2019 Investment Climate Statements: Marshall Islands

Policies Toward Foreign Direct Investment

The government of the RMI publicly expresses interest in finding ways to increase foreign investment, but there are many structural impediments to foreign investment and economic development, such as land rights, which are unlikely to be changed in the foreseeable future.

Foreign investment is governed through the Foreign Investment Business License (Amendment Act (2000), which established the Registrar of Foreign Investment and details restrictions on foreign investments, mostly in certain small-scale retail and service businesses.  There are reports of foreign investors that have entered into business partnership agreements with local Marshallese businesses, however, due to inconsistent enforcement. The Ministry of Resources and Development, Trade and Investment Division, administers the law in coordination with the Office of the Attorney General.

The RMI cabinet can approve tailor-made investment incentives including tax and duty exemptions.  Investors who invest a minimum of USD 1 million or provide employment and wages in excess of USD 150,000 annually to Marshallese citizens are exempt from paying gross revenue tax and import duties for a five-year period in certain sectors, including offshore or deep-sea fishing. This focus on cabinet decision-making together with a lack of transparency and consistency across all sectors contravenes international best practices.

Land issues and disputes concerning leases are subject to customary law governing land tenure, and proceedings can take a protracted time to resolve.  Land cannot be purchased by investors; it can only be leased through customary practices.

Limits on Foreign Control and Right to Private Ownership and Establishment

Although the Marshall Islands generally encourages foreign investment, the Foreign Investment Business License (Amendment) Act established a National Reserved List, which restricts foreign investment in certain small-scale retail and service businesses.  Officially, foreign investment is prohibited in the following business ventures:

• Small scale agriculture and marine culture for local markets
• Bakeries and pastry shops
• Motor garages and fuel filling stations
• Land taxi operations, not including airport taxis used by hotels
• Rental of all types of motor vehicles
• Small retail shops with a quarterly turnover of less than USD 1,000 (including mobile retail shops and/or open-air vendors/take-outs)
• Laundromat and dry cleaning, other than service provided by hotels/motels
• Tailor/sewing shops
• Video rental
• Handicraft shops
• Delicatessens, Deli Shops, or Food take-out

Other Investment Policy Reviews

The Office of Commerce Investment and Tourism (OCIT) drafted an investment policy review in 2018 for the purpose of stimulating private sector economic activity that will increase employment, sustainable FDI, and boost the RMI economy.  According to the OCIT 2018-2020 Business Plan, the office’s priorities include revising and updating the RMI Investment Policy, addressing and removing constraints to business in the RMI, and implementing 3-year targeted development strategies for projected private sector growth sectors (tourism, fisheries, and MSMEs), and marketing the RMI for commerce, tourism, and investment.

Business Facilitation

The Government of the Marshall Islands created the OCIT to assist foreign investors.  OCIT’s website has helpful information regarding investment and doing business in the Marshall Islands:  https://www.rmiocit.org .  OCIT developed a one-stop-shop business registration process, but it is still largely a paper-based system.  There currently is no online website for registering a business in the Marshall Islands. This must be done in person.  After a foreign investor receives an FIBL, detailed in the Laws and Regulations on DFI, the business owner must complete the following steps:

Check the uniqueness of the proposed company name with the Registrar of Corporations. This costs USD 100 and takes one day.

Have the company charters notarized.  Notarization can be done at the Office of the Attorney General.  It takes two days on average and costs USD 10.

Register the company with the Registrar of Corporations.  This takes five days and costs USD 250. Limited Liability Companies need to file a Certificate of Formation and need to have LLC agreements detailing how the LLC will be operated, managed, and distributions divided.

Obtain an Employer Identification Number from the Marshallese Social Security Administration.  This number will also serve as the company’s tax identification number. This process takes two days and costs USD 20.

Apply for a business license.  The business owner needs to submit a company charter along with the business license application.  Business licenses are usually issued in seven days. Licensing fees vary depending on the type of business.  Fees are as follows:

• Retail Business: USD 150
• Banks: USD 5,000
• Professional: USD 3,000
• Hotels: USD 500

The Ministry of Finance segments the business sector for tax purposes using annual gross revenue amounts, not number of employees.  There are no other segmentations recognized by the Marshall Islands. There is a Small Business Development Center in Majuro.

Outward Investment

The RMI government does not actively promote, incentivize, or restrict outward investment.

The Marshall Islands does not have a bilateral investment treaty with any country.

Transparency of the Regulatory System

Regulatory and accounting systems are generally transparent and consistent with international norms. Bureaucratic procedures are generally transparent, although nepotism and customary hierarchal relationships can play a role in government actions.  There are frequent accusations of official corruption across the RMI government. Proposed laws and regulations are available in draft form for public comment pursuant to the Administrative Procedures Act, Title 6 of the Marshall Islands Revised Code.  Generally, tax, labor, environment, health and safety, and other laws and policies do not impede investment. There are no informal regulatory processes managed by nongovernmental organizations or private sector associations.

International Regulatory Considerations

The Marshall Islands is a member of the Pacific Islands Forum (PIF) which has a model regulatory and policy framework focused on competition, access and pricing, fair trading, and consumer protections.  The RMI seeks to implement PIF-agreed standards domestically; however, the capacity for enforcement is weak.

Legal System and Judicial Independence

The Republic of the Marshall Islands has a responsive judiciary that consistently upholds the sanctity of contracts. The legal system in the Marshall Islands is patterned on common law proceedings as they exist in the United States. The country has a judicial branch composed of a Supreme Court, a High Court, a Traditional Rights Court, District Courts, and Community Courts. The Supreme Court is made up of one Chief Justice and two Associate Justices.  The High Court consists of the Chief Justice and one Associate Justice. The Chief Justices are both U.S. Citizens serving 10-year terms. There are also three Traditional Rights Court judges, two District Court judges, and several Community Court judges serving the Marshall Islands. On certain occasions, as necessary, the Marshall Islands Judicial Service Commission recruits qualified judges on contract from the United States to serve with the Chief Justice on the Supreme Court and to temporarily fill vacancies on the High Court as there are few qualified and independent Marshallese who can fill these positions.  The Traditional Rights Court deals with customary law and land disputes.

The Marshall Islands Courts are generally considered fair, without undue influence or interference.  Marshall Islands Court rulings, legal codes, and public law can be found on their website: http://www.rmicourts.org/ .

Laws and Regulations on Foreign Direct Investment

All non-citizens wishing to invest in the Marshall Islands must obtain a Foreign Investment Business License (FIBL). The FIBL is obtained from the Registrar of Foreign Investment in the Ministry of Finance. In coordination with the Investment Promotion Unit at the Ministry of Resources and Development, the Ministry of Finance reviews the application and ensures that the business does not fall under the categories of the National Reserved List listed above. The application process usually takes 7-10 working days. The FIBL grants non-citizens the right to invest in the Marshall Islands, provided the investment remains within the scope of business activity for which the FIBL was granted.

The 2015 amendment to the Foreign Investment Business License Act requires all holders of FIBLs to maintain reliable and complete accounting records and records of ownership, and that all business records must be kept in such a way that they can be converted into written form at the request of an authorized inspector.  These records must be retained for a period of five years.

Competition and Anti-Trust Laws

The Marshall Islands does not currently have any anti-trust legislation or agency which reviews transactions for competition-related concerns.

Expropriation and Compensation

All land is privately owned by Marshallese citizens through complex family lineages. Although the Government of the Republic of the Marshall Islands may legally expropriate property under the country’s constitution, the government has only exercised this right on one occasion and only for a temporary period of time. Given the importance of private land ownership in customary law and practice, it is very unlikely that the government will exercise this right in the foreseeable future.

If a business activity is subsequently added to the reserved List, the Registrar of Foreign Investment may not cancel or revoke an existing Foreign Investment Business License if the investment has already commenced.

Dispute Settlement

ICSID Convention and New York Convention

The Marshall Islands has been a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the 1958 New York Convention) since 2006, but is not a member of the International Center for Settlement of Investment Disputes (ICSID), nor does it have plans to become a member at this time.

Investor-State Dispute Settlement

There are no ongoing investment disputes involving the Government of the Republic of the Marshall Islands and foreign investors.   There is a very limited record of foreign investment disputes in the Marshall Islands due to the small size of foreign investment in the country. The most common type of business disputes are with landowners over land use, and land rights issues, and as there is currently no official dispute resolution procedure, these are frequently resolved informally or only after protracted court proceedings.  Domestic civil society has traditionally not been actively engaged in dispute resolution. The Marshall Islands Courts are generally considered fair, without undue influence or interference. There is no history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

The Republic of the Marshall Islands does not have any alternative dispute resolution (ADR) mechanisms or domestic arbitration bodies available as a means for setting disputes between two private parties.  There is no known history of the RMI enforcing foreign commercial arbitral decisions.

Bankruptcy Regulations

There is no legal provision for bankruptcy in the Marshall Islands.  There is a provision by which companies can elect to close themselves down, but there is no law through which creditors can apply to the court for liquidation and sale of assets of companies that are unable to pay their debts.   It ranks 167 out of 190 for resolving insolvency in World Bank’s 2018 Doing Business Report.

Investment Incentives

The Republic of the Marshall Islands offers a range of investment incentives, many of which can be found at https://www.rmiocit.org/ .

The Marshall Islands offers tax and duty exemptions for investments in certain private sector industries. These investment incentives apply uniformly to both domestic and foreign investors through submission of a letter to the Minister of Finance. Tax incentives are specified by law, but have been rarely awarded, given the relative lack of large-scale investment.

All imports are subject to import duties, and the only current duty exemptions are for renewable and alternative energy items. Import duties are ad valorem rates on cost, insurance, and freight (CIF), and the number of tariff categories is small to facilitate administration. Goods in transit are exempt from the import tax, and the import tax on re-exported goods is refundable.  The Marshall Islands has no taxes on exports.

Under the terms of the Compact of Free Association, as amended, all items grown, made or produced in the Marshall Islands are exempt from U.S. duties with the following exceptions:

• Watches, clocks, and timing apparatus provided for in Chapter 91, excluding heading 9113, of the Harmonized Tariff Schedule of the United States;
• Buttons (whether finished or not finished) provided for in items 9606.21.40 and 9606.29.20 of such schedule;
• Textile and apparel articles which are subject to textile agreements; and
• Footwear, handbags, luggage, flat goods, work gloves, and leather wearing apparel which were not eligible for the generalized system of preferences in the Trade Act of 1974.

Tuna in airtight containers exported to the U.S. is duty-free, provided it does not exceed 10 percent of total U.S. tuna consumption during the previous calendar year. The Compact also stipulates that U.S. products imported to the Marshall Islands receive Most-Favorable Nation status, and the country must consult with the U.S. should they enter into a Free Trade Agreement with another country or customs territory.

Investors who invest a minimum of USD 1 million or provide employment and wages in excess of USD 150,000 annually to Marshallese citizens are exempt from paying gross revenue tax for a five-year period in the following sectors:

• Off-shore or deep sea fishing
• Manufacturing for export, or for both export and local use
• Agriculture
• Hotel and resort facilities

Investors in seabed hard mineral mining are exempt from paying all taxes, duties, and other charges (except taxes on wages and salaries, individual income tax, and social security contributions). In return, investors are required to pay the Government of the Republic of the Marshall Islands a share of net proceeds accruing from the investment in the form of royalties, production charge, or some combination thereof as agreed to between the government and investor.

Foreign Trade Zones/Free Ports/Trade Facilitation

There are no geographic foreign trade zones or free ports in the Marshall Islands.

Performance and Data Localization Requirements

The RMI government requires all investors employing non-resident workers to agree to:

1. Cover the cost of repatriating non-resident workers to the place hired,
2. Train one or more citizen workers to perform the work for which the non-resident worker is employed,
3. Pay a levy of USD 250 per non-resident worker per quarter to be paid to the Resident Workers Training Account for the purposes of training citizen workers, and repatriating non-resident workers should the need arise.

This requirement is set and evaluated on a case by case basis, and is usually included as part of a whole package that also includes investment incentives such as favorable taxation statuses.

U.S. Citizens do not require a visa to enter the Marshall Islands, and may be employed in the Marshall Islands without obtaining a work permit or a visa.  They must register as an alien with the Department of Immigration on an annual basis. Though use of local products is encouraged, the government does not impose “forced localization” rules.

The RMI does not currently have laws or regulations on domestic data storage or localization requirements.

Real Property

Land rights are a highly complex and frequently contentious issue in the Marshall Islands.  Land ownership is transmitted through family lineage and according to social class. Paramount Chiefs (Iroij) have title to entire islands or portions of islands within an atoll, clan elders (alaps) have title to several parcels of land under their Paramount Chiefs, and workers (dri-jerbal) have title to the parcel of land associated with their Paramount Chief on which they live.  Each parcel of land is thus owned by at least three separate individual landowners, one each from the classes described above. Non-Marshallese may not purchase land, and land purchases by Marshallese are also very rare. Paramount Chiefs may grant land rights to others, though they retain their share of ownership in all circumstances.

Available land for development is scarce, particularly in the two major urban areas of Majuro and Ebeye.  Non-citizen investors must negotiate lease agreements directly with customary groups of landowners. Land may be leased into perpetuity with many leases having a term of 50 years, and options for renewal.  The Kwajalein land lease to the U.S. government runs fifty years (to 2066) with an option to renew for another twenty years, for example. Mortgages against the title of land are not permitted, but commercial lease agreements and land lease payments may be used as collateral.  There is limited written documentation of titles to land in the Marshall Islands, although local citizens generally know who controls each parcel of land on their particular atoll.

In 2003, the Government of the Republic of the Marshall Islands established a Land Registration Authority to create a voluntary register of customary land and establish a legal framework for recording documents related to ownership rights.  The Land Registration Authority has not achieved its objective of encouraging greater clarity and security of property rights in land. The continued lack of clear title creates uncertainty for investors and impedes lending. As a result, native-born Marshallese cannot draw upon their land rights as collateral toto finance business ventures.  The government is exploring the possibility of acting as an intermediary between investors and landowners focusing on resort development.

In the World Bank’s Doing Business 2017 report, the Marshall Islands rank 187th out of 190 countries for registering property.

Intellectual Property Rights

The Marshall Islands is not a member of the World Trade Organization, the World Intellectual Property Organization (WIPO), or any other international agreement on intellectual property rights.  There is inadequate protection for intellectual property, patents, copyrights, and trademarks. The only intellectual property-related legislation relates to locally produced music recordings, and it has never been enforced.  The Marshall Islands are not listed on the USTR’s Special 301 Report, nor are they listed in the notorious market report. Pirated DVDs and CDs imported from off-island are readily available.

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

Capital Markets and Portfolio Investment

There are no stock exchanges or financial regulatory institutions in the country.

Money and Banking System

There are currently two banks with branches in the Marshall Islands.  The Bank of Guam is a publicly owned U.S. company with its headquarters in Guam.  It complies with all U.S. regulations and is FDIC-insured. The Bank of the Marshall Islands (BOMI) is a privately-owned Marshallese company with headquarters in Majuro.  First Hawaiian Bank is the sole provider of BOMI’s link to the U.S. and international network; however, there have been reports that the RMI’s correspondent banking relationship with First Hawaiian, Inc. may be in jeopardy if the government adopts the “SOV,” a cryptocurrency, as a national currency in addition to the U.S. dollar.  Although the SOV was originally scheduled to be launched in 2019, recent press statements have indicated that the company associated with the SOV’s development needs time to address the concerns of the International Monetary Fund and other stakeholders, including the U.S. Treasury Department, and is delaying the planned launch of the SOV.

Foreign Exchange and Remittances

Foreign Exchange

The government does not impose any restrictions on converting or transferring funds associated with an investment. The Marshall Islands uses the U.S. dollar as its official currency, and there is no central bank.  There are no official remittance policies and no restrictions on foreign exchange transactions. There have been no reported difficulties in obtaining foreign exchange as the vast majority of funds are denominated in U.S. dollars.

Remittance Policies

While the government encourages reinvestment of profits locally, there are no laws restricting repatriation of profits, dividends, or other investment capital acquired in the Marshall Islands.  To comply with international money laundering commitments, cash transactions and transfers exceeding USD 10,000 are reported by the banks to the Banking Commission, which monitors this information and has the authority to investigate financial records when necessary.  To date, however, the country has not successfully prosecuted any money laundering cases.

Sovereign Wealth Funds

The Marshall Islands has no sovereign wealth fund (SWF) or asset management bureau (AMB), but the Compact of Free Association established a Trust Fund for the Marshall Islands that is independently overseen by a committee composed of the United States, Taiwan, and Marshall Islands representatives.

Nearly all major industries are controlled by state-owned enterprises (SOEs).  In the 2018-2020 OCIT Business Plan, the RMI government recognized the need for continued reforms at SOEs.   The SOE sector, comprising 11 public enterprises, continues to underperform and to impose significant risks and burden on the fiscal system and economy.  Relatively large government investments in SOEs have tended to lead to inefficient and high cost services, and large losses requiring annual government subsidies that have become a drain on the government budget.  The U.S. Department of the Interior’s Economic Review for FY 2017 records total levels of subsidies and capital transfers to the SOE sector at 15 percent of GDP with the sector making an average operating loss of USD 3.4 million over the FY2015—FY2017 period and incurring subsidies averaging USD 12.6 million annually over that period.  Major SOEs are: Air Marshall Islands; Kwajalein Atoll Joint Utility Resources; Majuro Atoll Waste Corporation; Marshall Islands Development Bank; Majuro Water and Sewer Company; Marshalls Energy Company; Marshall Islands Port Authority; Marshall Islands Shipping Corporation; Marshall Islands Resort; Postal Services Authority; National Telecommunication Authority; and the Tobolar Copra Processing Plant.  The Marshall Islands Marine Resource Authority (MIMRA) is the only SOE to be a net revenue provider for the Marshall Islands, but the audit cautioned that the long-term future support from the fisheries sector cannot be taken for granted. The Marshall Islands is not a member of the WTO.

In 2015 the Marshallese parliament passed the State-Owned Enterprises Act which set standards for the formation and operation of SOEs.  The Act changed the way the boards of directors of SOEs are structured, and set minimum reporting requirements for the 11 SOEs. Boards must consist of at least three but no more than seven directors, only one of which can be a public official and that public official may not hold a term longer than three years after the Act goes into effect.  A public official may not be selected as Chairman of the Board. The SOE Act was subsequently amended in 2016 to permit more public officials to hold seats on boards of directors, including as Chairman of the Board.

All SOEs are required to have their books independently audited as part of the government’s overall audit.

Privatization Program

There is no formal privatization program in the RMI, but the 2018-2020 OCIT Business Plan recognizes the need for SOE reform and privatization.  OCIT states in the report that “implementing the new Plan will require some organizational change. This will include the following:

1. A private sector organization(s) is/are created that is representative of all the private business interests of the RMI.
2. All government departments support private sector led growth.
3. All SOEs allow private sector competition. This currently most especially applies to AMI, NTA, the Shipping Corporation and Tobolar.
4. Government regulatory capacity is developed to promote competition and prevent private monopolies being created.

Currently, foreign investors are allowed to purchase shares only in the National Telecommunications Authority, but foreign investors may not own a majority of shares. Bidding criteria are not readily available, and the process remains largely controlled by the national government.

The Marshall Islands has some basic worker protection laws, including a minimum wage and protections for foreign workers.  With the exception of a few retail businesses, the banking sector, and the ship registry, there is little general awareness of corporate social responsibility or responsible business conduct among producers or consumers.  Firms that pursue these objectives are viewed neither favorably nor unfavorably.

There are credible allegations and periodic prosecutions for misuse of government funds and abuse of public office for private gain.  Government procurement and transfers appear most vulnerable to corruption, and personal relationships sometimes play a role in government decisions.  Government officials at all levels are permitted to invest in and own private businesses without regard for conflict-of-interest considerations. Foreign aid has been abused and past audits report a number of financial irregularities connected to donor-funded activities.  Bribery of both domestic or foreign officials is a second-degree felony. The Marshall Islands acceded to the UN Convention against Corruption in September 2011. Although there are frequent credible allegations of public corruption in the RMI, few high-ranking government officials are ever charged, prosecuted, or sentenced.  Government officials caught up in corruption allegations are typically removed from one ministry and later put in a position of authority in a different ministry.

Domestic and international firms as well as NGOs have repeatedly identified corruption as a problem in the business environment and a major detractor for international firms exploring investment or business activities in the local market.

Resources to Report Corruption

Richard Hickson
Attorney General
RMI Attorney General Office
PO Box 890
Majuro, Republic of the Marshall Islands 96960
Telephone: +692 625 3244
Fax: +692 625 5218
Email: Richard_Hickson@hotmail.com

No international, regional, or local watchdog organizations operate in the country.

There have been no reported incidents involving politically motivated damage to projects or installations.

The RMI workforce is estimated at 10,895 people, of which only 39.39 percent work in the private sector, based on RMI FY16 economic statistics.  According to RMI FY16 data, the Marshall Islands has a 31 percent unemployment rate, and a significant portion of the population remains underemployed as well.  Unemployment rates among youth and young adults could be as high as 50–60 percent, according to unofficial estimates. Official reported unemployment is 4.7 percent, however, when including all household production such as fishing or making handicrafts for personal consumption.

Under the Compact of Free Association, Marshallese citizens are entitled to live, attend school, and work in the United States visa-free as “nonimmigrant residents.”  Accordingly, the pool of capable workers is limited, as many skilled and professional workers migrate to the United States for its higher wages and standards of living.  Recruiting skilled foreign workers is time-consuming and expensive. Professional, medical, management, and other special labor skills are in high demand in the Marshall Islands.

Given the scarcity of resident qualified workers, the Marshall Islands allows investors to employ non-resident workers provided they agree to cover the cost of repatriation, that they hire and train at least one citizen to perform the same work, and pay a levy of USD 250 per non-resident worker per quarter, to be paid to the Resident Workers Training Account for the purposes of training citizen workers, and repatriating non-resident workers should the need arise.  Non-citizen investors issued with a foreign investment business license are exempted from obtaining a work permit for themselves. Also, citizens of the United States, Federated States of Micronesia, and Palau do not require work permits to work in the Marshall Islands. Investors and nationals of these countries, however, are required to register with the Labor Office. The RMI government may also issue investors work permit exemptions if investors can demonstrate that their investments will provide substantial economic benefits to the country.  Such exemptions are limited to export-oriented investments. Applications for such exemptions should be submitted to the Chief of Labor.

Foreign workers are generally hired on a contract basis with opportunities for annual renewals.   The National Training Council provides training resources for Marshallese workers. While many consider the law discriminatory against foreign workers, employers are willing to pay the training fee in order to hire skilled labor, which is not widely available in the country.  Some companies, particularly in fisheries, seeking to expand business and hire additional workers are limited by other infrastructure constraints, such as the lack of available land, water, and power.

There are no laws that require employers to pay a severance package when an employee is released from service, either due to firing or lay-offs.  Arrangements for severance payments are generally made at the time of hire through terms in the hiring instrument. There is no employment insurance or any other social safety net programs for unemployed individuals.

There is no legislation concerning collective bargaining or trade union organization, although a bill has been introduced into the RMI Parliament (Nitijela) for debate.  The country has a very limited history or culture of organized labor. The only union ever created in the country, the Teachers’ Union, was formed several years ago and is inactive.  The Marshall Islands has been a member of the International Labor Organization (ILO) since 2007.

The U.S. Overseas Private Investment Corporation (OPIC) provides investment insurance, financing, and loan guarantees in the Marshall Islands for qualified investors. Because the Marshall Islands uses the U.S. dollar as its national currency, there are no convertibility risks. The Marshall Islands is not a member of the Multilateral Investment Guarantee Agency.

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

*Local GDP statistics from the Economic Policy, Planning and Statistics Office (EPPSO) which serves as an economic advisor to the Government of the Republic of the Marshall Islands. It is responsible for Policy & Strategy Development, Statistics & Analysis, and Performance Monitoring, Evaluation & Aid Co-ordination. EPPSO is directly responsible to the Office of the President.

Table 3: Sources and Destination of FDI

No detailed information is available on the IMF’s Coordinated Portfolio Investment Survey (CPIS) website and no information is available on outward direct investment from the RMI.

Table 4: Sources of Portfolio Investment

Data not available.

Rachael Doherty
Deputy Chief of Mission
U.S. Embassy Majuro, Republic of the Marshall Islands
Telephone: +692-247-4011 Ext. 2350
Email: dolandb@state.gov
https://mh.usembassy.gov/
http://www.facebook.com/usembassymajuro