Policies Towards Foreign Direct Investment

The GOA understands that private sector development and increased levels of foreign investment are critical to support sustainable economic development.  Albania maintains a liberal foreign investment regime designed to attract FDI. The Law on Foreign Investment outlines specific protections for foreign investors and allows 100 percent foreign ownership of companies, except in the areas of domestic and international air passenger transport and television broadcasting.  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 to investors for investments of more than 10 million euros.  Amendments in 2017 and 2018 extended state protection for strategic investments as defined under the 2015 Law on Strategic Investments.

The Albanian Investment Development Agency (AIDA) oversees promoting foreign investments in Albania.  Potential U.S. investors in Albania should contact AIDA to learn more about services AIDA offers to foreign investors (http://aida.gov.al/  ).

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

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

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic investors have equal rights of ownership of local companies, based on the principle of “national treatment.”  According to the World Bank’s “Investing Across Borders”   indicator, just three of 33 sectors have restrictions against full foreign ownership, or in the case of the agriculture sector, against foreign land ownership.

• Domestic and international air passenger transport: foreign interest in airline companies is limited to 49 percent ownership by investors outside the Common European Aviation Zone, for both domestic and international air transportation;
• Television broadcasting: no entity, foreign or domestic, may own more than 40 percent of a television company.
• Agriculture: No foreign individual or foreign incorporated company may purchase agricultural land, though land may be leased for up to 99 years

Albania lacks an investment review mechanism for inbound foreign direct investment.  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.  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 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) completed a Trade Policy Review of Albania in May 2016 (https://www.wto.org/english/tratop_e/tpr_e/tp437_e.htm  ).

In November 2017, UNCTAD completed the first Investment Policy Review (IPR) of South-East European (SEE) countries, including Albania (http://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=1884  ).

Business Facilitation

The National Business Center (NBC) serves as a one-stop shop for business registration.  All required procedures and documents are published on-line (http://www.qkb.gov.al/information-on-procedure/business-registration/).  Registration may be done in person or online via the e-Albania portal  .  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 the Albanian language.  

Outward Investment

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

Investment Treaties

The United States and Albania signed a Bilateral Investment Treaty (https://www.state.gov/e/eb/ifd/bit/117402.htm) 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 April 2018, Albania had concluded bilateral investment treaties with 45 countries.

See a full list here: https://investmentpolicyhub.unctad.org/IIA/CountryBits/2#iiaInnerMenu  .  Out of 45 agreements, seven are not yet in force.  The BIT with the United States has been in force since 1998.

Taxation Treaties

As of April 2018, Albania had signed treaties for the avoidance of double taxation with 41 countries.  See a full list here: https://www.tatime.gov.al/c/6/125/marreveshje-nderkombetare  .

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.

Transparency of the Regulatory System

Albania’s legal, regulatory, and accounting systems have improved in recent years, but challenges remain.  Uneven enforcement of legislation, cumbersome bureaucracy, and a lack of transparency all hinder 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.  Albania meets minimum standards on fiscal transparency, and debt obligations are published by the Ministry of Finance and Economy. Albania’s budgets are publicly available, substantially complete, and reliable.

The law on notification and public consultation requires that the GOA publish draft laws and regulations for public consultation or notification.  Such draft laws and regulations are published at the following page: http://www.konsultimipublik.gov.al/. However, the business community frequently complains that final versions of laws and regulations fail to incorporate their comments and concerns.

All laws, by-laws, regulations, decisions by the Council of Ministers, decrees, and any other regulatory acts are published at the National Publication Center at the following site: https://qbz.gov.al/  

Other independent agencies and bodies, including, but not limited to, the Energy Regulator (ERE), Telecom Regulator (AKEP), Natural Resources Bureau (AKBN), and Extractive Industries Transparency Initiative (EITI), oversee 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, malign 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 interpretations of Albanian legislation and regulations governing oil exploration and extraction.

International Regulatory Considerations

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

Albania signed a Stabilization and Association Agreement (SAA) with the EU in 2006, and currently seeks to open accession talks with the EU.  The country has embarked on a gradual process of legislation approximation with the EU.

Legal System and Judicial Independence

The Albanian 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, family, 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, 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, Sports Law, etc.

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, the GOA ignored a 2016 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 leased 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.

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 foreign investors have taken advantage of the law. Several projects proposed by domestic companies or consortiums of local and foreign partners have been designated as strategic investments, mostly in the tourism sector.

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 7764/1993 “On the Foreign Investments” amended by the Law 10316/2010.
• 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;

Authorities responsible for mergers, change of control, and transfer of shares include, the Albanian Competition Authority (ACA; http://www.caa.gov.al/laws/list/category/1/page/1) 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; http://www.amf.gov.al/ligje.asp  ) 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, which may represent as much as 40 percent of the formal economy, 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 only if the number of foreign employees did not exceed 10 percent of the total number of employees on the payroll over the preceding 12 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 EU’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.  The GOA is in the process of approving changes to the law that would restrict third party unsolicited proposals in certain sectors.

Competition and Anti-Trust Laws

The Albanian Competition Authority (http://www.caa.gov.al/?lng=en  ) is the agency that reviews transactions for competition- related concerns.  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, the Financial Supervisory Authority (http://amf.gov.al/  ) and/or the Bank of Albania (https://www.bankofalbania.org/  )  may require additional regulatory approvals.  Transactions between parties outside Albania, including 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 (ECHR) in Strasbourg, France. As of December 2018, the Court had issued around 31 decisions in favor of Albanian citizens in civil cases involving protection of property, with financial bill in the millions of euros for the GOA.  A significant number of applications are pending for consideration before the ECHR. Even after settlement in Strasbourg, enforcement remains slow.

To address the situation, the GOA approved new property compensation legislation in 2018 that aims to provide a solution to the pending claims for restitution and compensation.  The 2018 law reduces the burden on the state budget by changing the cash compensation formula. The legislation presents three methods of compensation for confiscation claims: restitution; compensation of property with similarly valued land in a different location; or financial compensation.  It also set a 10-year timeframe for the completion of the entire process.

The GOA 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).

Investor-State Dispute Settlement

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 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 GOA 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 GOA 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 corrupt and inefficient bankruptcy court proceedings make it difficult for companies to reorganize or discharge debts through bankruptcy.  A law on bankruptcy that entered into force in May 2017 aimed to address loopholes in the insolvency regime, decrease unnecessary market exit procedures, reduce fraud, and ease collateral recovery procedures.  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.

Debtors, creditors, or tax authorities can initiate a bankruptcy procedure.  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 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.

If 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 offenses 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 2019 “Doing Business” Report, Albania ranked 39th out of 190 countries in the insolvency index.  A reference analysis of ‘resolving insolvency’ can be found at the following link: http://www.doingbusiness.org/data/exploreeconomies/albania#resolving-insolvency  

Investment Incentives

The Albanian Investment Development Agency (AIDA; www.aida.gov.al) is the best source to find incentives offered across a variety of sectors.  Aside from the incentives listed below, individual parties may negotiate additional incentives directly with AIDA, the Ministry of Finance and Economy, or other ministries, depending on the sector.

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 employ when approving a strategic investment.  The GOA has extended by one year, to December 2019, the deadline to apply to qualify as a strategic investment. A strategic investment is defined as an investment of public interest, based on several criteria, including the size of the investment, implementation time, productivity and value added, creation of 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 EUR 1 million to EUR 100 million, 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.  Under 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, established the Strategic Investments Committee (SIC), a commission headed by the prime minister whose members include ministers covering the respective strategic sectors, the state advocate, and relevant ministers whose portfolios are impacted by the strategic investment.  The Albanian Investment Development Agency (AIDA) serves as the Secretariat of SIC and oversees 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 investments of 50 million euros or more enjoy special procedure status.

Tourism and Economic Areas: Investments of 5 million euros or more enjoy the status of assisted procedure, while investments greater than 50 million euros enjoy the status of special procedure.  In 2018, the GOA introduced new incentives to promote the tourism sector. International hotel brands that invest at least USD 8 million for a four-star hotel and USD 15 million for a five-star hotel are exempt from property taxes for 10 years, pay no profit taxes, and pay a value-added tax (VAT) of just 6 percent for any service on their hotels or resorts.  For all other hotels and resorts, the GOA reduced the VAT on accommodation from 20 percent to 6 percent. In the information technology sector, the government has recently reduced the profit tax for software development companies from 15 percent to 5 percent.

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

In addition, the GOA offers a wide range of incentives and subsidies for investments in the agriculture and agro-tourism sectors.  The funds are a direct contribution from the state budget and the EU Instrument of Pre-Accession for Rural Development Fund (IPARD.)  IPARD funds allocated for the period 2018-2020 total 71 million euros.  The program is managed by the Agricultural and Rural Development Agency (http://azhbr.gov.al/  ).  Profit taxes for agrotourism ventures are now 5 percent, down from 15 percent previously, while the value-added tax (VAT) is now six percent, down from 20 percent previously.  Agricultural inputs, agricultural machinery, and veterinary services are exempt from VAT. The government offers other subsidies to agricultural farms and wholesale trade companies that export agricultural products.  

Development Priority Areas: Investments greater than one million euros that create 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: Certain machinery and equipment imported for the construction of hydropower plants are VAT exempt.  The government supports the construction of small wind and photovoltaic parks with an installed capacity of less than three megawatts and two megawatts, respectively, by offering feed-in-premium tariffs for 15 years.  The Energy Regulatory Authority (ERE; http://www.ere.gov.al/  ) conducts an annual review of the feed-in-premium tariffs for wind and photovoltaic parks.  The ERE also conducts an annual review of the feed–in-tariffs for small hydroelectric plants with an installed capacity of fewer than 15 megawatts.  Imports of machinery and equipment for investments of greater than 400,000 euros for mall wind and solar parks with an installed capacity of fewer than three megawatts and two megawatts, respectively, enjoy a VAT exemption.  Imports of hot water solar panels for household and industrial use are also 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).

In 2019, the GOA reduced the dividend tax from 15 percent to 8 percent.

Corporate income tax exemption: Film studios and cinematographic productions, licensed and funded by the National Cinematographic Center, are exempt from 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 GOA can lease public property of more than 500 square meters 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 for activities that address certain social and economic issues, as well as activities related to sports, culture, tourism, and cultural heritage. Criteria and terms are decided on an individual basis 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 can 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 fiscal and administrative incentives for companies that invest in this sector, and for firms that establish a presence in these areas.  A full list of incentives can be found at: http://www.teda.gov.al/?page_id=687  .

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 TEDAs created the legal framework to establish TEDAs (a.k.a. free trade zones), defining the incentives for developers investing in the development of these zones and companies operating within the zones.  The Ministry of Finance and Economy has announced two investment opportunities that seek private sector developers to obtain, develop, and operate fully serviced areas located in Koplik (61 hectares) and Spitalle (100 hectares). Interested investors and developers can find more information for the development of TEDAs at the following link: http://aida.gov.al/faqe/zonat-me-zhvillim-teknik-dhe-ekonomik  .  

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 constitute less than 10 percent of the investor’s total workforce before a work permit is granted.  There is no minimum requirement for domestic content in goods or technology.

According to current legislation in force, companies with sensitive data (primarily in telecommunications, banking, and energy) are not authorized to transfer data abroad.  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 the Albanian Telecommunication Union (ATU).

Real Property

Protection and enforcement of property rights remain significant challenges for individuals and investors in Albania.  Despite recent improvements, procedures are cumbersome, and registrants have complained of corruption during the process.  The GOA has drafted and passed property legislation in a piecemeal and uncoordinated way. Reform of the sector has yet to incorporate consolidation of property rights or the elimination of legal uncertainties.  According to the EU’s 2018 Progress Report, significant progress has yet to be made toward improving the legal framework for registration, expropriation, and compensation of property. As well, the legalization process for illegal construction throughout the country remains far from complete.  

Through international donor assistance, the property registration system has improved, but reform is incomplete.  Approximately 15 percent of properties nationwide are unregistered, mostly in urban and high-value coastal areas. Albania counts around 4.4 million properties, of which 3.8 million have been registered.  Albania has an estimated 440,000 illegal structures, and illicit construction remains a major impediment to securing property titles. A process that aims to legalize or eliminate such structures was begun in 2008, but remains incomplete.  The situation has led to clashes between squatters and owners of allegedly illegal buildings and the Albanian State Police during the demolition of such structures.

According to the 2019 World Bank’s “Business Report,” Albania performed poorly in the property registration category, ranking 98th out of 190 countries.  It took an average of 19 days and six procedures to register property, and the associated costs could reach 9.2 percent of the total property value. The civil court system manages property rights disputes, though verdicts can take years and authorities often fail to enforce court decisions.

To streamline the property management process, the GOA in April 2019 established the State Cadaster Agency, which integrated several major agencies responsible for property registration, compensation, and legalization, including the Immovable Property Registration Office (IPRO) and the Office for the Legalization of Illegal Structures (ALUIZNI).   

Intellectual Property Rights

Albania is not listed on the United States Trade Representative (USTR) Special 301 Report or Notorious Markets List.  However, intellectual property rights (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 to 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 experienced IPR attorney and avoid potential risks by establishing solid commercial relationships and drafting strong contracts.

A revised 2016 IPR law aimed 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 State Inspectorate for Market Surveillance (SIMS), the Albanian Copyright Office (ACO), the Audiovisual Media Authority (AMA), the General Directorate of Patents and Trademarks (GDPT), the General Directorate for Customs, the Tax Inspectorate, the Prosecutor’s Office, law enforcement, and the courts.  The 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. The Criminal Code was also amended in 2017 to better address copyright infringements.

The SIMS, established in 2016, is responsible to inspect, control, and enforce copyright and other related rights.  The Directorate has noted some progress on IPR protection. Yet, despite minor improvements, law enforcement on copyrights remains problematic and copyright violations are rampant.  The number of copyright violation cases brought to court remains low.

While official figures are not available, Customs does report the quantity of counterfeit goods destroyed annually.  In cases of seizures, 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.

The 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 in 2014 to reflect EU legislation on the matter.

Albania became a contracting party to the World Intellectual Property Organization (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. In 2018, Parliament approved the 34/2018 law, which ensures Albania’s adherence to the Vienna Agreement for the International Classification of the Figurative Elements of Marks.

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at: http://www.wipo.int/directory/en/  

Resources for Rights Holders

Contact at mission on IP issues:

Jeffrey D. Bowan
Economic and Commercial Officer
Phone: + 355 (0) 4229 3115
E-mail: BowanJD@state.gov

Country resources:

American Chamber of Commerce
Address: Rr. Deshmoret e shkurtit, Sky Tower, kati 11 Ap 3 Tirana, Albania
Email: info@amcham.com.al
Phone: +355 (0) 4225 9779
Fax: +355 (0) 4223 5350
http://www.amcham.com.al/  

List of local lawyers: http://tirana.usembassy.gov/list_of_attorneys.html

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 (NPL) remains a concern.  The Bank of Albania’s legal measures to address the problem have generated mostly positive results. The banking sector is fully private.  It has undergone significant consolidation over the last year, shrinking the number of banks to 12, down from 16 at the beginning of 2018. As of December 2018, the Turkish National Commercial Bank had further consolidated its position as the largest bank, with 28.4 percent of the market, followed by Austria’s Raiffeisen Bank, with 15 percent, and Albania’s Credins Bank, with 12.9 percent.  The share of Greek banks has significantly decreased in recent years due to the departure from Albania of the National Bank of Greece and Greece-based Piraeus Group’s Tirana Bank.

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 enough liquidity to support sizeable positions.  Furthermore, portfolio investments remain limited mostly to company shares, government bonds, and real estate.

Nevertheless, the high rate of non-performing loans and the economic slowdown forced commercial banks to tighten lending standards.  After a slight increase in 2017, the stock of loans decreased by 3.3 percent year-on-year in 2018, due also to the 9 percent appreciation of the domestic currency against the euro.  The credit market is competitive, but interest rates in domestic currency can be high, ranging from 6 percent to 8 percent. Most mortgage and commercial loans are denominated in euros, as rate differentials between local and foreign currency average 2.5 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.

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.  The sector has contracted in recent years. In December 2018, Albania had 474 bank branches, down from 552 in 2016. Capital adequacy, at 18.2 percent, remains above Basel requirements and indicates sufficient assets, which in 2018 totaled USD 13.54 billion.  At the end of 2018, the return on assets was 1.2 percent. Non-performing loans continued to fall, reaching 11.1 percent at the end of the 2018, down from 13.2 percent compared with 2017, and a significant improvement over 2014, when NPLs stood at 25 percent.

The Bank of Albania has the flexibility to intervene in the currency market to protect exchange rates and official reserves, but not for longer than 12 months.  As part of its strategy to stimulate business activity, the Bank of Albania has persistently lowered interest rates, which in June 2018 reached a historic low of 1 percent, down from a rate of 1.25 percent in place since May 2016.

Most banks operating in Albania are subsidiaries of foreign banks, and just two have Albanian shareholders.  However, Albanian ownership is expected to increase because of the sector’s ongoing consolidation. 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 must complete a form allowing for the disclosure of their banking data to the IRS as required under 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 Bank of Albania maintains a free float exchange rate regime for its domestic currency, the lek.  Albanian authorities do not engage in currency arbitrage, nor do they view it as an efficient instrument to achieve competitive advantage.  The Bank of Albania does not intervene to manipulate the exchange rate unless required to control domestic inflation, in accordance with the Bank’s official mandate.  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.  A 2018 campaign launched by the BOA with a goal to reduce the domestic use of the euro and other foreign currencies has yet to produce tangible results. The campaign is part of a larger reform that aims to improve the effectiveness of domestic economic policies.

Remittance Policies

The Banking Law does not impose restrictions on the purchase, sale, holding, or transfer of monetary foreign exchange.  However, local law authorizes the BOA 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 BOA 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 1,000,000 lek (USD 9,000) in hard currency and/or precious items.  Failure to declare such assets is considered a criminal act, punishable by confiscation of the assets and possible imprisonment.

Although the Foreign Exchange (FX) 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, a certificate of registration from the National Registration Center, 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 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 2019 INCSR maintains Albania in the “Major Money Laundering Jurisdictions” category following its inclusion for the first time in 2017. The category implies that financial institutions of the country engage in currency transactions involving significant amounts of proceeds from international narcotics trafficking.

Sovereign Wealth Funds

Albania does not have a sovereign wealth fund.  A draft law to establish the Albanian Investment Corporation is currently under discussion.  The GOA plans to transfer state owned assets, including state-owned land, and provide initial capital to launch the corporation.  The corporation would develop, manage, and administer state-owned property and assets as public investments.

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.  SOEs operate mostly in the generation, distribution, and transmission of electricity, oil and gas, railways, postal services, ports, and water supply. There is no published list of SOEs.

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 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, the Law on State Owned Enterprises, and the Law on the Transformation of State-Owned Enterprises into Commercial Companies.  The Ministry of Economy and Finance and other relevant ministries covering the sector in which the company operates represent the state as the owner of the SOEs. There are no legal binding requirements for the SOEs to adhere to Organization for Economic Cooperation and Development (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 Economy and Finance, and one-third by the line ministry, local government unit, or institution to which the company reports.  The Supervisory Board is the highest decision making authority and appoints and dismisses the administrator for the SOE through a two-thirds vote.

Privatization Program

The privatization process in Albania is nearing conclusion, with just a few major privatizations remaining.  Such opportunities include OSHEE, the state-run electricity distributor; 16 percent of Albtelekom, the fixed- line telephone company; and state-owned oil company Albpetrol.

The bidding process for privatizations is public and relevant information is published by the Public Procurement Agency at www.app.gov.al  .  Foreign investors may participate in the privatization program.  No public timelines exist for future privatizations.

The privatization process in Albania is nearing conclusion, with just a few major privatizations remaining.  Such opportunities include OSHEE, the state-run electricity distributor; 16 percent of Albtelekom, the fixed- line telephone company; and state-owned oil company Albpetrol.

The bidding process for privatizations is public and relevant information is published by the Public Procurement Agency at www.app.gov.al  .  Foreign investors may participate in the privatization program.  No public timelines exist for future privatizations.

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 in Albania also formed a 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.

Corruption is a continuing problem in Albania, undermining the rule of law and jeopardizing economic development.  Albania ranked 99th out of 180 countries in Transparency International’s 2018 Corruption Perceptions Index (CPI). Despite some improvement in the index from 2013 and 2014, progress in tackling corruption has been slow and unsteady.  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 fully implemented, is expected to position the country as a more attractive destination for international investors.

Judicial reform has been described as the most significant developments in Albania since the end of communism, and nearly one-third of the constitution was rewritten as part of the effort.  The reform also entails the passage of laws to ensure implementation of the constitutional amendments. Judicial reform’s vetting process will ensure that prosecutors and judges with unexplained wealth, insufficient training, or those who have issued questionable past decisions are removed from the system.  The reform is also establishing an independent prosecutor and a specialized investigation unit to investigate and prosecute corruption and organized crime. Once 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 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 several 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

In an effort to curb corruption, the government announced a new platform in 2017, “Shqiperia qe Duam” – “The Albania We Want,”    which invites citizens to submit complaints and allegations of corruption and misuse of office by government officials.  The platform has a dedicated link for businesses. The Integrated Services Delivery Agency (ADISA), a government entity, provides a second online portal  to report corruption.

While political violence is rare, political protests in 2019 have included instances of civil disobedience, low-level violence, and the use of tear gas by police.  Albania’s June 2017 elections and transition to a new government were peaceful. On January 21, 2011, security forces shot and killed four protesters during a violent political demonstration.  In its external relations, Albania remains a source of stability in the region and maintains generally friendly relations with neighboring countries.

Albania’s labor force numbers around 1.2 million people, according to official data.  After peaking at 18.2 percent in the first quarter of 2014, the official estimated unemployment rate has decreased in recent years, falling to 12.3 percent in December 2018.  However, unemployment among persons aged 15-29 remains high, at 23 percent. Around 40 percent of the population is self-employed in the agriculture sector. Informality remains widespread in the Albanian labor market.  A 2016 International Labor Organization (ILO) report on the informal economy showed that informal employment constituted 32 percent of the labor market in Albania excluding the agriculture sector.

The institutions that oversee the labor market include the Ministry of Finance, Economy, and Labor; the Ministry of Health and Social Protection; the National Employment Service; the State Labor Inspectorate; and private actors such as employment agencies and vocational training centers.  Albania has adopted a wide variety of regulations to monitor labor abuses, but enforcement remains weak due to persistent informality in the work force.

Outward labor migration remains an ongoing problem affecting the Albanian labor market.  For example, recent media reports say a significant number of doctors and nurses have emigrated to Europe, mostly to Germany.  In December 2018, the average public administration salary was approximately 63,276 Albanian lek (approximately USD 575) per month.  The GOA increased the national minimum wage in January 2019 to 26,000 lek per month (approximately USD 225), but it remains the lowest in the region.  

While some in the labor force are highly skilled, many work in low-skill industries or have outdated skills.  The government provides fiscal incentives for labor force training for the inward processing industry, which in Albania includes the footwear and textile sectors.  The National Employment Service provided training and internship opportunities to 8,500 registered job seekers in 2018. It also promotes self-employment through the establishment of new businesses.  In March 2019, Parliament approved a new law on employment promotion, which defined public policies on employment and support programs. Albania has a tradition of a strong secondary educational system, while vocational schools are viewed as less prestigious and attract fewer students.  However, the government has more recently focused attention on vocational education. In 2018, 20.5 percent of high school pupils were enrolled in vocational schools, compared with 15.7 percent in 2013.

Law 108/2013 of 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. However, employment can be regulated through special laws in the case of specific projects, or to attract foreign investment, and wages and training costs may be tax deductible.  The law on Free Trade Zones also provides fiscal incentives for labor taxes in case of investments in the zone.

The Labor Code includes rules regarding contract termination procedures that distinguish layoffs from terminations.  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 contract. Unemployment compensation makes up around 50 percent of the minimum wage.

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.  While there are no official data recording the number of collective bargaining agreements used throughout the economy, they are widely used in the public sector, including by state-owned enterprises. Albania has a labor dispute resolution mechanism as specified in the Labor Code, but the mechanism is considered weak.

Albania has been a member of the International Labor Organization since 1991 and has ratified 54 out of 189 ILO conventions, including the entire set of fundamental and governance conventions.  The implementation of labor relations and standards remains a challenge according to the ILO. Furthermore, labor dialogue has suffered from the 2017 division of the Ministry of Labor and Social Protection into two different institutions.

U.S. Department of State Human Rights Report: https://www.state.gov/reports-bureau-of-democracy-human-rights-and-labor/country-reports-on-human-rights-practices/

U.S. Department of Labor Child Labor Report: http://www.dol.gov/ilab/reports/child-labor  

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: http://www.opic.gov/  

For more information on MIGA, please see: http://www.miga.org/  

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

* Source for Host Country Data: Bank of Albania (http://www.bankofalbania.org/  ), Albanian Institute of Statistics (http://www.instat.gov.al/  ), Albanian Ministry of Finances (http://www.financa.gov.al/  )

Table 3: Sources and Destination of FDI

Table 4: Sources of Portfolio Investment

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

Policies Toward Foreign Direct Investment 

The government of Ukraine actively seeks FDI.  In 2014, the president established the National Investment Council as a consultative and advisory body under the President, and in 2016 the Ukrainian government established the Ukraine investment promotion office (UkraineInvest.com), a state agency with a mandate to attract and support FDI.  Ukraine also established a Business Ombudsman in 2015 to provide a forum for domestic or foreign businesses to file complaints about unjust treatment by state or municipal authorities, state-owned or controlled companies, or their officials. Ukrainian legislation provides for national treatment of foreign investors, in line with its World Trade Organization (WTO) commitments. 

Limits on Foreign Control and Right to Private Ownership and Establishment 

The regulatory framework for the establishment and operation of business in Ukraine by foreign investors is generally similar to that for domestic investors.  Registering a foreign investment is governed by “The Law on Foreign Investments” (2013). Before registering their business, non-Ukrainian citizens must register with the Office of Immigration in the Ministry of Foreign Affairs and receive a taxpayer identification number through the State Fiscal Service.  However, the accreditation process for representative offices of foreign companies and their branches is significantly slower than the simplified registration process for Ukrainian businesses. Accreditation for representative offices is issued by the Ministry of Economic Development and Trade, and it typically costs USD 2,500 and takes 60 days.  In comparison, registering a Joint-Stock company or a Limited Liability company takes approximately six days.

Foreign and domestic private entities can engage in all forms of remunerative activity, with some exceptions:  foreign companies are restricted from owning agricultural land, producing bio-ethanol, manufacturing carrier rockets, and some publishing activities.  In addition, Ukrainian law authorizes the government to set limits on foreign participation in state-owned enterprises, although the definition of “foreign participation” is vague, and the law is rarely used in practice.  Certain critical infrastructure, especially in the energy sector, is precluded by law from private ownership and therefore not available to foreign investors. This includes the gas transmission system, electricity grids, and various manufacturing operations. 

Ukraine currently reviews merger and acquisition investments on competition grounds, but is considering a mechanism for investment review on national security grounds.   According to Ukraine’s investment promotion office, UkraineInvest, foreign direct investments are reviewed on an ad hoc basis by the Cabinet of Ministers if concerns arise, but there is currently no formal process in place. 

Other Investment Policy Reviews 

The Organization for Economic Cooperation and Development (OECD) and the World Trade Organization (WTO) conducted formal investment and trade reviews in 2016, and can be found at OECD: http://www.oecd.org/investment/oecd-investment-policy-reviews-ukraine-2016-9789264257368-en.htm   WTO: https://www.wto.org/english/tratop_e/tpr_e/tp434_e.htm  .  The OECD further reported on SOE reforms in the hydrocarbons sector in 2019: http://www.oecd.org/countries/ukraine/soe-review-ukraine-hydrocarbons.htm   and analyzed Ukraine’s efforts at decentralization in 2018: https://www.oecd.org/countries/ukraine/maintaining-the-momentum-of-decentralisation-in-ukraine-9789264301436-en.htm  

Business Facilitation

The Ukrainian government has taken major steps forward to facilitate the ease of doing business, particularly in improving the protection of minority investors, simplifying procedures for small claims and pre-trial conferences for contract enforcement, and eliminating certain verification requirements that have hindered trading across borders.  As a result, Ukraine moved up five spots in the World Bank’s 2019 Doing Business Ranking, from 76th place in 2018 to 71st. The previous year, Ukraine had climbed four positions in the ranking. In March 2019, the government abolished 149 outdated regulations and requirements in order to simplify doing business in Ukraine.

Private entrepreneurs and legal entities can register online at https://poslugy.gov.ua/   and https://online.minjust.gov.ua/dokumenty/choise/  .  Companies can submit documents online for the Registrar to share with the State Committee of Statistics of Ukraine, the State Pension Fund, State Fiscal Service, the Employment Insurance Fund, the Social Security Fund, and the Fund for Social Insurance.  Usually it takes up to six days to register a business.

Outward Investment

As of December 31, 2018 Ukraine’s investments in foreign countries totaled approximately USD 6.3 billion, according to data provided by the State Statistics Service of Ukraine.  Individuals are limited to investing a maximum of EUR 50,000 (USD 56,000) abroad per year and any investment exceeding this cap requires a license from the National Bank of Ukraine.  Legal entities and private entrepreneurs registered in Ukraine have a cap of EUR 2 million (USD 2.24 million) per year.

Ukraine has signed more than 70 bilateral investment treaties (BITs).  The BIT between the United States and Ukraine has been in force since 1996.  A full list of Ukraine’s BITs can be found at https://feao.org.ua/news/ukraines-bilateral-treaties-investments/?lang=en  .  Ukraine has over 60 bilateral taxation treaties, including with the United States.  A list of Ukraine’s bilateral taxation treaties can be found at http://sfs.gov.ua/en/sts-activity/international-tax-relations/international-treaties–conventions–on-taxation/  .  Ukraine also has a number of free trade agreements (FTAs), and information on these treaties is available at http://mfa.gov.ua/en/about-ukraine/economic-cooperation/trade-agreements. (However, some of this information is outdated).  Ukraine signed a FTA with Thailand September 2018 and with Israel January 2019.  Ukraine is currently negotiating a FTA with Turkey.

In February 2017, Ukraine signed an agreement with the United States to apply the provisions of the U.S. Foreign Account Tax Compliance Act (FATCA).  The legislation needed to ratify FATCA, as well as two other necessary laws to enforce it, are pending in the Parliament.

Transparency of the Regulatory System

Ukraine is struggling to build a transparent and consistent regulatory environment.  The current regulatory regime is characterized by outdated, contradictory, and burdensome regulations, a high degree of arbitrariness and favoritism in decisions by government officials, weak protection of property rights and minority shareholders’ interests, and irregular payments and other bribes.  The country, however, is generally moving in the right direction towards clearer rules and fair competition. Ukraine’s efforts to implement its EU Association Agreement, including the Deep and Comprehensive Free Trade Area (DCFTA), should help boost overall transparency and legal certainty as Ukraine strives to meet EU standards.  Continued deregulation is also one of Ukraine’s key commitments under its IMF program.

Information on existing and draft legislation is available on the Verkhovna Rada (parliament) and Cabinet of Ministers websites.  Proposed legislation may be published on the corresponding Ministry website for public commentary, but often draft legislative initiatives are not publicly available or they reappear in dramatically different form.

The formulation of regulations falls solely under the purview of the government.  In Ukraine there are no regulatory processes managed by non-governmental organizations or private sector associations.  The relevant ministry or regulatory agency is required by law to publish draft text of proposed regulations on its website for review and comment for at least one month but not more than three months.  Along with the draft text, the governmental body must include a data-based assessment justifying the need for the regulation and analyzing potential impact. The ministry or agency receives comments via its website, at public meetings, and through targeted outreach to stakeholders.  At the end of the consultation period, the relevant ministry or regulator must publish the results on its website. 

In a sign of increased openness, the government in the past few years has consulted with NGOs and business associations such as the American Chamber of Commerce and the European Business Association when drafting business- or finance-related regulations and legislation.  These organizations have provided feedback and proposed amendments during the review and approval process.

Public finances and debt obligations are mostly transparent.  Budget documents and information on debt obligations are widely and easily accessible to the general public, including online.  Budget documents provide a mostly full picture of the government’s planned expenditures and revenue streams. Information on debt obligations is publicly available, and is published as part of the budget document on the Parliament’s website.  Information on the status of sovereign and guaranteed debt is published and updated on a monthly basis on the Finance Ministry’s website. Ukraine’s finances related to state-owned enterprises, its three social insurance funds, and natural resource extraction are not yet fully transparent, however.

International Regulatory Considerations

Ukraine is not a member of the EU, but it is working to harmonize many of its standards to meet EU requirements and facilitate access to EU markets.  As Ukraine drafts laws, it often incorporates or references EU norms and standards. Ukraine is a member of the WTO and a signatory to the WTO Trade Facilitation Agreement.  The Ministry of Economic Development and Trade (MEDT) is responsible for notifying all draft technical regulations to the WTO Committee on Technical Barriers to Trade. MEDT typically submits draft text to the WTO for comment, but there have been instances where the draft text was submitted, relatively late in the legislative process, after it had already passed the first reading in the Parliament. 

Legal System and Judicial Independence

The legal system in Ukraine is based on a civil system of codified laws passed by the parliamentary body, the Verkhovna Rada.  In the event of a commercial dispute, a foreign investor may seek recourse through a number of institutions. Generally, the Foreign Investment Law provides that a dispute between a foreign investor and the state of Ukraine must be settled in the Ukrainian courts, unless otherwise provided for by international treaties (such as the case of independent arbitration through the investor-State dispute settlement provisions of the U.S.-Ukraine BIT). 

Courts of general jurisdiction are organized by territory and specialty and include:  local courts; appellate courts; specialized high courts for civil and criminal cases; and the Supreme Court.  Local courts are either courts of general jurisdiction or specialized courts (i.e. commercial and administrative courts).  Local commercial courts exercise jurisdiction over commercial and corporate disputes, while local administrative courts administer justice in legal disputes connected with state government and municipalities, with the exception of military disputes.

The judicial system is independent of the executive branch.  However, extensive corruption in the court system provides an opening for outside influence.  Among the major problems of the Ukrainian judicial system are its overall lack of capacity and the existence of executive and prosecutorial influence on judges.  Ukraine is ranked 117 out of 140 countries with regard to judicial independence by the Global Competitiveness Index   report 2017-2018 (up twelve spots since the 2016-2017 report).

In general, regulations are appealable, but determining whether a regulation is appealable in the national court system depends on the nature and origin of the regulation.

Laws and Regulations on Foreign Direct Investment 

The Law of Ukraine on Investment Activity (1991) established the general principles for investment and was subsequently followed by additional legislative acts, most recently the Law of Ukraine #2058-YIII of May 2017 “On Amendments to Some Laws to Remove Obstacles for Attracting Foreign Investments.”  The website of Ukraine’s Investment Promotion Office (https://ukraineinvest.com/  ) provides relevant laws, rules, procedures, and reporting requirements for potential investors.  Potential investors can also receive specific investment support by emailing howcanwehelp@ukraineinvest.com.

Due in part to conflicts in the body of laws that govern investment and commercial activity in Ukraine, and persistent issues with corruption, foreign investors have found it difficult to pursue cases in Ukrainian courts and often seek arbitration outside of the country.

Competition and Anti-Trust Laws 

The Antimonopoly Committee of Ukraine (AMCU) is the Ukrainian state authority for protection of economic competition.  AMCU’s functions include investigating and prosecuting anticompetitive conduct, granting permissions for mergers and acquisitions, considering applications regarding violations of public procurement as an appeal body, monitoring the state aid system, competition advocacy within the government, and formulating competition policy. 

Expropriation and Compensation 

Current legislation permits legal expropriation of property in certain criminal proceedings or in cases of failure to fulfil investment obligations during privatization procedures.  Additionally, the Law on Legal Regime of Martial Law and the Law on Confiscation of Property During Legal Regime of Martial Law allow for voluntary or forced expropriations for military purposes with compensation to be provided either immediately or following cancellation of the “special regime/martial law” in place due to military operations in eastern Ukraine. 

Dispute Settlement

ICSID Convention and New York Convention

Ukraine is a Party to both the International Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID) and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.  On October 20, 2015, the Government of Ukraine submitted a formal UN communication, noting that Ukraine’s ability to implement its obligations under the New York Convention in the occupied territories of Crimea, Donetsk, and Luhansk is limited and not guaranteed until Ukraine regains effective control from the Russian Federation.  The full text of the communication is available at: C.N.597.2015.TREATIES-XXII.1 of 20 October 2015 .

The procedure for recognition and enforcement of foreign arbitral awards in Ukraine is regulated by the following legislative acts:

• The Law on International Commercial Arbitration (ICAL, 1994).  ICAL is almost a literal translation of the UNCITRAL Model Law.
• The Code of Civil Procedure of Ukraine (CPC, 2004).  Pursuant to Article 390 of the CPC, Ukrainian courts shall enforce foreign court decisions provided that:  recognition and enforcement are stipulated under an international treaty ratified by the Verkhovna Rada; or on the basis of the reciprocity principle under an ad hoc agreement with a foreign country, whose court decision shall be enforced in Ukraine.

Investor-State Dispute Settlement

While U.S. investors have faced many challenges with the Government of Ukraine over the years that have devolved into disputes, international arbitration under provisions of the Bilateral Investment Treaty between the United States and Ukraine have been rare, with two known arbitral proceedings since 2016.  The Embassy only tracks disputes at the request of U.S. businesses or individuals involved in the case, and cannot provide a comprehensive number for all investment disputes involving U.S. or other foreign investors in Ukraine. Such disputes are a significant problem, however, both in fact and in terms of public perception.  As of early 2019, the Embassy was tracking approximately 20 active disputes, some very protracted. Going back 10 years, the Embassy has tracked almost 100 disputes involving a U.S. business or individual. The majority of disputes are related to customs and tax (particularly VAT) issues, or corporate raids.

ICAL limits the jurisdiction of international arbitration tribunals to civil law disputes arising from international economic operations (provided that the commercial enterprise of at least one party exists outside of Ukraine), disputes between international organizations and enterprises with foreign investments in Ukraine, and intracompany disputes of these enterprises.  ICAL does not address foreign arbitral awards issued against the government.

Extrajudicial action against foreign investors in the form of official acts of government (e.g. unwarranted inspections, investigations, fines) and illegitimate acts by private parties (e.g. corporate raiding) occur in Ukraine.  The current Ukrainian government has made it a stated priority to improve the business environment and attract more foreign investment, but progress has been slow.

International Commercial Arbitration and Foreign Courts

The Law on Arbitration Courts (2004) stipulates that parties can now refer most of their commercial or civil-law disputes to courts of arbitration, which are non-state bodies.  Article 51 stipulates that awards of the aforementioned courts of arbitration are final, and Article 57 stipulates that they can be subject to mandatory enforcement via a competent state court.  The Embassy, however, is not aware to what extent arbitration is used by the business community.

Ukraine’s International Commercial Arbitration Court (ICAC) and Maritime Arbitration Commission at the Ukrainian Chamber of Commerce and Industry are both annexed to the ICAL, which itself is a near-direct translation of the UNCITRAL model law.  ICAL distributes the functions of arbitration assistance and supervision between the district courts and the President of the Chamber of Commerce and Industry of Ukraine for both ad hoc and institutional arbitrations. Local courts are obliged to recognize and enforce foreign arbitral awards under ICAL and the CPC, per Ukraine’s obligations under the ICSID and the New York Convention of 1958.  However, the reliability, consistency, and timeliness of implementation are unknown. 

The Embassy is not aware of any investment disputes that have involved state-owned enterprises.

Bankruptcy Regulations

In a turning point for Ukrainian bankruptcy law reform, in October 2018 the Ukrainian parliament adopted the Code of Bankruptcy Proceedings to replace the existing bankruptcy law that had been in force since 1992.  The President signed the bill into law in April 2019. The new Bankruptcy Code enters into force six months after the legislation is published (provisions on electronic auctions will enter into force three month after publication).

The new Bankruptcy Code improves creditors’ rights by allowing them to select the bankruptcy administrator, decide the starting price of debtor assets at auction, and participate in other matters regarding asset sales.  The Law on Bankruptcy (1992) does not require approval by creditors for selection or appointment of an insolvency representative, nor does it require approval by creditors for sale of substantial assets of the debtor. The Bankruptcy Code also improves the procedures for selling debtor’s assets by introducing online electronic auctions.  Currently, assets are often sold offline in a non-transparent way. In addition, the new Bankruptcy Code does not require prior collection through courts or enforcement services for insolvency proceedings to begin. For creditors this might significantly ease the debt collection process and reduce legal costs and court fees. 

Bankruptcy is not criminalized in Ukraine.  The Criminal Code of Ukraine, however, criminalizes 1) intentionally making an entity bankrupt; 2) distorting certain financial data in order to conceal insolvency of a financial institution.

In the 2019 World Bank’s Doing Business Report Ukraine ranked 145 (improved from 149th in 2018) in the “resolving insolvency” subcategory.  Ukraine’s low ranking is driven by a low recovery rate and the high costs associated with recovering funds from the insolvent firm by creditors.

Parliament passed legislation in February 2018 to create a national credit registry administered by the National Bank of Ukraine.  This EU-mandated legislation seeks to reduce lending risks through the publication of credit histories, including bankruptcies.

Investment Incentives 

Foreign investors are exempt from customs duties for any in-kind contribution imported into Ukraine for the company’s charter fund.  Some restrictions do apply and import duties must be paid if the enterprise sells, transfers, or otherwise disposes of the property. Ukraine also offers relatively generous depreciation rates for most fixed assets, including property, plant, and equipment for both foreign and domestic investors.

Foreign Trade Zones/Free Ports/Trade Facilitation

Ukraine does not maintain special or free economic zones (SEZs-FEZs).

Performance and Data Localization Requirements 

Ukraine has no forced localization policies or requirements for foreign IT providers to turn over any source code or provide backdoors into hardware or software applications.  Overall, Ukraine’s IT infrastructure and Internet Service Providers are largely unregulated. However, Ukraine implemented sanctions in 2017 that ban internet service providers from providing access to the Russian social networks VKontakte and Odnoklassniki as well as all services from Yandex and Mail.Ru.

Under Article II, clause 6 of the Bilateral Investment Treaty between the United States and Ukraine, neither Party shall impose performance requirements as a condition of establishment, expansion, or maintenance of investments, which require or enforce commitments to export goods produced, or which specify that goods or services must be purchased locally, or which impose any other similar requirements.

There are no legal measures preventing or impeding companies from transmitting business-related data outside of Ukraine.  In terms of data storage and protection requirements, the EU–Ukraine Association Agreement requires Ukraine to revise legislation to bring it in compliance with the EU’s General Data Protection Regulation (GDPR).  Ukraine’s adoption of regulations harmonized with the EU’s GDPR is still in progress.

An employer is free to employ a foreign national as long as the employer has obtained a work permit for this person.  The law of Ukraine “On Employment of the Population” sets forth the procedure for issuing work permits to foreigners. Authorities issue work permits on a case-by-case basis, for a particular applicant and a particular  position in a company. A work permit is normally issued for the period of employment indicated in the employment contract, but not for more than one year. A work permit can be renewed for the same term, for an unlimited number of times and free of charge.

A foreign citizen with a valid work permit who spends more than 90 days within a 180-day period in Ukraine, can obtain a temporary residence certificate.  As of June 1, 2018, temporary residence certificates are now contactless electronic cards with biometric data. The new permits are generally issued for the term of an individual’s work permit.  There are also no age or nationality restrictions on who can be a manager or company director in the private sector.

Citizens of EU countries, the United States, Canada, Japan and some other countries do not require a visa to enter Ukraine for a stay of up to 90 days within a 180-day period.  Individuals who are planning to get a temporary residence permit in Ukraine due to work must obtain a long-term type D visa. The list of countries and respective visa requirements are available on the website of the Ministry of Foreign Affairs of Ukraine (http://mfa.gov.ua/en  ).  There are no reports from foreign investors and their employees of excessively onerous visa requirements inhibiting their mobility.  However, Russian citizens have reported difficulties and heightened scrutiny when arranging travel to Ukraine. Additionally, people who previously traveled to Russian-occupied Crimea since 2014 have been reported being denied entry to Ukraine.

Real Property

Ukraine’s regulatory framework generally protects property interests, as well as mortgages and liens.  The record system is generally reliable and maintained by the Ministry of Justice. Nonetheless, judicial reform is needed to improve efficient enforcement of property rights.  Foreign nationals are able to lease land, but there is a moratorium on the sale of agricultural land to foreigners.

Ukrainian media estimates that five percent of land in Ukraine does not have clear title.  The government in 2017 ordered the transfer of the State Land Cadaster to blockchain technology in order to allow for reliable data synchronization, which would prevent data manipulation and improve control over the system, but the status of this initiative is unclear.  Pilot projects to transfer the State Land Cadaster and the legal registry to blockchain began in late 2018. Unoccupied property can become communal property only by court decision following a request from the local body authorized to manage real estate property. The request can only be made a year after the property was registered as unoccupied.  

Intellectual Property Rights

Ukraine has a long history of inadequate enforcement and protection of intellectual property rights (IPR).  Ukraine has been listed on the Priority Watch List of the U.S Trade Representative’s Special 301 Report since 2015 due to the widespread use of unlicensed (pirated) software, the transshipment and sale of counterfeit goods, rampant Internet piracy, and an overabundance of rogue of collective management organizations (CMOs).  Moreover, in 2017, the United States announced the partial suspension of Ukraine’s benefits under the Generalized System of Preferences (GSP) for failure to meet the GSP eligibility criterion related to the adequate and effective protection of IPR. Ukraine is also listed in the USTR’s Notorious Markets List. 

Over the past year, Ukraine has passed significant legislation and developed laudable plans to improve the protection of IPR, but the implementation of this legislation and these plans to date has been slow and ineffective.  Despite the passage of new legislation and early steps to implement it, in operation Ukraine’s system of CMOs remains non-transparent and corrupt.  Rights holders report it is still difficult to combat online copyright infringement despite Ukraine improving its anti-piracy legislative framework in 2017.  Furthermore, the presence of counterfeit goods in Ukraine continues to be high due to limited action by law enforcement, and there is widespread use of unlicensed software. 

Due to Ukraine’s weak protection of IPR, online markets that facilitate the sale and distribution of counterfeit goods continue to operate in Ukraine.  Industry reports that a high volume of allegedly counterfeit goods is readily available on these marketplaces, and that the process to remove the listings of these items is cumbersome and ineffective. 

Sales of counterfeit goods in physical marketplaces continue to be widespread as well.  One of the largest counterfeit markets in Europe, with around 6,000 merchants, is the 7th Kilometer Market in Odesa.  Law enforcement authorities do not perform raids or seizures at this market, according to stakeholders and local media.  The Troyeshchyna and Petrivka markets in Kyiv, Khmelnytskiy market as well as the Barabasova market in Kharkiv also sell a high volume of counterfeit goods.

Most counterfeit goods are not produced in Ukraine but are instead imported.  Vendors reportedly source the counterfeit items from Turkey and China. In 2018, Customs reported that they inspected 7,260 shipments due to the suspicion of IP rights’ violations and reported 12 cases of illegal trade of counterfeit goods valued at USD 61,000. This is approximately 30 percent less than in 2017, when Customs authorities opened 14 criminal cases for illegal importation and exportation of counterfeit goods valued at over USD 400,000.  The EU is working with Ukraine on draft law no. 4614 to improve the detection and prevention of “goods infringing intellectual property rights moving through the border” as part of Ukraine’s obligations under the Deep and Comprehensive Free Trade Agreement (DCFTA) with the EU.

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

Capital Markets and Portfolio Investment

The Ukrainian government encourages foreign portfolio investment in Ukraine.  Ukraine’s capital market consists of two separate sectors: stock market and commodity market.  The stock market includes ten stock exchanges and a settlement center. No clearing services are offered at present. 

Government bonds constitute 95 percent of the trades; a few corporate securities are listed, and the volume of their trades is insignificant.  The capital market for portfolio investment is small and lacks liquidity. The local institutional investment sector, including private pension investment, is weak.  The commodity market in Ukraine is underdeveloped and unregulated. It includes hundreds of commodity exchanges and other participants, not licensed or subject to any supervision. 

The regulator, the National Securities and Stock Market Commission, lacks financial and operational independence and, therefore, Ukraine is not a signatory of the Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information (of the International Organization of Securities Commissions. The necessary legislation to strengthen the independence of the Securities Commission was submitted to the Parliament but has not been passed yet.

A foreign investor may open an account in a bank operating in Ukraine and transfer in funds for further investment, or invest directly to an account of a Ukrainian resident company.  In 2017, the National Bank of Ukraine began allowing foreign investors to use escrow accounts to make investments in Ukraine. Only Ukrainian-licensed securities traders may handle securities transactions (subject to certain exceptions).

Credit is largely allocated on market terms and foreign investors are able to get credit on the local market, utilizing a variety of credit instruments, though interest rates remain high.  The credit market environment has long lacked transparency; enforcement of key laws and regulations has been weak; and investors, both domestic and foreign, continue to face significant uncertainty.

Money and Banking System

Ukraine’s banking sector has seen remarkable progress following the 2014-2015 crisis thanks to reforms resulting in the closure of over 90 banks for insolvency or for money laundering activities.  The banking sector reported a record high net profit of UAH 21.7 billion (USD 775 million) in 2018 with the number of unprofitable banks falling from 18 in 2017 to 13 in 2018. Foreign banks’ profits amounted to UAH 15 billion (USD 555 million) in 2018.  Non-performing loans, however, remain one of the biggest unresolved issues of the banking sector accounting for 52.8 percent of loans as of the end of 2018.

There are approximately 77 banks operating in Ukraine, but the top 20 banks accounted for 91 percent of net assets in 2018.  The market share of state-owned banks (Privatbank, Ukreximbank, Ukrgasbank, and Oshchadbank) accounted for 54.7 percent of net assets in 2018.  The banking sector’s net assets amounted to USD 50 billion at end of 2018.

Ukraine’s central bank, the National Bank of Ukraine (NBU), regulates banks operating in Ukraine.  The NBU Governor Smolii outlined a plan to increase the penetration of financial services in Ukraine at a 2018 Financial Inclusion Forum.  The plan included developing new technologies to increase accessibility in rural areas of the country, promoting financial literacy, and protecting customer rights to instill confidence in the system.  Approximately 63 percent of Ukraine’s adults have at least one bank account, according to World Bank estimates.

Foreign-licensed banks may carry out all activities conducted by domestic banks, and there is no ceiling on participation in the banking system, including operating via subsidiaries.  A foreign company can open a bank account in Ukraine for the purposes of investment operations; otherwise, it needs to register a representative office in Ukraine. A nonresident private person can open a bank account in Ukraine.

Foreign Exchange and Remittances

The National Bank in 2018 continued to liberalize currency controls and restrictions on repatriating funds, which had been put in place to stabilize the Ukrainian foreign exchange market during the 2014 economic crisis.  There is a five million euro monthly limit per company for repatriation of non-listed equities and corporate bonds (for foreign currency purchasing and transferring abroad). For all other types of investments repatriation – listed equities, government bonds, funds from reducing share in capital, company liquidation, etc. – there are no restrictions.  There is a monthly limit of seven million euros for the repatriation of dividends. The NBU has indicated it intends to raise the monthly limit to ten million euros.

Companies that receive payment in foreign currency are required to exchange 30 percent of the payment they receive into local Ukrainian currency.  This requirement was decreased from 50 percent as of March 1, 2019.

In June 2018 Ukraine’s Parliament passed the Law “On Currency and Currency Transactions,” which liberalized the currency control framework.  The currency law introduces the “everything is allowed, unless expressly forbidden” principle versus the former “everything is forbidden, unless expressly allowed” principle for cross-border currency transactions.  Consequently, the law prompted a shift from the previous, heavily bureaucratic currency regulation to one more flexible and with fewer restrictions on currency operations. Government authorities should interpret any ambiguous provisions in the Currency Law and the NBU Regulations in favor of companies or individuals that perform currency transactions.

The NBU has had a floating exchange rate policy for the last four years, though the NBU carries out currency interventions to meet two objectives:  reducing excessive currency fluctuations and replenishment of international reserves.

Sovereign Wealth Funds

Ukraine does not maintain or operate a sovereign wealth fund.

The Government of Ukraine operates 1,600 state-owned enterprises (SOEs) out of 3,358 registered SOEs, with an economic output of approximately ten percent of GDP.  While the government lists 3,358 enterprises, more than 1,700 of them no longer operate as profitable businesses. SOEs in Ukraine are defined as companies which the state owns at least 50 percent +1 share.  SOEs are active in areas such as energy, machine-building, and infrastructure. There is no common public list of all SOEs in Ukraine and each ministry publishes a list of SOEs under its respective management.  The Ministry of Economic Development and Trade periodically updates information on annual financial reports of significant SOEs (100 of the largest SOEs), which it publishes on the ministry website. http://www.me.gov.ua/Documents/List?lang=uk-UA&id=40a27e1b-8234-43d3-a37f-c4c752729fca&tag=FinansovaZvitnistPidprimstv     

The corporate governance law, which entered into force in 2016, requires SOEs to publicize annual financial reports and disclosures on official websites, including information on financial indicators, company officials, transactions, etc.  Ukrainian law also stipulates that SOEs publish their annual financial statements and audits. In 2018, the government of Ukraine stepped up its corporate governance reform efforts, and created supervisory boards in strategic SOEs. Strategic SOEs, including Ukrzaliznytsia, Ukrenergorynok, Ukrposhta, and Ukrenergo, have selected independent and government board members.  These reforms have been an important step in improving the management, efficiency, and responsiveness of the companies.

Most SOEs rely on government subsidies to function and cannot directly compete with private firms.  Several SOEs capable of making a profit have already been privatized, and the result has been that mostly inefficient firms have remained in government hands.  The Government of Ukraine heavily subsidizes its state-owned enterprises (especially in the coal mining, rail transportation, gas, and communal heating sectors) and has supported debts of many SOEs with sovereign loan guarantees.  SOE access to extensions of tax payment deadlines remains nontransparent, especially where SOEs are directed to sell their products at below-market prices.

SOE senior managers traditionally report directly to the relevant Ministry.  Ukrainian law specifies that ministries are not permitted to interfere with the daily economic activities of an SOE, but numerous anecdotal reports indicate that ministries and vested interests ignore this restriction.  The Cabinet of Ministers has the power to decide on the creation, reorganization, and liquidation of SOEs, and to adopt and enforce SOE charters. It can delegate this authority to relevant ministries supervising the SOE.  The Cabinet of Ministers may also delegate to ministries the permission to create joint ventures with state property and prepare proposals to divide state property between the national and municipal levels. 

Privatization Program 

In March 2018, the government began implementing a new law on the privatization of state property aimed at attracting more investors.  The legislation allows investors to settle disputes under international law, makes it obligatory to employ international advisers for the sale of larger firms, and bans Russian and off-shore companies from participating in the privatization process.  Despite the launch of the new law, the government did not complete a single large-scale privatization in 2018.

On May 3, 2018, the government approved a list of companies designated for sale.  The list contained 26 SOEs, including several regional energy providers, or oblenergos, the Odesa Portside Plant (OPP), and electricity generator Centrenergo.  With the exception of Centrenergo, sales of the remaining SOEs were targeted to proceed under terms of the new law signed in 2018.  Of the 26 companies designated for privatization, the government initiated advisor tenders for six companies in 2018.  Five of these tenders were challenged by competitors believed to be acting on behalf of vested interests.  As of 2019, the five advisor appointments remained stalled.  A lackluster interest and poorly-prepared bidders led to the government’s decision to cancel the sale in late 2018 of the sixth company, Centerenergo, despite a promising start to the process. In 2018, Ukraine’s central budget received only UAH 0.3 billion (USD 11 million) from privatization, comprising only 1.4 percent of the original plan.

The GOU approved a revised list of 21 SOEs designated for privatization on January 16, 2019.  The 2019 list excluded most utility companies due to a government decision to transfer the utilities to a communal ownership structure.  The government also approved a list of smaller-scale SOEs to put up for sale in 2019.  

The State Property Fund (SPC) oversees privatizations in Ukraine.  The rules on privatization apply to foreign and domestic investors and, theoretically, a relatively level playing field exists.  Observers have cited, however, numerous instances in past privatizations where vested interests influenced the process to fit a pre-selected bidder.  Despite these concerns, the government has stated that there would be no revisions of past privatizations. Still, some court cases have surfaced wherein private companies are challenging earlier privatizations.

There is limited but growing awareness in Ukraine of internationally accepted standards for responsible business conduct, including corporate social responsibility.  Primary drivers for the introduction of these standards have been Ukraine’s vibrant civil society, international companies and investors, and efforts by business associations such as the American Chamber of Commerce and the European Business Association.  The Government of Ukraine has put in place corporate governance standards to protect shareholders; however, these are voluntary.

In 2017, Ukraine became the 47th country to adhere to the OECD Guidelines for Multinational Enterprises  , which provides recommendations on a due diligence approach to responsible business conduct.  Ukraine established its National Contact Point to promote these guidelines for Multinational Enterprises under the Ministry of Economic Development and Trade (http://ncp.gov.ua/?lang=en  ).  There are also independent NGOs, such Center for the Development of Corporate Social Responsibility, as well as investment funds, worker organizations/unions, and business associations promoting or monitoring responsible business conduct.  There are no reported restrictions on their activities aimed at promoting responsible business conduct.

Ukraine has been a member of the Extractive Industries Transparency Initiative (EITI) since 2013.  Participation by companies in Ukraine is still voluntary.

Ukraine has numerous laws to combat corruption by public officials, and following the Revolution of Dignity in 2014 the government launched new anti-corruption institutions, including the National Anti-Corruption Bureau (NABU) to investigate corruption by public officials, the Special Anti-Corruption Prosecutor’s Office (SAP), and the National Agency for Prevention of Corruption (NAPC).  In addition, a law mandated that public officials declare their assets on a publicly viewable online system. These new institutions, however, have had an uneven track record. After the successful 2016 launch of the asset declaration system for public officials, the NAPC failed to fulfill its mandate to verify officials’ declarations and to fairly manage political party finance reporting.  NABU and SAP have taken 107 corruption cases to court since 2015, including indictments of high-level officials, but have failed to obtain a single conviction as cases became mired in court proceedings. On June 7, 2018 the Parliament approved long-awaited legislation to establish an Anti-Corruption Court, and the process establishing the court is underway.

Foreign businesses, including U.S. companies, continue to identify corruption in many sectors as a significant obstacle to FDI.  Reform of public procurement has been a success story, with the introduction of the online ProZorro system providing transparency for most procurement, except in the defense sector, which remains non-transparent and allegedly a continuing source of corruption.  The energy sector has seen some improvements, including reforms at the large oil and gas SOE Naftogaz, but participants in the sector continue to complain of significant and sometimes insurmountable corruption. Government interference in the corporate governance of Naftogaz is a persistent concern.  There are allegations of corruption at specific SOEs in a variety of sectors, as well as allegations that external corrupt forces interfere regularly in SOE operations.

There are a number of NGOs actively involved in investigating corruption and advocating for anti-corruption measures.  In 2017, the Parliament passed a law with broad requirements for non-governmental individuals engaged in anti-corruption activities to file public asset declarations.  The declaration requirements for anti-corruption activists went into effect in early 2018, despite calls from the international community for the Parliament to scrap the requirement.

Resources to Report Corruption

NABU, established in October 2014, is the appropriate resource for the reporting of high-level corruption.

Government of Ukraine contact for combating corruption:

Mr. Artem Sytnyk, Director
National Anti-Corruption Bureau
3, Vasyl Surikov St, Kyiv, Ukraine 03035
Hot-line:  0-800-503-200
Email: info@nabu.gov.ua
Corruption Reporting eForm:  http://nabu.gov.ua/povidomlennya-pro-kryminalne-pravoporushennya  

Contact at Transparency International:

Mr. Andriy Borovyk
Executive Director
Transparency International Ukraine
2A provulok Kostia Hordiienka, 1st floor, Kyiv, Ukraine 01024
+38(044) 360-52-42
Email: office@ti-ukraine.org

The military conflict continues in parts of Donetsk and Luhansk oblasts between Ukrainian government troops and forces that Russia leads, arms, and funds.  Residents of Russia-controlled areas are subject to political violence at the hands of Russia’s proxy authorities.  Civilian casualties occur regularly due to landmines and shelling, as fighting occurs in and around major population centers.  Infrastructure for water, gas, and electricity are also frequently damaged by fighting.  Ukraine lacks control of over 500 km of its border in Donetsk and Luhansk, allowing Russia to freely supply its proxies with equipment, weapons, and soldiers.  Russia continues its illegal occupation of the Autonomous Republic of Crimea and the City of Sevastopol.

There were several protests and demonstrations during 2018 against the government, mainly evoking populist messaging against economic conditions in the country and perceptions of the government failing to fight corruption.  These protests, however, have generally been peaceful with few instances of violence.  The 2019 presidential election cycle meant increased competition among political parties, decreasing the pace of work in parliament.

Ukraine has a well-educated and skilled labor force of about 26 million people with a nearly 100 percent literacy rate.  Ukraine’s population was 42.2 million people in December 2017. Ukraine’s official unemployment rate was 9.1 percent in 2018 although unemployment in some regions, particularly in western Ukraine, remained significantly higher.  According to the Ministry of Social Policy of Ukraine, there were about 1.7 million unemployed workers in 2018. However, only 21 percent were officially registered with the State Employment Service. Wages in Ukraine remain low by Western standards.  In January 2019, the minimum monthly wage increased to 4173 UAH (USD 155) from 3723 UAH (USD 138) in January 2018. The real average monthly wage increased by 14.2 percent year-on-year to 9218 UAH (USD 341). The highest wages are traditionally in the financial and aviation sectors; the lowest wages are paid to agricultural and public health workers. 

Ukrainian law allows workers to organize, and unions are prevalent in most industries.  The law provides most workers with the right to form and join independent unions and to bargain collectively without previous authorization.  By law, trade unions are equal, and a union’s establishment does not require government permission. Within classic sectors of the economy, sector-specific collective bargaining agreements involve representative employers’ associations (e.g., chemical employers), sector trade unions, and some participation of the government through the Ministry of Social Policy.  Such agreements can also take place at the regional level. However, the independence of unions from government or employer control has been disputed by certain labor groups. Independent trade unions allege that the country’s largest trade union confederation, the Federation of Trade Unions of Ukraine (FPU), enjoyed a preferential relationship with employers and members of some political parties.  Unions not affiliated with the FPU have been denied a share of disputed trade union assets inherited by the FPU from Soviet-era unions. There have also been cases of workers who renounced membership in an FPU-affiliated union and who joined a new union, facing loss of pay, undesirable work assignments, and dismissal.

The law provides for the right to strike “to defend one’s economic and social interests,” as long as strikes do not jeopardize national security, public health, or the rights and liberties of others; the government generally respects this right.  It does not extend the right to strike to personnel of the Prosecutor General’s Office, the judiciary, armed forces, security services, law enforcement agencies, the transportation sector, or public servants. Workers who strike in prohibited sectors may receive prison terms of up to three years. 

During 2018, the State Labor Service was responsible for enforcing labor laws.  Inspectors were limited in number and funding. Although the Government of Ukraine renewed planned and unplanned labor inspections, the number of completed inspections continued to fall, and experts assessed the number to be inadequate relative to the size of the Ukrainian economy.  A new law established the National Mediation and Reconciliation Service (NMRS) to mediate labor disputes. According to official Ukrainian statistics, during 2017 the NMRS resolved 312 labor disputes, which involved 1.5 million employees and 6,835 economic entities.

The United States has offered Overseas Private Investment Corporation (OPIC) political risk insurance and financing in Ukraine since 1992.  OPIC has an active pipeline of projects in Ukraine, across various sectors. There are currently 20 OPIC projects in Ukraine with a value USD 983 million.  Ukraine is also a member of the World Bank-based Multilateral Investment Guarantee Agency (MIGA). 

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

* State Statistics Service of Ukraine

Table 3: Sources and Destination of FDI

Source: State Statistics Service of Ukraine

Table 4: Sources of Portfolio Investment

Laura Valeria Solano
Economic Officer
U.S. Embassy Kyiv, Ukraine
Email: SolanoLV@state.gov

Policies Towards Foreign Direct Investment

The UK encourages foreign direct investment.  With a few exceptions, the government does not discriminate between nationals and foreign individuals in the formation and operation of private companies.  The Department for International Trade actively promotes direct foreign investment, and prepares market information for a variety of industries. U.S. companies establishing British subsidiaries generally encounter no special nationality requirements on directors or shareholders. Once established in the UK, foreign-owned companies are treated no differently from UK firms.   The British Government is a strong defender of the rights of any British-registered company, irrespective of its nationality of ownership.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign ownership is limited in only a few national security-sensitive companies, such as Rolls Royce (aerospace) and BAE Systems (aircraft and defense).  No individual foreign shareholder may own more than 15 percent of these companies. Theoretically, the government can block the acquisition of manufacturing assets from abroad by invoking the Industry Act 1975, but it has never done so in practice.  Investments in energy and power generation require environmental approvals. Certain service activities (like radio and land-based television broadcasting) are subject to licensing. The Enterprise Act of 2002 extends powers to the UK government to intervene in mergers and acquisitions which might give rise to national security implications and into which they would not otherwise be able to intervene.

The UK requires that at least one director of any company registered in the UK must be ordinarily resident in the UK.  The UK, as a member of the Organization for Economic Cooperation and Development (OECD), subscribes to the OECD Codes of Liberalization, committed to minimizing limits on foreign investment.

While the UK does not have a formalized investment review body to assess the suitability of foreign investments in national security sensitive areas, an ad hoc investment review process does exist and is led by the relevant government ministry with regulatory responsibility for the sector in question (e.g., the Department for Business, Energy, and Industrial Strategy who would have responsibility for review of investments in the energy sector).  To date, U.S. companies have not been the target of these ad hoc reviews. The UK is currently considering revisions to its national security review process related to foreign direct investment. (https://www.gov.uk/government/consultations/national-security-and-infrastructure-investment-review ).

The Government has proposed to amend the turnover threshold and share of supply tests within the Enterprise Act 2002. This is to allow the Government to examine and potentially intervene in mergers that currently fall outside the thresholds in two areas: (i) the dual use and military use sector, (ii) parts of the advanced technology sector. For these areas only, the Government proposes to lower the turnover threshold from £70 million (USD 92 million) to £1 million (USD 1.3 million) and remove the current requirement for the merger to increase the share of supply to or over 25 percent.

Other Investment Policy Reviews

The Economist’s “Intelligence Unit”, World Bank Group’s “Doing Business 2018”, and the OECD’s “Economic Forecast Summary (May 2019) have current investment policy reports for the United Kingdom:

• http://country.eiu.com/united-kingdom 
• http://www.doingbusiness.org/data/exploreeconomies/united-kingdom/ 
• http://www.oecd.org/economy/united-kingdom-economic-forecast-summary.htm 

Business Facilitation

The UK government seeks to facilitate investment by offering overseas companies access to widely integrated markets.  Proactive policies encourage international investment through administrative efficiency in order to promote innovation and achieve sustainable growth.  The online business registration process is clearly defined, though some types of company cannot register as an overseas firm in the UK, including partnerships and unincorporated bodies. Registration as an overseas company is only required when it has some degree of physical presence in the UK.  After registering a business with the UK government body, named Companies House, overseas firms must register to pay corporation tax within three months. The process of setting up a business in the UK requires as few as thirteen days, compared to the European average of 32 days, which puts the country in first place in Europe and sixth place in the world for ease of establishing a business.  As of April 2016, companies have to declare their Persons of Significant Control (PSC’s).  This change in policy recognizes that individuals other than named directors can have significant influence on a company’s activity and that this information should be transparent.  More information is available at this link: https://www.gov.uk/government/publications/guidance-to-the-people-with-significant-control-requirements-for-companies-and-limited-liability-partnerships .  Companies House maintains a free, publicly searchable directory, available at this link: https://www.gov.uk/get-information-about-a-company .  

The UK offers a welcoming environment to foreign investors, with foreign equity ownership restrictions in only a limited number of sectors covered by the Investing Across Sectors indicators.  As in all other EU member countries, foreign equity ownership in the air transportation sector is limited to 49 percent for investors from outside of the European Economic Area (EEA). Furthermore, the Industry Act (1975) enables the UK government to prohibit transfer to foreign owners of 30 percent or more of important UK manufacturing businesses, if such a transfer would be contrary to the interests of the country.  While these provisions have never been used in practice, they are still included in the Investing Across Sectors indicators, as these strictly measure ownership restrictions defined in the laws.

• https://invest.great.gov.uk/int/ 
• https://www.gov.uk/government/organisations/department-for-international-trade 
• https://www.gov.uk/set-up-business 
• https://www.gov.uk/topic/company-registration-filing/starting-company 
• http://www.doingbusiness.org/data/exploreeconomies/united-kingdom/starting-a-business 

Special Section on the British Overseas Territories and Crown Dependencies

The British Overseas Territories (BOTs) comprise Anguilla, British Antarctic Territory, Bermuda, British Indian Ocean Territory, British Virgin Islands, Cayman Islands, Falkland Islands, Gibraltar, Montserrat, Pitcairn Islands, St. Helena, Ascension and Tristan da Cunha, Turks and Caicos Islands, South Georgia and South Sandwich Islands, and Sovereign Base Areas on Cyprus.  The BOTs retain a substantial measure of responsibility for their own affairs. Local self-government is usually provided by an Executive Council and elected legislature. Governors or Commissioners are appointed by the Crown on the advice of the British Foreign Secretary, and retain responsibility for external affairs, defense, and internal security. However, the UK imposed direct rule on the Turks and Caicos Islands in August 2009 after an inquiry found evidence of corruption and incompetence.  Its Premier was removed and its constitution was suspended. The UK restored Home Rule following elections in November 2012.

Many of the territories are now broadly self-sufficient.  However, the UK’s Department for International Development (DFID) maintains development assistance programs in St. Helena, Montserrat, and Pitcairn.  This includes budgetary aid to meet the islands’ essential needs and development assistance to help encourage economic growth and social development in order to promote economic self-sustainability.  In addition, all other BOTs receive small levels of assistance through “cross-territory” programs for issues such as environmental protection, disaster prevention, HIV/AIDS and child protection. The UK also lends to the BOTs as needed, up to a pre-set limit, but assumes no liability for them if they encounter financial difficulty.

Seven of the BOTs have financial centers:  Anguilla, Bermuda, British Virgin Islands, Cayman Islands, Gibraltar, Montserrat, and the Turks and Caicos Islands.  These Territories have committed to the OECD’s Common Reporting Standard (CRS) for the automatic exchange of taxpayer financial account information.  They are already exchanging information with the UK, and began exchanging information with other jurisdictions under the CRS from September 2017. 

The OECD Global Forum on Transparency and Exchange of Information for Tax Purposes has rated Anguilla as “partially compliant” with the internationally agreed tax standard.  Although Anguilla sought to upgrade its rating in 2017, it still remains at “partially compliant” as of April 2019. The Global Forum has rated the other six territories as “largely compliant.”  Anguilla, Bermuda, British Virgin Islands, Cayman Islands, Gibraltar and the Turks and Caicos Islands have also committed in reciprocal bilateral arrangements with the UK to hold beneficial ownership information in central registers or similarly effective systems, and to provide UK law enforcement authorities with near real-time access to this information.  These arrangements came into effect in June 2017. 

Anguilla:  Anguilla is a neutral tax jurisdiction.  There are no income, capital gains, estate, profit or other forms of direct taxation on either individuals or corporations, for residents or non-residents of the jurisdiction.  The territory has no exchange rate controls. Non-Anguillan nationals may purchase property, but the transfer of land to an alien includes a 12.5 percent tax.

British Virgin Islands:  The government of the British Virgin Islands welcomes foreign direct investment and offers a series of incentive packages aimed at reducing the cost of doing business on the islands.  This includes relief from corporation tax payments over specific periods but companies must pay an initial registration fee and an annual license fee to the BVI Financial Services Commission.  Crown land grants are not available to non-British Virgin Islanders, but private land can be leased or purchased following the approval of an Alien Land Holding License. Stamp duty is imposed on transfer of real estate and the transfer of shares in a BVI company owning real estate in the BVI at a rate of 4 percent for belongers and 12 percent for non-belongers.  There is no corporate income tax, capital gains tax, branch tax, or withholding tax for companies incorporated under the BVI Business Companies Act. Payroll tax is imposed on every employer and self-employed person who conducts business in BVI. The tax is paid at a graduated rate depending upon the size of the employer. The current rates are 10 percent for small employers (those which have a payroll of less than USD 150,000, a turnover of less than USD 300,000 and fewer than 7 employees) and 14 percent for larger employers. Eight percent of the total remuneration is deducted from the employee, the remainder of the liability is met by the employer. The first USD 10,000 of remuneration is free from payroll tax.

Cayman Islands:  There are no direct taxes in the Cayman Islands.  In most districts, the government charges stamp duty of 7.5 percent on the value of real estate at sale; however, certain districts, including Seven Mile Beach, are subject to a rate of nine percent.  There is a one percent fee payable on mortgages of less than KYD 300,000, and one and a half percent on mortgages of KYD 300,000 or higher. There are no controls on the foreign ownership of property and land.  Investors can receive import duty waivers on equipment, building materials, machinery, manufacturing materials, and other tools.

Falkland Islands:  Companies located in the Falkland Islands are charged corporation tax at 21 percent on the first GBP one million and 26 percent for all amounts in excess of GBP one million.  The individual income tax rate is 21 percent for earnings below USD 15,694 (GBP 12,000) and 26 percent above this level.

Gibraltar:  The government of Gibraltar encourages foreign investment.  Gibraltar has a buoyant economy with a stable currency and few restrictions on moving capital or repatriating dividends.  The corporate income tax rate is 20 percent for utility, energy, and fuel supply companies, and 10 percent for all other companies.  There are no capital or sales taxes. Gibraltar is currently a part of the EU and receives EU funding for projects that improve the territory’s economic development.

Montserrat:  The government of Montserrat welcomes new private foreign investment.  Foreign investors are permitted to acquire real estate, subject to the acquisition of an Alien Land Holding license which carries a fee of five percent of the purchase price.  The government also imposes stamp and transfer fees of 2.6 percent of the property value on all real estate transactions. Foreign investment in Montserrat is subject to the same taxation rules as local investment, and is eligible for tax holidays and other incentives.  Montserrat has preferential trade agreements with the United States, Canada, and Australia. The government allows 100 percent foreign ownership of businesses but the administration of public utilities remains wholly in the public sector.

St. Helena:  The island of St. Helena is open to foreign investment and welcomes expressions of interest from companies wanting to invest.  Its government is able to offer tax based incentives which will be considered on the merits of each project – particularly tourism projects.  All applications are processed by Enterprise St. Helena, the business development agency.

Pitcairn Islands:  The Pitcairn Islands have approximately 50 residents, with a workforce of approximately 29 employed in 10 full-time equivalent roles.  The territory does not have an airstrip or safe harbor. Residents exist on fishing, subsistence farming, and handcrafts.

The Turks and Caicos Islands:  The islands operate an “open arms” investment policy.  Through the policy, the government commits to a streamlined business licensing system, a responsive immigration policy to give investment security, access to government-owned land under long-term leases, and a variety of duty concessions to qualified investors.  The islands have a “no tax” status, but property purchasers must pay a stamp duty on purchases over USD 25,000. Depending on the island, the stamp duty rate may be up to 6.5 percent for purchases up to USD 250,000, eight percent for purchases USD 250,001 to USD 500,000, and 10 percent for purchases over USD500,000.

The Crown Dependencies:

The Crown Dependencies are the Bailiwick of Jersey, the Bailiwick of Guernsey and the Isle of Man.  The Crown Dependencies are not part of the UK but are self-governing dependencies of the Crown. They have their own directly elected legislative assemblies, administrative, fiscal and legal systems and their own courts of law. The Crown Dependencies are not represented in the UK Parliament.

Jersey’s standard rate of corporate tax is zero percent.  The exceptions to this standard rate are financial service companies, which are taxed at 10 percent, utility companies, which are taxed at 20 percent, and income specifically derived from Jersey property rentals or Jersey property development, taxed at 20 percent. VAT is not applicable in Jersey as it is not part of the EU VAT tax area.

Guernsey has a zero percent rate of corporate tax.  Some exceptions include some specific banking activities, taxed at 10 percent, utility companies, which are taxed at 20 percent, Guernsey residents’ assessable income is taxed at 20 percent, and income derived from land and buildings is taxed at 20 percent

The Isle of Man’s corporate standard tax is zero percent.  The exceptions to this standard rate are income received from banking business, which is taxed at 10 percent and income received from land and property in the Isle of Man which is taxed at 20 percent. In addition, a 10 percent tax rate also applies to companies who carry on a retail business in the Isle of Man and have taxable income in excess of £500,000 from that business.  VAT is applicable in the Isle of Man as it is part of the EU customs territory.

This tax data is current as of April 2019.  

Outward Investment

The UK is one of the largest outward investors in the world, often protected through Bilateral Investment Treaties (BITs), which have been concluded with many countries.  The UK’s international investment position abroad (outward investment) increased from GBP 1,696.5 billion in 2017 to GBP 1,713.3 billion in 2018. By the end of 2018 the UK’s stock of outward FDI was GBP 1,713 billion, a 52 rise percent since 2002.  The main destination for UK outward FDI is the United States, which accounted for approximately 23 percent of UK outward FDI stocks at the end of 2017. Other key destinations include the Netherlands, Luxembourg, France, and Ireland which, together with the United States, account for a little under half of the UK’s outward FDI stock.

Europe and the Americas remain the dominant areas for British FDI positions abroad, accounting for 16 of the top 20 destinations for total UK outward FDI.  The UK’s international investment position within the Americas was GBP 401.9 billion in 2017. This is the third largest recorded value in the time series since 2006 for the Americas.  The United States, at GBP 329.3 billion, continued to be the largest destination for UK international investment positions abroad within the Americas in 2017.

The United States and UK have enjoyed a Commerce and Navigation Treaty since 1815 which guarantees national treatment of U.S. investors.  A Bilateral Tax Treaty specifically protects U.S. and UK investors from double taxation. The UK has its own bilateral tax treaties with more than 100 countries and a network of about a dozen double taxation agreements. The UK has concluded 105 Bilateral Investment Treaties (BITs), which are known in the UK as Investment Promotion and Protection Agreements.  These include: Albania, Angola, Antigua and Barbuda, Argentina, Armenia, Azerbaijan, Bahrain, Bangladesh, Barbados, Belarus, Belize, Benin, Bolivia, Bosnia and Herzegovina, Brazil, Bulgaria, Burundi, Cameroon, Chile, China, Colombia, Congo, Costa Rica, Côte d’Ivoire, Croatia, Cuba, Czech Republic, Dominica, Ecuador, Egypt, El Salvador, Estonia, Ethiopia, Gambia, Georgia, Ghana, Grenada, Guyana, Haiti, Honduras, Hong Kong, China SAR, Hungary, Indonesia, Jamaica, Jordan, Kazakhstan, Kenya, Korea Republic of, Kuwait, Kyrgyzstan, Laos People’s Democratic Republic, Latvia, Lebanon, Lesotho, Libya, Lithuania, Malaysia, Malta, Mauritius, Mexico, Moldova, Mongolia, Morocco, Mozambique, Nepal, Nicaragua, Nigeria, Oman, Pakistan, Panama, Papua New Guinea, Paraguay, Peru, Philippines, Poland, Qatar, Romania, Russian Federation, Saint Lucia, Senegal, Serbia, Sierra Leone, Singapore, Slovakia, Slovenia, Sri Lanka, Swaziland, Tanzania, United Republic of, Thailand, Tonga, Trinidad and Tobago, Tunisia, Turkey, Turkmenistan, Uganda, Ukraine, United Arab Emirates, Uruguay, Uzbekistan, Vanuatu, Venezuela, Bolivarian Republic of, Vietnam, Yemen, Zambia, and Zimbabwe.

For a complete current list, including actual treaty texts, see:  http://investmentpolicyhub.unctad.org/IIA/CountryBits/221#iiaInnerMenu 

Transparency of the Regulatory System

U.S. exporters and investors generally find little difference between the United States and UK in the conduct of business.  The regulatory system provides clear and transparent guidelines for commercial engagement. Common law prevails in the UK as the basis for commercial transactions, and the International Commercial Terms (INCOTERMS) of the International Chambers of Commerce are accepted definitions of trading terms.  For accounting standards and audit provisions, firms in the UK currently use the International Financial Reporting Standards (IFRS) set by the International Accounting Standards Board (IASB) and approved by the European Commission. The UK’s Accounting Standards Board provides guidance to firms on accounting standards and works with the IASB on international standards.

Statutory authority over prices and competition in various industries is given to independent regulators, for example Ofcom, Ofwat, Ofgem, the Office of Fair Trading (OFT), the Rail Regulator, and the Prudential Regulatory Authority (PRA).  The PRA was created out of the dissolution of the Financial Services Authority (FSA) in 2013. The PRA reports to the Financial Policy Committee (FPC) in the Bank of England. The PRA is responsible for supervising the safety and soundness of individual financial firms, while the FPC takes a systemic view of the financial system and provides macro-prudential regulation and policy actions.  The Consumer and Markets Authority (CMA) acts as a single integrated regulator focused on conduct in financial markets. The Financial Conduct Authority (FCA) is a regulatory enforcement mechanism designed to address financial and market misconduct through legally reviewable processes. These regulators work to protect the interests of consumers while ensuring that the markets they regulate are functioning efficiently.  Most laws and regulations are published in draft for public comment prior to implementation. The FCA maintains a free, publicly searchable register of their filings on regulated corporations and individuals here: https://register.fca.org.uk/ .

The UK government publishes regulatory actions, including draft text and executive summaries, on the Department for Business, Energy & Industrial Strategy webpage listed below.  The current policy requires the repeal of two regulations for any new one in order to make the business environment more competitive.

The primary difference between the regulatory environment in the UK and the United States is that so long as the UK is a member of the European Union, it is mandated to comply with and enforce EU regulations and directives.  The U.S. government has expressed concerns about the degree of transparency and accountability in the EU regulatory process. The extent to which the UK will deviate from the EU regulatory regime after the UK withdraws from the EU is unknown at this time.

• https://www.gov.uk/government/policies/business-regulation 
• https://www.gov.uk/government/organisations/regulatory-delivery 

International Regulatory Considerations

The UK’s withdrawal from the EU may result in an extended period of regulatory uncertainty across the economy as the UK determines the extent to which it will maintain and enforce the current EU regulatory regime or deviate towards new regulations in any particular sector .  The UK is an independent member of the WTO, and actively seeks to comply with all its WTO obligations.

Legal System and Judicial Independence

The UK is a common law country.  UK business contracts are legally enforceable in the UK, but not in the United States or other foreign jurisdictions.  International disputes are resolved through litigation in the UK Courts or by arbitration, mediation, or some other alternative dispute resolution (ADR) method.  The UK has a long history of applying the rule of law to business disputes. The current judicial process remains procedurally competent, fair, and reliable, which helps position London as an international center for dispute resolution with over 10,000 cases filed per annum.

Laws and Regulations on Foreign Direct Investment

There is no specific statute governing or restricting foreign investment in the UK.  The procedure for establishing a company in the UK is identical for British and foreign investors.  No approval mechanisms exist for foreign investment, apart from the ad hoc national security process outlined in Section 1.  Foreigners may freely establish or purchase enterprises in the UK, with a few limited exceptions, and acquire land or buildings.  The UK is currently reviewing its procedures and considering new rules for restricting foreign investment in those sectors of the economy with higher risk for adversely impacting national security.   

The practice of multinational enterprises structuring operations to minimize taxes, referred to as ‘tax avoidance’ in the UK, has been a controversial political issue and subject to investigations by the UK Parliament and EU authorities.  Both foreign and UK firms remain subject to the same tax laws. Foreign investors may have access to certain EU and UK regional grants and incentives designed to attract industry to areas of high unemployment.

In 2015, the UK flattened its structure of corporate tax rates.  The UK currently taxes corporations at a flat rate of 19 percent, with marginal tax relief granted for companies with profits falling between USD 391,000 (GBP 300,000) and 1.96 million (GBP 1.5 million).  Tax deductions are allowed for expenditure and depreciation of assets used for trade purposes. These include machinery, plant, industrial buildings, and assets used for research and development. A special rate of 20 percent is given to unit trusts and open-ended investment companies.  There are different Corporation Tax rates for companies that make profits from oil extraction or oil rights in the UK or UK continental shelf. These are known as ‘ring fence’ companies. Small ‘ring fence’ companies are taxed at a rate of 19 percent for profits up to USD 391,000 (GBP 300,000), and 30 percent for profits over USD 391,000 (GBP 300,000).

UK citizens also make mandatory payments of about 12 percent of income into the National Insurance system, which funds social security and retirement benefits.  The UK requires non-domiciled residents of the UK to either pay tax on their worldwide income or the tax on the relevant part of their remitted foreign income being brought into the UK.  If they have been resident in the UK for seven tax years of the previous nine, and they choose to pay tax only on their remitted earnings, they may be subject to an additional charge of USD 39,141 (GBP 30,000).  If they have been resident in the UK for 12 of the last 14 tax years, they may be subject to an additional charge of USD 78,282 (GBP 60,000).

The Scottish Parliament has the legal power to increase or decrease the basic income tax rate in Scotland, currently 20 percent, by a maximum of three percentage points.  The Scottish Government has been opposed to increasing tax rates, mainly because any financial advantage gained by an increase in taxes would be offset by the need to establish a new administrative body to manage the new revenue.

For guidance on laws and procedures relevant to foreign investment in the UK, follow the link below:

https://www.gov.uk/government/collections/investment-in-the-uk-guidance-for-overseas-businesses 

All USD conversions based on spot exchange rate as of April 08, 2019.

Competition and Anti-Trust Laws

UK competition law contains both British and European elements.  The Competition Act 1998 and the Enterprise Act 2002 are the most important statutes for cases with a purely national dimension.  However, if the impact of a business’ conduct crosses borders, EU law applies. Section 60 of the Competition Act 1998 provides that UK rules are to be applied in line with European jurisprudence.

The Companies Act of 1985, administered by the Department for Business, Entrepreneurship, Innovation and Skills (BEIS), governs ownership and operation of private companies.  The Companies Act of 2006 replaced the 1985 Act, simplifying existing rules.

BEIS uses a transparent code of practice that is fully in accord with EU merger control regulations, in evaluating bids and mergers for possible referral to the Competition Commission.  The Competition Act of 1998 strengthened competition law and enhanced the enforcement powers of the Office of Fair Trading (OFT). Prohibitions under the act relate to competition-restricting agreements and abusive behavior by entities in dominant market positions.  The Enterprise Act of 2002 established the OFT as an independent statutory body with a Board, and gives it a greater role in ensuring that markets work well. Also, in accordance with EU law, if deemed in the public interest, transactions in the media or that raise national security concerns may be reviewed by the Secretary of State of BEIS.

In 2014, the Competition Commission and the OFT merged into a single Non Departmental Government Body: the Competition and Markets Authority.  This new body is responsible for investigating mergers that could restrict competition, conducting market studies and investigations where there may be competition problems, investigating breaches of EU and UK prohibitions, initiating criminal proceedings against individuals who commit cartel offenses, and enforcing consumer protection legislation.  This body is unlikely to alter UK competition policy.

UK competition law has three main tasks: 1) prohibiting agreements or practices that restrict free trading and competition between business entities (this includes in particular the repression of cartels); 2) banning abusive behavior by a firm dominating a market, or anti-competitive practices that tend to lead to such a dominant position (practices controlled in this way may include predatory pricing, tying, price gouging, refusal to deal and many others); and 3) supervising the mergers and acquisitions of large corporations, including some joint ventures.  Transactions that are considered to threaten the competitive process can be prohibited altogether, or approved subject to “remedies” such as an obligation to divest part of the merged business or to offer licenses or access to facilities to enable other businesses to continue competing.

The Competition and Markets Authority (CMA) is the primary regulatory body for competition law enforcement.  It was created through the merger of the Office of Fair Trading (OFT) with the Competition Commission through the Enterprise and Regulatory Reform Act 2013.  Competition law is closely connected with law on deregulation of access to markets, state aids and subsidies, the privatization of state owned assets, and the establishment of independent sector regulators.

Although the OFT and the Competition Commission have general review authority, specific “watchdog” agencies such as Ofgem (the electricity and gas markets regulation authority), Ofcom (the communications regulation authority), and Ofwat (the water services regulation authority) are also charged with seeing how the operation of those specific markets work.

Expropriation and Compensation

The OECD, of which the UK is a member, states that when a government expropriates property, compensation should be timely, adequate and effective.  In the UK, the right to fair compensation and due process is uncontested and is reflected in all international investment agreements. Expropriation of corporate assets or the nationalization of industry requires a special act of Parliament.  A number of key UK banks became subject to full or part-nationalization from early 2008 as a response to the global financial crisis and banking collapse. The first bank to become nationalized was Northern Rock in February 2008, and by March 2009 the UK Treasury had taken a 65 percent stake in Lloyds Banking Group and a 68 percent stake in the Royal Bank of Scotland (RBS).  In the event of nationalization, the British government follows customary international law by providing prompt, adequate, and effective compensation.

Dispute Settlement

As a member of the World Bank-based International Center for Settlement of Investment Disputes (ICSID), the UK accepts binding international arbitration between foreign investors and the State.  As a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the UK provides local enforcement on arbitration judgments decided in other signatory countries.

London is a thriving center for the resolution of international disputes through arbitration under a variety of procedural rules such as those of the London Court of International Arbitration, the International Chamber of Commerce, the Stockholm Chamber of Commerce, the American Arbitration Association International Centre for Dispute Resolution, and others.  Many of these arbitrations involve parties with no connection to the jurisdiction, but who are drawn to the jurisdiction because they perceive it to be a fair, neutral venue with an arbitration law and courts that support efficient resolution of disputes. They also choose London-based arbitration because of the general prevalence of the English language and law in international commerce.  A wide range of contractual and non-contractual claims can be referred to arbitration in this jurisdiction including disputes involving intellectual property rights, competition, and statutory claims. There are no restrictions on foreign nationals acting as arbitration counsel or arbitrators in this jurisdiction. There are few restrictions on foreign lawyers practicing in the jurisdiction as evidenced by the fact that over 200 foreign law firms have offices in London.

ICSID Convention and New York Convention

The UK is a member of the International Center for Settlement of Investment Disputes (ICSID) and a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.  The latter convention has territorial application to Gibraltar (September 24, 1975), Hong Kong (January 21, 1977), Isle of Man (February 22, 1979), Bermuda (November 14, 1979), Belize and Cayman Islands (November 26, 1980), Guernsey (April 19, 1985), Bailiwick of Jersey (May 28, 2002), and British Virgin Islands (February 24, 2014).

The United Kingdom has consciously elected not to follow the UNCITRAL Model Law on International Commercial Arbitration.  Enforcement of an arbitral award in the UK is dependent upon where the award was granted. The process for enforcement in any particular case is dependent upon the seat of arbitration and the arbitration rules that apply.  Arbitral awards in the UK can be enforced under a number of different regimes, namely: The Arbitration Act 1996, The New York Convention, The Geneva Convention 1927, The Administration of Justice Act 1920 and the Foreign Judgments (Reciprocal Enforcement) Act 1933, and Common Law.

The Arbitration Act 1996 governs all arbitrations seated in England, Wales and Northern Ireland, both domestic and international. The full text of the Arbitration Act can be found here: http://www.legislation.gov.uk/ukpga/1996/23/data.pdf .

The Arbitration Act is heavily influenced by the UNCITRAL Model Law, but it has some important differences.  For example, the Arbitration Act covers both domestic and international arbitration; the document containing the parties’ arbitration agreement need not be signed; an English court is only able to stay its own proceedings and cannot refer a matter to arbitration; the default provisions in the Arbitration Act require the appointment of a sole arbitrator as opposed to three arbitrators; a party retains the power to treat its party-nominated arbitrator as the sole arbitrator in the event that the other party fails to make an appointment (where the parties’ agreement provides that each party is required to appoint an arbitrator); there is no time limit on a party’s opposition to the appointment of an arbitrator; parties must expressly opt out of most of the provisions of the Arbitration Act which confer default procedural powers on the arbitrators; and there are no strict rules governing the exchange of pleadings.  Section 66 of the Arbitration Act applies to all domestic and foreign arbitral awards. Sections 100 to 103 of the Arbitration Act provide for enforcement of arbitral awards under the New York Convention 1958. Section 99 of the Arbitration Act provides for the enforcement of arbitral awards made in certain countries under the Geneva Convention 1927.

Under Section 66 of the Arbitration Act, the court’s permission is required for an international arbitral award to be enforced in the UK.  Once the court has given permission, judgment may be entered in terms of the arbitral award and enforced in the same manner as a court judgment or order.  Permission will not be granted by the court if the party against whom enforcement is sought can show that (a) the tribunal lacked substantive jurisdiction and (b) the right to raise such an objection has not been lost.

The length of arbitral proceedings can vary greatly.  If the parties have a relatively straightforward dispute, cooperate, and adopt a fast track procedure, arbitration can be concluded within months or even weeks.  In a substantial international arbitration involving complex facts, many witnesses and experts and post-hearing briefs, the arbitration could take many years. A reasonably substantial international arbitration will likely take between one and two years.

There are two alternative procedures that can be followed in order to enforce an award.  The first is to seek leave of the court for permission to enforce. The second is to begin an action on the award, seeking the same relief from the court as set out in the tribunal’s award.  Enforcement of an award made in the jurisdiction may be opposed by challenging the award. However, the court also may refuse to enforce an award that is unclear, does not specify an amount, or offends public policy.  Enforcement of a foreign award may be opposed on any of the limited grounds set out in the New York Convention. A stay may be granted for a limited time pending a challenge to the order for enforcement. The court will consider the likelihood of success and whether enforcement of the award will be made more or less difficult as a result of the stay.  Conditions that might be imposed on granting the stay include such matters as paying a sum into court. Where multiple awards are to be rendered, the court may give permission for the tribunal to continue hearing other matters, especially where there may be a long delay between awards. UK courts have a good record of enforcing arbitral awards, which they will enforce in the same way that they would enforce an order or judgment of a court.  At the time of writing, there are no examples of the English courts enforcing awards which were set aside by the courts at the place of arbitration.

Most awards are complied with voluntarily.  If the party against whom the award was made fails to comply, the party seeking enforcement can apply to the court.  The length of time it takes to enforce an award which complies with the requirements of the New York Convention will depend on whether there are complex objections to enforcement which require the court to investigate the facts of the case.  If a case raises complex issues of public importance the case could be appealed to the Court of Appeal and then to the Supreme Court. This process could take around two years. If no complex objections are raised, the party seeking enforcement can apply to the court using a summary procedure that is fast and efficient.  There are time limits relating to the enforcement of the award. Failure to comply with an award is treated as a breach of the arbitration agreement. An action on the award must be brought within six years of the failure to comply with the award or 12 years if the arbitration agreement was made under seal. If the award does not specify a time for compliance, a court will imply a term of reasonableness.

Bankruptcy Regulations

The UK has strong bankruptcy protections going back to the Bankruptcy Act of 1542, and in modern days both individual bankruptcy and corporate insolvency are regulated in the UK primarily by the Insolvency Act 1986 and the Insolvency Rules 1986, regulated through determinations in UK courts.  The World Bank’s Doing Business report Ranks the UK 14/189 for ease of resolving insolvency.

Regarding individual bankruptcy law, the court will oblige a bankrupt individual to sell assets to pay dividends to creditors.  A bankrupt person must inform future creditors about the bankrupt status and may not act as the director of a company during the period of bankruptcy.  Bankruptcy is not criminalized in the UK, and the Enterprise Act of 2002 dictates that for England and Wales, bankruptcy will not normally last longer than 12 months.  At the end of the bankrupt period, the individual is normally no longer held liable for bankruptcy debts unless the individual is determined to be culpable for his or her own insolvency, in which case the bankruptcy period can last up to fifteen years.

For corporations declaring insolvency, UK insolvency law seeks to equitably distribute losses between creditors, employees, the community, and other stakeholders in an effort to rescue the company.  Liability is limited to the amount of the investment. If a company cannot be rescued, it is liquidated and assets are sold to pay debts to creditors, including foreign investors.

Investment Incentives

The UK offers a range of incentives for companies of any nationality locating in depressed regions of the country, as long as the investment generates employment.  DIT works with its partner organizations in the devolved administrations – Scottish Development International, the Welsh Government and Invest Northern Ireland – and with London and Partners and Local Enterprise Partnerships (LEPs) throughout England, to promote each region’s particular strengths and expertise to overseas investors.

Local authorities in England and Wales also have power under the Local Government and Housing Act of 1989 to promote the economic development of their areas through a variety of assistance schemes, including the provision of grants, loan capital, property, or other financial benefit.  Separate legislation, granting similar powers to local authorities, applies to Scotland and Northern Ireland. Where available, both domestic and overseas investors may also be eligible for loans from the European Investment Bank.

Foreign Trade Zones/Free Ports/Trade Facilitation

The cargo ports and freight transportation ports at Liverpool, Prestwick, Sheerness, Southampton, and Tilbury used for cargo storage and consolidation are designated as Free Trade Zones.  No activities that add value to commodities are permitted within the Free Trade Zones, which are reserved for bonded storage, cargo consolidation, and reconfiguration of non-EU goods. The Free Trade Zones offer little benefit to U.S. exporters or investors, or any other non-EU exporters or investors.  Questions remain as to the UK’s use of Free Trade Zones in a post-Brexit environment.

Performance and Data Localization Requirements

As of May 2018, companies operating in the UK comply with the EU General Data Protection Regulation (GDPR).  The UK presently intends to transpose the requirements of the GDPR into UK domestic law after the UK withdraws from the EU.  The potential impact of the UK leaving the EU on the free flow of data between the EU and the UK, and the UK and United States is unknown.     

The UK does not follow “forced localization” and does not require foreign IT firms to turn over source code.  The Investigatory Powers Act became law in November 2016 addressing encryption and government surveillance. It permitted the broadening of capabilities for data retention and the investigatory powers of the state related to data.

The UK Government does not mandate local employment, though at least one director of any company registered in the UK must be ordinarily resident in the UK.

Immigration policy is in the midst of sweeping reforms in the UK. Freedom of movement between the UK and EU member states is likely to soon come to an end and the government is looking at a post-Brexit system that will favour high-skilled migrants. New immigration rules (HC1888) that came into effect on April 6, 2012 have wide-ranging implications for foreign employees, primarily affecting businesses looking to sponsor migrants under Tier 2 as well as migrants looking to apply for settlement in the UK.  In particular, the UK Government has introduced a 12-month cooling off period for Tier 2 (General) applications similar to the one that is currently in place for Tier 2 (Intra-company transfer). The effect of this is that, while those who enter the UK under Tier 2 (General) to work for one company will be able to apply in-country under Tier 2 (General) to work for another company, if they leave the UK, they will not be able to apply to re-enter the UK under a fresh Tier 2 (General) permission until twelve months after their previous Tier 2 (General) permission has expired.

These provisions represent a significant tightening of the Tier 2 requirements.  One of the consequences is that, where an individual is sent to the UK on assignment under Tier 2 (Intracompany transfer), and the sponsoring company subsequently wishes to hire them permanently in the UK, they will not be able to apply either to remain in the UK under Tier 2 (General) or leave the UK and submit a Tier 2 (General) application overseas.

This change will mean that employers will have to carefully consider the long-term plans for all assignees that they send to the UK and whether Tier 2 (Intracompany transfer) is the most appropriate category. This is because, if the assignee is subsequently required in the UK on a long-term basis, it will not be possible for them to make a new application under Tier 2 (General) until at least twelve months after their Tier 2 (Intra-company transfer) permission has expired.

Real Property

The UK has robust real property laws stemming from legislation including the Law of Property Act 1925, the Settled Land Act 1925, the Land Charges Act 1972, the Trusts of Land and Appointment of Trustees Act 1996, and the Land Registration Act 2002.

Interests in property are well enforced, and mortgages and liens have been recorded reliably since the Land Registry Act of 1862.  The Land Registry is the government database where all land ownership and transaction data are held for England and Wales, and it is reliably accessible online, here: https://www.gov.uk/search-property-information-land-registry .  Scotland has its own Registers of Scotland, while Northern Ireland operates land registration through the Land and Property Services.

Long-term physical presence on non-residential property without their permission is not typically considered a crime in the UK.  Police take action if squatters commit other crimes when entering or staying in a property. A long-term squatter on otherwise unoccupied land can become the registered owner of property that they have occupied without the owner’s permission through an adverse possession process.

Intellectual Property Rights

The UK legal system provides a high level of protection for intellectual property rights (IPR). Enforcement mechanisms are comparable to those available in the United States.  The UK is a member of the World Intellectual Property Organization (WIPO). The UK is also a member of the major intellectual property protection agreements: the Bern Convention for the Protection of Literary and Artistic Works, the Paris Convention for the Protection of Industrial Property, the Universal Copyright Convention, the Geneva Phonograms Convention, the Patent Cooperation Treaty, and the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).  The UK has signed and, through implementing various EU Directives, enshrined into UK law the WIPO Copyright Treaty (WCT) and WIPO Performance and Phonograms Treaty (WPPT), known as the internet treaties.

The Intellectual Property Office (IPO) is the official UK government body responsible for IPR including patents, designs, trademarks and copyright.  The IPO website contains comprehensive information on UK law and practice in these areas.

https://www.gov.uk/government/organisations/intellectual-property-office 

The British government tracks and reports seizures of counterfeit goods and regards the production and subsequent sale as a criminal act.  The Intellectual Property Crime Report for 2017/18 highlights the incidence of IPC and the harm caused to the UK economy, showing that almost 4 percent of all UK imports in 2013 were counterfeit, worth £9.3 billion (USD 12 billion). They estimate this equates to around 60,000 jobs being lost and almost £4 billion (USD 5.2 billion) in lost tax revenue.

The Special 301 Report is an annual, congressionally-mandated review of the global state of IPR protection and enforcement.  It is conducted by the Office of the U.S. Trade Representative to identify countries with commercial environments possibly harmful to intellectual property.  The UK is not on the list, nor is it included on the Notorious Markets List

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

Capital Markets and Portfolio Investment

The City of London houses one of the largest and most comprehensive financial centers globally.  London offers all forms of financial services: commercial banking, investment banking, re-insurance, venture capital, private equity, stock and currency brokers, fund managers, commodity dealers, accounting and legal services, as well as electronic clearing and settlement systems and bank payments systems.  London is highly regarded by investors because of its solid regulatory, legal, and tax environments, a supportive market infrastructure, and a dynamic, highly skilled workforce.

The UK government is generally hospitable toward foreign portfolio investment.  Government policies are intended to facilitate the free flow of capital and to support the flow of resources in product and services markets.  Foreign investors are able to obtain credit in local markets at normal market terms, and a wide range of credit instruments are available. The principles underlying legal, regulatory, and accounting systems are transparent, and they are consistent with international standards.  In all cases, regulations have been published and are applied on a non-discriminatory basis by the PRA.

The London Stock Exchange is one of the most active equity markets in the world.  London’s markets have the advantage of bridging the gap between the day’s trading in the Asian markets and the opening of the U.S. market.  This bridge effect is also evident as many Russian and Central European companies have used London stock exchanges to tap global capital markets.  The Alternative Investment Market (AIM), established in 1995 as a sub-market of the London Stock Exchange, is specifically designed for smaller, rapidly expanding companies.  The AIM has a more flexible regulatory system than the main market and has no minimum market capitalization requirements. Since its launch, the AIM has raised more than USD 85 billion (GBP 60 billion) for more than 3,000 companies.

Money and Banking System

The UK banking sector is the largest in Europe.  According to TheCityUK, more than 150 financial services firms from the EU are based in the UK.  As of November 2017, EU banks in the UK held USD 1.9 trillion in assets, which represents a decline of USD 425 billion (or 17 percent) in the span of a year.  The sharp drop was a consequence of the Brexit vote, as European Banks trimmed their exposure to UK assets. The financial and related professional services industry contributed approximately 6.5 percent of UK Economic Output in 2017, employed around 1.1 million people, and contributed some GBP 75 billion in tax revenue in 2017/18, or 10.9 percent of total UK tax receipts.  The impact of Brexit on the financial services industry is uncertain at this time. Some firms have already moved jobs outside the UK, but most believe the UK will maintain its position as a top financial hub.

The Bank of England serves as the central bank of the UK by maintaining monetary and fiscal stability.  According to Bank of England guidelines, foreign banking institutions are legally permitted to establish operations in the UK as subsidiaries or branches.  Responsibilities for the prudential supervision of a non-European Economic Area (EEA) branch are split between the parent’s Home State Supervisors (HSS) and the PRA.  However, the PRA expects the whole firm to meet the PRA’s Threshold Conditions. The PRA has set out its approach to supervising branches and its appetite for allowing international banks to operate as branches in the United Kingdom in this Policy Statement and this Supervisory Statement.  In particular, the PRA expects new non-EEA branches to focus on wholesale banking and to do so at a level that is not critical to the UK economy. The FCA is the conduct regulator for all banks operating in the United Kingdom. For non-EEA branches the FCA’s Threshold Conditions and conduct of business rules apply, including areas such as anti-money laundering.  Eligible deposits placed in non-EEA branches may be covered by the UK deposit guarantee program and therefore non-EEA branches may be subject to regulations concerning UK depositor protection.

Although there are no legal restrictions that prohibit non-UK residents from opening a business bank account, in fact banks refuse to open accounts without proof of residency.  Setting up a business bank account as a non-resident is in principle straightforward. However, in practice most banks will not accept applications from overseas due to fraud concerns and the additional administration costs.  To open a personal bank account, an individual must at minimum present an internationally recognized proof of identification and prove residency in the UK. This is a problem for incoming FDI and American expats. Unless the business or the individual can prove UK residency, they will have limited banking options.

The UK has the most substantial financial services sector in the EU by reason of history, time-zone, language, legal system, critical mass of skill sets, expertise in professional services and London’s cultural appeal.  The UK’s withdrawal from the EU will impact the financial services sector and poses some risk to this financial stability. A period of prolonged uncertainty could increase sterling volatility, the risk-premiums on assets, cost and availability of financing, as well as relationships with EU-based financial institutions.  

Foreign Exchange and Remittances

Foreign Exchange

The British pound sterling is a free-floating currency with no restrictions on its transfer or conversion.  Exchange controls restricting the transfer of funds associated with an investment into or out of the UK are not exercised.

Remittance Policies

Not applicable.

Sovereign Wealth Funds

The United Kingdom does not maintain a national wealth fund.  Although there have at time been calls to turn The Crown Estate – created in 1760 by Parliament as a means of funding the British monarchy – into a wealth fund, there are no current plans in motion.  Moreover, with assets of just under USD 12 billion, The Crown Estate would be small in relation to other national funds.

There are 20 partially or fully state-owned enterprises (SOEs) in the UK, with a combined turnover of about USD 15 billion (GBP 11.5 billion) in 2011.  These enterprises range from large, well-known companies to small trading funds. Some of these, where appropriate, are scheduled to be privatized over the next few years.  The government has already successfully sold its remaining shares in Lloyds, the bank nationalized during the global financial crisis. Since privatizing the oil and gas industry, the UK has not established any new energy-related SOEs or resource funds.

Privatization Program

The privatization of state-owned utilities in the UK is now essentially complete.  With regard to future investment opportunities, the few remaining SOEs or government shares in other utilities are likely to be sold off to the private sector when market conditions improve.

Businesses in the UK are accountable for a due diligence approach to responsible business conduct (RBC), or corporate social responsibility (CSR), in areas such as human resources, environmental issues, sustainable development, and health and safety practices – through a wide variety of existing guidelines at national, EU and global levels.  There is a strong awareness of CSR principles among UK businesses, promoted by UK business associations such as the Confederation of British Industry and the UK government.

The British government fairly and uniformly enforces laws related to human rights, labor rights, consumer protection, environmental protection, and other statutes intended to protect individuals from adverse business impacts.  The UK government adheres to the OECD Guidelines for Multinational Enterprises; as such, it has established a National Contact Point (NCP) to promote the Guidelines and to facilitate the resolution of disputes that may arise within that context: https://www.gov.uk/government/groups/uk-national-contact-point-for-the-organisation-for-economic-co-operation-and-development-guidelines 

The UK is committed to the promotion and implementation of these Guidelines and encourages UK multinational enterprises to adopt high corporate standards involving all aspects of the Guidelines.    The UK NCP is housed in BEIS and is partially funded by DFID. A Steering Board monitors the work of the UK NCP and provides strategic guidance. It is composed of representatives of relevant government departments and four external members nominated by the Trades Union Congress, the Confederation of British Industry, the All Party Parliamentary Group on the Great Lakes Region of Africa, and the NGO community.

The results of a UK government consultation on CSR can be found here: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/300265/bis-14-651-good-for-business-and-society-government-response-to-call-for-views-on-corporate-responsibility.pdf .

Information on UK and EU regulations and policies relating to the procurement of supplies, services and works for the public sector, and the relevance of promoting RBC, are found here: https://www.gov.uk/guidance/public-sector-procurement-policy 

Although isolated instances of bribery and corruption have occurred in the UK, U.S. investors have not identified corruption of public officials as a factor in doing business in the UK.

The Bribery Act 2010 came into force on July 1, 2011.  It amends and reforms the UK criminal law and provides a modern legal framework to combat bribery in the UK and internationally.  The scope of the law is extra-territorial. Under the Bribery Act, a relevant person or company can be prosecuted for bribery if the crime is committed abroad.  The Act applies to UK citizens, residents and companies established under UK law. In addition, non-UK companies can be held liable for a failure to prevent bribery if they do business in the UK.

Section 9 of the Act requires the UK Government to publish guidance on procedures that commercial organizations can put in place to prevent bribery on their behalf.  It creates the following offenses: active bribery, described as promising or giving a financial or other advantage, passive bribery, described as agreeing to receive or accepting a financial or other advantage; bribery of foreign public officials; and the failure of commercial organizations to prevent bribery by an associated person (corporate offense).  This corporate criminal offense places a burden of proof on companies to show they have adequate procedures  in place to prevent bribery (http://www.transparency.org.uk/our-work/business-integrity/bribery-act/adequate-procedures-guidance/ ).  To avoid corporate liability for bribery, companies must make sure that they have strong, up-to-date and effective anti-bribery policies and systems.  The first prosecution under the Act (a domestic case) went forward in 2011. A UK administrative clerk faced charges under Section 2 of the Act for requesting and receiving a bribe intending to improperly perform his functions as a result.

The Bribery Act creates a corporate criminal offense making illegal the failure to prevent bribery by an associated person.  The briber must be “associated” with the commercial organization, a term which will apply to, amongst others, the organization’s agents, employees, and subsidiaries. A foreign corporation which “carries on a business, or part of a business” in the UK may therefore be guilty of the UK offense even if, for example, the relevant acts were performed by the corporation’s agent outside the UK. The Act does not extend to political parties and it is unclear whether it extends to family members of public officials.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

The UK formally ratified the OECD Convention on Combating Bribery in December 1998.  The UK also signed the UN Convention Against Corruption in December 2003 and ratified it in 2006.  The UK has launched a number of initiatives to reduce corruption overseas. However, the OECD Working Group on Bribery (WGB) has expressed concerns with the UK’s implementation of the Anti-Bribery Convention.  In 2007, the UK Law Commission began a consultation process to draft a Bribery Bill that met OECD standards. The new Bill was published in draft in March 2009 and adopted by Parliament with cross-party support as the 2010 Bribery Act.

Resources to Report Corruption

UK law provides criminal penalties for corruption by officials, and the government routinely implements these laws effectively.  The Serious Fraud Office (SFO) is an independent government department, operating under the superintendence of the Attorney General with jurisdiction in England, Wales, and Northern Ireland.  It investigates and prosecutes those who commit serious or complex fraud, bribery, and corruption, and pursues them and others for the proceeds of their crime.

The SFO is the UK’s lead agency to which all allegations of bribery of foreign public officials by British nationals or companies incorporated in the United Kingdom should be reported – even in relation to conduct that occurred overseas.  Some of these allegations, where they involve serious or complex fraud and corruption, may fall to the SFO to investigate. Some may be more appropriate for other agencies to investigate, such as the Overseas Anti-Corruption Unit of the City of London Police (OACU) or the International Corruption Unit of the National Crime Agency.  When the SFO receives a report of possible corruption, its intelligence team makes an assessment and decides if the matter is best dealt with by the SFO or passed to a law enforcement partner organization. Allegations can be reported in confidence using the SFO’s secure online reporting form: https://www.sfo.gov.uk/contact-us/reporting-serious-fraud-bribery-corruption/ .

Details can also be sent to the SFO in writing:

SFO Confidential
Serious Fraud Office
2-4 Cockspur Street
London, SW1Y 5BS
United Kingdom

The UK is politically stable but shares with the rest of the world an increased threat of terrorist incidents.  2017 saw an uptick in the number of terrorist incidents in the UK, with deaths from attacks in Westminster, Manchester, London Bridge, and Finsbury Park totaling 36.  The latest official figure, from December 2017, states that nine Islamist plots had been foiled since March 2017, and 22 since 2013, when the Islamic State group emerged in Syria.  The current threat level for international terrorism in the UK is “Severe.”

Environmental advocacy groups in the UK have been involved with numerous protests against a variety of business activities, including:  airport expansion, bypass roads, offshore structures, wind farms, civilian nuclear power plants, and petrochemical facilities. These protests tend not to be violent but can be disruptive, with the aim of obtaining maximum media exposure.

Brexit remains a key source of political instability.  The June 2016 EU referendum campaign was characterized by significant polarization and widely varying perspectives across the country.  Differing views about what should be the terms of the future UK-EU relationship continue to polarize political opinion across the UK.  The people of Scotland voted to remain in the EU and Scottish political leaders have indicated that the UK leaving the EU may provide justification to pursue another Referendum on Scotland leaving the UK.  In addition, Brexit may be a factor contributing to the inability to reconstitute devolved government in Northern Ireland.

The process of Brexit itself has been politically fraught.  The UK was originally due to leave the EU on March 29, 2019, but Prime Minister (PM) Theresa May twice had to request a delay as she remained unable to form a majority in the House of Commons to ratify the Withdrawal Agreement setting out the terms of the UK’s departure from the bloc.  The UK and the EU27 endorsed the draft Withdrawal Agreement at a special meeting of the European Council on November 25, 2018.  The draft deal makes provisions for an extendable 21-month status quo transition period through at least December 31, 2020 – during which the UK would effectively remain a member of the EU without voting rights, while continuing talks on its long-term future economic and security arrangements with the bloc. 

The transition period is, however, conditional upon the successful ratification of the Withdrawal Agreement.  At time of writing, the House of Commons has three times rejected the draft Withdrawal Agreement, largely over concerns with a controversial “backstop” plan to avoid the return to a hard border between Northern Ireland and the Republic of Ireland by keeping the former in a closer economic relationship with the EU – potentially setting up additional regulatory barriers between Northern Ireland and the rest of the UK.  The House of Commons has also voted to reject an exit from the EU without a Withdrawal Agreement in place, a so-called “no deal” Brexit scenario.  Facing the prospect of a no-deal exit on April 12, PM May agreed with her EU27 counterparts to a further extension of the Article 50 negotiating process until October 31, 2019.

Both main political parties (Conservative “Tories” and Labour) have recently tacked in a less business-friendly direction.  The Conservative Party, traditionally the UK’s pro-business party, is focused on implementing Brexit, a process many international businesses oppose because they expect it to make trade in goods, services, and capital with the UK’s largest trading partners more problematic and costly, at least in the short term.  The Conservative Party also intends to limit and reduce international immigration, an issue that was a main driver of the UK’s vote to leave the EU.  The Conservative Party capitalized on this anti-immigrant sentiment as a part of their overall campaign strategy to win the 2017 General Election.  The opposition Labour Party, led by Jeremy Corbyn MP and Chancellor John McDonnell MP, have also promoted polices opposed by business groups including laws that would give employees and shareholders the right to a binding vote on executive remuneration, make trade union rights stronger and more expansive, increase corporate taxes, and renationalize utility companies.  If the Labour Party were to prevail, such a shift to the economic left at a time when the Conservatives have made large, relatively unfunded public spending commitments, could potentially lead to higher levels of taxation and borrowing, crowding out private investment.

The UK’s labor force is the second largest in the European Union, at just over 41 million people. For the period between November 2018 and January 2019, the employment rate was 76.1 percent, with 31.4 million workers employed – the highest employment rate since 1971. Unemployment also hit a 43-year low with 1.32 million unemployed workers, or just 4 percent (down from 4.4 percent a year earlier).  For the same period, the unemployment rate for 18 to 24 year olds was 10.4 percent, lower than for a year earlier (10.5 percent).

The most serious issue facing British employers is a skills gap derived from a high-skill, high-tech economy outpacing the educational system’s ability to deliver work-ready graduates.  The government has placed a strong emphasis on improving the British educational system in terms of greater emphasis on science, research and development, and entrepreneurial skills. The UK’s skills base stands just below the OECD average.

As of 2017, approximately 23.2 percent of UK employees belonged to a union.  Public-sector workers have a much higher share of union members, at 51.8 percent, while the private sector is just under 14 percent.  Manufacturing, transport, and distribution trades are highly unionized. Unionization of the workforce in the UK is prohibited only in the armed forces, public-sector security services, and police forces.  Union membership has been relatively stable in the past few years, although the trend has been slightly downward over the past decade.

Once-common militant unionism is less frequent, but occasional bouts of industrial action, or threatened industrial action, can still be expected.  Recent strike action was motivated in part by the Coalition Government’s deficit reduction impacts on highly unionized sectors. In the 2017, there were 276,000 working days lost from 79 official labor disputes.  Privatization of traditional government entities has exacerbated frictions. The Trades Union Congress (TUC), the British nation-wide labor federation, encourages union-management cooperation as do most of the unions likely to be encountered by a U.S. investor.

In 2017 some cabin crew members of British Airways went on strike; 2018 saw significant strikes at the university level.  In February of 2018, university lecturers launched a widespread strike with staff and students taking collective action across 64 different universities.  Estimates show over a million students were affected and 575,000 teaching hours were lost.

On April 1, 2019, the UK raised the minimum wage to USD 10.71 (GBP 8.21) an hour for workers ages 25 and over.  The increased wage impacts about 2 million workers across Britain. The government plans to raise the National Living Wage to USD 11.75 an hour (GBP 9) by 2020.

The UK decision to leave the EU has introduced uncertainty into the labor market, with questions surrounding the rights of workers from other EU countries currently in the UK, the future rights of employers to hire workers from EU countries, and the extent to which the UK will maintain EU rules on workers’ rights.  

The 2006 Employment Equality (Age) Regulations make it unlawful to discriminate against workers, employees, job seekers, and trainees because of age, whether young or old.  The regulations cover recruitment, terms and conditions, promotions, transfers, dismissals, and training. They do not cover the provision of goods and services. The regulations also removed the upper age limits on unfair dismissal and redundancy.  It sets a national default retirement age of 65, making compulsory retirement below that age unlawful unless objectively justified. Employees have the right to request to work beyond retirement age and the employer has a duty to consider such requests.

OPIC does not operate in the UK.  However, the U.S. Export-Import Bank (Ex-Im Bank) financing is available to support major investment projects in the UK.  A Memorandum of Understanding (MOU) signed by Ex-Im Bank and its UK equivalent, the Export Credits Guarantee Department (ECGD), enables bilateral U.S.-UK consortia intending to invest in third countries to seek investment funding support from the country of the larger partner.  This removes the need for each of the two parties to seek financing from their respective credit guarantee organizations.

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

Table 3: Sources and Destination of FDI

Notes:

The UK Department for International Trade Core Statistics Book denominates these figures in GBP. Due to a volatile GBP/USD exchange rate in 2018, Post has decided to leave the numbers in their denominated currency as to maintain the highest accuracy.

The current fourth ranking for Inward Direct Investment is the UK offshore island of Jersey, a self-governing dependency of the United Kingdom. However, we have chosen to focus here on country-to-country FDI only.

Table 4: Sources of Portfolio Investment

U.S. Embassy London
Economic Section
33 Nine Elms Ln
London SW11 7US
United Kingdom
+44 (0)20-7499-9000
LondonEconomic@state.gov