Lexisnexis® Foreign Investmentlexisnexis® Companylaw Guide 2017-2018Law Guide 2017-2018

The ultimate complimentary guide to understanding foreign investment practices around the world with an Asia-Pacific focus

LexisNexis® Foreign InvestmentLexisNexis® CompanyLaw Guide 2017-2018Law Guide 2017-2018

IncludingIncluding articlesarticles fromfrom featuredfeatured contributors:contributors:

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PRACTICE AREAS Phoenix Legal is a full service Indian law firm offering transactional, regulatory, advisory, dispute resolution ü Antitrust and and tax services. The firm advises a diverse clientele including domestic and international companies, banks Competition and financial institutions, funds, promoter groups and public sector undertakings. Phoenix Legal was formed ü Banking and Finance in 2008 and now has 15 Partners and 75 lawyers in its three offices (New Delhi, Mumbai and Chennai) ü CMT making it one of the fastest growing law firms of the country. ü Commercial Contracts Why Phoenix Legal? ü Corporate and Securities Laws What distinguishes the firm from its peers is the approach which is: ü Dispute Resolution - Arbitration and Litigation High Degree of Partner Involvement and Availability – We assure to our clients, partner involvement in ü Energy, Oil and Gas all deals and transactions, at all times. ü Environment ü Employment and High Quality Legal Advice – We deliver services of the highest quality, which are capable of meeting the Industrial Relations most exacting standards. ü Foreign Investment and Exchange Control Availability and Responsiveness – We are proactive in our approach and are available to our clients at all times. ü Infrastructure and Project Finance ü Intellectual Property Legal Research and Analysis Based Advisory – While we do keep abreast of market practices applicable to ü International Trade legal interpretation, they are adopted and recommended only if they are supported by prevailing legal ü Information and regulatory framework. Technology & Outsourcing Key Accolades ü Insurance ü Joint Ventures, In the short span of existence, the firm has firmly established itself in the Indian legal market and has Foreign and received wide media recognition. Some of the key accolades include: Technical Collaborations ü Mergers and Best Firm in India: Asia Women in Business Law Highest cli ent satisf action rating am ongst top 20 Acquisitions Awards, 2016, Euromoney, Hong Kong Indian law firms - 2013 Indian Law Fi rm Ranking ü Mining and Highly recommended as a leading firm: Various and Report by RS G Consulti ng Resources practice areas, Chambers Asia Pacific – 2012, Winner in the category: Energy, Projects & ü Private Equity and 2013, 2014, 2015, 2016 and 2017 Infra stru cture - India Business Law Journal Funds IBLJ, Indian Law Firm Award 2016 - Energy, Indian Law Firm Awards 201 4 ü Real Estate projects & infrastructure, structured finance & Winner in the category: Finance Litigation Law ü Regulatory Affairs securitization Firm of The Year – Indi a – Global Awards for ü Taxation Shortlisted as one of the Indi an firm s for 2014 - Corporate Li vewire ü Legal Compliance, Bribery & Anti- Chamber s Asia Paci fic Awards 2014 and 2015 Winner in the category: Finance Law - Finance Corruption organised by Chambers & Partners Law Firm of the Year –India: Corporate INTL ü Corporate Insolvency Legal Awards 2013 and Restructuring

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NEW DELHI MUMBAI CHENNAI Second Floor, 254, Okhla Industrial Vaswani Mansion, Oﬃce No. 17 & 18, Seethakathi Business Centre, Estate, Phase III, New Delhi-110020 3rd Floor, 120 Dinshaw Vachha Road, 9th Floor, Oﬃce Number 2B # 684- Tel: +91 11 4983 0000 Churchgate, Mumbai – 400 020 690, Anna Salai, Chennai-600 006 Fax: +91 11 4983 0099 Tel: +91 22 43408500 Tel: +91 44 2829 4626 Email: [email protected] Fax: +91 22 43408501 Email: [email protected] Website: www.phoenixlegal.in Email: [email protected] Website: www.phoenixlegal.in Website: www.phoenixlegal.in

LexisNexis® Foreign Investment Law Guide 2017-2018

Contents

Jurisdictional Q&As: Australia – Atanaskovic Hartnell...... 10

Bangladesh – The Legal Circle...... 18

India – Phoenix Legal...... 29

Indonesia – Hutabarat Halim & Rekan...... 42

Japan – STW & Partners...... 52

Macau – Rato, Ling, Lei & Cortés Advogados...... 66

Mauritius – BLC Robert & Associates...... 76

Myanmar – MHM Yangon...... 92

New Zealand – Mayne Wetherell...... 105

Nigeria – Udo Udoma & Belo-Osagie...... 117

Philippines – Martinez Vergara Gonzalez & Serrano ...... 134

United Arab Emirates – RIAA Barker Gillette (Middle East) LLP...... 146

Contents

JurisdictionalLexisNexis Q&As® Company Law Guide 2017-2018

Jurisdiction: Australia Firm: Atanaskovic Hartnell Author: Lawson Jepps

1. What are the main reasons foreign 2. What foreign investment legislation is investors invest in your jurisdiction? in place in your jurisdiction (e.g. Foreign Investment Law or Foreign Investment Anecdotally, the main reasons motivating Catalogue)? Please provide a brief foreign investors in Australia are Australia’s overview of such legislation. relatively open and stable economy, need for capital investment and predictable overall legal The principal piece of generic foreign invest- and political framework. Notwithstanding ment primary legislation in Australia is the occasional political sensitivities generally Foreign Acquisitions and Takeovers Act 1975 confined to specific asset classes, Australia is (Cth) (FATA) which applies in all Australian generally open to foreign investment to meet States and Territories and was recently subject shortfalls from relatively limited domestic to the most significant overhaul in the Act’s capital markets. forty-year history in December 2015. According to Australia’s Foreign Investment FATA is accompanied in primary legislation by: Review Board (FIRB), the non-statutory body (a) the Foreign Acquisitions and Takeover Fees established to advise the Australian Federal Imposition Act 2015 (Cth) (which applied Treasurer (Treasurer) and Government on a “user-pays” model to foreign investment foreign investment policy: approval applications for the first time in (a) Australia’s mining sector has been the Australia); and main target industry for foreign direct (b) the Register of Foreign Ownership of Water investment in Australia in recent times, or Agricultural Land Act 2015 (ROFOWAL) representing over 40% of the total foreign (Cth) (which attempts to establish a register direct investment stock in Australia at the of foreign interests in Australian agricul- end of 2015. Other sectors to benefit from tural land and water rights). significant foreign investment include Those Acts are now also supported by a range manufacturing (representing 11.7% of that of secondary legislation, including: foreign direct investment stock) and real estate (at 8.7% of that stock); and (a) the Foreign Acquisitions and Takeovers Regulation 2015 (Cth) (FATR); (b) the largest source by volume of approved foreign investment in Australia in the (b) the Foreign Acquisitions and Takeovers Fees 2015-6 financial year was China (at Imposition Regulation 2015 (Cth); and A$47.3bn), followed by the United States of (c) the Register of Foreign Ownership of America (at A$31bn). Agricultural Land Rule 2015 (Cth). There are also other sector-specific foreign investment restrictions applicable to banking, airlines, airports, shipping and telecommunications.

10 LexisNexis Foreign Investment Law Guide 2017-2018 3. What restrictions are placed on As in other common law jurisdictions, the foreign investment? Does this differ at choice between these vehicles will often be local levels of government? driven by transaction specific taxation considerations responsive to the target asset class Specific restrictions targeted uniquely at foreign (e.g. the use of trusts for real estate) which are investment are legislated at the federal level of outside the scope of this guide. Australian Government. Control of pre-registered shelf companies for Australian foreign investment law pursues a dis- subsequent amendment to suit the acquirer tinction between “notifiable” and “significant” can be acquired within a working day and transactions resulting in approval notifications general partnerships and common law trusts in circumstances described in response to technically only require as long to set up as it question 5 below. takes to draft their constitutional documents. Despite notification requirements which can The key requirements for establishment and delay the speed at which foreign investment operation of: in Australia might otherwise be implemented (a) a proprietary company are at least one (see response to question 5) and therefore company director who must ordinarily conceivably put foreign investors at a com- reside in Australia; and at least one share- petitive disadvantage to domestic bidders in holder (a bespoke corporate constitution certain circumstances, foreign investment is not necessary, companies can generally transactions are very rarely barred outright by rely on statutory “replaceable rules” in its the Australian Government. Outside of real absence); estate, only five major transactions have been announced by FIRB as having been rejected (b) a general partnership are a partnership since 2000, although approvals subject to deed and at least two partners; and conditions are not uncommon. (c) a common law trust is a trust deed, a trustee In our experience, since foreign investors’ inter- and at least one beneficiary. est in Australian assets is relatively common, In practice, it is likely that any of those vehicles it is usually the case that sellers’ timetables for if used for investment, will also undertake the transactions are set allowing for the obtaining additional process of acquiring at least an of relevant foreign investment approvals. Australian Business Number (ABN) for the 4. What are the most common business Australian Business Register (which facilitates vehicles for foreign investors? How long interaction within a variety of government do they take to be set up? What are the entities) and a Tax File Number (TFN) (sepa- key requirements for the establishment rate to the TFN for individual investors) which and operation of these vehicles? facilitates interaction with the Australian Tax OfficeATO ( ). Australian law permits the establishment of a similar range of business vehicles to other 5. Under what circumstances are foreign common law jurisdictions, including: investments subject to government approvals? What is the process and (a) companies with limited liability, either timeline for such approvals? proprietary (private) with no more than 50 non-employee shareholders or public; Some foreign investments, known as “notifiable (b) general partnerships of up to 20 members; transactions”, are subject to compulsory prior and notification to the Treasurer for approval. Other (c) common law trusts, including unit trusts. foreign investments, known as “significant

Jurisdictional Q&A – Australia 11 transactions”, are not subject to compulsory The process is now by online submission for prior notification to the Treasurer but are approval to FIRB. The Treasurer has thirty effectively subject to a de facto prior approval calendar days to make a decision whether to requirement given that the Treasurer can make notify objections after receiving notice that an orders requiring the action to be unwound action is proposed to be taken, of which the subsequent to implementation, if the action is investor must effectively be informed within found to be contrary to the national interest. a further ten calendar days after the decision Such orders cannot be made if the relevant deadline. In our experience, it is imprudent foreign person is given a no objection notifi- to rely on a response from FIRB ahead of the cation subsequent to compulsory or voluntary statutory deadline. approval submission. For the timetable to decision to start running, The rules apply to actions by foreign persons submissions need to be accompanied by the which can extend in its legislative definition prior payment of often substantial application beyond investors who would necessarily fees (e.g. A$25,300 for business applications), consider themselves foreign to Australia, for which are not refundable in the event of an instance to Australian-incorporated companies unsuccessful or withdrawn application. in which a foreign person is deemed to hold an The Treasurer may make orders against interest of at least 20%. transactions considered to be “contrary to The circumstances for notifiable“ transactions” the national interest”. The national interest are generally when foreign persons acquire: is not susceptible to statutory definition (a) an interest of at least 20% in an Australian but some guidance is offered by Australia’s entity worth at least A$252 million; Foreign Investment Policy which suggests the (b) a variety of “direct” interests in an Australian Government typically considers Australian agribusiness worth at least the following factors when assessing foreign A$55 million or Australian agricultural investment proposals: land worth at least A$15 million; and (a) national security (controversially applied in (c) any interest in generic Australian land the S. Kidman & Co. Limited 2015 rejection worth at least A$55 million (figures at decision but not in the decision ultimately present thresholds subject to indexation). to approve a 99-year lease of the Port of Darwin to a Chinese company prior to The additional circumstances for “significant that); transactions” are when foreign persons acquire any interest in an Australian entity or business (b) competition (FIRB apparently as a matter worth at least A$252 million resulting in a of course consults the Australian anti-trust change of control of that entity or business. authority, the Australian Competition and Consumer Commission on foreign invest- Acquiring a “direct” interest in an Australian ment applications); entity or business of any size or starting an Australian business is compulsorily notifi- (c) other Australian Government policies able for a foreign government investor which (including tax). The potential application includes foreign governments but also emana- of conditions as to Australian taxation tions of foreign governments which might have compliance for approved foreign investors otherwise considered themselves independent, is now subject to a specific FIRB guidance such as sovereign wealth funds, and includes note; Chinese state-owned enterprises (SOEs). (d) impact on the economy and the community; and (e) character of the investor. 12 LexisNexis Foreign Investment Law Guide 2017-2018 6. What sectors are heavily regulated or (the Australian Trade and Investment restricted in your jurisdiction, if any? Commission). Details of potential grants and Conversely, what are some of the more assistance are available through the online open or unrestricted sectors, if any? Grant and Assistance Finder tool at the business.gov.au website. Foreign investment in the Australian media sector is more heavily regulated under the 9. Are there any free trade, special general Australian foreign investment regime. economic or industrial zones in your A foreign person acquiring an interest of 5% or jurisdiction and what are their more in an entity or business of any value that requirements? carries on an Australian business of publishing daily newspapers or broadcasting television There are no designated economic or industrial or radio in Australia is automatically both a zones in Australia that are not subject to the notifiable and a significant transaction. The statutory foreign investment regime. Australian agribusiness sector is also more Australia has entered into free trade or other heavily regulated (see question 5). There are arrangements with all of Chile, China, Japan, also “sensitive businesses” for which foreign New Zealand, South Korea and the United investors are deprived of the more liberal States of America which liberalise to varying regime that would otherwise apply due to the degrees the thresholds for approval notifica- application of Australia’s free trade agreements, tions described in the response to question 5. including supply of military equipment and extraction of radioactive materials. There are 10. What are the main taxes that could also the sector-specific regimes referred to in apply to foreign investors in your response to question 2. jurisdiction? (For example, Personal Income Tax, Corporation Tax, Value 7. Are there any restrictions on doing Added Tax and Social Security Payments). business with certain countries or territories in your jurisdiction? (For Australia imposes an income tax on the taxable example, sanctions.) income of resident and non-resident individuals. Non-resident individuals are subject to The Australian Department of Foreign income tax on their Australian source income, Affairs and Trade maintains a list of persons which includes income from passive invest- subject to sanctions in accordance with the ments such as real property. Charter of United Nations Act 1945 (Cth) and Companies that are resident in Australia the Australian Autonomous Sanctions Act for Australian tax purposes are liable for 2011 (Cth) – see www.dfat.gov.au/sanctions/ income tax on their Australian source taxable consolidated-list.html. income and on certain foreign source income. Companies that are not tax resident in Australia 8. What grants or incentives are on offer are generally liable for Australian income tax to foreign investors, if any? only on their Australian source income. A variety of grants and incentives are offered Australia imposes a value added tax known as by the Australian Federal Government and the Goods and Services Tax (GST) of 10% on individual States and Territories to support most goods, services and other items consumed foreign investment in Australia. The first in Australia and entities are liable to pay GST point of contact would generally be Austrade on Australian taxable supplies irrespective of residence.

Jurisdictional Q&A – Australia 13 Payroll taxes are subject to State and Territory- (subclass 888) (which is derivative from the specific legislation. Companies are subject to subclass 188 visa). compulsory superannuation (i.e. pension) 12. Can foreign investors acquire real payments in respect of employees and certain property and land in your jurisdiction? contractors at the rate of 9.5% of their “ordinary Are there any restrictions or limitations? time earnings”. If employers do not make the relevant contributions, those employers have There are significant foreign investment restric- to pay a “superannuation guarantee charge” of tions and limitations concerning Australian equivalent amount. real property and land. 11. What are some of the employment Australian land encompasses four separate regulations in your jurisdiction that categories, being: foreign investors should be aware of? Is (a) agricultural land (meaning land related to a it possible to secure residency permits or primary production business), as to which work visas for foreign nationals under see response to question 5 above; investment? (b) residential land, acquisitions of any inter- Employer/employee relations are compre- ests by foreign persons in respect of which hensively regulated in Australia under the are generally notifiable actions regardless Fair Work Act 2009 (Cth) which sets out ten of value; National Employment Standards (NES) that (c) commercial land (defined essentially as land apply to all permanent employees with limited other than agricultural or residential land), exceptions. acquisitions of any interests by foreign Australian workforces are relatively heavily persons in respect of which are generally unionized compared to other jurisdictions notifiable actions regardless of value if the and the NES can often be supplemented in commercial land is vacant or at least A$55m practice by the provisions of “modern awards” if not vacant; and governing employment terms and conditions (d) a mining or production tenement, acqui- in particular industries or occupations or sitions of any interests by foreign persons “enterprise agreements” in relation to particular in respect of which are generally notifiable workforces. actions regardless of value other than for Australian employment is subject to Work beneficiaries of free trade agreements with Health and Safety legislation familiar in other Chile, New Zealand and the United States jurisdictions which is technically State-based, of America. but common to national standards across most Foreign investment particularly in residential States. real estate remains politically sensitive in There are a variety of visas for foreign nation- Australia and is an area subject to frequent als under investment in Australia including announcements by FIRB on the effectiveness of the Business Innovation and Investment FIRB’s efforts to enforce the foreign investment (Provisional) visa (subclass 188) (which regime. includes investor streams with investment There are also now obligations under requirements ranging from A$1.5m to A$15m); ROFOWAL of a foreign person to notify the the Investor visa (subclass 191) (which requires ATO of starting to hold: a designated investment of A$1.5m to be (a) a freehold interest in agricultural land; or maintained for four years); and the Business (b) a lease or licence of agricultural land Innovation and Investment (Permanent) visa reasonably likely to exceed five years.

14 LexisNexis Foreign Investment Law Guide 2017-2018 13. Are there any processes in your Australia is also a signatory to the United jurisdiction that can block foreign Nations Convention on the Recognition and investment under specific circumstances? Enforcement of Arbitral Awards 1958 (New York Convention) and enacted the International Yes – the Treasurer can make orders pro- Arbitration Act 1974 (Cth) giving effect to hibiting proposed actions and ordering the 2006 version UNCITRAL Model Law on transactions consummated without approval International Commercial Arbitration. to be unwound, but they are rarely exercised Australian courts have a demonstrable track (see response to question 3). record in enforcing agreements and awards 14. What foreign currency or exchange made for the purposes of transnational arbi- controls should foreign investors be tration, including High Court authority (the aware of? highest available) upholding the constitutional validity of application of the UNCITRAL Unlike jurisdictions such as Brazil and China, Model Law in Australia. Australia does not have a general exchange control regime. However, the Australian 17. Does your jurisdiction have any Department of Foreign Affairs and Trade bilateral or multilateral investment may impose exchange control rules in accord- protection treaties with Asia-Pacific ance with the sanctions regime described jurisdictions that are commonly used for in response to question 7. Australia does investing into the country? impose withholding tax on interest paid by an Australian resident company to a non-resident Australia has entered into bilateral investment lender at the rate of 10% unless the lender pro- protection treaties with all of China; Hong vides the loan in connection with a business Kong; Indonesia; Laos; Papua New Guinea; carried on through an Australian branch or Philippines and Vietnam. the Australian resident borrows in connection More significant for the purposes of the foreign with a business it carries on through a foreign investment restrictions described in response branch. to question 5 are the free trade agreements referred to in response to question 9, which 15. Are there any restrictions, approval amongst other things raise the investment requirements or potential penalties if a threshold for investors from an “agreement foreign investor withdraws their country” (including China, Japan, New investment in your jurisdiction? Zealand and South Korea) to A$1,094m. Per the response to Question 14, Australia does not have a general exchange control 18. What intellectual property rights regime which would prevent divestment in the protections are available in your ordinary course. jurisdiction to foreign investors?

16. What contract enforcement and Australia maintains an intellectual property investor protection mechanisms are in regime typical of common law jurisdictions place in your jurisdiction, if any? including protection for registrable patents for up to 20 years, registrable trade marks Contracts are enforceable by foreign investors (renewable for ten year periods), registrable through the courts of Australia subject to designs (subject to restrictions on the use of applicable governing law and jurisdiction the Australian flag) and unregistered copyright clauses. protection.

Jurisdictional Q&A – Australia 15 19. Are there any environmental policies investment application fee imposed at the and regulations that (potential) foreign time the property was acquired; and investors should be aware of prior to or (b) introducing from 1 July 2017 a new busi- throughout the investment process in ness exemption certificate allowing foreign your jurisdiction? investors in securities to have access to an exemption certificate allowing pre-approval Australia’s foreign investment policy indicates for multiple investments in one application that, when examining whether foreign invest- rather than having to apply separately for ment proposals in the agricultural sector each investment. are in the national interest, the Australian Government typically considers the effect of the 22. Are there any other features proposal on factors including environmental regarding foreign investment in your factors such as “the quality and availability jurisdiction or in Asia that you wish to of Australia’s agricultural resources, including highlight? water” and “biodiversity”. Most major mining development projects will Given that the ultimate decision whether require the navigation of regulation and obtain- notified proposals are contrary to the “national ing of approvals at both State/Territory level but interest” resides with a political appointee, also at federal level, where the Commonwealth the Treasurer, foreign investment approval Environmental Planning and Biodiversity Act decisions in Australia have inevitably been to 1999 (Cth) applies wherever a project is likely some degree politicized and therefore subject to have a significant impact on a matter of to a degree of variation in political sensitivity national environmental significance. leading to marginal unpredictability in out- comes for publicised transactions. 20. Are there any government agencies Equally, it is doubtful whether the political or non-governmental bodies that pressure leading to the technicalities of the (potential) foreign investors can turn to new agricultural land regime was really pro- for more information on investment in portionate to the facts of foreign investment your jurisdiction? on the ground, in that 99% of Australian farm businesses and 90% of Australian agricultural Foreign investors would be recommended to land were thought to be entirely Australian- approach the Australian Trade and Investment owned in 2015. Commission (Austrade). Nonetheless, Australia’s regime very rarely acts 21. Have there been any recent proposals strictly to inhibit foreign investment and given for reforms or regulatory changes that its relatively strong economic performance will impact foreign investment in your since the GFC in 2008 amongst similar devel- jurisdiction? oped countries, the Australian Government remains fairly exceptional in its willingness In the 2017/18 Federal Budget, the Australian to emphasise its continuing commitment to Government announced changes regarding the welcoming foreign investment as “essential to foreign investment framework including: Australia’s economic growth and prosperity”. (a) an annual vacancy charge on new foreign This guide reflects the law in Australia as at owners of residential land where the 9 June 2017 and is intended to give a generic property is not occupied or genuinely analysis of the law which is not a substitute for available on the rental market for at least six legal advice specific to individual circumstances. months each year equivalent to the foreign

16 LexisNexis Foreign Investment Law Guide 2017-2018 About the Author: Lawson Jepps Solicitor, Atanaskovic Hartnell W: www.ah.com.au E: [email protected] A: Atanaskovic Hartnell House, 75-85 Elizabeth Street, NSW 2000, Sydney Australia T: +61 2 9224 7091

Jurisdictional Q&A – Australia 17 Jurisdiction: Bangladesh Firm: The Legal Circle Authors: Masud Khan, N.M. Eftakharul Alam Bhuiya and Sameera M Reza

1. What are the main reasons foreign FDI inflow in Bangladesh has significantly investors invest in your jurisdiction? increased over the past decade and it rose by 24% year-on-year to US$ 1.6 billion in 2013 and Bangladesh offers the most liberal foreign has climbed to US$ 2.2 billion in 2016. The FDI direct investment (“FDI”) regime in South Asia. receipt was 44.1% higher compared to that of It benefits from a cost-effective industrial work- 2014. force, strategic geopolitical location having Bangladesh also has published a robust FDI good regional connectivity and complete duty Policy Framework in September 2014 through and quota free access to EU, Japan, Canada, the Ministry of Commerce which is pending Australia and most other developed countries further approval, which not only sanctions with access to international sea and air route. numerous attractive incentives to the foreign Also no restriction on equity participation and investors but also protects and guarantees the repatriation of profits and income, allowance safety of the investments and their returns. of tax holidays and accelerated depreciation in most sectors, cash incentives for selected Moreover, Bangladesh is a signatory to products, repatriation of dividend and capital Multilateral Investment Guarantee Agency at exit, equal treatment for local and foreign (MIGA) of the World Bank Group, Overseas investors, protection of FDI from expropriation Private Investment Corporation (OPIC) of and nationalization under the Foreign Private USA and International Centre for Settlement Investment (Promotion & Protection) Act 1980 of Investment Disputes (ICSID) and is also a (‘FPIA 1980’) etc. are the key considerations to member of World Association of Investment attract FDI in Bangladesh. Promotion Agencies, which facilitates foreign investment in Bangladesh. Additionally, the low cost of energy, good supply of natural gas, established export and 2. What foreign investment legislation is economic zones, fertile & favorable land and in place in your jurisdiction (e.g. Foreign climate, macroeconomic stability, open and Investment Law or Foreign Investment diversified economy and other competitive Catalogue)? Please provide a brief incentives by the government provide foreign overview of such legislation. investors an economical and business friendly environment. It is also to be noted, that in spite The most relevant laws, regulations and of many constraints, Bangladesh has main- guidelines that play an operative role in FDI in tained over 6% GDP growth rate per annum for Bangladesh are as follows: the last 6 years. Due to its steady progress, now (a) The Foreign Exchange Regulation it is the second largest garments and apparel (Amendment) Act, 2015 (‘FERA’)- This exporter in the world after China. Act provides the legal basis for regulating

18 LexisNexis Foreign Investment Law Guide 2017-2018 certain payments, dealings in foreign Companies and Firms (‘RJSC’) which exchange and securities in Bangladesh; is the regulatory authority designated (b) The Guidelines for Foreign Exchange for registration and filings required by Transactions, Volume- 1 & 2 (2009) and such companies. The Act also specifically updated by circulars of Bangladesh Bank governs the requirements for establishing (‘BB’) issued from time to time (collectively, foreign companies in Bangladesh and the ‘FX Guidelines’). FX Guidelines are a the rules for regulating them including compilation of instructions and directives preparation, maintenance, audit and issued by BB regulating foreign exchange submission of their accounts to the host transaction. It also deals with specific country regulators. instructions to be followed by the author- (b) Bangladesh Economic Zones Act, 2010 ized dealers (banks authorized by BB to (‘BEZA 2010’)- This Act makes provisions deal in foreign exchange under FERA and for the establishment of private economic their constituents) (‘AD’). zones in potential areas including under- (c) The FPIA 1980- This Act deals with promo- developed regions jointly or individually by tion and protection of foreign investment local, non-resident Bangladeshis or foreign in Bangladesh. The Act ensures equal investors. treatment for local and foreign investors (c) Bangladesh Investment Development and legal protection to foreign investment Authority Act, 2016 (‘BIDA 2016’)- This in Bangladesh against nationalization and law has established Bangladesh Investment expropriation. It also guarantees repatria- Development Authority (‘BIDA’) for the tion of dividend and capital at the exit of purpose of promoting industrial invest- business. ments and offering facilities and assistance (d) The Bangladesh Export Processing Zone necessary for the establishment of indus- Authority Act, 1980 (‘BEPZAA 1980’)- This tries in the non-governmental sectors and Act regulates the economic development of to promote and facilitate investment both Bangladesh by encouraging and promot- from domestic and overseas sources. ing foreign investments in certain areas 3. What restrictions are placed on (‘Export Processing Zones’ or ‘EPZ’) des- foreign investment? Does this differ at ignated by the government of Bangladesh local levels of government? (‘GOB’). (e) Double Taxation Treaties- Bangladesh has Depending on the sector of trade, restrictions entered into double taxation treaties with may be placed by the GOB on FDI; please see 28 (twenty-eight) countries, which reduces answer to question no. 6 for the list of restricted tax impediments of cross-border trade and and unrestricted sectors for FDI. investment and assist tax administration At the local levels of government, a foreign Other relevant laws and regulations applicable investor is required to be registered with BIDA, or indirectly related to foreign direct invest- which is responsible for screening, reviewing ment are: and approving FDI in Bangladesh. The BIDA (a) The Companies Act, 1994 (‘CA 1994’)- This registration is mandatory for obtaining Act regulates the formation and incor- industrial plot in the special economic zone. poration of companies. This Act sets the It may take around 15-30 days to obtain a framework for the management, opera- “Registration Certificate” from BIDA if all the tion and administration of companies. It required documents are submitted properly. also regulates the Registrar of Joint Stock

Jurisdictional Q&A – Bangladesh 19 Foreign investors, depending on the type of Incorporation of 100% foreign sector, may also be required to obtain many owned company and Joint Venture licenses and permits such as an Import company Registration Certificate, Export Registration A 100% foreign owned company or a Joint Certificate, Bond License, etc. to run their Venture company can either be registered as a business in Bangladesh. “public limited company” or a “private limited 4. What are the most common business company”. The type of company most com- vehicles for foreign investors? How long monly chosen by foreign investors is private do they take to be set up? What are the limited company. The CA 1994 s 2(q) defines key requirements for the establishment a private limited company as one which by its and operation of these vehicles? articles restricts the right to transfer its shares, if any, prohibits any invitation to the public to In order to choose the business vehicle, the subscribe for its shares or debenture, if any, foreign investors must first choose the type and limits the number of its members to 50 not of business operation they wish to operate in including persons who are in its employment. Bangladesh. This could be either by establishing As per the provisions of the CA 1994, the industrial projects/ factories/plants etc. or by incorporation of a private limited company operating a “Branch Office” or “Liaison Office” requires it to be first registered with the RJSC in Bangladesh. including name clearance from RJSC. Requisite In order to establish industrial projects/ fac- documents such as memorandum and articles tories/plants, it is essential to form a company of association (‘MemArts’), necessary forms and incorporate the same locally or incorporate and schedules, and an encashment certificate a company abroad and register it with RJSC in obtained from an AD of a scheduled bank need Bangladesh. Companies in Bangladesh could to be submitted to RJSC for registration of such be classiﬁed in the following major categories: a company. (a) Company limited by shares: Furthermore once registration with RJSC is completed, the private limited company shall (i) Private limited company; and have to further obtain the following for the (ii) Public limited company successful incorporation of the entity: (b) Company limited by guarantees. (a) Registration with BIDA; The most common incorporation options for (b) Trade license from the local governmental foreign investors include the following: authority; (a) A 100% foreign-owned company in (c) TIN certificate from the National Board of Bangladesh where 100% directors and Revenue (‘NBR’); shareholders are foreign citizens (allowed (d) VAT registration (if applicable) from NBR. in most sectors including construction, information technology and development); Time Frame (b) A “Joint Venture” company with local The set-up and securing of all required certif- Bangladeshi partners / investor where icates for such an entity may take a minimum Bangladeshi shareholders and foreign of 2 (two) months. shareholders jointly hold stake in the Establishing a Branch Office or company; Liaison Office in Bangladesh (c) A Branch Office or Liaison Office. A foreign investor wishing to merely have a presence in Bangladesh, but not incorporate a

20 LexisNexis Foreign Investment Law Guide 2017-2018 company may set up a Branch Office or Liaison a Liaison Office or Branch office bring in an Office. It is essential for both a Branch Office inward remittance of foreign exchange equiv- and Liaison office to obtain approval from alent to a sum of US$ 50,000 in Bangladesh BIDA before setting up its office in Bangladesh. through an AD, as an estimated initial estab- A Branch Office or Liaison Office does not have lishment cost and 6 (six) months’ operational a separate legal entity and is considered to be cost. an extension of its parent company. The parent Time Frame company’s MemArts dictates the activities for the Branch Office or Liaison Office. Following The set-up and securing of all required approv- are the traits of a Branch Office and Liaison als for establishing of a Branch Office or Liaison Office: Office may take a minimum of one (1) month.

Liaison Office 5. Under what circumstances are foreign A Liaison Office can maintain liaison/ investments subject to government coordination between its principal and local approvals? What is the process and agent, promote its products and do activities timeline for such approvals? as approved under its application to BIDA. Please see answer to question nos. 3 and 4 However it will have no local source of income above. in Bangladesh. All setup and operational costs including salaries of the foreign and local 6. What sectors are heavily regulated or employees of the Liaison Office will have to be restricted in your jurisdiction, if any? borne by the parent company aboard. No out- Conversely, what are some of the more ward remittances of any kind from the Liaison open or unrestricted sectors, if any? Office will be allowed except the amount brought in from abroad that hasn’t been spent. The National Council for Industrial

Branch Office Development (‘NCID’) has listed the following four sectors as “Restricted Sectors” for FDI: A Branch Office can undertake the same busi- (a) Arms and ammunitions and other military ness as its head office and engage in commercial equipment and machinery; activities with prior approval of BIDA. It can also have a local source of income from the (b) Nuclear power; approved field of business. (c) Security printing and minting; and Once approval from BIDA has been obtained, (d) Forestation and mechanized extraction the Branch or Liaison Office, (whichever is within the boundary of reserved forest. applicable), will have to report to BB within NCID has again listed seventeen sectors as thirty (30) days of obtaining such approval. “Controlled Sectors” which require prior per- Furthermore such an office must also obtain mission from the respective line ministries/ the following before it can go into operation: authorities before allowing FDI. These are: (a) Registration with RJSC; (a) Fishing in the deep sea; (b) Trade license from the local governmental (b) Bank/financial institution in the private authority; sector; (c) TIN certificate from NBR; (c) Insurance company in the private sector; (d) VAT registration (if applicable) from NBR. (d) Generation, supply and distribution of It is also required that within 2 (two) months power in the private sector; from the date of issuance of the BIDA approval,

Jurisdictional Q&A – Bangladesh 21 (e) Exploration, extraction and supply of j) Services etc. natural gas/oil; 7. Are there any restrictions on doing (f) Exploration, extraction and supply of coal; business with certain countries or (g) Exploration, extraction and supply of other territories in your jurisdiction? (For mineral resources; example, sanctions). (h) Large-scale infrastructure project (e.g. flyover, elevated expressway, monorail, Bangladesh has placed a restriction in main- economic zone, inland container depot/ taining any diplomatic relationship with Israel. container freight station); Hence, it can be presumed that Bangladesh shall not accept any FDI from any Israeli (i) Crude oil refinery (recycling/refining of lube national or entity. oil used as fuel); (j) Medium and large industry using natural 8. What grants or incentives are on offer gas/condensed and other minerals as raw to foreign investors, if any? material; In addition to the benefits mentioned in answer (k) Telecommunication service (mobile/cellular to question no. 1, there are various incentives and land phone); provided by the GOB to incentivize the foreign (l) Satellite channel; investors. These include the following: m) Cargo/passenger aviation; Tax Holiday n) Sea-bound ship transport; Foreign investors enjoy a corporate tax holiday o) Sea-port/deep sea-port; of 3 to 7 years for selected sectors subject to p) VOIP/IP telephone; and the relevant rules and procedures set by NBR. q) Industries using heavy minerals accumu- For instance, under the Income Tax Ordinance, lated from sea bed. 1984, Sch 6 Pt. A at para 33 (as amended by Bangladesh Income Tax Paripatra (Circular) On the other hand, some of the more unre- 2015 and Finance Act, 2016), tax exemption stricted and encouraged sectors of industries is allowed on any income derived from the include the following amongst others: business of software development, information a) Agro based; technology, information technology enabled b) Chemical; services and nationwide telecommunication c) Engineering; transmission network up to 30 June, 2024. d) Food and Allied; The location of the establishment also plays a role in determining such periods of tax holiday. e) Glass and Ceramics; f) Printing, Publishing and Packaging; Tax Exemption g) Tannery and Rubber products; Tax exemptions are permitted on the following: h) Textile; a) Royalties, technical know-how and technical assistance fees and facilities received by any i) Energy and Infrastructure; foreign firm, company or expert; b) Income tax for foreign technicians, employed in industries as specified in the ITO 1984 for a period of up to three years;

22 LexisNexis Foreign Investment Law Guide 2017-2018 c) Capital gains from the transfer of shares of promotion and protection of foreign invest- public limited companies listed with a stock ments. Bangladesh is also a signatory to MIGA, exchange; and OPIC, ICSID and a member of the World d) foreign loans in regard to its interest. Intellectual Property Organization (‘WIPO’) permanent committee on development co-op- Investment and Repatriation eration related to industrial property. Bangladesh does not have any ceiling on the Export-oriented Industries: amount that can be brought in as foreign investment by foreign investors. There is also The foreign investors are provided the following no restriction or the requirement of any prior incentives amongst others: approval from the GOB in remitting profits by (a) 1% import duty on capital machinery and the foreign companies operating in Bangladesh spare parts; to their head offices. Hence full repatriation (b) Bonded warehouse and back to back letter of invested capital, profits and dividends are of credit facility; allowed. Reinvested repatriable dividends or (c) Cash incentives and subsidies ranging from retained earnings are treated as new invest- 5% to 20% on free on board (‘FOB’) value ment. Employed foreigners in Bangladesh are of the selected products; allowed to remit up to 50% of their salaries and are also allowed to repatriate their savings (d) Fund for export promotion; and retirement benefits on their return. No (e) Export credit guarantee scheme facility; prior approval for remittance of sale proceeds, (f) 90% loans against letters of credit (by including capital gains of portfolio investments banks); of non-residents through stock exchanges in (g) 100% export-oriented industries located Bangladesh is required. outside the EPZ are allowed to sell 20% of Exit policy its products in the domestic market subject Once the investor wishes to leave the country to payment of applicable tax and charges. after completion of all formalities, he/she can 9. Are there any free trade, special repatriate the net proceeds after obtaining economic or industrial zones in your approvals from BB. jurisdiction and what are their Foreign employees requirements? There is no restriction on issuance of work per- Export Processing Zones (‘EPZs’) have been mits to foreign employees related to the project. established in Savar (Dhaka), Mongla, Ishwardi, The foreign national may become citizen of Comilla, Uttara, Karnaphuli (Chittagong) Bangladesh by investing a minimum of US$ and Adamjee (Dhaka) in accordance with 5,00,000 or by transferring US$ 1,000,000 to BEPZAA 1980. 100% foreign owned (Type A), any recognized financial institution (non-re- Joint Ventures (Type B) and 100% Bangladeshi- patriable). Also a foreign national can become owned (Type C) companies are allowed to a permanent resident by investing a minimum operate and enjoy the benefit of equal treatment of US$ 75,000 (non-repatriable). in the EPZs. Avoidance of double taxation In 2010, the Bangladesh Economic Zones Act, As mentioned earlier Bangladesh has various 2010 (‘BEZA 2010’) was enacted to facilitate the international agreements in place, includ- creation of privately-owned Special Economic ing bi-lateral agreements and investment Zones (SEZs) that can cater to export and treaties for avoiding double taxation and for domestic markets. The International Finance

Jurisdictional Q&A – Bangladesh 23 Corporation (‘IFC’) is assisting the GOB HS Code (an internationally standardised in establishing a Special Economic Zone system of names and numbers to classify traded Authority, similar to that of the Bangladesh products) of the products and/or services Export Processing Zones Authority (‘BEPZA’), traded by the company. However, the most which shall implement the new law and oversee common rate of VAT in Bangladesh is 15%. the establishment of SEZs. 11. What are some of the employment 10. What are the main taxes that could regulations in your jurisdiction that apply to foreign investors in your foreign investors should be aware of? Is jurisdiction? (For example, Personal it possible to secure residency permits or Income Tax, Corporation Tax, Value work visas for foreign nationals under Added Tax and Social Security Payments). investment?

The most relevant taxes applicable under the The Labour Act, 2006 (‘LA 2006’) and the prevailing laws of Bangladesh can be classified Labour Rules, 2015 (‘LR 2015’) regulate and as follows: provide for prescribed guidelines in connec- Corporate Tax tion to employment conditions, working hours, minimum wages, leave policies, health and Generally a foreign company is taxed only on sanitary conditions, compensation for injured the income received or deemed to be received workers, trade unions and other employment from the operations of the company in relations. Any labour related disputes/issues Bangladesh. The tax year is calculated yearly, are generally resolved before a Labor Tribunal. starting from July 1 to June 30 of the succeeding Furthermore, the EPZ Workers Association year. At present, the rate of corporate tax of a and Industrial Relations Act, 2004 regulates non-listed company is 35% of a company’s total the consolidating laws for Trade Unions and income in a year, and 25% in case of a listed Industrial Relations in the EPZs in Bangladesh. company (except for certain industries such as banks, financial institutions and merchant Foreign nationals willing to be employed in banks). Bangladesh must apply for their work permit by applying in the prescribed form to either BIDA Personal Income Tax (for private sector industrial enterprise, Branch Personal income tax is levied on capital gains Office and Liaison Office, outside of EPZ) or and income from dividends. Income tax BEPZA (for employment of foreign national in ranges from 10% to 25% depending on the the EPZs). taxable income. However, rates may also vary In order to issue the work permit, BIDA usually in accordance with the gender of the person. consider the following: However, a foreign technician employed in (a) The foreign national must not be below 18 foreign companies will not be subjected to years of age; personal tax up to three (3) years, and beyond (b) Only nationals from countries recognized that period his/ her personal income tax by Bangladesh are eligible; payment will be governed by the existence or non-existence of agreement on avoidance of (c) Foreign nationals are only considered for double taxation with the country of citizenship. such job where there is scarcity of local experts/ technicians in that specific field; Value Added Tax (d) The number of foreign nationals employed In Bangladesh VAT is applied to local sales. The should not exceed 5% in the industrial rate of VAT usually depends on the respective sector and 20% in commercial sector of the

24 LexisNexis Foreign Investment Law Guide 2017-2018 total employees, including upper manage- (iii) Foreign Investors can invest into local ment employees; businesses as joint partners and then (e) The employment of the foreign national may acquire land and property in the name be considered for an initial term of two of the locally registered businesses. years, which may subsequently be extended 13. Are there any processes in your for additional terms on the basis of merit jurisdiction that can block foreign of the case. After expiry of a term of work investment under specific circumstances? permit, the foreign national is required to leave the country and then re-apply for a Please see answer to question no. 6 above, fresh work permit; which discusses about Restricted Sectors and (f) A security clearance certificate may be Controlled Sectors for FDI in Bangladesh. needed to be issued by the Ministry of Home Affairs for obtaining the work 14. What foreign currency or exchange permit. controls should foreign investors be aware of? As discussed earlier, the foreign nationals may become citizens of Bangladesh by investing The core legislation that governs this area is a minimum of US$ 5,00,000, or become a the FERA. The first thing to remember for a permanent resident by investing US$ 75,000 foreign investor is that any inward remittance in Bangladesh. transaction and/or outward remittance trans- 12. Can foreign investors acquire real action must be done through an AD. Secondly, property and land in your jurisdiction? any amount of foreign currency can be brought Are there any restrictions or limitations? into the country; however it is essential that any amount above US$ 5,000 should be declared According to the Constitution of Bangladesh to customs authorities through a Foreign Art 42 only a citizen of Bangladesh can acquire Currency Declaration form, commonly known real property and land in Bangladesh. A foreign as an FMJ form. Also if anyone wishes to buy investor can only acquire land under the capac- foreign currency up to US$ 10,000, it must be ity of its company’s name and not under his/her done through an AD. Any purchases upwards personal name. There are effectively three ways of the above mentioned amount must be done by which this can be done: with prior permission from BB. Not doing so would constitute an offence under FERA. (i) The foreign investor can register his or her company with RJSC. This would In addition, it is helpful to note that FX cause the company to become a “local Guidelines issued by BB from time to time on entity” whose name could be used to practices to be adopted are also important to acquire land and property. be aware of. (ii) Foreign Investors who invest a 15. Are there any restrictions, approval minimum of US$ 5,00,000 or trans- requirements or potential penalties if a fer US$ 1,000,000 to any recognized foreign investor withdraws their financial institution (non-repatriable) investment in your jurisdiction? and can apply for Bangladeshi citizenship. Once citizenship is granted, There are no such restrictions and penalties a foreign investor can apply for the upon foreign investors who wish to withdraw purchase of real property on the same their investments. It is considered an essential basis as a Bangladeshi citizen. that the freedom to set up and the freedom to

Jurisdictional Q&A – Bangladesh 25 exit are preserved. There are essentially two Bangladesh being a member of MIGA, addi- ways by which a business can terminate- a tional protection against political risks such business may choose to wind up on its own as expropriation, war-damage and inconvert- initiative under Section 286 of CA 1994 or a ibility are also provided to foreign investors. competent court under the CA 1994 s 241 can Moreover, FPIA 1980 provides protection to wind up a company. foreign investors against expropriation and Investors do have the opportunity to sell their nationalization. In the event, where expropri- shares to local concerns after which they may ation is necessary, the GOB is to adequately leave the country. The sales proceeds can be compensate the investors with the market value repatriated after proper and prior authorization of the investment as per the said Act. from BB. As per FX Guidelines for such prior 17. Does your jurisdiction have any authorization of BB, the foreign investor is bilateral or multilateral investment required to submit encashment certificate(s), protection treaties with Asia-Pacific form 117, copy of the registration certificate jurisdictions that are commonly used for obtained from BIDA, if any, and other relevant investing into the country? reporting documents applicable for inward remittance, through its AD. Bangladesh has signed bilateral double taxation treaties with 28 countries, including Austria, 16. What contract enforcement and the Belgium-Luxembourg Economic Union, investor protection mechanisms are in China, Denmark, France, Germany, India, place in your jurisdiction, if any? Indonesia, Iran, Italy, Japan, Democratic The legal system of Bangladesh is a common law People’s Republic of Korea, Republic of Korea, legal system that is modelled to a great extent Malaysia, Netherlands, Pakistan, Philippines, on the English Common Law legal system. Poland, Romania, Singapore, Switzerland, Therefore, contractual enforcement follows the Thailand, Turkey, United Arab Emirates, trend that is familiar to most other common United Kingdom, United States, Uzbekistan law traditions. One of the most striking prin- and Vietnam. These treaties provide such ben- ciples of legal protection and enforceability is efits as tax holidays and prevent such incidences found in the Constitution Art 31 which affords as double taxation, promoting good trade rela- the protection of the law to all within the juris- tions and creating an environment conducive dictional boundaries of Bangladesh i.e. to both to proliferate investment. citizens and non-citizens alike. Moreover, Bangladesh does have investment In addition, it is widely becoming the status quo protection treaties with Asia-Pacific juris- that commercial entities resort to methods of dictions namely through, Asia-Pacific Trade alternative dispute resolution (‘ADR’) to obtain Agreement (‘APTA’), South Asian Free Trade a more amicable settlement of disputes, to pre- Area (‘SAFTA’) and Bay of Bengal Initiative serve business relationships as far as possible. for Multi-Sectoral, Technical and Economic The Civil Procedure Code (Amendment) Act, Cooperation (‘BIMSTEC’). 2012 (‘CPC 2012’) inserted sections 89A and 18. What intellectual property rights 89B to allow parties to settle their disputes protections are available in your through arbitration and mediation. The jurisdiction to foreign investors? growing inclination towards the use of ADR is evidenced by commercial parties regularly Bangladesh is both a signatory to the Paris inserting ADR clauses into their contractual Convention on Industrial Property (instituted documents and agreements. in the year 1883 and revised as it stands in 1979)

26 LexisNexis Foreign Investment Law Guide 2017-2018 since 1991 and continues to be a member of Under the said act, the DOE is required to issue WIPO since 1985. The importance of having “Environmental Safety Clearance Certificates” a legal infrastructure to promote and protect when it is satisfied that the applicants have con- intellectual property rights as an attraction to formed to the requisite safety standards. Any foreign investment is well understood and the proposal for an undertaking that is industrial legislations governing this vital area are listed in nature must contain a comprehensive and below: appropriate environmental impact assessment (a) Patent and Design Act, 1911; and proposed environmental impact management measures. (b) Patent and Designing Rule, 1933; Usually the DOE takes a minimum of 15 (c) Copyright Act, 1999; working days to issue an Environmental Safety (d) Trademarks Act, 2009 amended in 2015; Clearance Certificate for industries with low (e) Geographical Indication of Goods levels of adverse impact. For ventures that may (Registration and Protection) Act, 2013; pose a significant impact, the processing time (f) Trademarks (Amendments) Act, 2015; and extends to around 30 days or more. (g) Geographical Indication of Goods Act, 20. Are there any government agencies 2015. or non-governmental bodies that (potential) foreign investors can turn to 19. Are there any environmental policies for more information on investment in and regulations that (potential) foreign your jurisdiction? investors should be aware of prior to or throughout the investment process in BIDA is the principal private investment pro- your jurisdiction? motion and facilitation agency of Bangladesh, which provides information regarding invest- Bangladesh is a country in the South-East ments in Bangladesh. Also, the Bangladesh Asian region with a particularly rich ecological Small Cottage and Industry Corporation diversity. It lies on one of the world’s richest (BSCIC) is dedicated to the advancement of delta regions boasting a rich network of nav- small cottage industries in the private sector. igable rivers, and fertile land for agriculture Investors seeking to set up in the various EPZs and habitation sustaining the livelihoods of often consult with BEPZA which possesses many. Bangladesh also boasts possession of approval granting jurisdiction for all projects two-thirds of the world’s largest mangrove located in the designated EPZ. forest (the Sundarbans) and the world’s longest sea-beach at Cox’s Bazaar. It is considered to In addition, there are numerous law firms and be of paramount importance that the richness privately owned commercial think-tanks that in this country’s ecology is maintained and are able to provide specialist knowledge and therefore the Department of the Environment advice in various commercial matters on a (‘DOE’) is duty-bound to ensure that new and more customer-oriented basis. old ventures alike ensure that due respect and 21. Have there been any recent proposals diligence is paid towards the protection of the for reforms or regulatory changes that environment. The Bangladesh Environment will impact foreign investment in your Conservation Act, 1995 (amended in 2010) is jurisdiction? currently the main legislation governing environmental protection in Bangladesh, which provides the legal basis for the Environment BIDA has drafted the One-Stop Service Act, Conservation Rules, 1997 (amended in 2002). 2017 aiming to attract foreign investors by

Jurisdictional Q&A – Bangladesh 27 providing quick services from a single window. licenses, land registration and mutation, envi- This law is being enacted in order to reduce ronmental clearances, construction permits, various complexities in getting clearance from explosives licenses and boiler certificates, different government offices as was the case connections for power, gas, water, telephone earlier. Rules will be framed under the said and the internet. It is expected that such a Act describing the timeframe for receiving Once-Stop Service Centre will reduce the cost various services from the “Once-Stop Service of doing business for foreign investors and will Centre”. Any failure to provide services within also reduce the time to obtain all regulatory the timeframe stipulated in the rules will be permissions for doing business in Bangladesh. deemed as ‘misconduct’ and will be punishable under the law. 22. Are there any other features regarding foreign investment in your According to the Act, four organizations- jurisdiction or in Asia that you wish to namely BIDA, BEPZA, Bangladesh Economic highlight? Zone Authority and Bangladesh Hi-tech Park Authority will act as the “Central One-Stop Please see answer to question numbers 1 and 8, Service Authority” in their respective area. which details the benefits, key considerations Sixteen (16) types of services will be provided and incentives granted to foreign investors in to the investors from the Once-Stop Service Bangladesh, which makes it the most liberal Centre, which include issuance of trade jurisdiction for FDI in South Asia.

About the Authors: Masud Khan W: www.legalcirclebd.com Senior Partner, The Legal Circle A: The High Tower (9th floor), E: [email protected] 9 Mohakhali C/A, Dhaka 1212, Bangladesh T: +88 019 2080 4522 T: +88 02 5881 4311 N.M. Eftakharul Alam Bhuiya Senior Associate, The Legal Circle E: [email protected] T: +88 017 1112 0550 Sameera M Reza Senior Associate, The Legal Circle E: [email protected] T: +88 017 7734 5636

28 LexisNexis Foreign Investment Law Guide 2017-2018

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1. What are the main reasons foreign 2. What foreign investment legislation is investors invest in your jurisdiction? in place in your jurisdiction (e.g. Foreign Investment Law or Foreign Investment India has emerged as one of the most attrac- Catalogue)? Please provide a brief tive destinations for foreign investment overview of such legislation. from around the globe. The United Nations Conference on Trade and Development’s Foreign investments into India are gov- World Investment Report 2017 ranks India erned by the Foreign Direct Investment within the top ten countries around the Policy (‘’FDI Policy’’) of India issued by the world for attracting foreign direct investment Ministry of Commerce and Industry through (‘’FDI’’) inflows and fourth amongst the Asian the Department of Industrial Policy and countries. According to the said report, India’s Promotion. total FDI inflow in the year 2016 was USD With liberalization being the focus of the gov- 44,486 bn. As per the statistics made available ernment of India for over two decades, FDI in by the Department of Industrial Policy and most of the sectors except few is permitted up Promotion, the FDI into India during the to 100% under the automatic route. FDI in cer- period from April-September 2016 rose 30% tain sectors is still reserved under the approval year on year with the most investments in the route either up to 100% or over and above the service sector industries followed by telecom- prescribed sectoral cap for strategic or security munications and trading. reasons. Broadly, the FDI Policy lays down the There are several reasons for India to remain as sectoral cap on FDI in various business/indus- a top-notch destination for FDI inflow. While try sectors and terms and conditions relating to some of these are specific to different business FDI in each of the said sectors. sectors, many are common to all sectors. One Although there is no prior approval required of the key attraction across the board remains in relation to the FDI except in few sectors, the low cost of labour intensive set up ranging post investment notification is required to from manufacturing units (which require both be provided to the Government of India. unskilled and skilled labour) to any service The FDI Policy prescribes various reporting industry such as information technology requirements, including notification of receipt (which needs an expert and technically skilled of remittance in foreign currency as FDI and workforce). allotment of shares to a foreign resident. Essentially the initiatives of the Government Additionally, a transaction involving foreign of India, have persistently worked towards currency is governed by the Foreign Exchange liberalizing the FDI regime, and succeeded in Management Act 1999 (‘’FEMA’’) and regu- boosting the growth of FDI over the years. lations issued thereunder the central bank of India namely, the Reserve Bank of India. FEMA

30 LexisNexis Foreign Investment Law Guide 2017-2018 regulations play a vital role in governing FDI Conventionally, FDI has always been brought transactions. into India to be infused in a company which may either be a private or a public limited com- 3. What restrictions are placed on pany. A major consideration for foreign entities foreign investment? Does this differ at looking to bring FDI into India is whether to local levels of government? set up a wholly owned subsidiary to carry out business operations in India independently or Over the last few years, the government of India to form a joint venture company with an expe- has revised the FDI norms to open the gates rienced Indian partner. In our experience, the for FDI in most of the sectors and has been decision between a wholly owned subsidiary persistently making efforts to liberalize the FDI and a joint venture company is influenced by Policy to the greatest extent. The sectoral caps the nature of business activity that is to be and restrictions are reviewed and revised from carried out and the level of local assistance that time to time with the aim of liberalization of will be required to run the business effectively. the regime unless justified for the larger public interest and security reasons. FDI in more recently liberalized business vehicles such as sole proprietorships and limited The current FDI Policy prohibits foreign liability partnerships, are not common ways of investment in the sectors of lottery business, infusing foreign direct investment into India online lotteries, manufacturing of cigarettes at present. or tobacco or tobacco related products, atomic energy, railways, gambling and betting includ- The government of India, has recently ing casinos, chit funds, ‘nidhi’ companies, integrated and simplified the process for incor- trading in transferable development rights and porating a company for foreign investors who the business of real estate or construction of are incorporating a joint venture company or a farmhouses. Broadly, the restriction in terms wholly owned subsidiary. Upon filing a single of sectoral caps is 49% for most of the capped form, a company can be incorporated within sectors. Investment that is over and above 49% 6-7 working days. The main requirements of FDI in the capped sectors requires prior for incorporating a company are a minimum government approval. of two shareholders and two directors (one director being an Indian national). The FDI Policy is applicable across India and the above described sectoral caps are applicable 5. Under what circumstances are foreign across all states. Among these sectors, it is only investments subject to government in relation to the sector of multi-brand retail approvals? What is the process and that the state governments have been given timeline for such approvals? discretion to permit FDI even up to 51%. There are very few sectors in which FDI can 4. What are the most common business be brought in only with prior government vehicles for foreign investors? How long approval. These are mining and mineral sep- do they take to be set up? What are the aration of titanium bearing minerals and ores, key requirements for the establishment publishing/printing of scientific and technical and operation of these vehicles? magazines/specialty journals/ periodicals, publication of facsimile edition of foreign news- The current FDI Policy permits FDI through papers, private security agencies, multi brand various business vehicles which primarily retail trading, pharmaceutical (brownfield) and include a company, sole proprietorship and a satellites. limited liability partnership.

Jurisdictional Q&A – India 31 All applications for FDI proposed under the and talked about of these being the requirement approval route are required to be submitted for all foreign multi-brand retailers to source with the Foreign Investment Promotion Board at least 30% of the values of procurement of (‘’FIPB’’), an inter-ministerial body housed in manufactured/processed products from Indian the Department of Economic Affairs in the micro, small or medium industries. finance ministry responsible for processing Depending on the sector of business, there are foreign direct investment (FDI) proposals. The also a number of industry specific regulators FIPB offers a single window clearance system that regulate the functioning of entities in a for applications for FDI in India that are under particular industry, for instance the IRDAI the approval route but there are no fixed time- (Insurance Regulatory and Developmental lines for processing the application. Authority of India) which regulates the In an attempt to promote FDI in the country functioning of the insurance and reinsurance and reduce the timelines for approval, the companies in India, by way of issuing guide- Union Cabinet in May, 2017 approved the lines and circulars. Similarly, the telecom abolishment of the FIPB and is in the process industry is regulated by the TRAI (Telecom of putting in place a new mechanism under Regulatory Authority of India). which the proposals will be approved by the Foreign investment in other sectors such as ministries of the concerned sectors as per a manufacturing in the defence, insurance, standard operating procedure approved by the power exchange, private sector banking and central government, which is likely to prescribe infrastructure companies in security are less strict timelines for granting such approvals. restricted as FDI is permitted without central government approval up to a specified percent- 6. What sectors are heavily regulated or age and investments crossing the prescribed restricted in your jurisdiction, if any? threshold require central government approval. Conversely, what are some of the more Additionally, FDI in certain sectors such as open or unrestricted sectors, if any? banking, broadcasting and multi brand retail FDI in most sectors has been liberalized and trading are only permissible up to a specified government approval is only required for limit regardless of government approval. either investments exceeding the sectorial There are also sectors which are fully liberal- caps or investments in the few sectors that the ized and 100% FDI under these sectors falls government has reserved. under the automatic route. These sectors For strategic reasons the FDI Policy specifies include agriculture and animal husbandry, certain sectors wherein any foreign investment plantation sector, mining and exploration of will require government approval. Such sectors metal and non-metal ores, greenfield projects include mining and mineral separation of tita- under civil aviation and pharmaceutical nium bearing minerals and ores, publishing/ companies, construction development (town- printing of scientific and technical magazines/ ships, housing, built-up infrastructure, new specialty journals/ periodicals, publication of and existing industrial parks), cash and carry facsimile edition of foreign newspapers, private wholesale trading/wholesale trading, e-com- security agencies, multi brand retail trading, merce activities, railway infrastructure, asset pharmaceutical (brownfield) and satellites. reconstruction companies etc. In addition to the restrictions described above, which are imposed by way of government approvals, the FDI Policy also lays down certain sector specific controls. The most recent

32 LexisNexis Foreign Investment Law Guide 2017-2018 many multi-national corporations (include Fortune 500 companies) in establishing their presence in India in a variety of sectors including automobiles, biotechnology, chemicals, energy, financial services, healthcare and pharma, information technology, oil & gas, power and telecommunications. She has continued to advise her clients on a wide range of issues faced by them in India involving anti-corruption laws, competition law, corporate governance, exchange control laws, data privacy and protection, outsourcing, intellectual property protection, labour & employment and real estate. She also has experience in handling complex litigation and arbitration matters arising out of commercial contracts on behalf of Manjula Chawla her international clients. Partner, Phoenix Legal Her client commitment and consistent delivery of high quality services have been Manjula Chawla, a partner based in recognised by her clients and peers. Among Delhi office, concentrates in the areas of various accolades, she was awarded the strategic corporate investments, corporate National Law Day Award - 2000 by the finance and restructuring, mergers & Union Law Minister for “Excellence in acquisitions, joint ventures, and general Corporate Law and for unique contribution corporate and commercial matters. She in bringing foreign exchange into India”. has over 25 years of experience in the field of foreign investments and since the early years of liberalisation, she has assisted

7. Are there any restrictions on doing • A citizen of Bangladesh or an entity incor- business with certain countries or porated in Bangladesh can invest only territories in your jurisdiction? (For under the Government approval route. example, sanctions). Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest, only The FDI Policy and Foreign Trade Policy place under the Government approval route, restrictions on conducting business in certain in sectors other than defense, space and countries and on any business which flows atomic energy and sectors prohibited for from certain countries into India. Some of foreign investment. these restrictions prescribed are: • Non-Resident Indians in and citizens of, Nepal and Bhutan are permitted to

Jurisdictional Q&A – India 33 invest in the capital of Indian companies exemption), area based incentives (for units on repatriation basis, subject to the con- set up in State of Jammu and Kashmir, North- dition that the amount of consideration East India, State of Uttrakhand and State for such investment shall be paid only by of Himachal Pradesh) and sector specific way of inward remittance in free foreign incentives (Modified Special Incentive Package exchange through normal banking Scheme in Electronics). In addition to the channels. above, every State has its own policy relating to • The import or export of arms and ammu- incentives which are generally provided under nition, to or from Iraq, is prohibited, the industrial policy of the concerned State. except for such export to the Government 9. Are there any free trade, special of Iraq which can be made after securing economic or industrial zones in your a “No Objection Certificate” from the jurisdiction and what are their Department of Defense Production. requirements? • The direct or indirect export or import of various items to or from the Democratic At present, there are 8 functional SEZ’s desig- People’s Republic of Korea (North Korea) nated in India, in the States of Maharashtra, is prohibited. Kerala, Uttar Pradesh, Gujarat, Tamil Nadu, • The direct or indirect export or import of Andhra Pradesh and West Bengal. all items, materials, equipment, goods and Apart from the above designated SEZ’s, an technology that could contribute to Iran’s SEZ in the State of Madhya Pradesh is ready reprocessing, water-related activities, or for operations and the Government of India has to the development of nuclear weapon given its approval for setting up 18 more SEZ’s delivery systems, to or from Iran, is across the country, specifically in the States of prohibited. Karnataka, Gujarat, Rajasthan, Maharashtra, • The direct or indirect import of charcoal Tamil Nadu, West Bengal, Orissa, Uttar from Somalia is prohibited, on account Pradesh and Andhra Pradesh. of the UN Security Council Resolution Units set-up in SEZ’s are required to achieve 2036 in 2012. Importers of charcoal are a positive net foreign exchange earnings required to submit a declaration to cus- as per the prescribed guidelines, provide toms authorities that the consignment has the Development Commissioner and Zone not originated in Somalia. Customs with a periodic report and execute a bond with the Zone Customs for operating in 8. What grants or incentives are on offer an SEZ. to foreign investors, if any? 10. What are the main taxes that could The central government offers incentives for apply to foreign investors in your setting up units/facilities in areas designated as jurisdiction? (For example, Personal special economic zones (“SEZ’s”) and National Income Tax, Corporation Tax, Value Investment and Manufacturing Zones and Added Tax and Social Security Payments.) units which are set up as export oriented units. Such incentives offered in special economic An individual who is a resident in India has to zones or export oriented units, can differ from pay taxes on his/ her worldwide income. If the state to state. person is a Non- resident, the tax has to be paid The central government also offers export only on his/ her income which is received or incentives (such as duty drawback, duty accrued or deemed to be received or deemed to

34 LexisNexis Foreign Investment Law Guide 2017-2018 be accrued in India. Such taxes have to be paid cess, in the hands of the company, paying the as per the relevant slab rates, with a maximum dividends or buy backing the shares. marginal rate of 30% plus applicable surcharge On the indirect tax front, there are numerous and cess. taxes that are applicable, such as Service Tax, International companies or investors seeking Excise Duty, Value Added Tax, Entry Tax etc. to invest in India and/or set up operations in However, it has been proposed to introduce India, can consider different entities for the a unified code for such indirect taxes on the said purpose. Foreign entities, depending upon goods and services, in which all the indirect the business purpose, can set up a liaison office, taxes are proposed to be subsumed into one project office or a branch office in India. Non- Goods and Service Tax (GST). The same is resident companies (operating in India via a proposed to be applicable from July 1, 2017. branch office/ liaison office/ project office) are chargeable to tax at a rate of 40% and applicable 11. What are some of the employment surcharge and cess for the income earned from regulations in your jurisdiction that business in India. foreign investors should be aware of? Is it possible to secure residency permits or Investment can also be made in India in work visas for foreign nationals under Limited Liability Partnership, partnership or investment? a private limited company. For tax purposes, a LLP and Partnership firm are considered India has a strong framework of employment as the same and the income is taxable at the legislations and this includes a plethora of rate of 30% plus applicable surcharge and cess. central and state legislations, regulating LLP and Partnerships are liable for payment employees, their relations with employers and of alternate minimum tax at the rate of 18.5% work environment. plus applicable surcharge and cess on the book The Industrial Disputes Act 1947 (“ID Act”), profits, if the tax computed at the rate of 30% is the primary legislation which regulates the on the profits as per the provisions of income affairs of workman employed in an industry to tax act is less than the tax computed at the rate carry out any skilled, technical, operational, of 18.5% on the book profits. clerical or supervisory work for hire or reward. On the other hand, domestic companies are However, the scope of workman, under the ID liable to pay tax at a rate of 25% plus applicable Act excludes employees engaged in a manage- surcharge and cess if taxable income is up to rial or administrative capacity and employees Rs. 50 crore and at a rate of 30% plus applicable employed in supervisory category, drawing surcharge and cess, if taxable income exceeds wages exceeding INR 10,000 a month. The ID Rs. 50 crore. The domestic company is liable to Act provides for statutory benefits to workman pay minimum alternate tax at the rate of 18.5% covered under the scope and obligations of the on the books profits, if the tax computed on the employer in instances relating to retrenchment, income as per the provisions of the income tax transfer, closing of undertaking, in order to act is less than it. ensure protection of workman in such cases. Accumulated income of the domestic company The Factories Act 1948, is another essential can be distributed to the foreign investor piece of legislation which lays down the rights by way of dividend, or buy back of shares. of a workman engaged in a factory premises Distribution of dividend is exigible to dividend and the obligations of an employer required to distribution tax at the rate of 20.35% and buy provide a favorable work environment to such back of unlisted shares is also exigible to tax at employees. The Factories Act covers provisions the rate of 20% plus applicable surcharge and relating to inter alia conditions in relation to

Jurisdictional Q&A – India 35 the health, safety, welfare, working hours and 13. Are there any processes in your leave of workers in factories. jurisdiction that can block foreign In addition to central legislations, each State in investment under specific circumstances? India has detailed employment regulations spe- We understand that block means ‘not cific to the concerned state. Every state has its permitted’. own Shops and Establishment Act /legislation. The Shops and Establishment Acts regulate the There are certain sectors in which FDI is not conditions of work and employment in every permitted or is prohibited (discussed in earlier state. responses). Apart from these, FDI over and above the sectoral limit, wherever prescribed, Foreign nationals appointed to work in India is subject to approval of the government. The or providing consultation services, may apply government thus has discretion in permitting either for a business visa or an employment or ‘blocking’ FDI over and above the sectoral visa depending on the nature and duration of limit, which has been exercised by the gov- their stay. ernment very thoughtfully (more often than 12. Can foreign investors acquire real not involving the relevant ministry of the property and land in your jurisdiction? government regulating the industry/ sector Are there any restrictions or limitations? under consideration).

Acquisition of immovable property in India 14. What foreign currency or exchange by foreign investors is governed by Foreign controls should foreign investors be Exchange Management (Acquisition and aware of? transfer of immovable property in India) The primary legislation regulating the inward Regulations, 2000. The said regulations permit and outward remittance of money to and from only Indian citizens, person of Indian origin India is the Foreign Exchange Management Act and a branch, office or other place of business, 1999 (“FEMA”). FEMA is a central legislation established in India in accordance with the and is applicable to all parts of India and to all FEMA (Establishment in India of Branch or branches, offices and agencies outside India, Office or other Place of Business) Regulations, owned or controlled by a person who is a 2000, to acquire property in India. resident of India. Foreign nationals are not permitted to purchase Broadly the FEMA permits only an authorized any immovable property in India. However, a person to deal in foreign exchange or foreign foreign national who has resided in India for security and prescribes a number of regulations more than 182 days during the preceding finan- in relation to the transfer, receipt and usage of cial year, and has a continued presence in India foreign exchange. in the current financial year for the purpose of employment, business or any activity that The Reserve Bank of India (“RBI”), the central would require him/her to stay in India for a institution of the country which handles the long duration, may purchase immovable prop- monetary policies of India, established and erty in India. Citizens of Pakistan, Bangladesh, incorporated pursuant to the authority granted Sri Lanka, Afghanistan, China, Iran, Nepal and under FEMA, has an important role to play in Bhutan however will require the prior approval transactions involving foreign exchange. In of the RBI to acquire any property in India. certain cases foreign exchange transactions are permissible only with the prior approval of

36 LexisNexis Foreign Investment Law Guide 2017-2018 Ritika Ganju, a Partner based in the Delhi office of Phoenix Legal, focuses on corporate and M & A practice. She has over 10 years of experience in advising foreign investors and multinational corporations on investments into India, commercial transactions and lending support on day to day basis on corporate, commercial and management issues. As a part of her practice, she regularly advices clients on wide array of issues involving competition laws, company law, anti-corruption laws, foreign exchange control and labour & employment. She has advised and represented companies in various business sectors including oil and gas, energy, automotive, pharmaceutical, food and beverage and information Ritika Ganju technology. Partner, Phoenix Legal

the RBI such as transfer of shares of an Indian investor, more specifically, the price at which company held by a Non-Resident Indian to a shares owned by the foreign investor, are trans- Non-Resident. ferred and is required to be in compliance with the applicable FEMA regulations. 15. Are there any restrictions, approval Apart from restrictions under the contractual requirements or potential penalties if a terms, FDI is subject to sector specific condi- foreign investor withdraws their tions prescribed under the FDI Policy. Among investment in your jurisdiction? the said conditions, expiry of minimum lock-in At the outset, under the prevailing FEMA for the FDI is a pre-condition in case of con- regulations, there are no express restrictions, struction and development sector for a foreign approval requirements or penalties specifically investor to exit and repatriate investments in cases of withdrawal of FDI. before the completion of project under the automatic route. In such a case, penalties under Usually, the exit of a foreign investor is FEMA regulations will ensue if the prescribed governed by the provisions of the contract conditions are not met with. entered into with the investee party in India. The terms of exit are based on the commercial understanding contained in and agreed under such contracts governing the investment and rights of the shareholders. The exit of a foreign

Jurisdictional Q&A – India 37 16. What contract enforcement and jurisdictions with which a BIPA has been investor protection mechanisms are in executed. place in your jurisdiction, if any? India is a signatory to a number of industry and cause specific multilateral treaties such as the An investor in India is protected by the effec- ‘Statute of the International Renewable Energy tive enforcement of the contractual provisions Agency’, agreement on trade in goods under governing his investment. the framework agreement on comprehensive An aggrieved investor, in case of a dispute, may economic cooperation between the Republic of enforce the provisions of the contract before the India and the Association of Southeast Asian courts in India provided the same qualifies as Nations (“ASEAN”), protocol to amend the a valid contract under the provisions of the framework agreement on comprehensive eco- Indian Contract Act 1872. nomic cooperation between India and ASEAN. Apart from the Supreme Court and High However, India is currently not a signatory to Court, which are established in each state, the any multilateral treaty particularly focusing on investor can approach the National Company foreign investments. Law Tribunal which is a quasi-judicial body in India, specifically set up to adjudicate issues 18. What intellectual property rights relating to companies in India. protections are available in your As a practice, parties entering into contracts jurisdiction to foreign investors? for governing their investment, usually include Patents are governed and registered under the an arbitration clause, which can be enforced Indian Patent Act 1970. In the event someone in case of any dispute. As agreed under the uses a patented invention without the permis- contract, parties may opt for ad-hoc or insti- sion or consent of the patent owner, then the tutional arbitration. Unlike ad-hoc arbitration, owner of the patent can approach a court of law wherein the arbitrator is decided by the court for obtaining remedies including but not lim- in line with the provisions of Arbitration and ited to injunctions and damages. The Patent Act Conciliation Act 1996, the parties can decide provides for both civil and criminal remedies the arbitrator, venue and seat of arbitration in for patent infringement. accordance with the rules of the institution agreed. Trademarks are governed and registered under the Trade Marks Act 1999. The owner India has also Investor Protection Treaties with of a registered trade mark and a user of the various countries in place to protect the rights registered trade mark can file a suit before the of foreign investors. jurisdictional district court for infringement 17. Does your jurisdiction have any of trade marks, seeking an injunction on the bilateral or multilateral investment non-permitted use of such trade marks by third protection treaties with Asia-Pacific parties. However, the owner of an unregistered jurisdictions that are commonly used for trade mark has no remedies under the Trade investing into the country? Marks Act to prohibit the use of such unregistered trade marks by third parties, except to India has signed the Bilateral Investment bring a claim for the tort of passing off. Promotion and Protection Agreements The Copyright Act 1957 along with the (‘’BIPA’’) with 83 countries, of which 72 are Copyright Rules 2013, are the laws gov- currently in force. Australia, China, Indonesia erning copyright protection to original and South Korea, are a few of the Asia-Pacific literary, dramatic, musical and artistic works;

38 LexisNexis Foreign Investment Law Guide 2017-2018 cinematograph films and sound recordings in been framed with the object of providing India. The rights granted under the Copyright protection, as a geographical indication, to any Act to an author/ owner include the exclusive agricultural goods, natural or manufactured right to do or authorize any third party to goods or any goods of handicraft and food reproduce the work, issue copies of the work industry. In case of infringement, a court of law or use the work. The author also has certain may grant remedies including but not limited special rights i.e. to claim authorship of the to injunctions, damages or account of profits work and restrain or claim damages with with or without any order for the delivery-up respect to any alteration or modification in of the infringing labels and indications for relation to the work, if such alteration or mod- destruction or removal. ification would be prejudicial to his reputation even after partial or complete assignment 19. Are there any environmental policies of the work. The Copyright Act provides for and regulations that (potential) foreign both civil and criminal remedies for copyright investors should be aware of prior to or infringement. In the event of infringement, the throughout the investment process in copyright owner is entitled to remedies by way your jurisdiction? of injunction, damages, and order for seizure of The framework of all the environmental the infringing articles. policies and regulations in the country are Industrial Designs in India are protected issued by the Ministry of Environment, Forest under the Designs Act 2000. The Designs Act and Climate Change (“MOEF”). THE MOEF 2000 provides for civil remedies in cases of is the nodal agency under the administration infringement of copyright in a design, but does of the Central Government, for the planning, not provide for criminal actions against the promotion, co-ordination and overseeing the infringing party. The civil remedies available implementation of India’s environmental and in such cases are injunctions, damages and forestry policies and programmes. compensation. The primary environment regulations for- Protection to plant varieties is provided mulated by the MOEF, are the Environment under the Plant Varieties and Farmers Rights (Protection) Act 1986 and the Environment Act 2001. The legislation was enacted after (Protection) Rules 1986 which provide the India ratified the Trade Related Aspects of framework for the protection and improvement Intellectual Property Rights Agreement in of environment. 1994. The act provides for a unique system for The MOEF vide notification dated September protection of plant varieties and addresses the 14, 2006 made prior environmental clearance concerns for equitable sharing of benefits. A mandatory for 38 categories of industries plant variety is registered under this legislation engaged in construction of new projects or if it conforms to the criteria of novelty, distinc- activities or the expansion or modernization tiveness, uniformity and stability. The owner of existing projects or activities engaged in of the plant variety acquires an exclusive right mining of minerals, offshore and onshore oil to produce, sell, market, distribute, import or and gas exploration, cement plants, nuclear export of the variety. In case of infringement, power projects and processing of nuclear fuel, the owner may approach a court of law for leather/skin/hide processing industry, chemical obtaining remedies including but not limited fertilizers, sugar industry and others, subject to injunctions, damages and share of profits. to prescribed conditions. These sectors are The Geographical Indications of Goods prescribed under the notification, in addition (Registration and Protection) Act 1999 has to obtaining prior environmental clearance, are

Jurisdictional Q&A – India 39 also required to submit compliance reports to through this initiative assists the foreign inves- the concerned regulatory authority. tor with various aspects of their investment The MOEF has also framed regulations for pre- such as, location identification, expediting vention and control of water and air pollution. regulatory approvals, facilitating meetings with These are the Water (Prevention and Control relevant government and corporate officials and of Pollution) Act 1974 and Water (Prevention also initiates remedial action on problems faced and Control of Pollution) Rules 1975 and Air by investors. (Prevention and Control of Pollution) Act 1981 In addition to organizations established by the and Air (Prevention and Control of Pollution) government, investors also have the option Rules 1982. to approach the FICCI. FICCI is a non-gov- The aforesaid regulations authorize each state to ernment, not-for-profit organization which establish a state pollution control board, which expresses the views and concerns of business is responsible for issuing approval to industries industry. FICCI helps in influencing policy proposing to engage in activities likely to effect decision favorable to the business industry and the levels of water and air pollution. engagement with policy makers. Therefore, foreign investors proposing to 21. Have there been any recent proposals establish industries in areas notified by the for reforms or regulatory changes that Government under the regulations relating to will impact foreign investment in your air and water pollution, are required to obtain jurisdiction? prior approval from the concerned state pollution control boards. In an attempt to promote FDI in the country and reduce the timelines for approval, the Union Cabinet in May, 2017 approved the 20. Are there any government agencies abolishment of the FIPB and is in the process or non-governmental bodies that of putting in place a new mechanism under (potential) foreign investors can turn to which the proposals will be approved by the for more information on investment in ministries of the concerned sectors as per a your jurisdiction? standard operating procedure approved by the central government, which is likely to prescribe The Department of Industrial Policy and strict timelines for granting such approvals. Promotion (“DIPP”), established under the One of the major reform this year is expected to Ministry of Commerce and Industry, has been be the introduction of the codified GST tax on specifically set up to facilitate investment and July 1. The implementation of GST is expected technology flows into the country and for to bring out efficiency and cost reduction in monitoring the industrial development.. business operations. Tax experts predict that The Government of India has also launched GST assures increase in FDI across the sectors. a new initiative called ‘Invest India’, a joint venture between DIPP and the Federation of Indian Chambers of Commerce and Industry (“FICCI”). Invest India is the official investment promotion agency of the Government, mandated to facilitate investments into India. Invest India provides for sector-and state-specific inputs and support to investors through the entire investment cycle. The Government

40 LexisNexis Foreign Investment Law Guide 2017-2018 22. Are there any other features regarding foreign investment in your jurisdiction or in Asia that you wish to highlight?

One of the major reforms this year is expected to be the introduction of the codified GST tax on July 1, 2017. The implementation of GST is expected to improve efficiency and cost reduction in business operations. Tax experts predict that the introduction of GST will assure an increase in FDI across the sectors.

About the Authors:

Manjula Chawla W: www.phoenixlegal.in Partner, Phoenix Legal A: Second floor, 254, Okhla Industrial E: [email protected] Estate, Phase III, New Delhi – 110020 T: +91 11 49830000 Ritika Ganju F: +91 11 49830099 Partner, Phoenix Legal E: [email protected]

Jurisdictional Q&A – India 41 Jurisdiction: Indonesia Firm: Hutabarat Halim & Rekan Author: Nini N. Halim, Peter G. Fanning, Milanti T. Kirana

1. What are the main reasons foreign 2. What foreign investment legislation is investors invest in your jurisdiction? in place in your jurisdiction (e.g. Foreign Investment Law or Foreign Investment Investors have the choice of investing indirectly Catalogue)? Please provide a brief (through funds or the Stock Exchange) or overview of such legislation. directly (which generally entails taking direct equity in a limited liability company). The main pieces of legislation regulating FDI and to which your users will refer are: Foreign direct investment (FDI) must be undertaken through a legal entity incorporated under (a) Law No. 25 of 2007 on Investment (the Indonesian law and domiciled in Indonesia, “Investment Law”); unless a particular law provides otherwise. (b) Law No. 40 of 2007 on the Limited Liability Foreign investment directly into a partnership Company (the “Company Law”); (of individuals) is therefore precluded. (c) Presidential regulations on business activ- Except for oil and gas contracts and construc- ities closed or open to investment with tion undertaken through a representative office, restrictions (the Negative List) as amended the vehicle for FDI is therefore a limited liability from time to time. The current applicable company. This company may be either wholly Negative List is Presidential Regulation No. foreign owned or a joint venture with one or 44 of 2016; more Indonesian partners. Either foreign (d) Indonesian Civil Code (which among other individuals and/or foreign legal entities may be things establishes the principles upon founders of such companies. These companies which contracts are formed). are commonly referred to as PMA (Penanaman This legislation applies to all investment activity, Modal Asing or foreign investment) companies. but the Negative List and the Investment Law But apart from the ownership of capital, they have specific provisions for FDI. are companies exactly the same as any other company established in Indonesia. They are all Features of the Investment Law perseroan terbatas or PT. (a) There is one law covering all investment (domestic and foreign). FDI investors are faced with a basic two-part process: (1) obtaining approval from the (b) The law deals with direct and not with indi- Investment Coordinating Board (BKPM) for rect investment (capital market) – which the specific investment, and (2) obtaining latter is the role of capital markets law. approval from the Ministry of Law and Human (c) Foreign investors must generally invest Rights (MOLHR) for the company itself. The through a limited liability company BKPM process does not apply to oil and gas, (although there are longstanding excep- banking and finance, and construction using a tions in oil and gas, and construction, not Representative Office. affected by this law).

42 LexisNexis Foreign Investment Law Guide 2017-2018 (d) It recognizes that all companies established (i) It provides for facilities to be provided to in Indonesia are Indonesian entities. The investors – whether related to taxation, previous use of the term ‘foreign company’ land use, immigration or importation. in investment legislation to describe an (The specifics are left to specific executive Indonesian company with foreign own- regulation). ership is gone, (but there are restrictions (i) It provides for facilities to be provided to on ‘foreign capital’ which includes the investors – whether related to taxation, capital of an Indonesian company with land use, immigration or importation. any foreign ownership – and more on this (The specifics are left to specific executive later). However other regulations, particu- regulation). larly in the resources area, uses the term (j) Business licenses are to be obtained ‘national company’ when a company with through what are referred to as ‘one stop full Indonesian ownership is intended. This integrated services’ (“PTSP”). These ser- can be confusing, as the term is not defined. vices may be at national or district level. (e) The term of an investment project is limited (k) The role of BKPM is set out in some detail only by the life of the company which owns in the law. Its duties relate to coordination, the project, and the term can be indefinite if analysis and promotion. The basic business the founders want it this way (although rel- license for a PMA company is the license evant operating licenses must be obtained (i.e. approval) granted by BKPM. and renewed as required). (l) It provides for the resolution of disputes (f) If 100% foreign ownership is available, between the investors and government divestment is not required (except if this through international arbitration. is required by pre-existing BKPM approvals and by some other legislation such as (m) There is provision that agreements under regulations made under Law 4 of 2009 on which shares are held for another’s benefit Mining). (with specific reference to agreements between domestic and foreign investors) (g) Nationalization of private assets is stated are illegal. in Law 27 of 2007 on Capital Investment not to be intended However it is made clear (n) Provision is made for existing investment in the same law that if there is nationali- approvals to continue until their validity zation, there will be compensation based expires. on market value, with an disputes resolved As to the effectiveness of the PTSP system, through arbitration. (Indonesia has never most FDI is monitored by the Investment repeated the nationalization of the assets Coordinating Board (BKPM), which was first of its former Dutch colonists which it established by Presidential Decree in 1973. undertook in the early sixties, and is very Direct investment in oil and gas is managed careful to make clear that that is a thing of by an authority established under Law No 22 the past). of 2001 on Oil and Gas, known as SKKMigas. (h) It provides that if a business activity is not Direct investment in banking is managed by a specifically restricted in some way (whether Financial Service Authority. Direct investment that restriction is based on the source of in construction may be undertaken through a capital or otherwise) then the activity is (Public Works approved) Representative Office. open to any private investor, domestic or By Law No. 5 of 1968, Indonesia ratified foreign. the 1965 Convention on the Settlement of Investment Disputes between States and

Jurisdictional Q&A – Indonesia 43 Nationals of other States (the Washington company conducting business activities in a Convention), thus allowing for such disputes natural resources field and/or related to natural involving foreign investors to be submitted resources must implement principles of good to international arbitration under the World corporate social responsibility, at the cost Bank’s ICSID rules. of the company. This concept will be further Many countries have individual Bilateral regulated by government regulation. Investment Treaties or Agreements for the As many foreign investors entered Indonesia Promotion and Protection of Investments (all under the aegis of the 1995 company law, the generally referred to as BITs) with Indonesia new law’s transitional provisions are relevant. which clarify and/or add to the general pro- One important hurdle to such investors is tection offered, but these are in the process the required revision of their Articles of of being replaced by what are seen to be more Association to comply with the new law. A ‘modern’ treaties. company’s Articles of Association which have Features of the Company Law been approved or notified to the MOLHR before the enactment of Law No. 40 of 2007, The current Company Law provides greater remain in effect unless in contradiction of guidance than its predecessor, for both Law No. 40 of 2007. The Articles of a company foreign, and domestic business players, and which has not obtained status as a legal entity, standardizes practices that have developed or whose amendments have not been approved over the years. Although similar to Law No. or notified to the MOLHR prior to the effective 1 of 1995, the 2007 law addresses matters date of Law No. 40 of 2007, must be adjusted to which had previously been regulated only by fully comply with the new provisions. A com- implementing regulations. Some highlights pany which has already obtained legal entity of the Company Law include the following: status pursuant to the prevailing laws, should (i) accommodating various new stipulations, have adjusted their Articles of Association for among others, including the SABH (Sistem compliance within 1 (one) year of the effective Administrasi Badan Hukum) or the Legal date of Law No. 40 of 2007 (i.e., by 16 August Entity Administration System; (ii) increasing 2008). Companies failing to have adjusted their the minimum authorized capital of a company, Articles in this time period can be dissolved by from IDR 20.000.000 to IDR 50.000.000, which a decision of the District Court, on the basis of capital may be made in cash or in kind; (iii) an application from the public prosecutor or stipulating that companies engaged in business any interested party. on the basis of Syariah principles, shall have a Syariah Supervisory Council in addition to a 3. What restrictions are placed on Board of Commissioners; (iv) specifying that foreign investment? Does this differ at GMS may be held by way of electronic media, local levels of government? such as teleconference, video conference or other electronic media (as long as the partic- All business activities are stated in the negative ipants can see each other); (v) providing that a List to be open to investment activity, except company may have one or more independent those which are closed or open with restric- commissioners and one appointed or delegate tions. A presidential regulation (occasionally commissioner; (vi) modifying the general pro- revised and replaced) sets out activities which cedure to amend the Articles of Association; are closed to private investment or open with and (vii) modifies certain procedures related restrictions (the so-called Negative List). to the change of status from a private to Restrictions are not necessarily as to foreign a public company. Another noteworthy capital. They may instead, or also, restrict addition is the codified requirement that a activity to Indonesian-owned SMEs, or 44 LexisNexis Foreign Investment Law Guide 2017-2018 require partnerships, or be restricted to certain Companies must have at least two shareholders locations, or require special licenses. to set policy, at least one director to manage those policies (company law does not recognize Therefore, for many fields of activity, foreign officers), and at least one commissioner to step ownership of a PMA company may be 100% in if directors step out of line. of the issued capital. But restrictions can also be put in place by separate regulations, as they Subject to the completion of all required doc- are for advertising, horticulture, real estate uments under the discretion of the BKPM, the brokering, ship ownership, coastal resorts and estimated time of setting up an FDI company mining – which can cause confusion. is approximately 14 – 21 working days. This includes the process of ratification of a legal In an attempt to be very specific about the activ- entity by the MOLHR. ity intended, the government has expanded the use of the voluminous Standard Classification 5. Under what circumstances are foreign of Fields of Activity in Indonesia (KBLI). All investments subject to government activity has a KBLI number. However, this does approvals? What is the process and not mean that all activity that comes within a timeline for such approvals? specific KBLI number is covered by the same restrictions. The restriction generally depends As earlier mentioned above, FDI is moni- on the sector within which the activity takes tored by the Investment Coordinating Board place, as the regulation attempts to make quite (BKPM) as the gatekeeper for foreign investor clear. to enter into Indonesia by the granting of the Where an investor wishes to undertake differ- In-Principle License. Direct investment in oil ing activities with differing restrictions, it may and gas is managed by an authority estab- be advisable to establish separate companies to lished under Law No 22 of 2001 on Oil and undertake the different activities. Gas, known as SKKMigas. Direct investment in banking is managed by a Financial Service 4. What are the most common business Authority. Direct investment in construction vehicles for foreign investors? How long may be undertaken through a (Public Works do they take to be set up? What are the approved) Representative Office. key requirements for the establishment and operation of these vehicles? 6. What sectors are heavily regulated or restricted in your jurisdiction, if any? Domestic investment may be through a number Conversely, what are some of the more of business forms, including a sole proprie- open or unrestricted sectors, if any? torship. However FDI must be undertaken (a) Oil and gas; through a legal entity incorporated under Indonesian law and domiciled in Indonesia, (b) Mining; unless a particular law provides otherwise. This (c) Banking and financial institution. means, a limited liability company, bearing in More open or unrestricted sectors: mind the exceptions found in the oil and gas, and construction sectors. (a) Industry; There is only one kind of limited liability (b) Trading; company in Indonesia – not the mixture of (c) Services e.g. food and beverages services, corporations and hybrid partnership/compa- consultation. nies and companies without shareholders and simplified company structures you may find elsewhere. Jurisdictional Q&A – Indonesia 45 7. Are there any restrictions on doing comfort with respect to the status of the land, business with certain countries or the investor acquiring land in an industrial territories in your jurisdiction? (For estate is also assured that it is clearly and per- example, sanctions.) manently designated for industrial use. Industrial companies located in the bonded No. Conversely, facilities can be applied to areas are provided with additional incentives, doing business within ASEAN. such as exemptions from import duty, excise, 8. What grants or incentives are on offer income tax and value added tax on luxury to foreign investors, if any? goods on the importation of capital goods and equipment including raw materials for the Rights granted to investors in the Investment production process. Law are: 10. What are the main taxes that could (a) the right to transfer assets and to repatri- apply to foreign investors in your ate capital, after-tax profits and dividends, jurisdiction? (For example, Personal expatriate salaries, etc; Income Tax, Corporation Tax, Value (b) taxation reduction and exemptions and Added Tax and Social Security Payments.) accelerated depreciation; Foreign investors must comply with various (c) rights to land, immigration and import taxation requirements under the prevailing facilities; Indonesian tax laws and regulations as follows: (d) provision for arbitration of investment (a) Income Tax; disputes. (b) Withholding taxes (WHT) – generally a There is a tax holiday facility for a pioneer prepayment of income tax, sometimes in industry (as defined, which may include an the form of a final tax; and expansion of activity in that industry) which (c) Value Added Tax (VAT) – generally 10% has an investment plan amounting to IDR 1 trillion at the minimum. Both companies (at a maximum rate of 25%) and individual employees (at a maximum rate Any foreign investment that: (i) has a total of 30%) are subject to income tax. Employers investment value of at least IDR 100 billion, must contribute to four distinct social security and/or (ii) absorbs Indonesian manpower of programmes, some of which also require an at least 1000 people, may have its investment employee contribution. license issued by the BKPM within 3 (three) hours (as long as the paperwork is already 11. What are some of the employment complete). regulations in your jurisdiction that foreign investors should be aware of? Is 9. Are there any free trade, special it possible to secure residency permits or economic or industrial zones in your work visas for foreign nationals under jurisdiction and what are their investment? requirements?

Zoning and environmental permits are already Manpower-Related Key Issues in place in such zones. These estates are divided Pursuant to Law No. 13 of 2003 on Manpower into parcels for which land rights are readily (the “Manpower Law”) and its related regu- available. An investor must submit a letter of lations, the Indonesian Government aims to confirmation of availability from the Industrial encompass the labour welfare through the Estate along with its application. In addition to

46 LexisNexis Foreign Investment Law Guide 2017-2018 following key points to be concerned by foreign within a certain period of time but the investors. agreement must be for no longer than 2 (a) Working hours. The normal working (two) years, while a non-fixed agreement hours in Indonesia are 7 hours per day for can be used for day-to-day work with an 6 working days in a week or 8 hours per indefinite employment period. day for 5 working days in a week. Work in (f) Company Regulations. Any company excess of the normal working hours will which employs at least 10 (ten) employees usually be considered as overtime which is obliged to make a company regulation may result in a compensation payment to and also register it with the Ministry of the employee. Manpower. The substance of this company regulation must at least consist of the (b) Annual leave. Each employee in Indonesia provisions on the rights and obligations is annually entitled to 12 working days of of the employer, the rights and obligations leave. Subject to the company’s regulation, of the employee, working conditions, an employee also can be granted other leave company orders, and the period of validity on certain events, i.e. maternity, marriage, of regulations. or death of family members. (g) Manpower Social Security. The Manpower (c) Religious Holiday Allowance (Tunjangan Law requires an employer to provide Hari Raya or “THR”). Prior to a major welfare to its employees in the form of man- religious holiday in Indonesia (either Eid power social security, which comprise of: Mubarak or Christmas), the employer (i) Jaminan Kecelakaan Kerja (employment must pay the THR to each employee who accident benefit), (ii) Jaminan Kematian has worked for at least three consecutive (death benefit), (iii) Jaminan Hari Tua (old months. A pro rata payment will be made age benefit), (iv) Jaminan Pemeliharaan to any employee who has worked for 3 Kesehatan (health benefit), and (v) pension. months but less than 12 months, while any For this purpose, an employer must regis- employee who has worked for 12 months ter all employees with the Social Security must receive the full THR payment in the Board (Badan Penyelenggara Jaminan amount of 1 month’s salary. Kesehatan or “BPJS”) as the current operator of manpower social security in (d) Termination. The termination of employ- Indonesia. ment in Indonesia principally must be mutually agreed by the employer and the (h) Expatriates. With the aim of supporting employee. Following the termination, the the transfer of knowledge and technology employer will be obliged to make a certain to Indonesian employees, the employment severance payment which depends on the of expatriates is permitted on a fixed term working period and the type of employ- basis and for certain positions. Any expa- ment agreement. triates employed in Indonesia must obtain a proper work permit from the Ministry (e) Employment Agreement. The employment of Manpower and Transmigration and a relationship in Indonesia can be either residency visa from the Directorate General by a fixed term agreement or a non-fixed of Immigration. Their conditions will agreement subject to the type of work generally be as stated in their contracts of and the employment period. A fixed term employment. agreement can only be used for seasonal work which of its nature will be completed

Jurisdictional Q&A – Indonesia 47 Manpower Plan Approval (g) Personnel Placement Supervisor; After receipt of the In-Principle Approval, the (h) Employee Career Development Supervisor; investor must submit a Foreign Manpower (i) Personnel Administrator; Utilization Plan (Rencana Penggunaan Tenaga (j) Chief Executive Officer; Kerja Warga Negara Asing Pendatang or RPTKA) reflecting the number of expatriate (k) Personnel and Careers Specialist; positions expected to be used. (l) Personnel Specialist; The Manpower Plan must set out the number (m) Career Advisor; of positions to be occupied by foreigners in (n) Job Advisor; the company’s organizational chart, wages (o) Job Advisor and Counseling; to be paid, the qualifications required of the foreigners, the period of employment, the (p) Employee Mediator; number of Indonesian employees who will be (q) Job Training Administrator; assigned as counterparts and the program for (r) Job Interviewer; the training of Indonesian staff to replace the (s) Job Analyst. foreigner. The latter two requirements do not apply to foreigners who are company directors. 12. Can foreign investors acquire real When an investor has received an approved property and land in your jurisdiction? Manpower Plan, which is intended to cover a Are there any restrictions or limitations? five year period, separate applications must be filed for each foreign person to be employed. All companies (regardless of whether nationally Manpower approval must be followed by or foreign-owned) are restricted to registered Immigration approval and police and local leasehold rights over land – freehold land may government registration of the individuals be held only by individual Indonesians. Foreign concerned. investment companies are entitled to obtain Right to Build (HGB), Right to Cultivate (HP), Double Position and Right of Use (Hak Pakai or HGU). In order (a) Prohibition of double position for Directors for foreign investors to obtain such rights, the in the same business from the Anti- land area required must be identified in the Monopoly perspective; application. The investor must then obtain a (b) Expatriates are not allowed to work in Location Permit which will specify the amount more than one company. Except for expa- and intended use of the land (in effect, a zoning triates who act as a member of the Board permit). This permit is already in place within of Directors or Board of Commissioners industrial estates. in more than one company (same position 13. Are there any processes in your within the board). jurisdiction that can block foreign Certain Positions Prohibited to investment under specific circumstances? Expatriates Yes. The Negative List (referred to above) has (a) Personnel/HR Director; clearly stipulated the business activities that are (b) Industrial Relation Manager; closed or open with requirements for foreign (c) Human Resource Manager; investment. (d) Personnel Development 14. What foreign currency or exchange (e) Personnel Development Supervisor; controls should foreign investors be (f) Personnel Recruitment Supervisor; aware of? 48 LexisNexis Foreign Investment Law Guide 2017-2018 Rupiah currency as the lawful currency of will obtain protection in carrying out their the Republic of Indonesia must be used as the business activities. payment instrument for any cash and non-cash (b) Transparent information on the businesses transactions conducted within the Indonesian to be engaged; Territory that is: (i) intended for payment pur- (c) Rights to obtain services; poses, (ii) intended to fulfill obligations that must be paid in cash, and/or (iii) other financial (d) Various form of facilities in accordance services transactions, – whether it is conducted with prevailing laws and regulations. by Indonesian or non-Indonesian parties. In addition, as part of a protection to the foreign It must also be noted that the mandatory investor, the Investment Law stipulates provi- use of Rupiah currency includes the price of sions for the settlement of dispute in the event goods and/or services either in writing or via that a dispute arises between the government of electronic media, as stated in the price tag, Indonesia and the foreign investor (Article 32 of contract, purchase order, and invoice. In addi- Investment Law). Such dispute: (i) must firstly tion, this also includes the prohibition of dual be settled through deliberation to reach con- quotation (Rupiah and any other currency) of sensus, and (ii) if the foregoing settlement fails, the price of goods and/or services. the parties may settle it through arbitration or any alternative dispute resolution including 15. Are there any restrictions, approval international arbitration (non-litigation). requirements or potential penalties if a 17. Does your jurisdiction have any foreign investor withdraws their bilateral or multilateral investment investment in your jurisdiction? protection treaties with Asia-Pacific There is no restriction relating to the with- jurisdictions that are commonly used for drawal of investment by the foreign investor. investing into the country? In the event that the said investor transfers its Indonesia has 45 active Bilateral Investment ownership in the FDI company to a local party Treaties (BITs) – out of 63 signed. 13 of these are then the relevant approval will be the approval with Asia-Pacific jurisdictions. Formal notice of the change of status of the FDI company to terminate has been given for the termination obtained from the BKPM and the MOLHR – of 20 BITS (8 in the Asia-Pacific). These are in which are administrative in nature. the process of being replaced with bilateral and 16. What contract enforcement and multi-lateral comprehensive agreements. Six investor protection mechanisms are in new bilateral and two new regional trade and place in your jurisdiction, if any? investment treaties are in place. 18. What intellectual property rights Under Article 14 of Investment Law, each protections are available in your investor is entitled to obtain the following: jurisdiction to foreign investors? (a) Certainties of right, law and protection, by which the government of Indonesia: (i) There is no particular intellectual property ensures that the investors will obtain the rights (IPR) applicable to foreign investors. rights granted to them so long as they have In Indonesia, there are 7 types of IPR protec- fulfilled their obligations, (ii) recognises tions which apply to Indonesian individuals legal provisions and regulations as the basic and companies including FDI companies, as foundation in every measure and policy for follows: investors, (iii) ensures that the investors (a) Copyright; (b) Patent; Jurisdictional Q&A – Indonesia 49 (c) Trademark; 20. Are there any government agencies (d) Geographical Indication; or non-governmental bodies that (potential) foreign investors can turn to (e) Industrial Design; for more information on investment in (f) Layout design of integrated circuit; your jurisdiction? and (g) Trade secrets. Foreign investors may obtain information from the website of the BKPM. 19. Are there any environmental policies and regulations that (potential) foreign 21. Have there been any recent proposals investors should be aware of prior to or for reforms or regulatory changes that throughout the investment process in will impact foreign investment in your your jurisdiction? jurisdiction?

An industrial/manufacturing company In 2016, the Government issued Presidential is required to have an Environmental Regulation No. 44 dated 12 May 2016, which Management Programme of Work (Upaya was promulgated on 18 May 2016 (the Negative Pengelolaan Lingkungan – “UKL”), an List). This Negative List revoked the previous Environmental Monitoring Programme of Presidential Regulation No. 39 dated 23 April Work (Upaya Pemantauan Lingkungan – 2014 on the same subject. “UPL”), and a Waste Disposal License. For a There are approximately 35 business lines that services company, the BKPM will require a have been taken out of the Negative List, which statement letter stating that such company is means the said businesses are now open for a willing to (among other things) maintain the 100% foreign investment. One of these is the preservation of natural resources and the envi- restaurant business for which permitted foreign ronment within the location of the business, investment previously was set at a maximum of and maintain the health, hygiene and beauty 51%. Other business lines such as distributor- of the environment. ship (that is not affiliated with the production) Certain major activities such as a power station and warehousing are now open for a maximum first require an environment impact statement of 67% foreign investment from previously 33%. (AMDAL). 22. Are there any other features regarding foreign investment in your jurisdiction or in Asia that you wish to highlight?

Yes. It is necessary for the foreign investors to understand that all foreign investment entering into Indonesia must establish a large scale business, whereby it is required to have a total investment value amounting to more than IDR 10 billion. If the amount is equal to and/or below IDR 10 billion, it will be categorized as small-medium business and this level is closed for foreign investment.

50 LexisNexis Foreign Investment Law Guide 2017-2018 About the Authors: Nini N. Halim W: www.hhrlawyers.com Partner, Hutabarat Halim & Rekan A: 20/F DBS Bank Tower, E: [email protected] Ciputra World 1, Jl. Prof. DR. Satrio Kav. 3-5 Jakarta 12940, Indonesia Peter G. Fanning T: +62 21 2988 5988 Foreign Legal Consultant, F: +62 21 2988 5989 Hutabarat Halim & Rekan E: [email protected]

Milanti T. Kirana Senior Associate, Hutabarat Halim & Rekan E: [email protected]

Jurisdictional Q&A – Indonesia 51 Jurisdiction: Japan Firm: STW & Partners Author: Masanori Tsujikawa and Yutaka Adachi

1. What are the main reasons foreign Governance Code, which establishes funda- investors invest in your jurisdiction? mental principles for corporate governance of listed companies in Japan, promoting reforms Although the Japanese economy experienced of bedrock regulations in the sectors of medical a low growth rate and significant deflation care and energy, and simplifying regulations following the financial crisis in 2008, Japan’s and administrative procedures. investment environment is improving as its economy recovers. This trend can be seen in 2. What foreign investment legislation is several reports. According to the Japan External in place in your jurisdiction (e.g. Foreign Trade Organization (“JETRO”), the stock of Investment Law or Foreign Investment inward FDI was recorded at JPY 24.4 trillion Catalogue)? Please provide a brief (about USD 220 billion) in 2015, which is a his- overview of such legislation. torically high level. It is estimated the inward FDI stock will be JPY 26.7 trillion (about USD The Foreign Exchange and Foreign Trade Act 240 billion) as of the end of June 2016 due to (the “FEFTA”) and its related laws are the main a large number of inbound M&As in the first legislation applicable to foreign investment. half of 2016, including the acquisition of New That legislation was enacted to enable the Kansai Intl Airports-Op Concession by Kansai proper development of foreign transactions Airports and an SPV formed by ORIX-VINCI and to maintain peace and safety in Japan Airports Consortium as well as the acquisi- as well as in the international community by tion of USJ Co. Ltd. by NBC Universal Media providing the minimum necessary control and LLC. Also, according to the UNCTAD World coordination. The basic requirements imposed Investment Report 2016, Japan was ranked 6th on foreign investment under the FEFTA is that as a prospective destination for FDI, which is “foreign investors” that make “inward direct four spots higher than it was in 2014. investments” are required to give pre-investment notices or post-investment reports to the Japan is well-known as an attractive destina- minister who has jurisdiction. tion for FDI by reason of the massive size of its market, its well-educated consumers, and its In addition to the FEFTA, there are several laws position as a leader in advanced technology. In related to specific business sectors that prohibit addition to these, the government has recently foreign investors from holding, as a whole, been active in promoting inward FDI. Those more than a certain percentage of the shares activities include reducing the corporate tax of any company in those sectors. These laws rate to a 20% level, enhancing corporate can also function as a restriction on foreign governance by introducing the Japanese investment. Stewardship Code, which provides principles for institutional investors to promote sustainable growth of companies through constructive and purposeful dialogue, and the Corporate

52 LexisNexis Foreign Investment Law Guide 2017-2018 3. What restrictions are placed on either all the positions of directors or foreign investment? Does this differ at representative directors, and local levels of government? (b) “Inward Direct Investment” includes, among others, the following acts; (1) Restrictions under the FEFTA (i) acquisition of the shares or equity Investments requiring pre-investment notice of a non-listed company (other than Investments requiring pre-investment notice acquisition from foreign investors), are subject to review and approval by the (ii) acquisition of 10% or more of the relevant ministers, i.e. the Minister of Finance shares or equity of a listed company, and the minister who has jurisdiction over (iii) transfer of shares or equity of a non- the business of the target company. They can listed company to a foreign investor recommend investors to change the content from a non-resident individual who pertaining to an investment or discontinue an acquired the shares when he or she was investment if they find through a review that a resident, the investment might impair national security or have an adverse effect on the Japanese econ- (iv) consent to a substantial change of the omy. They can also issue an order to change the business purpose of a company, and content pertaining to an investment or discon- (v) establishment of a branch office, etc. tinue an investment if the investors refuse to Procedures and timelines accept that recommendation. Violating such an order would attract a criminal penalty. A pre-investment notice must be filed with the Minister of Finance and the minister who A pre-investment notice is required when a has jurisdiction over the business of the target “foreign investor” makes an “inward direct company through the Bank of Japan no later investment” in a company that engages in a than six months before the investment. A wait- business that might relate to national secu- ing period of 30 days after the notice applies rity (e.g. weapon manufacturing, aviation, to such investments and foreign investors nuclear power related business) or a certain may not complete the transaction during that field of business (e.g. agriculture, forestry, period. The waiting period is usually shortened fisheries, telecommunications). Therefore, the to two weeks, but it can be extended up to five circumstances where a pre-investment notice months if the relevant ministers determine that is required are basically very limited. is necessary. To clarify those terms, (2) Restrictions at local levels of (a) “Foreign Investor” means; government (i) any individual who is a non-resident, These restrictions do not differ at local levels (ii) any organization established pursuant of government. to foreign laws and regulations, or any organization having its principal office in a foreign state, (iii) any organization of which 50% or more of its voting rights are held by a person and/or organization described in the previous two points, or (iv) any organization where non-resident individuals occupy more than half of

Jurisdictional Q&A – Japan 53 4. What are the most common business variety of management structures within vehicles for foreign investors? How long the KK model. do they take to be set up? What are the KKs must have at least one director and one key requirements for the establishment shareholder, and at least one of the directors and operation of these vehicles. must be a representative director. Also, KKs must hold an annual meeting of sharehold- (1) Business Vehicles in Japan ers within a certain period after the end of If a foreign investor wishes to start a business in each fiscal year. The Companies Act does Japan, it has the following three main options not generally require KKs to have corporate as a business vehicle: auditors, officers (shikkoyaku), a board of (i) a stock company (kabushiki kaisha, “KK”); directors, or a board of corporate auditors, but KKs with certain management struc- (ii) a limited liability company (godo kaisha, tures or a certain amount of capital or debt “GK”); or are required to appoint corporate auditors (iii) a registered branch. and/or officers or have a board of directors While a KK is the most common business and/or a board of corporate auditors, etc. vehicle in Japan, GKs are also common for There are no citizenship requirements for foreign entities establishing subsidiaries in officers or employees of KKs. There used to Japan due to the flexibility in their manage- be a requirement that at least one represent- ment structure and lower management costs. ative director of a KK must be a resident in By utilizing a GK in Japan, a foreign parent Japan, but that requirement was abolished company might receive tax advantages in its in 2015. home country in certain jurisdictions (e.g. the (b) Shareholders’ liability U.S.). If a foreign investor wishes to do business The liability of each shareholder with continuously in Japan without establishing a respect to KKs in Japan is limited to the subsidiary, it might also consider establishing capital contribution it has made. After a registered branch office. making a capital contribution, a share- (2) Kabushiki Kaisha holder will not be liable for any liabilities of the KK. Incorporation It usually takes about one to two months to (3) Godo Kaisha complete the incorporation process of a KK. Incorporation There are no minimum capital requirements It usually takes around one to one and a half for a new KK, but there are some regulated months to complete the incorporation process businesses in Japan such as financial services of a GK. that have minimum capital requirements. There The incorporation process of GKs is less are no requirements regarding the number of complicated than that of KKs. For example, shareholders or their citizenship, so a foreign the articles of incorporation do not have to be entity can be the sole shareholder of a KK. notarized by a public notary. Operation There are no minimum capital requirements (a) Management structures for a new GK. There are no requirements on The Companies Act of Japan (the the number of shareholders or their citizenship. “Companies Act”) provides for a wide Hence, a foreign entity can be the sole member (a “member” is a person or entity that invests in a GK) of a GK.

54 LexisNexis Foreign Investment Law Guide 2017-2018 securities law, merger control, regulation specific to the relevant industries, drafting and negotiating contracts and post-merger integration, to corporate clients from various industries and buyout funds. In the field of competition law, he has handled various cross border and domestic cartel cases for Japanese corporate and individual clients, and has also provided advice relating to obtaining merger-clearances in M&A transactions. He has also represented clients in various cross-border and domestic litiga- tions relating to construction of contracts, defect liability and torts, etc. He has also represented clients for employment/labor disputes. Masanori Tsujikawa Partner, STW & Partners He graduated from the University of Tokyo (LL.B.) and obtained an LL.M. degree at the Masanori Tsujikawa is a partner at STW University of Chicago Law School in 2012. & Partners. He practices in various areas He is admitted to practice law in Japan including mergers and acquisitions, (2006) and in New York (2013). He worked competition law and dispute resolutions. at Arnold & Porter LLP (currently, Arnold In the field of mergers and acquisitions, he & Porter Kaye Scholer LLP) in Washington renders a wide range of M&A-related advice, D.C. office and Brussels office from 2012 to including advice relating to corporate law, 2013 as a foreign attorney.

Operation annual meeting of shareholders, there is no (a) Management structures such requirement for GKs to hold an annual meeting of members each year. As a general rule, each member has the authority to operate its business affairs There are no citizenship requirements for based on decisions by the majority of representative members and their execu- the members. Also, a GK may designate tive managers or employees of GKs. There members as “members who execute the used to be a requirement that at least one GK’s business” (gyomu shikko shain). In representative member or its executive that case, each member who executes the manager must be a resident in Japan, but GK’s business has authority to operate its that requirement was abolished in 2015. business affairs based on the decisions by (b) Members’ rights and liabilities the majority of the members who execute As explained above, members have general the GK’s business. Unlike the requirement rights to operate their business affairs. In mentioned above that KKs must hold an that sense, unlike KKs, ownership and

Jurisdictional Q&A – Japan 55 management are, in principle, unseparated under the FEFTA can be waived simply because in GKs. The liability of each member with the target company conducts its business only respect to GKs in Japan is limited to the in a certain sector. capital contributions it has made. After making a capital contribution, a member 7. Are there any restrictions on doing will not be liable for any liabilities of the business with certain countries or GK. territories in your jurisdiction? (For example, sanctions.) (4) Registered Branch Office The FEFTA imposes special restrictions on Establishment inward direct investment by investors from It usually takes around one month to complete countries that are not in the List No. 1 in the the establishment process of a registered branch Order on Inward Direct Investment that is a office. subordinate ordinance of the FEFTA; those Representative investors must make a pre-investment notice irrespective of the nature of the business of the A foreign investor must ensure that at least one target company. As of the time of writing, the representative of the branch office in Japan (e.g., number of countries in the List is 163. the branch manager) has a Japanese address. In addition, citizens and companies of North Corporate obligations Korea, Iran and Russia might be prohibited Because a registered branch is just a branch of from conducting business activities to a certain a foreign company, the foreign company itself extent because of economic sanctions currently owes liabilities arising from the operation of its imposed by the Japanese government on those registered branch in Japan. Therefore, unlike countries. KK models and GK models, foreign investors 8. What grants or incentives are on offer cannot limit their liabilities to their capital to foreign investors, if any? investment in this model. The Japanese government and municipal gov- 5. Under what circumstances are foreign ernments offer various grants and incentives to investments subject to government foreign investors at different times. Currently, approvals? What is the process and the Act on Special Measures for the Promotion timeline for such approvals? of Research and Development Business, etc. Please see Q.3(1)b. by Specified Multinational Enterprises (the so-called “Act for Promotion of Japan as an 6. What sectors are heavily regulated or Asian Business Center”) is in effect. That Act restricted in your jurisdiction, if any? was introduced in order to promote activities Conversely, what are some of the more to make Japan more attractive to foreign inves- open or unrestricted sectors, if any? tors that are looking to establish research and development bases and supervisory bases. That In terms of the feasibility of FDI, it can be said Act provides the following incentives to foreign that the business sectors that are subject to a investors that intend to establish an affiliated pre-investment notice requirement are heavily company in Japan and meet certain require- regulated sectors since most foreign investment ments. (Some of the incentives are applicable now requires only post-investment reports. On only to small and medium sized enterprises the other hand, there are no sectors that are the requirement of which is stipulated under more open or unrestricted. No obligations the Act.):

56 LexisNexis Foreign Investment Law Guide 2017-2018 He also provides advices on all aspects of contract and corporation law. He further specializes in IT or technology-related matters, including IP issues, data privacy, consumer protection and other compliance issues. In advising IT or technology related legal issues, he is able to make use of his extensive experience of serving as Legal Counsel at a major IT company in Japan. He represents international and domestic companies in all business sectors, and also focuses on supporting start-up companies.

He graduated with an LL.B. from the University of Tokyo in 2007 and with an LL.M. from New York University School of Yutaka Adachi Law in 2014. He was admitted to practice Senior Associate, STW & Partners law in Japan in 2008 and in New York State in 2015. Before joining STW and Partners, Yutaka Adachi is a senior associate at STW he worked at Simpson Thacher & Bartlett & Partners. His main areas of practice are LLP in New York as an international asso- international and domestic M&A transac- ciate from 2014 to 2015 and DLA Piper in tions, joint venture transactions, private Palo Alto as a law clerk from 2015 to 2017. equity and venture financing transactions.

(i) Assistance for fund raising are offered in order to attract foreign investors. (ii) Acceleration of patent examinations Currently, the Act on Comprehensive Special Zones is in effect. (iii) Reduction of patent fees (iv) Simplified investment procedures Under that Act, Tokyo is designated as one of seven designated Comprehensive Special Zones (v) Acceleration of entry examinations for for International Competitiveness. Tokyo is Certificates of Eligibility for Status of designated as an “Asia Headquarter Special Residence applied for by foreign nationals Zone.” The Government of Japan and the Tokyo who intend to work in Japan Metropolitan Government are taking measures 9. Are there any free trade, special to (i) attract foreign companies that own economic or industrial zones in your technologies related to the fourth industrial jurisdiction and what are their revolution such as Internet of Things, Big Data requirements? and AI and (ii) maintain Tokyo’s position as an Asian hub. For example, if a foreign investor is The Japanese government offers various special certified as a company that conducts a desig- economic and industrial zones whose purpose nated business in Tokyo, certain tax merits such is to activate the economy, and some of those as special depreciation allowances and other

Jurisdictional Q&A – Japan 57 tax deductions are available for investments in eliminated by the operation of applicable tax machinery or buildings used for the designated treaties. businesses. Also, foreign investors may apply (4) Social Security Payments for certain subsidies that can be used for costs and expenses related to the incorporation and Employers are required to bear a certain por- launch of a company in Tokyo. tion of the premiums for the following social and labor insurances for each of its employees: 10. What are the main taxes that could (i) Welfare pension insurance apply to foreign investors in your (koseinenkin-hoken); jurisdiction? (For example, Personal (ii) Health insurance (kenko-hoken); Income Tax, Corporation Tax, Value Added Tax and Social Security Payments.) (iii) Unemployment insurance (koyo-hoken); and (1) Corporate Tax (iv) Worker accident compensation insurance The taxes levied in Japan on income gener- (rosai-hoken). ated by domestic and foreign activities of a 11. What are some of the employment corporation (KK or GK) include corporate regulations in your jurisdiction that tax, corporate inhabitant tax and enterprise foreign investors should be aware of? Is tax (collectively “corporate taxes”). A foreign it possible to secure residency permits or company that establishes a registered branch work visas for foreign nationals under office in Japan is subject to corporation taxes investment? only for the income generated in Japan by that branch office. (1) Overview The effective tax rate for a business vehicle Japanese employment laws provide very strong including local tax is 29.97% for the business protection for employees because Japanese year ending March 31, 2018, and 29.74% for the employees traditionally work under the notion business year ending March 31, 2019 and the that they will continue to work for the same business year ending March 31, 2020. employer for their lifetime, so Japanese employ- (2) Consumption Tax ment laws are designed to protect employees from having their employment terminated. Consumption tax is a type of value added tax (VAT). The consumption tax rate is generally (2) Dismissal (Kaiko) 8% on services provided in Japan and sales An employer’s right to dismiss an employee of goods in Japan by a business vehicle. It is is severely restricted in Japan, and it is very expected the consumption tax rate will be difficult for an employer to lawfully unilaterally raised to 10% from October 2019. terminate an employee. A dismissal would be (3) Tax on Dividends invalid if it is not based on objectively reasonable grounds and is not considered to be Foreign corporate shareholders without a per- appropriate in general societal terms (Article manent establishment in Japan are only subject 16 of the Labor Contracts Act). If a court finds to withholding tax. The basic withholding tax a dismissal to be invalid, it will reinstate the rate is approximately 20%. dismissed employee and order the employer Foreign corporate shareholders with a per- to pay the aggregate amount of the salary the manent establishment in Japan are subject to employee would have received up to the date of withholding tax and must file a tax return. the judgement had the employer not unilater- The withholding tax rate can be reduced or ally terminated the employment contract.

58 LexisNexis Foreign Investment Law Guide 2017-2018 According to court precedents, if an employee are obligated to use their best efforts to avoid is terminated based on any of the following redundancy. Court precedents have found that grounds, it could be considered a dismissal redundancy is an abuse of termination rights based on objectively reasonable grounds: in most cases where a company implemented (i) the employee was unable to perform his or redundancy without trying to take other meas- her duties adequately, lacked the requisite ures such as transferring employees within the ability or competence due to a physical or company or to other group companies or offer- mental disability, or performed extremely ing severance packages to encourage employees poorly; to retire voluntarily. (ii) the employee engaged in misconduct in (4) Working Visas material breach of disciplinary provisions Under the Immigration Control and Refugee of employment rules; Recognition Act, foreign employees must (iii) termination is necessary due to economic obtain visas allowing them to work in Japan conditions (seiri kaiko); or during their stay (working visa). There are (iv) termination was requested based on a various types of employees for whom working union shop agreement with a labor union. visas are granted. One of those is “employees dispatched from foreign parent company or (3) Termination due to Redundancy affiliated company etc. for a specified period.” (Seiri Kaiko) Termination due to redundancy (seiri kaiko) 12. Can foreign investors acquire real means termination of employment in order to property and land in your jurisdiction? downsize workforce due to economic condi- Are there any restrictions or limitations? tions. Unlike unilateral termination in other circumstances, termination due to redundancy Yes. The FEFTA requires a non-resident that is conducted for reasons attributable to the acquires real property or rights concerning employer, so the validity is strictly examined. real property from a resident to file a post-in- Court precedents have developed four factors vestment report of that capital transaction with that must be considered when examining the the Ministry of Finance, through the Bank of validity of termination due to redundancy: Japan, within 20 days from the acquisition. There is an exception if a non-resident makes (i) there must be a strong need to reduce the that acquisition: workforce; (ii) the employer must use its best efforts to (i) for his or her own residential use or the avoid termination by seeking other alter- residential use of his or her relatives or native measures; employees; (iii) the employees to be dismissed must (ii) for his or her use for the purpose of engag- be selected using a reasonable and fair ing in non-profit business in Japan; or standard; and (iii) for his or her own use as an office.

(iv) termination procedures must be reasona- 13. Are there any processes in your ble and proper. jurisdiction that can block foreign As to the above criterion in (i), court precedents investment under specific circumstances? suggest that redundancy must be conducted based on sufficient managerial necessity due to As described in Q3, foreign investments requir- financial difficulties or similar factors. In rela- ing pre-investment notice might be blocked in tion to the criterion in (ii), employers in Japan certain circumstances.

Jurisdictional Q&A – Japan 59 The first case where the Minister of Finance and capital transactions that require post-invest- the Minister of Economy, Trade and Industry ment reports. blocked a foreign investment was in 2008. In addition, any receipt of a payment by a A foreign investment fund filed a pre-invest- non-resident made from Japan to a foreign ment notice to acquire 20% of the outstanding state or any payment made from a foreign state shares of an electric power company. The MOF to Japan must be reported to the Minister of and the METI recommended that investment Finance if the amount exceeds JPY 30 million. be discontinued because it was likely to disturb the maintenance of public order. The fund 15. Are there any restrictions, approval refused to accept the recommendation and requirements or potential penalties if a submitted a letter of explanation. The MOF and foreign investor withdraws their the METI reviewed the letter and issued a stop investment in your jurisdiction? order determining that the letter did not affect the judgement on the likelihood of the distur- There are no approval requirements or potential bance of the maintenance of public order. The penalties with respect to the withdrawal of an fund decided to discontinue the investment. investment by a foreign investor. A foreign investor only needs to make a report if it filed In addition to that case, the bids for the acqui- a pre-investment notice upon the acquisition sition of Toshiba’s memory chip business are and it is to dispose of the shares pertaining to currently in place. It was reported that the that notice. METI might recommend or issue an order to modify or stop that planned acquisition of the 16. What contract enforcement and business by foreign investors. The Minister investor protection mechanisms are in of Economy, Trade and Industry, mentioned place in your jurisdiction, if any? that he will scrutinize the investment from the viewpoint of national security if he receives a (1) Litigation in Japanese courts pre-investment notice on the acquisition of that business. Court System and Rules of Procedure There are basically three levels of courts in 14. What foreign currency or exchange Japan: (i) district courts, (ii) high courts and controls should foreign investors be (iii) the Supreme Court. Parties that have an aware of? objection to a judgment made by a district The FEFTA defines several types of transactions court may appeal to a high court, and parties that are typically accompanied by international that have an objection to a judgment made by funds transfers referred to as “capital trans- a high court may appeal to the Supreme Court. actions,” such as loan transactions between The Supreme Court can hear cases based on residents and non-residents and acquisitions grounds of (a) a violation of the Constitution, of securities by residents from non-residents. (b) serious procedural breaches by lower courts, Basically, there are no requirements on capital and (c) important issues concerning the con- transactions, but it is necessary to obtain gov- struction of laws. ernmental approval if a capital transaction is According to a survey report published by the likely to disturb the Japanese government from Supreme Court of Japan, the average length fulfilling its international obligations under of civil cases in courts of first instance was treaties or to have an adverse effect on Japan’s 9.2 months in 2014 and more than 90% of the international balance of trade, the Japanese civil cases in courts of first instances were yen exchange rate, or any financial or capital completed within two years. However, the market in Japan. There are also a few types of duration of litigation depends on factors such

60 LexisNexis Foreign Investment Law Guide 2017-2018 as the complexity of the case and practically those conventions are enforceable in Japanese speaking, it is not uncommon for a civil case courts. Conversely, the enforcement of arbitral to take 18 months or more. awards made in Japan is guaranteed in those In Japanese court proceedings, the parties are foreign treaty countries. required to use the Japanese language, and Foreign investors can avoid the language issues all evidence in a foreign language should be in litigation proceedings in Japan mentioned accompanied by a Japanese translation. Court above by using arbitration proceedings. cost such as filing fees, travel expenses and Arbitration at the JCAA can be conducted daily allowances for witnesses are borne by the in English if the parties agree. Also, a for- losing party. However, attorney’s fees are not eign lawyer practicing outside of Japan may included in “court costs” in that sense. represent a party to the proceedings of an Foreign investors may avail themselves of international arbitration case in regard to civil the Japanese court system by filing a lawsuit. affairs where the place of arbitration is located However, if a plaintiff does not have a business in Japan and all or part of the parties have office in Japan and the court receives a petition domiciles or principal places of business in a from the defendant, the court will make an foreign country. order to the effect that the plaintiff is required 17. Does your jurisdiction have any to provide security for court costs (Article 75 bilateral or multilateral investment of the Code of Civil Procedure). protection treaties with Asia-Pacific Enforceability of Foreign Judgments jurisdictions that are commonly used for investing into the country? Foreign judgments are enforceable in Japan after their legality and conclusiveness have been Japan has signed several bilateral investment reviewed by a Japanese court. For a foreign treaties with Asia-Pacific countries including judgment to be enforceable in Japan, it needs China, South Korea, Hong Kong, Vietnam, to be a final judgment where the enforcement Cambodia and Myanmar. of that judgment would not violate Japanese laws or be contrary to public order or good These treaties have similar provisions such as morals. It is also necessary that the courts in the following. the country in which that judgment was given (i) Most-Favored-Nation Treatment: The would treat a Japanese judgment reciprocally Japanese government promises to give by enforcing a judgment rendered in Japan treatment that is not less advantageous by applying requirements similar to those of than the treatment given to investors from Japan. any other country. (2) Arbitration (ii) National Treatment: The Japanese government promises to give treatment that is not Although arbitration is not that common in less advantageous than the treatment given Japan, Japan has an arbitration institution to business entities in Japan. called the Japan Commercial Arbitration Association (JCAA). Arbitration awards (iii) Prohibition of Performance Requirements: granted both within and outside of Japan have The Japanese government will not require the same effect as final and conclusive Japanese the performance of certain activities by court judgments. Also, as Japan has signed and investors as a condition on investing in ratified the 1927 Geneva Convention and the Japan. 1958 New York Convention, arbitral awards (iv) Fair and Equitable Treatment: The Japanese rendered in countries that are signatories to government owes several obligations to

Jurisdictional Q&A – Japan 61 protect investors, including the obligation (iii) measures to restore the reputation of the to pay careful attention to the protection rights holder; and of investors, guarantee of due process, (iv) destruction of articles or facilities related prohibition of arbitrary measures. to infringement. (v) Investor-State Dispute Settlement: Criminal penalties might also be imposed. Investors may appeal for arbitration to the ICSID and UNCITRAL to claim damages (2) Protection of copyrights due to a default by the Japanese govern- Copyrights arise automatically and no registra- ment on an investment treaty. tion is necessary under the Copyright Act. If a In addition to these bilateral investment copyright is infringed, the remedies available treaties, Japan has signed, bilaterally or mul- under relevant laws are as follows: tilaterally, with several Asia-Pacific countries (i) injunctions; Economic Partnership Agreements (EPAs) (ii) damage compensation; and Free Trade Agreements (FTAs) that have in addition, if a moral right of the copyright investor protection provisions, such as the owner is infringed, Trans-Pacific Strategic Economic Partnership Agreement. (iii) the following measures to restore the reputation of the rights holder: Japan is also currently involved in negotiations on several other multilateral EPAs and FTAs. (a) inclusion of the copyright owner’s Those include the Regional Comprehensive name on the infringing work; Economic Partnership Agreement between (b) announcement measures to correct the the 10 ASEAN countries, Japan, South Korea, infringing work; and Australia, New Zealand and China, the Free (c) apology announcement. Trade Area of the Asia-Pacific between the 21 Criminal penalties might also be imposed. countries and territories comprising APEC, and a tri-partite agreement between China, (3) Protection of trade secrets South Korea and Japan. In addition to the above intellectual prop- 18. What intellectual property rights erty rights, trade secrets that meets certain protections are available in your requirements are protected under the Unfair jurisdiction to foreign investors? Competition Prevention Act. Types of trade secrets include any production method, sales The following intellectual property rights system, or other useful technical information protections are available in Japan to owners of or operation information related to a business intellectual property rights, irrespective of the activity. The remedies available under the nationality of the owners. Unfair Competition Prevention Act are as follows: (1) Protection of patents, trademarks and design rights (i) injunctions; (ii) damage compensation; and Patents, trademarks and design rights are protected upon registration. When those rights (iii) measures to restore the reputation of the are infringed, the remedies available under rights holder. relevant laws are as follows: Criminal penalties might also be imposed. (i) injunctions; (ii) damage compensation;

62 LexisNexis Foreign Investment Law Guide 2017-2018 19. Are there any environmental policies of Japan as an Asian Business Center, as and regulations that (potential) foreign mentioned in Q8. The Cabinet Office holds investors should be aware of prior to or jurisdiction over the Act on Comprehensive throughout the investment process in Special Zone as mentioned in Q9. Those are your jurisdiction? examples of institutions that potential foreign investors can turn to for more information. Lawyers usually check to confirm compliance with the Soil Contamination Countermeasures 21. Have there been any recent proposals Act during legal due diligence for M&A trans- for reforms or regulatory changes that actions when they find the target company’s will impact foreign investment in your business might cause soil contamination. jurisdiction? Under that Act, prefectural governors are required to designate areas that are found As of the time of writing, a bill for partial not to conform with statutory environmental revision of the FEFTA is being submitted to standards as Areas Which Require Action. If the Diet for approval. Under the new FEFTA, a real estate is designated as such an area, the regulations on foreign investment will be relevant prefectural governor will instruct the strengthened as follows. owner, manager or occupier of that area to (1) Specified acquisition remove pollution to the extent necessary to prevent harm to human health, which some- The revision introduces a new term “specified times results in significant expense. acquisition”, which means the acquisition of shares of a non-listed company by a foreign Although soil contamination is one of the most investors from another foreign investor. common issues highlighted in legal due diligence, Japanese environmental laws provide for The transfer of non-listed shares between similar regulations regarding matters such as foreign investors is not currently regulated air pollution, water pollution, noise, vibrations, because “inward direct investment” does not and offensive odors. A foreign investor needs include such transactions. Under the new to carefully check that the target company is FEFTA, however, foreign investors who conduct in compliance with those laws if the target specified acquisition must file a pre-acquisition company engages in activities that might cause notice with the Minister of Finance and the environmental problems. minister with jurisdiction over the business of the target company if the specified acquisition 20. Are there any government agencies might be the one that holds significant risks or non-governmental bodies that of harming national security (the “specified (potential) foreign investors can turn to acquisition harming national security”). Same for more information on investment in as the inward direct investment requiring your jurisdiction? pre-investment notice, the ministers have authority to recommend or issue an order to The Japan External Trade Organization modify or block a specified acquisition if they (“JETRO” https://www.jetro.go.jp/en/) is a determine through a review that the specified government related organization that promotes acquisition is the specified acquisition harming mutual trade and investment between Japan national security. and the rest of the world. JETRO takes various measures to encourage foreign investment in (2) Order for action Japan. The Ministry of Finance and the Bank of Under the current FEFTA, the content of a Japan hold jurisdiction over the FEFTA. METI recommendation or an order to be issued by holds jurisdiction over the Act for Promotion the relevant minister against a violation of

Jurisdictional Q&A – Japan 63 a regulation on inward direct investment is 22. Are there any other features limited; only recommendations or orders to regarding foreign investment in your change the content pertaining to an investment jurisdiction or in Asia that you wish to or discontinue an investment is available. The highlight? revision, however, establishes a new system that enables relevant ministers to issue orders to take The Council of Experts Concerning the other necessary measures (e.g. orders to sell Japanese Version of the Stewardship Code stock) to foreign investors who have completed belonging to the Financial Services Agency inward direct investment that might impair adopted the Japanese Stewardship Code on national security or a specified acquisition February 26, 2014. The Code provides the harming national security but did not comply principles that are considered to be useful for with the requirements under the FEFTA. institutional investors as “responsible inves- Such an order may be issued if, for example, a tors” to fulfil stewardship responsibilities. foreign investor has completed the transaction The “stewardship responsibilities” refer to “the without filing a pre-investment/acquisition responsibilities of institutional investors to notice, the foreign investor has completed the enhance the medium to long-term investment transaction during waiting period, the foreign return for their clients and beneficiaries by investors made false statement when filing improving and fostering the investee compa- the pre-investment/acquisition notice or the nies’ corporate value and sustainable growth foreign investors violated the recommendation through constructive engagement or purpose- or order of modification or discontinuance of ful dialogue”. The Code expects institutional the investment or acquisition. investors (including foreign investors) who accept the Code to disclose their intention and information that the Code requires on their website, and more than 200 institutional investors are disclosing their intention and information in acceptance of the Code.

About the Authors: Masanori Tsujikawa W: www.stwlaw.jp/en/ Partner, STW & Partners A: 6F Hibiya Daibiru Building E: [email protected] 1-2-2 Uchisaiwai-cho, Chiyoda-ku Tokyo 100-0011, Japan Yutaka Adachi T: +81 3 3596 7300 Senior Associate, STW & Partners F: +81 3 3596 7330 E: [email protected]

64 LexisNexis Foreign Investment Law Guide 2017-2018 Firm Information: Number of partners: 11 Office Address: 6F Hibiya Daibiru Building, 1-2-2 Uchisaiwai-cho, Number of lawyers: 4 Chiyoda-ku Tokyo 100-0011, Japan Languages: English and Japanese Tel: +813 3596 7300 / Fax: +813 3596 7330 Website: www.stwlaw.jp/en/

Firm Overview: STW & Partners was established in April, 2007 by eight lawyers who left Mori Hamada Matsumoto to form a new cutting-edge law firm. By combining the wealth of highly specialized knowledge and experience that each lawyer brings to the firm, STW & Partners is able to provide innovative legal advice in a flexible and effective manner that is tailored to each individual matter while maintaining a broad perspective unfettered by any one particular field. The firm is combining its efforts and constantly striving to provide comprehensive legal services that are genuinely high quality to each of its clients. The firm offers a wide range of legal services, including providing legal advice with respect to corporate management and organization, multinational and cross-border transactions, general corporate matters, complex domestic and international litigation and arbitration and other dispute resolution matters, insolvency, intellectual property, M&A, finance, and antitrust law matters.

Main areas of practice: - Restructuring / Insolvency: As a midsize firm, STW & Partners does disclosure, insider trading, and STW & Partners has significant experience not have any particular practice group but shareholders agreements. The firm also acting on behalf of debtors, creditors, sets up a team comprising of lawyers with handles various aspects of corporate sponsors and other stakeholders in legal specialized knowledge and experience, disputes on behalf of companies in many insolvency proceedings, including civil which makes it a very unique international industries including actions seeking rehabilitation, corporate reorganization, firm in Japan. Each lawyer at STW & directors’ liability, disputes involving bankruptcy, special liquidation, and Partners strives to fully understand the controlling rights, and M&A disputes. voluntary liquidation. Various types of overall picture of each case, combine his or STW & Partners represents a variety of business entities including listed companies her expertise and experience through clients involved in mergers and and SMEs rely on the high level of consultation with other attorneys, analyze acquisitions. Regardless of the transaction restructuring and insolvency expertise at the firm. The firm provides comprehensive legal and verify litigation strategies, with an aim structure (eg restructuring, business advice to clients facing restructuring or to achieving the best possible outcome for transfer, capital increase through third party insolvency issues in a timely manner, clients. allotment including venture financing, working closely with lawyers who have acquisition of own shares, share purchase, Litigation / Dispute Resolution: detailed knowledge of litigation, M&As, tender offer, or management buyout), All lawyers at STW & Partners have corporate matters, finance, intellectual whether the companies involved are listed, property, real estate, and labor practice. vast experience in dealing with dispute or the volume of the transaction, the firm resolution matters in both domestic advises on the full range of M&A Antitrust/Competition: and international aspects including transactions from friendly acquisitions to STW & Partners handles criminal and matters with relation to the Companies hostile takeovers and transactions brought administrative procedures and civil cases Act (eg shareholder derivative action), about by insolvency. involving violations of antitrust laws, intellectual property rights (eg patent including actions for compensation for infringement litigation), antitrust Intellectual Property / IT: damage and shareholder derivative actions. (eg conspiracy and cartels), STW & Partners has significant experience The firm has close relationships with law intercompany transactions, real estate in handling infringement litigation, trials, firms around the world, which enable the (eg warranties against defects and rent and actions for trial decision revocations, firm to provide the best possible solutions in increase/decrease), insolvency (eg and other disputes concerning intellectual negotiations with foreign executive agencies, requests for avoidance), labour, tax, property rights such as patents, trademarks, class actions and other civil actions. The firm and corporate crime. copyrights and unfair competition both in has assisted a number of clients with antitrust Corporate / M&A: and outside of Japan. The firm’s practice in aspects in their commercial transactions and this area involves negotiating and STW & Partners has wide-ranging the establishment of compliance structures reviewing license agreements on behalf of experience in advising on various based on its extensive experience in cases in its clients across the world. The firm has including management decision, Japan and other jurisdictions. The firm aims actively handled various IT-related legal corporate governing structures (eg to appropriately resolve cross-border disputes issues including data privacy and disputes. board of directors and board of by strengthening relationship with firms in statutory auditors), officers’ the US and EU and coordinating with Asian remuneration, stock options, internal firms. governance systems, capital policies (eg capital increase/ decrease and treasury stock), information Jurisdiction: Macau Firm: Rato, Ling, Lei & Cortés Advogados Author: Pedro Cortés

1. What are the main reasons foreign FDI in the Financial Sector was MOP$37.935 investors invest in your jurisdiction? billion at the end of the same year.

The Macau Special Administrative Region 2. What foreign investment legislation is (Macau) is a former dependent territory under in place in your jurisdiction (e.g. Foreign Portuguese administration. Like Hong Kong in Investment Law or Foreign Investment 1997, Macau became a Special Administrative Catalogue)? Please provide a brief Region (SAR) of the People’s Republic of China overview of such legislation. (PRC) on 20 December 1999, under a joint declaration signed between Portugal and the There is no specific investment legislation in PRC in 1987. The Basic Law of Macau Special place in Macau as no restrictions on foreign Administrative Region stipulates that Macau’s investment exist in general. social and economic system shall remain 3. What restrictions are placed on unchanged for 50 years following the hando- foreign investment? Does this differ at ver in 1999 until 2049, based on the Chinese local levels of government? formula of ‘one country, two systems’. There are few tariffs or restrictions and Macau Certain exceptions notwithstanding, there are is free of foreign exchange control on current no restrictions placed on foreign investment in capital international transactions. Macau SAR Macau as there are no special rules governing runs its own independent public finance system foreign investment. Both overseas and domestic and is self-governed, with the exception of for- corporations register under the same set and eign and defence affairs which are within the are subject to the same regulations on business, responsibility of the central PRC government. such as the Macau Commercial Code (Decree- Macau’s legal currency is the pataca (MOP$), Law 40/99/M). which is freely convertible and pegged to the The law 7/2003 governs the import and export Hong Kong Dollar, which, in turn, is pegged activities from and to the Macau Special to the USD, being the average exchange rate Administrative Region, it’s main principle roughly USD 1.00 = MOP 8.00. being the freedom of entry, exit and transit of Macau’s economy is heavily dependent on tour- goods in the Region. ism (mainly gaming) and light manufacturing There are limited foreign control limits (textiles and garments). Information from the in few areas (education, legal services and Statistics and Census Service (DSEC) showed newspapers). that at the end of 2014, stock of inward foreign direct investment (FDI) reached MOP$218.867 billion. As to the major industries, the Gaming Sector took a dominant share of inward FDI, with the stock amounting to MOP$128.143 billion at the end of 2014; besides, stock of inward

66 LexisNexis Foreign Investment Law Guide 2017-2018 4. What are the most common business Registrar of Companies at the country of vehicles for foreign investors? How long incorporation – its authenticity must be do they take to be set up? What are the certified by a Public Notary of the country key requirements for the establishment of incorporation of the overseas company and operation of these vehicles? and duly apostilled as per the Convention Abolishing the Requirement of Legalisation To establish a permanent presence in Macau for Foreign Public Documents (Hague through a local branch, foreign companies Convention 1961) or be legalized by a must register the establishment of the branch Chinese Consulate; with the Macau Commercial and Moveable (d) List of Directors and/or other persons who Properties Registry (MCMPR). To initiate represent the overseas company certified the establishment of a branch it is necessary by a Public Notary of the country of incor- to reserve the name(s) of the branch with the poration of the overseas company and duly MCMPR. Usually, the branch shall have the apostilled as per the Hague Convention same name of the overseas company, adding the 1961 or legalized by the Chinese Consulate; reference “Macau Branch”. Furthermore, it is and necessary to choose a Portuguese or a Chinese name for the branch. To reserve the name and (e) Minutes of a Resolution passed in a obtain a Certificate of Admissibility of Trade General Meeting or Board of Directors in Name, it is necessary to inform the MCMPR accordance with the laws of the country of the scope of activity proposed for the branch of incorporation of the overseas company in Macau. Where trademarks under the name and also certified by a Public Notary of the proposed to the branch have been already country of incorporation of the overseas registered with the Macau Economic Bureau, company and duly apostilled as per the consent of the holders of such trademarks may Hague Convention 1961 or legalized by the be required to use that name to establish the Chinese Consulate – this Resolution shall Macau branch. include the following: A foreign company that wishes to establish a (i) decision to set up the branch in Macau; branch in Macau must appoint one individual (ii) name of the branch; with permanent residence in Macau as repre- (iii) scope of activity; sentative of the branch. However, the MCMPR (iv) address of the branch in Macau; may allow the appointment of a representative, who does not reside permanently in Macau (v) capital allocated to the activity of the nor is a Macau citizen, but has a professional branch of the overseas company in residence in Macau that could become the Macau; registered address of the branch. (vi) appointment of the company repre- The following documents are required to be sentative(s) for the branch in Macau submitted to the MCMPR to incorporate a with full authority to act on its behalf branch of a foreign company in Macau: to sign the relevant documents for the incorporation of the branch; and (a) Certificate stating the name(s) of the branch; (vii) signatures of the representative(s) that will bind the branch in any documents/ (b) Certified true copy of the Incorporation Act acts to be signed/performed for and on of the foreign company; behalf of the branch. (c) Memorandum and Articles of Association of the foreign company issued by the

Jurisdictional Q&A – Macau 67 (f) A declaration on the commencement Joint Stock Companies of operations needs to be filed with the The other company form often used in Macau Macau Finance Bureau for tax registration is the joint stock company (sociedade anónima). (Industrial Tax, “The Declaration of the Joint stock companies must have a minimum Commencement of Activities – Form M/1) share capital of MOP$1,000,000 and at least before the company or the branch initiates 25 percent (25%) of the registered share capital the business activity in Macau. must be paid up at the time of incorporation of Companies the company. The capital of a joint stock company must be Private Limited Companies by Quotas divided into shares, all of which have the same Private limited companies by quotas are the nominal value, which cannot be lower than most popular type of company and the most MOP$100, represented by share certificates. common option for small and medium sized The shares are, in general, freely transferable. enterprises. The vast majority of companies The liability of a shareholder is limited to the incorporated in Macau are of this type. The value of the shares subscribed. liability of the shareholders (also called quota The MCC requires a minimum of three shareholders) of private limited companies by quotas holders to incorporate this type of company. is limited to the value of the quotas held by The management of a joint stock company is them. entrusted to a board of directors. The appoint- In principle, private limited companies by ment of a company secretary and a supervisory quotas (sociedade por quotas) should have a board or sole supervisor is mandatory for joint minimum of two quota holders with both hold- stock companies: ing quotas of at least MOP$1,000 to a maximum (a) that are owned by ten or more shareholders; of 30 (thirty) quota holders. Note that the MCC or also allows for the possibility of a single quota holder, in which case the company will have a (b) that issue bonds. different form, i.e., it would be a limited liability Company Registration company by a sole shareholder. The minimum Once the form or type of business vehicle is capital requirement for private limited compa- decided, an application for the registration nies by quotas is MOP$25,000. of the company must be filled at the MCMPR The quota holders can be other companies or with the proposed name and the definition of individuals and there is no legal restriction its business object. A company name will not on the nationality or residence of the quota be accepted if it is identical to another existing holders. Under the relevant rules of the MCC, company. A company may be incorporated with at least one director must be appointed and this either a Portuguese or Chinese name or both. person does not need to be a Macau resident. In addition to the Chinese and Portuguese A company secretary may be also appointed, names, a company can be also incorporated although this is not mandatory. with an English name. Inter vivos transfer of quotas is subject to the For the incorporation of a company registration registration with the MCMPR and must be with the commercial register, the Incorporation made in writing with certification of the sig- Act and the Articles of Association must be nature of the parties made by a Macau notary. submitted to the MCMPR. Both documents should be prepared and confirmed by a Macau lawyer. Where one of the shareholders of the company to be incorporated is a corporation,

68 LexisNexis Foreign Investment Law Guide 2017-2018 the following additional documents must be of incorporation, object of business, its capital, submitted: the identification of the share/quota holders, its (a) A Certificate of Incorporation to be shares/quotas, and the directors in charge of issued by the Company’s Registry of the the management of the Macau company, etc. country of incorporation of the overseas For tax assessment purposes, registration with company, certified by a Public Notary, his the Macau Finance Bureau is additionally capacity being confirmed by means of the required. Also, as already mentioned, special Hague Convention 1961 or by a Chinese industry-specific approval and registration Consulate; requirements may apply. (b) A resolution passed by the General Meeting The entire process may take up to 20 days to or by the Board of Directors comprising the be completed. following: 5. Under what circumstances are foreign (i) the decision to jointly with other investments subject to government share (quota) holders to incorporate approvals? What is the process and a company in Macau, indicating the timeline for such approvals? type of business to be developed and capital to be subscribed; In general terms, to comply with the require- (ii) the appointment of the overseas ments and the regulatory procedures prescribed company representative for signing by law, registration in the MCMPR and in the contract for incorporating the Macau Finance Bureau is mandatory. new company in Macau for and on its Nevertheless, there are specific sectors that behalf; and require Government approval such as Finance, (iii) the appointment of the overseas Insurance, Banking and Offshore Companies, company representative entitled to Gaming (Concessionaries and Promoters), act on its behalf in all dealings of the Television and Media or the Concessionaries company to be incorporated, namely, of Public Services (Electricity, Water and Gas). giving the representative powers to Once the form or type of business vehicle attend and pass resolutions for and on is decided, a prior application must be filed behalf of the overseas company at any with the MCMPR requesting the commercial general meeting of the new company denomination of the company and, once it has – this document must be certified been approved, the shareholders may incor- by Notary Public in the country of porate the company, their signatures being incorporation of the overseas company certified by a Notary in the incorporation act. and duly apostilled as per the Hague Convention 1961 or legalized in a 6. What sectors are heavily regulated or Chinese Consulate. restricted in your jurisdiction, if any? (c) The Declarations of acceptance of office Conversely, what are some of the more by the directors who will compose the open or unrestricted sectors, if any? Administration or the Board of Directors As mentioned, special approval requirements of the Macau company. exist for certain industry sectors, such as in Upon completion of the registration process, finance, insurance, banking, for off-shore the MCMPR will issue a Commercial Certificate companies, gaming (concessionaries and of Incorporation of the Company confirming promoters), television and media or for con- the type and name of the company, the date cessionaries of public services (electricity, water

Jurisdictional Q&A – Macau 69 and gas). The media industry is more open than 9. Are there any free trade, special the other industries, which are highly restricted economic or industrial zones in your and regulated. jurisdiction and what are their requirements? 7. Are there any restrictions on doing business with certain countries or The Mainland and Macao Closer Economic territories in your jurisdiction? Partnership Arrangement (CEPA) signed in (For example, sanctions.) 2003 between People’s Republic of China and the Macau Special Administrative Region There are no general restrictions on doing busi- is the free trade agreement (FTA) in place in ness in place, with the exception of restrictions Macau. It has, since its implementation, had ten on those countries or territories upon which supplementary agreements covering 3 major the People’s Republic of China have imposed economic and trade areas: Trade in Goods, sanctions. Trade in Services and Trade and Investment Facilitation. 8. What grants or incentives are on offer to foreign investors, if any? Among others, the referred FTA covers Zero Tariff in Trade in Goods, Rules of Origin, Investment incentives offered to investors, are Certificate of Origin, Definition and Related found in several pieces of legislation, provided Regulations in the Mainland and Macau. that the companies prove that they are involved Recently, Macau and Hong Kong have started in the following: promotion of economic diver- negotiations on a FTA. This new arrangement sification and added value within the value is deemed to cover, inter alia, “commitment chain of their activities, contribution to pro- to bind tariff at zero, minimizing non-tariff motion of exports to new unrestricted markets barriers, avoiding imposing trade remedies, or contribution to technical modernization. customs facilitation procedures, liberalization The incentives are in the following categories: and facilitation of trade in services, and legal (a) Fiscal incentives – full or partial exemption and institutional arrangements.” from taxes (profit/corporate, property tax, Hengqin Island, (located at a distance of 180 stamp duty for transfer of properties and meters from Macau) is a special economic other taxes); industrial tax is currently zone of the People’s Republic of China and has exempted for all companies; different incentives for Macau companies and (b) Financial – incentives by government- investments. funded interest subsidies; 10. What are the main taxes that could (c) Export diversification – subsidies given to apply to foreign investors in your companies and trade associations attending jurisdiction? (For example, Personal trade promotion activities organized by the Income Tax, Corporation Tax, Value Macau Trade and Investment Promotion Added Tax and Social Security Payments.) Institute (IPIM). In Macau, there are income taxes, taxes on There are other subsidies in place, such as those certain expenditure goods and services, and for installation and anti-pollution equipment. taxes on property and wealth. Under Macau tax laws, individuals and corporations, such as companies or branches of foreign entities that are engaged in commercial or industrial activities in the Region are liable to Industrial and Complementary Tax.

70 LexisNexis Foreign Investment Law Guide 2017-2018 The tax system of Macau includes professional which intends to tax the utility value of their tax, complementary tax, industrial tax, as well fruition expressed in the form of the effective as real estate tax. or potential rent. Stamp duty is also levied on certain types of transactions. 11. What are some of the employment regulations in your jurisdiction that Professional Tax foreign investors should be aware of? Is Professional tax is imposed on the income it possible to secure residency permits or from work, in cash or in kind, of a contractual work visas for foreign nationals under nature or not, fixed or variable, regardless of investment? origin or location, currency and the stipulated methods for calculation and payment. Income The employment issue is one of the most from work constitutes all income earned from important to businesses looking to establish rendering work on another’s account or on themselves in the Macau market, as it can often one’s own account. be difficult to identify appropriate staff to fill required positions. The tax rate is progressive and the amount taxable is only the portion in excess of the threshold Despite the Law 21/2009, dated 27 October established and not the entire amount. 2009 – which is the special law that governs the hiring of non-resident workers – the truth Complementary Tax is that the regulations governing the hiring of Complementary Income Tax is similar to the workers from overseas remain stringent and corporate profits tax, which may be defined as a the processing time for obtaining the required percentage taken from the net profit. It has the working permits for foreigners is normally characteristics of a scheduler tax because it is quite long. levied on the revenue earned by the activities carried out in Macau. Recruiting Local Resident Workers Complementary tax is progressive and the The “Labour Relations Law” of Macau – Law amount taxable is only the portion in excess of 7/2008, dated 5 August 2008 – is a general piece the threshold and not the entire amount. of legislation that applies to all employer-employee relationships established in Macau. According to Law 21/78/M of 9th September, Complementary Income tax is paid on the total Employment contracts may be fixed, temporary income derived from the SAR by all corpora- or indefinite contracts, and are not subject to tions, irrespective of their head office address. any special form as they may be made orally or in writing. However, fixed-term employment Current Higher Complementary Income tax contracts and employment contracts of minors stands at 12%. must be made in written form. Also, fixed-term Industrial Tax employment contracts can only be concluded Industrial Tax or Business Tax, of which pay- to the satisfaction of the temporary needs of ment has been exempted for some years, may the company. be considered as a kind of business registration Social Security and Insurance charge levied according to the classification of the activity developed by the taxpayers. For new employees hired by a local entity in Macau, both the Macau Finance Department Real Estate Tax and the Social Security Fund must be notified Real Estate Tax is a tax levied annually on within 15 (fifteen) days of commencement of the profits derived from the urban real estate, the employment.

Jurisdictional Q&A – Macau 71 Hiring Non-Resident Workers (a) Public domain lands – those that, by law are In accordance with the Macau law, non-resi- considered as such; and dents from Mainland China or other countries (b) Private ownership lands – those in which are not permitted to work in Macau, unless a right of ownership has been definitively they have first obtained a valid working permit constituted by private entities. issued by the Macau Government’s competent According to Macau Land Law, available (res in authorities – commonly called a Blue Card commercium) lands may be the object of: – which allows the entrance and temporary (1) Sale; residence of non-residents in Macau for working purposes only. (2) Concession by Aforamento; (3) Concession Leasehold; and Hiring of high skilled workers (4) Precarious use or occupation. The granting of a temporary residence permit depends, essentially, on the fulfillment of one As far as the annual rent is concerned, it condition namely that only investors, invest- is established in the Concession Leasehold ment projects entrepreneurs, person or persons Contract – which is the more common juridical in a management position or qualified holders regime – taking into consideration the laws and of academic or technical certificates, may regulations that establish the rents. apply for the temporary residence permit; and The term for a concession cannot exceed 25 the observation of one requisite, namely that years and, subsequently, may be renewed the skills or duties of the applicant have to be successively for 10 years, provided that the considered of particular interest for the Region. concessionaire of the land submits a declaration The decision about the particular interest of with the Macau Government at least 6 months the technical skills of applicant is within the before the term is up. competence of the Chief Executive, and has The renewal is subject to a payment of a lump been now delegated to the Secretary for the sum special contribution, which shall be fixed Economy and Finance. from time to time by the Macau Government, by reference to the updated rent calculated 12. Can foreign investors acquire real according to the law which regulates the rent property and land in your jurisdiction? of the land’s lease concession at the time of the Are there any restrictions or limitations? renewal.

Foreign investors can acquire real property and The Government of Macau is the entity gov- land in Macau. erning the management of the land according to the Basic Law and is represented by the Chief The Basic Law of Macau Article 6, states Executive, who is responsible for the concession that the law shall protect the right of private of lands and any other rights related to the ownership of property; the land and natural lands. resources within Macau are the the property of the State, with the exception of private lands 13. Are there any processes in your recognized as such according to the laws in jurisdiction that can block foreign force in Macau before the establishment of the investment under specific circumstances? Special Administrative Region of Macau. This being said, according to Macau Land There are no processes in Macau that can Law, we may consider two main types of lands, block foreign investment under specific considering their juridical regime, as follows: circumstances.

72 LexisNexis Foreign Investment Law Guide 2017-2018 14. What foreign currency or exchange circumstances or the subject matter of the controls should foreign investors be decision being challenged. Normally, appeals aware of? from a final decision of the lower court on the merits of the claim will suspend enforcement Macau is a free port without any exchange of that decision. controls affecting the flow of capital. The Second Instance Court is an Appeal court 15. Are there any restrictions, approval of the decisions of the First Instance Court. requirements or potential penalties if a However, its primary jurisdiction is to decide foreign investor withdraws their on matters mainly related with Political investment in your jurisdiction? Organs. The Last Instance Court is the final arbiter Except for the contractual remedies available to of appeal, which enforces and is the ultimate the parties, there are no restrictions, approval bastion of the legality of the system. requirements or potential penalties if a foreign Without prejudice to bilateral agreements on investor withdraws their investment in Macau. the recognition and enforcement of foreign 16. What contract enforcement and judgments, the Civil Proceedings Code gen- investor protection mechanisms are in erally provides for expedited proceedings for place in your jurisdiction, if any? enforcement of foreign judgments. MSAR also leaves the door open for the dis- General judicial mechanisms are available in putes to be settled by non-judicial means, such Macau, which is a Rule of Law system based on as arbitration, outside the Court system. The the Civil Law. Disputes in MSAR can be settled option is supported by the large autonomy that with resort either to judicial or to non-judicial parties enjoy in MSAR legal system concerning means. civil and commercial matters. The Judicial system of MSAR is composed of The statutes on arbitration oversee a special three different levels: regime for international commercial arbitra- (a) First Instance Courts; tion, as regulated by Decree-law 55/98/M, dated (b) Second Instance Court; 23 November 1998, based on UNCITRAL rules. (c) Last Instance Court. Domestic arbitrations are regulated by the Arbitration Law, Decree Law 29/96/M, dated The First Instance Court, comprises a special- 11 June 1996. ized court, the administrative and the Judicial Base Court which, with some exceptions, is the There are specialized bodies for the Judges common one for citizens to access justice. All (Judiciary Council), Public Prosecutors (Council the questions, apart from the administrative of the Public Prosecutor) and for licensed field, are submitted there and decided in Lawyers (Macau Lawyers’ Association, a pro- conformity. fessional association empowered with public interest functions). The procedures for the conduct of litigation are governed by the Civil Proceedings Code. According with the law of MSAR, it is possible to appeal if the value of the claim is in excess of MOP 50.000,00. The effect of the appeal (suspensive or otherwise) will vary in accordance with the procedural

Jurisdictional Q&A – Macau 73 17. Does your jurisdiction have any 19. Are there any environmental policies bilateral or multilateral investment and regulations that (potential) foreign protection treaties with Asia-Pacific investors should be aware of prior to or jurisdictions that are commonly used for throughout the investment process in investing into the country? your jurisdiction?

There are no bilateral or multilateral invest- There are no special environmental policies and ment protection treaties with Asia-Pacific regulations that (potential) foreign investors jurisdictions that are commonly used for should be aware of prior or throughout the investing in Macau. investment process in Macau.

18. What intellectual property rights 20. Are there any government agencies protections are available in your or non-governmental bodies that jurisdiction to foreign investors? (potential) foreign investors can turn to for more information on investment in Intellectual Property is regulated by the IPR of your jurisdiction? Macau, whereas Authors’ Rights are protected by the Regime on Authors’ Rights. Macau Trade and Investment Promotion IPR makes the distinction between commer- Institute (IPIM) is the governmental body cial establishments, trademarks, patents and which “aims to assist both local and overseas designs. enterprises to achieve business goals in a competitive market, obtain information, According to the IPR, a trademark may consist understand the current market trends and of words, letters, numerals, sounds, the shape of grasp business opportunities”. Hence, it is goods or their packaging, designs or patterns, one of the bodies which (potential) foreign or colours and any combination of the above. investors can turn to for more information on The Economic Bureau is responsible for the investment in Macau. registration of trademarks and the MCMPR Other bodies are Chambers of Commerce, for the registration of commercial names. specially the Macau European Chamber of The remedy for trademark infringement in Commerce and the American Chamber of Macau can be obtained by administrative and Commerce. judicial measures. 21. Have there been any recent proposals Administrative Protection for reforms or regulatory changes that In Macau, the administrative protection in will impact foreign investment in your the field of intellectual property is a relatively jurisdiction? strong protection. The Customs Department of Macau is the entity responsible for the There have not been any recent proposals for enforcement and prevention of the violations reforms or regulatory changes that will impact of the IP rights. foreign investment in Macau. Judicial Protection The principal measure for remedy of IP rights infringement is judicial protection, which is governed by specific rules in the IPR.

74 LexisNexis Foreign Investment Law Guide 2017-2018 22. Are there any other features regarding foreign investment in your jurisdiction or in Asia that you wish to highlight?

Macau is still a well-kept secret in terms of investment destination. It is one of the freest economies of the World, with a tax rate of as low as 12% (individuals and companies), being very attractive to set up investment companies, as it does not have the costs of the sister Special Administrative Region of Hong Kong. Despite the downturn in the gaming revenues, the fact is that it is still an investment destination as there are plenty of new resorts to be opened in the next couple of years. The new bridge to be inaugurated in the Pearl River Delta, linking Hong Kong, Macau and Mainland, as well as the development that will occur in the neigh- boring Hengqin Island, which is a Free Trade Zone and operates under a special regime in the People’s Republic of China, makes Macau as a place to invest in the short and medium term.

About the Author: Pedro Cortés Senior Partner, Rato, Ling, Lei & Cortés W: www.lektou.com Advogados A: Avenida da Amizade, 555, E: [email protected] Landmark Office Tower, 23rd Floor, Macau SAR T: +853 2856 2322 F: +853 2858 0991

Jurisdictional Q&A – Macau 75 Jurisdiction: Mauritius Firm: BLC Robert & Associates Author: Jason Harel, Fayaz Hajee Abdoula and Javed Niamut

1. What are the main reasons foreign safeguard confidentiality. The International investors invest in your jurisdiction? Arbitration Act offers a simple and ready-made mechanism for the incorporation of arbitration Viewed as a sound model of socio-political clauses in the constitution of Global Business stability and economic prosperity, Mauritius companies based in Mauritius. In addition, has firmly established itself as a unique invest- investors can also have the additional comfort ment destination, with good fundamentals of the availability of a pool of international for growing wealth. The island has built up a arbitrators for settling disputes. Arbitration strong financial services sector with an efficient is preferred across sectors for the flexible regulatory regime, well-established banking approach over the rigidity of courts. institutions and a stock exchange which is Mauritius combines the traditional advantages one of the leading exchanges in Africa. The of being an offshore financial centre (no capital latest OECD report confirms once again that gains tax, no withholding tax, no capital duty Mauritius is largely compliant with global on issued capital, confidentiality of company requirements and that it can be compared to information, exchange liberalisation and free countries such as the UK, US, Singapore and repatriation of profits and capital) with the Hong Kong. distinct advantages of being a treaty based The Mauritian legal system is a hybrid system jurisdiction with a substantial network of which draws legal principles from both French double taxation avoidance treaties and invest- civil law and British common law traditions; ment promotion and protection agreements. its procedures are largely derived from the The combination of fiscal and non-fiscal English system, while its substance is based advantages together with the diverse prod- in the Napoleon Code of 1804. Commercial uct-base have been the key ingredients of the and contractual law is also based on the Civil Mauritius success story. Although Mauritius is Code. The Supreme Court is the highest judicial better known as a gateway for the structuring of authority and the country has maintained the investments into India and increasingly Africa, right of appeal against final judgments of the it has also grown to become a leading jurisdic- Supreme Court to the judicial committee of tion for private client services in the region. To the Privy Council of England. Mauritius is a date, Mauritius has concluded 45 tax treaties. member of the International Court of Justice. Other factors making Mauritius an ideal Mauritius is also known as an International investment hub are its strategic geographical Arbitration Centre for the region. It embraced location in the Indian Ocean and favourable this new model of dispute settlement as it offers time zone (GMT+4), its large multilingual a tailor-made option for investors which cater pool of highly capable and skilled workforce, for a cheaper and fast out-of-court alternative the state-of-the-art infrastructure with high to settle commercial disputes which would

76 LexisNexis Foreign Investment Law Guide 2017-2018 internet connectivity and modern port and business in Mauritius, registration of business airport facilities. names, allocation of a single business registra- The key growth sectors in 2016 were real estate tion number and issue of a business registration activities; financial and insurance activities; card. manufacturing and wholesale & retail trade; 3. What restrictions are placed on and accommodation and food service activities; foreign investment? Does this differ at information and communication technology. local levels of government? According to the data release report of the Bank of Mauritius for 2016, Foreign Direct In general there are no restrictions on foreign Investment (FDI) inflows to the tune of MUR investment in Mauritius, except for foreign 13.6 bn have been recorded for the four quarters ownership in Mauritian sugar companies listed of 2016 as compared to MUR 9.7 bn in 2015. on the stock exchange. Not more than 15% of Real estate and financial services remain the the voting capital of a sugar company can be most attractive sectors which were the main held by a foreign investor without written con- recipients of FDI. Real Estate activities recorded sent from the Financial Services Commission. FDI to the tune of MUR 9.9 bn of which IRS/ Investments made by foreign investors in RES/IHS accounted for MUR 7.9 bn. Direct immovable property (whether freehold or investment flows of MUR 2.1 bn were recorded leasehold), or in a company holding freehold in the financial services sector while the man- or leasehold immovable property in Mauritius, ufacturing sector registered MUR 511 million. require approval from the Prime Minister’s 2. What foreign investment legislation is Office under the Non-Citizens (Property in place in your jurisdiction (e.g. Foreign Restriction) Act 1975. Investment Law or Foreign Investment 4. What are the most common business Catalogue)? Please provide a brief vehicles for foreign investors? How long overview of such legislation. do they take to be set up? What are the The following foreign investment legislations key requirements for the establishment are in place in Mauritius: and operation of these vehicles?

The Investment Promotion Act of 2000 sets There are various vehicles used to structure a out the legal framework and makes provision business including: for the promotion and facilitation of investment (a) Companies; in Mauritius including the establishment of the Board of Investment. (b) Societés (derived from French law) often described in Mauritius as civil or The Business Facilitation (Miscellaneous Provisions) Act 2017 provides for amendments (c) commercial partnerships; to the legislative framework that are necessary (d) Limited partnerships; for the removal of constraints in relation to (e) Limited Liability Partnership; permits, licences, authorisations and clearances (f) Trusts; and to further facilitate the doing of business, and for related matters. (g) Foundations. The Companies Act of 2001 sets out the legal Companies framework for the setting up and operation of Companies can be incorporated or registered companies in Mauritius. under the Companies Act 2001 and can be The Business Registration Act 2002 provides for the registration of persons carrying on

Jurisdictional Q&A – Mauritius 77 either private or public. A private company liable only up to the maximum amount of its is limited to 25 shareholders and cannot offer commitment. shares to the public. Companies can have a A limited partnership can elect to have a limited or unlimited life. separate legal personality. Irrespective of Companies can be: whether a limited partnership has elected legal (a) Limited by shares. The liability of its personality, the partners are still liable for the members is limited to any amount unpaid partnership’s debts (general partners have on the shares held by the shareholder. unlimited liability whereas limited partners are liable to the extent of their contribution or (b) Limited by guarantee. The liability of its other agreement). A limited partnership can be members is limited to the amount that incorporated within 3 working days. the members undertake to contribute to the assets of the company in the event of it Limited Liability Partnership being wound up. Limited liability partnership (LLP) intro- (c) Limited by shares and by guarantee. duced by the Limited Liability Partnerships (d) Unlimited. Where there is no limit on the Act is the new type of partnership vehicle. It liability of its shareholders. combines features of both a company and a limited partnership. It can be used for offering A company is the most common form of busi- professional or consultancy services and also ness vehicle for structuring funds in Mauritius. legal services through the holding of a Global The majority of Mauritius-established entities Legal Advisory Services Licence issued by the are set up as companies and regulators are Financial Services Commission. familiar with the structure of a company as a An LLP can be set up by two or more partners. business vehicle. A company can be incorpo- The LLP Act also provides for the conversion rated within 3 working days. of an existing entity or unincorporated body Sociétés to an LLP and the re-domiciliation of foreign Sociétés are set up under the Civil Code or LLPs or Mauritian LLPs to and from Mauritius. Commercial Code. The participants’ interests There are no restrictions on the residency of the are referred to as “parts sociales”. Sociétés are partners and a partner can be an individual, an fiscally transparent and the liability of the entity or an unincorporated body. “limited partners” can be limited. A société The LLP is required to appoint a manager resi- commerciale must be registered with the dent in Mauritius at all times which should be Registrar of Companies. a local management company if the LLP holds a The disadvantage of sociétés are that they are Category 1 Global Business Licence or a person based on a form of French partnership law and qualified as a secretary if such is not the case. French legal concepts and terminology are not The LLP should be registered with the Registrar understood by all investors. of LLP. A partnership agreement should be put Limited partnerships in place by the partners which will provide for the governance of the LLP and the rights A limited partnership is set up under the and duties of the partners. The LLP can hold a Limited Partnerships Act 2011. A limited Category 1 Global Business Licence if it would partnership can elect to have legal personality conduct a major part of its business outside and must have at least one general partner who Mauritius. In such case, the LLP Act provides is liable for all the debts and obligations of the for public records of the LLP not to be available partnership, and one limited partner who is

78 LexisNexis Foreign Investment Law Guide 2017-2018 Jason acts for public and private companies, banks, hotels and real estate on a range of acquisitions and other corporate transactions. Jason sits on a number of boards of directors including JP Morgan Investments Ltd and African Legal Network (ALN) and IBL Ltd. He is also chairman of a family controlled hotel group. Prior to joining BLC Robert and after completing his pupillage with Grays’ Tax Chambers, the leading tax chambers in the UK, Jason was a senior associate within the Trade Finance and Project Finance Group of Denton Wilde Sapte LLP in London from 2000 to 2005. Jason is also a Chartered Accountant and worked for Kingston Jason Harel Smith in their corporate insolvency and Co-Founding Partner, BLC Robert & restructuring divisions. He is qualified as Associates a Barrister both in England and Wales and the Republic of Mauritius. Jason Harel is a co-founding partner The Chambers Global Guide describes Jason of BLC Robert and boasts substantial as someone who “blends accounting knowl- experience in corporate M&A, workout edge with an in-depth knowledge of private transactions as well as taxation. He gener- international law” and client feedback in the ally practises in the areas of corporate and Chambers Global Guide describes him as commercial law, mergers and acquisitions, “extremely responsive, applying a western corporate insolvency, real estate, tax but work ethic and with world class experience.” also advises on litigation matters. Consistently identified as a ‘leading prac- titioner’ in his field by legal directories,

for inspection, and its audited financial state- registration, incorporation or corporate filings. ments to be filed with the FSC. However, the lack of formality and reporting Trusts requirements make a trust less transparent than a company. In addition, trusts do not have Trusts are formed under the Trusts Act 2001. corporate personality and trustees are subject They can be created either as a “purpose” or to fiduciary duties. A trust can be set up within “beneficiaries” trust. Participants are issued 1 working day. with units in the trust. Trusts are easy to set up because a trust does not require any Foundations

Jurisdictional Q&A – Mauritius 79 A foundation is set up under the Foundations requires the authorisation of the Prime Act 2012. A foundation can be set up for any Minister’s Office (PMO). purpose specified in its charter provided its A written application must be made to the objects are not contrary to the laws of Mauritius. PMO, detailing the precise location of the Purposes can be charitable, non-charitable or property, a site plan showing its extent, the both and for the benefit of a person or a class nature of the interest intended to be purchased of persons to carry out a specified purpose, or or otherwise acquired or held, and the reasons both. A foundation can be incorporated within for which the application is made. The PMO 3 working days. may, at its entire discretion, request such other Global Business Licence information it may require. Mauritius offers two types of Global Business It may take 3 to 6 months to obtain approval of Licence: the PMO. A certificate of authorisation, setting out any particular conditions that must be a) Category 1 Global Business Licence (GBL 1). respected by the applicant, is issued where the b) Category 2 Global Business Licence (GBL 2). PMO authorises the application. Any corporation, whether company, trust, société, limited partnership, limited laiblility 6. What sectors are heavily regulated or partnership or foundation can apply for a GBL restricted in your jurisdiction, if any? 1. A GBL 1 entity is resident for tax purposes Conversely, what are some of the more and so can take advantage of double tax open or unrestricted sectors, if any? treaties with countries that have them with There are no restricted sectors as such in Mauritius. The main characteristic of a GBL 1 Mauritius. However, the banking, non-bank- is that it must be managed and controlled from ing financial services sector, the ICT sector, Mauritius. A GBL 1 can be incorporated within Freeport activities and tourism activities are 3 working days. heavily regulated. Licences are required prior to A private company can also be licensed as a start of operation and the following regulatory GBL 2. A GBL 2 is not considered resident for bodies are in place to supervise the activities: Mauritius tax and is therefore not liable to tax a) The Bank of Mauritius for banking services; in the country. b) The Financial Services Commission (FSC) A GBL 2 does not benefit from double tax for the non-bank financial services sector; treaties. There are also certain restrictions on the activities permitted by a GBL 2 under the c) The ICTA for the ICT sector and Postal Financial Services Act 2007 A GBL 2 can be Services in Mauritius; incorporated within 5 working days. d) The Board of Investment for Freeport; and. e) The Tourism Authority for the overall 5. Under what circumstances are foreign operations of tourist enterprises. investments subject to government approvals? What is the process and f) Investment is more open and encouraged timeline for such approvals? in the following sectors: Ocean Economy Renewable Energy, Smart Cities, Investments made by foreign investors in Education, Healthcare, Life Sciences, Water immovable property (whether freehold or Management, Fishing, Seafood Processing leasehold) or in a company holding freehold and Aquaculture, Hospitality and Property or leasehold immovable property in Mauritius Development, Film Industry, Agro- Industry, Manufacturing and Logistics.

80 LexisNexis Foreign Investment Law Guide 2017-2018 7. Are there any restrictions on doing goods destined for re-export and provides an business with certain countries or ideal place for warehousing, processing and territories in your jurisdiction? (For distribution of goods. example, sanctions.) To operate in the Freeport zones, a company must be registered under the Companies Act There are no restrictions on doing business 2001 (CA2001). A foreign company registered with certain countries or jurisdictions, except under CA2001 can also apply for a Freeport for countries banned by UN sanctions. certificate. There is no minimum capital for However, there are product-specific restrictions foreigners wishing to invest in a Freeport on imports from certain countries. company. In order to set up a company in the Mauritius Freeport, application for a Freeport 8. What grants or incentives are on offer certificate should be made to the Board of to foreign investors, if any? Investment (BOI), Freeport Unit, by a private Investment incentives are applied uniformly to Freeport developer or Freeport operator. An both domestic and foreign investors. Mauritius annual fee of MUR 20,000 must be paid by the is a low tax jurisdiction and offers a number of Freeport Operator at time of issue of Freeport other fiscal incentives such as: certificate to BOI. An annual fee of MUR 200, 000 applies in case of Freeport developer. a) Flat corporate and income tax rate of 15%. The government of Mauritius is still in the b) 100% foreign ownership is permitted in process of establishing special economic zones certain circumstances. that will help expand investment opportunities c) No minimum foreign capital is required. between the countries in the African region. d) No tax on dividends. There are several industrial zones around the e) No capital gains tax. island that cater for manufacturing industries f) Free repatriation of profits, dividends and mainly with all the necessary amenities and capital. infrastructure in place. g) Accelerated depreciation on the acquisition 10. What are the main taxes that could of plant, machinery and equipment. apply to foreign investors in your h) Exemption from customs duty on jurisdiction? (For example, Personal equipment. Income Tax, Corporation Tax, Value Added Tax and Social Security Payments.) i) Direct cash incentives for employers involved in recruiting and training. Personal Income Tax j) Enhanced investment tax credit for investments in the textile sector. Income is taxable when either: k) Extensive network of double tax avoidance (a) It was earned in Mauritius (whether the treaties. employee was resident in Mauritius or elsewhere). 9. Are there any free trade, special (b) It was earned at a time when the employee economic or industrial zones in your was resident in Mauritius (whether earned jurisdiction and what are their in Mauritius or elsewhere). requirements?

The Mauritius Freeport (free trade zone) established in 1992 is a customs-free zone for

Jurisdictional Q&A – Mauritius 81 Employees are subject to monthly tax under Withholding Tax the pay-as-you-earn (PAYE) scheme at the flat Dividends – there is no withholding tax on rate of 15%. An employee whose emoluments dividends do not exceed MUR23,078 a month is exempt Interest – A 15% withholding tax generally from PAYE. A tax resident employee is entitled applies to interest paid by any person, other to an income exemption threshold, which is than a bank or non-bank deposit-taking deducted from income to arrive at the charge- institution, to any person other than a com- able amount (if any). pany resident in Mauritius, unless specifically Corporate Taxation exempted. Tax resident business Royalties – The general rate of withholding Income derived from Mauritius or elsewhere tax on royalties paid to non-residents is 15 %, by business vehicles resident in Mauritius are although specified non-residents are exempted. subject to tax in Mauritius, subject to certain A 10% withholding tax generally applies to exceptions. royalties paid to residents.

Non-tax resident business Value Added Tax (VAT) Income derived from Mauritius by business VAT applies to goods and services. It is charge- vehicles that are not resident in Mauritius will able on taxable supplies of goods and services be taxed in Mauritius, subject to the business made in Mauritius by taxable persons in the vehicle qualifying for relief under a double course any business. VAT is also payable on tax treaty between Mauritius and the country importation of goods into Mauritius, irrespec- where the business vehicle is resident. tive of whether the importer is taxable or not. The rate of VAT is 15% on a taxable supply or A GBL 1 company is taxed at a flat corporate 0% on a zero-rated supply. Goods and services rate of 15% on business profits, although for- which are exported and certain goods and eign tax credits will be allowed to the full extent services which are supplied on the local market on the Mauritius tax for taxes paid at source are zero rated supplies. (where this can be evidenced). Alternatively, a system of foreign tax credits of 80% effectively Social Security Payment reduces the income tax rate to 3% on the qual- Employees’ contributions are set out in the ifying income of the company. The tax payable National Pensions Act 1976 and the National in Mauritius can be less than 3% (and can be Savings Fund Act 1995 as follows: reduced to nil), where the actual foreign taxes (a) National pensions fund: 3%. are more than 12%. (b) National savings fund: 1%. A GBL 2 company is not resident in Mauritius for the purposes of qualifying for relief under Contributions to the funds must be calculated a double tax treaty except for exchange of on the employee’s basic wage (not exceeding information purposes, if the treaty provides MUR16,655 a month). for it. It cannot benefit from relief under the From 2016, employees must file an annual tax networks of Double Tax Avoidance Agreements return by 30 September for the employment (DTAAs) to which Mauritius is a party. A GBL period 1 July to 30 June. 1 company is a resident in Mauritius for tax Employers purposes, but a GBL 2 company is an exempt body and is therefore not liable to pay tax in Employers’ contributions are set out in the Mauritius. National Pensions Act 1976 and the National Savings Fund Act 1995 as follows:

82 LexisNexis Foreign Investment Law Guide 2017-2018 of the sale of a majority stakeholder of a company listed on the Stock Exchange of Mauritius and counselled various sophisti- cated and expert investors in the acquisition of companies incorporated in Mauritius. He has also advised Courts Asia, a company listed on the Singapore Stock Exchange, in respect of the proposed acquisition of the one of biggest furniture business in Mauritius. Currently Fayaz is also the advisor to General Electric, a multinational conglomerate corporate, RIU Hotel and Resort Group, one of the renowned names in the hotel industry. In terms of Employment law, he is one of the lead Employment Lawyer in the firm advising several high profile banks, hotels Fayaz Hajee Abdoula and other large players in the local indus- Senior Associate, BLC Robert & try. Fayaz has also advised on cross border Associates employment matters, offshore companies employing staffs in Mauritius and advises Fayaz Hajee Abdoula is a Senior on all aspects of employment laws to our Associate at BLC Robert with Mergers foreign clients in Mergers and Acquisitions and Acquisitions, Company Law and transactions. Employment Law as his area of expertise. Fayaz joined BLC Robert as a pupil under Since joining BLC Robert in 2009, he has Mr. Iqbal Rajahbalee, Senior Counsel, obtained a wide range of experience in and was thereafter admitted to the Bar of Mergers and Acquisitions transactions. Mauritius in January 2010. Fayaz read law Fayaz has advised on some major transac- at the University of Manchester (United tions which would include but not limited Kingdom) and was called to the Bar of to, representing a financial conglomerate England and Wales at the Honourable in the potential purchase of a Mauritius Society of Lincoln Inns. real estate fund; a purchase bid in respect

(a) National pensions fund: 6%. 11. What are some of the employment regulations in your jurisdiction that (b) National savings fund: 2.5%. foreign investors should be aware of? Is (c) Monthly training levy of 1.5% of basic wage it possible to secure residency permits or of every employee. work visas for foreign nationals under Employers must file a return with details of investment? employees by 15 August. The main piece of legislation governing employment law in Mauritius is the Employment

Jurisdictional Q&A – Mauritius 83 Rights Act 2008 which covers: employment An application for occupation permit can be contracts; minimum age for employment; made by foreign professionals or investors. An hours of work; remuneration; and other basic occupation permit is a combined work and res- terms and conditions of employment. idence permit that allows a foreign professional Other legislation includes: to reside and work in Mauritius. Applications for an occupation permit can be submitted in (a) the Employment Relations Act 2008 which any the following three categories: governs trade unions, fundamental rights of workers and employers, collective bar- Investor gaining, dispute resolution and related The business activity should generate a turno- matters; ver exceeding MUR 4 million annually with an (b) the Sex Discrimination Act 2002 which initial investment of USD 100,000 per investor prohibits discrimination on the ground of or its equivalent in freely convertible foreign sex in various circumstances; currency. (c) the Investment Promotion Act 2000 which In case there is more than one investor, the provides for the issue of occupation permits turnover criteria should apply in respect of to foreign professionals; each applicant (i.e. MUR 8 million for two (d) Remuneration Orders issued by the applicants, MUR 12 million for three appli- Ministry of Labour, Industrial Relations cants, and so on); and Employment. Sets out the additional Professional rules of employment in industries operating Basic salary should exceed MUR 60,000 with specific needs; monthly. However, the basic salary for the (e) the Additional Remuneration Act 2016 category of Professional in the ICT Sector which is amended annually and provides should exceed MUR 30, 000 per month. For for payment of additional remuneration all applications submitted prior to 31 October to employees of the private sector to com- 2015, the salary threshold of MUR 45,000 still pensate for the rise in the cost of living/ applies; inflation; Self Employed (f) the Private Pensions Schemes Act 2012 which provides a regulatory framework Income from the business activity should for the operation of private pensions in exceed MUR 600,000 annually for the first two Mauritius; years of activity with an initial investment of USD 35,000 or its equivalent in freely converti- (g) the End of Year Gratuity Act 2001 which ble foreign currency. The annual income for the provides for payment of an end of year third year must exceed MUR 1,200,000. gratuity to employees of the private sector; The process takes approximately ten working (h) the Non-citizens (Employment Restriction) days. When approved, the foreign professional Act 1975 which provides work permits for is registered with the Board of Investment and expatriates; the Passport and Immigration Office issues the (i) the Occupational Safety and Health Act 2005 occupation permit. which governs safety, health and welfare of employees at work; and (j) the Recruitment of Workers Act 1993 which governs private recruitment agencies.

84 LexisNexis Foreign Investment Law Guide 2017-2018 advised a subsidiary of the World’s largest paper company by volume in corporate law matters. He is well versed in domestic and international aspects of taxation. He regularly advises in the development of tax opti- misation structures and the application of tax treaties and investment promotion and protection agreements. As part of his assignments, he has advised a multinational conglomerate in developing a tax optimisa- tion structure for its Africa operations. Javed has also been involved in a number of employment law related matters. He regularly advises on employment contracts, staff policy handbooks, labour relations, employee transfer, immigration and Javed Niamut work permits, issues of recruitment and Associate, BLC Robert & Associates termination and the implementation and structuring of employee share ownership Javed Niamut is a barrister at BLC Robert schemes and options plans. He has recently and is mainly involved in corporate, tax advised one of the top ten largest phar- and employment law matters. maceutical companies in the world on the Since joining BLC Robert in March 2012, restructuring of its workforce in Mauritius. he has acted for various international Javed read law at Oxford Brookes University clients on corporate restructurings, joint and completed the Bar Vocational Course at ventures and mergers and acquisitions. the University of the West of England. He He has recently acted for one of the was called to the Bar of England & Wales most established independent private in 2011 at the Honourable society of the equity firms in Asia in connection with Middle Temple. He is also a member of the the acquisition of a leading provider of Bar Association in Mauritius since January company formations, trust, corporate and 2013. fund administration services. He has also

12. Can foreign investors acquire real Certain statutory exceptions to the requirement property and land in your jurisdiction? of obtaining the authorisation of the PMO Are there any restrictions or limitations? include: (a) Holding immovable property for commer- The holding of interests in real property cial purposes under a lease agreement not (whether freehold or leasehold) by foreign exceeding 20 years; and/or entities requires the authorisation of the Prime Minister’s Office (PMO).

Jurisdictional Q&A – Mauritius 85 (b) Purchasing luxury villas, apartments, 17. Does your jurisdiction have any penthouses or other similar properties bilateral or multilateral investment under the Invest Hotel Scheme, Property protection treaties with Asia-Pacific Development Scheme and Smart City jurisdictions that are commonly used for Scheme. investing into the country?

13. Are there any processes in your Mauritius has signed Investment Promotion jurisdiction that can block foreign and Protection Agreements with the following investment under specific circumstances? Asia Pacific countries: China, India, Indonesia, Pakistan, Republic of Korea and Singapore. There are no such processes in Mauritius that can block foreign investment. 18. What intellectual property rights protections are available in your 14. What foreign currency or exchange jurisdiction to foreign investors? controls should foreign investors be aware of? Intellectual property is protected under two branches – industrial property and copyright. There is no exchange control in Mauritius. The Industrial Property Office’s (IPO) responsi- No approval is required for the repatriation of bilities include handling and administration of profits, dividends, or capital gains earned by a foreign investor in Mauritius. applications for the protection of patents, industrial designs and trademarks. Applications 15. Are there any restrictions, approval are made using prescribed forms and paying requirements or potential penalties if a statutory fees. The duration of protection for: foreign investor withdraws their (a) patents is 20 years; (b) industrial designs is investment in your jurisdiction? 5 years; and (c) trademarks is 10 years. An Industrial Property Tribunal (IPT) exists to, There are no such restrictions, approval inter alia, hear appeals of persons aggrieved by requirements or potential penalties if a for- certain IPO decisions and confirm, amend or eign investor withdraws his investment from cancel such decisions. The IPT is also empow- Mauritius ered to invalidate decisions as to whether 16. What contract enforcement and patents should have been granted, or industrial investor protection mechanisms are in designs or trademarks been registered. place in your jurisdiction, if any? The Copyright Act 2014 (CA 2014) provides for effective protection of copyright and related Contract enforcement can be done either rights. An author who registers his artistic, through the court or through arbitration. literary or scientific work with the Rights Effective mechanisms are in place for arbitra- Management Society (RMS) secures economic tion in Mauritius. rights (reproduction, adaptation, distribution) Mauritius has entered into numerous and moral rights (claiming authorship, object- Investment Promotion and Protection ing to distortion or alteration) that subsist in Agreements (“IPPAs”). IPPAs promote and the copyright material, and reinforces the claim protect the interests of investors from one of authorship by depositing such material with country in the territory of the country where the RMS. The RMS may represent and defend the investment is being made. the interests of its members in Mauritius.

86 LexisNexis Foreign Investment Law Guide 2017-2018 19. Are there any environmental policies requirements. BOI acts as the single interface and regulations that (potential) foreign with all investors and liaises with relevant investors should be aware of prior to or authorities for the granting of work permits, throughout the investment process in residence permits and other relevant permits your jurisdiction? required by the investor to operate in Mauritius. www.investmauritius.com Prior to undertaking certain development activ- Financial Services Promotion Agency (FSPA) ities in Mauritius, foreign investors are required has the mandate to promote Mauritius as a to carry out a Preliminary Environment Report premier financial centre and as a platform for (PER) or an Environment Impact Assessment structuring cross border investments in key (EIA) on such project and obtain a PER markets. www.mauritiusifc.mu approval or EIA licence (as applicable). Projects of a lesser scale and which by their very nature, Non-governmental bodies are not highly polluting require a PER while a Mauritius Chamber of Commerce and full EIA is required where significant adverse Industry (MCCI) is a not-for-profit private environmental impacts will likely result from sector institution in Mauritius which provides development of the project. The Environment a wide array of services through dedicated Protection Act 2002 provides for a list of activ- resources across the business spectrum such ities which require a PER or an EIA. A PER as trade facilitation, economic analysis, trade or an EIA may be required for any non- listed negotiations, advocacy, advisory services, net- activity, which, by reason of its nature, scope, working, arbitration and market intelligence. scale and sensitive location could have an www.mcci.org impact on the environment. COMESA Regional Investment Agency aims Some of the relevant regulations and guidelines to liberalise and promote trade facilitation in are: the region.www.comesaria.org The Environment Protection (Applications for The Mauritius Africa Fund was set up as a PER Approval and EIA Licence) (Processing public company limited by shares and will Fees) Regulations 2011. encourage domestic enterprises to invest in A proponent’s guide to Environmental Impact Africa. www.mauritiusafricafund.com Assessment (EIA) 21. Have there been any recent proposals A Proponent’s guide to preliminary for reforms or regulatory changes that Environmental Report (PER) (Yvette note this will impact foreign investment in your hyperlink too) jurisdiction? 20. Are there any government agencies The Business Facilitation (Miscellaneous or non-governmental bodies that Provisions) Act 2017 is introducing the follow- (potential) foreign investors can turn to ing key amendments: for more information on investment in your jurisdiction? Amendments to existing legislations such as the Companies Act, the Local Government Government agencies Act and the Business Registration Act will be made in order to facilitate the setting-up of a The Board of Investment (BOI) is the gov- business within less than one working day and ernment agency responsible for promoting registration of businesses and incorporation of investment in Mauritius, and it also helps companies will be made within two hours. guide investors through legal and regulatory

Jurisdictional Q&A – Mauritius 87 The Investment Promotion Act is being (IP Box). The preferential tax regime of amended to implement a national electronic the IP box will complement the Regulatory licensing platform which will provide a single Sandbox License. point of entry for application, processing and h) GBC1 will be required to fulfil at least two determination for permits and licenses. This (currently one) of the six FSC criteria to project also includes the setting up of a cen- demonstrate substance. tralized Electronic Registry of licenses which will hold and provide critical data on licensing 22. Are there any other features requirements. regarding foreign investment in your The following are some of the measures pro- jurisdiction or in Asia that you wish to posed on 8 June 2017 during the 2017- 2018 highlight? budget speech by the Government of Mauritius: Doing business in Mauritius is both easy and a) The creation of an Economic Development smooth and complies with best practices in Board (EDB) integrating BOI, Enterprise terms of transparency, good governance and Mauritius, the Financial Services ethics. Mauritius is top ranked in Africa and Promotion Agency and the Mauritius 49th globally in the World Bank’s Ease of Doing Africa Fund to ensure greater coherence Business 2016 Report. In 2016, Mauritius again and effectiveness in implementing policies topped the list of African Countries in the Mo and actions. Ibrahim Index of Corporate Governance. The b) The EDB will collaborate in the creation of a country adopted internationally accepted Regional Fintech Association to create links anti-money laundering and terrorist financing with other international institutions such legislations and is listed in the OECD white list as Innovate Finance London and Fintech of offshore jurisdiction. Circle. Mauritius has the right scheme and framework c) An Innovator Occupation Permit will be to position itself as the key Financial Centre, introduced for innovative start-ups with a Trading hub and Doing Business Platform. minimum operational expenditure of 20% This platform rests on two fundamental pillars for Research and Development purposes. namely: a credible and substantive interna- d) High tech machines and equipment brought tional financial centre and a good regional by investors from abroad will be considered logistics platform. as part of the minimum investment of USD The open and business friendly economy of 100,000 required to obtain an Occupation Mauritius combined with its modern infra- Permit. structures makes it an attractive place for e) An 8-year income tax holiday on the income investors. A new business can be set up and derived from the totality of Intellectual be operational within 3 working days. The Property Assets will be given for new country’s Investment regulations are in line companies involved in innovation-driven with the WTO’s agreement on Trade Related activities. Investment Measures. f) 8-year income tax holiday will be given for new companies engaged in the manufacturing of pharmaceutical products, medical devices and high-tech products. g) The introduction of an Innovation Box Regime for Intellectual Property assets

88 LexisNexis Foreign Investment Law Guide 2017-2018 About the Authors: Jason Harel, BLC Robert & Associates W: www.blc.mu Co-Founding Partner A: 2nd Floor, The AXIS E: [email protected] 26 Bank Street, Cybercity Ebene 72201 Fayaz Hajee Abdoula Mauritius Senior Associate, BLC Robert & T: + 230 403 2400 Associates F: + 230 403 2401 E: [email protected]

Javed Niamut Associate, BLC Robert & Associates E: [email protected]

Jurisdictional Q&A – Mauritius 89 BANKING & FINANCE · CORPORATE & COMMERCIAL · CAPITAL MARKETS & FUNDS · DISPUTE RESOLUTION · INTELLECTUAL PROPERTY & TMT

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Jurisdiction: Myanmar Firm: MHM Yangon Author: Takeshi Mukawa and Ben Swift

1. What are the main reasons foreign 2. What foreign investment legislation is investors invest in your jurisdiction? in place in your jurisdiction (e.g. Foreign Investment Law or Foreign Investment Myanmar is strategically located near the Catalogue)? Please provide a brief Indian Ocean between China, India and overview of such legislation. Thailand, and is endowed with many natural resources including natural gas, precious stones On 18 October 2016, Myanmar passed the and minerals. It has also been growing rapidly Myanmar Investment Law (“MIL”), which since opening up its economy in 2011, with replaced the 2012 Foreign Investment Law estimated growth in 2016 of around 6.5 per cent (“FIL”). Under the MIL, a permit is generally (6.5%) and a forecast growth for 2017 of around required from the Myanmar Investment 6.7 per cent (6.7%). This, together with its large Commission (“MIC”), which administers the consumer market of over 50 million people, MIL, for investments in large-scale projects. provides significant investment opportunities This includes investments that are strategically for foreign investors in a wide range of sectors. important, are capital intensive, may have In addition, according to its 2014 census, a large impact on the environment or local around 55 per cent (55%) of its population is community, use state-owned land, and are below the age of 30, indicating strong long-term otherwise designated. growth prospects for the market. Foreign investors may also obtain an endorse- Foreign investment in Myanmar has grown ment from the MIC to have the right to enter significantly since 2011. According to the into long-term leases of land or obtain tax Directorate of Investment and Company incentives as noted in question 8, even where a Administration (“DICA”), over $15 billion permit from the MIC is not required. There are worth of foreign investment has been approved also sectoral limitations on foreign investment, to take place in Myanmar over 2015-16 and as noted in question 6. 2016-17. The most significant sectors for foreign investment in 2016-17 were telecommunica- 3. What restrictions are placed on tions and manufacturing, with $3 billion and foreign investment? Does this differ at $1.2 billion respectively of approved foreign local levels of government? investment, while foreign investment in oil and Notification No. 15/2017 titled ‘List of gas has been significant historically. Restricted Investment Activities’, which was issued by the MIC on 10 April 2017 in relation to section 42 of the MIL (“MIL Notification”) is intended to be a comprehensive list of the types of investments that are closed to all private sector investment, closed to foreign investment, require approval of a Myanmar government

92 LexisNexis Foreign Investment Law Guide 2017-2018 ministry or may only be made through a joint In terms of regional-level restrictions, certain venture with a Myanmar company (in which approvals under the MIL will be delegated the Myanmar company has at least a 20 per cent to regional-level governments. Notification (20%) shareholding). The MIL Notification is No. 11/2017 titled ‘Prescribing investment discussed in more detail in question 6. capital amount for investment activities for By way of background, under the 1914 State and Regional Investment Committees Myanmar Companies Act (“MCA”), compa- to issue endorsement order’, issued by the nies incorporated in Myanmar are classified MIC on 3 March 2017, provides that state and as either a “foreign company” if they have any regional investment committees can approve foreign ownership, or otherwise as a “Myanmar investments worth up to US$5 million. The company”. DICA, which administers the MCA, MIC is currently working with these bodies maintains different systems of registration for to improve their capacity to ensure they are Myanmar companies and foreign companies able to administer the MIL appropriately, and (a foreign company’s registration number has their capacity to do so remains a key concern “FC” in it). If a company changes its classifi- in implementation of the MIL. cation, DICA requires that it apply to amend 4. What are the most common business its registration number. DICA only changed its vehicles for foreign investors? How long practice in early 2017 to permit Myanmar com- do they take to be set up? What are the panies to change their registration to become key requirements for the establishment foreign companies, allowing foreign investors and operation of these vehicles? to acquire Myanmar companies. The Transfer of Immoveable Property Common business vehicles Restriction Act 1987 also prohibits the transfer A foreign investment may be structured as to, or acquisition or lease for more than one either a subsidiary company or a branch year by, foreign companies, of immoveable under the MCA. As in other jurisdictions, property. A foreign company with an MIC generally the foreign company will be liable permit or endorsement and a land rights for all liabilities incurred by its branch, while authorisation may lease immoveable property it will have limited liability with respect to a with an initial term of up to 50 years (with Myanmar subsidiary, and as noted in question two extensions of ten years each). In addition, 10, a branch may be subject to higher taxes than as noted in question 21, the draft Myanmar a subsidiary in some cases, such as for some Companies Law (“MCL”) which will replace withholding taxes. the MCA is expected to allow Myanmar companies to have up to 35 per cent (35%) foreign Foreign investments into Myanmar are often shareholding while remaining classified as a structured as investments by a company “Myanmar company”. incorporated in jurisdictions like Singapore, which have a double tax treaty with Myanmar The MCL will also abolish the requirement (see question 10) or offer investor treaty pro- in the MCA for foreign companies to obtain tections (see question 17), and such a structure a permit to trade, which in practice has rarely also generally makes it easier to obtain finance been given to foreign companies intending to offshore and was previously administratively engage in trading activities (however, as noted easier to exit (see question 5). in question 21, the Ministry of Commerce (“MOC”) has been slowly liberalising trading Timing for establishment restrictions). Generally, a branch can be registered within one week, provided that the necessary

Jurisdictional Q&A – Myanmar 93 documents (such as the foreign company’s It should be noted that for both local subsidi- corporate charter, financial information and aries and branches, the minimum investment other required information) is available and it required for a “services company” is US$50,000, has paid the registration fee (around US$370) and for other companies, US$150,000. The law and stamp duty (around US$120). does not define when a company is a “services In order to register a subsidiary, a company company” and DICA determines this on a must first submit a name check form with the case-by-case basis based on the objects clause relevant fee to DICA to check the availability of in the company’s corporate charter. It is not the proposed company name, and then submit clear whether or how DICA will maintain this its corporate charter, details of its company distinction under the MCL, which is expected officers and other required information and pay to abolish objects clauses. In addition, a the registration fee (around US$370). If these minimum of two shareholders are required documents are provided, the process may take to register a company, including a subsidiary around one month.

Criteria set out in Explanation set out in MIR MIL s.36

Strategic importance (i) Investment of over US$20 million in sectors such as transport, energy, to Myanmar urban infrastructure, or media, or which are pursuant to a concession or similar right (ii) Any foreign investment in a border region or conflict area, or which will be conducted cross-border (iii) Investments in multiple states or regions (iv) Agricultural investments involving use of more than 1,000 acres of land, or other investments involving use of more than 100 acres of land

Large capital (i) Investment worth over US$100 million investments

Significant (i) Projects requiring an environmental impact analysis under the environmental or Environmental Conservation Law, or which are in designated, social impact protected, reserved or major biodiversity areas under the law (ii) Investments involving use of land which would have a sufficiently serious impact on land rights, for example, the compulsory acquisition of 100 acres or displacement of 100 residents

Use of state-owned (i) This does not include land use rights pursuant to a statutory land land or buildings administration process within a government authority’s responsibility (ii) A permit is not required where the lease is for five years or less, or is from a person who has the right to use the immoveable property from a government authority and is permitted to sublease or sublicence it under such grant

Other designated None prescribed to date investments

94 LexisNexis Foreign Investment Law Guide 2017-2018 Takeshi Mukawa Co-Representative Partner, MHM Yangon

Takeshi Mukawa is the co-representative partner of MHM Yangon. He is qualified in Japan and California. He has advised on many corporate and finance transactions, including the acquisition by Kirin of Myanmar Brewery (which is the biggest M&A transaction to date in Myanmar), the establishment of the Yangon Stock Exchange and the first aircraft financing in Myanmar, which created a mortgage over aircraft operating in Myanmar. He has also assisted the Myanmar government in making new laws and regulations, including the Securities and Exchange Law and the amendment of the Special Economic Zone Law.

(this requirement is expected to be abolished 5. Under what circumstances are foreign under the MCL). investments subject to government In terms of operating in Myanmar, as in other approvals? What is the process and jurisdictions, companies may conduct their timeline for such approvals? business in accordance with their corporate charter, and will generally maintain their Circumstances in which registration, provided they comply with the government approval is required annual filing requirements in the MCA by for foreign investment submitting DICA’s Form E, together with the As noted in question 2, the approval of the MIC audited financial reports within 21 days of its is generally required for large-scale investments annual general meeting. A branch is generally in Myanmar. The circumstances in which a required to file the financial reports filed by its permit is required under the MIL, as described parent in its place of incorporation. in more detail in the 2017 Myanmar Investment Rules (“MIR”) which were issued by the MIC on 30 March 2017, are summarised in the table on the left. The MIC’s approval is also required to have the right to enter into long-term leases of land or obtain certain tax incentives under the MIL, even where a permit would not otherwise be required.

Jurisdictional Q&A – Myanmar 95 In the context of acquisitions of existing DICA has discretion regarding whether it will investments, the Myanmar-language version publish such a summary. of the MIR (which is the binding version) The assessment criteria for permit applications requires the MIC’s approval for the direct or are set out in the MIR rule 64 and include indirect acquisition of a majority of the assets consideration of the character of the investor, or shares of a company with an MIC permit the compliance of the investor and the making (but not a company with an MIC endorsement). of the investment with Myanmar law, as well The previous practice under the FIL did not as the compatibility of the investment with the require such approval from the MIC, making development and security, and economic, social it easier for offshore transactions involving and cultural policies, of Myanmar, or its states companies holding an MIC permit to be exited and regions. through sale of the shares in the offshore parent In addition, other government approvals are company. required for investments in certain sectors as Process and timeline for approvals noted in question 6. The MIC provides an investment screening In terms of existing investments with MIC service under the MIR through which it can permits, the MIC typically took around two issue non-binding guidance to investors weeks to one month to process applications for regarding the likely application of the MIL purchases of shares in, or the business of, such to their proposed investment. This is likely investments under the FIL, and this is expected to be a first step for certain investors. Under to continue under the MIL. the MIR, an investment screening application 6. What sectors are heavily regulated or will be assessed by the MIC within ten days of restricted in your jurisdiction, if any? submission. Conversely, what are some of the more In terms of applications for an MIC permit, the open or unrestricted sectors, if any? person required to make the application is the investor (or their representative), or a relevant Under the MIL Notification, only Myanmar government authority if such authority holds a companies may undertake certain investments ‘significant ownership interest’ in the investor, which are of a local character (such as printing and the investment is or will be made pursuant local language periodicals) or relate to certain to a grant or concession from the authority, or businesses (such as artisanal oil wells and as otherwise stated in law. The MIC has 15 busi- mini-markets). The MIL Notification also ness days to undertake an initial assessment lists approvals required prior to investment in regarding whether the application is complete certain sectors. For example, the approval of and a further 60 business days for a permit or the Ministry of Health and Sports is required 30 business days for an endorsement to under- for investments in businesses for the supply take a substantive assessment of the application of health services. In addition, a joint venture and grant the permit or endorsement. (in which the Myanmar partner has at least a As part of this review process, the MIC may 20 per cent shareholding) is required in other publish a summary of the application for public sectors. comment within ten business days. It should be The approval of MOC is required for retail- noted that while the unofficial English transla- ing and wholesale services, and a note in tion of the MIR provides that DICA will publish the MIL Notification states that import or such a summary and consult publicly on MIC export activities shall be in accordance with applications, according to the Myanmar- MOC’s policy. Because MOC’s policy has language version (which is the binding version), historically been to not grant an import licence

96 LexisNexis Foreign Investment Law Guide 2017-2018 to foreign companies without an MIC permit, it 7. Are there any restrictions on doing is possible that foreign companies applying in business with certain countries or future without an MIC permit will experience territories in your jurisdiction? (For difficulties in obtaining an import licence example, sanctions). (the situation in relation to foreign companies holding an MIC endorsement is also not Myanmar does not have any restrictions on clear). It is also unclear whether MOC will, in doing business with any countries or territories. practice, grant approval to foreign companies 8. What grants or incentives are on offer for retailing and wholesale services. However, to foreign investors, if any? as noted in question 21, MOC has been slowly liberalising trading restrictions. Under the MIL, the MIC has discretion to grant In general, the MIL Notification liberalised corporate income tax exemptions for periods of many restrictions to foreign investment. three, five or seven years for investments in des- For example, it permits 100 per cent (100%) ignated “promoted sectors” depending on the foreign investment in the establishment and designated development status (or “zone”) of operation of offices or commercial buildings. the place of investment. An investor may obtain Foreign investors can also invest through a these exemptions by applying for a permit or joint venture with a Myanmar company in a endorsement from the MIC and making a tax number of sectors, including the development, incentive application. sale and lease of residential apartments and The promoted sectors are set out in Notification condominiums. No. 13/2017 titled ‘Classification of Promoted In addition to legal restrictions, there are also Sector’, issued by the MIC on 1 April 2017 and practical restrictions on foreign investment in currently include investment in agriculture, some sectors. For example, no foreign insurer forestry and related services, manufacturing, has been awarded a licence under the Insurance establishment of industrial zones and urban Business Law of 1996 to undertake an insur- areas, urban development (such as utilities), ance business (foreign insurers may only infrastructure (such as roads, rail, ports, conduct such a business in partnership with airports, power and telecommunications) Myanma Insurance, the state-owned insurer, and services (such as education, health and or in special economic zones (“SEZ”) under tourism). Notification No. 10/2017 issued by Notification 2/2017 of the Insurance Business the MIC on 22 February 2017 sets out the devel- Regulatory Board of Myanmar). opment status of each township in Myanmar Banking businesses are regulated by the for purposes of determining the zones for the Central Bank of Myanmar (“CBM”) under tax incentives. the 2016 Financial Institutions Law. Under In addition, the MIC may grant exemption this law, a foreign bank may only acquire all from customs and other taxes for imports or a substantial part of a local bank’s business of materials during the construction or with CBM approval, and such approval has not preparation of the investment and inputs for been provided to date (as of June 2017). Foreign export-oriented businesses. banks may offer corporate and wholesale banking services to foreign-owned companies and locally owned banks in Myanmar after establishing a branch in Myanmar with a licence from the CBM. Thirteen foreign banks have established branches in Myanmar (as of June 2017).

Jurisdictional Q&A – Myanmar 97 9. Are there any free trade, special (such distribution is permitted within the SEZ economic or industrial zones in your only) are much higher, including a minimum jurisdiction and what are their investment of at least US$25 million. requirements? Investments in SEZs are permitted to lease land for up to 50 years with an extension of 25 An SEZ has been established in Thilawa under years. In addition, a number of incentives can the 2014 Special Economic Zone Law (“SEZL”) apply. Investors are entitled to exemption from in a Japan-Myanmar owned joint venture. corporate income tax for seven years for free Two other SEZs have been approved for devel- zone investments, and five years for promotion opment in Dawei in Tanintharyi Region, and zone investments. Investors in both zones are Kyaukphyu in Rakhine State but are still in the entitled to a 50 per cent discount on corporate early stages of development. Under the SEZL, income tax in the five years following the rele- foreign investors can invest with the permission vant initial tax exemption period, and a further of the SEZ management committee, in its ‘free 50 per cent discount in the subsequent five year zone’ portion if they are export-oriented, and period on profits reinvested in the business in the ‘promotion zone’ portion if their goods within one year. or services will be sold in the SEZ (permitted on a wholesale or retail basis) or Myanmar 10. What are the main taxes that could (permitted on a wholesale basis only). apply to foreign investors in your jurisdiction? (For example, Personal Under Notification No. 1/2015 of the Income Tax, Corporation Tax, Value Ministry of National Planning and Economic Added Tax and Social Security Payments). Development (“SEZ Rules”), an application to invest in an SEZ must include an application The main taxes applicable to foreign invest- form (called a Form E), and requires informa- ments are corporate and personal income tax, tion regarding the proposed investment site and commercial tax, special goods tax and stamp the plan to develop its investment. The SEZ’s duty. Companies are subject to a 25 per cent management committee is required to make tax on earnings and a ten per cent tax on capital its decision on the application within 30 days. gains income (40-50 per cent on oil and gas The minimum criteria for approval to invest investments), irrespective of whether they are in Thilawa SEZ depends on the nature of the a Myanmar tax resident or non-resident. investment and is set out in Instruction 2/2015, Withholding taxes apply for certain categories issued by the Thilawa SEZ management com- of corporate income, with varying withholding mittee on 27 May 2015. The thresholds in this rates depending on the taxpayer’s residency. instruction are only minimum requirements Myanmar tax residents can offset withholding however, and generally higher standards will taxes against their end of fiscal year tax lia- apply in practice. Under the instruction, for bility, while for non-residents it is their final example, a company must export at least 75 tax liability. Under Notification No. 51/2017 per cent of its products to register as a free issued by the Ministry of Planning and Finance zone investor. Companies may register in the (“MOPF”) on 22 May 2017, the withholding promotion zone to sell products they manu- amounts since 1 April 2017 are 0 per cent facture if they meet the prescribed criteria, (0%) on interest payments, 10 per cent (10%) including local value adding, making a min- on royalties, and 2 per cent (2%) on payments imum investment of at least US$2 million and under contracts for residents, and 15 per cent establishing a warehouse on their SEZ site. The (15%) for interest or royalty payments and 2.5 thresholds to register in the promotion zone per cent (2.5%) for payments under contracts to distribute other manufacturer’s products for non-residents.

98 LexisNexis Foreign Investment Law Guide 2017-2018 Ben Swift Senior Legal Advisor, MHM Yangon

Ben Swift qualified as an English lawyer in 1999 and has over 15 years of post- qualification experience in cross-border transactions and projects. Before working in Yangon he worked in Beijing, Singapore, London, Dubai and Qatar. He has a wide range of knowledge and experience relating to international corporate transactions, particularly in relation to acquisitions and disposals, shareholder agreements, long- term offtake agreements, project financing and development.

Importantly, under Notification No. 51/2017 applies to a much narrower set of goods such as issued by MOPF on 22 May 2017, some large tobacco, alcohol, precious stones and petroleum or mid-sized taxpayers are exempt from products) has much higher rates of taxation (for withholding sums from payments of around natural gas the rate is eight per cent (8%), but US$1,000 or less to resident taxpayers and are for wines worth over US$20, it is 50 per cent required only to notify the Internal Revenue (50%) of the price per litre). Department of such payments. The withhold- Myanmar has a progressive personal income ing rates can also be reduced if a double tax tax for residents with a top marginal tax rate of treaty applies. Myanmar currently has double 25 per cent (25%), and top tax bracket of around tax treaties with India, the Republic of Korea, US$21,900. A flat tax of 35 per cent (35%) Laos, Malaysia, Singapore, Thailand, Vietnam applies to non-residents. In addition, under and the United Kingdom. Under its double tax the Social Security Law 2012 and the Social treaty with Singapore for example, the amount Security Rules 2014, employees are required to withheld on interest payments will be reduced contribute two per cent (2%), and employers to 8 per cent (8%) if it is to a bank or financial three per cent (3%), up to a maximum limit of institution, or 10 per cent (10%) if it is to any US$4.40 and US$6.60, respectively, in social other person, while the amount withheld for security contributions. royalties for patents, designs or models is the Under the Myanmar Stamp Act 1899, stamp same as for Myanmar tax residents. duty is payable on legal instruments depending Myanmar also has two turnover-based taxes, on their nature. For example, stamp duty of under the 1990 Commercial Tax Law and 2016 0.1 per cent (0.1%) of the value of the transfer Special Goods Tax Law. The Commercial Tax price applies for share transfers (following Law applies by exception to all goods and ser- the amendment of the dutiable amount under vices not listed in the Union Tax Law 2017 with Notification No. 146/2016 issued by MOPF), and a rate of taxation of generally around five per for joint venture agreements, it will generally cent (5%). The Special Goods Tax Law (which be around US$100.

Jurisdictional Q&A – Myanmar 99 11. What are some of the employment 12. Can foreign investors acquire real regulations in your jurisdiction that property and land in your jurisdiction? foreign investors should be aware of? Is Are there any restrictions or limitations? it possible to secure residency permits or work visas for foreign nationals under As noted in question 3, a foreign person cannot investment? purchase land in Myanmar. However a foreign investor with an MIC permit or endorsement Employment regulations in and a land rights authorisation, and investors Myanmar in Thilawa SEZ, can enter into long-term leases for land. Employment is primarily regulated contractually. Under the Employment and Skills 13. Are there any processes in your Development Law 2013, an employer is required jurisdiction that can block foreign to finalise a written employment contract investment under specific circumstances? within 30 days of commencement of employment and file it with the local Ministry of As noted in question 6, certain sectors are Labour, Immigration and Population township closed to all private sector investment and office. In practice such offices will only accept certain other sectors are closed to foreign contracts which are in their prescribed form. investment. In addition, the Competition Law In addition, there are a number of labour laws 2015, which entered into force on 24 February that regulate minimum standards of employ- 2017, prohibits mergers and acquisitions which ment, such as for overtime and occupational have the purpose of ‘extremely raising market health and safety. Myanmar has amended dominance’ or lessening competition in a several of these laws and there continues to be limited market. However, this is a new law and a push for further amendment. as of June 2017, no regulations have been issued to implement it, and nor has the Competition In particular, under the Shops and Commission been formed. Establishment Law 2016, employees may work only up to six days, and any work in excess of 14. What foreign currency or exchange eight hours per day or 48 hours per week is controls should foreign investors be considered overtime work and must be paid at aware of? twice the normal hourly wage. Such overtime is generally capped at 12 hours per week (16 It is generally understood in practice that all hours in special cases). There are more specific remittances of funds from outside Myanmar regulations for some sectors (such as factories to within Myanmar (and vice versa) are gov- and oilfields) under sectoral labour laws. erned by the Foreign Exchange Management Foreign national employees Law 2012 (“FEML”). Under the FEML, remittances are classified as ordinary transactions Most foreign national employees work under (for example, this could include short-term a business visa, and if they intend to stay in operational remittances or fees), or capital Myanmar for longer than 90 days, they are transactions (for example, loans or business required to also obtain a stay permit and for- investments). As a general rule, prior approval eign registration certificate. The immigration must be obtained from the CBM for capital section of the one stop service centre of the transactions, but not ordinary transactions. Thilawa SEZ can assist investors in the SEZ However, the definition of both categories in with the employment of foreign nationals. the FEML is unclear and the CBM’s practice is inconsistent, so in practice it is necessary to

100 LexisNexis Foreign Investment Law Guide 2017-2018 confirm with the CBM how to deal with each arbitral awards. A party seeking to enforce a foreign remittance. foreign arbitral award must present to the court The rules under the FEML provide that the the original or duly authenticated copy of the prior approval of the CBM is required for the award and the original or duly certified copy disbursement of foreign loans in Myanmar. of the agreement for arbitration, together with The CBM issued an announcement in July evidence that the award is a foreign arbitral 2016, providing that in relation to this approval award. An arbitral award may be refused rec- requirement, it will take into consideration ognition only by reason of certain prescribed matters relevant to the borrower, including the procedural flaws (which are broadly in line with capital amount already brought into Myanmar, the UNCITRAL model law). terms of the loan agreement and the debt-to- More broadly, Myanmar’s judicial system is equity ratio. It is not necessary to obtain CBM still developing to cater to the needs of foreign approval for each subsequent remittance for the investors, which includes the recognition of repayment of the loan principal and interest. foreign court judgments. Under the FEML and Notification 7/2014 Chapter XVII of the MIR provides for the MIC of the CBM, Myanmar residents (including to form an Investor Assistance Committee to Myanmar-incorporated companies) can open mediate disputes between foreign investors and offshore foreign currency accounts with CBM the Myanmar government and its ministries approval, provided they file monthly bank and agencies. The MIL rule 83 and the MIR rule statements with the CBM. In practice, we 73 provide that no court or arbitral proceedings understand the CBM has been willing, in the are permissible until an investor has sought to context of project financing, to approve such resolve the dispute through this committee. It companies using offshore foreign currency is not clear whether this provision would limit accounts for the purpose of obtaining foreign standing in a Myanmar court or enforcement currency-denominated loans. The funds from of arbitral awards. these loans are then transferred into Myanmar In addition, the MIR rule 165(f) states that the by the Myanmar-resident company itself. Investor Assistance Committee will assist in establishing a grievance and dispute settlement 15. Are there any restrictions, approval mechanism, although it is unclear whether requirements or potential penalties if a this would be an alternate option or replace foreign investor withdraws their contractual forum choice clauses, in particular investment in your jurisdiction? with respect to investor-government disputes.

There are no penalties for withdrawing from 17. Does your jurisdiction have any an investment. However prior approval may be bilateral or multilateral investment required as noted in question 5. protection treaties with Asia-Pacific jurisdictions that are commonly used for 16. What contract enforcement and investing into the country? investor protection mechanisms are in place in your jurisdiction, if any? Myanmar is a party to a number of bilateral and regional investment protection Myanmar is a party to the New York treaties, including with Japan. It is also party Convention on the Recognition and to the ASEAN free trade area agreement and Enforcement of Foreign Arbitral Awards (“New ASEAN’s regional trade agreements with Japan, York Convention”) and the Arbitration Law of Australia and New Zealand, India, China and 2016 provides for the enforcement of foreign the Republic of Korea.

Jurisdictional Q&A – Myanmar 101 However, Myanmar has not yet ratified the multiple registrations of the same mark to be Convention on the Settlement of Investment made, and companies should remain vigilant Disputes between States and Nationals of Other of third party registrations of their trademarks. States, and disputes under its trade agreements Marks should be periodically reregistered to will generally be subject to arbitration under maintain public awareness of their ownership. the rules of the United Nations Commission In practice, Myanmar law does not provide any on International Trade Law. Awards granted protections for patents or designs. It is possi- under such arbitrations will be enforceable in ble to register patents and designs under the accordance with the New York Convention. Registration Act 1908 s 18(f), which provides 18. What intellectual property rights for the registration of documents not required protections are available in your to be otherwise registered under that law. jurisdiction to foreign investors? However, such registration will not provide any protections under the law, and registrants Myanmar is in the process of updating its should be careful not to disclose sensitive intellectual property laws. As a party to the information regarding their patents or designs. Agreement on Trade-Related Aspects of Intellectual Property Rights (“TRIPS”), under 19. Are there any environmental policies the extension granted by the World Trade and regulations that (potential) foreign Organisation on 11 June 2013 under TRIPS art investors should be aware of prior to or 66.1 to the least developed countries, Myanmar throughout the investment process in has until 1 July 2021 to implement its interna- your jurisdiction? tional obligations to safeguard intellectual Under the Environmental Impact Assessment property. Procedure (“EIAP”) set out in Notification Myanmar is not a party to the Berne No. 616/2015 issued by the Ministry of Convention for the Protection of Literary and Environmental Conservation and Forestry Artistic Works and the Myanmar Copyright on 29 December 2015 pursuant to the Act 1914 provides no protection for foreign cop- Environmental Conservation Law 2012, an yright. However works published or authored environmental impact assessment is required in Myanmar and works by Myanmar citizens for prescribed investments and any investment are protected. that has the potential to cause ‘adverse impacts’ There is no trademark law in Myanmar. (such as environmental, social, socio-economic, However, like most common law countries, it health, cultural, occupational, community or has an unregistered trademark system enforce- safety impacts) to any entity, person, ecosystem able by actions for passing off under the Specific or natural resource. Relief Act 1877 (as well as product labelling, For projects likely to have such an adverse import and consumer protection laws which impact, an initial assessment of the impact is proscribe false marking of goods). Owners of required, and if the impact is likely to be sig- trademarks may register their rights under the nificant, a third party assessor registered with Registration Act 1909 s 18(f) and the Inspector the Environment Conservation Department of General of Registration Direction 13, to ease the Ministry of Environmental Conservation the evidentiary barriers to enforcing their and Forestry must be appointed to assess the trademark rights and put the public on notice environmental impact of the project. This to prevent infringement. assessment will include a scoping study, impact However, as the registration office’s database is assessment and review by the government, and not electronically maintained, it is possible for the government may require the investor to

102 LexisNexis Foreign Investment Law Guide 2017-2018 formulate an environmental management plan also been reports that Myanmar is considering setting out mitigation measures. lifting restrictions on foreign participation in the banking and insurance sectors. It is likely 20. Are there any government agencies that in future, foreign companies will also be or non-governmental bodies that permitted to engage in other related economic (potential) foreign investors can turn to activities such as acting as non-bank financial for more information on investment in institutions and trading on the Yangon Stock your jurisdiction? Exchange.

Under the MIL, DICA maintains a one-stop 22. Are there any other features service centre to assist foreign investors regarding foreign investment in your investing in Myanmar. In addition, as noted jurisdiction or in Asia that you wish to in question 5, the MIC provides an investment highlight? screening service, under which it can issue Myanmar is ASEAN’s newest jurisdiction to non-binding guidance to an investor regarding open to foreign investment. While it has made the application of the MIL to their proposed much progress in improving its investment investment. The Thilawa SEZ also maintains environment, there is still a long way to go. a one-stop service centre that is authorised to The MIL and MIR in particular, were intended issue all permits and licences required to invest by the Myanmar government to be best-in- in the Thilawa SEZ. class in ASEAN, but it remains to be seen how 21. Have there been any recent proposals these will be implemented. A further test for for reforms or regulatory changes that Myanmar’s investment friendliness is in how will impact foreign investment in your quickly the MCL is passed. Investors should jurisdiction? also bear in mind the ongoing infrastructure challenges experienced by Myanmar in making Myanmar is expected to pass the MCL in 2017 investment decisions. Around two thirds of (as of June 2017 the draft MCL is being consid- Myanmar’s population does not have access ered by Parliament). This law will modernise to the national electricity grid, and the State the MCA, for example by improving compa- Counsellor has specifically identified power and nies’ ability to manage their capital structure. transportation as key sectors for development. It is expected to allow foreign investors to hold up to 35 per cent (35%) of the shares in a Myanmar company while allowing such a company to retain its classification as a “Myanmar company”. This would allow foreign investors to invest in activities where earlier only local companies could otherwise invest. As Myanmar’s economy matures, it is likely there will be further liberalisation of barriers to investment. In May 2017, it was reported that MOC was negotiating with relevant ministries to liberalise barriers to the import and domestic sale by foreign companies of seeds, fertilisers, hospital equipment and building material, and this could presage a broader deregulation of barriers to trading in Myanmar. There have

Jurisdictional Q&A – Myanmar 103 About the Authors: Takeshi Mukawa Co-Representative Partner, W: www.mhmjapan.com MHM Yangon A: #1603-#1604, E: [email protected] 16th Floor, Sakura Tower, 339 Bogyoke Aung San Road, Ben Swift Kyauktada Township, Senior Legal Advisor, MHM Yangon Yangon, Myanmar E: [email protected] T: +95 1 255 135 F: +95 1 255 143

104 LexisNexis Foreign Investment Law Guide 2017-2018

Jurisdiction: New Zealand Firm: Mayne Wetherell Author: Matthew Olsen

1. What are the main reasons foreign Investments by overseas persons which require investors invest in your jurisdiction? consent under the OIA are further discussed in question 3 below. New Zealand generally has an open policy towards foreign investment, and the require- 3. What restrictions are placed on ments for overseas companies to comply with foreign investment? Does this differ at New Zealand company laws are not onerous. local levels of government? New Zealand was ranked first in the World Bank 2017 economy rankings for ease of Foreign investment requires consent from the starting and operating a business in its local Overseas Investment Office (‘OIO’) or relevant regulatory environment. ministers of the New Zealand government if it will result in an overseas person (or its asso- The New Zealand economy is stable and the ciate) acquiring a direct interest in, or 25% or public sector is transparent, ranking as the least more ownership and/or control of interests in, corrupt country in the world in Transparency sensitive land and/or significant business assets. International’s Corruption Perceptions Index for 2016. ‘Significant business assets’ are high-value businesses with more than NZ$100 million of Foreign direct investment was $98.7 billion assets. ‘Sensitive land’ includes the foreshore or as at 30 June 2016, making up 25.2% of total seabed, reserves and non-urban land. investment in New Zealand. All applications for consent are tested against 2. What foreign investment legislation is prescribed investment criteria. Applicants in place in your jurisdiction (e.g. Foreign must: Investment Law or Foreign Investment (a) be of good character; Catalogue)? Please provide a brief (b) have relevant business experience or overview of such legislation. acumen; Approval of foreign investment in New Zealand (c) be able to demonstrate a financial commit- is principally regulated by the Overseas ment to the investment; and Investment Act 2005 (‘OIA’). (d) be eligible for visa or entry permission The OIA applies to certain investments by under New Zealand’s immigration laws. “overseas persons”. An overseas person is any Applicants for sensitive land consent must person who is not a New Zealand citizen and also demonstrate that their investment will is not ordinarily resident in New Zealand. This (or is likely to) benefit New Zealand and, in includes any body corporate that is incorpo- certain cases, that the benefit is substantial rated outside New Zealand and any company, and identifiable. partnership, body corporate or trust which is In addition to the above restrictions under 25% or more owned or controlled by overseas the OIA, certain industries require sector- persons. specific approval to make an investment. These

106 LexisNexis Foreign Investment Law Guide 2017-2018 approval requirements or ownership restric- (a) where and when the company is incorp- tions typically treat potential foreign investors orated; the same as domestic investors. (b) information about the directors; Foreign investment is regulated at a national (c) its place of business or, if more than one, its level and does not differ at local levels of principal place of business in New Zealand; government. and 4. What are the most common business (d) where and on whom documents can be vehicles for foreign investors? How long served in New Zealand. do they take to be set up? What are the Registration of an overseas company is a simple key requirements for the establishment process completed online for a minimal fee. and operation of these vehicles? More information can be found on the New Zealand Companies Office’s website at www. A limited liability company, whether overseas companiesoffice.govt.nz/companies. or domestic, is the most commonly used business structure in New Zealand. Other Companies must update the Registrar of commonly used vehicles include partnerships, Companies to reflect any changes to directors’ limited partnerships and joint ventures. details, the company’s address, the company’s constitution and shareholdings. Common structures for offshore entities investing in New Zealand include incorporat- Reporting requirements ing or acquiring a local subsidiary company Annual return or registering a branch of an existing overseas company. Companies must file an annual return confirming details (including the company’s address, Registration and formation the number of shares, who the shareholders For a company to be incorporated, the com- are and who the directors are) each year in pany’s name must first be approved by the their allocated filing month for a small fee. Registrar of Companies. Basic details of the If the annual return is not filed by the due date, company must be provided in an online form, the company risks being removed from the including: companies register.

(a) information about the directors; Financial statements (b) details of shareholders and the number of Certain companies must prepare and file shares; audited financial statements annually with the (c) the company address; Registrar of Companies, including: (d) director and shareholder consent certifi- (a) large overseas companies (New Zealand cates; and incorporated companies which are sub- (e) company constitution. A constitution is not sidiaries of overseas companies or overseas mandatory but is useful to permit certain companies registered in New Zealand, corporate actions. whose assets or revenue exceed a certain This process can be completed on the same day threshold); for minimal fees. (b) large companies (companies incorporated An overseas company carrying on business in in New Zealand, whose assets or revenue New Zealand must be registered as an overseas exceed a certain threshold); and company on New Zealand’s overseas company (c) companies with 10 or more sharehold- register, and provide the following information: ers. Such companies can opt out of the

Jurisdictional Q&A – New Zealand 107 requirement to prepare audited financial investment in sensitive land; see question 3 for statements provided they are not large further details in this regard. domestic companies or large overseas com- Applications for consent are made by way of panies, and 95% of the shareholders support a letter from the applicant to the OIO along a motion opting out of the requirement. with supporting information. In relation to From 31 May 2017, large companies and large sensitive land applications, this includes a overseas companies are no longer required to detailed business plan addressing the benefits prepare audited financial statements where to New Zealand. the large company or large overseas company The Minister of Finance and the Minister of is covered under group financial statements Land Information are primarily responsible prepared by an overseas parent. for assessing applications made under the Annual reports OIA. However, those Ministers have delegated authority to the OIO to grant certain applica- Large companies and large overseas companies tions. Applications that can be decided by the must also prepare annual reports containing OIO under this delegated authority are those information specified by the Companies Act which relate to investment in: 1993. From 31 May 2017, such companies are no longer required to prepare an annual report, (a) significant business assets; or where this is supported by 95% or more of the (b) sensitive land, except where the sensitive shareholders. land includes special land, land on other Tax returns islands, the foreshore and seabed or the bed of a lake, or where land adjoins the Companies subject to New Zealand tax must foreshore of the bed of a lake. file relevant tax returns to Inland Revenue There is no statutory timeframe within which (New Zealand’s tax authority). When such tax an application for consent must be decided once returns must be filed will depend on a number submitted. The average assessment time for the of factors, including the type of tax (described OIO on applications made during the period in further detail in Question 10). For example: from July 2016 to April 2017 was: (a) The due date for filing annual income tax (a) 114 working days for decisions involving returns depends on the balance date of the significant business assets; company. An extension to file tax returns is generally available for taxpayers that are (b) 108 working days for decisions involving registered with a tax agent. sensitive land which are made by the OIO; and (b) Returns for Goods and Services Tax can be filed monthly, every two months or six (c) 146 working days for decisions involving months, depending on the annual turnover sensitive land which are made by Ministers. of the relevant business. The quality and level of information provided by the applicant will impact the time period in 5. Under what circumstances are foreign which the OIO makes its decision. investments subject to government Application fees range from NZ$13,000 and approvals? What is the process and NZ$54,000, depending on the nature of the timeline for such approvals? assets and investment. A transaction requires consent under the OIA if it will result in an overseas investment in significant business assets or an overseas

108 LexisNexis Foreign Investment Law Guide 2017-2018 with a particular focus on foreign direct investment. Recent transactions: • Acted for Universal Robina Corporation on its NZ$700 million acquisition of Griffin’s Foods from Pacific Equity Partners and its A$600 million acquisition of Snack Brands Australia. • Represented a consortium comprising KKR, Varde Partners and Deutsche Bank on its acquisition of GE Capital’s A$8 billion consumer finance business, and Bain Capital and Deutsche Bank on the acquisition of GE Capital’s commercial finance portfolio. Matthew Olsen • Advised Intermediate Capital Group in relation to the IPO of Tegel Foods. Partner, Mayne Wetherell • Advised TPG in relation to the acquisition and then ASX IPO of Inghams. Matthew is a corporate partner at Mayne • Acted for Lempriere Australia in Wetherell. Matthew has considerable relation to the merger and partial di- experience on a wide range of corporate vestment of its wool scour assets with activity including domestic and foreign M&A, Cavalier. joint ventures and equity capital markets,

6. What sectors are heavily regulated or markets. Food safety regulations focus on the restricted in your jurisdiction, if any? processes of food production, and operate on Conversely, what are some of the more a sliding scale, whereby businesses preparing open or unrestricted sectors, if any? foods that are of a higher risk operate under more stringent requirements. An animal prod- The Commerce Commission (‘ComCom’) is ucts regime applies to all animal materials and New Zealand’s regulatory agency and regulates products, requiring them to meet standards the price and quality of goods and services in ensuring they are “fit for intended purpose”. markets where there is little or no competition, including in the telecommunications, electric- The financial services industry is primarily ity and dairy industries. regulated by the Financial Markets Authority Food and beverage is one of the more heavily under the Financial Markets Conducts Act regulated sectors in New Zealand. These 2013, and is supported by the New Zealand restrictions also relate to primary industries, Stock Exchange. Debt and equity market where strong food safety standards contribute rules and regulations include disclosure to the performance of exports in international and reporting requirements, with penalties

Jurisdictional Q&A – New Zealand 109 for misconduct such as insider trading and 9. Are there any free trade, special market manipulation. A strict framework economic or industrial zones in your applies to financial advisors, and is recognised jurisdiction and what are their as commensurate with those in international requirements? jurisdictions. Innovative funding entities, such as crowdfunding and peer-to-peer lending, No, New Zealand’s trade arrangements apply are encouraged, with specific reporting and at a national level. disclosure requirements tailored to their fields. 10. What are the main taxes that could In the ICT sector, New Zealand is known for its apply to foreign investors in your low barriers to entry, and innovation is encour- jurisdiction? (For example, Personal aged. Similarly in high-value manufacturing, Income Tax, Corporation Tax, Value the government actively supports innovation Added Tax and Social Security Payments.) and change, awarding grants to a number of companies to assist in entrepreneurship. Taxes applicable to companies: The main types of taxes applicable to compa- 7. Are there any restrictions on doing nies in New Zealand are income tax and goods business with certain countries or and services tax (GST): territories in your jurisdiction? (For example, sanctions.) (a) Income tax applies on a company’s net income after allowable deductions at 28%. New Zealand is generally supportive of free and Income tax applies on the worldwide open trade and has 16 free trade agreements income of New Zealand residents and New with World Trade Organisation members, Zealand sourced income of non-residents, including Australia and China. subject to double tax agreements. New Zealand sanctions are based on those (b) GST is imposed on the supply of certain imposed by the UN Security Council, which goods and services in New Zealand and on prohibit the export of arms to sanctioned juris- certain goods and services imported into dictions and dealing in assets of, or providing New Zealand, at a rate of 15%. assets or funds to, persons identified in the Taxes applicable to individuals: Consolidated United Nations Security Council Individuals are subject to marginal income Sanctions List. tax rates depending on their taxable income, New Zealand also has tariffs for a small number ranging from 10.5% (for taxable income up to of imported goods (see https://tariff-finder.fta. NZ$14,000) to 33% (for taxable income over govt.nz/). NZ$70,000). 8. What grants or incentives are on offer Any tax on an employee’s salary or wages to foreign investors, if any? withheld by an employer through the “pay as you earn” (PAYE) scheme is offset against the Non-tax incentives for foreign investors employee’s income tax liability. are generally not available in New Zealand. Employers can be required to deduct KiwiSaver However, ad hoc incentives are available for (elective superannuation) contributions for specific sectors. For example, the Employment employees who have elected into the govern- Relations (Film Production Work) Amendment ment scheme, designed to assist the retirement Act 2010 secured concessions for a foreign of New Zealand citizens and permanent investor by amending employment rules for residents. the film industry.

110 LexisNexis Foreign Investment Law Guide 2017-2018 There are no comprehensive capital gains tax, (unless they seek to provide more than the gift, stamp, or estate duties in New Zealand. minimum standards), including entitlement to breaks and leave. 11.What are some of the employment Collective employment agreements apply to regulations in your jurisdiction that employees who are members of a union that foreign investors should be aware of? Is is party to the collective agreement with the it possible to secure residency permits or employer. It is possible for an employee who work visas for foreign nationals under is bound by a collective agreement to agree to investment? additional terms and conditions of employment Employment Law with the employer. The following legislation also applies to New The Employment Relations Act 2000 is the Zealand employment arrangements: main legislation that governs the relationships between employees and employers in New (a) Human Rights Act 1993; Zealand. It aims to: (b) Parental Leave and Employment Protection (a) promote collective bargaining; Act 1987; (b) regulate the operation of unions; (c) Holidays Act 2003; and (c) address the inherent inequality of power in (d) Health and Safety at Work Act 2015. employment relationships; Establishing a company in New Zealand does (d) provide a framework for personal griev- not in and of itself create any residency rights. ances and disputes; and However, Zealand’s visa framework provides (e) prescribe basic protections for individual a number of options to overseas persons who employees. run their own business or make investments Every employee must have a written employ- in New Zealand. ment agreement under the Employment Residency and Visas Relations Act 2000. Individual employment agreements must contain certain information, Entrepreneur Work Visa including at a minimum: People who wish to run their own business in (a) the names of the employer and the New Zealand can apply for an Entrepreneur employee; Work Visa. Those holding the Entrepreneur Work Visa are able to operate their business in (b) a description of the work; New Zealand initially for 12 months, and for (c) the location of the workplace; a further 24 months once the individual has (d) the agreed hours; taken steps to set-up the business. (e) the salary and how it will be paid; To qualify, the applicant must: (f) a plain explanation of how to resolve (a) provide a detailed business plan; employment relationship problems; and (b) be able to claim at least 120 on Immigration (g) an employee protection provision explain- New Zealand’s eligibility points scale; and ing the process to be undertaken if the (c) have at least NZ$100,000 to invest in their business is sold or transferred. business (this capital investment require- Certain terms are implied by law and do not ment may be waived for businesses in the need to be included in employment agreements science or ICT sectors).

Jurisdictional Q&A – New Zealand 111 Entrepreneur Residence Visa 12. Can foreign investors acquire real People who are granted an Entrepreneur property and land in your jurisdiction? Work Visa will also be able to apply for an Are there any restrictions or limitations? Entrepreneur Residence Visa once they have The only restrictions on foreign investors run their businesses for 2 years (or 6 months if acquiring real property in New Zealand are they meet extra conditions, including having the restrictions on significant business assets invested NZ$500,000 and created at least 3 new and sensitive land under the OIA discussed in jobs in New Zealand) allowing the person and Questions 2 and 3. their family to live, work and study indefinitely in New Zealand. 13. Are there any processes in your Investor / Investor Plus Visa jurisdiction that can block foreign investment under specific circumstances? People who wish to invest funds in a business and live in New Zealand can apply for residence Other than the investment approval processes under Investor / Investor Plus categories. discussed above, there is no other unique To qualify for the Investor Visa, the applicant process that could block a foreign investment. must: 14. What foreign currency or exchange (a) invest at least NZ$3 million over a 4 year controls should foreign investors be period in acceptable investments in New aware of? Zealand, including equity in a public or private business, bonds or a new residen- There are no exchange controls on foreign- tial property development for commercial exchange transactions undertaken in New purposes (‘Acceptable Investments’); Zealand, either by New Zealand residents or (b) reside in New Zealand for at least 146 days non-residents. There is also no restriction on in each of the last 3 years of the 4 year the movement of cash in or out of New Zealand, investment period or 438 days over the but disclosure is required where sums exceed entire investment period; NZ$10,000 or transactions are otherwise (d) have a minimum of 3 years’ business suspicious. experience; The Anti-Money Laundering and Countering (e) satisfy English language requirements; and the Financing of Terrorism Act 2009 places obligations on New Zealand’s financial institu- (f) be 65 years old or less. tions, banks and businesses to detect and deter To qualify for the Investor Plus Visa, the money laundering and terrorism financing in applicant must: respect of both domestic and foreign investors. (a) invest at least NZ$10 million over a 3 year period in Acceptable Investments in New 15. Are there any restrictions, approval Zealand; and requirements or potential penalties if a foreign investor withdraws their (b) reside in New Zealand for at least 44 days investment in your jurisdiction? in each of the last 2 years of the 3 year investment period or 88 days over the entire There are no approval requirements for when investment period. a foreign investor exits its investments, unless the acquirer is subject to the above regimes. If the company being acquired is or was party to a listing agreement with a registered

112 LexisNexis Foreign Investment Law Guide 2017-2018 exchange and has securities that confer voting In 2008, New Zealand became the first rights quoted on the registered exchange’s Organisation for Economic Co-operation securities market, it will be considered a Code and Development (‘OECD’) member country Company. The Takeovers Code applies to Code to sign a free trade agreement with China. Companies to ensure that shareholders are well Investment protections for Chinese investors informed of, and can participate in, changes under this agreement include: of control. • equal treatment of their investment with that of a national of New Zealand or any 16. What contract enforcement and other country; investor protection mechanisms are in place in your jurisdiction, if any? • fair and equitable treatment; • protection against expropriation of their Contracts can be enforced by any party to a investment; and contract against the other party or parties. In • the option to engage neutral third party addition, where a promise in a contract confers arbitration for disputes. a benefit on a person who is not a party to the contract, the promisor is generally also under 18. What intellectual property rights an obligation, enforceable at the suit of that protections are available in your person, to perform that promise. jurisdiction to foreign investors? Disputes in relation to the enforcement of a contract can be efficiently resolved through New Zealand has a central intellectual property local courts or, if agreed upon by the parties, register operated by the Intellectual Property through arbitration. Most cases are resolved in Office of New Zealand, and recognises certain the District Court in under a year. The major- unregistered rights such as copyright, trade ity of cases in the High Court are generally secrets and unregistered trade marks. resolved within nine months. Procedures are New Zealand is a signatory to, among others, not materially different than other common the Paris Convention, the Agreement on Trade- law jurisdictions. Related Aspects of Intellectual Property Rights and the Madrid Protocol (a treaty administered 17. Does your jurisdiction have any by the International Bureau of the World bilateral or multilateral investment Intellectual Property Organization). protection treaties with Asia-Pacific jurisdictions that are commonly used for Patents investing into the country? The main type of patent is a patent of invention. A patent of addition can be granted for New Zealand has a number of bilateral and improvements or modifications to an invention multilateral free trade agreements, includ- that is already patented. ing treaties with Australia, China, Korea, An invention is patentable if it: Malaysia, Singapore and Thailand. These treaties contain investment protection pro- (a) is a manner of manufacture; visions which broadly aim to encourage the (b) involves a novel and inventive step; free flow of investment between parties on a (c) is useful; and mutually advantageous basis, while ensuring (d) is not excluded under the Patents Act 2013 investments are protected and secure. Investing (e.g. for being contrary to public policy or through the treaties does not avoid the foreign morality). investment regime under the OIA, which is, in each case, specifically excluded.

Jurisdictional Q&A – New Zealand 113 Registration protects a patent for 20 years, Any kind of plant can be registered provided that all fees are paid and there has (excluding algae and bacteria). The register not been a successful application to revoke its is administered by the Plant Variety Rights registration. Office (which is part of the Intellectual Trade marks Property Office of New Zealand). (b) Domain names: these can be registered as A trade mark is defined in the Trade Marks a trade mark or, as with an unregistered Act 2002 as a sign that is capable of being trade mark, gain protection from the tort of represented graphically and capable of distin- passing off and the Fair Trading Act 1986. guishing one person’s goods or services from another’s. In addition, a trade mark must not (c) Confidential information and trade secrets: be prevented from registration on any absolute these are protected by the tort of breach of or relative ground, such as being confusingly confidence, the law of contract and employ- similar to another mark. ment law. A trade mark term is 10 years. Registration can 19. Are there any environmental policies be indefinitely renewed for further periods of and regulations that (potential) foreign 10 years. investors should be aware of prior to or Registered designs throughout the investment process in your jurisdiction? A design is registrable under the Designs Act 1956 if it is novel in New Zealand and can be The Environmental Protection Authority applied to an article of manufacture, unless (‘EPA’) is the governmental agency responsible the features of design for which protection is for environmental management under various sought are dictated solely by the function of regimes, including: the article. • the Emissions Trading Scheme; The term of a design registration is 15 years. • the Hazardous Substances and New After the term has expired, the design may be Organisms Act 1996; used by any other party. • ozone depleting chemicals regulations; Unregistered designs • rules surrounding hazardous waste Unregistered designs can be protected by imports and exports; and copyright laws. • environmental effects of activities in the Copyright Exclusive Economic Zone. The property right of copyright automatically Various other agencies work with, and report vests in certain categories of original work. to, the EPA including Maritime NZ, WorkSafe There is no registration system. Generally, New Zealand, the Ministry of Health, the copyright in a literary, dramatic, musical or Ministry for Primary Industries, New Zealand artistic work expires 50 years from the end of Transport Agency, New Zealand Customs the calendar year in which the author dies. Service and the Department of Conservation. Others Use and development of environmental resources (air, land and water) is controlled by The other main intellectual property rights in the Resource Management Act 1991 (‘RMA’), New Zealand include: which is also administered by the EPA as well (a) Plant variety rights: these are protected as local and regional government. under the Plant Variety Rights Act 1987.

114 LexisNexis Foreign Investment Law Guide 2017-2018 The RMA’s principal purpose is the sustainable Minor amendments to the Companies Act management of New Zealand’s natural and 1993 have come into force from time to time. physical resources. A consent process applies For example, from 31 May 2017, the Registrar for the approval of any development and these of Companies will be conferred the power to resource consents apply to land use, subdi- remove an overseas company registered in New vision, water permits, coastal permits, and Zealand from the register of overseas compa- discharge permits. Applications are made to nies in New Zealand, if: local authorities in accordance with the RMA. (a) the Registrar is satisfied that the overseas Issues under the RMA are adjudicated in the company has ceased to carry on business Environment Court of New Zealand. in New Zealand; and Regard must also be had to the traditions of the (b) 20 working days’ notice has been given to Maori (New Zealand’s native people) and their the public and to the overseas company to cultural values. One of the guiding principles object to the removal if the company is still of the RMA is the relationship of Maori with carrying on business in New Zealand. their ancestral lands, water, and other valued objects and sites, and consultation with Maori 22. Are there any other features is required in many instances. regarding foreign investment in your jurisdiction or in Asia that you wish to 20. Are there any government agencies highlight? or non-governmental bodies that (potential) foreign investors can turn to New Zealand has a wide network of double for more information on investment in tax treaties, including with China, Japan and your jurisdiction? Malaysia. Investment New Zealand is a government New Zealand Trade & Enterprise (NZTE) is the agency (a division of New Zealand Trade & national body responsible for driving foreign Enterprise) in charge of attracting and facilitat- direct investment in New Zealand. NZTE ing foreign direct investment. Investment New provides information and support to investors Zealand provides case management services for by facilitating their investments and assisting major investments including: them with navigating local regulation. The local councils of each region also generally • providing information on potential facilitate foreign direct investment. investment opportunities in New Zealand, and assisting companies during 21. Have there been any recent proposals the investigation and due diligence phase; for reforms or regulatory changes that • facilitating location visits by investment will impact foreign investment in your decision-makers; jurisdiction? • making referrals to sources of independ- New class exemptions to the investment ent professional advice; and screening regime under the OIA came into • providing links to relevant private organ- force in February 2017. These class exemptions isations and agencies of central and local exempt transactions that may be considered government to ensure projects attract ‘less sensitive’ including, for example, certain support where available. transactions between two overseas persons where approval under the OIA has previously been granted in connection with the relevant land.

Jurisdictional Q&A – New Zealand 115 About the Author: Matthew Olsen W: http://maynewetherell.com Partner, Mayne Wetherell A: Level 5, Bayleys House E: matthew.olsen 30 Gaunt Street, PO Box 3797 @maynewetherell.com Auckland 1140, New Zealand T: +64 9 921 6097 F: +64 9 921 6001

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1. What are the main reasons foreign while other investments accounted for 42.20% investors invest in your jurisdiction? ($383.28 million). Some of the sectors in which the largest amounts of investments were made Nigeria is Africa’s most populous nation (the in this quarter are servicing, telecommunica- latest National Population Commission esti- tions, banking and oil and gas1. mate puts the population at about 193 million people based on the population of 140 million 2. What foreign investment legislation is recorded in the last census conducted in 2006) in place in your jurisdiction (e.g. Foreign with large deposits of oil and gas as well as Investment Law or Foreign Investment other natural resources which include but are Catalogue)? Please provide a brief not limited to bitumen, limestone, coal, iron overview of such legislation. ore, lead and zinc, most of which are largely unexploited. Consequently, Nigeria is the There are a number of Nigerian legislations largest market in Africa for virtually all prod- which contain provisions that regulate both for- ucts. In addition, Nigeria provides numerous eign investment and participation in Nigerian lucrative investment opportunities in varying businesses. The principal legislation is the sectors: infrastructure, telecommunications, Nigerian Investment Promotion Commission construction, solid minerals, fast moving Act, Cap N117, Laws of the Federation of consumer goods, agriculture and oil and gas Nigeria (“LFN”) 2004 (“NIPC Act”). sectors. The NIPC Act established the Nigerian The Nigerian legal framework encourages Investment Promotion Commission (“NIPC”) investment as Nigeria is a free market with as the agency responsible for the promotion, largely deregulated exchange control regula- co-ordination and supervision of all foreign tions. Various incentives have also been put in investments in Nigeria. The NIPC Act provides place by the Nigerian government to encourage that non-Nigerians may invest and participate foreign investment into the country. These in the operation of any enterprise in Nigeria incentives are discussed in more detail in except the following enterprises on ‘the neg- subsequent responses below. ative list’ in the NIPC Act s 31 which both foreign and Nigerian investors are prohibited The total value of the capital that was imported from participating in: into Nigeria in the first quarter of 2017 was estimated to be $908.27 million, an increase of • the production of arms, ammunition, etc.; 27.75% relative to the same quarter of 2016. Of this figure, foreign direct investment accounted for 23.27% ($211.38 million), portfolio invest- 1 National Capital Importation Report Q1 2017 ment accounted for 34.53% ($313.61 million), published by the National Bureau of Statistics

118 LexisNexis Foreign Investment Law Guide 2017-2018 • the production of and dealing in narcotic (a) The CAMA, which requires foreign inves- drugs and psychotropic substances; tors to incorporate a Nigerian entity in • the production of military and para-mil- order to carry on business in Nigeria and itary wears and accoutrement, including sets out the various ways by which the those of the Police and the Customs, Nigerian entity may be established. Immigration and Prison Services; and (b) The Immigration Act 2015, which provides • such other items as the Federal Executive that the consent of the Minister of Interior Council may, from time to time, (this consent takes the form of a business determine. permit) must be obtained by any foreigner that intends to set up a business in Nigeria. The NIPC Act further provides: (c) The Investments and Securities Act • that an enterprise in which there is to be 2007 (“ISA 2007”) which empowers the foreign participation must be incorpo- Securities and Exchange Commission to rated or registered as required under the keep and maintain records of all Foreign Companies and Allied Matters Act Cap Direct Investments and Foreign Portfolio C20, LFN 2004 (“CAMA”) (the principal Investments in Nigeria. regulation that regulates the activities of companies in Nigeria); (d) The Foreign Exchange (Monitoring and Miscellaneous Provisions) Act, Cap F34 • that after incorporation, the company LFN 2004 (“FEMM Act”), which sets out must be registered with the NIPC before the foreign exchange regulations that are it can commence business operations in applicable in Nigeria. Nigeria; (e) The National Office for Technology • that a foreign enterprise may purchase the Acquisition and Promotion Act, Cap N62 shares of any Nigerian enterprise in any LFN 2004, which regulates the transfer of convertible foreign currency; foreign technology to Nigeria. • a guarantee against expropriation or (f) The Industrial Inspectorate Act, Cap. I8 nationalisation of any enterprise by LFN 2004, which makes provision for the any government in Nigeria and states investigation and monitoring of the under- that there shall be no acquisition of an takings of industries in Nigeria, including enterprise to which the Act applies by the investments. Federal Government, unless the acquisition is in the national interest or for a 3. What restrictions are placed on public purpose and under a law which foreign investment? Does this differ at makes provision for the payment of fair local levels of government? and adequate compensation; and a right of access to the courts for the determination Under the NIPC Act, foreign ownership is of the investor’s interest or right and the permitted in all industries excluding the amount of compensation to which he is prohibited industries on the negative list. entitled. The NIPC Act also stipulates However, there are restrictions to the level of that no person shall be compelled by law foreign participation that is permitted in the to surrender his interest in the capital of following sectors: any enterprise to any other person. (i) Oil and gas: To be competitive in the Other legislation that contain provisions on award of contracts, at least 51% of the foreign investments in Nigeria are: shares of the company are required to be owned by Nigerians.

Jurisdictional Q&A – Nigeria 119 (ii) Shipping: The Coastal and Inland COREN who hold at least 55% of the Shipping (Cabotage) Act states company’s shares. that no vessel other than one that (vii) Aviation: To qualify for the grant of is wholly owned and manned by a an aviation licence or permits, the Nigerian citizen, built and registered Nigerian Civil Aviation Authority in Nigeria is permitted to engage in must be satisfied that an applicant is domestic coastal carriage of cargo and a Nigerian citizen or a company reg- passengers within the costal, territo- istered in Nigeria and controlled by rial, inland waters, island or any point Nigerian nationals. This requirement within the exclusive economic zone does not apply to licences or permits of Nigeria. Vessels of any type or size needed by any person for the purpose are also prohibited from trading or of operating an aircraft for private use engaging in any domestic trading in only. the inland waters unless such vessels (viii) Pharmacy: The Pharmacist Council are wholly owned by Nigerians. These of Nigeria Act 2004 provides for the restrictions notwithstanding, the law registration of non-Nigerian citizens confers on the Minister in charge of only if the applicant’s home country shipping, the power to grant waivers grants reciprocal registration to and authorise a departure from this Nigerians and where the applicant has strict regime if the Minister is satisfied been resident in Nigeria for at least 12 that no wholly owned Nigerian vessel months prior to the application. is available or suitable to provide the required services or to perform the 4. What are the most common business relevant activity. vehicles for foreign investors? How long (iii) Broadcasting: A company applying do they take to be set up? What are the for a broadcasting licence must key requirements for the establishment demonstrate that it is not representing and operation of these vehicles? any foreign interests and that it is substantially owned and operated by There are a number of company structures Nigerians. which are recognised by the CAMA. These include: (iv) Advertising: Only a national agency (that is, an agency in which Nigerians (a) Limited liability companies (public or own not less than 74.9% of the equity) private). can advertise to the Nigerian market. (b) Companies with unlimited liability. (v) Private security: A foreign investor (c) Companies limited by guarantee. cannot acquire an equity interest in, or (d) Incorporated trustees. sit on the board of, a Nigerian private (e) Registered business names. security guard company. (vi) Engineering: A company engaged in A foreign investor that wishes to set up in engineering services must be registered Nigeria would have to incorporate an entity with the Council for the Regulation of using one of these structures. Notwithstanding Engineering in Nigeria (“COREN”). the fact that a foreign investor may want One of the requirements for registra- to open a branch or subsidiary in Nigeria, tion is that the company must have because the CAMA does not recognise these Nigerian directors registered with the concepts, the Nigerian entity would have to be

120 LexisNexis Foreign Investment Law Guide 2017-2018 She routinely assist clients with generating employment and end of employment documentation, negotiating and settling employment-related contractual and trade disputes, and advising on employee issues in the context of bankruptcies, company liquidations, mergers, acquisitions, divest- ments and restructuring. She also provides assistance with drafting executive and non-executive contracts, and advises on the establishment and operation of pension and other retirement schemes; and on the establishment, operation and management of employee savings plans and stock option schemes. She also advises a variety of investors with the acquisitions of interests in Nigerian companies and regulatory Jumoke Lambo compliance. Partner, Udo Udoma & Belo-Osagie Jumoke is recognised by the Nigerian edition of Who’s Who Legal for her M&A Jumoke Lambo is a Partner and practice. Her work has also been noted in co-head of the firm’s Technology, Media the International Financial Law Review’s and Telecommunications, Aviation, Expert Guides. She is a fellow of the Centre Labour and Employment and Business for International Legal Studies (CILS) and Development teams. She also oversees a member of the Nigerian Bar Association Alsec Nominees Limited, its company and the International Bar Association. She secretarial practice. Her specialisations has attended several conferences and semi- include foreign investment, regulatory nars where she has given talks on a variety compliance, TMT, aviation, capital mar- of areas including employment law. She is kets particularly mergers & acquisitions one of the key representatives of the firm on and employment law. the Employment Law Alliance.

incorporated under one of the structures listed Notwithstanding this general rule, Section 56 above. Section 54 of the CAMA provides that of the CAMA empowers the Federal Executive in order to do business in Nigeria, a foreign Council, at its discretion, to grant limited investor must incorporate a separate entity exemptions to this mandatory incorporation in Nigeria, and until a foreign company is so requirement. Such exemptions are, however, incorporated it “shall not have a place of busi- rare and are usually only granted for limited ness or an address for service of documents or periods in respect of specific government-spon- processes in Nigeria for any purposes other sored projects. than the receipt of notices and other documents Of the various company structures available, as matters preliminary to incorporation under the most common structure for a profit-mak- [the CAMA]”. ing enterprise is the private limited liability

Jurisdictional Q&A – Nigeria 121 company. The advantages of this structure The procedure and requirements for include: incorporating a private or a public limited lia- • It is straightforward to incorporate (the bility company are essentially the same. These process can be completed within two weeks requirements include the following: of the submission of the application to the (i) The proposed company name must be Corporate Affairs Commission (“CAC” – approved by the CAC; Nigeria’s companies registry). (ii) The company must have a minimum • Profits can be paid out to shareholders. of 2 shareholders (who may be indi- • This type of entity has perpetual succession viduals or corporate entities). With the and may incur liabilities of its own, i.e. the limited exceptions already highlighted shareholders have limited liability. Any in our response to question 3 above, liability that a foreign investor may incur as a companies in Nigeria may be 100% shareholder is limited to the amount unpaid foreign owned. The initial subscribers in respect of any shares held by a foreign must, between them, subscribe for investor in the capital of the company. at least 25% of the authorised share capital of the company; It is relatively easy to transfer shares in a private company, should a foreign investor wish to (iii) The company must have a minimum divest itself of its interest in the company. of 2 directors (they may also be the shareholders of the company, and may Limited liability companies may be incorpo- be foreign nationals); rated within two weeks of the submission of the appropriate application at the CAC. After the (iv) The company must have a registered incorporation process has been completed, any office; company with foreign participation will need (v) An indication of the nature of the to be registered with the NIPC under the NIPC business to be carried on by the Act, must register with tax authorities, and company must be contained in must obtain a business permit and expatriate the Memorandum and Articles of quota approvals for any expatriate personnel Association of the company; and to be employed by the company, (if applicable), (vi) A private limited liability company from the Federal Ministry of the Interior must have a minimum authorised (“FMI”) before it can commence business in share capital of NGN10,000.00 while Nigeria. All together, these processes may, all that of a public limited liability things being equal, take between 12 to 15 weeks company must be NGN500,000.00. to complete. If, however, the company is to have Depending on the proposed area of business, foreign equity participation and will additional requirements may apply, such as the require foreign investment approvals, Department of Petroleum Resources’ registra- then the minimum authorised share tion and licensing requirements for companies capital of the company must be at in the oil and gas sector, a banking licence for least NGN10,000,000.00 (ten million companies in the banking sector and Nigerian Naira), whether it is a private or public Communications Commission licences or company. permits for companies in the telecommunications sector. The timelines indicated do not include the times for processing these specific approvals.

122 LexisNexis Foreign Investment Law Guide 2017-2018 The statutory fees payable to incorporate a 7. Are there any restrictions on doing company in Nigeria are dependent on the business with certain countries or authorised share capital of the company. territories in your jurisdiction? (For example, sanctions.) 5. Under what circumstances are foreign investments subject to government No. approvals? What is the process and timeline for such approvals? 8. What grants or incentives are on offer to foreign investors, if any? As indicated in our response to question 4 above, any company with foreign participation There are several investment incentives avail- must register with the NIPC, with the Nigerian able to investors in Nigeria which are aimed at tax authorities, and must obtain a business reducing their tax liabilities. permit and expatriate quota approvals for any (a) The Pioneer Status scheme grants com- expatriate personnel proposed to be employed panies operating in certain industries by the company, from the FMI before it can (usually industries where the government commence business in Nigeria. Other regis trying to develop and attract investment ulatory/government approvals may also be into) a non-renewable income tax holiday applicable, depending on the sector in which for a period of three years, which can be the investment is being made. extended for two additional years. (b) Purchasers of local plant and equipment are 6. What sectors are heavily regulated or entitled to an investment allowance of 10%. restricted in your jurisdiction, if any? Conversely, what are some of the more (c) Capital gains tax (“CGT”) is not levied on open or unrestricted sectors, if any? gains from the sale of shares, stocks and treasury bills. Some of the heavily regulated sectors in Nigeria (d) Nigerian companies with up to 25% are: imported foreign equity are exempt from (i) Banking; paying minimum tax. (ii) Insurance; (e) Interest earned by a foreign company on its (iii) Telecommunications; deposits in domiciliary accounts in Nigeria is exempt from tax. (iv) Aviation; (f) Companies engaging in the use of Nigeria’s (v) Oil and gas; natural gas resources are entitled to: (vi) Food and drugs; and • a tax free holiday for an initial period (vii) Maritime. of three years (renewable after two Some of the more open sectors in Nigeria are: years); or (i) Agriculture; • an additional investment allowance (ii) Haulage and road transportation; and of 35%. (iii) Textiles. (g) Machinery and equipment purchased for the use of gas in downstream operations are exempt from value-added tax (“VAT”). (h) Interest on securities issued by the Federal Government of Nigeria, and on state,

Jurisdictional Q&A – Nigeria 123 corporate and supranational bonds, are Any entity which intends to undertake an exempt from tax until 1st January 2022. approved activity within any of the free trade (i) In certain circumstances, interest on loans zones is required to apply to the relevant granted to Nigerian companies by foreign Export Zone Authority (“Authority”) in writ- companies are entitled to tax exemption. ing for approval to do so and to submit such documents and information in support of the 9. Are there any free trade, special application, as the Authority may require from economic or industrial zones in your time to time. jurisdiction and what are their Once the application is approved by the requirements? Authority, it becomes a Free Zone Entity (“FZE”). The FZE is, thereafter, required to Yes. The Nigeria Export Processing Zones Act, apply for an operating licence in order to carry Cap N107 LFN 2004 (the “NEPZ Act”) provides out business within the free trade zone. As that the President may, from time to time, des- soon as an FZE is issued an operating licence, ignate such area as he thinks fit to be an export it is officially incorporated in Nigeria and processing zone. An investor is permitted to does not require any additional paperwork, register an enterprise with, and obtain a licence provided that it does not wish to carry on from the Nigeria Export Processing Zone business outside the free trade zone. A licence Authority (“NEPZA”) to carry on its business is considered personal to the licensee. It may within an export processing (also known as free not be transferred, assigned, or purported to trade) zone. There are currently about 14 (four- be transferred or assigned in whole or in part teen) operational free trade zones in Nigeria, without the prior written consent of the issuing with another 18 (eighteen) free trade zones at Authority. various stages of development or construction. The licence granted to the FZE and all applica- The free trade zones offer several incentives to ble incentives, however, are only valid within investors including the following: the free trade zone. Consequently, where the • exemption from all legislative provisions FZE carries on any business outside the free pertaining to taxes, levies, duties and trade zone (i.e. within the Nigerian customs foreign exchange regulations; territory), it will be liable to pay all applicable • repatriation of foreign capital investment taxes on the profits derived from such activities. in the free trade zones at any time along With regard to the employment of non-Nigeri- with profits and dividends earned from ans by the FZE, the FZE shall apply on behalf the investment; of the non-Nigerian citizen to the Authority for • waiver of all import and export licences; the purpose of immigration and employment • rent-free land during construction stage; permits, in such manner as may be prescribed by the Authority. • up to 100% foreign ownership of business in the free trade zones is allowed; and • foreign managers and qualified personnel may be employed by companies operating in the free trade zones. In addition, the Oil and Gas Export Free Zone Act, Cap O5 LFN 2004 established an export free zone in Rivers State which offers the same incentives described above.

124 LexisNexis Foreign Investment Law Guide 2017-2018 10. What are the main taxes that could Ad valorem rates range from 0.15% to 3%. apply to foreign investors in your (e) Information technology development levy jurisdiction? (For example, Personal The following types of companies with an Income Tax, Corporation Tax, Value annual turnover of at least NGN100 million Added Tax and Social Security Payments). must pay 1% of their profits before tax to the The most common taxes applicable to foreign Federal Inland Revenue Service: investors in Nigeria are outlined below: • Cyber companies and internet (a) Companies’ income tax providers; Companies’ income tax is assessed at • Pension managers and pension related 30% of the total assessable profits from all companies; sources accruing in, derived from, brought • Banks and other financial institutions; into or received in Nigeria in any year of • Insurance companies; and assessment. A company must make this • Telecommunication companies. payment within six months from the end of its accounting year. (f) Withholding tax (b) CGT Withholding tax on rents, dividends, royalties and interest is 10% (reduced to CGT is imposed on gains arising from the 7.5% where the recipient is registered in a disposal of capital assets, at a rate of 10%. country with which Nigeria has a double Exemptions from CGT include (among taxation treaty). Fees for management or others): technical services are taxed at 10% for com- • gains on a disposal of stock, shares, panies and 5% for individuals. Contracts of and other government securities such supplies are taxed at 5%. as treasury bonds, premium bonds and (g) VAT savings certificates; VAT is charged at 5% on goods and ser- • gains arising from acquisitions, vices other than those exempted by law. mergers, or takeovers provided that Exempted goods include: no cash payment is made in respect of the shares acquired; and • Medical and pharmaceutical products; • gains made on any asset used for the • Basic food items; purpose of a trade or business that are • Books; and used for replacing old assets sold. • Exports. (c) Tertiary education tax Exempted services include: Tertiary education tax is imposed at a rate • Medical services; of 2%. • Services provided by community (d) Stamp duties banks; Stamp duty is imposed on documents at • Mortgage institutions; and varying rates which could either be ad • All exported services. valorem or nominal. The nominal rate is currently: • NGN500 for the original document; and • NGN50 for counterparts.

Jurisdictional Q&A – Nigeria 125 (h) National cyber security levy foreign employees. The other laws apply to only Under the Cybercrimes Act 2015, the following Nigerian employees. None of the above laws, companies are required to pay a levy of 0.005% however, apply to Nigerians working abroad. on all electronic transactions into a fund held It is possible to procure resident and work with the Central Bank of Nigeria: permits for foreign employees and management • Telecommunications companies; staff or directors who want to reside in Nigeria. These permits are easy to obtain provided that • Internet service providers; the employer takes the rights steps to procure • Banks and other financial institutions; the relevant permits. The first step of the pro- • Insurance companies; cess is for the employer to apply to the FMI for • The Nigerian Stock Exchange. expatriate quota positions to cover the number of non-Nigerian personnel it seeks to employ. 11. What are some of the employment The process for obtaining such expatriate quota regulations in your jurisdiction that positions usually takes between eight to ten foreign investors should be aware of? Is weeks to complete from the date of submission it possible to secure residency permits or of the application to the FMI. work visas for foreign nationals under The exact number of quota positions granted is investment? at the discretion of the FMI, which has established a committee to determine the number The main laws regulating employment relation- of quota positions any company may have. The ships in Nigeria are: discretion to grant expatriate quota approvals is • The 1999 Constitution of the Federal dependent to a large extent on the ability of the Republic of Nigeria as amended applicant to adduce satisfactory evidence that (“Constitution”); there are no suitably qualified Nigerians who • The Labour Act, Cap L1 LFN 2004; can provide the required services. • The Pension Reform Act 2014 which Once the relevant expatriate quota approvals provides for the establishment of a con- have been obtained, the employer will also have tributory pension scheme; to acquire visas for the prospective employ- • The Employees’ Compensation Act 2010 ees. Such employees will need to apply for a (“ECA”) ; Subject-to-Regularisation (“STR”) visa from the Nigerian Embassy/High Commission in • The Personal Income Tax Act, Cap P8 their country of usual residence to enable them LFN 2004 (as amended) (“PIT”) ; to enter Nigeria for the purpose of taking up • The National Health Insurance Scheme employment. The cost of obtaining this visa is Act, Cap N42 LFN 2004; determined by the relevant Nigerian Embassy/ • The Industrial Training Fund Act, Cap I9 High Commission in the employee’s country LFN 2004 (as amended) (“ITF”) ; of usual residence. After obtaining the STR • The Trade Unions Act Cap T14 LFN 2004 visa, the expatriate can travel to Nigeria and (as amended) ; on arrival will have a period of three months to regularise their immigration status by • The National Minimum Wage Act, Cap obtaining a Combined Expatriate Residence N61 LFN 2004; Permit & Alien Card (“CERPAC”), the approval • The National Industrial Court Act, 2006. document which evidences that the expatriate The ECA, ITF, PIT and the Constitution can reside and take up employment in Nigeria. apply to both Nigerian employees and CERPACs are granted for 12 months and can

126 LexisNexis Foreign Investment Law Guide 2017-2018 be renewed. Expatriates can be accompanied to 12. Can foreign investors acquire real Nigeria by their families, and the applications property and land in your jurisdiction? for these dependents must be submitted on Are there any restrictions or limitations? behalf of such persons. Under the Land Use Act Cap L5 LFN 2004 The application for a CERPAC is made to the (“LUA”), which governs land ownership and Nigeria Immigration Service. A temporary administration in Nigeria), all land comprised CERPAC can normally be obtained within in the territory of each state in the federation three to six days of the application being is vested in the Governor of that State (and in submitted to the Comptroller General, the case of federal land, the President). The Immigration Department, Lagos. The LUA states that such land is held in trust and permanent CERPAC may be granted within six administered for the use and common benefit weeks of submission of the application. of all Nigerians in accordance with the provi- The requirements outlined above do not sions of the Act. The view expressed by some, apply to nationals of member states of the therefore, is that since land in Nigeria should be Economic Community of West African States administered for the use and common benefit (“ECOWAS”). Nationals of ECOWAS member of all Nigerians, foreigners cannot be granted states are entitled to freedom of movement, land in Nigeria. to reside and to work in Nigeria. They are, There is, however, another argument that since however, required to apply for an ECOWAS res- the LUA s 46 empowers the National Council of idence card on arrival in Nigeria. The ECOWAS States to make regulations for certain matters, residence card is valid for a term of two years including “the transfer by assignment or oth- and can be renewed following its expiration. erwise howsoever of any rights of occupancy, whether statutory or customary, including the conditions applicable to the transfer of such rights to persons who are not Nigerians”, it was contemplated by the LUA that foreigners

Feyikemi Adagunodo Associate, Udo Udoma & Belo-Osagie

Feyikemi Adagunodo is an associate and a member of the firm’s corporate and commercial team. Since joining the firm, she has been involved in several syndicated finance transactions as well as capital markets transactions where her roles have included conducting due diligence reviews, drafting and reviewing transaction documents, engaging in research and providing legal opinions.

Jurisdictional Q&A – Nigeria 127 could own land in certain circumstances. To The Central Bank of Nigeria (“CBN”), in June the best of our knowledge, the National Council 2016, introduced a single flexible Nigerian of States has not made any such regulations or interbank foreign exchange market (“FX otherwise authorised the Governors to grant Market”). Notwithstanding this, the FX Market leases to non-Nigerians but prior to the prom- continued to experience serious liquidity chal- ulgation of the LUA, various States enacted lenges. Thus, the CBN took several steps to Acquisition of Land by Aliens Law which enhance liquidity and ensure timely settlement allowed foreign entities to own land subject to of eligible transactions. As part of such steps, the consent of the Governor of the State and for the CBN issued a circular in April, 2017 titled a term not exceeding 25 years. “Establishment of Investors’ and Exporters’ While we note that it is unclear whether the FX Window” (the “Circular”) to introduce a acquisition of land by a foreigner is valid under special Investors’ and Exporters’ FX Window Nigerian law, we should mention, from a prac- (“Window”) with effect from 24th April, 2017. tical perspective, that we are not aware that any Some of the major highlights of the Circular Governor has granted consent to any transfer include the following: of leasehold interest to a non-Nigerian since the • Transactions for which parties are per- promulgation of the LUA. mitted to access the Window include (i) invisible transactions such as loan repay- 13. Are there any processes in your ments and interest payments, dividends/ jurisdiction that can block foreign income remittances, capital repatriation investment under specific circumstances? and any other eligible invisible transac- Yes. Foreign investments into any prohibited tions (excluding international airlines business on the ‘negative list’ (see our response tickets sales remittances); (ii) bills for to question 2) will be blocked and also busi- collection transactions; and (iii) any other nesses where the maximum threshold for the trade-related payment obligations (at the level of foreign ownership (see our response instance of the customer). to question 3) has been exceeded will be sanc- • All documentation requirements (includ- tioned and this could include cancelling all the ing, where applicable, CCIs or approval foreign investment approvals that have been of the National Office for Technology granted to the business. Acquisition and Promotion) for eligible transactions for the purchase of FX in 14. What foreign currency or exchange the FX Market will continue to apply to controls should foreign investors be transactions carried out in the Window. aware of? • International airlines and tickets sale The FEMM Act provides that foreign inves- remittances are excluded from the tors that intend to access the official foreign Window. exchange market for the purpose of remitting • The supply of FX to the Window will be their dividends, interest or capital must obtain through portfolio investors, exporters a Certificate of Capital Importation (“CCI”) as (which should include oil companies), evidence that their investment was brought into Authorised Dealers (i.e. Nigerian banks) Nigeria. CCIs are issued by Authorised Dealers and other parties with foreign currency to (that is, banks licensed by the Central Bank of exchange to Naira (including domiciliary Nigeria to deal in foreign exchange) within 24 accounts holders). The CBN will also par- to 48 hours after the investor has brought its ticipate in the Window from time to time foreign investment into Nigeria.

128 LexisNexis Foreign Investment Law Guide 2017-2018 (as a buyer or seller) to promote liquidity agreement between the parties. Foreign inves- and professional market conduct. tors are guaranteed 100% free repatriation of • The exchange rates for transactions in their investment capital and profits by virtue of the Window will be as agreed between the NIPC Act and the FEMM Act. The ability Authorised Dealers and their counter- to access foreign exchange for this purpose will, parties i.e. on a willing buyer and willing however, be dependent on availability of same. seller basis. In other words, the CBN has 16. What contract enforcement and not set a band or pegged a rate for the investor protection mechanisms are in Window. place in your jurisdiction, if any? • To provide support for appropriate benchmarking and facilitate derivatives Contract enforcement mechanisms activities in the Window, a new fixing The most common contract enforcement has been developed - the Nigerian mechanism available in Nigeria is an action Autonomous Foreign Exchange Fixing instituted against a defaulting party in a (“NAFEX”). Nigerian court. Parties to a contract may also • Participants are permitted to hedge agree to submit their disputes to alternative their FX exposures. Authorised Dealers dispute resolution mechanisms such as media- are required to provide the market with tion and arbitration under Nigerian law or the required FX hedges including forwards, law of any other jurisdiction agreed between swaps, futures and options. the parties. • The CBN will continue to provide liquid- Investor protection mechanisms ity in the derivatives market with the Naira-settled OTC FX Futures which will, The NIPC Act provides the basic and acceptable going forward, settle on NAFEX. legal framework for the protection of foreign investors. The NIPC Act provides that subject With this Circular, it appears that the CBN to certain exceptions contained in the Act, a has partially deregulated the FX Market and foreigner may invest and participate in any ‘floated’ the Naira. This is, however, not yet a enterprise in Nigeria. Under the NIPC Act, full ‘float’ for the participants in the Window foreign investors are guaranteed unconditional as the CBN will still occasionally intervene in transfer of funds attributable to the investment the Window. such as dividends, profits, payments in respect This Circular has also not affected the CBN of loan servicing, and the remittance of pro- prohibition on the funding of certain items and ceeds obtained from the sale or liquidation services with forex derived from the inter-bank of assets or any interest in the investment. market and bureaux de change and the ban on This fund transfer will be done through the pricing of goods and services consumed in an Authorised Dealer in freely convertible Nigeria in any currency other than the Naira. currency.

15. Are there any restrictions, approval The NIPC Act expressly provides for guarantees requirements or potential penalties if a against expropriation, nationalisation, and the foreign investor withdraws their requirement for any investor to surrender his investment in your jurisdiction? capital, except if such an action is done in the national interest or for public purpose and There are no government imposed restrictions under a law which provides for the prompt of penalties. These may, however, be appli- payment of fair and adequate compensation. cable contractually based on the terms of the The Act gives a right of access to investors to

Jurisdictional Q&A – Nigeria 129 apply to the courts for a determination of their part of Nigeria’s domestic laws by the National interest and the amount of compensation to be Assembly. paid. Where such compensation is required to be paid, there shall be issued an authorisation 18. What intellectual property rights for its repatriation in convertible currency. protections are available in your jurisdiction to foreign investors? Lastly, the NIPC Act provides that disputes between a foreign investor and any government Innovations and inventions are generally in Nigeria arising out of an investment shall be protected by Nigerian intellectual property submitted to arbitration within the framework laws. The Copyright Act, Cap C28 LFN 2004 of any investment treaty entered into between protects literary works (including computer the government of Nigeria and any state of programmes), musical works, artistic works, which the foreign investor is a national, or cinematographs and broadcasts. The Patents in accordance with any other international and Designs Act, Cap P2, LFN 2004 protects machinery for the settlement of investment industrial designs as well as inventions which disputes as agreed upon. It further provides are new or an improvement upon an existing that where there is a disagreement between the patented invention, result from inventive activ- Nigerian government and the foreign investor ity and are capable of industrial application. on the mode of dispute settlement, the dispute The Trade Marks Act, Cap T13, LFN 2004 pro- shall be submitted to the International Centre tects owners of registered trademarks. Owners for Settlement of Investment Disputes for of unregistered trademarks are not protected arbitration. by the Trade Marks Act but are entitled to seek relief under the English common law princi- 17. Does your jurisdiction have any ples applicable in Nigeria. A person whose IP bilateral or multilateral investment rights are infringed is entitled to institute legal protection treaties with Asia-Pacific proceedings in the requisite Nigerian court and jurisdictions that are commonly used for obtain reliefs (which may include damages, investing into the country? order for account, injunctions and delivery-up Nigeria has concluded several bilateral of the infringing articles etc.) against the investment promotion treaties with different infringing party. Infringement of copyright countries including China, France, Germany, also constitutes a crime punishable with a term Italy, Korea, Netherlands, Finland, Russia, of imprisonment under the Copyright Act. Romania, Serbia, South Africa, Spain, Sweden, Trademarks, patents and industrial designs Switzerland, Taiwan Province of China, Egypt, must be registered in accordance with the pro- Jamaica, Turkey, Uganda and the United cedure prescribed in the relevant legislations Kingdom. These treaties are supposed to pro- in order to enjoy protection under Nigerian tect investments in the case of war, revolution, law. Copyright subsists automatically in a expropriation or nationalisation. They are work from the moment the work is created. also entered into to guarantee the transfer of Registration is, therefore, not a prerequisite interests, dividends, profits and other income to copyright protection under Nigerian law. as well as compensation for dispossession or The Nigerian Copyright Commission (the loss to the same extent that the contracting “Commission”) however, administers and states would compensate their citizens. Under operates a notification/depository scheme. the Constitution, treaties cannot have the force Under this scheme, creators of copyright works of law until they have been ratified and made or persons who have acquired any copyright in

130 LexisNexis Foreign Investment Law Guide 2017-2018 Kunle Durosinmi-Etti is an Associate and specialises in corporate and commercial transactions including corporate restructuring, capital markets, real estate, acquisitions, banking and finance. His capital market experience includes public offerings of debt securities on the international market. He was part of the team that advised one of Nigeria’s largest conglom- erates on its acquisition of majority shares in a listed company and its divestment of minority interests in two of its subsidiaries to foreign investors.

He is a member of the firm’s immigration practice and has also taken part in several due diligence exercises on large conglomer- Kunle Durosinmi-Etti ates and was a core member of the team that Associate, Udo Udoma & Belo-Osagie provided secretarial support to the Capital Markets Solicitors Association.

respect of eligible works may give notice of/reg- In addition to this, the primary legislation for ister their copyright with the Commission. The the protection of the environment in Nigeria purpose of this scheme is to provide notifica- is the National Environmental Standards tion to the Commission of the creation and/or and Regulations Enforcement Agency Act existence of a work and also serve as evidence 2007 (“NESREA Act”). The NESREA Act of authorship/ownership in legal proceedings established the National Environmental in which there are competing interests. Standards and Regulations Enforcement Agency (the “Agency”), as an agency in the 19. Are there any environmental policies Federal Ministry of Environment, Housing and and regulations that (potential) foreign Urban Development and grants it wide-ranging investors should be aware of prior to or powers to protect and develop the environment throughout the investment process in in Nigeria. your jurisdiction? The Agency has responsibility for the protection Yes. Environmental policy in Nigeria has its and development of the environment, biodiver- basis in the Constitution. Section 20 of the sity conservation and sustainable development Constitution provides that the government has of Nigeria’s natural resources in general and a duty to protect and improve the environment for liaison with relevant stakeholders within and safeguard the water, air and land, forest and outside Nigeria on matters of enforcement and wildlife of Nigeria. relating to the environmental standards, regulations, rules, laws, policies and guidelines. The Agency is also charged with responsibility

Jurisdictional Q&A – Nigeria 131 for enforcing environmental laws, regulations 20. Are there any government agencies and standards and with deterring people, or non-governmental bodies that industries and organisations from polluting (potential) foreign investors can turn to and degrading the environment. The NESREA for more information on investment in Act ss 7(h) and (j) empower the Agency to your jurisdiction? enforce, through compliance monitoring, the environmental regulations and standards Potential foreign investors may direct enquiries relating to noise, air, land, the seas, oceans and to or request further information from the other water bodies and environmental control NIPC. Such enquiries are typically undertaken measures through registration, licensing and through a Nigerian lawyer / law firm who may permitting systems. The oil and gas sector is, also assist with the investment or business however, specifically excluded from the scope establishment process. of the Agency’s responsibilities and environ- 21. Have there been any recent proposals mental matters relating to the oil and gas sector for reforms or regulatory changes that are regulated and enforced by the Department will impact foreign investment in your of Petroleum Resources. jurisdiction? Another key legislation that deals with environmental standards is the Environmental There is a proposal by the Senate of the National Impact Assessment Act, Cap E12, LFN 2004 Assembly to repeal the CAMA (Nigeria’s (“EIA Act”), which prohibits both the public companies’ law) and the ISA 2007 (Nigeria’s and private sectors of the economy from securities’ law) and to enact new laws to replace embarking on or authorising any project or them. It is anticipated that these new laws activity without prior consideration, at an will introduce changes to foreign investment early stage, of their environmental effects. activities in Nigeria, although it is not yet clear “Environmental Effect” is defined in the EIA what form these changes will take. Act as any change that a project may cause to In addition, the Petroleum Industry the environment, regardless of whether such Governance Bill (“PIB”) has just been passed changes occur within or outside Nigeria as by the Nigerian Senate, which is the upper well as any changes that may occur in health or chamber of the Nigerian National Assembly. socio-economic conditions. An environmental It is, however, yet to be passed by the House impact assessment (“EIA”) must be concluded of Representatives, the lower chamber. and submitted to the Agency before commenc- Subsequent to being passed by both houses of ing any project or activity. the National Assembly, the Bill will also need The EIA Act also specifies the matters that to be assented to by the President of the Federal must, at a minimum, be included in the EIA. Republic of Nigeria. If passed in its current The information provided will be examined by form, the PIB will harmonise petroleum regu- the Agency and on the successful completion of latory functions and restructure the affairs of an EIA, a certificate will be issued. the Nigerian National Petroleum Corporation.

22. Are there any other features regarding foreign investment in your jurisdiction or in Asia that you wish to highlight?

No.

132 LexisNexis Foreign Investment Law Guide 2017-2018 About the Authors: Jumoke Lambo W: www.uubo.org Partner, Udo Udoma & Belo-Osagie A: 10th & 13th Floors, St. Nicholas E: [email protected] House, Catholic Mission Street, Kunle Durosinmi-Etti Lagos, Nigeria Associate, Udo Udoma & Belo-Osagie T: +234-1-4622307-10 E: [email protected] F: + 234 1 4622311

Feyikemi Adagunodo Associate, Udo Udoma & Belo-Osagie E: [email protected]

Jurisdictional Q&A – Nigeria 133 Jurisdiction: Philippines Firm: Martinez Vergara Gonzalez & Serrano Author: Rosalia S. Bartolome- Alejo and Erika B. Paulino

1. What are the main reasons foreign Economic growth through productive foreign investors invest in your jurisdiction? investments and trade has been a policy of the government in recent year – thus, the Also called the Gateway to Southeast Asia, government has liberalized its laws on foreign the Philippines is an archipelago of over investments by creating special economic 7,100 islands in the western Pacific Ocean. zones, and granting incentives for and easing The Philippines is centrally and strategically restrictions on such investments. located in the Southeast Asia region, and is surrounded by Malaysia, Indonesia, Vietnam, 2. What foreign investment legislation is Taiwan, China, and Japan, which allows the in place in your jurisdiction (e.g. Foreign country direct access to global sea routes and Investment Law or Foreign Investment maritime traffic. Catalogue)? Please provide a brief overview of such legislation. The country is abundant in natural resources: mineral deposits, including both metallic The Philippines’ chief legislation on foreign and non-metallic minerals, fishery and investments is the Foreign Investments Act agricultural resources, and diverse flora and of 1991 (Republic Act No. 7042) (FIA). The fauna. The Philippines also boasts of a young FIA provides the basic guide for the entry of and fast-growing population. The Philippine foreign investments into the country, allowing Statistics Authority reported a population of as much as 100% foreign participation in most more than 100 million as of August 2015, with enterprises, except in areas wholly or partially an average annual population growth rate of reserved to Philippine nationals under the 1.72% from 2010 to 2015. The young popula- Philippine constitution, special laws and the tion is composed of a skilled work force that is Foreign Investments Negative List (FINL). highly proficient in the English language and Incentives are available to foreign investors with relatively low labor costs. under certain laws depending on the activity It is also worth noting that the Philippines to be conducted in the Philippines. Various ranked 7th out of 144 countries in the Global government agencies, including the Board Gender Gap Report 2016 of the World Economic of Investments (BOI) and the Philippine Forum, which measures gender-based gaps in Economic Zone Authority (PEZA), may access to resources and opportunities. This is grant fiscal and non-fiscal incentives for local the highest performing country in the East Asia and foreign enterprises engaged in certain and Pacific region. activities. Regional or Area Headquarters The country is also posed to be the 20th (RHQ), Regional Operating Headquarters largest economy in the world by the year 2050 (ROHQ) and regional warehouses established based on projected trends in demographics, by multinational corporations are also granted capital investment, education levels and tech- incentives under the Omnibus Investments nological progress by PriceWaterhouseCoopers. Code. Enterprises locating and operating in

134 LexisNexis Foreign Investment Law Guide 2017-2018 certain special economic and freeport zones foreign parent company, governed exclusively may likewise enjoy incentives as provided by Philippine laws. under special laws. The formation of a domestic stock corporation requires it to have at least five but not more 3. What restrictions are placed on than 15 incorporators who must be natural foreign investment? Does this differ at persons, and majority of whom are residents local levels of government? of the Philippines. At least 25% of the author- Restrictions on foreign investment include ized capital stock at incorporation must be limitations on full foreign ownership of subscribed, and at least 25% of the subscribed certain businesses (such as mass media, tele- capital paid-up. A minimum paid-in capital of communications, public utilities), prohibition P5,000 is required where foreign ownership on foreign ownership of private lands, and in the corporation does not exceed 40%. For required minimum inward remittance of cap- 100% foreign-owned domestic corporations, ital, among others. Foreign direct investments a minimum paid up capital of US$200,000 is may be registered with the Bangko Sentral ng required if the corporation will engage in busi- Pilipinas (BSP) to allow full repatriation of ness as a domestic market enterprise. For 100% capital using foreign exchange purchased from foreign-owned domestic corporations engaging the Philippine banking system. in business as an export enterprise, only the P5,000 minimum paid up capital is required. The FIA provides for the formulation of the FINL, a shortlist of investment areas or activi- Branch Office ties which are open to foreign investors and/or A branch office does not have a juridical per- reserved to Philippine nationals. The current sonality separate from its parent corporation FINL is available at the following link: and is thus not required to have its own board http://www.officialgazette.gov.ph/2015/05/29/ of directors and other corporate officers. executive-order-no-184-s-2015/ To obtain a branch license, the foreign corporation’s head office must prove its legal existence 4. What are the most common business in its country of origin, its financial soundness, vehicles for foreign investors? How long and its authorization to set up a branch in the do they take to be set up? What are the Philippines. The branch will need to appoint a key requirements for the establishment resident agent in the Philippines. and operation of these vehicles? Branch offices that will engage in domestic Common business vehicles are domestic stock market enterprises are required to have a corporations or branch offices. Multinational minimum paid-up capital of US$200,000. corporations may likewise establish a rep- Export-oriented branches, on the other hand, resentative office, RHQ or ROHQ. These are generally subject to a minimum capital of entities may be established thru registration only P5,000. Additionally, within 60 days after with the Philippine Securities and Exchange its registration, a branch office must deposit Commission (SEC). The registration process with the SEC securities with an actual market may take about two to four weeks. value of at least P100,000. Domestic Corporation Other Forms of Corporate Vehicles Foreign investors may engage in business in Representative Office the Philippines by organizing a domestic stock A “representative office” or “liaison office” is corporation as a local subsidiary. The subsidi- a local office of a foreign corporation which ary becomes a legally independent unit from its deals directly with the clients of the parent

Jurisdictional Q&A – Philippines 135 company but does not derive income from 5. Under what circumstances are foreign the Philippines. It is fully subsidized by its investments subject to government head office and undertakes such activities as approvals? What is the process and information dissemination, promotion of the timeline for such approvals? company’s products, as well as quality control of products. A representative office is required Depending on the type of activity to be under- to have an initial minimum inward remittance taken in the Philippines, special licenses, in the amount of US$30,000 to cover its oper- clearances or permits may have to be secured ating expenses. in addition to the primary registration with the SEC. Some of the businesses that require special Regional Headquarters licenses include banks, insurance companies, RHQs are branch offices that serve as a supervi- financing and lending companies, securities sory, communication, and coordinating center brokerage, investment houses, hospitals, health for its head office, affiliates, subsidiaries, or maintenance organizations, and recruitment branches in the Asia-Pacific region and other for overseas employment. foreign markets. RHQs are neither allowed In addition, any enterprise seeking to avail itself to derive any income from sources within the of incentives under special laws must apply Philippines nor to participate in any manner in for registration with the relevant regulatory the management of any subsidiary or branch authority. For instance, for incentives under the office it might have in the Philippines. RHQs Omnibus Investment Code, registration must are likewise restricted from soliciting or mar- be secured with the BOI. keting goods and services whether on behalf of its affiliates or any other company. Process and timeline for approval of the registration depend on the respective rules and RHQs are required to remit to the Philippines regulations of the relevant regulatory authority. at least US$50,000 or such amount as may be necessary to cover its operations. 6. What sectors are heavily regulated or Regional Operating Headquarters restricted in your jurisdiction, if any? A multinational company may register an Conversely, what are some of the more ROHQ for the purpose of providing qualifying open or unrestricted sectors, if any? services to its affiliates, subsidiaries or branches Please refer to the reply under question (3), on in the Philippines, in the Asia-Pacific Region the areas covered under the FINL. and in other foreign markets. These qualifying services include, among others, sourcing 7. Are there any restrictions on doing or procurement of raw materials, corporate business with certain countries or finance advisory services, marketing control territories in your jurisdiction? (For and sales promotion, training and personnel example, sanctions). management, logistic services and data processing. There are no restrictions on doing business Licensed ROHQs are required to remit to the under Philippine laws that are applicable Philippines such amount as may be necessary only to certain countries or territories. The to cover its operations in the Philippines, which Philippines currently does not have a sanctions should not be less than US$200,000. regime (financial or economic) in place.

136 LexisNexis Foreign Investment Law Guide 2017-2018 8. What grants or incentives are on offer • Access by registered export-oriented enter- to foreign investors, if any? prises to bonded manufacturing/ trading system Incentives available to foreign investors include RHQs, ROHQs, and enterprises registered with those that qualify for registration with the BOI the PEZA and other special economic zones under the Omnibus Investments Code, with the are also granted fiscal and non-fiscal incen- PEZA, or with special economic zones. tives, including preferential income tax rate, Local and foreign enterprises engaged in value-added tax (VAT) zero-rating, exemption activities included in the Investment Priorities from local taxes, tax and duty free importation Plan may register with the BOI to qualify for of training materials and equipment, among entitlement to fiscal and non-fiscal incentives. others. The most recent IPP (which took effect on March 18, 2017) may be accessed at the follow- 9. Are there any free trade, special ing link: economic or industrial zones in your http://www.dti.gov.ph/media/ jurisdiction and what are their advisories/99-main-content/london-news/10368- requirements? investment-priorities-plan-2017-boi- finalises-policies-and-guidelines-for-pref- Special Economic Zone Act of 1995 ferred-investment-activities The law, implemented by the PEZA, provides Fiscal incentives available to BOI-registered for the creation of special economic zones enterprises include: (“ecozones”) and grants fiscal and non-fiscal incentives to enterprises located within an • Income tax holiday (ITH) for six years ecozone and registered with the PEZA. (for pioneer firms) and four years (for non- pioneer firms) Incentives that are available to ecozone enterprise, depending of the type of registered • Additional 50% deduction from taxable activity, are as follows: income for labor expense for the first five years from BOI registration • ITH or 100% exemption from corporate • Exemption from national and local contrac- income tax for six years (for pioneer tor’s tax projects) or four years (for non-pioneer projects) • Exemption from taxes and import duties • 5% preferential tax rate on gross income • Exemption from wharfage dues and export tax, duty, imposts and fees for exports • Tax and duty free importation of raw materials, capital equipment, machineries and Non-tax incentives include: spare parts • Simplified customs procedures for the • Exemption from wharfage dues and export importation of equipment, spare parts, tax, impost or fees raw materials and supplies, and exports of processed products • VAT zero-rating of local purchases of goods and services, subject to certain conditions • Unrestricted use of consigned machinery, equipment and spare parts • Exemption from payment of any and all local government imposts, fees, licenses or • Employment of foreign nationals in super- taxes visory, technical or advisory positions for a period not exceeding five years from its • Exemption from expanded withholding tax registration • Simplified import – export procedures

Jurisdictional Q&A – Philippines 137 • Employment of non-resident foreign Tourism Act of 1999 nationals in supervisory, technical or advi- The Tourism Act of 1999 (RA No. 9593) created sory positions the Tourism Infrastructure and Enterprises • Special non-immigrant visa with multiple Zone Authority (TIEZA) and provided for the entry privileges for non-resident foreign creation of Tourism Enterprise Zones (TEZs). investors, officers, and employees in super- Tourism enterprises locating within TEZs visory, technical or advisory position, and and registered with TIEZA are entitled to the their spouses and unmarried children following fiscal and non-fiscal incentives: under 21 years of age • ITH for a period of six years from the start Bases Conversion Development Act of business operations of 1992 • 5% preferential tax rate on gross income The Bases Conversion and Development Act • 100% exemption from all taxes and customs of 1992 (RA No. 7227) created the Subic Bay duties on importations of capital invest- Metropolitan Authority (SBMA) and the Bases ment and equipment Conversions Development Authority (BCDA). • Exemption from customs duties and SBMA has jurisdiction over the Subic Special national taxes on the importation of trans- Economic Zone and the Subic Freeport Zone. portation and the spare parts BCDA, in turn, has implementing arms over • Exemption from taxes and customs duties its subsidiaries such as John Hay Management on the importation of goods actually con- Corporation for the John Hay Special Economic sumed in the course of rendering services; Zone (located at Baguio City) and Poro Point and tax credit equivalent to all national Management Corporation for the Poro Point internal revenue taxes paid on all local- Freeport Zone (PPFZ) (located at Poro Point, ly-sourced goods and services San Fernando City, La Union). • Employment of foreign nationals in exec- Enterprises operating within the zones and utive, supervisory, technical or advisory registered under this act enjoy the following positions incentives and benefits: • Special investor’s resident visa for foreign • Exemption from national and local taxes nationals with an investment of at least and in lieu thereof, 5% tax on gross income US$200,000 • Tax and duty-free importations of raw • Full repatriation of the proceeds of the materials, capital and equipment liquidation of foreign investment • Permanent resident status within the relevant special economic zone for foreign 10. What are the main taxes that could investors, his/her spouse and dependent apply to foreign investors in your children under 21 years of age jurisdiction? (For example, Personal Other ecozones created under various special Income Tax, Corporation Tax, Value laws include the Zamboanga City Special Added Tax and Social Security Payments). Economic Zone (located in San Ramon, Zamboanga City), the PHIVIDEC Industrial Tax on Corporations Estates (located in the municipalities of For tax purposes, corporations are classified as: Tagaloan and Villanueva, Misamis Oriental), (1) “domestic corporations”, those organized in and the Aurora Special Economic Zone (located the Philippines; or (2) “foreign corporations” in the municipality of Casiguran, Aurora). (corporations which are not domestic), and

138 LexisNexis Foreign Investment Law Guide 2017-2018 Applicable Tax Domestic Corporation

Regular Corporate 30% on the net taxable income (gross income less allowable deductions) Income Tax (RCIT)

Minimum Corporate If taxable income is zero or negative, or MCIT is greater than RCIT, Income Tax (MCIT) 2% on the gross income, except income exempt from income tax and income subject to final withholding tax

Tax on Passive • 20% final tax on interest on currency bank deposit and yield or any Income other monetary benefit from deposit substitutes, trust funds and similar arrangements, and royalties • 7.5% final tax on interest income derived from a depositary bank under the expanded foreign currency system • 5%-10% final tax on net capital gains from the sale of shares of stock not traded in the stock exchange • 10% final tax on income derived by a depositary bank under the expanded foreign currency deposit system from foreign currency transactions with residents • 6% final tax on gains realized from the sale or disposition of lands or buildings

Tax on Branch 15% tax on profits remitted by a branch to its head office Profits Remittances

Tax on Cash or Exempt Property Dividends

Value-Added Tax 12% VAT on gross sales or receipts

Withholding Taxes • 5% creditable withholding tax on payments of real property rental fees • 10% creditable withholding tax on payments of commissions of independent and exclusive distributors • Withholding tax on payment of compensation and other income payable to employees, at varied rates • 1% creditable withholding tax on payments made by top 20,000 private corporations to their local/resident suppliers of goods, whether individuals or corporations

Improperly 10% on profits accumulated and not distributed to shareholders to Accumulated avoid accrual of income tax to such shareholders, or earnings beyond Earnings Tax 100% of the paid-up capital

Jurisdictional Q&A – Philippines 139 which may be “resident foreign corporations” (1) Importations are generally subject to (foreign corporations engaged in business in customs duties. Anti-dumping duty, the Philippines), or “nonresident foreign cor- countervailing duty, marking duty, and porations” (foreign corporations not engaged discriminating duty may likewise be due in business in the Philippines). A domestic cor- under special circumstances; poration is taxable on all income derived from (2) Local government units impose business sources within and outside the Philippines; taxes based on gross sales or receipts; and while a foreign corporation, whether or not (3) Real property taxes on lands, buildings and engaged in business in the Philippines, is tax- other improvements thereon. able only on income derived from Philippine sources. 11. What are some of the employment The following internal revenue taxes are regulations in your jurisdiction that generally applicable to domestic corporations foreign investors should be aware of? Is and to resident foreign corporations (such as it possible to secure residency permits or a Philippine branch of a foreign corporation): work visas for foreign nationals under investment? Nonresident foreign corporations are, in general, subject to a final tax of 30% on gross The Labor Code of the Philippines is the income received during each taxable year primary governing law in the Philippines from all sources within the Philippines such covering employment standards and the as interests, dividends, rents, royalties, salaries, legal framework for negotiating, adjusting premiums, gains, etc. and administering those standards and other Tax on Individuals incidents of employment. Individuals are classified for tax purposes as: Some Key Labor Standards

(a) citizens, Working Hours (b) nonresident citizens, or Eight hours normal working day, with 60 (c) alien individuals, who may either be a res- minutes time off for regular meals (which is ident alien or nonresident alien. An alien not compensable). individual, whether a resident or not of the Philippines, is taxable only on income Overtime Work derived from Philippine sources. Work rendered after the normal eight hours of Income of citizens, resident aliens and non- work shall be paid an overtime rate. resident aliens engaged in business in the Night-Shift Differential Pay Philippines is taxed at progressive rates ranging A night shift differential of not less than 10% from 5% to 32%. Cash and/or property divi- of the regular wage shall be paid for each hour dends received by these taxpayers are subject of work performed between 10 p.m. and 6 a.m. to a 10% final tax. For nonresident aliens not engaged in business Weekly Rest Period in the Philippines, income tax is at 25% of Rest period of not less than 24 consecutive income (interest, dividends, rents, salaries, etc.). hours after every six consecutive normal workdays. Other Imposts Other imposts and taxes imposed by the gov- Service Incentive Leave ernment in addition to the above are as follows: An employee who has rendered at least one year of service is entitled to a yearly service incentive leave of five days with pay. 140 LexisNexis Foreign Investment Law Guide 2017-2018 Minimum Wage In the event that the foreign national will Minimum wages are set by law or the Regional be working in the Philippines, the foreign Wage Councils. national, through a Philippine employer, is required, as a general rule, to first secure an 13th Month Pay alien employment permit and the appropriate Every employee is entitled to a 13th month pay, work or special resident visa. which shall be at least 1/12 of the basic salary Prearranged Employment or 9(g) Visa earned within a calendar year. This is available to a foreign national pro- Retirement Pay ceeding to the Philippines for a prearranged The minimum retirement pay of ½ month employment in a Philippine entity. salary for every year of service is payable to Treaty Trader’s / Investor or 9(d) Visa employees who have served at least five years of service upon compulsory retirement at the Foreign national businessmen may be admit- age of 65 or upon optional retirement at 60 or ted as nonimmigrants for their entry into the more but not 65. Philippines to develop and direct the operations of an enterprise in which he has invested Paid Time-Off a substantial amount of capital. (a) Female employees are entitled to maternity Special Investor’s Resident Visa (SIRV) leave of 60/78 days. This entitles the holder to reside in the (b) The father of a newborn baby is allowed to Philippines for an indefinite period as long as go on paid leave for seven days. the required qualifications and investments (c) In addition to the foregoing, solo parents are maintained. The SIRV program requires are granted paid leave of not more than investors to remit at least $75,000 into the 7 working days. country and invest the same in viable economic Security of Tenure activities pursuant to the Omnibus Investments The right to security of tenure is enshrined in Code. Philippine law. Following this principle, an Special Non-immigrant Visa employer may not terminate the services of an This may be issued upon approval of the employee except for just or authorized causes Secretary of Justice for public interest or policy provided under the law and subject to compli- considerations. Foreign nationals employed by ance with procedural due process. enterprises registered with the PEZA and BOI Entry and Work Requirements may apply for this type of visa. (Immigration) 12. Can foreign investors acquire real A foreign national, who is not a “restricted” property and land in your jurisdiction? national, may enter the Philippines without Are there any restrictions or limitations? obtaining an entry business visa from the Philippine Embassy or the Consulate from the Ownership of private lands is limited to citizens country of origin or residence. Upon arrival of the Philippines or to corporations that are in the Philippines, the foreign national will be 60% owned by Philippine citizens. Foreign granted a 9(a) visa valid for seven to 21 days, ownership of private lands is, except in cases depending on his nationality. If the foreigner of hereditary succession, limited only to the is a “restricted” national, he must obtain from foreign national’s 40% interest in a landholding the Philippine Embassy or Consulate in his company. country of origin or residence, a 9(a) visa before entering the country. Jurisdictional Q&A – Philippines 141 Foreign investors may, however, own con- consummating and implementing their agree- dominium units in condominium projects ments until the transaction is deemed approved where title to the common areas are held by by the PCC or the PCC issues a “no objection” a corporation, provided that the total foreign or “no further action” decision on the matter. interest in the condominium project does not exceed 40%. 14. What foreign currency or exchange controls should foreign investors be Foreign investors may also lease private lands aware of? up to 75 years. Under the Investor’s Lease Act (R.A. No. 7692), lease agreements may be Inward foreign investments (in cash or in kind) entered into with Filipino landowners for the need not be registered with the BSP, unless establishment of industrial estates, factories, the foreign exchange needed to service the assembly or processing plants, agro-industrial repatriation of capital and the remittance of enterprises, land development for industrial, dividends and profits shall be purchased from or commercial use, tourism, and other similar the banking system. For registration purposes, priority productive endeavors. The lease period foreign currency cash remittances need not be is for 50 years, renewable once for another 25 converted to pesos. years. Investments in the form of foreign loans (loans 13. Are there any processes in your from offshore sources or foreign currency jurisdiction that can block foreign loans from resident banks), on the other hand, investment under specific circumstances? generally require prior approval of and registration with the BSP, if these will be serviced A license to do business must be secured from with foreign exchange to be sourced from the the SEC, and special licenses (depending on the banking system. BSP regulates foreign/foreign nature of activity) from the relevant regulatory currency loans to ensure that the principal and body, must be secured. Application for license interest thereon can be serviced in an orderly or permits may be denied for failure to comply manner and with due regard to the economy’s with rules and regulations and applicable law overall debt servicing capacity. (including the FINL). The practice of certain professions by foreign nationals may be 15. Are there any restrictions, approval allowed, subject to reciprocity. requirements or potential penalties if a foreign investor withdraws their Anti Trust investment in your jurisdiction? The Philippine Competition Act requires parties to an acquisition to notify the Philippine There is generally no restriction on withdrawal Competition Commission (PCC) before the of foreign investments in the Philippines. execution of definitive agreements relating to Foreign direct investments registered with the transaction where the following thresholds the BSP may be fully repatriated using foreign are met: (a) the annual turnover in, into, or exchange purchased from the Philippine bank- from the Philippines, or value of the assets in ing system. the Philippines of the ultimate parent entity of 16. What contract enforcement and at least one of the acquiring or acquired enti- investor protection mechanisms are in ties, including that of all entities that it controls place in your jurisdiction, if any? exceeds Php1 billion; and (b) the value of the transaction exceeds Php1 billion. Philippine law treats foreign investors in the Parties covered by the compulsory noti- same way as their domestic counterparts. fication requirement are prohibited from Hence, the remedies under Philippine general

142 LexisNexis Foreign Investment Law Guide 2017-2018 laws on contract enforcement and on stake- Thailand and Vietnam. Under the ASEAN holder protection are likewise available to Comprehensive Investment Agreement entered foreign investors. However, foreign corpora- in to force on March 29, 2012, the member tions engaging in business in the Philippines states declared their cooperation to create a free without the required license will not be allowed and open investment environment through the to institute or maintain any action or proceed- consolidation and expansion of existing agree- ing before any court or administrative body in ments between the ASEAN member countries. the Philippines. 18. What intellectual property rights The Omnibus Investment Code likewise pro- protections are available in your vides for basic rights and guarantees to which jurisdiction to foreign investors? all investors and registered enterprises are entitled which includes: Protection of intellectual property (IP) rights (a) The basic rights and guarantee provided in in the Philippines is codified under the the Constitution; Intellectual Property Code of the Philippines (b) The right to repatriation of investments and (IPC), implemented by the Intellectual Property remittance of earnings; and Office (IPO). The IPC was enacted pursuant to the Philippines’ commitment under the (c) Freedom from expropriation; and (d) pro- Agreement on Trade-Related Aspects of tection from requisition of investment. Intellectual Property Rights (TRIPS). The foregoing protections are further provided Among the IP rights protected under the IPC in investment treaties entered into by the are the following: Philippines with other states. Patents 17. Does your jurisdiction have any Patentable inventions are granted protection bilateral or multilateral investment for a term of 20 years from the filing date of protection treaties with Asia-Pacific the application for registration with the IPO. jurisdictions that are commonly used for The IPC follows the first-to-file rule, in that the investing into the country? right to a patent shall belong to the person who The Philippines is a party to 38 bilateral first files an application for registration. investment treaties (32 of which are in force), Trademarks, Service Marks and Trade Names including those with China, India, Korea, Rights to a mark are acquired through regis- Taiwan, Thailand and Vietnam. These treaties tration with the IPO. However, priority right is similarly provide for the promotion, encour- given to a foreign national who previously filed agement and admission of investments in each an application for registration of the same mark other’s areas; fair and equitable treatment of in other countries. A certificate of registration foreign investments and full protection and shall remain in force for 10 years. security, no less favorable than that accorded to its own investors; freedom from expropriation; Copyright and guarantee of transfer of profits, earnings Literary and artistic works, and certain deriv- and repatriation. ative works, are copyrightable under the IPC. The Philippines is also a founding member of The rights of an author shall last during his the Association of Southeast Asian Nations lifetime and for 50 years after his death. (ASEAN). Other member countries of the The IPC likewise provides for the requirements ASEAN are Brunei, Cambodia, Indonesia, of “technology transfer arrangements” (TTAs). Lao PDR, Malaysia, Myanmar, Singapore, TTAs refer to contracts involving the transfer of

Jurisdictional Q&A – Philippines 143 systematic knowledge for product manufactur- handling, storage, transportation, sale, ing, the application of a process, or rendering distribution, use and disposal of all unreg- of service, including management contracts. ulated chemical substances and mixtures Transfer, assignment or licensing of IP rights • The Presidential Decree No. 1586, establish- is also considered a TTA. TTAs shall not ing the Environmental Impact Statement include certain provisions which are deemed (EIS) System. The EIS System requires to have an adverse effect on competition and entities to first secure an Environmental trade, and shall include mandatory provisions Compliance Certificate before it can relating to governing law, continued access to undertake certain projects or activities improvements, arbitration, and responsibility considered environmentally critical. for taxes. TTAs which do not conform with the IPC requirements shall be unenforceable, 20. Are there any government agencies unless approved and registered with the IPO. or non-governmental bodies that (potential) foreign investors can turn to 19. Are there any environmental policies for more information on investment in and regulations that (potential) foreign your jurisdiction? investors should be aware of prior to or throughout the investment process in Foreign investors may reach out to the BOI, your jurisdiction? the lead government agency responsible for the promotion of investments in the Philippines: Significant Philippine environmental laws currently in force, and implemented by the Board of Investments Department of Environment and Natural A: Investment Assistance Center (IAC) Resources, are: Ground Floor Industry and Investments Building • The Ecological Solid Waste Management 385 Senator Gil Puyat Avenue Act of 2000 (R.A. No. 9003), providing for Makati City, Philippines the government’s program on ecological T: +895 36 40 / +895 36 41 / +895 36.5 solid waste management (management of control, transfer, transport, processing and DL: 895.83.22 disposal of solid waste) and the institutional E: [email protected] mechanism for its implementation W: http://investphilippines.gov.ph/incentives/ board-of-investments • The Philippine Clean Water Act of 2004 (R.A. No. 9275), providing for a compre- or the SEC for more information on company hensive water quality management in all formation at: water bodies, but primarily applying to the Securities and Exchange Commission abatement and control of pollution from A: Secretariat Building, land based sources PICC Complex • The Philippine Clean Air Act of 1999 (R.A. Roxas Boulevard, No. 8749), providing for a comprehensive Pasay City 1307 air pollution control policy for the preven- Philippines tion and abatement of air pollution W: http://www.sec.gov.ph • The Toxic Substances, Hazardous and Nuclear Waste Control Act of 1990 (R.A. No. 6969), providing for the regulations on importation, manufacture, processing,

144 LexisNexis Foreign Investment Law Guide 2017-2018 21. Have there been any recent proposals of Trade and Industry and the Department of for reforms or regulatory changes that the Interior and Local Governance to improve will impact foreign investment in your business licensing processes at the local govern- jurisdiction? ment level and make starting a business easier.

The National Competitiveness Council and the 22. Are there any other features Economic Development Cluster commenced a regarding foreign investment in your review of current laws and regulations aimed jurisdiction or in Asia that you wish to at streamlining regulatory procedure includ- highlight? ing simplifying documentary requirements and implementing regulatory reforms to The salient features of the Philippines regula- start a business in the Philippines in 2016. tory framework on foreign investments are A Nationwide Streamlining of Business Permits discussed under the replies to the preceding and Licensing Systems (BPLS) Program was questions. likewise launched in 2011 by the Department

About the Authors: Rosalia S. Bartolome-Alejo W: www.mvgslaw.com Partner, Martinez Vergara Gonzalez A: 33rd Floor, The Orient Square, & Serrano F. Ortigas, Jr. Road, E: [email protected] Ortigas Center 1600 Pasig City, Erika B. Paulino Metro Manila, Philippines Partner, Martinez Vergara Gonzalez T: +63 2 687 1195 & Serrano F: +63 2 687 1197 E: [email protected]

Jurisdictional Q&A – Philippines 145 RIAABG ME Advert edited NT.pdf 1 20/06/2017 17:03

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Jurisdiction: United Arab Emirates Firm: RIAA Barker Gillette (Middle East) LLP Author: Hasan Rizvi

We are a corporate, 1. What are the main reasons foreign 2. What foreign investment legislation is commercial and investors invest in your jurisdiction? in place in your jurisdiction (e.g. Foreign dispute resolution firm Investment Law or Foreign Investment based in the heart of The United Arab Emirates (UAE) is a federation Catalogue)? Please provide a brief Dubai, United Arab of seven emirates and its strategic location overview of such legislation. makes it the renowned commercial and finan- Emirates. cial hub of the Middle East. The UAE is seeking Federal Law No. 2 of 2015 on Commercial The firm forms part of a to diversify its economy into various industry Companies (CCL), Federal Law No. 18 of sectors, and move away from the oil based 1981 concerning the Organization of Trade Global Alliance economy, by establishing sector-focused free Agencies, Federal Law No. 1 of 1979 regarding offering capabilities in zones and implementing reform initiatives to the Regulation of Industries, and the Federal seven countries and attract and facilitate foreign investment. Regulation of Conditions of Purchases, Tenders twelve cities from New According to the 2016 Global Investment and Contracts Financial Order No.16 of 1975 C Report by the UNCTAD1, UAE’s annual net are the main laws governing foreign investment M York to Beijing. foreign direct investment (FDI) flows have in the UAE. Y We have years of continued to rise for the fifth consecutive The CCL has the objective to continue UAE’s CM

MY expertise and flair, year and it has received the ninth highest FDI development into a global standard market CY not just in narrow in Asia. UAE topped the Arab countries in and business environment and, in particular,

CMY FDI flows, and the volume of accumulative raise levels of good corporate governance, specialist fields but in K RIAA BARKER GILLETTE foreign investments in the UAE developed and protection of shareholders and promotion of wider background amounted to US $126.6 billion in 2015 from social responsibility of companies. areas and interests. US$ 115.6 billion in 2014. The UAE’s government currently is in the The firm prides itself on A GLOBAL ALLIANCE Foreign investors are driven to invest in the process of issuing new draft laws which cover UAE due to the general absence of corporate arbitration, commercial fraud, anti-dumping, its approachable and OF LAW FIRMS WORKING and income taxation, absence of exchange and foreign investment. It is expected that collegiate feel and the controls and limited restrictions on the repatri- the proposed investment law, will make the accessibility of its ation of capital, exemptions from custom duties business ownership requirements less stringent, partners. FOR BUSINESSES AND and several domestic regulations, which are support economic diversification and promote applicable within the customs territory. Other competition in the economy. CORE SERVICES INDIVIDUALS factors enhancing the attractiveness of the UAE Company Commercial as an investment location are its strong and 3. What restrictions are placed on Corporate M&A foreign investment? Does this differ at At RIAA Barker Gillette Middle East, we believe profitable banking sector, its large and diverse Dispute Resolution pool of expatriate labour, good transport and local levels of government? Banking and Finance every client is unique and tailor our services to production infrastructures, and its access to Although UAE laws and regulations intend to meet your needs. We aim to get advice and low-cost energy. T: +971 4 4019410 support FDI, it currently favours state nationals information to you in a quick, considered and E: [email protected] 1 UNCTAD, ‘Investor Nationality: Policy over foreign investors. cost effective manner. Challenges’ [2016] World Investment Under the CCL, foreign ownership of a com- RIAA Barker Gillette (Middle East) LLP Report 2016. pany is restricted to 49 per cent since there is

Registered with the Government of Dubai Legal Affairs Department and www.riaabarkergillette.com the Dubai Financial Services Autho rity Jurisdictional Q&A – United Arab Emirates 147 a requirement that 51 per cent of the company Incorporating a local entity needs to be owned by a UAE national or a UAE’s CCL sets out five different forms: company wholly owned by a UAE national. For (1) Joint Limited Company; public joint-stock companies, there is an additional requirement that the chair and majority (2) Simple Commandite Company; of the board members should be UAE nationals. (3) Limited Liability Company; This ownership restriction varies depending (4) Public Joint Stock Company; and on the sector and circumstances. For instance, foreign ownership in the insurance sector is (5) Private Joint Stock Company. limited to 25 per cent whereas in the financial However, the foreign investors commonly services sector, it is limited to 40 per cent. operate through a Limited Liability Company In the case of a branch office of a foreign com- (LLC). pany, a UAE agent needs to be appointed for A LLC requires 2 to 50 shareholders and pro- sponsorship. Nonetheless, these restrictions do vides the benefit of limited liability. The 51/49 not apply to companies wholly owned by GCC ownership rule applies to LLCs, where 51 per nationals, or corporate shareholders that are cent of the share capital should be owned by wholly owned by a GCC national. a UAE national with the exception of GCC The aforementioned restrictions do not apply nationals who can have 100 per cent ownership. in the UAE free zones. However, businesses It is possible to have a mutual agreement on the established in a free zone may not conduct their profit and loss distribution, and allocation of business outside the free zone area. liquidation proceeds. There are also restrictions regarding foreign There is no minimum capital requirement; ownership of real estate, which is only permis- however, the LLC should have “sufficient capi- sible for designated areas in each emirate. tal” which would be decided by the Department of Economic Development (DED) of the rele- Lastly, foreign investors, who seek to distribute vant emirate. Audited accounts must be filed their products in the UAE must have an exclu- when renewing license and physical premises sive agent, who needs be a UAE national or a are needed as the registered office. company wholly owned by a UAE national The approximate time frame for incorporation 4. What are the most common business is four weeks. vehicles for foreign investors? How long Branch/ Representative Office do they take to be set up? What are the key requirements for the establishment A branch or a representative office of a foreign and operation of these vehicles? company is suitable for companies who have a limited scope of activities in the UAE. Branch For a foreign investor to conduct business, they offices do not have separate legal identity to can establish a formal legal presence in the UAE its parent company and are generally restricted through any of the following means: to carrying out activities permitted by the Ministry of Economy. A UAE national or a (a) Incorporating a local “on-shore” entity; company wholly owned by UAE nationals is (b) Registering a branch or representative office needed as a service agent to deal with local and of a foreign company; federal government requirements. (c) Establishing a free zone entity; or Such a branch office can negotiate and enter (d) Establishing Offshore/International into contracts on behalf of the parent company Business Companies (IBC) and can provide supporting activities. However,

148 LexisNexis Foreign Investment Law Guide 2017-2018 only the parent company can fulfil contracts include the Jebel Ali Free Zone (JAFZA) and that require goods and services, or alternatively, Ras Al Khaimah Investment Authority. a commercial agent can be appointed. These allow international businesses to operate Representative offices can only market and con- with 100 per cent foreign ownership. There is duct production capability studies and are not no minimum capital requirement and no allowed to perform any commercial activity. requirement of filing audited accounts. IBCs The approximate time frame for incorporation allow the companies to acquire freehold prop- is four to six weeks. erty within approved areas and the option of maintaining multi-currency bank accounts. Free Zone Entities Companies under offshore regimes can enjoy The UAE has introduced a number of free zones the advantage of Double Taxation Avoidance to attract foreign investment. Each free zone Agreements which the UAE has entered into has its own regulatory authority with their own with several other countries. rules and regulations. Generally, the free zones When setting up an IBC, the investor does are industry focused, and issue licenses for spe- not need to visit the UAE in person, does not cific types of activities. Though free zones allow need to deposit capital in a bank account, and 100 per cent ownership, free zone entities are no financial statements need to be submitted. not allowed to do business outside the free zone It provides complete privacy and confiden- area. Such entities can hire expatriates, and tiality ensuring a highly conducive business are exempt from incorporation tax. However, environment. IBCs require a registered agent they have a minimum office space requirement who is eligible to form the offshore company, with heavier administration requirements, and and whose registered address is the registered a restriction on the number of visas allocated address of the offshore company. per square meter of the office space. The approximate time frame for incorporation Most of the free zones have two main types is one to three days. of limited liability companies: Free Zone Establishment (FZE) and Free Zone Company 5. Under what circumstances are foreign (FZCO/FZC/FZ-LLC). The main difference investments subject to government between these two is the number of share- approvals? What is the process and holders; a FZE requires only one shareholder timeline for such approvals? while the latter requires between two to five shareholders. There is a minimum share capital Business registration processes vary in each requirement. However, the amount depends on emirate, and are generally done through the free zone, the structure and the activities of the emirates’ Department of Economic the company. Development (DED). The company is also usually required to be registered with the Chamber The approximate time frame for incorporation of Commerce and Industry, the Ministry of is usually two to eight weeks. Labour, and the General Authority of Pension Offshore/ International Business and Social Security. The DED issues licenses Companies (IBC) with the exception of hotels and tourism Offshore companies are suitable for investors licenses, which are issued by the Department who do not intend to engage in any business of Tourism and Commerce Marketing. within the UAE. Generally offshore companies There is no formal FDI review process in act as holding companies and do not carry on place, but restriction on foreign ownership of commercial activities. Free zones which offer land and stock are common. Also, non-tariff the concept of offshore companies in the UAE barriers to investment are present in the form

Jurisdictional Q&A – United Arab Emirates 149 Middle East, Asia and Africa in diverse industries and sectors. Hasan’s corporate expertise includes working with multinational and domestic corporations, private equity firms and family business groups on their operations and management, corporate structures, mergers, acquisitions and investments. He frequently acts for fund sponsors, investors and asset management firms on fund formation, investment structuring and regulatory compliance.

Hasan has worked extensively on infrastructure and energy projects, equity and debt capital markets transactions, and Hasan Rizvi corporate restructurings. Managing Partner, RIAA Barker Gillette (Middle East) LLP His private client expertise covers strategic advisory services to high-net-worth individ- Hasan Rizvi is the Middle East Managing uals and family groups in relation to family Partner of RIAA Barker Gillette (Middle offices, private investments and holding East) LLP. He specialises in corporate, structures. commercial and private equity. Hasan’s areas of practice include project finance, Prior to establishing RIAA Barker Gillette restructuring, corporate finance and (Middle East) LLP, Hasan achieved partner dispute resolution. He has acted on a number status at various other international law of high profile transactions across the firms. He has been based in the Middle East for more than 15 years. of restrictive agency, sponsorship, and distrib- 6. What sectors are heavily regulated or utorship requirements. restricted in your jurisdiction, if any? Examples of categories that need prior approval Conversely, what are some of the more for a grant of license include: open or unrestricted sectors, if any? • Banks, financial institutions and financial Some of the regulated sectors in the UAE services providers, which need approval include: from the UAE Central Bank; Banking • Manufacturing companies from the Ministry of Finance; and The UAE Central Bank is primarily responsible for overseeing banks in the UAE, except in the • Pharmaceutical and medical products from DIFC, where the Dubai Financial Services the Ministry of Health. Authority (DFSA) is the regulatory authority. In addition, businesses engaged in oil and gas The Central Bank’s responsibilities include production related industries are required to issuing currency, advising the government follow a more detailed procedure. on monetary issues, acting as a bank for other

150 LexisNexis Foreign Investment Law Guide 2017-2018 banks and the government, and formulat- Healthcare ing and supervising the implementation of The Ministry of Health, and the health author- banking policies. The Central Bank, ensures ities of each emirate administer the public compliance with banking laws and supervises healthcare services in the UAE. These author- the other banks by requiring periodic reports, ities are responsible for licensing companies it has powers to inspect records and accounts of and individuals providing healthcare services, banks at its discretion, and can appoint admin- improving healthcare information systems istrators or representatives to manage a bank. and standards, developing a comprehensive The recently issued Federal Decree Law No. 9 healthcare insurance and funding policy, of 2016 on Bankruptcy serves as an instrument building and managing health facilities and of stability and risk mitigation enabling the regulating areas of healthcare, including the creation of a pre-emptive settlement regime in practice of medicine, dentistry, nursing and the UAE. pharmaceuticals. Lastly, the UAE is also aligned with regulatory The Ministry of Health along with the frameworks such as IFRS9 and Basel III, to Medicines Pricing and Companies Committee enhance the credentials of financial instru- regulate prices of both imported and locally ments in the UAE and also to prepare itself for manufactured medicines; they tend to favour potential market shocks. lower prices to ensure affordability for patients. Insurance Media The UAE established the Insurance Authority The UAE allows media outlets to establish to ensure a suitable environment for the devel- themselves onshore or in the various media free opment of the insurance sector. It enforces its zones across the emirates. Regardless of where provisions to supervise and control insurance the media companies operate, the National companies and insurance related professions Media Council (NMC) is the federal regulator by granting licenses, issuing regulations, and responsible for publishing licences and issuing by de-registering companies for breaches of press credentials to editors, although there regulations. may be additional regulatory authorities for Securities and Commodities free zones. The role of the NMC also includes ensuring the implementation of media laws, To improve the efficiency of the UAE capital and compliance with regulations, including markets through the development of the content regulations that prohibit content necessary legislations, the Securities and criticising the UAE government, its rulers and Commodities Authority (SCA) was established. content that can damage the UAE economy, The SCA has wide powers to regulate the among other prohibitions. Accordingly, the securities markets, by establishing controls NMC may cancel licences for violations of and producing frameworks pertaining to content regulations. licensing and membership of the market, listing of securities, disclosure and transparency Oil and Gas requirements, and arbitration. The SCA is also Under the UAE Constitution, each emirate in charge of communication with international has complete ownership and control of the markets in order to exchange information and natural resources in its territory. Consequently, expertise and join relevant organisations and each has its own regulatory body and policies associations. regarding the industry. In relation to oil, Abu Dhabi owns approximately 94 per cent of the national oil reserves, followed by Dubai with

Jurisdictional Q&A – United Arab Emirates 151 approximately 4 per cent; the remainder is split 7. Are there any restrictions on doing between the other emirates. business with certain countries or In Abu Dhabi, the Supreme Petroleum Council territories in your jurisdiction? (For establishes policies and ensures that they are example, sanctions.) implemented. It also forms the board of direc- There is no public record of whether trans- tors of the Abu Dhabi National Oil Company, actions with specific territories, countries or which is state-owned, and is the dominant entities are prohibited in the UAE. However, company in the sector. while the UAE does not have a sanctions In Dubai, the Dubai Supreme Council of regime in force; it enforces European Union Energy develops policies, and coordinates with (EU), United Nations (UN) and United States the Department of Petroleum Affairs to admin- (US) sanctions on an ad hoc basis through the ister the exploration and production of oil and issuance of internal directives. For instance, the gas. The council also has representatives from Ministry of Interior confirmed the implemen- the Emirates National Oil Company, which is tation of UN sanctions on Iran, North Korea, owned by the Dubai government. Libya, Sudan and Somalia. Telecommunication 8. What grants or incentives are on offer The Telecommunications Regulatory Authority to foreign investors, if any? (TRA) is responsible for the oversight of all telecommunications and information technol- One of the most attractive features of the UAE ogy industries. The TRA’s detailed regulatory for foreign investment is that it is largely a tax- framework covers areas such as competition free jurisdiction. Currently, there are no federal rules, price control, allocation of scarce laws on corporate income tax. However there resources, consumer protection requirements are tax decrees in the separate emirates that and reporting obligations. limit tax imposition to certain entities such as Water and Electricity branches of foreign banks, courier companies, insurance companies and oil companies. Although there are federal laws governing The various free zones across the UAE are electricity and water supply, they are limited. another feature that draws foreign investment. Each emirate therefore has the responsibility These free zones allow 100 per cent foreign to regulate the industry based on its own ownership of a company, and full entitlement economic agenda. to company profits. There are also no customs Private companies may only generate electric- levied on imports in the free zone. ity, since only state-owned authorities may Other incentives include the strong and transmit and distribute it. profitable banking sector, large and diverse Abu Dhabi and Dubai also have Regulation pool of expatriate labour, and developed and Supervision Bureaus, which issue licences infrastructure. and regulations, and monitor compliance with policies. 9. Are there any free trade, special economic or industrial zones in your jurisdiction and what are their requirements?

The UAE’s free zones have drastically trans- formed its economic market within the last 20 years. The rapid growth of JAFZA, the first free

152 LexisNexis Foreign Investment Law Guide 2017-2018 zone in the UAE, inspired the other emirates 10. What are the main taxes that could to set up their own free zones to attract foreign apply to foreign investors in your investors and businesses. Since then, the UAE jurisdiction? (For example, Personal has established over 40 free zones, and each Income Tax, Corporation Tax, Value caters to a specific business category such as Added Tax and Social Security Payments.) ICT, media, finance, gold and jewellery, and equipment. There is no federal law on tax, thus each emirate has its own laws relating to tax. An independent Free Zone Authority (FZA) is responsible for governing the zone, setting Currently, there is no personal tax, capital gains the regulations, issuing licenses and assisting tax and withholding tax levied in the UAE. In companies with establishing their businesses practice, corporation tax is levied on oil, gas in the free zone. For instance, the DFSA is the and petrochemical companies, and branches financial services regulatory authority of the of foreign banks. DIFC. It authorises and registers institutions Oil and gas companies also have to pay royalties and individuals who wish to conduct financial on the total revenue derived, and income tax on services in or from the DIFC. It also supervises the net profit after depreciation, as stipulated regulated parties to ensure compliance with by the emirate’s government. However, oil DFSA laws, regulations and rules, and enforces companies are usually owned by state-owned DFSA administered legislation. entities and where there is a consortium of Procedures for setting up are usually straight- companies, the foreign companies will only be forward and can be completed quickly. minority shareholders. Although each free zone has its own set of rules It is important to note that the UAE has entered on how investors can set up their businesses, into double taxation treaties with several coun- the general procedure includes: tries to reduce the potential burden of tax being • A questionnaire from the relevant FZA imposed on foreign companies operating in the which will assist in assessing a company’s UAE. requirements; Furthermore, the UAE has recently announced • License application, planning documents, its plan to impose value added tax (VAT) from 1 and a consumer request for electricity; January 2018, which will apply to most transactions of goods and services. The tax rate is likely • Provisional approval and lease agreement; to be 5 per cent. This also means that businesses and would be required to register themselves in • Meetings with the authority to finalise accordance with the forthcoming VAT regime. details of the project. In addition, municipal taxes are also imposed, Apart from the free trade zones, the UAE has and the rate varies in every emirate. There is established special economic zones for small- also an indirect tax imposed on rental incomes and-medium sized businesses. Examples from residential and commercial properties. include the Zones Corp in Abu Dhabi, and There are no social security taxes imposed on Industrial City in Dubai, and Rak Maritime expatriates in the UAE. However, UAE national City in Ras Al-Khaimah. employees, in accordance with specific regulations, usually have to contribute to retirement and pension schemes. Finally, even without taxation, there can be significant costs in registering a company, obtaining a business license and its subsequent

Jurisdictional Q&A – United Arab Emirates 153 renewal, and fees for the local sponsorship residence permit lasts for a maximum period of agent of a branch office. three years, but can expire earlier if the investor is outside the UAE for over six months. 11. What are some of the employment In order to obtain the investor visa, either AED regulations in your jurisdiction that 10,000 or AED 20,000 should be deposited with foreign investors should be aware of? Is the UAE government, and proof is required to it possible to secure residency permits or show that the investor has sufficient funds to work visas for foreign nationals under make a significant investment in the UAE. investment? If the visa is required to invest in real estate, then at least AED 1,000,000 worth of property Employment Regulations in UAE should be purchased. Furthermore, to invest Federal Law No 8. of 1980 on Regulation of in a UAE business, the visa needs approval Labour Relations (Labour Law) imposes cer- from the UAE immigration authorities, which tain minimum standards on working hours, provides authorisation to live and work in the vacation and public holidays, leave policies, UAE. employee records, safety standards and termination of employment. 12. Can foreign investors acquire real It is important to note that the Labour Law is property and land in your jurisdiction? favourable to hiring UAE nationals; preferences Are there any restrictions or limitations? for vacancies are given to UAE nationals, then The UAE’s Constitution grants each emirate GCC nationals and then to nationals of other the right to legislate and govern real estate countries. Foreign nationals need to obtain ownership in its territory. Dubai imposes the approval from the Ministry of Labour to get least restrictions on foreign ownership of land, employed. Moreover, the Emiratisation policy making it the most attractive for real estate which is applicable to both public and private investment in the UAE. The other emirates offer sector and local/international companies, stip- varying degrees of rights with Fujairah offering ulates a minimum percentage of UAE nationals the most limited rights. to be employed. In Dubai, only UAE nationals, GCC nationals, Free zones have their own set of employment companies owned 100 per cent by UAE and/ laws and employee grievance procedures. or GCC nationals and public joint-stock com- Furthermore, all registered institutions in the panies can own property located in any area UAE have to transfer their worker’s salaries in Dubai. It should be noted that this does not through the Wages Protection System, with include a company incorporated in the UAE or the exception of some free zones like the DIFC. GCC with a foreign shareholder. Federal Law No. 7 of 1999 for Pension and A non-UAE/GCC national can own property Social Security governs the UAE’s pensions in designated areas outlined in Regulation No. and social security scheme. 3 of 2006 (as amended by Regulation No. 1 of Residency permits/work visa for 2010) in three ways: foreign nationals under investment (1) Freehold; The UAE has created investment driven immi- (2) Leasehold (up to 99 years); and gration programmes in order to accommodate (3) Usufruct (up to 99 years). and encourage foreign investment. This also applies to foreign companies, subject The UAE provides the option of obtaining to the Dubai Land Department’s (DLD) policy an investor visa that provides a temporary residence permit to its holder. The temporary 154 LexisNexis Foreign Investment Law Guide 2017-2018 which allows the following types of companies 16. What contract enforcement and to own property: investor protection mechanisms are in • Offshore companies incorporated in JAFZA place in your jurisdiction, if any? or the Dubai Multi Commodities Centre Disputes are usually resolved through direct Free Zone; negotiation and settlement between parties, • Companies incorporated within free zones through recourse to the court, or arbitration. in Dubai; The UAE’s accession to the UN Convention on • Companies incorporated in the DIFC, pro- the Recognition and Enforcement of Foreign vided a special approval has been obtained Arbitral Awards (UN Convention), which by the DLD to purchase property outside became effective in November 2006, makes an the DIFC; and arbitration award issued in the UAE enforce- • Companies incorporated onshore in able in all 138 states that have acceded to the Dubai, such as LLCs and private joint-stock UN Convention. companies. There are no specific courts for commercial disputes. Instead all commercial cases are 13. Are there any processes in your heard by the civil courts, which includes: the jurisdiction that can block foreign Court of First Instance, Court of Appeal and investment under specific circumstances? the Court of Cassation.

As mentioned previously, the CCL requires 17. Does your jurisdiction have any companies incorporated in the UAE to have at bilateral or multilateral investment least 51 per cent ownership by a UAE national. protection treaties with Asia-Pacific Moreover, even branch offices of foreign com- jurisdictions that are commonly used for panies are required to have a UAE national investing into the country? service agent. The UAE has entered into various Bilateral 14. What foreign currency or exchange Investment Treaties (BIT) with Asia-Pacific controls should foreign investors be jurisdictions, including China, Malaysia, South aware of? Korea, India and Pakistan among others. Some common features of these BITs include: There are currently no foreign currency or • The requirement for each contracting party exchange controls in the UAE. to treat investments fairly and equitably; 15. Are there any restrictions, approval • Prohibition on expropriation; requirements or potential penalties if a • Prohibition on government measures that foreign investor withdraws their are unreasonable, arbitrary or discrimina- investment in your jurisdiction? tory and that could harm investment; Currently, there are no such restrictions or pen- • Most favoured nation protection, which alties as the UAE intends to welcome foreign guarantees that treatment of investors will investment. However, there could be changes be no less favourable than the treatment with the enactment of the proposed investment accorded to investments of its own inves- law. tors or investors of any third state; and • Investor-state dispute resolution, which provides mechanisms to resolve disputes between investors and the host state.

Jurisdictional Q&A – United Arab Emirates 155 18. What intellectual property rights In general, remedies for enforcement of the protections are available in your above rights include damages, fines and jurisdiction to foreign investors? imprisonment. On the international front, the UAE is a The UAE recognises the importance of intel- member of international treaties and organi- lectual property rights in fostering innovation, sation such as the Agreement on Trade Related research and development, whilst securing Aspects of Intellectual Property Rights, the consumer confidence. The UAE has a range World Intellectual Property Organisation, of laws providing protection for intellectual the Paris Convention for the Protection of property, and remedies for infringement of Industrial Property, and the Berne Convention relating rights. for the Protection of Literary and Artistic Federal Law No. 17 of 2002, as amended by Works amongst others. Consequently, inter- Federal Law No. 31 of 2006 (Patents Law) national intellectual property rights are also protects patents. In addition, as a result of the recognised and respected in the UAE. UAE’s membership of the GCC, if an applica- In line with UAE’s Vision 2021 to encourage tion for a GCC patent is made, then protection innovation and create an attractive economic can be granted in the six member countries. environment, the Ministry of Economy has However, the effectiveness of enforcement of a signed a Memorandum of Understanding GCC patent in the UAE is unclear. with the Korean Intellectual Property Office Federal Law No. 7 of 2002 on Copyrights and to establish the International Centre of Patent Related Rights protects a range of works. In the Registration in the UAE. This facility will case of infringement, it is possible to request include an international team of patent experts the court for an injunction to stop the use of for patent evaluation, conducting research the work, seize copies or seize income generated studies on areas of intellectual property, and from the use. training professionals in the field. Federal Law No. 37, as amended by Federal Laws No. 19 of 2000 and No. 8 of 2002 (Trademarks 19. Are there any environmental policies Law) protects trademarks and trade names. The and regulations that (potential) foreign trademark registration process can be quite investors should be aware of prior to or lengthy. It is also noteworthy that although throughout the investment process in Dubai customs has an efficient system for your jurisdiction? seizing goods on the grounds of infringement, other emirates are not as proficient. Although FDI helps to achieve economic In the case of confidential information, there growth, it is important to see its effect on envi- are a number of national laws that protect trade ronmental degradation. The UAE, by winning secrets and confidential information including, the Expo 2020 bid, focuses on sustainable the Patents Law; Federal Law No. 3 of 1987 on development to promote the scope of complete issuance of the Penal Code; Federal Law No. 5 welfare for all generations by achieving the of 1985 on the Civil Transactions Law and the environmental and economic aims of society CCL. In the absence of a uniform law on this with lesser negative effects. area, there is uncertainty regarding protection The vision of Ministry of Climate Change and of these rights. Nevertheless, protection pro- Environment is, ‘we strive towards integrated vided by a contract can be effectively enforced. management for environment ecosystem and

156 LexisNexis Foreign Investment Law Guide 2017-2018 natural resources to realise green economy for the process. The respective websites and repre- the present and future generations’ 2. sentatives at the offices of these authorities can In 2009, the UAE embraced renewable energy provide relevant information, expert advice, by hosting the International Renewable and practical help. For instance, Dubai FDI Agency. The green economy for sustainable is a department of the DED in Dubai which development initiative was launched in 2012 provides support to foreign businesses looking as a pathway to jointly enhance the country’s to invest in Dubai. economic growth ambitions, social develop- Apart from the above-mentioned ministries, ment priorities and vital environmental goals. the Department of Tourism and Commerce In 2015, the UAE Cabinet issued a decision to Marketing, the UAE Central Bank, the approve and to implement the ‘UAE Green Ministry of Finance and Industry and the Agenda 2015-2030’. Ministry of Health also provide the necessary UAE has applied a series of fundamental information on investment in the UAE on their policies and guiding principles to install sus- websites, or alternatively, the potential investor tainable development at the core of its vision for can visit these offices. growth, as captured in the ‘UAE Vision 2021’. Financial service providers, banks and law The Federal Environmental Authority also has firms in UAE also can assist potential foreign prepared a draft of environmental protection investors. legislation including provisions on water, soil, 21. Have there been any recent proposals air pollution, noise pollution, the protection for reforms or regulatory changes that and preservation of wildlife, environmental will impact foreign investment in your disasters and the handling of hazardous jurisdiction? materials and waste. Entities will be required to comply with these provisions, and also with Although the current legal framework favours the UAE treaty obligations. nationals over foreign investors, UAE laws and regulations are evolving in support of foreign 20. Are there any government agencies investments. or non-governmental bodies that The CCL provides a stronger basis for corporate (potential) foreign investors can turn to regulation. In addition, it is also anticipated for more information on investment in that the proposed investment law will make the your jurisdiction? ownership requirements less stringent. The UAE welcomes foreign investments by 22. Are there any other features having government agencies that provide regarding foreign investment in your investors with necessary information on jurisdiction or in Asia that you wish to investment. highlight? The business registration process in the UAE varies based on the emirate, and is generally It is a principle of international law that every done through the DED. The company is usually state is sovereign in controlling the entry and required to be registered with DED, Chamber establishment of foreign businesses within its of Commerce and Industry, the Ministry of territory. The new generation of investment Labour, and the General Authority of Pension laws that have been implemented in countries and Social Security with a required notary in share the common element of shifting from restricting FDIs towards regulating the entry 2 ‘UAE Ministry of Climate Change and of FDIs. With this view both the UAE and Asia Environment’ (Moccae.gov.ae, 2017)

Jurisdictional Q&A – United Arab Emirates 157 have taken many initiatives and enacted laws and regulations with the aim of developing a more conducive environment for foreign investment. According to UNCTAD statistics, the UAE has received the ninth largest FDIs in Asia3. It has supported Asia in becoming the leading destination of FDI across the globe as Asia benefits from more than 35 per cent of the world’s total FDI inflows.

All information mentioned in this article is current at the date of publication of this article and available from public sources. Nothing in this article constitutes legal advice and should not be construed as any form of advice.

3 UNCTAD, ‘Investor Nationality: Policy Challenges’ [2016] World Investment Report 2016.

About the Author: Hasan Rizvi Managing Partner, RIAA Barker Gillette W: www.riaabarkergillette.com/uae (Middle East) LLP A: Dubai International Financial Centre, E: [email protected] Gate Village Building 2, Level 3, Suite 301, PO Box 507014, Dubai, United Arab Emirates T: +971 4 401 9411

158 LexisNexis Foreign Investment Law Guide 2017-2018

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Main areas of practice: - Restructuring / Insolvency: As a midsize firm, STW & Partners does disclosure, insider trading, and STW & Partners has significant experience not have any particular practice group but shareholders agreements. The firm also acting on behalf of debtors, creditors, sets up a team comprising of lawyers with handles various aspects of corporate sponsors and other stakeholders in legal specialized knowledge and experience, disputes on behalf of companies in many insolvency proceedings, including civil which makes it a very unique international industries including actions seeking rehabilitation, corporate reorganization, firm in Japan. Each lawyer at STW & directors’ liability, disputes involving bankruptcy, special liquidation, and Partners strives to fully understand the controlling rights, and M&A disputes. voluntary liquidation. Various types of overall picture of each case, combine his or STW & Partners represents a variety of business entities including listed companies her expertise and experience through clients involved in mergers and and SMEs rely on the high level of consultation with other attorneys, analyze acquisitions. Regardless of the transaction restructuring and insolvency expertise at the firm. The firm provides comprehensive legal and verify litigation strategies, with an aim structure (eg restructuring, business advice to clients facing restructuring or to achieving the best possible outcome for transfer, capital increase through third party insolvency issues in a timely manner, clients. allotment including venture financing, working closely with lawyers who have acquisition of own shares, share purchase, Litigation / Dispute Resolution: detailed knowledge of litigation, M&As, tender offer, or management buyout), All lawyers at STW & Partners have corporate matters, finance, intellectual whether the companies involved are listed, property, real estate, and labor practice. vast experience in dealing with dispute or the volume of the transaction, the firm resolution matters in both domestic advises on the full range of M&A Antitrust/Competition: and international aspects including transactions from friendly acquisitions to STW & Partners handles criminal and matters with relation to the Companies hostile takeovers and transactions brought administrative procedures and civil cases Act (eg shareholder derivative action), about by insolvency. involving violations of antitrust laws, intellectual property rights (eg patent including actions for compensation for infringement litigation), antitrust Intellectual Property / IT: damage and shareholder derivative actions. (eg conspiracy and cartels), STW & Partners has significant experience The firm has close relationships with law intercompany transactions, real estate in handling infringement litigation, trials, firms around the world, which enable the (eg warranties against defects and rent and actions for trial decision revocations, firm to provide the best possible solutions in increase/decrease), insolvency (eg and other disputes concerning intellectual negotiations with foreign executive agencies, requests for avoidance), labour, tax, property rights such as patents, trademarks, class actions and other civil actions. The firm and corporate crime. copyrights and unfair competition both in has assisted a number of clients with antitrust Corporate / M&A: and outside of Japan. The firm’s practice in aspects in their commercial transactions and this area involves negotiating and STW & Partners has wide-ranging the establishment of compliance structures reviewing license agreements on behalf of experience in advising on various based on its extensive experience in cases in its clients across the world. The firm has including management decision, Japan and other jurisdictions. The firm aims actively handled various IT-related legal corporate governing structures (eg to appropriately resolve cross-border disputes issues including data privacy and disputes. board of directors and board of by strengthening relationship with firms in statutory auditors), officers’ the US and EU and coordinating with Asian remuneration, stock options, internal firms. governance systems, capital policies (eg capital increase/ decrease and treasury stock), information Foreign Investment Law Guide 2017-2018 from LexisNexis®

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