Policies Towards Foreign Direct Investment

Gabon’s 1998 investment code conforms to the Central African Economic and Monetary Community’s (CEMAC) investment regulations and provides the same rights to foreign companies operating in Gabon as to domestic firms.

Gabon’s domestic and foreign investors are protected from expropriation or nationalization without appropriate compensation, as determined by an independent third party. Certain sectors, such as mining, forestry, petroleum, agriculture, and tourism, have specific investment codes, which encourage investment through customs and tax incentives.

Gabon established the Investment Promotion Agency (ANPI-Gabon) with the assistance of the World Bank in 2014. Its mission is to promote investment and exports, support SMEs, manage public-private partnerships (PPPs), and help companies establish themselves. It is designed to act as the gateway for investment into the country and to reduce administrative procedures, costs, and waiting periods.

Gabonese authorities have made efforts to prioritize investment. In 2017, the High Council for Investment was established to promote investment and boost the economy. This body provides a platform for dialogue between the public and private sectors, and its main objectives are to improve the economy and create jobs.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign investors are largely treated in the same manner as their Gabonese counterparts regarding the purchase of real estate, negotiation of licenses, and entering into commercial agreements. There is no general requirement for local participation in investments (see local labor requirements below). Many businesses find it useful to have a local partner who can help navigate the subjective aspects of the business environment.

There are no limits on foreign ownership or control. However, Gabon Oil Company, a state-owned enterprise (SOE) created in 2011, has an automatic right to purchase up to a 15 percent share in any hydrocarbon contract at market price. The standard practice is for the Gabonese President to review foreign investment contracts after ministerial-level negotiations are completed. In certain cases, the President has appeared to intervene to keep negotiations stalled at the ministerial level, even when the deal was on track to a mutually satisfactory solution.

The President takes an active interest in meeting with investors. The lack of a standardized procedure for new entrants to negotiate deals with the government can lead to confusion and time-consuming negotiations. Moreover, the centralization of decision-making by a few senior officials who are exceedingly busy can delay the process. As a result, new entrants often find the process of finalizing deals time-consuming and difficult to navigate.

Other Investment Policy Reviews

Gabon has been a World Trade Organization (WTO) member since 1995. In June 2013, Gabon conducted an investment policy review with the WTO. The government has not conducted any investment policy reviews through the Organization for Economic Co-operation and Development (OECD) or the United Nations Conference on Trade and Development (UNCTAD) since 2017.

Business Facilitation

The government encourages investments in those economic sectors that contribute the greatest share to gross national product (GNP), including oil and gas, mining, and wood harvesting and transformation through customs and tax incentives. For example, oil and mining companies are exempt from customs duties on imported machinery and equipment specific to their industries. The Tourism Investment Code, enacted in 2000, provides tax incentives to foreign tourism investors during the first eight years of operation. The SEZ at Nkok offers tax incentives to industrial investors; the government has mused on the possibility of increasing the number of SEZs in a move to attract further investment.

ANPI-Gabon covers more than 20 public and private agencies, including the Chamber of Commerce, National Social Security Fund (CNSS), and National Health Insurance and Social Security (CNAMGS). It aims to attract domestic and international investors through improved methods of approving and licensing new companies and to support public-private dialogue. It has a single window registration process that allows domestic and foreign investors to register their businesses in 48 hours. There are, however, no special mechanisms for equitable treatment of women and underrepresented minorities in Gabon.

ANPI-Gabon’s website address is: https://www.investingabon.ga/

Outward Investment

One of ANPI-Gabon’s primary goals is to promote outward investments and exports. The Gabonese government does not restrict domestic investors from investing abroad.

Transparency of the Regulatory System

Government policies and laws often do not establish clear rules of the game, and foreign firms can have difficulty navigating the bureaucracy. Despite reform efforts, hurdles and red tape remain, especially at the lower and mid-levels of the ministries. Lack of transparency in administrative processes and lengthy bureaucratic delays occasionally raise questions for companies about fair treatment and the sanctity of contracts.

Rule-making and regulatory authority rests at the ministerial level. There are no nongovernmental organizations or private sector associations that manage informal regulatory processes. The government of Gabon has not exhibited any recent tendency to discriminate against U.S. investments, companies, or representatives.

The government does not publish proposed laws and regulations in draft form for public comment. There are no centralized online locations where key regulatory actions or their summaries are published. Key regulatory actions are published in the government’s printed Official Journal. It is not uncommon for legislative proposals to be provided “off the record” to the press.

Gabon is affiliated with the Organization for the Harmonization of Corporate Law in Africa (Organisation pour l’harmonisation en Afrique du droit des affaires, OHADA, http://www.ohada.com/).

The Transformation Acceleration Plan (PAT) is a new structure of enforcement of mechanisms to ensure governments follow administrative processes and was launched in January 2021 in response to a request by the IMF for a transparency enforcement mechanism. The PAT will monitor the implementation of administrative processes, and regularly transmit the monitoring information necessary for decision-making to the President of the Republic and the Prime Minister.

No new regulatory systems have been announced in the last year, and no new reforms have been implemented in the last year.

Gabon lacks transparency on public finances and debt obligations or explicit contingent liabilities.

International Regulatory Considerations

Gabon is a member of CEMAC, along with Cameroon, the Central African Republic, the Republic of Congo, Equatorial Guinea, and Chad. Gabon is also a member of the larger Economic Community of Central African States (ECCAS), which is headquartered in Gabon and has 11 members: Gabon, Angola, Burundi, Cameroon, Central African Republic, Chad, the Republic of Congo, Democratic Republic of Congo, Equatorial Guinea, Rwanda, and São Tomé and Príncipe. Both CEMAC and ECCAS work to promote economic cooperation among members.

Gabon is a member of OHADA, which includes nine validated Uniform Acts: General Commercial Law, Commercial Companies and Economic Interest Groups, Secured Transactions Law, Debt Resolution Law, Insolvency Law, Arbitration Law, Harmonization of Corporate Accounting, Contracts for the Carriage of Goods, and Cooperatives Companies Law.

Gabon has been a member of the WTO since January 1, 1995. It fulfills its duties on notification of all draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT).

Legal System and Judicial Independence

Gabon’s legal system is based on French Civil Law. Regular courts handle commercial disputes in compliance with OHADA’s standards. Courts do not apply the law consistently, however, and delays are frequent in the judicial system. A lack of transparency in administrative processes and lengthy bureaucratic delays call into question the country’s commitment to fair treatment and the sanctity of contracts. Judicial capacity is weak, and many government contacts underscore the need for specialized training in technical issues, such as money laundering and environmental crimes. Foreign court and international arbitration decisions are accepted, but enforcement may be difficult.

Gabon has a written code of commercial law.

Gabon’s judicial system is not independent from its executive branch, making them subject to political influence, which creates uncertainty around the fair treatment and the sanctity of contracts. Regulations or enforcement actions are appealable and are adjudicated in the national court system.

Laws and Regulations on Foreign Direct Investment

Gabon’s 1998 investment code, which gives foreign companies operating in Gabon the same rights as domestic firms, allows foreign investors to choose freely from a wide selection of legal business structures, such as a private limited liability company or a public limited liability company. The distinctions arise primarily from the minimum capital requirements and the conditions under which shares may be re-sold. Foreign investment in Gabon is subject to local law that is in many instances unsettled or unclear, and in certain cases, Gabonese law may require local majority ownership of businesses. The state reserves the right to invest in the equity capital of ventures established in certain sectors (e.g., petroleum and mining). There are no known systemic practices by private firms to restrict foreign investment, participation, or control.

No major laws have come out this past year.

ANPI-Gabon’s website contains most of the information on investing in Gabon: https://www.investingabon.ga/.

Competition and Antitrust Laws

There are no specific ministries in charge of reviewing transactions and conduct for competition-related concerns. That responsibility lies with the ministry that is party to a contract.

The Gabonese Law No. 14/1998 of July 23, 1998, on the Establishment of the Competition Regime of Gabon on Competition covers all aspects of competition and anti-trust measures.

Expropriation and Compensation

Foreign firms established in Gabon operate on an equal legal basis with national companies. Businesses are protected from expropriation or nationalization without appropriate compensation, as determined by an independent third party.

The Gabonese government has not exhibited a tendency to expropriate, nor have there been any indications or reports of incidences of indirect expropriation.

Dispute Settlement

ICSID Convention and New York Convention

Gabon is a member state of the International Centre for the Settlement of Investment Disputes (ICSID) and a signatory to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). The 1965 Code of Civil Procedure provides for various means of enforcement of judgments (both foreign and domestic), depending on the nature of the decree or decision.

Investor-State Dispute Settlement

Gabon does not have a BIT with the United States. Post is not aware of any investment dispute involving a U.S. company. However, in 2018, there was a foreign arbitral award issued against the government. The Société d’Energie et d’Eau du Gabon (SEEG), a subsidiary of the Veolia Group, a French transnational company, filed a request for conciliation against Gabon at ICSID. Veolia and the Gabonese government signed an agreement to settle the case in February 2019. Gabon agreed to buy Veolia’s 51 percent stake in SEEG and Veolia agreed to withdraw its arbitrage case once the agreement is finalized.

International Commercial Arbitration and Foreign Courts

No alternative dispute resolution options exist within Gabon. Investment disputes are generally negotiated directly with the governmental entity involved. There is no domestic arbitration body within the country. Local courts recognize foreign arbitral awards, but enforcement may be difficult.

Post is not aware of any cases of SOEs being involved in investment disputes in the court system.

Bankruptcy Regulations

Gabon has a bankruptcy law, but it is not well developed. In the World Bank’s Doing Business Report 2020 (http://documents.worldbank.org/curated/en/134861574860295761/pdf/Doing-Business-2020-Comparing-Business-Regulation-in-190-Economies-Economy-Profile-of-Gabon.pdf), Gabon ranks 130 out of 190 economies on the ease of resolving insolvency.

Gabon’s bankruptcy law is based on OHADA regulations. According to Section 3: Art 234-239 of OHADA’s Uniform Insolvency Act, creditors and equity shareholders, collectively or individually, may designate trustees to lodge complaints or claims to the commercial court. These laws criminalize bankruptcy, and the OHADA regulations grant Gabon the discretion to apply its own remedies.

Capital Markets and Portfolio Investment

There is no law prohibiting or limiting foreign investment in Gabon. Aside from the preference in employment given to Gabonese workers, from a general corporate law perspective, there are no specific legislative requirements. Regardless of the type of company, there must be one resident representative on the management board of all Gabonese companies. However, this resident representative can be a non-Gabonese citizen.

However, in the oil and gas industry, the state is entitled to hold a mandatory participating interest in a petroleum contract of up to 20 percent. Any acquisition by the sate in excess of the 20 percent must be purchased at market price.

In addition to this, the Gabon Oil Company (i.e., the national oil and gas company) is also entitled to acquire at market price a participating interest in any petroleum contract of up to 15 percent.

The contracting company can assign its rights and obligations under any hydrocarbons contracts to a third party, subject to the prior approval of the Ministry of Oil and Hydrocarbons and the Ministry of Economy. The state is entitled to right of first refusal on application to assign these rights to a third party, excluding assignments between the contracting company and its affiliates.The Gabonese government encourages and supports foreign portfolio investment, but Gabon’s capital markets are poorly developed. Gabon has been home to the Central Africa Regional Stock Exchange, which began operation in August 2008. Additionally, the Bank of Central African States is in the process of consolidating the Libreville Stock Exchange into a single CEMAC zone stock exchange to be based in Douala, Cameroon; this process began in July 2019.

On June 25, 1996, Gabon formally notified the IMF that they accepted the obligations of Article VIII, Sections 2, 3, and 4 of the IMF Articles of Agreement. These sections provide that members shall not impose or engage in certain measures, namely restrictions on making payments and transfers for current international transactions, discriminatory currency arrangements, or multiple currency practices, without the approval of the IMF.

Foreign investors are authorized to get credit on the local market and have access to a variety of credit instruments offered by local banks without restriction.

Money and Banking System

The banking sector is composed of seven commercial banks and is open to foreign institutions. It is highly concentrated, with three of the largest banks accounting for 77 percent of all loans and deposits. The lack of diversification in the economy has constrained bank growth in the country, given that the financing of the oil sector is largely undertaken by foreign international banks. Access to banking services outside major cities is limited.

According to data from the Gabonese General Directorate for the Economy and Fiscal Policy, the term resources of the banking sector, mainly made up of accounts payable. term, and special regime deposit accounts (cash certificates), fell by 8% in the first half of 2020, due in particular to the negative impact of COVID-19 on economic activity. These resources stood at 552.1 billion FCFA at the end of June 2020, compared to 600 billion a year earlier.

The Gabonese banking sector remains weak due to its difficulty in financing the private sector due to unreliable and often incomplete documentation presented by new companies. In addition, loan rates offered by banks are very high – around 15 percent – discouraging individuals and businesses.

BGFI Bank Gabon is the largest Gabonese bank in both deposits and loans with approximatively 45 percent of the market share and a balance sheet total of over 3,000 billion FCFA, according to the Professional Association of Gabon Credit Institutions (APEC). The Bloomfield Investment Corporation financial rating agency gave the BGFI Bank a mark of A+ in recognition for its financial strength and management system.

Gabon shares a common Central Bank (Bank of Central African States) and a common currency, the Communauté Financière Africaine (CFA) Franc, with the other countries of CEMAC. The CFA is pegged to the euro.

Foreign banks are allowed to establish operations in the country. There is one U.S. bank (Citigroup) present in Gabon. There are no restrictions on a foreigner’s ability to establish a bank account in the local economy.

Gabon’s financial system is shallow and financial intermediation levels remain low. Basic documents are required for applying for a residency permit in Gabon.

Foreign Exchange and Remittances

Foreign Exchange

The Bank of Central African States’ policy on foreign exchange requirements is in flux. Please contact the Embassy for additional information.

Funds associated with any form of investment to be freely converted into any world currency now have to go through the Bank of Central African States’ new process related to foreign and exchange currency rules.

Gabon’s currency is the FCFA, which is convertible and is tied to the Euro (EUR 1:FCFA 656). As of March 2021, 1 U.S. dollar is roughly equivalent to CFA 535

Remittance Policies

The Gabonese government recently changed investment remittance policies to tighten access to foreign exchange for investment remittances. There is no time limitation on capital inflows or outflows.

Sovereign Wealth Funds

Gabon created a Sovereign Wealth Fund (SWF) in 2008. Initially called the Fund for Future Generations (Fonds des Génerations Futures) and later changed to the Sovereign Funds of the Gabonese Republic (Fonds Souverains de la République Gabonaise), the current iteration of Gabon’s SWF is referred to as Gabon’s Strategic Investment Funds (Fonds Gabonaises d’Investissements Stratégiques, or FGIS). As of September 2013, the most recent FGIS report, the FGIS had USD 2.4 billion in assets and was actively making investments. Further details are not available.

Gabon’s sovereign wealth fund does not follow the Santiago principles, nor does Gabon participate in the IMF-hosted International Working Group on SWFs.

Government-appointed civil servants manage Gabonese state-owned enterprises (SOEs), which operate primarily in energy, extractive industries, and public utilities. SOEs generally follow OECD guidelines on corporate governance, which usually consists of a board of directors under the authority of the related ministry. That ministry chooses the board members, who may be government officials or members of the general public. The SOEs often consult with their ministry before undertaking any important business decisions. The corresponding ministry in each sector prepares and submits the budget of each SOE each year. Independent auditors examine the SOEs’ activities each year, conducting audits according to international standards. Auditors do not publish their reports, but rather submit them to the relevant ministry.

There is no published list of SOEs.

There are no specific laws or rules that offer preferential treatment to SOEs. However, although private enterprises may compete with public enterprises under open market access conditions, SOEs often have a competitive advantage in the industries in which they operate.

Privatization Program

Gabon does not have an active privatization program. However, when there is a privatization program foreign investors are usually invited to participate. The bidding process for these programs are easy to understand, non-discriminatory, and transparent. No links are available, as there are currently no active privatization programs.

Violence related to politics is relatively rare in Gabon. Elections, however, can lead to heightened tensions or violence.

While the 2018 legislative and local elections took place without major incident, violence did break out on August 31, 2016, after the National Electoral Commission announced that the incumbent ABO defeated his opponent Jean Ping in the presidential election by a margin of less than 2%. Protestors took to the streets, attempting to burn the National Assembly building. Non-governmental organizations stated the government’s use of excessive force to disperse demonstrators resulted in approximately 20 deaths and over 1000 arrests; the opposition claimed at least 50 people were killed.

The COVID-19 pandemic has had a major impact on Gabon’s economy since March 2020. Measures to contain cases included closing several economic sectors, which increased the unemployment rate, with around 12,500 Gabonese losing their jobs (Minister of Labor announcement, January 2021). The social tension was high in February 2021 when further restrictions were announced, including a 6PM to 5AM curfew; this led to peaceful protests, occasionally marked by riots, during which two people were killed in Libreville and Port-Gentil.

* Source for Host Country Data:  Gabon 2021 budget; the World Bank 2019-2020 report; the IMF country report; the website for the Gabonese Ministry of Economy.

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

Table 4: Sources of Portfolio Investment
Data not available.

Policies Towards Foreign Direct Investment

The GoTG has made increasing foreign direct investment a priority. It also aims to create a business environment that allows the private sector to be the engine of growth, transformation, and job creation. FDI is welcomed in almost every sector of the Gambian economy. There is no restriction on ownership of businesses by foreign investors in most sectors and local companies are not prioritized over local companies. While restrictions are limited, foreign investors and companies often complain about the excessive and inconsistently applied bureaucratic procedures and the decision-making process – and often lack of transparency – for public tenders and contracts.

The Gambia Investment & Export Promotion Agency (GIEPA) is the national agency responsible for the promotion and facilitation of private sector investments in The Gambia. Through the GIEPA, eight areas are identified as “priority sectors” which qualify for a Special Investment Certificate (SIC) that provides several incentives, including duty waivers and tax holidays. The Investment Section at Office of The President plans to start handling foreign direct investment matters.

To maintain dialogue with investors, The Gambia Competitiveness Improvement Forum was created as part of the 2015 GIEPA Act, which hosts sector-based forums to maintain dialogue with investors. GIEPA normally hosts forums at which investors comment on the government’s policies and action.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities have a right to own business enterprises and engage in in all forms of remunerative activities in The Gambia. There are no limits on foreign ownership or control of businesses except in the operations of defense industries, which are closed to all private sector participation, irrespective of nationality. Apart from defense related activities, there are no sector-specific restrictions, limitations, or requirements were legally applied to foreign ownership and control.

Foreign investors are not denied national treatment (i.e. the same treatment as domestic firms) or MFN treatment (i.e. the same treatment as the most favored foreign investor) in any sector. There is no mandatory screening of foreign direct investment, but such screening may be conducted if there is suspicion of money laundering or terrorism financing. Investors subjected to such a screening may be asked for business registration documents and bank statements. As part of the country’s privatization program, foreign investors are treated equal to local investors.

Other Investment Policy Reviews

The WTO last conducted a Trade Policy Review (TPR) in January 2018. The Gambia has maintained its generally open trade and investment regime since the last TPR in 2010. The main trade policy reform has been the adoption of the five-band ECOWAS Common External Tariff (CET) from 1 January 2017. An executive summary of the findings can be found at: https://www.wto.org/english/tratop_e/tpr_e/tp465_e.htm . The United Nations Conference on Trade and Development (UNCTAD) conducted an Investment Policy Review in 2017. The review shows The Gambia has adopted an open regime for investment and a range of modern business regulation tools. However, supply-side constraints, vulnerability to exogenous shocks and remaining regulatory and institutional bottlenecks have negatively affected the development of the private sector and the country’s performance in attracting FDI. The report can be downloaded at: https://unctad.org/webflyer/investment-policy-review-gambia .

Business Facilitation

The Ministry of Justice, which offers a range of administrative services to foreign investors, is the point of entry for company registration. The government has drastically reduced the average number of days it takes to start a business in recent years, from 25 to two.

According to the 2020 Doing Business report, it takes six procedures and, an average of one to two days to start a business in the country. These procedures include registering a unique company name, notarizing company status, obtaining a tax identification number (TIN), registering employees with the Social Security and Housing Finance Corporation, registering with the Commercial Registry, and obtaining an operational license. While this can be done by anyone in theory, a local attorney who is familiar with the system can facilitate the process. In 2010, a Single Window Business Registration Desk was established at the Ministry of Justice. This initiative has reduced the number of days it takes to register a business in the country to one day.

Outward Investment

Foreign investment in The Gambia is facilitated by the GIEPA and the Gambia Chamber of Commerce and Industry (GCCI). The two organizations’ mandate includes export promotion and support for small and micro enterprise (SME) development. Domestic investors have no limitations when it comes to investing abroad. Post has been working with the American Chamber of Commerce to expand its role in facilitating trade between The Gambia and the United States.

Transparency of the Regulatory System

The GOTG uses transparent policies and effective laws to foster competition on a non-discriminatory basis to establish uniform rules and regulations. The statutes governing The Gambia’s legal, regulatory, and accounting systems are transparent and consistent with international norms. Statute mandates the creation of a commission to advocate for competition in The Gambia. The Gambia Competition and Consumer Protection Commission (GCCP) is a commercial watchdog that ensures the protection of consumers from unfair and misleading market practices and prohibits illegal business practices. The GCCP also determines and imposes penalties or appropriate remedies to ensure businesses refrain from prohibited restrictive practices. Despite the existence of this statutory and regulatory framework, businesses often struggle to timely resolve disputes in the court system, whether the dispute be among private parties or with the government.

There are no informal regulatory processes that are managed by nongovernmental organizations or private sector associations. Rule-making and regulatory authority exists with the President, his cabinet of ministers, and the committee members under the National Assembly of The Gambia, and various government parastatals. The accounting, legal, and regulatory procedural systems of The Gambia are consistent with international norms. Draft bills or regulations are made available to the public for commenting through public meetings and targeted outreach to stakeholders, such as business associations or other groups. This practice is in line with the U.S. federal notice and comment procedures and applies to investment laws and regulations in The Gambia.

There are no informal regulatory processes that are managed by nongovernmental organizations or private sector associations nor is there a formal stock market such as a stock exchange for trading equity securities. The accounting, legal, and regulatory procedural systems of The Gambia are consistent with international norms.

Draft bills or regulations are made available to the public for commenting through public meetings and targeted outreach to stakeholders, such as business associations or other groups. LexisNexis formed a contract with The Gambia in 2009 for the publication of the entire country’s legislation; however, access is not free of charge. The National Assembly is also in the process of compiling all regulatory actions on its website. There is not a centralized online location where key regulatory actions or their summaries are published. The Gambia also lacks a specialized government body tasked with reviewing and monitoring regulatory impact assessments conducted by other individual agencies or government bodies.

There are two types of courts in The Gambia: the Superior Courts, and the Magistrates Courts. Magistrate Courts include the lower courts, such as the Cadi Court and District Tribunals. The lower courts are established by an act of the National Assembly. The judicial power of The Gambia is vested in the courts, which exercise this power according to the respective jurisdictions conferred by acts of the National Assembly. Court processes are outdated and under capacitated, resulting in significant delays to trial and hearing procedures. No new regulatory system reforms have been announced since the last investment climate statement, but regulatory reform efforts announced in prior years are currently being implemented. The Investment Policy Plan of The Gambia is still being drafted.

Proposed laws and regulations are made available to all the relevant stakeholders for their review and discussion at validation workshops. During the process of enactment in the National Assembly, deputies are free to suggest changes. Regulations are not reviewed based on scientific or data-driven assessments. The Gambia Bureau of Statistics is a public agency that develops data based on enacted legislation. Comments received by regulators are not made public and only limited information on debt obligation are publicly available. Documents lack complete information on natural resource revenues as well as financial earnings from state-owned enterprises.

International Regulatory Considerations

The Gambia is a member of Economic Community of West African States (ECOWAS), and as such, is signatory to the 1975 ECOWAS Treaty, which harmonizes investment rules.

The Economic Community of West African States (ECOWAS) first introduced competition legislation in 2008, including a prohibition on anticompetitive mergers. The Gambia has its own regulatory system that is made through collaboration with stakeholders from the international community and NGOs, but retains its base in the UK system of regulations. The Gambia is a member of the WTO, but the government does not notify the WTO Committee on Technical Barriers to Trade (TBT) of draft technical regulations unless requested.

Legal System and Judicial Independence

The country’s legal system is based on English common law, but courts are slow to enforce property and contractual rights due to lack of capacity, lack of data processing and case management systems, as well as antiquated processes – many of which are mandated by laws that are many decades old. The Gambia has a written commercial law found in the Companies Act which is consistently applied. Monetary judgments can be made in both the investor’s currency and local currency. Disputes not covered by statute are governed by common law principles. The constitution provides for an independent judiciary, and the executive has not inappropriately intervened in judicial affairs since former President Jammeh’s departure from office. The Supreme Court, presided over by a chief justice, has both civil and criminal jurisdiction. Appeals against decisions of district tribunals (or the industrial tribunal in the case of labor disputes) may be lodged with the lower courts, the High Court and the Supreme Court, which is the highest court of appeal in the country.

Laws and Regulations on Foreign Direct Investment

The investment laws and regulations of The Gambia apply equally to local and foreign investors. These include unclear provisions of some of the laws related to investment, such as competition, labor, and corruption. Some laws are not effectively implemented due to insufficient regulations. For information on the laws, rules, procedures, and reporting required foreign investors can visit the website of GIEPA .

The Gambia Competition and Consumer Protection Commission (GCCPC) is the body primarily responsible for the promotion of competition and the protection of consumers mandated by three acts, The Competition Act of 2007, The Consumer Protection Act of 2014, and The Essential Commodities Act of 2015. No major investment related laws, regulations, or judicial decisions have been finalized in the past year.

Competition and Anti-Trust Laws

GCCPC is a commercial watchdog that reviews transactions for competition-related concerns and ensures the protection of consumers from unfair and misleading market practices and administers the prohibition of illegal business practices.

Expropriation and Compensation

The Constitution of The Gambia provides the legal framework for the protection of private ownership of property and only provides for compulsory acquisition by the state if this is found necessary for defense, public safety, public order, public morality, public health, or town and country planning. During President Jammeh’s 22 years in office, state paramilitary officials were known to arrive unannounced on private property and tear down any standing structures on the property in question. Claimants alleged a lack of due process and compensation stemming from these incidents under President Jammeh. Reports indicate this practice has ceased since the January 2017 departure of former President Jammeh, although the legacy of land disputes he caused has not yet been unwound.

Dispute Settlement

The Gambia is a member of the International Center for the Settlement of Investment Disputes (ICSID), but there is no specific legislation providing for enforcement of ICSID awards. The Gambia is not a signatory to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.

Investor-State Dispute Settlement

The Gambia is a signatory to the 1975 ECOWAS Treaty, revised in 1993, that led to the establishment of a Community Investment Code to harmonize investment rules. The Gambia does not have any BITs or FTAs with the United States.

The local courts recognize and enforce foreign arbitral awards issued against the government. Local courts did not enforce foreign arbitral awards issued against the government during the Jammeh regime due to executive interference.

In June 2013, the government announced a ban on the importation of frozen poultry parts, which constituted the largest U.S. export to The Gambia, worth over USD 7 million a year.

The ban was lifted in November 2013, but a statement issued by the Ministry of Trade imposed a new condition that all shipments of poultry products entering the country require the Society Générale de Surveillance (SGS) to certify that they are hormone-free. Separately, a U.S. financial group purchased a banking group with bank locations in several West African countries, including The Gambia, in 2016. However, the previous owner of the bank refused to acknowledge the new ownership leading to a litigation in Gambian courts against the U.S. financial group starting in 2017. Only after several years and numerous engagements with U.S. officials was the dispute resolved, with the U.S. financial group finally obtaining clear title and license to operate in The Gambia.

A groundnut processing plant at Denton Bridge is the biggest industrial complex in the country. The government seized the plant in 1999 sparking a protracted legal battle. The plant is still not in operation today, partly as a result of that dispute.

The last major dispute with foreign investors was with the Swiss group, Alimenta, over the assets of The Gambia Groundnut Corporation in 1998.

International Commercial Arbitration and Foreign Courts

The Gambia is a member of the International Center for the Settlement of Investment Disputes (ICSID), but there is no specific legislation providing for enforcement of ICSID awards. However, there is an Alternative Dispute Resolution (ADR) mechanism as a means for settling disputes between private parties.

Arbitration is governed by the Alternative Dispute Resolution Act of 2005 and is generally based on the UNCITRAL Model Law with some provisions adapted from the UNCITRAL Rules. The Gambian Chamber of Commerce and Industry (GCCI) is currently engaged in setting up a Dispute Resolution Center. Local courts recognize and can enforce foreign arbitral awards; however, executive directives and interference have prevented them from ably enforcing the awards in the past. There have been reports of complaints about the court processes during former President Jammeh’s regime because rulings tended to overwhelmingly favor the GOTG. For the past year, Gambian SOE’s have not been involved in investment disputes that were determined by domestic courts.

Bankruptcy Regulations

Bankruptcy is covered by the Bankruptcy and Insolvency Act of 1992. Creditors, equity shareholders, and holders of other financial contracts may file for both liquidation and reorganization.

Capital Markets and Portfolio Investment

Banks and policymakers alike would like to see the exposure ratio return to the long-run average over time, if the emergence of lending opportunities, both large-scale investment projects and retail credit, can be supported by the banks without compromising their financial soundness and overall financial stability. Gambian banks are trying to return to a more balanced portfolio structure in the medium run following the decline in private sector lending relative to investment in government securities. Central Bank of the The Gambia staff contend that the decline in the ratio was delayed by foreign banks entering the local market with an aggressive lending strategy to capture market share.

The country does not have its own stock market. Sufficient liquidity does not exist in the markets to enter and exit sizeable positions. There is no effective regulatory system to encourage and facilitate portfolio investment, or policies to facilitate the free flow of financial resources into the products and factor markets. Credit is allocated on market terms. Personal loans remain rare among Gambians; interest rates exceeding 25% mean that few loans are economically rational. Foreign investors are able to get credit on the local market. The private sector has access to a variety of credit instruments. GoTG respects the IMF Article obligations for member countries and refrains from restrictions on payments and transfers for current international transactions.

Money and Banking System

Total assets of the banking industry increased by 15.6 in 2020, going from D50.88 billion (USD 993 million) to D58.82 billion (USD 1.2 million). In 2019 asset quality improved significantly with a non-performing loan ratio of 3.3%, lower than 7.2% in 2018.

The banking system had been adequately capitalized, liquid, and profitable with a capital adequacy ratio of 32.6 percent in December 2020. The ratio of liquid assets to total assets calculated at 63.8% and the ratio of non-performing loans to total loans at calculated at 6.82%. The three largest banks accounted for D30.97 billion (USD 604 Million) and totaled 53.62% of the industry’s total assets.

At the last Monetary Policy Committee meeting in March 2021, amid fears of the continuous impact of COVID-19, the Central Bank reduced the policy rate to 10%. Net foreign assets of the banking system stood at D16.8 billion (USD 329 million) in December 2019 compared with D10.4 billion (USD 204 million) in 2018. Net domestic assets of the banking system stood at D26.1 billion (USD 512 million) in December 2019 representing an increase of 11.8% from last year. Foreign banks or branches can establish operations in The Gambia but are subject to the country’s banking regulations. One U.S. bank struggled to obtain the necessary approvals to begin operations in the country, but it eventually secured all the necessary permits. All correspondent banking relationships have been maintained for the past three years. There are no restrictions on foreigners opening a bank account.

Foreign Exchange and Remittances

Foreign Exchange

There are no restrictions on foreign investors converting or repatriating funds in The Gambia.

Funds associated with any form of investment can be freely converted into any world currency. The Dalasi (GMD) has a floating exchange rate that is determined by market forces.

The domestic foreign exchange market is stabilized and supported by improved foreign exchange liquidity conditions, together with market confidence in the government and economy. The performance of the external sector, coupled with improved transparency in the exchange rate policy, are major contributing factors to the stability of the exchange rate of the dalasi. The volume of transactions in the foreign market measured by aggregate purchases and sales of foreign currency in the year December 2018 increased to USD 1.96 billion from USD 1.35 billion in December 2017.

Purchase of foreign currency, indicating supply, increased from USD 679.6 million in 2017 to USD 975.7 million in 2018, representing an increase of 43.6%. Improved private remittance inflows, growth in foreign direct investment flows, and project disbursements are contributing factors to the improvement of supply conditions in the market.

The Bank limited its intervention on the domestic foreign exchange market to moves building foreign reserves. In 2018, the Central Bank’s purchases of foreign currencies amounted to USD 31.2 million, all of which went to the foreign currency reserve fund.

Remittance Policies

There have been no recent changes or plans to change investment remittance policies in The Gambia. Currently there are no time limitations on remittances and investors may repatriate profits and dividends through commercial banks or licensed money transfer agencies at prevailing exchange rates. There are no plans to tighten access to foreign exchange for investment remittances. Remittance and capital transfers stood at USD 588 million in 2020, a 78% rise compared with 2019, leading to a positive balance of payments overall.

Sovereign Wealth Funds

Neither the host government nor a government-affiliate maintains a Sovereign Wealth Fund.

The Gambia has majority ownership in 13 State-Owned Enterprises that operate in key economic sectors such as agriculture, power generation, energy, and gas. SOEs can also be found in the information and telecommunications, aviation, and finance industries. SOE revenues are not projected in budget documents. Audits of the public sector and SOEs are conducted by the Gambia’s Supreme Audit Institution. The following is a list of 13 SOEs.

• Assets Management & Recovery Corporation (AMRC)
• Gambia Civil Aviation Authority (GCAA)
• Gambia Groundnut Corporation (GCC)
• Gambia International Airlines (GIA)
• Gambia National Petroleum Company (GNPC)
• Gambia Ports Authority (GPA)
• Gambia Postal Services (GAMPOSTS)
• Gambia Public Printing Cooperation (GPPC)
• Gambia Radio & Television Services (GRTS)
• Gambia Telecommunication Cellular Company (GAMCEL)
• Gambia Telecommunication Company (GAMTEL)
• National Water and Electricity Corporation (NAWEC)
• Social Security Housing & Finance Corporation (SSHFC)

The Gambia’s government imposed an embargo on state-owned enterprises (SOEs) borrowing from each other in June 2020, according to the Minister of Finance and Economic Affairs during a National Assembly session. SOEs in the past had defaulted in their payments to Social Security.

Private enterprises can compete with public enterprises under the same terms and conditions with respect to access to markets, credit, and other business operations, such as licenses and supplies. Foreign telecommunications companies are subject to GAMTEL regulations, which inherently favor the government entity. There is a published list  of SOEs on The Ministry of Finance website. The Public Private Partnership Unit at the Ministry of Finance monitors the SOEs.

Privatization Program

The Government of The Gambia is currently not engaged in any forms of privatization programs.

Public protests, demonstrations, and strikes occasionally occur, and theoretically require a police permit before hosting such activities. Political rallies are likely to occur in the months leading up to the December 2021 elections. Americans are advised to avoid large political gatherings, as peaceful gatherings can potentially turn violent quickly. Opposition parties may or may not be issued permits, potentially resulting in unapproved rallies. Public protests or demonstrations sometimes result in moderate property damage.

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

Table 4: Sources of Portfolio Investment
Data not available.

Policies Towards Foreign Direct Investment

Georgia is open to foreign investment. Legislation establishes favorable conditions for foreign investment, but not preferential treatment for foreign investors. The Law on Promotion and Guarantee of Investment Activity protects foreign investors from subsequent legislation that alters the condition of their investments for a period of ten years. Investment promotion authority is vested in the Investment Division of Enterprise Georgia, a legal entity of public law under the Ministry of Economic and Sustainable Development. The Investment Division’s primary role is to attract, promote, and develop foreign direct investment in Georgia. For this purpose, it acts as the moderator between foreign investors and the Georgian government, ensures access to updated information, provides a means of communication with government bodies, and serves as a “one-stop-shop” to support investors throughout the investment process. ( http://www.enterprisegeorgia.gov.ge/en/about ). Enterprise Georgia also operated the website for foreign investors: www.investingeorgia.org .

To enhance relations with investors, in 2015 Georgia’s then-Prime Minister created an Investors Council, an independent advisory body aimed at promoting dialogue among the private business community, international organizations, donors, and the Georgian government for the development of a favorable, non-discriminatory, transparent, and fair business and investment climate in Georgia ( http://ics.ge ). The Business Ombudsman, who is a member of the Investors Council, is another tool for protecting investors’ rights in Georgia ( http://businessombudsman.ge ).

Limits on Foreign Control and Right to Private Ownership and Establishment

Georgia does not have an established interagency process to screen foreign investment, but relevant ministries or agencies may have the right to review investments for national security concerns in certain circumstances, as outlined below. Foreign investors have participated in most major privatizations of state-owned property. Transparency of privatization has been an issue at times. No law or regulation authorizes private firms to adopt articles of incorporation or association that limit or prohibit foreign investment, participation, or control. Cross-shareholder or stable-shareholder arrangements are not used by private firms in Georgia. Georgian legislation does not protect private firms from takeovers. There are no regulations authorizing private firms to restrict foreign partners’ investment activity or limit foreign partners’ ability to gain control over domestic enterprises.

There are no specific licensing requirements for foreign investment other than those that apply to all companies. The government requires licenses for activities that affect public health, national security, and the financial sector: weapons and explosives production, narcotics, poisonous and pharmaceutical substances, exploration and exploitation of renewable or non-renewable substances, exploitation of natural resource deposits, establishment of casinos and gambling houses and the organization of games and lotteries, banking, insurance, securities trading, wireless communication services, and the establishment of radio and television channels. The law requires the state to retain a controlling interest in air traffic control, shipping traffic control, railroad control systems, defense and weapons industries, and nuclear energy. For investment projects requiring licenses or permits, the relevant government ministries and agencies have the right to review the project for national security concerns.  By law, the government has 30 days to make a decision on licenses, and if the licensing authority does not state a reasonable ground for rejection within that period, the government must approve the license or permit for issuance. Per Georgian law, it is illegal to undertake any type of economic activity in Abkhazia or South Ossetia if such activities require permits, licenses, or registration in accordance with Georgian legislation. Laws also ban mineral exploration, money transfers, and international transit via Abkhazia or South Ossetia. Only the state may issue currency, banknotes, and certificates for goods made from precious metals, import narcotics for medical purposes, and produce control systems for the energy sector.

Other Investment Policy Reviews

The Organization for Economic Cooperation and Development (OECD) published an Investment Policy Review in December 2020 ( http://www.oecd.org/investment/oecd-investment-policy-reviews-georgia-0d33d7b7-en.htm ). The most recent WTO Investment Policy Review on Georgia was done in 2016, and by UNCTAD in 2014.

Business Facilitation

Registering a business in Georgia is relatively quick and streamlined, and Georgia ranks second in registering property among countries assessed in the World Bank’s 2020 Doing Business Report. Registration takes one day to complete through Georgia’s single window registration process. The National Agency of Public Registry (NAPR) ( www.napr.gov.ge  – webpage is in Georgian only), located in Public Service Halls (PSH) under the Ministry of Justice of Georgia, carries out company registration. The web page of the PSH ( http://www.psh.gov.ge/main/page/2/85 ) outlines procedures and requirements for business registration in English. For registration purposes, the law does not require a document verifying the amount or existence of charter capital. A company is not required to complete a separate tax registration as the initial registration includes both the revenue service and national business registration. The following information is required to register a business in Georgia: bio data for the founder and principal officers, articles of incorporation, and the company’s area of business activity. Other required documents depend on the type of entity to be established.

To register a business, the potential owner must first pay the registration fee, register the company with the Entrepreneurial Register, and obtain an identification number and certificate of state and tax registration. Registration fees are: GEL100 (around USD30) for a regular registration, GEL200 (USD60) for an expedited registration, plus GEL1 (bank processing fees). Second, the owner must open a bank account (free).

Georgia’s business facilitation mechanism provides for equitable treatment of women and men. There are a variety of state-run and donor-supported projects that aim to promote women entrepreneurs through specific training or other programs, including access to financing and business training.

Outward Investment

The Georgian government does not have any specific policy on promoting or restricting domestic investors from investing abroad and Georgia’s outward investment is insignificant.

Transparency of the Regulatory System

Georgia’s legal, regulatory, and accounting systems are transparent and consistent with international norms, and the Georgian government has committed to achieving even greater transparency and simplicity of regulations for these systems.

In Georgia, the lawmaking process involves Parliament (drafting and consideration) and the President (signing). Under Georgia’s constitution, the following subjects have the right to initiate legislation: the President, the government, members of Parliament, a committee, faction, the representative bodies of the Autonomous Republics of Abkhazia and Adjara, and groups of at least 30,000 voters.

A subject who does not have the right to launch a legislative initiative does, however, have the right to submit a “legislative proposal,” which should be a well-reasoned address to Parliament advocating for the adoption of a new law or of changes/amendments to existing legislation. According to Article 150 of the Law on Parliament, the following can submit a legislative proposal: citizens of Georgia, state bodies (except the establishments of the executive branch of government), the representative and executive bodies of local self-government, political and public unions registered in Georgia according to the established rule, and other legal entities.

There are no informal regulatory processes managed by nongovernmental organizations or private sector associations, except their entitlement for participating in the law-making process prescribed by the above law.

Publicly listed companies are required to prepare financial statements in accordance with IFRS – International Financial Reporting Standards.

Draft bills or regulations are available for public comment. NGOs, professional associations, and business chambers actively participate in public hearings on legislation.

The government publishes laws and regulations in Georgian in the official online legislative herald gazette, the Legislative Messenger, ‘Matsne’ ( www.matsne.gov.ge ). Another online tool to research Georgian legislation is www.codex.ge , or the webpage of the Parliament of Georgia, www.parliament.ge .

General oversight of the executive branch is vested in the parliament. The new Constitution, which entered into force in December 2018, and subsequently adopted new Parliamentary Rules and Procedures aim to strengthen Parliament’s oversight role. Under its strengthened role, public officials are obliged to respond to Parliament’s questions and government institutions submit annual reports. However, local watchdog organizations continue to raise concern that one party controls all branches of government, undermining checks and balances. Independent agencies, such as the State Audit Office, the Ombudsman’s office, including the Business Ombudsman, and business associations also provide an oversight function. Georgia maintains an active civil society that frequently reports on government activities.

Information on Georgia’s state budget and debt obligations was widely and easily accessible to the general public, including online, and considered generally reliable. Georgia’s State Audit Service reviewed the government’s accounts and made its reports publicly available.

Georgia has six types of taxes: Corporate profit tax (0% or 15%; no corporate income tax on retained and reinvested profit; profit tax applies only to distributed earnings), value added tax (VAT; 18%), property tax (up to 1%), personal income tax (20%), excise (on few selected goods), and Import tax (0%, 5% or 12%). Dividend income tax is five percent. There are no dividend or capital gains taxes for publicly traded equities (a free float in excess of 25 percent). Georgia imposes excise taxes on cigarettes, alcohol, fuel, and mobile telecommunication. Most goods, except for some agricultural products, have no import tariffs. For goods with tariffs, the rates are five or 12 percent, unless excluded by an FTA.

Detailed information on the types and rates of taxes applicable to businesses and individuals, as well as a payment calendar, is available on the webpage  of Georgia’s Revenue Service.

In 2019, the Georgian government introduced new regulations to simplify the tax regime and streamline processes for small businesses. The new legislation decreased turnover tax from five percent to one percent for small businesses and defined small business as those with less than GEL 500,000 (USD 151,000) annual turnover, a fivefold increase from the previous GEL 100,000 (USD 30,000) threshold. In addition, the new regulations allow small businesses to pay taxes by the end of month, instead of requiring advance payments. For medium and large businesses, the reform introduced an automatic system of VAT returns and activated a special system whereby entrepreneurs can pay VAT returns in five to seven business days by filling out an electronic application.

Enterprise Georgia, a state agency under the Ministry of Economic and Sustainable Development, operates the Business Service Center in Tbilisi, which provides domestic and foreign businesses with information on doing business in Georgia. The Business Service Center facilitates an online chat tool for interested individuals ( http://www.enterprisegeorgia.gov.ge/en/SERVICE-CENTER ). Additionally, the Investor’s Council provides an opportunity for the private sector to discuss legislative reforms, economic development plans, and actions to spur economic growth with the government. Different commercial chambers, such as the American Chamber of Commerce ( www.amcham.ge ), International Chamber of Commerce ( www.icc.ge ), Business Association of Georgia ( www.bag.ge ), Georgian Chamber of Commerce and Industry ( www.gcci.ge ), and EU-Georgia Business Council ( http://eugbc.net ) remain important tools for facilitating ongoing dialogue between domestic and foreign business communities and the government.

International accounting standards are binding for joint stock companies, banks, insurance companies, companies operating in the insurance field, limited liability companies, limited partnerships, joint liability companies, and cooperatives. Private companies are required to perform accounting and financial reporting in accordance with international accounting standards. Sole entrepreneurs, small businesses, and non-commercial legal entities perform accounting and financial reporting according to simplified interim standards approved by the Parliamentary Accounting Commission. Shortcomings in the use of international accounting standards persist, and qualified accounting personnel are in short supply.

The Law of Georgia on Free Trade and Competition provides for the establishment of an independent structure, the Competition Agency, to exercise effective state supervision over a free, fair, and competitive market environment. Nonetheless, certain companies have dominant positions in pharmaceutical, petroleum, and other sectors.

Public finances and debt obligations are transparent, and Georgia’s budget and information on debt obligations were widely and easily accessible to the public through government websites including the Ministry of Finance’s site ( www.mof.gov.ge ). Georgia’s State Audit Office ( www.sao.ge ) reviews the government’s accounts and makes its reports publicly available.

International Regulatory Considerations

Georgia’s Association Agreement of 2014 with the European Union introduced a preferential trade regime, the DCFTA, which increased market access between the EU and Georgia based on better-aligned regulations. The agreement is designed to introduce European standards gradually in all spheres of Georgia’s economy and sectoral policy: infrastructure, energy, the environment, agriculture, tourism, technological development, employment and social policy, health protection, education, culture, civil society, and regional development. It also provides for the approximation of Georgian laws with nearly 300 separate European legislative acts.

The DCFTA should promote a gradual approximation with European standards for food safety, establish a transparent and stable business environment in Georgia, increase Georgia’s potential to attract investment, introduce innovative approaches and new technologies, stimulate economic growth, and support the country’s economic development. The latest progress report, adopted by the European Parliament on September 17, 2020, confirmed Georgia’s continued progress on the implementation of the agreement.

Georgia has been a WTO member since 2000 and consistently meets requirements and obligations included in the Agreement on Trade Related Investment Measures (TRIM). Since WTO accession, Georgia has not introduced any Technical Barriers to Trade. In January 2016, Georgia ratified the WTO Trade Facilitation Agreement (TFA).

Legal System and Judicial Independence

Georgia’s legal system is based on civil law and the country has a three-tier court system. The first tier consists of 25 trial courts throughout the country that hear criminal, civil, and administrative cases. Two appellate courts, Tbilisi Appeal Court (East Georgia) and Kutaisi Appeal Court (West Georgia), represent the second tier. The Supreme Court of Georgia occupies the third, or the highest, instance and acts as the highest appellate court. In addition, there is a separate Constitutional Court for arbitrating constitutional disputes between branches of government and ruling on individual claims concerning human rights violations stemming from the Constitution.

Georgia does not have an integrated commercial code. There are several different laws and codes (Tax Code, Law on Entrepreneurs, and Law on Insolvency) that regulate commercial activity in Georgia. There are no specialized courts, such as a commercial court, to handle commercial disputes. The Ministry of Justice’s Public Service Halls provide property registration.

The independence of Georgia’s judiciary and political inference in the judicial system remain problematic. Concerns regarding the integrity of the judicial appointment process and the capacity of the courts to deliver quality outcomes continue to affect investor confidence in the court system. OECD’s 2020 IPR notes the Georgian government’s efforts to strengthen the judiciary to improve the country’s business and investment environment under its Georgia 2020 strategy. However, the report highlights that “the existing framework for adjudication of civil disputes in Georgian courts nonetheless continues to suffer from several significant problems despite the reforms. Foremost of these are persisting concerns with the independence, accountability, and capacity of the High Council of Justice and the judiciary. Many investors perceive Georgia’s court processes as slow, inefficient, lacking in transparency, and hampered by a lack of technical expertise. All these issues affect public trust in the judicial system. They are among the most pressing concerns for investors in their assessments of the investment climate in Georgia.” The full OECD report is available here . https://www.oecd.org/countries/georgia/oecd-investment-policy-reviews-georgia-0d33d7b7-en.htm 

Regulations and enforcement actions are appealable and are adjudicated in the national court system.

Laws and Regulations on Foreign Direct Investment

The U.S.-Georgia Bilateral Investment Treaty (BIT) guarantees U.S. investors national treatment and most favored nation treatment. Exceptions to national treatment have been carved out for Georgia in certain sectors, such as maritime fisheries, air and maritime transport and related activities, ownership of broadcast, common carrier, or aeronautical radio stations, communications satellites, government-supported loans, guarantees, and insurance, and landing of submarine cables.

Georgia’s legal system is based on civil law. Legislation governing foreign investment includes the Constitution, the Civil Code, the Tax Code, and the Customs Code. Other relevant legislation includes the Law on Entrepreneurs, the Law on Promotion and Guarantee of Investment Activity, the Bankruptcy Law, the Law on Courts and General Jurisdiction, the Law on Limitation of Monopolistic Activity, the Accounting Law, and the Securities Market Law.

Ownership and privatization of property is governed by the following acts: the Civil Code, the Law on Ownership of Agricultural Land, the Law on Private Ownership of Non-Agricultural Land, the Law on Management of State-Owned Non-Agricultural Land, and the Law on Privatization of State Property. Property rights in extractive industries are governed by the Law on Concessions, the Law on Deposits, and the Law on Oil and Gas. Intellectual property rights are protected under the Civil Code and the Law on Patents and Trademarks. Financial sector legislation includes the Law on Commercial Banks, the Law on National Banks, and the Law on Insurance Activities.

Information about the procedures and requirements during the investment process is available in English Language at the web-portal of Invest in Georgia, by Enterprise Georgia – https://investingeorgia.org/en/downloads/useful-guides 

Competition and Anti-Trust Laws

The Georgian Law “On Free Trade and Competition” of 2005 that governs competition is in line with the Georgian Constitution and international agreements.

The agency in charge of reviewing transactions for competition-related concerns is the Competition Agency, an independent legal entity of public law, subordinated to the Prime Minister of Georgia. The agency aims to promote market liberalization, free trade, and competition ( www.competition.ge ). Competition Agency decisions can be appealed at court. Georgia has also signed several international agreements containing competition provisions, including the EU-Georgia Association Agreement. The DCFTA within the AA goes further than most FTAs, with the elimination of non-tariff barriers and regulatory alignment, as well as binding rules on investments and services.

In July 2020, Georgia adopted the Law of Georgia on the Introduction of Anti-dumping Measures in Trade  that became effective January 1, 2021. The aim of the law is to protect local industry from price dumping on imports. The Law establishes the basic conditions and rules for the introduction of anti-dumping measures to be implemented when importing goods via the customs territory of Georgia.

Expropriation and Compensation

The Georgian Constitution protects property ownership rights, including ownership, acquisition, disposal, and inheritance of property. Foreign citizens living in Georgia possess rights and obligations equal to those of the citizens of Georgia, with the exception of certain property rights (see Section 5). The Constitution allows restriction or revocation of property rights only in cases of extreme public necessity, and then only as allowed by law.

The Law on Procedures for Forfeiture of Property for Public Needs establishes the rules for expropriation in Georgia. The law allows expropriation for certain enumerated public needs, establishes a mechanism for valuation and payment of compensation, and provides for court review of the valuation at the option of any party. The Georgian Law on Investment allows expropriation of foreign investments only with appropriate compensation. Amendments to the Law on Procedures for Forfeiture of Property for Public Needs allow payment of compensation with property of equal value as well as money. Compensation includes all expenses associated with the valuation and delivery of expropriated property. Compensation must be paid without delay and must include both the value of the expropriated property as well as the loss suffered by the foreign investor as a result of expropriation. The foreign investor has a right to review an expropriation in a Georgian court. In 2007, Parliament passed a law generally prohibiting the government from contesting the privatization of real estate sold by the government before August 2007. The law is not applicable, however, to certain enumerated properties.

The U.S.-Georgia BIT permits expropriation of covered investments only for a public purpose, in a non-discriminatory manner, upon payment of prompt, adequate and effective compensation, and in accordance with due process of law and general principles of fair treatment.

Expropriation disputes are not common in Georgia, although under the previous government there were cases of property transfers that lacked transparency and allegedly were implemented under coercion.

Dispute Settlement

ICSID Convention and New York Convention

Since 1992, Georgia has been a member of the International Centre for Settlement of Investment Disputes (ICSID Convention) and a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). As a result of these international obligations, Georgia is bound to accept international arbitration and recognize arbitral awards. The Ministry of Justice oversees the government’s interests in arbitrations between the state and private investors.

Georgia’s Law on Arbitration of 2010 provides for recognition and enforcement of arbitration awards rendered outside Georgia.

Investor-State Dispute Settlement

Georgia has signed bilateral investments treaties (BITs) with 32 countries  including the United States. Georgia signed five more bilateral investment treaties with Japan, UAE, Kyrgyzstan, Turkey, and Egypt, but none have entered into force yet. Georgian investment law allows disputes between a foreign investor and a government body to be resolved in Georgian courts or at ICSID, unless a different method of dispute settlement is agreed upon between the parties. If the dispute cannot be heard at ICSID, the foreign investor can also submit the dispute to ad-hoc international arbitration under United Nations Commission for International Trade Law (UNCITRAL model law) rules. The right to use ICSID or UNCITRAL model law is guaranteed under the U.S.–Georgia BIT.

Although the constitution and law provide for an independent judiciary, there remain indications of interference in judicial independence and impartiality. Judges are vulnerable to political pressure from within and outside of the judiciary.

There were reports of lack of due process and respect for rule of law in a number of property rights cases.

Disputes over property rights at times have undermined confidence in the impartiality of the Georgian judicial system and rule of law, and by extension, Georgia’s investment climate. The government identified judicial reform as one of its top priorities, and Parliament has passed a series of reforms aimed at strengthening judicial independence. While reforms have improved the independence of the judiciary, politically sensitive cases are still vulnerable to political pressure. The High Council of Justice is currently dominated by a group of anti-reform judges. Civil society asserts this group applies pressure on judges in politically sensitive cases. The government recently adopted additional judicial reforms focused on improving judicial discipline rules and regulating the operations of the High School of Justice and High Council of Justice.

Over the past 10 years, there have been over a dozen investment disputes involving U.S. citizens. However, as of the beginning of 2021, all of them were resolved through arbitral awards, out-of-court settlements, or a government decision.

Local courts recognize and enforce foreign arbitral awards issued against the government. There is no substantial history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

Georgia’s arbitration law went into force on January 1, 2010. Georgia has enacted legislation based on the UNCITRAL Model Law. Domestic private arbitration firms, such as the International Arbitration Center ( www.giec.ge ), operate in dispute resolution between two private parties.

Bankruptcy Regulations

The Law of Georgia on Insolvency Proceedings regulates rehabilitation and bankruptcy. The law defines two types of creditors: secured and non-secured. Creditors can file a court claim for opening an insolvency proceeding, given certain conditions are satisfied (conditions vary, depending on the outstanding debt amount and the delayed days of repayment).

Creditor meetings are held in court and chaired by a judge. The creditor meeting can decide several issues, including the appointment of a supervisor of the bankruptcy or rehabilitation proceedings, and the appointment of a member of the facilitation council.

Secured creditors: Secured creditors must make unanimous decisions on approving a debtor’s new debts, the encumbrance of the debtor’s property, and suretyship. If there are no secured creditors, the creditor’s meeting is authorized to make the same decisions. The secured creditors, in a creditor’s meeting, may suspend enforcement of the material conditions of the agreement with the bankruptcy or rehabilitation supervisor or on the definition of the terms of the rehabilitation. After the debtor’s property is sold on auction, secured creditors have first priority for being repaid. All secured creditors must approve the rehabilitation plan and plan amendments. New equity investment in the debtor’s company is only possible if there are prior consents from all secured creditors and the rehabilitation supervisor.

Non-secured creditors: Non-secured creditors are satisfied only after all secured creditors are satisfied (unless otherwise agreed by all creditors unanimously). Non-secured creditors do not have voting rights for the rehabilitation plan approval.

The priority system shall not apply to creditors whose claim is secured by financial collateral.

Foreign creditors: The law provides additional time for foreign creditors to file claims. Creditors may file claims to the court and request to declare the agreements made by the insolvent debtor voidable and/or request reimbursement of damages, if such agreements inflicted damages to the creditor.

The Law of Georgia on Insolvency Proceedings only incurs criminal liabilities in cases where the debtor does not provide information about its obligations, assets, financial situation and activities, or ongoing disputes in which the debtor is involved; or provides such information with intentional delay or provides falsified information.

The Debt Registry of the National Agency of the Public Register is Georgia’s credit monitoring authority.

According to the World Bank’s 2020 Doing Business Report , Georgia’s score of 40.5 in the category of Resolving Insolvency is above the regional average, and the Law of Georgia on Insolvency Proceedings entered into force in 2017 made insolvency proceedings more accessible for debtors and creditors, improved provisions on treatment of contracts during insolvency, and granted creditors greater participation in important decisions during the proceedings. According to the Law on Insolvency Proceedings, it should take no more than 225 days to complete liquidation proceedings. However, in practice, it often takes two years to complete the process because parties do not always comply with statutory deadlines.

Capital Markets and Portfolio Investment

The National Bank of Georgia regulates the securities market. All market participants submit their reports in line with international standards. All listed companies must make public filings, which are then uploaded to the National Bank’s website, allowing investors to evaluate a company’s financial standing. The Georgian securities market includes the following licensed participants: Stock Exchanges, a Central Securities Depository, eight brokerage companies, and four independent securities registrars. ( https://www.nbg.gov.ge/index.php?m=487&lng=eng )

The Georgian Stock Exchange (GSE) is the only organized securities market in Georgia. Designed and established with the help of USAID and operating under a legal framework drafted with the assistance of American experts, the GSE complies with global best practices in securities trading and offers an efficient investment facility to both local and foreign investors. The GSE’s automated trading system can accommodate thousands of securities that can be traded by brokers from workstations on the GSE floor or remotely from their offices: https://gse.ge/en/ 

No law or regulation authorizes private firms to adopt articles of incorporation or association that limit or prohibit foreign investment, participation or control. Cross-shareholder or stable-shareholder arrangements are not used by private firms in Georgia. Georgian legislation does not protect private firms from takeovers. There are no regulations authorizing private firms to restrict the investment activity of foreign partners or to limit the ability of foreign partners to gain control over domestic enterprises.

The government and Central Bank (National Bank of Georgia) respect IMF Article VIII and do not impose any restrictions on payments and transfers in current international transactions.

Credit from commercial banks is available to foreign investors as well as domestic clients, although interest rates are high. Banks continue offering business, consumer, and mortgage loans.

The government adopted a new law in 2018 that introduced an accumulative pension scheme, which became effective on January 1, 2019. The pension scheme is mandatory for legally employed people under 40. For the self-employed and those above the age of 40, enrolment in the program is voluntary. The pension savings system applies to Georgian citizens, foreign citizens living in Georgia with permanent residency in the country, and stateless persons who are employed or self-employed and receive an income.

The government expects that that the new system will boost domestic capital market, as the pension funds will be invested within Georgia. The Pension Agency of Georgia made its first large scale investment in March 2020, when it invested 560 million GEL (around USD 200 million) in deposit certificates of high-rated Georgian commercial banks. According to the Agency, as of February 2021, over GEL 1.3 billion ($392 million) was accumulated in the Pension Fund of Georgia. Pension assets are placed in Georgian commercial banks at an effective rate of 10.8% per annum; 76% of assets are invested in certificates of deposit and term deposits, and 24% – in current interest-bearing accounts.

Money and Banking System

Banking is one of the fastest growing sectors in the Georgian economy. The banking sector is well-regulated and capitalized despite regional and global challenges faced in many neighboring countries. As of March 1, 2021, Georgia’s banking sector consists of 15 commercial banks, including 14 foreign-controlled banks, with 154 commercial bank branches and 830 service centers throughout the country. In March 2021, Georgian commercial banks held GEL 57.3 billion (around USD 17.4 billion) in total assets. As of early 2021, there were 18 insurance companies and 39 microfinance (MFI) organizations operating in Georgia. MFIs held GEL 1.5 billion (USD 455 million) in total assets as of January 1, 2021. Two Georgian banks are listed on the London Stock Exchange: TBC Bank (listed in 2014) and the Bank of Georgia (2006).

The National Bank of Georgia  (NBG) is Georgia’s central bank, as defined by the Constitution. The rights and obligations of the NBG as the central bank, the principles of its activity, and the guarantee of its independence are defined in the Organic Law of Georgia on the National Bank of Georgia. The National Bank supervises the financial sector to facilitate the financial stability and transparency of the financial system, as well as to protect the rights of the sector’s consumers and investors. Through the Financial Monitoring Service of Georgia, a separate legal entity, the NBG undertakes measures against illicit income legalization and terrorism financing. In addition, the NBG is the government’s banker and fiscal agent. ( www.nbg.gov.ge ). The IMF, credit rating agencies, and other international organizations positively assess the NBG’s macroeconomic framework and inflation targeting regime. In March 2021, the NBG was awarded the Transparency Award by the international publisher Central Banking. The award highlighted the improved communications on monetary policy, financial stability, consumer protection and financial education. The NBG also was nominated for the Risk Manager Award of 2020 by the same group. In 2020, Global Finance named Koba Gvenetadze, Governor of the NBG, among the Best Central Bankers for the third time.

The International Finance Corporation (IFC), the European Bank for Reconstruction and Development (EBRD), the U.S. International Development Finance Corporation (DFC), the Asian Development Bank (ABD), and other international development agencies have a variety of lending programs making credit available to large and small businesses in Georgia. Georgia’s two largest banks – TBC and Bank of Georgia – have correspondent banking relationships with the United States through Citibank, and some other banks have a relationship with JP Morgan.

Georgia does not restrict foreigners from establishing a bank account in Georgia.

Foreign Exchange and Remittances

Foreign Exchange

Georgian law guarantees the right of an investor to convert and repatriate income after payment of all required taxes. The investor is also entitled to convert and repatriate any compensation received for expropriated property. Georgia has accepted the obligations of Article VIII, Sections 2, 3, and 4 of the IMF Articles of Agreement, effective as of December 20, 1996, to refrain from imposing restrictions on payments and transfers for current international transactions and from engaging in discriminatory currency arrangements or multiple currency practices without IMF approval. Parliament’s 2011 adoption of the Act of Economic Freedom further reinforced this provision.

Under the U.S.-Georgia BIT, the Georgian government guarantees that all money transfers relating to a covered investment by a U.S. investor can be made freely and without delay into and out of Georgia.

Foreign investors have the right to hold foreign currency accounts with authorized local banks. The sole legal tender in Georgia is the lari (GEL), which is traded on the Tbilisi Interbank Currency Exchange and in the foreign exchange bureau market.

The currency of Georgia is the lari, denoted GEL. The NBG publishes the official exchange rate daily on its website. The official exchange rate of the Georgian lari against other foreign currencies is determined according to the rate on international markets or the issuer country’s domestic interbank currency market (at 15:00) on the basis of cross-currency exchange rates. The sources used for the acquisition of exchange rates are the Reuters and Bloomberg systems and the corresponding webpages of central banks. The information is received, calculated, and disseminated automatically.

Georgia has a floating exchange rate. The National Bank of Georgia does not intend to peg the exchange rate and does not generally intervene in the foreign exchange market, except under certain circumstances when the GEL’s fluctuation has a high magnitude, such as during the COVID-19 pandemic.

Remittance Policies

There are no restrictions, limitations, or delays involved remittances from overseas. Several Georgian banks participate in the SWIFT and Western Union interbank communication networks. Businesses report that it takes a maximum of three days for money transferred abroad from Georgia to reach a beneficiary’s account, unless otherwise provided by a customer’s order. There is no indication that remittance policies will be altered in the future. Travelers must declare at the border currency and securities in their possession valued at more than GEL 30,000 (around USD 9,000).

Sovereign Wealth Funds

Georgia does not have a Sovereign Wealth Fund.

After the fall of the Soviet Union, the Georgian government privatized most state-owned enterprises (SOEs). At the end of 2013, Georgian Railways, Georgian Oil and Gas Corporation (GOGC), Georgian State Electrosystem (GSE), Electricity System Commercial Operator (ESCO), and Enguri Hydropower plant were the major remaining SOEs. Of these companies, only Georgian Railways is a major market player. The energy-related companies largely implement the government’s energy policies and help manage the electricity market. There are also a number of Legal Entities of Public Law (LEPLs), independent bodies that carry out government functions, such as the Public Service Halls.

During 2012, Georgian Railways, GOGC, GSE, and ESCO’s assets were placed under the Partnership Fund, a state-run fund to facilitate foreign investment into new projects. In addition, the fund also controlled 25 percent of shares in the TELASI Electricity Distribution Company, which it sold to private investors in 2020 ( fund.ge )

Despite state ownership, SOEs act under the general terms of the Entrepreneurial Law. Georgian Railway and GOGC have supervisory boards, while GSE and ESCO do not. The SOEs’ individual charters describe their procedures and policies. Georgia encourages its SOEs to adhere to the OECD’s Guidelines on Corporate Governance for SOEs.

The senior management of SOEs report to Supervisory Boards where they exist (GRW, GOGC); in other cases, they report to the line ministries. Governmental officials can be on the supervisory board of the SOEs, and the Partnership Fund has five key governmental officials on its board. SOEs explicitly are not obligated to consult with government officials before making business decisions, but informal consultations take place depending on the scale and importance of the issue.

To ensure the transparency and accountability of state business decisions and operations, SOEs have regular outside audits and publish annual reports. SOEs with more than 50 percent state ownership are obliged to follow the State Procurement Law and make procurements via public tender. The Partnership Fund, GRW and GOGC are subject to valuation by international rating agencies. There is no legal requirement for SOEs to publish annual report or to submit their books for independent audit, but this is done in practiced. In addition, GRW and GOGC are Eurobond issuer companies and therefore are required to publish reports. SOEs are subject to the same domestic accounting standards and rules. These standards are comparable to international financial reporting standards. No SOEs exercise delegated governmental powers.

In early 2021, the government announced it would start reforming state-owned enterprises and create a new council to develop a strategy to be implemented in 2021-2024. The goal of the reform is to bring the management of SOEs closer to higher standards of corporate governance. The first state-owned enterprise to undergo reforms will be the Georgian State Electrosystem (GSE), an electricity transmission system operator.

Privatization Program

Georgia’s government has privatized most large SOEs. Successful privatization projects include major assets in energy generation and distribution, telecommunications, water utilities, port facilities, and real estate sectors. A list of entities available to be privatized can be found on the following website: eauction.ge . The ministries covering the relevant sector of the economy handles the privatization information. Foreign investors are welcome to participate in privatization programs. Further information is also available at a website maintained by the American Chamber of Commerce in Georgia at: www.amcham.ge .

In 2019, the government offered mining deposits for privatization in addition to other state-owned assets through the 100 Investment Offers for Business  initiative. Within the initiative, the government selected mineral resource deposits from various regions to sell at e-auctions . The mineral deposits include gold and copper-polymetallic, ore, bentonite clay, volcanic slag, peat, diatomite, tuff breccia, zeolite-containing tuff, basalt, marble, limestone, underground fresh water, and carbonated mineral water. Mining license prices vary and depend on the type of mineral resource and its price.

The United States established diplomatic relations with Georgia in 1992, following Georgia’s independence from the Soviet Union in 1991. Since independence, Georgia has made impressive progress fighting corruption, developing modern state institutions, and enhancing global security. The United States is committed to helping Georgia deepen Euro-Atlantic ties and strengthen its democratic institutions.

In August 2008, tensions in the Georgian region of South Ossetia culminated in a brief war between Russia and Georgia.  Russia invaded and occupied the Georgian territories of Abkhazia and South Ossetia. Russia continues to occupy these regions – nearly 20 percent of Georgia’s territory – and the central government in Tbilisi does not have effective control over these areas.  The United States supports Georgia’s sovereignty and territorial integrity within its internationally recognized borders and does not recognize the Abkhazia and South Ossetia regions of Georgia as independent.  Only Russia, Nauru, Nicaragua, Syria, and Venezuela recognize them as independent states.  Tensions still exist both inside the occupied territories and near the administrative boundary lines (ABLs).  A Russian military build-up along the South Ossetia ABL dramatically escalated tensions in August 2019.  In addition, Russian “border” guards regularly patrol the ABLs and have increasingly detained people trying to cross the ABLs.  A number of attacks, criminal incidents, and kidnappings have occurred near the ABLs as well.  While none of the activity has been anti-American in nature, there is a high risk of travelers finding themselves in a wrong place/wrong time situation.  In addition, unexploded ordnance from previous conflicts poses a danger near the South Ossetia ABL. However, other parts of Georgia, including Tbilisi, are not directly affected.

Per Georgian law, it is illegal to undertake any type of economic activity in Abkhazia or South Ossetia if such activities require permits, licenses, or registration in accordance with Georgian legislation. Laws also ban mineral exploration, money transfers, and international transit via Abkhazia or South Ossetia.

Violent street protests are uncommon, but there were significant clashes in June 2019 when protesters attempted to enter Parliament. Hundreds were injured, including some who suffered severe eye injuries due to police use of rubber bullets. Generally, police have fulfilled their duty to maintain order even in cases of unannounced protests.

* Source for Host Country Data: GeoStat (Georgia National Statistics Department)

Table 4: Sources of Portfolio Investment
IMF Coordinated Portfolio Investment Survey data is not available for Georgia

Policies Towards Foreign Direct Investment

The German government and industry actively encourage foreign investment. U.S. investment continues to account for a significant share of Germany’s FDI. The 1956 U.S.-Federal Republic of Germany Treaty of Friendship, Commerce and Navigation affords U.S. investors national treatment and provides for the free movement of capital between the United States and Germany. As an OECD member, Germany adheres to the OECD National Treatment Instrument and the OECD Codes of Liberalization of Capital Movements and of Invisible Operations.  The Foreign Trade and Payments Act and the Foreign Trade and Payments Ordinance provide the legal basis for the Federal Ministry for Economic Affairs and Energy to review acquisitions of domestic companies by foreign buyers, to assess whether these transactions pose a risk to the public order or national security (for example, when the investment pertains to critical infrastructure).  For many decades, Germany has experienced significant inbound investment, which is widely recognized as a considerable contributor to Germany’s growth and prosperity. The investment-related challenges facing foreign companies are broadly the same as face domestic firms, e.g relatively high tax rates, stringent environmental regulations, and labor laws that complicate hiring and dismissals. Germany Trade and Invest (GTAI), the country’s economic development agency, provides extensive information for investors: https://www.gtai.de/gtai-en/invest

Limits on Foreign Control and Right to Private Ownership and Establishment

Under German law, a foreign-owned company registered in the Federal Republic of Germany as a GmbH (limited liability company) or an AG (joint stock company) is treated the same as a German-owned company. There are no special nationality requirements for directors or shareholders.

Companies which seek to open a branch office in Germany without establishing a new legal entity, (e.g., for the provision of employee placement services, such as providing temporary office support, domestic help, or executive search services), must register and have at least one representative located in Germany.

Germany maintains an elaborate mechanism to screen foreign investments based on national security grounds. The legislative basis for the mechanism (the Foreign Trade and Payments Act and Foreign Trade and Payments Ordinance) has been amended several times in recent years in an effort to tighten parameters of the screening as technological threats evolve, particularly to address growing interest by foreign investors in both Mittelstand (mid-sized) and blue chip German companies. Amendments to implement the 2019 EU Screening Regulation are already in force or have been drafted as of March 2021. One major change in the amendments allows for authorities to make “prospective impairment” of public order and security the new trigger for an investment review, in place of the former standard (which requires a de facto threat).

Other Investment Policy Reviews

The World Bank Group’s “Doing Business 2020” Index provides additional information on Germany’s investment climate. The American Chamber of Commerce in Germany also publishes results of an annual survey of U.S. investors in Germany (“AmCham Germany Transatlantic Business Barometer”, https://www.amcham.de/publications).

Business Facilitation

Before engaging in commercial activities, companies and business operators must register in public directories, the two most significant of which are the commercial register (Handelsregister) and the trade office register (Gewerberegister).

Applications for registration at the commercial register, which is available under  www.handelsregister.de , are electronically filed in publicly certified form through a notary.  The commercial register provides information about all relevant relationships between merchants and commercial companies, including names of partners and managing directors, capital stock, liability limitations, and insolvency proceedings.  Registration costs vary depending on the size of the company. According to the World Bank’s Doing Business Report 2020, the median duration to register a business in Germany is 8 days.

Germany Trade and Invest (GTAI), the country’s economic development agency, can assist in the registration processes ( https://www.gtai.de/gtai-en/invest/investment-guide/establishing-a-company/business-registration-65532 ) and advises investors, including micro-, small-, and medium-sized enterprises (MSMEs), on how to obtain incentives.

In the EU, MSMEs are defined as follows:

• Micro-enterprises:  less than 10 employees and less than €2 million annual turnover or less than €2 million in balance sheet total.
• Small enterprises:  less than 50 employees and less than €10 million annual turnover or less than €10 million in balance sheet total.
• Medium-sized enterprises:  less than 250 employees and less than €50 million annual turnover or less than €43 million in balance sheet total.

U.S.-based traders, who seek to sell in Germany, e.g., via commercial platforms, are required to register with one specific tax authority in Bonn, which can lead to significant delays due to capacity issues.

Outward Investment

Germany’s federal government provides guarantees for investments by Germany-based companies in developing and emerging economies and countries in transition in order to insure them against political risks. In order to receive guarantees, the investment must have adequate legal protection in the host country. The Federal Government does not insure against commercial risks. In 2020, the government issued investment guarantees amounting to €900 million for investment projects in 13 countries, with the majority of those in China and India.

Transparency of the Regulatory System

Germany has transparent and effective laws and policies to promote competition, including antitrust laws. The legal, regulatory, and accounting systems are complex but transparent and consistent with international norms.

Public consultation by federal authorities is regulated by the Joint Rules of Procedure, which specify that ministries must consult early and extensively with a range of stakeholders on all new legislative proposals. In practice, laws and regulations in Germany are routinely published in draft for public comment. According to the Joint Rules of Procedure, ministries should consult the concerned industries’ associations , consumer organizations, environmental, and other NGOs. The consultation period generally takes two to eight weeks.

The German Institute for Standardization (DIN), Germany’s independent and sole national standards body representing Germany in non-governmental international standards organizations, is open to German subsidiaries of foreign companies.

International Regulatory Considerations

As a member of the European Union, Germany must observe and implement directives and regulations adopted by the EU. EU regulations are binding and enter into force as immediately applicable law. Directives, on the other hand, constitute a type of framework law that is to be transposed by the Member States in their respective legislative processes, which is regularly observed in Germany.

EU Member States must transpose directives within a specified period of time. Should a deadline not be met, the Member State may suffer the initiation of an infringement procedure, which could result in steep fines. Germany has a set of rules that prescribe how to break down any payment of fines devolving to the Federal Government and the federal states (Länder). Both bear part of the costs. Payment requirements by the individual states depend on the size of their population and the respective part they played in non-compliance.

The federal states have a say over European affairs through the Bundesrat (upper chamber of parliament). The Federal Government must inform the Bundesrat at an early stage of any new EU policies that are relevant for the federal states.

The Federal Government notifies draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT) through the Federal Ministry of Economic Affairs and Energy.

Legal System and Judicial Independence

German law is both stable and predictable.  Companies can effectively enforce property and contractual rights.  Germany’s well-established enforcement laws and official enforcement services ensure that investors can assert their rights.  German courts are fully available to foreign investors in an investment dispute.

The judicial system is independent, and the government does not interfere in the court system.  The legislature sets the systemic and structural parameters, while lawyers and civil law notaries use the law to shape and organize specific situations.  Judges are highly competent and impartial. International studies and empirical data have attested that Germany offers an effective court system committed to due process and the rule of law.

In Germany, most important legal issues and matters are governed by comprehensive legislation in the form of statutes, codes and regulations.  Primary legislation in the area of business law includes: the Civil Code (Bürgerliches Gesetzbuch, abbreviated as BGB), which contains general rules on the formation, performance and enforcement of contracts and on the basic types of contractual agreements for legal transactions between private entities;

• the Civil Code (Bürgerliches Gesetzbuch, abbreviated as BGB), which contains general rules on the formation, performance and enforcement of contracts and on the basic types of contractual agreements for legal transactions between private entities;
• the Commercial Code (Handelsgesetzbuch, abbreviated as HGB), which contains special rules concerning transactions among businesses and commercial partnerships;
• the Private Limited Companies Act (GmbH-Gesetz) and the Public Limited Companies Act (Aktiengesetz), covering the two most common corporate structures in Germany – the ‘GmbH’ and the ‘Aktiengesellschaft’; and
• the Act on Unfair Competition (Gesetz gegen den unlauteren Wettbewerb, abbreviated as UWG), which prohibits misleading advertising and unfair business practices.

Apart from the regular courts, which hear civil and criminal cases, Germany has specialized courts for administrative law, labor law, social law, and finance and tax law.  Many civil regional courts have specialized chambers for commercial matters. In 2018, the first German regional courts for civil matters (in Frankfurt and Hamburg) established Chambers for International Commercial Disputes introducing the possibility to hear international trade disputes in English.  Other federal states are currently discussing plans to introduce these specialized chambers as well. In November 2020, Baden-Wuerttemberg opened the first commercial court in Germany with locations in Stuttgart and Mannheim, with the option to choose English language proceedings.

The Federal Patent Court hears cases on patents, trademarks, and utility rights which are related to decisions by the German Patent and Trademarks Office.  Both the German Patent Office (Deutsches Patentamt) and the European Patent Office are headquartered in Munich.

Laws and Regulations on Foreign Direct Investment

The Federal Ministry for Economic Affairs and Energy may review acquisitions of domestic companies by foreign buyers in cases where investors seek to acquire at least 25 percent of the voting rights to assess whether these transactions pose a risk to the public order or national security of the Federal Republic of Germany. In the case of acquisitions of critical infrastructure and companies in sensitive sectors, the threshold for triggering an investment review by the government is 10 percent. The Foreign Trade and Payments Act and the Foreign Trade and Payments Ordinance provide the legal basis for screening investments. In 2019, the Federal Ministry for Economic Affairs and Energy screened a total of 106 foreign acquisitions. In at least one case it prohibited an acquisition – the planned takeover of German wireless communications technology developer IMST GmbH by Chinese state-owned defense company CASIC in December 2020. However, even without a formal decision, the mere prospect of rejection has reportedly caused foreign investors to pull out of prospective deals in the past. All national security decisions by the ministry can be appealed in administrative courts.

There is no general requirement for investors to obtain approval for any acquisition unless the target company poses a potential national security risk, such as operating or providing services relating to critical infrastructure, , is a media company, or operates in the health sector. The threshold for initiating such an investment review is an acquisition of at least 10 percent of voting rights. The Federal Ministry for Economic Affairs and Energy may launch a review within three months after obtaining knowledge of the acquisition; the review must be concluded within four months after receipt of the full set of relevant documents. An investor may also request a binding certificate of non-objection from the Federal Ministry for Economic Affairs and Energy in advance of the planned acquisition to obtain legal certainty at an early stage. If the Federal Ministry for Economic Affairs and Energy does not open an in-depth review within two months from the receipt of the request, this certificate shall be deemed as granted.

Special rules additionally apply for the acquisition of companies that operate in sensitive security areas, including defense and IT security. In contrast to the cross-sectoral rules described above, all sensitive acquisitions must be notified in written form including basic information of the planned acquisition, the buyer, the domestic company that is subject of the acquisition and the respective fields of business. The Federal Ministry for Economic Affairs and Energy may open a formal review procedure if a foreign investor seeks to acquire at least 10 percent of voting rights of a German company in a sensitive security area within three months after receiving notification, or the acquisition shall be deemed as approved. If a review procedure is opened, the buyer is required to submit further documents. The acquisition may be restricted or prohibited within three months after the full set of documents has been submitted.

The German government has continuously amended domestic investment screening provisions in recent years to transpose the relevant EU framework and address evolving security risks. An amendment in June 2017 clarified the scope for review and gave the government more time to conduct reviews, in reaction to an increasing number of acquisitions of German companies by foreign investors with apparent ties to national governments. The amended provisions provide a clearer definition of sectors in which foreign investment can pose a threat to public order and security, including operators of critical infrastructure, developers of software to run critical infrastructure, telecommunications operators or companies involved in telecom surveillance, cloud computing network operators and service providers, and telematics companies, and which are subject to notification requirements. The new rules also extended the time to assess a cross-sector foreign investment from two to four months, and for investments in sensitive sectors, from one to three months, and introduced the possibility of retroactively initiating assessments for a period of five years after the conclusion of an acquisition. Indirect acquisitions such as those through a Germany- or EU-based affiliate company are now also explicitly subject to the new rules.

With further amendments in 2020, Germany implemented the 2019 EU Screening Regulation.

The amendments a) introduced a more pro-active screening based on “prospective impairment” of public order or security by an acquisition, rather than a de facto threat, b) take into account the impact on other EU member states, and c) formally suspend transactions during the screening process.

a) introduced a more pro-active screening based on “prospective impairment” of public order or security by an acquisition, rather than a de facto threat, b) take into account the impact on other EU member states, and c) formally suspend transactions during the screening process.

Furthermore, acquisitions by foreign government-owned or -funded entities now trigger a review, and the healthcare industry is now considered a sensitive sector to which the stricter 10% threshold applies. In May 2021, a further amendment entered into force which introduced a list of sensitive sectors and technologies (similar to the current list of critical infrastructures), including artificial intelligence, autonomous vehicles, specialized robots, semiconductors, additive manufacturing and quantum technology. Foreign investors who seek to acquire at least 10% of ownership rights of a German company in one those fields would be required to notify the government and potentially become subject to an investment review. The screening can now also take into account “stockpiling acquisitions” by the same investor, “atypical control investments” where an investor seeks additional influence in company operations via side contractual agreements, or combined acquisitions by multiple investors, if all are controlled by one foreign government.

The Ministry for Economic Affairs and Energy provides comprehensive information on Germany’s investment screening regime on its website in English: https://www.bmwi.de/Redaktion/EN/Artikel/Foreign-Trade/investment-screening.html 

https://www.bmwi.de/Redaktion/EN/Artikel/Foreign-Trade/investment-screening.html 

The German Economic Development Agency (GTAI) provides extensive information for investors, including about the legal framework, labor-related issues and incentive programs, on their website: http://www.gtai.de/GTAI/Navigation/EN/Invest/investment-guide.html .

The German government ensures competition on a level playing field on the basis of two main legal codes:

The Law against Limiting Competition (Gesetz gegen Wettbewerbsbeschränkungen – GWB) is the legal basis for limiting cartels, merger control, and monitoring abuse. State and Federal cartel authorities are in charge of enforcing anti-trust law. In exceptional cases, the Minister for Economic Affairs and Energy can provide a permit under specific conditions.

A June 2017 amendment to the GWB expanded the reach of the Federal Cartel Office (FCO) to include internet and data-based business models and the FCO has shown an interest in investigating large internet firms. A February 2019 FCO investigation found that Facebook had abused its dominant position in social media to harvest user data. Facebook challenged the FCO’s decision in court, but in June 2020, Germany’s highest court upheld the FCO’s action. In March 2021, the Higher Regional Court in Düsseldorf referred the case to the European Court of Justice for guidance. The FCO has been continued to challenge the conduct of large tech platforms, particularly with regard to the use of user data. Another FCO case against Facebook, initiated in December 2020, regards the integration of the company’s Oculus virtual reality platform into its broader platform, creating mandatory registration of Facebook accounts for all Oculus users. In November 2018, the FCO initiated an investigation of Amazon over alleged abuse of market power; a July 2019 decision by the FCO led Amazon to make the requested changes to their terms of business. The case was subsequently closed.

In 2021, a further amendment to the GWB, known as the Digitalization Act, entered into force codifying tools that allow greater scrutiny of digital platforms by the FCO, in order to “better counteract abusive behavior by companies with paramount cross-market significance for competition.” The law aims to prohibit large platforms from taking certain actions that put competitors at a disadvantage, including in markets for related services or up and down the supply chain – even before the large platform becomes dominant in those secondary markets. To achieve this goal, the amendments expand the powers of the FCO to act earlier and more broadly. Due to the relatively modest number of German platforms, the amendments will primarily affect U.S. companies. The FCO is already applying the new regulations in ongoing cases against Facebook and Amazon, and opened two new cases against Google.

While the focus of the GWB is to preserve market access, the Law against Unfair Competition seeks to protect competitors, consumers and other market participants against unfair competitive behavior by companies. This law is primarily invoked in regional courts by private claimants rather than by the FCO.

Expropriation and Compensation

German law provides that private property can be expropriated for public purposes only in a non-discriminatory manner and in accordance with established principles of constitutional and international law. There is due process and transparency of purpose, and investors and lenders to expropriated entities receive prompt, adequate, and effective compensation.

The Berlin state government is currently reviewing a petition for a referendum submitted by a citizens’ initiative which calls for the expropriation of residential apartments owned by large corporations. At least one party in the governing coalition officially supports the proposal. Certain long-running expropriation cases date back to the Nazi and communist regimes. During the 2008/9 global financial crisis, the parliament adopted a law allowing emergency expropriation if the insolvency of a bank would endanger the financial system, but the measure expired without having been used.

Dispute Settlement

ICSID Convention and New York Convention

Germany is a member of both the International Center for the Settlement of Investment Disputes (ICSID) and New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, meaning local courts must enforce international arbitration awards under certain conditions.

Investor-State Dispute Settlement

Investment disputes involving U.S. or other foreign investors in Germany are extremely rare. According to the UNCTAD database of known treaty-based investor dispute settlement cases, Germany has been challenged a handful of times, none of which involved U.S. investors.

International Commercial Arbitration and Foreign Courts

Germany has a domestic arbitration body called the German Arbitration Institute (DIS). The body offers commercial arbitration in accordance with UNCITRAL arbitration standards. ”Book 10” of the German Code of Civil Procedure addresses arbitration proceedings. The International Chamber of Commerce has an office in Berlin. In addition, local chambers of commerce and industry offer arbitration services.

Bankruptcy Regulations

German insolvency law, as enshrined in the Insolvency Code, supports and promotes restructuring. If a business or the owner of a business becomes insolvent, or a business is over-indebted, insolvency proceedings can be initiated by filing for insolvency; legal persons are obliged to do so. Insolvency itself is not a crime, but deliberately late filing for insolvency is.

Under a regular insolvency procedure, the insolvent business is generally broken up in order to recover assets through the sale of individual items or rights or parts of the company. Proceeds can then be paid out to creditors in the insolvency proceedings. The distribution of monies to creditors follows detailed instructions in the Insolvency Code.

Equal treatment of creditors is enshrined in the Insolvency Code. Some creditors have the right to claim property back. Post-adjudication preferred creditors are served out of insolvency assets during the insolvency procedure. Ordinary creditors are served on the basis of quotas from the remaining insolvency assets. Secondary creditors, including shareholder loans, are only served if insolvency assets remain after all others have been served. Germany ranks fourth in the global ranking of “Resolving Insolvency” in the World Bank’s Doing Business Index, with a recovery rate of 79.8 cents on the dollar.

In December 2020, the Bundestag passed legislation implementing the EU Restructuring Directive, to modernize and make German restructuring and insolvency law more effective.

The Bundestag also passed legislation granting temporary relief to companies facing insolvency due to the COVID-19 pandemic, including temporary suspensions from the obligation to file for insolvency under strict requirements.

Capital Markets and Portfolio Investment

As an EU member state with a well-developed financial sector, Germany welcomes foreign portfolio investment and has an effective regulatory system. Germany has a very open economy, routinely ranking among the top countries in the world for exports and inward and outward foreign direct investment. As a member of the Eurozone, Germany does not have sole national authority over international payments, which are a shared task of the European Central Bank and the national central banks of the 19 member states, including the German Central Bank (Bundesbank). A European framework for national security screening of foreign investments, which entered into force in April 2019, provides a basis under European law to restrict capital movements into Germany on the basis of threats to national security. Global investors see Germany as a safe place to invest, as the real economy – up until the COVID-19 crisis– continued to outperform other EU countries.German sovereign bonds continue to retain their “safe haven” status.

Listed companies and market participants in Germany must comply with the Securities Trading Act, which bans insider trading and market manipulation. Compliance is monitored by the Federal Financial Supervisory Authority (BaFin) while oversight of stock exchanges is the responsibility of the state governments in Germany (with BaFin taking on any international responsibility). Investment fund management in Germany is regulated by the Capital Investment Code (KAGB), which entered into force on July 22, 2013. The KAGB represents the implementation of additional financial market regulatory reforms, committed to in the aftermath of the global financial crisis. The law went beyond the minimum requirements of the relevant EU directives and represents a comprehensive overhaul of all existing investment-related regulations in Germany with the aim of creating a system of rules to protect investors while also maintaining systemic financial stability.

Money and Banking System

Although corporate financing via capital markets is on the rise, Germany’s financial system remains mostly bank-based. Bank loans are still the predominant form of funding for firms, particularly the small- and medium-sized enterprises that comprise Germany’s “Mittelstand,” or mid-sized industrial market leaders. Credit is available at market-determined rates to both domestic and foreign investors, and a variety of credit instruments are available. Legal, regulatory and accounting systems are generally transparent and consistent with international banking norms. Germany has a universal banking system regulated by federal authorities, and there have been no reports of a shortage of credit in the German economy. After 2010, Germany banned some forms of speculative trading, most importantly “naked short selling.” In 2013, Germany passed a law requiring banks to separate riskier activities such as proprietary trading into a legally separate, fully capitalized unit that has no guarantee or access to financing from the deposit-taking part of the bank. Since the creation of the European single supervisory mechanism (SSM) in November 2014, the European Central Bank directly supervises 21 banks located in Germany (as of January 2021) among them four subsidiaries of foreign banks.

Germany supports a global financial transaction tax and is pursuing the introduction of such a tax along with other EU member states.

Germany has a modern and open banking sector that is characterized by a highly diversified and decentralized, small-scale structure. As a result, it is extremely competitive, profit margins notably in the retail sector are low and the banking sector considered “over-banked” and in need of consolidation. The country’s “three-pillar” banking system consists of private commercial banks, cooperative banks, and public banks (savings banks/Sparkassen and the regional state-owned banks/Landesbanken). This structure has remained unchanged despite marked consolidation within each “pillar” since the financial crisis in 2008/9. The number of state banks (Landesbanken) dropped from 12 to 5, that of savings banks from 446 in 2007 to 374 at the end of 2019 and the number of cooperative banks has dropped from 1,234 to 814. Two of the five large private sector banks have exited the market (Dresdner, Postbank). The balance sheet total of German banks dropped from 304 percent of GDP in 2007 to about 265 percent of end-2019 GDP with banking sector assets worth €9.1 trillion. Market shares in corporate finance of the banking groups remained largely unchanged (all figures for end of 2019): Credit institutions 27 percent (domestic 17 percent, foreign banks 10 percent), savings banks 31 percent, state banks 10 percent, credit cooperative banks 21 percent, promotional banks 6 percent.

The private bank sector is dominated by globally active banks Deutsche Bank (Germany’s largest bank by balance sheet total) and Commerzbank (fourth largest bank), with balance sheets of €1.3 trillion and €466.6 billion respectively (2019 figures). Commerzbank received €18 billion in financial assistance from the federal government in 2009, for which the government took a 25 percent stake in the bank (now reduced to 15.6 percent). Merger talks between Deutsche Bank and Commerzbank failed in 2019. The second largest of the top ten German banks is DZ Bank, the central institution of the Cooperative Finance Group (after its merger with WGZ Bank in July 2016), followed by German branches of large international banks (UniCredit Bank or HVB, ING-Diba), development banks (KfW Group, NRW.Bank), and state banks (LBBW, Bayern LB, Helaba, NordLB).

German banks’ profitability deteriorated in the years prior to the COVID-19 crisis due to the prevailing low and negative interest rate environment that narrowed margins on new loans irrespective of debtors’ credit worthiness, poor trading results and new competitors from the fintech sector, and low cost efficiency. In 2018, according to the latest data by the Deutsche Bundesbank (Germany’s central bank), German credit institutions reported a pre-tax profit of €18.9 billion or 0.23 percent of total assets. Their net interest income remained below its long-term average to €87.2 billion despite dynamic credit growth (19 percent since end-2014 until end-2019 in retail and 23 percent in corporate loans) on ongoing cost-reduction efforts. Thanks to continued favorable domestic economic conditions, their risk provisioning has been at an all time low. Their average return on equity before tax in 2018 slipped to 3.74 percent (after tax: 2.4 percent) (with savings banks generating a higher return, big banks a lower return, and Landesbanken a –2.45 percent return). Both return on equity and return on assets were at their lowest level since 2010.

Brexit promptedsome banking activities to relocate from the United Kingdom to the EU, with many foreign banks (notably U.S. and Japanese banks) choosing Frankfurt as their new EU headquarters. Their Core Tier 1 equity capital ratios improved as did their liquidity ratios, but no German large bank has been able to organically raise its capital for the past decade.

In 2020, the insolvency of financial services provider WireCard revealed certain weaknesses in German banking supervision. WireCard, which many viewed as a promising innovative format for the processing of credit card transactions, managed to conceal inadequate equity from supervisory authorities while also inflating its actual turnover. The Wirecard insolvency led to the replacement of the head of banking supervisory authority BaFin and triggered both an ongoing overhaul of the German banking supervision and a continuing parliamentary investigation.

It remains unclear how the COVID-19 crisis will affect the German banking sector. Prior to the pandemic, the bleaker German economic outlook prompted a greater need for value adjustment and write-downs in lending business. German banks’ ratio of non-performing loans was low going into the crisis (1.24 percent). In March 2020, the German government provided large-scale asset guarantees to banks (in certain instances covering 100 percent of the credit risk) via the German government owned KfW bank to avoid a credit crunch. So far, German banks have come through the crisis unscathed thanks to extensive liquidity assistance from the ECB, moratoria and fiscal support for the economy. Nevertheless, 25 German banks were downgraded in 2020 and many more were put on negative watch, though CDS spreads for the two largest private banks have fallen dramatically since the height of the crisis in March 2020 and are currently around pre-COVID levels. The second and third COVID-waves, however, are likely to take a toll on credit institutions and 2021 could prove to be the toughest test for banks since the 2008/9 global financial crisis. According to the Bundesbank, loan defaults by German banks could quadruple to 0.8 percent of the loan portfolio (or €13 billion). The Bundesbank’s focus in particular is on aircraft loans. According to Bloomberg’s calculations, the major German regional banks have lent €15 billion for aircraft financing. At Deka alone, the asset manager of the savings banks, the ratio of non-performing loans in aircraft financing is at a relatively high 7.7 percent.

Foreign Exchange and Remittances

Foreign Exchange

As a member of the Eurozone, Germany uses the euro as its currency, along with 18 other EU countries. The Eurozone has no restrictions on the transfer or conversion of its currency, and the exchange rate is freely determined in the foreign exchange market.

The Deutsche Bundesbank is the independent central bank of the Federal Republic of Germany. It has been a part of the Eurosystem since 1999, sharing responsibility with the other national central banks and the European Central Bank (ECB) for the single currency, and thus has no scope to manipulate the bloc’s exchange rate. Germany’s persistently high current account surplus – the world’s second largest in 2020 at USD 261 billion (6.9 percent of GDP) – has shrunk for the fifth year in a row. Despite the decrease, the persistence of Germany’s surplus remains a matter of international controversy. German policymakers view the large surplus as the result of market forces rather than active government policies, while the European Commission (EC) and IMF have called on authorities to rebalance towards domestic sources of economic growth by expanding public investment, using available fiscal space, and other policy choices that boost domestic demand.

Germany is a member of the Financial Action Task Force (FATF) and is committed to further strengthening its national system for the prevention, detection and suppression of money laundering and terrorist financing. Federal law is enforced by regional state prosecutors. Investigations are conducted by the Federal and State Offices of Criminal Investigations (BKA/LKA). The administrative authority for imposing anti-money laundering requirements on financial institutions is the Federal Financial Supervisory Authority (BaFin).

The Financial Intelligence Unit (FIU) – located at the General Customs Directorate in the Federal Ministry of Finance – is the national central authority for receiving, collecting and analyzing reports of suspicious financial transactions that may be related to money laundering or terrorist financing. On January 1, 2020, legislation to implement the 5th EU Money Laundering Directive and the European Funds Transfers Regulation (Geldtransfer-Verordnung) entered into force. The Act amends the German Money Laundering Act (Geldwäschegesetz – GwG) and a number of further laws. It provides, inter alia, the FIU and prosecutors with expanded access to data. On March 9, 2021 the Bundestag passed an anti-money laundering law seeking to improve Germany’s criminal legal framework for combating money laundering while simultaneously implementing the EU’s 6th Money Laundering Directive (EU 2018/1673 – hereafter “the Directive”). The Directive lays down minimum rules on the definition of criminal offenses and sanctions to combat money laundering. The law goes beyond the minimum standard set out in the Directive by broadening the definition of activities that could be prosecuted as money laundering offenses. Previously, the money laundering section in the German Criminal Code was designed to criminalize acts in connection with a list of serious “predicate offenses,” the underlying crime generating illicit funds, e.g., drug trafficking. The new law dispenses with the previously defined list, allowing any crime to be considered as a “predicate offense” to money laundering (the “All- Crimes Approach”). This is a paradigm shift in German criminal law, and implements an additional priority laid out in Germany’s “Strategy to Combat Money Laundering and Terrorist Financing” adopted in 2019.

The number of suspected money laundering and terrorist financing cases rose sharply in 2019 from 77.000 suspicious activity reports (SARs) to 114.914 according to the 2019 annual report of FIU (a new record and 12-fold that of 2009). The vast majority (98 percent) of suspicious transaction reports were filed by German banks and other financial institutions in order to avoid legal risks after a court ruling that held anti-money laundering (AML) officers personally liable, thus including many “false positives”. At the same time, the activities resulted in just 156 criminal charges, 133 indictments and only 54 verdicts.

In its annual report 2018, the FIU noted an “extreme vulnerability” in Germany’s real estate market to money laundering activities. Transparency International found that about €30 billion in illicit funds were funneled into German real estate in 2017. The results of the first concerted action by supervisory authorities of the German federal states in the automotive industry in 2019, for example, were sobering: only 15 percent of car dealers had implemented AML provisions, the rest had deficiencies, showing the “need for further sensitization.” The report also noted a slight upward trend in the number of SARs related to crypto assets. Around 760 SARs cited “anomalies in connection with cryptocurrencies”, as reporting noted, especially the forwarding of funds to trading platforms abroad for the exchange of funds into cryptocurrencies. However, the FIU itself has come under criticism. Financial institutions deplore the quality of its staff and the effectiveness of its work. The Institute of Public Auditors in Germany (IDW) criticizes that the precautions taken to prevent money laundering in high-risk industries outside the financial sector are monitored much less intensively. A review of the FIU scheduled for 2020 has been postponed due to the pandemic.

There is no difficulty in obtaining foreign exchange.

Remittance Policies

There are no restrictions or delays on investment remittances or the inflow or outflow of profits.

Germany is the largest remittance-sending country in the EU, making up almost 18% of all outbound personal remittances of the EU-27 (Eurostat). Migrants in Germany posted USD 25.1 billion (0.6 percent of GDP) abroad in 2019 (World Bank). Remittance flows into Germany amounted to around USD 16.5 billion in 2019, approximately 0.4 percent of Germany’s GDP.

The issue of remittances played a role during the German G20 Presidency in 2017. During its presidency, Germany passed an updated version of its “G20 National Remittance Plan.” The document states that Germany’s focus will remain on “consumer protection, linking remittances to financial inclusion, creating enabling regulatory frameworks and generating research and data on diaspora and remittances dynamics.” The 2017 “G20 National Remittance Plan” can be found at https://www.gpfi.org/publications/2017-g20-national-remittance-plans-overview 

Sovereign Wealth Funds

The German government does not currently have a sovereign wealth fund or an asset management bureau.

The formal term for state-owned enterprises (SOEs) in Germany translates as “public funds, institutions, or companies,” and refers to entities whose budget and administration are separate from those of the government, but in which the government has more than 50 percent of the capital shares or voting rights. Appropriations for SOEs are included in public budgets, and SOEs can take two forms, either public or private law entities. Public law entities are recognized as legal personalities whose goal, tasks, and organization are established and defined via specific acts of legislation, with the best-known example being the publicly-owned promotional bank KfW (Kreditanstalt für Wiederaufbau). KfW’s mandate is to promote global development. The government can also resort to ownership or participation in an entity governed by private law if the following conditions are met: doing so fulfills an important state interest, there is no better or more economical alternative, the financial responsibility of the federal government is limited, the government has appropriate supervisory influence, and yearly reports are published.

Government oversight of SOEs is decentralized and handled by the ministry with the appropriate technical area of expertise. The primary goal of such involvement is promoting public interests rather than generating profits. The government is required to close its ownership stake in a private entity if tasks change or technological progress provides more effective alternatives, though certain areas, particularly science and culture, remain permanent core government obligations. German SOEs are subject to the same taxes and the same value added tax rebate policies as their private sector competitors. There are no laws or rules that seek to ensure a primary or leading role for SOEs in certain sectors or industries. However, a white paper drafted by the Ministry of Economic Affairs and Energy in November 2019 outlines elements of a national industrial strategy, which includes the option of a temporary state participation in key technology companies as “last resort”. Private enterprises have the same access to financing as SOEs, including access to state-owned banks such as KfW.

The Federal Statistics Office maintains a database of SOEs from all three levels of government (federal, state, and municipal) listing a total of 18,566 entities for 2018, or 0.5 percent of the total 3.5 million companies in Germany. SOEs in 2018 had €609 billion in revenue and €583 billion in expenditures. 41 percent of SOEs’ revenue was generated by water and energy suppliers, 12 percent by health and social services, and 11 percent by transportation-related entities. Measured by number of companies rather than size, 88 percent of SOEs are owned by municipalities, 10 percent are owned by Germany’s 16 states, and 2 percent are owned by the federal government.

The Federal Finance Ministry is required to publish a detailed annual report on public funds, institutions, and companies in which the federal government has direct participation (including a minority share) or an indirect participation greater than 25 percent and with a nominal capital share worth more than €50,000. The federal government held a direct participation in 104 companies and an indirect participation in 433 companies at the end of 2018, most prominently Deutsche Bahn (100 percent share), Deutsche Telekom (32 percent share), and Deutsche Post (21 percent share). Federal government ownership is concentrated in the areas of infrastructure, economic development, science, administration/increasing efficiency, defense, development policy, culture. As the result of federal financial assistance packages from the federally-controlled Financial Market Stability Fund during the global financial crisis of 2008/9, the federal government still has a partial stake in several commercial banks, including a 15.6 percent share in Commerzbank, Germany’s second largest commercial bank. In 2020, in the wake of the COVID-19 pandemic, the German government acquired shares of several large German companies, including CureVac, TUI and Lufthansa, in an attempt to prevent companies from filing for insolvency or, in the case of CureVac, support vaccine research in Germany.

The 2019 annual report (with 2018 data) can be found here: https://www.bundesfinanzministerium.de/Content/DE/Downloads/Broschueren_Bestellservice/2020-05-14-beteiligungsbericht-des-bundes-2019.pdf?__blob=publicationFile&v=28

https://www.bundesfinanzministerium.de/Content/DE/Downloads/Broschueren_Bestellservice/2020-05-14-beteiligungsbericht-des-bundes-2019.pdf?__blob=publicationFile&v=28

Publicly-owned banks constitute one of the three pillars of Germany’s banking system (cooperative and commercial banks are the other two). Germany’s savings banks are mainly owned by the municipalities, while the so-called Landesbanken are typically owned by regional savings bank associations and the state governments. Given their joint market share, about 40 percent of the German banking sector is publicly owned. There are also many state-owned promotional/development banks which have taken on larger governmental roles in financing infrastructure. This increased role removes expenditures from public budgets, particularly helpful in light of Germany’s balanced budget rules, which took effect for the states in 2020.

A longstanding, prominent case of a partially state-owned enterprise is automotive manufacturer Volkswagen, in which the state of Lower Saxony owns the third-largest share in the company of around 12 percent but controls 20 percent of the voting rights. The so-called Volkswagen Law, passed in 1960, limited individual shareholder’s voting rights in Volkswagen to a maximum of 20 percent regardless of the actual number of shares owned, so that Lower Saxony could veto any takeover attempts. In 2005, the European Commission successfully sued Germany at the European Court of Justice (ECJ), claiming the law impeded the free flow of capital. The law was subsequently amended to remove the cap on voting rights, but Lower Saxony’s 20 percent share of voting rights was maintained, preserving its ability to block hostile takeovers.

Privatization Program

Germany does not have any privatization programs at this time. German authorities treat foreigners equally in privatizations of state-owned enterprises.

Political acts of violence against either foreign or domestic business enterprises are extremely rare. Isolated cases of violence directed at certain minorities and asylum seekers have not targeted U.S. investments or investors.

* Source for Host Country Data: Federal Statistical Office, www.destatis.de; Bundesbank, www.bundesbank.de   

Policies Towards Foreign Direct Investment

The Government of Ghana has made increasing FDI a priority and acknowledges the importance of having an enabling environment for the private sector to thrive. Officials are implementing some regulatory and other reforms to improve the ease of doing business and make investing in Ghana more attractive.

The 2013 Ghana Investment Promotion Center (GIPC) Act requires the GIPC to register, monitor, and keep records of all business enterprises in Ghana. Sector-specific laws further regulate investments in minerals and mining, oil and gas, industries within Free Zones, banking, non-bank financial institutions, insurance, fishing, securities, telecommunications, energy, and real estate. Some sector-specific laws, such as in the oil and gas sector and the power sector, include local content requirements that could discourage international investment. Foreign investors are required to satisfy the provisions of the GIPC Act as well as the provisions of sector-specific laws. GIPC leadership has pledged to collaborate more closely with the private sector to address investor concerns, but there have been no significant changes to the laws. More information on investing in Ghana can be obtained from GIPC’s website, www.gipcghana.com .

Limits on Foreign Control and Right to Private Ownership and Establishment

Most of Ghana’s major sectors are fully open to foreign capital participation.

U.S. investors in Ghana are treated the same as other foreign investors. All foreign investment projects must register with the GIPC. Foreign investments are subject to the following minimum capital requirements: USD 200,000 for joint ventures with a Ghanaian partner, who should have at least 10 percent of the equity; USD 500,000 for enterprises wholly owned by a non-Ghanaian; and USD 1 million for trading companies (firms that buy or sell imported goods or services) wholly owned by non-Ghanaian entities. The minimum capital requirement may be met in cash or capital goods relevant to the investment. Trading companies are also required to employ at least 20 skilled Ghanaian nationals.

Ghana’s investment code excludes foreign investors from participating in eight economic sectors: petty trading; the operation of taxi and car rental services with fleets of fewer than 25 vehicles; lotteries (excluding soccer pools); the operation of beauty salons and barber shops; printing of recharge scratch cards for subscribers to telecommunications services; production of exercise books and stationery; retail of finished pharmaceutical products; and the production, supply, and retail of drinking water in sealed pouches. Sectors where foreign investors are allowed limited market access include: telecommunications, banking, fishing, mining, petroleum, and real estate.

Real Estate

The 1992 Constitution recognized existing private and traditional titles to land. Given this mix of private and traditional land titles, land rights to any specific area of land can be opaque. Freehold acquisition of land is not permitted. There is an exception, however, for transfer of freehold title between family members for land held under the traditional system. Foreigners are allowed to enter into long-term leases of up to 50 years and the lease may be bought, sold, or renewed for consecutive terms. Ghanaian nationals are allowed to enter into 99-year leases. The Ghanaian government has been working since 2017 on developing a digital property address and land registration system to reduce land disputes and improve efficiency. (See “Protection of Property Rights” p. 14)

Oil and Gas

The oil and gas sector is subject to a variety of state ownership and local content requirements. The Petroleum (Exploration and Production) Act, 2016 (Act 919) mandates local participation. All entities seeking petroleum exploration licenses in Ghana must create a consortium in which the state-owned Ghana National Petroleum Corporation (GNPC) holds a minimum 15 percent carried interest, and a local equity partner holds a minimum interest of five percent. The Petroleum Commission issues all licenses. Exploration licenses must also be approved by Parliament. Further, local content regulations specify in-country sourcing requirements with respect to the full range of goods, services, hiring, and training associated with petroleum operations. The regulations also require local equity participation for all suppliers and contractors. The Minister of Energy must approve all contracts, sub-contracts, and purchase orders above USD 100,000. Non-compliance with these regulations may result in a criminal penalty, including imprisonment for up to five years.

The Petroleum Commission applies registration fees and annual renewal fees on foreign oil and gas service providers, which, depending on a company’s annual revenues, range from USD 70,000 to USD 150,000, compared to fees of between USD 5,000 and USD 30,000 for local companies.

Mining

Per the Minerals and Mining Act, 2006 (Act 703), foreign investors are restricted from obtaining a small-scale mining license for mining operations less than or equal to an area of 25 acres (10 hectares). In 2019, the criminal penalty for non-compliance with these regulations was increased to a minimum prison sentence of 15 years and maximum of 25 years, from a maximum of five years, to discourage illegal small-scale mining. The Act mandates local participation, whereby the government acquires 10 percent equity in ventures at no cost in all mineral rights. In order to qualify for any mineral license, a non-Ghanaian company must be registered in Ghana, either as a branch office or a subsidiary that is incorporated under the Ghana Companies Act or Incorporated Private Partnership Act. Non-Ghanaians may apply for industrial mineral rights only if the proposed investment is USD 10 million or above.

The Minerals and Mining Act provides for a stability agreement, which protects the holder of a mining lease for a period of 15 years from future changes in law that may impose a financial burden on the license holder. When an investment exceeds USD 500 million, lease holders can negotiate a development agreement that contains elements of a stability agreement and more favorable fiscal terms. The Minerals and Mining (Amendment) Act (Act 900) of 2015 requires the mining lease-holder to, “…pay royalty to the Republic at the rate and in the manner that may be prescribed.” The previous Act 703 capped the royalty rate at six percent. The Minerals Commission implements the law. In December 2020, Ghana passed the Minerals and Mining (Local Content and Local Participation) Regulations, 2020 (L.I. 2431) to expand the specific provisions under the mining regulations that require mining entities to procure goods and services from local sources. The Minerals Commission publishes a Local Procurement List, which identifies items that must be sourced from Ghanaian-owned companies, whose directors must all be Ghanaians.

Power Sector

In December 2017, Ghana introduced regulations requiring local content and local participation in the power sector. The Energy Commission (Local Content and Local Participation) (Electricity Supply Industry) Regulations, 2017 (L.I. 2354) specify minimum initial levels of local participation/ownership and 10-year targets:

The regulations also specify minimum and target levels of local content in engineering and procurement, construction, post-construction, services, management, operations, and staff. All persons engaged in or planning to engage in the supply of electricity are required to register with the ‘Electricity Supply Local Content and Local Participation Committee’ and satisfy the minimum local content and participation requirements within five years. Failure to comply with the requirements could result in a fine or imprisonment.

Insurance

The National Insurance Commission (NIC) imposes nationality requirements with respect to the board and senior management of locally incorporated insurance and reinsurance companies. At least two board members must be Ghanaians, and either the Chairman of the board or Chief Executive Officer (CEO) must be Ghanaian. In situations where the CEO is not Ghanaian, the NIC requires that the Chief Financial Officer be Ghanaian. Minimum initial capital investment in the insurance sector is 50 million Ghana cedis (approximately USD 9 million).

Telecommunications

Per the Electronic Communications Act of 2008, the National Communications Authority (NCA) regulates and manages the nation’s telecommunications and broadcast sectors. For 800 MHz spectrum licenses for mobile telecommunications services, Ghana restricts foreign participation to a joint venture or consortium that includes a minimum of 25 percent Ghanaian ownership. Applicants have two years to meet the requirement, and can list the 25 percent on the Ghana Stock Exchange. The first option to purchase stock is given to Ghanaians, but there are no restrictions on secondary trading.

Banking and Electronic Payment Service Providers

The Payment Systems and Services Act, 2019 (Act 987), establishes requirements for the licensing and authorization of electronic payment services. Act 987 ( https://www.bog.gov.gh/wp-content/uploads/2019/08/Payment-Systems-and-Services-Act-2019-Act-987-.pdf ) imposes limitations on foreign investment and establishes residency requirements for company senior officials or members of the board of directors. Specifically, Act 987 mandates electronic payment services companies to have at least 30 percent Ghanaian ownership (either from a Ghanaian corporate or individual shareholder) and requires at least two of its three board directors, including its chief executive officer, be resident in Ghana.

There are no significant limits on foreign investment or differences in the treatment of foreign and national investors in other sectors of the economy.

Other Investment Policy Reviews

Ghana has not conducted an investment policy review (IPR) through the OECD recently. UNCTAD last conducted an IPR in 2003.

The WTO last conducted a Trade Policy Review (TPR) in May 2014. The TPR concluded that the 2013 amendment to the investment law raised the minimum capital that foreigners must invest to levels above those specified in Ghana’s 1994 GATS horizontal commitments, and excluded new activities from foreign competition. However, it was determined that overall this would have minimal impact on dissuading future foreign investment due to the size of the companies traditionally seeking to do business within the country. An executive summary of the findings can be found at: https://www.wto.org/english/tratop_e/tpr_e/tp398_e.htm .

Business Facilitation

Although registering a business is a relatively easy procedure and can be done online through the Registrar General’s Department (RGD) at https://egovonline.gegov.gov.gh/RGDPortalWeb/portal/RGDHome/eghana.portal  (this would be controlled by the new Office of the Registrar of Companies in 2021), businesses have noted that the process involved in establishing a business is lengthy and complex, and requires compliance with regulations and procedures of at least four other government agencies, including GIPC, Ghana Revenue Authority (GRA), Ghana Immigration Service, and the Social Security and National Insurance Trust (SSNIT).

According to the World Bank’s Doing Business Report 2020 , it takes eight procedures and 13 days to establish a foreign-owned limited liability company (LLC) to engage in international trade in Ghana. In 2019, Ghana passed a new Companies Act, 2019 (Act 992), which among other things created a new independent office called the Office of the Registrar of Companies, responsible for the registration and regulation of all businesses. The new office is expected to be in place in 2021, and would separate the registration process for companies from the Registrar General’s Department; the latter would continue to serve as the government’s registrar for non-business transactions such as marriages. The new law also simplifies some registration processes by scrapping the issuance of a certificate to commence business and the requirement for a company to state business objectives, which limited the activities in which a company could engage. The law also expands the role of the company secretary, which now requires educational qualifications with some background in company law practice and administration or having been trained under a company secretary for at least three years. Foreign investors must obtain a certificate of capital importation, which can take 14 days. The local authorized bank must confirm the import of capital with the Bank of Ghana, which confirms the transaction to GIPC for investment registration purposes.

Per the GIPC Act, all foreign companies are required to register with GIPC after incorporation with the RGD. Registration can be completed online at http://www.gipcghana.com/ . While the registration process is designed to be completed within five business days, but there are often bureaucratic delays.

The Ghanaian business environment is unique, and guidance can be extremely helpful. In some cases, a foreign investment may enjoy certain tax benefits under the law or additional incentives if the project is deemed critical to the country’s development. Most companies or individuals considering investing in Ghana or trading with Ghanaian counterparts find it useful to consult with a local attorney or business facilitation company. The United States Embassy in Accra maintains a list of local attorneys, which is available through the U.S. Foreign Commercial Service ( https://2016.export.gov/ghana/contactus/index.asp ) or U.S. Citizen Services (https://gh.usembassy.gov/u-s-citizen-services/attorneys/). Specific information about setting up a business is available at the GIPC website: http://www.gipcghana.com/invest-in-ghana/doing-business-in-ghana.html .

Ghana Investment Promotion Centre
Post: P. O. Box M193, Accra-Ghana
Note: Omit the (0) after the country code when dialing from abroad.
Telephone: +233 (0) 302 665 125, +233 (0) 302 665 126, +233 (0) 302 665 127, +233 (0) 302 665 128, +233 (0) 302 665 129, +233 (0) 244 318 254/ +233 (0) 244 318 252
Email: info@gipc.gov.gh
Website: www.gipcghana.com 

Note that mining or oil/gas sector companies are required to obtain licensing/approval from the following relevant bodies:

Petroleum Commission Head Office
Plot No. 4A, George Bush Highway, Accra, Ghana
P.O. Box CT 228 Cantonments, Accra, Ghana
Telephone: +233 (0) 302 953 392 | +233 (0) 302 953 393
Website: http://www.petrocom.gov.gh/ 

Minerals Commission
Minerals House, No. 12 Switchback Road, Cantonments, Accra
P. O. Box M 248
Telephone: +233 (0) 302 772 783 /+233 (0) 302 772 786 /+233 (0) 302 773 053
Website: http://www.mincom.gov.gh/ 

Outward Investment

Ghana has no specific outward investment policy. It has entered into bilateral treaties, however, with a number of countries to promote and protect foreign investment on a reciprocal basis. Some Ghanaian companies have established operations in other West African countries.

Transparency of the Regulatory System

The Government of Ghana’s policies on trade liberalization and investment promotion are guiding its efforts to create a clear and transparent regulatory system.

Ghana does not have a standardized consultation process, but ministries and Parliament generally share the text or summary of proposed regulations and solicit comments directly from stakeholders or via public meetings and hearings. All laws that are currently in effect are printed by the Ghana Publishing Company, while the notice of publication of the law, bills or regulations are made in the Ghana Gazette (equivalent of the U.S. Federal Register). The non-profit Ghana Legal Information Institute ( HYPERLINK “https://ghalii.org/gh/gazette/GHGaz” https://ghalii.org/gh/gazette/GHGaz) re-publishes hard copies of the Ghana Gazette. The Government of Ghana does not publish draft regulations online, and the Parliament only publishes some draft bills ( https://www.parliament.gh/docs?type=Bills&OT ), which inhibits transparency in the approval of laws and regulations.

The Government of Ghana has established regulatory bodies such as the National Communications Authority, the National Petroleum Authority, the Petroleum Commission, the Energy Commission, and the Public Utilities Regulatory Commission to oversee activities in the telecommunications, downstream and upstream petroleum, electricity and natural gas, and water sectors. The creation of these bodies was a positive step, but the lack of resources and the bodies’ susceptibility to political influence undermine their ability to deliver the intended level of oversight.

The government launched a Business Regulatory Reform program in 2017, but implementation has been slow. The program aims to improve the ease of doing business, review all rules and regulations to identify and reduce unnecessary costs and requirements, establish an e-registry of all laws, establish a centralized public consultation web portal, provide regulatory relief for entrepreneurs, and eventually implement a regulatory impact analysis system. The government continues to work towards achieving these goals and in 2020 established the centralized public consultation web portal ( www.bcp.gov.gh ), the Ghana Business Regulatory Reforms platform. It is an interactive platform to allow policymakers to consult businesses and individuals in a transparent, inclusive, and timely manner on policy issues. Ghana adopted International Financial Reporting Standards in 2007 for all listed companies, government business enterprises, banks, insurance companies, security brokers, pension funds, and public utilities.

Ghana continues to improve on making information on debt obligations, including contingent and state-owned enterprise debt, publicly available. Information on the overall debt stock (including domestic and external) is presented in the Annual Debt Management Report, which is available on the Ministry of Finance website at https://www.mofep.gov.gh/investor-relations/annual-public-debt-report . However, information on contingent liabilities from state-owned enterprises is not explicit and is not consolidated in one report.

International Regulatory Considerations

Ghana has been a World Trade Organization (WTO) member since January 1995. Ghana issues its own standards for many products under the auspices of the Ghana Standards Authority (GSA). The GSA has promulgated more than 500 Ghanaian standards and adopted more than 2,000 international standards for certification purposes. The Ghanaian Food and Drugs Authority is responsible for enforcing standards for food, drugs, cosmetics, and health items. Ghana notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT).

Legal System and Judicial Independence

Ghana’s legal system is based on British common law and local customary law. Investors should note that the acquisition of real property is governed by both statutory and customary law. The judiciary comprises both lower courts and superior courts. The superior courts are the Supreme Court, the Court of Appeal, and the High Court and Regional Tribunals. Lawsuits are permitted and usually begin in the High Court. The High Court has jurisdiction in all matters, civil and criminal, other than those involving treason and some cases that involve the highest levels of the government – which go to the Supreme Court. There is a history of government intervention in the court system, although somewhat less so in commercial matters. The courts have entered judgments against the government. However, the courts have been slow in disposing of cases and at times face challenges in having their decisions enforced, largely due to resource constraints and institutional inefficiencies.

Laws and Regulations on Foreign Direct Investment

The GIPC Act codified the government’s desire to present foreign investors with a transparent foreign investment regulatory regime. GIPC regulates foreign investment in acquisitions, mergers, takeovers and new investments, as well as portfolio investment in stocks, bonds, and other securities traded on the Ghana Stock Exchange. The GIPC Act also specifies areas of investment reserved for Ghanaian citizens, and further delineates incentives and guarantees that relate to taxation, transfer of capital, profits and dividends, and guarantees against expropriation.

GIPC helps to facilitate the business registration process and provides economic, commercial, and investment information for companies and businesspeople interested in starting a business or investing in Ghana. GIPC provides assistance to enable investors to take advantage of relevant incentives. Registration can be completed online at www.gipcghana.com .

As detailed in the previous section on “Limits on Foreign Control and Right to Private Ownership and Establishment,” sector-specific laws regulate foreign participation/investment in telecommunications, banking, fishing, mining, petroleum, and real estate.

Ghana regulates the transfer of technologies not freely available in Ghana. According to the 1992 Technology Transfer Regulations, total management and technical fee levels higher than eight percent of net sales must be approved by GIPC. The regulations do not allow agreements that impose obligations to procure personnel, inputs, and equipment from the transferor or specific source. The duration of related contracts cannot exceed ten years and cannot be renewed for more than five years. Any provisions in the agreement inconsistent with Ghanaian regulations are unenforceable in Ghana.

Competition and Anti-Trust Laws

Ghana is reportedly working on a new competition law to replace the existing legislation, the Protection Against Unfair Competition Act, 2000 (Act 589); however, the new bill is still under review.

Expropriation and Compensation

The Constitution sets out some exceptions and a clear procedure for the payment of compensation in allowable cases of expropriation or nationalization. Additionally, Ghana’s investment laws generally protect investors against expropriation and nationalization. The Government of Ghana may, however, expropriate property if it is required to protect national defense, public safety, public order, public morality, public health, town and county planning, or to ensure the development or utilization of property in a manner to promote public benefit. In such cases, the GOG must provide prompt payment of fair and adequate compensation to the property owner, but the process for determining adequate compensation and making payments can be complicated and lengthy in practice. The Government of Ghana guarantees due process by allowing access to the High Court by any person who has an interest or right over the property.

Dispute Settlement

ICSID Convention and New York Convention

Ghana is a member state of the International Centre for the Settlement of Investment Disputes (ICSID Convention). Ghana is a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).

There is a caveat for investment disputes arising from within the energy sector. The Government of Ghana has expressed a preference for handling disputes under the ad hoc arbitration rules of the UN Commission on International Trade Law (UNCITRAL Model Law).

International Commercial Arbitration and Foreign Courts

The United States has signed three bilateral agreements on trade and investment with Ghana: a Trade and Investment Framework Agreement (TIFA), OPIC Investment Incentive Agreement, and the Open Skies Agreement. These agreements contain provisions for investment as well as trade dispute mechanisms.

The Commercial Conciliation Center of the American Chamber of Commerce (Ghana) provides arbitration services on trade and investment issues for disputes regarding contracts with arbitration clauses.

There is interest in alternative dispute resolution, especially as it applies to commercial cases. Several lawyers provide arbitration and/or conciliation services. Arbitration decisions are enforceable provided they are registered in the courts.

In March 2005, the government established a commercial court with exclusive jurisdiction over all commercial matters. This court also handles disputes involving commercial arbitration and the enforcement of awards; intellectual property rights, including patents, copyrights and trademarks; commercial fraud; applications under the Companies Act; tax matters; and insurance and re-insurance cases. A distinctive feature of the commercial court is the use of mediation or other alternative dispute resolution mechanisms, which are mandatory in the pre-trial settlement conference stage. Ghana also has a Financial and Economic Crimes Court, which is a specialized division of the High Court that handles high-profile corruption and economic crime cases.

Enforcement of foreign judgments in Ghana is based on the doctrine of reciprocity. On this basis, judgments from Brazil, France, Israel, Italy, Japan, Lebanon, Senegal, Spain, the United Arab Emirates, and the United Kingdom are enforceable. Judgments from American courts are not currently enforceable in Ghana.

The GIPC, Free Zones, Labor, and Minerals and Mining Laws outline dispute settlement procedures and provide for arbitration when disputes cannot be settled by other means. They also provide for referral of disputes to arbitration in accordance with the rules of procedure of the United Nations Commission on International Trade Law (UNCITRAL), or within the framework of a bilateral agreement between Ghana and the investor’s country. The Alternative Dispute Resolution Act, 2010 (Act 798) provides for the settlement of disputes by mediation and customary arbitration, in addition to regular arbitration processes.

Bankruptcy Regulations

Ghana does not have a bankruptcy statute. A new insolvency law, the Corporate Restructuring and Insolvency Act, 2020 (Act 1015), was passed to replace the Bodies Corporate (Official Liquidations) Act, 1963 (Act 180). The new law, unlike the previous one, provides for reorganization of a company before liquidation when it is unable to pay its debts, as well as cross-border insolvency rules. The new law does not have a U.S. Chapter 11-style bankruptcy provision, but allows for a process that puts the company under administration for restructuring. The new law complements the law for private liquidations under the Companies Act, 2019 (Act 992), but does not apply to businesses that are under specialized regulations such as banks and insurance companies.

Capital Markets and Portfolio Investment

Private sector growth in Ghana is constrained by financing challenges. Businesses continue to face difficulty raising capital on the local market. While credit to the private sector has increased in nominal terms, levels as percentage of GDP have remained stagnant over the last decade, and high government borrowing has driven interest rates above 21 percent and crowded out private investment.

Capital markets and portfolio investment are gradually evolving. The longest-term domestic bonds are 15 years, with Eurobonds ranging up to 41-year maturities. Foreign investors are permitted to participate in auctions of bonds only with maturities of two years or longer. In November 2020, foreign investors held about 17.9 percent (valued at USD 4.6 billion) of the total outstanding domestic securities. In 2015, the Ghana Stock Exchange (GSE) added the Ghana Fixed-Income Market (GFIM), a specialized platform for secondary trading in debt instruments to improve liquidity.

The rapid accumulation of debt over the last decade, and particularly the past three years, has raised debt sustainability concerns. Ghana received debt relief under the Heavily Indebted Poor Country (HIPC) initiative in 2004, and began issuing Eurobonds in 2007. In February 2020, Ghana sold sub-Saharan Africa’s longest-ever Eurobond as part of a $3 billion deal with a tenor of 41 years. In 2020, total public debt, roughly evenly split between external and domestic, stood at approximately 76 percent of GDP, partly as a result of the economic shock of COVID-19 as revenue declined and expenditures spiked.

The Ghana Stock Exchange (GSE) has 31 listed companies, four government bonds, and one corporate bond. Both foreign and local companies are allowed to list on the GSE. The Securities and Exchange Commission regulates activities on the Exchange. There is an eight percent tax on dividend income. Foreigners are permitted to trade stocks listed on the GSE without restriction. There are no capital controls on the flow of retained earnings, capital gains, dividends, or interest payments. The GSE composite index (GGSECI) has exhibited mixed performance.

Money and Banking System

Banks in Ghana are relatively small, with the largest in the country in terms of operating assets, Ecobank Ghana Ltd., holding assets of about USD 2.1 billion in 2019. The Central Bank increased the minimum capital requirement for commercial banks from 120 million Ghana cedis (USD 22 million) to 400 million (USD 70 million), effective December 2018, as part of a broader effort to strengthen the banking industry. As a result of the reforms and subsequent closures and mergers of some banks, the number of commercial banks dropped from 36 to 23. Eight are domestically controlled, and the remaining 15 are foreign controlled. In total, there are nearly 1,500 branches distributed across the sixteen regions of the country.

Overall, the banking industry in Ghana is well capitalized with a capital adequacy ratio of 19.8 percent as of December 2020, above the 11.5 percent prudential and statutory requirement. The non-performing loans ratio increased from 14.3 percent in December 2019 to 14.5 percent as of December 2020. Lending in foreign currencies to unhedged borrowers poses a risk, and widely varying standards in loan classification and provisioning may be masking weaknesses in bank balance sheets. The BoG has almost completed actions to address weaknesses in the non-bank deposit-taking institutions sector (e.g., microfinance, savings and loan, and rural banks) and has also issued new guidelines to strengthen corporate governance regulations in the banks.

Recent developments in the non-banking financial sector indicate increased diversification, including new rules and regulations governing the trading of Exchange Traded Funds. Non-banking financial institutions such as leasing companies, building societies, and village savings and loan associations have increased access to finance for underserved populations, as have rural and mobile banking. Currently, Ghana has no “cross-shareholding” or “stable shareholder” arrangements used by private firms to restrict foreign investment through mergers and acquisitions, although, as noted above, the Payments Systems and Services Act, 2019 (Act 987), does require a 30 percent Ghanaian company or Ghanaian holding by any electronic payments service provider, including banks or special deposit-taking institutions.

Foreign Exchange and Remittances

Foreign Exchange

Ghana operates a managed-float exchange rate regime. The Ghana cedi can be exchanged for dollars and major currencies. Investors may convert and transfer funds associated with investments, provided there is documentation of how the funds were acquired. Ghana’s investment laws guarantee that investors can transfer the following transactions in convertible currency out of Ghana: dividends or net profits attributable to an investment; loan service payments where a foreign loan has been obtained; fees and charges with respect to technology transfer agreements registered under the GIPC Act; and the remittance of proceeds from the sale or liquidation of an enterprise or any interest attributable to the investment. Companies have not reported challenges or delays in remitting investment returns. For details, please consult the GIPC Act ( http://www.gipcghana.com ) and the Foreign Exchange Act guidelines ( http://www.sec.gov.gh ). Persons arriving in or departing from Ghana are permitted to carry up to USD 10,000.00 without declaration; any greater amount must be declared.

Ghana’s foreign exchange reserve needs are largely met through cocoa, gold, and oil exports; government securities; foreign assistance; and private remittances.

Remittance Policies

There is a single formal system for transferring currency out of the country through the banking system. The Foreign Exchange Act, 2006 (Act 723) provides the legal framework for the management of foreign exchange transactions in Ghana. It fully liberalized capital account transactions, including allowing foreigners to buy certain securities in Ghana. It also removed the requirement for the Bank of Ghana (the central bank) to approve offshore loans. Payments or transfer of foreign currency can be made only through banks or institutions licensed to do money transfers. There is no limit on capital transfers as long as the transferee can identify the source of capital.

Sovereign Wealth Funds

Ghana’s only sovereign wealth fund is the Ghana Petroleum Fund (GPF), which is funded by oil profits and flows to the Ghana Heritage Fund and Ghana Stabilization Fund. The Petroleum Revenue Management Act (PRMA), 2011 (Act 815), spells out how revenues from oil and gas should be spent and includes transparency provisions for reporting by government agencies, as well as an independent oversight group, the Public Interest and Accountability Committee (PIAC). Section 48 of the PRMA requires the Fund to publish an audited annual report by the Ghana Audit Service. The Fund’s management meets the legal obligations. Management of the Ghana Petroleum Fund is a joint responsibility between the Ministry of Finance and the Bank of Ghana. The minister develops the investment policy for the GPF, and is responsible for the overall management of GPF funds, consults regularly with the Investment Advisory Committee and Bank of Ghana Governor before making any decisions related to investment strategy or management of GPF funds. The minister is also in charge of establishing a management agreement with the Bank of Ghana for the oversight of the funds. The Bank of Ghana is responsible for the day-to-day operational management of the Petroleum Reserve Accounts (PRAs) under the terms of Operation Management Agreement.

For additional information regarding Ghana Petroleum Fund, please visit the 2019 Petroleum Annual Report at: https://www.mofep.gov.gh/publications/petroleum-reports .

Ghana has 86 State-Owned Enterprises (SOEs), 45 of which are wholly owned, while 41 are partially owned. Thirty-six of the wholly owned SOEs are commercial and operate more independently from government, while nine are public corporations or institutions, some providing regulatory functions. While the president appoints the CEO and full boards of most of the wholly owned SOEs, they are under the supervision of line ministries. Most of the partially owned investments are in the financial, mining, and oil and gas sectors. To improve the efficiency of SOEs and reduce fiscal risks they pose to the budget, in 2019 the government embarked on an exercise to tackle weak corporate governance in the SOEs as well as created the State Interests and Governance Authority (SIGA), a single institution, to monitor all SOEs, replacing both the State Enterprises Commission and the Divestiture Implementation Committee.

As of April 2021, only a handful of large SOEs remain, mainly in the transportation, power, and extractive sectors. The largest SOEs are Ghana Ports and Harbor Authority (GPHA), Electricity Company of Ghana (ECG), Volta River Authority (VRA), Ghana Water Company Limited (GWCL), Tema Oil Refinery (TOR), Ghana Airport Company Limited (GACL), Ghana Cocoa Board (COCOBOD), Ghana National Gas Company Limited, and Ghana National Petroleum Corporation (GNPC). Many of these receive subsidies and assistance from the government. The list of SOEs can be found at: https://siga.gov.gh/state-interest/ .

While the Government of Ghana does not actively promote adherence to the OECD Guidelines, SIGA oversees corporate governance of SOEs and encourages them to be managed like Limited Liability Companies so as to be profit-making. In addition, beginning in 2014, most SOEs were required to contract and service direct and government-guaranteed loans on their own balance sheet. The government’s goal is to stop adding these loans to “pure public” debt, paid by taxpayers directly through the budget.

Privatization Program

Ghana has no formal privatization program. The government has announced its intention, however, to prioritize the creation of public-private partnerships (PPPs) to restructure and privatize non-performing SOEs, although progress to implement this goal has been slow. Procuring PPPs is allowed under the National Policy on Public Private Partnerships in Ghana, which was adopted in June 2011. A PPP law is being drafted.

Ghana offers a relatively stable and predictable political environment for American investors, and has a solid democratic tradition. In December 2020, Ghana completed its eighth consecutive peaceful presidential and parliamentary elections and transfer of power since 1992, with power transferred between the two main political parties three times during that period. On December 7, 2020 New Patriotic Party (NPP) candidate (and incumbent) Nana Akufo-Addo was re-elected over the National Democratic Congress (NDC) candidate, former President John Mahama. The NDC disputed the 2020 presidential election result. The Supreme Court heard the case and ruled that Akufo-Addo had, indeed, won the election. There were isolated cases of violence during the election but no widespread civil disturbances. The next general elections are scheduled for December 7, 2024.

Table 4: Sources of Portfolio Investment
Data not available.

Policies Toward Foreign Direct Investment  

The Greek government continues to take steps to increase foreign investment, implementing economic reforms and taking steps to mitigate the impact of the pandemic.  Greece completed its EU bailout program in 2018, allowing it to borrow once again at market rates, reflected in a rising economic sentiment since 2017.  Heavy bureaucracy and a slow judicial system continue to create challenges for both foreign and domestic investors.    

There are no laws or practices known to Post that discriminate against foreign investors.  The country has investment promotion agencies to facilitate foreign investments, with “Enterprise Greece” as the official agency of the Greek state.  Under the supervision of the Ministry of Foreign Affairs, Enterprise Greece is responsible for promoting investment in Greece and exports from Greece, and with making Greece more attractive as an international business partner.  Enterprise Greece provides the full spectrum of services related to international business relationships and domestic business development for the international market, including an Investor Ombudsman program for investment projects exceeding EUR 2 million.  The Ombudsman is available to assist with specific bureaucratic obstacles, delays, disputes, or other difficulties that impede an investment project.  

The General Secretariat for Strategic and Private Investments streamlines the licensing procedure for strategic investments, aiming to make the process easier and more attractive to investors. 

Greece has adopted the following EU definitions regarding micro, small, and medium size enterprises:  

• Micro Enterprises:  Fewer than 10 employees and an annual turnover or balance sheet below EUR 2 million. 
• Small Enterprises:  Fewer than 50 employees and an annual turnover or balance sheet below EUR 10 million. 
• Medium-Sized Enterprises:  Fewer than 250 employees and annual turnover below EUR 50 million or balance sheet below  EUR 43 million. 

Numerous structural reforms, undertaken as part of the country’s 2015-2018 international bailout program as well as a part of the current New Democracy administration’s efforts to lower taxes and reduce bureaucracy, aim to welcome and facilitate foreign investment, and the government has publicly messaged its dedication to attracting foreign investment.   The 2019 investment law simplified licensing procedures in order to facilitate investment.  In December 2020, parliament passed a new law allowing non-residents who relocate their jobs to Greece to benefit from half their salary being free of income tax for up to seven years.  The scheme is open to any type of job, any income level and complements other tax incentive schemes put in place, including a non-dom program for wealthy investors and a low flat tax rate for pensioners.  The Trans Adriatic Pipeline (TAP) is another example of the government’s commitment in this area.  In November 2015, the Greek government and TAP investors agreed on measures and began construction on the largest investment project since the start of the financial crisis.  The pipeline began operations in December 2020 and in March 2021, TAP announced that a total of 1 billion cubic meters (bcm) of natural gas from Azerbaijan entered Europe via the Greek interconnection point of Kipoi.  Law 4710/2020 gave a strong push for electro-mobility, with several incentives and subsidies to those interested in acquiring an electric vehicle. The law has paved the way for greater U.S. investment.  For example, Tesla has installed the first pop-up stand along with three electric vehicle (EV) charges at a major Greek shopping mall, while Blink expanded its EV network in Greece.  Additionally, there are directives that have eased the bureaucracy regarding renewable energy source (RES) projects, including establishing a deadline for the issuance of Environmental Terms Approvals (ETAs) of 120 days and limiting the environmental licensing stages to three stages instead of the previous six or seven stages required for companies to abide by.

In the past decade, the country underwent one of the most significant fiscal consolidations in modern history, with broad and deep cuts to public expenditures and significant increases in labor and social security tax rates, which have offset improved labor market competitiveness achieved through significant wage devaluation.  While there has been notable progress, corruption and burdensome bureaucracy continue to create barriers to market entry for new firms, permitting incumbents to maintain oligopolies in different sectors, and creating scope for arbitrary decisions and rent seeking by public servants.  

Limits on Foreign Control and Right to Private Ownership and Establishment  

As a member of the EU and the European Monetary Union (the “Eurozone”), Greece is required to meet EU and eurozone investment regulations.  Foreign and domestic private entities have the legal right to establish and own businesses in Greece; however, the country places restrictions on foreign equity ownership higher than those imposed on average in the other 17 high-income OECD economies, such as equity restrictions on airport operations and limits on foreign ownership in electricity and media.  The government has undertaken EU-mandated reforms in its energy sector, opening much of it to foreign equity ownership.  Restrictions exist on land purchases in border regions and on certain islands because of national security considerations.  Foreign investors can buy or sell shares on the Athens Stock Exchange on the same basis as local investors.  Greece does not maintain an investment screening mechanism.  

Other Investment Policy Reviews 

The government has not undergone an investment policy review by the Organization for Economic Cooperation and Development (OECD), the World Trade Organization (WTO), or United Nations Committee on Trade and Development (UNCTAD) or worked with any other international institution to produce a public report on the general investment climate in the past three years.  However, in July 2020, the OECD published a periodic economic survey describing the state of the economy and addressing foreign direct investment concerns, especially regarding needed reforms in the public sector and judicial system.   In particular, the OECD report lauds the Ministry of Digital Governance’s progress in instituting digital and public administration reforms, and recommends continued effort in this area. 

Business Facilitation  

In 2020, Greece eased processes for starting a business by reducing the time to register a company and removing the requirement to obtain a tax clearance.  Accessing industrial land in Greece is relatively quick, with only three weeks required to lease land from the government.  Private land can be leased in 15 days.  Arbitrating commercial disputes, however, can take almost a year.  Establishing a limited liability company takes approximately four days with three procedures involved, including registering the business, making a company seal, and registering with the Unified Social Security Institution.  Greece’s Ease of Doing Business score in 2020 is 96, for a rank of 11 for starting a business and rank of 79 overall.  Greece is not one of the 37 countries listed on www.businessfacilitation.org.  

Greece’s business registration entity GEMI (General Commercial Register) has the basic responsibility for digitizing and automating the registration and monitoring procedures of commercial enterprises.  More information about GEMI can be found at http://www.businessportal.gr/home/index_en.  The online business registration process is relatively clear, and although foreign companies can use it, the registration steps are currently available only in Greek.  In general, a company must register with the business chamber, tax registry, social security, and local municipality.  Business creation without a notary can be done for specific cases (small/personal businesses, etc.).  For the establishment of larger companies, a notary is mandatory. 

Outward Investment 

The Greek government does not have any known outward investment incentive programs.  Capital controls were eliminated in September 2019.

Enterprise Greece supports the international expansion of Greek companies.  While no incentives are offered, Enterprise Greece has been supportive of Greek companies attending the U.S. Government’s Annual SelectUSA Investment Summit, which promotes inbound investment to the United States, and similar industry trade events internationally. 

Transparency of the Regulatory System 

As an EU member, Greece is required to have transparent policies and laws for fostering competition.  Foreign companies consider the complexity of government regulations and procedures and their inconsistent implementation to be a significant impediment to investing and operating in Greece.  Occasionally, foreign companies report cases where there are multiple laws governing the same issue, resulting in confusion over which law is applicable.  Under its bailout programs, the Greek government committed to widespread reforms to simplify the legal framework for investment, including eliminating bureaucratic obstacles, redundancies, and undue regulations.  The fast-track law, passed in December 2010, aimed to simplify the licensing and approval process for “strategic” investments, i.e. large-scale investments that will have a significant impact on the national economy.  In 2013, Greece’s parliament passed Investment Law 4146/2013 to simplify the regulatory system and stimulate investment.  This law provides additional incentives, beyond those in the fast-track law, available to domestic and foreign investors, dependent on the sector and the location of the investment.

Greece’s tax regime lacked stability during the economic crisis, presenting additional obstacles to investment, both foreign and domestic.  Foreign firms are not subject to discrimination in taxation.  Numerous changes to tax laws and regulations since the beginning of the economic crisis injected uncertainty into Greece’s tax regime.  As part of Greece’s August 2015 bailout agreement, the government converted the Ministry of Finance’s Directorate-General for Public Revenue into a fully independent tax agency effective January 2017, with a broad mandate to increase collection and develop further reforms to the tax code aimed at reducing evasion and increasing the coverage of the Greek tax regime.  The government makes continued efforts to combat tax evasion by increasing inspections and crosschecks among various authorities and by using more sophisticated methods to find undeclared income.  Authorities held monthly lotteries offering taxpayers rewards of EUR 1,000 (USD 1,200) for using credit or debit cards, which are considered more financially transparent, in their daily transactions.

Foreign investment is not legally prohibited or otherwise restricted.  Proposed laws and regulations are published in draft form for public comment before Parliament takes up consideration of the legislation.  The laws in force are accessible on a unified website managed by the government and printed in an official gazette.  Greece introduced International Financial Reporting Standards for listed companies in 2005 in accordance with EU directives.  These rules improved the transparency and accountability of publicly traded companies.

International Regulatory Considerations

Citizens of other EU member state countries may work freely in Greece.  Citizens of non-EU countries may work in Greece after receiving residence and work permits.  There are no discriminatory or preferential export/import policies affecting foreign investors, as EU regulations govern import and export policy, and increasingly, many other aspects of investment policy in Greece.

Greece has been a World Trade Organization (WTO) member since January 1, 1995, and a member of the General Agreement on Tariffs and Trade (GATT) since March 1, 1950.  Greece complies with WTO Trade-Related Investment Measures (TRIMs) requirements.  There are no performance requirements for establishing, maintaining, or expanding an investment.  Performance requirements may come into play, however, when an investor wants to take advantage of certain investment incentives offered by the government.  Greece has not enacted measures that are inconsistent with TRIMs requirements, and the Embassy is not aware of any measures alleged to violate Greece’s WTO TRIMs obligations.  Trade policy falls within the competence and jurisdiction of the European Commission Directorate General for Trade and is generally not subject to regulation by member state national authorities.

Legal System and Judicial Independence

Although Greece has an independent judiciary, the court system is an extremely time-consuming and unwieldy means for enforcing property and contractual rights.  According to the “Enforcing Contracts Indicator” of the World Bank’s ‘Doing Business 2020” survey, Greece ranks 146 among 190 countries in terms of the speed of delivery of justice, requiring 1,711 days (more than four years) on average to resolve a dispute, compared to the OECD high-income countries’ average of 589.6 days.  The government committed, as part of its three bailout packages, to reforms intended to expedite the processing of commercial cases through the court system.  In July 2015, the government adopted significant reforms to the Code of Civil Procedure (Law 4335/2015).  These reforms aimed to accelerate judicial proceedings in support of contract enforcement and investment climate stability and entered into force in January 2016.  Foreign companies report, however, that Greek courts do not consistently provide fast and effective recourse.  Problems with judicial corruption reportedly still exist.  Commercial and contractual laws accord with international norms, and the judicial system remains independent of the executive branch.

Laws and Regulations on Foreign Direct Investment

In 2019 and 2020, Parliament passed several investment-related laws.

In December 2020, Parliament passed Law 4758/2020, which introduced amendments in the current tax legislation regarding special taxation of employment services and business activity income arising in Greece, earned by individuals who transfer their tax residence in Greece.

In October 2019, Parliament passed an economic development bill, Law 4635/2019, aimed at boosting economic recovery in the post-bailout era which entered into force in January 2020.  The bill, called “Invest in Greece and other provisions,” simplifies processes for investors regarding environmental and urban planning regulations, speeding up bureaucratic processes.  The bill also introduces changes to labor union alterations to encourage job creation and reforms the functioning of the General Commercial Registry.

Law 4605/2019 expands the types of investments that qualify an individual for a residence permit, allowing investments in intangible assets.  In particular, capital contribution of at least  EUR 400,000 in a real estate investment company, in a company registered in Greece, in a purchase of state bonds, corporate bonds, or shares, in a venture capital investment company, or in mutual funds, allows the investor and his or her family members a five-year residency permit in Greece.

Law 4608/2019 for strategic investments was approved in April 2019, creating a favorable investment climate by providing various privileges to investors such as tax exemptions and fast track licensing.

Investments in Greece operate under two main laws:  the new Investment Law (4399/2016) that addresses small-scale investments and Law 4146/2013 that addresses strategic investments.  In particular:

Law 4399/2016, entitled “Statutory framework to the establishment of Private Investments Aid Schemes for the regional and economic development of the country” was passed in June 2016.  Its key objectives include the creation of new jobs, the increase of extroversion, the reindustrialization of the country, and the attraction of FDI.  The law provides aids (as incentives) for companies that invest from  EUR 50,000 (Social Cooperative Companies) up to  EUR 500,000 (large sized companies) as well as tax breaks.  The Greek government provides funds to cover part of the eligible expenses of the investment plan; the amount of the subsidy is determined based on the region and the business size.  Qualified companies are exempt from paying income tax on their pre-tax profits for all their activities.  There is a fixed corporate income tax rate and fast licensing procedures.  Eligible economic activities are manufacturing, shipbuilding, transportation/infrastructure, tourism, and energy.  More about this law can be found here: https://www.enterprisegreece.gov.gr/files/pdf/madrid2019/2-Investment-Incentives-Law.pdf.

– Law 4146/2013, entitled the “Creation of a Business-Friendly Environment for Strategic and Private Investments” is the other primary investment incentive law currently in force.  The law aims to modernize and improve the institutional framework for private investments, raise liquidity, accelerate investment procedures, and increase transparency.  It seeks to provide an efficient institutional framework for all investors and speed the approval processes for pending and approved investment projects.  The law created a general directorate for private investments within the Ministry of Development and Investment and reduced the value of investments needed to be considered strategic.  The law also provides tax exemptions and incentives to investors and allows foreign nationals from non-EU countries who buy property in Greece worth over  EUR 250,000 ( USD 285,000) to obtain five-year renewable residence permits for themselves and their families.  In March 2019, the Greek government brought a bill to parliament to expand eligibility criteria of the existing program.

Other investment laws include:

– Law 3908/2011, which provides incentives in the form of tax relief, grants, and allowances on investments, is gradually being phased out by Law 4146 (above).

– Law 3919/2011 aims to liberalize more than 150 currently regulated or closed-shop professions.

– Law 3982/2011 reduced the complexity of the licensing system for manufacturing activities and technical professions and modernized certain qualification and certification requirements to lower barriers to entry.

– Law 4014/2011 simplified the environmental licensing process.

– Law 3894/2010 (also known as fast track) allows Enterprise Greece to expedite licensing procedures for qualifying investments in the following sectors: industry, energy, tourism, transportation, telecommunications, health services, waste management, or high-end technology/innovation.  To qualify, investments must meet one of the following conditions:

• exceed  EUR 100 million;

• exceed  EUR15 million in the industrial sector, operating in industrial zones;
• exceed EUR 40 million and concurrently create at least 120 new jobs; or
• create 150 new jobs, regardless of the monetary value of the investment.

More about fast track licensing of strategic investments can be found online at https://www.enterprisegreece.gov.gr/en/invest-in-greece/strategic-investments

– Law 3389/2005 introduced the use of public-private partnerships (PPP).  This law aimed to facilitate PPPs in the service and construction sectors by creating a market-friendly regulatory environment.

–  Law 3426/2005 completed Greece’s harmonization with EU Directive 2003/54/EC and provided for the gradual deregulation of the electricity market.  Law 3175/2003 harmonized Greek legislation with the requirements of EU Directive 2003/54/EC on common rules for the internal electricity market.  Law 2773/99 initially opened 34% of the Greek energy market, in compliance with EU Directive 96/92 concerning regulation of the internal electricity market. i

– Law 3427/2005, which amended Law 89/67, provides special tax treatment for offshore operations of foreign companies established in Greece.  Special tax treatment is offered only to operations in countries that comply with OECD tax standards.

– Law 2364/95 and supporting amendments govern investment in the natural gas market in Greece.

– Law 2289/95, which amended Law 468/76, allows private (both foreign and domestic) participation in oil exploration and development.

– Law 2246/94 and supporting amendments opened Greece’s telecommunications market to foreign investment.

– Legislative Decree 2687 of 1953, in conjunction with Article 112 of the Constitution, gives approved foreign “productive investments” (primarily manufacturing and tourism enterprises) property rights, preferential tax treatment, and work permits for foreign managerial and technical staff.  The Decree also provides a constitutional guarantee against unilateral changes in the terms of a foreign investor’s agreement with the government, but the guarantee does not cover changes in the tax regime.

Competition and Anti-Trust Laws

Under Articles 101-109 of the Treaty on the Functioning of the EU, the European Commission (EC), together with member state national competition authorities, directly enforces EU competition rules.  The EC Directorate-General for Competition carries out this mandate in member states, including Greece.  Greece’s competition policy authority rests with the Hellenic Competition Commission, in consultation with the Ministry of Economy.  The Hellenic Competition Commission protects the proper functioning of the market and ensures the enforcement of the rules on competition.  It acts as an independent authority and has administrative and financial autonomy.

Expropriation and Compensation

Private property may be expropriated for public purposes, but the law requires this be done in a nondiscriminatory manner and with prompt, adequate, and effective compensation.  Due process and transparency are mandatory, and investors and lenders receive compensation in accordance with international norms.  There have been no expropriation actions involving the real property of foreign investors in recent history, although legal proceedings over expropriation claims initiated, in one instance, over a decade ago, continue to work through the judicial system.

Dispute Settlement

ICSID Convention and New York Convention

Greece is a member of both the International Center for the Settlement of Investment Disputes (ICSID) and the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York convention).

Investor-State Dispute Settlement

Greece accepts binding international arbitration of investment disputes between foreign investors and the Greek government, and foreign firms have found satisfaction through arbitration.  International arbitration and European Court of Justice judgments supersede local court decisions.  The judicial system provides for civil court arbitration proceedings for investment and trade disputes.  Although an investment agreement could be made subject to a foreign legal jurisdiction, this is not common, particularly if one of the contracting parties is the Greek government.  Foreign court judgments are accepted and enforced, albeit slowly, by the local courts.

In an effort to create a more investor-friendly environment, the government established in 2017 an Investor’s Ombudsman service.  The Ombudsman is authorized to mediate disputes that arise between investors and the government during the licensing procedure.  Investors can employ the Ombudsman, housed within Enterprise Greece, with projects exceeding  EUR 2 million in value.  More info on the Ombudsman service can be found here: https://www.enterprisegreece.gov.gr/en/invest-in-greece/ombudsman

International Commercial Arbitration and Foreign Courts

The two main alternative dispute resolution mechanisms in Greece are domestic and international commercial arbitration or mediation.  Domestic arbitration is governed under the Code of Civil Procedure (CCP), and mediation is governed under The Mediation Act, Law 3898/2010, modeled after the UNCITRAL Model Law.  Greece recognizes foreign judgments under articles 323 and 780 of the CCP and articles 15-21 of Law 3858/2010.

Bankruptcy Regulations

Bankruptcy laws in Greece meet international norms.  Under Greek bankruptcy law 3588/2007, private creditors receive compensation after claims from the government and insurance funds have been satisfied.  Monetary judgments are usually made in euros unless explicitly stipulated otherwise.  Greece has a reliable system of recording security interests in property.  According to the World Bank’s 2020 Doing Business report, resolving insolvency in Greece takes 3.5 years on average and costs nine percent of the debtor’s estate, with the most likely outcome that the company will be sold piecemeal.  Recovery rate is 32 cents on the dollar.  Greece ranks 72 of 190 economies surveyed for ease of resolving insolvency in the Doing Business report (from 62 in 2019).

Capital Markets and Portfolio Investment

Following EU regulations, Greece is open to foreign portfolio investment.  Law 3371/2005 sets an effective legal framework to encourage and facilitate portfolio investment.  Law 3283/2004 incorporates the European Council’s Directive 2001/107, setting the legal framework for the operation of mutual funds.  The Bank of Greece complies with its IMF Article VIII obligations and does not generally impose restrictions on payments.  Transfers for current international transactions are allowed but are subject to specific conditions for approval.  The lack of liquidity in the Athens Stock Exchange along with the challenging economic environment have hindered the allocation of credit but is accessible to foreign investors on the local market, who also have access to a variety of credit instruments.

Money and Banking System

Greece’s banking system will not be generally considered “healthy” and able to allocate funding to domestic firms that need it the most until its major banks adequately deal with the large amounts of non-performing loans (NPLs) on their balance sheets.

In November 2015, following an Asset Quality Review and Stress Test conducted by the ECB as a requirement of the 2015 ESM agreement, a third recapitalization of Greece’s four systemic banks (National Bank of Greece, Piraeus Bank, Alpha Bank, and Eurobank) took place.  The recapitalization concluded with the banks remaining in private hands, after raising  EUR6.5 billion from foreign investors, mostly hedge funds.  In September 2020, the ratio of NPLs decreased to 35.8%, down from 40.6% in December 2019.  Banks estimate that about 20% of non-performing exposures (NPEs) are owned by so-called “strategic defaulters” – borrowers who refrain from paying their debts to lenders to take advantage of the laws enacted during the financial crisis to protect borrowers from foreclosure or creditors’ collection even though they are able to pay their obligations.

Developing an effective NPL reduction strategy has been among the most difficult challenges for the Greek economy.  Greek banks’ NPL ratio, at 35.8%, remains the highest in the eurozone, well over the European average of around 3%.  Under the terms of the ESM agreement, Greece remains obliged to create an NPL market through which the loans could, over time, be sold or transferred for servicing purposes to foreign investors.  The Bank of Greece has licensed more than ten servicers, and the sale and securitization environment for non-performing loans continues to mature, with all of Greece’s systemic banks having conducted portfolio sales of secured and unsecured loan tranches since mid-2017.  The potential sale and/or transfer of Greek NPLs continues to receive interest by many Greek and foreign companies and funds, signaling a viable market.  The Greek state operates an auction platform for collateral and foreclosed assets, although the bulk of auctions still conclude with the selling bank as the purchaser of the assets.  The government introduced its “Hercules” asset protection scheme in late 2019, providing guarantees to banks as an incentive to securitize EUR 30 billion more in NPLs.  The plan offloads bad debt by wrapping it into asset backed securities via special purpose vehicles that will purchase the NPLs.  The sales are financed by notes issued by the special purpose vehicles with a government guarantee for senior tranches, thereby limiting the risk to the Greek state.  Since all four systemic banks have availed themselves of the plan, the Greek government submitted an official request for an extension of the Hercules scheme on March 16, 2021 that will permit banks to further reduce non-performing loans (NPLs) in 2021 and 2022.

Poor asset quality inhibits banks’ ability to provide systemic financing, although the situation is slowly improving.  The annual growth rate of total deposits increased to 8.5% in 2020.   Deposits increased by roughly EUR 9 billion over 2019, up from around EUR 200 billion in early 2019, a significant improvement from the crisis years, when deposits shrunk from their highest level of EUR237 billion in September 2009 to around EUR123 billion in September 2017.  Greece’s systemic banks held the following assets at the end of 2020:  Piraeus Bank, EUR71.6 billion; National Bank of Greece, EUR64.3 billion; Alpha Bank, EUR70 billion; and Eurobank, EUR67.7 billion.

Few U.S. financial institutions have a retail presence in Greece.  In September 2014, Alpha Bank acquired the retail operations of Citibank, including Diners Club.  Bank of America serves only companies and some special classes of pensioners.

There are a limited number of cross-shareholding arrangements among Greek businesses.  To date, the objective of such arrangements has not been to restrict foreign investment.  The same applies to hostile takeovers, a practice which has been recently introduced in the Greek market.  The government actively encourages foreign portfolio investment.

Greece has a reasonably efficient capital market that offers the private sector a wide variety of credit instruments.  Credit is allocated on market terms prevailing in the eurozone and credit is equally accessible by Greek and foreign investors.  An independent regulatory body, the Hellenic Capital Market Commission, supervises brokerage firms, investment firms, mutual fund management companies, portfolio investment companies, real estate investment trusts, financial intermediation firms, clearing houses and their administrators (e.g. the Athens Stock Exchange), and investor indemnity and transaction security schemes (e.g. the Common Guarantee Fund and the Supplementary Fund), and also encourages and facilitates portfolio investments.

Owner-registered bonds and shares are traded on the Athens Stock Exchange (ASE).  It is mandatory in Greece for the shares of banking, insurance, and public utility companies to be registered.  Greek corporations listed on the ASE that are also state contractors are required to have all their shares registered.

Greece has not announced that it intends to implement or allow the implementation of blockchain technologies in its banking transactions.

Foreign Exchange and Remittances

Foreign Exchange

Greece’s foreign exchange market adheres to EU rules on the free movement of capital.  Although the government imposed capital controls in 2015, at the height of the crisis, on September 1, 2019, all capital controls were removed.  Greece is a member of the eurozone, which employs a freely floating exchange rate.  Greece is not engaged in currency manipulation for the purpose of gaining a competitive advantage.

Remittance Policies

On September 1, 2019, all capital controls were removed.

Sovereign Wealth Funds

There are no sovereign wealth funds in Greece.  Public pension funds may invest up to 20% of their reserves in state or corporate bonds.

Greek state-owned enterprises (SOEs) are active in utilities, transportation, energy, media, health, and the defense industry.  There is no official website with a list of SOEs.

Bank of Greece: partially-owned (Greek state shares cannot exceed 35%); over 1,800 employees; governed by a Governor appointed by the government

Public Gas Corporation of Greece (DEPA): majority-owned by Greek state (65%); Net income EUR131 million in 2016; Total assets EUR3.1 billion in 2016; governed by Ministry of Development; Government is in the process of splitting the company and privatizing its infrastructure and commercial operations.

Hellenic Aerospace Industry: wholly-owned; Total assets EUR932.5 million in 2014; Net income EUR13.7 million in 2014; over 1,300 employees

Hellenic Financial Stability Fund: governed by General Council and Executive Board

Hellenic Post: majority-owned (90% by Greek state); Net income EUR15.5 million in 2017

Hellenic Vehicle Organization: majority-owned (51% owned by Greek state); around 400 employees; Total assets around EUR69 million; governed by Board of Directors

Water Supply and Sewerage Company (EYDAP): majority-owned (34% by Greek state); governed by Board of Directors

Public Power Corporation: majority-owned (51% by Greek state); Total assets EUR14.1 billion in 2018; over 16,700 employees

Most Greek SOEs are structured under the auspices of the Hellenic Corporation for Assets and Participations (HCAP), an independent holding company for state assets mandated by Greece’s 2015 bailout and formally launched in 2016.  HCAP’s supervisory board is independent from the Greek state and is appointed in part by Greece’s creditor institutions.  Some SOEs are still supervised by the Finance Ministry’s Special Secretariat for Public Enterprises and Organizations, established by Law 3429/2005.  Private companies previously were not allowed to enter the market in sectors where the SOE functioned as a monopoly, such as water, sewage, or urban transportation.  However, several of these SOEs are planned for privatization as a requirement of the country’s bailout programs, intended to liberalize markets and raise revenues for the state.

Official government statements on privatization since 2015 have sometimes led to confusion among investors.  Some senior officials have declared their opposition to previously approved privatization projects, while other officials have maintained the stance that the government remains committed to the sale of SOEs.  The current government has expressed its commitment and is moving forward with privatizations, including DEPA and some of the port assets.  Under the bailout agreement, Greece has moved forward with the deregulation of the electricity market, adopting the Target Model in November 2020.  In sectors opened to private investment, such as the telecommunications market, private enterprises compete with public enterprises under the same nominal terms and conditions with respect to access to markets, credit, and other business operations, such as licenses and supplies.  Some private sector competitors to SOEs report the government has provided preferential treatment to SOEs in obtaining licenses and leases.  The government actively seeks to end many of these state monopolies and introduce private competition as part of its overall reform of the Greek economy.  Greece – as a member of the EU – participates in the Government Procurement Agreement within the framework of the WTO.  SOEs purchase goods and services from private sector and foreign firms through public tenders.  SOEs are subject to budget constraints, with salary cuts imposed in the past few years on public sector jobs.

Privatization Program

The Hellenic Republic Asset Development Fund (HRADF, or TAIPED in Greek), an independent non-governmental privatization fund, was established in 2011 under Greece’s bailout program to manage the sale or concession of major government assets, to raise substantial state revenue, and to bring in new technology and expertise for the commercial development of these assets.  These include listed and unlisted state-owned companies, infrastructure, and commercially valuable buildings and land.  Foreign and domestic investor participation in the privatization program has generally not been subject to restrictions, although the economic environment during the crisis and subsequent pandemic has challenged the domestic private sector’s ability to raise funds to purchase firms slated for privatization.

The August 2015 ESM bailout agreement required Greece to consolidate the HRADF, the Hellenic Financial Stability Fund (HFSF), the Public Properties Company (ETAD), and a new entity that will manage other state-owned enterprises (SOEs) into the Hellenic Corporation of Assets and Participations (or HCAP), formed by Law 4389/2016.  In March 2017, HCAP received short- and long-term guidelines from the Minister of Finance, and in September 2017, it received strategic guidelines from the Greek state (HCAP’s sole shareholder).

Privatizations are subject to a public bidding process, which is easy to understand, non-discriminatory, and transparent.  Notable privatizations recently completed include the transfer of the 66% of Greece’s gas transmission system operator DESFA to Senfluga Energy Infrastructure Holdings, the sale of 67% of the shares of Thessaloniki Port Authority, the sale of the remaining 5% of the largest telecommunications provider shares to Deutsche Telecom, and rolling stock maintenance and railroad availability services company Rosco.

In February 2019, the government concluded the 20-year extension of the concession agreement of the Athens International Airport, worth EUR1.4 billion euros, and received nine expressions of interest in January 2020 for a 30% stake.  The extension allowed for launch of the tender for the sale of the 30% stake in the airport. In January 2020, the Hellenic Republic Asset Development Fund (HRADF) shortlisted nine parties (from 10 that have originally expressed interest) that were qualified for the next phase of the tender; the binding offers. However, with the arrival of the pandemic in Greece (February-March 2020), and the dramatic drop in the airport operations/revenues, the HRADF has decided to freeze the whole process indefinitely.  In January 2020, the government of Greece launched the legal procedures necessary for privatization of ten regional ports, including Heraklion, Elefsina, and Alexandroupolis, which will be privatized through either partial concession deals or full management schemes.  In January 2021, the European Commission gave the Ministry of Infrastructure and Transportation the approval to proceed with the construction of a road network linking the town of Trikala with the main Egnatia Motorway.  In July 2020, the HRDF proceeded with two tenders for the privatization of the ports of Alexandroupoli and Kavala, that were deemed as more mature projects. In October of the same year six parties (in total) have expressed interest for both ports. In March 2021, the HRADF announced that five parties have been qualified for the binding offers phase of the tenders including two US companies (Quintana Infrastructure & Development, and Black Summit Financial Group).  The project is budgeted at EUR442 million and is expected to promote the energy, economic and tourism development of Central Greece, Thessaly, and Western Macedonia. In March 2020, the commercial operations of DEPA received nine non-binding bids for its sale of a 65% stake.  Hellenic Petroleum maintains the other 35%.  The Public Power Corporation continues to consider the partial privatization of its power distribution operator.  Finally, the Hellenic Gaming Commission awarded a casino operating license to Mohegan Gaming & Entertainment and its Greek partner GEK Terna in January 2020 for an EUR8 billion euro project to develop Athens’ former airport site at Hellinkon into a multi-purpose complex.  The project is expected to begin construction in 2022 after the required permits are issued.

There have been no major terrorist incidents in Greece in recent years; however, domestic groups conduct intermittent small-scale attacks such as targeted package bombs, improvised explosive devices, and unsophisticated incendiary devices (Molotov cocktails) typically targeting properties of political figures, party offices, privately owned vehicles, ministries, police stations, and businesses. In addition, domestic anarchist groups often carry out small-scale attacks targeting government buildings and foreign missions.  Bilateral counterterrorism cooperation with the Greek government remains strong, and support from the Greek security services with respect to the protection of American interests is excellent.  Demonstrations and protests are commonplace in large cities in Greece. While most of these demonstrations and strikes are peaceful and small-scale, they often cause temporary disruption to essential services and traffic, and anarchist groups are known in some cases to attach themselves to other demonstrations to create mayhem.

The masterminds of Greece’s most notorious terrorist groups are currently imprisoned, including leaders of November 17 and Revolutionary Popular Struggle, active between the 1970s and 1990s and responsible for hundreds of attacks and murders.  Greek authorities largely eliminated these groups in advance of the 2004 Olympic Games.  Following the Olympics, a new wave of organizations emerged, including Revolutionary Struggle, Conspiracy of Fire Nuclei, and Sect of Revolutionaries, though authorities rounded up these groups in a wave of arrests between 2009 and 2011, and again in 2014.

Domestic terrorist groups include “OLA,” also known as the Group of Popular Fighters or Popular Fighters Group, which claimed responsibility for the December 2018 bomb outside a private television station and the December 2017 bomb outside an Athens courthouse.  OLA also claimed responsibility for the November 2015 bomb attack at the offices of the Hellenic Federation of Enterprises, which caused extensive damage to the offices and surrounding buildings, the December 2014 attack on the Israeli embassy in Athens, which resulted in no injuries and minor damage to the building, and the attack on the German Ambassador’s residence in Athens in December 2013.  OLA also claimed responsibility for an indirect fire attack on a Mercedes-Benz building on January 12, 2014, and an attack in January 2013 against the headquarters of the then-governing New Democracy party in Athens.

Please note that the following tables include FDI statistics from three different sources, and therefore will not be identical.  Table 2 uses BEA data when available, which measures the stock of FDI by the market value of the investment in the year the investment was made (often referred to as historical value).  This approach tends to undervalue the present value of FDI stock because it does not account for inflation.  BEA data is not available for all countries, particularly if only a few U.S. firms have direct investments in a country.  In such cases, Table 2 uses other sources that typically measure FDI stock in current value (or historical values adjusted for inflation).  Even when Table 2 uses BEA data, Table 3 uses the IMF’s Coordinated Direct Investment Survey (CDIS) to determine the top five sources of FDI in the country.  The CDIS measures FDI stock in current value, which means that if the U.S. is one of the top five sources of inward investment, U.S. FDI into the country will be listed in this table.  That value will come from the CDIS and therefore will not match the BEA data.

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

* Source for Host Country Data: https://www.bankofgreece.gr/en/statistics/external-sector/direct-investment/direct-investment—stocks

Table 3: Sources and Destination of FDI

The results are consistent with host country data found here: https://www.bankofgreece.gr/en/statistics/external-sector/direct-investment/direct-investment—stocks

Table 4: Sources of Portfolio Investment

The results are consistent with host country data.

Policies Towards Foreign Direct Investment

Grenada employs a liberal approach to foreign direct investment (FDI) and actively promotes foreign investment into the country.

The government of Grenada identified five priority sectors for investment:

• Tourism and hospitality services
• Education and health services
• Information and communication technology
• Agribusiness
• Energy development

The Grenada Investment Development Corporation (GIDC) is the country’s investment promotion agency. It was established in 1985 to stimulate, facilitate, and encourage the creation and development of industry.

The GIDC is a “one-stop shop” offering:

• Investment and trade information
• Investment incentives
• Investment facilitation and aftercare
• Entrepreneurial/business skills training
• Small business support services
• Industrial facilities
• Policy advice

To promote FDI, the GIDC adopts a targeted approach to promote investment opportunities, provides investor facilitation and entrepreneurial development services, and advocates for a supportive environment for investors to develop and grow businesses, trade, and industries.

Investment retention is a priority in Grenada and is maintained through ongoing dialogue with investors facilitated by the GIDC.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are no economic and industrial strategies that discriminate against foreign investors. Non-Grenadian investors may be required to obtain an Alien Landholding License and pay a property transfer tax, which levies a 10 percent fee on the purchase of shares in a Grenadian registered company or real estate. In addition, the sale of such shares or real estate to non-nationals will attract a property transfer tax of 15 percent payable by the seller if the seller is a non-Grenadian. Foreign investors employed in Grenada are required to obtain a work permit, renewable annually. U.S. investors must pay a fee of USD $1,111 or XCD $3,000 for work permits. The renewal fee varies based on the investor’s country of citizenship.

There are no limits on foreign ownership or control, except for enterprises deemed prejudicial to national security, the environment, public health, or national culture, or which contravene the laws of Grenada. Grenada has accepted but not yet implemented regional anti-competition obligations. U.S investors are not disadvantaged or singled out by any of the ownership or control mechanisms, sector restrictions, or investment screening mechanisms in Grenada relative to other foreign investors.

Other Investment Policy Reviews

Grenada passed its most recent Investment Promotion Act in 2014. The legislation promotes, encourages, and protects investment in Grenada by providing investors with a stable framework of fundamental and enforceable rights. It seeks to guarantee and ensure security and fairness in strict accordance with the rule of law and best international standards and practices. The 2014 Act is also in compliance with WTO regulations, the Economic Partnership Agreement (EPA) between the EU and the Caribbean Community (CARICOM), and the Agreement between the Caribbean Forum (CARIFORUM) and the EU.

The incentives regime enacted in 2016 grants incentives to ensure that all new tax exemptions are codified, restricts discretionary exemptions, and requires that the beneficiaries of exemptions file appropriate tax returns and comply with tax requirements. It also sets streamlined, simple, and non-discretionary system/process for the granting of incentives. The Customs and Inland Revenue Departments (CIRD) administer exemptions through a clearly defined rule-based system in contrast with past incentive schemes that required each case to be approved at the cabinet level.

Under this regime, the CIRD grants incentives to projects within the priority sectors for investment. They are tourism, manufacturing, agriculture and agribusiness, information technology services, telecommunication providers and business process outsourcing operations, education and training, health and wellness, creative industries, energy, and research and development. Other sectors also include student accommodation, heavy equipment operators, investment projects above particular investment thresholds, and projects within specific geographical locations.

The incentive regime seeks to provide investment incentives on a performance basis (i.e., the more one invests, the more incentives one can receive). Therefore, based on the level of investment, CIRD grants different levels of incentives in a transparent, predictable, and non-discriminatory manner.

In the past three years, the government was not subject to third-party investment policy reviews through multilateral organizations such as the Organization for Economic Cooperation and Development (OECD), the WTO, and the UN Conference on Trade and Development.

Business Facilitation

An investor must register a business name and identify whether it is a partnership or limited liability company. A registered business can be wholly owned or a joint venture. The official website of the GIDC includes an investor’s guide that details the procedures for starting and operating a business in Grenada. The guide has a business procedure flow chart and gives step-by-step instructions for various tasks from registering a business and owning properties to obtaining permits and licenses. Detailed information on business registration and timelines can be found at: http://grenadaidc.com/investor-centre/investors-guide/starting-up-a-business/#.WKxXdfnQe70 

The GIDC provides business facilitation mechanisms and ensures the equitable treatment of women and underrepresented minorities in the economy.

Outward Investment

The government of Grenada does not promote or incentivize outward investment. The Revised Treaty of Chaguaramas, to which Grenada is a party, includes a chapter on service agreements under the European Partnership Agreement (EPA). Under certain circumstances, provisions in these agreements may offer incentives to the potential investor. Grenada does not restrict domestic investors from investing abroad.

Transparency of the Regulatory System

Grenada recognizes that investors value transparent rules and regulations dealing with investment.

The Investment Act and the investment promotion regime promote transparency by authorizing investment incentives to key sectors through the GIDC. This helps to streamline processes, standardize treatment of investors, and better define investment rights. It also provides procedural guarantees and reduces the possibility for political influence in business negotiation.

Grenada also seeks to promote investment by consulting with interested parties, simplifying and codifying legislation, using plain language drafting, developing registers of existing and proposed regulation, expanding electronic dissemination of regulatory material, and publishing and reviewing administrative decisions.

Tax, labor, environment, health and safety, and other laws or policies do not distort or impede investment. In theory, bureaucratic procedures, including those for licenses and permits, are sufficiently streamlined and transparent. In practice, local authorities recognize that the implementation of procedures can sometimes be slow and inefficient.

Legal, regulatory, and accounting systems are generally transparent and consistent with international norms. Public finances and debt obligations, including explicit and contingent liabilities, are also transparent and in keeping with international requirements.

No new regulatory systems and enforcement reforms have been announced since the last ICS report.

International Regulatory Considerations

Grenada has been a member of the WTO since 1996 and is a party to agreements established under the organization. In pursuit of WTO compliance, Grenada is in the process of negotiating trade and investment agreements that contain provisions better aligned with the provisions of the WTO. Grenada is a member of CARICOM and the CARICOM Single Market Economy (CSME), which adheres to the international norms and regulatory standards outlined by the WTO. Also, in keeping with WTO regulations the government notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade.

Legal System and Judicial Independence

The Prime Minister and the cabinet have the executive authority to negotiate and sign international agreements and conventions with other states and international organizations.

Grenada’s judicial system is based on English common law. The judiciary has four levels: The Magistrates Court, the High Court, the Eastern Caribbean Supreme Court, and the UK-based Privy Council.

The Magistrates Court primarily handles minor civil and criminal cases, while the High Court adjudicates cases under the purview of the Acts of Parliament. Appeals from the Magistrates Court are heard by the High Court, while appeals from the High Court are heard by the Eastern Caribbean Supreme Court. The Eastern Caribbean Supreme Court is comprised of the Chief Justice, who serves as the Head of the Judiciary; four Justices of Appeal; nineteen High Court Judges; and three Masters, who are primarily responsible for procedural and interlocutory matters. The Court of Appeal judges are based at the Court’s headquarters in Saint Lucia.

The Privy Council serves as Grenada’s final Court of Appeal. However, the Caribbean Court of Justice (CCJ) has compulsory and exclusive jurisdiction under Section 211 of the Revised Treaty of Chaguaramas, to which Grenada is a party. The Treaty delineates rights and responsibilities within CARICOM to hear and decide disputes concerning the interpretation and application of the Treaty.

The judicial system remains independent of the executive branch, and judicial processes are generally competent, fair, and reliable, however the process can be slow. Provisions are also made for appeals with the relevant court. Grenadian law also provides for the use of arbitration and mediation to resolve investment disputes.

Laws and Regulations on Foreign Direct Investment

The economy is supported by a strong legislative and regulatory framework that encourages FDI and promotes investment initiatives. Grenada augmented the investment climate with a revitalization of its Citizenship by Investment (CBI) program.

In 2016 parliament passed several legislative changes to enhance the investment climate in Grenada. Changes were made to the following Acts:

• Value Added Tax Amendment Act – Provides for VAT exemptions for qualifying investments in priority sectors.
• Excise Tax Amendment Act – Provides for tax incentives for investors engaged in manufacturing and investors entitled to conditional duties exemptions for motor vehicles.
• Property Transfer Tax Amendment Act – Establishes more favourable rates of property transfer tax for investors.
• Customs Service Charge Amendment Act – Removes the discretionary power of cabinet to prescribe varying rates of customs service charge (CSC) and to prescribe a new rate of CSC applicable to investors engaged in manufacturing.
• Investment Amendment Act – Provides for specified circumstances under which the Minister of Finance may make regulations under the Principal Act.
• Bankruptcy and Insolvency Amendment Act – Modernized the law relating to bankruptcy and insolvency of individuals and companies. The act is based on the Canadian Bankruptcy and Insolvency Act, which has been used as a model in several Caribbean countries.
• Income Tax Amendment Act – Provides for a waiver on withholding tax applicable on specified types of repatriated funds relating to investors engaged in tourism accommodation or health and wellness.

The GIDC and the Inland Revenue and Customs Department of Grenada work to ensure adherence to the rule of law and to facilitate the procedures outlined in the revised investment regime. The legal and regulatory framework governing foreign direct investment in Grenada is described here: http://grenadaidc.com/ 

Competition and Antitrust Laws

There are no competition laws in Grenada. A number of CARICOM and Organization of Eastern Caribbean States (OECS) proposals on competition are under consideration to strengthen market regimes under the CARICOM Single Market and Economy. CARICOM established a Competition Commission and plans are underway to establish a sub-regional Eastern Caribbean Competition Commission.

Expropriation and Compensation

According to the Constitution, Grenada shall not compulsorily acquire or take possession of any investment or any asset of an investor except for a purpose which is legal and non-discriminatory. If the government expropriates property for a legal purpose, it must promptly pay adequate and effective compensation. Owners of expropriated assets have the right to file claims in the High Court regarding the amount of compensation or ownership of the expropriated asset.

In 2016, parliament repealed the 1994 Electricity Supply Act and opened the market to potential investors who will commit to transition to alternative sources of power generation, decreasing costs, reducing dependence on imported fossil fuels, and improving energy efficiency. This repealed the exclusive license that was granted to the country’s sole electricity provider Grenada Electricity Services (GRENLEC) and its majority shareholder, U.S.-owned WRB Enterprises. This regulatory change triggered a clause in the Share Purchase Agreement requiring Grenada to repurchase the GRENLEC shares from WRB. WRB filed a request for arbitration with ICSID, and the Grenada government was ordered to pay $74 million to the U.S. investors following a March 2020 ruling. A negotiated sum of $63 million was paid to WRB Enterprises in December 2020.

In the past, Grenadian citizens had their lands expropriated to permit foreign investments but were compensated for such actions typically at the market value. There are no sectors at greater risk of expropriation, and there are no laws requiring local ownership. All expropriations have been subject to due process.

Dispute Settlement

ICSID Convention and New York Convention

Grenada is a signatory and contracting member of the International Center for Settlement of Investment Disputes and has engaged this platform to resolve past disputes. While Grenadian laws have adapted the provisions outlined in the New York Convention, the country is not a contracting state and has not ratified the convention.

Investor-State Dispute Settlement

There was an investment dispute between the government of Grenada and U.S.-owned WRB Enterprises, which was the majority shareholder in Grenada Electricity Services Ltd. In 2016, parliament repealed the 1994 Electricity Supply Act and opened the market to potential investors, which put an end to WRB’s 80-year exclusive license. This triggered a clause in the share purchase agreement requiring Grenada to repurchase the shares. The case was brought to arbitration before ICSID. On March 19, 2020, ICSID ruled in favor of WRB Enterprises. Grenada was ordered to pay $74 million for the shares, and a negotiated $63 million was paid in December 2020. There is no history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

In the event of an investment dispute between two foreign parties, between a foreign investor(s) and Grenadian parties, between Grenadian partners, or between investors and the government of Grenada, Grenadian law mandates that the parties shall first seek to settle their differences through consultation or mediation. If the parties fail to resolve the matter, they may then submit their dispute to arbitration, file a lawsuit in Grenadian courts, invoke the jurisdiction of the Caribbean Court of Justice, or adopt such other procedures as provided for in the Articles of Association of the investment enterprise.

There is no government interference in the court system. Grenada participates in a court-connected mediation mechanism that can be accessed through the Mediation Centre. This Centre extends court-connected mediation to all member states of the OECS and allows for civil actions filed in court to be referred to mediation. Through this system, parties can utilize alternative dispute resolution mechanisms, including mediation, if the court deems them to be appropriate mechanisms for resolving the case.

Court-connected mediation, however, cannot be used in family proceedings, insolvency, non-contentious probate proceedings, proceedings when the High Court is acting as a prize court, and any other proceeding in the Supreme Court.

Bankruptcy Regulations

Grenada ranked 168 out of 190 for ease of resolving insolvency in the World Bank’s Doing Business Report for 2020, the same ranking it received in 2019.

The Bankruptcy Act makes provisions for all aspects of bankruptcy and sets out procedures for creditors to apply to the High Court for a bankruptcy order against a debtor and the appointment of a trustee in bankruptcy. There are provisions for the court to appoint an interim receiver pending the outcome of the application for a bankruptcy order. It also includes provisions for a process whereby an insolvent person, with leave of the court, may make an assignment of the insolvent person’s property for the general benefit of creditors of the insolvent person.

The High Court exercises exclusive jurisdiction in matters related to bankruptcy.

Capital Markets and Portfolio Investment

Grenada possesses a robust legislative and policy framework that facilitates free flow of financial resources. Its currency, the Eastern Caribbean dollar, has a fixed exchange rate established by the regional Eastern Caribbean Central Bank (ECCB). Foreign employees of investment enterprises and their families may repatriate their earnings after paying personal income tax and all other taxes due. The government of Grenada encourages foreign investors to seek investment capital from financial institutions chartered outside Grenada due to the short domestic supply of capital. Foreign investors are more likely to tap local financial markets for working capital. The government, local banks, and the ECCB respect IMF Article VIII by refraining from restrictions on payments and transfers for current international transactions.

The private sector has access to the limited number of credit instruments. Grenadian stocks are traded on the Eastern Caribbean Securities Exchange, whose limited liquidity may pose difficulties in conducting transactions.

Money and Banking System

The financial industry in Grenada is regulated by two entities: The ECCB and the Grenada Authority for Regulation of the Financial Industry (GARFIN). The ECCB regulates the banking system. GARFIN oversees non-banking financial institutions through a regulatory system that encourages and facilitates portfolio investment. The estimated total assets of the largest banks are USD $1.03 billion. Information on the percentage of non-performing assets is not available. Grenada has not experienced cross-shareholding or hostile takeovers. As of November 30, 2020, commercial banks in Grenada deferred debt service on 4,069 commercial bank loans due to job losses and a reduction in salaries caused by the COVID-19 pandemic. This was the second highest number of deferrals in the Eastern Caribbean Currency Union (ECCU).

Foreign banks or branches can establish operations in Grenada subject to prudential measures and regulations governed by the ECCB. For the requirements and procedures, foreign banks can refer to the following website: https://www.eccb-centralbank.org/p/grenada-1 

There is correspondent banking available with all licensed commercial banks. No correspondent banking relationships have been lost in the past three years. There are no restrictions on a foreigner’s ability to establish a bank account.

In addition to the banking sector, there are alternative financial services provided through credit unions. GARFIN regulates credit unions.

Foreign Exchange and Remittances

Foreign Exchange

Grenada’s currency is the Eastern Caribbean dollar issued by the ECCB located in Saint Kitts and Nevis. The exchange rate is also determined by the ECCB. The Eastern Caribbean dollar is pegged to the U.S. dollar at 2.7, adding to the stability of trade and investment in Grenada. The national currency rate does not fluctuate.

There are no restrictions or limitations placed on foreign investors in converting, transferring, or repatriating funds associated with investments. Funds associated with any form of investment can be freely converted. Banks reserve the right to delay transactions if deemed suspicious or outside the typical level of activity on the account.

Remittance Policies

There are no difficulties or delays regarding remittances and no proposed policy changes that would either tighten or relax access to foreign exchange for investment remittances.

Transfers of currency are protected by Article VII of the International Monetary Fund Articles of Agreement. Grenada is also a member of the Caribbean Financial Action Task Force.

Sovereign Wealth Funds

Grenada does not have a sovereign wealth fund.

Grenadian state-owned enterprises (SOEs) are legislatively established by acts of Parliament. These enterprises all have boards of directors appointed by the government and answerable to the relevant ministries. Twenty-five of the 28 authorized SOEs are operational. They secure credit on commercial terms from commercial banks. SOEs submit annual reports to the Government Audit Department and are subject to audits shared with their parent ministries. SOEs manage transportation infrastructure (ports and airports), housing, education, hospitals, cement production, investment promotion, and small business development, among other functions. Generally, where they compete with the private sector, they do so on an equal basis.

Grenada, like its neighbors, acknowledges the OECD guidelines. Corporate governance of SOEs is established and regulated by founding statutes. Local courts show no favoritism toward SOEs in the adjudication of investment disputes.

For additional information on SOEs in Grenada see: http://www.oecd.org/countries/grenada/ 

Privatization Program

Grenada does not have a privatization program.

Grenada has a stable parliamentary representative democracy free from political violence.

* Source for Host Country Data: Government of Grenada, Ministry of Finance Statistics Division – https://www.finance.gd/, and the Eastern Caribbean Central Bank – https://www.eccb-centralbank.org/statistics/gdp-datas/comparative-report/1

Policies Towards Foreign Direct Investment

The Guatemalan government continues to promote investment opportunities and work on reforms to enhance competitiveness and the business environment. As part of the government’s efforts to promote economic recovery during and after the COVID-19 pandemic, the Ministry of Economy (MINECO) began implementing an economic recovery plan, which focuses on recovering lost jobs and generating new jobs, attracting new strategic investment, and promoting consumption of Guatemalan goods and services locally and globally. Private consultants contributed to the government’s September 2020 economic recovery plan, which focuses on increasing exports and attracting foreign direct investment.

Guatemala’s investment promotion office operates within MINECO´s National Competitiveness Program (PRONACOM). PRONACOM supports potential foreign investors by offering information, assessment, coordination of country visits, contact referrals, and support with procedures and permits necessary to operate in the country. Services are offered to all investors without discrimination. The World Bank’s Doing Business 2020 report ranked Guatemala 96 out of 190 countries, one position lower than its rank in 2019. The two areas where the country had the highest rankings were electricity and access to credit. The areas of the lowest ranking were protecting minority investors, enforcing contracts, and resolving insolvency.

International investors tend to engage with the Guatemalan government via chambers of commerce and industry associations, or directly with specific government ministries. PRONACOM began to prioritize investment retention in 2020.

Limits on Foreign Control and Right to Private Ownership and Establishment

The Guatemalan Constitution recognizes the right to hold private property and to engage in business activity. Foreign private entities can establish, acquire, and dispose freely of virtually any type of business interest, with the exception of some professional services as noted below. The Foreign Investment Law specifically notes that foreign investors enjoy the same rights of use, benefits, and ownership of property as Guatemalan citizens. Guatemalan law prohibits foreigners, however, from owning land immediately adjacent to rivers, oceans, and international borders.

Guatemalan law does not prohibit the formation of joint ventures or the purchase of local companies by foreign investors. The absence of a developed, liquid, and efficient capital market, in which shares of publicly owned firms are traded, makes equity acquisitions in the open market difficult. Most foreign firms operate through locally incorporated subsidiaries.

The law does not restrict foreign investment in the telecommunications, electrical power generation, airline, or ground-transportation sectors. The Foreign Investment Law removed limitations to foreign ownership in domestic airlines and ground-transport companies in January 2004. The Guatemalan government does not have any screening mechanisms for inbound foreign investment.

Some professional services may only be supplied by professionals with locally recognized academic credentials. Public notaries must be Guatemalan nationals. Foreign enterprises may provide licensed, professional services in Guatemala through a contract or other relationship with a Guatemalan company. In July 2010, the Guatemalan congress approved an insurance law that allows foreign insurance companies to open branches in Guatemala, a requirement under CAFTA-DR. This law requires foreign insurance companies to fully capitalize in Guatemala.

Other Investment Policy Reviews

Guatemala has been a World Trade Organization (WTO) member since 1995. The Guatemalan government had its last WTO trade policy review (TPR) in November 2016. In 2011, the United Nations Conference on Trade and Development (UNCTAD) conducted an investment policy review on Guatemala. The WTO TPR highlighted Guatemala’s efforts to increase trade liberalization and economic reform efforts by eliminating export subsidies for free trade zones, export-focused manufacturing and assembly operations (maquilas) regimes, as well as amendments to the government procurement law to improve transparency and efficiency. The WTO TPR noted that Guatemala continues to lack a general competition law and a corresponding competition authority. The UNCTAD IPR recommended strengthening the public sector’s institutional capacity and highlighted that adopting a competition law and policy should be a priority in Guatemala’s development agenda. The government agreed to approve a competition law by November 2016 as part of its commitments under the Association Agreement with the European Union, but the draft law has not been approved as of March 2021. Other important recommendations from the UNCTAD IPR were to further explore alternative dispute resolution mechanisms and the establishment of courts for commercial and land disputes, though the government had not made substantive progress on these recommendations as of March 2021.

Business Facilitation

The Guatemalan government has a business registration website (https://minegocio.gt/), which facilitates on-line registration procedures for new businesses. Foreign companies that are incorporated locally are able to use the online business registration window, but the system is not yet available to other foreign companies. As a result of the entry into force of the commercial code amendments in January 2018, the time to register a new business online for a locally incorporated company went down from an average of 18.5 days in 2016 to an average of six days in 2019. The legal cost to register a business also fell by approximately 75 percent. The new procedures allow locally incorporated businesses to receive their business registration certificates online. Every company must register with the business registry, the tax administration authority, the social security institute, and the labor ministry.

Outward Investment

Guatemala does not incentivize nor restrict outward investment.

Transparency of the Regulatory System

Tax, labor, environment, health, and safety laws do not directly impede investment in Guatemala. Bureaucratic hurdles are common for both domestic and foreign companies, including lengthy processes to obtain permits and licenses as well as clear shipments through Customs. The legal and regulatory systems can be confusing and administrative decisions are often not transparent. Laws and regulations often contain few explicit criteria for government administrators, resulting in ambiguous requirements that are applied inconsistently by different government agencies and the courts. Such inconsistencies can favor local firms with more familiarity about the system as well as more extensive local networks.

Public participation in the formulation of laws or regulations is rare. In some cases, private sector or civil society groups are able to submit comments to the issuing government office or to the congressional committee reviewing the bill, but with limited effect. There is no legislative oversight of administrative rule making. The Guatemalan congress publishes all draft bills on its official website, but does not make them available for public comment. The congress often does not disclose last-minute amendments before congressional decisions. Final versions of laws, once signed by the President, must be published in the official gazette before going into force. Congress publishes scanned versions of all laws that are published in the official gazette. Information on the budget and debt obligations is publicly available at the Ministry of Finance’s primary website, but information on debt obligations does not include contingent liabilities and state-owned enterprise debt.

The Guatemalan congress passed a law to strengthen fiscal transparency and governance of Guatemala’s Tax and Customs Authority (SAT) in July 2016, which included amendments to SAT’s organic law, the tax code, and other legislation to allow SAT access to banking records for auditing purposes with a judge’s approval. Guatemala’s Constitutional Court (CC) suspended the 2016 law’s provision that allowed SAT access to banking records in August 2018 due to a claim of unconstitutionality filed against that provision, later issuing its final decision in August 2019, in which it revoked the provisional suspension and restored SAT’s access to banking records.

International Regulatory Considerations

Guatemala is a member of the Central American Common Market and has adopted the Central American uniform customs tariff schedule. As a member of the WTO, the Guatemalan government notifies the WTO Committee on Technical Barriers to Trade (TBT) of draft technical regulations. The Guatemalan congress approved the WTO’s Trade Facilitation Agreement in January 2017, which entered into force for Guatemala March 8, 2017. Guatemala classified 63.9 percent of its commitments under Category A, which includes commitments implemented upon entry into the agreement; 8.8 percent under Category B, which includes commitments to be implemented between February 2019 to July 2020; and 27.3 percent under Category C, which includes commitments to be implemented between February 2020 and July 2024. Guatemala transmitted its list of official websites with information for governments and trade participants to the WTO’s Committee on Trade Facilitation in March 2019.

In 1996, Guatemala ratified Convention 169 of the International Labor Organization (ILO 169), which entered into force in 1997. Article 6 of the Convention requires the government to consult indigenous groups or communities prior to initiating a project that could affect them directly. Potential investors should determine whether their investment will affect indigenous groups and, if so, request that the Guatemalan government lead a consultation process in compliance with ILO 169. The Guatemalan congress is currently considering a draft law to create a community consultation mechanism to fulfill its ILO-mandated obligations. The lack of a clear consultation process significantly impedes investment in large-scale projects.

Legal System and Judicial Independence

Guatemala has a civil law system. The codified judicial branch law stipulates that jurisprudence or case law is also a source of law. Guatemala has a written and consistently applied commercial code. Contracts in Guatemala are legally enforced when the holder of a property right that has been infringed upon files a lawsuit to enforce recognition of the infringed right or to receive compensation for the damage caused. The civil law system allows for civil cases to be brought before, after, or concurrently with criminal claims. Guatemala does not have specialized commercial courts, but it does have civil courts that hear commercial cases and specialized courts that hear labor, contraband, or tax cases.

The judicial system is designed to be independent of the executive branch, and the judicial process for the most part is procedurally competent, fair, and reliable. There are continued accusations of corruption within the judicial branch.

Laws and Regulations on Foreign Direct Investment

More than 200 U.S. firms as well as hundreds of foreign firms have active investments in Guatemala. CAFTA-DR established a more secure and predictable legal framework for U.S. investors operating in Guatemala. Under CAFTA-DR, all forms of investment are protected, including enterprises, debt, concessions, contracts, and intellectual property. U.S. investors enjoy the right to establish, acquire, and operate investments in Guatemala on an equal footing with local investors in almost all circumstances. The U.S. Embassy in Guatemala places a high priority on improving the investment climate for U.S. investors. Guatemala passed a foreign investment law in 1998 to streamline and facilitate processes in foreign direct investment. In order to ensure compliance with CAFTA-DR, the Guatemalan congress approved in May 2006 a law that strengthened existing legislation on intellectual property rights (IPR) protection, government procurement, trade, insurance, arbitration, and telecommunications, as well as the penal code. Congress approved an e-commerce law in August 2008, which provides legal recognition to electronically executed communications and contracts; permits electronic communications to be accepted as evidence in all administrative, legal, and private actions; and, allows for the use of electronic signatures. The Guatemalan government does not regulate online payments outside of the formal financial sector, however.

The United States has filed two separate cases related to the Guatemalan government’s adherence to its CAFTA-DR obligations. For a labor law case, the government established an arbitration panel, pursuant to CAFTA-DR procedures, to consider whether Guatemala met its obligations to effectively enforce its labor laws. The arbitration panel held a hearing in June 2015 and issued a decision favorable to Guatemala in June 2017. Regarding an environmental case, the CAFTA-DR Secretariat for Environmental Matters suspended its investigation in 2012 when the Guatemalan government provided evidence that the relevant facts of the case were under consideration by Guatemala’s Constitutional Court. The constitutional court dismissed the case on procedural grounds in 2013.

Complex and confusing laws and regulations, inconsistent judicial decisions, bureaucratic impediments and corruption continue to constitute practical barriers to investment. According to the World Bank’s Doing Business Reports for 2015 and 2016, Guatemala made paying taxes easier and less costly by improving the electronic filing and payment system (“Declaraguate”) and by lowering the corporate income tax rate. The Guatemalan government developed a useful website to help navigate the laws, procedures and registration requirements for investors (http://asisehace.gt/). The website provides detailed information on laws and regulations and administrative procedures applicable to investment, including the number of steps, names, and contact details of the entities and persons in charge of procedures, required documents and conditions, costs, processing time and legal grounds justifying the procedures.

Companies that carry out export activities or sell to exempted entities have the right to claim value added tax (VAT) credit refunds for the VAT paid to suppliers and documented with invoices for purchases of the goods and services used for production. Local and foreign companies continue to experience significant delays in receiving their refunds. Guatemala’s Tax and Customs Authority (SAT) began implementing a new plan in 2017 to streamline the process and expedite VAT credit refunds. The Guatemalan congress approved legal provisions in April 2019 that went into effect in November 2019, which were expected to contribute to expediting VAT credit refunds to exporters, but there were still delays in VAT refunds as of March 2021.

As part of its 2012 income tax reform, the Guatemalan government began implementing transfer pricing provisions in 2016. The Guatemalan congress approved a leasing law in February 2021 to regulate real estate and other types of leasing operations, including lease contracts with an option to purchase.

Competition and Antitrust Laws

Guatemala does not have a law to regulate monopolistic or anti-competitive practices. The Guatemalan government agreed to approve a competition law by November 2016 as part of its commitments under the Association Agreement with the European Union. The Guatemalan government submitted a draft competition law to Congress in May 2016, but it was still pending approval by Congress as of March 2021.

Expropriation and Compensation

Guatemala’s constitution prohibits expropriation, except in cases of eminent domain, national interest, or social benefit. The Foreign Investment Law requires proper compensation in cases of expropriation. Investor rights are protected under CAFTA-DR by an impartial procedure for dispute settlement that is fully transparent and open to the public. Submissions to dispute panels and dispute panel hearings are open to the public, and interested parties have the opportunity to submit their views.

The Guatemalan government maintains the right to terminate a contract at any time during the life of the contract, if it determines the contract is contrary to the public welfare. It has rarely exercised this right and can only do so after providing the guarantees of due process.

In June 2007, a U.S. company operating in Guatemala filed a claim under the investment chapter of CAFTA-DR against the Guatemalan government with the International Centre for Settlement of Investment Disputes (ICSID Convention). The claimant alleged the Guatemalan government indirectly expropriated the company’s assets through a breach of contract. The company requested $65 million in compensation and damages from the government. The ICSID court issued its ruling on this case in June 2012 and stated that the Guatemalan government had in fact breached the minimum standard of treatment under Article 10.5 of CAFTA-DR and required the government to pay an award of $14.6 million. The government paid the award in November 2013.

Dispute Settlement

ICSID Convention and New York Convention

Guatemala is a signatory to the convention on the Recognition and Enforcement of Foreign Arbitration Awards (1958 New York Convention), the Inter-American Convention on International Commercial Arbitration (Panama Convention), and is a member state to the International Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention).

Investor-State Dispute Settlement

CAFTA-DR incorporated dispute resolution mechanisms for investors. Over the past ten years, two investment disputes involving U.S. businesses were filed under the investment chapter of CAFTA-DR against the Guatemalan government with the ICSID –one in 2010 and the other in 2018. A Colombian investor filed a claim with the ICSID in November 2020 on a dispute related to the 2009 Power Transmission System Expansion Plan. The ICSID suspended the proceeding in accordance with the parties’ agreement a few days later.

In October 2010, a U.S. company operating in Guatemala filed the second claim against the Guatemalan government with the ICSID. The claim seeks to resolve a dispute against the government regarding the regulation of electricity rates and the eventual sale of the company. In 2013, ICSID’s arbitration tribunal issued its judgment and awarded the company over $ 21 million in damages over electricity rates and $ 7.5 million to cover legal expenses. In 2014, the Guatemalan government filed an appeal to have the 2013 award annulled. On the same date, the company also filed for a partial annulment of the award. The ICSID ad-hoc committee issued its decision on both annulment proceedings in April 2016. The company then filed a request to resubmit the dispute over the sale to a new tribunal in October 2016. The new ICSID tribunal issued its ruling on the resubmission proceeding over the sale of the company in May 2020 and awarded the company over $27.5 million in damages to recover the cash flow shortfall and the pre-sale interest. The company filed a request for supplementary decision of the award with ICSID in June 2020. The ICSID tribunal issued its ruling on the supplementary decision in October 2020 and stated that the Guatemalan government shall pay the company $7.5 million of its costs incurred in the original arbitration plus interest running from December 2013. The Guatemalan government paid $37 million to the company in November 2020 that corresponded to the 2013 award. In February 2021, the ICSID Secretary General registered an application for annulment of the award filed by the Republic of Guatemala and notified the parties of the provisional stay of enforcement of the award. The case remains pending before the ICSID as of April 2021.

In December 2018, a U.S company operating in Guatemala filed the third claim against the Guatemalan government under the investment chapter of CAFTA-DR with the ICSID. The claim seeks to resolve a dispute against the government regarding the suspension of the claimant’s mining exploitation license by the Guatemalan courts in 2016 due to lack of consultations with local communities pursuant to International Labor Organization (ILO) Convention 169. The ICSID tribunal, constituted in July 2019, held a hearing on preliminary objections in December 2019. The company filed a memorial, (an arbitration specific term similar to a pleading) on the merits with the ICSID in July 2020 and the Guatemalan government filed a memorial on jurisdiction and a counter-memorial on the merits including a counter-claim with the ICSID in December 2020. The case is pending before the ICSID as of April 2021.

International Commercial Arbitration and Foreign Courts

Guatemala’s Foreign Investment Law allows alternative dispute resolution mechanisms, if agreed to by the parties. Currently, there are two alternative dispute resolution mechanisms available in Guatemala to settle disputes between two private parties: the Center of Arbitration and Conciliation of the Guatemalan Chamber of Commerce (CENAC) and the Conflict Resolution Commission of the Guatemalan Chamber of Industry (CRECIG). Both dispute resolution centers provide support with arbiters and logistics. Guatemala’s Arbitration Law of 1995 uses the U.N. Commission on International Trade Law (UNCITRAL) Model Law as the basis for its rules on international arbitration. The Convention on the Recognition and Enforcement of Foreign Arbitration Awards (1958 New York Convention), of which Guatemala is a signatory, recognizes the subsequent enforcement of arbitration awards under these arbitration rules. The Law of the Judiciary recognizes judgments of foreign courts, but judgments must be final and comply with a legalization process to corroborate validity of the judgment.

Bankruptcy Regulations

Guatemala does not have an independent bankruptcy law. However, the Code on Civil and Mercantile Legal Proceedings contains a specific chapter on bankruptcy proceedings. Under the code, creditors can request to be included in the list of creditors; request an insolvency proceeding when a debtor has suspended payments of liabilities to creditors; and constitute a general board of creditors to be informed of the proceedings against the debtor. Bankruptcy is not criminalized, but it can become a crime if a court determines there was intent to defraud. According to the World Bank’s 2020 Doing Business Report, Guatemala ranked 157 out of 190 countries in resolving insolvency. The Ministry of Economy and members of the Congressional Economic and Foreign Trade Committee submitted a draft bankruptcy law to Congress in May 2018, which is pending Congressional approval as of March 2021.

Capital Markets and Portfolio Investment

Guatemala’s capital markets are weak and inefficient because they lack a securities regulator. The local stock exchange (Bolsa Nacional de Valores) deals almost exclusively in commercial paper, repurchase agreements (repos), and government bonds. The Guatemalan Central Bank (Banguat) and the Superintendent of Banks (SIB) were drafting an updated capital markets bill that included a chapter on securitization companies and the securitization process as of March 2021. Notwithstanding the lack of a modern capital markets law, the government debt market continues to develop. Domestic treasury bonds represented 56.9 percent of total public debt as of December 2020.

Guatemala lacks a market for publicly traded equities, which raises the cost of capital and complicates mergers and acquisitions. As of December 2020, borrowers faced a weighted average annual interest rate of 15.5 percent in local currency and 6.6 percent in foreign currency, with some banks charging over 40 percent on consumer or micro-credit loans. Commercial loans to large businesses offered the lowest rates and were on average 6.8 percent in local currency as of December 2020. Dollar-denominated loans typically are some percentage points lower than those issued in local currency. Foreigners rarely rely on the local credit market to finance investments.

Money and Banking System

Overall, the banking system remains stable. The Monetary Board, Banguat, and SIB approved various temporary measures during 2020 to increase liquidity of the banking system during the first months of the pandemic and to allow banks to approve restructuring of loans or deferral of loans to businesses and individuals affected by the pandemic. Non-performing loans represented 2 percent of total loans as of January 2021. According to information from the SIB, Guatemala’s 17 commercial banks had an estimated $51 billion in assets in December 2020. The six largest banks control about 87 percent of total assets. In addition, Guatemala has 11 non-bank financial institutions, which perform primarily investment banking and medium- and long-term lending, and three exchange houses. Access to financial services is very high in Guatemala City, as well as in major regional cities. Guatemala has 17.2 access points per 10,000 adults at the national level and 24.1 access points per 10,000 adults in the capitol area as of December 2020. There were 15,024 banking accounts per 10,000 adult at the national level and 35,901 banking accounts per 10,000 adults in the capital area as of December 2020. Most banks offer a variety of online banking services.

Foreigners are normally able to open a bank account by presenting their passport and a utility bill or some other proof of residence. However, requirements may vary by bank.

In April 2002, the Guatemalan congress passed a package of financial sector regulatory reforms that increased the regulatory and supervisory authority of the SIB, which is responsible for regulating the financial services industry. The reforms brought local practices more in line with international standards and spurred a round of bank consolidations and restructurings. The 2002 reforms required that non-performing assets held offshore be included in loan-loss-provision and capital-adequacy ratios. As a result, a number of smaller banks sought new capital, buyers, or mergers with stronger banks, reducing the number of banks from 27 in 2005 to 17 in 2020.

Guatemalan banking and supervisory authorities and the Guatemalan congress actively work on new laws in the business and financial sectors. In August 2012, the Guatemalan congress approved reforms to the Banking and Financial Groups Law and to the Central Bank Organic Law that strengthened supervision and prudential regulation of the financial sector and resolution mechanisms for failed or failing banks. The Guatemalan government submitted to congress proposed amendments to the Banking and Financial Groups Law in November 2016 and an anti-money laundering and counter-terrorism financing draft law in August 2020. Both proposed laws were pending congressional approval as of April 2021.

Foreign banks may open branches or subsidiaries in Guatemala subject to Guatemalan financial controls and regulations. These include a rule requiring local subsidiaries of foreign banks and financial institutions operating in Guatemala to meet Guatemalan capital and lending requirements as if they were stand-alone operations. Groups of affiliated credit card, insurance, financial, commercial banking, leasing, and related companies must issue consolidated financial statements prepared in accordance with uniform, generally accepted, accounting practices. The groups are audited and supervised on a consolidated basis.

The total number of correspondent banking relationships with Guatemala’s financial sector showed a slight decline in 2016, but the changes in the relationships were similar to those seen throughout the region and reflected a trend of de-risking. The situation stabilized in 2017. The number of correspondent banking relationships increased in 2020.

Alternative financial services in Guatemala include credit and savings unions and microfinance institutions.

Foreign Exchange and Remittances

Foreign Exchange

Guatemala’s Foreign Investment Law and CAFTA-DR commitments protect the investor’s right to remit profits and repatriate capital. There are no restrictions on converting or transferring funds associated with an investment into a freely usable currency at a market-clearing rate. U.S. dollars are freely available and easy to obtain within the Guatemalan banking system. In October 2010, monetary authorities approved a regulation to establish limits for cash transactions of foreign currency to reduce the risks of money laundering and terrorism financing. The regulation establishes that monthly deposits over $3,000 will be subject to additional requirements, including a sworn statement by the depositor stating that the money comes from legitimate activities. There are no legal constraints on the quantity of remittances or any other capital flows and there have been no reports of unusual delays in the remittance of investment returns.

The Law of Free Negotiation of Currencies allows Guatemalan banks to offer different types of foreign-currency-denominated accounts. In practice, the majority of such accounts are in U.S. dollars. Some banks offer pay through dollar-denominated accounts in which depositors make deposits and withdrawals at a local bank while the bank maintains the actual account on behalf of depositors in an offshore bank.

Capital can be transferred from Guatemala to any other jurisdiction without restriction. The exchange rate moves in response to market conditions. The government sets one exchange rate as reference, which it applies only to its own transactions and which is based on the commercial rate. The Central Bank intervenes in the foreign exchange market only to prevent sharp movements. The reference exchange rate of quetzals (GTQ) to the U.S. dollar has remained relatively stable since 1999. However, as U.S. inflation has been lower than Guatemalan inflation over this period there has been significant real exchange appreciation of about 100 percent of the quetzal against the dollar since 1999 that has reduced Guatemala’s export competitiveness.

Remittance Policies

There are no time limitations on remitting different types of investment returns.

Sovereign Wealth Funds

Guatemala does not have a sovereign wealth fund.

Guatemala has three state owned enterprises: National Electricity Institute (INDE) and two state-owned ports, Santo Tomas on the Caribbean coast, and Port Quetzal on the Pacific coast. INDE is a state-owned electricity company responsible for expanding the provision of electricity to rural communities. INDE owns approximately 14 percent of the country’s installed effective generation capacity, and it participates in the wholesale market under the same rules as its competitors. It also provides a subsidy to consumers of up to 88 kilowatt-hours (kWh) per month. Its board of directors comprises representatives from the government, municipalities, business associations, and labor unions. The board of directors appoints the general manager. The President appoints the Ports’ boards of directors, and each board of Directors hires the respective general managers.

The Guatemalan government currently owns 16 percent of the shares of the Rural Development Bank (Banrural), the second largest bank in Guatemala, and holds 3 out of 10 seats on its board of directors. Banrural is a mixed capital company and operates under the same laws and regulations as other commercial banks. The Guatemalan government also appoints the manager of GUATEL, the former state-owned telephone company dedicated to providing rural and government services that split off from the fixed-line telephone company during its privatization in 1998. GUATEL’s operations are small and it continuously fails to generate sufficient revenue to cover expenses. The GUATEL director reports to the Guatemalan president and to the board of directors.

Privatization Program

The Guatemalan government privatized a number of state-owned assets in industries and utilities in the late 1990s, including power distribution, telephone services, and grain storage. Guatemala does not currently have a privatization program.

Historically, Guatemala had one of the highest violent crime rates in Latin America; however, according to the National Civil Police (PNC), the murder rate in 2020 was 15 per 100,000, a 28% drop from 2019.  The Attorney General’s Office (AG) recorded 455 femicides in 2020 and reported 23 in the first month of 2021. Departments reporting the highest rate of violent crimes were Guatemala, Escuintla, and Izabal.  The AG credits the general decline in violence to the economic shutdown due to the corona virus pandemic, including interdepartmental travel restrictions and the prohibition of most alcohol sales.  Rule of law is still lacking, and the judicial system is weak, overworked, and inefficient. The police are often understaffed and sometimes corrupt.  Local police may lack the resources to respond effectively to serious criminal incidents.  Although security remains a widespread concern, foreigners are not usually singled out as targets of crime.  Recent examples of violence include extrajudicial killings, illegal detentions, and property damage as a result of protests of against some investment projects.

The political climate in Guatemala, marked by its 36 years of armed conflict, is characterized by occasional civil disturbances and politically motivated violence.  The most recent example is the November 2020 civil unrest sparked by congressional approval of the 2021 budget proposal, which added to long-standing grievances.  Peaceful protests marred by acts of vandalism and violence resulted in fire damage to the national congress building, as well as allegations of brutality against protestors by Guatemalan security forces, as well as acts of violence by some protestors against security forces.  The main source of tension among indigenous communities, Guatemalan authorities, and private companies is the lack of prior consultation and alleged environmental damage.

Damage to projects or installations is rare. However, there were instances in October 2018 and January 2019 in which unidentified arsonists burned machinery and other equipment at the site of a hydroelectric construction project near the northern border with Mexico.

Guatemala has the largest economy in Central America, reaching a USD 77.4 billion gross domestic product (GDP) in 2020 with an estimated contraction of 1.5 percent in 2020 due to COVID-19 impact.  Remittances, mostly from the United States, increased by 7.9 percent in 2020 from the $10.5 billion received in 2019 to $11.34 billion in 2020 and were equivalent to 14.6 percent of GDP.  The United States is Guatemala’s most important economic partner. According to preliminary Banguat data, FDI stock was $17.3 billion in 2020, a 4.2 percent increase in relation to 2019.  Preliminary foreign portfolio investment totaled $7.59 billion in 2020, with about 79.4 percent invested in government bonds.  There is no official data available on sources of stock of FDI or foreign portfolio investment.

* Bank of Guatemala http://www.banguat.gob.gt.  Preliminary GDP year-end figures were published in December 2020 and preliminary FDI year-end data were published in March 2021.

According to data from the Coordinated Investment Survey for 2019 published by the IMF, about one fifth of FDI in Guatemala comes from the United States.  Other important sources of FDI are Mexico, Colombia, and Spain (please see Table 3 on sources and destinations of FDI above).  Preliminary data from Banguat also show that the flow of FDI totaled $915.2 million in 2020 (1.18 percent of GDP), a 6.1 percent decline compared to $974.7 million (1.27 percent of GDP) received in 2019.  Some of the activities that attracted most of the FDI flows in the last three years were financial and insurance activities, manufacturing, commerce and vehicle repair, and water, electricity, and sanitation services.

Table 4: Sources of Portfolio Investment
Portfolio investment data are not available for Guatemala.

Policies Towards Foreign Direct Investment

The Government of Guinea has increasingly adopted a strong, positive attitude toward foreign direct investment (FDI). Facing budget shortfalls and low commodity prices, the GoG hopes FDI will help diversify its economy, spur GDP growth, and provide reliable employment. To that end, the government has reduced land transfer fees, and improved procedures for import and construction permits. Guinea does not discriminate against foreign investors, with the exception of a prohibition on foreign ownership of media. One area of concern is that mining companies have negotiated different taxation rates despite mining code requirements. According to the 2020 World Investment Report, FDI in Guinea fell from USD 577 million in 2017 to USD 45 million in 2019. In late 2015, the U.S. Embassy facilitated the establishment of an informal international investors group to liaise with the government. The group has not been very active since. There is the Chambre des Mines (Chamber of Mines), a government-sanctioned advisory organization that includes Guinea’s major mining firms. Guinea’s Agency for the Promotion of Private Investment (APIP) provides support in the following areas:

1. Create and register businesses
2. Facilitate access to incentives offered under the investment code
3. Provide information and resources to potential investors
4. Publish targeted sector studies and statistics
5. Provide training and technical assistance
6. Facilitate solutions for investors in Guinea’s interior

On March 13, a presidential decree changed the responsibilities of APIP into a public agency under the technical supervision of the Ministry of Investments and Public Private Partnerships, and under the financial supervision of the Ministry of Economy and Finance.

More information about APIP can be found at: http://apip.gov.gn/ 

Limits on Foreign Control and Right to Private Ownership and Establishment

Investors can register under one of four categories of business in Guinea. More information on the four types of business registration is available at http://invest.gov.gn/page/create-your-company. There are no general limits on foreign ownership or control, and 100 percent ownership by foreign firms is legal in most sectors. Foreign-ownership of print media, radio, and television stations is not permitted. The 2013 Mining Code gives the government the right to a 15 percent interest in any major mining operation in Guinea (the government decides when an operation has become large enough to qualify). Mining and media notwithstanding, there are no sector-specific restrictions that discriminate against market access for foreign investment. Despite this lack of official discrimination, many enterprises have discovered the licensing process to be laden with bureaucratic delays that are usually dealt with by paying consultant fees to help expedite matters. The U.S. Embassy may be able to advocate on behalf of American companies when it is aware of excessive delays.

According to the Investment Code, the National Investment Commission has a role in reviewing requests for approval of foreign investment and for monitoring companies’ efforts to comply with investment obligations. The Ministry of Planning and Economic Development hosts the secretariat for this commission, which grants investment approvals. The government gives approved companies, especially industrial firms, the use of the land necessary for their plant, with the duration and conditions of use set out in the terms of the approval. The land and associated buildings belong to the State, but can also be rented by or transferred to another firm with government approval.

Other Investment Policy Reviews

There has been no investment policy review conducted by the UN Conference on Trade and Development or the Organization for Economic Cooperation and Development within the past several years. The World Trade Organization (WTO) last conducted a review of Guinea in 2018. The 2018 report can be viewed here: https://www.wto.org/english/tratop_e/tpr_e/tp470_e.htm .

Business Facilitation

APIP is the Guinean agency that promotes investment, helps register businesses, assists with the expansion of local companies, and works to improve the local business climate. APIP maintains an online guide for potential investors in Guinea (http://invest.gov.gn). Business registration can be completed in person at APIP’s office in Conakry or through their online platform: https://synergui.apipguinee.com/fr/utilisateurs/register/. The only internationally-accredited business facilitation organization that assesses Guinea is GER.co, which gives Guinea’s business creation/investment website a 4/10 rating. It takes roughly seventy-two hours to register a business. APIP’s services are available to both Guinean and foreign investors. The “One Stop Shop” at APIP’s Conakry office can provide small and medium sized enterprises (SMEs) with requisite registration numbers, including tax administration numbers and social security numbers. Notaries are required for the creation of any other type of enterprise.

An SME in Guinea is defined as a business with less than 50 employees and revenue less than 500 million Guinean francs (GNF) (around USD 50,000). SMEs are taxed at a yearly fixed rate of GNF 15 million (USD 1,500). Administrative modalities are simplified and funneled through the “One Stop Shop”. In December 2019, the Prime Minister inaugurated the “Maison des PME” (“The SME House”) a public-private partnership between the Societe Generale bank and APIP to help local SMEs expand and develop.

Outward Investment

Guinea does not formally promote outward investment and the government does not restrict domestic investors from investing abroad.

Transparency of the Regulatory System

In the past eight years, Guinea has made its laws and regulations more transparent, but draft bills are not always made available for public comment. Ministries do not develop forward-looking regulatory plans and publish neither summaries nor proposed legislation. Laws in Guinea are proposed by either the President or members of the National Assembly and are also not always presented for public comment. Once ratified, laws are not enforceable until they are published in the government’s official gazette. All laws relevant to international investors are posted (in French) on invest.gov.gn. When investing, it is important to engage with all levels of government to ensure each authority is aware of expectations and responsibilities on both sides. Guinea has had an independent Supreme Audit Institution since 2016. The institution is charged with making available information on public finances. The institution presented its first activities report in January 2018.

had an independent Supreme Audit Institution since 2016. The institution is charged with making available information on public finances. The institution presented its first activities report in January 2018.

Guinea’s 2013 amended Mining Code commits the country to increasing transparency in the mining sector. In the code, the government commits to awarding mining contracts by competitive tender and to publish all past, current, and future mining contracts for public scrutiny. Members of mining sector governing bodies and employees of the Ministry of Mines are prohibited from owning shares in mining companies active in Guinea or their subcontractors. Each mining company must sign a code of good conduct and develop and implement a corruption-monitoring plan. There is a public database of mining contracts designed by the Natural Resource Governance Institute ( http://www.contratsminiersguinee.org/ ).

The Extractive Industries Transparency Initiative (EITI) ensures greater transparency in the governance of Guinea’s natural resources and full disclosure of government revenues from its extractives sector. The EITI standard aims to provide a global set of conditions that ensures greater transparency of the management of a country’s oil, gas, and mineral resources. EITI reiterates the need to augment support for countries and governments that are making genuine efforts to address corruption but lack the capacity and systems necessary to manage effectively the businesses, revenues, and royalties derived from extractive industries.

Guinea was accepted as EITI compliant for the first time by the international EITI Board at its meeting in Mexico City on July 2, 2014. As an EITI country, Guinea must disclose the government’s revenues from natural resources. Guinea completed its most recent report in December 2020for the 2018 reporting period. The report is located at: https://www.itie-guinee.org/rapport-itie-guinee-2018/

While Guinea’s laws promote free enterprise and competition, there is often a lack of transparency in the government’s application of the law. Business owners openly assert that application procedures are sufficiently opaque to allow for corruption, and regulatory activity is often instigated due to personal interests.

Every year Guinea publishes budget documents and debt obligations. The yearly enacted budgets are published online LOIS DE FINANCES | Ministère du Budget Guinée (mbudget.gov.gn)  https://mbudget.gov.gn/ .

International Regulatory Considerations

Guinea is a member of ECOWAS, but not a member of the West African Economic and Monetary Union (UEMOA) and as such has its own currency. At the beginning of 2017, Guinea adopted ECOWAS’s Common Exterior Tariff (TEC), which harmonizes Guinea’s import taxes with other West African states and eliminates the need for assessing import duties at Guinea’s land border crossings, however, sometimes it is difficult to get the required certificates to export under these ECOWAS exemptions. Guinea is a member of the WTO and is not party to any trade disputes.

Legal System and Judicial Independence

Guinea’s legal system is codified and largely based upon French civil law. However, the judicial system is reported to be generally understaffed, corrupt, and opaque. Accounting practices and bookkeeping in Guinean courts are frequently unreliable. U.S. businesspersons should exercise extreme caution when negotiating contract arrangements, and do so with proper local legal representation. Although the constitution and law provide for an independent judiciary, in practice the judicial system lacks independence, is underfunded, inefficient, and is portrayed in the press as corrupt. Budget shortfalls, a shortage of qualified lawyers and magistrates, nepotism, and ethnic bias contribute to the judiciary’s challenges. President Conde’s administration has successfully implemented some judicial reforms and has increased the salaries of judges by 400 percent in order to discourage corruption. There are few international investment lawyers accredited in Guinea and it is a best practice to include international arbitration clauses in all major contracts. U.S. companies have identified the absence of a dependable legal system as a major barrier to investment.

Despite dispute settlement procedures set forth in Guinean law, business executives complain of the glacial pace of the adjudication of business disputes. Most legal cases take years and significant legal fees to resolve. In speaking with local business leaders, the general sentiment is that any resolution occurring within three to five years might be considered quick.

In many cases, the government does not meet payment obligations to private suppliers of goods and services, either foreign or Guinean, in a timely fashion. Arrears to the private sector are a major issue that is often ignored. Guinea is currently looking for ways to finance past arrears to the private sector — possibly through issuing a public debt instrument. There is no independent enforcement mechanism for collecting debts from the government, although some contracts have international arbitration clauses. The government, while bound by law to honor judgments made by the arbitration court, often actively influences the decision itself.

Although the situation has improved recently, Guinean and foreign business executives have publicly expressed concern over the rule of law in the country. In 2014, high-ranking members of the military harassed foreign managers of a telecommunications company because they did not renew a contract. American businesses experience long delays in getting required signatures and approvals from government ministries, and in some cases the presidency. Some businesses have been subject to sporadic harassment from tax authorities, and demands for donations from military and police personnel.

Laws and Regulations on Foreign Direct Investment

The National Assembly ratified an Investment Code regulating FDI in May 2015. Developed in cooperation with the Work Bank and IMF, the code harmonizes Guinea’s FDI regulations with other countries in the region and broadens the definition of FDI. The code also allows for direct agreements between investors and the State. Other important legislation related to FDI includes the Procurement Code, the BOT (Build Operate Transfer, now Public Private Partnership or PPP) Law and the Customs Code.

The government of Guinea states it will let the legal system deal with domestic cases involving foreign investors. However, the legal system is weak, in the process of implementing much needed reforms, and is subject to interference. Although the constitution provides for an independent judiciary, in practice the judicial system lacks independence and is underfunded, inefficient, and is perceived by many to be corrupt. APIP launched a website in 2016 that lists information related to laws, rules, procedures, and registration requirements for foreign investors, as well as strategy documents for specific sectors. ( http://invest.gov.gn ). Further information on APIP’s services is available at http:// https://apip.gov.gn/ . APIP has a largely bilingual (English and French) staff and is designed to be a clearinghouse of information for investors.

Competition and Anti-Trust Laws

There are no agencies that review transactions for competition-related concerns.

Expropriation and Compensation

Guinea’s Investment Code states that the Guinean government will not take any steps to expropriate or nationalize investments made by individuals and companies, except for reasons of public interest. It also promises fair compensation for expropriated property.

In 2011, the government claimed full ownership of several languishing industrial facilities in which it had previously held partial shares as part of several joint ventures—including a canned food factory and processing plants for peanuts, tea, mangoes, and tobacco—with no compensation to the private sector partner. Each of these facilities was privatized under opaque circumstances in the late 1980s and early 1990s. By expropriating these businesses, which the government deemed to be corrupt and/or ineffective, and putting them to public auction, Guinea hoped to correct past mistakes and put the assets in more productive hands. During the 1990s, a U.S. investor acquired a 67 percent stake in an explosives and munitions factory from a Canadian entity. The Guinean government owned the remaining 33 percent. From 2000 to 2008, the government halted manufacturing at the factory. In 2010, the Guinean government nationalized the factory.

While there have not been recent large-scale expropriation cases, some mining concession contracts have had their initial award revoked and were sold to another bidder. In 2008, the previous regime of Lansana Conde stripped Rio Tinto of 50 percent of its concession of the Simandou mine and sold it to another company.

Dispute Settlement

ICSID Convention and New York Convention

Guinea is a member of the International Center for the Settlement of Investment Disputes (ICSID), an autonomous institution established under the Convention on the Settlement of Investment Disputes between States and Nationals of other States ( https://icsid.worldbank.org/en/Pages/about/default.aspx ). Guinea is also a member of the New York Convention, which applies to the recognition and enforcement of foreign arbitral awards and the referral by a court to arbitration. Guinea has no specific domestic legislation providing for enforcement of awards under the 1958 New York Convention and/or under the ICSID Convention. ( http://www.newyorkconvention.org ).

Investor-State Dispute Settlement

The Investment Code states that the competent Guinean judicial authorities shall settle disputes arising from interpretation of the Code in accordance with the law and regulations, and provides several avenues by which to seek arbitration. In practice, however, fair settlements may be difficult to obtain. The current Guinean constitution mandates an independent judiciary, although many business owners and high-level government officials frequently claim that poorly trained magistrates, high levels of corruption, and nepotism plague the administration of justice. Guinea established an arbitration court in 1999, independent of the Ministry of Justice, to settle business disputes in a less costly and more expedient manner. The Arbitration Court is based upon the French system, in which arbitrators are selected from among the Guinean business sector, rather than from among lawyers or judges, and are supervised by the Chamber of Commerce. All parties must agree in order for their case to be settled in the arbitration court. In general, Guinea’s arbitration court has a better reputation than the judicial court system for settling business disputes.

International Commercial Arbitration and Foreign Courts

Guinea is a member of the Organisation pour l’Harmonisation du Droit des Affaires en Afrique (Organization for the Harmonization of Commercial Law in Africa), known by its French initials, OHADA, which allows investors to appeal legal decisions on commercial and financial matters to a regional body based in Abidjan. The organization also seeks to harmonize commercial law, debt collection, bankruptcy, and secured transactions throughout the OHADA region. The treaty superseded the Code of Economic Activities and other national commercial laws when it was ratified in 2000, though many of the substantive changes to Guinean law have yet to be implemented. U.S. companies seeking to do business in Guinea should be aware that under OHADA, managers may be held personally liable for corporate wrongdoing. See the OHADA website for specific OHADA rules and regulations ( http://www.ohada.com ).

Bankruptcy Regulations

Guinea, as a member of OHADA, has the same bankruptcy laws as most West African francophone countries. OHADA’s Uniform Act on the Organization of Securities enforces collective proceedings for writing off debts and defines bankruptcy in articles 227 to 233. The Uniform Act also distinguishes fraudulent from non-fraudulent bankruptcies. There is no distinction between foreign and domestic investors. The only distinction made is a privilege ranking that defines which claims must be paid first from the bankrupt company’s assets. Articles 180 to 190 of OHADA’s Uniform Act define which creditors are entitled to priority compensation. Bankruptcy is only criminalized when it occurs due to fraudulent actions, and leaves criminal penalties to national authorities. Non-fraudulent bankruptcy is adjudicated though the Uniform Act.

In the World Bank’s 2020 Ease of Doing Business Report on Resolving Insolvency, Guinea placed 118 out of 190 countries ranked. According to the report, resolving insolvency takes an average of 3.8 years and costs 10.0 percent of the debtor’s estate, with the most likely outcome being that the company will be sold piecemeal. The average recovery rate is 19.4 cents on the dollar.

Capital Markets and Portfolio Investment

Commercial credit for private and public enterprises is difficult and expensive to obtain in Guinea. The FY 2021 Millennium Challenge Corporation score for Access to Credit in Guinea remained at 21 percent, and was at 50 percent in FY 2017.

The legislature passed a Build, Operate, and Transfer (BOT) convention law in 1998 (changed to the Public-Private Partnership, or PPP, in 2018), which provides rules and guidelines for PPP and related infrastructure development projects. The law lays out the obligations and responsibilities of the government and investors and stipulates the guarantees provided by the government for such projects. The Investment Code allows income derived from investment in Guinea, the proceeds of liquidating that investment, and the compensation paid in the event of nationalization, to be transferred to any country in convertible currency. The legal and regulatory procedures, based on French civil law, are not always applied uniformly or transparently.

Individuals or legal entities making foreign investments in Guinea are guaranteed the freedom to transfer the original foreign capital, profits resulting from investment, capital gains on disposal of investment, and fair compensation paid in the case of nationalization or expropriation of the investment to any country of their choice. The Guinean franc is subject to a managed floating exchange rate. The few commercial banks in Guinea are dependent on the BCRG for foreign exchange liquidity, making large transfers of foreign currency difficult.

Laws governing takeovers, mergers, acquisitions, and cross-shareholding are limited to rules for documenting financial transactions and filing any change of status documents with the economic register. There are no laws or regulations that specifically authorize private firms to adopt articles of incorporation that limit or prohibit investment.

Money and Banking System

Guinea’s financial system is small and dominated by the banking sector. It comprises 16 active banks, 13 insurance companies and 26 microfinance institutions. Guinea’s banking sector is overseen by the BCRG, which also serves as the agent of the government treasury for overseeing banking and credit operations in Guinea and abroad. The BCRG manages foreign exchange reserves on behalf of the State. The Office of Technical Assistance of the Department of the Treasury assesses that Guinea does not properly manage debt and that its treasury is too involved in the process, although improvements made in 2017-2018 point to a better future. Further information on the BCRG can be found in French at http://www.bcrg-guinee.org .

Due to the difficulty of accessing funding from commercial banks, small commercial and agricultural enterprises have increasingly turned to microfinance, which has been growing rapidly with a net increase in deposits and loans. The quality of products in the microfinance sector remains mediocre, with bad debt accounting for five percent of loans with approximately 17 percent of gross loans outstanding.

Guinea plans to broaden the country’s SME base through investment climate reform, improved access to finance, and the establishment of SME growth corridors. Severely limited access to finance (especially for SMEs), inadequate infrastructure, deficiencies in logistics and trade facilitation, corruption and the diminished capacity of the government, inflation, and poor education of the workforce has seriously undermined investor confidence in Guinean institutions. Guinea’s weak enabling environment for business, its history of poor governance, erratic policy, and inconsistent regulatory enforcement exacerbate the country’s poor reputation as an investment destination. As a result, private participation in the economy remains low and firms’ productivity measured by value added is one of the lowest in Africa. Firms’ links with the financial sector are weak: only 3.9 percent of firms surveyed in the 2016 World Bank Enterprise survey had a bank loan. http://www.enterprisesurveys.org/data/exploreeconomies/2016/guinea#finance 

Credit to the private sector is low, at around 9.3 percent of GDP in 2018. Commercial banks are reluctant to extend loans due to the lack of credit history reporting for potential borrowers. The government, through the central bank, is in the process of establishing a credit information bureau to overcome this asymmetry of credit information. Despite the pandemic, the banking sector remains liquid and solvent with ample credit to the private sector. Excess reserves in local currency increased by 51 percent by the end of September 2019, which was fueled by a strong deposit growth (21 percent). Despite the COVID-19 slowdown, private sector credit grew by 17 percent by the end of September 2020.

Guinea is a cash-based society driven by trade, agriculture, and the informal sector, which all function outside the banking sector. The banking sector is highly concentrated in Conakry, and is technologically behind. Banks in Guinea tend to favor short-term lending at high interest rates. In collaboration with the U.S. Treasury’s Office of Technical Assistance, the central bank is implementing a bank deposit insurance scheme. The deposit coverage limit has not been set yet, but the central bank began to collect premiums from commercial banks in 2019.

While the microfinance sector grew strongly from a small base, it was hit hard during the 2014-2016 Ebola crisis. Currently it is not generally profitable and needs capacity and technology upgrades. Furthermore, many microfinance institutions struggle to meet higher minimum capital requirements imposed by the central bank since 2019. This heightened financial hurdle will likely lead to a consolidation of the microfinance sector. The efficiency and use of payment services by all potential users needs to be improved, with an emphasis on greater financial inclusion.

The penetration of digital cellphone fund transfers is increasing. Two foreign e-money (or mobile banking) institutions lead the effort to digitize payments and improve access to financial services in underserved and rural segments of the population. However, the vast majority of operations processed by these e-money institutions remains cash-in cash-out transactions within a single network. In an effort to modernize payment methods, the government is implementing a national switch, a nationwide platform that will interface all electronic payment systems and facilitate payment processing between service providers. As of 2020 this service was still under development.

Generally, there are no restrictions on foreigners’ ability to establish bank accounts in Guinea. EcoBank is the preferred bank for most U.S. dealings with Foreign Account Tax Compliant Act (FACTA) reporting requirements. In October 2020, Vista Bank Group announced that it acquired a majority stake in BICIGUI (Banque Internationale pour le Commerce et l’Industrie de la Guinee) and BICIAB (Banque Internationale pour le Commerce et l’Agriculture du Burkina Faso). After this acquisition the Vista Bank Group, a U.S. owned financial institution, has over 87 agencies and 320 employees across Guinea.

In collaboration with the U.S. Treasury’s Office of Technical Assistance, the central bank is implementing a bank deposit insurance scheme. The deposit coverage limit has not been set yet, but the central bank began to collect premiums from commercial banks in 2019.

Foreign Exchange and Remittances

Foreign Exchange

There are no restrictions or limitations placed on foreign investors for converting, transferring, or repatriating funds associated with an investment. Although there have been no recent changes to remittance policies, it is difficult to obtain foreign exchange in Guinea. Guinea has experienced significantly weakened liquidity levels over the last several years due to government mismanagement, populist policies, corruption, and a decrease in mining revenue due to lower global commodity prices. Commercial banks’ liquidity levels are affected by tight reserve requirements (22 percent of deposits) that are in line with IMF performance criteria.

Until December 2015, the exchange rate was managed by the BCRG and held to a four percent variance from the unofficial rate. The exchange rate has remained relatively stable since 2013 and has only recently depreciated versus the U.S. dollar. Between 2013 and 2015, the Guinean franc maintained a value of between 7,000 and 7,500 GNF/USD. In late 2015, the unofficial rate reached a value ten percent higher than the official rate, during which time Guinea nearly exhausted its foreign currency reserves. The IMF recommended the BCRG float the GNF and the official rate jumped to over 9,000 GNF/USD by March 2016. In 2020, The central bank continued to limit its intervention in the foreign exchange market and implement a rules-based intervention strategy. This monetary policy has targeted preserving liquidity in the banking sector while containing inflation.

Remittance Policies

Guinea has no limitations on the conversion and transfer of money or the repatriation of capital and earnings, including branch profits, dividends, interest, royalties, or management or technical service fees. The BCRG needs to be informed of any major transfers, and the wait time to remit investment returns is less than 60 days. Guinea is a member of the Inter-Governmental Action Group against Money Laundering in West Africa, but is not included on the Financial Action Task Force. Guinea does not have a country report in the 2020 International Narcotics Control Strategy Report.

There are no limits on the conversion of U.S. dollars to Guinean francs. The official exchange rate retains the capacity for volatility, but is currently holding at approximately 10,007 GNF/USD (as of March 2021). A weakened economy largely resulting from low commodity prices caused the GNF to depreciate from an average of 7,000 GNF/USD in early 2015. Since mid-2016, the official exchange rate has been keeping pace with the rate in the parallel black market.

Sovereign Wealth Funds

Guinea does not have a sovereign wealth fund.

While all Guinea’s public utilities (water and electricity) are state-owned enterprises (SOEs), the Conde administration has proposed permitting private enterprises to operate in this sphere. In 2015, the French firm Veolia was contracted to manage the state-owned electric utility Electricité de Guinée (EDG) – a contract which ended in October 2019. Several private projects aimed at harnessing Guinea’s solar energy potential and gas-powered thermal plants are being implemented with the goal of producing and selling energy throughout Guinea and possibly to neighboring countries. Other SOEs are found in the telecommunications, road construction, lottery, and transportation sectors. There are several other mixed companies where the state owns a significant or majority share, that are typically related to the extractives industry.

The hydroelectricity sector could support Guinea’s modernization, and possibly even supply regional markets. Guinea’s hydropower potential is estimated at over 6,000MW, making it a potential exporter of power to neighboring countries. In 2015, Guinea built the 240MW Kaleta Dam, doubling the country’s electricity generating capacity and providing Conakry with a more reliable source of power for most of the year. The government is now pushing forward with the more ambitious 450MW Souapiti Dam and other power generation plans, for which EDG would be the primary off-taker. The country currently uses and produces about 450MW, so the Souapiti project could create reserves for export. Plans for improving the distribution network to enable electricity export are in process with the development of the Gambia River Basin Development (OMVG) (Organization pour la Mise en Oeuvre de Fleuve Gambie, in French) transmission project connecting Guinea, Senegal, Guinea Bissau, and The Gambia. The OMVG project involves the construction of 1,677 kilometers of 225-volt transmission network capable of handling 800MW to provide electricity for over two million people. At the same time, Guinea is moving forward with the Côte d’Ivoire, Liberia, and Sierra Leone, (CLSG) transmission interconnector project, which will integrate Guinea into the West African Power Pool (WAPP) and allow for energy import-export across the region. While the government does not publish significant information concerning the financial stability of its SOEs, EDG’s balance sheet is understood to be in the red. The IMF reported that as recently as 2017, up to 28 percent of Guinea’s budget went towards subsidizing electricity, and the IMF demanded that EDG improve tariff collection since large numbers of its users do not pay. The Prime Minister announced in mid-March that EDG subsidies cost USD 350 million annually.

The amount of research and development (R&D) expenditures is not known, but it would be highly unlikely that any of Guinea’s SOEs would devote significant funding to R&D. Guinean SOEs are entitled to subsidized fuel, which EDG uses to run thermal generator stations in Conakry. Guinea is not party to the Government Procurement Agreement.

Corporate governance of SOEs is determined by the government. Guinean SOEs do not adhere to the OECD guidelines. SOEs are supposed to report to the Office of the President, however, typically they report to a ministry. Seats on the board of governance for SOEs are usually allocated by presidential decree.

Privatization Program

The Guinean government is actively working on privatization in the energy sector. In April 2015, the government tendered a management contract to run the state-owned electrical utility EDG. French company Veolia won the tender and attempted to manage and rehabilitate the insolvent utility until the end of 2019. As of February 2020, EDG became a public limited company with its own board of directors. The new directors were appointed by the President through decree. Bidding processes are clearly spelled out for potential bidders; however, Guinea gives weight to competence in the French language and experience working on similar projects in West Africa. In spring 2015, a U.S. company lost a fiber optics tender largely due to its lack of native French speakers on the project and lack of regional experience.

Guinea has had a long history of political violence. The country suffered under authoritarian rule from independence in 1958 until its first democratic presidential election in 2010. It has seen continued political violence associated with national and local elections since 2010.

In March 2020, the Government of Guinea amended the constitution through a referendum resulting in changes to presidential term limits that allowed President Conde to seek a third term in office. Observers noted that the process for constitutional reform was not transparent, inclusive, or consultative. Major opposition parties boycotted the referendum and the accompanying legislative elections. The result was a resetting of presidential term limits and the ruling party, the Rally for the Guinean People, gaining a super majority in the National Assembly. Domestic and international observers raised concerns regarding widespread violence and voting irregularities in the legislative elections, including closed and ransacked polling stations. In October 2020 President Alpha Conde ran for reelection under the new constitution. International and domestic observers raised concerns about widespread electoral violence, restrictions on freedom of assembly, the lack of transparency in vote tabulation, and inconsistencies between the announced results and tally sheet results from polling stations. Violent protests during both elections closed businesses in major population centers, resulted in about 150 deaths, and the arbitrary detention of hundreds of people including several prominent opposition figures.

The state had persecuted political dissidents and opposition parties for decades. The Sekou Toure regime (1958-1984) and the Lansana Conte regime (1984-2008) were marked by political violence and human rights abuses.

Following the death of President Lansana Conte on December 22, 2008, a military junta calling themselves the National Council for Democracy and Development (CNDD) took power in a bloodless coup. Immediately following the coup, the U.S. government suspended all but humanitarian and election assistance to Guinea. The African Union (AU) and ECOWAS suspended Guinea’s membership pending democratic elections and a relinquishment of power by the military junta. In September 2009, junta security forces attacked a political rally in a stadium in Conakry, killing 150 people, and raping over a hundred women.

Guinea experienced violent incidents in 2011 and thereafter. On July 19, 2011, the President’s personal residence was attacked with small arms fire and rocket propelled grenades. Following the attack, the government arrested and charged 33 people, mostly military personnel, with attempted murder and treason.

The small mining town of Zogota, located in Guinea’s Forest Region, saw the deaths of five villagers, including the village chief, during August 2012 clashes with security forces over claims that the Brazilian iron-mining company Vale was not hiring enough local employees and was instead bringing workers from other regions of Guinea. The ensuing instability led to Vale evacuating all expatriate personnel from the town.

Other instances of violence occurred in 2014 and 2015 during the Ebola epidemic when local citizens attacked the vehicles and facilities of aid workers. The Red Cross, MSF (Doctors Without Borders) and the World Health Organization (WHO) also reported cases of property damage (destroyed vehicles, ransacked warehouses, etc.). On September 16, 2014, in the Forest Region village of Womei, eight people were killed by a mob when they visited the village as part of an Ebola education campaign. The casualties included radio journalists, local officials, and Guinean health care workers.

Presidential elections in 2015 sparked violent protests in Conakry, but clashes between police and demonstrators were largely contained. In addition to political violence, sporadic and generally peaceful protests over fuel prices, lack of electricity, labor disputes, and other issues have occurred in the capital and sometimes beyond since 2013. In February 2017, seven civilians died in confrontations with security services during large protests against education reforms. After two days of violent protests in March 2018, teachers’ unions and the government agreed to a raise of 40 percent. These protests over teacher union pay became intermingled with political protests over voting irregularities in the February 4 local elections. The political opposition claims the government is responsible for the deaths of over 90 people during political protests over the past eight years.

The local populace in Boke, Bel-Air, and Sangaredi disrupted road and/or railroad traffic on at least three occasions in 2017 and at least twice in 2018, in response to grievances over employment, lack of services, and other issues. Although none of these events targeted American or foreign investors, they were disruptive to business in general and eroded confidence in the security situation under which investors must operate in Guinea. Street violence is difficult to predict or avoid, but generally does not target westerners.

Policies Towards Foreign Direct Investment

The GoG recognizes foreign direct investment (FDI) as critical for growing and diversifying the Guyanese economy. Guyanese law does not discriminate against foreign investors. Shortly after being sworn in, President Ali committed to institute an electronic single window application process to expedite business registration, permitting, and improve the country’s Ease of Doing Business ranking. The GoG has prioritized investments in the following sectors: agriculture, agro-processing, light manufacturing, renewable energy, tourism and information and communications technology (ICT). The Guyana Office for Investment (GO-INVEST) is the GoG’s primary vehicle for promoting FDI opportunities and assisting foreign corporations with their business registrations and applying for tax concessions. Companies and investors are encouraged to do their due diligence and have robust business plans completed before approaching GOINVEST.

The GoG expects to table local content legislation before Parliament in the second quarter of 2021, which will set baseline requirements for foreign firms to hire Guyanese and establish taxation standards to foster greater local participation in the oil and gas sector. The aim of this legislation is to promote long term investments in Guyana, build local capacity, and avoid the resource curse.

Limits on Foreign Control and Right to Private Ownership and Establishment

Guyana’s constitution protects the rights of foreigners to own property in Guyana. Foreign and domestic firms possess the right to establish and own business enterprises and engage in all forms of commerce. Private entities are governed by the 1991 Companies Act (amended in 1995) under which they have the right to establish business enterprises and are free to acquire or dispose of interest in accordance with the law. Some key sectors like aviation, forestry, banking, mining, and tourism are heavily regulated and require licensing. The process to obtain licenses can be time consuming and may in some instances require ministerial approval.

The GoG prohibits foreign ownership of small-and-medium-scale mining (ASM) concessions. Foreign investors interested in participating in the industry at those levels may establish joint ventures with Guyanese nationals, under which the two parties agree to jointly develop a mining property. However, this type of relationship can carry a high level of risk because arrangements are governed only by private contracts and the sector’s regulatory agency, the Guyana Geology and Mines Commission (GGMC), offers little recourse for ASM disputes. The U.S. Embassy strongly encourages investors to thoroughly conduct their due diligence when exploring business opportunities.

Other Investment Policy Reviews

Guyana’s macro-economic fundamentals have remained stable over the past decade. The Ali administration is revising its Low Carbon Development Strategy (LCDS) to balance sustainable development goals with booming oil production. Developmental policies include incentives for priority areas, including education, health, renewable energy, agriculture, and agro-processing.

Government policy focuses on attracting inward FDI. The GoG applies national treatment to all economic activities, except for certain mining operations, although some foreign-owned companies conduct large-scale mining operations in the country. During its first months in office, the Ali administration took actions to improve the business environment such as repealing of taxes on corporate taxes on health, education, and construction materials. Incentives for FDI includes income tax holidays, and tariff and value-added tax (VAT) exemptions.

The World Trade Organization (WTO) published its most recent trade policy review of Guyana in 2015: https://www.wto.org/english/tratop_e/tpr_e/tp420_e.htm 

Business Facilitation

All companies operating in Guyana must register with the Registrar of Companies. Registration fees are lower for companies incorporated in Guyana than those incorporated abroad.  Locally incorporated companies are subjected to a flat fee of approximately $300 and a company incorporated abroad is subject to a fee of approximately $400. Depending on the type of business, registration may take three weeks or more. Newly registered businesses are encouraged to visit the Guyana Revenue Authority and apply for a tax identification number (TIN). If a company employs Guyanese workers, the company must demonstrate compliance with the National Insurance Scheme (social security). Businesses in the sectors requiring specific licenses, such as mining, telecommunications, forestry, and banking must obtain operation licenses from the relevant authorities before commencing operations. Guyana has six municipal authorities which also assess municipal taxes: Anna Regina, Corriverton, Georgetown, Linden, New Amsterdam, and Rosehall.

GO-INVEST advises the GoG on the formulation and implementation of national investment policies and provides facilitation services to foreign investors, particularly in completing administrative formalities, such as commercial registration and applications for land purchases or leases.  Under the Status of Aliens Act, foreign and domestic investors have the same rights to purchase and lease land. However, the process to access licensing can be complex and many foreign companies have opted to partner with local companies which may assist with acquiring a license. The Investment Act specifies that there should be no discrimination between foreign and domestic private investors, or among foreign investors from different countries. The authorities maintain that foreign investors have equal access to opportunities arising from privatization of state-owned companies.

Resources

Guyana Deeds and Commercial Registry: https://dcra.gov.gy/ 
GO-INVEST: https://goinvest.gov.gy/ 
Guyana Revenue Authority: https://www.gra.gov.gy/ 

Outward Investment

While the GoG is focused on attracting inward investment into Guyana, there are no restrictions for domestic investors to invest abroad. GO-INVEST supports Guyanese investors and exporters looking to operate overseas.  In 2019, the Natural Resource Fund Act (NRF) was passed which created Guyana’s sovereign wealth fund. The Act provides the Minister of Finance with responsibility for the overall management of the fund.  The NRF is currently held at the Federal Reserve Bank of New York and, as of February 2021, has a balance of $246.5 million from its nascent oil revenues and royalty payments. The Ali administration plans to amend the existing Natural Resource Fund Act and has committed to leave all funds on deposit until a new regulatory framework is adopted. The GoG has not stated an official investment policy for the sovereign wealth fund as of March 2021.

Transparency of the Regulatory System

Legal, regulatory, and accounting systems are consistent with international norms. Guyana is a democratic state and a separation of powers exists among the executive, legislative, and judicial branches of government.

As captured in the World Bank’s Doing Business Report, bureaucratic procedures are cumbersome, often requiring the involvement of multiple ministries. Investors report having received conflicting messages from various officials, and difficulty determining where the authority for decision-making lies.  In the absence of adequate legislation, most decision-making remains centralized. An extraordinary number of issues continue to be resolved in the presidential cabinet, a process that is commonly perceived as opaque and slow. Attempts to reform Guyana’s many bureaucratic procedures have not succeeded in reducing red tape.

International Regulatory Considerations

Guyana has been a World Trade Organization (WTO) member since 1995 and adheres to Trade-Related Investment Measures (TRIMs) guidelines. Guyana is also a member of the Caribbean Community (CARICOM) and is working to harmonize its regulatory systems with the rest of the CARICOM member states. Guyana is a member of the UNFCCC and reduces emissions from deforestation and forest degradation REDD+ initiative.

Guyana has laws on intellectual property rights and patents. However, a lack of enforcement offers few protections in practice and allows for the relatively uninhibited distribution and sale of illegally obtained content.

Legal System and Judicial Independence

Guyana’s legal system is mixed following the combination of civil and common laws. Guyana’s judicial system operates independently from the executive branch. The Caribbean Court of Justice, located in Trinidad and Tobago, is Guyana’s highest court. Registered companies are governed by the Companies Act and contracts are enforced by Guyanese courts or through a mediator. Guyana has a commercial court in its High Court, which has both original and appellate jurisdiction.

Laws and Regulations on Foreign Direct Investment

Legislation exists in Guyana to support foreign direct investment, but the enforcement of these regulations continues to be inadequate. The objective of the Investment Act of 2004 and Industries and Aid and Encouragement Act of 1951 is to stimulate socio-economic development by attracting and facilitating foreign investment. Other relevant laws include: the Income Tax Act, the Customs Act, the Procurement Act of 2003, the Companies Act of 1991, the Securities Act of 1998, and the Small Business Act. Regulatory actions are still required for much of this legislation to be effectively implemented. The Companies Act provides special provisions for companies incorporated outside of Guyana called “external companies.” Companies should direct their inquiries about regulations on FDI to GO-INVEST.

Guyana has no known examples of executive interference in the court system that have adversely affected foreign investors. The judicial system is generally perceived to be slow and ineffective in enforcing legal contracts. The 2020 World Bank’s Doing Business Report states that it takes 581 days to enforce a contract in Guyana.

Competition and Antitrust Laws

The Competition Commission of Guyana was established under the 2006 Competition and Fair Trading Act. The Competition and Fair Trading act seeks to promote, maintain, and encourage competition; to prohibit the prevention, restriction, or distortion of competition, the abuse of dominant trade positions; and to promote the welfare and interests of consumers. The Competition Commission and Consumer Affairs Commission (CCAC) is responsible for investigating complaints by agencies and consumers, eliminating anti-competitive agreements, and may institute or participate in proceedings before a Court of Law.  For mergers and acquisitions within of the banking sector, the Bank of Guyana has ultimate oversight and approval.

Expropriation and Compensation

The government can expropriate property in the public interest under the 2001 Acquisition of Land for Public Purposes Act, although there are no recent cases of expropriation. There is adequate legislation to promote and protect foreign investment, however, enforcement is often ineffective. Many reports view Guyana’s judicial system as being slow and ineffective in enforcing legal contracts. All companies are encouraged to conduct due diligence and seek appropriate legal counsel for any potential questions prior to doing business in Guyana.

Dispute Settlement

Guyana is a party to the International Centre for Settlement of Investment Disputes (ICSID Convention). Additionally, Guyana has ratified the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention), which entered into force in December 2014.

Investor-State Dispute Settlement

Guyana does not have a bilateral investment treaty with the United States. Negotiations began in 1993 but broke down in 1995. Since then, the two countries have not conducted subsequent negotiations.

Double taxation treaties are in force with Canada (1987), the United Kingdom (1992), and CARICOM (1995). Other double taxation agreements remain under negotiation with India, Kuwait, and the Seychelles. The CARICOM-Dominican Republic Free Trade Agreement provides for the negotiation of a double taxation agreement, but no significant developments have occurred since March 2009.

There is one ongoing investment dispute involving a U.S. telecommunications company, which previously held a legal monopoly in Guyana, contesting its liability for back taxes.

International Commercial Arbitration and Foreign Courts

International arbitration decisions are enforceable under the 1931 Arbitration Act of British Guiana, as amended in 1998. The Act is based on the Geneva Convention for the Execution of Foreign Arbitral Awards of 1927. The GoG enforces foreign awards by way of judicial decisions or action, and such awards must be in line with the policies and laws of Guyana.

According to the 2020 World Bank’s Doing Business Report, resolving disputes in Guyana takes 581 days, and on average costs 27 percent of the value of the claim. According to many businesses, suspected corrupt practices and long delays make the courts an unattractive option for settling investment or contractual disputes, particularly for foreign investors unfamiliar with Guyana.

The GoG has set up a Commercial Court to expedite commercial disputes, but this court only has one judge presiding, and companies have reported that it is overwhelmed by a backlog of cases.  The Caribbean Court of Justice, based in Trinidad and Tobago, is Guyana’s court of final instance. In practice, most business disputes are settled by mediation which avoids a lengthy court battle and keeps costs low to both parties. Guyanese state-owned enterprises are not widely involved in investor disputes. To date, there are no complaints on the court process relating to judgments involving state owned enterprises.

Bankruptcy Regulations 

The 1998 Guyana Insolvency Act provides for the facilitation of insolvency proceedings.  The 2004 Financial Institutions Act gives the Central Bank power to take temporary control of financial institutions in trouble.  This Act provides legal authority for the Central Bank to take a more proactive role in helping insolvent local banks.

According to data collected by the World Bank Doing Business Report, resolving insolvency in Guyana takes three years on average and costs 28.5% of the debtor’s estate, with the most likely outcome being that the company will be sold piecemeal.  The average recovery rate is 18 cents on the dollar. Globally, Guyana ranks 163 out of 190 economies on the Ease of Resolving Insolvency Report.

Capital Markets and Portfolio Investment

Guyana has its own stock market, which is supervised by the Guyana Association of Securities Companies and Intermediaries (GASCI).  Dividends earned from the local stock exchange are tax free.  Guyana’s local stock market performed well in 2020 with a 15 percent increase in its market capitalization.  Credit is available on market terms. The Central Bank respects IMF Article VIII with regard to payments and transfers for international transactions.

Money and Banking System

Guyana relies heavily on cash payments for most financial transactions, but credit cards and mobile payment options are increasingly common. The GoG’s monetary policy remains accommodative, aimed at achieving price stability and controlling liquidity within the economy. The financial sector is regulated by the Bank of Guyana (BOG), the country’s central bank.  The BOG is empowered under the 1995 Financial Institutions Act and the Bank of Guyana Act to regulate the financial sector.  Under these regulations a bank operating in Guyana must maintain high levels of liquidity and a strong deposit and asset base.

In the middle of 2020, licensed depository financial institutions’ (LDFIs’) capital levels continued to be high, while non-performing loans (NPLs) increased marginally during the first half of 2020. The capital adequacy ratio (CAR) remained well above the prudential benchmark of 8.0 percent at 30.7 percent. The stock of NPLs deteriorated to 10.6 percent of total loans. Stress testing was performed by the Central bank with preliminary results indicating that the banking industry’s and individual institutions’ shock absorptive capacities remained adequate under the various scenarios for foreign currency and liquidity. However, vulnerabilities were observed in the investment and credit portfolios. Guyana’s Banking Stability index strengthened from -0.22 in March 2020 to 0.15 in June 2020 attributed to improvement in liquidity. The commercial banking sector grew by 7.2 percent from March 2019 to March 2020. Foreign banks seeking to open operations in Guyana are encouraged to engage with the Bank of Guyana and GO-INVEST.

Guyana has six commercial banks.  Foreign banks can provide domestic services or enter the market with a license from the BoG.  There are no restrictions on a foreigner’s ability to establish a bank account.

Foreign Exchange and Remittances

Foreign Exchange

The Guyanese Dollar (GYD) is fully convertible and transferable, and generally stable in its value against the U.S. dollar. The Guyana dollar weighted mid-rate, relevant for official transactions, remained constant at GYD 208.50 as at half year 2020. Guyana employs a de jure float exchange rate.

No limits exist on inflows or repatriation of funds. However, regulations require that all persons entering and exiting Guyana declare all currency in excess of $10,000 to customs authorities at the port of entry. It is common practice for foreign investors to use subsidiaries outside of Guyana to handle earnings generated by exports.

Remittance Policies 

There is no limit on the acquisition of foreign currency, although the government limits the amount that several state-owned firms may keep for their own purchases.  Regulations on foreign currency denominated bank accounts in Guyana allow funds to be wired in and out of the country electronically without having to go through cumbersome exchange procedures.  Foreign companies operating in Guyana have not reported experiencing government-induced difficulties in repatriating earnings in recent years.

Sovereign Wealth Funds

Guyana established a sovereign wealth fund, the Natural Resource Fund (NRF), in 2019, which is governed by the 2019 Natural Resources Act in accordance with the Santiago Principles. In December 2019, the Ministry of Finance and Bank of Guyana signed an operational agreement for the NRF . However, the Ali administration, noting the NRF’s passage under a previous government, has committed to repeal and replace the act to further insulate the NRF from potential political intervention. Until the NRF is amended the GoG does not expect to access the funds which has are held in the New York Federal Reserve Bank. As at March 10, 2021, the SWF held a balance of approximately $268 million.

Guyana has ten state-owned enterprises (SOEs) including: National Industrial and Commercial Investments Ltd. (NICIL), Guyana Sugar Corporation (GUYSUCO), MARDS Rice Complex Ltd., National Insurance Scheme (NIS), Guyana Power and Light (GPL), Guyana Rice Development Board (GRDB), Guyana National Newspapers Ltd. (GNNL), Guyana National Shipping Corporation (GNSC) and Guyana National Printers Ltd. (GNPL).

The private sector competes with SOEs for market share, credit, and business opportunities. It is common for SOEs in Guyana to experience political interventions, driven by boards of directors filled with political appointees. Procurement on behalf of SOEs may be passed through the National Procurement and Tender Administration or handled directly by the SOE.

The Public Corporation Act requires public corporations to publish an annual report no later than six months after the end of the calendar year. These reports must be audited by an independent auditor.

Privatization Program

In the 1990s, Guyana underwent significant privatization with the divestment of many sectors.  In 1993, the Privatisation Policy Framework Paper known as the “Privatisation White Paper” was tabled in Parliament and led to the creation of the Privatisation Unit (PU). Its function was to co-ordinate the implementation of the GoG’s privatization program and was tasked with:

• Combining the functions of the Public Corporations Secretariat (PCS) and the National Industrial & Commercial Investments Limited (NICIL);
• Preparing for the program strategy and annual program targets for privatization or liquidation Cabinet’s approval;
• Implementing the privatization of SOEs and assets selected for inclusion in the program;
• Participating in negotiations for the privatization of SOEs;
• Reviewing offers and making recommendations to Cabinet on the terms and conditions for the sale of SOEs;
• Preparing financial and administrative audits of SOEs not selected for privatization;
• Developing a strategy to build public understanding and support for privatization;
• Ensuring that transparency of the privatization program is strictly respected and followed;
• Monitoring operations of privatized entities in accordance with the terms and conditions of each respective contract;
• Preparing for Cabinet, broad guidelines on operating policies for privatization, develop action plans for implementation, conduct a public relations campaign and help to build national consensus in support of government’s program.

Foreign investors have equal access to privatization opportunities. However, there are many reports that the process is opaque and favors politically connected local businesses. Currently, the GoG is interested in privatizing at least a portion of GUYSUCO.

U.S. firms are generally given equal access to these projects through a public bidding process. However, many bidders continue to complain about the criteria and question their unsuccessful attempt at securing a contract.  In cases where international financial institution (IFI) funding has been involved in the project, such allegations have been credibly addressed. In cases where the project relied solely on GoG funds, redress has been more problematic to achieve.

Guyana has a high crime rate, and violence associated with drug and gold smuggling is on the rise. The country peacefully transitioned to a new government on August 2, 2020 after a 20 month-long extra-constitutional and electoral crisis, which saw few instances of politically-incited violence. The GoG has committed to electoral reform in the wake of the 2020 electoral crisis in order to avoid electoral impasses in the future.

The security environment in the country continues to be a concern for many businesses. Businesses considering investing in Guyana are strongly encouraged to develop adequate security systems.

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

Table 4: Sources of Portfolio Investment
Data not available.

Policies Towards Foreign Direct Investment

Haiti’s legislation encourages foreign direct investment. Import and export policies are non-discriminatory and are not based on nationality. Haitian and foreign investors have the same rights, privileges and protections under the 1987 investment code. The Haitian government has made some progress in recent years to improve the legal framework, create and strengthen core public institutions, and enhance economic governance. The Haitian Central Bank continues to work with the International Monetary Fund (IMF) and the World Bank to implement measures aimed at creating a stable macroeconomic environment. The IMF concluded its most recent Article IV economic consultation with Haiti in January 2020 (www.imf.org/en/countries/hti). In April 2020, the IMF loaned Haiti $112 million through its rapid credit facility mechanism to provide liquidity to Haiti for expenditures to address COVID-19.

While not discriminatory towards international investment specifically, the Haitian government’s economic policies fall short of providing a sound enabling environment for foreign direct investment. The Haitian Central Bank announced in August 2020 the intention to use up to $150 million of its international reserves to intervene in the foreign exchange market, resulting in a rapid appreciation of the country’s local currency, the Haitian gourde (HTG), relative to the U.S. dollar (USD). The gourde appreciated from about 121 HTG/USD to 62 HTG/USD over two months and began steadily depreciating in November 2020 to its rate of 80 HTG/USD as of April 2021. The gourde’s sudden and unexpected change in value has resulted in sustained increased costs for export-oriented businesses, including international investors.

Despite passing anti-money laundering and anti-corruption laws to ensure that Haiti’s legislation corresponds with international standards, the government has not strictly followed the legal framework of these laws, and has failed to incentivize investment in Haiti. In early 2017, the Parliament enacted legislation making electronic signatures and electronic transactions legally binding. Other pieces of legislation that may improve Haiti’s investment climate remain pending, including incorporation procedures, a new mining code, and an insurance code. Haiti’s Finance Ministry is implementing measures to improve revenue collection and control spending. The Ministry signed an agreement with Haiti’s Central Bank in November 2019 to strengthen fiscal discipline and limit government monetary financing. Despite these measures, the rate of monetary financing over fiscal year (FY) 2021 appears to be outpacing the annual budgeted amount of $462 million (3.6 percent of FY2021 IMF-projected GDP), standing at $377 million (3.0 percent of GDP) as of March 4, 2021, less than six months into the fiscal year. The Center for the Facilitation of Investments (CFI), which operates under Haitian Ministry of Commerce oversight, was established to promote domestic and international investment opportunities in Haiti. In concept, the CFI could streamline the investment process by: working with other government agencies to simplify procedures related to trade and investment; providing updated economic and commercial information to local and foreign investors; making proposals on investor incentives; and promoting investment in priority sectors. The CFI aims to offer tailored services to large international investors, but has been unable to operate at full capacity during the pandemic. In practice, the CFI has made limited progress to incentivize job creation and boost national production in agriculture, apparel assembly, and tourism. As an example, prior to the COVID-19 pandemic, Haiti’s Tourism Association reported a 60 percent loss of jobs in the sector in 2019.

Limits on Foreign Control and Right to Private Ownership and Establishment

The Haitian government does not impose discriminatory requirements on foreign investors. Haitian laws related to residency status and employment are reciprocal. Foreigners who are legal residents in Haiti and wish to engage in trade have, within the framework of laws and regulations, the same rights granted to Haitian citizens. However, Article 5 of the Decree on the Profession of Merchants reserves the function of manufacturer’s agent for Haitian nationals.

Foreign firms are also encouraged to participate in government-financed development projects. Performance requirements are not imposed on foreign firms as a condition for establishing or expanding an investment, unless indicated in a signed contract.

Foreign investors are permitted to own 100 percent of a company or subsidiary. As a Haitian entity, such companies enjoy all rights and privileges provided under the law. Additionally, foreign investors are permitted to operate businesses without equity-to-debt ratio requirements. Accounting law allows foreigners to capitalize using tangible and intangible assets in lieu of cash investments.

Foreign investors are free to enter into joint ventures with Haitian citizens. The distribution of shares is a private matter between the two parties. However, the government regulates the sale and purchase of company shares. Investment in certain sectors, such as health and agriculture, requires special Haitian government authorization. Investment in “sensitive” sectors such as electricity, water, telecommunications, and mining require a Haitian government concession as well as authorization from the appropriate governmental agency. In general, natural resources are the property of the state, and the exploitation of mineral and energy resources requires concessions and permitting from the Ministry of Public Works’ Bureau of Mining and Energy. Mining, prospecting, and operating permits may only be granted to companies established and resident in Haiti, and the establishment of new industrial mines cannot take place until an elected parliament passes an updated mining law, along the lines of a draft law initially presented in 2017.

Entrepreneurs are free to dispose of their properties and assets, and to organize production and marketing activities in accordance with local laws.

Investors in Haiti can create the following types of businesses: sole proprietorship, limited or general partnership, joint-stock company, public company (corporation), subsidiary of a foreign company, and co-operative society. The most common business structures in Haiti are corporations. A draft law (Société de Droits law), which would facilitate the creation of other types of businesses in Haiti, such as LLCs, remains pending parliamentary approval when parliament is restored.

Other Investment Policy Reviews

Haiti’s last investment policy review from the United Nations Conference on Trade and Development occurred in 2012. In general, Haiti’s political instability, weak institutions, and inconsistent economic policies impede the country’s ability to attract and direct foreign direct investment.

The World Trade Organization’s (WTO) 2015 Trade Policy Review stated that Haiti’s Investment Code and Law on Free Trade Zones is fully compliant with the Agreement on Trade-Related Investment Measures. The full report can be viewed at https://www.wto.org/english/tratop_e/tpr_e/tp427_e.htm .

Business Facilitation

While the Haitian government has made efforts to facilitate the launching and operating of businesses, the average time to start a business in Haiti is 189 days, according to the World Bank’s 2020 Ease of Doing Business Report. At present, it takes between 90 and 120 days to complete registration with the Commercial Registry at the Ministry of Commerce and obtain the authorization of operations (Droit de fonctionnement). The Center for Facilitation of Investments (CFI), a public-private organization, also offers a service providing pre-registered and fully authorized companies in manufacturing, agribusiness, and real estate the opportunity to reduce their registration time. Once the Inter-Ministerial Investment Commission validates these established companies, the shares are transferred to the new owners.

Both foreign and domestic businesses can register at Haiti’s CFI: http://cfihaiti.com . All businesses must register with the Ministry of Commerce, the Haitian tax office, the state-owned Banque Nationale de Crédit, the social security office, and the retirement insurance office.

The Ministry of Commerce and Industry’s internet registry allows investors to search for and verify the existence of a business in Haiti. The registry will eventually provide online registration of companies through an electronic one-stop shop. In October 2020, CFI launched Spotlight, an initiative with the aim of promoting visibility of companies already established in Haiti and registered in the CFI database.

Outward Investment

Neither the law nor the Haitian government restricts domestic investors from investing abroad. Still, Haiti’s outward investment is limited to a few enterprises with small investments. These investors are generally businesspersons with dual citizenship and others of Haitian origin who presently reside in the country in which their firms operate. The majority of these firms are service providers and not investment firms. There is no current program or incentive in place to encourage Haitian entrepreneurs to invest abroad.

Transparency of the Regulatory System

Haitian laws are written to allow for transparency and to be applied universally. However, Haitian officials do not uniformly enforce these laws and the bureaucratic “red tape” in the Haitian legal system is often excessive.

Tax, labor, health, and safety laws and policies are also loosely enforced. The private sector often provides services, such as healthcare, to employees that are not entitled to coverage under Haitian government agencies or institutions. All regulatory processes are managed exclusively by the government and do not involve the private sector and non-governmental organizations.

Draft bills or regulations are available to the public through “Le Moniteur,” the official journal of the Haitian government, and information is sometimes made available online. Le Moniteur contains public agency rules, decrees, and public notices that Les Presses Nationales d’Haiti publishes.

According to the World Bank, Haitian ministries and regulatory agencies do not develop forward regulatory plans, nor do they publish proposed regulations prior to their adoption. Haitian law does not require a timeframe for public comment or review of proposed regulations.

International Regulatory Considerations

Haiti is a member of the Caribbean Community (CARICOM), an organization of 15 states and dependencies established to promote regional economic integration. The CARICOM Single Market and Economy (CSME), created in 1989, aims to advance the region’s integration into the global economy by facilitating free trade in goods and services, and the free movement of labor and capital. CSME became operational in January 2006 in 12 of the 15 member states. Haiti, as a member of CARICOM, has expressed an interest in participating fully in CSME. However, to become eligible, Haiti must amend its customs code to align with CARICOM and WTO standards.

Haiti also adheres to the compulsory jurisdiction of the International Court of Justice on issues of international law, and of the Caribbean Court of Justice for the settlement of trade disputes within CARICOM.

Haiti is an original member of the WTO. As such, it has made several commitments to the WTO with regard to the financial services sector. These commitments include allowing foreign investment in financial services, such as retail, commercial, investment banking, and consulting. One foreign bank, Citibank, operates in Haiti. Haiti has committed to notifying the WTO Committee on Technical Barriers to Trade of all draft technical regulations. However, Haiti is not party to the Trade Facilitation Agreement.

Legal System and Judicial Independence

As a former French colony, Haiti adopted the French civil law system. The Supreme Court, also known as the Superior Magistrate Council, is the highest court of the nation, followed in descending order by the Court of Appeals and the Court of First Instance. Haiti’s commercial code dates back to 1826 and underwent significant revisions in 1944. There are few commercial laws in place and there are no commercial courts. Injunctive relief is based upon penal sanctions rather than securing desirable civil action. Similarly, contracts to comply with certain obligations, such as commodities futures contracts, are not enforced. Haitian judges do not have specializations, and their knowledge of commercial law is limited. Utilizing Haitian courts to settle disputes is a lengthy process and cases can remain unresolved for years. Bonds to release assets frozen through litigation are unavailable. Business litigants often pursue out-of-court settlements.

Haiti’s legal system often presents challenges for U.S. citizens seeking to resolve legal disputes. In Haiti, judges are appointed for a set number of years. Public prosecutors are direct employees of the Ministry of Justice and can be transferred or suspended by the executive branch at any time. There are numerous allegations of undue political interference. Additionally, there are persistent claims that some Haitian officials use their public office to influence commercial dispute outcomes for personal gain. The Haitian government receives international assistance to increase the capacity of its oversight institutions and the capacity of the national police.

Laws and Regulations on Foreign Direct Investment

The Investment Code prohibits fiscal and legal discrimination against foreign investors. The code explicitly recognizes the crucial role of foreign direct investment in promoting economic growth. It also aims to facilitate, liberalize, and stimulate private investment, and contains exemptions to promote investments that enhance competitiveness in sectors deemed priorities, especially export-oriented sectors. Tax incentives, such as reductions on taxable income and tax exemptions, are designed to promote private investment. Additionally, the code grants Haitian and foreign investors the same rights, privileges, and equal protection. Foreign investors must be legally registered and pay appropriate local taxes and fees.

The code also established an Inter-Ministerial Investment Commission (CII) to examine investor eligibility for license exemptions as well as customs and tariff advantages. The Center for Facilitation of Investments (CFI) is the Technical Secretariat of the CII. The Prime Minister, or his delegate, chairs the CII, which is composed of representatives of the Ministries of Economy and Finance, Commerce, and Tourism, as well as those ministries that oversee specific areas of investment. The CII must authorize all business sales, transfers, mergers, partnerships, and fiscal exemptions within the scope of the code. The CII also manages the process of fining and sanctioning enterprises that disregard the code.

The following areas are often noted by businesses as challenging aspects of Haitian law: operation of the judicial system; publication of laws, regulations, and official notices; establishment of companies; land tenure and real property law and procedures; bank and credit operations; insurance and pension regulation; accounting standards; civil status documentation; customs law and administration; international trade and investment promotion; foreign investment regulations; and regulation of market concentration and competition. Although these deficiencies hinder business activities, they are not specifically aimed at foreign firms; rather, they appear to affect both foreign and local companies.

Competition and Antitrust Laws

There is currently no law to regulate competition. Haiti is one of the most open economies in the region. The investment code provides the same rights, privileges and equal protection to local and foreign investors. Anti-corruption legislation also criminalizes nepotism and the dissemination of inside information on public procurement processes. Haiti does not, however, have anti-trust legislation.

Expropriation and Compensation

The 1987 Constitution allows expropriation or dispossession only for reasons of public interest or land reform and is subject to prior payment of fair compensation as determined by an expert. If the initial project for which the expropriation occurred is abandoned, the Constitution stipulates that the expropriation will be annulled, and the property returned to the original owner. The Constitution prohibits nationalization and confiscation of real and personal property for political purposes or reasons.

Title deeds are vague and often insecure. The Haitian government established the National Institute of Agrarian Reform to implement expropriations of private agricultural properties with appropriate compensation. The agrarian reform project, initiated under the Preval administration (1996-2001), was controversial among both Haitian and U.S. property owners. There have been complaints of non-compensation for the expropriation of property. Moreover, a revision of the land tenure code, intended to address issues related to the lack of access to land records, surveys, and property titles in Haiti, has been pending in parliament since 2014. A partnership between the private sector, Haitian government, and international organizations resulted in a guide on security land rights in Haiti, which was translated in 2016 and can be found here: https://www.land-links.org/wp-content/uploads/2019/09/Haiti-Land-Manual-2.pdf .

Dispute Settlement

ICSID Convention and New York Convention

In 2009, Haiti ratified the 1965 International Convention on the Settlement of Investment Disputes between states and nationals of other states (ICSID). Under the convention, foreign investors can call for ICSID arbitration for disputes with the state. The Haitian government appears to recognize that weak enforcement mechanisms and a lack of updated laws to handle modern commercial disputes severely compromises the protections and guarantees that Haitian law extends to investors.

Haiti is not a signatory to the Inter-American-U.S. Convention on International Commercial Arbitration of 1975 (Panama Convention).

Investor-State Dispute Settlement

Haiti is a signatory to the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which provides for the enforcement of an agreement to arbitrate present and future investment disputes. Under the convention, Haitian courts can enforce such an agreement by referring the parties to arbitration. Disputes between foreign investors and the state can be settled in Haitian courts or through international arbitration, though claimants must select one to the exclusion of the other. A claimant dissatisfied with the ruling of the court cannot request international arbitration after the ruling is issued. The law provides mechanisms on the procedures a court should follow to enforce foreign arbitral awards issues.

While there is not a consistent history of extrajudicial action against foreign investors, a number of investment dispute cases have been reported by U.S. companies over the past 10 years, although the most recent expropriation claim occurred in 2013. Disputes most frequently related to disagreements between business owners and Haitian tax and licensing authorities, a lack of clarity as to land ownership and other disputed property claims, and disputes over the enforcement of government contracts and concessions. Although some businesses were able to resolve disputes through the court system or by otherwise settling with the Haitian government, business owners appear to have accepted their losses and abandoned other legacy cases.

International Commercial Arbitration and Foreign Courts

International arbitration is strongly encouraged as a means of avoiding lengthy domestic court procedures. In principle, foreign judgments are enforceable under local courts. In 2005, the Haitian Chamber of Commerce and Industry and the Inter-American Development Bank jointly developed the Haitian Arbitration and Conciliation Chamber, which provides mechanisms for conciliation and arbitration in private commercial disputes.

Bankruptcy Regulations

Haiti’s bankruptcy law was enacted in 1826 and modified in 1944. There are three phases of bankruptcy under Haitian law. In the first stage, payments cease to be made and bankruptcy is declared. In the second stage, a judgment of bankruptcy is rendered, which transfers the rights to administer assets from the debtor to the Director of the Haitian Tax Authority (Direction Generale des Impots). In this phase, assets are sealed, and the debtor is confined to debtor’s prison. In the last stage, the debtor’s assets are liquidated, and the debtor’s verified debts are paid prorated according to their right. The debtor is released from prison once the debtor’s verified debts are paid. In practice, the above measures are seldom applied. Since 1955, most bankruptcy cases have been settled between the parties.

Although the concepts of real property mortgages and chattel mortgages – based on collateral of movable property, such as machinery, furniture, automobiles, or livestock to secure a mortgage – exist, real estate mortgages involve antiquated procedures and may fail to be recorded against the debtor or other creditors. Property is seldom purchased through a mortgage and secured debt is difficult to arrange or collect. Liens are virtually impossible to impose and using the judicial process for foreclosure is time consuming and often futile. Banks frequently require that loans be secured in U.S. dollars.

Capital Markets and Portfolio Investment

The scale of financial services remains modest in Haiti. The banking sector is well capitalized and profitable. In principle, there are no limitations to foreigners’ access to the Haitian credit market, but limited credit is available through commercial banks. The free and efficient flow of capital, however, is hindered by Haitian accounting practices, which are below international standards. While there are no restrictions on foreign investment through mergers or acquisitions, there is no Haitian stock market, so there is no way for investors to purchase shares in a company outside of direct transactions. As summarized in the most recent (2020) IMF Article IV consultation for Haiti, however, the country has accepted the obligations of Article VIII and maintains an exchange system free of restrictions on the making of payments and transfers for current international transactions.

The standards that govern the Haitian legal, regulatory, and accounting systems do not comply with international norms. Haitian laws do not require external audits of domestic companies. Local firms calculate taxes, obtain credit or insurance, prepare for regulatory review, and assess real profit and loss. Accountants use basic accounting standards set by the Organization of Certified Professional Accountants in Haiti.

Administrative oversight in the banking sector is superior to oversight in other sectors. Under Haitian law, however, banks are not required to comply with internationally recognized accounting standards, and they are often not audited by internationally recognized accounting firms. Nevertheless, Haiti’s Central Bank requires that banks apply internal audit procedures. As part of their corporate governance all private banks also have in-house audit functions. Most private banks follow international accounting norms and use consolidated reporting principles. The Central Bank is generally viewed as one of the well-functioning Haitian government institutions.

Money and Banking System

The banking sector has concentrated on credit for trade financing and in the proliferation of bank branches to capture deposits and remittances. Telebanking has expanded access to banking services for Haitians. Foreign banks are free to establish operations in Haiti. Three major banking institutions (Unibank, Sogebank and Banque Nationale de Credit) hold roughly 80 percent, or HTG 325 billion (approximately $4 billion), of total banking sector assets. With its acquisition of the Haitian operations of Scotiabank in 2017, Unibank became Haiti’s largest banking company, with a deposit market share of 35 percent. As part of the deal, Scotiabank remains one of Unibank’s international correspondent banks. U.S.-based Citibank also has a correspondent banking relationship with Unibank.

The three major commercial banks also hold 76 percent of the country’s total loan portfolio, while 70 percent of total loans are monopolized by 10 percent of borrowers. The concentration of holdings and limited number of borrowers increases the Haitian banking system’s vulnerability to systemic credit risk and restricts the availability of capital. The quality of loan portfolios in the banking system has slightly improved. Per the Haitian Central Bank, the ratio of nonperforming loans over total loans was 5.37 percent in December 2020, compared to 6.89 percent in December 2019. The Central Bank conducts regular inspections to ensure that financial institutions are in compliance with minimum capital requirements, asset quality, currency, and credit risk management.

The Central Bank’s main challenge is maintaining sound monetary policy in the context of a larger-than-expected government deficit and a depreciating local currency. The exchange rate suffers from continued pressure on the foreign exchange market. The Central Bank has made a series of interventions with a prior objective to support the value of the gourde by increasing the dollar supply in the foreign exchange market. Selling U.S. dollars in the foreign exchange market has also allowed the Central Bank to dry up the excess liquidity of the gourde in the market with the potential effect of tempering the inflation rate. Annual inflation decelerated to 18.7 percent as of January 2021, remaining on a gradual downward trend since September 2020. As of the beginning of March 2021, Haiti’s stock of net international reserves was approximately $501 million.

There are no legal limitations on foreigners’ access to the domestic credit market. However, banks demand collateral of real property to grant loans. Given the lack of effective cadastral and civil registries, loan applicants face numerous challenges in obtaining credit. The banking sector is extremely conservative in its lending practices. Banks typically lend exclusively to their most trusted and credit-worthy clients. Based on a 2018 study by FinScope Haiti, only one percent of the adult population has access to a bank loan. The high concentration of assets does not allow for product innovation at major banks.

To provide greater access to financial services for individuals and prospective investors, the Haitian government’s banking laws recognize tangible movable property (such as portable machinery, furniture, and tangible personal property) as collateral for loans. These laws allow individuals to buy condominiums, and banks to accept personal property, such as cars, bank accounts, etc., as collateral for loans. USAID has a loan portfolio guarantee program with a diversified group of financial institutions to encourage them to expand credit to productive small and medium enterprises, and rural micro-enterprises. Haiti has a credit rating registry in effect for users of the banking sector but does not have the relevant legislation in place to establish a credit rating bureau.

Haiti’s Central Bank issued a series of monetary policy measures to alleviate the potential impact of COVID-19 on the financial system and the economy in March 2020. These measures included: a reduction in the Central Bank’s policy rate to help lower interest rates on loans; the decrease of reserve requirement ratios to reduce the cost for banks to capture resources and grant loans; a reduction in the Central Bank’s refinancing rate to lower the cost of access to liquidity; the alleviation of loan repayment conditions for customers over a three-month period; the waiver of the Central Bank’s fees on interbank transfers to reduce transaction costs for customers; and the increase of limits on transactions through mobile payment services.

Foreign Exchange and Remittances

Foreign Exchange

The Haitian gourde (HTG) is convertible for commercial and capital transactions. The Central Bank publishes a daily reference rate, which is a weighted average of exchange rates offered in the formal and informal exchange markets. The difference between buying and selling rates is generally less than five percent. Funds can be freely converted into specific currencies such as the U.S. dollar, Canadian dollar, the Euro, the Dominican Republic peso, and the Panamanian peso. The U.S. dollar is usually the most widely available currency, and may be available at times when conversion into another currency is not an option. Starting in the fall of 2020, however, a shortage of U.S. dollars in the formal foreign exchange market in Haiti has been a persistent issue for businesses engaging in international trade.

Remittance Policies

The Haitian government does not impose restrictions on the inflow or outflow of capital. The Law of 1989 governs international transfer operations and remittances. Remittances are Haiti’s primary source of foreign currency and are equivalent to approximately one-third of GDP. In 2020, Haiti received about $3.2 billion in remittances. There are no restrictions or controls on foreign payments or other fund transfer transactions. While restrictions apply on the amount of money that may be withdrawn per transaction, there is no restriction on the amount of foreign currency that residents may hold in bank accounts, and there is no ceiling on the amount residents may transfer abroad.

The Haitian government has expressed an intention to put in place stricter measures to monitor money transfers in accordance with Haiti’s efforts to deter illicit cash flows, as mandated by the 2013 Anti-Money Laundering Act. The Haitian Central Bank (BRH) issued a circular in June 2020 applicable to commercial banks and transfer houses. The circular, which went into force as of October 2020, specifies that international transfers must be paid in foreign currency if the beneficiary receives the funds in their U.S. dollar-denominated bank account, while transfers must be paid in gourdes if the beneficiary requests payment at any point of service (branch, agency, office, kiosk) on Haitian national territory. According to the circular, payments in gourdes are made at the daily reference exchange rate published by the Central Bank.

Sovereign Wealth Funds

To date Haiti does not have a Sovereign Wealth Fund.

Per information released by the Central Bank in September 2018, since 2011 Haiti has levied a tax of $1.50 on all transfers into and out of the country, with the proceeds designated for the National Fund for Education. According to a Central Bank report in September 2018, more than $120 million has been collected since July 2011 on taxes from remittances from the diaspora.

The Haitian government owns and operates, either wholly or in part, several State-Owned Enterprises (SOE). The Haitian commercial code governs the operations of the SOEs. The sectors include: food processing and packaging (a flourmill), construction and heavy equipment (a cement factory); information and communications (a telecommunications company); energy (the state electricity company, EDH); finance (two commercial banks, Banque Nationale de Crédit and Banque Populaire Haïtienne); and the national port authority and the airport authority. The law defines SOEs as autonomous enterprises that are legally authorized to be involved in commercial, financial, and industrial activities. All SOEs operate under the supervision of their respective sectorial ministry and are expected to create economic and social return. Today, some SOEs are fully owned by the state, while others are jointly owned commercial enterprises. The Haitian parliament, when it is functioning, has full authority to liquidate state enterprises that are underperforming. The majority of SOEs are financially sound. However, EDH receives substantial annual subsidies from the Haitian government to stay in business.

Privatization Program

In response to the economic difficulties of the late 1990s and mismanagement of the SOEs, the government liberalized the market and allows foreign firms to invest in the management and/or ownership of some Haitian state-owned enterprises. To accompany the initiative, the government established the Commission for the Modernization of Public Enterprises in 1996 to facilitate the privatization process.

In 1998, two U.S. companies, Seaboard and Continental Grain, purchased shares of the state-owned flourmill. Each partner currently owns a third of the company, known today as Les Moulins d’Haiti. In 1999, a consortium of Colombian, Swiss, and Haitian investors purchased a majority stake in the national cement factory. In 2010, a state-owned Vietnamese corporation, Viettel, officially acquired 60 percent of the state telecommunications company Teleco (now operating as Natcom), with the Haitian government retaining 40 percent ownership. The government has allowed limited private sector investment in selected seaports. Competition is generally not distorted in favor of state-owned enterprises to the detriment of private companies.

The Haitian government has allowed private sector investment in electricity generation to compensate for EDH’s inability to supply sufficient power, though it has had contractual disputes with multiple independent power producers. Only one independent power producer, partially U.S.-owned E-Power, generates electricity for EDH in Port au Prince as of 2021. In 2019, the Haitian energy sector regulatory authority, ANARSE, issued a series of prequalification rounds for concessionaires to take over and expand electricity production, transmission, and distribution for several of the country’s regional grids, including the grid serving the Caracol Industrial Park. ANARSE is expected to select concessionaires for the initial three grids and issue further tenders for additional regional grids in 2021.

The Government of Haiti created the National Commission for Public Procurement (CNMP) to ensure that Haitian government contracts are awarded through competitive bidding and to establish effective procurement controls in public administration. The CNMP publishes lists of awarded government of Haiti contracts. The procurement law of 2009 requires contracts to be routed through CNMP. In 2012, however, a presidential decree substantially raised the threshold at which public procurements must be managed by the CNMP, resulting in what companies have identified as a decrease in transparency for many smaller government contracts. Moreover, the government frequently enters into no-bid contracts, sometimes issued using “emergency” authority derived from natural disasters, even when there is no apparent connection between the alleged emergency and the government contract, according to foreign investors.

The U.S. government partners with Haiti in its efforts to strengthen the rule of law and enhance public security; pursue economic growth through increased domestic resource mobilization and support for private investment; and strengthen good governance and anti-corruption efforts. President Jovenel Moise was inaugurated in February 2017 for a five-year term, and his administration has faced repeated challenges due to frequently changing executive branch leadership, an ineffective parliament followed by a parliamentary lapse beginning in January 2020, legislative elections not being held as scheduled in October 2019, allegations of widespread corruption, weak rule of law, and a deteriorating economy. These factors have hindered both reconstruction efforts and the passage of important legislation. Sporadic protests since mid-2018 have stemmed from a number of factors, including a lack of progress in the fight against corruption and a lack of viable economic options. Haiti’s political situation remains fragile.

Political and civil disorder, such as periodic demonstrations triggered by government proposals to increase fuel prices and mismanagement of public funds, at times interrupt normal business operations. During such periods, as well as for three months of 2020 as a result of the COVID-19 pandemic, many Haitian businesses limited operations or closed completely. Due to the pandemic, schools, regular passenger flights, border crossings, and government offices were also suspended or closed for several months. Operations gradually resumed by mid-2020 for most business sectors, although sporadic protests continued to interrupt daily life as of early 2021.

Damage to businesses and other installations frequently occurs as a result of political and civil disorder. Over the past ten years, multiple incidents of property damage to offices, stores, hotels, hospitals, fuel stations, and car rental companies and dealerships have been reported in the media and to the U.S. Embassy in Port au Prince. Property destruction and vandalism ranges from broken windows to arson and looting. Employees and tourists have also been victims of violence. Kidnapping for ransom is a frequent occurrence in Port au Prince. While improvements in the Haitian National Police force’s technical and operational capabilities have maintained some semblance of order, violent crime, including looting of businesses, remains a serious problem, along with criminal gang control of a number of Port au Prince’s marginalized areas.

More information is available at:

• https://travel.state.gov/content/travel/en/international-travel/International-Travel-Country-Information-Pages/Haiti.html
• https://www.state.gov/u-s-relations-with-haiti/

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

Table 4: Sources of Portfolio Investment
Data not available.

Policies Towards Foreign Direct Investment

The GOH is open to foreign investment, and low labor costs, proximity to the U.S. market, and the large Caribbean port of Puerto Cortes can make Honduras attractive to investors.

The legal framework for investment includes the Honduran constitution, the investment chapter of CAFTA-DR (which takes precedence over most domestic law), and the 2011 Law for the Promotion and Protection of Investments. The Honduran constitution requires all foreign investment to complement, but not substitute for, national investment. Honduras’ legal obligations guarantee national treatment and most favored nation treatment for U.S. investments in most sectors of the Honduran economy and include enhanced benefits in the areas of insurance and arbitration for domestic and foreign investors. CAFTA-DR has equal status with the constitution in most sectors of the Honduran economy.

Critics complain that lack of clarity and overlapping responsibilities among the multiple entities charged with attracting increased foreign direct investment undermine the government’s ability to effectively promote Honduras as a profitable destination for foreign capital. The National Investment Council, the Ministry of Investment Promotion, and the Ministry of Economic Development all have equities in attracting foreign investment and an ambitious job creation mandate.

Limits on Foreign Control and Right to Private Ownership and Establishment

Honduras’ Investment Law does not limit foreign ownership of businesses, except for those specifically reserved for Honduran investors, including small firms with capital less than $6,300 and the domestic air transportation industry. For all investments, at least 90 percent of companies’ labor forces must be Honduran, and companies must pay at least 85 percent of their payrolls to Hondurans. Majority ownership by Honduran citizens is required for companies in the commercial fishing sector, forestry, local transportation, radio, television, or benefiting from the Agrarian Reform Law. There is no screening or approval process specific to foreign direct investments in Honduras. Foreign investors are subject to the same requirements for environmental and other regulatory approvals as domestic investors.

According to the law, investors can establish, acquire, and dispose of enterprises at market prices under freely negotiated conditions without government intervention, but some foreign business operators report difficulty closing businesses. Private enterprises fairly compete with public enterprises on market access, credit, and other business operations. Foreign investors have the right to own property, subject to certain restrictions established by the Honduran constitution and several laws relating to property rights. Investors may acquire, profit, use, and dispose of property ownership with the exception of land within 40 kilometers of international borders and shorelines. Honduran law does permit, however, foreign individuals to purchase properties close to shorelines in designated “tourism zones.”

Other Investment Policy Reviews

In 2016, the World Trade Organization conducted a Trade Policy review of Honduras: https://www.wto.org/english/tratop_e/tpr_e/tp436_e.htm .

Business Facilitation

The Honduran government has worked to simplify administrative procedures for establishing a company in recent years, including by offering many processes online. GOH officials are pressing for, and have made good progress in, the digitalization of business, import, permitting and licensing, and taxation processes to increase efficiency and transparency, but procedural red tape to obtain government approval for investment activities remains common, especially at the local level. Honduras’ business registration information portal ( https://honduras.eregulations.org/ ) provides clear step-by-step information on registering a business, including fees, agencies, and required documents.

Honduras ratified the World Trade Organization’s (WTO) Trade Facilitation Agreement (TFA) in July 2016, agreeing to expedite the movement, release, and clearance of goods, including goods in transit. The TFA also sets out measures for effective cooperation between customs and other appropriate authorities on trade facilitation and customs compliance issues. According to the WTO/TFA database, Honduras’ current rate of implementation of TFA Category A notification commitments stands at 59.2 percent.

During the past year the GOH moved 38 of its ministries and agencies into the newly finished Centro Civico government complex, where it hopes to achieve efficiencies in business facilitation and other processes. In addition to moving information storage to digital formats across the government, the GOH plans to streamline public services though use of single windows for multiple services at the new center.

Outward Investment

Honduras does not promote or incentivize outward investment.

Transparency of the Regulatory System

The government of Honduras publishes approved regulations in the official government Gazette. Honduras lacks an indexed legal code so lawyers and judges must maintain the publication of laws on their own.

CAFTA-DR requires host governments publish proposed regulations that could affect businesses or investments. Honduras made significant progress in 2019 and 2020 in relation to the publication and availability of information under CAFTA-DR. Honduras notified Article 1 technical provisions, per CAFTA-DR requirements, and the Customs Administration (ADUANAS) and Sanitary Regulatory Agency (ARSA) have improved publication of regulations through their official online portals.

Some U.S. investors experience long waiting periods for environmental permits and other regulatory and legislative approvals. Sectors in which U.S. companies frequently encounter problems include infrastructure, telecoms, mining, and energy. Generally, regulatory requirements are complex and lengthy and easily influenced by political factors. Regulatory approvals require congressional intervention if the time exceeds a presidential term of four years. Current regulations are available at the Honduran government’s eRegulations website ( http://honduras.eregulations.org/ ). While the majority of regulations are at the national level, municipal level regulations also exist and can be very discouraging to investment. No significant regulatory changes of relevance to foreign investors were announced since the last report. Public comments received by regulators are not published

International Regulatory Considerations

As a member of the WTO, Honduras notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT).

Legal System and Judicial Independence

Honduras has a civil law system. The Honduran Commercial Code, enacted in 1950, regulates business operations and falls under the jurisdiction of the Honduran civil court system. The Civil Procedures Code, which entered into force in 2010, introduced the use of open, oral arguments for adversarial procedures. The Civil Procedures Code provides improved protection of commercial transactions, property rights, and land tenure. It also offered a more efficient process for the enforcement of rulings issued by foreign courts. Despite these codes, U.S. claimants have noted the lack of transparency and the slow administration of justice in the courts. U.S. firms report favoritism, external pressure, and bribes within the judicial system. They also mention the poor quality of legal representation from Honduran attorneys.

Resolving an investment or commercial dispute in the local Honduran courts is often a lengthy process. Foreign investors report dispute resolution typically involves multiple appeals and decisions at different levels of the Honduran judicial system. Each decision can take months or years, and it is usually not possible for the parties to predict the time required to obtain a decision. Final decisions from Honduran courts or from arbitration panels often require subsequent enforcement from lower courts to take effect, requiring additional time. Foreign investors sometimes prefer to resolve disputes with suppliers, customers, or partners out of court when possible. Honduras has a very high-quality mechanism for alternate dispute resolution.

Laws and Regulations on Foreign Direct Investment

Honduras’ Investment Law requires all local and foreign direct investment be registered with the Investment Office in the Secretariat of Industry and Commerce. Upon registration, the Investment Office issues certificates to guarantee international arbitration rights under CAFTA-DR. An investor who believes the government has not honored a substantive obligation under CAFTA-DR may pursue CAFTA-DR’s dispute settlement mechanism, as detailed in the Investment Chapter. The claim’s proceedings and documents are generally open to the public.

The Government of Honduras requires authorization for both foreign and domestic investments in the following areas:

• Basic health services
• Telecommunications
• Generation, transmission, and distribution of electricity
• Air transport
• Fishing, hunting, and aquaculture
• Exploitation of forestry resources
• Agricultural and agro-industrial activities exceeding land tenancy limits established by the Agricultural Modernization Law of 1992 and the Land Reform Law of 1974
• Insurance and financial services
• Investigation, exploration, and exploitation of mines, quarries, petroleum, and related substances.

The Government of Honduras offers one-stop business set-up at its My Business Online website, which helps domestic and international investors submit initial business registry information and provides step-by-step instructions. https://www.miempresaenlinea.org/  ) However, formalizing a business still requires visiting a municipal chamber of commerce window for registration and permits, a process vulnerable to rent-seeking and corruption.

Competition and Anti-Trust Laws

The Commission for the Defense and Promotion of Competition (CDPC) is the Honduran government agency that reviews proposed transactions for competition-related concerns. Honduras’ Competition Law established the CDPC in 2005 as part of the effort to implement CAFTA-DR. The Honduran Congress appoints the members of the CDPC, which functions as an independent regulatory commission.

Expropriation and Compensation

The Honduran government has the authority to expropriate property for purposes of land reform or public use. The National Agrarian Reform Law provides that idle land fit for farming can be expropriated and awarded to indigent and landless persons via the Honduran National Agrarian Institute. In 2013, the Honduran government passed legislation regarding recovery and reassignment of concessions on underutilized assets. Both local and foreign firms have expressed concerns that the law does not specify what the government considers “underutilized.” The government has not published implementing regulations for the law nor indicated plans to use the law against any private sector firm.

Government expropriation of land owned by U.S. companies is rare. Seizure actions by squatters on both Honduran and non-U.S. foreign landowners are most common in agricultural areas. Some occupations have turned violent. Owners of disputed land have found pursuing legal avenues costly, time consuming, and legally inconclusive. CAFTA-DR’s Investment Chapter Section 10.7 states no party may expropriate or nationalize a covered investment either directly or indirectly, with limited public purpose exceptions that require prompt and adequate compensation.

Under the Agrarian Reform Law, the Honduran government must compensate expropriated land partly in cash and partly in 15-, 20-, or 25-year government bonds. The portion to be paid in cash cannot exceed $1,000 if the expropriated land has at least one building and it cannot exceed $500 if the land is in use but has no buildings. If the land is not in use, the government will compensate entirely in 25-year government bonds.

Dispute Settlement

ICSID Convention and New York Convention

Honduras is a member state to the International Centre for the Settlement of Investment Disputes (ICSID) Convention. Honduras has also ratified the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention)

Investor State Dispute Settlement

CAFTA-DR provides dispute settlement procedures between the United States and Honduras. CAFTA-DR’s Investment Chapter dispute settlement mechanism allows an investor who believes the government has not honored a substantive obligation under CAFTA-DR to request a binding international arbitration. Proceedings and documents submitted to substantiate the claim are generally open to the public. The agreement provides basic protections, such as non-discriminatory treatment, limits on performance requirements, the free transfer of funds related to an investment, protection from expropriation other than in conformity with customary international law, a minimum standard of treatment, and the ability to hire key managerial personnel regardless of nationality.

International Commercial Arbitration and Foreign Courts

Honduras’ Conciliation and Arbitration Law, established in 2000, outlines procedures for arbitration and defines the procedures under which they take place. The Investment Law permits investors to request arbitration directly, a swifter and more cost-effective means of resolving disputes between commercial entities. Arbitrators and mediators may have specialized expertise in technical areas involved in specific disputes. Local courts recognize and enforce foreign arbitral awards issues against the government. Judgements from foreign courts are recognized and enforceable under local courts.

The following links provide more localized information:

• Tegucigalpa Chamber of Industry and Commerce – Center for Conciliation and Arbitration:
• San Pedro Sula Chamber of Industry and Commerce – Center for Conciliation and Arbitration:

Numerous U.S. investors who have been involved with the judicial system in Honduras mention it can be inefficient, lacks transparency, and is subject to political influence and/or corruption.

Bankruptcy Regulations

Companies that default in payment of their obligations in Honduras can declare bankruptcy. A Honduran court must ratify a bankruptcy in order for it to take effect. These cases are regulated by the country’s Commercial Code.

The judicial ruling that declares the bankruptcy of the company establishes the value of the assets, the recognition and classification of the credits, the procedure for the sale of assets and the schedule for the payment of the obligations, in the case that it is not possible for the company to continue its operations. The ruling must be published in The Gazette. The liquidation of companies is always a judicial matter, except in the case of banking institutions which are liquidated by the National Banking and Insurance Commission.

Any creditor or a company itself may initiate the liquidation procedure, which is generally a civil matter. The Judge appoints a liquidator to execute the procedure. A mechanism that a company may exercise to prevent bankruptcy is to request a suspension of payments from the judge. If approved by the judge and the creditors, the company may be able to reach an agreement with its creditors that allows the same administrative board to maintain control of the company.

A company may be prosecuted for fraudulently declaring bankruptcy in the case that the administrative board or shareholders withdraw their assets before the declaration, alter accounting books making it impossible to determine the real situation of the company, or favor certain creditors granting them benefits that they would not be entitled to otherwise.

Capital Markets and Portfolio Investment

There are no government restrictions on foreign investors’ access to local credit markets, though the local banking system generally extends only limited amounts of credit. Investors should not consider local banks a significant capital resource for new foreign ventures unless they use specific business development credit lines made available by bilateral or multilateral financial institutions such as the Central American Bank for Economic Integration.

A limited number of credit instruments are available in the local market. The only security exchange operating in the country is the Central American Securities Exchange (BCV) in Tegucigalpa, but investors should exercise caution before buying securities listed on it. Supervised by the National Banking and Insurance Commission (CNBS), the BCV theoretically offers instruments to trade bankers’ acceptances, repurchase agreements, short-term promissory notes, Honduran government private debt conversion bonds, and land reform repayment bonds. In practice, however, the BCV is almost entirely composed of short- and medium-term government securities and no formal secondary market for these bonds exists.

A few banks have offered fixed rate and floating rate notes with maturities of up to three years, but outside of the banks’ issuances, the private sector does not sell debt or corporate stock on the exchange. Any private business is eligible to trade its financial instruments on the BCV, and firms that participate are subject to a rigorous screening process, including public disclosure and ratings by a recognized rating agency. Historically, most traded firms have had economic ties to the other business and financial groups represented as shareholders of the exchange. As a result, risk management practices are lax and public confidence in the institution is limited.

Money and Banking System

The Honduran financial system is comprised of commercial banks, state-owned banks, savings and loans institutions, and financial companies. There are currently 16 commercial banks operating in Honduras. There is no offshore banking or homegrown blockchain technology in Honduras. Honduras has a highly professional, independent Central Bank and an effective banking regulator, the Comisión Nacional de Bancos y Seguros. While access to credit remains limited in Honduras, especially for historically underserved populations, the financial sector is a source of economic stability in the country.

Foreign Exchange and Remittances

Foreign Exchange

Article 10.8 of CAFTA-DR ensures the free transfer of funds related to a covered investment. Local financial institutions freely exchange U.S. dollars and other foreign currencies. Foreigners may open bank accounts with a valid passport. For deposits exceeding the maximum deposits specified for different account types (corporate or small-medium enterprises), banks require documentation verifying the fund’s origin.

The Investment Law guarantees foreign investors access to foreign currency needed to transfer funds associated with their investments in Honduras, including:

• Imports of goods and services necessary to operate
• Payment of royalty fees, rents, annuities, and technical assistance
• Remittance of dividends and capital repatriation

The Central Bank of Honduras  instituted a crawling peg in 2011 that allows the lempira to fluctuate against the U.S. dollar by seven percent per year. The Central Bank mandates any daily price of the crawling peg be no greater than 100.075 percent of the average for the prior seven daily auctions. These restrictions limit devaluation to a maximum of 4.8 percent annually. As of March 31, 2021, the exchange rate is 24.0199 lempira to the U.S. dollar.

The Central Bank uses an auction system to allocate foreign exchange based on the following regulations:

• The Central Bank sets base prices every five auctions according to the differential between the domestic inflation rate and the inflation rate of Honduras’ main commercial partners.
• The Central Bank’s Board of Directors determines the procedure to set the base.
• The Board of Directors establishes the exchange commission and the exchange agencies in their foreign exchange transactions.
• Individuals and corporate bodies can participate in the auction system for dollar purchases, either by themselves or through an exchange agency. The offers can be no less than $10,000, no more than $300,000 for individuals, and no more than $1.2 million for corporations.

To date, the U.S. Embassy in Honduras has not received complaints from individuals regarding the process for converting or transferring funds associated with investments.

Remittance Policies

The Investment Law guarantees investors the right to remit their investment returns and, if they liquidate their investments, to remit the principal capital invested. Foreign investors that choose to remit their investment proceeds from Honduras do so through foreign exchange transactions at Honduran banks or foreign banks operating in Honduras. These exchange transactions are subject to the same foreign exchange process and regulation as other transactions.

Sovereign Wealth Funds

Honduras does not have a sovereign wealth fund.

Most state-owned enterprises are in telecommunications, electricity, water utilities, and commercial ports. The main state-owned Honduran telephone company, Hondutel, has private contracts with eight foreign and domestic carriers. The Government of Honduras has yet to establish a legal framework for foreign companies to obtain licenses and concessions to provide long distance and international calling. As a result, investors remain unsure if they can become fully independent telecommunication service providers.

The state-owned National Electric Energy Company (ENEE) is the single greatest contributor to the country’s fiscal deficit.  According to the IMF, in 2019, ENEE’s total losses reached 1.2 percent of GDP, while its $3.2 billion debt level was almost ten percent of GDP. Energy reform legislation, passed in 2014, called for the separation of ENEE into three independent units for distribution, transmission, and generation. Lack of political will and vested interests, however, have stalled efforts to unbundle ENEE. The electrical sector faces serious structural problems, including high electricity system losses, a transmission system in need of upgrades, vulnerability of generation costs to volatile international oil prices, an electricity tariff that does not reflect actual costs, and the high costs of long-term power purchase agreements (PPAs), which are often awarded directly to companies with political connections instead of via a fair and transparent tendering and procurement process.

ENEE controls most hydroelectric generation, which made up about 28 percent of total installed capacity and 24 percent of all power generation in 2020. Fossil fuels accounted for about 33 percent of installed capacity and 45 percent of power generation, while other renewable sources (wind, solar, biomass, and geothermal) accounted for about 40 percent of installed capacity and 21 percent of power generation. Together, renewable sources accounted for about 53 percent of power generation. The Honduran government plans to increase renewable energy sources to 80 percent of installed capacity by 2037. Many businesses have installed on-site power generation systems to supplement or substitute for power from ENEE due to frequent blackouts and high tariffs.

Honduran law grants municipalities the right to manage water distribution and to grant concessions to private enterprises. Major cities with public-private concessions include San Pedro Sula, Puerto Cortes, and Choloma. The state water authority National Autonomous Aqueduct and Sewer Service (SANAA) manages Tegucigalpa’s water distribution. The Honduran National Port Company (ENP) is the state-owned organization that oversees management of the country’s government-operated maritime ports, including Puerto Cortes, La Ceiba, Puerto Castilla, and San Lorenzo. Private companies Central American Port Operators and Maritime Ports of Honduras have 30-year concessions to operate container and bulk shipping facilities at Honduras’ principal port Puerto Cortes.

Privatization Program

The Honduran government is not actively seeking to privatize state-owned enterprises though it is seeking to increase private sector participation in the electric system. As part of the IMF’s December 2014 Stand-By Arrangement (SBA), concluded in December 2017, the Honduran government began to reform the state-owned energy company ENEE, creating an independent regulator, the Electric Energy Regulatory Commission. Under a new IMF SBA signed in July 2019, the Honduran government is preparing a plan to separate ENEE. While the structure of the new entity is unclear, under the previous SBA, Honduras was supposed to reform ENEE by creating a holding company with four components: a distribution company with an operations subcontractor supported by a trust agreement; a concession for the transmission network; a not-for-profit organization with public-private ownership to control the overall electrical system; and a privatized generation company that owns all ENEE generating facilities. These reforms were not realized, with the exception of a 2016 sub-contract by a Colombian-Honduran consortium to manage energy distribution.

Crime and violence rates remain high and add cost and constraint to investments. Demonstrations occur regularly in Honduras and political uncertainty poses a challenge to ongoing stability. Tensions could increase significantly in advance of the November 2021 presidential and general elections.

U.S. citizens should be aware that large public gatherings might become unruly or violent quickly. For more information, consult the Department of State’s latest travel warning: https://travel.state.gov/content/travel/en/international-travel/International-Travel-Country-Information-Pages/Honduras.html.

Although violent crime remains a persistent problem, Honduras has successfully reduced homicides to less than 40 per 100,000 inhabitants, the lowest in a decade.  Cases of violence, extortion, and kidnapping are still relatively common, particularly in urban areas where gang presence is more pervasive.  Drug traffickers continue to use Honduras as a transit point for cocaine and other narcotics en route to the United States and Europe, which fuels local turf battles in some areas and injects illicit funds into judicial proceedings and local governance structures to distort justice.  The business community historically had been a target for ransom kidnappings, but the number of such kidnappings dropped from 92 in 2013 to 13 in 2020, primarily through the establishment of the USG-supported Honduran National Police National Anti-Kidnapping Unit. Although violent crime rates are trending downward, there is a neutral to upward trend in corruption and white-collar crime, including money laundering, that negatively affects economic prosperity and stability for the business community.

Policies Towards Foreign Direct Investment

Hong Kong is the world’s second-largest recipient of foreign direct investment (FDI), according to the United Nations Conference on Trade and Development’s (UNCTAD) World Investment Report 2020, with a significant amount bound for mainland China.  The HKG’s InvestHK encourages inward investment, offering free advice and services to support companies from the planning stage through to the launch and expansion of their business.  U.S. and other foreign firms can participate in government financed and subsidized research and development programs on a national treatment basis.  Hong Kong does not discriminate against foreign investors by prohibiting, limiting, or conditioning foreign investment in a sector of the economy.

Capital gains are not taxed, nor are there withholding taxes on dividends and royalties.  Profits can be freely converted and remitted.  Foreign-owned and Hong Kong-owned company profits are taxed at the same rate – 16.5 percent.  The tax rate on the first USD 255,000 profit for all companies is currently 8.25 percent.  No preferential or discriminatory export and import policies affect foreign investors.  Domestic industries receive no direct subsidies.  Foreign investments face no disincentives, such as quotas, bonds, deposits, or other similar regulations.

According to HKG statistics, 3,983 overseas companies had regional operations registered in Hong Kong in 2020.  The United States has the largest number with 690.  Hong Kong is working to attract more start-ups as it works to develop its technology sector, and about 26 percent of start-ups in Hong Kong come from overseas.

Hong Kong’s Business Facilitation Advisory Committee is a platform for the HKG to consult the private sector on regulatory proposals and implementation of new or proposed regulations.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign investors can invest in any business and own up to 100 percent of equity.  Like domestic private entities, foreign investors have the right to engage in all forms of remunerative activity.

The HKG owns virtually all land in Hong Kong, which the HKG administers by granting long-term leases without transferring title.  Foreign residents claim that a 15 percent Buyer’s Stamp Duty on all non-permanent-resident and corporate buyers discriminates against them.

The main exceptions to the HKG’s open foreign investment policy are:

Broadcasting – Voting control of free-to-air television stations by non-residents is limited to 49 percent.  There are also residency requirements for the directors of broadcasting companies.

Legal Services – Foreign lawyers at foreign law firms may only practice the law of their jurisdiction.  Foreign law firms may become “local” firms after satisfying certain residency and other requirements.  Localized firms may thereafter hire local attorneys but must do so on a 1:1 basis with foreign lawyers.  Foreign law firms can also form associations with local law firms.

Other Investment Policy Reviews

Hong Kong last conducted the Trade Policy Review in 2018 through the World Trade Organization (WTO).  https://www.wto.org/english/tratop_e/tpr_e/g380_e.pdf

Business Facilitation

The Efficiency Office under the Innovation and Technology Bureau is responsible for business facilitation initiatives aimed at improving the business regulatory environment of Hong Kong.

The e-Registry (https://www.eregistry.gov.hk/icris-ext/apps/por01a/index) is a convenient and integrated online platform provided by the Companies Registry and the Inland Revenue Department for applying for company incorporation and business registration.  Applicants, for incorporation of local companies or for registration of non-Hong Kong companies, must first register for a free user account, presenting an original identification document or a certified true copy of the identification document.  The Companies Registry normally issues the Business Registration Certificate and the Certificate of Incorporation on the same day for applications for company incorporation.  For applications for registration of a non-Hong Kong company, it issues the Business Registration Certificate and the Certificate of Registration two weeks after submission.

Outward Investment

As a free market economy, Hong Kong does not promote or incentivize outward investment, nor restrict domestic investors from investing abroad.  Mainland China and British Virgin Islands were the top two destinations for Hong Kong’s outward investments in 2019 (based on most recent data available).

Transparency of the Regulatory System

Hong Kong’s regulations and policies typically strive to avoid distortions or impediments to the efficient mobilization and allocation of capital and to encourage competition.  Bureaucratic procedures and “red tape” are usually transparent and held to a minimum.

In amending or making any legislation, including investment laws, the HKG conducts a three-month public consultation on the issue concerned which then informs the drafting of the bill.  Lawmakers then discuss draft bills and vote.  Hong Kong’s legal, regulatory, and accounting systems are transparent and consistent with international norms.

Gazette is the official publication of the HKG.  This website https://www.gld.gov.hk/egazette/english/whatsnew/whatsnew.html is the centralized online location where laws, regulations, draft bills, notices, and tenders are published.  All public comments received by the HKG are published at the websites of relevant policy bureaus.

The Office of the Ombudsman, established in 1989 by the Ombudsman Ordinance, is Hong Kong’s independent watchdog of public governance.

Public finances are regulated by clear laws and regulations.  The Basic Law prescribes that authorities strive to achieve a fiscal balance and avoid deficits.  There is a clear commitment by the HKG to publish fiscal information under the Audit Ordinance and the Public Finance Ordinance, which prescribe deadlines for the publication of annual accounts and require the submission of annual spending estimates to the Legislative Council (LegCo).  There are few contingent liabilities of the HKG, with details of these items published about seven months after the release of the fiscal budget.  In addition, LegCo members have a responsibility to enhance budgetary transparency by urging government officials to explain the government’s rationale for the allocation of resources.  All LegCo meetings are open to the public so that the government’s responses are available to the general public.

On March 29, 2021, the Hong Kong Financial Services and Treasury Bureau submitted to Hong Kong’s Legislative Council plans to restrict the public from accessing certain information about executives in the Company Registry.  If passed, companies will be allowed immediately to withhold information on the residential addresses and identification numbers of directors and secretaries.  Corporate governance and financial experts warned that the proposal could enable fraud and further hurt the city’s status as a transparent financial hub.   Media organizations criticized the plan for undermining transparency and freedom of information.

International Regulatory Considerations

Hong Kong is an independent member of the WTO and Asia-Pacific Economic Co-operation (APEC), adopting international norms.  It notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade and was the first WTO member to ratify the Trade Facilitation Agreement (TFA).  Hong Kong has achieved a 100 percent rate of implementation commitments.

Legal System and Judicial Independence

Hong Kong’s common law system is based on the United Kingdom’s, and judges are appointed by the Chief Executive on the recommendation of the Judicial Officers Recommendation Commission.  Regulations or enforcement actions are appealable, and they are adjudicated in the court system.

Hong Kong’s commercial law covers a wide range of issues related to doing business.  Most of Hong Kong’s contract law is found in the reported decisions of the courts in Hong Kong and other common law jurisdictions.

The imposition of the NSL and pressure from the PRC authorities raised serious concerns about the longevity of Hong Kong’s judicial independence.  The NSL authorizes the mainland China judicial system, which lacks judicial independence and has a 99 percent conviction rate, to take over any national security-related case at the request of the Hong Kong government or the Office of Safeguarding National Security.  Under the NSL, the Hong Kong Chief Executive is required to establish a list of judges to handle all cases concerning national security-related offenses.  Although Hong Kong’s judiciary selects the specific judge(s) who will hear any individual case, some commentators argued that this unprecedented involvement of the Chief Executive weakens Hong Kong’s judicial independence.

Media outlets controlled by the PRC central government in both Hong Kong and mainland China repeatedly accused Hong Kong judges of bias following the acquittals of protesters accused of rioting and other crimes.  Some Hong Kong and PRC central government officials questioned the existence of the “separation of powers” in Hong Kong, including some statements that judicial independence is not enshrined in Hong Kong law and that judges should follow “guidance” from the government.

Laws and Regulations on Foreign Direct Investment

Hong Kong’s extensive body of commercial and company law generally follows that of the United Kingdom, including the common law and rules of equity.  Most statutory law is made locally.  The local court system, which is independent of the government, provides for effective enforcement of contracts, dispute settlement, and protection of rights.  Foreign and domestic companies register under the same rules and are subject to the same set of business regulations.

The Hong Kong Code on Takeovers and Mergers (1981) sets out general principles for acceptable standards of commercial behavior.

The Companies Ordinance (Chapter 622) applies to Hong Kong-incorporated companies and contains the statutory provisions governing compulsory acquisitions.  For companies incorporated in jurisdictions other than Hong Kong, relevant local company laws apply.  The Companies Ordinance requires companies to retain accurate and up to date information about significant controllers.

The Securities and Futures Ordinance (Chapter 571) contains provisions requiring shareholders to disclose interests in securities in listed companies and provides listed companies with the power to investigate ownership of interests in its shares.  It regulates the disclosure of inside information by listed companies and restricts insider dealing and other market misconduct.

Competition and Antitrust Laws

The independent Competition Commission (CC) investigates anti-competitive conduct that prevents, restricts, or distorts competition in Hong Kong.  In December 2020, the CC filed Hong Kong’s first abuse of substantial market power case in the Competition Tribunal against Linde HKO and its Germany-based parent company Linde GmbH for leveraging substantial market power in the production and supply of medical oxygen, medical nitrous oxide, Entonox, and medical air to maintain a stranglehold over the downstream maintenance market.

Expropriation and Compensation

The U.S. Consulate General is not aware of any expropriations in the recent past.  Expropriation of private property in Hong Kong may occur if it is clearly in the public interest and only for well-defined purposes such as implementation of public works projects.  Expropriations are to be conducted through negotiations, and in a non-discriminatory manner in accordance with established principles of international law.  Investors in and lenders to expropriated entities are to receive prompt, adequate, and effective compensation.  If agreement cannot be reached on the amount payable, either party can refer the claim to the Land Tribunal.

Dispute Settlement

ICSID Convention and New York Convention

The Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention) and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) apply to Hong Kong.  Hong Kong’s Arbitration Ordinance provides for enforcement of awards under the 1958 New York Convention.

Investor-State Dispute Settlement

The U.S. Consulate General is not aware of any investor-state disputes in recent years involving U.S. or other foreign investors or contractors and the HKG.  Private investment disputes are normally handled in the courts or via private mediation.  Alternatively, disputes may be referred to the Hong Kong International Arbitration Center.

International Commercial Arbitration and Foreign Courts

The HKG accepts international arbitration of investment disputes between itself and investors and has adopted the United Nations Commission on International Trade Law model law for domestic and international commercial arbitration.  It has a Memorandum of Understanding with mainland China modelled on the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) for reciprocal enforcement of arbitral awards.

Under Hong Kong’s Arbitration Ordinance emergency relief granted by an emergency arbitrator before the establishment of an arbitral tribunal, whether inside or outside Hong Kong, is enforceable.  The Arbitration Ordinance stipulates that all disputes over intellectual property rights may be resolved by arbitration.

The Mediation Ordinance details the rights and obligations of participants in mediation, especially related to confidentiality and admissibility of mediation communications in evidence.

Third party funding for arbitration and mediation came into force on February 1, 2019.

Foreign judgments in civil and commercial matters may be enforced in Hong Kong by common law or under the Foreign Judgments (Reciprocal Enforcement) Ordinance, which facilitates reciprocal recognition and enforcement of judgments based on reciprocity.  A judgment originating from a jurisdiction that does not recognize a Hong Kong judgment may still be recognized and enforced by the Hong Kong courts, provided that all the relevant requirements of common law are met.  However, a judgment will not be enforced in Hong Kong if it can be shown that either the judgment or its enforcement is contrary to Hong Kong’s public policy.

In January 2019, Hong Kong and mainland China signed a new Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of the mainland and of Hong Kong to facilitate enforcement of judgments in the two jurisdictions.  The arrangement, which as of February 2021 is still pending implementing legislation, will cover the following key features: contractual and tortious disputes in general; commercial contracts, joint venture disputes, and outsourcing contracts; intellectual property rights, matrimonial or family matters; and judgments related to civil damages awarded in criminal cases.

Bankruptcy Regulations

Hong Kong’s Bankruptcy Ordinance provides the legal framework to enable i) a creditor to file a bankruptcy petition with the court against an individual, firm, or partner of a firm who owes him/her money; and ii) a debtor who is unable to repay his/her debts to file a bankruptcy petition against himself/herself with the court.  Bankruptcy offenses are subject to criminal liability.

The Companies (Winding Up and Miscellaneous Provisions) Ordinance aims to improve and modernize the corporate winding-up regime by increasing creditor protection and further enhancing the integrity of the winding-up process.

The Commercial Credit Reference Agency collates information about the indebtedness and credit history of SMEs and makes such information available to members of the Hong Kong Association of Banks and the Hong Kong Association of Deposit Taking Companies.

Hong Kong’s average duration of bankruptcy proceedings is just under ten months, ranking 45th in the world for resolving insolvency, according to the World Bank’s Doing Business 2020 rankings.

Capital Markets and Portfolio Investment

There are no impediments to the free flow of financial resources.  Non-interventionist economic policies, complete freedom of capital movement, and a well-understood regulatory and legal environment make Hong Kong a regional and international financial center.  It has one of the most active foreign exchange markets in Asia.

Assets and wealth managed in Hong Kong posted a record high of USD 3.7 trillion in 2019 (the latest figure available), with two-thirds of that coming from overseas investors.  To enhance the competitiveness of Hong Kong’s fund industry, OFCs as well as onshore and offshore funds are offered a profits tax exemption.

The HKMA’s Infrastructure Financing Facilitation Office (IFFO) provides a platform for pooling the efforts of investors, banks, and the financial sector to offer comprehensive financial services for infrastructure projects in emerging markets.  IFFO is an advisory partner of the World Bank Group’s Global Infrastructure Facility.

Under the Insurance Companies Ordinance, insurance companies are authorized by the Insurance Authority to transact business in Hong Kong.  As of February 2021, there were 165 authorized insurance companies in Hong Kong, 70 of them foreign or mainland Chinese companies.

The Hong Kong Stock Exchange’s total market capitalization surged by 24.0 percent to USD 6.1 trillion in 2020, with 2,538 listed firms at year-end.  Hong Kong Exchanges and Clearing Limited, a listed company, operates the stock and futures exchanges.  The Securities and Futures Commission (SFC), an independent statutory body outside the civil service, has licensing and supervisory powers to ensure the integrity of markets and protection of investors.

No discriminatory legal constraints exist for foreign securities firms establishing operations in Hong Kong via branching, acquisition, or subsidiaries.  Rules governing operations are the same for all firms.  No laws or regulations specifically authorize private firms to adopt articles of incorporation or association that limit or prohibit foreign investment, participation, or control.

In 2020, a total of 291 Chinese enterprises had “H” share listings on the stock exchange, with combined market capitalization of USD 906 billion.  The Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connects allow individual investors to cross trade Hong Kong and mainland stocks.  In December 2018, the ETF Connect, which was planned to allow international and mainland investors to trade in exchange-traded fund products listed in Hong Kong, Shanghai, and Shenzhen, was put on hold indefinitely due to “technical issues.” However, China approved two cross-listings of ETFs between Shanghai Stock exchange and the Tokyo Stock Exchange in June 2019, and between Shenzhen Stock Exchange and Hong Kong Stock Exchange in October 2020.

By the end of 2020, 50 mainland mutual funds and 29 Hong Kong mutual funds were allowed to be distributed in each other’s markets through the mainland-Hong Kong Mutual Recognition of Funds scheme. Hong Kong also has mutual recognition of funds programs with Switzerland, Thailand, Ireland, France, the United Kingdom, and Luxembourg.

Hong Kong has developed its debt market with the Exchange Fund bills and notes program.  Hong Kong Dollar debt stood at USD 292 billion by the end of 2020.  As of November 2020, RMB 1,203.5 billion (USD 180.5 billion) of offshore RMB bonds were issued in Hong Kong.  Multinational enterprises, including McDonald’s and Caterpillar, have also issued debt.  The Bond Connect, a mutual market access scheme, allows investors from mainland China and overseas to trade in each other’s respective bond markets through a financial infrastructure linkage in Hong Kong.  In the first eight months of 2020, the Northbound trading of Bond Connect accounted for 52 percent of foreign investors’ total turnover in the China Interbank Bond Market.  In December 2020, the HKMA and the People’s Bank of China (PBoC) set up a working group to drive the initiative of Southbound trading, with the target of launching it within 2021.

In June 2020, the PBoC, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission, the State Administration of Foreign Exchange, the HKMA and the Monetary Authority of Macau announced that they decided to implement a cross-boundary Wealth Management Connect pilot scheme in the Greater Bay Area (GBA), an initiative to economically integrate Hong Kong and Macau with nine cities in Guangdong Province.  Under the scheme, residents in the GBA can carry out cross-boundary investment in wealth management products distributed by banks in the GBA.  These authorities are still working on the implementation details for the scheme.

In December 2020, the SFC concluded its consultation on proposed customer due diligence requirements for OFCs.  The new requirements will enhance the anti-money laundering and counter-financing of terrorism measures with respect to OFCs and better align the requirements for different investment vehicles for funds in Hong Kong.  Upon the completion of the legislative process, the new requirements will come into effect after a six-month transition period.

In February 2021, the HKG announced it would issue green bonds regularly and expand the scale of the Government Green Bond Program to USD 22.5 billion within the next five years.

The HKG requires workers and employers to contribute to retirement funds under the Mandatory Provident Fund (MPF) scheme.  Contributions are expected to channel roughly USD five billion annually into various investment vehicles.  By September of 2020, the net asset values of MPF funds amounted to USD 131 billion.

Money and Banking System

Hong Kong has a three-tier system of deposit-taking institutions: licensed banks (161), restricted license banks (17), and deposit-taking companies (12).  HSBC is Hong Kong’s largest banking group.  With its majority-owned subsidiary Hang Seng Bank, HSBC controls more than 50.9 percent of Hong Kong Dollar (HKD) deposits.  The Bank of China (Hong Kong) is the second-largest banking group, with 15.4 percent of HKD deposits throughout 200 branches.  In total, the five largest banks in Hong Kong had more than USD 2 trillion in total assets at the end of 2019.  Thirty-five U.S. “authorized financial institutions” operate in Hong Kong, and most banks in Hong Kong maintain U.S. correspondent relationships.  Full implementation of the Basel III capital, liquidity, and disclosure requirements completed in 2019.

Credit in Hong Kong is allocated on market terms and is available to foreign investors on a non-discriminatory basis.  The private sector has access to the full spectrum of credit instruments as provided by Hong Kong’s banking and financial system.  Legal, regulatory, and accounting systems are transparent and consistent with international norms.  The HKMA, the de facto central bank, is responsible for maintaining the stability of the banking system and managing the Exchange Fund that backs Hong Kong’s currency.  Real Time Gross Settlement helps minimize risks in the payment system and brings Hong Kong in line with international standards.

Banks in Hong Kong have in recent years strengthened anti-money laundering and counterterrorist financing controls, including the adoption of more stringent customer due diligence (CDD) process for existing and new customers.  The HKMA stressed that “CDD measures adopted by banks must be proportionate to the risk level and banks are not required to implement overly stringent CDD processes.”

In November 2020, the HKG launched a three-month public consultation on its proposed amendments to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance.  Among other proposed changes, the HKG suggested introducing a licensing regime for virtual asset services providers and a two-tier registration regime for precious assets dealers.  The HKG will analyze feedback from the public before introducing a draft bill to the LegCo.

The NSL granted police authority to freeze assets related to national security-related crimes.  In October 2020, the HKMA advised banks in Hong Kong to report any transactions suspected of violating the NSL, following the same procedures as for money laundering.  Hong Kong authorities reportedly asked financial institutions to freeze bank accounts of former lawmakers, civil society groups, and other political targets who appear to be under investigation for their pro-democracy activities.

The HKMA welcomes the establishment of virtual banks, which are subject to the same set of supervisory principles and requirements applicable to conventional banks.  The HKMA has granted eight virtual banking licenses by the end of January 2021.

The HKMA’s Fintech Facilitation Office (FFO) aims to promote Hong Kong as a fintech hub in Asia.  FFO has launched the faster payment system to enable bank customers to make cross-bank/e-wallet payments easily and created a blockchain-based trade finance platform to reduce errors and risks of fraud.  The HKMA has signed nine fintech co-operation agreements with the regulatory authorities of Brazil, Dubai, France, Poland, Singapore, Switzerland, Thailand, the United Arab Emirates, and the United Kingdom.

Foreign Exchange and Remittances

Foreign Exchange

Conversion and inward/outward transfers of funds are not restricted.  The HKD is a freely convertible currency linked via de facto currency board to the U.S. dollar.  The exchange rate is allowed to fluctuate in a narrow band between HKD 7.75 – HKD 7.85 = USD 1.

Remittance Policies

There are no recent changes to or plans to change investment remittance policies.  Hong Kong has no restrictions on the remittance of profits and dividends derived from investment, nor reporting requirements on cross-border remittances.  Foreign investors bring capital into Hong Kong and remit it through the open exchange market.

Hong Kong has anti-money laundering (AML) legislation allowing the tracing and confiscation of proceeds derived from drug-trafficking and organized crime.  Hong Kong has an anti-terrorism law that allows authorities to freeze funds and financial assets belonging to terrorists.  Travelers arriving in Hong Kong with currency or bearer negotiable instruments (CBNIs) exceeding HKD 120,000 (USD 15,385) must make a written declaration to the CED.  For a large quantity of CBNIs imported or exported in a cargo consignment, an advanced electronic declaration must be made to the CED.

Sovereign Wealth Funds

The Future Fund, Hong Kong’s wealth fund, was established in 2016 with an endowment of USD 28.2 billion.  The fund seeks higher returns through long-term investments and adopts a “passive” role as a portfolio investor.  About half of the Future Fund has been deployed in alternative assets, mainly global private equity and overseas real estate, over a three-year period.  The rest is placed with the Exchange Fund’s Investment Portfolio, which follows the Santiago Principles, for an initial ten-year period.  In February 2020, the HKG announced that it will deploy 10 percent of the Future Fund to establish a new portfolio, which is called the Hong Kong Growth Portfolio (HKGP), focusing on domestic investments to lift the city’s competitiveness in financial services, commerce, aviation, logistics and innovation.  Between December 2020 and January 2021, the HKMA conducted a market survey to better understand the profiles of private equity firms with interest to become a general partner for the HKGP.

Hong Kong has several major HKG-owned enterprises classified as “statutory bodies.” Hong Kong is party to the Government Procurement Agreement (GPA) within the framework of WTO.  Annex 3 of the GPA lists as statutory bodies the Housing Authority, the Hospital Authority, the Airport Authority, the Mass Transit Railway Corporation Limited, and the Kowloon-Canton Railway Corporation, which procure in accordance with the agreement.

The HKG provides more than half the population with subsidized housing, along with most hospital and education services from childhood through the university level.  The government also owns major business enterprises, including the stock exchange, railway, and airport.

Conflicts occasionally arise between the government’s roles as owner and policymaker.  Industry observers have recommended that the government establish a separate entity to coordinate its ownership of government-held enterprises and initiate a transparent process of nomination to the boards of government-affiliated entities.  Other recommendations from the private sector include establishing a clear separation between industrial policy and the government’s ownership function and minimizing exemptions of government-affiliated enterprises from general laws.

The Competition Law exempts all but six of the statutory bodies from the law’s purview.  While the government’s private sector ownership interests do not materially impede competition in Hong Kong’s most important economic sectors, industry representatives have encouraged the government to adhere more closely to the Guidelines on Corporate Governance of State-owned Enterprises of the Organization for Economic Cooperation and Development (OECD).

Privatization Program

All major utilities in Hong Kong, except water, are owned and operated by private enterprises, usually under an agreement framework by which the HKG regulates each utility’s management.

Beijing’s imposition of the National Security Law (NSL) on June 30, 2020 has introduced heightened uncertainties for companies operating in Hong Kong.  As a result, U.S. citizens traveling through or residing in Hong Kong may be subject to increased levels of surveillance, as well as arbitrary enforcement of laws and detention for purposes other than maintaining law and order.

As of March 2021, police have carried out at least 100 arrests of opposition politicians and activists under the NSL, including one U.S. citizen, in an effort to suppress all pro-democracy views and political activity in the city.  Police have also reportedly issued arrest warrants under the NSL for approximately thirty individuals residing abroad, including U.S. citizens.  Since June 2019, police have arrested over 10,000 people on various charges in connection with largely peaceful protests against government policies.

Please see the July 16, 2021 business advisory issued by the Department of State, along with the Department of the Treasury, the Department of Commerce, and the Department of Homeland Security.

The Department of State assesses that Hong Kong does not maintain a sufficient degree of autonomy under the “one country, two systems” framework to justify continued special treatment by the United States for bilateral agreements and programs per the Hong Kong Policy Act.  As a result of Hong Kong’s lack of autonomy from China, the Department of Commerce ended Hong Kong’s treatment as a separate trade entity from China, including the removal of many of Department of Commerce’s License Exceptions.  U.S. Customs and Borders Protection (CBP) requires goods produced in Hong Kong to be marked to show China, rather than Hong Kong, as their country of origin.  This requirement took effect November 9, 2020.  It does not affect country of origin determinations for purposes of assessing ordinary duties or temporary or additional duties.  Hong Kong has requested World Trade Organization dispute consultations to examine the issue.  As of March 2021, the Department of Treasury has sanctioned 35 former and current Hong Kong and mainland Chinese government officials and 44 Chinese-military companies identified by the Department of Defense.

The PRC government does not recognize dual nationality.  In January 2021, the Hong Kong government moved to enforce existing provisions of the Nationality Law of the People’s Republic of China in place since 1997, effectively ending its longstanding recognition of dual citizenship in Hong Kong.  The action ended consular access to two detained U.S. citizens as of March 2021 and potentially removed consular protection from about half of the estimated 85,000 U.S. citizens in Hong Kong.  U.S.-PRC, U.S.-Hong Kong and U.S. citizens of Chinese heritage may be subject to additional scrutiny and harassment, and the PRC government may prevent the U.S. Embassy or U.S. Consulate from providing consular services.

Hong Kong financial regulators have conducted outreach to stress the importance of robust anti-money laundering (AML) controls and highlight potential criminal sanctions implications for failure to fulfill legal obligations under local AML laws.  However, Hong Kong has a low number of prosecutions and convictions compared to the number of cases investigated.

Under the President’s Executive Order on Hong Kong Normalization, which directs the suspension or elimination of special and preferential treatment for Hong Kong, the United States notified the Hong Kong authorities in August 2020 of its suspension of the Surrender of Fugitive Offenders Agreement and the Transfer of Sentenced Persons Agreement.  The Reciprocal Tax Exemptions on Income Derived from the International Operation of Ships Agreement was also suspended.  In response, the Hong Kong government suspended the Agreement Between the Government of the United States of America and the Government of Hong Kong on Mutual Legal Assistance in Criminal Affairs, which entered into force in 2000.

* Source for Host Country Data: Hong Kong Census and Statistics Department 

Policies Towards Foreign Direct Investment

Hungary maintains an open economy and its high-quality infrastructure and central location in Europe attract foreign investment. The GOH actively promotes Hungary to attract FDI, in manufacturing and export-oriented sectors. According to some reports, however, government policies have resulted in some foreign investors selling their stakes to the government or state-owned enterprises in other sectors, including banking and energy.  In 2019, net annual FDI amounted to $5.2 billion, and total gross FDI totaled $97.8 billion.

As a bloc, the EU accounts for approximately 89 percent of all FDI in Hungary in terms of direct investors, and 62 percent in terms of ultimate controlling parent investor.  In terms of ultimate investor – i.e., country of origin – the United States was the second largest investor after Germany in 2019. In terms of direct investor location, Germany was the largest investor, followed by the Netherlands, Austria, Luxembourg, and then the United States. The majority of U.S. investment falls within the automotive, software development, and life sciences sectors.  Approximately 450 U.S. companies maintain a presence in Hungary. According to Hungarian Investment Promotion Agency (HIPA) data, U.S. foreign direct investment produced more jobs in Hungary in 2020 than investment from any other country.

Total, cumulative FDI from Asian sources has approximately doubled since 2010, accounting for over five percent of total FDI stock in 2019. South Korea made several major new investments in the manufacturing sector in 2019. According to HIPA, South Korea, Japan, China, India, and other Asian countries accounted for about 40 percent of the value of new foreign investment projects in Hungary in 2020.

The GOH has implemented a number of tax changes to increase Hungary’s regional competitiveness and attract investment, including a reduction of the personal income tax rate to 15 percent in 2016, the corporate income tax rate to 9 percent in 2017, and the gradual reduction of the employer-paid welfare contribution from 27 percent in 2016 to 15.5 percent in 2020.  As of 2016, the GOH streamlined the National Tax and Customs authority (NAV) procedure to offer fast-track VAT refunds to customers categorized as “low-risk.”

Many foreign companies have expressed displeasure with the unpredictability of Hungary’s tax regime, its retroactive nature, slow response times, and the volume of legal and tax changes.  According to the European Commission (EC), a series of progressively-tiered taxes implemented in 2014 disproportionately penalized foreign businesses in the telecommunications, tobacco, retail, media, and advertisement industries, while simultaneously favoring Hungarian companies.  Following EC infringement procedures, the GOH phased out most discriminatory tax rates by 2015 and replaced them with flat taxes. Another 2014 law required retail companies with over $53 million in annual sales to close if they report two consecutive years of losses.  Retail businesses claimed the GOH specifically set the threshold to target large foreign retail chains.  The EC likewise determined that the law was discriminatory and launched an infringement procedure in 2016, leading the GOH to repeal the law in November 2018.

In 2017, the GOH passed a regulation that gives the government preemptive rights to purchase real estate in World Heritage areas.  The rule has been used to block the purchase of real estate by foreign investors in the most desirable areas of Budapest. In April 2020, during the COVID-19 pandemic, the GOH issued a decree that levied sector-specific taxes on the banking and retail sectors to fund crisis economic support. This progressive tax on retail grocery outlets is structured such that it applies mainly to large foreign retail firms.

In April 2020, during the COVID-19 pandemic, the GOH issued a decree that levied sector-specific taxes on the banking and retail sectors to fund crisis economic support. This progressive tax on retail grocery outlets is structured such that it applies mainly to large foreign retail firms.

The GOH publicly declared its intention to reduce foreign ownership in the banking sector in 2012. Accordingly, various GOH initiatives have reduced foreign ownership from about 70 percent in 2008 to 40.5 percent by the end of 2020. These initiatives included a 2010 bank tax; a 2012 financial transaction tax levied on all cash withdrawals; and regulations enacted between 2012-2015 that obligated banks to retroactively compensate borrowers for interest rate increases on foreign currency-denominated mortgage loans, even though these increases were spelled out in the original contracts with customers and had been permitted by Hungarian law.

While the pharmaceutical industry is competitive and profitable in Hungary, multinational enterprises complain of numerous financial and procedural obstacles, including high taxes on pharmaceutical products and operations, prescription directives that limit a doctor’s choice of drugs, and obscure tender procedures that negatively affect the competitiveness of certain drugs.  Pharmaceutical firms have also taken issue with GOH policies to weigh the cost of pharmaceutical procurement as heavily as efficacy when issuing tenders for public procurement.

The Hungarian Investment Promotion Agency (HIPA), under the authority of the Ministry of Foreign Affairs and Trade, encourages and supports inbound FDI.  HIPA offers company and sector-specific consultancy, recommends locations for investment, acts as a mediator between large international companies and Hungarian firms to facilitate supplier relationships, organizes supplier training, and maintains active contact with trade associations.  Its services are available to all investors. For more information, see:  https://hipa.hu/main .

Foreign investors generally report a productive dialogue with the government, both individually and through business organizations.  The American Chamber of Commerce (AmCham) enjoys an ongoing high-level dialogue with the GOH and the government has adopted many AmCham policy recommendations in recent years.  In 2017, the government established a Competitiveness Council, now chaired by the Minister of Finance, which includes representatives from multinationals, chambers of commerce, and other stakeholders, to increase Hungary’s competitiveness.  Many U.S. and foreign investors have signed MOUs with the GOH to facilitate one-on-one discussions and resolutions to any pending issues. The GOH has regularly consulted foreign businesses and business associations as it has developed economic support measures during the pandemic. For more information, see:  https://kormany.hu/kulgazdasagi-es-kulugyminiszterium/strategiai-partnersegi-megallapodasok  and  https://www.amcham.hu/ .

The U.S.-Hungary Business Council (USHBC) – a private, non-profit organization established in 2016 – aims to facilitate and maintain dialogue between American corporate executives and top government leaders on the U.S.-Hungary commercial relationship.  The majority of significant U.S. investors in Hungary have joined USHBC, which hosts roundtables, policy conferences, briefings, and other major events featuring senior U.S. and Hungarian officials, academics, and business leaders. For more information, see:  https://www.us-hungarybusinesscouncil.com/ .

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign ownership is permitted with the exception of some “strategic” sectors including farmland and defense-related industries, which require special government permits.  As part of its economic measures during the COVID-19 pandemic, the GOH passed a decree which requires foreign investors to seek approval for foreign investments in Hungary.

Foreign law firms and auditing companies must sign a cooperation agreement with a Hungarian company to provide services on Hungarian legal or auditing issues. According to the Land Law, only private Hungarian citizens or EU citizens resident in Hungary with a minimum of three years of experience working in agriculture or holding a degree in an agricultural discipline can purchase farmland.  Eligible individuals are limited to purchasing 300 hectares (741 acres). All others may only lease farmland. Non-EU citizens and legal entities are not allowed to purchase agricultural land. All farmland purchases must be approved by a local land committee and Hungarian authorities, and local farmers and young farmers must be offered a right of first refusal before a new non-local farmer is allowed to purchase the land.  For legal entities and those who do not fulfill the above requirements , the law allows the lease of farmland up to 1200 hectares for a maximum of 20 years. The GOH has invalidated any pre-existing leasing contract provisions that guaranteed the lessee the first option to purchase, provoking criticism from Austrian farmers. Austria has reported the change to the European Commission, which initiated an infringement procedure against Hungary in 2014.  In March 2018, the European Court of Justice ruled that the termination of land use contracts violated EU rules, opening the way for EU citizens who lost their land use rights to sue the GOH for damages. In 2015, the EC launched another – still ongoing – infringement procedure against Hungary concerning its restrictions on acquisitions of farmland.

The GOH passed a national security law on investment screening in 2018 that requires foreign investors seeking to acquire more than a 25-percent stake in a Hungarian company in certain sensitive sectors (defense, intelligence services, certain financial services, electric energy, gas, water utility, and electronic information systems for governments) to seek approval from the Interior Ministry.  The Ministry has up to 60 days to issue an opinion and can only deny the investment if it determines that the investment is designed to conceal an activity other than normal economic activity. In 2020, as part of the measures to mitigate the economic effects of the COVID-19 pandemic, the GOH passed an additional regulation requiring foreign investors to seek approval from the Ministry of Innovation and Technology (MIT) for greenfield or expansion of existing investments.

On April 6, Hungary’s Ministry of Interior (MOI) blocked an Austria’s Vienna Insurance Group from buying Dutch insurer Aegon’s Hungarian subsidiary, scuttling a four-country acquisition. The GOH granted the specific power to block this type of sale to the MOI in November 2020 under emergency COVID-related legislation, just one day before the parties agreed to the sale, after months of open negotiations.

Other Investment Policy Reviews

Hungary has not had any third-party investment policy reviews in the last three years.

Business Facilitation

In 2006, Hungary joined the EU initiative to create a European network of “point of single contact” through which existing businesses and potential investors can access all information on the business and legal environment, as well as connect to Hungary’s investment promotion agency.  In recent years, the government has strengthened investor relations, signed strategic agreements with key investors, and established a National Competitiveness Council to formulate measures to increase Hungary’s economic competitiveness.

The registration of business enterprises is compulsory in Hungary.  Firms must contract an attorney and register online with the Court of Registration.  Registry courts must process applications to register limited liability and joint-enterprise companies within 15 workdays, but the process usually does not take more than three workdays.  If the Court fails to act within the given timeframe, the new company is automatically registered. If the company chooses to use a template corporate charter, registration can be completed in a one-day fast track procedure.  Registry courts provide company information to the Tax Authority (NAV), eliminating the need for separate registration. The Court maintains a computerized registry and electronic filing system and provides public access to company information.  The minimum capital requirement for a limited-liability company is HUF 3,000,000 ($10,800); for private limited companies HUF 5,000,000 ($17,900), and for public limited companies HUF 20,000,000 ($71,400). Foreign individuals or companies can establish businesses in Hungary without restrictions.

Further information on business registration and the business registry can be obtained at the GOH’s information website for businesses:  http://eugo.gov.hu/starting-business-hungary  or at the Ministry of Justice’s Company Information Service:  https://ceginformaciosszolgalat.kormany.hu/elektronikus-cegeljaras , and the Tax Authority https://en.nav.gov.hu/taxation/registration/specific_rules.html .

Hungarian business facilitation mechanisms provide equitable treatment for women. They offer no special preference or assistance for them in establishing a company.

Outward Investment

The stock of total Hungarian investment abroad amounted to $36.8 billion in 2019.  Outward investment is mainly in manufacturing, pharmaceuticals, services, finance and insurance, and science and technology.  There is no restriction in place for domestic investors to invest abroad. The GOH announced in early 2019 that it would like to increase Hungarian investment abroad and it is considering incentives to promote such investment.

Transparency of the Regulatory System

Generally, legal, regulatory, and accounting systems are consistent with international and EU standards.  However, some executives in Hungarian subsidiaries of U.S. companies express concerns about a lack of transparency in the GOH’s policy-making process and an uneven playing field in public tendering.  In recent years, there has been an uptick in the number of companies, including major U.S. multinational franchises and foreign owners of major infrastructure, reporting pressure to sell their businesses to government-affiliated investors.  Those that refuse to sell report an increase in tax audits, fines, and spurious regulatory challenges and court cases. SMEs increasingly report a desire to either remain small (and therefore “under the radar” of these government-affiliated investors) or relocate their businesses outside of Hungary.

For foreign investors, the most relevant regulations stem from EU directives and the laws passed by Parliament to implement them.  Laws in Parliament can be found on Parliament’s website (https://www.parlament.hu/en/web/house-of-the-national-assembly).  Legislation, once passed, is published in a legal gazette and available online at  www.magyarkozlony.hu .  The GOH can issue decrees, which also have national scope, but they cannot be contrary to laws enacted by Parliament.  Local municipalities can create local decrees, limited to the local jurisdiction.

As a result of the COVID-19 crisis, in March 2020, the Parliament passed a bill that established an indefinite state of emergency (SOE) in Hungary, allowing the GOH to govern by decree without parliamentary approval. The GOH used this decree to levy new sector-specific taxes, to take control of a Hungarian company that had been in an ownership dispute with the GOH, and to reallocate competencies and tax collection duties from an opposition-led municipality to a county-level body led by the ruling Fidesz party. The GOH did not include a sunset clause for the SOE – which resulted in criticism from foreign governments and domestic opposition parties – but repealed it in June 2020. During the second wave of the epidemic , the GOH passed separate SOE legislation with a 90-day sunset clause in November 2020 and extended it for another 90 days in February 2021. Interested investors are encouraged to contact Embassy points of contact for the most up-to-date information.

Hungarian financial reporting standards are in line with the International Accounting Standards and the EU Fourth and Seventh Directives.  The accounting law requires all businesses to prepare consolidated financial statements on an annual basis in accordance with international financial standards.

The GOH rarely invites interested parties to comment on draft legislation.  Civil society organizations have complained about a loophole in the current law that allows individual Members of Parliament to submit legislation and amendments without public consultation.  The average deadline for submitting public comment is often very short, usually less than one week. The Act on Legislation and the Law Soliciting Public Opinion, both passed by Parliament in 2010, govern the public consultation process.  The laws require the GOH to publish draft laws on its webpage and to give adequate time for all interested parties to give an opinion on the draft. However, implementation is not uniform and the GOH often fails to solicit public comments on proposed legislation.

The legislation process – including key regulatory actions related to laws – are published on the Parliament’s webpage.  Explanations attached to draft bills include a short summary on the aim of the legislation, but regulators only occasionally release public comments.

Regulatory enforcement mechanisms include the county and district level government offices, whose decisions can be challenged at county-level courts.  The court system generally provides efficient oversight of the GOH’s administrative processes.

The GOH does not review regulations on the basis of formal scientific or data-driven assessments, but some NGOs and academics do.  A 2017 study by Corruption Research Center Budapest (CRCB) found that in the 2010-2013 period the annual average number of new laws passed by Parliament increased, while the average time spent debating new laws in Parliament decreased significantly.  Their analysis assessed that the accelerating lawmaking process in Hungary in the 2010-2013 period had negative effects on the stability of the legal environment and the overall quality of legislation.

Hungary’s budget was widely accessible to the general public, including online through the Parliament and Finance Ministry websites and the Legal Gazette.  The government made budget documents, including the executive budget proposal, the enacted budget, and the end-of-year report publicly available within a reasonable period of time.  Modifications to a current budget, which in 2020 were quite substantial because of the pandemic, are not consolidated with the initial budget law and do not include economic analysis of the effects of those modifications. Information on debt obligations was publicly available, including online through the Hungarian Central Bank ( https://www.mnb.hu/en ) and Hungarian State Debt Manager’s (https://akk.hu/ ) websites.

International Regulatory Considerations

As an EU Member State, all EU regulations are directly applicable in Hungary, even without further domestic measures.  If a Hungarian law is contrary to EU legislation, the EU rule takes precedence. As a whole, labor, environment, health, and safety laws are consistent with EU regulations.  Hungary follows EU foreign trade and investment policy, and all trade regulations follow EU legislation. Hungary participates in the WTO as an EU Member State.

Legal System and Judicial Independence

The Hungarian legal system is based on continental European (German-French and Roman law) traditions.  Contracts are enforced by ordinary courts or – if stipulated by contract – arbitration centers. Investors in Hungary can agree with their partners to turn to Hungarian or foreign arbitration courts.

Apart from these arbitration centers, there are no specialized courts for commercial cases; ordinary courts are entitled to judge any kind of civil case.  The Civil Code of 2013 applies to civil contracts.

The Hungarian judicial system includes four tiers: district courts (formerly referred to as local courts); courts of justice (formerly referred to as county courts); courts of appeal; and the Curia (the Hungarian Supreme Court).  Hungary also has a Constitutional Court that reviews cases involving the constitutionality of laws and court rulings. Following Parliament’s passage of a bill on changes in the court system in December 2019, in April 2020 public administration and labor courts were dissolved, and first-level public administration and labor cases were transferred to county-level courts of justice. Although the current COVID-19 SOE law does not cover the court system, the GOH issued a decree in March 2020 on the operation of the courts to protect the health of court employees and customers. According to guidelines issued by the National Judicial Office in November 2020, individual access to court buildings is limited; those participating in court sessions need to follow social distancing rules and wear masks; and clients are encouraged to submit documents in electronic form.

Although the GOH has criticized court decisions on several occasions, ordinary courts are considered to generally operate independently under largely fair and reliable judicial procedures.  Recently, an increasing number of current and former judges have raised concerns about growing GOH influence over the court system and intimidation of judges by court administration. The European Commission’s 2020 Rule of Law Report, issued in September 2020, cited judicial independence in Hungary as a source of concern. Most business complaints about the court system pertain to the lengthy proceedings rather than the fairness of the verdicts.  The GOH has said it hopes to improve the speed and efficiency of court proceedings with an updated Civil Procedure Code that entered into force in January 2018.

Regulations and law enforcement actions pertaining to investors are appealable at ordinary courts or at the Constitutional Court.

Laws and Regulations on Foreign Direct Investment

Hungarian law protects property and investment.  The Hungarian state may expropriate property only in exceptional cases where there is a public interest; any such expropriations must be carried out in a lawful way, and the GOH is obliged to make immediate and full restitution for any expropriated property, without additional stipulations or conditions.

The GOH passed a national secuirty law on investment screening in 2018 that requires foreign investors seeking to acquire more than a 25 percent stake in a Hungarian company in certain “sensitive sectors” (defense, intelligence services, certain financial services, electric energy, gas, water utility, and electronic information systems for governments) to seek approval from the Interior Ministry.  (Please see above section on limits on foreign control for more details).

There is no primary website or “one-stop shop” which compiles all relevant laws, rules, procedures, and reporting requirements for investors.  The Hungarian Investment Promotion Agency (HIPA), however, facilitates establishment of businesses and provides guidance on relevant legislation.

Competition and Antitrust Laws

The Hungarian Competition Authority, tasked with safeguarding the public interest, enforces the provisions of the Hungarian Competition Act.  Since EU accession in 2004, EU competition law also binds Hungary. The Competition Authority is empowered to investigate suspected violations of competition law, order changes to practices, and levy fines and penalties.  According to the Authority, since 2010 the number of competition cases has decreased, but they have become more complex. Out of more than 60 cases over the past year, only a few minor cases pertained to U.S.-owned companies.  Hungarian law does not consider conflict of interest to be a criminal offense. Citing evidence of conflict of interest and irregularities, the European Anti-Fraud Office (OLAF) recommended opening a criminal investigation into a high-profile USD 50 million EU-funded public procurement project, but Hungarian authorities declined to prosecute the case.

Expropriation and Compensation

Hungary’s Constitution provides protection against uncompensated expropriation, nationalization, and any other arbitrary action by the GOH except in cases of threat to national security.  In such cases, immediate and full compensation is to be provided to the owner. There are no known expropriation cases where the GOH has discriminated against U.S. investments, companies, or representatives.  There have been some complaints from other foreign investors within the past several years that expropriations have been improperly executed, without proper remuneration. Parties involved in these cases turned to the domestic legal system for dispute settlement.

There is no recent history of official GOH expropriations, but many critics raised concerns that the 2014 tobacco and advertising taxes were an indirect expropriation attempt because they disproportionately targeted foreign firms with the apparent intent to force them to seek a buy-out from a domestic firm.  The GOH reversed these taxes in response to a 2015 European Commission injunction. Increasing reports of the use of government regulatory and tax agencies to pressure businesses to sell to government-affiliated investors has also raised concerns.

Dispute Settlement

ICSID Convention and New York Convention

Hungary is a signatory to the International Centre for the Settlement of Investment Disputes (ICSID Convention), proclaimed in Hungary by Law 27 of 1978.  Hungary also is a signatory to the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention), proclaimed in Hungary by Law 25 of 1962. There is not specific legislation providing for enforcement other than the two domestic laws proclaiming the New York and ICSID Conventions.  According to Law 71 of 1994, an arbitration court decision is equally binding to that of a court ruling.

Investor-State Dispute Settlement

Hungary is signatory to the 1965 Washington Convention establishing the International Centre for Settlement of Investment Disputes (ICSID) and to UN’s 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.  Under the New York Convention, Hungary recognizes and enforces rulings of the International Chamber of Commerce’s International Court of Arbitration.

Hungary shares no Bilateral Investment Treaty or Free Trade Agreement with the United States.  Since 2000 Hungary has been the respondent in some 16 known investor-State arbitration claims , although none of these involve U.S. investors.

Local courts recognize and enforce foreign arbitral awards against the GOH.

International Commercial Arbitration and Foreign Courts

In the last few years, parties have increasingly turned to mediation as a means to settle disputes without engaging in lengthy court procedures.  Law 71 of 1994 on domestic arbitration procedures is based on the UNCITRAL model law.

Investment dispute settlement clauses are frequently included in investment contract between the foreign enterprise and GOH.  Hungarian law allows the parties to set the jurisdiction of any courts or arbitration centers. The parties can also agree to set up an ad hoc arbitration court.  The law also allows investors to agree on settling investment disputes by turning to foreign arbitration centers, such as the International Centre for Settlement of Investment Disputes (ICSID), UNCITRAL’s Permanent Court of Arbitration (PCA), or the Vienna International Arbitral Centre.  In Hungary, foreign parties can turn to the Hungarian Chamber of Commerce and Industry arbitration court, which has its own rules of proceedings ( https://mkik.hu/en/court-of-arbitration ) and in financial issues to the Financial and Capital Market’s arbitration court. Local courts recognize and enforce foreign or domestic arbitral awards.  An arbitral ruling may only be annulled in limited cases, and under special conditions.

Domestic courts do not favor State-owned enterprises (SOEs) disproportionately.  Investors can expect a fair trial even if SOEs are involved and in case of an unfavorable ruling, may elevate the case to the European Court of Justice (ECJ).  Investors do not generally complain about non-transparent or discriminatory court procedures.

Bankruptcy Regulations

The Act on Bankruptcy Procedures, Liquidation Procedures, and Final Settlement of 1991, covers all commercial entities with the exception of banks (which have their own regulatory statutes), trusts, and State-owned enterprises, and brought Hungarian legislation in line with EU regulations.  Debtors can initiate bankruptcy proceedings only if they have not sought bankruptcy protection within the previous three years. Within 90 days of seeking bankruptcy protection, the debtor must call a settlement conference to which all creditors are invited. Majority consent of the creditors present is required for all settlements.  If agreement is not reached, the court can order liquidation. The Bankruptcy Act establishes the following priorities of claims to be paid: 1) liquidation costs; 2) secured debts; 3) claims of the individuals; 4) social security and tax obligations; 5) all other debts. Creditors may request the court to appoint a trustee to perform an independent financial examination.  The trustee has the right to challenge, based on conflict of interest, any contract concluded within 12 months preceding the bankruptcy.

The debtor, the creditors, the administrator, or the Criminal Court may file liquidation procedures with the court.  Once a petition is filed, regardless of who filed it, the Court notifies the debtor by sending a copy of the petition.  The debtor has eight days to acknowledge insolvency. If the insolvency is acknowledged, the company declares if any respite for the settlement of debts is requested.  Failure to respond results in the presumption of insolvency. Upon request, the Court may allow up to of 30 days for the debtor to settle the debt.

If the Court finds the debtor insolvent, it appoints a liquidator.  Transparency International (TI) has raised concerns about the transparency of the liquidation process because a company may not know that a creditor is filing a liquidation petition until after the fact.  TI also criticized the lack of accountability of liquidator companies and what it considers unusually short deadlines in the process. The EU has also criticized the Hungarian system as being creditor-unfriendly, since bankruptcy proceedings typically only recover 44 cents on the dollar, compared to the OECD average of 71 cents on the dollar.

Bankruptcy in itself is not criminalized, unless it is made in a fraudulent way, deliberately, and in bad faith to prevent the payment of debts.

Law 122 of 2011 obliges banks and credit institutions to establish and maintain the Central Credit Information System to assess creditworthiness of businesses and individuals to facilitate prudent lending ( http://www.bisz.hu ).

Capital Markets and Portfolio Investment

The Hungarian financial system offers a full range of financial services with an advanced information technology infrastructure.  The Hungarian Forint (HUF) has been fully convertible since 2001, and both Hungarian financial market and capital market transactions are fully liberalized.  The Capital Markets Act of 2001 sets out rules on securities issues, including the conversion and marketing of securities. As of 2007, separate regulations were passed on the activities of investment service providers and commodities brokers (2007), on Investment Fund Managing Companies (2011), as well as on Collective Investments (2014), providing more sophisticated legislation than those in the Capital Markets Act.  These changes aimed to create a regulatory environment where free and available equity easily matches with the best investment opportunities. The 2016 modification of the Civil Code removed remaining obstacles to promote collection of public investments in the course of establishing a public limited company.

The  Budapest Stock Exchange (BSE)  re-opened in 1990 as the first post-communist stock exchange in the Central and Eastern European region.  Since 2010, the BSE has been a member of the Central and Eastern Europe (CEE) Stock Exchange Group. In 2013, the internationally recognized trading platform Xetra replaced the previous trading system.  Currently, the BSE has 40 members and 62 issuers. The issued securities are typically shares, investment notes, certificates, corporate bonds, mortgage bonds, government bonds, treasury bills, and derivatives.  In 2021, the BSE had a market capitalization of $28.3 billion, and the average monthly equity turnover volume amounted to $2.1 billion. The most traded shares are OTP Bank, Gedeon Richter, MOL, Magyar Telekom, and Masterplast

Financial resources flow freely into the product and factor markets.  In line with IMF rules, international currency transactions are not limited and are accessible both in domestic or foreign currencies. Individuals can hold bank accounts in either domestic or foreign currencies and conduct transactions in foreign currency. Since March 2020, commercial banks introduced real time bank transfers for domestic currency transactions.

Commercial banks provide credit to both Hungarian and foreign investors at market terms.  Credit instruments include long-term and short-term liquidity loans. All banks publish total credit costs, which includes interest rates as well as other costs or fees.

Money and Banking System

There are no rules preventing a foreigner or foreign firm from opening a bank account in Hungary.  Valid personal documents (i.e., a passport) are needed and as of 2015, when the Foreign Account Tax Compliance Act (FATCA) came into force, also a declaration of whether the individual is a U.S. citizen.  Banks have not discriminated against U.S. citizens in opening bank accounts based on FATCA.

The Hungarian banking system has strengthened over the past few years, and the capital position of banks is generally adequate even in the challenging economic environment created by COVID-19.  Following several years of deleveraging after the 2008 crisis, the banking system is mainly deposit funded. The penetration of the banking system decreased slightly in 2019 due to a relatively high GDP growth rate. The sector’s total assets amounted to 92.6 percent of GDP.

The Hungarian banking system is healthy and banks have a stable capital position.  The loan-to-deposit ratio has been gradually decreasing from its 160 percent peak in 2009 after the financial crisis to 85 percent in 2015, and has been fluctuating between this value and a 92.4 percent peak in 2019. In spring 2020, during the first wave of the COVID-19 in Hungary, it reached 91.6 percent but decreased to 81.7 percent by the end of the year. The liquidity cover ratio was 160 percent in the first wave of COVID-19, then climbed to 220.8 percent by the end of the year. In response to the COVID-19 crisis, the Central Bank restructured and expanded its monetary policy tools to provide liquidity to the financial sector through currency swaps, fixed-rate loans, and exemptions from minimum reserve requirements. The Central Bank also introduced instruments to influence short- and long-term term yields. It offered low-interest loans through commercial banks to the SME sector and launched a government securities purchase program on the secondary market.

The ratio of non-performing loans (NPLs) has been gradually decreasing from a high of 18 percent in 2013 to 4.1 percent in 2019 as a result of portfolio cleaning, the improving economic environment, and increased lending.  In the first wave of the pandemic the NPL ratio increased slightly, but by the end of the year it continued the decreasing trend and fell to 3.6 percent. The banking sector became profitable after several years of losses between 2010 and 2015, reaching a return on equity (ROE) record high of 16.8 percent in 2017. Since then, ROE has gradually decreased, to 12.3 percent by the end of 2019 and more steeply during the COVID-19 pandemic to 6.5 percent in December 2020, which is still slightly higher than the EU average. The banking sector’s total assets exceeded 90 percent of GDP in 2020, of which 64 percent were held by five banks. The largest bank in Hungary is OTP Bank, which is mostly Hungarian-owned and controls 25 percent of the market, with about $29 billion in assets.

Hungary has a modern two-tier financial system and a developed financial sector, although there have been some reports that regulatory issues have arisen as a result of the Central Bank’s (MNB) 2013 absorption of the Hungarian Financial Supervisory Authority (PSZAF), which had been the financial sector regulatory body.  Between 2000 and 2013, the PSZAF served as a consolidated financial supervisor, regulating all financial and securities markets. PSZAF, in conjunction with the MNB, managed a strong two-pillar system of control over the financial sector, producing stability in the market, effective regulation, and a system of checks and balances.  In 2013, the MNB absorbed the PSZAF and over the past few years has efficiently strengthened its supervisory role over the financial sector and established a customer protection system.

In accordance with the GOH’s stated goal of reducing foreign ownership in the financial sector, the proportion of foreign banks’ total assets in the financial sector decreased to about 40 percent in 2019, down from a peak of 70 percent before the 2008-2009 financial crisis. Foreign banks are subject to central bank uniform regulations and prudential measures, which are applied to Hungary’s entire financial market without discrimination. On March 2, 2020, MNB launched an immediate e-transfer system up to a maximum of HUF 10 million (about $32,000) for domestic transactions in HUF. Commercial banks have extensive direct correspondent banking relationships and are capable of transferring domestic or foreign currencies to most banks outside of Hungary.  Since 2018, however, the cashing of U.S. checks is no longer possible. No loss or jeopardy of correspondent banking relations has been reported.

Recent regulations restrict foreign currency loans to only those that earn income in foreign currency, in an effort to eliminate the risk of exchange rate fluctuations.  Foreign investors continue to have equal – if not better – access to credit on the global market, with the exception of special GOH credit concessions such as small business loans.

Foreign Exchange and Remittances

Foreign Exchange

The Hungarian forint (HUF) has been convertible for essentially all business transactions since January 1, 1996, and foreign currencies are freely available in all banks and exchange booths.  Hungary complies with all OECD convertibility requirements and IMF Article VIII. Act XCIII of 2001 on Foreign Exchange Liberalization lifted all remaining foreign exchange restrictions and allowed free movement of capital in line with EU regulations.

According to Hungary’s EU accession agreement, it must eventually adopt the Euro once it meets the relevant criteria. The GOH has not set a specific target date even though Hungary meets most of the necessary fiscal and financial criteria.  According to the Ministry of Finance, Hungary’s economic performance should mirror the Eurozone average more closely before adapting the Euro.

Short-term portfolio transactions, hedging, short, and long-term credit transactions, financial securities, assignments and acknowledgment of debt may be carried out without any limitation or declaration.  While the Forint remains the legal tender in Hungary, parties may settle financial obligations in a foreign currency. Many Hungarians took out mortgages denominated in foreign currency prior to the global financial crisis, and suffered when the Forint depreciated against the Swiss Franc and the Euro.  Despite strong pressure, the Hungarian Supreme Court ruled that there is nothing inherently illegal or unconstitutional in loan agreements that are foreign currency denominated, upholding existing contract law. New consumer loans, however, are denominated in Forints only, unless the debtor receives regular income in a foreign currency.

Market forces determine the value of the Hungarian Forint. Analysts note that the MNB’s consistently low interest rates have contributed to a nearly 30 percent decline in the value of the of the Forint against the Euro since 2010.

Remittance Policies

There is no limitation on the inflow or outflow of funds for remittances of profits, debt service, capital, capital gains, returns on intellectual property, or imported inputs. The timeframes for remittances are in line with the financial sector’s normal timeframes (generally less than 30 days), depending on the destination of the transfer and on whether corresponding banks are easily found.

Sovereign Wealth Funds

Hungary does not maintain a sovereign wealth fund.

In the 1990s, there was considerable privatization of former State-owned enterprises (SOEs), primarily in strategic sectors such as energy and transportation.  Since 2010, the GOH has reversed this trend by making new investments in machinery production and the energy and telecommunications sectors, resulting in an increase of the number of SOEs.

As of 2020, there are more than 200 SOEs.  The state holds majority ownership in more than half of them.  In addition, there are a large number of municipality-owned companies.  SOEs are particularly active in the energy and utility sectors, banking, transportation, forestry, and postal services. SOEs have independent boards, but in practice, all strategic decisions require government approval.

Major SOEs include the National Asset Management Company (MNV), Magyar Posta, state energy company MVM, Hungarian State Railways (MAV), state gambling monopoly Szerencsejatek, National Infrastructure Development Company (NIF), car manufacturer RABA, and state-owned banks Exim bank, Hungarian Development Bank (MFB), Takarekbank, and Budapest Bank.  The GOH has a five percent direct stake in hydrocarbon company MOL, and 20 percent of the company is owned by two higher education foundations closely affiliated with the GOH.

A 2011 law on national assets lists the SOEs of strategic importance, which are to be kept in state ownership ( https://net.jogtar.hu/jr/gen/hjegy_doc.cgi?docid=a1100196.tv ); as of March 2021 there were 62 such companies.  There is no officially published, complete list of SOEs, but the State Asset Manager MNV has a list of companies under its control on its webpage.  The list does not cover all publicly owned companies:  http://mnv.hu/felso_menu/tarsasagi_portfolio/mnvportfolio .

In principle, the same rules apply to SOEs as to privately owned companies in most cases, but in practice, some companies report that SOEs often enjoy preferential treatment from certain authorities.  According to many businesses, since mid-2012, the GOH has made it more difficult for foreign-owned energy companies to operate in the Hungarian market. The GOH has publicly stated its interest in nationalizing some private energy firms.  In 2013, the GOH purchased E.ON’s wholesale and gas storage divisions and RWE’s retail gas company, Fogaz. In 2014 and 2015, the GOH acquired other energy companies. By the end of 2016, state-owned Fogaz became the only remaining retail gas utility provider in Hungary.  Press reports indicate the GOH intends to take over the electricity and heating retail markets as well.

Hungary adheres to OECD Guidelines on Corporate Governance as well as to EU rules on SOEs.  The Hungarian National Asset Management Company is the state asset manager.

According to a 2015 study conducted by Transparency International (TI) Hungary, SOEs scored 61 points on a scale of 100 with regard to meeting transparency obligations in terms of data published on their websites, integrity, codes of ethics, and internal control systems.  TI noted that although there was a considerable improvement compared to the previous survey in 2013, none of the SOEs reviewed during their study was in full compliance with transparency and disclosure requirements as mandated by Hungarian law.

In a July 2018 State Audit Office (SAO) report on the monitoring of 62 SOEs, the SAO said that the investigated enterprises’ integrity and compliance regulations have improved over the past years and their current transparency and integrity level is satisfactory.  The report added that the auditing and asset management of SOEs could still be improved, and that owners should investigate SOEs more often than the current practice. An April 2020 SAO report investigated the integrity of 19 state-owned and municipality owned companies and found that the overwhelming majority of the companies had serious deficiencies in integrity measures protecting against corruption.

Privatization Program

In the 1990s, the privatization of state-owned enterprises (SOEs), including the energy sector, manufacturing, food processing, and chemical industries, ushered in a significant period of change.  As most SOEs have already been privatized, that trend has reversed since 2010 as the state has taken more ownership or de facto control in certain sectors, including energy and public utilities.

The security environment is relatively stable.  Politically motivated violence or civil disturbance is rare.  Violent crime is low, with street crimes the most frequently reported crimes in the country. Political violence is not common in Hungary.  The transition from communist authoritarianism to capitalist democracy was negotiated and peaceful, and free elections have been held consistently since 1990.

* Source for Host Country Data: 2021 Hungarian National Bank, www.mnb.hu