and administer patents, commercial trademarks and service marks, industrial designs, and geographical indications. The 2008 law on Industrial Property was amended initially in 2014 to reflect EU legislation on this matter. Further amendments were introduced in February 2017 that aim to transform GDPT from a public institution into an autonomous agency to strengthen its human and financial capacities and improve performance. Despite adequate legislation, the GDPT requires further capacity building and additional human resources to be effective. Specifically, examination procedures are lengthy due to a limited number of patent and trademark examiners.

Albania became a contracting party to the WIPO Patent Law Treaty and a full member of the European Patent Organization in 2010. The government became party to the London Agreement on the implementation of Article 65 of the European Convention for Patents in 2013.

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at: .

Resources for Rights Holders

Contact at mission on IP issues:

Jeffrey D. Bowan
Economic and Commercial Officer
Phone: + 355 (0) 4229 3115

Country resources:

American Chamber of Commerce: 
Address: Rr. Deshmoret e 4 shkurtit, Sky Tower, kati 11 Ap 3 Tirana, Albania
Phone: +355 (0) 4225 9779
Fax: +355 (0) 4223 5350

List of local lawyers:

6. Financial Sector

Capital Markets and Portfolio Investment

In the absence of a stock market, the country’s banking sector remains the main channel for business financing. The sector is sound, profitable, and well capitalized, although the high rate of non-performing loans remains a concern. The Bank of Albania’s legal measures to address the problem have generated positive results. At the end of 2016, non-performing loans dropped to 18.2 percent of all private loans, marking a significant reduction from 2014, when the non-performing loans reached 25 percent. Capital adequacy, at 15.7 percent, remains far above Basel requirements and indicates sufficient assets, which totaled $11.4 billion in 2016. The banking sector is fully private and consists of 16 banks, most of which are subsidiaries of foreign banks. As of September 2016, the Turkish National Commercial Bank remains the largest bank, with 27.3 percent of the market, followed by Austrian Raiffeisen Bank with 18.8 percent market share. The market share of Greek banks has fallen significantly in recent years and stands at around 14 percent.

The government has adopted policies promoting the free flow of financial resources to promote foreign investment in Albania. The government and Central Bank refrain from restrictions on payments and transfers for international transactions. Despite Albania’s shallow FX market, banks enjoy sufficient liquidity to support sizeable positions. Furthermore, portfolio investments remain limited mostly to company shares, government bonds, and real estate.

The high rate of non-performing loans and the economic slowdown has forced commercial banks to tighten lending standards. After falling in 2015, the stock of loans increased by 2.5 percent year-on-year in 2016. The credit market is competitive, but interest rates in domestic currency can be high, currently between 5.6 and 12 percent. Most mortgage and commercial loans are denominated in euros as rate differentials between local and foreign currency average 2-6 percent. Commercial banks have improved the quality and quantity of services they offer and the private sector has benefited from the expansion of these instruments.

The major state owned enterprises are Electric Distribution Operator (OSHEE), Transmission System Operator (OST), Electricity Generation Company (KESH), Oil and Gas Operator, Albpetrol, Albanian Post Office, and the Albanian Railway System. There is no published list of SOEs and no clear data on their assets, net income, or total number of employees.

Money and Banking System

Albania’s banking sector weathered the financial crisis better than many of its neighbors, due largely to a lack of exposure to international capital markets and lack of a domestic housing bubble. There is sufficient liquidity in the market to enter and exit sizeable positions. The sector remained profitable even during the peak of the 2008 financial crisis, when it suffered a reduction of deposits of about 15 percent. Market concentration remains high, as the five largest banks dominate the market with about 73 percent of total assets. The Bank of Albania has the flexibility to intervene in the currency market to protect exchange rates and official reserves, but not for more than 12 months. In an attempt to stimulate business activity, the Bank of Albania further loosened monetary policy in 2016, with official central bank interest rates reaching a historic low of 1.25 percent.

Foreigners are not required to prove residency status to establish a bank account aside from the normal know-your-client procedures. However, U.S. citizens are required to fill out a form allowing for the disclosure of their banking data to the IRS under the framework of the U.S. Foreign Account Tax Compliance Act.

Foreign Exchange and Remittances

Foreign Exchange

The Central Bank of Albania (BOA) formulates, adopts, and implements foreign exchange policies and maintains a supervisory role in foreign exchange activities in accordance with the Law on the Bank of Albania No. 8269 and the Banking Law No. 9662. Foreign exchange is regulated by the 2009 Regulation on Foreign Exchange Activities no. 70 (FX Regulation).

The BOA maintains a free float exchange rate regime for its domestic currency, the Lek (ALL). Foreign exchange is readily available at banks and exchange bureaus. However, when exchanging several million dollars or more, preliminary notification may be necessary as the exchange market in Albania remains small. The domestic currency has remained stable over the last year, depreciating by around 1.5 percent against the U.S. dollar. Albanian authorities do not engage in currency arbitrage and do not view such as an efficient instrument to achieve competitive advantage.

Remittance Policies

The Banking Law does not impose restrictions on the purchase, sale, holding, or transfer of monetary foreign exchange. However, the Law on the Bank of Albania authorizes the Bank to temporarily restrict the purchase, sale, holding, or transfer of foreign exchange to preserve the foreign exchange rate or official reserves. In practice, the Bank of Albania rarely employs such measures. The last episode was in 2009, when the Bank temporarily tightened supervision rules over liquidity transfers by domestic correspondent banks to foreign banks due to insufficient liquidity in international financial markets. It also asked banks to halt distribution of dividends and use dividends to increase shareholders’ capital, instead. The Bank lifted these restrictions in 2010.

The Law on Foreign Investment guarantees the right to transfer and repatriate funds associated with an investment in Albania into a freely usable currency at a market-clearing rate. Only licensed entities (banks) may conduct foreign exchange transfers and waiting periods depend on office procedures adopted by the banks. Both Albanian and foreign citizens entering or leaving the country must declare assets in excess of ALL 1,000,000 (USD 8,000) in hard currency and/or precious items. Failure to declare such assets is considered a criminal act, which is punishable by confiscation of the assets and imprisonment. Legal parallel markets are not in place in Albania, as the financial sector does not make use of convertible or negotiable instruments.

Although the Foreign Exchange Regulation provides that residents and non-residents may transfer capital within and into Albania without restriction, capital transfers out of Albania are subject to certain documentation requirements. Persons must submit a request indicating the reasons for the capital transfer, the amount of capital transferred outside the territory of Albania, and the address to which the capital will be transferred. Such persons must also submit a declaration on the source of the funds to be transferred. In January 2015, The FX Regulation was amended and the requirement to present the documentation showing the preliminary payment of taxes related to the transaction was removed.

Albania is not a major trading partner with the United States, but, in general, does not engage in policy currency manipulation tactics. Albania is a member of the Council of Europe Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL), a Financial Action Task Force-style regional body. The INCRS 2016 report categorizes Albania as a country of jurisdiction of concern with regard to money laundering.

Sovereign Wealth Funds

Albania does not have a sovereign wealth fund.

7. State-Owned Enterprises

SOEs are defined as legal entities, which are entirely state-owned or state-controlled and operate as commercial companies in compliance with the Law on Entrepreneurs and Commercial Companies. No discrimination exists between public and private companies operating in the same sector. The government requires SOEs to submit annual reports and undergo independent audits. SOEs are subject to the same tax levels and procedures, and same domestic accounting and international financial reporting standards, as all other commercial companies. The High State Audit is the institution that audits SOE activities. SOEs are also subject to public procurement law.

Albania is yet to become party to the Government Procurement Agreement (GPA) of the World Trade Organization (WTO), but has obtained observer status and is negotiating full accession. However, private companies can compete openly and under the same terms and conditions with respect to market share, products and services, and incentives.

The SOE operation in Albania is regulated by the Law on Entrepreneurs and Commercial Companies, Law on State Owned Enterprises, and the Law on the Transformation of State Owned Enterprises into Commercial Companies. The Ministry of Economic Development, Tourism, Trade and Entrepreneurship represents the state as the owner of the SOEs. There are no legal binding requirements for the SOEs to adhere to OECD guidelines. However, basic principles of corporate governance are stipulated in the above-mentioned laws and generally accord with OECD guidelines. The corporate governance structure of SOEs includes the supervisory board and the general director (administrator) in the case of joint stock companies. The supervisory board is comprised of 3-9 members, who are not employed by the SOE, two-thirds of whom are appointed by the representative of the Ministry of Economic Development, and one-third are appointed by the line ministry, local government unit, or institution to which the company reports. The supervisory B=board is the highest decision making authority, and appoints and dismisses the administrator for the SOE through a two-thirds vote. In the case of SOEs operating in the electricity sector, the representative of the owner and the appointment of supervisory board members is regulated by the Law on the Electrical Energy Sector, and in the natural gas sector by the Law on the Sector of Natural Gas.

Privatization Program

The privatization process in Albania is nearing a conclusion, with only a few major privatizations remaining. These few opportunities include the electricity distribution company, 16 percent of the fixed line telephone company, Albtelekom, and state-owned oil company Albpetrol. SOEs operate in energy generation, electricity transmission and distribution, water supply, ports, railway, insurance, postal services, and hydrocarbons sectors.

8. Responsible Business Conduct

Public awareness of corporate social responsibility (CSR) in Albania is low and CSR remains a relatively new concept for much of the business community. The small level of CSR engagement in Albania comes primarily from the energy, telecommunications, heavy industry, and banking sectors and tends to focus on philanthropy and environmental issues. International organizations have recently improved efforts to promote CSR awareness. Thanks to efforts by the international community and large international companies, the first Albanian CSR Network was founded in March 2013 as a business-led, non-profit organization. The American Chamber of Commerce also formed a CSR subcommittee in 2015 to promote CSR among its members. The government maintains relatively robust CSR, labor and employment rights, consumer protection, and environmental protection legislation, but enforcement and implementation is inconsistent.

Albania has been a member of the Extractive Industries Transparency Initiative (EITI) since 2013.

The Law on Commercial Companies and Entrepreneurs outlines generic corporate governance and accounting standards. According to the above-mentioned law and the law on the national business registration center, companies are required to disclose publicly when they change administrators and shareholders and to disclose financial statements.

The Corporate Governance Code for unlisted joint stock companies incorporates the OECD definitions and principles on corporate governance, but is not legally binding. The code provides guidance for Albanian companies, and aims to provide a best-practice framework above the minimum legal requirements, while assisting Albanian companies to develop a governance framework.

9. Corruption

Corruption is a continuing problem in Albania, undermining the rule of law and jeopardizing economic development. Albania ranked 83 out of 176 countries in Transparency International’s 2016 Corruption Perception Index (CPI). Albania’s score improved from 2013 and 2014, when it ranked 116 and 110. Nevertheless, Albania remains one of the most corrupt countries in Europe, according to the CPI. The passage by Parliament of constitutional amendments in July 2016 to reform the judicial system was a major step forward, and reform, once implemented, should make the country more attractive to international investors.

Judicial reform has been described as the most significant development in Albania since the end of communism, and nearly one-third of the constitution was rewritten, as a result. The reform also entails the passage of laws to ensure implementation of the constitutional amendments. Judicial reform’s new vetting process will ensure that prosecutors and judges with unexplained wealth, insufficient training, or who have issued questionable past decisions are removed from the system. The reform will also establish an independent prosecutor and specialized investigation unit to investigate and prosecute corruption and organized crime. If fully implemented, judicial reform will discourage corruption, promote foreign and domestic investment, and allow Albania to compete more successfully in the global economy.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

The government has ratified several corruption-related international treaties and conventions and is a member of major international organizations and programs dealing with corruption and/or organized crime. Albania has ratified the Civil Law Convention on Corruption (Council of Europe), the Criminal Law Convention on Corruption (Council of Europe), the Additional Protocol to Criminal Law Convention on Corruption (Council of Europe), and the United Nations Convention against Corruption (UNCAC). Albania has also ratified a number of key conventions in the broader field of economic crime, including the Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime (2001); and the Convention on Cybercrime (2002). Albania has been a member of the Group of States against Corruption (GRECO) since the ratification of the Criminal Law Convention on Corruption, in 2001, and is a member of the Stability Pact Anti-Corruption Network (SPAI). Albania is not a member of the OECD Convention on Combating Bribery of Foreign Public Officials in international Business Transactions.

Resources to Report Corruption

Government online portal to report corruption: 

10. Political and Security Environment

Political violence is rare. Albania’s June 2013 elections and transition to a new government were peaceful. However, security forces shot and killed four protesters on January 21, 2011, during a violent political demonstration. Albania is a source of stability in the region and maintains generally friendly relations with neighboring countries.

11. Labor Policies and Practices

Albania’s labor force numbers about 1.1 million people, according to official data. The official estimated unemployment rate in October 2016 was 15 percent; though unemployment for people aged 15-29 was estimated at 27 percent. Approximately 46 percent of the population is self-employed in the agriculture sector. Informality is widespread in the Albanian labor market. A 2013 International Labor Organization survey on Labor force suggests that 43 percent of non-farm jobs correspond to informal employment. The situation is even more serious in the farm sector, where 88 percent of employment is informal or undocumented.

While some in the labor force are highly skilled, many work in low-skill industries or have outdated skills. The education level of the workforce is relatively low, limiting economic prospects and access to quality jobs. According to the Institute of Statistics, in 2015 about 43 percent of working age persons in Albania had a primary education or less, while only 19 percent had a tertiary education. The government provides fiscal incentives for labor force training for the inward processing industry, which in Albania includes the shoe and textile sectors. A majority of young Albanians speak English, Italian, or Greek as a second language. Other foreign language skills are common, as well.

Albania has a tradition of a strong secondary educational system, while vocational schools are less prevalent. In 2014, just 8 percent of high school pupils were enrolled in vocational schools. However, the current government has shifted attention to the promotion of vocational education.

In October 2016, the average salary in public administration was approximately 54,000 ALL ($436) per month. Minimum wage is 22,000 ALL/month (approximately $176), which is among the lowest in the region.

Pursuant to the Labor Code and the recently amended “Law on the Status of the Civil Employee,” both individual and collective employment contracts regulate labor relations between employees and management. Albania has been a member of the International Labor Organization (ILO) since 1991 and has ratified 54 ILO conventions, the entire set of fundamental and governance conventions as well as two protocols:

The Albanian government has established the National Council of Labor, composed of government officials, trade unions, management, and employers’ associations, to improve social dialogue between stakeholders. The institutions governing the labor market include the Ministry of Welfare and Youth, Ministry of Innovation and Public Administration, the National Employment Service, the State Labor Inspectorate, and private actors such as employment agencies and vocational training centers. Albania has adopted a large variety of regulations to monitor labor abuses, but their enforcement remains weak due to persistent informality in the work force.

Law 108/2013 dated March 28, 2013 “On Foreigners” and various decisions of the Council of Ministers regulate the employment regime in Albania. The law limits to 10 percent the number of foreigners hired by employers in Albania. In 2015, the labor code was amended to include the temporary employment of foreigners in Albania. However, for specific projects or to attract foreign investment, employment can be regulated thorough special laws, and wages and training costs may be tax deductible.

Both employees and managers have the right to form trade unions. Trade unions are organized at both the national level (according to industrial sector) and company level. The Labor Code guarantees the right to strike as part of the right to negotiate wages and working conditions. However, strikes from economic grievances are rare in Albania. Employment contracts apply to both union and non-union workers. The two main national-level trade unions, both affiliated with the International Trade Union Confederation (ITUC), are the Confederation of Trade Unions (KSSH) and the Union of the Independent Trade Unions of Albania (BSPSH). Employment contracts can be limited or unlimited in duration, but typically cover an unlimited period if not specified in the contract. Employees can collect up to 12 months of salary in the event of an unexpected interruption of the working contract.

The state labor inspectorate is the main authority responsible for the monitoring of labor conditions and the enforcement of labor code and occupational health and safety standards. Its performance is considered inadequate due to a lack of human resources and limited financial capabilities. Furthermore, the inspectorate has no investigative and prosecution responsibilities as it submits all allegations of infringements to other law enforcement agencies.

The State Labor Inspectorate is responsible for enforcing occupational health and safety standards and regulations. Workplace conditions in the manufacturing, construction, and mining sectors are often poor and, in some cases, dangerous due to a lack of inspections and enforcement by the Labor Inspectorate.

U.S. Department of State Human Rights Report:

Department of Labor Child Labor Report: 

12. OPIC and Other Investment Insurance Programs

The Overseas Private Investment Corporation (OPIC) signed an agreement with Albania in 1991. Albania has also ratified the World Bank’s Multilateral Investment Guarantees Agency (MIGA) Convention. Both instruments provide investment guarantees against certain non-commercial risks (i.e., political risk insurance) to eligible foreign investors for qualified investments in developing member countries. MIGA’s coverage covers the following risks: currency transfer restriction, expropriation, breach of contract, war, terrorism, civil disturbance, and failure to honor sovereign financial obligations. MIGA and OPIC often cooperate on projects.

For more information on OPIC please see .

For more information on MIGA, please see .

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Host Country
Statistical Source*
USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2015 11.4 2015 11,400 
Foreign Direct Investment Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2015 $116 2015 (2) BEA data available at
Host country’s FDI in the United States ($M USD, stock positions) 2015 Not available 2015 0 BEA data available at
Total inbound stock of FDI as percent host GDP 2015 0 2015 0 N/A

*Domestic Sources: Bank of Albania
Albanian Institute of Statistics 
Albanian Ministry of Finances: 


Table 3: Sources and Destination of FDI

Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions) – December 2015
Inward Direct Investment Outward Direct Investment
Total Inward 4.275 100% Total Outward Amount 100%
Greece 1,270 29.71% N/A N/A N/A
Netherlands 706 16.51% N/A N/A N/A
Turkey 695 16.26% N/A N/A N/A
Austria 350 8.19% N/A N/A N/A
Italy 222 5.19% N/A N/A N/A
“0” reflects amounts rounded to +/- USD 500,000.

Source: IMF Coordinated Direct Investment Survey (CDIS)


Table 4: Sources of Portfolio Investment

Portfolio Investment Assets
Top Five Partners (Millions, US Dollars) – December 2015
Total Equity
Total Debt
All Countries 543 100% All Countries Amount 100% All Countries 515 100%
Turkey 167 31% N/A N/A N/A Russia Federation 49 9.5%
Belgium 51 9% N/A N/A N/A Italy 36 7%
Russia Federation 49 9% N/A N/A N/A Netherlands 28 5.5%
Italy 36 7% N/A N/A N/A Brazil 24 4.6%
Netherlands 28 5% N/A N/A N/A France 21 4%

Source: IMF’s Coordinated Portfolio Investment Survey (CPIS) ( )

14. Contact for More Information

Jeffrey D Bowan
Economic and Commercial Officer
U.S. Embassy Tirana, Albania
Rruga Elbasanit, Nr. 103
Tirana, Albania
+355 4 224 7285


Executive Summary

The global collapse of commodity prices – along with economic pressure caused by security threats in the Lake Chad Basin and border with Central African Republic, and recent civil domestic unrest in the Northwest and Southwest Anglophone regions – have negatively impacted Cameroon’s external and fiscal balances. Cameroon donors acknowledge the country’s economic resilience in how it weathered and absorbed these shocks. However, public finances have deteriorated. Cameroon responded by organizing a regional summit in Yaounde to lobby for a regional strategic response to the crisis. Subsequently, an International Monetary Fund (IMF) team visited Yaounde from February 20–March 6, 2017, to discuss a three-year economic and financial program for Cameroon. The team and authorities discussed measures to enhance the business environment to boost private sector investment and economic diversification.

Over the past year, Cameroon has been able to secure financing for some of the country’s strategic infrastructure projects, for example the extension of the deep sea port of Kribi and for construction of ultra-modern sports facilities, highways, and hydroelectric dams. The government introduced new measures in the 2017 Finance Law to reflect the changing economic environment. Cameroon is improving tax collection, expanding the taxable base and accelerating the completion of infrastructure projects started in prior years. The government hopes these measures will sustain growth and alleviate poverty.

Cameroon continues to attract foreign direct investment (FDI) despite the global economic downturn. Energy, oil and gas, transportation sector, and sports facilities (e.g. stadiums and infrastructure for the Africa Cup of Nations-AFCON 2019 tournament) attracted the largest share of investment in 2016. Cameroon has attractive investment opportunities in eleven key sectors of its economy. However, administrative obstructions, red tape, and systemic corruption are keeping some private sector investors away. The World Bank, the International Monetary Fund (IMF), the African Development Bank, and the European Union continue to support Cameroon on legal and public finance reforms and also decentralization. These international efforts are often undermined from within the civil service as government employees view reform as a threat to their careers, and their established collusions and networks for corruption.

The strength of the Cameroonian economy stems from its diversification, from important natural competitive advantages, its vast human capital, and also from unexploited natural resources. Cameroon boasts a unique and strategic geographical location in Sub Saharan Africa. The main weaknesses are created by the persistent dysfunctions within the civil service and in the legal system. In order to reduce the operational, legal and financial risks that can develop in this environment, foreign investors often engage a local partner or counsel to serve as an interface with officials or local suppliers.

Table 1

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2016 145 of 175
World Bank’s Doing Business Report “Ease of Doing Business” 2017 166 of 190
Global Innovation Index 2016 118 of 128
U.S. FDI in partner country ($M USD, stock positions) 2015 USD 1.1 billion
World Bank GNI per capita 2015 USD 1320

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Toward Foreign Direct Investment

The Government of the Republic of Cameroon (GRC) continues to rely on foreign direct investment (FDI) to sustain economic growth and build vital infrastructure projects in the country. In 2016, the GRC undertook many initiatives to attract FDI. On March 2016, Cameroon organized the first edition of “Invest in Cameroon,” an investment forum, held in Yaounde, Cameroon to attract foreign direct investment in Cameroon. On September 2016, President Biya took part in the second 2016 U.S.-Africa Business Forum organized by Bloomberg Philanthropies and the U.S. Department of Commerce. The Forum focused on trade and investment opportunities on the continent for African heads of government and American business leaders. During the event in New York, President Biya made a case for Cameroon as a good destination for FDI. Throughout 2016, the government also hosted business delegations from many countries, notably Tunisia, France, Belgium and Great Britain.

On October 20, 2016, Cameroon officially became the host of the Africa office of the European Investment Bank (EIB), following a cooperation agreement with Cameroon. The EIB has a portfolio of investment in Cameroon which spans many sectors. In February 2017, Cameroon hosted “Promote 2017—International Exhibition for Enterprises and Partnerships,” the largest trade fair in Central Africa, to which 22 U.S. companies took part alongside many hundreds of domestic and international companies. Finally, President Biya visited Italy from March 18-24, 2017 with a large delegation of economic and sector ministries. During an economic meeting with Italian business leaders, President Biya told the audience that Cameroon has a wide range of investment opportunities that leverage its strategic geographical location in the sub-region. According to the Cameroon Ministry of Economy, FDI was about 18 percent of the GDP in 2015/2016.

Cameroon does not have laws that prohibit, limit or condition foreign investment in a sector of the economy. However, the investment code has a number of general minimum requirements, which can also qualify the investor for some benefits. Local content, specifically in terms of local jobs going to Cameroonians, is increasingly becoming a requirement although it is not yet enshrined in a law. In general terms, the four criteria, though not obligatory, required to benefit from the code are (i) the number of local staff employed, (ii) the percentage of exports, (iii) the use of local natural resources and (iv) the value-added contribution to the economy.

The Cameroon Investment Promotion Agency (CIPA) in collaboration with other authorities is in charge of implementing these measures. The CIPA’s objective is to contribute to the development and implementation of government policy in the field of investments promotion. CIPA promotes the image of Cameroon abroad, contributes to the creation of an enabling business environment in Cameroon, and proposes measures to attract investors as well as improve the implementation of sector codes. The GRC prioritizes and maintains ongoing dialogue with investors through private-public formal and informal institutions. An example of these institutions is the Cameroon Business Forum, which works to improve the business climate. Another example is the Groupement Inter-Patronal du Cameroun (GICAM), Cameroon’s largest business group, which also works with government to address specific sector issues. The GRC also consults businesses on a broad range of issues such taxation, industrial and labor regulations.

Limits on Foreign Control and Right to Private Ownership and Establishment

In Cameroon, foreign businesses can set up and totally own their businesses. There is no strict or compulsory requirement to have a local partner. Subject to specific sector regulations, companies can engage in all forms of remunerative activities. There are no limits to foreign ownership or control. The State of Cameroon is the main economic actor in sectors such as upstream oil, telecom infrastructure and electricity production. These sectors have specific regulations detailing the conditions under which the private sector may invest. These regulations are not outright prohibition, but the State may grant a license (telecom) or operate through a production sharing contract (oil and gas sector). The government may screen some investment proposals in the context of standard due diligence in order to verify the credentials and professional competence of investors or investing companies. The GRC does not impose restrictions on outward or on inward investment.

If an investor cannot own the assets that it has built in Cameroon, the public private partnership (PPP) framework offers opportunities for a “Build, Operate and Transfer” (BOT) model, which enables investors to recoup their investment over time. The PPP framework is the main model recommended for foreign direct investment in large infrastructure projects. The government PPP Commission claims to have approved PPP projects worth USD 500 million since its creation.

Other Investment Policy Reviews

In recent months the Government of Cameroon and donors have conducted several economic policy reviews in the aftermath of the collapse of the oil prices. As a result of the collapse, national debt has increased to 30 percent of the Gross Domestic Product (2016), which prompted the International Monetary Fund (IMF) to downgrade Cameroon risk profile from “moderate” to “high” in the IMF debt rating. However, Cameroonian authorities argue that most global sovereign rating agencies maintained Cameroon’s rating in 2015/2016 and that the GRC debt management mechanisms enshrined in the National Debt Committee and debt monitoring institution “Caisse Autonome D’Amortissement du Cameroun” (CAA) are robust.

Cameroon Sovereign Rating
Agency Rating Outlook Date
Moody’s B2 Stable August 05, 2016
Fitch B Stable May 27, 2016
S&P B Stable April 15, 2016

Standard & Poor’s credit rating for Cameroon stands at “B”, Moody’s at “B2”, while Fitch’s credit rating for Cameroon stood at “B.” All three agencies forecast a “stable outlook” for Cameroon. Authorities have endeavored to reassure investors and donors by indicating that the country is “borrowing cautiously and spending wisely.” Cameroon is currently undergoing another quasi investment policy review in the context of an imminent structural adjustment program from the IMF. Cameroon and other member countries of the Central African Economic and Monetary Community (CEMAC) agreed in December 2016 to engage with the IMF to find ways to overcome macroeconomic instability caused in part by collapse of commodity prices.

The IMF indicates that, while the Cameroonian economy has weathered these recent external shocks thus far, with economic growth remaining relatively robust, public debt has spiked rapidly causing the widening of fiscal deficit. Under the three-year plan being considered, the government will focus its attention on stabilizing public finances and boosting infrastructure projects. These infrastructure projects are expected to generate and sustain growth. During this process, Cameroon must also manage domestic security issues in the Far North Region (FNR) and also a defiant Anglophone population, which is protesting against what English-speaking Cameroonians perceive as their socio-economic and political marginalization. Although the Anglophone crisis appears non-threatening for the ruling party in terms of holding on to power, it could serve as a catalyst for more general protests against bad governance and corruption, to thereby become a driver of a larger civil society movement of discontent. The Anglophone regions are suffering some economic distress due to restrictive measures imposed by the GRC and blocking of the Internet, but there is some recent movement by Ministry of Justice and the Presidency to resolve social and political issues.

According to the IMF, the government has continued to spend heavily in order to support economic growth and address insecurity in the Far North Region. Military spending is leading to an increase in public debt (which reached an estimated 30 percent of GDP in 2016, from less than 20 percent of GDP in 2013). Assuming that a deal is finalized with the IMF, this will be the first time that Cameroon has resorted to IMF financial support since its previous three-year extended credit facility arrangement expired in January 2009. In February, the Ministry of the Economy (French acronym “MINEPAT”) presented the IMF with a 2017‑19 crisis management plan, which contains proposals for additional macroeconomic measures.

Cameroon’s economic performance is supported by some relatively strong internal factors. The government of Cameroon describes Cameroon as the “land of attractiveness for investors.” The government justifies this by the strategic location of the country. Indeed, in addition to the 1,700 km border it shares with Nigeria, Africa’s large economy, which gives direct access to 180 million potential consumers, Cameroon is also at the intersection of two economic zones, namely the Economic Community of Central African States (CEMAC) and the Economic Community of West African States (ECOWAS). Together, the two economic zones have a consumer market of over 300 million people. Cameroon also harbors substantial natural resources (17 million of exploitable forest, a large variety of extractive resources including cobalt, iron and gold, and vast arable land with excellent rainfall). Politically, Cameroon has a reputation of being politically and socially stable in a turbulent region and has recorded a sustained economic growth of over 5 percent since 2013. The sectors that are driving this growth are agriculture, services, transportation and Information & Communication Technology (ICT). This economic growth is underpinned by an emerging consumer culture. More than 50 percent of the population is under the age of 25. Unlike their parents, young people want the latest technological gadgets. They are brand conscious, want to live in urban areas, and are increasingly shopping on the Internet.

Cameroon important economic sectors and their contribution to the GDP (2013)

Key Sectors % of GDP
1 Agriculture 19
2 Transportation 7
3 Information & Communication Technology 3.5
4 Extractive industry (Oil, Gas, Mining) 9
5 Banking and Finance 7
6 Services 12
7 Utilities (Electricity, Water) 1
8 Real Estate and Infrastructure Construction 2
9 Manufacturing 4
10 Tourism, Media and Leisure 1
11 Public Administration 8

Business Facilitation

In order to facilitate the creation of businesses Cameroon has business creation centers around the country. These are known in French as the Centres de Formalites de Creation d’Entreprises (CFCE), which can finalize the creation of a new enterprise within 72 hours. The CFCE also provides start-up tool kits for new entrepreneurs, and is referred to as a “one stop shop” for small to medium enterprises. Cameroon is also a member of the Organization for the Harmonization of Business Law and Accounting in Africa (known by its French Acronym OHADA). The objective of OHADA is to create a better investment climate by regional standardization of laws so as to attract investment and to foster more economic growth in the markets of the seventeen (17) OHADA member countries.

Cameroon’s ministry of small and medium size enterprises is developing an online business registration process. The government is assisted in this project by the United Nations Conference on Trade and Development (UNCTAD). More information can be found on .  Centres de Formalites de Creation d’Entreprises (CFCE) provide a business toolkit to entrepreneurs.  The Institute of National Statistics provides quantitative indicators on the economy and sectors.  This agency for the promotion of small and medium size enterprises is specifically dedicated to the promotion and support for small and medium size enterprises.

Outward Investment

Although the priority for the government of Cameroon in to attract inward investment, the country does not restrict domestic investors from investing abroad. There are a few Cameroonian companies that have expanded across Sub-Saharan Africa, Europe and Asia. Afriland First Bank is a full-service bank in Cameroon, with subsidiaries in 14 African countries with the holding company based in Switzerland. Another Cameroonian company in the instant money transfer business, Express Union is present in 10 African countrie. Tradex, a subsidiary of the State-owned national oil company Societe National des Hydrocarbures (SNH) has invested in neighboring Central African Republic and Chad. Further examples can be seen with the Societe des Brasseries du Cameroon (SABC), the largest beer brewery in the country. SABC is now owned by the French group CASTEL after the State sold shares to the French family owners. SABC is listed in Paris and on the New York Stock Exchange.

2. Bilateral Investment Agreements and Taxation Treaties

  • Belgium-Luxembourg: Convention between the Union Belgo-Luxembourg Union for the reciprocal promotion and protection of investments 1980
  • Canada: Investment Promotion and Protection Agreement (FIPA) in Toronto on March 3, 2014
  • China: Bilateral Investment Treaty Agreement signed on May 10, 1997
  • Egypt: Memorandum of Understanding with the General Authority for Investment
  • Germany: Treaty between the Federal Republic of Germany and the Federal Republic of
  • Cameroun concerning the encouragement of investments, 1962
  • Guinea: Mutual discussions and framework agreement
  • Italy: Economic, technical and financial development cooperation Agreement between the Government of the Republic of Italy and the Government of the Republic of Cameroon, 1989)
    Agreement between the Government of the Republic of Italy and the Government of the Republic of Cape Verde on the reciprocal promotion and protection of investments 12/6/1997
  • Mali: Cultural Agreement and Commercial agreement signed March 17, 1964 in Bamako
  • Mauritania: Framework agreement for general bilateral cooperation following recognition after independence
  • Mauritius: Framework agreement for general bilateral cooperation following recognition after independence
  • Morocco: Economic and technical cooperation agreement signed in Rabat on June 25, 1974
  • Netherlands: Agreement signed in 1967
  • Romania: Agreement between the Government of the Socialist Republic of Romania and the Government of the Republic of Cameroon on the mutual promotion and protection of investments 30.8.1980)
  • Switzerland: Cameroon-Switzerland Bilateral Investment Treaty signed in 1964
  • Turkey: Turkey and Cameroon signed a number of agreements, including Cultural and Scientific Cooperation Agreement on (March 06, 2002), Trade, Economic and Technical Cooperation Agreement on (March 04, 2002), Joint Economic Commission Protocol on (July 08, 2003)
  • United Kingdom: Agreement between Great Britain and the Government of the United Republic of Cameroon for the Promotion and Protection of Investments March 04, 1982
  • United States of America: The U.S. and Cameroon signed a Bilateral Investment Treaty (BIT) in 1986 that came into force in 1989
  • Cameroon is not on the list of countries which have signed an FTA with the U.S., nor the list of countries which have Bilateral Taxation Treaties with the U.S.

3. Legal Regime

Transparency of the Regulatory System

The World Bank Doing Business 2017, found persistent challenges in enforcing contracts in Cameroon. Globally, Cameroon stands at 160 in the ranking of 190 economies on the ease of enforcing contracts. However, the report also indicates that Cameroon made enforcing contracts easier by creating specialized commercial divisions within its courts of first instance. Cameroon has transparent policies and effective laws to foster competition on a non-discriminatory basis. Officials argue that these are indicators of “clear rules of the game.” But operationally and in practice, the courts have severe logistical challenges. For example, courts data are manually recorded because the legal system is not computerized. In many courts around Cameroon, court records are filed in paper and stored in folders, which make them subject to fire and deterioration.

In terms of standards, Cameroon’s commercial legal system follows the OHADA rules which are supposed to be aligned with International Financial Reporting Standards (IFRS). But enforcement is weak partly because of lack of capacity. Cameroon does not train enough specialized judges in the commercial and economic fields. Consequently, poor enforcement of laws and accounting standards tends to create confusion for foreign investors. Despite efforts to align OHADA standards to international norms, GRC accounting regulations remain obsolete in the context of rapid developments in international finance and capital markets. To circumvent the problem, U.S. enterprises and investors often maintain two sets of accounting records, one in accordance with U.S. Generally Accepted Accounting Principles (GAAP, the U.S. accounting standards) and suitable international standards, and another set to address the OHADA standards and GRC reporting requirements.

In view these dysfunctions and weaknesses in the courts, arbitration is increasingly becoming the solution of choice to solve business disputes. It is possible in Cameroon to solve some complex legal disputes through arbitration. In fact, arbitration exists in the OHADA corporate law. Since OHADA is a supra national law, Cameroon is bound by its decisions which follow international norms.

The Parliament of Cameroon is the source of all regulatory powers. The ministries initiate draft laws for different areas of the national life. A few laws are reviewed on a yearly basis. This is the case for the public finance law, which was just revised and published in both English and French in 2017. Institutions and groups can also initiate legislation. In rare cases, draft bills or regulations are made available for public comment and there is some level of consultation process. The National Institute of Statistics provides quantitative analysis that may be used during the review. However, public involvement in Cameroon is limited and oversight or enforcement mechanisms are weak, and therefore do not ensure that governments follow administrative processes. Appeal and pressure mechanisms are limited if the government does not consider the observations of civil society groups in the final draft. Consequently, the executive branch is responsible for 98 percent of laws, including the most relevant texts for businesses.

Typically, the legal texts submitted to parliament by the executive are voted unchallenged because of the powerful majority of the ruling party in the legislative body. After voting, the texts are recorded in the Official Journal, which is the official register of the Cameroonian government. The Official Journal is a paper-based record system. The State does not have an electronic or online version. The legislation process is completed when the President of the Republic issues an implementation decree (Executive power), which generally details the ways in which the law will be implemented. The power to issue decrees grants a high level of influence to the Executive branch, on the final version of the laws because the decree may either strengthen or weaken the implementation of law. This is because individual ministries and bodies in the civil administration, which are parts of the executive arm, are responsible for the effective implementation of individual laws and regulations. In some cases, as the execution of the laws evolves from the center (the executive and the legislative) to the lowest level of administration, or from urban cities to the rural areas, their strength, effectiveness and understanding tend to weaken.

Over the past few years, with the support of donors for capacity building, Cameroon has undertaken reform to improve the efficiency of the legal system and of public finance procedures. Some of the reforms are supported and funded by multilateral and bilateral donors. The reform of the budget process, which helped Cameroon to introduce “Program Budget,” for example, is now in full swing. If fully implemented, many areas of the public finance reforms could have a positive impact on foreign investors, create a better investment climate and lead to more broad-based inclusive growth.

International Regulatory Considerations

Cameroon is a member of the CEMAC. The treaties of this regional body supersede the laws of the member states. Cameroon is also a member of the United Nations system and a party to many international conventions. Cameroon has been a member of World Trade Organization (WTO) since 13 December 1995 and a member of GATT since 3 May 1963.

Legal System and Judicial Independence

The Cameroon legal system is a blend of Roman or common law and Cameroonian judges are fluent, well-trained and competent in the two systems. Courts are structured in a pyramidal way with the Supreme Court functioning as the highest court in the land. Regulations and enforcement actions are appealable and can be adjudicated in the national court system. Contracts are enforced through the courts or through arbitration. The country’s commercial law is the OHADA law.

The head of the executive power, namely the President of the Republic is also the Supreme Head of the Judiciary. This constitutional status gives the executive branch immense powers to influence the functioning of the judiciary matters. This influence can be exerted through his power of appointment. The President of the Republic can appoint and demote judges, and he can decide on the internal and territorial deployment of legal institutions such as courts. In the absence of proper checks and balances the current judicial process in unpredictable. The outcome of legal processes are uncertain because judges are not immune from pressure or from simple logistical challenges such as the lack of computers to electronically and digitally process court documents.

Laws and Regulations on Foreign Direct Investment

The Law No. 2013/004 of 18 April 2013 defining incentives for private investment in Cameroon proposes common and special incentives while indicating the State’s commitments with regard to private investors in Cameroon. This important law remains valid for domestic and foreign investors. Additional laws and regulations are available on the website of the Cameroon ministry of finance ( ). In addition to these sources, the Investment Promotion Agency offers a “one-stop-shop” website for investment, with relevant laws, rules, procedures, and reporting requirements for investors ).

Competition and Anti-Trust Laws

The National Competition Commission (of the Ministry of Commerce) is the official body in charge of competition regulations.

Expropriation and Compensation

Decree N°.87-1872 of 16 December 1987 and the subsequent implementation decree N°.85-9 of 4 July 1985 lay down the procedure governing expropriation for public purposes and conditions for compensation. Some of the provisions of these legal texts were repealed by Instruction n°005/I/Y.25/MINDAF/D220 of 29 December 2005. Essentially, for the general public interest, the State may expropriate any person or entity from privately owned land. The laws also lay down the formalities to be observed within the context of the procedure, both at the central and local levels. In recent years, the government of Cameroon generally expropriated in the context of the construction of large infrastructure projects such as roads and hydroelectric dams. The government has a compensation process in place to meet the losses of those affected by such decisions. In practice, over the past 10 years many cases of compensation procedures have been marred in serious corruption schemes masterminded by civil servants in charge of the process. These incidents have significantly diluted the trust in the whole process throughout the country.

Dispute Settlement

ICSID Convention and New York ConventionInternational

Cameroon ratified the “International Centre for Settlement of Investment Disputes” (ICSID) Convention on 3 January, 1967 and the New York Convention on 19 February, 1988. But there is no specific domestic legislation providing for enforcement under the 1958 New York Convention and for the enforcement of awards under the ICSID Convention.

Investor-State Dispute Settlement

The OHADA-signatory nations adopted a uniform act on arbitration (the Uniform Act) on March 11, 1999. The Uniform Act sets out the basic rules applicable to any arbitration, where the seat of arbitration is located in an OHADA member state. The Uniform Act is based on the United Nations Commission on International Trade Law (UNCITRAL) model law. It supersedes the national laws on arbitration of the OHADA states. Cameroon’s arbitration law is contained in its code of civil and commercial procedure in the third volume, Articles 576 to 601.

International Commercial Arbitration and Foreign Courts

There have been cases of disputes between Cameroonian partners and U.S. companies, but they tend to be solved through arbitration. General misunderstandings between partners about contractual commitments tend to cause conflicts. But such cases have been infrequent over the past 10 years. Issues related to Bilateral Investment Treaty (BIT) or Free Trade Agreement (FTA) with an investment chapter with the United States, have thus far not emerged in claims by U.S. investors. Local courts may recognize foreign arbitral awards issued against the GRC, but they are not well equipped to enforce such decisions. In general, foreign investors complain more about administrative harassment or bottlenecks, and less about extrajudicial actions.

The Embassy has been successful in engaging and reaching out to key government officials when U.S. companies face disputes or harassment. In practice, the duration of dispute resolution will depend on the complexity of the case, and no standard timeline exists or can be estimated. This alternative approach can be further complicated by the inherent dysfunctions within the public administration, such as bureaucratic red tape, corruption, and lack of technical expertise on modern commercial contracts.

Additional alternative dispute resolution may involve mediation and negotiations, also possibly through third-party binding arbitration. The OHADA system serves both as domestic and primary reference legislation. However, the Groupement Interpatronal du Cameroon (GICAM), the country’s most powerful business lobbying group, has an arbitration center (Centre d’arbitrage du Groupement interpatronal du Cameroun), which is based in Douala. Douala is Cameroon’s largest city and trade hub, and the arbitration center is modern and well-equipped.

As a treaty, the OHADA prevails over domestic laws. An international arbitration award can prevail especially if operating through the OHADA framework. The Common Court of Justice and Arbitration (CCJA) enforced under OHADA are both an arbitration institution and a judicial court, with a remit covering all the OHADA states. Judicial processes are bureaucratic, expensive, time-intensive and lengthy to pursue. This is true even for domestic and state-owned companies which, like their foreign competitors, also suffer from the weaknesses of the legal system and are not guaranteed any better treatment in case of dispute.

Bankruptcy Regulations

Cameroon has bankruptcy laws, which recognize the right of creditors, the equity of shareholders and other types of liabilities. Bankruptcy is not criminalized, if it is not a deliberate collusion to avoid tax or mislead investors. Globally, Cameroon stands at 122 in the ranking of 190 economies on the ease of resolving insolvency. According to data collected by Doing Business 2017, resolving insolvency takes 2.8 years on average and costs 33.5 percent of the debtor’s estate, with the most likely outcome being that the company will be sold as piecemeal sale. The average recovery rate is 15.8 cents on the dollar.

4. Industrial Policies

Investment Incentives

Cameroon’s 2013 investment law lists several types of investment incentives for investors and also specifies the conditions that they have to meet, in order to benefit from those incentives. This law lays down incentives applicable to Cameroonian or foreign legal entities, whether or not established in Cameroon, conducting business therein, or holding shares in Cameroonian companies, with a view to encouraging private investment and boosting national production. For example, during the establishment phase (which cannot exceed five years), the new code provides for exemptions from VAT and duties on key services/assets (including an exemption from stamp duty on the lease of immovable property). During the operation phase (which cannot exceed 10 years), further exemptions from or reductions of other taxes (including corporate tax), duties (such as stamp duty on loans) and other fees are granted. Overall, this law seeks to facilitate, promote and attract productive investment in order to develop activities geared towards strong, sustainable and shared economic growth as well as job creation. In a context where businesses have to navigate between national and regional incentives, U.S. companies and investors must seek local and regional expertise if they plan to operate in the economic zone of Central Africa (The Economic and Monetary Community of Central Africa). .

Common incentives:

Common incentives are granted to investors during the establishment and operation phases. The investor may, during the operation phase, which may not exceed 10 (ten) years, according to the scale of investment and expected economic returns, as applicable, enjoy exemptions from or reductions of payment of several taxes, duties and other fees including corporate tax, tax on profit and stamp duty on loans. In addition, any investor may benefit from a tax credit provided he or she meets one of the following criteria: (1) employs at least 5 (five) graduates each year, (2) combats pollution, and (3) develops public interest activities in rural areas.

Tax and customs incentives:

The investor shall enjoy the following benefits during establishment phase, which may not exceed 5 (five) years, with effect from the date of issuance of the approval:

  • Exemption from stamp duty on establishment or capital increase;
  • Exemption from stamp duty if immovable property used exclusively for professional purposes and that is part of an integral part of the investment program;
  • Exemption from transfer taxes on the acquisition of immovable property, land and buildings essential for the implementation of the investment program;
  • Exemption from stamp duty on contracts for the supply of equipment and construction of buildings and installations, that is essential for the implementation of their investment program;
  • Full deduction of technical assistance fees in proportion to the amount of the investment made, calculated on the basis of the total amount of the investment;
  • Exemption from VAT on the provision of services related to the execution of the project and obtained from abroad,
  • Exemption from stamp duty on concession contracts;
  • Exemption from business license tax;
  • Exemption from taxes and duties on all equipment and materials related to the investment program;
  • Exemption from VAT on the importation of equipment and materials; and
  • Immediate removal of equipment and material related investment program during clearance operations.

Administrative incentives:

Subject to the fulfillment of the obligations incumbent on them, notably with respect to the exchange rate regime and the tax legislation, investors may enjoy the following benefits:

  • The right to open in Cameroon and abroad local and foreign currency accounts and to carry out transactions on such accounts;
  • the right to freely use and or keep abroad funds acquired or borrowed abroad, and to freely use such;
  • the right to freely keep abroad dividends and proceeds of any kind from capital invested, as well as proceeds from the liquidation or sale of their assets;
  • the right to directly pay abroad non-resident suppliers of goods and services essential for conduct of business; and
  • free transfer of dividends and proceeds from the sale of shares in case of disinvestment.

Also, with respect to foreign staff employed by the investor and resident in the Republic of Cameroon, they shall enjoy free conversion and free transfer to their country of origin of all or

part of amounts due them, subject to prior payment of various taxes and social security contributions to which they are liable in compliance with the regulations in force. Finally, the Government shall institute facilities necessary for the establishment of a specific visa and a reception counter at all airports throughout the national territory for investors, subject to their presentation of a formal invitation from the body in charge of investment promotion of Small and Medium sized Enterprise (SMEs).

There are additional incentives in priority economic sectors. In addition to the above-mentioned incentives, specific incentives may be provided to enterprises which carry out investments that contribute to the attainment of the following priority objectives:

  • Development of agriculture, fisheries, livestock, and plant, animal or fishery product packaging activities;
  • Development of tourism and leisure facilities, social economy and handicraft;
  • Development of housing, including social housing;
  • Promotion of agro-industry, manufacturing industries, industry, construction materials, iron and steel industry, construction, maritime and navigation activities;
  • Development of energy and water supply; encouragement of regional development and decentralization;
  • The fight against pollution and environmental protection;
  • Promotion and transfer of innovative technologies and research and development;
  • Promotion of exports;
  • Promotion of employment and vocational training.

Foreign Trade Zones/Free Ports/Trade Facilitation

In Cameroon, Foreign Trade Zones (FTZ) are demarcated and fenced geographic areas, with controlled access, where some standard trade barriers, tariffs, quotas, or other bureaucratic requirements are lifted or lowered to attract investments. Cameroon passed a special law instituting FTZ in 1990. Applications for an authorization to establish an industrial free zone are submitted to the National Office for Industrial Free Zones. The authorization to establish an Industrial Free Zone is granted by the Minister in Charge of Industrial Development. Some of the benefits of the FTZ are built into commercial, fiscal, custom and labor codes.

Performance and Data Localization Requirements

The government of Cameroon does not mandate local employment except as an incentive to entice foreign investment. The government of Cameroon encourages investors to create jobs and employ local labor. These are not compulsory and there are no legal restrictions on senior management and boards of directors either, although local content (goods, raw material, technology and manpower) tend to facilitate the understanding of the domestic business environment. Prospective investors and their employees can travel to Cameroon on standard intentional visas. The fees may vary per country of application. Once they settle in Cameroon they can apply for long term residence permits.

The government of Cameroon applies the visa reciprocity rules to a limited extent, but companies have in the past complained about the difficulty of obtaining work permits or the fact that work visas expire after six months and frequently are single entry. Longer term work permits are now said to be available, but they have not been issued to our interlocutors unless included as residency work permits, a different category with more complicated application procedures. The government does not impose rules on the recruitment of senior management nor excessively onerous visa, residence, work permit, or similar requirements inhibiting mobility of foreign investors and their employees.

Enforcement procedures for performance requirements are not yet standardized, but the government generally develops terms of reference on a case by case basis for contract performance. Cases of “forced localization” have not been reported and the government has not stated intentions to maintain, increase or decrease performance requirements.

Foreign information technology (IT) providers are not required to turn over source code and/or provide access to encryption. But they can be required to provide such data in cases of cybercrime under the national cybercrime law. The same legal principle applies to the transfer of business-related data. On the other hand, the government is trying to build data storage centers in order to manage IT data. In the meantime, all cellphone users have a legal requirement to register their phone number with the government.

5. Protection of Property Rights

Real Property

Interests in property are recognized in the law. For mortgage transactions between two private parties, a proper contract is required for the agreement to be binding and enforceable in the courts. Liens have to be recorded in the contract. A registry of land title exists in Cameroon. The land rights of indigenous peoples, tribes or farmers are recognized in the Constitution.

Records from the Ministry of State Property and Land Tenure (French acronym “MINDAF”) indicate that land registration rates have not significantly increased since colonial times.

Between 1884 and 2005 only 125,000 title deeds had been issued. On average, this represents approximately 1,000 titles per year, covering less than 2 percent of the land in Cameroon. In 2009, a study by the African Development Bank (AfDB) identified other distinctive patterns in land ownership. For example, formal land registration is more common in urban (60 percent) than in rural areas. Existing legislation does not discriminate against foreign land owners but land disputes are common between Cameroonian citizens. The disputes are generally caused by non-respect of commercial sales contracts or by informal sales of land. Illegal occupations of lands are also common. Globally, Cameroon stands at 177 in the ranking of 190 economies on the ease of registering property.

Intellectual Property Rights

The legal structure for Intellectual Property Rights (IPR) and corresponding enforcement mechanisms are weak. Infringement on IPR is especially common in the media, pharmaceutical, software, and print industries. No new laws have been enacted in the last year, and IPR protection remains uniformly weak. The country occasionally seizes and publicly burns counterfeit goods, but these actions are not systematically documented, and no cumulative data exists on the seizures. Imported counterfeit goods, such as fake luxury watches, clothes, copied movies in DVDs and music-CDs are prevalent in the local market. Customs officers have authority to seize, store and then eventually destroy these counterfeit goods. National institutions are overwhelmed by the problem and have no influence on the countries of origin for problems, notably China, India, Nigeria, and Pakistan. Cameroon is not listed in the 2014 Special 301 Report or the Notorious Markets Report. USTR%202014%20Special%20301%20Report%20to%20Congress%20FINAL.pdf 

Customs officers have seizure authority, but destruction is deferred until detailed review of the property is made by officials, transparent to the property owner and/or rights holder. The following are common items that are seized:

  • Counterfeit medication
  • Pirated music, films and software
  • Fake copies of luxury consumer goods (clothes, shoes, glasses, watches, perfumes)
  • Fake car tires simulating major brand names
  • Fake spare car parts

Report from the World Intellectual Property Organization (WIPO) shows the following data for Cameroon:

Year Number of Cases
2011 1
2013 2
2014 2

Cameroon is a member of the African Intellectual Property Organization (OAPI –Organisation Africaine de la Propriete Intellectuelle), the main organization that ensures the protection of intellectual property rights in most African Francophone countries. OAPI is located in Yaounde. Individuals and companies can register their IP and brands directly at the OAPI.

Once registered there is legal protection and recourse for the inventor or IP rights holder, although protection is realistically more limited once commercial products reach the market.

IP protections are deteriorating in Cameroon because of the influence of supply countries such as China and India, both of which illegally export volumes of counterfeit goods. For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at . Cameron does not appear to be listed in the notorious market report in 2016.

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at .

6. Financial Sector

Capital Markets and Portfolio Investment

Cameroon is open to foreign investment and has been able to attract well known global brands that have invested in the country. U.S. companies such as General Electric, Boeing, Microsoft, and Oracle all have large projects in Cameroon. There are no governmental restrictions at this time and no policy obstructions are interfering in the investment markets. In October 2016, JP Morgan led senior executives from five investment management companies to Cameroon. These investment firms which comprised Franklin Templeton Investments, Fidelity, Lazard Asset Management, Grantham Mayo van Otterloo & Co. (GMO) and Alliance Bernstein (A/B Global) comprise collectively around USD5.3-Trillion in assets under management, with about USD 145-million USD already invested in Cameroon. Another group of prospective investors led by Citi Bank visited Cameroon in late October 2016. Collectively, this group represents a portfolio of USD 3.5 Trillion in assets under management. At least three major U.S. investment funds invested USD 145 in Cameroon’s first Eurobond which was issued in 2015.

The Douala Stock Exchange (DSX) is one of the youngest stock exchanges in Sub Saharan Africa. It was created in 2001 and currently has only three companies listed and five sovereign bonds. The regulatory system of the DSX permits portfolio investment, but the market is still in its infancy, suffering from low liquidity and bureaucratic inertia.

International capital market actors, more precisely private equity firms, operate in Cameroon. These new actors are enabling the connection of Cameroon to larger international investors. There are also major bank credit instruments available on the open market and venture capital operations are gaining traction in the Cameroon business sectors. Foreign investors can get credit on the local market and the private sector has access to a variety of credit instruments. Cameroon is connected to the international banking payment systems and there are no government restrictions on payments or transfers. The banking system is regulated by the regional six member country Central Bank (French acronym “BEAC”) called the Bank of Central African States. The bank follows IMF standards. Foreign investors – including from the U.S. as well as international banks – that provide business credit, personal finance, and even mortgage instruments on real estate, are beginning to show great interest in Cameroon.

Money and Banking System

The banking sector is regulated, but financial institutions tend to suffer from under-performance on local debt and un-serviced loans from both commercial and individual debtors. Less than 10 percent of Cameroonians have access to banking services. According to the World Bank, non-performing loans were 10.31 percent of total bank loans in 2016.

  1. Afriland First Bank Group (USD 2.3 billion, 2011) is a large financial services provider in Cameroon with customer deposits in excess of USD 951 million (CFA: 460 billion), as of December 2012
  2. Banque Internationale pour l’Epargne et le Credit (USD 2.1 billion 2011)
  3. Societe Generale de Banque au Cameroun (USD 972 million 2011) with global assets of €1.308 trillion (2014)
  4. Standard Chartered Bank Cameroon (USD 706 million 2011)
  5. Ecobank (USD 508 million 2011) with total assets of USD 22.5 billion (2013)

The Bank of Central African States (Banque des Etats de l’Afrique Centrale, BEAC ) is the central bank that serves six central African countries that form the Economic and Monetary Community of Central Africa (CEMAC) including Cameroon, Central African Republic, Chad, Equatorial Guinea, Gabon, and the Republic of Congo. BEAC has been in operation since 1972, although rocked by a few embezzlement scandals in 2009 and 2010. The current governor of BEAC is Lucas Abaga Nchama (from Equatorial Guinea).

There are no restrictions on foreigners establishing bank accounts, credit instruments, business financing or other such transactions. Rules on all forms of mergers and acquisitions, including hostile, are governed by OHADA and are detailed in a lengthy body of commercial, legal and accounting codes. The OHADA sections on mergers and acquisitions are the Napoleonic version of our SEC regulations.

Foreign Exchange and Remittances

Foreign Exchange

There are no restrictions or limitations placed on foreign investors in converting, transferring, or repatriating funds associated with an investment. Funds may be converted to any world currency. The national (regional) currency, the Central African CFA Franc, (or the “CFA”) is pegged to the Euro and fixed at a specific rate. The Central Bank controls monetary policy, follows IMF standards, and is independent from member states.

Cameroon has not passed any laws which change or tighten access to foreign exchange for investment remittances. There are no time limitations on transactions beyond the classic banking transactions timeline. Remittances policies and banking transactions are regulated by the regional Central Bank. Foreign investors can remit through convertible and negotiable instruments through legal channels recognized by the regional central bank. Any incidence of currency manipulation tactics is handled by the regional central bank.

The 2015 Finance Bill increased taxes on each external outbound transfer by 33.33 percent, causing the suspension of all outbound transfers of top international operators namely Western Union, MoneyGram, Ria, Sigue, and Money Express, and also for the their agents & sub-agents. The measure also had another unintended consequence, to the extent that it has stimulated informal transfers or quasi “black market” activities especially, on the Cameroon- Dubai and Cameroon-China corridors.

Remittance Policies

Domestically, the remittance market is expanding. Cameroon currently counts more than 6 million registered mobile money subscribers. In addition, 1.5 million people are using 4 digital solutions currently offered by banks and mobile phone companies, namely ATM, mobile wallet, mobile debit card and website. These systems are supporting various forms of remittances and financial services.

Soverign Wealth Funds

Cameroon does not have a sovereign wealth fund.

7. State-Owned Enterprises

The Government of Cameroon has over 130 state owned enterprises (SOEs) in which it has majority ownership, and which operate in more than 8 key sectors of the economy including strategic ones such as agribusiness, energy and mining. SOEs are also present in real estate, transportation, services, information & communication, finance and travel (tourism).

In Cameroon, a State-Owned Enterprise (SOE) is an enterprise partly or totally owned by the GRC. Some SOE are profit oriented (70 percent), while others are set up to provide public services. In other cases, SOEs themselves are so dominant, because of their quasi-monopoly, that they often act as de facto regulators, for example in telecom and in the media. Data on SOEs’ R&D and share of public contracts are not publicly available. Inside the GRC’s portfolio of companies, there are intricate cross-holdings, whereby various state institutions mutually hold equities in SOEs. Shareholders in SOEs include the National Hydrocarbons Company (SNH), the Hydrocarbon Price Stabilization Fund and the National Social Security Fund, which together have stakes in more than 30 state-owned entities. The largest holdings are controlled by National Investment Company (NIC) with shares in more than 32 enterprises. In 2010, the NIC valued the GRC’s stakes to be worth USD 516 million or one fifth of the national budget.

Operationally, the private sector enjoys technological competitive advantages and flexibility to respond to market conditions that bureaucratic and over-staffed SOEs cannot replicate. Delivery of products and services to the markets still depends on price-competitiveness and quality of goods offered, so inferior SOE products and services (e.g. Internet, cable television and cellular telephone offerings) face legitimate private-sector competition. The government does not publish data on percentage of expenditures SOEs allocate to research and development. SOEs can source equipment, purchase goods, and acquire services from the private sector, including overseas providers in the United States.

Financially, some SOEs have a legal ability to contract debt and, in so doing, generate contingent liabilities for the state. They also have a history of accumulating unpaid tax arrears while at the same time benefitting from preferential access to land and to public funds through State subventions. Private companies do not automatically have such advantages. The Audit Chambers of the Supreme Court of Cameroon indicates in its yearly reports that SOEs are not financially transparent. Only about 22 percent of these structures publish financial accounts. Other reports have highlighted corruption cases involving managers of SOEs and unveiled inefficiencies, severe dysfunctions and opacity of the management of SOEs. These problems are exacerbated by the fact that over the past years, the government has not imposed any performance targets, productivity requirements and quality of service standards nor any significant budget constraints on SOEs. The governing boards and senior executive teams are political appointees and connected individuals, they have means to avoid tax burdens levied on private enterprises, receive specialized consideration for subsidies and enhanced operating budgets, and obtain generally preferential treatment from the government (including courts).

Cameroon is an observer under the World Trade Organization’s Agreement on Government Procurement (GPA), but SOEs may receive a larger percentage of government contracts/business than their private sector competitors, as it is not clear if SOEs are covered under the agreement.

In Cameroon law, ownership in SOEs is regulated by laws. The government claims that its regulations and codes comply with international standards, but over the past two decades the regulations and code governing SOEs have become obsolete since they were introduced when the GRC was the dominant economic actor in most sectors. Since then, new actors, notably domestic and international private companies, have emerged and are finding it difficult to compete in a landscape where the GRC maintains specific privileges in the name of the public good on behalf of non-transparent SOEs.

Although individual SOEs are generally placed under the tutorship of a sector ministry, the entire portfolio is heavily centralized. The management reports to line ministries but the board of directors are directly appointed by the President of the Republic who also determines the corporate governance structures. The Technical Committee for Rehabilitation within the Ministry of Finance is responsible for the financial surveillance. Most board members are former ministers or leading members of the central committee of the ruling party appointed by the President. In most cases they do not have the expertise, experience and sound understanding of the enterprise or sector they are required to serve in. This misalignment of competence affects the performance of SOEs. In a 2016 report, the International Monetary Fund (IMF) observed that the profitability and financial autonomy of SOEs have deteriorated in recent years, draining scarce budget resources, partly because of weak corporate governance.

Privatization Program

Cameroon enacted major privatization policies in the 1990s and early 2000 under the purview of international donors such as the International Monetary Fund and the World Bank. The process has been stalled for over a decade, but market pressures continue to mount for additional privatization efforts. Data shows that GRC had stakes in 171 entities in 2004. Since then, 30 companies had been privatized. An additional list of 10 companies have been scheduled for privatization since 2005 (examples CAMAIRCO, CAMTEL, SCDP, SODECOTON) for more than ten years.

In general privatization appears to on hold. The government favors Public Private Partnership (PPP) or some variations of outsourcing of/contractual management, with the State retaining some ownership of assets or of the business, rather than outright privatization. In some cases, the State also prefers to take participation in ventures, such as mining companies, rather than creating a state-owned company. The framework for PPP can be found at .

This is evident in the oil and gas sector, where the government has a dominant presence in extraction, refinement, distribution, and storage of oil and gas. Similar dominant positions exist in other sectors of the economy – particularly transport. The GRC controls the vast majority of transport infrastructure (airports, seaports, and road networks) through companies such as Cameroonian Airline Company (Camair-Co), Cameroonian Shipping Lines (CAMSHIP), Cameroon Shipyard and Industrial Engineering Ltd. (CNIC), and Cameroon Rail Network (CAMRAIL).

Moreover, in addition to the 119 SOEs featured in a recent survey by the IMF(2015), the government of Cameroon has in recent years expanded its foothold in the most important economic sectors. In financial services, the GRC is creating two new banks to fund agriculture and provide finance for small and medium size enterprises. These new State-funded banks will compete with 13 already existing domestic and international private banks. In the energy sector, the government created the Cameroon Electricity Transport Company (SONATREL), a wholly State-owned company to manage electricity infrastructure. Similar plans are underway to allow the Electricity Development Corporation of Cameroon (EDC) to become a water marketer for hydroelectric dam operators. In manufacturing, the GRC is setting up a fertilizer plant with a German firm, an agricultural tractor assembly plant with India, and cement factories with Nigerian and Moroccan firms. In some sectors, this dominant position of the State could distort the competitive landscape.

Foreign investors can participate in the privatization programs. According to some analysts, of the 30 State-owned companies privatized by 2004, the majority (22) were won by foreign bidders. The public bidding on tender offers is transparent. They are advertised in the media, but the actual process of awarding contracts may still be tainted by corruption, particularly on very large scale projects. The listing of public tenders in the Cameroon Tribune newspaper and publication of which firms received the contract will not, in and of themselves, result in a fully transparent process of awards. Many other practical problems may continue years after the contract has been granted. This is the case in some large government projects where the government has accumulated arrears payments to major road construction companies causing delays and in some cases severe financial stress to the contractors.

8. Responsible Business Conduct

Responsible business conduct is not regulated by law in Cameroon. However, the GRC has enacted laws that cover issues related to what is locally considered “corporate social responsibility” or CSR. There are additional initiatives in the private sector to foster a corporate social responsibility culture. All major infrastructure projects in Cameroon are compelled to conduct an Environmental and Social Impact Assessment (ESIA) to establish the impact of the projects on people and nature. Cameroon’s ESIA law strives to follow World Bank standards. A Ministry of Environment and Forestry was created in April 1992 with a mandate to elaborate, implement and follow up the national policy of environment; a master law August 1996 related to environmental management prescribes environmental impact assessment for all projects that can cause environmental degradation. The ESIA is fast becoming an important and unavoidable compliance step for foreign and domestic companies. Cameroon is also compliant with the Extractive Industries Transparency Initiative (EITI).

Cameroon works with non-governmental organizations and multilateral partners in the private sector to improve, monitor, and promote the effectiveness of legislation and the enforcement of laws on human rights. The country has a human rights commission, which strives to educate people, institutions and the private sector on these issues. However, the country faces challenges when it comes to implementing these principles in general, because of the dysfunctions in the legal systems, or when human right issues intercept with domestic political issues. In addition, the OHADA laws have provisions for corporate governance, transparent accounting, and fair executive compensation standards to protect shareholders.

9. Corruption

In Cameroon, corruption is punishable under sections 134 and 134 (a) of the Pena1 code of Cameroon. From November 2012 to December 2015, 112 serious cases of corruption are in courts. Since then 14 more officials have been arrested and are on trial for corruption and embezzlement of public funds. Prior to these cases, the courts had judged and jailed senior government officials for acts of corruption. Since inception, the Special Criminal Tribunal has handled over 123 cases and recovered USD 5.5 million USD worth of state funds. Most legal observers estimate that this amount is minute compared to the huge sums allegedly stolen. The cases have revealed complex levels of collusion inside and outside the civil service. Embezzlements are fueled by several dysfunctions within the civil service, and an ambient environment of conflicts-of-interests, notably in government procurement and overall due to weak supervision.

U.S. firms indicate that corruption is most pervasive in government procurement, award of licenses or concessions, transfers, performance requirements, dispute settlement, regulatory system, customs and taxation. The private sector is also infected although public institutions have historically been more vulnerable to corruption. The government has introduced anti-corruption mechanisms and measures for all economic actors, but provides little support to “whistle blower” cases and especially non-governmental organizations. However, in recent years, private companies have initiated their own peer anti-corruption sensitization measures. Cameroon is signatory to the United Nations and the African Union anti-corruption initiatives, but these international initiatives have practical limited effects on the enforcement of laws in the country. The newly formed Business Coalition Against Corruption (BCAC) is rapidly growing in private-sector membership and influence.

In the civil service, cronyism, nepotism, tolerance for serious conflicts of interest and also collisions to defraud the State abound. The government declares that it is committed to fighting corruption but appears overwhelmed by the daunting task, or complicit in the system of clientelism that harbors corrupt actors. In some extreme instances, civil servants blatantly violate laws and then offer bribes to State inspectors so that they are not investigated and prosecuted. It is a vicious cycle that replicates, metamorphoses, and perpetuates itself in an environment of apparent impunity. Officially, bribes are prohibited and the State has many institutions that are supposed to fight against systemic corruption. Cameroon has signed up to many international anti-corruption agreements. But this scourge continues to plague the civil service at almost every level (government procurement, award of licenses or concessions, transfers, performance requirements, dispute settlement, regulatory system, customs or taxation) with private companies paying a heavy price despite several anti-corruption initiatives by business groups.

Resources to Report Corruption

Rev. Dieudonne MASSI GAMS
National Anti-Corruption Commission
B.P. 33200 Yaounde Cameroon
(+237) 22 20 37 32

Me Charles NGUINI
Country Representative
Transparency International Cameroon
Nouvelle route Bastos, rue 1.839, BP: 4562 Yaounde
(+237) 33 15 63 78

10. Political and Security Environment

Cameroon is a peaceful country in a turbulent region. However, the country is facing domestic security challenges from the terrorist group Boko Haram, in the Far North of Cameroon. Also, since December 2016, the two English speaking regions of Cameroon have been rocked by social unrest. Anglophones claim that they are marginalized by the central government. Since then lawyers and teachers have been on strike and schools have been closed. Since January 2017, physicians and teachers of the French speaking regions have also periodically been on strike, generally over pay and working conditions. But some Anglophones want a return to a two state federation while other more extremists fringes of secessionists want total separation to form a new state. Although the likelihood of a split between the two communities is remote, the economy of the English speaking Northwest and Southwest regions has nearly collapsed. Outside of Cameroon, the crisis is seen as a domestic matter and the central government appears to have the crisis under control, although systematic clamp downs with massive arrests have prompted complaints of human right abuses. In the short term, the impact of this domestic crisis on foreign direct investments has been weak.

In the Far North and the English speaking regions, there are some disruptions to economic activities despite the measures taken by the government to limit the impact of the crises. There may be more turbulence ahead. Cameroon is heading into an electoral year with presidential elections scheduled for 2018. President Paul Biya, who has been in power for 34 year, is likely to bid for another 7 years in office. If elected, he will be 91 years old when his mandate ends. In 2008, opposition to his candidacy triggered unrest in the country for many months.

11. Labor Policies and Practices

In Cameroon, over 50 percent of the population is under 25. The official unemployment is around 4 percent, although youth unemployment may be as much as 75 percent. The majority of youth who are qualified are under-employed in the informal sector. Unskilled labor is prevalent in the agricultural and service sector, and under-employment is prevalent in manufacturing, commerce, technician or technical trades, and mid-management jobs. A 2010 Survey of Employment and the Informal Sector (EESI) by the National Institute of Statistics revealed an unemployment rate of 3.8 percent based on International Labor Organization (ILO) standards. The study identified under-employment as a real challenge for employment policy makers in Cameroon, with rates of 12.3 percent and 63.7 percent, respectively for visible and invisible under-employment.

There are shortages of technical trade skills, for example, for maintenance and repair of industrial machinery, in every sector of the economy. Truck and automotive maintenance is widely practiced in the informal sector. Rudimentary or artisanal agriculture, fishing, and textile manufacture economic sectors are still in need of significant development, and a lack of skilled workers tends to be the norm across the country. The government of Cameroon does not require companies to hire nationals. However, foreign nationals are required to obtain work permits prior to formal employment. While foreign nationals are automatically issued work permits for companies of the industrial free zones regime, their number may not exceed 20 percent of the total work force of a company after the fifth year of operation in Cameroon if benefiting from the Industrial Free Zone (IFZ) regime.

Although union and contract agreements vary widely from sector to sector, in general Cameroon functions as an “employment at will” economy, and labor laws differentiate between layoffs and firing. Layoffs are not caused by the fault of the employees. Layoffs are often considered as alternative solutions to dismissing workers based on performance fault or economic grounds. There is no special treatment of labor in special economic zones, foreign trade zones, or free ports. While the Labor Code applies to Enterprises of the Industrial Free Zone (IFZ) regime, some matters are governed by special provisions under the 1990 law establishing IFZ. These include the employer’s right to determine salaries according to productivity, free negotiation of work contracts, and automatic issuance of work permits for foreign workers. The Ministry of Labor monitors labor abuses, health and safety standards and other related issues, but enforcement is poor. Labor laws are waived through the regime of Industrial Free Zones to attract or retain investment. As indicated earlier, the waivers include the employer’s right to determine salaries according to productivity, free negotiation of work contracts, and automatic issuance of work permits for foreign nationals.

There are labor unions that are independent, and others that are affiliated with the government under existing laws and regulations. Over 100 trade unions and 12 union confederations operate in the country. However, the labor union movement is highly fractured and somewhat ineffective in promoting workers’ rights. Some union leaders accuse the government and company managers of promoting division within trade unions to weaken them, as well as protecting non-representative trade union leaders with whom they can negotiate more easily.

Cameroon’s labor dispute resolution mechanisms are outlined in the labor code. The procedure differs depending on whether the dispute is individual or collective. Individual disputes fall under the jurisdiction of the civil court dealing with labor matters in the place of employment or residence of the worker. The legal procedure is initiated after the labor inspector fails to settle the dispute amicably out of the court system. Settlement of collective labor disputes is subject to conciliation and arbitration, and any strike or lock-out started after the procedures have been exhausted and have failed is deemed legitimate. While the conciliation procedure is conducted by the labor inspector, arbitration of any collective dispute that has not been settled by conciliation is handled by an arbitration board, chaired by the competent judicial officer of the competent court of appeal. Workers who ignore procedures to conduct a legal strike can be dismissed or fined. For more information (see: )

The law provides for the rights to collective bargaining as a means to regulate labor relations between employers and workers. Workers are allowed to bargain collectively and re-negotiate past collective agreements from time to time. In case of an inability to conclude a collective agreement, the National Labor Advisory Board can issue a decree to establish a minimum wage for a particular occupation. In the context of rampant poverty, labor disputes tend to have socio-political ramifications beyond the boundaries of simple legal employment contracts. In February 2008, a strike by transportation workers who were opposing high fuel prices and poor working conditions triggered a series of violent demonstrations in Cameroon. In response to the protests, the government reduced the cost of fuel, reduced the duties paid on cement, suspended duties on essential goods such as cooking oil, fish and rice, as well as raised salaries of civil servants and military personnel.

The labor code differentiates between layoffs and firing (w/ severance). In all cases of dismissal, it shall be up to the employer to show that the grounds for dismissal alleged by him are well-founded. Whenever a contract of employment of unspecified duration is terminated without notice or without the full period of notice being observed, the responsible party shall pay to the other party compensation corresponding to the remuneration including any bonuses and allowances which the worker would have received for the period of notice not observed. Except in the case of serious misconduct, where a contract of employment of unspecified duration is terminated by the employer, the worker with no less than two successive years of seniority in the enterprise shall be entitled to severance pay distinct from pay in-lieu-of notice which shall be determined giving regard to the worker’s seniority. However, in most cases implementation of these decisions may take many years of negotiations often involving the Ministry of Labor, courts and social services.

The Cameroon labor market continues to be dominated by a large informal sector. According to the World Bank, a large section of the work force earns their living in the informal sector. Agriculture provides a large portion of informal jobs with over 70 percent of jobs performed informally. Other economic sectors which continue to feed this labor informality are telecommunications, manufacturing, construction, banking, and the hotel industry. The formal private sector and the public sector employ 4 percent and 6 percent of the workforce, respectively. Informality is often decried but it has instilled a culture of flexibility in the Cameroonian job market. Cameroon labor code lays down principles of labor laws regarding employment, dismissal, remedies for wrongful dismissal, compensation for industrial injuries, and trade unions. But most jobs do not have binding contracts and employers generally seem to have the upper hand in labor dispute. There is informality even in the formal sector which is against the law. Despite this landscape, it is important for U.S. companies to ensure compliance with the local labor laws and to abide by international best practice which refer to the treatment of workers.

There is a gap in the supply and demand for labor in Cameroon. Often skills do not match the needs of companies, while the qualification of many job seekers may not be the ones needed by employers. This stems from the inadequacy or obsoleteness of the content of the educational systems. While the Cameroonian educational system has schools that can produce good engineers and doctors, there are few schools which provide training for technicians such as welders, plumbers, computer technicians and maintenance workers. Cameroon does not impose the hiring of nationals although some level of local content and transfer of skills tend to be positively perceived as elements of corporate social responsibility. There is no direct linkage between the labor code and incentives for FDI which are stipulated in a different law. The government expects foreign companies to also abide by all Cameroonian laws. In theory, the Labor Code provides a legal framework for the emergence of a flexible and efficient labor market, but such a market has not fully emerged. Cameroon is a party to the ILO Conventions 87 and 98 permitting the freedom to form unions and the right to collective bargaining.

In general, any individual dispute arising from a contract of employment between workers and their employers or from a contract of apprenticeship shall fall within the jurisdiction of the court dealing with the labor disputes in accordance with the legislation on judicial organization. In Cameroon, trade unions are not strong. For this reason, collective bargaining agreements are relatively rare. The OHADA corporate laws have additional provisions for dispute resolution. However, dysfunctions in the legal systems can create gaps in compliance or practice with international labor standards. The ILO works with the Cameroonian government on issues such as the prevention of child labor and trafficking in person, which contributes to the alignment of Cameroon laws with international labor standards.

12. OPIC and Other Investment Insurance Programs

Cameroon and OPIC signed an Investment Guarantee in 1967. In recent years and with this agreement, OPIC has been able to provide insurance and contributed to an increased access to finance for Cameroonian farmers and small and medium sized enterprises. The current official currency exchange rate for the U.S. dollar is CFA 590/USD 1.00, although there have been significant fluctuations recently, from CFA 583/USD 1.00 to CFA 612/USD 1.00.

Cameroon has ambitious development plans and hopes to become an emerging economy by 2035. The government has published a list of 80 large infrastructure projects covering many sectors that would help achieve that goal. Cameroon officials have officially invited U.S. companies to bid and support them in the execution of these projects. The government has been slow to move on many of these projects. Nonetheless, these projects offer good business opportunities for OPIC’s continued involvement in Cameroon.

Cameroon signed an Investment Incentive Agreement with OPIC on March 07, 1967.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Host Country Statistical Source USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2014 $32.1bn 2015 $28.4bn 
Foreign Direct Investment Host Country Statistical Source USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) N/A N/A 2014 $73mm BEA data available at
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A 2014 $9mm BEA data available at
Total inbound stock of FDI as % host GDP N/A N/A 2014 0.22% N/A

Table 3: Sources and Destination of FDI

The IMF relies on country authorities to submit data for this survey and the Mission is initiating talks with Cameroonian authorities to encourage the government to assist the IMF in the data collection and uploading process. At this time, fields in Table 3 are Not Applicable.

Table 4: Sources of Portfolio Investment

Not Applicable.

14. Contact for More Information

Dr. Derrin Smith
Deputy Chief of the Political and Economic Section
US Embassy Yaounde, Rosa Parks Ave, Yaounde, Cameroon


Executive Summary

China has a more restrictive foreign investment climate than its major trading partners, including the United States. While China remains a top destination for foreign direct investment, many sectors of its economy are closed to foreign investors. China continues to rely on an investment catalogue to encourage foreign investment in some sectors of the economy while restricting or prohibiting investment in many others. China’s investment approval regime shields from competition inefficient and monopolistic Chinese enterprises – especially state-owned enterprises (SOEs) and other national champions. Foreign investors are hampered by discriminatory practices, selective regulatory enforcement, licensing barriers, and the lack of an independent judiciary. Other challenges include poor intellectual property rights (IPR) enforcement, forced technology transfer, and a systemic lack of rule of law. Moreover, many of China’s industrial policy goals, including the 13th Five Year Plan and Made in China 2025, inherently discriminate against foreign companies and brands by favoring local products in key high-tech and advanced manufacturing sectors.

U.S. companies and industry associations are increasingly vocal in their criticism of China’s discriminatory investment regime. A 2017 business climate survey by the American Chamber of Commerce in China found over 60 percent of U.S. businesses surveyed felt China would be unlikely in the next three years to carry out needed reforms to provide greater market access to foreign companies; 81 percent felt China’s business climate had deteriorated and become less friendly to U.S. investors in the last year.

In 2016, the Chinese leadership pledged to gradually improve the investment climate through:

  • Intensification of U.S.-China Bilateral Investment Treaty (BIT) negotiations covering “pre-establishment” market access and using a “negative list” approach, with the aim of a high-standard agreement reflecting non-discrimination, transparency, and open and liberalized investment regimes on both sides.
  • Implementation of staggered “negative lists” to govern investment throughout the country, including: a pilot market access negative list applicable to both domestic and foreign investors; an updated draft Catalogue for the Guidance of Foreign Investment in Industries, which proposes new liberalization in 20 investment sectors; and the announced expansion of the Free Trade Zone (FTZ) pilot foreign investment negative list to include seven new FTZs (for a total of eleven) that will go into effect in 2017.

Although Chinese officials continue to promise economic reforms that will provide greater market access and protection to foreign investors, announcements are met with skepticism due to lack of details and timelines. Investors also cite inconsistent regulations, growing labor costs, licensing and registration problems, shortages of qualified employees, insufficient intellectual property protections, and other forms of Chinese protectionism as contributing to China’s deteriorating business climate.

Table 1

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2016 79 of 175
World Bank’s Doing Business Report “Ease of Doing Business” 2016 78 of 190
Global Innovation Index 2016 25 of 128
U.S. FDI in partner country ($M USD, stock positions) 2015 U.S. $74.56 Billion
World Bank GNI per capita 2015 U.S. $7,930

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Toward Foreign Direct Investment

China has long relied on foreign investment to develop key sectors of its economy. Although many industries and economic sectors remain restricted or prohibited to foreign investment, government officials recognize the important role that Foreign Direct Investment (FDI) has historically played in China’s economic development. They have therefore continued to promise economic reforms to further open up China’s economy to provide greater market access for foreign investment. According to the Ministry of Commerce (MOFCOM), 2016 saw China’s total inward FDI flows rise 4.1 percent from the year prior, to 813.22 billion renminbi (RMB) (U.S. $126 billion). China’s sustained high economic growth rate, growing middle class, and the expansion of diverse product demand all contribute to China’s attractiveness as an FDI destination.

Foreign investors, however, often temper their optimism regarding potential investment returns with uncertainty about China’s willingness to offer a level playing field vis-à-vis Chinese competitors. Foreign investors report a range of challenges related to China’s current investment climate, including: broad use of industrial policies to protect and promote state-owned and other domestic firms through employing subsidies, preferential financing, and selective enforcement of laws and regulations; restrictions on controlling ownership of foreign entities through equity caps, limited voting rights, limits to foreign participation on companies’ board of directors, etc.; weak protection and enforcement of IPR; corruption; discriminatory and non-transparent anti-monopoly enforcement; excessive national or cyber security requirements; and an unreliable legal system lacking transparency and rule of law. The 2015 Anti-Terrorism Law, the Foreign Non-Governmental Organization (NGO) Law, the Cyber Security Law, and other measures impede local Chinese firms (especially banks) from purchasing foreign technology, raising concerns that China has back-tracked on reforms to further open up to foreign investment.

China promotes inward investment through MOFCOM’s “Invest in China” website, found at . MOFCOM publishes laws and regulations related to foreign investment, economic statistics, lists of investment projects, relevant news articles, and other relevant information about investing in China. In addition, each region has a provincial-level investment promotion agency through local MOFCOM departments.

American Chamber of Commerce China 2016 American Business in China White Paper: 

American Chamber of Commerce China 2017 Business Climate Survey: 

U.S.-China Business Council’s China October 2016 Economic Reform Scorecard: 

MOFCOM’s Investment Promotion Website: 

Limits on Foreign Control and Right to Private Ownership and Establishment

The Catalogue for the Guidance of Foreign Investment in Industries, or Foreign Investment Catalogue (FIC), governs the “pre-establishment,” or market access, phase of investment and establishes whether foreign investment in a particular economic sector or industry is “encouraged,” “restricted,” or “prohibited.” In both the encouraged and restricted categories, the FIC clearly outlines industry sectors that are completely liberalized and those that are open to foreign investment but subject to equity caps, joint ventures requirements, and Chinese national leadership requirements. Encouraged sectors are industries China believes would benefit from foreign investment and technology transfer, often in line with industrial policy goals. Restricted and prohibited sectors are those seen as sensitive, possibly touching on national security concerns, or at odds with the industrial goals of China’s economic development plans.

In December 2016, MOFCOM and the National Development and Reform Commission (NDRC) jointly issued for public comment an updated draft of the FIC that proposed reforms to further liberalize 20 sectors of the economy. Of note, the proposed draft FIC changed the header of the restricted and prohibited section to the “nationwide negative list.” Foreign investors interested in industries not on the negative list will no longer require pre-approval from MOFCOM, but rather, need only register their investment with MOFCOM.

The proposed revisions in the draft FIC may improve market access in some sectors, but are relatively minor, and revisions affecting investments in industries that have traditionally faced heavy restrictions, such as banking, telecommunications, and cultural industries, fall short of the reform expectations of the U.S. business community. In addition, it is unclear how the updated FIC will be prioritized vis-à-vis other, contradictory industry-based regulations or whether other industrial policies will supersede the version of the FIC that is ultimately published. This uncertainty undermines confidence in the stability and predictability of China’s investment climate and impedes foreign investors’ future business planning.

The Chinese language version of the 2015 FIC: 

The Chinese language version of the 2016 draft FIC: 

Ownership Restrictions

In both the “encouraged” and “restricted” categories of the FIC, certain industries require joint ventures and/or requirements that a company be controlled by Chinese nationals.

For example:

  • In the oil and natural gas exploration and development industry, foreign investment is required to take the form of equity joint ventures and cooperative joint ventures.
  • In the accounting and auditing sectors, the Chief Partner of a firm must be a Chinese national.
  • In higher education and pre-school, foreign investment is only permitted in the form of cooperative joint ventures led by a Chinese partner.
  • In some sectors, the Chinese partners individually or as a group must maintain control of the enterprise. Examples include: construction and operation of civilian airports, construction and operation of nuclear power plants, establishment and operation of cinemas, and the design and manufacture of civil-use satellites.

In some sectors, the foreign shareholder’s proportion of the investment may not exceed a certain percentage. For example, foreign equity ownership is limited to:

  • 50 percent in value-added telecom services (excepting e-commerce);
  • 49 percent in basic telecom enterprises;
  • 50 percent in life insurance firms; and
  • 49 percent in security investment fund management companies.

Mandatory joint venture structures and equity caps give Chinese partner firms significant control, often allowing them to benefit from technology transfer. In addition, the relative opacity of the approval process and the broad discretion granted to authorities foster an environment where the Chinese government can impose deal-specific conditions beyond written legal requirements, often with the intent to force technology transfer as a condition of market access or to support industrial policies and the interests of local competitors.

Other Investment Policy Reviews

Organization for Economic Cooperation and Development (OECD)

China is not a member of the OECD. The OECD Council decided to establish a country program of dialogue and co-operation with China in October 1995. The most recent OECD Investment Policy Review for China was completed in 2008. The OECD Investment Policy Review noted that policy changes in China between 2006 and 2008 tightened restrictions on inward direct investment, including cross-border mergers and acquisitions.

OECD 2008 report: 

In 2013, OECD published a working paper entitled “China Investment Policy: An Update,” which provided an update on China’s investment policy since the publication of the 2008 Investment Policy Review. The paper noted that while China’s economic strength buoys foreign investor confidence, fears of investment protectionism are growing.

OECD 2013 Update: 

World Trade Organization (WTO)

China became a member of the World Trade Organization (WTO) in 2001. WTO membership boosted China’s economic growth and advanced its legal and governmental reforms. The most recent WTO Investment Trade Review for China was completed in 2016. The report highlighted key changes between the 2011 and 2015 FIC. In addition, it noted that the foreign investment pilot negative list expanded from the Shanghai FTZ to the FTZs of Tianjin, Fujian, and Guangdong. The trade review also said that China encourages inward FDI, as well as joint ventures between Chinese and foreign companies, particularly in research and development. The report also mentioned that technology transfer, while not a requirement for investment approval, is a practice widely encouraged by Chinese authorities.

WTO Investment Trade Review for China: 
International Monetary Fund (IMF) information on China: 
FDI Statistics from MOFCOM: 

Business Facilitation

Basic business registration procedures in China are difficult. The World Bank ranked China 78th out of 190 economies in terms of ease of doing business and 127th for starting a business. In Shanghai and Beijing, at least 11 procedures are reportedly required to establish a business, with an average timeline of more than 30 days to complete the registration process. Steps to register a business include pre-approval for a company name, a business license approved by the State Administration for Industry and Commerce (SAIC), an organization code certificate with the Quality and Technology Supervision Bureau, registration with the provincial and local tax bureaus, a company seal issued by the police department, registration with the local statistics bureau, a local bank account, the authorization to print or purchase invoices and receipts, and registration with the Ministry of Human Resources and Social Security, as well as with the Social Welfare Insurance Center.

The Government Enterprise Registration (GER), an initiative of the United Nations Conference on Trade and Development (UNCTAD), gave China a score of 1.5 out of 10 on its website for registering and obtaining a business license. SAIC is the main government body that approves business licenses, and according to GER, SAIC’s website lacks even basic information, such as what to do and how to do it.

SAIC’s online business registration information can be found at 

Recently, the State Council – China’s cabinet – has tried to reduce red tape by eliminating hundreds of administrative licenses and delegating administrative approval power across a range of sectors. The number of investment projects subject to central government approval has reportedly dropped more than 75 percent. The State Council also has set up a website in English, which is more user-friendly than SAIC’s website, to help foreign investors looking to do business in China: ( ).

MOFCOM’s Department of Foreign Investment Administration is responsible for foreign investment promotion in China.

Despite efforts to streamline business registration procedures, foreign companies still continue to complain about the many challenges of setting up a business, including the process of registration and obtaining administrative licenses. Numerous companies offer consulting, legal, and accounting services for establishing wholly foreign-owned enterprises, partnership enterprises, joint ventures, and representative offices. The differences among these corporate entities are significant, and investors should review their options carefully with an experienced advisor before choosing a particular corporate entity or investment vehicle.

Outward Investment

In 2001, China initiated a “going-out” investment strategy for SOEs to go abroad to acquire foreign assets and gain greater access to foreign markets. Over time, this policy has evolved to include both state and private Chinese companies in a diversified number of economic sectors. Today, China is one of the largest outbound direct investors in the world and invested over U.S. $200 billion globally in 2016 alone, according to the Rhodium Group, a leading private sector analyst of U.S.-China bilateral investment. China’s preferred investment location is the United States, where China invested over U.S. $45 billion in 2016, almost triple 2015 investment, according to Rhodium reports.

Chinese officials support foreign investment opportunities that help China move up the manufacturing value chain by acquiring advanced manufacturing and high-technology capabilities that can be transferred back to China. This emphasis is stressed in both the 13th Five Year Plan and the Made in China 2025 policy that aims to transform China’s economy to better compete against advanced economies in 10 key high-tech sectors, including: new energy vehicles, next-generation IT, biotechnology, new materials, aerospace, oceans engineering and ships, railway, robotics, power equipment, and agriculture machinery. Chinese government officials provide preferred financing, subsidies, and access to an opaque network of investors to promote and provide incentives for outbound investment in key sectors.

While China continues to push for value-added outbound acquisitions, in November 2016, Chinese officials at the State Administration for Foreign Exchange (SAFE) issued guidelines that regulate foreign currency outflow for investments considered financial in nature or investments deemed “illogical” because the investment falls outside the core business of the acquiring company. In other words, investments made strictly for the purpose of financial returns, like commercial real estate, or investments where a company enters a completely different economic sector than it currently operates, will receive greater scrutiny from Chinese regulators. These guidelines were intended to slow the momentum of China’s shrinking foreign currency reserves, in part brought about by a surge in outbound investment that, starting in Q3 2015, has exceeded capital inflows from foreign direct investment. Experts attribute China’s shrinking foreign currency reserves to two factors. First, as China’s GDP has slowed down, the quality of investment opportunities in China that yield a high return have diminished, making foreign investors less likely to invest in China and causing Chinese investors to look overseas to other markets with better return potential. Second, Chinese investors expect the RMB will continue to depreciate over time, which makes holding RMB-denominated investments less attractive than investments made in U.S. dollars and other foreign currencies. In an attempt to diversify assets into different currencies, Chinese household and company investments have fled to quality destinations like the United States and Europe.

2. Bilateral Investment Agreements and Taxation Treaties

China has bilateral investment agreements with over 100 countries and economies, including: Austria, the Belgium-Luxembourg Economic Union, Canada, France, Germany, Italy, Japan, South Korea, Spain, Thailand, and the United Kingdom. China’s bilateral investment agreements cover expropriation, arbitration, most-favored-nation treatment, and repatriation of investment proceeds. They are generally regarded as weaker than the investment treaties the United States seeks to negotiate.

A list of China’s signed BITs: 

The United States and China were actively engaged in BIT negotiations from October 2012 until January 2017.

In addition to bilateral investment agreements, China also has 14 Free Trade Agreements (FTAs) with its trade and investment partners. It is negotiating an additional nine FTAs and researching six more potential FTAs. China’s FTA partners are ASEAN, Singapore, Pakistan, New Zealand, Chile, Peru, Costa Rica, Iceland, Switzerland, Hong Kong, Macao, and Taiwan. China has also recently signed FTAs with Korea and Australia, both of which include a chapter on investment.

China’s signed FTAs: 

The United States and China concluded a bilateral taxation treaty in 1984.

3. Legal Regime

Transparency of the Regulatory System

In China’s complex legal and regulatory system, regulators and other government authorities inconsistently enforce regulations, rules, and other regulatory guidelines. Foreign investors rank inconsistent and arbitrary regulatory enforcement, along with the lack of transparency, among the major problems they face doing business in China. Government-controlled trade organizations and regulatory bodies set standards that often ignore Chinese transgressors while strictly enforcing regulations against targeted foreign companies. In China’s regulatory system, different agencies at both the central and local levels issue rules and regulations that impact foreign businesses in certain geographical areas and in certain industries. Some of these rules are only guidelines that are not necessarily considered part of the legal code. Because all of these regulations and guidelines could potential impact foreign investors, foreign companies often feel overburdened by a complex regulatory system rife with contradictions and inconsistencies. Knowing how to apply central versus local rules, for example, is a common complaint of U.S. businesses that are both confused and lack confidence in the regulatory system.

In accordance with China’s WTO accession commitments, the State Council’s Legislative Affairs Office (SCLAO) issued instructions to Chinese agencies to publish all foreign trade and investment-related laws, regulations, rules, and policy measures in the MOFCOM Gazette. Chinese agencies rarely meet these commitments. In addition, the State Council has issued Interim Measures on Public Comment Solicitation of Laws and Regulations and a Circular on Public Comment Solicitation of Department Rules, which require government agencies to post proposed trade and economic-related administrative regulations and departmental rules on the official SCLAO website for 30-day public comment period. Officials have publicly confirmed that these documents are legally binding. However, despite these efforts, ministries under the State Council continue to post only some of the draft administrative regulations and departmental rules on the SCLAO website. When drafts are published, they often are available for comment for less than the required 30 days.

While not provided for in China’s Law on Legislation, the State Council and ministries under the State Council also issue “normative documents” (opinions, circulars, notices, etc.), which are a form of quasi-regulation to implement applicable law, regulations, and rules when further specificity is necessary, or when there is no governing law. The U.S. business community reports that Chinese ministries often impose new requirements on companies through the issuance of a normative document, which, unlike the formal rulemaking process, does not necessitate a public comment period.

Proposed regulations are often drafted without using scientific studies or quantitative analysis to assess the regulation’s impact. When an assessment is made, the results and methodology of the study are not made available to the public. Third parties are asked to comment on draft regulations, but it is unclear what impact the comments have on the final regulation. This lack of transparency adds to foreign investor perceptions that industrial policy goals and other anticompetitive factors are driving forces behind China’s regulatory regime.

Chinese state actions are strongly motivated by the perceived need to protect social stability and/or achieve other political goals, many times at the detriment of foreign investors. The opaque relationship between the Chinese government, Chinese companies, and the Communist Party often makes it impossible to know where decisions originate. An example of these blurred lines is the existence of Self-Regulatory Organizations (SROs) that are responsible for certain licensing decisions. In the financial sector, Chinese financial institutions that are members of these same SROs can decide on the license applications of foreign firms. If a license decision might threaten a Chinese firm’s competitive position in the domestic market, there may be incentives to disapprove the license. For this reason, foreign firms are concerned that decisions may be made based on non-transparent and discriminatory licensing procedures.

Access to foreign online resources — including news, cloud-based business services, and virtual private networks (VPNs) – are increasingly restricted without official acknowledgement or explanation. Foreign-invested companies have also reported threats of retaliation by government regulators for actions taken by the United States and other foreign governments at the WTO or other legal forums.

For accounting standards, Chinese companies must use the Chinese Accounting Standards for Business Enterprises (ASBE) for all financial reporting within mainland China. Companies listed overseas (including in Hong Kong) may choose to use ASBE, the International Financial Reporting Standards (IFRS), or Hong Kong Financial Reporting Standards (HKFRS).

International Regulatory Considerations

China has been a member of the WTO since 2001. As part of its ascension agreement, China agreed to notify the WTO Committee on Technical Trade of all draft technical regulations. Compliance with this WTO commitment is something Chinese officials continue to promise in different dialogues with U.S. government officials.

Legal System and Judicial Independence

The Chinese court system is based on a civil law model that borrowed from the legal systems of Germany and France. Modified to account for local characteristics in China, the rules governing commercial activities are present in various laws, regulations, and judicial interpretations, including China’s civil law, contractual law, partnership enterprises law, security law, insurance law, enterprises bankruptcy law, labor law, and Supreme People’s Court (SPC) Interpretation on Several Issues Regarding the Application of the Contract Law. China does not have specialized commercial courts, but in 2014, began a three-year pilot program to establish three IPR courts in Beijing, Guangzhou, and Shanghai; in addition, courts throughout China often have specialized IPR “tribunals” to hear disputes.

China’s Constitution provides a legal basis for courts to independently exercise adjudicative power, and several laws have provisions stating courts are not subject to interference by administrative organs, public organizations, and/or individuals. However, the Constitution also emphasizes the “leadership of the Communist Party.” In practice, China’s court system is not independent of government agencies or the Chinese Communist Party (CCP), which often intervene in disputes. Interference takes place for many reasons, including:

  • Courts fall under the jurisdiction of local governments;
  • Court budgets are appropriated by local administrative authorities;
  • Judges in China have administrative ranks and are managed as administrative officials;
  • The CCP is in charge of the appointment, dismissal, transfer, and promotion of administrative officials;
  • China’s Constitution stipulates local legislatures appoint and supervise the courts; and
  • Corruption may also influence local court decisions.

The U.S. business community consistently reports that Chinese courts, particularly at lower levels, are susceptible to outside political influence (particularly from local governments), lack the sophistication to understand complex commercial disputes, and operate without transparency. U.S. companies often avoid challenging administrative decisions or bringing commercial disputes before a local court for fear of future retaliation.

Reports of business disputes involving violence, death threats, hostage-taking, and travel bans involving Americans continue to be prevalent, although American citizens and foreigners in general do not appear to be more likely than Chinese nationals to be subject to this treatment. Police are often reluctant to intervene in what they consider internal contract disputes.

Laws and Regulations on Foreign Direct Investment

China’s legal and regulatory framework provides discretion to promote investment in specific industries and geographic regions and to restrict foreign investment not considered in China’s national interests. Laws and regulations with undefined key terms and standards allow for inconsistent application by different agencies and localities. As a result, China has in place investment restrictions that are broader than developed countries, including the United States.

Despite repeated calls by Chinese leadership to strengthen the rule of law in China, foreign investors often point out that weaknesses in the legal system allow regulators to inconsistently apply and interpret laws and regulations. This diminishes the predictability of China’s business environment and has created a feeling among U.S. investors that the Chinese legal system discriminates against them.

China’s current foreign investment regime is based on three central laws: the China-Foreign Equity Joint Venture Enterprise Law, the China-Foreign Cooperative Joint Venture Enterprise Law, and the Foreign-Invested Enterprise (FIE) Law. Multiple administrative regulations and regulatory documents issued by the State Council are derived from these three laws, including:

  • Implementation Regulations of the China-Foreign Equity Joint Venture Enterprises Law;
  • Implementation Regulations of the China-Foreign Cooperative Joint Venture Enterprise Law;
  • Implementation Regulations of the FIE Law;
  • State Council Provisions on Encouraging Foreign Investment;
  • Provisions on Guiding the Direction of Foreign Investment; and
  • Administrative Provisions on Foreign Investment to Telecom Enterprises.

There are also over 1,000 rules and regulatory documents related to foreign investment in China and issued by government ministries, including:

  • the FIC;
  • Provisions on Mergers & Acquisition of Domestic Enterprises by Foreign Investors;
  • Administrative Provisions on Foreign Investment in Road Transportation Industry;
  • Interim Provisions on Foreign Investment in Cinemas;
  • Administrative Measures on Foreign Investment in Commercial Areas;
  • Administrative Measures on Ratification of Foreign Invested Projects;
  • Administrative Measures on Foreign Investment in Distribution Enterprises of Books, Newspapers and Periodicals;
  • Provision on the Establishment of Investment Companies by Foreign Investors; and
  • Administrative Measures on Strategic Investment in Listed Companies by Foreign Investors.

Local legislatures and governments also enact their own regulations, rules, and guidelines that directly impact foreign investment in their geographical area. Examples of local regulations include the Wuhan Administration Regulation on Foreign-Invested Enterprises and Shanghai’s Municipal Administration Measures on Land Usage of Foreign-Invested Enterprises.

A list of Chinese laws and regulations, at both the central and local levels: 

FDI Laws on Investment Approvals

China approves foreign investments on a case-by-case basis. China claims to provide foreign investors with “national treatment,” or treatment no less favorable than the treatment it gives to domestic investors, after an investment has been established. The process varies based on industry and investment type, with overall low transparency.

Foreign investors are required to obtain approvals for establishing an enterprise and undertaking an investment project. MOFCOM pre-approval is not required for an investment not listed in the “restricted” or “prohibited” sections of the FIC, but foreign investors still need to register the investment with MOFCOM. That being said, the mere fact that an investment category is not on the FIC negative list does not guarantee approval, as other steps and approvals may be required. In some industries, such as telecommunications, foreign investors are also required to get approval from industry regulators like the Ministry of Industry and Information Technology.

In July 2004, the State Council issued the Decision on Investment Regime Reform and the Catalogue of Investment Projects subject to Government Ratification (Ratification Catalogue). According to the Ratification Catalogue, all proposed foreign investment projects in China must be submitted for “review and ratification” by the NDRC, or provincial or local Development and Reform Commissions, depending on the sector and value of the investment. In 2013, however, the government issued a new catalogue to narrow the scope of foreign investment projects subject to NDRC ratification. An “encouraged” investment under the FIC that does not require a Chinese controlling interest, and is in a sector not listed on the Ratification Catalogue, only needs to be “filed for record” with the local NDRC office. This policy shift marked a positive step toward easing bureaucratic barriers to foreign investment.

In November 2014, China released an updated edition of the Ratification Catalogue, which eliminated NDRC ratification requirements for 15 new sectors and delegated ratification authority to local governments in 23 additional sectors. In several new sectors, the new Ratification Catalogue also raised the threshold of foreign ownership that would trigger the requirement for NDRC approval. When announcing the reforms, NDRC stated the goal of the latest revision to the Ratification Catalogue was to limit ratification to projects relating to “national and ecological security, geographic and resource development,” and the “public interest.” NDRC estimates that revisions made to the Ratification Catalogue over the past several years would reduce the number of projects requiring ratification from central government authorities by 76 percent.

Ratification Catalogue: 

The NDRC approval process for foreign investment projects also includes assessing the project’s compliance with China’s laws and regulations; its compliance with the FIC and industrial policy; its national security, environmental safety, and public interest implications; its use of resources and energy; and its economic development ramifications. In some cases, NDRC also solicits the opinions of relevant Chinese industrial regulators and “consulting agencies,” which may include industry associations that represent Chinese domestic firms. This presents potential conflicts of interest that can disadvantage foreign investors seeking to receive project approval. The State Council may also weigh in on high-value projects in “restricted” sectors.

After receiving NDRC approval for the investment project and either notifying or applying for approval for an investment from MOFCOM, investors next apply for a business license with the SAIC. Once a license is obtained, the investor registers with China’s tax and foreign exchange agencies. Greenfield investment projects must also seek approval from China’s Environmental Protection Ministry and its Ministry of Land Resources. The specific approvals process may vary from case to case, depending on the details of a particular investment proposal and local rules and practices.

U.S. Chamber of Commerce report on Approval Process for Inbound Foreign Direct Investment:

Antitrust Review

For investments made via merger or acquisition with a Chinese domestic enterprise, an antimonopoly review and national security review may be required by MOFCOM if there are concerns about the foreign transaction. The anti-monopoly review is detailed in a later section on competition policy.

Article 12 of MOFCOM’s Rules on Mergers and Acquisitions of Domestic Enterprises by Foreign Investment stipulates that parties are required to report a transaction to MOFCOM if:

Foreign investors obtain actual control, via merger or acquisition, of a domestic enterprise in a key industry;

  • The merger or acquisition affects or may affect “national economic security”; or
  • The merger or acquisition would cause the transfer of actual control of a domestic enterprise with a famous trademark or a Chinese time-honored brand.

If MOFCOM determines that the parties did not report a merger or acquisition that affects or could affect national economic security, it may, together with other government agencies, require the parties to terminate the transaction or adopt other measures to eliminate the impact on national economic security.

National Security Review

In February 2011, China released the State Council Notice Regarding the Establishment of a Security Review Mechanism for Foreign Investors Acquiring Domestic Enterprises. The notice established an interagency Joint Conference, led by NDRC and MOFCOM, with the authority to block foreign mergers and acquisitions of domestic firms that it believes may impact national security. The Joint Conference is instructed to consider not just national security, but also “national economic security” and “social order” when reviewing transactions. China has not disclosed any instances in which it invoked this formal review mechanism.

Local commerce departments are responsible for flagging transactions that require a national security review when they review them in an early stage of China’s foreign investment approval process. Some provincial and municipal departments of commerce have published online a Security Review Industry Table listing non-defense industries where transactions may trigger a national security review, but MOFCOM has declined to confirm whether these lists reflect official policy. In addition, third parties such as other governmental agencies, industry associations, and companies in the same industry can seek MOFCOM’s review of transactions, which can pose conflicts of interest that disadvantage foreign investors. Investors may also voluntarily file for a national security review.

Foreign Investment Law

In January 2015, MOFCOM proposed for public comment a new Foreign Investment Law. This law, if enacted, would unify and supersede the three governing foreign investment laws established by the State Council. It also would abolish the case-by-case approval system for foreign investment and replace it with a system that treats foreign investment the same as domestic investments, except in the limited number of industries enumerated on the “negative list.” The draft law calls for streamlining the approval process for foreign investment in some sectors, but contains a number of troubling provisions – e.g., broadening the definition of foreign investor, expanding the role of the national security review mechanism, increasing reporting requirements, and threatening the structure of variable interest entities (VIEs) – that could facilitate discriminatory treatment against foreign investment. To date, there have been no new announcements about a future release of the Foreign Investment Law or a timeline for its implementation.

In addition to transforming the current foreign investment regime, the aforementioned MOFCOM draft Foreign Investment Law would also establish a broad and potentially intrusive national security review mechanism. As it is currently envisaged, the national security review could be used to hinder market access and increase the financial burden of foreign investment in China.

Free Trade Zones – Negative List Approach

In April 2015, the State Council issued a General Plan for the FTZs in Tianjin, Guangdong, and Fujian that offers national treatment for the “pre-establishment,” or market access, phase of investment, except as otherwise provided under a negative list. The State Council-issued negative list for these FTZs contains 85 measures restricting foreign investment and 37 measures forbidding foreign investment. Together, this negative list has 17 fewer measures than the negative list adopted in the Shanghai FTZ in 2014 and 68 fewer measures than Shanghai FTZ’s 2013 negative list. Nevertheless, while the number of discriminatory measures declined, the most recent negative list includes no commercially significant openings for foreign investment.

China also issued in 2015 the Interim Measures on the National Security Review of Foreign Investment in Free Trade Zones. The definition of “national security” is broad, implicating investments in military, national defense, agriculture, energy, infrastructure, transportation, culture, information technology products and services, key technology, and manufacturing.

In addition, MOFCOM issued the Administrative Measures for the Record-Filing of Foreign Investment in Free Trade Zones, outlining the streamlined process that foreign investors need to follow to register investments in the FTZs.

Competition and Anti-Trust Laws

China uses a complex system of laws, regulations, and agency specific guidelines at both the central and provincial level that impacts an economic sector’s makeup, sometimes as a monopoly, near-monopoly, or authorized oligopoly. These measures are particularly common in resource-intensive sectors such as electricity and transportation, as well as in industries seeking unified national coverage like fixed-line telephony and postal services. The measures also target sectors the government deems vital to national security and economic stability, including defense, energy, and banking. Examples of such laws and regulations include the Law on Electricity (1996), Civil Aviation Law (1995), Regulations on Telecommunication (2000), Postal Law (1986), Railroad Law (1991), and Commercial Bank Law (amended in 2003), among others.

Anti-Monopoly Law

China’s Anti-Monopoly Law (AML) went into effect on August 1, 2008. The AML delegates antitrust enforcement to three agencies: MOFCOM to review concentrations (mergers and acquisitions); the NDRC to review cartel agreements, abuse of dominant position, and abuse of administrative powers centered on product pricing; and the SAIC to review the same types of activities as NDRC when those activities are not directly price-related. In addition, the AML established the Anti-Monopoly Commission to provide oversight, expertise, and coordination among different stakeholders and enforcement agencies. After the AML was enacted, the need to clarify parts of the law became apparent, leading MOFCOM, NDRC, SAIC, and other Chinese government ministries and agencies to formulate implementing guidelines, departmental rules, and other measures. Generally, the AML enforcement agencies have sought public comment on proposed measures and guidelines, although comment periods can be less than 30 days.

In 2015, the CCP Central Committee and State Council declared that all future economic policies would reflect China’s competition policy. In 2016, the three AML enforcement agencies drafted guidelines on six enforcement areas: anti-monopoly guidelines for the automobile industry, guidelines on determining illegal incomes and fines, guidelines on the “leniency” system in horizontal monopoly agreements, guidelines on AML settlement cases, guidelines for intellectual property abuse, and guidelines on monopolistic agreement exemptions. In addition, the State Council in June 2016 introduced guidelines on the Fair Competition Review Mechanism that targets administrative monopolies at the local level and requires agencies to first conduct a fair competition review to certify that new measures do not inhibit competition, prior to issuing new policies, laws, and guidelines. While it is too early to tell the extent to which the Fair Competition Review Mechanism will break down China’s pervasive administrative monopolies, Chinese academics in particular are optimistic that this development signals a more prominent role for competition in future economic decisions.

While China’s antitrust law developments are seen as generally positive, China’s actual enforcement of competition laws and regulations is uneven. Inconsistent central and provincial enforcement often will exacerbate local protectionism by restricting inter-provincial trade, limiting market access for certain imported products, using measures that raise production costs, and limiting opportunities for foreign investment. Government authorities at all levels in China may also restrict competition to insulate favored firms from competition through various forms of regulations and industrial policies. The ultimate benefactor of such policies is often unclear; however, foreign companies have expressed concern that the central government’s use of AML enforcement is often selectively used to target foreign companies, becoming an extension of other industrial policies that favor SOEs and Chinese companies deemed potential “national champions.”

Since the AML went into effect, the number of merger and acquisition transactions MOFCOM has reviewed each year has continued to grow. According to MOFCOM statistics, in 2016 alone, MOFCOM completed an AML review for 395 cases (a 19 percent year-on-year increase), with the majority of cases coming from manufacturing industries like semi-conductors, telecommunications, and other high-end manufacturing. Of these reviewed cases, 82 percent were finished in the initial 30-day review period. Since AML’s inception, the vast majority (over 80 percent) of cases “conditionally” approved have involved offshore transactions between foreign parties. The other “conditional” cases involved foreign companies merging with Chinese enterprises. Observers have expressed concerns about the speed and inconsistent application of the review process, along with suspicions that Chinese regulators rarely approve “on condition” transactions involving two Chinese companies, thus signaling an inherent AML bias against foreign enterprises. MOFCOM has stated it will enforce the requirement that Chinese firms, in addition to foreign firms, notify regulators of proposed mergers and acquisitions for review.

In 2016, foreign companies expressed fewer complaints than in previous years about NDRC’s AML investigations. Some experts said leadership changes at NDRC improved enforcement practices, including introduction of a more balanced approach to investigations, which looks into Chinese companies more often than foreign enterprises. NDRC has also made progress in AML enforcement transparency by releasing aggregate data on investigations and publicizing case decisions. That said, many foreign companies still worry about future “dawn raids” and express concerns that NDRC regulators, along with SAIC and MOFCOM, can at any time use competition law to promote China’s industrial policy goals by targeting foreign firms to limit competition.

In bilateral dialogues, China continues to express its commitment to protect and enforce IPR across a range of industry sectors. Chinese officials are also in the process of clarifying AML guidelines that address areas where IPR and AML intersect, such as forcing foreign companies to license IPR technology to local companies at a “fair” price that does not violate a company’s “dominant market position.” Chinese officials also reiterated the need for AML agencies to be free from intervention from other government agencies. Lastly, Chinese officials committed to protecting commercial secrets obtained during AML proceedings. Despite the dialogues, U.S. companies remain concerned about IPR protections, along with the lack of independence of AML agencies from outside influences.

How the AML applies to SOEs and government monopolies in certain industries also is unclear. While language in the AML protects the lawful operations of SOEs and government monopolies in industries deemed nationally important, all three AML enforcement agencies have publicly stated the law does apply to SOEs. All three additionally claim to have pursued some enforcement action, albeit small, against SOEs. Given the prominent role of SOEs in China’s economic structure, along with the CCP’s proactive orchestration of mergers in key industries like rail, marine shipping, metals, and other strategic sectors, concerns persist that enforcement against SOEs will remain limited. These mergers in key industries have been criticized for further insulating SOEs from both domestic and foreign competition, leading to higher prices for Chinese consumers and more concentrated market power post-merger.

Expropriation and Compensation

Chinese law prohibits nationalization of FIEs, except under “special” circumstances. Chinese officials have said these circumstances include national security and when an investment presents an obstacle to achieving a large civil engineering project, but the law does not define these special circumstances. Chinese law requires compensation of expropriated foreign investments, but does not explain what method to use or the formula to calculate the value of the foreign investment. The Department of State is not aware of any cases since 1979 in which China has expropriated a U.S. investment, although the Department has notified Congress through the annual 527 Investment Dispute Report of several cases of concern.

Dispute Settlement

ICSID Convention and New York Convention

China is a member of the International Center for the Settlement of Investment Disputes (ICSID) and has ratified the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention). The domestic legislation that provides for enforcement of foreign arbitral awards related to these two Conventions include the Arbitration Law adopted in 1994, the Civil Procedure Law adopted in 1991 (later amended in 2012), the Law on Chinese-Foreign Equity Joint Ventures adopted in 1979 (amended most recently in 2001), and a number of other laws with similar provisions. China’s Arbitration Law has embraced many of the fundamental principles of The United Nations Commission on International Trade Law’s Model Law on International Commercial Arbitration.

Investment and Commercial Disputes in the Chinese Legal System

Chinese officials typically urge firms to resolve disputes through informal conciliation. If formal mediation is necessary, Chinese parties and the authorities typically promote arbitration over litigation. Many contract disputes require arbitration by the China International Economic and Trade Arbitration Commission (CIETAC). Established by the State Council in 1956 under the auspices of the China Council for the Promotion of International Trade (CCPIT), CIETAC is China’s most widely-utilized arbitral body for foreign-related disputes. Some foreign parties have obtained favorable rulings from CIETAC, while others question CIETAC’s fairness and effectiveness.

CIETAC is based in Beijing and has four sub-commissions in Shanghai, Shenzhen, Tianjin, and Chongqing. In 2012, CCPIT, under the authority of the State Council, issued new arbitration rules that granted CIETAC headquarters significantly more authority to hear cases than the sub-commissions. Expecting a loss in revenue, CIETAC Shanghai and CIETAC Shenzhen declared their independence, issued their own rules, and changed their names. As a result, CIETAC disqualified its former Shanghai and Shenzhen affiliates from administering arbitration disputes.

This jurisdictional dispute between CIETAC in Beijing and the former sub-commissions raised serious concerns among the U.S. business and legal communities, particularly regarding the validity of arbitration agreements specifying particular arbitration procedures and the enforceability of arbitral awards issued by the sub-commissions. In 2013, the SPC issued a notice clarifying that any lower court that hears a case arising out of the CIETAC split must report the case to the SPC before making a decision. However, the SPC notice is brief and lacks detail on certain issues, including the timeframe for the lower court’s decision to reach the SPC and for the SPC to issue its opinion.

Other arbitration commissions exist and are usually affiliated with the government at the provincial or municipal level. The Beijing Arbitration Commission and the Shanghai Arbitration Commission have emerged as serious domestic competitors to CIETAC. For contracts involving at least one foreign party, offshore arbitration may be adopted. Foreign companies often encounter challenges in enforcing arbitration decisions issued by Chinese and foreign arbitration bodies. Investors may appeal to higher courts in such cases.

The Chinese government and judicial bodies do not maintain a public record of investment disputes. The SPC maintains a count of the annual number of cases involving foreigners tried throughout China, but does not specify the types of cases, identify civil or commercial disputes, or note foreign investment disputes. Rulings in some cases are open to the public.

Although it has not concluded a BIT with the United States, China has bilateral investment agreements with over 100 countries and economies. The majority of these agreements set mediation, domestic remedies, and international arbitration as the means to settle disputes. However, investor-state disputes leading to arbitration are rare in China.

International Commercial Arbitration and Foreign Courts

There are few precedents where Chinese courts have recognized and enforced foreign court judgments. Articles 281 and 282 of China’s Civil Procedure Law cover the recognition and enforcement of the effective judgments of foreign courts by the court system in China. According to these laws, if the Chinese courts determine validity of a claim, after reviewing the foreign courts’ judgments, China’s treaty obligations, reciprocity principles, basic principles of Chinese laws, China’s sovereignty, security, and social public interests, the Chinese courts shall issue verdicts to recognize the effectiveness of foreign court judgments and issue enforcement orders if enforcement is needed. China has concluded 27 bilateral agreements on the recognition and enforcement of foreign court judgments, but none with the United States. China’s recognition of judgments by U.S. courts can be inconsistent, according to anecdotal reports.

Article 270 of China’s Civil Procedure Law states that time limits in civil cases do not apply to cases involving foreign investment. According to the 2012 CIETAC Arbitration Rules, in an ordinary procedure case, the arbitral tribunal shall render an arbitral award within six months (in foreign-related cases) from the date on which the arbitral tribunal is formed. In a summary procedure case, the arbitral tribunal shall make an award within three months from the date on which the arbitral tribunal is formed.

Bankruptcy Regulations

China’s primary bankruptcy legislation is the Enterprise Bankruptcy Law, which was promulgated on August 27, 2006 and took effect on June 1, 2007. The 2007 law applies to all companies incorporated under Chinese laws and regulations, including private companies, public companies, SOEs, FIEs, and financial institutions. It is commensurate with developed countries’ bankruptcies laws and provides for potential reorganization or restructuring rather than liquidation. Due to uncertainty about authorities and procedures, lack of implementation guidelines, and the limited number of cases providing precedent, the law has never been fully enforced, and most corporate debt disputes are settled through negotiations led by local governments. The potential for local government interference, along with corporate fears of losing control, disincentivize companies from pursuing bankruptcy proceedings. Chinese courts lack capacity to handle bankruptcy cases, and bankruptcy administrators, clerks, and judges all lack experience.

In the October 2016 State Council Guiding Opinion on Reducing Enterprises’ Leverage Ratio, bankruptcy was identified as a tool to manage China’s corporate debt problems. This was consistent with increased government rhetoric throughout the year in support of bankruptcy. For example, in June 2016, the SPC issued a notice to establish bankruptcy divisions at intermediate courts and to increase the number of judges and support staff to handle liquidation and bankruptcy issues. On August 1, the SPC also launched a new bankruptcy and reorganization electronic information platform: .

Although still relatively small, the number of bankruptcy cases began to pick up starting in 2015, with the government announcing in 2016 several high-profile SOE bankruptcies. The SPC reported that in 2016, 5,665 bankruptcy cases were accepted by the Chinese courts and 3,602 cases were closed, representing a 53.8 percent year-on-year increase from 2015, when only 3568 cases were accepted. Most bankruptcy cases are still resolved through liquidation due to long delays, but 1,041 cases were resolved through reorganization, an 85 percent increase from 2015. Since the fall of 2016, 73 new specialized bankruptcy tribunals were founded, along with the SPC issuing several implementing measures to improve bankruptcy procedures.

4. Industrial Policies

Investment Incentives

Different localities court foreign investors by providing preferential packages like reduced income taxes, resources and land use benefits, reduced import/export duties, special treatment in obtaining basic infrastructure services, streamlined government approvals, and funding for initial startup. These packages may stipulate export, local content, technology transfer, and other requirements as part of the preferred investment package. These localities offer preferential treatment in special economic zones (like Shanghai, Tianjin, Fujian, and Guangdong), development zones, and science parks. China in 2016 announced seven additional FTZs (Chongqing, Zhejiang, Hubei, Henan, Sichuan, Shaanxi, and Liaoning), to begin operating in 2017. These new economic zones are a shift from prior FTZs because they target inland areas in need of economic development and areas that are consistent with Chinese officials’ call for greater foreign investment in Central and Western China. China also uses the Catalogue of Priority Industries for Foreign Investment in Central and Western China to provide greater market access to foreign investors in inland areas of mainland China, so as to spur investment.

There are no expressed prohibitions against foreign firms participating in research and development programs financed by the Chinese government. In fact, for certain sectors where China lacks the capacity and expertise to conduct advanced research or supply advanced technology in a given field, foreign participation is generally encouraged and solicited. This is part of China’s stated goal of moving up the manufacturing value chain and transforming China’s economy to a model driven by innovative growth. However, there are a large number of sectors that China deems sensitive due to broadly defined national security concerns, including “economic security,” which can effectively close off foreign investment to those sectors.

Foreign Trade Zones/Free Ports/Trade Facilitation

China’s principal customs-bonded areas include Shanghai, Tianjin, Shantou, three districts within Shenzhen (Futian, Yantian, and Shatoujiao), Guangzhou, Dalian, Xiamen, Ningbo, Zhuhai, and Fuzhou. Besides these official duty-free zones identified by China’s State Council, numerous economic development zones and open cities offer similar privileges and benefits to foreign investors.

In September 2013, the Shanghai Municipal government and the State Council announced the establishment of the Shanghai Pilot FTZ, which condensed four previously existing bonded areas into a single FTZ. In April 2015, the State Council expanded the number of FTZs to include Tianjin, Guangdong, and Fujian, although the Shanghai FTZ remains the largest of the four. The goal of the FTZs is to provide a trial ground for trade and investment liberalization measures and to introduce service sector reforms, especially in financial services, that China expects to eventually introduce in other parts of the domestic economy.

In particular, Chinese officials tout the use of a “negative list” – that is, a list expressly identifying sectors where national treatment does not apply – as a key reform introduced in the FTZs. On April 20, 2015, the State Council published a revised negative list to supersede the 2014 list. The 2015 list  regulates trade and investment in all four FTZs, reducing the number of excluded items to 122 (down from a high of 190 items when the list was first rolled out in 2013). Major sectors in which restrictions have been lifted include manufacturing, construction, wholesale and retail, information technology services, financial services, real estate, and business services.

In 2016, the State Council announced the establishment of seven additional FTZs in Chongqing, Zhejiang, Hubei, Henan, Sichuan, Shaanxi, and Liaoning. The foreign investment negative list used in the existing four FTZs will also apply to the seven new FTZs. The stated purpose of the new FTZs is to integrate more closely with the “One Belt, One Road” plan – the Chinese government’s initiative to enhance global economic interconnectivity through joint infrastructure and investment projects that connect China’s inland and border regions to countries in Southeast Asia, Central Asia, Africa, and Europe. These new FTZs will be operational beginning in 2017.

Although the FTZ negative list in theory provides greater market access for foreign investment in the FTZs, many foreign firms have reported that in practice, the degree of liberalization in the FTZs is comparable to other opportunities in other parts of China. According to Chinese officials, over 18,000 entities have registered in the FTZs. The municipal and central governments have released a number of administrative and sector-specific regulations and circulars that outline the procedures and regulations in the zones.

Performance and Data Localization Requirements

Shortly after China’s WTO ascension, China revised its FDI laws regarding export performance requirements, requirements to include local content, requirements to balance foreign exchange through trade, technology transfer requirements, and requirements to create research and development centers. As part of these revisions, China committed to only enforce technology transfer requirements that do not violate WTO standards on intellectual property and trade-related investment measures. In practice, however, some local officials and regulators prefer investments with “voluntary” performance requirements that develop favored industries and support the local job market. Provincial and municipal governments will sometimes restrict access to local markets, government procurement, and public works projects even for firms that have already invested in the province or municipality. In addition, Chinese regulators have reportedly pressured foreign firms in some sectors to disclose intellectual property content or provide intellectual property licenses to Chinese firms, often at below market rates.

Regulatory restrictions, including in the Cyber Security Law, limits the ability of domestic and foreign operators of “critical information infrastructure” to transfer business and personal data outside of China, while requiring those same operators to store such data in China. Restrictions on cross-border data flows and unclear requirements on the use of domestic encryption algorithms have prompted many firms to review how their China systems interact with their global corporate networks. In order to comply with emerging requirements that technology used by business be “secure and controllable,” foreign firms are facing pressure to disclose source code and other intellectual property disclosures during testing and certification related to government procurement; adhere to prescriptive technology adoption requirements, often in the form of domestic standards that diverge from global standards, which give preference to domestic firms; and to comply with operational restrictions such as privacy measures, data center location, and cross-border data flow restrictions.

5. Protection of Property Rights

Real Property

The Chinese legal system mediates acquisition and disposition of property. Foreign companies have complained that Chinese courts have inconsistently protected the legal real property rights of foreigners.

Land is entirely owned by the State. The State can issue long-term land leases to individuals and companies, including foreigners, subject to many restrictions. China’s Property Law stipulates that residential property rights will renew automatically, while commercial and industrial grants shall be renewed if the renewal does not conflict with other public interest claims. A number of foreign investors have reported that their land use rights were revoked and given to developers to build neighborhoods slated for building by government officials. Investors often complain that compensation in these cases has been nominal.

In rural China, land use rights are more complicated. The registration system chronically suffers from unclear ownership lines and disputed border claims, often at the expense of local farmers who are excluded from the process by village leaders making “handshake deals” with commercial interests. In 2016, the central government announced plans to reform the rural land registration system so as to put more control in the hands of farmers, but some experts remain skeptical that changes will be properly implemented and enforced.

China’s Securities Law defines debtor and guarantor rights, including rights to mortgage certain types of property and other tangible assets, including long-term leases. Chinese law does not prohibit foreigners from buying non-performing debt, which can only be acquired through state-owned asset management firms. However, in practice, Chinese official often use bureaucratic hurdles that limit foreigners’ ability to liquidate assets, further discouraging foreign purchase of non-performing debt.

Intellectual Property Rights

Following WTO accession, China updated many of its laws and regulations to comply with the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) and other international agreements. However, there are still aspects of China’s IPR legal and regulatory regime that the U.S. government believes fall short of international best practices and, if improved, would provide greater protection to IPR. Furthermore, effective enforcement of China’s IPR laws and regulations remains a significant challenge.

Generally speaking, criminal penalties imposed by Chinese courts for IPR infringement are not applied on a frequent and consistent enough basis to significantly deter ongoing infringement. Furthermore, when administrative sanctions are issued, the basis for the sanctions is inconsistent and non-transparent, and penalties applied are insignificant, further weakening any deterrent effect. In addition, the award for IPR damage is very low, making civil litigation against IPR infringements an option with limited effect. For detailed information on China’s environment for IPR protection and enforcement, please see the following reports:

Office of the U.S. Trade Representative’s (USTR) 2017 Special 301 Report (see section on China): 

USTR’s 2016 National Trade Estimate Report on Foreign Trade Barriers in China (see section on China): 

USTR’s 2016 Report to Congress on China’s WTO Compliance: 

6. Financial Sector

Capital Markets and Portfolio Investment

China’s leadership has stated that it seeks to build a modern, highly developed, and multi-tiered capital market. Bank loans continue to provide the majority of credit options (reportedly around 70 percent) for Chinese companies, although other sources of capital, such as corporate bonds, trust loans, equity financing, and private equity are quickly expanding their scope, reach, and sophistication. Chinese regulators regularly use administrative methods to control credit growth, although market-based tools such as interest rate policy play an increasingly important role.

The People’s Bank of China (PBOC), China’s central bank, has gradually increased flexibility for banks in setting interest rates, formally removing the floor on the lending rate in 2013 and the deposit rate cap in 2015 – although is understood to still influence bank’s interest rates through “window guidance”. Favored borrowers, particularly SOEs, benefit from greater access to capital and lower financing costs, as they can use political influence to secure bank loans, and lenders perceive these entities to have an implicit government guarantee. Small- and medium-sized enterprises, by contrast, have the most difficulty obtaining financing, often forced to rely on retained earnings or informal investment channels for financing.

In recent years, China’s “shadow banking” sector, which includes vehicles such as wealth management and trust products, has grown rapidly. Chinese authorities have taken steps to increase the transparency requirements and strengthen supervision of these banking activities, while also permitting these vehicles to continue to develop. These vehicles often provide private firms additional channels to obtain capital, though at higher than benchmark rates. In 2016, worried about increasingly interconnected leverage across China’s corporate sector, the government introduced a new macro prudential assessment tool to take a more comprehensive approach to managing financial risks. Regulators also issued informal “window guidance” to domestic and foreign banks to reduce lending and currency operations.

Direct financing has expanded over the last few years, including through public listings on stock exchanges, both inside and outside of China, and issuing more corporate and local government bonds. The majority of foreign portfolio investment in Chinese companies occurs on foreign exchanges, primarily in United States and Hong Kong. In addition, China has significantly expanded quotas for certain foreign institutional investors to invest in domestic stock markets, has opened up direct access for foreign investors into China’s interbank bond market, and has approved a two-way, cross-border equity direct investment scheme between Shanghai and Hong Kong that allows Chinese investors to trade designated Hong Kong-listed stocks through the Shanghai Exchange and vice versa. Direct investment by private equity and venture capital firms is also rising, although from a small base, and has faced setbacks due to China’s increased capital controls that complicate the repatriation of returns.

Money and Banking System

After several years of rapid credit growth, China’s banking sector faces asset quality concerns. For 2016, the China Banking Regulatory Commission reported a rise in the non-performing loans (NPL) ratio to 1.74 percent, up from 1.67 percent at the end of 2015. The outstanding balance of commercial bank NPLs in 2016 reached 1.5 trillion RMB (approximately U.S. $230 billion). China’s total banking assets surpassed 228 trillion RMB (approximately U.S. $35 trillion) in December 2016, a 14.4 percent year-on-year increase. Experts estimate Chinese banking assets account for over 20 percent of global banking assets. China’s credit and broad money supply continue to post low double-digit growth, outpacing GDP growth nearly two-to-one.

Foreign Exchange and Remittances

Foreign Exchange

In 2016, several foreign companies complained about administrative delays in remitting large sums of money from China, even after completing all of the documentation requirements. Such incidents come amid announcements that SAFE had issued guidance to tighten scrutiny of foreign currency outflows due to China’s rapidly decreasing foreign currency exchange.

Under Chinese law, FIEs do not need pre-approval to open foreign exchange accounts and are allowed to retain income as foreign exchange or to convert it into RMB without quota requirements. Foreign exchange transactions related to China’s capital account activities do not require review by SAFE, but designated foreign exchange banks review and directly conduct foreign exchange settlements. Chinese officials register all commercial foreign debt and will limit foreign firms’ accumulated medium- and long-term debt from abroad to the difference between total investment and registered capital. China issued guidelines in February 2015 that allow, on a pilot basis, a more flexible approach to foreign debt within several specific geographic areas, including the Shanghai Pilot FTZ. The main change under this new approach is to allow FIEs to expand their foreign debt above the difference between total investment and registered capital, so long as they have sufficient net assets.

Chinese foreign exchange rules cap the maximum amount of RMB individuals are allowed to convert into other currencies at approximately U.S. $50,000 each year and restrict them from directly transferring RMB abroad without prior approval from SAFE. While SAFE has not reduced this quota, banks are reportedly being instructed by SAFE to increase scrutiny over individuals’ request for foreign currency and to require additional paperwork clarifying the intended use of the funds.

In 2016, facing significant capital outflow pressure, the government tightened capital controls, including through informal guidance to banks and the introduction of reserve requirements for institutions conducting foreign currency transactions. While the central bank’s official position is that companies with proper documentation should be able to freely conduct business, in practice, companies have reported facing challenges and delays in getting foreign currency transactions approved by sub-national regulatory branches.

China’s exchange rate regime is managed within a band that allows the currency to rise or fall by 2 percent per day from the “reference rate” set each morning. In August 2015, China announced that the reference rate would more closely reflect the previous day’s closing spot rate. Since that change, daily volatility of the RMB has at times been higher than in recent years, but for the most part, remains below what is typical for other currencies.

Remittance Policies

The following operations do not require SAFE approval: purchase and remittance of foreign exchange as a result of capital reduction, liquidation, or early repatriation of an investment in a foreign-owned enterprise, or as a result of the transfer of equity in an FIE to a Chinese domestic entity or individual where lawful income derived in China is reinvested.

The remittance of profits and dividends by FIEs is not subject to time limitations, but FIEs need to submit a series of documents to designated banks for review and approval. The review period is not fixed, and is frequently completed within one or two working days of the submission of complete documents.

Remittance policies have not changed substantially since SAFE simplified some regulations in January 2014, devolving many review and approval procedures to banks. Firms that remit profits at or below USD $50,000 dollars can do so without submitting documents to the banks for review. For remittances above USD $50,000, the firm must submit tax documents, as well as the formal decision by its management to distribute profits. However, in 2016, some companies reported increased delays in receiving approval.

For remittance of interest and principle on private foreign debt, firms must submit an application form, a foreign debt agreement, and the notice on repayment of the principle and interest. Banks will then check if the repayment volume is within the repayable principle.

The remittance of financial lease payments falls under foreign debt management rules. There are no specific rules on the remittance of royalties and management fees. However, beginning in 2016, SAFE began requiring banks to hold 20 percent reserves against foreign currency transactions, significantly increasing the cost of foreign exchange operations.

The Financial Action Task Force has identified China as a country of primary concern. Global Financial Integrity (GFI) estimates that over U.S. $1 trillion of illicit money left China between 2003 and 2012, making China the world leader in illicit capital flows. In 2013, GFI estimates that another U.S. $260 billion left the country.

Sovereign Wealth Funds

China officially has only one sovereign wealth fund (SWF), the China Investment Corporation (CIC). Established in 2007, CIC manages an estimated U.S. $813.8 billion in assets (as of November 2016) and invests on a 10-year time horizon. China’s sovereign wealth is also invested by a subsidiary of SAFE, the government agency that manages China’s foreign currency reserves, and reports directly to the PBOC. The SAFE Administrator also serves concurrently as a PBOC Deputy Governor.

CIC publishes an annual report containing information on its structure, investments, and returns. CIC invests in diverse sectors like financial, consumer products, information technology, high-end manufacturing, healthcare, energy, telecommunication services, and utilities.

China also operates other funds that function in part like sovereign wealth funds, including: China’s National Social Security Fund, with an estimate U.S. $295 billion in assets; the China-Africa Development Fund (solely funded by the China Development Bank), with an estimated U.S. $5 billion; the SAFE Investment Company, with an estimated U.S. $474 billion; and China’s state-owned Silk Road Fund, established in December 2014 with $40 billion to foster investment in countries along the “One Belt, One Road.” Chinese SWFs do not report the percentage of their assets that are invested domestically.

Chinese SWFs follow the voluntary code of good practices known as the Santiago Principles and participates in the IMF-hosted International Working Group on SWFs. The Chinese government does not have any formal policies specifying that CIC invest funds consistent with industrial policies or in government-designated projects, although CIC is expected to pursue government objectives. The SWF generally adopts a “passive” role as a portfolio investor.

7. State-Owned Enterprises

China has approximately 150,000 SOEs, of which around 50,000 (33 percent) are owned by the central government, and the remainder by local governments. The central government directly controls and manages 102 strategic SOEs through the State Assets Supervision and Administration Commission (SASAC), of which 66 are listed on stock exchanges domestically and/or internationally. SOEs, both central and local, account for 30 to 40 percent of total GDP and about 20 percent of China’s total employment. The percentage of SOE revenue spent on research and development is unknown. SOEs can be found in all sectors of the economy, from tourism to heavy industries.

SASAC regulated SOEs: 

China’s leading SOEs benefit from preferential government policies aimed at developing bigger and stronger “national champions.” SOEs enjoy favored access to essential economic inputs (land, hydrocarbons, finance, telecoms, and electricity) and exercise considerable power in markets like steel and minerals. SOEs have long enjoyed preferential access to credit and the ability to issue publicly traded equity and debt. SOEs also are not subject to the same tax burdens as their private sector competitors. According to some Chinese academics, provincial governments have used their power to manipulate industrial policies and deny operating licenses to domestic and foreign investors in order to persuade reluctant owners to sell out to bigger, state-owned suitors.

During the November 2013 Third Plenum of the 18th Party Congress – a hallmark session that announced economic reforms, including calling for the market to play a more decisive role in the allocation of resources – President Xi Jinping called for broad SOE reforms. Cautioning that SOEs still will remain a key part of China’s economic system, Xi emphasized improved SOE operational transparency and legal reforms that would subject SOEs to greater competition by opening up more industry sectors to domestic and foreign competitors and by reducing provincial and central government preferential treatment of SOEs. The Third Plenum also called for “mixed ownership” economic structures, providing greater economic balance between private and state-owned businesses in certain industries, including equal access to factors of production, competition on a level playing field, and equal legal protection.

OECD Guidelines on Corporate Governance

SASAC participates in the OECD Working Party on State Ownership and Privatization Practices (WPSOPP). Chinese officials have indicated China intends to utilize OECD SOE guidelines to improve the professionalism and independence of SOEs, including relying on Boards of Directors that are independent from political influence. However, despite China’s Third Plenum commitments – to foster “market-oriented” reforms in China’s state sectors – Chinese officials and SASAC have made minimal progress in fundamentally changing the regulation and business conduct of SOEs. China has also committed to implement the G-20/OECD Principles of Corporate Governance, which apply to all publicly-listed companies, including listed SOEs.

Chinese law lacks unified guidelines or a governance code for SOEs, especially among provincial or locally-controlled SOEs. Among larger SOEs that are primarily managed by SASAC, senior management positions are filled by senior CCP members who report directly to the CCP. SASAC Chairman Xiao Yaqing reemphasized this point during a March 9, 2017 press conference at the National People’s Congress, where he stated newly implemented rules required the chairman of any SOE under his ministry’s control to also be the secretary of the SOE’s CCP committee, as a way of strengthening the Party’s control.

The lack of management independence and the controlling ownership interest of the State make SOEs de facto arms of the government, subject to government direction and interference. SOEs are rarely the defendant in legal disputes, and when they are, they almost always prevail due to the close relationship with the CCP. U.S. companies often complain about the lack of transparency and objectivity in commercial disputes with SOEs. In addition, SOEs enjoy preferential access to a disproportionate share of available capital, whether in the form of loans or equity.

In its September 2015 Guiding Opinions on Deepening the Reform of State-Owned Enterprises, the State Council instituted a system for classifying SOEs as “public service” or “commercial enterprises.” Some commercial enterprise SOEs were further sub-classified into “strategic” or “critically important” sectors (i.e., with strong national economic or security importance). SASAC has said the new classification system would allow the government to reduce support for commercial enterprises competing with private firms and instead channel resources toward public service SOEs.

Other recent reforms have included salary caps, limits on employee benefits, and attempts to create stock incentive programs for managers that have produced mixed results. However, analysts believe minor reforms will be ineffective as long as SOE administration and government policy are intertwined.

A major stumbling block of SOE reform is that SOE regulators are outranked in the CCP party structure by SOE executives, which minimizes SASAC and other government regulators’ effectiveness at implementing reforms. In addition, SOE executives are often promoted to high-ranking positions in the CCP or local government, further complicating the work of regulators.

The Third Plenum Decision emphasizes that SOEs need to focus resources in areas that “serve state strategic objectives.” However, experts point out that despite these new SOE distinctions, SOEs continue to hold dominant shares in their respective industries, regardless of whether they are strategic, which may further restrain private investment in the economy. Moreover, the application of China’s Anti-Monopoly Law, together with other industrial policies and practices that are selectively enforced by the authorities, protect SOEs from private sector competition.

China is not a party to the Government Procurement Agreement (GPA) within the framework of the WTO, although Hong Kong is listed.

Investment Restrictions in “Vital Industries and Key Fields”

The intended purpose of China’s State Assets Law is to safeguard and protect China’s economic system, promoting “socialist market economy” principles that fortify and develop a strong, state-owned economy. A key component of the State Asset Law is enabling SOEs to play the leading role in China’s economic development, especially in “vital industries and key fields.” To accomplish this, the law encourages Chinese regulators to adopt policies that consolidate SOE concentrations to ensure dominance in industries deemed vital to “national security” and “national economic security.” This principle is further reinforced by the December 2006 announcement of the Guiding Opinions Concerning the Advancement of Adjustments of State Capital and the Restructuring of State-Owned Enterprises, which called for more SOE consolidation to advance the development of the state-owned economy, including enhancing and expanding the role of the State in controlling and influencing “vital industries and key fields relating to national security and national economic lifelines.” These guidelines defined “vital industries and key fields” as “industries concerning national security, major infrastructure and important mineral resources, industries that provide essential public goods and services, and key enterprises in pillar industries and high-tech industries.”

Around the time the guidelines were published, the SASAC Chairman also listed industries where the State should maintain “absolute control” (e.g., aviation, coal, defense, electric power and the state grid, oil and petrochemicals, shipping, and telecommunications) and “relative control” (e.g., automotive, chemical, construction, exploration and design, electronic information, equipment manufacturing, iron and steel, nonferrous metal, and science and technology). China has said these lists do not reflect its official policy on SOEs. In fact, in some cases, regulators have allowed for more than 50 percent private ownership in some of the listed industries on a case-by-case basis, especially in industries where Chinese firms lack expertise and capabilities in a given technology Chinese officials deemed important at the time.

A key SOE-dominant industry that is insulated from competition is agricultural products. Current agriculture trade rules, regulations, and limitations placed on foreign investment severely restrict the contributions of U.S. agricultural companies, depriving China’s consumers of the many potential benefits additional foreign investment could provide. These investment restrictions in the agricultural sectors are at odds with China’s 12th Five Year Plan objective of shifting more resources to agriculture and food production in order to improve Chinese lives, food security, and food safety.

Privatization Program

At the November 2013 Third Plenum, the Chinese government announced reforms to SOEs that included selling shares of SOEs to outside investors. This gradual approach to privatization is an effort to improve SOE management structures, emphasize the use of financial benchmarks, and gradually take steps that will bring private capital into some sectors traditionally monopolized by SOEs like energy, telecommunications, and finance. In practice, these reforms have been gradual as the Chinese government has struggled to implement its SOE reform vision and often opted to utilize a preferred SOE consolidation approach. In the past few years, the Chinese government has listed several large SOEs and their assets on the Hong Kong stock exchange, subjecting SOEs to greater transparency requirements and heightened regulatory scrutiny. This approach is a possible mechanism to improve SOE corporate governance and transparency. The government also committed at the Third Plenum to raise the portion of earnings that SOEs pay out as dividends to the public budget, although here, too, the pace and method of implementation remain uncertain.

8. Responsible Business Conduct

For Chinese companies, Responsible Business Conduct (RBC) is a relatively new concept. The degree of understanding and general awareness of RBC standards (including environmental, social, and governance issues) by Chinese firms is extremely low, especially with Chinese companies operating exclusively in the domestic market. Chinese laws regulating business conduct are limited in scope, often voluntary, and frequently ignored when other economic imperatives compete with RBC priorities. In general, China suffers from the lack of independent NGOs, investment funds, worker organizations/unions, or other business associations that actively promote or monitor RBC issues.

The recently implemented Foreign NGO Law restricts certain NGO activities and remains a concern to U.S. organizations, especially with respect to its limiting influence on the promotion, development, and implementation of RBC and corporate social responsibility (CSR) practices. It is especially challenging for U.S. investors looking to partner with Chinese companies, or to expand operations with Chinese suppliers, when few Chinese firms meet internationally recognized standards in areas like labor and environmental protection and manufacturing best practices.

Despite these restrictions, Chinese officials increasingly place emphasis on protecting the environment. This priority was highlighted in the 13th Five Year Plan, which highlighted sustainability as a key priority and area for Chinese companies to enact CSR initiatives.

In 2014, China also signed a memorandum of understanding (MOU) with the OECD to cooperate on RBC initiatives. However, the MOU does not require or necessarily mean that Chinese companies will adhere to the OECD Guidelines for Multinational Enterprises. Industry leaders have pushed to establish a national contact point or RBC center, a key initiative of the OECD guidelines, and China’s Ministry of Commerce in 2016 launched the RBC Platform to raise awareness of RBC issues.

China participated in the OECD’s Global Forum on RBC in 2014 and 2015, including hosting a workshop in Beijing in May 2015. Policy developments from the workshops included incorporation of human rights into social responsibility guidelines for the electronics industry, referencing the United Nations Guiding Principles on Business and Human Rights; mandating social impact assessments for large footprint projects; and agreeing to draft a new law on public participation in environmental protection and impact assessments.

The MOFCOM-affiliated Chinese Chamber of Commerce of Metals, Minerals, and Chemical Importers and Exporters (CCCMC) also signed a separate MOU with the OECD in October 2014, to help Chinese companies implement RBC policies in global mineral supply chains. In December 2015, CCCMC released Due Diligence Guidelines for Responsible Mineral Supply Chains, which draw heavily from the OECD Due Diligence Guidelines. China is currently drafting legislation to regulate the sourcing of minerals, including tin, tungsten, tantalum, and gold, from conflict areas. China is not a member of the Extractive Industries Transparency Initiative (EITI), but Chinese investors participate in EITI schemes where these are mandated by the host country.

9. Corruption

Corruption remains endemic in China. The lack of an independent press, along with the lack of independence of corruption investigators, who answer to and are managed by the CCP, all hamper the transparent and consistent application of anti-corruption efforts.

Chinese anti-corruption laws have strict penalties for bribes, including accepting a bribe, which is a criminal offense punishable up to life imprisonment or death in “especially serious” circumstances. Offering a bribe carries a maximum punishment of up to five years in prison, except in cases with “especially serious” circumstances, when punishment can extend up to life in prison.

In August 2015, the National People’s Congress amended several corruption-related parts of China’s Criminal Law. For instance, bribing civil servants’ relatives or other close relationships is a crime with monetary fines imposed on both the bribe-givers and the bribe-takers; bribe-givers, mainly in minor cases, who aid authorities can be given more lenient punishments; and instead of basing punishments solely on the specific amount of money involved in a bribe, authorities now have more discretion to impose punishments based on other factors.

In February 2011, an amendment was made to the Criminal Law, criminalizing the bribing of foreign officials or officials of international organizations. However, to date, there have not been any known cases where someone was successfully prosecuted for offering this type of bribe.

The Supreme People’s Procuratorate (SPP) and the Ministry of Public Security investigate criminal violations of laws related to anti-corruption, while the Ministry of Supervision (MOS) and the Discipline Inspection Commission (CCDI) enforce ethics guidelines and party discipline. China’s National Audit Office also inspects the accounts of SOEs and government entities. The National Bureau of Corruption Prevention (NBCP) is under the direct administration of the State Council and is responsible for improving government transparency and coordinating anti-corruption efforts among different government organizations. In January 2017, China announced plans for a National Supervision Commission, which will absorb the current functions carried out by MOS, anti-corruption units of the SPP, and those of the NBCP, and also pass a corresponding National Supervision Law by as early as March 2018.

President Xi Jinping’s Anti-Corruption Efforts

Since President Xi’s rise to power in 2012, China has undergone an intensive and large-scale anti-corruption campaign, with investigations reaching into all sectors of the government, military, and economy. President Xi labeled endemic corruption as an existential threat to the very survival of the CCP that must be addressed. Since then, each CCP annual plenum has touched on judicial, administrative, and Party discipline reforms needed to thoroughly root out corruption. Judicial reforms are viewed as necessary to institutionalize the fight against corruption and reduce the arbitrary power of Party investigators, but concrete measures have emerged slowly. To enhance regional anti-corruption cooperation, the 26th Asia-Pacific Economic Cooperation (APEC) Ministers Meeting adopted the Beijing Declaration on Fighting Corruption in November 2014.

According to Wang Qishan, head of the CCDI and also a member of China’s ruling seven-member Politburo Standing Committee, the CCP disciplined around 415,000 officials in 2016, almost a 25 percent increase compared to the previous year. However, over 75 percent of those disciplined received only “light discipline.” Of the officials disciplined, about 11,000 officials were expelled from the CCP and handed over to Chinese courts for prosecution. One group heavily disciplined has been the discipline inspectors, with the CCP punishing more than 7,900 inspectors since late 2012. This led to new regulations being implemented in 2016 by CCDI that increased overall supervision of investigators. Authorities also noted an increase in SOE officials being investigated, including 43 total investigations conducted in 2015, in comparison to 10 in 2014 and just two in 2013. Around 40 percent of SOE corruption investigations were of SOEs in the energy sector.

China’s overseas fugitive-hunting campaign, called “Operation Skynet,” has led to the capture of around 2,500 fugitives suspected of corruption. In 2016 alone, CCDI reported that 1,032 fugitives suspected of official crimes were reprehended. The Chinese government reports that in the first 11 months of 2016, China recovered 2.3 billion RMB (U.S. $334.47 million) in losses from graft, from over 70 countries and regions, through this campaign.

Anecdotal information suggests that China’s anti-corruption crackdown oftentimes is inconsistently and discretionarily applied, raising concerns among foreign companies in China. For example, to fight rampant commercial corruption in the medical/pharmaceutical sector, China’s health authority issued “black lists” of firms and agents involved in commercial bribery. Several of these blacklisted firms were foreign companies. Additionally, anecdotal information suggests many Chinese government officials responsible for approving foreign investment projects are slowing approvals to not arouse corruption suspicions.

While central government leadership has welcomed increased public participation in reporting suspected corruption at lower levels, direct criticism of central government leadership or policies remains off-limits and is seen as an existential threat to China’s political and social stability. Some citizens who have called for officials to provide transparency and public accountability by disclosing public and personal assets, or who have campaigned against officials’ misuse of public resources, have been subject to criminal prosecution.

United Nations Anticorruption Convention, OECD Convention on Combatting Bribery

China ratified the United Nations Convention against Corruption in 2005 and participates in APEC and OECD anti-corruption initiatives. China has not signed the OECD Convention on Combating Bribery, although Chinese officials have expressed interest in participating in the OECD Working Group on Bribery meetings as an observer.

Resources to Report Corruption

The following government organization receives public reports of corruption:

Anti-Corruption Reporting Center of the CCP Central Commission for Discipline Inspection and the Ministry of Supervision, Telephone Number: +86 10 12388

10. Political and Security Environment

The risk of political violence directed at foreign companies operating in China remains minimal. Every year, different watchdog organizations report tens of thousands of protests throughout China. The government is adept at handling protests without violence, but given the volume of protests annually, the potential for violent flare-ups is real. Violent protests, while rare, have generally involved ethnic tensions, local residents protesting corrupt officials, environmental and food safety concerns, confiscated property, and disputes over unpaid wages.

In recent years, the growing number of protests over corporate mergers and acquisitions has increased, often with workers and mid-level managers of an acquired firm protesting because they were not included or consulted in the process. There have also been a small number of cases of foreign businesspeople being trapped in China during a business contract dispute.

In the past few years, Chinese authorities have detained or arrested several foreign nationals, including American citizens, and have refused to notify the U.S. Embassy or allow access to the American citizens detained for consular officers to visit. These trends are in direct contravention of recognized international agreements and conventions.

11. Labor Policies and Practices

For U.S. companies operating in China, adequate human resources remain a major challenge. Finding, developing, and retaining domestic talent, particularly at the management and highly-skilled technical staff levels, remain a difficult challenge often cited by foreign firms. In addition, labor costs continue to be a concern, as salary and other inputs of production have continued to rise. In addition, foreign companies continue to cite air pollution concerns as a major hurdle in attracting and retaining qualified foreign talent to relocate to China. These labor concerns contribute to a small, but growing, number of foreign companies relocating to the United States, Canada, Mexico, or other parts of Asia.

Chinese labor law does not protect rights such as freedom of association and the right of workers to strike. China to date has not ratified the United Nations International Labor Organization conventions on freedom of association and collective bargaining, but it has ratified conventions prohibiting child labor and employment discrimination. Foreign companies often complain of the difficulty of navigating the ever-evolving labor laws, social insurance laws, and different agencies’ implementation guidelines on labor issues. Compounding the complexity, local characteristics and the application by different localities of national labor laws often vary.

Although required by national law, labor contracts are often not used by domestic employers with local employees. Without written contracts, employees struggle to prove employment, thus losing basic labor rights like claiming severance and unemployment compensation if terminated, as well as access to publicly-provided labor dispute settlement mechanisms. Similarly, regulations on dispatch agencies that provide temporary labor (referred to as “labor dispatch” in China) have tightened, and some domestic employers have switched to hiring independent service provider contractors in order to skirt the protective intent of these regulations. These loopholes incentivize employers to skirt the law because compliance leads to substantially higher labor costs.

Establishing independent trade unions is illegal in China. The law allows for worker “collective bargaining”; however, in practice, collective bargaining focuses solely on collective wage negotiations—and even this practice is uncommon. The Trade Union Law gives the All-China Federation of Trade Unions (ACFTU), a CCP organ chaired by a member of the Politburo, control over all union organizations and activities, including enterprise-level unions. The ACFTU’s priority task is to “uphold the leadership of the Communist Party.” The ACFTU and its provincial and local branches aggressively organize new constituent unions and add new members, especially in large multinational enterprises, but in general, these enterprise-level unions do not actively participate in employee-employer relations.

ACFTU enterprise unions issue a mandatory employer-borne cost of 2 percent of payroll for membership. While labor laws do not protect the right to strike, “spontaneous” worker protests and work stoppages occur with increasing regularity, especially in labor intensive and “sunset” industries (i.e., old and declining industries such as low-end manufacturing). Official forums for mediation, arbitration, and other similar mechanisms of alternative dispute resolution have generally been ineffective in resolving labor disputes in China. Some localities actively discourage acceptance of labor disputes for arbitration or legal resolution. Even when an arbitration award or legal judgement is obtained, getting local authorities to enforce judgments is problematic.

12. OPIC and Other Investment Insurance Programs

The United States suspended Overseas Private Investment Corporation (OPIC) programs in China, in the aftermath of China’s crackdown on Tiananmen Square demonstrators in June 1989. OPIC honors outstanding political risk insurance contracts. The Multilateral Investment Guarantee Agency, an organization affiliated with the World Bank, provides political risk insurance for investors in China. Some foreign commercial insurance companies also offer political risk insurance, as does the People’s Insurance Company of China.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy



Executive Summary

With increased security, a market of 49 million people, an abundance of natural resources, and an educated and growing middle-class, Colombia continues to be an attractive destination for foreign investment in South America. While the Colombian government has taken significant steps to open the country to global trade and investment, the country’s rate of GDP growth declined to 2 percent in 2016, after an average GDP growth rate over 4 percent for the past decade. In the World Bank’s 2017 Ease of Doing Business Report, Colombia ranked 53 out of 190 countries and fourth in the region, behind Mexico, Chile, and Peru. Since 2014 Colombia has also struggled to adapt to the sustained dip in world oil prices, its largest export, and a significant devaluation of the peso.

Colombia’s legal and regulatory systems are generally transparent and consistent with international norms. The country has a comprehensive legal framework for business and foreign direct investment (FDI). The U.S.-Colombia Trade Promotion Agreement (CTPA), which took effect on May 15, 2012, has strengthened bilateral trade and investment. Through the CTPA and several international conventions and treaties, Colombia’s dispute settlement mechanisms and intellectual property rights protections have improved. However, the proliferation of piracy and counterfeit products are significant challenges, and among the primary reasons Colombia remains on the U.S. Trade Representative’s Special 301 Watch List.

The Colombian government has made a concerted effort to develop efficient capital markets, attract investment, and create jobs. In December 2016, President Santos approved a long awaited tax reform bill that entered into force on January 1, 2017. The increased revenue from the reform will help Colombia lower the country’s growing fiscal deficit and was key to maintaining Colombia’s BBB investment-grade credit rating for the time being. Restrictions on foreign ownership in specific sectors still exist. FDI increased 16 percent 2016 relative to 2015, largely due to increased investment in the agricultural, electricity, transport and financial services sectors, despite continued reduced investment in the extractives industry. Colombia’s average annual unemployment rate ended a seven year consecutive decline, rising to 9.2 percent in 2016. About 49 percent of the workforce is in the informal economy according to the National Administrative Department of Statistics (DANE). Colombia enjoys a skilled workforce throughout the country, as well as managerial-level employees who are often bilingual.

Security in Colombia has improved significantly in recent years, with kidnappings down 93 percent from 1999 to 2015. In 2016, Colombia experienced a significant decrease in terrorist activity, due in large part to a bilateral cease-fire between government forces and Colombia’s largest terrorist organization, the Revolutionary Armed Forces of Colombia (FARC). Congressional approval of a peace accord between the government and the FARC on November 30, 2016 put in motion a six-month disarmament, demobilization, and reintegration process. Colombian government figures show that the number of terrorist acts decreased 55 percent from 2015 to 2016. Worries remain that new criminal actors, instead of the government, could take over former FARC areas. Despite the National Liberation Army (ELN) conducting ongoing negotiations with the government in Quito, Ecuador, beginning in January 2017, the group continues a low-cost, high-impact asymmetric insurgency. ELN attacks, including continued attacks on energy infrastructure and bombings in Bogota in 2017, alongside powerful narco-criminal group operations, are posing a threat to commercial activity and investment, especially in rural zones where government control is weaker. Coca production has dramatically increased since 2015, increasing by 67 percent.

Several majority state-owned enterprises, including electric utility company ISA, are considered models of professional management, competition, and excellent corporate governance. However, corruption remains a significant challenge in Colombia, as illustrated by a recent regional scandal involving Brazilian construction giant Odebrecht, which paid significant bribes to secure infrastructure contracts. The World Economic Forum’s Global Competitiveness Index (2016-2017) placed Colombia at 61 out of 138 countries. The report cited security and corruption as among the biggest challenges for doing business in Colombia. The Colombian government continues to work on improving its business climate, but over the past year U.S. and other foreign investors have voiced complaints about non-tariff and bureaucratic barriers to trade and investment at the national, regional, and municipal levels.

Table 1

Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD; Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) (in US$) 2016 $11.39 trillion 2015 $11.01 trillion 
Foreign Direct Investment Host Country Statistical Source*
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2016 90 of 176
World Bank’s Doing Business Report “Ease of Doing Business” 2016 53 of 190
Global Innovation Index 2016 63 of 128
U.S. FDI in partner country ($M USD, stock positions) 2015 USD 6,157
World Bank GNI per capita 2015 USD 7,140

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The Colombian government actively encourages foreign direct investment (FDI). In the early 1990s, the country began economic liberalization reforms, which 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 (Superintendencia de Sociedades) and the local chamber of commerce. All conditions being equal during tender processes, national offers are preferred over foreign ones. 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 government entity that promotes international tourism, foreign investment, and non-traditional exports in Colombia. Procolombia assists foreign companies that wish to enter the Colombian market and addresses 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. Business process outsourcing, software and IT services, cosmetics, health services, automotive manufacturing, textiles, graphic communications, and electric energy receive special priority. Procolombia’s “Invest in Colombia” web portal offers detailed information for opportunities in agribusiness, manufacturing, and services in Colombia: .

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 are 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 operator; 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 service; insurance firms; legal services; and special air services including aerial fire-fighting, sightseeing, and surveying.

According to the World Bank’s Investing Across Sectors indicators, among the 14 countries in Latin America and the Caribbean covered, Colombia is one of the most open economies to foreign equity ownership. With the exception of TV broadcasting, all other sectors covered by the indicators are fully open to foreign capital participation. Foreign ownership in TV broadcasting companies is limited to 40 percent. Companies publishing newspapers can have up to 100 percent foreign capital investment; there is a requirement, however, for the director or general manager to be a Colombian national.

According to the Constitution and foreign investment regulations, foreign investment in Colombia receives the same treatment as an investment made by Colombian nationals. Any investment made by a person who does not qualify as a resident of Colombia for foreign exchange purposes will qualify as foreign investment. 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. However, there are export incentives relating to the operation of free trade zones.

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. Colombia’s national, regional, and municipal open-television channels must be provided at no extra cost to subscribers. Foreign investment in national television is limited to a maximum of 40 percent ownership of the relevant operator. Satellite television service providers are only obliged to include within their basic programming the broadcast of government-designated public interest channels. Newspapers published in Colombia covering domestic politics must be directed and managed by Colombian nationals.

Accounting, Auditing, and Data Processing: To practice in Colombia, providers of accounting services must register with the Central Accountants Board; have uninterrupted domicile in Colombia for at least three years prior to registry; and provide proof of accounting experience in Colombia of at least one year. No restrictions apply to services offered by consulting firms or individuals. 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. Portfolio investments used to acquire more than five percent of an entity also require authorization. Foreign banks must establish a local commercial presence and comply with the same capital and other requirements as local financial institutions. Foreign banks may establish a subsidiary or office in Colombia, but not a branch. Every investment of foreign capital in portfolios must be through a Colombian administrator company, including brokerage firms, trust companies, and investment management companies. All foreign investments must be registered with the Central Bank.

Fishing: A foreign vessel may engage in fishing and related 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.

Telecommunications: Barriers to entry in telecommunications services include high license fees (USD 150 million for a long distance license), commercial presence requirements, and economic needs tests. While Colombia allows 100 percent foreign ownership of telecommunication providers, it prohibits “callback” services.

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” according to Colombian law. Colombia prohibits foreign ownership of commercial ships licensed in Colombia and restricts foreign ownership in national airlines or shipping companies to 40 percent. FDI in the maritime sector is limited to 30 percent. 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; however, vessels with foreign flags may provide those services if there are no capable Colombian-flag vessels.

Other Investment Policy Reviews

In the past three years, the government has not undergone any third-party investment policy reviews through a multilateral organization such as the Organization for Economic Co-operation and Development (OECD), World Trade Organization (WTO), or the United Nations Conference on Trade and Development (UNCTAD).

Business Facilitation

New businesses have to first register with the chamber of commerce of the city in which the company will reside. Since May 2008, applicants can go online to register at the tax authority’s portal . The portal provides access to information and speeds up the process of starting a business. The chambers of commerce portals also offer clear and complete information (in English) on the business registration process. Beside the registration with the chamber and the tax authority, companies must register a unified form to self-assess and pay social security and payroll contributions. The unified form can be submitted electronically to the Governmental Learning Service (Servicio Nacional de Aprendizaje, or SENA), the Colombian Family Institute (Instituto Colombiano de Bienestar Familiar, or ICBF) and the Family Compensation Fund (Caja de Compensacion 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.

Colombia went up 19 spots from 80 to 61 on the 2017 Doing Business report in terms of starting a business. According to the report, starting a company in Colombia requires six procedures and takes an average of nine days, a considerable improvement in number of procedures and days over the past two years. Information on starting a company can be found on the CCB website  or on the Invest in Colombia website .

Outward Investment

Procolombia, the government’s FDI promotion agency, also promotes Colombian investment abroad. The “Colombia Invests” web portal ( ) offers detailed information for opportunities in the priority sectors of agribusiness, manufacturing, and services for Colombian investors in a range of countries. Procolombia also offers a network of foreign contacts and plans commercial missions.

2. Bilateral Investment Agreements and Taxation Treaties

The U.S.-Colombia CTPA entered into force on May 15, 2012 and improves legal security and the investment environment while eliminating tariffs and other barriers to trade in goods and services. The agreement grants investors the right to establish, acquire, and operate investments on an equal footing with local investors as well as investors of other countries with bilateral investment treaties or investment chapters in free trade agreements with Colombia. It also provides U.S. investors in Colombia protections that foreign investors have under the U.S. legal system, including due process and the right to receive fair market value for property in the event of an expropriation.

Colombia has thirteen free trade agreements or agreements of economic cooperation that include investment chapters with: United States, , European Union, Canada, Chile, Costa Rica, Cuba, Mexico, South Korea, CAN (Andean Community of Nations – Peru, Ecuador, Bolivia), the Pacific Alliance (Colombia, Chile, Mexico and Peru), EFTA (European Free Trade Area –Switzerland, Liechtenstein, Norway and Iceland), Mercosur (Brazil, Uruguay, Paraguay, and Argentina), and Central America’s Northern Triangle (El Salvador, Honduras, and Guatemala). Colombia has subscribed trade agreements with Panama and Israel but they have not yet been ratified. There are ongoing FTA negotiations with Japan and Turkey. Another five agreements are being explored with Australia, China, the Dominican Republic, India, and Singapore. Additionally, Colombia has stand-alone bilateral investment treaties in force with China, India, Peru, Spain, Switzerland, the United Kingdom, and Japan.

Colombia has double taxation treaties with Spain, Chile, Switzerland, Canada, India, Portugal, Mexico, South Korea, France and the Czech Republic. Talks have concluded successfully with Belgium. Colombia is currently negotiating double taxation agreements with Germany, the Netherlands, Japan, Panama, and the United States.

3. Legal Regime

Transparency of the Regulatory System

The Colombian legal and regulatory systems are generally transparent and consistent with international norms. The 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 nongovernmental organizations leading informal regulatory processes. The ministries generally consult with relevant actors, both foreign and national, when drafting regulations, but not always and sometimes with for very limited time lapses. Proposed laws are typically published as drafts for public comment, though not always, and the complexity of the subject is not necessarily taken into account.

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 greater administrative and financial independence from the executive branch. Colombia has completed its transition 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  and Colombia’s website ). Foreign and national investors can find detailed information on administrative procedures applicable to 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

Since 2013, Colombia has been following a roadmap for accession to the, OECD. Colombia is part of the WTO, and the government generally notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade. Regionally Colombia is a member of organizations such as the Inter-American Development Bank (IADB), the Andean Community of Nations (CAN), the Union of South American Nations (UNASUR) and the Pacific Alliance.

Legal System and Judicial Independence

Colombia has a comprehensive 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 the various departmental and district courts, which are also overseen for administrative matters by the Superior Judicial Council. The 1991 constitution provided the judiciary with greater administrative and financial independence from the executive branch. Colombia has a commercial code and other laws covering 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. Regulations and enforcement actions are appealable through the different stages of legal court process in Colombia.

Laws and Regulations on Foreign Direct Investment

Colombia has a comprehensive legal framework for business and FDI which incorporates binding norms resulting from its membership in the Andean Community of Nations as well as other free trade agreements and bilateral investment treaties. 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 Superintendence of Industry and Commerce (SIC), the Council of State, the Constitutional Court, the Supreme Court of Justice, and the various departmental and district courts, which are also overseen for administrative matters by the Superior Judicial Council. The 1991 Constitution provided the judiciary with greater administrative and financial independence from the executive branch. However, except for the SIC’s efficient exercise of judicial functions, the judicial system in general remains hampered by time-consuming bureaucratic requirements and corruption.

Presidential Decree 119 of January 26, 2017 updated the regime (Decree 1068 of 2015) for foreign investments to increase competitiveness, export to more destinations worldwide, and promote investment by Colombians abroad. Among the main changes are the facilitation of several procedures for investors and the improvement of mechanisms for the Central Bank (Banco de la Republica), the tax authority (DIAN) and other authorities to supervise investment inflows. The decree also eliminates deadlines and unnecessary classifications of registration by type of investment. The new regime also revised the concept of “resident” and “nonresident” for tax related purposes. To be considered a resident, investors must remain in national territory for 183 days during calendar year, including days of entry and exit of the country. Also, every foreign investor must have a representative in Colombia with legal powers to comply with tax and exchange rate rules and to satisfy other requests for information. The Central Bank will be issuing implementing regulations for the new regime, which has a transition period of six months.

Competition and Anti-Trust Laws

The SIC is Colombia’s national competition authority and has been strengthened over the last five years by adding additional personnel, including economists, and lawyers. The SIC issued landmark anti-competitiveness fines in 2015, including against a sugar cartel. More recently the SIC has sanctioned a rice cartel, three of the biggest telecommunication companies in the region, and truck transport operators for anticompetitive practices. The SIC has imposed sanctions totaling approximately USD 400 million on around 400 individuals and companies in the last four years for unfair competition practices. In 2016, the SIC sanctioned cartels operating in the sectors of baby diapers, soft paper and notebooks, imposing fines of over USD 150 million. The SIC also sanctioned several sectors for violations of consumer rights such as misleading advertising or noncompliance with warranty agreements including telecommunications, furniture and home appliances, tourism, technology, automotive and construction.

Expropriation and Compensation

Article 58, numeral 4 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 new National and International Arbitration Statute (Law 1563), modeled after the United Nations Commission on International Trade Law (UNCITRAL) Model Law, took effect in October 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 lets parties 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. However, some progress has been made on the number of professionals and arbitrators with ample experience on trade transnational transactions, arbitrage centers with cutting edge infrastructure and administrative capacity (around 340 arbitration and conciliation centers across the country) and courts that progressively more accepting of arbitration processes. The Chamber of Commerce of Bogota handles 75 percent of all arbitration cases in the country; all arbitration tribunals in total handle around 600 cases a year.

There were four pending investment disputes in 2016, one of which went to court in 2007 and is still under dispute. The case that went to court, which started in 1994, involves a U.S. marine salvage company. The company has sued the Colombian government through for not allowing it to access its property in Colombian territory on grounds of national patrimony protection, a process that resulted in a Colombian Supreme Court decision in 2007, but has not yet been resolved. The second case involves a U.S plane allegedly abandoned in Colombian territory in 2010. The U.S. owner has been trying to claim his property since 2012. Colombian authorities maintain that the plane is now the property of the Colombian government, according to national regulations on abandoned aircraft and have requested to U.S. authorities to deregister the aircraft as it has become Colombia’s property. The third case involves a U.S. citizen alleging lack of restitution for land seized by the government in the course of an investigation into a prior owner. The last case involves a U.S. agro-industrial company that acquired state land in Colombia; the Colombian government asserts the land was acquired in violation of state lands law. The case is still pending resolution.

Separately, a Spanish energy company which is the majority owner of a Colombian utility company initiated arbitration proceedings before UNCITRAL in March 2017 after the government ordered the liquidation of the electricity supplier. The company asserted that the move constituted expropriation without compensation, though the government cited mismanagement, an inability to service its debts, and failure to provide reliable electricity to the northern coast of Colombia as justification for its actions.

According to the Doing Business 2017 report, the time from the moment a plaintiff files the lawsuit until actual payment and enforcement of the contract averages 1288 days, the same as in 2016. 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 new Code of General Procedure that entered into force in June 2014 also establishes an oral proceeding which is carried out in two hearings, and there are now penalties for not 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 2017, Colombia improved three positions in the enforcing contracts category of the report, from 177 to 174.

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 when new legislation based on the UNCITRAL Model Law was adopted. 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 to 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 taken into account, 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 again revised in 2010 to make proceedings more agile and 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 fifty 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 2017 report, Colombia 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.

4. Industrial Policies

Investment Incentives

The Colombian government offers investment incentives such as income tax exemptions and deductions in specific priority sectors. During the last decade, it has committed to providing more incentives and stability for investors. 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 companies can apply for these directly with participating agencies. Tax and fiscal incentives are often based on regional considerations. Border areas have special protections due to currency fluctuations in neighboring countries, which can harm local economies. National and local governments also offer special incentives, such as tax holidays, to attract specific industries.

Special tax exemptions have existed since 2003 and range from ten to thirty years. Income tax exemptions for investments in tourism cover new hotels constructed between 2003 and 2017, and remodeled and/or expanded hotels though 2017, for a period of 30 years, and for ecotourism services through 2023. New forestry plantations and sawmills also have benefitted from income tax exemptions since 2003. Late yield crops planted through 2014 are tax exempt for ten years from the beginning of the harvesting. Electricity from wind power, biomass, and agricultural waste are tax exempt until January 1, 2018, as are river-based transportation services provided with certain shallow draft vessels and barges. Certain printing and publishing companies can benefit from tax exemptions through 2033. Software developed in Colombia has been tax exempt for up to five years since 2013. To meet exemption requirements, the software must have its intellectual property rights protected, be based upon a high concentration of national scientific and technological research, and Colciencias (Colombia’s agency for promoting science, technology, and innovation) must grant its certification.

Foreign investors can participate without discrimination in government-subsidized research programs, and most Colombian government research has been conducted with foreign institutions. R&D incentives include Value-Added Tax exemptions for imported equipment or materials used in scientific, technology, or innovation projects, and qualified investments may receive tax credits up to 175 percent. A 2012 reform of Colombia’s royalty system allocates ten percent of the government’s revenue to science, technology, and innovation proposals executed by subnational governments. Although only subnational governments can submit a project, anyone, including foreigners, can partner with them. Colombia’s science, technology and innovation investment as percentage of GDP was 0.62 percent in 2016; Colombia’s R&D investment for 2015 was 0.239 percent of GDP, 4.4 percent less than in 2014.

Foreign Trade Zones/Free Ports/Trade Facilitation

To attract foreign investment and promote the import of capital goods, the Colombian government uses a number of drawback and duty deferral programs. One example is free trade zones (FTZs). As of January 2017, there were 104 FTZs (including permanent, single company and special types). These have generated development of new infrastructure of services for industry with more than 800 companies in 63 municipalities and 19 geographic departments. While DIAN oversees requests to establish FTZs, the Colombian government is not involved in their operations.

Decree 2147 of 2016 integrated in one document the regulatory framework for FTZs dating back to 2007, and made clarifications to certain processes without significant changes. Tax treatment of companies operating FTZs was revised with the December 2016 tax reform. The reform maintained a preferential corporate income tax for FTZ’s, but increased it from 15 to 20 percent. FTZ users with contracts of legal stability will continue to pay 15 percent. Other changes include VAT exemption for raw materials, inputs and finished goods sold from the national customs territory to the Free Trade Zones, as long as those purchases are directly related to the corporate purpose. By contrast, no matter the purpose of the purchase, companies not located in the FTZs are affected by VAT. The new tax reform increased VAT from16 to 19 percent. The reform also eliminated the Income Tax for Equality (CREE), a nine percent tax on company profits over 800 million pesos (approximately USD 275,000) designed to contribute to employment generation and social investments.

In return for these and other incentives, every permanent FTZ must meet specific investment and direct job creation commitments, depending on their total assets, during the first three years of the project. Special FTZ zones are required to invest and generate a number of direct jobs depending on the economic sector. According to DANE, in 2016, total exports of 35 permanent FTZs and 60 special permanent FTZs were USD 3 billion, a 47 percent increase from 2015. In 2016, imports to FTZs decreased 14 percent to USD 2 billion. The trade balance for 2016 registered a surplus of USD 1.1 billion in FTZs; in 2015 there was a deficit of USD 209 million in FTZs.

Performance and Proposed Data Protection 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, impose local employment requirements, or require excessively difficult visa, residency, or work permit requirements for investors. Under the CTPA, Colombia grants substantial market access across its entire services sector.

Colombia is issuing new implementing regulations of its Data Protection Law 1581 of 2012. 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. The SIC issued a draft circular on February 28, 2017 defining adequate data protection and responsibilities of data controllers with respect to international data transfers. The circular details several general criteria reflecting the SIC’s view of adequate data protection and also provides a list of countries, which excludes the United States, that meet the SIC’s data protection guidelines. This circular would affect contracting of public cloud services under the National Procurement Office’s Colombia Compra Eficiente Program. The agency requires a defined legal framework on cloud services to develop the necessary regulations for the public tender processes and exclusion of the United States from the list of countries complying with data protection standards could preclude U.S. firms from bidding for public cloud contracts.

The government currently requires local data storage only for government entities and does so using its service contract with a private company. In Colombia, software and hardware are protected by intellectual property rights (Direccion Nacional de Derecho de Autor – DNDA ). There is no obligation to submit source code for registered software. However, if the IT provider is contracting with the Colombian government, through a clause of the service contract, the source code must be provided to the entity that the government IT provider is contracting. The SIC launched a national database registry in November 2015 to implement Law 1581 pertaining to personal information protection and management. It requires data storage facilities that hold personal data to comply with government requirements for security and privacy, 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.

5. Protection of Property Rights

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, such as one of the cases cited under investment disputes, existing law is inadequate. The concept of a mortgage, trust, deed, and other types of liens exists, 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 Amnesty International, as of November 2015 eight million hectares had been abandoned or acquired illegally, equivalent to 14 percent of the Colombian territory. The government estimates that approximately 6.5 million hectares of land are affected by violent usurpation. Around 18 percent of land owners do not have clear title. The Colombian government is working to title these plots and has started a formalization program for land restitution.

In the five and a half years that the Law on Victims and Land Restitution has been in force, between 2011 and 2016, the government has received 102,292 applications for restitution, corresponding to 86,638 properties and around 200,000 hectares, of which 5,008 properties have been resolved by judges. In 2016 the Land Restoration Unit (URT), a unit created for only ten years to focus on land restitution for displaced by armed conflict population solved around 15,000 cases. With the entry into force of the peace deal with the FARC, Colombia’s largest rebel group, the Government is confident restitution efforts will be more effective since former violent areas become more accessible and population can start land restitution processes without much fear, although security in those areas remains a latent challenge. Some landowners who received their formal land titles have been threatened by illegal armed groups. Most of the land that needs to be formalized and returned to title owners is located at the south of the country.

The URT’s work is complementary to the work of the National Land Agency which deals with property titles to peasants and minorities communities so they can have access to land and to the formalization of their rights. The Agency was created at the end of 2015 to implement many of the commitments established in the peace deal with the FARC on formalization of rural land and aims to formalize the property of 50,000 Colombian families in 2017.

In March 2017, the Colombia’s Prosecutor’s Office announced the recovery of 277,000 hectares from property of dissidents and ex-combatants of the FARC guerrillas, and from illicit drugs. The area is equivalent to 2,270 square kilometers or an extension almost three times larger than the city of New York (787 square kilometers). Colombia ranked 53 out of 190 economies for ease of registering property, according to the 2017 Doing Business report, the same ranking it received in 2016.

Intellectual Property Rights

In Colombia, the granting, registration, and administration of IPR are carried out by four different 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). While each of these entities experiences significant financial and technical resource constraints, the SIC is well-run and the second fastest office in the world for patent applications. 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 made no significant changes to its institutional IPR framework in 2016. Decree 1162 of 2010 created the National Intellectual Property Administrative System and the Intersectorial Intellectual Property Commission (CIPI). The CIPI serves at the interagency technical body for IPR issues, but has not issued any recent policy documents. The last comprehensive interagency policy for IPR issues (Conpes 3533) was issued by the National Planning Department in 2008. Colombia’s National Development Plan (NDP) for 2014-2018 contains a requirement to develop an IPR enforcement policy, but Colombia did not publish such a policy in 2016.

The patent regime in Colombia currently provides for 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 but is not listed in the notorious markets report. Special 301 reports can be found at online . Stakeholder submissions for the 2017 Special 301 report prominently cited concerns about Colombia’s regulation of the pharmaceutical sector, including weak patent enforcement and discretion for compulsory licensing.

The CTPA improved standards for the protection and enforcement of a broad range of IPR. Such 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. Colombia is a member of the Inter-American Convention for Trademark and Commercial Protection. Various procedures associated with industrial property, patent, and trademark registration are available at .

Colombia has outstanding CTPA commitments related to copyright protection. In January 2013, the constitutional court declared Law 1520 of 2012 implementing several CTPA-related commitments (including copyrights, TV programming quotas, and IPR enforcement measures) unconstitutional on procedural grounds. In response, the Santos administration decided to present separate bills to Congress. A subsequent effort to pass TV programming quotas was not approved after four debates in Congress, and shelved by the Santos Administration in June 2015. MINCIT did make progress on copyright protection in 2016, publishing in August a version of the bill for public consultation. Industry stakeholders have noted that it succeeds in introducing the concept of statutory damages for copyright infringement, but falls short in some other areas, failing to compel takedown of online content or protect intermediaries with important “safe harbor” provisions for unintentional copyright infringement. Following the close of public comments in September 2016, Colombia has not moved to introduce the legislation to Congress. Colombia now expects to introduce the copyright bill in 2017.

Absent this and other legislation, Colombia continues to fall short on CTPA commitments. The CTPA deadline to establish copyright liability for circumventing technological protections was May 15, 2013, and the deadline to establish copyright liability for misuse/altering information was November 15, 2014. Colombia has yet to establish additional criminal procedures for counterfeiting, due May 15, 2013, which it plans to address with the copyrights bill or another law that permits changing its penal code. The Internet Service Providers (ISPs) legislation, another CTPA requirement, was due May 15, 2013. A bill was introduced in 2011, but was shelved because it passed only one of the mandatory four debates within the required timeframe.

Colombia did take an important step toward meeting its CTPA obligations in 2016 by finalizing its accession to the Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the Purposes of Patent Procedure. The treaty entered into force with respect to Colombia in July 2016. Colombia did not make progress in 2016 on another international agreement that it needs to sign in order to comply with CTPA provisions: the International Union for the Protection of New Varieties of Plants (UPOV 91). Colombia’s constitutional court declared accession to UPOV 91 unconstitutional in December 2012 due to lack of consultation with Afro-Colombian and indigenous communities. Consultations are expected to occur in 2017. Colombia also maintains that the existing Andean Community Decision 345 is in effect and equivalent to UPOV 91.

In terms of investigations, Colombia’s success against counterfeiting and IPR violations remains limited. The Fiscal and Customs Police (POLFA) launched “Plan Choque” in 2014 to collaborate with the National Police on operations, and has begun working more closely with the private sector in recent years. Despite occasional press reports of successful seizures of contraband hard goods (often counterfeit medicines, alcohol, and consumer products such as shoes), such products remain widely available in Colombia’s “San Andresitos” markets. The Colombian Tax and Customs Authority (DIAN) has identified 319 illegal terrestrial entry points on the borders with Venezuela and Ecuador, most of which are difficult to control due to security concerns related to illegal armed groups. A 2015 law increased penalties for those involved in running contraband, but more effective implementation is needed. Colombian law continues to limit the ability of law enforcement (police, customs, and prosecutors) to effectively combat counterfeiting because they do not have ex officio authority to effectively inspect, seize and destroy counterfeit goods, nor an integrated multi-agency system to investigate smugglers and counterfeiters. Enforcement in the digital space remains weak as well.

Regarding responsibility for prosecutions, the specialized IPR unit in the Attorney General’s office (the UNPIT) was abolished in a 2014 restructuring. It remains the case that criminal IPR cases are generally assigned randomly to non-specialized national prosecutors. The two exceptions to assign a case to an attorney from the old UNPIT unit are when a major crime organization is involved or cases of nationwide scope.

Resources for Rights Holders

U.S. Embassy point of contact:

Economic Section, U.S. Embassy Bogota
Carrera 45 #22B-45
Bogota, Colombia
571) 275-2000

Country/Economy resources:

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at 

6. Financial Sector

Capital Markets and Portfolio Investment

The Colombian Stock Exchange (BVC) is the main forum for trading and security 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. The BVC is part of the Latin American Integrated Market (MILA) along with the Mexican Stock Exchange, the Lima Stock Exchange and the Santiago Stock Exchange. BVC market capitalization has risen from USD 14 billion in 2003 to USD 100.2 billion in 2016. Colombia maintained a BBB ‘Investment Grade’ credit rating by Fitch and Standard and Poor’s thanks to sound macroeconomic fiscal management including the 2016 tax reform. 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 Superintendency authorized stock brokerage firms. Foreign investment capital funds are forbidden from acquiring more than ten percent of the total amount of a Colombian company’s outstanding shares. 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 Superintendency. Colombia has an effective regulatory system that encourages portfolio investment. According to the Financial Superintendency, as of December 2016, the combined estimated assets of Colombia’s major banks totaled USD 183 billion.

Colombia’s financial system is strong by regional standards. The financial sector as a whole is investing in new risk assessment and portfolio management procedures. As of December 2016, two private financial groups, the Sarmiento Group (Grupo Aval) and the Business Group of Antioquia (BanColombia), together own over half of all Colombian banking assets. The Sarmiento Group (Grupo Aval) controls about 27 percent of the sector and the Business Group of Antioquia (Bancolombia) about 26 percent. Total foreign-owned bank assets account for approximately 28 percent of the sector.

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.

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

If investments are officially registered, repatriations of profits are permitted without restrictions. 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 to be able to repatriate or reinvest the proceeds. 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 a savings and stabilization fund, administered by the Central Bank, with the objective of promoting savings and economic stability in the country. The fund can administer up to 30 percent of annual royalties from the extractive industry. The fund was valued at USD 3.4 billion in 2016, from an initial value of USD 500 million in 2012. 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.

7. State-Owned Enterprises

The Colombia government owns 96 companies with a total asset value of USD 80 billion, equivalent to 32 percent of the national GDP. The largest state-owned companies are: Ecopetrol, which has a net worth of approximately USD 23 billion; Cenit Transportation and Logistics of Hydrocarbons S.A.S., with a net worth of USD 7 billion; Electrical Interconnection S.A. ESP – ISA, with a net worth of USD 2.8 billion; Oleoducto Central S.A., with a net worth of USD 2.6 billion; and the Refinery of Cartagena, with a net worth of USD 1.8 billion.

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. Colombia’s main privatizations have been in the electricity, mining, hydrocarbons, and financial sectors, and in January 2016, the government sold its majority stake in Isagen, the country’s third-largest energy generator, to Canadian firm Brookfield Asset Management for USD 2 billion. 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 utilizing public-private partnerships (PPPs) as a means for securing and incentivizing infrastructure development.

The Colombian government prioritized a fourth generation infrastructure program focused on highway construction with PPP opportunities valued at USD 17 billion. In order to attract investment and promote PPPs, on November 22, 2013, the Colombian government signed a new infrastructure law clarifying 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.

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.

8. Responsible Business Conduct

Colombia 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 CSR 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. 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. The Environmental Chapter of the CTPA requires Colombia to maintain and enforce environmental laws, protect biodiversity, and promote opportunities for public participation. In October 2014, the Minister of Environment and Sustainable Development signed the modification to decree 2820 on environmental licensing. With this change, the Colombian government hoped to streamline and optimize the issuance of permits for exploration and exploitation of natural resources in Colombia, though private sector contacts report that results have been mixed.

9. Corruption

Corruption is a serious obstacle for companies operating or planning to invest in Colombia. According to the World Economic Forum (WEF) Global Competitiveness Index (2016-2017), corruption is the second most problematic factor affecting competitiveness, following high tax rates. The NGO Transparency International reported that Colombian citizens’ perception of the level of corruption in the country remained high in 2016, and a February 2017 Gallup poll showed it as the number one problem facing Colombia according to Colombians polled. In 2016 Colombia ties for 90 out of 176 countries in the Transparency International rankings, falling from 83 in 2015.

In December 2016, one of the biggest corporate corruption cases in history broke when the U.S. Department of Justice announced that Brazil-based construction conglomerate Odebrecht had paid USD 800 million in bribes over six years regionally, including USD 11 million in Colombia, in order to win infrastructure contracts. The case has generated intense media coverage in Colombia as several senior members of both the Santos and Uribe administrations have come under investigation. On March 14, President Santos acknowledged that Odebrecht illegally donated funds to his 2010 campaign, though he denied awareness of the act at the time. His opponent in the 2014 election, Oscar Ivan Zuluaga, has withdrawn from the 2018 election after being implicated in the scandal. Two high-priority infrastructure projects are on hold as a result of the corruption revelations, though other highway modernization projects critical to implementation of the peace continue. Corruption appears likely to be a high-profile issue in 2018 presidential and legislative elections, with candidates potentially seeking to distance themselves from the Colombian president.

In response to the scandal, in January 2017 President Santos issued decree 092 to prohibit direct public contracts with non-profit organizations. The Secretariat for Transparency estimates that more than USD 400 million in public resources are committed to contracts with foundations and NGOs; contracting with these entities has commonly been abused to steal public resources. President Santos also announced the introduction of two anticorruption bills before Congress, one to set up fully public registers of company owners (a commitment made in May 2016 during the Anticorruption Summit in London) and the other to revise the penalties in corruption offenses.

Colombia has adopted the OECD Convention on Combating Bribery of Foreign Public Officials and is a member of the OECD Anti-Bribery Committee. It has signed and ratified the UN Anticorruption Convention. Additionally, it has adopted the Organization of American States (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.

Colombia still needs to improve legislation for the protection of whistleblowers and more transparent and reliable systems for public tenders. In August 2016, the government introduced a bill to congress outlining protections for whistleblowers. As of April 2017, congress has not debated the proposed bill. According to the 2016 report from the National Civil Commission for Fighting Corruption (CNCLCC), Colombia has made progress with the issuance of an anti-bribery law (enacted in February 2016 and in force starting March 2017) as part of the commitments for the accession to the OECD. The law establishes that the penal responsibilities can be transferred from the employees to companies, including managers and contractors bribing public servants of a foreign country.

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 .

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, so civil society can discuss and propose policies and actions to fight corruption in the country. Transparencia por Colombia is the technical secretariat of the commission. 

The national chapter of Transparency International, Transparencia por Colombia: 

The Presidential Secretariat of Transparency advises and assists the president to formulate and design public policy about transparency and anti-corruption. This office also coordinates the implementation of anti-corruption policies. .

10. Political and Security Environment

Security in Colombia has improved significantly over the past 16 years. Colombia experienced a significant decrease in terrorist activity, due in large part to a bilateral cease-fire between government forces and the FARC. On November 26, 2016 President Santos signed a renegotiated peace agreement with the FARC to end half a century of confrontation, after the original peace accord was rejected in an October plebiscite. Congressional approval of a peace accord between the government and the FARC on November 30, 2016 put in motion a six-month disarmament, demobilization, and reintegration process, in part to become a legal political organization. Colombian government figures show that the number of terrorist acts decreased 55 percent from 2015 to 2016. Despite the National Liberation Army (ELN) conducting ongoing negotiations with the Colombian government in Quito, Ecuador, beginning in January 2017, the group continues a low-cost, high-impact asymmetric insurgency. ELN attacks, alongside powerful narco-criminal group operations, are posing a threat to commercial activity and investment, especially in rural zones where government control is weaker. Still, FARC demobilization could bring greater development opportunities to rural regions. The Colombian government estimates FARC insurgents at around 7,000 armed members and 7,000 to 8,000 support members known as “militias.” The FARC is currently undergoing demobilization and disarmament in concentration zones under supervision by the UN. The government and the UN estimate roughly five percent of FARC forces, or 300 to 500 FARC members are dissidents and are not complying with the peace agreement. The government estimates the ELN has 1,500 to 2,000 armed members. The ELN continues to attack 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, kidnap personnel, and destroy property of entities that refuse to pay protection or extortion.

11. Labor Policies and Practices

An OECD report on Colombia’s labor market and social policies was published in January 2016. The report mentions progress on labor market reforms, but cites large income inequality and structural flaws in labor market policies, despite relatively low unemployment and high labor force participation. In 2016, the average annual unemployment rate according to official government figures was 9.2 percent, a slight increase relative to 2015’s rate of 8.9 percent. The truck transport strike of July 2016 accounts for some of the increase, in addition to a lower dynamic of employment generation from the construction sector. The unemployment rate is one of the highest in the region, but has steadily improved over the past several years. Approximately 64.7 percent of the working-age population actively participates in the labor force. According to DANE, 47.5 percent of the workforce was working in the informal economy at the end of 2016. Colombia has a wide range of skills in its workforce, as well as managerial-level employees who are often bilingual.

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, including those related to freedom of association, equal remuneration, right to organize and collectively bargain, discrimination, minimum working age, forced labor, and prohibition of the worst forms of child labor. Colombia has also ratified conventions related to hours of work, occupational health and safety, and minimum wage. In 2013, Law 1636 was passed to increase protections and opportunities for Colombia’s unemployed population.

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. About four percent of the country’s labor force is unionized. 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. According to the OECD, only 6.2 percent of all salaried workers are covered by collective bargaining agreements (CBAs).. The Ministry of Labor is currently working on decrees to incentivize sectoral collective bargaining, and to strengthen union representation within companies and regulate strikes in the essential public services sector (i.e. hospitals).

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.” In July-August 2016, a 45-day strike by truck transport associations impacted the Colombian economy, clogging ports, slowing agricultural exports, and increasing inflation. The strike was motivated by the truckers’ desire to restrict the import of new vehicles. They alleged that excess transport capacity reduces the value of their own vehicles and affects their profitability. The strike ended with an agreement between the truckers and the government on cargo prices and modifications to the “scrappage” policy that regulates the import of new vehicles.

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 under-aged workers. 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 (those with work-related injuries or union leaders, for example). The Ministry of Labor has been cracking down on using temporary or contract workers for jobs that are not temporary in nature.

Reputational risks to investors come with a lack of effective and systematic enforcement of labor law, especially in rural sectors. In 2016, the Ministry of Labor imposed sanctions to around 1,000 companies for over USD 29 million for violations of labor law, including subcontracting and occupational health and safety violations as well as violations of freedom of association. The value of fines imposed against employers in 2016 was around 130 percent the value of fines imposed in 2015. The Ministry of Labor has publicly highlighted improvement in the increase of number of labor inspector positions, from 524 in 2011 to 904 in 2016, and an increased number of imposed sanctions. The Ministry has also highlighted increased social dialogue. Between 2011 and 2015, the number of collective bargaining conventions increased 165 percent, while collective pacts decreased 14 percent in the same period. Homicides of unionists have decreased in recent years but 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. For additional information on labor law enforcement see Section 7 of Colombia’s Human Rights Report, and the Department of Labor’s Findings on the Worst Forms of Child Labor  and Lists of Goods Produced with Child or Forced Labor .

12. OPIC and Other Investment Insurance Programs

OPIC made its first investment in Colombia in 1985 and has supported more than 17 projects in Colombia since 2005, with investments totaling more than USD 2 billion. OPIC’s largest project in Colombia was a USD 140 million loan to a U.S. company to finance the installation and deployment of a fourth generation long-term evolution (“4G LTE”) wireless and fiber-optic broadband network for high-speed data communication. Additional information can be found at .

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2016 $287,558 2016 $274,135 
Foreign Direct Investment Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2016 $2,140 2016 -$319 BEA data available at
Host country’s FDI in the United States ($M USD, stock positions) 2016 $1.5 2016 $0 BEA data available at
Total inbound stock of FDI as % host GDP 2016 4.7% 2016 N/A N/A

* Source: Data from the Colombian Statistics Departments, DANE, ( ) and the Colombian Central Bank ( ).

Table 3: Sources and Destination of FDI

Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 13.593 100% Total Outward 4.516 100%
Canada 2.163 16.1% British Virgen Isl. 940 21%
United States 2.140 15.7% Chile 630 14%
Spain 1.527 11.2% Bermuda 328 13%
Bermuda 1.520 11.2% Mexico 488 11%
Panama 1.387 10.2% Spain 457 10%
“0” reflects amounts rounded to +/- USD 500,000.

Table 4: Sources of Portfolio Investment

Portfolio Investment Assets (June 2016)
Top Five Partners (Millions, US Dollars)
Total Equity Securities Total Debt Securities
All Countries 28.552 100% All Countries 17.410 100% All Countries 11.142 100%
United States 18.637 65% United States 13.075 75% United States 5.584 50%
Luxembourg 3.385 12% Luxembourg 3.191 18% International Organizations 828 7%
International Organizations 841 3% Cayman Islands 237 1% Netherlands 533 5%
Netherlands 533 2% United Kingdom 175 1% Mexico 474 4%
Mexico 502 2% Panama 159 1% France 470 4%

Source: Data from the Colombian Central Bank ( ).

14. Contact for More Information

U.S. Embassy Bogota
Economic Section
Carrera 45 #22B-45
Bogota, Colombia
(571) 275-2000


Executive Summary

The Government of Iraq (GOI) continues to face the dual challenges of fighting ISIS and the financial impact of declining world oil prices. The fall of oil prices drastically reduced Iraq’s revenues from oil exports, which account for more than 90 percent of the GOI’s revenue. The GOI is also confronting a humanitarian crisis as the conflict with ISIS has resulted in over 3 million internally displaced persons (IDPs) since the beginning of 2014. As a response to its fiscal challenges, in August 2015 Prime Minister Haider al-Abadi publicly committed to an economic plan that includes reforming Iraq’s failing state owned enterprises (SOEs), fighting corruption, reducing bureaucratic bottlenecks, and investing in necessary infrastructure. To date, however, the reforms have been only partially implemented as major political parties have challenged Abadi’s reform agenda, and Abadi’s cabinet has seen several prominent Ministers (Finance, Defense, and Trade) dismissed amid allegations of corruption or due to political infighting.

ISIS’s capture of Mosul and parts of northern and western Iraq in June 2014 cut key domestic and international trade routes and contributed to slowing economic growth. In the fall of 2016, the Iraqi Security Forces and the international Coalition to Defeat ISIS, led by the United States, launched a campaign to retake Mosul. The Iraqis have pushed ISIS out of significant areas of Ninewa province and retaken major parts of Mosul; military operations are ongoing. Security remains an impediment to investment in many parts of the country. However, the security situation varies throughout the country and is generally less problematic in Iraq’s southern provinces and the Iraqi Kurdistan Region (IKR).

Despite the current security and fiscal challenges, Iraq has long-term potential for U.S. investment. Iraq has the fifth largest proven oil reserves in the world and needs tremendous investment in reconstruction and infrastructure development. U.S. companies have opportunities to invest in security, energy, environment, construction, healthcare, tourism, agriculture, and infrastructure sectors. Iraq imports large volumes of agricultural commodities, machinery, consumer goods, and defense articles.

Government contracts and tenders – the source of many commercial opportunities in Iraq – are almost entirely financed by oil revenues and therefore will remain limited unless oil prices rebound. Increasingly, the GOI has asked investors to provide financing options and allow for deferred payments. Despite steady oil production and oil exports in 2016, revenues from oil sales have declined by around 30 percent in nominal terms due to lower oil prices. The 2017 budget passed by Parliament in December 2016 projects an $18.4 billion USD budget deficit, approximately 10 percent of GDP, based on Iraqi crude exports selling at $42 USD per barrel. In light of declining oil revenues, on July 7, 2016, the IMF Executive Board formally approved a $5.4 billion, three-year Stand-by Arrangement (SBA) with Iraq that, if fully implemented, will stabilize Iraq’s finances and encourage economic reform. Iraq issued $1 billion in bonds guaranteed by the U.S. Government on January 18, 2017.

Investors in Iraq continue to face extreme challenges resolving commercial disputes, receiving timely payments, and winning public tenders. Potential investors should prepare to face significant costs to ensure security, cumbersome and confusing procedures, and long payment delays on some GOI contracts. Difficulties with corruption, customs regulations, dysfunctional visa procedures, unreliable dispute resolution mechanisms, electricity shortages, and lack of access to financing remain common complaints from companies operating in Iraq. Shifting and unevenly enforced regulations create additional burdens for investors. The GOI currently operates 192 SOEs, a legacy from decades of statist economic policy.

Investors in the Iraqi Kurdistan Region (IKR) face many of the same challenges as investors elsewhere in Iraq, but a business friendly investment law and a traditionally more stable security situation make the region more attractive to foreign businesses. However, the 2014 ISIS offensive and drop in oil prices dampened foreign investment, and the region’s economy has struggled to recover.

The U.S. Government and the GOI are seeking to address impediments to trade and investment through bilateral economic dialogue mechanisms provided under the U.S.-Iraq Strategic Framework Agreement and the Trade and Investment Framework Agreement. The American Chamber of Commerce in Iraq (AmCham-Iraq), re-launched in October 2015, also provides a platform for commercial advocacy for the U.S. business community operating in Iraq. Efforts to start an American Chamber of Commerce in the IKR continue.

Table 1

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2016 166 of 176
World Bank’s Doing Business Report “Ease of Doing Business” 2017 165 of 190
Global Innovation Index 2016 Not Ranked
U.S. FDI in Partner Country 2016 N/A N/A
World Bank GNI per capita 2015 $5,820

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The GOI has publicly stated its commitment to attract foreign investment, particularly given Iraq’s current fiscal challenges and the massive reconstruction needs in areas previously held by ISIS. In December 2015 the GOI passed an amended National Investment Law (NIL) that improves investment terms for foreign investors, allows them to purchase land in Iraq for certain projects, and speeds up the investment license process. In 2015 Iraq also joined the Convention on the Settlement of Investment Disputes between States and Nations of Other States (ICSID). Nevertheless, foreign investors continue to encounter bureaucratic challenges, corruption, and a weak banking sector. Recently, the GOI has been exploring financing options to pay for large-scale development projects rather than relying on the established practice of funding investments entirely from current annual budget outlays. According to the NIL, the GOI reserves the right to screen foreign direct investment. The U.S. Department of State is not aware of instances where this screening process has impeded foreign investments in Iraq. Several GOI Ministries, including the Ministry of Health and the Ministry of Planning, occasionally require potential investors to fill out Arab League Boycott (ALB) questionnaires, which the Iraqi Government has officially discontinued. This prevents certain investments by U.S. companies.

According to Iraqi law, a foreign investor is entitled to make investments in Iraq on terms no less favorable than those applicable to an Iraqi investor, and the amount of foreign participation is not limited. However, Iraq’s NIL limits foreign direct and indirect ownership of most natural resources, particularly the extraction and processing of any natural resources. It does allow foreign ownership of land to be used for residential projects and co-ownership of land to be used for industrial projects when an Iraqi partner is participating.

Limits on Foreign Control and Right to Private Ownership and Establishment

According to the National Investment Regulation No. 2 of 2009, if an investment license is granted to a project, at least 50 percent of the project’s workers must be Iraqi nationals. The amended NIL also states that investors should give priority to Iraqi citizens before hiring non-Iraqi workers. As a result of popular protests in the summer of 2015, the GOI has applied pressure on foreign companies to hire more local employees. In order to generate non-oil revenues, the GOI has also encouraged foreign companies to partner with local industries and purchase Iraqi-made products. The GOI generally favors SOEs and state-controlled banks in competitions for government tenders and investment. This preference discriminates against both local and foreign investors.

Other Investment Policy Reviews

In the past four years, the GOI has not conducted any investment policy reviews through the Organization for Economic Cooperation and Development (OECD), the World Trade Organization (WTO) or the United Nations Conference on Trade and Development (UNCTAD).

Business Facilitation

Foreign investors interested in establishing an office in Iraq or bidding on a public tender are required to register as a foreign business with the Ministry of Trade’s Companies Registration Department. Investors who will do business only in the IKR can register with the Kurdistan Regional Government directly. Companies that will do business in both the IKR and greater Iraq must register with the Ministry of Trade.

Under the NIL, the National Investment Commission (NIC) and the Provincial Investment Commissions (PICs) are designed to be one-stop shops that can provide information, sign contracts, and facilitate registration for new foreign and domestic investors. The NIC offers investor facilitation services on transactions including work permit applications, customs procedures, and business registration. Investors can request these services through the NIC website. However, the national and provincial Investment Commissions struggle to operate amid unclear lines of authority, budget constraints, and an absence of regulations and standard operating procedures. The Investment Commissions still generally lack the authority to intercede when investors encounter bureaucratic obstacles with other Iraqi ministries.

In order to incorporate a company in Iraq, an investor must obtain a statement from an Iraqi bank showing a minimum capital deposit. All investors must also apply for an investment license from the appropriate national, regional or provincial investment commission. Companies are required to register with the General Commission for Taxation and register employees for social security (if applicable). Additional information is available at the National Investment Commission’s website: Companies that provide security are also required to register with the Ministry of the Interior. The steps required to register a company may be time consuming.

The National Investment Commission does not exclude businesses from taking advantage of their services based on the number of employees or the size of the investment project. The National Investment Commission can also connect investments by micro-, small-, and medium-sized enterprises (MSMEs) with the appropriate provincial investment council. National Investment Commission: 

The Kurdistan Board of Investment (KIB) manages a streamlined investment licensing process in the IKR whose policy is to acknowledge receipt of the license request within 45 days of the initial license application; however, the licensing process can take from three to six months. Despite bureaucratic hurdles, on the whole the KIB investment framework seems to work well. Because of oversaturated commercial and residential real estate markets, the KIB has moved away from approving licenses in these sectors. Businesses report some difficulties establishing local connections, obtaining qualified staff, and meeting import regulations. However, the KIB receives high marks for being helpful in resolving problems.

Outward Investment

Iraq does not restrict domestic investors from investing abroad.

2. Bilateral Investment Agreements and Taxation Treaties

Iraq does not have a Bilateral Investment Treaty (BIT) or a bilateral taxation treaty with the United States. The U.S.-Iraq Strategic Framework Agreement ( ) provides intergovernmental forums to address impediments to investment and trade. The Trade and Investment Framework Agreement (TIFA) between the Governments of Iraq and the United States entered into force in 2013 and the inaugural TIFA Council meeting took place in March 2014 in Washington, D.C. The TIFA provides a framework for dialogue to increase trade and investment cooperation between the two countries.

Iraq is a signatory to investor protection agreements or memorandums of understanding with 35 bilateral partners and nine multilateral groupings. The agreements include arrangements within the Arab League, as well as arrangements with, Afghanistan Armenia, Bangladesh, India, Iran, Japan, Jordan, Kuwait, France, Germany, Mauritania, Republic of Korea, Sri Lanka, Syria, Tunisia, Turkey, the United Kingdom, Vietnam, and Yemen.

Iraq also has approved, a BIT with Italy and separate trade agreements with Jordan and Kuwait, but each has yet to be ratified. Iraq’s investment agreements include general provisions on promoting and protecting investments, including clauses on profit repatriation, access to arbitration and dispute settlements, fair expropriation rules, and compensation for losses. However, the Iraqi government’s ability and willingness to enforce such provisions remains untested. Iraq withdrew from GAFTA on November 17, 2016, choosing instead, to implement tariffs on all the goods coming into the country.

3. Legal Regime

Transparency of the Regulatory System

Iraq’s overall regulatory environment remains opaque. Corruption, unclear regulations, and bureaucratic bottlenecks are major challenges for investors that bid on public procurement contracts or seek to invest in major infrastructure projects. The KRG rolled out procurement reform measures in 2016 that seek to address some of these issues, yet the efficacy of these measures remains unclear. Iraq’s commercial and civil laws generally fall short of international norms. There are few provisions regarding commercial competition. The NIL does not establish a full legal framework governing investment.

The absence of other laws in areas of interest to foreign investors also creates ambiguity. Iraq’s Legislative Action Plan for the Implementation of WTO Agreements – the legislative “road map” for Iraq’s eventual WTO accession – requires competition and consumer protection laws that are critical for leveling the business playing field. The Council of Representatives passed a Competition Law and a Consumer Protection Law in 2010; however, the Competition and Consumer Protection Commissions authorized by these laws have yet to be formed. Without these Commissions, investors do not have recourse against unfair business practices such as bid rigging or abuse of a dominant position in the market.

The way in which the Iraqi government promulgates regulations can be opaque and lends itself to arbitrary use. Regulations imposing duties on citizens or private businesses are required to be published in the official government gazette. However, there is no corresponding requirement for the publication of internal ministerial regulations. This loophole allows bureaucrats to create internal requirements or procedures with little or no oversight, which can result in additional burdens for investors and other businesspersons.

Accounting, legal, and regulatory procedures are opaque, inconsistent, and generally do not meet international standards. Draft bills, including investment laws, are not available for public comment.

The GOI encourages private sector associations but private sector associations are generally not influential, given the dominant role of SOEs in Iraq’s economy.

Investors sometimes find it challenging to deconflict seemingly opposing regulations from relevant stakeholder ministries and investment entities. The promulgation of new regulations with little advance notice and requirements related to investment guarantees have also slowed projects. While the KRIL does not stipulate that a local partner is necessary to acquire an investment license, government officials sometimes encourage this practice.

Legal System and Judicial Independence

Iraq has a civil law system, although Iraqi commercial jurisprudence is relatively underdeveloped. During decades of war and sanctions, Iraqi courts became isolated from developments in international commercial transactions. Corruption and bureaucratic bottlenecks remain significant problems. As trade with foreign parties increases, Iraqi courts have seen a significant increase in complex commercial cases. Contracts should be enforceable under Iraqi law. In practice, however, honoring contracts and contract enforcement remains a challenge due to unclear regulations, lack of decision-making authority, and rampant corruption.

In November 2010, Iraq’s Higher Judicial Council established the First Commercial Court of Iraq, a court of specialized jurisdiction for disputes involving foreign investors as part of a national strategy to improve Iraq’s investment climate. This court began hearing cases in January 2011. It has jurisdiction only over cases involving foreign parties in Baghdad province. The court received 5 cases in 2015 and over 500 cases since its establishment. Over 350 of these cases have been adjudicated, many in as few as 30 days, since the judges are able to give their full attention to these cases. This record stands in stark contrast to general jurisdiction trial courts that receive up to 30 cases per day and do not give priority to commercial cases, thereby causing commercial cases to be delayed for months or years before a resolution is achieved. Iraqi judicial officials have since created two additional commercial courts in Najaf and Basrah. Given that all of Iraq’s ministries are located in the capital, and the vast majority of commercial cases involve a foreign party and an Iraqi government agency, the Baghdad Commercial Court reviews far more commercial cases than the general jurisdiction courts in the surrounding provinces. In the IKR, commercial disputes are handled through the civil court system.

Iraq is a signatory to the League of Arab States Convention on Commercial Arbitration (1987) and the Riyadh Convention on Judicial Cooperation (1983). Iraq formally joined the ICSID Convention on December 17, 2015, and on February 18th, 2017, Iraq joined Investor-state Dispute Settlement (ISDS) process agreement between investors and states.

Additional information can be found in “A Legal Guide to Investing in Iraq:” 

Laws and Regulations on Foreign Direct Investment

The NIL, amended in December 2015, provides a legal structure to protect foreign and domestic investors while also providing investment incentives. It allows both domestic and foreign investors to qualify for investment incentives equally; however, tax exemption periods are longer if the project is over 50 percent Iraqi-owned. A 2015 amendment to the NIL allows foreign ownership of land for the purpose of developing residential real estate projects. For industrial projects, foreign ownership of land is allowed if jointly owned by an Iraqi partner. Although the NIL was meant to clarify and codify investment regulations, the lack of clear and definitive implementing mechanisms creates confusion and delays in the approval of investment projects. Furthermore, the NIL does not absolve any investor from fully adhering to the requirements and mechanisms of other laws, as well as any legal requirement applicable under Iraqi law as a whole. (A copy of the amended 2015 NIL can be obtained from the National Investment Commission website .)

The NIL does not apply to investment in the IKR. Under the Iraqi Constitution, some issues relevant to the overall investment climate are either shared by the federal government and the regions or are devolved entirely to the regions. Currently, the IKR, comprising four northern provinces, is the only area of Iraq with a designation as a region. Investment in the IKR operates within the framework of the Kurdistan Region Investment Law (KRIL) of 2006 and the Kurdistan Board of Investment (KBOI), which is designed to provide incentives to help economic development in areas under the authority of the Kurdistan Regional Government (KRG).

The KRIL provides specific incentives for companies to develop strategic investment projects, which the KBOI evaluates and licenses based on the project’s perceived economic and environmental impacts. If approved, a company is awarded an investment license that could include free land, a ten-year exemption from corporate taxes, and a five-year exemption from customs duties on raw materials. The KBOI has approved 750 projects since 2006. Investors who do not wish to receive the incentives for their projects under the investment law may invest without applying for the investment license by working directly with the relevant sector’s ministry. A copy of the IKR Investment Law can be obtained from the KBOI website:

A list and comprehensive review of Iraqi laws relevant to the Investment Process is included in “A Legal Guide to Investing in Iraq,” a collaboration between the U.S. Department of Commerce’s Commercial Law Development Program (CLDP) and the National Investment Commission (NIC): 

Competition and Anti-Trust Laws

The Council of Representatives passed a Competition Law and a Consumer Protection Law in 2010. However, the Competition and Consumer Protection Commissions authorized by these laws have yet to be formed. The NIL is supposed to promote fair competition and “competitive capacities” in the local market. However, the NIL does not include specific competition legislation. The prominent role of SOEs in Iraq and corruption issues undermine the competitive landscape.

Expropriation and Compensation

Article 23 of the Iraqi Constitution prohibits expropriation in Iraq, unless done for the purpose of public benefit and in return for just compensation. The Constitution stipulates that expropriation may be regulated by law, but specific legislation regarding expropriation has not been drafted. Article 9 of the amended NIL also guarantees non-seizure or nationalization of any investment project covered by the provisions of this law, except in the cases where an absolute judicial judgment has been reached. It prohibits expropriation of an investment project, except in cases of public benefit and with fair compensation. Iraq’s Commercial Court is charged with resolving expropriation cases. Over the past six years, there have not been any government actions or shifts in government policy that would indicate possible expropriations in the foreseeable future.

In the IKR, if the KBOI determines that investors are using land awarded under investment licenses for purposes other than those outlined in the license, it can impose fines and potentially confiscate the land. Article 17 of the IKR investment law outlines an investor’s arbitration rights, which fall under the civil court system. Arbitration clauses should be written into local contracts in order to facilitate enforcement in the event of a dispute.

Dispute Settlement

Iraq has a civil law system, although Iraqi commercial jurisprudence is relatively underdeveloped. During decades of war and sanctions, Iraqi courts became isolated from developments in international commercial transactions. Corruption and bureaucratic bottlenecks remain significant problems. As trade with foreign parties increases, Iraqi courts have seen a significant increase in complex commercial cases. Contracts should be enforceable under Iraqi law. In practice, however, honoring contracts and contract enforcement remains a challenge due to unclear regulations, lack of decision-making authority, and rampant corruption.

In November 2010, Iraq’s Higher Judicial Council established the First Commercial Court of Iraq, a court of specialized jurisdiction for disputes involving foreign investors as part of a national strategy to improve Iraq’s investment climate. This court began hearing cases in January 2011. It has jurisdiction only over cases involving foreign parties in Baghdad province. The court received 5 cases in 2015 and over 500 cases since its establishment. Over 350 of these cases have been adjudicated, many in as few as 30 days, since the judges are able to give their full attention to these cases. This record stands in stark contrast to general jurisdiction trial courts that receive up to 30 cases per day and do not give priority to commercial cases, thereby causing commercial cases to be delayed for months or years before a resolution is achieved. Iraqi judicial officials have since created two additional commercial courts in Najaf and Basrah. Given that all of Iraq’s ministries are located in the capital, and the vast majority of commercial cases involve a foreign party and an Iraqi government agency, the Baghdad Commercial Court reviews far more commercial cases than the general jurisdiction courts in the surrounding provinces. In the IKR, commercial disputes are handled through the civil court system.

Iraq is a signatory to the League of Arab States Convention on Commercial Arbitration (1987) and the Riyadh Convention on Judicial Cooperation (1983). Iraq formally joined the ICSID Convention on December 17, 2015, and on February 18th, 2017, Iraq joined Investor-state Dispute Settlement (ISDS) process agreement between investors and states.

Iraq is considering, but has not yet signed or ratified, the convention on Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention) and the ad hoc arbitration rules and procedures established by the UN Commission on International Trade Law (UNCITRAL Model Law). The enforcement of arbitral awards must comply with the special requirements set forth in current Iraqi civil procedure law and other related laws.

Additional information can be found in “A Legal Guide to Investing in Iraq:” 

Bankruptcy Regulations

Under Iraqi law, an Iraqi debtor may file for bankruptcy, and an Iraqi creditor may file for liquidation of the debtor. Bankruptcy is not criminalized. The Iraqi Companies Law regulates the process for liquidation of legal entities. Nevertheless, the mechanism for resolving insolvency remains opaque. Iraq ranks 169 out of 190 countries in the category of Resolving Insolvency, according to the World Bank’s 2017 Doing Business Report.

4. Industrial Policies

Investment Incentives

The amended NIL offers foreign investors several exemptions for qualified investments, including a ten-year exemption from taxes, exemptions from import duties for the necessary equipment and materials throughout the period of project implementation, and exemption from taxes and fees for primary materials imported for commercial operations. The exemption increases to fifteen years if Iraqi investors own more than 50 percent of the project. The NIL also allows investors to repatriate capital brought into Iraq, along with proceeds, in accordance with the law. Foreign investors are able to trade in shares and securities listed on the Iraqi Stock Exchange. Hotels, tourist institutions, hospitals, health institutions, schools, and colleges also are granted additional exemptions from duties and taxes on their imports of furniture, tools, equipment, machinery, and means of transportation.

Foreign and domestic companies may also be exempted from taxes on profits if they have contracts with the GOI to execute projects within the National Investment Plan, which is prepared annually by the Ministry of Planning. The GOI ministries overseeing investment projects are responsible for providing updates for the list of investment contracts to the Tax Commission in the Ministry of Finance. Companies (foreign and domestic) that have registered businesses in order to execute contracts outside the National Investment Plan do not receive tax exemptions. However, in some cases, GOI entities have negotiated partial or short-term tax exemptions for companies as part of a project contract.

Petroleum contracts signed by the Ministry of Oil are not included on this list. Income tax language is included in GOI petroleum contracts and applies to each consortium and its partners. Contract language was ratified by Council of Representatives and supersedes the Tax Code. Secondary contracts issued by consortiums holding primary petroleum contracts are treated differently. The consortium is required to withhold 7 percent from secondary contracts for remittance to the GOI. Companies pay a profit tax in the amount of 15 percent unless they operate in the oil sector where a 35 percent tax profit rate applies to profits. Defining the activities which constitute “petroleum activities” (and are thus subject to 35 percent vs. 15 percent tax rate) is a gray area subject to interpretation. Any business or individual considering doing business in Iraq should obtain competent Iraq tax advice from an accountant or attorney.

Under the IKR’s investment law, foreign and national investors are treated equally and are eligible for the same benefits. Foreign investors may choose to invest in the IKR with or without local partners, and full repatriation of profits is allowed. While investors have the right to employ foreign employees in their projects, priority is given to awarding projects that employ a high share of local staff and ensure a high degree of knowledge transfer. Additionally, the law allows an investor to transfer his investment totally or partially to another foreign investor with the approval of the KBOI.

Foreign Trade Zones/Free Ports/Trade Facilitation

The Free Zone Authority Law No. 3/1998 (FZL) permitted investment in Free Zones (FZ; similar to a U.S. Foreign Trade Zone) through industrial, commercial, and service projects. This law is implemented through the Instructions for Free Zone Management and the Regulation of Investors’ Business No. 4/1999 and is administered by the Free Zones Commission in the Ministry of Finance. Under the law, capital, profits, and investment income from projects in an FZ are exempt from all taxes and fees throughout the life of the project. Goods entering into Iraqi commerce from FZs are subject to normal import tariffs; no duty is levied on exports from FZs.

Activities permitted in Free Zones include: industrial activities such as assembly, installation, sorting, and refilling processes; storage, re-export, and trading operations; service and storage projects and transport of all kinds; banking, insurance, and reinsurance activities; and supplementary and auxiliary professional and service activities. Prohibited activities include actions disallowed by other laws in force, such as weapons manufacture, and environmentally-polluting industries.

Iraq currently has four free zones with tax exemptions and other incentives for the transportation, industrial, and logistics sectors. The Basrah/Khor al-Zubair Free Zone is located 40 miles southwest of Basrah on the Arab Gulf at the Khor al-Zubair seaport. This area has been operational since June 2004. The Ninewa/Falafel Free Zone is located in the north, near roads and railways that reach Turkey, Syria, Jordan, and the Basrah ports. An undeveloped zone in Fallujah is in the planning stages. However, none of these areas is operating as a significant focal point for investment or trade. The Falafel and Fallujah zones are located in ISIS-held areas, and the possibility continued political instability makes further development in the near future unlikely. There is also a Free Zone in Baghdad. The Free Zone Commission lacks capacity and is further inhibited by its being placed under the Ministry of Finance, which lacks a specific mandate to develop the FZs. In the IKR, there are currently no free zones The KRG has approved plans for zones in each of the IKR’s four provinces, however, due to the economic crisis, implementation has ceased.

Performance and Data Localization Requirements

In February 2016, the GOI implemented Labor Law No. 37 which allows for collective bargaining, further limits child labor, and provides improved protections against discrimination at work and sexual harassment at work. The law also enshrines the right to strike, banned since 1987. Under the law, the GOI will no longer restrict workers to affiliate with only one union or federation, and coverage is expanded to include all workers not covered by Iraq’s civil service law. The law describes two categories of workers: local Iraqis and foreign workers employed by Iraqi entities or working in the GOI. The law does not explain how/whether it applies to foreign workers employed by foreign companies in Iraq.

According to the 2015 amended NIL, foreign workers may be hired for investment projects, when needed, after priority has been given to Iraqi workers. However, according to National Investment Regulation No. 2 of 2009, at least 50 percent of an investment project’s workers must be Iraqi nationals. International companies have noted that Iraq lacks a skilled labor force and it can be a challenge to meet this requirement. Foreign investors are expected to help train Iraqi employees to increase their efficiency, skills, and capabilities.

In the IKR, hiring locally is encouraged, but not mandated by either the KRIL or the 2011 Employment Policy of the KRG Ministry of Labor and Social Affairs. In the IKR, foreign employees must obtain a security clearance issued by the KRG Ministry of Interior, a medical clearance which includes an HIV test, and a work permit issued by the KRG Ministry of Labor and Social Affairs before applying for the residency permit required for legal employment. Some foreign companies have reported prolonged delays in obtaining necessary residency permits for foreign workers. Additional clearances are required in order to appoint foreign nationals as managers of foreign-owned limited liability companies.

Foreign investors can apply for an Iraqi visa at Iraqi Embassies, or in some cases, through the National Investment Commission. Obtaining visas for foreign contractors regularly takes several months, and allegations of corruption are commonplace. All visitors and new residents to Iraq, with the exception of those traveling on a tourist visa, must have a blood test for HIV and hepatitis within 10 days of arrival or face a fine. The test must then be repeated every 90 days while in Iraq. Foreign investors staying longer than 10 days must obtain a residency stamp from a Residency Office located in each provincial capital. Once in Iraq, foreign investors and employees must obtain work permits, the process for which is often lengthy and unpredictable. There are frequent instances when work is delayed because foreign employees are unable to receive a visa.

The KRG does not require HIV tests if the travel is shorter than 15 days. U.S. citizens traveling to the IKR can obtain an airport-issued IKR visa upon arrival that is valid for 15 days; however, this visa is not valid for travel outside the IKR in Iraq. U.S. citizens who plan to stay for longer than 15 days require an extension to their IKR visa. Domestic travel outside of the IKR requires an Iraqi visa and compliance with GOI requirements.

Additional information can be found on the U.S. Department of State’s website:

Data Storage

The GOI does not follow any forced localization policy in which foreign investors must use domestic content in their goods and technology. There are no requirements for IT providers to turn over source code and/or provide access to surveillance.

5. Protection of Property Rights

Real Property

Since 2009, Iraqi law allows foreigners to own land. The amended NIL allows foreign interests to own land in Iraq for the express purpose of developing residential real estate projects. It also allows foreign investors to own land for industrial projects if they have an Iraqi partner. Additionally, foreign investors are permitted to rent or lease land for up to fifty years, with an option to renew. In December 2010, the GOI approved implementing regulations to the NIL, in the form of a Prime Ministerial decree (regulation seven). The regulations allow investors to obtain land for residential housing projects free of charge on the condition that land value is excluded from the sales price. The decree requires the Department of Real Estate to revoke the land registration from domestic or foreign investors who do not carry out the obligations of their agreement.

For non-residential, commercial investment projects – including agriculture, services, tourism, commercial, and industrial projects – the decree allows for leasing and allocation of government land, but not sole ownership. The terms and duration of these leases will vary, depending on the type of project and negotiations between the parties. Land for non-residential projects will be leased free of initial down payment, and compensation will be either a percentage of pre-tax revenue or a specified percentage of the “rent allowance” for the land. These smaller percentages of the “rent allowance” rate, ranging from one to 25 percent, amount to significant rent reductions for leased land, as specified by type of investment project in the decree

In the IKR, foreign land ownership is allowed under Law Number 4 of 2006. The KBOI initially awarded more than half of all investment licenses to housing projects, though the lack of a clear sector strategy and speculation in housing properties prompted the board to freeze all new investment licenses issued in the sector in mid-2012. Investment licenses that include land ownership are more likely to be issued in the KBOI’s priority sector development areas of agriculture, industry, and tourism. However, issues regarding timely transfer of land title have sometimes slowed projects.

Mortgages and liens exist in Iraq, and there is a national record system. However, mortgages are not common. Iraq ranks 115 out of 189 countries on the 2016 World Bank’s “registering property” index.

Intellectual Property Rights

Legal structures that protect intellectual property (IP) rights in Iraq are inadequate, and infringements are common. There is a significant presence of counterfeit products in the Iraqi marketplace. According to a 2014 study by the Business Software Alliance on self-reported piracy, 86 percent of Iraq’s software was unlicensed in 2013. Both private and state-owned-enterprises have reported losing tenders to competitors who stole their blue-prints. These complaints pertained to tenders in the oil, housing, and construction sectors. During the past year, no new IP-related laws or regulations have been enacted. The GOI attempts to track seizures of counterfeit medicines. Reporting is inconsistent.

The GOI’s ability to enforce IP protections remains weak, and IP responsibilities are currently spread across several ministries. The Ministry of Culture handles copyrights, and the Ministry of Industry and Minerals (MIM) houses the office that registers trademarks. The Central Organization on Standards and Quality Control (COSQC), an agency under the Ministry of Planning, handles the patent registry and the industrial design registry. The Ministry of Planning’s patent registry office has occasionally included Arab League Israel Boycott questionnaires in the patent registry application. U.S. companies are not allowed under U.S. law to complete Arab League Boycott questionnaires.

A draft IP law which would comply with the WTO Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) has been stalled in the legislative review process since mid-2007.

The U.S. Government is continuing efforts to bolster understanding of intellectual property rights and build GOI capacity to protect them. In June 2012, the Federal Court of Cassation, the highest civil court in Iraq, upheld a finding by the Baghdad Commercial Court that ruled in favor of a U.S. firm in a trademark dispute, setting a positive precedent for IP protection in Iraq. The Commercial Court has jurisdiction over commercial disputes that involve at least one foreign party and disputes over various commerce-related issues including trade, real estate, banking, trademarks and intellectual property, transportation, and other areas. It was established in November 2010 under the Higher Judicial Council with the assistance of the U.S. Department of Commerce’s Commercial Law Development Program, which provided technical assistance and training to Iraqi judges who serve on the court.

Iraq is a signatory to several international intellectual property conventions and to regional or bilateral arrangements, which include: 1) the Paris Convention for the Protection of Industrial Property (1967 Act), ratified by Law No. 212 of 1975; 2) the World Intellectual Property Organizations (WIPO) Convention, ratified by Law No. 212 of 1975. Iraq became a member of the WIPO in January 1976; 3) the Arab Agreement for the Protection of Copyrights, ratified by Law No. 41 of 1985; and 4) the Arab Intellectual Property Rights Treaty (Law No. 41 of 1985).

Iraq is not listed in USTR’s Special 301 report or notorious market report.

Resources for Rights Holders

The Ministry of Culture, Head of Intellectual Property Committee, Dr. Alaa Abo Alhassan, Email, tel. (964) 790 110 9031 (964) 790 189 6288.

Central Organization for Standardization and Quality Control (COSQC), Industrial Property Department Registrar of Patents and Industrial Designs, Mr. Saad Abdul Wahab Abdul Gader and Director General of Technical and Administrative Department, Ms. Hiyam Neamat Mahmod, Head of Industrial Property Section, Mr. Wisam Saeed Asi, all can be reached by the email at

National Center for the Protection of Copyright and Related Rights, which is part also of the Ministry of Culture,

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at .

A copy of the public list of local lawyers can be obtained by emailing

The American Chamber of Commerce in Iraq can be reached at:

6. Financial Sector

Capital Markets and Portfolio Investment

Iraq remains one of the most under-banked countries in the Middle East. The Iraqi banking system includes seven state-owned banks, with the three largest, Rafidain, Rasheed, and TBI, account for roughly 85 percent of Iraq’s banking sector assets). Rafidain and Rasheed offer standard banking products but primarily provide pension and government salary payments to individual Iraqis. Nearly 20 foreign banks either have licensed branches in Iraq or have strategic investments in Iraqi banks. By law, the Central Bank may only exchange currency to be used for purchases of legitimate goods and services.

Iraq’s economy remains primarily cash-based. Credit is difficult and expensive to obtain. Iraq ranks 181 out of 190 in terms of the ease of getting credit on the World Bank’s 2017 Doing Business Report. Although the volume of lending by privately owned banks is growing, most privately-owned banks do more business providing wire transfers and other fee-based exchange services than lending. Businesses are largely self-financed or obtain credit from individuals in private transactions. State-owned banks mainly make financial transfers from the government to provincial authorities or individuals, rather than business loans.

The main purpose of the Trade Bank of Iraq (TBI) is to provide financial and related services to facilitate trade, particularly through letters of credit (LCs). In 2009, the Ministry of Finance opened the government LC market by granting private banks permission to issue LCs below USD 4 million. The ceiling was later raised to USD 10 million. Virtually all government LCs are processed by the TBI, which has stated that it transfers a number of LCs under $5 million USD to private banks.

The NIL allows foreign investors to purchase shares and securities listed in the Iraqi Stock Exchange (ISX), and the GOI welcomes foreign portfolio investment.

Money and Banking System

The GOI has had little success reforming its two largest state-owned banks, Rafidain and Rasheed, however banking sector reform is an upcoming priority of Iraq’s IMF and World Bank programs. Private banks are mostly active in currency exchanges and wire transfers, though activity supporting SMEs has increased over the last year. The CBI is Iraq’s central bank, headquartered in Baghdad, with a branch in Basrah. The CBI is working to reopen official branches in Erbil and Sulaimaniyah. The Iraqi Kurdistan Region also has a separate public banking system connected to the regional government.

Foreign Exchange and Remittances

Foreign Exchange

The currency of Iraq is the Dinar (IQD). Iraqi authorities confirm that in practice there are no restrictions on current and capital transactions involving currency exchange as long as underlying transactions are supported by valid documentation. The NIL allows investors to repatriate capital brought into Iraq, along with proceeds. Funds can be associated with any form of investment and freely converted into any world currency. The NIL also contains provisions that allow investors to maintain accounts at banks licensed to operate in Iraq and transfer capital inside or outside of the country.

The GOI’s monetary policy since 2003 has focused on ensuring price stability primarily by maintaining a de facto peg between the IQD and the USD while seeking to maintain exchange rate predictability through supplying USD to the Iraqi market. Banks may engage in spot transactions in any currency but are not allowed to engage in forward transactions in Iraqi Dinar for speculative purposes. There are no taxes or subsidies on purchases or sales of foreign exchange.

Remittance Policies

There have not been any recent changes to Iraq’s remittance policies. Foreign nationals are allowed to remit their earnings, including U.S. dollars, in compliance with Iraqi law. Iraq does not engage in currency manipulation. Iraq is listed as a Country of Primary Concern according to the Financial Action Task Force (FATF).

Sovereign Wealth Funds

Iraq does not have a sovereign wealth fund.

7. State-Owned Enterprises

State-owned enterprises (SOEs) are active across all sectors in Iraq. GOI ministries currently own and operate over 192 SOEs, a legacy of the state planning system. Many Iraqi SOEs are unproductive, and the GOI’s continued support of unprofitable entities places a substantial fiscal burden on Iraq. These firms employ over half a million Iraqis, many of whom are underemployed. The degree to which SOEs compete with private companies varies by sector; SOEs face the most competition in the market for consumer goods. The GOI has expressed a commitment to reforming the SOEs and taking steps toward privatization as part of its international financing programs.

Law 22 of 1997 and the NIL provide the regulatory framework for the operations of SOEs and joint ventures between foreign companies and SOEs. Law 22 is complex, and several articles are ambiguous regarding the rights and privileges that SOEs enjoy. Article 15.3 of Law 22 allows Iraqi SOEs to engage in partnership agreements or joint ventures with foreign companies. However, the lack of clarifying regulations has created difficulty in implementation. Ministries have faced challenges in reviewing partnership agreements without sufficient criteria to determine if the agreements would be effective or successful. When parent ministries wish to initiate a joint partnership for an SOE under their purview, they generally advertise the tender on their ministry’s website. Joint partnerships are negotiated on a case-by-case basis, and the minister’s approval is required. The Ministry of Industry and Minerals (MIM), which oversees the largest number of Iraq’s SOEs, received the Council of Ministers’ approval in 2013 to institute the following requirements for joint partnerships: 1) change the required minimum duration to three years; 2) add a requirement that the foreign company register a company office in Iraq; and 3) add a requirement that the foreign company participate in the production of goods.

According to the Prime Minister’s Advisory Council, foreign companies have faced challenges in joint partnerships because the GOI has at times cut subsidies to the SOE after partnerships were formed, the employment policies and salary decisions were dictated by the parent ministry, and gaps between the GOI’s official policy and practices affected their bottom line. In addition, the MIM has often required that the foreign investor pay all SOE employees’ salaries regardless of whether they are working on the agreed project.

GOI entities are required to give preferential treatment to SOEs under multiple laws. A 2009 Council of Ministers’ decision requires all Iraqi government agencies to procure goods from SOEs unless the SOE cannot fulfill the quality and quantity requirements of the tender. A Board of Supreme Audit decision requires government agencies to award SOEs tenders if the SOE’s bid is no more than 10% higher than other bids. Furthermore, some GOI entities, including the MIM, have also issued their own internal regulations requiring tenders to select Iraqi SOEs, unless the Iraqi SOE states that it cannot fulfill the order. Sometimes a foreign firm must form a partnership with an Iraqi firm to fulfill tenders promulgated by SOEs.

State-owned banks have provided SOEs with approximately $11 billion USD in loans in order to finance salaries since 2003, although many SOEs that received these loans were unable to repay; SOEs also receive research and development subsidies. Under Article 16 of the 2008 Regulations for Implementing Government Contracts (Law No. 1), SOEs are exempt from bid bond and performance bond requirements. While the Iraqi budget outlines the funds that the SOEs will receive, both for operational costs as well as for salary payments, the SOEs do not always receive the exact figure allocated. As a result of years of sanctions and war, most of these SOEs suffer from sclerotic management and dependence on GOI contracts. Many of them are not commercially viable due to bloated payrolls and obsolete equipment, although some have adapted and are producing goods for the domestic market.

In 2015, the MIM developed a plan to restructure its 59 SOEs. Under the proposed plan, the MIM would rate SOEs based on their profitability and degree of government dependence. Unprofitable SOEs that are unable to cover payroll obligations would be sold or shutdown. However, no action to implement this plan has been undertaken. Article 14 of the 2017 Federal General Budget Law expanded of the potential role of private investment in SOE reform, giving governorates the mandate to expand partnerships with the private sector “as much as possible” with approval of the governorate’s council.

Iraq is not party to the Government Procurement Agreement within the framework of the WTO.

Articles 20-25 of Law 22 specify the selection process of an SOE’s Board of Directors. The law includes provisions to introduce a degree of autonomy. For example, it requires that the minister’s sole appointment to the Board of Directors receive the approval of an “Opinion Board.” Nevertheless, in practice, the majority of board members have close personal and political connections to the parent ministry’s leadership.

SOEs do not adhere to OECD Guidelines. Iraq does not have a centralized ownership entity that exercises ownership rights for each of the SOEs. SOEs are required to seek their parent ministry’s approval for certain categories of financial decisions and operation expansions. However, in practice, SOEs defer to the parent ministry for the vast majority of decisions. SOEs submit financial reports to their parent ministry’s audit departments and the Board of Supreme Audit. These reports are not published and sometimes exclude salary expenses.

Privatization Program

The GOI has repeatedly announced that it plans to reorganize failing SOEs across multiple sectors. Additionally, the GOI is eager to modernize Iraq’s financial and banking institutions. There are, however, no concrete timelines for these initiatives, and entrenched patronage networks tying SOEs to ministries remain a stumbling block. Presumably, foreign investors would have an opportunity to invest in privatization projects. The IMF Stand-By Arrangement requires the Government of Iraq to conduct an audit of state-owned banks and the World Bank’s Development Policy Loan requires Iraq to audit SOEs.

8. Responsible Business Conduct

The international oil companies active in Iraq are required to observe international best practices in corporate social responsibility (CSR) as part of their contracts with the GOI. Nevertheless, the GOI does not have policies in place to promote CSR and raise awareness of environmental and social issues among investors. The concept of CSR is not widely recognized in Iraq and few NGOs and business associations are monitoring it. Iraq has not subscribed to the OECD’s Guidelines for Multinational Enterprises. As security and business conditions improve in Iraq, awareness of CSR is likely to increase.

In the IKR, oil companies are mandated in their production sharing contracts with the KRG to give back to the communities in which they work. Agreements require yearly payments from which the KRG Ministry of Natural Resources (MNR) then prioritizes and allocates funds for capacity-building projects.

According to the amended 2015 NIL, investors are required to protect the environment and adhere to quality control systems. These include soil testing requirements on the land designated for the project as well as conducting an environmental impact study. In practice, the GOI lacks a mechanism to enforce environmental protection laws and implementation is limited.

Iraq became a member of the Extractive Industries Transparency Initiative (EITI) in 2009. The Government of Iraq established a 15-person committee to work on EITI, including several Directors General within the Ministry of Oil, four representatives from NGOs, as well as oil company executives. The committee has provided required reports through 2013. Due to budgetary constraints, the Ministry of Oil did not allocate funds to the Committee in 2015 or 2016 and transparency awareness trainings have stalled. On February 21, 2017, the World Bank approved a $350,000 program to assist Iraq with carrying out its EITI obligations.

9. Corruption

Iraq ranked 166 out of 176 on Transparency International’s 2016 Corruption Perception Index. Public corruption is a major obstacle to the development of Iraq’s economy and to political stability. Corruption is pervasive in government procurement, in the awarding of licenses or concessions, dispute settlements, and in Iraq’s customs regime.

Targeting corruption has been a key element of Prime Minister Abadi’s reform agenda, and public protests throughout the country continue to call for the removal of corrupt officials. The Prime Minister formed a committee in January 2015 to approve and coordinate anti-corruption efforts that includes the Commission of Integrity (COI) Acting Commissioner, the Minister of Finance, the Minister of Planning, the President of the Board of Supreme Audit, and the Council of Ministers Secretary (COMSEC) Secretary General. In 2016 Prime Minister Abadi dismissed the Minister of Trade Malas Abdulkareem for corruption and for not showing up to work at the Ministry for more than 30 days. The parliament also questioned the Minister of Defense Khalid Al-Obaidi, dismissing him on corruption allegations on August 25, 2016. Minister of Finance, Houshar Zebari was also dismissed on September 21, 2016 after being accused of corruption. In theory, anticorruption laws apply to all citizens of Iraq. In practice, there are many anecdotal accounts that suggest government officials and their family members are frequently involved in corrupt practices. According to UNDP data, 95 percent of bribery incidents go unreported.

While large-scale investment opportunities exist in Iraq, particularly for sophisticated investors, corruption remains a significant impediment to conducting business, and foreign investors can expect to contend with corruption in many forms, and at all levels. While the GOI has moved toward greater effectiveness in reducing opportunities for procurement corruption in sectors such as electricity, oil, and gas, credible reports of corruption in government procurement are widespread, with examples ranging from bribery and kickbacks to awards involving companies connected to political leaders. Investors may come under pressure to take on well-connected local partners to avoid systemic bureaucratic hurdles to doing business. Similarly, there are credible reports of corruption involving large-scale problems with government payrolls, ranging from “ghost” employees and salary skimming to nepotism and patronage in personnel decisions. Moving goods into and out of the country continues to be difficult, and bribery of port officials is commonplace; Iraq ranks 179 out of 190 countries in the category of “Trading Across Borders” in the World Bank’s 2017 Doing Business report.

U.S. firms frequently identify corruption as a significant obstacle to foreign direct investment, particularly in government contracts and procurement, as well a performance requirements and performance bonds.

There are three principal institutions specifically designated to address the problem of corruption in Iraq. CPA Order 57 established Inspectors General (IGs) for each of Iraq’s ministries. Similar to the role of IGs in the U.S. Government, these offices are responsible for inspections, audits, and investigations within their ministries. The Commission of Integrity (COI), initially established under the Coalition Provisional Authority (CPA), is an independent government agency responsible for pursuing anti-corruption investigations, upholding enforcement of laws, and preventing crime. The COI investigates government corruption allegations and refers completed cases to the Iraqi judiciary. COI Law No. 30, passed in 2011, updated the CPA provisions by granting the COI broader responsibilities and jurisdiction through three newly created directorates: asset recovery, research and studies, and the Anti-Corruption Academy. None of these organizations are an effective check on public corruption.

The Board of Supreme Audit (BSA), established in 1927, is an analogue to the U.S. Government’s General Accountability Office. It is a financially and administratively independent body that derives its authority from Law 31 of 2011 – The Law of the Board of Supreme Audit. It is charged with fiscal and regulatory oversight of all publicly-funded bodies in Iraq and auditing all federal revenues, including any revenues received from the IKR.

Neither the COI nor the IGs have effective jurisdiction within the IKR. The Kurdistan Board of Supreme Audit audits regional revenues with Iraqi Kurdistan Parliament’s (IKP) oversight. The IKP passed the Commission on Public Integrity (Law Number 3) in 2011, which established a regional Commission of Integrity (KCOI) that began its work in late 2013. The IKP passed an amendment to the law in May 2014 that gave the KCOI increased jurisdiction over other branches of government, and made the KCOI responsible for investigating money laundering. The Commission launched an initiative in early 2014 to collect financial declaration forms from public officials at the director general-level and above. They received a 95 percent response rate and have begun to check the disclosure documents against other public records. In 2016 the Office of the IKR President referred 91 cases to the KCOI.

Iraq is a party but not a signatory to the UN Anticorruption Convention. Iraq is not a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

Resources to Report Corruption

According to Iraqi law, any person or legal entity has the right to submit corruption-related complaints to the COI or the Inspector General of the GOI ministry or body engaging in corruption.

Commission for Integrity

Department of Complaints and Reports
Mobile: 07901988559
Landline: 07600000030

10. Political and Security Environment

Numerous insurgent groups, including ISIS, remain active and terrorist activity and violence persists in many areas of the country. Although the GoI has liberated more than 60% of previously captured territory, ISIS continues to control the western half of Mosul, Iraq’s second largest city, as well as parts of Anbar and Ninewa provinces. Terrorist attacks within the IKR occur less frequently than in other parts of Iraq, although the KRG, U.S. Government facilities, and western interests remain possible targets, as evidenced by the April 17, 2015 bombing in the public area outside U.S. Consulate General Erbil. In addition, anti-U.S. sectarian militias may threaten U.S. citizens and western companies throughout Iraq.

The U.S. Government considers the potential threat to U.S. Government personnel in Iraq to be serious enough to require them to live and work under strict security guidelines. State Department guidance to U.S. businesses in Iraq advises the use of protective security details. Detailed security information is available on the U.S. Embassy website: Some U.S. and third-country business people travel throughout much of Iraq; however, in general their movement is restricted, and most travel with security advisors and protective security teams.

11. Labor Policies and Practices

Iraq continues to face a high level of violence and insecurity, high unemployment, a large informal sector, lack of satisfactory work standards, and a large unskilled labor force. Domestic and foreign investors often cite the lack of skilled Iraqi labor as one of the major impediments to investing in Iraq. Political instability and violence have led many highly-educated Iraqis to leave the country. The war against ISIS and the displacement of more than 3.3 million Iraqis have further disrupted local employment, although reliable data is not available. Due to their dislocation, most internally displaced persons (IDPs) have been unable to find jobs or pursue livelihood activities that would provide substantial support for their families. Female IDPs were increasingly vulnerable to economic exploitation and discriminatory employment conditions.

In 2015, the UNDP estimated the unemployment rate at 15.3 percent and noted that unemployment among Iraqi youth with higher education was above the national youth unemployment average. Employment in the agricultural sector represented 23.4 percent and employment in the services sector represented 58.3 percent of all employment. According to UNDP data from 2014, the government accounted for 40 percent of all jobs, with a higher percentage in urban areas (45 percent) than in rural areas (28 percent). While accounting for 65 percent of Iraq’s GDP and over 90 percent of government revenue, the oil sector currently employs only 1 percent of the total labor force.

According to the 2015 amended NIL, foreign workers may be hired for investment projects, when needed, after priority has been given to Iraqi workers. However, according to National Investment Regulation No. 2 of 2009, at least 50 percent of an investment project’s workers must be Iraqi nationals. International companies have noted that it can be a challenge to meet this requirement. As a result, foreign investors tend to rely on foreign workers. Foreign investors are expected to help train Iraqi employees to increase their efficiency, skills, and capabilities. In the IKR, hiring locally is encouraged but not mandated by either the KRIL or the 2011 Employment Policy of the KRG Ministry of Labor and Social Affairs. In the IKR, foreign employees must obtain a security clearance issued by the KRG Ministry of Interior and a work permit issued by the KRG Ministry of Labor and Social Affairs before applying for the residency permit required for legal employment. Some companies have reported prolonged delays in obtaining necessary residency permits for foreign workers.

The Iraqi Constitution states that citizens have the right to form and join unions and professional associations, but it does not permit independent unions. Iraq is a party to both ILO conventions related to youth employment, including child labor. Iraqi labor laws also regulate working conditions and prohibit all forms of forced or compulsory labor, including by children. However, the GOI has not effectively monitored or enforced the law, which has resulted in unacceptable working conditions for many workers.

In February 2016, the GOI implemented a new labor law that was drafted with the assistance of the International Labor Organization (ILO) and is more consistent with current international standards. Labor Law No. 37 allows for collective bargaining, further limits child labor, and provides improved protections against discrimination at work. For the first time, the labor law addresses sexual harassment at work and provides protection against it. The law also enshrines the right to strike, banned since 1987. Under the law, the GOI will no longer restrict workers to affiliate with only one union or federation, and coverage is expanded to include all workers not covered by Iraq’s civil service law.

The new labor law was not implemented in the IKR, and the KRG continues to use the 1987 labor law. A draft labor law is pending in the Iraqi Kurdistan Parliament, which disbanded in October 2015, due to IKR inter-party disagreements, and has yet to reconvene. Although strikes are still nominally banned in the IKR, there were reports of strikes by union members without interference from the KRG. For example, teachers, hospital workers, traffic police and other civil servants have demonstrated numerous times since salary payments were delayed in August 2014, subsequently reduced in January 2015, and delayed again through the latter half of 2015. Salary payment delays continued throughout 2016. Teachers’ strikes paralyzed the public school system and were felt most acutely in Sulaimaniya, where students did not attend classes from September 2016 to January 2017.

The Ministry of Labor and Social Affairs (MOLSA) sets a minimum monthly wage for unskilled workers. The private sector sets wages by contract, and the GOI sets wages for those working in the public sector. The Council of Ministers approved changes to the public sector pay scale, which took effect in January 2015, to reduce the pay gap between low- and high-ranking employees. The changes also reduced wage disparities among government ministries and canceled extra wages issued to employees in Baghdad’s International Zone. According to Iraqi law, all employers must provide some level of transport, accommodation, and food allowances for each employee. The law does not fix these allowance amounts. In December 2013 the government launched a Social Safety Net program to assist the unemployed and persons with disabilities in gaining access to financial aid and benefits from the government; at its inception the program covered more than one million persons.

12. OPIC and Other Investment Insurance Programs

OPIC’s current outstanding commitment in Iraq in loans and insurance is $140 million with an additional $40 million in loans yet to be disbursed. OPIC is currently reviewing a number of project proposals, primarily in the health care, tourism and housing sectors, and an expansion of a successful microfinance project. The Investment Incentive Agreement (IIA) between the United States and the GOI provides the basis for OPIC to provide financing and political risk insurance in Iraq. OPIC has one investment project in the IKR and has provided funding for a small and medium-sized enterprise credit organization.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

The GOI collects and publishes limited statistics with which to compare international and U.S. investment data. The NIC and Provincial Investment Commissions (PIC) granted 25 licenses in 2013, the latest statistics available, with a total potential value of USD 2.6 billion. These licenses were for projects in Baghdad in addition to Basrah, Muthanna, Dhi Qar, Najaf, and Babil provinces. Approximately half of these licenses were for housing development projects, a third were for industrial projects, and the remainder was for service and agricultural projects. However, an investment license from the NIC or a PIC does not mean that the proposed investment will be implemented. The total potential value of all licenses granted by the NIC and PICs is approximately $50 billion.

In the IKR, the KBOI granted 14 licenses in 2016, with a total potential value of $1.6 billion. The granting of a license by the KBOI does not mean that the proposed investment will be implemented. Of the 14 licenses granted, six were for projects in Erbil Province. Six more were granted for Dohuk Province, and two were granted for Sulaimaniya Province.

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Host Country Statistical Source USG or international Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2016 N/A 2016 $174 billion 
Foreign Direct Investment Host Country Statistical source USG or International Statistical Source USG or international Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2016 N/A 2016 N/A N/A
Host country’s FDI in the United States ($M USD, stock positions) 2016 N/A 2016 N/A N/A
Total inbound stock of FDI as % host GDP 2016 N/A 2016 N/A N/A

Table 3: Sources and Destination of FDI

Data not available.

Table 4: Sources of Portfolio Investment

Data not available.

14. Contact for More Information

Embassy Baghdad Economic Section
Al-Kindi Street, International Zone, Baghdad
+1-301-985-8841 x3015


Executive Summary

The Government of Nicaragua is actively seeking to increase economic growth by supporting and promoting foreign investment. The government emphasizes its pragmatic management of the economy through a model of consensus and dialogue with private sector and labor representatives. A key draw for investors is Nicaragua’s relatively low-cost and young labor force, with approximately 75 percent of the country under 39 years old. Additionally, the country’s relative physical safety compares favorably with other countries in Central America. Nicaragua is a party to the Central America-Dominican Republic Free Trade Agreement (CAFTA-DR) and enjoys a strong trade relationship with the United States.

To attract investors, Nicaragua offers significant tax incentives in many industries, including mining and tourism. These include exemptions from import duties, property tax incentives, and income tax relief. The country has a well-established free trade zone regime with major foreign investments in textiles, auto harnesses, medical equipment, call centers, and back office services. The construction sector has also attracted significant investment, buoyed by major infrastructure and housing projects, as well as the telecommunications sector, which resulted in enhanced mobile phone and broadband coverage. The country’s investment promotion agency, ProNicaragua, is a well-regarded and effective facilitator for foreign investors. In October 2016, the Government of Nicaragua passed a Public-Private Partnership Law to facilitate infrastructure development.

Weak governmental institutions, deficiencies in the rule of law, and extensive executive control can create significant challenges for those doing business in Nicaragua, particularly smaller foreign investors. Many individuals and entities raise concerns about customs and tax operations in particular. The Embassy continues to hear accounts from U.S. citizens seeking redress for property rights violations and has raised concerns to the Government of Nicaragua about the infringement of private property rights affecting U.S. citizens.

Presidential elections held in 2016 further concentrated power, with an authoritarian executive branch exercising significant control over the legislative, judicial, and electoral functions. A bill was introduced in the U.S. Congress in April 2017 (H.R. 1918) which would prohibit the United States from supporting international financial institution loans to Nicaragua due to these shortcomings. Large-scale investors and firms with positive relations with the ruling party are advantaged in their dealings with government bureaucracy. There is a widespread perception that the judicial sector and police forces are politicized and are subject to external influence. Additionally, the important presence of state-owned enterprises and firms owned or controlled by government officials and members of the ruling party reduces transparency and can put foreign companies at a disadvantage.

Table 1

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2016 145 of 176
World Bank’s Doing Business Report “Ease of Doing Business” 2016 127 of 190
Global Innovation Index 2016 116 of 128
U.S. FDI in partner country ($M USD, stock positions) 2015 USD $183
World Bank GNI per capita 2015 USD $1,940

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The Government of Nicaragua actively seeks to attract foreign direct investment as one of its primary tools to generate economic growth and increase employment. Many of the investment incentives are designed to attract export-focused companies that require large amounts of unskilled or low-skilled labor.

The Government of Nicaragua emphasizes and encourages ongoing dialogue with investors through ProNicaragua and local Chambers of Commerce. ProNicaragua is the country’s investment and export promotion agency and helps facilitate foreign investment. The agency provides a range of services, including information packages, investment facilitation, and prospecting services to interested investors. It is a well-regarded institution and has been recognized by international organizations as among the most effective investment promotion agencies in the region. However, business leaders believe its authority has weakened over the past year. For more information, see .

ProNicaragua is actively promoting investments in the following sectors: food processing and packaging, textiles, apparel and sporting goods, automotive and ground transportation, environmental technologies, and services. Additional government incentives also exist in the mining and energy sectors. As part of a power generation expansion plan, the government announced a number of clean energy projects that will be open to foreign investment. However, the government controls a pricing band on electricity produced from renewable technologies which currently discourages renewable energy investment. All investment incentives and promotions are disseminated by ProNicaragua.

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. Domestic air transportation and television broadcasting also has certain limits on foreign ownership.

Nicaragua allows foreigners to be shareholders of local companies, but a company representative must be a national 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 three months and require in-person interviews in Managua.

The Government of Nicaragua 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 remains unclear and opaque.

Other Investment Policy Reviews

In the past three years, the Government of Nicaragua has not undergone any third-party investment policy reviews through multilateral organizations such as the Organization for Economic Co-operation and Development (OECD), World Trade Organization (WTO), or the United Nations Conference on Trade and Development (UNCTAD).

Business Facilitation

Nicaragua does not have an online business registration system. At a minimum, a company must typically register with the national tax administration, social security administration, and local municipality. According to the Ministry of Industrial Development and Trade (MIFIC), the process to register a business takes a minimum of 13 days. Establishing a foreign-owned limited liability company (LLC) takes 42 days, and one of the legal representatives of the company must be a resident of Nicaragua. There is no regime allowing simplified business creation without a notary. MIFIC has established single window offices (Ventanilla Unica) in several cities in Nicaragua to assist with business registration.

Outward Investment

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

2. Bilateral Investment Agreements and Taxation Treaties

Nicaragua has signed and ratified bilateral investment treaties with Argentina, Chile, the Czech Republic, Denmark, Finland, France, Germany, Italy, the Netherlands, the Russian Federation, South Korea, Spain, Switzerland, and the United Kingdom. Nicaragua also has treaties with investment provisions with Canada, Mexico, Panama, Taiwan, and CAFTA-DR member states. Nicaragua does not have a bilateral income tax treaty with the United States or any other country.

In November 2016, Nicaragua and four other Central American countries signed a free trade agreement with South Korea. The agreement eliminates tariffs on about 95 percent of goods within ten years of implementation. The treaty has not yet entered into force.

3. Legal Regime

Transparency of the Regulatory System

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. Lack of a reliable means to resolve disputes with government administrative authorities or business associates quickly results in some disputes becoming intractable. The vast majority of companies in Nicaragua have little accounting and few adhere to internationally accepted accounting standards. The Government of Nicaragua does not have transparent policies to establish clear “rules of the game.”

Companies report that personal connections and affiliation with industry associations and chambers of commerce are critical to navigate the country’s regulatory system. These channels tend to disfavor smaller investors and businesses. Ultimate rule-making and regulatory authority resides in the executive branch. Though municipal and ministerial authorities may enact decisions relevant to foreign businesses, all actions are subject to de facto approval by the Presidency.

Draft legislation is ostensibly made available for public comment through meetings with associations that will be affected by the proposed regulations. However, not all information is published on official websites and the legislature is not required by law to give notice. Draft texts may be distributed directly to stakeholders the government deems impacted by the legislation. The ruling Sandinista party has a super majority in the National Assembly, and the legislative branch has little power to modify legislation proposed by the Executive. The Superior Council of Private Enterprise (COSEP) is the main private sector interlocutor with the Government of Nicaragua and generally has the opportunity to review and comment on draft legislation affecting investment and regulation matters.

Key regulatory actions are published in La Gaceta, the official journal of government actions in Nicaragua, including official summaries and the full text of all legislation. There are limited oversight or enforcement mechanisms to ensure the government follows administrative processes.

International Regulatory Considerations

All CAFTA-DR provisions are fully incorporated into Nicaragua’s national regulatory system. Nicaragua is a member of the WTO and notifies draft technical regulations to the WTO Committee on Technical Barriers to Trade.

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. Difficulty in resolving commercial disputes, particularly the enforcement of contracts, remains one of the most serious drawbacks to investment in Nicaragua. The legal system is weak and cumbersome. Members of the judiciary, including those at senior levels, are widely believed to be corrupt and are subject to significant political pressure, especially from the executive branch. A commercial code and bankruptcy law exist, but both are outdated and rarely used. While regulations and enforcement actions are technically appealable through judicial review, these procedures are not viewed as reliable.

The Nicaraguan Chamber of Commerce and Services founded in 2008 its Mediation and Arbitration Center with from the U.S. Agency for International Development (USAID). However, only large companies use this type of service due to cost and unfamiliarity with mediation and arbitration.

Laws and Regulations on Foreign Direct Investment

CAFTA-DR entered into force on April 1, 2006, for the United States and Nicaragua. The CAFTA-DR Investment Chapter 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 .

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

In October 2016, the Government of Nicaragua passed a Public-Private Partnership Law (2016/935) that establishes a framework for collaboration with private companies in the design, construction, and management of public investments. The law further stipulates competitive and transparent bidding procedures for all public-private initiatives. The government hopes to attract private investment for several large infrastructure projects and water and sanitation investments through this initiative over the next five years, but the overall impact of the new law remains unclear.

MIFIC maintains an information portal regarding applicable laws and regulations for trade and investment at . Foreign and national investors can find detailed information on administrative procedures applicable to investment and income generating operations including the number of steps, name and contact details of the entities and persons in charge of procedures, required documents and conditions, costs, processing time and legal bases justifying the procedures. The site is available only in Spanish.

Competition and Anti-Trust Laws

The Competition Promotion Law (2007/601) established the Institute for the Promotion of Competition (Procompetencia), to investigate and discipline businesses engaged in anticompetitive business practices, including price fixing, dividing territories, exclusive dealing, and product tying. Procompetencia does competent research but has no effective power. In October 2016, Procompetencia opened an investigation into price manipulation by four beef slaughterhouses after a formal complaint was filed by industry and consumer representatives. The investigation is ongoing and a ruling is expected by mid-2017.

Expropriation and Compensation

During the 1980’s, the Government of Nicaragua confiscated approximately 28,000 properties in Nicaragua. Owners were often not compensated even though the right to compensation is recognized by law. Since 1990, thousands of U.S. citizens filed claims against the government to have their property returned or receive compensation through the administrative process established to address these claims. Section 527 of the Foreign Relations Authorization Act in 1994 threatened meaningful foreign assistance funding restrictions in response to outstanding property claims. In August 2015, the last of these claims was resolved. However, the Embassy continues to hear accounts from U.S. citizens seeking redress for property rights violations which were not covered by this legislation. The Embassy raises concerns to the government about infringement of private property rights affecting U.S. citizens.

Some U.S. citizens report difficulties exercising property rights due to lack of government action, such as failure by local authorities to remove illegal occupants or long unexplained delays in government authorities’ performing basic duties such as cadastral surveys or issuance of documents needed by property owners. U.S. citizens have also encountered challenges executing and enforcing final court orders. The U.S. Government received reports of excessive government action, such as U.S. citizens having been subjected to false accusations as part of efforts to take their properties, including threats to incarcerate those who do not voluntarily surrender property. The U.S. Government continues to advocate that the government resolve all outstanding property claims and improve its overall investment and business climate. U.S. citizens who wish to report an expropriation or confiscation of their property by government authorities may contact

In June 2013, the Government of Nicaragua granted a 100-year concession to Hong Kong Nicaragua Canal Development Investment Company Limited (HKND) to seek funds to build a canal through Nicaragua. This concession included a law that allows the Canal Authority to expropriate any land needed for canal purposes, including land and property outside the proposed canal route. The Nicaraguan law that grants the canal concession states that property owners will be paid at “cadastral value,” which U.S. investors fear will be below fair market value and in violation of the Government of Nicaragua’s obligations under CAFTA-DR. The U.S. Embassy in Managua has repeatedly reminded government officials of Nicaragua’s obligation under CAFTA-DR Investment Chapter to pay prompt, adequate, and effective compensation when expropriating property for a public purpose as well as the need for an open and transparent process for the Canal design and development.

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). The Government of Nicaraguasigned the 1958 New York Convention on the recognition and enforcement of foreign arbitration awards in 2003. There is no specific domestic legislation providing for enforcement under the 1958 New York Convention or for the enforcement of awards under the ICSID 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. To date, there have been no claims by U.S. investors under this agreement.

International Commercial Arbitration and Foreign Courts

The Mediation and Arbitration Law (2005/540) establishes the legal framework for alternative dispute resolution. The Nicaraguan Chamber of Commerce and Services founded Nicaragua’s Mediation and Arbitration Center. Arbitration clauses should be included in business contracts, but legal experts are uncertain whether local courts would enforce awards resulting from international or local proceedings.

Enforcement of court orders is frequently subject to non-judicial considerations. Courts routinely grant injunctions (“amparos”) to protect citizen rights by enjoining official investigatory and enforcement actions indefinitely. Foreign investors are at a disadvantage in disputes against nationals with political or personal connections. Misuse of the criminal justice system sometimes results in individuals being charged with crimes arising out of civil disputes, often to pressure the accused into accepting a civil settlement.

Dispute resolution is even more difficult in the Northern and Southern Caribbean Autonomous Regions, where most of the country’s fishery, timber, and mineral resources are located. These large regions, which share a Caribbean history and culture, comprise more than one-third of Nicaragua’s land mass. The division of authority between the central government and regional authorities is complex and ambiguous. Local officials may act without effective central government oversight.

Bankruptcy Regulations

Although bankruptcy provisions are included in the Civil and Commercial Codes, there is no tradition or culture of bankruptcy in Nicaragua. More often than not, companies simply choose to close their operations and set up a new entity without going through a formal bankruptcy procedure, effectively leaving their creditors unprotected. For their part, creditors typically avoid a judicial procedure fraught with uncertainty and instead attempt to collect as much as they can directly from the debtor, or they simply give up on any potential claims they may have. Nicaragua’s rules on bankruptcy focus on the liquidation of business entities rather than on reorganization. They do not provide for an equitable treatment of creditors, to the detriment of creditors located in foreign jurisdictions.

4. Industrial Policies

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 USD 30,000 per unit. Developers are exempt from paying local taxes on the construction, purchase of materials, equipment or tools. Additional tax breaks are also available.

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). In particular, private investment in hydroelectric dams is banned from the Asturias, Apanas, and Río Viejo Rivers, and the approval of the National Assembly is required for projects larger than 30 megawatts on all other rivers.

The Tourism Incentive Law (amended 2005/575) includes the following basic incentives for investments of USD 30,000 or more outside Managua and USD 100,000 or more within Managua: income tax exemption of 80 percent 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 General Tourism Law (amended 2010/724) stipulates that hotel owners pay a tax of USD 0.50 per customer and two percent of the rental rate per room for tourism promotion. It also imposes anti-discrimination, public health, and environmental regulations on tourism-oriented businesses.

The Fishing and Fish Farming Law (2004/489) exempts gasoline used in fishing and fish farming from taxes. This law’s Article 111 was amended (2012/797) to allow individuals or companies to request a temporary permit to take advantage of unexploited or underexploited aquatic resources during closed season. Environmental regulations also apply (see Transparency of the Regulatory System).

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).

Foreign Trade Zones/Free Ports/Trade Facilitation

The National Free Trade Zone (FTZ) Commission, a government agency, regulates FTZ activities. As of 2016, 176 companies operate with FTZ status in Nicaragua and employ approximately 115,000 people. The Nicaraguan Customs Agency monitors all FTZ imports and exports. Most free zones are in Managua and approximately 40 percent belong to the textile and apparel sector.

The Tax Equity Law (amended 2009/712) allows firms to claim an income tax credit of 1.5 percent of the free-on-board (FOB) value of exports. The Law of Temporary Admission for Export Promotion (2001/382) exempts businesses from value-added tax (VAT) for the purchase of machinery, equipment, raw materials, and supplies if used in export processing. Businesses must export 25 percent of their production to take advantage of these tax benefits.

In addition to export incentives and duty free capital imports granted by the Tax Concertation Law and the Temporary Admission Law for Export Promotion, the Free Trade Zones for Industrial Exports Decree (1991/46 and amendments) provides a 10-year income tax exemption for Nicaragua and foreign investments in FTZs. The National Free Trade Zone Commission of Nicaragua (CNFZ) administers the FTZ regime. The CNFZ requires a deposit to guarantee that final salaries and other expenses be paid if a company goes out of business.

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.

Although visas and work permit procedures are not excessively onerous for foreign investors and their employees, 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.

Foreign investors in Nicaragua are not required to purchase from local sources or to export a specific percentage of output, nor are their access to foreign exchange limited in proportion to their exports. Likewise, Nicaraguan tax and customs incentives apply equally to foreign and domestic investors.

There are no requirements for foreign IT providers to turn over source code or provide access to surveillance.

5. Protection of Property Rights

Real Property

Many foreign investors in Nicaragua experience difficulties defending their property rights. The expropriation of 28,000 properties in Nicaragua from both Nicaraguans and foreign investors during the 1980s has 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, although some improvements have ensued from World Bank-financed projects to modernize the land administration systems in certain regions. The Embassy recommends extensive due diligence and extreme caution before investing in property. Unscrupulous individuals have engaged in protracted confrontations with U.S. investors to wrest control of beachfront properties along the Pacific coast in the Departments of Carazo, Rivas, and Chinandega, as well as prime real estate in the cities of Managua, Granada, and Leon. Judges and municipal authorities have been known to collude with such individuals, and a cottage industry supplies false titles and other documents to those who scheme to steal land.

During the current administration, there are continued reports of land invasions. President Ortega declared on numerous occasions that the government will not act to evict those who have illegally taken possession of private property without discrimination for the nationality of the owner. Police often refuse to intervene in property invasion cases or assist in the enforcement of court orders to remove illegal occupants.

Those interested in purchasing property in Nicaragua should seek experienced legal counsel very early in the process.

The Capital Markets Law (2006/587) provides a legal framework for securitization of movable and real property. The banking system is expanding its loan programs for housing purchases and car purchases, but there is currently only a limited secondary market for mortgages.

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 emerging international intellectual property standards. While the 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. The country does not publicly report on seizures of counterfeit goods. Nicaragua is not listed in the Office of the U.S. Trade Representative’s Special 301 Report or the Notorious Market report.

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at .

6. Financial Sector

Capital Markets and Portfolio Investment

Existing policies allow the free flow of financial resources into the product and factor markets, as well as foreign currency convertibility. The Central Bank respects IMF Article VIII and does not impose any restrictions. Credit is allocated on market terms, and foreign investors are able to secure credit on the local market through a variety of credit instruments. The overall size and depth of the country’s financial markets and portfolio positions are very limited, however.

Money and Banking System

Among other services, local financial institutions offer commercial loans, credit lines, factoring, leasing, and bonded warehousing. The banking industry is highly concentrated, with three banks (BANPRO, Lafise BANCENTRO, and BAC) constituting 77 percent of the country’s market share. As of December 2016, the three banks had total assets worth USD 5.7 billion. BANCORP, a new bank owned by ALBANISA and with close ties to the Government of Nicaragua, began accepting deposits in 2015. Interest rates are relatively high compared with other countries in the region, and financial markets are shallow. The country’s banks have a limited number of correspondent banking relationships with U.S. banks.

The Foreign Investment Law allows foreign investors residing in the country to access local credit and local banks have no restriction in accepting property located abroad as collateral. However, many investors find lower cost financing and more product variety from offshore banks. Short-term government and Central Bank bonds, issued in Córdobas, dominate Nicaragua’s infant but growing capital market, and some limited stock issuances have become more prominent. Foreign banks have acquired a presence in Nicaragua through the purchase of local banks, many acting as second floor banks.

Foreigners are allowed to open bank accounts as long as they are legal residents in the country. Recent Central Bank data show that in 2016 the credit portfolio of Nicaraguan commercial banks grew 18 percent. The banking system’s loan portfolio totaled USD5.7 billion as of December 2016. Interest rates on loans denominated in Cordobas averaged 11.47 percent; loans denominated in U.S. dollars averaged 9.12 percent. Loans denominated in U.S. dollars accounted for 89 percent of loans and 76 percent of deposits.

The Superintendent of Banks and other Financial Institutions (SIBOIF) regulates banks, insurance companies, stock markets, and other financial intermediaries. SIBOIF requires that supervised entities provide audited financial statements, prepared according to international accounting standards, on a regular schedule. The Deposit Guarantee System Law (2005/551) established the Financial Institution Deposit Guarantee Fund (FOGADE) to guarantee bank deposits up to USD 10,000 per depositor, per institution. SIBOIF dependence on commercial banks limits its transparency and independence.

CAFTA-DR allows U.S. financial services companies to establish subsidiaries, joint ventures, or bank branches in Nicaragua. The agreement also allows cross-border trade in financial services. Nicaragua has ratified its commitments under the 1997 WTO Financial Services Agreement. These commitments cover most banking services, including the acceptance of deposits, lending, leasing, the issuing of guarantees, and foreign exchange transactions. However, they do not cover the management of assets or securities. Nicaragua allows foreign banks to operate as 100 percent-owned subsidiaries or as branches.

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. Local financial institutions freely exchange U.S. dollars and other foreign currencies. The Superintendent of Banks and other Financial Institutions (SIBOIF) monitors financial transactions for illicit activity, and the Financial Intelligence Unit (UAF) enforces anti-money laundering legislation. Transfers of funds over USD 10,000 requires additional paperwork and due diligence.

The official exchange rate is adjusted daily by the Nicaraguan Central Bank (BCN) according to a crawling peg that devalues the Cordoba against the U.S. dollar at an annual rate of five percent since 2004. The Central Bank has made no statements indicating they will change this policy. The official exchange rate as of December 31, 2016, was 29.32 Córdobas to one U.S. dollar. The daily exchange rate can be found on the Central Bank’s website . According to the BCN, the accumulated rate of inflation for 2016 was 3.13 percent.

Remittance Policies

The Foreign Investment Law (2000/344) allows foreign investors to transfer funds abroad, whether dividends, interest or principal on private foreign debt, as well as royalties, and from compensation payments for declarations of eminent domain. Foreign investors also enjoy foreign currency convertibility through the local banking system. There are no limitations on the inflow or outflow of funds for remittances of profits or revenue.

Sovereign Wealth Funds

Nicaragua does not have a sovereign wealth fund.

7. State-Owned Enterprises

President Ortega has used funds provided by Venezuela through the Bolivarian Alliance for the Americas (ALBA) to increase the role of the state and quasi-state actors in the economy. Through Petronic, Nicaragua’s state-owned oil company, the government owns a 49 percent share in ALBA de Nicaragua (ALBANISA), the company that imports and monetizes Venezuelan petroleum products through the ALBA Energy Agreement. President Ortega and the Sandinista Party (FSLN) have 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 of Nicaragua government put companies trying to compete in industries dominated by ALBANISA or government-managed entities at a disadvantage.

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), and the Nicaraguan Petroleum Company (Petronic). 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) also has a controlling interest in companies in the construction, manufacturing, and services sectors. Other companies have unclear ownership structures that likely include at least a minority ownership by the Government of Nicaragua or government officials.

Total assets of all SOEs in Nicaragua are unknown as not all SOEs have publicly available or audited accounts. There are few mechanisms to ensure the transparency and accountability of state business decisions. The U.S. Department of State’s Fiscal Transparency report cites the need for Nicaragua to improve reporting on allocation to and from state-owned enterprises. Nicaragua is not a signatory to the WTO Agreement on Government Procurement.

Privatization Program

Nicaragua does not have a privatization program.

8. Responsible Business Conduct

Many large businesses have active Responsible Business Conduct (RBC) programs that include improvements to the workplace environment, business ethics, and community development initiatives. The Nicaraguan Union for Corporate Social Responsibility (UniRSE), which includes 102 companies, is working to create more awareness for CSR in Nicaragua. UniRSE organizes events and studies best practices throughout the region. Increasingly, both Nicaraguan and foreign businesses recognize that Corporate Social Responsibility (CSR) and RBC programs must go beyond compliance with environmental or labor law, but more work is needed in this area.

The Government of Nicaragua does not factor RBC policies or practices into its procurement decisions nor explicitly encourage generally accepted 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.

9. Corruption

Public sector corruption remains a major challenge for U.S. firms operating in Nicaragua. Companies report that bribery of public officials, unlawful seizures, and arbitrary assessments by customs and tax authorities are common. Corruption is particularly prevalent within the judicial system. In a 2016 survey of 2,500 Nicaraguan companies, one-third of all respondents reported arbitrariness and illegal actions by government offices that regulate property rights and business establishment.

Nicaragua has a well-developed legislative framework criminalizing acts of corruption, but it is poorly and unevenly enforced. The Penal Code (amended 2007/641) and the Special Law on Bribery and Crimes Against International Trade and Foreign Investment (2006/581) define corruption offenses and establish sanctions. Offering or accepting a bribe is a criminal act punishable by a fine and a minimum three years in prison. Legislation similar to the U.S. Foreign Corrupt Practices Act makes bribery by a Nicaraguan company of a foreign official a criminal act punishable by a minimum five years in prison. The Attorney General and the Controller General share responsibility for investigating and prosecuting corruption cases. The anticorruption provisions of CAFTA-DR require each participating government to ensure under its domestic law that bribery in matters affecting trade and investment is treated as a criminal offense or subject to comparable penalties.

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

Resources to Report Corruption

Contraloria General de la Republica de Nicaragua (CGR) – Supreme Audit Institution
+505 2265-2072 

10. Political and Security Environment

In 2016, political, economic, and social demonstrations occurred sporadically. Many demonstrations involved opposition to the proposed building of an interoceanic canal and demands for transparent elections. The motives for other demonstrations included workers/veterans rights, availability of public utilities, traffic and transportation concerns, and other national issues. Additionally, increased politically-motivated violence is reported in the Northern Departments of the country, and crime rates in the Mining Triangle and the Caribbean Coast remain significantly higher than in other parts of the country.

Most demonstrations begin peacefully, but the presence of counter-demonstrators, often directed by the government or police can lead to an escalation in tension and violence. Typically, protests in Managua take place at major intersections or rotundas, impeding traffic flows. Outside the capital, they often take place in the form of road/highway blockages. Protests included the use of gunfire, tear gas, fireworks, rock throwing, tire/vehicle burning, and road blocks.

The United States is deeply concerned by the flawed presidential and legislative electoral process in Nicaragua, which precluded the possibility of a free and fair election on November 6, 2016. In advance of the elections, the Government of Nicaragua sidelined opposition candidates for president, limited domestic observation at the polls and access to voting credentials, and took other actions to deny democratic space in the process. The decision by the government not to invite independent international electoral observers further degraded the legitimacy of the election. The U.S. government continues to press the Government of Nicaragua to uphold democratic practices including press freedom and respect for universal human rights in Nicaragua, consistent with our countries’ shared obligations under the Inter-American Democratic Charter.

11. Labor Policies and Practices

While official unemployment rates are low (6.3 percent in 2015), 55 percent of the working population is underemployed and nearly three-quarters of all employment is in the informal economy. Nicaragua lacks skilled and technical labor and often employers import administrative or managerial employees from outside of the country. Recent studies show a particular need for technical level workers. The minimum wage is low and revised every six months through a dialogue process between the private sector, labor unions, and the government. As of 2017, the monthly minimum wage is between USD 122 and USD 273, depending on the industry.

Per Nicaraguan labor law, at year-end employers must pay 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. Some business groups say this provides an incentive for workers to seek dismissal once they have completed five years with a firm. There are no special laws or exemptions from regular labor laws in the free trade zones.

The law provides for the right of all public and private sector workers, with the exception of those in the military and police, to form and join independent unions of their choice without prior authorization and to bargain collectively. Workers can exercise this right in practice, though unofficial roadblocks exist for unions not affiliated with the ruling party. The law provides the right to collective bargaining. A collective bargaining agreement cannot exceed two years and is automatically renewed if neither party requests its revision. Strikes are legal and the government generally does not interfere in private sector disputes. However, there are instances when the government has forcefully intervened in labor disputes and strikes.

For more information regarding labor conditions in Nicaragua, please see the annual Human Rights Report and the Department of Labor Child Labor report at

12. OPIC and Other Investment Insurance Programs

The U.S. Overseas Private Investment Corporation (OPIC) offers financing and insurance against political risk, expropriation, and inconvertibility to U.S. investments in Nicaragua. Nicaragua is a member of the World Bank’s Multilateral Investment Guarantee Agency.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2016 $13.29bn 2015 $12.69bn World Bank
Foreign Direct Investment Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) N/A N/A 2015 $183m BEA
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A 2014 $27m BEA
Total inbound stock of FDI as % host GDP 2016 6.7% N/A N/A N/A

*Source: Central Bank of Nicaragua, Annual Report. Published annually March 31.
Table 3: Sources and Destination of FDI

Note: The IMF’s CDIS site does not have the data available for Nicaragua, nor is such data available from publically-available Government of Nicaragua sources.
Table 4: Sources of Portfolio Investment

Note: The IMF’s CDIS site does not have the data available for Nicaragua, nor is such data available from publically-available Government of Nicaragua sources.

14. Contact for More Information

Embassy Managua – Economic Section
Km 5½ Carretera Sur, Managua, Nicaragua
+505 2252-7100


Executive Summary

Romania welcomes all forms of foreign investment. The government provides national treatment for foreign investors, meaning that the government does not differentiate treatment due to source of capital. Romania’s strategic location, membership in the European Union, relatively well-educated workforce, competitive wages, and abundant natural resources make it a desirable location for firms seeking to access European, Central Asian, and Near East markets. U.S. investors have found opportunities in the information technology, telecommunication, energy, services, manufacturing, and consumer products sectors.

The investment climate in Romania is a mixed picture, and potential investors should undertake due diligence when considering any investment. The Romanian government has taken steps in recent years to improve tax administration and collection, enhance transparency, and support a legal framework conducive to foreign investment. Romania is also a regional leader in judicial efforts to combat high and medium-level corruption. However, the current government’s attempt in late January 2017 to weaken criminal legislation has shaken confidence in the government’s commitment to rule of law and anti-corruption efforts, and triggered prolonged protests in Bucharest and other cities. Some government leaders accused “multinational companies” of sponsoring the protests, adding to occasional political rhetoric scapegoating foreign corporate entities for domestic companies’ alleged dire circumstances. The Romanian government has exposed its state owned enterprises (SOEs) to heightened standards of corporate governance through initial and secondary public offerings and attracted additional international investors, bolstering Romania’s capital markets. The Romanian government’s sale of minority stakes in several SOEs in key sectors, such as energy generation and exploitation, has stalled since 2014. The development and enforcement of corporate governance codes for SOEs remains incomplete.

Consultations with stakeholders and impact assessments are required before enactment of legislation. However, this requirement has been unevenly followed, and public entities generally do not have the capacity to conduct thorough impact assessments. The arbitrary passage of ill-conceived economic legislation serves as a disincentive to U.S. and multinational investment. Romania has made significant strides to combat corruption, particularly at the national level, but corruption remains an ongoing challenge. Inconsistent enforcement of existing laws, including those related to the protection of intellectual property rights, also serves as a disincentive to investment. Continuing to attract and retain additional foreign direct investment will require further progress on transparency, stability, and predictability in economic decision-making, and the reduction of non-transparent bureaucratic procedures.

Table 1

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2016 57 of 176
(up 1 spot)
World Bank’s Doing Business Report “Ease of Doing Business” 2017 36 of 190
Global Innovation Index 2016 48 of 128
(up 6 spots)
U.S. FDI in partner country ($M USD, stock positions) 2015 $2.6 billion
World Bank GNI per capita 2015 $9,500

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Romania actively seeks foreign direct investment, and offers a market of around 20 million consumers, a relatively well-educated workforce at competitive wages, a strategic location, and abundant natural resources. To date, favored areas for U.S. investment include IT and telecommunications, energy, services, manufacturing – especially in the automotive sector – and consumer products.

Romania has taken steps to strengthen tax administration, enhance transparency, and create legal means to resolve contract disputes expeditiously. Mergers and acquisitions are subject to review by the Competition Council. The Competition Law allows Romania’s Supreme Defense Council to review strategic mergers and acquisitions, in addition to review by the Competition Council. To date, the Supreme Defense Council has not acted on any merger or acquisition. Romania’s accession to the European Union (EU) on January 1, 2007 has helped solidify institutional reform. However, legislative and regulatory unpredictability, as well as weak public administration continue to negatively impact the investment climate.

As in any foreign country, prospective U.S. investors should exercise careful due diligence, including consultation with competent legal counsel, when considering an investment in Romania. Past governments in Romania have, on occasion, allowed political interests or budgetary imperatives to supersede accepted Western business practices in ways harmful to investor interests. For example, a 2013 windfall profit tax on natural gas and electricity liberalization was initially due to expire in December 2015 but has been extended to December 2017, while a 2014 tax on special construction, which hit investors with physical infrastructure particularly hard, was allowed to expire in December 2016.

Investments involving public authorities (central government ministries, county governments, or city administrations) can be more complicated than investments or joint ventures with private Romanian companies. Large deals involving the government – particularly public-private partnerships and privatizations of key SOEs – can be stymied by vested political and economic interests, or bogged down due to a lack of coordination between government ministries. The Public-Private Partnership (PPP) Law was revised in 2011 and again in 2016, but the implementation rules have not been published. The law envisions the creation of a contractual public-private partnership, as an alternative to the creation of a project company. The contribution of the public partner can now be both in-kind and cash, provided the public contribution complies with state aid rules and with public finance legislation. According to the new law, the public partner initiates the public-private partnership projects and awards them according to public procurement rules. How the PPP law is implemented will be of considerable interest to investors over the next few years, but the Ministry of Finance has yet to indicate when it will complete and/or begin public consultations on the implementing regulations.

Limits on Foreign Control and Right to Private Ownership and Establishment

Romanian legislation and regulations provide national treatment for foreign investors, guarantee free access to domestic markets, and allow foreign investors to participate in privatizations. There is no limit on foreign participation in commercial enterprises. Foreign investors are entitled to establish wholly foreign-owned enterprises in Romania (although joint ventures are more typical), and to convert and repatriate 100 percent of after-tax profits. The Romanian capital account was fully liberalized in 2006, prior to gaining EU membership in 2007. Foreign firms are allowed to participate in the management and administration of the investment, as well as to assign their contractual obligations and rights to other Romanian or foreign investors.

Other Investment Policy Reviews

The Heritage Foundation’s Economic Freedom Report indicates that the government does not screen or discriminate against foreign investment, but the report states that regulatory and judicial systems may be deterrents. Economic growth rates have improved, but the benefits have not been felt by all Romanians. Progress on implementing reforms and improving the business environment has been uneven. The World Bank’s Doing Business Report indicates that Romania continues to rank below the world average in dealing with construction permits and setting up utility services. Transparency International’s most recent 2016 annual review cited substantial improvement in perceived corruption in Romania and noted progress made during the Ciolos Administration. However, in reaction to the government’s January 2017 passage of emergency ordinance 13, which provoked wide-spread public protests against what was seen as an attempt to roll-back anti-corruption efforts, Transparency International called on the Romanian government to focus on strengthening anti-corruption efforts, including introducing stronger corporate ethics standards and implementing existing anti-corruption legislation.

Business Facilitation

The National Trade Registry has an online service available in Romanian at . Romania has a foreign trade department within the Ministry of Business Climate, Trade, and Entrepreneurship and an investment promotion department in the Ministry of Economy. Romania defines microenterprises as having less than nine employees, small enterprises as having less than 50 employees, and medium sized enterprises as having less than 250 employees. Regardless of ownership, microenterprises and SMEs enjoy “de minimis” and other state aid schemes from EU funds or from the state budget.

Outward Investment

There are no restrictions on outward investment. There are no incentives for outward investment.

2. Bilateral Investment Agreements and Taxation Treaties

The U.S.-Romanian Bilateral Investment Treaty (BIT) on the Reciprocal Encouragement and Protection of Investment (signed in May 1992 and ratified by the U.S. in 1994) guarantees national treatment for U.S. and Romanian investors. The agreement provides a dispute resolution mechanism, liberal capital transfer, prompt and adequate compensation in the event of an expropriation, and the avoidance of trade-distorting performance requirements. In 2004 the U.S. Government negotiated a political understanding with the EU and eight accession countries, including Romania, to cover any possible inconsistencies between pre-existing BITs and the countries’ impending EU obligations. A resulting revised BIT was ratified by the U.S. Senate and the Romanian Parliament in 2004, and went into effect on February 9, 2007. Other bilateral trade agreements with third countries were terminated upon Romania’s EU accession.

Romania has a bilateral taxation treaty with the United States; the treaty was signed in 1973 and entered into force in 1974.

3. Legal Regime

Transparency of the Regulatory System

Foreign investors point to the excessive time required to secure necessary zoning permits, environmental approvals, property titles, licenses, and utility hook-ups. The Public Consultation Ministry, established by the previous government in 2016, seems to have lost its previous position as one of the main drivers of transparency and outreach to stakeholders and the general public. With one or two exceptions, new cabinet ministers have not held inaugural press conferences to unveil their agendas. Government agencies’ websites still have information dating back to the previous government, or provide only scarce information about the current leadership.

Romanian law requires consultations with stakeholders, including the private sector, and a 30-day comment period on legislation or regulation affecting the business environment (the “Sunshine Law”). Some draft pieces of legislation pending with the government are available in Romanian at . Proposed items for cabinet meetings are not always publicized in advance or in full. The government appointed a spokesman in early March and has yet to establish the routine of regular press briefings. As a general rule, the agenda of cabinet meetings should include links to the draft pieces of legislation (government decisions, ordinances, emergency ordinances, or memoranda) slated for government decision. Legislation pending with the parliament is available at  for the Chamber of Deputies and at  for the Senate. The Chamber of Deputies is the decision body for economic legislation. Regulatory impact assessments are often missing, and Romanian authorities do not publish the comments they receive as part of the public consultation process.

International Regulatory Considerations

As an EU member state, Romanian legislation is largely driven by the EU Acquis Communautaire, the body of EU legislation. EU regulations are directly applicable, while implementation of directives at the national level is done through national legislation. Romania’s regulatory system incorporates the European standards.

Legal System and Judicial Independence

Romania recognizes property and contractual rights, but enforcement through the judicial process can be lengthy, costly, and difficult. Foreign companies engaged in trade or investment in Romania often express concern about the Romanian courts’ lack of expertise in commercial issues. Judges generally have limited experience in the functioning of a market economy, international business methods, intellectual property rights, or the application of Romanian commercial and competition laws. Inconsistency and a lack of predictability in the jurisprudence of the courts or in the interpretation of the laws remains a major concern for foreign and domestic investors and for wider society. Even when court judgments are favorable, enforcement of judgments is inconsistent and can lead to lengthy appeals. Failure to implement court orders, or cases where the public administration unjustifiably challenges court decisions, constitute obstacles to the binding nature of court decisions.

Mediation as a tool to resolve disputes is gradually becoming more common in Romania, and a certifying body, the Mediation Council, sets standards and practices. The professional association, the Union of Mediation Centers in Romania, is the umbrella organization for mediators throughout the county. Court-sanctioned and private mediation is available at recognized mediation centers in every county seat.

There is no legal mechanism for court-ordered mediation in Romania, but judges can encourage litigants to use mediation to resolve their cases. If litigants opt for mediation, they must present their proposed resolution to the judge upon completion of the mediation process. The judge must then approve the agreement.

Laws and Regulations on Foreign Direct Investment

Romania became a member of the European Union on January 1, 2007. The country has worked assiduously to create an EU-compatible legal framework consistent with a market economy and investment promotion. At the same time, implementation of these laws and regulations frequently lags or is inconsistent.

Romania’s legal framework for foreign investment is encompassed within a substantial body of law largely enacted in the late 1990s. It is subject to frequent revision. Major changes to the Civil Code were enacted in October 2011 including replacing the Commercial Code, consolidating provisions applicable to companies and contracts into a single piece of legislation, and harmonizing Romanian legislation with international practices. The Civil Procedure Code, which provides detailed procedural guidance for implementing the new Civil Code, came into force in February 2013.

Romania has also passed a judicial reform law with the objective of improving the speed and efficiency of judicial processes, including provisions to reduce delays between hearings. The Mediation Law, revised in October 2012, provides alternative dispute resolution options. The new Criminal Code, that includes provisions applicable to economic felonies, came into effect in February 2014. The 2003 Fiscal Code and Fiscal Procedure Code, amended several times since their passage, were revised in September 2015. Fiscal legislation is revised frequently, often without scientific or data-driven assessment of the impact the changes may have on the economy.

Given the state of flux of legal developments, investors are strongly encouraged to engage local counsel to navigate the various laws, decrees, and regulations, as several pieces of investor-relevant legislation have been challenged in both local courts and the Constitutional Court. There have been few hostile take-over attempts reported in Romania, yet Romanian law has not focused on limiting potential mergers or acquisitions. There are no Romanian laws prohibiting or restricting private firms’ free association with foreign investors.

Competition and Anti-Trust Laws

Romania has extensively revised its competition legislation, bringing it closer to the EU Acquis Communautaire and best corporate practices. A new law on unfair competition came into effect in August 2014. Companies with a market share below 40 percent are no longer considered to have a dominant market position, thus avoiding a full investigation by the Romanian Competition Council (RCC) of new agreements, saving considerable time and money for all parties involved. Resale price maintenance and market and client sharing are still prohibited, regardless of the size of either party’s market share. The authorization fee for mergers or takeovers ranges between €10,000 (USD10,600) and €50,000 (USD53,000). The Fiscal Procedure Code requires companies that challenge an RCC ruling to front a deposit while awaiting a court decision on the merits of the complaint.

Romania implemented the EU Public Procurement Directives through four laws passed in May 2016. They outline general procurements of goods and equipment, utilities procurement (sectorial procurement), works and services concessions, and remedies and appeals. An extensive body of secondary and tertiary legislation accompanies the four laws. Separate legislation governs defense and security procurements. In a positive move, this new body of legislation moves away from the previous approach of using lowest price as the only public procurement selection criterion. Under the new laws, an authority can use price, cost, quality-price ratio, or quality-cost ratio. The new laws also allow bidders to provide a simple form (the European Single Procurement Document) in order to participate in the award procedures. Only the winner must later submit full documentation.

The new public procurement laws stipulate that challenges regarding procedure or an award can be filed with the National Complaint Council (NCC) or the courts. Disputes regarding execution, amendment, or termination of public procurement contracts can be subject to arbitration. The new laws also stipulate that a bidder has to notify the contracting authority before challenging either the award or procedure. Not fulfilling this notification requirement results in the NCC or court rejecting the challenge.

Expropriation and Compensation

The law on direct investment includes a guarantee against nationalization and expropriation or other equivalent actions. The law allows investors to select the court or arbitration body of their choice to settle disputes. Several cases involving investment property nationalized during the Communist era remain unresolved. In doing due diligence, prospective investors should ensure that a thorough title search is done to ensure there are no pending restitution claims against the land or assets.

Dispute Settlement

Investment Disputes

Five investor-state arbitration cases against Romania are currently pending with the International Center for Settlement of Investment Disputes (ICSID).

International Arbitration

Romania increasingly recognizes the importance of investor-state dispute settlement and has provided assurances that the rule of law will be enforced. Many agreements involving international companies and Romanian counterparts provide for the resolution of disputes through third-party arbitration.

Romanian law and practice recognize applications to other internationally-known arbitration institutions, such as the International Chamber of Commerce (ICC) Paris Court of Arbitration and the United Nations Commission on International Trade Law (UNCITRAL). Romania has an International Commerce Arbitration Court administered by the Chamber of Commerce and Industry of Romania. Additionally, in November 2016, the American Chamber of Commerce in Romania (AmCham Romania) established the Bucharest International Arbitration Court (BIAC). This new arbitration center will focus on business and commercial disputes involving foreign investors and multinationals active in Romania.

ICSID Convention and New York Convention

Romania is a signatory to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Romania is also a party to the European Convention on International Commercial Arbitration concluded in Geneva in 1961, and is a member of ICSID.

Duration of Dispute Resolution – Local Courts

According to World Bank Doing Business report, it takes on average 512 days to enforce a contract, from the moment the plaintiff files the lawsuit until actual payment. Associated costs can total around 29 percent of the claim. Arbitration awards are enforceable through Romanian courts under circumstances similar to those in other Western countries, although legal proceedings can be protracted.

Bankruptcy Regulations

Romania’s bankruptcy law contains provisions for liquidation and reorganization that are generally consistent with Western legal standards. These laws usually emphasize enterprise restructuring and job preservation. To mitigate the time and financial cost of bankruptcies, Romanian legislation provides for administrative liquidation as an alternative to bankruptcy. However, investors and creditors have complained that liquidators sometimes lack the incentive to expedite liquidation proceedings and that, in some cases, their decisions have served vested outside interests. Both state-owned and private companies tend to opt for judicial reorganization to avoid bankruptcy.

In December 2009, the debt settlement mechanism Company Voluntary Agreements (CVAs) was introduced as a means for creditors and debtors to establish partial debt service schedules without resorting to bankruptcy proceedings. The global economic crisis did, however, prompt Romania to shorten insolvency proceedings in 2011.

According to the World Bank’s Doing Business report, resolving insolvency in Romania takes 3.3 years on average and costs 10.5 percent of the debtor’s estate, with the most likely outcome being a piecemeal sale of the company. The average recovery rate is 34.4 cents on the dollar. Globally, Romania stands at 49 in the ranking of 190 economies on the ease of resolving insolvency.

4. Industrial Policies

Investment Incentives

Currently, customs and tax incentives are available to investors in six free trade zones. State aid is available for investments in free trade zones under EU regional development assistance rules. Of the 36 companies that applied for state aid in 2016, only six were selected. Large companies may receive aid up to 50 percent of their eligible costs. The ceiling is 35 percent in the counties of Ilfov, Timis, Arad, Caras Severin, and Hunedoara. In Bucharest the ceiling is 15 percent until December 31, 2017, at which time it will drop to 10 percent. The ceiling for small and medium-sized enterprises (SMEs) is 10 percent higher than permissible aid for large companies, and for the smallest category of companies the ceiling is 20 percent higher. Prospective investors are advised to thoroughly investigate and verify the current status of state incentives.

In 2007, Romania adopted EU regulations on regional investment aid, and instituted state aid schemes for large investments and SMEs. Both Romanian and EU state aid regulations aim to limit state aid in any form, such as direct state subsidies, debt rescheduling schemes, debt for equity swaps, or discounted land prices. The EC must be notified of, and approve, GOR state aid that exceeds the pre-approved monetary threshold for the corresponding category of aid. To benefit from the remaining state aid schemes, the applicant must secure financing that is separate from any public support for at least 25 percent of the eligible costs, either through their own resources or through external financing, and must document this financing in strict accordance with Ministry of Finance guidelines. Amendments made in 2010 to the state aid scheme for regional projects score applications based not only on the economics of the project, but also on the GDP per capita and unemployment rate for the county of intended investment. When granting state aid, the Ministry of Finance requires that the state revenues through taxes equal the state aid granted. Numerous foreign and American firms have successfully applied for and received Romanian state aid.

The Green Certificate System, part of the Renewable Energy Law, provides incentives for certain types of renewable energy. The Green Certificates are traded in parallel with the energy produced. Although the Green Certificates are intended to provide an additional source of revenue for renewable energy producers, repeated revisions to the support system including deferring release of the certificates, and limiting the validity of the certificates released, have created instability in the renewables investment climate. Energy intensive industrial consumers receive exemptions from acquiring green certificates. In March 2017, the government revised the renewable energy support legislation. The changes include extending the validity of tradable green certificates to allow trading until 2032 and requires green certificates trading to be done anonymously, with the intention of leveling the playing field for all green certificates sellers on the market.

As a member of the EU, Romania must receive European Commission (EC) approval for any state aid it grants that is not covered by the EU’s block exemption regulations. The Romanian Competition Council acts as a clearinghouse for the exchange of information between the Romanian authorities and the EC. The failure of state aid grantors to notify the EC properly of aid associated with privatizations has resulted in the Commission launching formal investigations into several privatizations. Investors should ensure that the government entities with which they work fully understand and fulfill their duty to notify competition authorities. Investors may wish to consult with EU and Romanian competition authorities in advance, to ensure a proper understanding of notification requirements.

Companies operating in Romania can also apply for aid under EU-funded programs that are co-financed by Romania. As of March 2017, Romania is in the process of obtaining EC accreditation for its management authorities for 2014-2020 programs and meeting the outstanding ex-ante conditionalities. These are the preconditions for Romania to start absorbing EU funds from the 2014-2020 budgetary cycle. When planning a project, prospective applicants must bear in mind that the project cannot start before the financing agreement is finalized; the application, selection, and negotiation process can be lengthy. Applicants also must secure financing for non-eligible expenses and for their co-financing of the eligible expenses. Finally, reimbursement of eligible expenses – which must be financed upfront by the investor – is often very slow. Procurements financed by EU-funded programs above a certain monetary threshold must comply with public procurement legislation. In an effort to increase the rate of EU funds absorption, Romania has amended regulations to allow applicants to use the assets financed under EU-funded programs as collateral. However, understaffing and a lack of expertise on the part of GOR management entities, cumbersome procedures, and applicants’ difficulty obtaining private financing still remain significant obstacles to improved EU funds absorption and project implementation by Romania.

Foreign Trade Zones/Free Ports/Trade Facilitation

Free Trade Zones (FTZs) received legal authority in Romania in 1992. General provisions include unrestricted entry and re-export of goods, and exemption from customs duties. The law further permits the leasing or transfer of buildings or land for terms of up to 50 years to corporations or natural persons, regardless of nationality. Foreign-owned firms have the same investment opportunities as Romanian entities in FTZs.

Currently there are six FTZs, primarily located on the Danube River or close to the Black Sea: Sulina, Constanta-Sud Agigea, Galati, Braila, Curtici-Arad, and Giurgiu. The administrator of each FTZ is responsible for all commercial activities performed within the zone. FTZs are under the authority of the Ministry of Transportation.

Performance and Data Localization Requirements

Performance Requirements

There are no performance requirements imposed as a condition for establishing, maintaining or expanding an investment.

Data Storage

The government does not require investors to establish or maintain data storage in Romania.

Romania neither follows nor is there legislation requiring a “forced localization” policy. Romania does not have requirements for foreign IT providers to turn over source code or provide access for government surveillance. Romania’s Constitutional Court has twice ruled such specific legislative drafts are unconstitutional.

5. Protection of Property Rights

Real Property

The Romanian Constitution, adopted in December 1991 and revised in 2003, guarantees the right to ownership of private property. Mineral and airspace rights, and similar rights, are excluded from private ownership. Under the revised Constitution, foreign citizens can gain land ownership through inheritance. With EU accession, citizens of EU member states can own land in Romania, subject to reciprocity in their home country.

Companies owning foreign capital may acquire land or property needed to fulfill or develop company goals. If the company is dissolved or liquidated, the land must be sold within one year of closure, and may only be sold to a buyer(s) with the legal right to purchase such assets. Investors can purchase shares in agricultural companies that lease land in the public domain from the State Land Agency.

The 2006 legislation that regulates the establishment of specialized mortgage banks also makes possible a secondary mortgage market, by regulating mortgage bond issuance mechanisms. Mortgage loans are offered by commercial banks, specialized mortgage banks, and non-bank mortgage credit institutions. Romania’s mortgage market is now almost entirely private. The state-owned National Savings Bank, CEC Bank, also offers mortgage loans. Since 2000, Romania has had in place the Electronic Archives of Security Interests in Movable Property (AEGRM) that represents the national recording system for the priority of mortgages structured by entities and assets, ensuring the filing of transactions regarding mortgages, assimilated operations, or other collateral provided by the law, as well as their advertising. Most urban land has clear title, and the National Cadaster Agency (NCA) is slowly and deliberately working to identify property owners and register land titles. According to the National Cadaster Plan, 2023 is the deadline for full registration of lands and buildings in the registry. According to NCA data, 9.5 million (24 percent) of the estimated real estate assets (land and buildings) were registered in the cadaster registry as of March 2017.

Intellectual Property Rights

In USTR’s Special 301 report, Romania is on the watch list. As elsewhere in the EU, Internet piracy – both Torrent site peer-to-peer (P2P) file sharing and business-to-consumer piracy – remains the top IPR concern. Despite the lower priority placed on IPR enforcement at the policy level, cooperation between law enforcement authorities, including prosecutors and police officers, and intellectual property-based private industry continues to be close at the working level, leading to innovative approaches to prosecuting IPR crimes within this constrained legal and fiscal environment. In order to increase the odds of IPR cases being heard in court, law enforcement authorities, when appropriate, are bundling related charges of fraud, tax evasion, embezzlement, and organized crime activity alongside IPR violations. Not only has this increased the odds of IPR cases going to court, it also strengthens the evidence of “social harm” stemming from IPR violations. Lack of social harm has often been cited as a reason for dismissing IPR cases in the past.

Romania’s Customs Authority reported the seizure of approximately 1.46 million pieces of counterfeit goods in 2016 compared to 6.17 million pieces in 2015 and 6.73 million pieces in 2014. The declining trend continues at an accelerated pace, in line with growing purchasing power and demand for genuine physical goods. Cigarettes, razor blades, pens and pencils, toys, bearings, clothing, stickers, footwear, footballs, footwear, and cosmetics and accessories accounted for the majority of those seizures. The amount of seized pharmaceuticals fell from 1,322 pieces in 2015 to 370 pieces in 2016. While there was a significant increase in seized quantities of pens and pencils, watches, memory cards, cosmetics and accessories, sunglasses, and mobile phones, there was a significant drop in seized quantities of batteries, bearings, condoms, footwear, clothing, cigarettes, and headphones. According to both the National Customs Authority and the national police, the vast majority of counterfeit goods seized in Romania originate in China.

Romania is a signatory to international conventions concerning intellectual property rights (IPR), including Trade-Related Aspects of Intellectual Property Rights (TRIPS), and has enacted legislation protecting patents, trademarks, and copyrights. Romania has signed the Internet Convention to protect online authorship. While the IPR legal framework is generally good, enforcement remains weak and ineffective, especially in the area of internet piracy. The once-flagrant trade of retail pirated goods has largely been eliminated, but unlicensed use of software and personal use of pirated audio-video products remains high. The recording and film industries have expressed concern over increasing levels of internet-based piracy. Romania has passed broad IPR protection enforcement provisions, as required by the WTO, yet judicial enforcement remains lax.

Romania is on the Special 301 Watch List primarily due to weak enforcement efforts against on-line copyright piracy. Customs officers can seize ex-officio, and then destroy counterfeit goods after the rights holder first inspect the goods and draft a declaration. The government is responsible for paying for the storage and destruction of the counterfeit goods. Counterfeit goods are not prevalent in the local market.

The World Intellectual Property Organization (WIPO) provides 186 Country Profiles. These are available at: .


Romania is a party to the Paris Convention for the Protection of Industrial Property, and subscribes to all of its amendments. Romanian patent legislation generally meets international standards, with foreign investors accorded equal treatment with Romanian citizens under the law. Patents are valid for 20 years. Romania has been a party to the European Patent Protection Convention since 2002. Patent registration can be filed online. Since 2014, Romania has also enforced a distinct law regulating employee inventions. The right to file a patent belongs to the employer for up to two years following the departure of the employee.


In 1998, Romania passed a trademark and geographic indications law, which was amended in 2010 to make it fully consistent with equivalent EU legislation. Romania is a signatory to the Madrid Agreement relating to the international registration of trademarks and the Geneva Treaty on Trademarks. Trademark registrations are valid for ten years from the date of application and renewable for similar periods. Beginning 2014, trademark registrations can be filed online. In 2007, Romania ratified the Singapore Treaty on the Law of Trademarks.


Romania is a member of the Bern Convention on Copyrights. The Romanian Parliament has ratified the latest versions of the Bern and Rome Conventions. The Romanian Copyright Office (ORDA) was established in 1996, and promotes and monitors copyright legislation. The General Prosecutor’s Office (GPO) provides national coordination of IPR enforcement, but copyright law enforcement remains a low priority for Romanian prosecutors and judges. Many magistrates still tend to view copyright piracy as a “victimless crime” and this attitude has resulted in weak enforcement of copyright law. Due to the popularity of downloading pirated content, copyright infringement of music and film is widespread throughout Romania.

Resources for Rights Holder

Contact at Mission:

James Smythers
Economic Officer

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at .

Country/Economy resources

American Chamber of Commerce
11 Ion Campineanu St, Union International Center, 4th Floor Bucharest, +40 21 312 4834

State Office for Inventions and Trademarks (OSIM)
5 Ion Ghica St, Bucharest, +40 21 306 0800  [List of trademark lawyers]

Romanian Office for Rights of Authors
118 Calea Victoriei, Bucharest, +40 21 317 5080

6. Financial Sector

Capital Markets and Portfolio Investment

Romania welcomes portfolio investment and is working to increase the efficiency of its capital markets. In September 2016, the FTSE included Romania on its “Watch List” to possibly

reclassify the country to “Emerging Market” status. Currently FTSE states that Romania still fails to meet the turnover velocity criteria. The Financial Regulatory Agency (ASF) is responsible for regulating the securities market. The ASF implements the registration and licensing of brokers and financial intermediaries, the filing and approval of prospectuses, and the approval of market mechanisms.

The Bucharest Stock Exchange (BVB) resumed operations in 1995, after a hiatus of 50 years. The BVB operates a two-tier system that, at present, lists a total of 86 companies, with 23 companies listed in the premium tier. The official index, BET, is based on a basket of the 10 most active stocks listed. BET-TR is the total return on market capitalization index, adjusted for the dividends distributed by the companies included in the index. The BVB also has an alternative trading system (ATS) with 262 listed companies. The BVB allows trade in corporate, municipal, and international bonds, and in 2007, the BVB opened derivatives trading. Starting July 2015, investors can use gross basis trade settlement, and beginning March 2015, trades can be settled in two net settlement cycles. The BVB’s integrated group includes trading, clearing, settlement, and registry systems. The BVB’s Alternative Trading System (ATS) International allows trading in local currency of 15 foreign stocks listed on international capital markets. In 2015, the BVB launched a market (AeRO) dedicated to SMEs and start-ups. By the end of 2016, 278 domestic and two foreign companies were listed on the AeRO.

Despite a diversified securities listing, the situation on the international capital and financial markets has adversely affected the Romanian capital market, and liquidity remains low. Neither the government nor the Central Bank imposes restrictions on payments and transfers. The red tape associated with capital market access, still high trading fees, and inconsistent enforcement of corporate governance rules have kept Romania within the frontier market tier. Country funds, hedge funds and venture capital funds continue to participate in the capital markets. Minority shareholders have the right to participate in any capital increase. Romanian capital market regulation is now EU-consistent, with accounting regulations incorporating EC Directives IV and VII.

Money and Banking System

There are 37 banks and credit cooperative national unions currently operating in Romania. The largest, Romanian Commercial Bank (BCR), was privatized in 2006 by sale to Erste Bank of Austria and has a 15.8 percent market share. The second-largest is the French-owned Romanian Bank for Development (BRD-Société Générale) with 13.0 percent market share, followed by privately-owned Transilvania Bank (12.6 percent), Austrian-owned Raiffeisen (8.4 percent), and Italian-owned UniCredit (8.1 percent).

The banking system is stable and well-provisioned. However, according to the National Bank of Romania, non-performing loans account for 9.5 percent of total bank loans and interest. The solvency rate of the banking system is 18.3 percent.

The GOR has encouraged foreign investment in the banking sector, and there are no restrictions on mergers and acquisitions. The only remaining state-owned banks are the National Savings Bank (CEC Bank) and EximBank, comprising 8.3 percent of the market combined.

While the National Bank of Romania must authorize all new non-EU banking entities, banks and non-banking financial institutions already approved in other EU countries need only notify the National Bank of Romania of plans to provide local services based on the EU passport.

Foreign Exchange and Remittances

Foreign Exchange

Romania does not restrict the conversion or transfer of funds associated with direct investment. All profits made by foreign investors in Romania may be converted into another currency and transferred abroad at the market exchange rate after payment of taxes.

Romania’s national currency, the Leu, is freely convertible in current account transactions, in accordance with the International Monetary Fund’s (IMF) Article VII.

Remittance Policies

There is no limitation on the inflow or outflow of funds for remittances of profits, debt service, capital gains, returns on intellectual property, or imported inputs. Proceeds from the sales of shares, bonds, or other securities, as well as from the conclusion of an investment, can be repatriated.

Romania implemented regulations liberalizing foreign exchange markets in 1997. The inter-bank electronic settlement system became fully operational in 2006, eliminating past procedural delays in processing capital outflows. Commission fees for real-time electronic banking settlements have gradually been reduced.

Capital inflows are also free from restraint. Romania concluded capital account liberalization in September 2006, with the decision to permit non-residents and residents abroad to purchase derivatives, treasury bills, and other monetary instruments.

Romania was again identified as a Financial Action Task Force (FATF) jurisdiction of concern in the 2016 International Narcotics and Control Strategy Report (INCSR).

Sovereign Wealth Funds

Romania does not have a sovereign wealth fund. The current government has indicated an intention to create a sovereign wealth fund, the National Fund for Development and Investment (NFID). The Ministry of Economy has the lead in drafting the NFID implementation blueprint.

7. State-Owned Enterprises

The Ministry of Energy oversees energy generation and distribution assets, and uranium and coal mining. The Ministry of Economy has authority over state-controlled natural gas carrier Transgaz, national electricity carrier Transelectrica, national salt company Salrom, national waters company SNAM, and copper mining company Cuprumin. The Ministry of Transportation (MOT) has authority over the entities in the transportation sector, including rail carrier CFR Marfa. Romania’s privatization law permits the responsible authority to hire an agent to handle the entire privatization process, though ultimate decision-making authority remains with the government. Joint ventures between state-owned energy companies and private investors for electric power production have been stalled due to decreasing energy consumption and declining energy prices.

The terms of Romania’s 2013-2015 precautionary stand-by agreement with the IMF included the sale of minority stakes in several state-owned energy companies through initial public offerings (IPOs) and secondary public offerings (SPOs) on the Bucharest Stock Exchange (BVB). To date, successful transactions have included a 15 percent SPO for natural gas transmission operator Transgaz in April 2013 (following a 10 percent IPO in November 2007), an IPO for 10 percent stake in nuclear power producer Nuclearelectrica in September 2013, an IPO for a 15 percent stake in natural gas producer Romgaz in October 2013, and an IPO on the BVB and London Stock Exchange for the majority privatization of state-controlled electricity distributor Electrica in June 2014. The government indicated plans for a 15 percent IPO for integrated coal mining and coal-fired power production company Oltenia Energy Complex, but the offering was not carried out. Preparation for the IPO of hydropower producer Hidroelectrica is ongoing.

Romania has implemented the Electricity Directive and the Gas Directive of the EU’s Third Energy Package, introducing a structural separation between transmission system operator activities, and generation, production and supply activities. Ownership unbundling rules apply to investors with participation in energy transmission, generation, production, and/or supply activities. According to the Third Energy Package directives, the same entity cannot control generation, production and/or supply activities, and at the same time control or exercise any right over a transmission system operator (TSO). Furthermore, the same entity cannot control a TSO and at the same time control or exercise any right over generation, production and/or supply activities. Consequently, the Ministry of Economy oversees the national natural gas carrier Transgaz and national electricity carrier Transelectrica, while the Ministry of Energy has authority over state-controlled electricity producers. Prospective investors are strongly advised to conduct thorough due diligence before any acquisition, particularly of state-owned assets.

Privatization Program

As a member of the EU, Romania is required to notify the European Commission’s General Directorate for Competition regarding significant privatizations and related state aid. Prospective investors should seek assistance from legal counsel to ensure compliance with relevant legislation. The state aid schemes aim to enhance regional development and job creation through financial support for new jobs or investment in new manufacturing assets. The Ministry of Finance issues public calls for applications under the schemes. GOR failure to consult with, and then formally notify, the European Commission properly has resulted in delays and complications in some previous privatizations.

Private enterprises compete with public enterprises under the same terms and conditions with respect to market access and credit. Energy production, transportation, and mining are majority state-owned sectors, and the government retains a monopoly on electricity and natural gas transmission.

Investors receiving state aid, whose investments have been affected by the global economic crisis, have found renegotiation of their state aid agreements to be cumbersome, in part due to local authorities’ failure to acknowledge that market conditions have changed. Some investors have experienced problems due to the occasional failure of GOR entities to fully honor contractual obligations following conclusion of privatization agreements.

Romanian law allows for the inclusion of confidentiality clauses in privatization and public-private partnership contracts to protect business proprietary and other information. However, in certain high-profile privatizations, parliamentary action has compelled the public disclosure of such provisions.

8. Responsible Business Conduct

Romania adhered to the OECD Declaration on International Investment and Multinational Enterprise in 2004. The GOR regularly sends representatives to the working sessions of the OECD Investment Committee and its Working Party on Responsible Business Conduct. Romania established an OECD National Contact Point in 2005 to promote the OECD Guidelines for Multinational Enterprises. Romania’s investment promotion agency Invest Romania currently serves at the contact point.

Romania defines responsible business conduct (RBC) in its National Anticorruption Strategy (NAS) as promoting a competitive business environment with integrity and implementing international standards and best practices in the public and private sector. The Ministry of Justice organized a second round of NAS cooperation meetings in May 2017 with stakeholders from public institutions, independent agencies, civil society, and the business community. These meetings served to establish evaluation criteria for the declaration of gifts and whistleblower protections.

Several NGOs in Romania pro-actively monitor, advocate, and raise concerns on RBC issues. No high-profile cases of private sector impact on human rights were recorded during the past year. However, the National Council for Combating Discrimination, the government agency responsible for applying domestic and EU anti-discrimination laws, imposed several fines on companies for discrimination against their own staff or prospective employees. The cases involved gender-based discrimination and harassment over labor union membership and child care leave. The government has not fully implemented a law which prohibits discrimination against persons with physical, sensory, intellectual, and mental disabilities in employment, education, transportation and access to health care.

SOEs are required by law to publish an annual report. Majority state-owned companies that are publicly listed, as well as state-owned banks, are required to be independently audited. If properly implemented, legislation on corporate governance of SOEs should ensure the professional selection of board members and managers, and bring more transparency and accountability to the management and oversight of SOEs. The Corporate Governance Code (enacted through Government Emergency Ordinance 109 / 2011 and revised through Law 111 / 2016) does not have language requirements for SOE executive and non-executive board members. However, the corporate governance principles that the Ministry of Economy applies for the recruitment of board members of SOEs under its purview require candidates to have good command of the Romanian language, which restricts eligibility.

Romania does not participate in the Extractive Industries Transparency Initiative (EITI), but is an adherent to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas since 2012.

9. Corruption

Romania’s fight against high and medium-level corruption has become increasingly credible, with significant numbers of prosecutions and convictions of corrupt public officials in recent years. Its prosecutorial efforts have become a model in Southeastern Europe. Romania was ranked 57th of 176 countries in Transparency International’s 2016 Corruption Perception Index, still among the lowest ranked EU member states, but ahead of Italy, Greece, Bulgaria and other countries in its region. The European Commission’s (EC) 2016 Report on Progress under the Cooperation and Verification Mechanism (CVM) in Romania noted a “positive trend and a track record pointing to strong progress and growing irreversibility of reform.” However, in order to ensure irreversibility of reform, more steps need to be taken, including “the Government and Parliament ensur[ing] full transparency and tak[ing] proper account of consultations with relevant stakeholders in decision-making and legislative activity” on criminal and civil codes; continue to implement the National Anti-Corruption Strategy and respect its deadlines; and “ensure that the National Agency for the Management of Seized Assets is fully and effectively operational” so that it can provide “reliable statistical information on confiscation of criminal assets.” The report recommended transparent and merit-based selection procedures as a way to provide robust leadership, avoid political interference in senior appointments, and support judicial independence. The report also noted that Romania needs to do more to combat low level corruption, especially in the healthcare and education sectors.

The National Anti-Corruption Directorate (DNA) continued to investigate and prosecute corruption cases involving medium- and high-level political, judicial, and administrative officials throughout 2016, with over 1,200 indictments, of which more than a quarter were on abuse-of-office charges. Conflicts of interest, respect for standards of ethical conduct, and integrity in public office in general remained a concern for all three branches of government. Individual executive agencies were slow in enforcing sanctions, and agencies’ own inspection bodies were generally inactive. The national fiscal authority (ANAF), however, through its fraud division increased financial audits of private companies.

The Ministry of Justice adopted in August 2016 a national anti-corruption strategy for 2016-2020, which follows on and expands the more relevant findings of the previous national anti-corruption strategy, 2012-2015, which focused on strengthening administrative review and transparency within public agencies, preventing corruption, increased and improved financial disclosure, conflict of interest oversight, more aggressive investigation of money laundering cases, and passage of legislation to allow for more effective asset recovery. The strategy includes an increased focus on corruption prevention, including education in civics and ethics for civil servants, a requirement for peer reviews of state institutions, stepped-up measures to strengthen integrity in the business environment, a significant decrease in public procurement fraud, and an increased role for ethics advisors and whistle-blowers. However, the current government so far has not acted to move forward on this anti-corruption strategy and instead indicated it may compile a new one.

In March 2002, to reduce corrupt practices in public procurement, the GOR inaugurated a web-based e-procurement system ( ), designed to provide a transparent listing of both ongoing and closed solicitations, with the names of the winners and the closing prices made available to the public. The use of “e-licitatie” has increased government efficiency, reduced vulnerability to corruption, and improved fiscal responsibility in government procurement. State entities, as well as public and private beneficiaries of EU funds, are required by law to follow public procurement legislation and use the e-procurement system.

Romania implemented the revised Public Procurement Directives with the passage in May 2016 of four new laws to improve and make more transparent the public procurement process. The National Agency for Public Procurement has general oversight over procurements and can draft legislation, but procurement decisions remain with the procuring entities. The 2016 CVM report points to low acceptance and even resistance to integrity rules within a substantial number of local authorities, with implications for public procurement. In October 2016, the “Prevent” IT system, an initiative sponsored by the National Integrity Agency for ex-ante check of conflicts of interests in public procurement, was signed into law. The mechanism aims to avoid conflicts of interest by automatically detecting conflict of interests in public procurement before the selection and contract award procedure. The January 2017 CVM report highlights public procurement as an area where corruption reduces the positive impact of investment and notes that preventing conflicts of interest, fraud, and corruption in public procurement remain a serious challenge.

The laws extend to politically exposed persons, yet, at the same time, criticism of magistrates by politicians and in the media and lack of respect of judicial decisions remain frequent. Laws prohibit bribery, both domestically and for Romanian companies doing business abroad. The judiciary remains paper based and inefficient, and Romania loses a number of cases each year in the European Court of Human Rights (ECHR) due to excessive trial length. Asset forfeiture laws exist, but a functioning asset forfeiture regime remains under development. 80 percent of cases in the court system are property related.

Only private joint stock companies use internal controls, ethics, and compliance programs to detect and prevent bribery of government officials. This is due to their adherence in principle to corporate governance rules, rather than the government’s proactive stance. U.S. investors have complained of both government and business corruption in Romania, with the customs service, municipal officials, and local financial authorities most frequently named. In some cases, demands for bribes by low- to mid-level officials reach the point of harassment.

Romania is a member of the Southeast European Law Enforcement Center (SELEC). Romania does not provide protections to NGOs involved in investigating corruption.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

Romania is member of the UN Anticorruption Convention. Romania is not a member of the OECD Anti-Bribery Convention.

Romania expressed interest to join the new anti-corruption working group of the Open Government Partnership initiative.

Resources to Report Corruption

Contact at government agency responsible for combating corruption:

National Anticorruption Directorate (DNA)
Str. Stirbei Voda nr. 79-81, Bucuresti
+40 21 312 73 99 

Contact at “watchdog” organizations:

Expert Forum
Strada Semilunei, apt 1, Sector 2, Bucuresti,
+40 21 211 7400

Freedom House Romania
Bd. Ferdinand 125, Bucuresti
+4021 253 28 38

Funky Citizens
Colivia, Pache Protopopescu 9
+40 0723 627 448

10. Political and Security Environment

Romania does not have a history of politically motivated damage to foreign investors’ projects or installations. However, anti-shale gas protestors invaded the site of a U.S. energy company’s exploratory well in October 2013, damaging the perimeter fence and some equipment. Major civil disturbances are rare. During the February 2017 anti-government protests, some government leaders pointed to “multi-nationals” as among the orchestrators. As of March 2017, there has been no tangible effect of this claim, and there has been no retribution taken against “multi-national” companies by the government or protestors.

11. Labor Policies and Practices

Romania has traditionally boasted a large, skilled labor force at comparatively low wage rates in most sectors. The labor pool has tightened in highly skilled professions, in particular the information technology sector. The university system is generally regarded as good, particularly in technical fields, though foreign and Romanian business leaders have urged reform of outdated higher education curricula to better meet the needs of a modern, innovation-driven market. Payroll taxes remain steep, resulting in an estimated 25-30 percent of the labor force working in the underground economy as “independent contractors,” where their salaries are neither recorded nor taxed. Even for registered workers, under-reporting of actual salaries is common. The unemployment rate in Romania was 6 percent in 2016, but the unemployment rate among youth aged 16-24 was 20 percent.

Low levels of unemployment are matched by one of the highest inactivity rates of the working-age population in the EU. The economically inactive population, the portion of the population aged 15-64 years old not employed , represents 34 percent of the total working age population. The inactive population includes those unavailable to work or not looking for work as they are retired, enrolled in an education or training program, have other family responsibilities, caring for children or for incapacitated adults, or simply wish not to work. Romania had 8.5 million active people in 2015, of whom 2.1 million were active in agriculture. Of these 2.1 million people, 90 percent were either self-employed or living on subsistence agriculture.

Romania faces a shortage of healthcare staff as doctors and nurses continue to depart Romania to work abroad, motivated not only by the higher salaries, but also by the antiquated medical practices they face in Romania. Annually Romania admits approximately 3,000 new doctors into practice, but roughly 3,500 leave the system through death, retirement, or emigration. Romanian hospitals now face a shortage of approximately 13,000 doctors. The GOR issued a 10 percent wage increase for doctors of public hospitals in August 2016 to help address this outflow of medical personnel, however, the GOR lacks a comprehensive strategy to remedy these staff shortages.

The Labor Code is the law regulating the labor market in Romania including contracting, controlling how regulations are applied, and jurisdiction. It applies to both national and foreign citizens working in Romania or abroad for Romanian companies. As an EU-member state, Romania has no government policy that requires the hiring of nationals, but has annual work permit quotas for other foreign nationals. In 2017, the government set up a total of 5,500 work permits, identical with 2016 numbers. Once the quotas are exhausted for a particular category, the government cannot issue additional work permits in that category until the following year – unless the Romanian government exceptionally adjusts the quotas. Work permits are issued for a maximum of one year for a fee of 200 Euros (payable in the RON equivalent of that day’s exchange rate), except for students and seasonal workers, who pay 50 Euros. These permits are automatically renewable with a valid individual work contract.

Since Romania’s revolution in December 1989, labor-management relations have occasionally been tense, the result of economic restructuring and personnel layoffs. Trade unions, much better organized than employers’ associations, are vocal defenders of their rights and benefits. Employers are required to make severance payments for layoffs according to the individual labor contracts, internal regulations, and collective bargains. The Labor Code differentiates between layoffs and firing; severance payments are due only in case of layoffs. There is no treatment of labor specific to special economic zones, foreign trade zones, or free ports.

Romanian law allows workers to form and join independent labor unions without prior authorization, and workers freely exercise this right. Companies may claim damages from strike organizers if a court deems a strike illegal. Labor unions are independent of the government. Labor dispute mechanisms are in place, including any conflicts between employers and employees regarding economic, social, professional interests. The labor conflicts are solved in court according to civil code. They can be initiated by the employee, employer, or labor union. Several public-sector strikes took place Romania during 2016, bringing doctors, nurses, teachers, postmen, civil servants, and prison guards into the streets. They sought higher pay, better working conditions, and proper staffing, especially in the healthcare sector where personnel deficits result in staff working excessive overtime.

Union representatives alleged that official reports of incidents of antiunion discrimination remained minimal, as it is difficult to prove legally that employers laid off employees in retaliation for union activities.

The government has generally respected the right of association, and union officials state that registration requirements stipulated by law were complicated, but generally reasonable. Collective bargaining is used for companies with over 21 employees representing written agreements between the employer or patronage and the employees. Currently there are 14,343 collective labor agreements in the private sector at the company level. The law permits, but does not impose, collective labor agreements for groups of employers or sectors of activity.

Romania, as an EU-member state and ILO-affiliated country, observes international labor rights. The law prohibits all forms of forced or compulsory labor, but the government did not effectively enforce the law. Such practices often involving Roma and children continue to occur in Romania, as penalties are insufficient to deter violations. The minimum age for most forms of employment is 16, but children may work with the consent of parents or guardians at age 15. The law prohibits minors from working in hazardous conditions, provides a basis for the elimination of hazardous work for children, includes a list of dangerous jobs, and specifies penalties for offenders. In May 2016, the national minimum monthly wage was set at 1,250 RON (approximately USD298), while in January 2017 the newly elected government increased the minimum wage to 1,450 RON (USD345) for full-time employment, or approximately 8.74 RON (USD2.03) per hour.

Labor laws and regulations are not waived or derogated to attract or retain investments. The 2011 amendments to the Labor Code gave employers more flexibility to evaluate employees based on performance, and significantly relax hiring and firing procedures. Romania enacted several labor related laws in 2014, including one approving the national labor strategy for 2014-2020. Since 2014, parliament has considered a bill to reintroduce the national collective bargaining agreement, and it remains pending.

Current legislation makes it very costly to engage non-EU citizens in Romania. Foreign companies often resort to expensive staff rotations, special consulting contracts, and non-cash benefits. In January 2017, the government removed the cap on social welfare contributions, levying social welfare contributions on the entire gross salary without any ceiling. Prior to this, employees with gross wages above USD3,347 per month paid a monthly maximum social contribution of USD331, but as of February 2017 they will pay 10.5 percent of their gross income.

12. OPIC and Other Investment Insurance Programs

OPIC has been authorized to do business in Romania since the signing of the 1992 bilateral agreement. OPIC-supported investment funds in Romania & southeast Europe include the 2013 Treetops Capital Agribusiness Fund (Romania), and the 2012 Accession Mezzanine Capital (Poland, Romania, Bulgaria, Ukraine, Czech Republic). The 2009 OPIC-supported non-bank financial institutions in Romania included CAPA Finance, Verida Credit , and Express Finance.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2015 $177.77 billion IMF: 2015 $178.0 billion
Foreign Direct Investment Host Country Statistical Source** USG or International Statistical Source USG or international Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) End-2016 $1.19 billion BEA 2015 $2.59 billion BEA data available at
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A N/A N/A BEA data available at
Total inbound stock of FDI as % host GDP 2015 32.1% N/A N/A N/A

* Source: National Statistics Institute
** Source: National Office of Trade Register, National Statistics Institute

Table 3: Sources and Destination of FDI

FDI domestic data from the National Office of Trade Register are below CDIS and National Bank of Romania data. Tax havens sources of inward FDI, i.e., Cyprus, are domestically reported as such, without mentioning the ultimate source as another possible country of origin. The CDIS source doesn’t report outward direct investments from Romania.

Table 4: Sources of Portfolio Investment

Portfolio Investment Assets
Top Five Partners (Millions, US Dollars)
Total Equity Securities Total Debt Securities
All Countries 3009 100% All Countries Amount 1148% All Countries 1861 100%
Austria 642 21% Luxembourg 599 52% Austria 388 21%
Luxembourg 641 21% Austria 254 22% Turkey 328 18%
Turkey 329 11% Germany 86 7% Netherlands 182 10%
Netherlands 185 6% Ireland 50 4% U.S. 148 8%
U.S. 177 6% France 39 3% UK 99 5%

Romania did not attract significant foreign direct investment (FDI) until after the 1990s, due to delays in post-Communist economic reforms. According to data provided by the National Office of the Trade Registry, the cumulative net stock of FDI from January 1990 to December 2016 totaled USD 59.16 billion. Romanian direct investments abroad from January to December 2016 totaled USD1.035 billion.

Major sectors for foreign investment include:

  • Automobile and automotive components (Renault, Daimler Benz, Ford, Siemens, Continental, Alcoa, Delphi Packard, Johnson Controls, Adient, Honeywell Garrett, Michelin, Pirelli);
  • Banking and finance (Citibank, Société Générale, MetLife, ING, Generali, Raiffeisen, Erste Bank, Unicredit, Alpha Bank, National Bank of Greece, Intesa Sanpaolo, Garanti Bank, Credit Agricole, Allianz, Leumi, Fairfax);
  • Information Technology (Hewlett Packard, Intel, Microsoft, Oracle, Cisco Systems, IBM);
  • Telecommunications (Orange, Deutsche Telekom, Telesystem International Wireless Services, Vodafone, Liberty Media/UPC);
  • Hotels (Hilton, Marriott, Best Western, Crowne Plaza, Accor, Ramada, Radisson, Sheraton);
  • Manufacturing (Timken, General Electric, Cameron, LNM, Marco, Flextronics, Holcim, Lafarge, Heidelberg, Plexus, Toro);
  • Consumer products (Procter and Gamble, Unilever, Henkel, Coca-Cola, PepsiCo, Parmalat, Danone, Muller);
  • Retail chains (Metro, Delhaize, Kingfisher, Dm Drogerie, Carrefour, Cora, Selgros, Auchan, Kaufland, Praktiker, Leroy Merlin).

According to Romanian Trade Registry statistics, the value of U.S. direct investment in Romania as of December 2016 was about USD1.19 billion. The U.S. is the 14th-ranked foreign investor nation, after the Netherlands, Austria, Germany, Cyprus, France, Italy, Greece, Spain, Luxemburg, Czech Republic, Switzerland, UK, and Hungary. U.S.-source investment represented 2.1 percent of Romania’s total FDI. As official statistics do not fully account for the tendency of U.S. firms to invest through their foreign, especially European-based, subsidiaries, the actual amount of U.S. FDI is higher. Romanian statistics also over-emphasize physical, capital-intensive investments, while overlooking the impact of foreign investment in services and technology.

Significant U.S. direct investors (including investments made through branches or representative offices) include:

  • Advent Central and Eastern Europe – investment fund;
  • AECOM – engineering and design;
  • Adient – automotive;
  • Met Life – life insurance;
  • Alcoa – automotive, aluminum processing;
  • Bunge – grain trading;
  • Cargill – grain export and food processing;
  • Citibank – banking;
  • Coca-Cola – beverage, food;
  • Cooper Cameron – gas field equipment manufacturer;
  • Delphi – automotive parts;
  • EuroTire – mining and heavy equipment tires;
  • Flextronics – medical, telecom, automotive;
  • Ford – automotive assembly;
  • General Electric – diversified industrial products;
  • Hewlett Packard – IT equipment, services;
  • Hoeganaes – iron powder for automotive;
  • Honeywell – automotive;
  • IBM – IT equipment;
  • Intel – software development services
  • McDonald’s – food;
  • Microsoft – software services;
  • New Century Holding – investment fund;
  • Office Depot – office and business supplies;
  • Oracle – IT services, consulting;
  • Pepsico – beverage;
  • Philip Morris – tobacco products;
  • Procter and Gamble – consumer products;
  • Qualcomm – telecommunications;
  • Smithfield Foods – food production and distribution;
  • Timken – industrial bearings;
  • Liberty Media UPC – cable television operator;
  • Visa – financial services;
  • URS – engineering.

In addition to these companies, the European Bank for Reconstruction and Development (EBRD) remains the single largest investor (debt plus equity) in Romania, with some USD7.85 billion invested. The U.S. is a 10 percent shareholder in the EBRD.

Foreign Portfolio Investment

In 2016 foreign portfolio investment net inflows amounted to USD1.251 billion, out of which USD1.489 billion represented the net acquisition of long-term debt securities.

14. Contact for More Information

Monica Dragan
Information Resource Center Director
B-dul Dr. Liviu Librescu 4-6