Transparency of the Regulatory System
The laws and regulations that affect direct investment, including environmental, health, and safety rules and regulations, apply equally to foreign and domestic firms. Before approval, investment proposals are evaluated for their environmental impacts by the Ministry of Environment and for their social impacts by the Ministry of Social Affairs and the Ministry of Finance. STP’s tax laws reward citizens who return to STP to invest, while also containing provisions for attracting foreigners to invest in STP. The STP legal code is based on Portuguese law, and laws and regulations are applied at the national level. Rule-making and regulatory authority exist at the national level and regulations are developed at the ministerial level, approved by the National Assembly, and promulgated by the President. The ministry concerned is responsible for any regulatory enforcement mechanisms. Rarely, draft bills or regulations are made available for public comment. Copies of most regulations can be purchased online at https://www.legis-palop.org/ or directly at the Ministry of Justice, Public Administration, and Human Rights in the format of the Official Gazette. The public finances and debt obligations are relatively transparent and are periodically available on the Ministry of Finance website: https://financas.gov.st/
International Regulatory Considerations
STP is a member of the Economic Community of Central African States (ECCAS), whose fundamental goals are to promote exchange and collaboration among the member countries and provide an institutional and legal framework to their cooperative efforts. In the last Africa Regional Integration Index (2019), STP had an average score for integration within the regional economic community, including on trade, infrastructure, and free movement of people. ECCAS is the largest economic community in Central Africa, including Central African Economic and Monetary Community (CEMAC) member states (Cameroon, the Central African Republic, Chad, Republic of Congo, and Equatorial Guinea, and Gabon), as well as Burundi, the Democratic Republic of Congo, Angola, Rwanda, and STP. STP is also a member of the Community of Portuguese Language Countries (CPLP) and its economic confederation (CE). STP is not a member of the WTO, but it does have observer status. STP is among the 46 African Nations to have signed the agreement on African Continental Free Trade Area (AfCFTA), having signed in March 2018 in Kigali, Rwanda, and became the 25th African country to ratify the AfCFTA in June 2019.
Legal System and Judicial Independence
The legal system is based on Portuguese civil law with elements of customary law. Investment disputes are generally solved through dialogue or negotiations between parties without litigation. However, in January 2023, the government suspended a ports concession agreement signed in August 2022 between the previous government and the Ghanaian Consortium Safebond. The agreement would have granted Safebond a 30-year management agreement for the existing port in Sao Tome (Ana Chaves) and port in Principe (Santo António), and Safebond pledged to build a US $400 million to $500 million deep seaport within five years’ time. In February 2023, Safebond filed a complaint against the government through the Supreme Court asking for a reversal of the new government’s decision, alleging that Safebond was accumulating enormous losses.
There have been a few instances of disagreements involving foreign investors reaching international courts, though the most recent case, involving the government and Portuguese-owned National Investment Bank was dismissed by the UN Commission on International Trade Law (UNCITRAL) and the Permanent Court of Arbitration in 2021. The country has a written commercial law but does not have specialized courts, so commercial cases are tried by the country’s civil courts.
Per article 121 of the constitution, which dates to 1975 and was most recently updated in 2003, “the courts are independent and subject only to the laws.” However, the direct appointment of judges by the National Assembly creates space for ruling party influence Article 40 of the constitution provides for fair trials, but the judicial process is subject to manipulation on occasion. All regulations or enforcement actions are appealable to the Supreme Court.
Laws and Regulations on Foreign Direct Investment
The Value-Added Tax (VAT) Law (13/2019) approved in 2019 will be in force from June 1, 2023, and the government is working closely with the IMF to implement the VAT system. The VAT rate will be 15 percent, while items in the basic basket of goods will be taxed at a rate of 7.5 percent. Additionally, a special rate of 2 percent will be applied for companies that have a business volume of less than 100,000 dobras ($4,470), with a rate of 7 percent for companies earning between 100,000 and 1 million dobras ($4,470 – $44,654) per year.
A modern Labor Code (6/2019) enacted in April 2019, is designed to make labor standards easier for investors to understand and implement. In June 2019, STP ratified the African Continental Free Trade Area agreement (AfCFTA). The Public Private Partnership (PPP) Law, the new Notary Code, and the Commercial Register Code all entered into force in 2018; the Regulation of Investment Code was adopted in 2017; and the Investment Code and Code of Fiscal Benefits and Incentives were adopted in 2016. The Trade and Investment Promotion Agency (APCI) is a one-stop shop for all investment information.
Following the creation of APCI, the cost and waiting period to start a new business have been substantially reduced. A new business can obtain expedited registration within 24 hours for an increased fee and otherwise within five days. The fee schedule based on the type of business to be created follows:
- Limited liability companies, between 3-5 days for STN 4,015 (US $178) or within 24 hours for STN 5,761 (US $256).
- Private limited companies between 3-5 days for STN 6,015 (US $267) or within 24 hours for STN 8,765 (US $390).
- Joint-stock companies between 3-5 days for STN 15,000 (US $667) or within 24 hours for STN 22,265 (US $989).
Although no online business registration process exists, companies can register their businesses at the Single Window (GUE) counter in person with the process spanning between one and five days. The following is a general description of how a foreign company can establish a local office:
1. Provide full company documentation, translated into Portuguese. The GUE sends this information to the Ministry of Justice ahead of the next step.
2. Check the uniqueness of the proposed company name and reserve a name.
3. Notarize the company statutes with the registration office at the Ministry of Justice.
4. File a company declaration with the Tax Administration Office at the Ministry of Finance, Commerce, and Blue Economy.
5. Register with the Social Security Office at the Ministry of Labor and Social Affairs.
6. Publish the incorporation notice in the official government gazette (Diário da República).
7. Publish the incorporation notice in a national newspaper.
8. Register the company with the Commercial Registry Office at the Ministry of Finance, Commerce, and Blue Economy.
9. Apply for a commercial operations permit (also known as an “alvara”), issued by the Directorate of Commerce.
10. Apply for a taxpayer identification number with the Office of Tax Administration at the Ministry of Finance, Commerce, and Blue Economy.
11. Register employees with the Social Security Office.
Other required documents include: 1) copies of the by-laws of the parent company and of the minutes of the meeting of the board of directors in which the opening of the STP branch is approved; 2) a certificate of appointment of the general manager for the STP office; 3) a copy of any agreement signed with a São Toméan company or with the STP government; 4) two copies of permits from the court granting authorization to operate; and 5) two photographs and a copy of the passport of the general manager.
In addition, the Single Window website ( http://www.gue-stp.net/spip.php?article24 ; in Portuguese only) provides information on creating and registering companies in STP.
Beyond the APCI’s “one-stop shop,” there are no agencies or legal brokers that provide services to further simplify the procedures for establishing an office in STP. Generally, foreign companies consult with a law firm for assistance.
Competition and Antitrust Laws
The Directorate of Regulation and Control of Economic Activities (DRCAE) has the mandate to inspect all economic activities and impose penalties, but it lacks the resources necessary to fully perform its duties. DRCAE is housed under the Ministry of Planning, Finance and Blue Economy.
The General Regulatory Authority of the Democratic Republic of São Tomé and Príncipe (AGER) was created to promote competition and prevent operator abuses in the water, electricity, and telecommunications sectors, as well as for the postal service. The AGER was established in 2005 and is housed under the Ministry of Infrastructure, Natural Resources, and Environment.
Expropriation and Compensation
The STP Constitution and the Expropriation Code allows only the central government to expropriate private property. The law permits expropriation of private property only if it is deemed to be in the national public interest and only with adequate compensation. There is no evidence to suggest that the government would undertake expropriation in a discriminatory manner or in violation of established principles of international law and standards.
Aside from a massive land expropriation from colonial farmers in 1976 – later recognized by the government as detrimental to STP’s economy – there have not been any documented cases of expropriation of foreign-owned properties. The government has reportedly considered expropriating land to expand the runway at the international airport, but thus far has reportedly been reluctant to do so out of concern that expropriation will deter new investment.
ICSID Convention and New York Convention
STP is a member of the International Centre for the Settlement of Investment Disputes (ICSID) Convention and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).
Investor-State Dispute Settlement
STP does not have a Bilateral Investment Treaty with the United States. In February 2023, a Ghanaian port administration consortium filed a complaint against the STP Government in the Supreme Court against the STP government for suspending a 30-year port concession agreement signed with the previous government in 2022. In May 2018, a dispute between a local businessperson and an Angolan investor over a brewery led to government intervention and the unconstitutional approval of a parliamentary resolution dismissing Supreme Court Judges, including the court’s President. There are no reports of investor-state disputes involving a U.S. person in the past 10 years. STP courts recognize and enforce foreign arbitral awards issued against the government.
International Commercial Arbitration and Foreign Courts
STP does not have any conflict mediation system, but the country has a Voluntary Arbitration Law (LAV), enacted in 2006. The LAV is largely based on the Portuguese Arbitration Act of 1986 and incorporates principles of the UNCITRAL Model Law. The Arbitration Center, which was created as part of the LAV, has been overseen by the Chamber of Commerce, never fully carried out its role. However, in 2022, the UNDP helped construct an Arbitration Center building scheduled to be inaugurated by the end of April 2023. It has not yet been inaugurated. The Arbitration Center will still be managed by the Chamber of Commerce, Industry, Agriculture, and Services.
The STP legal system recognizes international arbitration, and local courts recognize foreign arbitral awards, though enforcement may be difficult. The state-owned enterprise (SOE) for Port Administration, National Enterprise for Port Administration (ENAPORT), is involved in an investment dispute with the Ghanaian Consortium Safebond over the government’s suspension of a port concession.
STP has a bankruptcy law, but it is not well developed. In January 2022, the STP-based commercial bank Energy Bank, founded in 2011 by a Nigerian investor, declared bankruptcy. This led to the Central Bank cancelling the bank’s financial operations in STP.