An official website of the United States Government Here's how you know

Official websites use .gov

A .gov website belongs to an official government organization in the United States.

Secure .gov websites use HTTPS

A lock ( ) or https:// means you’ve safely connected to the .gov website. Share sensitive information only on official, secure websites.

Japan

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Toward Foreign Direct Investment

Direct inward investment into Japan by foreign investors has been open and free since the Foreign Exchange and Foreign Trade Act (the Forex Act) was amended in 1998. In general, the only requirement for foreign investors making investments in Japan is to submit an ex post facto report to the relevant ministries.

The Japanese Government explicitly promotes inward FDI and has established formal programs to attract it. In 2013, the government of Prime Minister Shinzo Abe announced its intention to double Japan’s inward FDI stock to JPY 35 trillion (USD 318 billion) by 2020 and reiterated that commitment in its revised Japan Revitalization Strategy issued in August 2016. At the end of 2016, Japan’s inward FDI stock was JPY 27.8 trillion (USD 250 billion), a small increase over the previous year. The Abe Administration’s interest in attracting FDI is one component of the government’s strategy to reform and revitalize the Japanese economy, which continues to face the long-term challenges of low growth, an aging population, and a shrinking workforce.

In April 2014, the government established a new “FDI Promotion Council” comprised of government ministers and private sector advisors. The Council remains active and continues to release recommendations on improving Japan’s FDI environment. In a May 2016 report (http://www.invest-japan.go.jp/documents/en_index.html#new_document ), it recommends a set of reforms to ease the entry of foreign firms into Japan, including simplification of relevant regulation, expanded translation of Japanese law into English, and simplification and centralization of business registration procedures.

The Ministry of Economy, Trade and Industry (METI) and the Japan External Trade Organization (JETRO) are the lead agencies responsible for assisting foreign firms wishing to invest in Japan. METI and JETRO have together created a “one-stop shop” for foreign investors, providing a single Tokyo location—with language assistance—where those seeking to establish a company in Japan can process the necessary paperwork (details are available at http://www.jetro.go.jp/en/invest/ibsc/ ). Prefectural and city governments also have active programs to attract foreign investors, but they lack many of the financial tools U.S. states and municipalities use to attract investment.

Foreign investors seeking a presence in the Japanese market or seeking to acquire a Japanese firm through corporate takeovers may face additional challenges, many of which relate more to prevailing business practices rather than to government regulations, though it depends on the sector. These include an insular and consensual business culture that has traditionally been resistant to unsolicited mergers and acquisitions (M&A), especially when initiated by non-Japanese entities; a lack of independent directors on many company boards (even though this is changing); exclusive supplier networks and alliances between business groups that can restrict competition from foreign firms and domestic newcomers; cultural and linguistic challenges; and labor practices that tend to inhibit labor mobility. Business leaders have communicated to the Embassy that regulatory and governmental barriers are more likely to exist in mature, heavily regulated sectors than in new industries.

The Japanese Government established an “Investment Advisor Assignment System” in April 2016 in which a State Minister acts as an advisor to select foreign companies with “important” investments in Japan. The system aims to facilitate consultation between the Japanese Government and foreign firms. Of the nine companies selected participate in this initiative to date, seven are from the United States.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private enterprises have the right to establish and own business enterprises and engage in all forms of remunerative activity. Japan has gradually eliminated most formal restrictions governing FDI. One remaining restriction limits foreign ownership in Japan’s former land-line monopoly telephone operator, Nippon Telegraph and Telephone (NTT), to 33 percent. Japan’s Radio Law and separate Broadcasting Law also limit foreign investment in broadcasters to 20 percent, or 33 percent for broadcasters categorized as “facility-supplying.” Foreign ownership of Japanese companies invested in terrestrial broadcasters will be counted against these limits. These limits do not apply to communication satellite facility owners, program suppliers or cable television operators.

The Foreign Exchange and Foreign Trade Act governs investment in sectors deemed to have national security or economic stability implications. If a foreign investor wants to acquire over 10 percent of the shares of a listed company in certain designated sectors, it must provide prior notification and obtain approval from the Ministry of Finance and the ministry that regulates the specific industry. Designated sectors include agriculture, aerospace, forestry, petroleum, electric/gas/water utilities, telecommunications, and leather manufacturing.

U.S. investors, relative to other foreign investors, are not disadvantaged or singled out by any ownership or control mechanisms, sector restrictions, or investment screening mechanisms.

Other Investment Policy Reviews

The World Trade Organization (WTO) conducted its most recent review of Japan’s trade policies in March 2017 (available at https://www.wto.org/english/tratop_e/tpr_e/tp451_e.htm ).

The OECD released its biennial Japan economic survey results on April 13, 2017 (available at http://www.oecd.org/japan/economic-survey-japan.htm ).

Business Facilitation

The Japan External Trade Organization (JETRO) is Japan’s investment promotion and facilitation agency. JETRO operates six Invest Japan Business Support Centers (IBSCs) across Japan that provide consultation services on Japanese incorporation types, business registration, human resources, office establishment, and visa/residency issues. Through its website (https://www.jetro.go.jp/en/invest/setting_up /), the organization provides English-language information on Japanese business registration, visas, taxes, recruiting, labor regulations, and trademark/design systems and procedures in Japan. While registration of corporate names and addresses can be completed through the internet, most business registration procedures must be completed in person. In addition, corporate seals and articles of incorporation of newly established companies must be verified by a notary.

According to the 2017 World Bank “Doing Business” Report, it takes eleven days to establish a local limited liability company in Japan. JETRO reports that establishing a branch office of a foreign company requires one month, while setting up a subsidiary company takes two months. While requirements vary according to the type of incorporation, a typical business must register with the Legal Affairs Bureau (Ministry of Justice), the Labor Standards Inspection Office (Ministry of Health, Labor, and Welfare), the Japan Pension Service, the district Public Employment Security Office, and the district tax bureau. In April 2015, JETRO opened a one-stop business support center in Tokyo so that foreign companies can complete all necessary legal and administrative procedures in one location; however, this arrangement is not common throughout Japan. JETRO has announced its intent to develop a full online business registration system, but it was not operational as of March 2018.

No laws exist to explicitly prevent discrimination against women and minorities Regarding registering and establishing a business. Neither special assistance nor mechanisms exist to aid women or underrepresented minorities.

Outward Investment

The Japan Bank for International Cooperation (JBIC) provides a variety of support to Japanese foreign direct investment. Most support comes in the form of “overseas investment loans,” which can be provided to Japanese companies (investors), overseas Japanese affiliates (including joint ventures), and foreign governments in support of projects with Japanese content, typically infrastructure projects. JBIC often seeks to support outward FDI projects that aim to develop or secure overseas resources that are of strategic importance to Japan, for example, construction of liquefied natural gas (LNG) export terminals to facilitate sales to Japan. More information is available at https://www.jbic.go.jp/en/index.html .

There are no restrictions on outbound investment; however, not all countries have a treaty with Japan regarding foreign direct investment (e.g., Iran).

3. Legal Regime

Transparency of the Regulatory System

Japan operates a highly centralized regulatory system in which national-level ministries and government organs play a dominant role. Regulators are generally sophisticated and there is little evidence of explicit discrimination against foreign firms. Most draft regulations and impact assessments are released for public comment before implementation and are accessible through a unified portal (http://www.e-gov.go.jp/ ). Law, regulations, and administrative procedures are generally available online in Japanese along with regular publication in an official gazette. The Japanese government also actively maintains a body of unofficial English translations of some Japanese laws (http://www.japaneselawtranslation.go.jp/ ).

Some members of the foreign business community in Japan continue to express concern that Japanese regulators do not seek sufficient formal input from industry stakeholders, instead relying on informal connections between regulators and domestic firms to arrive at regulatory decisions. This may have the effect of disadvantaging foreign firms which lack the benefit of deep relationships with local regulators. The United States has encouraged the Japanese government to improve public notice and comment procedures, to ensure consistency and transparency in rule-making, and to give fair consideration to comments received. The National Trade Estimate Report on Foreign Trade Barriers, issued by the Office of the U.S. Trade Representative (USTR), contains a description of Japan’s regulatory regime as it affects foreign exporters and investors.

International Regulatory Considerations

The Japanese Industrial Standards Committee (JISC), administered by the Ministry of Economy, Trade, and Industry (METI), plays a central role in maintaining the Japan Industrial Standard (JIS), the country’s main body of standards. JISC aims to align JIS with international standards: in 2016, the organization estimated that 58 percent of Japan’s standards were harmonized with their international counterparts. Nonetheless, Japan maintains a large number of Japan-specific standards that can complicate efforts to introduce new products to the country. Japan is a member of the WTO and notifies the WTO Committee on Technical Barriers to Trade (TBT) of proposed regulations.

Legal System and Judicial Independence

Japan is primarily a civil law country based on codified law. The Constitution and the five major legal codes (Civil, Civil Procedure, Commercial, Criminal, and Criminal Procedure) form the legal base of the system. Japan has a fully independent judiciary and a consistently applied body of commercial law. An Intellectual Property High Court was established in 2005 to expedite trial proceedings in IP cases. Foreign judgments are recognized and enforced by Japanese courts under certain conditions.

Laws and Regulations on Foreign Direct Investment

Major laws affecting foreign direct investment (FDI) into Japan include the Foreign Exchange and Foreign Trade Act, the Companies Act, and the Financial Instruments and Exchange Act. The Japanese government actively encourages FDI into Japan and has sought over the past decades to ease legal and administrative burdens on foreign investors, including with major reforms to the Companies Act in 2005 and the Financial Instruments and Exchange Act in 2008. The Japanese government has not promulgated any significant new laws or regulations related to FDI in the past year.

Competition and Anti-Trust Laws

The Japan Fair Trade Commission (JFTC) holds sole responsibility for enforcing Japanese competition and anti-trust law, although public prosecutors may file criminal charges related to a JFTC accusation. The JFTC also reviews proposed “business combinations” (i.e. mergers, acquisitions, increased shareholdings, etc.) to ensure that transactions do not “substantially […] restrain competition in any particular field of trade.” There have been no significant changes to Japanese competition and anti-trust law in the past year.

Expropriation and Compensation

In the post-war period since 1945, the Japanese government has not expropriated any enterprises, and the expropriation or nationalization of foreign investments in Japan is highly unlikely.

Dispute Settlement

ICSID Convention and New York Convention

Japan has been a member of the International Centre for the Settlement of Investment Disputes (ICSID Convention) since 1967 and is also a party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention).

Enforcement of arbitral awards in Japan are provided for in Japan’s Arbitration Law. Enforcement in other contracting states is also possible. The Supreme Court of Japan has denied the enforceability of awards for punitive damages, however. The Arbitration Law provides that an arbitral award (irrespective of whether or not the seat of arbitration is in Japan) has the same effect as a final and binding judgment. The Arbitration Law does not distinguish awards rendered in contracting states of the New York Convention and in non-contracting states.

Investor-State Dispute Settlement

There have been no major bilateral investment disputes in the past ten years.

International Commercial Arbitration and Foreign Courts

The Japan Commercial Arbitration Association (JCAA) is the sole permanent commercial arbitral institution in Japan. Japan’s Arbitration Law is based on the United Nations Commission on International Trade Law “Model Law on International Commercial Arbitration” (UNCITRAL Model Law). Local courts recognize and enforce foreign arbitral awards.

A wide range of Alternate Dispute Resolution (ADR) organizations also exist in Japan. The Ministry of Justice (MOJ) has responsibility for regulating and accrediting ADR groups. A Japanese-language list of accredited organizations is available on the MOJ website: http://www.moj.go.jp/KANBOU/ADR/index.html .

Bankruptcy Regulations

The World Bank 2017 “Doing Business” Report ranked Japan second worldwide for resolving insolvency. An insolvent company in Japan can face liquidation under the Bankruptcy Act or take one of four roads to reorganization: the Civil Rehabilitation Law; the Corporate Reorganization Law; corporate reorganization under the Commercial Code; or an out-of-court creditor agreement. The Civil Rehabilitation Law focuses on corporate restructuring in contrast to liquidation, provides stronger protection of debtor assets prior to the start of restructuring procedures, eases requirements for initiating restructuring procedures, simplifies and rationalizes procedures for the examination and determination of liabilities, and improves procedures for approval of rehabilitation plans.

Out-of-court settlements in Japan tend to save time and expense but can lack transparency. In practice, because 100 percent creditor consensus is required for out-of-court settlements and courts can sanction a reorganization plan with only a majority of creditors’ approval, the last stage of an out-of-court settlement is often a request for a judicial seal of approval.

There are three domestic credit reporting/ credit monitoring agencies in Japan. They are not government-run. They are: Japan Credit Information Reference Center Corp. (JICC; https://www.jicc.co.jp/english/index.html ; member companies deal in consumer loans, finance, and credit); Credit Information Center (CIC; https://www.cic.co.jp/en/index.html ; member companies deal in credit cards and credit); and Japan Bankers Association (JBA; https://www.zenginkyo.or.jp/pcic/ ; member companies deal in banking and bank-issued credit cards). Credit card companies, such as Japan Credit Bureau (JCB), and large banks, such as Mitsubishi UFJ Financial Group (MUFG), also maintain independent databases to monitor and assess credit.

Per Japan’s Banking Act, data and scores from credit reports and credit monitoring databases must be used solely by financial institutions for financial lending purposes. They are not provided to consumers themselves or to those performing background checks, such as landlords. Increasingly, however, to get around the law real estate companies partner with a “credit guarantee association” and encourage or effectively require tenants to use its services. According to a 2017 report from the Japan Property Management Association (JPMA), roughly 80 percent of renters in Japan used such a service. While financial institutions can share data to the databases and receive credit reports by joining the membership of a credit monitoring agency, the agencies themselves, as well as credit card companies and large banks, generally do not necessarily share data between each other. As such, consumer credit information is generally underutilized and vertically siloed.

A government-run database, the Juminhyo or the “citizen documentation database,” is used for voter registration; confirmation of eligibility for national health insurance, national social security, and child allowances; and checks and registrations related to scholarships, welfare protection, stamp seals (signatures), and immunizations. The database is strictly confidential, government-controlled, and not shared with third parties or private companies.

For the credit rating of businesses, there are at least seven credit rating agencies (CRAs) in Japan that perform such services, including Moody’s Japan, Standard & Poor’s Ratings Japan, Tokyo Shoko Research, and Teikoku Databank. See Section 9 for more information on business vetting in Japan.

Kazakhstan

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Toward FDI

Kazakhstan has attracted significant foreign investment since independence. As of January 1, 2018, the total stock of foreign direct investment (by the directional principle) in Kazakhstan totaled USD 147.1 billion, primarily in the oil and gas sector. Kazakhstan is considered to have the best investment climate in the region, and many international firms have established regional headquarters in Kazakhstan.

In June 2017, Kazakhstan joined the OECD Declaration on International Investment and Multinational Enterprises and became an associate member of the OECD Investment Committee.

In 2017, the government adopted a new 2018-2022 National Investment Strategy, developed in cooperation with the World Bank, which outlined new coordinating measures on investment climate improvements, privatization plans, and economic diversification policy. The strategy aims to increase total FDI inflow by 25 percent by 2022.

Kazakhstan’s government has incrementally improved the business climate for foreign investors and national legislation does not discriminate against foreign investors. Corruption and excessive bureaucracy, however, remain serious obstacles to foreign investment.

The Investment Committee of the Ministry of Investments and Development is in charge of developing an attractive investment climate. The Minister of Investments and Development also serves as the Investment Ombudsman. In 2017, the government established the national company “KazakhInvest” to facilitate the activities of foreign investors in Kazakhstan.

The government maintains a dialogue with foreign investors through the Foreign Investors’ Council chaired by the president, as well as through the Council for Improving the Investment Climate chaired by the Prime Minister. Investment advisor positions in Kazakhstan’s overseas embassies also promote Kazakhstan as a destination for foreign investment.

Limits on Foreign Control and Right to Private Ownership and Establishment

By law, foreign and domestic private firms may establish and own business enterprises.

While no sectors of the economy are legally closed to investors, restrictions on foreign ownership exist, including a 20 percent ceiling on foreign ownership of media outlets, a 49 percent limit in domestic and international air transportation services, and a 49 percent limit in telecommunication services. The government indicated it will remove restrictions in the telecommunications sector upon Kazakhstan’s accession to the World Trade Organization (WTO), though this has not yet happened. No constraints limit the participation of foreign capital in the banking and insurance sectors, but foreign bank and insurance company branches are prohibited from operating in Kazakhstan until 2020, when this restriction will be lifted in compliance with the country’s WTO commitments. The government currently requires foreign banking and insurance companies to form subsidiaries incorporated in Kazakhstan and restricts foreign ownership of agricultural land.

Foreign investors have complained about the irregular application of laws and regulations, and interpret such behavior as efforts to extract bribes. Some investors report harassment by the tax authorities via unannounced audits, inspections, and other methods. The authorities have used criminal charges in civil disputes as a pressure tactic.

Many foreign companies say they must defend investments from frequent decrees and legislative changes, most of which do not “grandfather in” existing investments. Penalties are often assessed for periods prior to the change in policy. Foreign investors also complain about arbitrary tax inspections, problems finalizing contracts, and delays and irregular practices in licensing. Foreign companies report that local and national authorities arbitrarily impose high environmental fines, arguing the fines are assessed to generate revenue rather than for environmental protection. Government officials have acknowledged the system of environmental fines requires reform and parliament passed legislation in March 2016 reducing maximum penalties for environmental violations. The Ministry of Energy plans to submit a revised version of the Environmental Code, compliant with OECD standards, to parliament in 2019 and is meeting with businesses and other stakeholders on the new Code’s development.

Foreign Investment in the Energy & Mining Industries

Despite substantial investment in Kazakhstan’s energy sector, companies remain concerned about the risk of the government legislating or otherwise advocating for preferences for domestic companies, and creating mechanisms for government intervention in foreign companies’ operations, particularly in procurement decisions. (For more details, please see Section 5. Performance and Data Localization Requirements.)

In April 2008, Kazakhstan introduced customs duty on crude oil and gas condensate exports, revenue from which does not go to the National Fund, but rather to the government’s budget. Companies that pay taxes on mineral or crude oil exports are exempt from export duties. The government adopted a 2016 resolution that pegged the export customs duty to global oil prices.

The 2010 Subsoil Law gave the government a preemptive right to acquire all exploration and production contracts. The 2014 Amendments restrict this right to “strategic” deposits and areas, which helped to reduce significantly the approvals required for non-strategic objects. The December 2017 Subsoil and Subsoil Use Code, effective July 2018, provides criteria for strategic deposits and areas. The government approves the list of strategic deposits, published on the Ministry of Investments and Development’s website (http://dep-nedra.mid.gov.kz/ru/pages/postanovlenie-pravitelstva-respubliki-kazahstan-ot-4-oktyabrya-2011-goda-no-1137-ob ). The Code entitles the government to terminate a contract unilaterally “if actions of a subsoil user with a strategic deposit result in changes to Kazakhstan’s economic interests in a manner that threatens national security.” The Article does note define “economic interests.” The new Subsoil and Subsoil Use Code, if properly implemented, appears to be a step forward in improving the investment climate, including for its streamlining of procedures to obtain exploration licenses and to convert exploration licenses into production licenses. The Code, however, appears to retain burdensome government oversight over mining companies’ operations.

The Ministry of Energy announced in April 2018 Kazakhstan is ready to launch a CO2 emissions trading system. (A previous trading system launched in 2013 was later abandoned.) It is unclear, however, when actual quota trading will begin. In January 2018, the government adopted a National Allocation Plan for 2018-2020, and in February 2018 the Ministry of Energy announced the creation of an online CO2 emissions reporting and monitoring system. As of April 2018, the system is not operational. Some companies have expressed concern Kazakhstan’s trading system will suffer from insufficient liquidity, particularly as power consumption and oil and commodity production levels increase.

Other Investment Policy Reviews

Kazakhstan announced in 2011 its desire to join the Organization of Economic Cooperation and Development (OECD). To meet OECD requirements, the government will need to continue to reforms its institutions and amend its investment legislation. The OECD presented its second Investment Policy Review of Kazakhstan in June 2017 (http://www.oecd.org/countries/kazakhstan/oecd-investment-policy-reviews-kazakhstan-2017-9789264269606-en.htm ).

The OECD review recommended Kazakhstan undertake corporate governance reforms at state-owned enterprises (SOEs), implement a more efficient tax system, further liberalize its trade policy, and introduce responsible business conduct principles and standards. OECD also said it is carefully monitoring the country’s privatization program that aims to decrease the SOEs’ share in the economy to 15 percent of GDP by 2020.

Business Facilitation

The 2018 World Bank’s Doing Business Report ranked Kazakhstan 36 out of 190 countries in the category “Ease of Doing Business” and 41 out of 190 in the category of “Starting a Business.” The report noted Kazakhstan strengthened protections for minority investors and improved contract enforcement. The World Bank identified obtaining construction permits and trading across borders as areas for improvement.

Foreign investors have access to a “single window” service, which simplifies many business procedures. Investors may apply for these services here: http://invest.gov.kz/enguide/child/enterprise_registration .

According to the World Bank, it takes 9 procedures and 34 days to establish a foreign-owned limited liability company (LLC) in Almaty. This is slightly longer than the IAB (Investing Across Borders) average for Eastern Europe and Central Asia, but faster than the IAB global average. In addition to the procedures required for domestic firms, a foreign company establishing a subsidiary in Almaty must authenticate its parent company documents and register its charter capital contribution to the new company with the National Bank of Kazakhstan within 10 business days of registration.

The government supports women’s entrepreneurship by providing access to credit. State-owned fund DAMU, local banks, and international donor organizations have special programs supporting women in business.

Outward Investment

The government neither incentivizes nor restricts outward investment.

3. Legal Regime

Transparency of the Regulatory System

Kazakhstan law sets out basic principles for fostering competition on a non-discriminatory basis.

Kazakhstan is a unitary state, and national legislation accepted by the Parliament and President are equally effective for all regions of the country. The government, ministries, and local executive administrations in the regions (“Akimats”) issue regulations and executive acts in compliance and pursuance of laws. Kazakhstan is a member of the EAEU and decrees of the Eurasian Economic Commission are mandatory and have preemptive force over national legislation. Publicly listed companies adhere to international financial reporting standards.

The government consults on some draft legislation with experts and the business community; however, the legal and regulatory process remains largely opaque. Draft bills are available for public comment, but the process occurs without broad notifications and some bills are excluded from public comment altogether. All laws and decrees of the President and the government are available in Kazakh and Russian on the website of the Ministry of Justice of the Republic of Kazakhstan: http://adilet.zan.kz/rus .

Implementation and interpretation of commercial legislation sometimes creates confusion among foreign and domestic businesses alike. In 2016, the Ministry of Health and Social Development introduced new rules on attracting foreign labor, some of which (including a Kazakh language requirement) created significant problems for foreign investors. After an active intervention by the international investment community through the Prime Minister’s Council for Improving the Investment Climate, the government canceled the most onerous rules.

The non-transparent application of laws remains a major obstacle to expanded trade and investment. Foreign investors complain of inconsistent standards and corruption. Although the central government has enacted many progressive laws, local authorities may interpret rules in arbitrary ways for the sake of their own interests.

In 2015, President Nazarbayev announced five presidential reforms and the implementation of the “100 Steps” Modernization program. The reforms include the creation of a modern, transparent, and accountable state, strengthening of the rule of law, and industrialization and economic growth. The program calls for the formation of a results-oriented public administration system, a new system of audit and performance evaluation for government agencies, and introduction of an open government system with better public access to information held by state bodies. Initial implementation of this plan has already helped to improve accountability. For example, in addition to the Audit Committee that monitors government agencies’ performance, ministers and regional governors now hold annual meetings with local communities.

The “100 Steps” plan emphasizes the importance of foreign investment for the country and has objectives to attract transnational corporations in the local processing industry, transport and road infrastructure, agriculture, energy saving, and tourism.

International Regulatory Considerations

Kazakhstan is the part of the Eurasian Economic Union and EAEU regulations and decisions supersede the national regulatory system. Kazakhstan became a member of the WTO in 2015. It regularly notifies the WTO Committee on Technical Barriers to Trade about drafts of national technical regulations. Kazakhstan ratified the WTO Trade Facilitation Agreement (TFA) in September 2015, notifying its Category A requirements in March 2016, and requesting a five-year transition period for its Category B and C requirements. In January 2018, the government established an intra-agency trade facilitation committee to implement its TFA commitments.

Legal System and Judicial Independence

Kazakhstan’s Civil Code establishes general commercial and contract law principles. Under the constitution, the judicial system is independent of the executive branch, although the government likely interferes in judiciary matters. According to Freedom House’s Nations in Transit report for 2016, public trust in the impartiality of the judicial system was low, and citizens held little expectation that justice would be dispensed professionally in court proceedings. The Department of State’s Report on Human Rights 2017 noted that business entities were reluctant to approach courts because foreign businesses have a historically poor record when challenging government regulations and contractual disputes within the local judicial system. Judicial outcomes were perceived as subject to political influence and interference due to a lack of independence.Regulations or enforcement actions are appealable and adjudicated in the national court system. Monetary judgments are assessed in the domestic currency.

Parties of commercial contracts, including foreign investors, can seek dispute settlement in Kazakhstan’s courts or international arbitration, and Kazakhstani courts will enforce arbitration clauses in contracts. Any court of original jurisdiction can consider disputes between private firms as well as bankruptcy cases.

The Astana International Financial Center, set to open in July 2018, includes its own arbitration center and court based on British common law and independent of the Kazakhstan judiciary. The court is led by former Lord Chief Justice of England and Wales Harry Woolf, and several other Commonwealth judges have been appointed.

Laws and Regulations on Foreign Direct Investment

The following legislation affects foreign investment in Kazakhstan: the 2015 Entrepreneurial Code; the Civil Code; the Tax Code (in force since January 2018); the Customs Code of the Eurasian Economic Union and the Customs Code of Kazakhstan (both in force since January 2018); the Law on Currency Regulation and Currency Control; and the Law on Government Procurement. These laws provide for non-expropriation, currency convertibility, guarantees of legal stability, transparent government procurement, and incentives for priority sectors. Inconsistent implementation of these laws and regulations at all levels of the government, combined with a tendency for courts to favor the government, create significant obstacles to business in Kazakhstan.

The 2015 Entrepreneurial Code outlines basic principles of doing business in Kazakhstan and relations of entrepreneurs with the government. The Code reinstates a single investment regime for domestic and foreign investors, and thus, in principal, codifies non-discrimination for foreign investors. The Code contains incentives and preferences for government-determined priority sectors, providing customs duty exemptions and in-kind grants detailed in Part 5.2, Performance Requirements and Investment Incentives. This law also provides for dispute settlement through negotiation, use of Kazakhstan’s judicial process, and international arbitration. U.S. investors have expressed concern about the law’s narrow definition of investment disputes and its lack of clear provisions for access to international arbitration.

Competition and Anti-Trust Laws

The Entrepreneurial Code regulates competition-related issues such as cartel agreements and unfair competition. The Committee for Regulating Natural Monopolies and Protection of Competition and Consumers’ Rights under the Ministry of National Economy of the Republic of Kazakhstan is responsible for reviewing transactions for competition–related concerns.

Expropriation and Compensation

The bilateral investment treaty between the United States and Kazakhstan requires the government to provide compensation in the event of expropriation. The Entrepreneurial Code allows the state to nationalize or requisition property in emergency cases, but fails to provide clear criteria for expropriation or require prompt and adequate compensation at fair market value.

Dispute Settlement

ICSID Convention and New York Convention

Kazakhstan has been a member of the International Center for the Settlement of Investment Disputes (ICSID) since December 2001 and ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards in 1995. By law, any international award rendered by the ICSID, a tribunal applying the UN Commission on International Trade Law Arbitration rules, Stockholm Chamber of Commerce, London Court of International Arbitration, or Arbitration Commission at the Kazakhstan Chamber of Commerce and Industry is enforceable in Kazakhstan.

Investor-State Dispute Settlement

The government is a signatory to bilateral investment agreements with 47 countries. The United States and Kazakhstan signed a bilateral investment treaty in 1994. Post does not have any information on if there have been claims by U.S. investors under the agreement.

Although the local courts do recognize arbitral awards by law, Post is not aware of any cases of enforcing arbitral awards against the government. The 2015 Entrepreneurial Code defines an investment dispute as “a dispute ensuing from the contractual obligations between investors and state bodies in connection with investment activities of the investor,” and states such disputes can be settled by negotiation, litigation or international arbitration. Investment disputes between the government and large investors fall to the Astana City Court and are appealable at a special investment panel at the Supreme Court of Kazakhstan.

A number of investment disputes involving foreign companies have arisen in the past several years linked to alleged violations of environmental regulations, tax laws, transfer pricing laws, and investment clauses. Some disputes relate to alleged illegal extensions of exploration schedules by subsurface users, as production sharing agreements with the government usually make costs incurred during this period fully reimbursable. Some disputes involve hundreds of millions of dollars. Problems arise in the enforcement of judgments, and ample opportunity exists for influencing judicial outcomes given the relative lack of judicial independence.

In an effort to encourage foreign investment, the government has developed dispute resolution mechanisms aimed at enabling aggrieved investors to seek redress without requiring them to litigate their claims. The government established an Investment Ombudsman in 2013, billed as being able to resolve foreign investors’ grievances by intervening in inter-governmental disagreements that affect investors. According to the Ministry of Investments and Development, since 2017 the Investment Ombudsman successfully addressed 50 investors’ requests.

Kazakhstani law provides for government compensation for violations of contracts guaranteed by the government. However, where the government has merely approved or confirmed a foreign contract, the government’s responsibility is limited to the performance of administrative acts (e.g., the issuance of a license or granting of a land plot) necessary to facilitate an investment activity. Disputes arising from such cases may require litigation or arbitration.

International Commercial Arbitration and Foreign Courts

The 2011 law on mediation offers ways of alternative (non-litigated) dispute resolutions for two private parties. The 2016 law on arbitration defines rules and principles of domestic arbitration. As of April 2018, Kazakhstan had 17 local arbitration bodies unified under the Arbitration Chamber of Kazakhstan (https://palata.org/about/ ). The government noted that the 2016 law brought the national arbitration legislation into compliance with UNCITRAL model law, the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and the European Convention on the International Commercial Arbitration.

Judgements of foreign arbitrations are recognized and enforceable under local courts. Local courts recognize and enforce court rulings of CIS countries. Judgement of other foreign state courts are recognized and enforceable by local courts, when Kazakhstan has bilateral agreement on mutual judicial assistance with respective foreign country or applies a principle of reciprocity.

When SOEs are involved in investment disputes, domestic courts usually find in the SOE’s favor. By law, investment disputes with private commercial entities, employees, or SOEs are in the jurisdiction of local courts. According to EBRD’s 2014 Judicial Decision Assessment, judges in local courts lacked experience with commercial law and tended to apply general principles of laws and civil code provisions with which they are more familiar, rather than relevant provisions of commercial legislation.

Even when investment disputes are resolved in accordance with contractual conditions, the resolution process can be slow and require considerable time and resources. Many investors therefore elect to handle investment disputes privately, in an extrajudicial way.

A 2017 investment dispute began when the Kazakhstani government declined to extend a U.S. company’s 20-year concession to operate two hydropower plants, returning the assets to the government’s control while allegedly failing to compensate the company for its substantial investments. The case is now in international arbitration.

Bankruptcy Regulations

Kazakhstan has a bankruptcy law from 2014. The law protects the rights of creditors during insolvency proceedings, including access information about the debtor, the right to vote against reorganization plans and the right to challenge bankruptcy commissions’ decisions affecting their rights. The bankruptcy is not criminalized, unless the court determines the bankruptcy premeditated.

The 2014 bankruptcy law improved the insolvency process by permitting accelerated business reorganization proceedings, extending the period for rehabilitation or reorganization, and expanding the powers of (and making more stringent the qualification requirements to become) insolvency administrators. The law also eased bureaucratic requirements for bankruptcy filings, gaves creditors a greater say in continuing operations, introduced a time limit for adopting rehabilitation or reorganization plans, and added court supervision requirements.

There are public and private credit bureaus. The National Bank subsidiary, the State Credit Bureau (www.mkb.kz ), and the privately-owned First Credit Bureau (https://www.1cb.kz/main/ ) provide credit dossiers upon requests.

Korea, Republic of

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Toward Foreign Direct Investment

The ROK government’s attitude toward FDI is positive, and senior policymakers realize the value of foreign investment. Following the 2008-2009 global financial crisis, inbound FDI has trended upwards from USD 5.4 billion in 2010 to USD 12.8 billion in 2017. However, foreign investment in the ROK is still, at times, hindered by insufficient regulatory transparency, including inconsistent and sudden changes in interpretation of regulations, as well as underdeveloped corporate governance structures, high labor costs, an inflexible labor system, and market domination by large conglomerates, known as chaebol.

The Foreign Investment Promotion Act (FIPA) is the basic law pertaining to foreign investment in the ROK. FIPA and related regulations categorize business activities as open, conditionally or partly restricted, or closed to foreign investment.

FIPA features include:

  • Simplified procedures, including those for FDI notification and registration;
  • Expanded tax incentives for high-technology investments;
  • Reduced rental fees and lengthened lease durations for government land (including local government land);
  • Increased central government support for local FDI incentives;
  • Establishment of “Invest KOREA,” a one-stop investment promotion center within the Korea Trade-Investment Promotion Agency (KOTRA) to assist foreign investors; and
  • Establishment of a Foreign Investment Ombudsman to assist foreign investors.

The ROK National Assembly website provides a list of laws pertaining to foreigners (including FIPA) in English. The site can be accessed here: http://korea.assembly.go.kr/res/low_03_list.jsp?boardid=1000000037 .

The Korea Trade Investment Promotion Agency (KOTRA) actively facilitates foreign investment through its Invest KOREA office. For investments that surpass 100 million won (USD 93,500), KOTRA will assist in the establishment of a domestically-incorporated foreign-invested company. KOTRA and the Ministry of Trade, Industry, and Energy (MOTIE) organize a yearly Foreign Investment Week to attract investment to the ROK. In 2017, over 2,500 attendees, including foreign investors and local press, participated in the event.

The ROK prioritizes investment retention, in part through a Foreign Investment Ombudsman. The position is commissioned by the President and heads a grievance resolution body that: collects and analyzes information concerning problems foreign firms experience; requests cooperation from and recommends implementation of reforms to relevant administrative agencies; proposes new policies to improve the foreign investment promotion system; and carries out other necessary tasks to assist investor companies. More information on the Ombudsman can be found here: http://ombudsman.kotra.or.kr/eng/index.do .

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities can establish and own business enterprises and engage in all forms of remunerative activity. Restrictions on foreign ownership remain for 30 industrial sectors, three of which are entirely closed to foreign investment (see below). The ROK government occasionally reviews the list of restricted sectors for possible changes. According to MOTIE, the number of industrial sectors open to foreign investors is well above the OECD average. KORUS provides for U.S. companies to be treated as non-foreign entities in selected sectors, including broadcasting and telecommunications. Relevant ministries must approve investments in conditionally or partly restricted sectors. Most applications are processed within five days; cases that require consultation with more than one ministry can take 25 days or longer. The ROK’s procurement processes comply with the WTO Government Procurement Agreement, but some implementation problems remain.

The following is a list of restricted sectors for foreign investment. Figures in parentheses generally denote the Korean Industrial Classification Code, while those for the air transport industries are based on the Civil Aeronautics Laws:

Completely Closed:

  • Nuclear power generation (35111);
  • Radio broadcasting (60100);
  • Television broadcasting (60210).

Restricted Sectors (partly open, no more than 25 percent foreign equity):

  • News agency activities (63910).

Restricted Sectors (partly open, no more than 30 percent foreign equity):

  • Hydroelectric power generation (35112);
  • Thermal power generation (35113);
  • Other power generation (35119).

Restricted Sectors (partly open, less than 30 percent foreign equity):

  • Publishing of daily newspapers (58121) (Note: Other newspapers with the same industry code 58121 are partly open, less than 50 percent foreign equity).

Restricted Sectors (partly open, no more than 49 percent foreign equity):

  • Satellite and other broadcasting (60229);
  • Program distribution (60221);
  • Cable networks (60222);
  • Wired telephone and other telecommunications (61210);
  • Mobile telephone and other telecommunications (61220);
  • Satellite telephone and other telecommunications (61230);
  • Other telecommunications (61299).

Restricted Sectors (partly open, no more than 50 percent foreign equity):

  • Farming of beef cattle (01212);
  • Transmission/distribution of electricity (35120);
  • Wholesale of meat (46312);
  • Coastal water passenger transport (50121);
  • Coastal water freight transport (50122);
  • Other air transport (52939);
  • International air transport (51);
  • Domestic air transport (51);
  • Small air transport (51);
  • Publishing of magazines and periodicals (58122).

Open but Regulated under the Relevant Laws:

  • Growing of cereal crops and other food crops, except rice and barley (01110);
  • Domestic commercial banking, except special banking area (64121);
  • Radioactive waste collection, transportation, and disposal, except radioactive waste management (38240);
  • Other inorganic chemistry production, except fuel for nuclear power generation (20129);
  • Other nonferrous metals refining, smelting, and alloying (24219).

The National Assembly approved an amendment bill to the Foreign Legal Consultant Act (FLCA) on February 4, 2016, that allows foreign law firms to establish joint ventures in the ROK. This revision was made to implement the ROK’s free trade agreement (FTA) market opening commitments with the United States, Australia, and the European Union (EU). The FLCA provides a framework for establishing joint ventures; however, it includes provisions that effectively restrict the ability of foreign firms to do so, such as limiting the foreign party ownership of a joint venture to 49 percent. On December 29, 2016, the National Assembly approved an amendment to the Aviation Business Act to lift foreign investment barriers for air transportation support businesses beginning on March 30, 2017.

The ROK government may review foreign investments that affect national security. The government may restrict investments that disrupt production of military products or equipment, or if the company receiving foreign investment exports items that may later be used for military purposes differing from their originally intended use. The ROK government may also restrict foreign investment in cases where contracts classified as “state secrets” may be disclosed or the investment considerably impedes international efforts to achieve world peace or assure security. Foreigners linked to a country or an organization that may pose a threat to national security will also be subject to limitations on investments in ROK firms. Related government agencies must ask MOTIE to review the case within 30 days of a foreign investor filing an application for regulatory approval, and MOTIE must make a decision within the following 90 days. If the investment fails the review, the foreign investor must transfer ownership to a ROK national or corporation within six months of the close of the corporate fiscal year. U.S. investors are not especially disadvantaged or singled out by any of the ownership or control mechanisms, sector restrictions, or investment screening mechanisms, relative to other foreign investors.

Other Investment Policy Reviews

The ROK government has not undergone investment policy reviews or received policy recommendations from multilateral organizations, including the OECD, WTO, or United Nations Conference on Trade and Development (UNCTAD), in the past three years.

Business Facilitation

Registering a business in the ROK can be a complex process that varies according to the type of business being established. It requires interaction with KOTRA, court registries, and tax offices. Foreign corporations can enter the market by establishing a local corporation, local branch, or liaison office. The establishment of local corporations by a foreign individual or corporation is regulated by FIPA and the Commercial Act; the latter recognizes five types of companies, of which stock companies with multiple shareholders are the most common. To establish a stock company, 24 required documents are submitted to a court registry office, and an additional nine to a tax office.

There is no single website through which to complete this process. For small- and medium-sized enterprises (SMEs) and micro-enterprises, the online business registration process takes approximately three to four days and is completed through Korean language websites. Registrations can be completed via the Smart Biz website (https://www.startbiz.go.kr/ ). The website received an assessment of 2.5/10 in the UN’s Global Enterprise Registration listing, indicating that improvements should be made to provide clear and complete instructions for registering a limited liability company.

The Korea Commission for Corporate Partnership (http://www.winwingrowth.or.kr ) and the Ministry of Gender Equality and Family (www.mogef.go.kr ) have both declared that they are making efforts to create a better business environment for minorities and women, but neither is running any kind of direct support program for those groups. That said, some local governments are providing benefits through programs that guarantee bank loans for women or disabled people, but a lack of data on those programs makes it difficult to measure their success.

Outward Investment

KOTRA has an Outbound Investment Support Office that provides counseling to ROK firms. There are some support measures for SMEs, and the government allotted 5.4 billion won (USD 4.6 million) in its 2017 budget for that purpose. The ROK government does not have any restrictions on outward investment.

3. Legal Regime

Transparency of the Regulatory System

As a member of the WTO and a country that has concluded FTAs with 52 countries, the ROK is improving the transparency of its policies to ensure its laws are non-discriminatory. The foreign business community remains concerned with the rapid increase in the number of Korea-unique (found nowhere else in the world) rules and regulations, however. Approximately 80 percent of regulations are introduced and passed by the National Assembly without a regulatory impact assessment (RIA) due to a loophole that requires only regulations written by ministries to undergo RIAs. While these regulations may have well-intended social aims, such as consumer protection or the promotion of SMEs, they often have unintended consequences for the economy by creating new trade barriers.

Laws and regulations are often framed in general terms and are subject to differing interpretations by government officials, who rotate frequently. Regulatory authorities often issue oral or internal guidelines or other legally enforceable dictates that many firms find burdensome and often difficult to follow. Previous ROK administrations have sought to eliminate the use of oral guidelines or subject them to the same level of regulatory review as written regulations, but no official reforms have been passed, and this practice continues.

The ROK constitution allows both the National Assembly and the executive branch to introduce bills. The legal norm is for regulations to be introduced in the form of an act. There are subordinate statutes (presidential decree, ministerial decree, and administrative rules) for matters that are delegated by acts and matters needed to enforce acts. Ministries are in charge of drafting such subordinate regulations. Acts and their subordinate regulations can all be relevant for foreign businesses. Administrative agencies shape policies and draft bills on matters under their respective jurisdictions. Drafting ministries are required to set clear policy goals and complete RIAs. When a ministry drafts a regulation, it is required to consult with other relevant ministries before it releases the regulation for public comment. The constitution also allows local governments to exercise self-rule legislative power to draft ordinances and rules, but they should be within the scope of federal acts and subordinate statutes.

The passing of acts and their subordinate statutes, ranging from the drafting of bills to their promulgation, must follow formal ROK legislative procedures. These procedures should be in accordance with the “Regulation on Legislative Process” enacted by the Ministry of Legislation. Since 2011, all publicly listed companies are required to follow International Financial Reporting Standards (IFRS, or K-IFRS in the ROK). The Korea Accounting Standards Board facilitates ROK government endorsement and adoption of IFRS and sets accounting standards for companies not subject to IFRS. According to the Administrative Procedures Act, proposed laws and regulations (acts, presidential decrees, or ministerial decrees) must seek public comments at least 40 days prior to their promulgation. Regulations are sometimes promulgated with only the minimum required comment period, and with minimal consultation with industry. Guidelines and regulatory changes originating from legislation proposed by members of the National Assembly are not subject to public comment periods. As a result, 80 percent of all new regulations are written and passed through the National Assembly without rigorous quality control and solicitation of public comments.

When notifications of proposed rules are made public, they appear online in the Official Gazette. The draft acts and regulations are also posted on the websites of relevant ministries and the National Assembly, with executive summaries. These postings, however, are only in Korean; thus, much of the 40-day comment period can be exhausted translating complex documentation. The Ministry of Legislation reviews whether laws and regulations are in conformity with the constitution and monitors whether the government adheres to the “Regulation on Legislative Process.” All laws and regulation also undergo review by the Regulatory Reform Committee for restrictive elements. The Regulatory Reform Committee aims to minimize government intervention in the economy and to abolish all economic regulations that fall short of international standards or hamper national competitiveness.

The Office of Regulatory Reform in July 2015 launched Sinmungo , an online portal through which companies can comment in English on existing legislation and regulations, as well as enter complaints about regulatory impediments to business. As a result, the Regulatory Reform Committee can take the initiative to address concerns of foreign firms doing business in the ROK by receiving and acting on complaints on a timelier basis.

Business regulation in the ROK often lacks empirical cost-benefit analysis or impact assessment on the basis of scientific and data-driven assessment because regulations are finalized without sufficient stakeholder consultation or passed by the National Assembly without a regulatory impact assessment. When ministries draft regulations, they must submit their RIA to the Regulatory Reform Committee for its determination on whether the regulation restricts rights or imposes excessive duties. These RIAs are usually not publicly available for comment, and comments received by regulators are not made public. The ROK government enforces regulations with penalties (either fines or criminal charges) in the case of violations of the law. The government’s enforcement actions can be challenged through an appeal process or administrative litigation. In February 2018, legislation was proposed in the National Assembly for regulatory reform that included providing legal grounds for allowing regulatory exemptions for new-growth industries and creating a “regulatory sandbox” for financial technology firms. The legislation is currently pending.

International Regulatory Considerations

The ROK is not part of a regional economic bloc. The ROK is working to harmonize its standards with international standards, including those of the United States and the EU. It still, however, has many Korea-unique rules and regulations that make it more difficult for foreign companies to operate domestically. The ROK is a member of the WTO and notifies the Committee on Technical Barriers to Trade of all draft technical regulations.

The ROK is a signatory to the Trade Facilitation Agreement (TFA) and fully observes its TFA obligations. In 2015, the ROK amended the ministerial decree of the Customs Act to set up a TFA committee to better implement and execute its obligations under the TFA. The ROK has already advanced in streamlining and modernizing the procedures for the transportation and customs clearance of goods. However, the Korea Customs Service (KCS)’s aggressive interpretation of rules of origin and heavy documentation requirements, at times, undermine KORUS benefits for U.S. exporters.

Legal System and Judicial Independence

The ROK legal system is based on civil law. Subdivisions within the district and high courts govern commercial activities and bankruptcies and enforce property and contractual rights with monetary judgments, usually levied in the domestic currency. The ROK has a written commercial law, and matters regarding contracts are covered by the Civil Act. There are only three specialized courts in the ROK: the patent, family, and administrative courts. In civil cases, courts deal with disputes surrounding the rights of property or legal relations. The ROK court system is independent and not subject to government interference in cases that may affect foreign investors. Efforts are being made to ensure the judicial process is more equitable and reliable, including reforms on limiting the wide authority prosecutors have to issue warrants. Foreign court judgments are not enforceable in the ROK. Rulings by district courts can be appealed to higher courts and the Supreme Court.

Laws and Regulations on Foreign Direct Investment

Laws and regulations that have been effectuated within the past year:

  • Eliminated redundant inspection procedures for off-site consequence analysis;
  • Removed the provision that sets forth manufacturer cost report submission requirements;
  • Exempted power supply units from being subjected to customs verification of clearance requirements;
  • Decided on the subject of external audit and the scope of the accountant’s report for limited liability companies based on the number of their employees, sales, and stakeholders; and
  • Permitted re-hypothecation of sovereign bonds to enhance the liquidity of assets.

Pending laws and regulations:

  • Simplify procedures for foreign investors when they report their investment to the ROK government;
  • Address discrimination against foreign financial firms embedded in licensing requirements for financial investment businesses;
  • Relax the firewall system requirement inside financial companies; and
  • Expand entities exempt from an actual ownership check for financial transactions, including foreign branches of foreign financial companies.

There is no single website for investment-relevant laws and regulations.

Competition and Anti-Trust Laws

The Monopoly Regulation and Fair Trade Act authorizes the Korea Fair Trade Commission (KFTC) to review and regulate competition-related and consumer safety matters. KFTC has been active in investigating global information and communications technology (ICT) companies. A number of U.S. companies in the ICT sector have reported concerns about the KFTC, particularly regarding the agency’s practices with respect to procedural fairness and case selection and under Chapter 16 (Competition-Related Matters) of KORUS.

In December 2016, the KFTC ordered Qualcomm to pay a 1.03 trillion won (USD 900 million) fine for abusing its dominant position in the market. Qualcomm filed a request for a stay of execution to the Seoul High Court on February 21, 2017, and the court denied that appeal on September 4. Subsequently, Qualcomm filed a re-appeal for the stay to the ROK Supreme Court, but that was dismissed on November 27, 2017. Qualcomm has submitted another appeal and a hearing date is pending.

Expropriation and Compensation

The ROK follows generally accepted principles of international law with respect to expropriation. ROK law protects foreign-invested enterprise property from expropriation or requisition. If private property is expropriated, it can be taken only for a public purpose and only in a non-discriminatory manner, and claimants are afforded due process. Property owners are entitled to prompt compensation at fair market value or above. There are many cases of expropriation in the ROK, but mainly for public reasons like developing new cities, building new industrial complexes, or constructing roads. U.S. Embassy Seoul is not aware of any cases alleging a lack of due process.

Dispute Settlement

ICSID Convention and New York Convention

The ROK has been a member of the International Center for Settlement of Investment Disputes (ICSID) since ratifying the convention in 1967. It has also acceded to the New York Convention. There are no specific domestic laws providing for enforcement. ROK courts have made rulings based on the ROK government’s position acceding to the convention, however.

Investor-State Dispute Settlement

The ROK is a member of the International Commercial Arbitration Association and the World Bank’s Multilateral Investment Guarantee Agency. ROK courts may ultimately be called upon to enforce an arbitrated settlement. When drafting contracts, it may be useful to provide for arbitration by a neutral body such as the International Commercial Arbitration Association. U.S. companies should seek local expert legal counsel when entering into any type of contract with a ROK entity.

The United States has a bilateral Treaty of Friendship, Commerce, and Navigation with the ROK that contains general provisions pertaining to business relations and investment. KORUS contains strong, enforceable investment provisions that went into force in March 2012.

There have been a few serious investment disputes involving foreigners in the ROK. In November 2012, U.S.-based Lone Star Funds, a worldwide private equity firm, brought an investor-state dispute lawsuit against the ROK government with the ICSID in Washington, D.C., under the investment chapter of KORUS, and the case is still pending. The private equity firm blamed the ROK government for sharp declines in stock prices, asserting that it delayed the acquisition of Korea Exchange Bank without cause. In October 2017, an American individual investor submitted to the ROK government a notice of intent for an ISD lawsuit, contending that the government expropriated her land in violation of KORUS; however, there have been no updates since the notice of intent was filed. Foreign court judgments, with the exception of foreign arbitral rulings that meet certain conditions, are not enforceable in the ROK. There is no history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

Although commercial disputes can be adjudicated in a civil court, foreign businesses often feel that this is not a practical means to resolve disputes. Proceedings are conducted in Korean, often without adequate interpretation. ROK law prohibits foreign lawyers who have not passed the Korean Bar Examination from representing clients in ROK courts. Civil procedures common in the United States, such as pretrial discovery, do not exist in the ROK. During litigation of a dispute, foreigners may be barred from leaving the country until a decision is reached. Legal proceedings are expensive and time-consuming, and lawsuits often are contemplated only as a last resort, signaling the end of a business relationship. ROK law governs commercial activities and bankruptcies, with the judiciary serving as the means to enforce property and contractual rights, usually through monetary judgments levied in the domestic currency. The ROK has specialized courts, including family courts and administrative courts, as well as courts specifically dealing with patents and other intellectual property rights issues.

Commercial disputes may also be taken to the Korean Commercial Arbitration Board (KCAB). The Korean Arbitration Act and its implementing rules outline the following steps in the arbitration process: 1) parties may request the KCAB to act as informal intermediary to a settlement; 2) if unsuccessful, either or both parties may request formal arbitration, in which case the KCAB appoints a mediator to conduct conciliatory talks for 30 days; and 3) if unsuccessful, an arbitration panel consisting of one to three arbitrators is assigned to decide the case. If one party is not resident in the ROK, either may request an arbitrator from a neutral country. If foreign arbitral awards or foreign courts’ rulings meet the requirements of Article 217 of the Civil Procedure Act, then those are enforceable by local courts.

U.S. Embassy Seoul is not aware of statistics involving state-owned enterprise investment dispute court rulings.

Bankruptcy Regulations

The Debtor Rehabilitation and Bankruptcy Act (DRBA) stipulates that bankruptcy is a court-managed liquidation procedure in which both domestic and foreign entities are afforded equal treatment. The procedure commences after a filing by a debtor, creditor, or group of creditors, and determination by the court that a company is bankrupt. The court will designate a Custodial Committee to take an accounting of the debtor’s assets, claims, and contracts. Creditors may be granted voting rights in the creditors’ group, as identified by the Custodial Committee. Shareholders and contract holders may retain their rights and responsibilities based on shareholdings and contract terms. The World Bank ranked the ROK’s policies and mechanisms in place to solve insolvency fourth among 190 economies in its 2017 Doing Business report. Debtors may be subject to arrest once a bankruptcy petition has been filed, even if the debtor has not been declared bankrupt. Individuals found guilty of negligent or false bankruptcy are subject to criminal penalties. By the revised DRBA enacted on March 28, 2017, Seoul Bankruptcy Court (SBC), the first and only bankruptcy court in the ROK, took over major bankruptcy / rehabilitation cases to provide more effective, specialized, and consistent guidance in bankruptcy proceedings. The existing laws provide that a company with debt of 50 billion won (USD 47 million) or more and 300 or more creditors may file for bankruptcy / rehabilitation with the SBC even if the company is not located in the Seoul area. The SBC was established and replaced the Bankruptcy Division of the Seoul Central District Court on March 1, 2017. Until other bankruptcy courts are established in areas other than Seoul, local district courts will continue to oversee bankruptcy cases in areas outside of the capital.

There are four rating companies in the ROK: Korea Ratings, Korea Investors Service, NICE Investors Service, and SCI Information Service. There have been no significant efforts by business facilitation groups or others to advocate for improvements in maintaining creditor information.

Malaysia

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Malaysia has one of the world’s most trade-dependent economies with exports and imports of goods and services reaching about 130 percent of annual GDP according to the World Trade Organization. The Malaysian government values foreign investment as a driver of continued national economic development, but has been hampered by restrictions in some sectors and an at-times burdensome regulatory regime. Some of these restrictions may be lifted by the new government in an effort to attract FDI.

In 2009, Malaysia removed its former Foreign Investment Committee (FIC) investment guidelines, enabling transactions for acquisitions of interests, mergers, and takeovers of local companies by domestic or foreign parties without FIC approval. Although the FIC itself still exists, its primary role is to review of investments related to distributive trade (e.g., retail distributors) as a means of ensuring 30 percent of the equity in this economic segment is held by the bumiputera (ethnic Malays and other indigenous ethnicities in Malaysia).

Since 2009, the government has gradually liberalized foreign participation in the services sector to attract more foreign investment. Following removal of certain restrictions on foreign participation in industries ranging from computer-related consultancies, tourism, and freight transportation, the government in 2011 began to allow 100 percent foreign ownership across the following sectors: healthcare, retail, education as well as professional, environmental, and courier services. Some limits on foreign equity ownership remain in place across in telecommunications, financial services, and transportation.

Foreign investments in services, whether in sectors with no foreign equity limits or controlled sub-sectors, remain subject to review and approval by ministries and agencies with jurisdiction over the relevant sectors. A key function of this review and approval process is to determine whether proposed investments meet the government’s qualifications for the various incentives in place to promote economic development goals. Nevertheless, the Ministerial Functions Act grants relevant ministries broad discretionary powers over the approval of specific investment projects. Investors in industries targeted by the Malaysian government often can negotiate favorable terms with ministries, or other bodies, regulating the specific industry. This can include assistance in navigating a complex web of regulations and policies, some of which can be waived on a case-by-case basis. Foreign investors in non-targeted industries tend to receive less government assistance in obtaining the necessary approvals from the various regulatory bodies and therefore can face greater bureaucratic obstacles.

Limits on Foreign Control and Right to Private Ownership and Establishment

The legal framework for foreign investment in Malaysia grants foreigners the right to establish businesses and hold equity stakes across all parts of the economy. However, despite the progress of reforms to open more of the economy to a greater share of foreign investment, limits on foreign ownership remain in place across many sectors.

Telecommunications

Malaysia began allowing 100 percent foreign equity participation in Applications Service Providers (ASP) in April 2012. However, for Network Facilities Providers (NFP) and Network Service Provider (NSP) licenses, a limit of 70 percent foreign participation remains in effect. In certain instances, Malaysia has allowed a greater share of foreign ownership, but the manner in which such exceptions are administered is non-transparent. Restrictions are still in force on foreign ownership allowed in Telekom Malaysia. The limitation on the aggregate foreign share is 30 percent or 5 percent for individual investors.

Oil and Gas

Under the terms of the Petroleum Development Act of 1974, the upstream oil and gas industry is controlled by Petroleum Nasional Berhad (PETRONAS), a wholly state-owned company and the sole entity with legal title to Malaysian crude oil and gas deposits. Foreign participation tends to take the form of production sharing contracts (PSCs). PETRONAS regularly requires its PSC partners to work with Malaysian firms for many tenders. Non-Malaysian firms are permitted to participate in oil services in partnership with local firms and are restricted to a 49 percent equity stake if the foreign party is the principal shareholder. PETRONAS sets the terms of upstream projects with foreign participation on a case-by-case basis.

Financial Services

Malaysia’s 10-year Financial Sector Blueprint envisages further opening to foreign institutions and investors, but does not contain specific market-opening commitments or timelines. For example, the services liberalization program that started in 2009 raised the limit of foreign ownership in insurance companies to 70 percent. However, Malaysia’s Central Bank (Bank Negara Malaysia (BNM)), would allow a greater foreign ownership stake if the investment is determined to facilitate the consolidation of the industry. The latest Blueprint, 2011-2020, helped to codify the case-by-case approach. Under the Financial Services Act passed in late 2012, issuance of new licenses will be guided by prudential criteria and the “best interests of Malaysia,” which may include consideration of the financial strength, business record, experience, character and integrity of the prospective foreign investor, soundness and feasibility of the business plan for the institution in Malaysia, transparency and complexity of the group structure, and the extent of supervision of the foreign investor in its home country. In determining the “best interests of Malaysia,” BNM may consider the contribution of the investment in promoting new high value-added economic activities, addressing demand for financial services where there are gaps, enhancing trade and investment linkages, and providing high-skilled employment opportunities. BNM, however, has never defined criteria for the “best interests of Malaysia” test, and no firms have qualified. While under the previous administration and BNM Governor, insurance companies at 100 percent foreign ownership had to sell down their stakes by 30 percent by June 30, 2018, as of July 2, 2018, no 100 percent foreign owned insurance company had decreased its ownership, pending new direction from BNM. A new BNM Governor took office July 2, and as of that date, BNM has made no official statements regarding whether to uphold the previous Governor’s deadline, but it has passed with no discernable impact.

BNM currently allows foreign banks to open four additional branches throughout Malaysia, subject to restrictions, which include designating where the branches can be set up (i.e., in market centers, semi-urban areas and non-urban areas). The policies do not allow foreign banks to set up new branches within 1.5 km of an existing local bank. BNM also has conditioned foreign banks’ ability to offer certain services on commitments to undertake certain back office activities in Malaysia.

Other Investment Policy Reviews

Malaysia’s most recent Organization for Economic Cooperation and Development (OECD) investment review occurred in 2013. Although the review underscored the generally positive direction of economic reforms and efforts at liberalization, the recommendations emphasized the need for greater service sector liberalization, stronger intellectual property protections, enhanced guidance and support from Malaysia’s Investment Development Authority (MIDA), and continued corporate governance reforms.

Malaysia also conducted a WTO Trade Policy Review in February 2018, which incorporated a general overview of the country’s investment policies. The WTO’s review noted the Malaysian government’s action to institute incentives to encourage investment as well as a number of agencies to guide prospective investors. Beyond attracting investment, Malaysia had made measurable progress on reforms to facilitate increased commercial activity. Among the new trade and investment-related laws that entered into force during the review period were: the Companies Act, which introduced provisions to simplify the procedures to start a company, to reduce the cost of doing business, as well as to reform corporate insolvency mechanisms; the introduction of the goods and services tax (GST) to replace the sales tax; the Malaysian Aviation Commission Act, pursuant to which the Malaysian Aviation Commission was established; and various amendments to the Food Regulations. Since the WTO Trade Policy Review, however, the new government has already eliminated the GST, and has announced the revival of the sales and services tax, to be implemented starting September 1, 2018. http://www.oecd.org/investment/countryreviews.htm 

https://www.wto.org/english/tratop_e/tpr_e/tp466_e.htm 

Business Facilitation

The principal law governing foreign investors’ entry and practice in the Malaysian economy is the Companies Act of 2016 (CA), which entered into force on January 31, 2017 and replaced the Companies Act of 1965. Incorporation requirements under the new CA have been further simplified and are the same for domestic and foreign sole proprietorships, partnerships, as well as privately held and publicly traded corporations. According to the World Bank’s Doing Business Report 2018, Malaysia strengthened access to credit by adopting a new law that establishes a modern collateral registry; strengthened minority investor protections by requiring greater corporate transparency; and made importing and exporting easier by improving the infrastructure, equipment and facilities at Port Klang.

In addition to registering with the Companies Commission of Malaysia, business entities must file: 1) Memorandum and Articles of Association (ie, company charter); 2) a Declaration of Compliance (ie, compliance with provisions of the Companies Act); and 3) a Statutory Declaration (ie, no bankruptcies, no convictions). The registration and business establishment process takes two weeks to complete, on average. While GST has been eliminated, the law governing GST has not yet been repealed. As a result, businesses with an annual revenue of over RM 500,000 must still register as a GST payer. The new government has promised a repeal of GST and an installment of a new sales and services tax (SST), which will require the passage of a new law. The government said SST will begin implementation on September 1, 2018.

Beyond these requirements, foreign investors must obtain licenses. Under the Industrial Coordination Act of 1975, an investor seeking to engage in manufacturing will need a license if the business claims capital of RM 2.5 million (approximately USD 641,000) or employs at least 75 full-time staff. The Malaysian Government’s guidelines for approving manufacturing investments, and by extension, manufacturing licenses, are generally based on capital-to-employee ratios. Projects below a threshold of RM 55,000 (approximately USD 14,100) of capital per employee are deemed labor-intensive and will generally not qualify. Manufacturing investors seeking to expand or diversify their operations will need to apply through MIDA.

Manufacturing investors whose companies have annual revenue below RM 50 million (approximately USD 12.8 million) or with fewer than 200 full-time employees meet the definition of small and medium size enterprises (SMEs) and will generally be eligible for government SME incentives. Companies in the services or other sectors that have revenue below RM 20 million (approximately USD 5.1 million) or fewer than 75 full-time employees will meet the SME definition.

References:

3. Legal Regime

Transparency of the Regulatory System

In July 2013, the Malaysian Government initiated a National Policy on Development and Implementation of Regulations (NPDIR). Under this policy, the federal government embarked on a comprehensive approach to minimize redundancies in the country’s regulatory framework. The benefits to the private sector thus far have largely been reduced licensing requirements, fees, and approval wait-times for construction projects. The main components of the policy have been: 1) a regulatory impact assessment (a cost-benefit analysis of all newly proposed regulations); and 2) the creation of a regulations guide, PEMUDAH (similar to the role MIDA plays for prospective investors), to aid businesses and civil society organizations in understanding regulatory requirements affecting their organizations’ activities. Under the NPDIR, the government has committed to reviewing all new regulations every five years to determine with the new regulations need to be adjusted or eliminated.

Despite this effort to make government more accountable for its rules and to make the process more inclusive, many foreign investors continue to criticize the lack of transparency in government decision making. The implementation of rules on government procurement contracts are a recurring concern. Non-Malaysian pharmaceutical companies claim to have lost bids against bumiputera (ethnic Malay)-owned companies despite offering more effective medicines at lower cost.

International Regulatory Considerations

Malaysia is one of 10 Member States that constitute the Association of Southeast Asian Nations (ASEAN). On December 31, 2015, the ASEAN Economic Community formally came into existence. For many years ahead of that date, and since, ASEAN’s economic policy leaders have met regularly to discuss promoting greater economic integration within the 10-country bloc. Although trade within the 10-country bloc is robust, Member States have prioritized steps to facilitate a greater flow of goods, services, and capital. No regional regulatory system is in place. As a member of the WTO, Malaysia provides notification of all draft technical regulations to the Committee on Technical Barriers to Trade.

Legal System and Judicial Independence

Malaysia’s legal system generally reflects English Law in that it consists of written and unwritten laws. Written laws include the federal and state constitutions as well as laws passed by Parliament and state legislatures. Unwritten laws are derived from court cases and local customs. The Contract Law of 1950 still guides the enforcement of contracts and resolution of disputes. States generally control property laws for residences, although the Malaysian government has recently adopted measures, including high capital gains taxes, to prevent the real estate market from overheating. Nevertheless, through such programs as the Multimedia Super Corridor, Free Commercial Zones, and Free Industrial Zones, the federal government has substantial reach into a range of geographic areas as a means of encouraging foreign investment and facilitating ownership of commercial and industrial property.

In 2007 the judiciary introduced dedicated intellectual property (IP) courts that consist of 15 “Sessions Courts” that sit in each state, and 6 ‘High Courts’ that sit in certain states (i.e. Kuala Lumpur, Johor, Perak, Selangor, Sabah and Sarawak). Malaysia launched the IP courts to deter the use of IP-infringing activity to fund criminal activity and to demonstrate a commitment to IP development in support of the country’s goal to achieve high-income status. These lower courts hear criminal cases, and have the jurisdiction to impose fines for IP infringing acts. There is no limit to the fines that they can impose. The higher courts are designated for civil cases to provide damages incurred by rights holders once the damages have been quantified post-trial. High courts have the authority to issue injunctions (i.e., to order an immediate cessation of infringing activity) and to award monetary damages.

Labor Courts, which the Ministry of Human Resources describes as “a quasi-judicial system that serves as an alternative to civil claims,” provide a means for workers to seek payment of wages and other financial benefits in arrears. Proceedings are generally informal but conducted in accordance with civil court principles. The High Court has upheld decisions which Labor Courts have rendered.

Certain foreign judgments are enforceable in Malaysia by virtue of the Reciprocal Enforcement of Judgments Act 1958 (REJA). However, before a foreign judgment can be enforceable, it has to be registered. The registration of foreign judgments is only possible if the judgment was given by a Superior Court from a country listed in the First Schedule of the REJA: the United Kingdom, Hong Kong Special Administrative Region of the People’s Republic of China, Singapore, New Zealand, Republic of Sri Lanka, India, and Brunei.

To register a foreign judgment under the REJA, the judgment creditor has to apply for the same within six years after the date of the foreign judgment. Any foreign judgment coming under the REJA shall be registered unless it has been wholly satisfied, or it could not be enforced by execution in the country of the original Court.

If the judgment is not from a country listed in the First Schedule to the REJA, the only method of enforcement at common law is by securing a Malaysian judgment. This involves suing on the judgment in the local Courts as an action in debt. Summary judgment procedures (explained above) may be used to expedite the process.

Post is not aware of instances in which political figures or government authorities have interfered in judiciary proceedings involving commercial matters.

Laws and Regulations on Foreign Direct Investment

The Government of Malaysia established the Malaysia Investment Development Authority (MIDA) to attract foreign investment and to serve as a focal point for legal and regulatory questions. Organized as part of the Ministry of International Trade and Industry (MITI), MIDA serves as a guide to foreign investors interested in the manufacturing sector and in many services sectors. Regional bodies providing support investors include: Invest Kuala Lumpur, Invest Penang, Koridor Utara Malaysia (Malaysia’s Northern Corridor), the East Coast Economic Region Development Council, the Iskandar Regional Development Authority (IRDA), the Sabah Economic Development and Investment Authority (SEDIA), and the Sarawak Economic Development Corporation.

As noted, the Ministerial Functions Act authorizes government ministries to oversee investments under their jurisdiction. Prospective investors in the services sector will need to follow requirements set by the relevant Malaysian Government ministry or agency over the sector in question.

Competition and Anti-Trust Laws

Identify which agencies review transactions for competition-related concerns (whether domestic or international in nature). Generally describe any significant competition cases on which there have been developments over the past year. Please limit your description to only those which have had an effect on or involved foreign investment.

On April 21, 2010, the Parliament of Malaysia approved two bills, the Competition Commission Act 2010 and the Competition Act 2010. The Acts took effect January 1, 2012. The Competition Act prohibits cartels and abuses of a dominant market position, but does not create any pre-transaction review of mergers or acquisitions. Violations are punishable by fines, as well as imprisonment for individual violations. Malaysia’s Competition Commission has responsibility for determining whether a company’s “conduct” constitutes an abuse of dominant market position or otherwise distorts or restricts competition. As a matter of law, the Competition Commission does not have separate standards for foreign and domestic companies. Commission membership consists of senior officials from the Ministry of International Trade and Industry (MITI), the Ministry of Domestic Trade, Cooperatives, and Consumerism (MDTCC), the Ministry of Finance, the Prime Minister’s Economic Planning Unit and, on a rotating basis, representatives from academia and the private sector.

In addition to the Competition Commission, the Acts established a Competition Appeals Tribunal (CAT) to hear all appeals of Commission decisions. In the largest case to date, the Commission imposed a fine of RM 10 million on Malaysia Airlines and Air Asia in September 2013 for colluding to divide shares of the air transport services market. The airlines filed an appeal in March 2014. In February 2016, the CAT ruled in favor of the airlines in its first-ever decision and ordered the penalty to be set aside and refunded to both airlines.

Expropriation and Compensation
The Embassy is not aware of any cases of uncompensated expropriation of U.S.-held assets, or confiscatory tax collection practices, by the Malaysian government. The government’s stated policy is that all investors, both foreign and domestic, are entitled to fair compensation in the event that their private property is required for public purposes. Should the investor and the government disagree on the amount of compensation, the issue is then referred to the Malaysian judicial system.

Dispute Settlement

ICSID Convention and New York Convention

Malaysia signed the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID) on October 22, 1965, coming into force on October 14, 1966. In addition, it is a contracting state of the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards since November 5, 1985.

Malaysia adopted the following measures to make the two conventions effective in its territory:

The Convention on the Settlement of Investment Disputes Act, 1966. (Act of Parliament 14 of 1966); the Notification on entry into force of the Convention on the Settlement of Investment Disputes Act, 1966. (Notification No. 96 of March 10, 1966); and the Arbitration (Amendment) Act, 1980. (Act A 478 of 1980).

Although the domestic legal system is accessible to foreign investors, filing a case generally requires any non-Malaysian citizen to make a large deposit before pursuing a case in the Malaysian courts. Post is unaware of any U.S. investors’ recent complaints of political interference in any judicial proceedings.

References:

Investor-State Dispute Settlement

Malaysia’s investment agreements contain provisions allowing for international arbitration of investment disputes. Malaysia does not have a Bilateral Investment Treaty with the United States.

Post has little data concerning the Malaysian Government’s general handling of investment disputes. In 2004, a U.S. investor filed a case against the directors of the firm, who constituted the majority shareholders. The case involves allegations by the U.S. investor of embezzlement by the other directors. The case remains in the appeals process.

The Malaysian government has been involved in three ICSID cases — in 1994, 1999, and 2005. The first case was settled out of court. The second, filed under the Malaysia-Belgo-Luxembourg Investment Guarantee Agreement (IGA), was concluded in 2000 in Malaysia’s favor. The 2005 case, filed under the Malaysia-UK Bilateral Investment Treaty, was concluded in 2007 in favor of the investor. However, the judgment against Malaysia was ultimately dismissed on jurisdictional grounds, namely that ICSID was not the appropriate forum to settle the dispute because the transaction in question was not deemed an investment since it did not materially contribute to Malaysia’s development. Nevertheless, Malaysian courts recognize arbitral awards issued against the government. There is no history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

Malaysia’s Arbitration Act of 2005 applies to both international and domestic arbitration. Although its provisions largely reflect those of the UN Commission on International Trade Law (UNCITRAL) Model Law, there are some notable differences, including the requirement that parties in domestic arbitration must choose Malaysian law as the applicable law. Although an arbitration agreement may be concluded by email or fax, it must be in writing: Malaysia does not recognize oral agreements or conduct as constituting binding arbitration agreements.

Many firms choose to include mandatory arbitration clauses in their contracts. The government actively promotes use of the Kuala Lumpur Regional Center for Arbitration (http://www.rcakl.org.my ), established under the auspices of the Asian-African Legal Consultative Committee to offer international arbitration, mediation, and conciliation for trade disputes. The KLRCA is the only recognized center for arbitration in Malaysia. Arbitration held in a foreign jurisdiction under the rules of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States 1965 or under the United Nations Commission on International trade Law Arbitration Rules 1976 and the Rules of the Regional Centre for Arbitration at Kuala Lumpur can be enforceable in Malaysia.

Bankruptcy Regulations

Malaysia’s Department of Insolvency (MdI) is the lead agency implementing the Insolvency Act of 1967, previously known as the Bankruptcy Act of 1967. On October 6, 2017, the Bankruptcy Bill 2016 came into force, changing the name of the previous Act, and amending certain terms and conditions. The most significant changes in the amendment include — (1) a social guarantor can no longer be made bankrupt; (2) there is now a stricter requirement for personal service for bankruptcy notice and petition; (3) introduction of the voluntary arrangement as an alternative to bankruptcy; (4) a higher bankruptcy threshold from RM 30,000 to RM 50,000; (5) introduction of the automatic discharge of bankruptcy; (6) no objection to four categories of bankruptcy for applying a discharge under section 33A (discharge of bankrupt by Certificate of Director General of Insolvency); (7) introduction of single bankruptcy order as a result of the abolishment of the current two-tier order system, i.e. receiving and adjudication orders; (8) creation of the Insolvency Assistance fund.

The distribution of proceeds from the liquidation of a bankrupt company’s assets generally adheres to the “priority matters and persons” identified by the Companies Act of 2016. After the bankruptcy process legal costs are covered, recipients of proceeds are: employees, secured creditors (i.e., creditors of real assets), unsecured creditors (i.e., creditors of financial instruments), and shareholders. Bankruptcy is not criminalized in Malaysia. The country ranks 46th on the World Bank Group’s Doing Business Rankings for Ease of Resolving Insolvency.

Mexico

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Mexico is open to foreign direct investment (FDI) in the vast majority of economic sectors and has consistently been one of the largest emerging market recipients of FDI. Mexico’s macroeconomic stability, large domestic market, growing consumer base, rising skilled labor pool, welcoming business climate, and proximity to the United States all help attract foreign investors.

Historically, the United States has been one of the largest sources of FDI in Mexico. According to Mexico’s Secretariat of Economy, FDI flows to Mexico from the United States totaled USD 13.8 billion in 2017, nearly 47 percent of all inflows to Mexico (USD 29.7 billion). The automotive, aerospace, telecommunications, financial services, and electronics sectors typically receive large amounts of FDI. Most foreign investment flows to northern states near the U.S. border, where most maquiladoras (export-oriented manufacturing and assembly plants) are located, or to Mexico City and the nearby “El Bajio” (e.g. Guanajuato, Queretaro, etc.) region. Historically, foreign investors have overlooked Mexico’s southern states, although that may change if newly-created special economic zones gain traction with investors (see section five).

The 1993 Foreign Investment Law, last updated in March 2017, governs foreign investment in Mexico. The law is consistent with the foreign investment chapter of NAFTA. It provides national treatment, eliminates performance requirements for most foreign investment projects, and liberalizes criteria for automatic approval of foreign investment. The Foreign Investment Law provides details on which business sectors are open to foreign investors and to what extent. Mexico is also a party to several Organization for Economic Cooperation and Development (OECD) agreements covering foreign investment, notably the Codes of Liberalization of Capital Movements and the National Treatment Instrument.

The government heavily prioritizes investment promotion and retention. Through its investment promotion agency ProMexico (www.ProMexico.mx ) the GoM aims to coordinate federal and state government efforts, as well as related private sector activities, with the goal of harmonizing programs, strategies, and resources to support the globalization of Mexico’s economy. ProMexico maintains an extensive network of offices abroad and a multi-lingual website (http://www.investinmexico.com.mx ), which provides information on establishing a corporation, rules of origin, labor issues, owning real estate, the operation of bonded assembly plants, and sectoral promotion plans. Additionally, multiple government-led and public-private groups exist to facilitate dialogue between investors and the Mexican government.

Limits on Foreign Control and Right to Private Ownership and Establishment

Mexico reserves certain sectors, in whole or in part, for the State including: petroleum and other hydrocarbons; control of the national electric system, radioactive materials, telegraphic and postal services; nuclear energy generation; coinage and printing of money; and control, supervision, and surveillance of ports of entry. Certain professional and technical services, development banks, and the land transportation of passengers, tourists, and cargo (not including courier and parcel services), are reserved entirely for Mexican nationals. See section six for restrictions on foreign ownership of certain real estate.

Reforms in the energy, power generation, telecommunications, and retail fuel sales sectors have liberalized access for foreign investors. While reforms have not led to the privatization of state-owned enterprises such as Pemex or the Federal Electricity Commission (CFE), they have allowed private firms to participate.

Hydrocarbons: Private companies participate in hydrocarbon exploration and extraction activities through contracts with the government under four categories: competitive contracts, joint ventures, profit sharing agreements, and license contracts. All contracts must include a clause stating subsoil hydrocarbons are owned by the State. The government has held four separate bid sessions allowing private companies to bid on exploration and development of oil and gas resources in blocks around the country. In 2017, Mexico successfully auctioned 70 land, shallow, and deep water blocks with significant interest from international oil companies. Further auctions are planned in 2018.

Telecommunications: Mexican law states telecommunications and broadcasting activities are public services and the government will at all times maintain ownership of the radio spectrum.

Aviation: The Foreign Investment Law limited foreign ownership of national air transportation to 25 percent until March 2017, when the limit was increased to 49 percent. On March 13, 2017, Delta successfully completed its purchase of 36.2 percent of shares in Grupo Aeromexico, with share options for an additional 12.8 percent, making it the first foreign company to hold a major equity position in a Mexican airline – a total of 49 percent.

Under existing NAFTA provisions, U.S. and Canadian investors receive national and most-favored-nation treatment in setting up operations or acquiring firms in Mexico. Exceptions exist for investments restricted under NAFTA. Currently, the United States, Canada, and Mexico have the right to settle any dispute or claim under NAFTA through international arbitration. Local Mexican governments must also accord national treatment to investors from NAFTA countries.

Approximately 95 percent of all foreign investment transactions do not require government approval. Foreign investments that require government authorization and do not exceed USD 165 million are automatically approved, unless the proposed investment is in a legally reserved sector.

The National Foreign Investment Commission under the Secretariat of the Economy is the government authority that determines whether an investment in restricted sectors may move forward. The Commission has 45 business days after submission of an investment request to make a decision. Criteria for approval include employment and training considerations, and contributions to technology, productivity, and competitiveness. The Commission may reject applications to acquire Mexican companies for national security reasons. The Secretariat of Foreign Relations (SRE) must issue a permit for foreigners to establish or change the nature of Mexican companies.

Other Investment Policy Reviews

The World Trade Organization (WTO) completed trade policy review of Mexico in February 2017 covering the period to year-end 2016. The review noted the positive contributions of reforms implemented 2013-2016 and cited Mexico’s development of “Digital Windows” for clearing customs procedures as a significant new development since the last review.

The full review can be accessed via: https://www.wto.org/english/tratop_e/tpr_e/tp452_e.htm .

Business Facilitation

According to the World Bank, on average registering a foreign-owned company in Mexico requires 11 procedures and 31 days. In 2016, President Pena Nieto signed a law creating a new category of simplified businesses called Sociedad for Acciones Simplificadas (SAS). Owners of SASs will be able to register a new company online in 24 hours. The Government of Mexico maintains a business registration website: www.tuempresa.gob.mx . Companies operating in Mexico must register with the tax authority (Servicio de Administration y Tributaria or SAT), the Secretariat of the Economy, and the Public Registry. Additionally, companies engaging in international trade must register with the Registry of Importers, while foreign-owned companies must register with the National Registry of Foreign Investments.

Outward Investment

ProMexico is responsible for promoting Mexican outward investment and provides assistance to Mexican firms acquiring or establishing joint ventures with foreign firms, participating in international tenders, and establishing franchise operations, among other services. Mexico does not restrict domestic investors from investing abroad.

3. Legal Regime

Transparency of the Regulatory System

Generally speaking, the Mexican government has established legal, regulatory, and accounting systems that are transparent and consistent with international norms. However, corruption continues to affect equal enforcement of some regulations.

The Federal Commission on Regulatory Improvement (COFEMER), within the Secretariat of Economy, is the agency responsible for streamlining federal and sub-national regulation and reducing the regulatory burden on business. Mexican law requires Secretariats and regulatory agencies to conduct impact assessments of proposed regulations. Assessments are made available for public comment via COFEMER’s website: www.cofemer.gob.mx . The official gazette of state and federal laws currently in force in Mexico is publically available via: http://www.ordenjuridico.gob.mx/ .

Mexico’s antitrust agency, the Federal Commission for Economic Competition (COFECE), plays a key role protecting, promoting, and ensuring a competitive free market in Mexico. COFECE is responsible for eliminating barriers both to competition and free market entry across the economy (except for the telecommunications sector, which is governed by its own competition authority) and for identifying and regulating access to essential production inputs.

In addition to COFECE, the Energy Regulatory Commission (CRE) and National Hydrocarbon Commission (CNH) are both technically-oriented independent agencies that play important roles in regulating the energy and hydrocarbons sectors. CRE regulates national electricity generation, coverage, distribution, and commercialization, as well as the transportation, distribution, and storage of oil, gas, and biofuels. CNH supervises and regulates oil and gas exploration and production and issues oil and gas upstream (exploration/production) concessions.

The Secretariat of Public Administration has made considerable strides in improving transparency in government, including government contracting and involvement of the private sector in enhancing transparency and fighting corruption. The Mexican government has established four internet sites to increase transparency of government processes and to establish guidelines for the conduct of government officials: (1) Normateca (http://normatecainterna.sep.gob.mx ) provides information on government regulations; (2) Compranet (https://compranet.funcionpublica.gob.mx ) displays federal government procurement actions on-line; (3) Tramitanet (www.tramitanetmexico.com ) permits electronic processing of transactions within the bureaucracy; and (4) Declaranet (https://declaranet.gob.mx/ ) allows for online filing of income taxes for federal employees.

International Regulatory Considerations

As a member of NAFTA, Mexico aims to harmonize regulations with the United States and Canada where possible while maintaining its sovereign right to maintain domestic regulations and standards. While Mexican regulations would appear familiar to U.S. financial services investors, there is significant potential for further harmonization in the energy, electricity, automotive, and agriculture sectors.

Mexico is an active member of the WTO and works with the WTO Committee on Technical Barriers to Trade (TBT) regarding domestic technical regulations. According to the WTO’s April 2017 TBT implementation review, Mexico raised five new Specific Trade Concerns (STC) and made 41 new notifications and 16 addenda or corrigenda in 2016. Mexico was the seventh most frequent raiser of STCs in 2016 and was the fourth most frequent raiser of STCs from 1995-2016, behind the European Union, United States, and Canada.

Legal System and Judicial Independence

Since the Spanish conquest in the 1500s, Mexico has had an inquisitorial system adopted from Europe in which proceedings were largely carried out in writing and sealed from public view. While its constitution is the fundamental legal document, in 2014 Mexico passed a National Code of Criminal Procedure, which is applicable to all 32 states. This code provides the legal framework for the new accusatory system, which involves open oral trials with cross examination of witnesses. The new accusatory system, fully implemented in June 2016, intends to combat corruption and increase transparency and efficiency, while ensuring that fundamental rights of both the victim and the accused are respected.

Mexico’s Commercial Code, which dates back to 1889, was most recently updated in 2014. All commercial activities must abide by this code and other applicable mercantile laws, including commercial contracts and commercial dispute settlement measures. Mexico has multiple specialized courts regarding fiscal, labor, economic competition, broadcasting, telecommunications, and agrarian law.

The judicial branch is nominally independent from the executive. Following a reform passed in February 2014, the Attorney General’s Office (Procuraduria General de la Republica or PGR) will become independent of the executive branch, as a fully autonomous agency called the Independent Prosecutor’s Office (Fiscalia General de la Republica or FGR). The legislation that will implement the transition was approved by the Chamber of Deputies in 2014 and has been pending in the Senate since December 2014. The future Independent Prosecutor General (Fiscal) will serve a 9-year term, intended to insulate his or her office from the executive branch, whose members serve 6-year terms. However, the major political parties have thus far been unable to agree on a suitable candidate for the position, and it is now expected that the future Fiscal will not be named until after the July 1, 2018 presidential election, and possibly not even before the December 1 inauguration.

Despite efforts to reform Mexico’s judicial system, impunity is rife in Mexico. The 2018 Global Impunity Index ranks Mexico as the fourth worst nation in the world on various measures of impunity. According to the study, 95 percent of crimes go unpunished in Mexico. In 2017, only 17 percent of murder investigations resulted in conviction and incarceration—a fall from 27.5 percent in 2016. On a national level, impunity in Mexico worsened slightly in 2017, however this figure hides large increases in impunity in Mexican states with significant U.S. investment—Aguascalientes, Puebla, Guanajuato, Tamaulipas, and Coahuila. Mexico State recorded the highest levels of impunity of all 32 Mexican federal entities.

Laws and Regulations on Foreign Direct Investment

Mexico’s Foreign Investment Law sets the rules governing foreign investment into the country. The National Commission for Foreign Investments, formed by several cabinet-level ministries including Interior (SEGOB), Foreign Relations (SRE), Finance (Hacienda), Economy (SE), and Social Development (SEDESOL), establishes the criteria for administering investment rules.

Competition and Anti-Trust Laws

Mexico has two constitutionally autonomous regulators to govern matters of competition—the Federal Telecommunications Institute (IFT) and the Federal Commission for Economic Competition (COFECE). Both were created under reforms in 2013. IFT governs broadcasting and telecommunications, while COFECE regulates all other sectors. For more information on competition issues in Mexico, please visit COFECE’s bilingual website at: www.cofece.mx .

In November 2017, IFT ruled to allow predominant telecommunications firm America Movil to charge interconnection fees to competitors for connecting calls into America Movil’s networks. The ruling, based on a cost model analysis, provides an asymmetric fee structure with America Movil paying four times more per minute for connecting into its competitors’ networks than its competitors pay per minute for connecting into its own network. Competitors still see this IFT ruling favoring the local, predominant provider over foreign telecom firms and plan to file injunctions to block IFT from implementing these charges.

Expropriation and Compensation

Mexico may not expropriate property under NAFTA, except for public purpose and on a non-discriminatory basis. Expropriations are governed by international law and require rapid fair market value compensation, including accrued interest. Investors have the right to international arbitration for violations of this or any other rights included in the investment chapter of NAFTA.

Dispute Settlement

ICSID Convention and New York Convention

Mexico ratified the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention) in 1971 and has codified this into domestic law. Mexico is also a signatory to the Inter-American Convention on International Commercial Arbitration (1975 Panama Convention) and the 1933 Montevideo Convention on the Rights and Duties of States. Mexico is not a member of the Convention on the Settlement of Investment Disputes between States and Nationals of other States (ICSID Convention), even though many of the investment agreements signed by Mexico include ICSID arbitration as a dispute settlement option.

Investor-State Dispute Settlement

Investor-State Dispute Settlement is a topic of the current NAFTA renegotiations. Chapters 11, 19, and 20 of the existing NAFTA cover international dispute resolution. Chapter 11 allows a NAFTA Party investor to seek monetary damages for violations of its provisions. Investors may initiate arbitration against the NAFTA Party under the rules of the United Nations Commission on International Trade Law (UNCITRAL Model Law) or through the ICSID Convention. A NAFTA investor may also choose to use the domestic court system to litigate their case.

Since NAFTA’s inception, there have been 17 cases filed against Mexico by U.S. and Canadian investors who allege expropriation and/or other violations of Mexico’s NAFTA obligations. Details of the cases can be found at: https://www.state.gov/s/l/c3742.htm.

International Commercial Arbitration and Foreign Courts

The Arbitration Center of Mexico (CAM) is a specialized, private institution administering commercial arbitration as an alternative dispute resolution mechanism. The average duration of an arbitration process conducted by CAM is 14 months. The Commercial Code dictates an arbitral award, regardless of the country where it originated, must be recognized as binding. The award must be enforced after a formal written petition is presented to a judge.

The internal laws of both Pemex and CFE state all national disputes of any nature will have to be resolved by federal courts. State-owned Enterprises (SOEs) and their productive subsidiaries may opt for alternative dispute settlement mechanisms under applicable commercial legislation and international treaties of which Mexico is a signatory. When contracts are executed in a foreign country, Pemex and CFE have the option to follow procedures governed by non-Mexican law, to use foreign courts, or to participate in arbitration.

Bankruptcy Regulations

Mexico’s Reorganization and Bankruptcy Law (Ley de Concursos Mercantiles) governs bankruptcy and insolvency. Congress approved modifications in 2014 in order to shorten procedural filing times and convey greater juridical certainty to all parties, including creditors. Declaring bankruptcy is legal in Mexico and it may be granted to a private citizen, a business, or an individual business partner. Debtors, creditors, or the Attorney General can file a bankruptcy claim. Mexico ranked 31 out of 190 countries for resolving insolvency in the World Bank’s 2018 Doing Business report. The average bankruptcy filing takes 1.8 years to be resolved and recovers 67.6 cents per USD, which compares favorably to average recovery in Latin America and the Caribbean of just 30.8 cents per USD. “Buró de Credito” is Mexico’s main credit bureau. More information on credit reports and ratings can be found at: http://www.burodecredito.com.mx/ .

Morocco

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Morocco actively encourages foreign investment and has sought to facilitate it through macro-economic policies, trade liberalization, structural reforms, infrastructure improvements, and incentives for investors. Law 18-95 of October 1995, constituting the Investment Charter , is the principal Moroccan text governing investment and applies to both domestic and foreign investment (direct and portfolio). In 2014, Morocco launched its Industrial Acceleration Plan, a new approach to industrial development based on establishing efficient “eco-systems” that integrate value chains and supplier relationships between large companies and small and medium-sized enterprises (SMEs). In December 2017, Morocco launched the Moroccan Investment and Export Development Agency (AMDIE) – merging the Moroccan Export Development Agency (CMPE) (commonly referred to as “Maroc Export”), the Casablanca Exhibition and Exhibition Office (OFEC), and the Moroccan Investment Development Agency (AMDI) –making AMDIE Morocco’s primary agency responsible for the development and promotion of investments and exports. The Agency’s website aggregates relevant information for interested investors and includes investment maps, procedures for creating a business, production costs, applicable laws and regulations, and general business climate information, among other investment services. Further information about Morocco’s investment laws and procedures is available on AMDIE ’s website. For further information on agricultural investments, visit the Agricultural Development Agency (ADA) website  or the National Agency for the Development of Aquaculture (ANDA) website .

Moroccan legislation governing FDI applies equally to Moroccan and foreign legal entities, with the exception of certain protected sectors.

When Morocco acceded to the OECD Declaration on International Investment and Multinational Enterprises in November 2009, Morocco guaranteed national treatment of foreign investors (i.e., according like treatment to both foreign and national investors in like circumstances). The only exception to this national treatment of foreign investors is in those sectors closed to foreign investment (noted below), which Morocco delineated upon accession to the Declaration.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities may establish and own business enterprises, barring some sector restrictions. While the U.S. Mission is not aware of any economy-wide limits on foreign ownership, Morocco places a 49 percent cap on foreign investment in air and maritime transport companies and maritime fisheries. Foreigners are prohibited from owning agricultural land, though they can lease it for up to 99 years. The Moroccan government holds a monopoly on phosphate extraction through the 95 percent state-owned Office Cherifien des Phosphates (OCP). The Moroccan state also has a discretionary right to limit all foreign majority stakes in the capital of large national banks, but does not yet appear to have exercised that right. In the oil and gas sector, the National Agency for Hydrocarbons and Mines retains a compulsory share of 25 percent of any exploration license or development permit. The Moroccan central bank (Bank Al Maghrib) may use regulatory discretion in issuing authorization for the establishment of domestic and foreign-owned banks. As set forth in the 1995 Investment Charter, there is no requirement for prior approval of FDI, and formalities related to investing in Morocco do not pose a meaningful barrier to investment. The U.S. Mission is not aware of any instances in which investors have been turned away for national security, economic, or other national policy reasons. The U.S. Mission is not aware of any U.S. investors disadvantaged or singled out by ownership or control mechanisms, sector restrictions, or investment screening mechanisms, relative to other foreign investors.

Other Investment Policy Reviews

The World Trade Organization (WTO) 2016 Trade Policy Review  (TPR) of Morocco found that the trade reforms implemented since the last TPR in 2009 have contributed to the economy’s continued growth by stimulating competition in domestic markets, encouraging innovation, creating new jobs, and contributing to growth diversification. In February 2015, the European Bank for Reconstruction and Development published its first country strategy for Morocco , which recognized Morocco’s notable political reforms since 2013, as well as its good economic performance, despite some volatility. The United Nations Conference on Trade and Development (UNCTAD) analyzed investment conditions and opportunities in Morocco in a 2015 implementation report . The report noted that due to investments directed at higher value-added industries, such as the automotive, aeronautics, and agro-processing sectors, Morocco has generated tangible economic and social benefits. As a result of a continuing reform process driven by the creation of the National Committee on Business Environment (CNEA) and the Moroccan Investment Development Agency (now the Moroccan Investment and Export Development Agency [AMDIE]), the majority of recommendations made in the 2008 Investment Policy Review (IPR) have been implemented.

Business Facilitation

In the World Bank’s Doing Business 2018 report , Morocco ranks 69 out of 190 economies worldwide in terms of ease of doing business. In the past six years, Morocco has implemented a number of reforms facilitating business registration, such as eliminating the need to file a declaration of business incorporation with the Ministry of Labor, reducing company registration fees, and eliminating minimum capital requirements for limited liability companies. Morocco maintains a business registration website that is accessible through the Regional Investment Center (CRI – Centre Regional d’Investissement ). The business registration process is clear and complete and requires four steps: 1) obtain a “Certificat Negatif” in person or online at www.directinfo.ma, which registers the company name at the CRI; 2) pay stamp duty; 3) file documents with CRI to register with the Ministry of Economy and Finance for a patent tax, and with the Tribunal of Commerce for social security and taxation, and 4) make a company stamp. The business owner then receives the “patente,” the fiscal identification, the commercial registration certificate, legal books, and the registration for social security (Caisse National de Securite Sociale) approximately one week after filing the documents. The business owner may request to be notified by text message when the file is ready.

Foreign companies may utilize the online business registration mechanism. Except for French companies, which are provided an exemption, foreign companies are required to provide an apostilled Arabic translated copy of its articles of association and an extract of the registry of commerce in its country of origin. Moreover, foreign companies must report the incorporation of the subsidiary a posteriori to the Foreign Exchange Board (Office National de Change) to facilitate repatriation of funds abroad (such as profits and dividends). According to the World Bank, the process of registering a business in Morocco takes an average of 10 days (significantly less time than the Middle East and North Africa regional average of 20 days). Including all official fees and fees for legal and professional services, registration costs 9.1 percent of Morocco’s annual per capita income (less than half the region’s average of 25.8 percent). Moreover, Morocco does not require any paid-in minimum capital to be deposited in a bank or with a notary.

On February 15, 2018, Morocco’s Government Council approved a draft law on establishing businesses electronically. The Moroccan Office of Industrial and Commercial Property (OMPIC) stated its plans to coordinate the issuance of business registration certificates to promote domestic and foreign investment. The electronic platform will include filing all contracts, summary statements, meeting minutes, deliberations, and judicial decisions.

The business facilitation mechanisms provide for equitable treatment of women and underrepresented minorities in the economy. The U.S. Mission is not aware of any special assistance provided to women and underrepresented minorities through the business registration mechanisms. In cooperation with the Moroccan government, civil society, and the private sector, there have been a number of initiatives aimed at improving gender quality in the workplace and access to the workplace for foreign migrants, particularly from sub-Saharan Africa.

Outward Investment

In 2017, Morocco’s FDI in Africa was $2.57 billion, boasting a 12 percent increase over 2016. According to data from the African Development Bank, Morocco is ranked as the second biggest investor in Sub-Saharan Africa, after South Africa, with up to 85 percent of its foreign direct investments going to the region. The U.S. Mission is not aware of a formal outward investment promotion agency or any restrictions for domestic investors attempting to invest abroad. However, under the Moroccan investment code, repatriation may only be performed using convertible Moroccan Dirham accounts. Further, capital controls limit the ability of residents to convert dirham balances into foreign currency or to move funds offshore.

3. Legal Regime

Transparency of the Regulatory System

Morocco is a constitutional monarchy with an elected parliament and a mixed legal system of civil law based mainly on French law with some influence from Islamic law. Legislative acts are subject to judicial review by the Constitutional Court. The Constitutional Court has the power to determine the constitutionality of legislation, excluding royal decrees (Dahirs). Legislative power in Morocco is vested in both the government and the two chambers of Parliament, the Chamber of Representatives (Majlis Al-Nuwab) and the Chamber of Councillors (Majlis Al Mustashareen). The King can also issue royal decrees which have the force of law. The principal sources of commercial legislation in Morocco can be found in the Code of Obligations and Contracts of 1913 and Law No. 15-95 establishing the Commercial Code. The Competition Council and the Central Authority for the Prevention of Corruption have responsibility for improving public governance and advocating for further market liberalization. All levels of regulations exist (local, state, national, and supra-national). The most relevant regulations for foreign businesses depend on the sector in question. Ministries develop their own regulations and draft laws, including those related to investment, through their administrative departments and approval by the respective minister. Each regulation and draft law is made available for public comment. Key regulatory actions are published in their entirety in Arabic and usually French in the official bulletin on the website  of the General Secretariat of the Government. Once published, the law is final. Public enterprises and establishments can adopt their own specific regulations provided they comply with regulations regarding competition and transparency.

Morocco’s regulatory enforcement mechanisms depend on the sector in question, and enforcement is legally reviewable. The National Telecommunications Regulatory Agency (ANRT), for example, created in February 1998 under Law No. 24-96, is the public body responsible for the control and regulation of the telecommunications sector. The agency regulates telecommunication by participating in the development of the legislative and regulatory framework. Morocco does not have specific regulatory impact assessment guidelines, nor are impact assessments required by law. Morocco does not have a specialized government body tasked with reviewing and monitoring regulatory impact assessments conducted by other individual agencies or government bodies.

The World Bank’s 2018 Doing Business Report indicates that Morocco implemented reforms aimed at reducing regulatory complexity and strengthening legal institutions. These include simplification of property registration, enhanced electronic systems for paying taxes and the processing of documents for imports, improving online procedures, increasing administrative efficiency, introducing registry credit scores as a value-added service, expanding shareholders’ roles in company management, and implementing an unemployment insurance plan. In addition, the report indicates that Morocco was one of the countries to introduce greater requirements for corporate transparency into their laws and regulations for promoting detailed disclosure on primary employment and the appointments and remuneration of directors, ensuring detailed and advance notice of general meetings of shareholders, obliging members of limited liability companies to meet at least once per year, and allowing shareholders to add items to meeting agendas. The U.S. Mission is not aware of any informal regulatory processes managed by nongovernmental organizations or private sector associations.

International Regulatory Considerations

European standards are widely referenced in Morocco’s regulatory system. In some cases, U.S. or international standards, guidelines, and recommendations are also accepted. Morocco has been a WTO member since January 1995 and reports technical regulations that could affect trade with other member countries to the WTO. Morocco is a signatory to the Trade Facilitation Agreement  and has a 91.2 percent implementation rate of TFA requirements.

Legal System and Judicial Independence

The Moroccan legal system is based on both civil law (French system) and Islamic law, regulated by the Decree of Obligations and Contracts of 1913 as amended, the 1996 Code of Commerce, and Law No. 53-95 on Commercial Courts. These courts also have sole competence to entertain industrial property disputes, as provided for in Law No. 17-97 on the Protection of Industrial Property, irrespective of the legal status of the parties. According to the European Bank for Reconstruction and Development’s 2015 Morocco Commercial Law Assessment Report , Royal Decree No. 1-97-65 (1997) established commercial court jurisdiction over commercial cases including insolvency. Although this led to some improvement in the handling of commercial disputes, the lack of training for judges on general commercial matters remains a key challenge to effective commercial dispute resolution in the country. In general, litigation procedures are time consuming and resource-intensive, and there is no legal requirement with respect to case publishing. Disputes may be brought before one of eight Commercial Courts (located in Rabat, Casablanca, Fes, Tangier, Marrakech, Agadir, Oujda and Meknes), and one of three Commercial Courts of Appeal (located in Casablanca, Fes and Marrakech). There are other specialist courts such as the Military and Administrative Courts. Title VII of the Constitution provides that the judiciary shall be independent from the legislative and executive branches of government. The 2011 Constitution also authorized the creation of the Supreme Judicial Council, headed by the King, which has the authority to hire, dismiss, and promote judges. Enforcement actions are appealable at the Courts of Appeal, which hear appeals against decisions from the court of first instance.

Laws and Regulations on Foreign Direct Investment

The principal sources of commercial legislation in Morocco are the 1913 Decree (Dahir) of Obligations and Contracts, as amended, Law No. 18-95 that established the 1995 Investment Charter, the 1996 Code of Commerce, and Law No. 53-95 on Commercial Courts. These courts have sole competence to hear industrial property disputes, as provided for in Law No. 17-97 on the Protection of Industrial Property, irrespective of the legal status of the parties. Morocco’s CRI or Centre Regional d’Investissement  and AMDIE (cited above) provide users with various investment related information on key sectors, procedural information, calls for tenders, and resources for business creation.

Competition and Anti-Trust Laws

Restrictive agreements and practices are regulated by law. Morocco’s Competition Law No. 06-99 on Free Pricing and Competition (June 2000) outlines the authority of the Competition Council  as an independent executive body with investigatory powers. Together with the Central Authority for the Prevention of Corruption, the Competition Council is one of the main actors in charge of improving public governance and advocating for further market liberalization. Law No. 20-13, adopted on August 7, 2014, amended the powers of the competition council to bring them in line with the 2011 constitution. The Competition Council is now charged with: 1) making decisions on anti-competition practices and controlling concentrations, with powers of investigation and sanction, 2) providing opinions in official consultations by government authorities, and 3) publishing reviews and studies on the state of competition. However, the Moroccan government has not yet appointed new members to the Competition Council, rendering it ineffective. In response to overlapping mandates, a 2016 decree stipulated that the Competition Council would exercise oversight over sectors that did not already have an established regulator, preserving the role of previously established regulators, such as the telecommunications regulator, ANRT. Mission Morocco is aware of one allegation of unfair competition in the telecommunications sector, though it did not involve a U.S. firm.

Expropriation and Compensation

Expropriation may only occur in the context of public interest for public use by a State entity, although in the past, private entities that are public service “concessionaires,” mixed economy companies, or general interest companies have also been granted expropriation rights. Article 3 of Law No. 7-81 (May 1982) on expropriation, the associated Royal Decree of May 6, 1982, and Decree No. 2-82-328 of April 16, 1983 regulate government authority to expropriate property. The process of expropriation follows two phases. In the administrative phase, the State declares public interest in expropriating specific land, and verifies ownership, titles, and value of the land, as determined by an appraisal. If the State and owner are able to come to agreement on the value, the expropriation is complete. If the owner appeals, the judicial phase begins, whereby the property is taken, a judge oversees the transfer of the property, and payment compensation is made to the owner based on the judgment. The U.S. Mission is not aware of any recent, confirmed instances of private property being expropriated for other than public purposes (eminent domain), or being expropriated in a manner that is discriminatory or not in accordance with established principles of international law.

Dispute Settlement

ICSID Convention and New York Convention

Morocco is a member of the International Center for Settlement of Investment Disputes (ICSID) and signed its convention in June 1967. Morocco is also a party to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. Law No. 08-05 provides for enforcement of awards made under these conventions.

Investor-State Dispute Settlement

Morocco is signatory to over 60 bilateral treaties recognizing binding international arbitration of trade disputes, including one with the United States. Law No. 08-05 established a system of conventional arbitration and mediation, while allowing parties to apply the Code of Civil Procedure in their dispute resolution. Foreign investors commonly rely on international arbitration to resolve contractual disputes. Commercial courts recognize and enforce foreign arbitrations awards. In general, investor rights are backed by an impartial procedure for dispute settlement that is transparent. There have been no claims brought by foreign investors under the investment chapter of the U.S.-Morocco Free Trade Agreement since it came into effect in 2006. However, the U.S. Mission is aware of approximately ten cases of business disputes over the past ten years involving U.S. investors. In several of these cases, the investors claimed that the incentives associated with their investments were not fulfilled, or were fulfilled later than originally promised.

Morocco officially recognizes foreign arbitration awards issued against the government. Domestic arbitration awards are also enforceable subject to an enforcement order issued by the President of the Commercial Court, who verifies that no elements of the award violate public order or the defense rights of the parties. As Morocco is a member of the New York Convention, international awards are also enforceable in accordance with the provisions of the convention. Morocco is also a member of the Washington Convention for the International Centre for Settlement of Investment Disputes (ICSID), and as such agrees to enforce and uphold ICSID arbitral awards. The U.S. Mission is not aware of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

Morocco has a national commission on Alternative Dispute Resolution (ADR) with a mandate to regulate mediation training centers and develop mediator certification systems. Morocco is currently seeking to position itself as a regional center for arbitration in Africa, but the capacity of local courts remains a limiting factor. The Moroccan government established the Center of Arbitration and Mediation housed in Rabat and the Casablanca International Mediation and Arbitration Center (CIMAC). The U.S. Mission is not aware of any investment disputes involving state owned enterprises (SOEs).

Bankruptcy Regulations

Morocco’s bankruptcy law is based on French law. Commercial courts have jurisdiction over all cases related to insolvency, as set forth in Royal Decree No. 1-97-65 (1997). The Commercial Court in the debtor’s place of business holds jurisdiction in insolvency cases. The law gives secured debtors priority claim on assets and proceeds over unsecured debtors, who in turn have priority over equity shareholders. Bankruptcy is not criminalized. Parliament passed in March 2018 an update to Livre V, the national insolvency code. The new law shifts the focus of bankruptcy from liquidation and restructuring to prevention and settlement. The World Bank’s 2018 Doing Business report ranked Morocco 134 out of 190 economies in “Resolving Insolvency,” and the Moroccan government reportedly undertook the bankruptcy reforms specifically to increase its ranking on this indicator. In February 2008, The Moroccan Central Bank signed a 25-year agreement with Experian, the global information services company, to upgrade and run its Credit Bureau facilities in Morocco to provide credit institutions with objective, reliable, and pertinent data to assist them in the underwriting process.

Netherlands

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Related to Foreign Direct Investment

The Netherlands is the sixteenth-largest economy in the world and the fifth largest in the European Monetary Union (the Eurozone), with a gross domestic product (GDP) of nearly USD 800 billion (EUR 700 billion). According to the International Monetary Fund (IMF), the Netherlands is consistently among the three largest source and recipient economies for foreign direct investment (FDI) in the world, although the Netherlands is not the ultimate destination for the majority of this investment. The government of the Netherlands maintains liberal policies toward FDI, has established itself as a platform for third-country investment with some 145 investment agreements in force, and adheres to the Organization for Economic Cooperation and Development (OECD) Codes of Liberalization and Declaration on International Investment, including a National Treatment commitment and adherence to relevant guidelines.

The Netherlands is the recipient of eight percent of all FDI inflow into the EU. Of all EU member states, it is the top recipient of U.S. FDI, at over 16 percent of all U.S. FDI abroad as of 2015. The Netherlands has become a key export platform and pan-regional distribution hub for U.S. firms. Roughly 60 percent of total U.S. foreign-affiliate sales in the Netherlands are exports, with the bulk of them going to other EU members.

In 2014, foreign-owned companies made inward direct investments worth USD 15.8 billion (EUR 14.2 billion) – just over 30 percent of total corporate investment in durable goods in the Netherlands. Foreign investors provide 19 percent of Dutch employment in the private sector (860,200 jobs). U.S. firms contribute the most among foreign firms to employment, responsible for 214,000 jobs. In its 2017 investment report, the UN Conference on Trade and Development (UNCTAD) identified the Netherlands as the world’s fifth largest destination of global FDI inflows and the third largest source of FDI outflows.

Dutch tax authorities provide a high degree of customer service to foreign investors, seeking to provide transparent, precise tax guidance that makes long-term tax obligations more predictable. Advance Tax Rulings (ATR) and Advance Pricing Agreements (APA) are guarantees given by local tax inspectors regarding long-term tax commitments for a particular acquisition or Greenfield investment. Dutch tax policy continues to evolve as the EU seeks to harmonize tax measures across members states. A more detailed description of Dutch tax policy for foreign investors can be found at http://investinholland.com/incentives-and-taxes/  and http://investinholland.com/incentives-and-taxes/fiscal-climate/ .

Dutch corporations and branches of foreign corporations are currently subject to a corporate tax rate of 25 percent on taxable profits, which puts the Netherlands in the middle third among EU countries’ corporate tax rates and below the tax rates of its larger neighbors. Profits up to USD 240,000 (EUR 200,000) are taxed at a rate of 20 percent. In October 2017, the new Dutch government announced it would lower its corporate tax rate to 21 percent in 2021, with profits up to USD 240,000 taxed at a 16 percent rate.

Dutch corporate taxation generally allows for exemption of dividends and capital gains derived from a foreign subsidiary. Surveys of the corporate tax structure of EU member states note that both the corporate tax rate and the effective corporate tax rate in the Netherlands are around the EU average. Nevertheless, the Dutch corporate tax structure ranks among the most competitive in Europe considering other beneficial measures such as ATAs and/or APAs. The Netherlands also has no branch profit tax and does not levy a withholding tax on interest and royalties.

Maintaining an investment-friendly reputation is a high priority for the Dutch government, which provides public information and institutional assistance to prospective investors through the Netherlands Foreign Investment Agency (NFIA) (https://investinholland.com/ ). Additionally, the Netherlands business gateway at https://business.gov.nl/  – maintained by the Dutch government – provides information on regulations, taxes, and investment incentives that apply to foreign investors in the Netherlands and clear guidance on establishing a business in the Netherlands: https://business.gov.nl/guides-for-doing-business/starting-a-business-or-carrying-out-an-assignment/general-guide-for-starting-a-business-in-the-netherlands/ .

The NFIA maintains six regional offices in the United States (Washington, DC; Atlanta; Boston; Chicago; New York City; and San Francisco). The American Chamber of Commerce in the Netherlands (https://www.amcham.nl/ ) also promotes U.S.-Dutch business interests.

Limits on Foreign Control and Right to Private Ownership and Establishment

With few exceptions, the Netherlands does not discriminate between national and foreign individuals in the establishment and operation of private companies. The government has divested its complete ownership of many public utilities, but in a number of strategic sectors, private investment, including foreign investment, may be subject to limitations or conditions. These include transportation, energy, defense and security, finance, postal services, public broadcasting, and the media.

Air transport is governed by EU regulation and subject to a bilateral agreement between the United States and the EU. U.S. nationals can invest in Dutch/European carriers as long as the airline remains majority-owned by EU governments or nationals from EU member states. Additionally, the EU and its member states reserve the right to limit U.S. investment in the voting equity of an EU airline on a reciprocal basis that the United States allows for foreign nationals in U.S. carriers.

The Netherlands has no formal foreign investment screening mechanism. It has certain limitations on foreign ownership in sectors that are deemed of vital national interest (transportation, energy, defense and security, finance, postal services, public broadcasting, and the media). There is no requirement for Dutch nationals to have an equity stake in a Dutch registered company. The Ministry of Economic Affairs and Climate Policy (MOE) announced in mid-April that it will submit to Parliament a proposal for an investment screening law in the telecommunications sector in fall 2018.

In concert with the European Commission, the Dutch government is considering how to best protect its economic security and at the same time continue as one of the world’s most open economies. A law that establishes investor screening in the telecommunications sector is expected to come into force in late 2018.

Other Investment Policy Reviews

The Netherlands has not recently undergone an investment policy review by the OECD, World Trade Organization (WTO), or UNCTAD.

Business Facilitation

All companies must register with the Chamber of Commerce and apply for a fiscal number with the tax administration, which allows expedited registration for small and medium-sized enterprises (SMEs) with fewer than 50 employees: https://www.kvk.nl/english/ordering-products-from-the-commercial-register/ .

The Dutch American Friendship Treaty (DAFT) from 1956 gives U.S. citizens preferential treatment to operate a business in the Netherlands, providing ease of establishment that most other non-EU nationals do not enjoy. U.S. entrepreneurs applying under the DAFT do not need to satisfy a strict, points-based test and do not have to meet pre-conditions related to providing an innovative product. U.S. entrepreneurs setting up a sole proprietorship need only register with the Chamber of Commerce and demonstrate a minimum investment of EUR 4,500. DAFT entrepreneurs receive a two-year residence permit, with the possibility of renewal for five subsequent years.

3. Legal Regime

Transparency of the Regulatory System

Dutch commercial laws and regulations accord with international legal practices and standards; they apply equally to foreign and Dutch companies. The rules on acquisition, mergers, takeovers, and reinvestment are nondiscriminatory. The Social Economic Council (SER)–an official advisory body consisting of employers’ representatives, labor representatives, and government appointed independent experts–administers Dutch mergers and acquisitions rules. The SER’s rules serve to protect the interests of stakeholders and employees. They include requirements for the timely announcement of mergers and acquisitions (M&A) and for discussions with trade unions.

As an EU member and Eurozone country, the Netherlands is firmly integrated in the European regulatory system, with national and European institutions exercising authority over specific markets, industries, consumer rights, and competition behavior of individual firms.

Financial markets are regulated in an interconnected EU and national system of prudential and behavioral oversight. The domestic regulators are the Dutch Central Bank (DNB) and the Netherlands Authority for the Financial Market (AFM). Their EU counterparts are the European Central Bank (ECB) and the European Securities and Markets Authority (ESMA).

Traditionally, public consultation in the drafting of new laws is achieved by invitation of various civil society bodies, trade associations, and organizations of stakeholders. In addition, the SER has a formal mandate to provide the government with advice, both solicited and of its own accord. New laws and regulations are subject to legal review by the Council of State and must be approved by the Second and First Chambers of Parliament.

International Regulatory Considerations

The Netherlands is a member of the WTO and does not maintain any measures that are inconsistent with obligations under Trade Related Investment Measures (TRIMs).

Legal System and Judicial Independence

Dutch contract law is based on the principle of party autonomy and full freedom of contract. Signing parties are free to draft an agreement in any form and any language, based on the legal system of their choice.

Dutch corporate law provides for a legal and fiscal framework that is designed to be flexible. This element of the investment climate makes the Netherlands especially attractive to foreign investors.

The Dutch civil court system has a chamber dedicated to business disputes called the Enterprise Chamber. The Enterprise Chamber includes judges who are experts in various commercial fields. They resolve a wide range of corporate disputes, from corporate governance disputes in a firm to high-profile shareholder conflicts over mergers or hostile take-overs. In 2017, as part of its takeover bid of AkzoNobel, U.S. paint manufacturer PPG appealed the Akzo board’s decision to reject PPG’s takeover offer in the Commercial Court, but was unsuccessful.

In mid-2018, the Enterprise Chamber will establish an English-language chamber. The Netherlands Commercial Court (NCC) and its appellate chamber (NCCA) will offer parties the opportunity to litigate in English and will provide judgments in English. Both the NCC and NCCA will focus primarily on major international commercial cases.

Laws and Regulations on Foreign Direct Investment

In April 2018, the Ministry of Economic Affairs and Climate Policy introduced a proposal that, if it becomes law, will make it mandatory for foreign investors who seek to acquire significant ownership of corporations active in the telecommunications sector to notify the Dutch government. The government expects to submit the proposed law to the Parliament for a vote in late 2018, and the proposed law could come into force by the end of 2018. This is the first law to establish an investor screening mechanism in sectors of vital interest to Dutch national security.

Competition and Anti-Trust Laws

Structural and regulatory reforms are an integral part of Dutch economic policy. Market competition is strengthened through laws aimed at stimulating market forces, liberalization, deregulation, and legislative quality, along with a tightening of competition policy.

As an EU and Eurozone member, the Netherlands is firmly integrated in the European regulatory system with national and European institutions exercising authority over specific markets, industries, consumer rights, and competition behavior of individual firms.

The Authority for Consumers and Markets (ACM) provides regulatory oversight in three key areas: consumer protection, post and telecommunications, and market competition.

Expropriation and Compensation

The Netherlands maintains strong protection on all types of property, including private and intellectual property, and the right of citizens to own and use property. Expropriation of corporate assets or the nationalization of industry requires a special act of Parliament, as demonstrated in the nationalization of ABN AMRO during the 2008 financial crisis (the government returned it to public shareholding by IPO in 2016). In the event of expropriation, the Dutch government follows customary international law, providing prompt, adequate, and effective compensation, as well as ample process for legal recourse. The U.S. Mission to the Netherlands is unaware of any recent expropriation claims involving the Dutch government and a U.S. or other foreign-owned company.

Dispute Settlement

ICSID Convention and New York Convention

As a member of the International Center for the Settlement of Investment Disputes (ICSID), the Netherlands accepts binding arbitration between foreign investors and the state. The Netherlands is one of the initial signatories of the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards (UNCITRAL) and permits local enforcement of arbitration judgments decided in other signatory countries.

The Hague is the seat of the Permanent Court of Arbitration (PCA), an intergovernmental organization that is not a court, but like the ICSID, is a facilitator of independent arbitral tribunals to resolve conflicts between PCA member states, including the United States.

International Commercial Arbitration and Foreign Courts

The Netherlands has maintained a Treaty of Friendship, Commerce, and Navigation with the United States since 1957 that provides for national treatment and free entry for foreign investors, with certain exceptions. The Embassy is not aware of any American company raising an investment dispute with the Netherlands over the last 10 years.

Bankruptcy Regulations

Dutch bankruptcy law is governed by the Dutch Bankruptcy Code, which applies both to individuals and to companies. The code covers three separate legal proceedings: 1) bankruptcy, which has a goal of liquidating the company’s assets; 2) receivership, aimed at reaching an agreement between the creditors and the company; and 3) debt restructuring, which is only available to individuals.

The World Bank’s 2017 Ease of Doing Business Index ranks the Netherlands as number 8 in resolving insolvency. The Netherlands ranks better than the OECD average on bankruptcy time, cost, and recovery rate.

New Zealand

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Foreign investment in New Zealand is generally encouraged without discrimination. New Zealand has an open and transparent economy, where businesses and investors can generally make commercial transactions with ease. Successive governments accept that foreign investment is an important source of financing for New Zealand and a means to gain access to foreign technology, expertise, and global markets. Some restrictions do apply in a few areas of critical interest including certain types of land, significant business assets, and fishing quotas. These restrictions are facilitated by a screening process conducted by the Overseas Investment Office (OIO), described in the next section.

New Zealand has a rapidly expanding network of bilateral investment treaties and free trade agreements that include investment components. New Zealand also has a well-developed legal framework and regulatory system, and the judicial system is generally effective in enforcing property and contractual rights. Investment disputes are rare, and there have been no major disputes in recent years involving U.S. companies.

The newly elected Labour Party government has indicated a tighter approach to screening some forms of foreign investment. The government has indicated an interest in differing aspects of trade agreement negotiation from the previous government, such as the consideration of investment screening thresholds for certain types of assets and an aversion to investor-state dispute settlement provisions. This is described in the next section.

Crown entity New Zealand Trade and Enterprise (NZTE) is New Zealand’s primary investment promotion agency. In addition to its New Zealand central and regional presence, it has 40 international locations, with half of its staff – about 580 – based overseas. In the United States the NZTE has offices in San Francisco, Los Angeles, New York, and Washington, D.C.

The International Investment Attraction Strategy launched in 2015 is specifically aimed at attracting high-quality overseas investment, increasing the number of multinational companies to undertake research and development in New Zealand, and attracting individual investors and entrepreneurs to reside in New Zealand. The Investment Attraction Taskforce is headed by NZTE and operates across several government agencies that include the Ministry of Business, Innovation and Employment (MBIE); the Ministry of Foreign Affairs and Trade (MFAT); Treasury; Immigration New Zealand; and Callaghan Innovation. Priority sectors identified by the taskforce include infrastructure, resources, food and beverage, high-value manufacturing, ICT, and primary industries.

The taskforce also introduced the Regional Investment Attraction Strategy to align and coordinate an approach to attracting investment. NZTE facilitates this work with regional economic development agencies to help channel investment to build capability and to promote opportunities in the regions. Other initiatives implemented by the taskforce include new visa categories created for investors and for entrepreneurs, and enabling foreign investors – under certain circumstances – to bid alongside New Zealand businesses for contestable government funding for research and innovation grants.

The New Zealand-United States Council, established in 2001, is a non-partisan organization funded by business and the government. It fosters a strong and mutually beneficial relationship between New Zealand and the United States through both government-to-government contacts, and business-to-business links. The American Chamber of Commerce in Auckland provides a platform for New Zealand and U.S. businesses to network among themselves and with government agencies.

Limits on Foreign Control and Right to Private Ownership and Establishment

The New Zealand government does not discriminate against U.S. or other foreign investors in their rights to establish and own business enterprises. It has placed separate limitations on foreign ownership of airline Air New Zealand and communications provider Spark New Zealand (Spark), the latter formerly known as Telecom Corporation of New Zealand until 2014.

Air New Zealand’s constitution requires that no person who is not a New Zealand national hold 10 percent or more of the voting rights without the consent of the Minister of Transport. There must be between five and eight board directors, and at least three directors must be ordinarily resident in New Zealand. In 2013 the government sold down its stake in Air New Zealand from 73 percent to 53 percent to raise money to pay down debt.

The constitution of telecommunications provider Spark requires at least half of its Board be New Zealand citizens, and at least one director must live in New Zealand. It requires no person shall have a relevant interest in 10 percent or more of the voting shares without the consent of the Minister of Finance and the Spark Board, and no person who is not a New Zealand national can purchase a relevant interest in more than 49.9 percent of the total voting shares without approval from the Minister of Finance. This telecommunications service obligation (TSO) – formerly known as the “Kiwishare obligation” – has been in operation since Spark’s privatization in 1990, and was motivated in part because of the vital emergency (111) service it provides. There are TSOs for charge-free local calling (provided by Spark and supported by Chorus), and for the services for deaf, hearing impaired, and speech impaired people (provided by Sprint International).

The establishment of telecommunications infrastructure provider Chorus resulted from a demerger of Spark in 2011. Chorus owns most of the telephone infrastructure in New Zealand, and provides wholesale services to telecommunications retailers, including Spark. The demerger freed Spark from the TSO, but obligated Chorus as a natural monopoly and infrastructure provider. To date the New Zealand government has granted approval to two private companies – in April 2012 and December 2017 – to exceed the 10 percent threshold, and increase their interest in Chorus up to 15 percent.

New Zealand screens overseas investment mainly for economic reasons to ensure quality investments are made that benefit New Zealand. Failure to obtain consent before purchase can lead to significant financial penalties. The Overseas Investment Office (OIO) is responsible for screening foreign investment that falls within certain criteria specified in the Overseas Investment Act 2005. The OIO requires consent be obtained by overseas persons wishing to acquire or invest in significant business assets, sensitive land, farm land, or fishing quota, as defined below.

A “significant business asset” includes: acquiring 25 percent or more ownership or controlling interest in a New Zealand company with assets exceeding NZD100 million (USD 72 million); establishing a business in New Zealand that will be operational more than 90 days per year and expected costs of establishing the business exceeds NZD100 million; or acquiring business assets in New Zealand that exceed NZD100 million. For all three categories the threshold is higher for Australian non-government investors to NZD516 million (USD 372 million) for 2018, an amount reviewed each year in accordance with the 2013 Protocol on Investment to the New Zealand-Australia Closer Economic Relations Trade Agreement. Separately, upon entry into force, non-government investors from CPTPP countries will face a screening threshold of NZD200 million (USD 144 million).

OIO consent is required for overseas investors to purchase “sensitive land” either directly or acquiring a controlling interest of 25 percent or more in a person who owns the land. Sensitive land includes land that: is rural and exceeds five hectares (12.35 acres); is part of or adjoins the foreshore or seabed; exceeds 0.4 hectares and falls under of the Conservation Act 1987 or is land proposed for a reserve or public park; is subject to a Heritage Order, or is a historic or wahi tapu area (sacred Maori land); or is considered “special land” that is defined as including the foreshore, seabed, riverbed, or lakebed and must first be offered to the Crown. If the Crown accepts the offer, the Crown can only acquire the part of the “sensitive land” that is “special land,” and can acquire it only if the overseas person completes the process for acquisition of the sensitive land.

The Waitangi Tribunal was established by the Treaty of Waitangi Act 1975 to hear Maori claims relating to the loss of land and resources as a result of historical breaches by the Crown of the Treaty of Waitangi signed in 1840. Maori land claims may not be lodged relating to privately owned land and affect only land owned by the Crown. Some private land titles are noted with a memorial recording that the land, when Crown land, would be subject to a claim and therefore repurchased by the Crown for market value at some future time. No land in New Zealand has to date been the subject of a repurchase decision.

Where a proposed acquisition involves “farm land” (land used principally for the purpose of agriculture, horticulture or pastoral purposes), the OIO can only grant approval if the land is first advertised and offered on the open market in New Zealand to citizens and residents. The Crown can waive this requirement in special circumstances at the discretion of the relevant Minister.

Commercial fishing in New Zealand is controlled by the Fisheries Act, which sets out a quota management system that prohibits commercial fishing of certain species without the ownership of a fishing quota which specifies the quantity of fish that may be taken. OIO legislation together with the Fisheries Act, requires consent from the relevant Ministers in order for an overseas person to obtain an interest in a fishing quota, or an interest of 25 percent or more in a business that owns or controls a fishing quota.

For investments that require OIO screening, the investor must demonstrate in their application they meet the criteria for the “Investor Test” and the “Benefit to New Zealand test.” The former requires the investor to display the necessary business experience and acumen to manage the investment, demonstrate financial commitment to the investment, be of “good character”, and not be a person who would be ineligible for a permit under New Zealand immigration law.

The “Benefit to New Zealand test” requires the OIO assess the investment against 21 factors, which are set out in the OIO Act and Regulations. The OIO applies a counterfactual analysis to those benefit factors that are capable of having a counterfactual applied, the onus is upon the investor to consider the likely counterfactual if the overseas investment does not proceed. Economic factors are given weighting, particularly if the investment will create new job opportunities, retain existing jobs, and lead to greater efficiency or productivity domestically.

In December 2017, the government introduced regulatory changes that place greater emphasis on the assessment of significant economic benefits to New Zealand. For forestry investments, the OIO is required to place importance on investments that result in increased domestic processing of wood and advance government strategies. For rural land, importance is placed on the generation of economic benefits which were previously seldom applied for lifestyle rural property purchases that previously relied on non-economic benefits to gain OIO approval.

The OIO monitors foreign investments after approval. All consents are granted with reporting conditions, which are generally standard in nature. Investors must report regularly on their compliance with the terms of the consent. Offenses include: defeating, evading, or circumventing the OIO Act; failure to comply with notices, requirements, or conditions; and making false or misleading statements or omissions. If an offense has been committed under the Act, the High Court has the power to impose penalties, including monetary fines, ordering compliance, and ordering the disposal of the investor’s New Zealand holdings.

In addition to placing emphasis on economic benefits in specific investments, in December 2017 the government issued new rules that reduced the area threshold for foreign purchases of rural land so that approval is required for rural land of an area over five hectares, rather than the previous metric of farm land “more than ten times the average farm size” (about 7,146 ha for sheep and beef farms, and 1,987 ha for dairy farms). They also issued a new rule that overseas investors intending to reside in New Zealand, move within 12 months and become ordinarily resident within 24 months, and ordered that the OIO place less importance on applicants’ sponsorship and donations in the application process.

In December 2017, the government introduced the Overseas Investment Amendment Bill to amend the 2005 Act in order to bring residential land within the category of “sensitive land.” The Bill in its current form will require foreigners to apply for OIO approval to purchase existing residential property and to sell-on any new home they build within 12 months of completion. Foreign investors can still purchase rural land less than five hectares but the Government said it will plan other measures to discourage “land bankers.” Due to New Zealand bilateral FTAs already in force, the ban will not apply to Australian or Singaporean investors. The government has announced it intends to pass the legislation before entry-into-force of the CPTPP agreement.

In March 2018, the government announced forestry cutting rights be brought into the OIO screening regime, similar to the screening of investments that exists for leasehold and freehold forestry land. Because the addition of a new asset class to the screening regime requires legislation, proposed legislation will enable foreign investors to purchase up to 1,000 ha of forestry rights per year or any forestry right of less than three years duration, without OIO approval. The government aims to introduce and pass this legislation before entry into force of the CPTPP agreement to preserve its future right to legislate in relation to forests.

Outside of the OIO framework, the previous government passed the Taxation (Bright-line Test for Residential Land) Bill. Under this Act, properties bought after October 1, 2015 will accrue tax on any gain earned if the house is bought and sold within two years, unless it is the owner’s main home. The bill requires foreign purchasers to have both a New Zealand bank account and a New Zealand Inland Revenue (IRD) tax number, and will not be entitled to the “main home” exception. The purchaser will also need to submit other taxpayer identification number held in countries where they pay tax on income. To assist the IRD in ensuring investors meet their tax obligations, legislation was passed in 2016 that empowered Land Information New Zealand (LINZ) to collect additional information when residential property is bought and sold, and to pass this information to the IRD.

In March 2018, the new government passed legislation to extend the “bright-line test” from two to five years as a measure to further deter property speculation in the New Zealand housing market.

Other Investment Policy Reviews

New Zealand has not conducted an Investment Policy Review through the OECD, WTO, or UNCTAD in the past three years.

Business Facilitation

The New Zealand government has shown a strong commitment to continue efforts to streamline business facilitation. According to the World Bank’s Ease of Doing Business 2018 report New Zealand is ranked first in “Starting a Business,” “Registering Property,” and is ranked second for “protecting minority investors.”

There are no restrictions on the movement of funds into or out of New Zealand, or on the repatriation of profits. No additional performance measures are imposed on foreign-owned enterprises, other than those that require OIO approval. Overseas investors must adhere to the normal legislative business framework for New Zealand-based companies, which includes the Companies Act 1993, the Securities Act 1978, the Financial Markets Conduct Act 2013, the Commerce Act 1986, the Financial Reporting Act 2013, and the Anti-Money Laundering and Countering Financing of Terrorism Act 2009.

The Contract and Commercial Law Act came into effect in September 2017 and was designed to modernize and consolidate existing legislation underpinning contracts and commercial transactions. In March 2017 much of the omnibus Judicature Modernization Bill took effect which created five new Acts and 18 amendment Acts covering a range of areas including property, arbitration, copyright, and insolvency. Legislation currently going through Parliament to further streamline, modernize, and improve accessibility of New Zealand’s judicial system, include the Tribunals Powers and Procedures Legislation Bill, the Courts Matters Bill, and the Statutes Amendment Bill.

In order to combat the increasing use of New Zealand shell companies for illegal activities, the Companies Amendment Act 2014 and the Limited Partnerships Amendment Act 2014 introduced new requirements for companies registering in New Zealand. Companies must have at least one director that either lives in New Zealand, or lives in Australia and is a director of a company incorporated in Australia. New companies incorporated must provide the date and place of birth of all directors, and provide details of any ultimate holding company. The Acts introduced offences for serious misconduct by directors that results in serious losses to the company or its creditors, and aligns the company reconstruction provisions in the Companies Act with the Takeovers Act 1993 and the Takeovers Code Approval Order 2000.

The Companies Office holds an overseas business-related register, and provides that information to persons in New Zealand who intend to deal with the company or to creditors in New Zealand. The information provided includes where and when the company was incorporated, if there is any restriction on its ability to trade contained in its constitutional documents, names of the directors, its principal place of business in New Zealand, and where and on whom documents can be served in New Zealand. For further information on how overseas companies can register in New Zealand: https://www.companiesoffice.govt.nz/companies/learn-about/starting-a-company/register-an-overseas-company-other 

In 2016, Parliament passed the New Zealand Business Number (NZBN) Act, which allocates eligible entities a unique identifier to enable them to conduct business more efficiently, interact more easily with the government, and to protect the entity’s security and confidentiality of information. All companies registered in New Zealand have had NZBNs since 2013, and are also available to other types of businesses such as sole traders and partnerships.

Tax registration is recommended when the investor incorporates the company with the Companies Office, but is required if the company is registering as an employer and if it intends to register for New Zealand’s consumption tax, the Goods and Services Tax (GST), which is currently 15 percent. Companies importing into New Zealand or exporting to other countries which have a turnover exceeding NZD 60,000 (USD 43,200) over a 12 month period must register for GST. This was extended to non-resident suppliers of cross-border remote services and digital downloads under the Taxation (Residential Land Withholding Tax, GST on Online Services, and Student Loans) Act 2016. Separate conditions apply to cross-border suppliers of telecommunication services.

New Zealanders must pay GST on goods that are not considered “low-value imported goods” on a de Minimis basis as determined by Customs New Zealand, in addition to customs duty if applicable. The Customs and Excise Act passed in March 2018 replaces the Customs and Excise Act 1996. The new law aims to modernize many of the sections of the 1996 Act which became outdated in the digital era where supply chains can be more complex. Importers will be able to seek binding valuation rulings to get certainty as to how much duty they will owe on goods they bring into New Zealand, and businesses will be permitted store their records in the cloud or off-shore, in line with modern business practice.

There are a number of New Zealand government agencies that offer a range of support to new and established small businesses. Support includes mentoring, grants, and capability building. Most of the programs which are operated by MBIE, NZTE, Callaghan Innovation, and the Regional Business Partner Network provide support through skills and knowledge, or supporting innovative business ventures. Grants are available, but many are co-funded, requiring some investment by the business owner, and extra conditions apply to non-resident applicants. The NZTE provides more tailored information and assistance for overseas investors wanting to invest in New Zealand. For more see: https://www.business.govt.nz/how-to-grow/getting-government-grants/what-can-i-get-help-with/ 

In 2017 the Ministry for Women and MBIE launched a pilot to attract more women into the technology sector. “Return to IT” assists women with a digital technology backgrounds to return to work in the sector after taking a career break of between two and five years. Successful applicants are offered an opportunity to be placed with a participating organization, or assistance with seeking employment in the IT sector. Women currently occupy less than a quarter of technically skilled professions in the New Zealand digital technology sector.

The Ministry for Women has also partnered with business representative organizations, trade associations, and private enterprise to develop a practical and accessible resource to educate, inform and support small to medium enterprises (SME) business owners on providing for a diverse and flexible workforce. About 97 percent of businesses in New Zealand are small and often do not have available a human resource specialist. The Ministry works to address the underrepresentation of women in the construction, trades, engineering, and digital technology sectors, and has completed some initial work in the Canterbury region. The Ministry also offers tools, resources, and practical advice on their website to encourage more women to pursue leadership roles.

The NZTE has a dedicated Maori business team that specializes in engaging with a wide range of Maori businesses. NZTE plays an active role in the Crown-Maori Economic Development growth partnership, and work closely with MBIE, the Ministry of Maori Development, the Ministry for Primary Industries (MPI), the Treasury, and Callaghan Innovation to support best practice to grow Maori companies. This growth contributes to the regional economic development goals in priority regions and sectors across New Zealand. NZTE also supports Maori customers’ participation in both out-bound and in-bound Ministerial visits and trade delegations to priority markets overseas. NZTE has also developed an investment-readiness program that brings together local Maori companies and regional investment experts, to learn about the capital-raising process, approaches to assessing investment opportunities, and how investment can achieve their growth aspirations.

The Ministry of Maori Development runs the Maori Business Growth Support program to help Maori establish and grow their business. They provide information, advice on business growth and planning, and help broker relationships. The program focuses primarily on Maori SME’s that have a clear commercial focus, and requires that the owner self-identifies as Maori and that the business is an independent entity based in New Zealand.

Outward Investment

The New Zealand government does not place restrictions on domestic investors to invest abroad.

NZTE is the government’s international business development agency. It promotes outward investment and provides resources and services for New Zealand businesses to prepare for export and advice on how to grow internationally. MFAT and Customs New Zealand each operates business outreach programs that advise businesses on how to maximize the benefit from FTAs to improve the competitiveness of their goods offshore, and provides information on how to meet requirements such as rules of origin.

3. Legal Regime

Transparency of the Regulatory System

The New Zealand government policies and laws governing competition are transparent, non-discriminatory, and consistent with international norms. New Zealand ranks high on the World Bank’s Global Indicators of Regulatory Governance, scoring a 5.4 out of a possible 6, but is marked down on indicators relating to the method of conducting and reporting on public consultation.

Draft bills and regulations including those relating to FTAs and investment law, are generally made available for public comment, through a public consultation process.

The Regulatory Quality Team (RQT) within the New Zealand Treasury is responsible for the strategic coordination of the Government’s regulatory management system. Treasury exercises stewardship over the regulatory management system to maintain and enhance the quality of government-initiated regulation. The Treasury’s responsibilities include the oversight of the performance of the regulatory management system as a whole and making recommendations on changes to government and Parliamentary systems and processes. These functions complement the Treasury’s role as the government’s primary economic and fiscal advisor.

In 2015 the government announced a program to lift regulatory quality following a review of the performance and condition of the regimes in New Zealand’s seven major regulatory departments – the Department of Internal Affairs (DIA), IRD, MBIE, Ministry for the Environment, Ministry of Justice, MPI, and the Ministry of Transport. The government implemented most of the 44 recommendations after an independent report found New Zealand’s regulation framework was not sufficiently keeping up with the changing global environment.

In 2017, the government released their Expectations Good Regulatory Practice which sought to strengthen and embed regulatory stewardship and implement the report’s recommendations. These expectations have been incorporated into the Cabinet’s Impact Analysis Requirements, which are both a process and an analytical framework that encourages a systematic and evidence-informed approach to policy development, with key output being a revision to the Regulatory Impact Assessment (RIA) requirements. To help improve transparency in the regulatory process, RIAs are published on the Treasury’s website at the time the relevant bill is introduced to Parliament or the regulation is gazetted, or at the time of Ministerial release. A RIA provides a high-level summary of the problem being addressed, the options and their associated costs and benefits, the consultation undertaken, and the proposed arrangements for implementation and review.

While regulations are not in a centralized location in a form similar to the United States Federal Register, the New Zealand government requires the major regulatory departments to publish an annual regulatory stewardship strategy.

While some standards are set through legislation or regulation, the vast majority of standards are developed through Standards New Zealand, which is now a business unit within MBIE. The Standards and Accreditation Act 2015 set out the role and function of the Standards Approval Board which commenced from March 2016. Standards New Zealand operates as it did previously as a Crown entity, but by moving within MBIE it no longer offers membership subscription services, and instead operates on a cost-recovery basis. The majority of standards in New Zealand are set in coordination with Australia.

The Resource Management Act 1991 (RMA) often draws criticism from both foreign and domestic investors as a barrier to investment in New Zealand. The RMA regulates access to natural and physical resources such as land and water. Critics contend that the resource management process mandated by the law is unpredictable, protracted and subject to undue influence from competitors and lobby groups. A government commissioned report released in 2015 estimated the RMA has added NZD 30 billion (USD 22 billion) to building costs.

There have been several cases in which companies have been found to use the RMA’s objections submission process to stifle competition. Investors have also raised concerns that the law is unequally applied between jurisdictions because of the lack of implementing guidelines. The Resource Management Amendment Act 2013 and the Resource Management (Simplifying and Streamlining) Amendment Act 2009 were passed to address these concerns.

The Resource Legislation Amendment Act 2017 (RLAA) is considered the most comprehensive set of reforms to the RMA since its inception in 1991. It contains almost 40 amendments and makes significant changes to five different Acts including the RMA, the Conservation Act 1986, Reserves Act 1977, Public Works Act 1981, and the Exclusive Economic Zone and Continental Shelf (Environmental Effects) Act 2013. Broadly, the RLAA attempts to balance environmental management with the need to increase capacity for housing development. It also aims to align resource consent processes in a consistent manner among New Zealand’s 78 local councils, by providing a stronger national direction, a more responsive planning process, and improved consistency with other legislation.

The Public Works Act (PWA) 1981 enables the Crown to acquire land for public works by agreement or compulsory acquisition and prescribes landowner compensation. New Zealand continues to face a significant demand for large-scale infrastructure works and the PWA is designed to ensure project delivery and not be a barrier to infrastructure development. Compulsory acquisition will be exercised only after an acquiring authority (through an accredited supplier) has made all reasonable endeavors to negotiate in good faith the sale and purchase of the owner’s land, without reaching an agreement. The land owner retains the right to have their objection heard by the Environment Court, but only in relation to the taking of the land, not to the amount of compensation payable. The RLAA amendment to the PWA aims to improve the efficiency and fairness of the PWA compensation, land acquisition, and Environment Court objection provisions.

Parliament passed the Land Transfer Act in July 2017. It aims to simplify and modernize the law to make it more accessible and to improve certainty of property rights. It empowers courts with limited discretion to restore a landowner’s registered title in rare cases in the event of fraud or other illegality where it is warranted to avoid a manifestly unjust result.

In 2014 New Zealand joined the Open Government Partnership, and the government published its second National Action Plan in October 2016. Areas of commitment include advancements in access to open data, public engagement, openness with the government budget process, and access to legislation. In October 2017 the government released a report of a mid-term self-assessment of progress on the Action Plan. As part of the Independent Reporting Mechanism, an OGP-appointed independent reporter reports twice on each two-year OGP national plan, a progress report at the end of the first year and a further report at the end of the second year. New Zealand’s reporter made their mid-term review of New Zealand’s progress available on the OGP International website in January 2018. In March 2018 New Zealand became one of 19 countries to sign the Open Data Charter.

Statistics New Zealand is responsible for the management of the Government’s Open Government Information and Data Program (Open Data NZ). Recent initiatives include websites dedicated to helping business, granting online access for businesses to Stats NZ surveys, convening public consultation on ways to improve data supply, and the Data Futures Partnership.

International Regulatory Considerations

In recent years the New Zealand government has introduced laws to enhance regulatory coordination with Australia as part of their Single Economic Market agenda agreed to in 2009. In February 2017 the Patents (Trans-Tasman Patent Attorneys and Other Matters) Amendment Act took effect creating a single body to regulate patent attorneys in both countries. Other areas of regulatory coordination include insolvency law, financial reporting, competition policy, consumer policy and the 2013 Trans-Tasman Court Proceedings and Regulatory Enforcement Treaty, which allows the enforcement of civil judgements between both countries.

In 2016 the Financial Markets Authority issued two notices, the Disclosure Using Overseas GAAP Exemption and the Overseas Registered Banks and Licensed Insurers Exemption Notice, which ease compliance costs on overseas entities by allowing them under certain circumstances to use United States statutory accounting principles (overseas GAAP) rather than New Zealand GAAP, and the opportunity to use an overseas approved auditor rather than require a New Zealand qualified auditor.

New Zealand is a Party to the World Trade Organization’s (WTO) Agreement on Technical Barriers to Trade (TBT). Standards New Zealand is responsible for operating the TBT Enquiry Point on behalf of MFAT. From 2016, Standards New Zealand became a business unit within MBIE administered under the Standards and Accreditation Act 2015. Standards New Zealand establishes techniques and processes built from requirements under the Act and from the International Organization for Standardization.

The Standards New Zealand TBT enquiry point service provides a website for producers and exporters for recently proposed TBT Notifications and associated documents such as draft or actual regulations or standards. They also provide contact details for the Trade Negotiations Division of MFAT to respond to businesses concerned about proposed measures.

https://www.standards.govt.nz/international-engagement/technical-barriers-to-trade/ 

In August 2017 the government launched an online “Clearing House” to provide a centralized point of contact for businesses to access information and support on trade barriers. The website allows exporters to report issues, seek government advice and assistance with non-tariff barriers (NTB) and other export issues. The Clearing House tracks and traces the assignment and resolution issues across agencies on behalf of the exporter, and aims to provide the Government with an accurate and timely account of NTB and other issues encountered by exporters. The online portal involves the participation of Customs, MFAT, MPI, MBIE, and NZTE. The Clearing House can be found at: https://tradebarriers.govt.nz/ 

New Zealand ratified the WTO Trade Facilitation Agreement (TFA) in September 2015 and entered into force in February 2017. New Zealand was already largely in compliance with the TFA which is expected to benefit New Zealand agricultural exporters and importers of perishable items to enhanced procedures for border clearances.

Legal System and Judicial Independence

New Zealand’s legal system is derived from the English system and comes from a mix of common law and statute law. The judicial system is independent of the executive branch and is generally open, transparent, and effective in enforcing property and contractual rights. The highest appeals court is a domestic Supreme Court, which replaced the Privy Council in London and began hearing cases July 1, 2004. New Zealand courts can recognize and enforce a judgment of a foreign court if the foreign court is considered to have exercised proper jurisdiction over the defendant according to private international law rules. New Zealand has well defined and consistently applied commercial and bankruptcy laws. Arbitration is a widely used dispute resolution mechanism and is governed by the Arbitration Act 1996, Arbitration (Foreign Agreements and Awards) Act 1982, and the Arbitration (International Investment Disputes) Act 1979.

In 2016 the omnibus Judicature Modernization Bill was passed to improve and consolidate older pieces of legislation governing the New Zealand court system. The legislation enables the sharing of court information, the establishment of a new judicial panel to hear certain commercial cases, increases the monetary limit of the District Court’s civil jurisdiction, and improves accessibility to final written judgments by publishing them online.

During 2017 the government continued efforts to modernize and improve the efficiency of the courts system, by introducing several pieces of legislation including the Courts Matters Bill, the Tribunals Powers and Procedures Legislation Bill, the Trusts Bill (which clarifies and simplifies core trust principles and essential obligations for trustees to improve understanding about how trusts operate. Importantly, it also preserves the flexibility of the common law, allowing trust law to continue to evolve through the courts), and the Legislation Bill (to enhance accessibility to all types of New Zealand legislation).

The Tribunals Powers and Procedures Legislation Bill (the Tribunals Bill) and the Courts Matters Bill. The Tribunals Bill and the Courts Matters Bill amend tribunals and courts legislation respectively to: reduce the time it takes to hear and resolve matters and improve users’ experience of the courts and tribunals system; enable greater use of modern technology to further improve efficiency, effectiveness, and timeliness; simplify and standardize statutory powers and procedures to improve productivity and efficiency; and provide better consumer protection and redress, and greater access to justice.

Legislation to modernize and consolidate laws underpinning contracts and commercial transactions came into effect on September 1, 2017. The Contract and Commercial Law Act 2017 consolidates and repeals 12 Acts that date between 1908 and 2002.

Laws and Regulations on Foreign Direct Investment

Overseas investments in New Zealand assets are screened only if they are defined as sensitive within the Overseas Investment Act 2005, as mentioned in the previous section. The OIO, a dedicated unit located within LINZ, administers the Act. The Overseas Investment Regulations 2005 set out the criteria for assessing applications, provide the framework for applicable fees, and whether the investment will benefit New Zealand. Ministerial Directive Letters are issued to the OIO by the Government to instruct the OIO on their general policy approach, and matters relating to the OIO’s functions, powers, and duties as regulator. Letters have been issued in December 2010 and November 2017. Substantive changes, such as inclusion of another asset type within “sensitive land,” requires a legislative amendment to the OIA. The government ministers for finance and for land information are responsible for assessing OIO recommendations and can choose to override OIO recommendations on approved applications. Ministers’ decisions on OIO applications can be appealed by the applicant in the New Zealand High Court. For more see: http://www.linz.govt.nz/regulatory/overseas-investment 

In situations where New Zealand companies are acquiring capital injections from overseas investors that require OIO approval, they must meet certain criteria regarding disclosure to shareholders and fulfil other responsibilities under the Companies Act 1993. Failure to do so can affect the overseas company’s application process with the OIO.

The LINZ website reports on enforcement actions they have taken, including the number of compliance letters issued, the number of warnings and their circumstances, referrals to professional conduct body in relation to OIO breach, and disposal of investments.

Competition and Anti-Trust Laws

The New Zealand Commerce Commission is an independent Crown entity charged with enforcing legislation that promotes competition. The key competition law statute in New Zealand is the Commerce Act 1986, which covers both restrictive trade practices and the competition aspects of merger and acquisition transactions. In addition, the Commerce Commission enforces a number of pieces of legislation that, through regulation, aim to provide the benefits of competition in markets with certain natural monopolies, such as the dairy, electricity, gas, airports, and telecommunications industries.

The Commerce Act 1986 prohibits contracts, arrangements, or understandings that have the purpose, or effect, of substantially lessening competition in a market, unless authorized by the Commerce Commission. Before granting such authorization, the Commerce Commission must be satisfied that the public benefit would outweigh the reduction of competition. The Commerce Commission has legislative power to block a merger or takeover if it would result in the new company gaining a dominant position in the market.

The Dairy Industry Restructuring Act 2001 (DIR) authorized the amalgamation of New Zealand’s two largest dairy co-operatives to create Fonterra Co-operative Group Limited (Fonterra). The DIR is designed to manage Fonterra’s dominant position in the dairy market, until sufficient competition has emerged. Among other things, the DIR requires that Fonterra must accept all applications from farmers wanting to become supplying shareholders. The DIR’s automatic expiry provisions were triggered in 2015, when other dairy processors collected more than 20 percent of milk solids in the South Island.

A review by the Commerce Commission in 2016 found competition was not yet sufficient to warrant the removal of the DIR provisions, but it made recommendations to create a pathway to deregulation, and for another review to be conducted in five years’ time. In 2017 the new Government announced it would conduct a review of key issues facing the dairy industry and the DIR, including, environmental impacts, land use, Fonterra’s obligation to collect milk, and optimizing outcomes for New Zealand farmers and consumers. The Dairy Industry Restructuring Amendment Act was passed in February 2018 as an interim measure – pending the review – to ensure that the DIR provisions will not expire in the South Island on May 31, 2018.

The Commerce Commission is also charged with monitoring competition in the telecommunications sector. Under the 1997 WTO Basic Telecommunications Services Agreement, New Zealand has committed to the maintenance of an open, competitive environment in the telecommunications sector. Key reforms of the sector, through legislation enacted in 2001 and 2006, include the appointment of a commissioner responsible for resolving commercial disputes, the introduction of regulated services, the strengthening of the monitoring and enforcement, and the operational separation of Spark.

In 2016 the government announced a review of the Telecommunications Act 2001 to provide better support for competition, innovation and investment in the sector. As mentioned in the previous section, Chorus is considered a natural monopoly for providing New Zealand’s telecommunications infrastructure following its demerger from Spark in 2011.

Chorus won contracts from the government to build 70 percent of New Zealand’s new ultra-fast broadband fiber-optic cable network and has received subsidies. Chorus is listed on the NZX stock exchange and the Australian Stock Exchange (ASX), and has American Depositary Shares traded on the over the counter market in the United States.

The telecommunications service obligations (TSO) regulatory framework established under the Telecommunications Act 2001 enables certain telecommunications services to be available and affordable. A TSO is established through an agreement under the Telecommunications Act between the Crown and a TSO provider. Currently there are two TSOs. Spark (supported by Chorus) is the TSO Provider for the local residential telephone service, which includes charge-free local calling. Sprint International is the TSO Provider for the New Zealand relay service for deaf, hearing impaired and speech impaired people. Costs for subsidizing telecommunications services supplied under TSOs are funded through the Telecommunications Development Levy (TDL) collected from the telecommunications industry. The Commerce Commission determines the TSO charge paid to a TSO Provider and the proportion of the TDL borne by each liable telecommunications service provider.

As a monopoly providing wholesale services to retailers and not directly to consumers, the Commerce Commission regulates the amount Chorus can charge retailers to access its network based on what it would cost to replace the Chorus copper-line network, using the most efficient combination of modern technologies. In 2014 a case brought by Chorus against the Commerce Commission that eventually went to the Court of Appeal, after Chorus claimed the price determination issued by the Commerce Commission was too low. Chorus was ultimately allowed to charge a higher price, and the largest retail provider Spark raised their price to consumers and alleged that the lack of a stable and predictable pricing framework over a four-year period had affected their financial performance.

In February 2017 the government announced a review of the regulation of copper line services, and build a regulatory framework primarily on New Zealand’s fiber-optic cable network to establish a stable and predictable regulatory framework. The Telecommunications (New Regulatory Framework) Amendment Bill which passed its first reading in August 2017, will deregulate copper lines in areas where Ultra-Fast Broadband (UFB) fibre-optic cable is also available, and eliminate copper line regulation from 2020. The Commerce Commission would be required improve accessibility and its reporting retail service quality and to review the Telecommunications Dispute Resolution Service to maintain its efficacy. The Commerce Commission will also be able to make codes that address retail service quality, if the industry fails to develop industry-led codes that are adequate. It is seeking remove the Telecommunications Service Obligation TSO obligation. In areas, typically rural, where fiber is not available, the TSO obligation will be retained and Chorus will be required to continue supplying copper services at prices capped at 2019 levels.

The Commerce Commission has a regulatory role to promote competition within the electricity industry under the Commerce Act and the Fair Trading Act 1986. As natural monopolies, the electricity transmission and distribution businesses are subject to specific additional regulations, regarding pricing, sales techniques, and ensuring sufficient competition in the industry. The International Energy Agency (IEA) released its five-yearly review of the New Zealand energy market in February 2017 and made recommendations for the structure, governance and regulation of the electricity distribution service sector, and for network regulation and retail market reforms to ensure efficient transmission pricing.

The New Zealand motor fuel market became more concentrated after Shell New Zealand sold its transport fuels distribution business in 2010, and Chevron sold its retail brands Caltex and Challenge to New Zealand fuel distributor Z-Energy in 2016. The Commerce Commission approved Z-Energy’s application to acquire 100 percent of the shares in Chevron New Zealand on the condition it divest 19 of its retail sites and one truck stop in locations where it considered competition would be substantially reduced as a result of the merger. Z-Energy holds almost half of the market share for fuel distribution in New Zealand.

In August 2017 the Commerce (Cartels and Other Matters) Amendment Act was passed to enable easier enforcement action against international cartels. It created a new clearance regime allowing firms to test their proposed collaboration with the Commerce Commission and get greater legal certainty before they enter into the arrangements. It also expands the range of prohibited conduct to include price fixing, restricting output, and allocating markets, and expands competition oversight to the international liner shipping industry. It empowers the Commerce Commission to apply to the New Zealand High Court for a declaration to determine if the acquisition of a controlling interest in a New Zealand company by an overseas person will have an effect of “substantially lessening” competition in a market in New Zealand.

The government introduced the Commerce (Criminalization of Cartels) Amendment Bill in February 2018 to criminalize cartel behavior – a provision that was removed from the 2017 amendment during its passage through the Parliament process. If passed, the bill will introduce imprisonment as a penalty for engaging in cartel conduct. The government acknowledges it is not currently a significant issue but believes the existing civil regime is an insufficient deterrent and criminalizing cartel behavior provides a certain and stable operating environment for businesses to compete. It also aims to bring New Zealand in line with overseas jurisdictions that impose criminal sanctions for cartel conduct, enhancing the ability of the Commerce Commission to cooperate with its overseas counterparts in investigations of international cartels.

The Commerce Commission has two international cooperation arrangements (signed with Australia in 2013 and Canada in 2016) that allow the sharing of compulsorily acquired information, and provide investigative assistance. The arrangements help effective enforcement of both competition and consumer law.

Expropriation and Compensation

Expropriation is generally not an issue in New Zealand, and there are no outstanding cases. New Zealand ranks first in the World Bank’s 2017 Doing Business report for “registering property” and for “protecting minority investors.”

The Public Works Act 1981 provides the government with the statutory authority to acquire land for a public work. While the government’s powers are wide, it can only acquire land, whether by negotiation or compulsorily, in accordance with the Act. Where voluntary agreement cannot be reached the Act provides for compulsory acquisition by the Crown through the Minister of Lands. This power is exercised only after reasonable endeavors have been made to negotiate in good faith the sale and purchase of the land. The owner has the right to object in the New Zealand Environment Court but only in relation to the land, and not to the amount of compensation payable. If the owner objects to the compensation offered, they can request it be determined by the Land Valuation Tribunal.

The RLAA has amended the Public Works Act 1981 (PWA) with higher compensation limits. The land owner retains the right to have their objection to a compulsory acquisition heard by the Environment Court, but only in relation to the taking of the land, not to the amount of compensation payable. The RLAA amendment aims to improve the efficiency and fairness of the PWA compensation, land acquisition, and Environment Court objection provisions.

The new government has indicated it will use compulsory acquisition under the PWA if there is evidence of land banking, and if it is delaying new government housing development. The government has established a KiwiBuild program that aims to build 100,000 affordable homes over ten years, with half being in Auckland.

Dispute Settlement

ICSID Convention and New York Convention

New Zealand is a party to both the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the Washington Convention), and to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.

Proceedings taken under the Washington Convention are administered under the Arbitration (International Investment Disputes) Act 1979. Proceedings taken under the New York Convention are now administered under the Arbitration Act 1996.

Investor-State Dispute Settlement

Investment disputes are rare, and there have been no major disputes in recent years involving U.S. companies. The mechanism for handling disputes is the judicial system, which is generally open, transparent and effective in enforcing property and contractual rights.

Investment disputes brought against other foreigners by the New Zealand government have been largely due to non-compliance of the investors’ obligations under the OIO Act or their failure to gain OIO approval before making their investment.

Most of New Zealand’s recently enacted FTAs contain Investor-State Dispute Settlement (ISDS) provisions. The new government signaled it will seek to remove ISDS from future FTAs, having secured exemptions with several CPTPP signatories in the form of side letters.

International Commercial Arbitration and Foreign Courts

Arbitrations taking place in New Zealand (including international arbitrations) are governed by the Arbitration Act 1996. The Arbitration Act includes rules based on the United Nations Commission on International Trade Law (UNCITRAL) and its 2006 amendments. Parties to an international arbitration can opt out of some of the rules, but the Arbitration Act provides the default position.

The Arbitration Act also gives effect to the New Zealand government’s obligations under the Protocol on Arbitration Clauses (1923), the Convention on the Execution of Foreign Arbitral Awards (1927), and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958). Obligations under the Washington Convention are administered under the Arbitration (International Investment Disputes) Act 1979 as mentioned previously.

The New Zealand Dispute Resolution Centre (NZDRC) is the leading independent, nationwide provider of private commercial, family and relationship dispute resolution services in New Zealand. It also provides international dispute resolution services through its related entity, the New Zealand International Arbitration Centre (NZIAC). The NZDRC is willing to act as an appointing authority, as is the Arbitrators’ and Mediators’ Association of New Zealand (AMINZ).

Forms of dispute resolution available in New Zealand include formal negotiations, mediation, expert determination, court proceedings, arbitration, or a combination of these methods. Arbitration methods include ‘ad hoc,’ which allows the parties to select their arbitrator and agree to a set of rules, or institutional arbitration, which is run according to procedures set by the institution. Institutions recommended by the New Zealand government include the International Chamber of Commerce (ICC), the American Arbitration Association (AAA), and the London Court of International Arbitration (LCIA).

The Arbitration Amendment Act passed in 2016, amends the Arbitration Act 1996 to provide for the appointment of an “appointed body” to exercise powers which were previously powers of the High Court. It also provides for the High Court to exercise the powers in the event that the appointed body does not act, or there is a dispute about the process of the appointed body. These amendments came into force in March 2017. Since then the Minister of Justice has appointed the AMINZ the default authority for all arbitrations sited in New Zealand in place of the High Court.

In 2017 AMINZ issued its own Arbitration Rules based on the latest editions of rules published in other Model Law jurisdictions, to be used in both domestic and international arbitrations, and consistent with the 1996 Act.

In March 2017 the Arbitration Amendment Bill was introduced to bring New Zealand’s approach to the preserving the confidentiality of trust deed clauses in line with foreign arbitration legislation and case law. If passed the bill ensures arbitration clauses in trust deeds are given effect to extend the presumption of confidentiality in arbitration to the presumption of confidentiality in related court proceedings under the Act because often such cases arise from sensitive family disputes. The bill also defines the grounds for setting aside an arbitral award and confirms the consequence of failing to raise a timely objection to an arbitral tribunal’s jurisdiction.

Bankruptcy Regulations

Bankruptcy is addressed in the Insolvency Act 2006, the Receiverships Act 1993, and the Companies Act 1993. The Insolvency (Cross-border) Act 2006 implements the Model Law on Cross-Border Insolvency adopted by the United Nations Commission on International Trade Law in 1997. It also provides the framework for facilitating insolvency proceedings when a person is subject to insolvency administration (whether personal or corporate) in one country, but has assets or debts in another country; or when more than one insolvency administration has commenced in more than one country in relation to a person.

New Zealand bankrupts are subject to conditions on borrowing and international travel, and violations are considered offences and punishable by law.

In the World Bank’s Doing Business 2018 Report New Zealand is ranked 32nd in “resolving insolvency”. Relative to other high-income OECD countries, New Zealand scores lower on the strength of its insolvency framework, specifically citing fewer opportunities for creditors to participate directly in the insolvency and reorganization processes.

The registration system operated by the Companies Office within MBIE, is designed to enable New Zealand creditors to sue an overseas company in New Zealand, rather than forcing them to sue in the country’s home jurisdiction. This avoids attendant costs, delays, possible language problems and uncertainty due to a different legal system. An overseas company’s assets in New Zealand can be liquidated for the benefit of creditors. All registered ‘large’ overseas companies are required to file financial statements under the Companies Act 1993. See: https://www.companiesoffice.govt.nz/companies/learn-about/overseas-companies/managing-an-overseas-company-in-new-zealand 

Switzerland and Liechtenstein

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Toward Foreign Direct Investment

With the exception of a heavily protected agricultural sector, foreign investment into Switzerland is generally not hampered by significant barriers, with no reported discrimination against foreign investors or foreign-owned investments. Incidents of trade discrimination do exist, for example with regards to agricultural goods such as bovine genetics products. Some city and cantonal governments offer access to an ombudsman, who may address a wide variety of issues involving individuals and the government, but does not focus exclusively on investment issues.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic enterprises may engage in various forms of remunerative activities in Switzerland and may freely establish, acquire, and dispose of interests in business enterprises in Switzerland. There are, however, some investment restrictions in areas under state monopolies, including certain types of public transportation, postal services, alcohol and spirits, aerospace and defense, certain types of insurance and banking services, and the trade in salt. Restrictions (in the form of domicile requirements) also exist in air and maritime transport, hydroelectric and nuclear power, operation of oil and gas pipelines, and the transportation of explosive materials. Additionally, the following legal restrictions apply within Switzerland:

Corporate boards: The board of directors of a company registered in Switzerland must consist of a majority of Swiss citizens residing in Switzerland; at least one member of the board of directors who is authorized to represent the company (i.e., to sign legal documents) must be domiciled in Switzerland. If the board of directors consists of a single person, this person must have Swiss citizenship and be domiciled in Switzerland. Foreign controlled companies usually meet these requirements by nominating Swiss directors who hold shares and perform functions on a fiduciary basis. Mitigating these requirements is the fact that the manager of a company need not be a Swiss citizen and, with the exception of banks, company shares can be controlled by foreigners. The establishment of a commercial presence by persons or enterprises without legal status under Swiss law requires an establishment authorization according to cantonal law. The aforementioned requirements do not generally pose a major hardship or impediment for U.S. investors.

Hostile takeovers: Swiss corporate shares can be issued both as registered shares (in the name of the holder) or bearer shares. Provided the shares are not listed on a stock exchange, Swiss companies may, in their articles of incorporation, impose certain restrictions on the transfer of registered shares to prevent hostile takeovers by foreign or domestic companies (article 685a of the Code of Obligations). Hostile takeovers can also be annulled by public companies; however, legislation introduced in 1992 made this practice more difficult. Public companies must cite in their statutes significant justification (relevant to the survival, conduct, and purpose of their business) to prevent or hinder a takeover by a foreign entity. Furthermore, public corporations may limit the number of registered shares that can be held by any shareholder to a percentage of the issued registered stock. In practice, many corporations limit the number of shares to 2-5 percent of the relevant stock. Under the public takeover provisions of the Federal Act on Financial Market Infrastructures and Market Conduct in Securities and Derivatives Trading (2015), a formal notification is required when an investor purchases more than 3 percent of a Swiss company’s shares. An “opt-out” clause is available for firms which do not want to be taken over by a hostile bidder, but such opt-outs must be approved by a super-majority of shareholders and must take place well in advance of any takeover attempt.

Banking: Those wishing to establish banking operations in Switzerland must obtain prior approval from the Swiss Financial Market Supervisory Authority (FINMA), a largely independent agency, administered under the Swiss Federal Department of Finance. FINMA promotes confidence in financial markets and works to protect customers, creditors, and investors. FINMA approval of bank operations is generally granted if the following conditions are met: reciprocity on the part of the foreign state; the foreign bank’s name must not give the impression that the bank is Swiss; the bank must adhere to Swiss monetary and credit policy; and a majority of the bank’s management must have their permanent residence in Switzerland. Otherwise, foreign banks are subject to the same regulatory requirements as domestic banks.

Banks organized under Swiss law must inform FINMA before they open a branch, subsidiary, or representation abroad. Foreign or domestic investors have to inform FINMA before acquiring or disposing of a qualified majority of shares of a bank organized under Swiss law. If exceptional temporary capital outflows threaten Swiss monetary policy, the Swiss National Bank, the country’s independent central bank, may force other institutions to seek approval before selling foreign bonds or other financial instruments. On December 20, 2008, government protection of current accounts held in Swiss banks was raised from CHF 30,000 to CHF 100,000.

Insurance: A federal ordinance requires the placement of all risks physically situated in Switzerland with companies located in the country. Therefore, it is necessary for foreign insurers wishing to provide liability coverage in Switzerland to establish a subsidiary or branch there.

U.S. investors have not identified any specific restrictions that create market access challenges for foreign investors.

Other Investment Policy Reviews

The World Trade Organization (WTO) published a Trade Policy Review of Switzerland and Liechtenstein in September 2017 that includes investment information. Other reports containing elements referring to the investment climate in Switzerland include the OECD Economic Survey of November 2017.

Business Facilitation

The Swiss government-affiliated non-profit organization Switzerland Global Enterprise (SGE) has a nationwide mandate to attract foreign business to Switzerland on behalf of the Swiss Confederation. SGE promotes Switzerland as an economic hub and fosters exports, imports, and investments. Larger regional offices include the Greater Geneva-Berne Area (that covers large parts of Western Switzerland), the Greater Zurich Area, and the Basel Area. Each canton has a business promotion office dedicated to helping facilitate real estate location, beneficial tax arrangements, and employee recruitment plans. There is no minimum threshold — in terms of the number of jobs created or initial investment amount — for foreign companies to qualify for help to establish in Switzerland. Nevertheless, Swiss promotion offices generally focus on attracting medium-sized entities (creating between 50 and 249 jobs in their region).

References:

Switzerland has a dual system for granting work permits and allowing foreigners to create their own companies in Switzerland. Employees from the EU/EFTA area can benefit from the EU Free Movement of Persons Agreement. U.S. citizens who are not citizens of an EU/EFTA country and want to become self-employed in Switzerland must meet Swiss labor market requirements. The criteria for admittance, usually not creating a hindrance for U.S. persons, are contained in the Federal Act on Foreign Nationals (FNA), the Decree on Admittance, Residence and Employment (VZAE) and the provisions of the FNA and the VZAE.

Setting up a company in Switzerland requires registration at the relevant cantonal Commercial Registry. The cost for registering a company is typically USD 1,300 – USD 15,200, depending on the company type. These costs mainly cover the Public Notary and entry into the Commercial Registry.

Other steps/procedures for registration include: 1) placing paid-in capital in an escrow account with a bank; 2) drafting articles of association in the presence of a notary public; 3) filing a deed certifying the articles of association with the local commercial register to obtain a legal entity registration; 4) paying the stamp tax at a post office or bank after receiving an assessment by mail; 5) registering for VAT; and 6) enrolling employees in the social insurance system (federal and cantonal authorities).

The World Bank Doing Business Report 2018 ranks Switzerland 73rd in the ease of starting a business, due to the six-step registration process, the 10 days required to set up a company, and the relatively high initial capital requirements.

Outward Investment

Switzerland does not explicitly promote or incentivize outward investment nor does it restrict domestic investors from investing abroad.

3. Legal Regime

Transparency of the Regulatory System

The Swiss government uses transparent policies and effective laws to foster a competitive investment climate. Proposed laws and regulations are open for three-month public comment from interested parties, interest groups, cantons, and cities before being discussed within the bicameral parliament. Proposals may be subject to facultative or automatic referenda that allow Swiss voters to reject or accept the proposals. Only in rare instances are regulations reviewed on the basis of political or customer preferences rather than scientific analysis, such as the case of the extension of a moratorium until 2021 on planting GMO crops.

International Regulatory Considerations

Switzerland is not a member of the European Union. However, with rare exceptions, Switzerland adopts most EU standards.

The WTO concluded in 2017 that Switzerland has regularly notified its draft technical regulations, ordinances, and conformity assessment procedures to the TBT Committee. Switzerland has been a signatory to the Trade Facilitation Agreement (TFA) since September 2, 2015.

Legal System and Judicial Independence

Swiss civil law is codified in the Swiss Civil Code (which governs the status of individuals, family law, inheritance law, and property law) and in the Swiss Code of Obligations (which governs contracts, torts, commercial law, company law, law of checks and other payment instruments). Switzerland’s civil legal system is divided into public and private law. Public law governs the organization of the state, as well as the relationships between the state and private individuals or other entities, such as companies. Constitutional law, administrative law, tax law, criminal law, criminal procedure, public international law, civil procedure, debt enforcement, and bankruptcy law are sub-divisions of public law. Private law governs relationships among individuals or entities. Intellectual property law (copyright, patents, trademarks, etc.) is also an area of private law. Labor is governed by both private and public law.

Judiciary organization differs by canton. (Smaller cantons have only one court, while larger cantons have multiple courts.) All cantons have a high court, which includes a specialized commercial court in four cantons (Zurich, Bern, St. Gallen and Aargau). Cantonal high court decisions can be appealed to the Swiss Supreme Court. The court system is independent, competent, and fair.

Switzerland is party to a number of bilateral and multilateral treaties governing the recognition and enforcement of foreign judgments. The Lugano Convention, a multilateral treaty tying Switzerland to European legal conventions, entered into force in 2011, (replacing an older legal framework with the same name). A set of bilateral treaties is also in place to handle judgments of specific foreign courts. While no such agreement is in place between the United States and Switzerland, Switzerland operates under the New York Convention on Recognition and Enforcement of Foreign Arbitral Law, meaning local courts must enforce international arbitration awards under certain circumstances.

Laws and Regulations on Foreign Direct Investment

The major laws governing foreign investment in Switzerland are the Swiss Code of Obligations, the Lex Friedrich/Koller, Switzerland’s Securities Law, and the Cartel Law. There is no specific screening of foreign investment beyond a normal anti-trust review. There are few sectoral or geographic incentives or restrictions. Several exceptions are described below in the section on performance requirements and incentives.

Some former public monopolies retain their historical market dominance despite partial or full privatization. Foreign investors sometimes find it difficult to enter these markets due to high entry costs and the relatively small size and linguistic divisions of the Swiss market (e.g. certain types of public transportation, postal services, alcohol and spirits, aerospace and defense, certain types of insurances and banking services, and the trade in salt).

There is no pronounced interference in the court system that should affect foreign investors.

Useful websites:

Competition and Anti-Trust Laws

The Swiss Competition Commission  and the Swiss Takeover Board  review competition-related concerns. In 2017, the Swiss Takeover Board concluded that Chinese conglomerate HNA had failed to list the HNA co-founders correctly as beneficial owners in its acquisition prospectus of Swiss airline caterer gategroup and tasked the Swiss financial regulator and stock exchange to investigate potential breaches of Swiss financial regulations.

Expropriation and Compensation

There are no known cases of expropriation within Switzerland.

Dispute Settlement

ICSID Convention and New York Convention

Switzerland has been a member of the International Center for Settlement of Investment Disputes (ICSID) since June 14, 1968, and a member of the New York Convention on Recognition and Enforcement of Foreign Arbitral Law since June 1, 1965. Switzerland’s Federal Act on Private International Law (Art. 190 and 194) sets a minimum standard for the implementation of international arbitration awards in Switzerland.

Investor-State Dispute Settlement

Based on Switzerland’s membership in the New York Convention on Recognition and Enforcement of Foreign Arbitral Law, local courts are entitled to enforce international arbitration awards. According to Switzerland’s State Secretariat for Economic Affairs, Switzerland has never been a party to an investment dispute involving international arbitration.

International Commercial Arbitration and Foreign Courts

Swiss courts recognize and enforce foreign arbitral awards in the framework of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/NYConvention.html ). The US Embassy has no knowledge of any investor disputes in Switzerland involving U.S. persons within the last 10 years.

As business associations organized at the cantonal level, the Chambers of Commerce and Industry, of Basel, Bern, Geneva, Lausanne, Lugano, Neuchatel, and Zurich have established the Swiss Chambers’ Arbitration Institution. This entity offers dispute resolution based on Swiss Rules of International Arbitration and Swiss Rules of Commercial Mediation. According to the Swiss Chambers’ Arbitration Institution, 100 cases were submitted in 2015, and 89 of these cases involved foreign parties. 96 of these cases were accepted under Swiss rules; 36 cases were Swiss, 24 included parties from Western Europe, and 6 included parties from North America.

Bankruptcy Regulations

Switzerland’s bankruptcy law does not criminalize bankruptcy. Under the bankruptcy law, the same rights and obligations apply to foreign and Swiss contract holders.

Swiss authorities provide information about Swiss residents and companies regarding debts registered with the debt collection register.

The World Bank’s 2018 “Doing Business” survey ranks Switzerland 45th out of 190 countries in resolving insolvency. The average time to close a business in Switzerland is three years (compared to 1.7 years average across the OECD), with an average of 46.7 cents on the dollar recovered by claimants from insolvent firms (compared to 71.2 cents OECD average).

The Swiss Federal Statute on Private International Law (PILS, Art. 166-175, in force since January 1, 1989) governs Swiss recognition of foreign insolvency proceedings, including bankruptcies, foreign composition, and arrangements. Swiss law requires reciprocity for recognition of foreign insolvency.

Federal Statute on Debt Enforcement and Bankruptcy of 11 April 1889 (full text  in German, French or Italian).

Investment Climate Statements
Edit Your Custom Report

01 / Select A Year

02 / Select Sections

03 / Select Countries You can add more than one country or area.

U.S. Department of State

The Lessons of 1989: Freedom and Our Future