It’s hard to think of areas where Phoenix Legal can ...€¦ · United Arab Emirates – RIAA Barker Gillette (Middle East) LLP..... 146 Contents. LexisNexis

LexisNexis® Company Law Guide 2017-2018

Including articles from featured contributors:

LexisNexis® Foreign Investment Law Guide 2017-2018

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

Including articles from featured contributors:

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PRACTICE AREAS ü Antitrust and

Competition ü Banking and Finance ü CMT ü Commercial

Contracts ü Corporate and Securities Laws ü Dispute Resolution -

Arbitration and Litigation ü Energy, Oil and Gas ü Environment ü Employment and

Industrial Relations ü Foreign Investment

and Exchange Control ü Infrastructure and

Project Finance ü Intellectual Property ü International Trade ü Information

Technology & Outsourcing ü Insurance ü Joint Ventures,

Foreign and Technical Collaborations ü Mergers and

Acquisitions ü Mining and

Resources ü Private Equity and

Funds ü Real Estate ü Regulatory Affairs ü Taxation ü Legal Compliance,

Bribery & Anti-Corruption ü Corporate Insolvency

and Restructuring

Phoenix Legal is a full service Indian law firm offering transactional, regulatory, advisory, dispute resolution and tax services. The firm advises a diverse clientele including domestic and international companies, banks and financial institutions, funds, promoter groups and public sector undertakings. Phoenix Legal was formed in 2008 and now has 15 Partners and 75 lawyers in its three offices (New Delhi, Mumbai and Chennai) making it one of the fastest growing law firms of the country.

Why Phoenix Legal?

What distinguishes the firm from its peers is the approach which is:

High Degree of Partner Involvement and Availability – We assure to our clients, partner involvement in all deals and transactions, at all times.

High Quality Legal Advice – We deliver services of the highest quality, which are capable of meeting the most exacting standards.

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Key Accolades In the short span of existence, the firm has firmly established itself in the Indian legal market and has received wide media recognition. Some of the key accolades include:

:

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Highest client satisfaction rating amongst top 20 Indian law firms -2013 Indian Law Firm Ranking and Report by RSG Consulting

Best Firm in India Asia Women in Business LawAwards, 2016, Euromoney, Hong Kong

Winner in the category: Energy, Projects &Infrastructure - India Business Law JournalIndian Law Firm Awards 2014

Winner in the category: Finance Law - FinanceLaw Firm of the Year – India: Corporate INTLLegal Awards 2013

Highly recommended as a leading firm Variouspractice areas, Chambers Asia Pacific – 2012,2013, 2014, 2015, 2016 and 2017

Shortlisted as one of the Indian firms forChambers Asia Pacific Awards 2014 and 2015organised by Chambers & Partners

Highest client satisfaction rating amongst top 20Indian law firms - 2013 Indian Law Firm Rankingand Report by RSG Consulting

IBLJ, Indian Law Firm Award 2016 - Energy, projects & infrastructure, structured finance & securitization

Winner in the category: Finance Litigation LawFirm of The Year – India – Global Awards for2014 - Corporate Livewire

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

LexisNexis® Company Law Guide 2017-2018

Jurisdictional Q&As

10 LexisNexis Foreign Investment Law Guide 2017-2018

1. What are the main reasons foreign investors invest in your jurisdiction?

Anecdotally, the main reasons motivating foreign investors in Australia are Australia’s relatively open and stable economy, need for capital investment and predictable overall legal and political framework. Notwithstanding occasional political sensitivities generally confined to specific asset classes, Australia is generally open to foreign investment to meet shortfalls from relatively limited domestic capital markets.

According to Australia’s Foreign Investment Review Board (FIRB), the non-statutory body established to advise the Australian Federal Treasurer (Treasurer) and Government on foreign investment policy:

(a) Australia’s mining sector has been the main target industry for foreign direct investment in Australia in recent times, representing over 40% of the total foreign direct investment stock in Australia at the end of 2015. Other sectors to benefit from significant foreign investment include manufacturing (representing 11.7% of that foreign direct investment stock) and real estate (at 8.7% of that stock); and

(b) the largest source by volume of approved foreign investment in Australia in the 2015-6 financial year was China (at A$47.3bn), followed by the United States of America (at A$31bn).

2. What foreign investment legislation is in place in your jurisdiction (e.g. Foreign Investment Law or Foreign Investment Catalogue)? Please provide a brief overview of such legislation.

The principal piece of generic foreign invest-ment primary legislation in Australia is the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA) which applies in all Australian States and Territories and was recently subject to the most significant overhaul in the Act’s forty-year history in December 2015.

FATA is accompanied in primary legislation by:

(a) the Foreign Acquisitions and Takeover Fees Imposition Act 2015 (Cth) (which applied a “user-pays” model to foreign investment approval applications for the first time in Australia); and

(b) the Register of Foreign Ownership of Water or Agricultural Land Act 2015 (ROFOWAL) (Cth) (which attempts to establish a register of foreign interests in Australian agricul-tural land and water rights).

Those Acts are now also supported by a range of secondary legislation, including:

(a) the Foreign Acquisitions and Takeovers Regulation 2015 (Cth) (FATR);

(b) the Foreign Acquisitions and Takeovers Fees Imposition Regulation 2015 (Cth); and

(c) the Register of Foreign Ownership of Agricultural Land Rule 2015 (Cth).

There are also other sector-specific foreign investment restrict ions applicable to banking, airlines, airports, shipping and telecommunications.

Jurisdiction: AustraliaFirm: Atanaskovic Hartnell Author: Lawson Jepps

Jurisdictional Q&A – Australia 11

3. What restrictions are placed on foreign investment? Does this differ at local levels of government?

Specific restrictions targeted uniquely at foreign investment are legislated at the federal level of Australian Government.

Australian foreign investment law pursues a dis-tinction between “notifiable” and “significant” transactions resulting in approval notifications in circumstances described in response to question 5 below.

Despite notification requirements which can delay the speed at which foreign investment in Australia might otherwise be implemented (see response to question 5) and therefore conceivably put foreign investors at a com-petitive disadvantage to domestic bidders in certain circumstances, foreign investment transactions are very rarely barred outright by the Australian Government. Outside of real estate, only five major transactions have been announced by FIRB as having been rejected since 2000, although approvals subject to conditions are not uncommon.

In our experience, since foreign investors’ inter-est in Australian assets is relatively common, it is usually the case that sellers’ timetables for transactions are set allowing for the obtaining of relevant foreign investment approvals.

4. What are the most common business vehicles for foreign investors? How long do they take to be set up? What are the key requirements for the establishment and operation of these vehicles?

Australian law permits the establishment of a similar range of business vehicles to other common law jurisdictions, including:

(a) companies with limited liability, either proprietary (private) with no more than 50 non-employee shareholders or public;

(b) general partnerships of up to 20 members; and

(c) common law trusts, including unit trusts.

As in other common law jurisdictions, the choice between these vehicles will often be driven by transaction specific taxation con-siderations responsive to the target asset class (e.g. the use of trusts for real estate) which are outside the scope of this guide.

Control of pre-registered shelf companies for subsequent amendment to suit the acquirer can be acquired within a working day and general partnerships and common law trusts technically only require as long to set up as it takes to draft their constitutional documents.

The key requirements for establishment and operation of:

(a) a proprietary company are at least one company director who must ordinarily reside in Australia; and at least one share-holder (a bespoke corporate constitution is not necessary, companies can generally rely on statutory “replaceable rules” in its absence);

(b) a general partnership are a partnership deed and at least two partners; and

(c) a common law trust is a trust deed, a trustee and at least one beneficiary.

In practice, it is likely that any of those vehicles if used for investment, will also undertake the additional process of acquiring at least an Australian Business Number (ABN) for the Australian Business Register (which facilitates interaction within a variety of government entities) and a Tax File Number (TFN) (sepa-rate to the TFN for individual investors) which facilitates interaction with the Australian Tax Office (ATO).

5. Under what circumstances are foreign investments subject to government approvals? What is the process and timeline for such approvals?

Some foreign investments, known as “notifiable transactions”, are subject to compulsory prior notification to the Treasurer for approval. Other foreign investments, known as “significant


The process is now by online submission for approval to FIRB. The Treasurer has thirty calendar days to make a decision whether to notify objections after receiving notice that an action is proposed to be taken, of which the investor must effectively be informed within a further ten calendar days after the decision deadline. In our experience, it is imprudent to rely on a response from FIRB ahead of the statutory deadline.

For the timetable to decision to start running, submissions need to be accompanied by the prior payment of often substantial application fees (e.g. A$25,300 for business applications), which are not refundable in the event of an unsuccessful or withdrawn application.

The Treasurer may make orders against transactions considered to be “contrary to the national interest”. The national interest is not susceptible to statutory definition but some guidance is offered by Australia’s Foreign Investment Policy which suggests the Australian Government typically considers the following factors when assessing foreign investment proposals:

(a) national security (controversially applied in the S. Kidman & Co. Limited 2015 rejection decision but not in the decision ultimately to approve a 99-year lease of the Port of Darwin to a Chinese company prior to that);

(b) competition (FIRB apparently as a matter of course consults the Australian anti-trust authority, the Australian Competition and Consumer Commission on foreign invest-ment applications);

(c) other Australian Government policies (including tax). The potential application of conditions as to Australian taxation compliance for approved foreign investors is now subject to a specific FIRB guidance note;

(d) impact on the economy and the community; and

(e) character of the investor.

transactions”, are not subject to compulsory prior notification to the Treasurer but are effectively subject to a de facto prior approval requirement given that the Treasurer can make orders requiring the action to be unwound subsequent to implementation, if the action is found to be contrary to the national interest. Such orders cannot be made if the relevant foreign person is given a no objection notifi-cation subsequent to compulsory or voluntary approval submission.

The rules apply to actions by foreign persons which can extend in its legislative definition beyond investors who would necessarily consider themselves foreign to Australia, for instance to Australian-incorporated companies in which a foreign person is deemed to hold an interest of at least 20%.

The circumstances for “notifiable transactions” are generally when foreign persons acquire:

(a) an interest of at least 20% in an Australian entity worth at least A$252 million;

(b) a variety of “direct” interests in an Australian agribusiness worth at least A$55 million or Australian agricultural land worth at least A$15 million; and

(c) any interest in generic Australian land worth at least A$55 million (figures at present thresholds subject to indexation).

The additional circumstances for “significant transactions” are when foreign persons acquire any interest in an Australian entity or business worth at least A$252 million resulting in a change of control of that entity or business.

Acquiring a “direct” interest in an Australian entity or business of any size or starting an Australian business is compulsorily notifi-able for a foreign government investor which includes foreign governments but also emana-tions of foreign governments which might have otherwise considered themselves independent, such as sovereign wealth funds, and includes Chinese state-owned enterprises (SOEs).


6. What sectors are heavily regulated or restricted in your jurisdiction, if any? Conversely, what are some of the more open or unrestricted sectors, if any?

Foreign investment in the Australian media sector is more heavily regulated under the general Australian foreign investment regime. A foreign person acquiring an interest of 5% or more in an entity or business of any value that carries on an Australian business of publishing daily newspapers or broadcasting television or radio in Australia is automatically both a notifiable and a significant transaction. The Australian agribusiness sector is also more heavily regulated (see question 5). There are also “sensitive businesses” for which foreign investors are deprived of the more liberal regime that would otherwise apply due to the application of Australia’s free trade agreements, including supply of military equipment and extraction of radioactive materials. There are also the sector-specific regimes referred to in response to question 2.

7. Are there any restrictions on doing business with certain countries or territories in your jurisdiction? (For example, sanctions.)

The Australian Department of Foreign Affairs and Trade maintains a list of persons subject to sanctions in accordance with the Charter of United Nations Act 1945 (Cth) and the Australian Autonomous Sanctions Act 2011 (Cth) – see www.dfat.gov.au/sanctions/ consolidated-list.html.

8. What grants or incentives are on offer to foreign investors, if any?

A variety of grants and incentives are offered by the Australian Federal Government and individual States and Territories to support foreign investment in Australia. The first point of contact would generally be Austrade

(the Australian Trade and Investment Commission). Details of potential grants and assistance are available through the online Grant and Assistance Finder tool at the busi-ness.gov.au website.

9. Are there any free trade, special economic or industrial zones in your jurisdiction and what are their requirements?

There are no designated economic or industrial zones in Australia that are not subject to the statutory foreign investment regime.

Australia has entered into free trade or other arrangements with all of Chile, China, Japan, New Zealand, South Korea and the United States of America which liberalise to varying degrees the thresholds for approval notifica-tions described in the response to question 5.

10. What are the main taxes that could apply to foreign investors in your jurisdiction? (For example, Personal Income Tax, Corporation Tax, Value Added Tax and Social Security Payments).

Australia imposes an income tax on the taxable income of resident and non-resident individ-uals. Non-resident individuals are subject to income tax on their Australian source income, which includes income from passive invest-ments such as real property.

Companies that are resident in Australia for Australian tax purposes are liable for income tax on their Australian source taxable income and on certain foreign source income. Companies that are not tax resident in Australia are generally liable for Australian income tax only on their Australian source income.

Australia imposes a value added tax known as the Goods and Services Tax (GST) of 10% on most goods, services and other items consumed in Australia and entities are liable to pay GST on Australian taxable supplies irrespective of residence.

http://www.dfat.gov.au/sanctions/consolidated-list.html

http://www.dfat.gov.au/sanctions/consolidated-list.html

https://www.business.gov.au/

https://www.business.gov.au/


(subclass 888) (which is derivative from the subclass 188 visa).

12. Can foreign investors acquire real property and land in your jurisdiction? Are there any restrictions or limitations?

There are significant foreign investment restric-tions and limitations concerning Australian real property and land.

Australian land encompasses four separate categories, being:

(a) agricultural land (meaning land related to a primary production business), as to which see response to question 5 above;

(b) residential land, acquisitions of any inter-ests by foreign persons in respect of which are generally notifiable actions regardless of value;

(c) commercial land (defined essentially as land other than agricultural or residential land), acquisitions of any interests by foreign persons in respect of which are generally notifiable actions regardless of value if the commercial land is vacant or at least A$55m if not vacant; and

(d) a mining or production tenement, acqui-sitions of any interests by foreign persons in respect of which are generally notifiable actions regardless of value other than for beneficiaries of free trade agreements with Chile, New Zealand and the United States of America.

Foreign investment particularly in residential real estate remains politically sensitive in Australia and is an area subject to frequent announcements by FIRB on the effectiveness of FIRB’s efforts to enforce the foreign investment regime.

There are also now obligations under ROFOWAL of a foreign person to notify the ATO of starting to hold:

(a) a freehold interest in agricultural land; or

(b) a lease or licence of agricultural land reasonably likely to exceed five years.

Payroll taxes are subject to State and Territory-specific legislation. Companies are subject to compulsory superannuation (i.e. pension) payments in respect of employees and certain contractors at the rate of 9.5% of their “ordinary time earnings”. If employers do not make the relevant contributions, those employers have to pay a “superannuation guarantee charge” of equivalent amount.

11. What are some of the employment regulations in your jurisdiction that foreign investors should be aware of? Is it possible to secure residency permits or work visas for foreign nationals under investment?

Employer/employee relations are compre-hensively regulated in Australia under the Fair Work Act 2009 (Cth) which sets out ten National Employment Standards (NES) that apply to all permanent employees with limited exceptions.

Australian workforces are relatively heavily unionized compared to other jurisdictions and the NES can often be supplemented in practice by the provisions of “modern awards” governing employment terms and conditions in particular industries or occupations or “enterprise agreements” in relation to particular workforces.

Australian employment is subject to Work Health and Safety legislation familiar in other jurisdictions which is technically State-based, but common to national standards across most States.

There are a variety of visas for foreign nation-als under investment in Australia including the Business Innovation and Investment (Provisional) visa (subclass 188) (which includes investor streams with investment requirements ranging from A$1.5m to A$15m); the Investor visa (subclass 191) (which requires a designated investment of A$1.5m to be maintained for four years); and the Business Innovation and Investment (Permanent) visa


Australia is also a signatory to the United Nations Convention on the Recognition and Enforcement of Arbitral Awards 1958 (New York Convention) and enacted the International Arbitration Act 1974 (Cth) giving effect to the 2006 version UNCITRAL Model Law on International Commercial Arbitration.

Australian courts have a demonstrable track record in enforcing agreements and awards made for the purposes of transnational arbi-tration, including High Court authority (the highest available) upholding the constitutional validity of application of the UNCITRAL Model Law in Australia.

17. Does your jurisdiction have any bilateral or multilateral investment protection treaties with Asia-Pacific jurisdictions that are commonly used for investing into the country?

Australia has entered into bilateral investment protection treaties with all of China; Hong Kong; Indonesia; Laos; Papua New Guinea; Philippines and Vietnam.

More significant for the purposes of the foreign investment restrictions described in response to question 5 are the free trade agreements referred to in response to question 9, which amongst other things raise the investment threshold for investors from an “agreement country” (including China, Japan, New Zealand and South Korea) to A$1,094m.

18. What intellectual property rights protections are available in your jurisdiction to foreign investors?

Australia maintains an intellectual property regime typical of common law jurisdictions including protection for registrable patents for up to 20 years, registrable trade marks (renewable for ten year periods), registrable designs (subject to restrictions on the use of the Australian flag) and unregistered copyright protection.

13. Are there any processes in your jurisdiction that can block foreign investment under specific circumstances?

Yes – the Treasurer can make orders pro-hibiting proposed actions and ordering transactions consummated without approval to be unwound, but they are rarely exercised (see response to question 3).

14. What foreign currency or exchange controls should foreign investors be aware of?

Unlike jurisdictions such as Brazil and China, Australia does not have a general exchange control regime. However, the Australian Department of Foreign Affairs and Trade may impose exchange control rules in accord-ance with the sanctions regime described in response to question 7. Australia does impose withholding tax on interest paid by an Australian resident company to a non-resident lender at the rate of 10% unless the lender pro-vides the loan in connection with a business carried on through an Australian branch or the Australian resident borrows in connection with a business it carries on through a foreign branch.

15. Are there any restrictions, approval requirements or potential penalties if a foreign investor withdraws their investment in your jurisdiction?

Per the response to Question 14, Australia does not have a general exchange control regime which would prevent divestment in the ordinary course.

16. What contract enforcement and investor protection mechanisms are in place in your jurisdiction, if any?

Contracts are enforceable by foreign investors through the courts of Australia subject to applicable governing law and jurisdiction clauses.


investment application fee imposed at the time the property was acquired; and

(b) introducing from 1 July 2017 a new busi-ness exemption certificate allowing foreign investors in securities to have access to an exemption certificate allowing pre-approval for multiple investments in one application rather than having to apply separately for each investment.

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

Given that the ultimate decision whether notified proposals are contrary to the “national interest” resides with a political appointee, the Treasurer, foreign investment approval decisions in Australia have inevitably been to some degree politicized and therefore subject to a degree of variation in political sensitivity leading to marginal unpredictability in out-comes for publicised transactions.

Equally, it is doubtful whether the political pressure leading to the technicalities of the new agricultural land regime was really pro-portionate to the facts of foreign investment on the ground, in that 99% of Australian farm businesses and 90% of Australian agricultural land were thought to be entirely Australian-owned in 2015.

Nonetheless, Australia’s regime very rarely acts strictly to inhibit foreign investment and given its relatively strong economic performance since the GFC in 2008 amongst similar devel-oped countries, the Australian Government remains fairly exceptional in its willingness to emphasise its continuing commitment to welcoming foreign investment as “essential to Australia’s economic growth and prosperity”.

This guide reflects the law in Australia as at 9 June 2017 and is intended to give a generic analysis of the law which is not a substitute for legal advice specific to individual circumstances.

19. Are there any environmental policies and regulations that (potential) foreign investors should be aware of prior to or throughout the investment process in your jurisdiction?

Australia’s foreign investment policy indicates that, when examining whether foreign invest-ment proposals in the agricultural sector are in the national interest, the Australian Government typically considers the effect of the proposal on factors including environmental factors such as “the quality and availability of Australia’s agricultural resources, including water” and “biodiversity”.

Most major mining development projects will require the navigation of regulation and obtain-ing of approvals at both State/Territory level but also at federal level, where the Commonwealth Environmental Planning and Biodiversity Act 1999 (Cth) applies wherever a project is likely to have a significant impact on a matter of national environmental significance.

20. Are there any government agencies or non-governmental bodies that (potential) foreign investors can turn to for more information on investment in your jurisdiction?

Foreign investors would be recommended to approach the Australian Trade and Investment Commission (Austrade).

21. Have there been any recent proposals for reforms or regulatory changes that will impact foreign investment in your jurisdiction?

In the 2017/18 Federal Budget, the Australian Government announced changes regarding the foreign investment framework including:

(a) an annual vacancy charge on new foreign owners of residential land where the property is not occupied or genuinely available on the rental market for at least six months each year equivalent to the foreign

About the Author:Lawson Jepps

Solicitor, Atanaskovic Hartnell

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Bangladesh offers the most liberal foreign direct investment (“FDI”) regime in South Asia. It benefits from a cost-effective industrial work-force, strategic geopolitical location having good regional connectivity and complete duty and quota free access to EU, Japan, Canada, Australia and most other developed countries with access to international sea and air route. Also no restriction on equity participation and repatriation of profits and income, allowance of tax holidays and accelerated depreciation in most sectors, cash incentives for selected products, repatriation of dividend and capital at exit, equal treatment for local and foreign investors, protection of FDI from expropriation and nationalization under the Foreign Private Investment (Promotion & Protection) Act 1980 (‘FPIA 1980’) etc. are the key considerations to attract FDI in Bangladesh.

Additionally, the low cost of energy, good supply of natural gas, established export and economic zones, fertile & favorable land and climate, macroeconomic stability, open and diversified economy and other competitive incentives by the government provide foreign investors an economical and business friendly environment. It is also to be noted, that in spite of many constraints, Bangladesh has main-tained over 6% GDP growth rate per annum for the last 6 years. Due to its steady progress, now it is the second largest garments and apparel exporter in the world after China.

FDI inflow in Bangladesh has significantly increased over the past decade and it rose by 24% year-on-year to US$ 1.6 billion in 2013 and has climbed to US$ 2.2 billion in 2016. The FDI receipt was 44.1% higher compared to that of 2014.

Bangladesh also has published a robust FDI Policy Framework in September 2014 through the Ministry of Commerce which is pending further approval, which not only sanctions numerous attractive incentives to the foreign investors but also protects and guarantees the safety of the investments and their returns.

Moreover, Bangladesh is a signatory to Multilateral Investment Guarantee Agency (MIGA) of the World Bank Group, Overseas Private Investment Corporation (OPIC) of USA and International Centre for Settlement of Investment Disputes (ICSID) and is also a member of World Association of Investment Promotion Agencies, which facilitates foreign investment in Bangladesh.


The most relevant laws, regulations and guidelines that play an operative role in FDI in Bangladesh are as follows:

(a) The Foreign Exchange Regulation (Amendment) Act, 2015 (‘FERA’)- This Act provides the legal basis for regulating

Jurisdiction: BangladeshFirm: The Legal Circle Authors: Masud Khan, N.M. Eftakharul Alam Bhuiya and Sameera M Reza

Jurisdictional Q&A – Bangladesh 19

certain payments, dealings in foreign exchange and securities in Bangladesh;

(b) The Guidelines for Foreign Exchange Transactions, Volume- 1 & 2 (2009) and updated by circulars of Bangladesh Bank (‘BB’) issued from time to time (collectively, the ‘FX Guidelines’). FX Guidelines are a compilation of instructions and directives issued by BB regulating foreign exchange transaction. It also deals with specific instructions to be followed by the author-ized dealers (banks authorized by BB to deal in foreign exchange under FERA and their constituents) (‘AD’).

(c) The FPIA 1980- This Act deals with promo-tion and protection of foreign investment in Bangladesh. The Act ensures equal treatment for local and foreign investors and legal protection to foreign investment in Bangladesh against nationalization and expropriation. It also guarantees repatria-tion of dividend and capital at the exit of business.

(d) The Bangladesh Export Processing Zone Authority Act, 1980 (‘BEPZAA 1980’)- This Act regulates the economic development of Bangladesh by encouraging and promot-ing foreign investments in certain areas (‘Export Processing Zones’ or ‘EPZ’) des-ignated by the government of Bangladesh (‘GOB’).

(e) Double Taxation Treaties- Bangladesh has entered into double taxation treaties with 28 (twenty-eight) countries, which reduces tax impediments of cross-border trade and investment and assist tax administration

Other relevant laws and regulations applicable or indirectly related to foreign direct invest-ment are:

(a) The Companies Act, 1994 (‘CA 1994’)- This Act regulates the formation and incor-poration of companies. This Act sets the framework for the management, opera-tion and administration of companies. It also regulates the Registrar of Joint Stock

Companies and Firms (‘RJSC’) which is the regulatory authority designated for registration and filings required by such companies. The Act also specifically governs the requirements for establishing foreign companies in Bangladesh and the rules for regulating them including preparation, maintenance, audit and submission of their accounts to the host country regulators.

(b) Bangladesh Economic Zones Act, 2010 (‘BEZA 2010’)- This Act makes provisions for the establishment of private economic zones in potential areas including under-developed regions jointly or individually by local, non-resident Bangladeshis or foreign investors.

(c) Bangladesh Investment Development Authority Act, 2016 (‘BIDA 2016’)- This law has established Bangladesh Investment Development Authority (‘BIDA’) for the purpose of promoting industrial invest-ments and offering facilities and assistance necessary for the establishment of indus-tries in the non-governmental sectors and to promote and facilitate investment both from domestic and overseas sources.


Depending on the sector of trade, restrictions may be placed by the GOB on FDI; please see answer to question no. 6 for the list of restricted and unrestricted sectors for FDI.

At the local levels of government, a foreign investor is required to be registered with BIDA, which is responsible for screening, reviewing and approving FDI in Bangladesh. The BIDA registration is mandatory for obtaining industrial plot in the special economic zone. It may take around 15-30 days to obtain a “Registration Certificate” from BIDA if all the required documents are submitted properly.


Incorporation of 100% foreign owned company and Joint Venture companyA 100% foreign owned company or a Joint Venture company can either be registered as a “public limited company” or a “private limited company”. The type of company most com-monly chosen by foreign investors is private limited company. The CA 1994 s 2(q) defines a private limited company as one which by its articles restricts the right to transfer its shares, if any, prohibits any invitation to the public to subscribe for its shares or debenture, if any, and limits the number of its members to 50 not including persons who are in its employment.

As per the provisions of the CA 1994, the incorporation of a private limited company requires it to be first registered with the RJSC including name clearance from RJSC. Requisite documents such as memorandum and articles of association (‘MemArts’), necessary forms and schedules, and an encashment certificate obtained from an AD of a scheduled bank need to be submitted to RJSC for registration of such a company.

Furthermore once registration with RJSC is completed, the private limited company shall have to further obtain the following for the successful incorporation of the entity:

(a) Registration with BIDA;

(b) Trade license from the local governmental authority;

(c) TIN certificate from the National Board of Revenue (‘NBR’);

(d) VAT registration (if applicable) from NBR.

Time Frame

The set-up and securing of all required certif-icates for such an entity may take a minimum of 2 (two) months.

Establishing a Branch Office or Liaison Office in BangladeshA foreign investor wishing to merely have a presence in Bangladesh, but not incorporate a

Foreign investors, depending on the type of sector, may also be required to obtain many licenses and permits such as an Import Registration Certificate, Export Registration Certificate, Bond License, etc. to run their business in Bangladesh.


In order to choose the business vehicle, the foreign investors must first choose the type of business operation they wish to operate in Bangladesh. This could be either by establishing industrial projects/ factories/plants etc. or by operating a “Branch Office” or “Liaison Office” in Bangladesh.

In order to establish industrial projects/ fac-tories/plants, it is essential to form a company and incorporate the same locally or incorporate a company abroad and register it with RJSC in Bangladesh. Companies in Bangladesh could be classified in the following major categories:

(a) Company limited by shares:

(i) Private limited company; and

(ii) Public limited company

(b) Company limited by guarantees.

The most common incorporation options for foreign investors include the following:

(a) A 100% foreign-owned company in Bangladesh where 100% directors and shareholders are foreign citizens (allowed in most sectors including construction, information technology and development);

(b) A “Joint Venture” company with local Bangladeshi partners / investor where Bangladeshi shareholders and foreign shareholders jointly hold stake in the company;

(c) A Branch Office or Liaison Office.


company may set up a Branch Office or Liaison Office. It is essential for both a Branch Office and Liaison office to obtain approval from BIDA before setting up its office in Bangladesh. A Branch Office or Liaison Office does not have a separate legal entity and is considered to be an extension of its parent company. The parent company’s MemArts dictates the activities for the Branch Office or Liaison Office. Following are the traits of a Branch Office and Liaison Office:

Liaison Office

A Liaison Office can maintain liaison/ coordination between its principal and local agent, promote its products and do activities as approved under its application to BIDA. However it will have no local source of income in Bangladesh. All setup and operational costs including salaries of the foreign and local employees of the Liaison Office will have to be borne by the parent company aboard. No out-ward remittances of any kind from the Liaison Office will be allowed except the amount brought in from abroad that hasn’t been spent.

Branch Office

A Branch Office can undertake the same busi-ness as its head office and engage in commercial activities with prior approval of BIDA. It can also have a local source of income from the approved field of business.

Once approval from BIDA has been obtained, the Branch or Liaison Office, (whichever is applicable), will have to report to BB within thirty (30) days of obtaining such approval.

Furthermore such an office must also obtain the following before it can go into operation:

(a) Registration with RJSC;

(b) Trade license from the local governmental authority;

(c) TIN certificate from NBR;

(d) VAT registration (if applicable) from NBR.

It is also required that within 2 (two) months from the date of issuance of the BIDA approval,

a Liaison Office or Branch office bring in an inward remittance of foreign exchange equiv-alent to a sum of US$ 50,000 in Bangladesh through an AD, as an estimated initial estab-lishment cost and 6 (six) months’ operational cost.

Time Frame

The set-up and securing of all required approv-als for establishing of a Branch Office or Liaison Office may take a minimum of one (1) month.


Please see answer to question nos. 3 and 4 above.


The National Council for Industria l Development (‘NCID’) has listed the following four sectors as “Restricted Sectors” for FDI:

(a) Arms and ammunitions and other military equipment and machinery;

(b) Nuclear power;

(c) Security printing and minting; and

(d) Forestation and mechanized extraction within the boundary of reserved forest.

NCID has again listed seventeen sectors as “Controlled Sectors” which require prior per-mission from the respective line ministries/authorities before allowing FDI. These are:

(a) Fishing in the deep sea;

(b) Bank/financial institution in the private sector;

(c) Insurance company in the private sector;

(d) Generation, supply and distribution of power in the private sector;


j) Services etc.

7. Are there any restrictions on doing business with certain countries or territories in your jurisdiction? (For example, sanctions).

Bangladesh has placed a restriction in main-taining any diplomatic relationship with Israel. Hence, it can be presumed that Bangladesh shall not accept any FDI from any Israeli national or entity.


In addition to the benefits mentioned in answer to question no. 1, there are various incentives provided by the GOB to incentivize the foreign investors. These include the following:

Tax HolidayForeign investors enjoy a corporate tax holiday of 3 to 7 years for selected sectors subject to the relevant rules and procedures set by NBR. For instance, under the Income Tax Ordinance, 1984, Sch 6 Pt. A at para 33 (as amended by Bangladesh Income Tax Paripatra (Circular) 2015 and Finance Act, 2016), tax exemption is allowed on any income derived from the business of software development, information technology, information technology enabled services and nationwide telecommunication transmission network up to 30 June, 2024.

The location of the establishment also plays a role in determining such periods of tax holiday.

Tax ExemptionTax exemptions are permitted on the following:

a) Royalties, technical know-how and technical assistance fees and facilities received by any 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;

(e) Exploration, extraction and supply of natural gas/oil;

(f) Exploration, extraction and supply of coal;

(g) Exploration, extraction and supply of other mineral resources;

(h) Large-scale infrastructure project (e.g. f lyover, elevated expressway, monorail, economic zone, inland container depot/container freight station);

(i) Crude oil refinery (recycling/refining of lube oil used as fuel);

(j) Medium and large industry using natural gas/condensed and other minerals as raw material;

(k) Telecommunication service (mobile/cellular and land phone);

(l) Satellite channel;

m) Cargo/passenger aviation;

n) Sea-bound ship transport;

o) Sea-port/deep sea-port;

p) VOIP/IP telephone; and

q) Industries using heavy minerals accumu-lated from sea bed.

On the other hand, some of the more unre-stricted and encouraged sectors of industries include the following amongst others:

a) Agro based;

b) Chemical;

c) Engineering;

d) Food and Allied;

e) Glass and Ceramics;

f) Printing, Publishing and Packaging;

g) Tannery and Rubber products;

h) Textile;

i) Energy and Infrastructure;


promotion and protection of foreign invest-ments. Bangladesh is also a signatory to MIGA, OPIC, ICSID and a member of the World Intellectual Property Organization (‘WIPO’) permanent committee on development co-op-eration related to industrial property.

Export-oriented Industries:The foreign investors are provided the following incentives amongst others:

(a) 1% import duty on capital machinery and spare parts;

(b) Bonded warehouse and back to back letter of credit facility;

(c) Cash incentives and subsidies ranging from 5% to 20% on free on board (‘FOB’) value of the selected products;

(d) Fund for export promotion;

(e) Export credit guarantee scheme facility;

(f) 90% loans against letters of credit (by banks);

(g) 100% export-oriented industries located outside the EPZ are allowed to sell 20% of its products in the domestic market subject to payment of applicable tax and charges.


Export Processing Zones (‘EPZs’) have been established in Savar (Dhaka), Mongla, Ishwardi, Comilla, Uttara, Karnaphuli (Chittagong) and Adamjee (Dhaka) in accordance with BEPZAA 1980. 100% foreign owned (Type A), Joint Ventures (Type B) and 100% Bangladeshi-owned (Type C) companies are allowed to operate and enjoy the benefit of equal treatment in the EPZs.

In 2010, the Bangladesh Economic Zones Act, 2010 (‘BEZA 2010’) was enacted to facilitate the creation of privately-owned Special Economic Zones (SEZs) that can cater to export and domestic markets. The International Finance

c) Capital gains from the transfer of shares of public limited companies listed with a stock exchange; and

d) foreign loans in regard to its interest.

Investment and RepatriationBangladesh does not have any ceiling on the amount that can be brought in as foreign investment by foreign investors. There is also no restriction or the requirement of any prior approval from the GOB in remitting profits by the foreign companies operating in Bangladesh to their head offices. Hence full repatriation of invested capital, profits and dividends are allowed. Reinvested repatriable dividends or retained earnings are treated as new invest-ment. Employed foreigners in Bangladesh are allowed to remit up to 50% of their salaries and are also allowed to repatriate their savings and retirement benefits on their return. No prior approval for remittance of sale proceeds, including capital gains of portfolio investments of non-residents through stock exchanges in Bangladesh is required.

Exit policyOnce the investor wishes to leave the country after completion of all formalities, he/she can repatriate the net proceeds after obtaining approvals from BB.

Foreign employeesThere is no restriction on issuance of work per-mits to foreign employees related to the project. The foreign national may become citizen of Bangladesh by investing a minimum of US$ 5,00,000 or by transferring US$ 1,000,000 to any recognized financial institution (non-re-patriable). Also a foreign national can become a permanent resident by investing a minimum of US$ 75,000 (non-repatriable).

Avoidance of double taxationAs mentioned earlier Bangladesh has various international agreements in place, includ-ing bi-lateral agreements and investment treaties for avoiding double taxation and for


HS Code (an internationally standardised system of names and numbers to classify traded products) of the products and/or services traded by the company. However, the most common rate of VAT in Bangladesh is 15%.


The Labour Act, 2006 (‘LA 2006’) and the Labour Rules, 2015 (‘LR 2015’) regulate and provide for prescribed guidelines in connec-tion to employment conditions, working hours, minimum wages, leave policies, health and sanitary conditions, compensation for injured workers, trade unions and other employment relations. Any labour related disputes/issues are generally resolved before a Labor Tribunal.

Furthermore, the EPZ Workers Association and Industrial Relations Act, 2004 regulates the consolidating laws for Trade Unions and Industrial Relations in the EPZs in Bangladesh.

Foreign nationals willing to be employed in Bangladesh must apply for their work permit by applying in the prescribed form to either BIDA (for private sector industrial enterprise, Branch Office and Liaison Office, outside of EPZ) or BEPZA (for employment of foreign national in the EPZs).

In order to issue the work permit, BIDA usually consider the following:

(a) The foreign national must not be below 18 years of age;

(b) Only nationals from countries recognized by Bangladesh are eligible;

(c) Foreign nationals are only considered for such job where there is scarcity of local experts/ technicians in that specific field;

(d) The number of foreign nationals employed should not exceed 5% in the industrial sector and 20% in commercial sector of the

Corporation (‘IFC’) is assisting the GOB in establishing a Special Economic Zone Authority, similar to that of the Bangladesh Export Processing Zones Authority (‘BEPZA’), which shall implement the new law and oversee the establishment of SEZs.


The most relevant taxes applicable under the prevailing laws of Bangladesh can be classified as follows:

Corporate TaxGenerally a foreign company is taxed only on the income received or deemed to be received from the operations of the company in Bangladesh. The tax year is calculated yearly, starting from July 1 to June 30 of the succeeding year. At present, the rate of corporate tax of a non-listed company is 35% of a company’s total income in a year, and 25% in case of a listed company (except for certain industries such as banks, financial institutions and merchant banks).

Personal Income TaxPersonal income tax is levied on capital gains and income from dividends. Income tax ranges from 10% to 25% depending on the taxable income. However, rates may also vary in accordance with the gender of the person.

However, a foreign technician employed in foreign companies will not be subjected to personal tax up to three (3) years, and beyond that period his/ her personal income tax payment will be governed by the existence or non-existence of agreement on avoidance of double taxation with the country of citizenship.

Value Added TaxIn Bangladesh VAT is applied to local sales. The rate of VAT usually depends on the respective


(iii) Foreign Investors can invest into local businesses as joint partners and then acquire land and property in the name of the locally registered businesses.


Please see answer to question no. 6 above, which discusses about Restricted Sectors and Controlled Sectors for FDI in Bangladesh.


The core legislation that governs this area is the FERA. The first thing to remember for a foreign investor is that any inward remittance transaction and/or outward remittance trans-action must be done through an AD. Secondly, any amount of foreign currency can be brought into the country; however it is essential that any amount above US$ 5,000 should be declared to customs authorities through a Foreign Currency Declaration form, commonly known as an FMJ form. Also if anyone wishes to buy foreign currency up to US$ 10,000, it must be done through an AD. Any purchases upwards of the above mentioned amount must be done with prior permission from BB. Not doing so would constitute an offence under FERA.

In addition, it is helpful to note that FX Guidelines issued by BB from time to time on practices to be adopted are also important to be aware of.


There are no such restrictions and penalties upon foreign investors who wish to withdraw their investments. It is considered an essential that the freedom to set up and the freedom to

total employees, including upper manage-ment employees;

(e) The employment of the foreign national may be considered for an initial term of two years, which may subsequently be extended for additional terms on the basis of merit of the case. After expiry of a term of work permit, the foreign national is required to leave the country and then re-apply for a fresh work permit;

(f) A security clearance certificate may be needed to be issued by the Ministry of Home Affairs for obtaining the work permit.

As discussed earlier, the foreign nationals may become citizens of Bangladesh by investing a minimum of US$ 5,00,000, or become a permanent resident by investing US$ 75,000 in Bangladesh.


According to the Constitution of Bangladesh Art 42 only a citizen of Bangladesh can acquire real property and land in Bangladesh. A foreign investor can only acquire land under the capac-ity of its company’s name and not under his/her personal name. There are effectively three ways by which this can be done:

(i) The foreign investor can register his or her company with RJSC. This would cause the company to become a “local entity” whose name could be used to acquire land and property.

(ii) Foreign Investors who invest a minimum of US$ 5,00,000 or trans-fer US$ 1,000,000 to any recognized financial institution (non-repatriable) and can apply for Bangladeshi citi-zenship. Once citizenship is granted, a foreign investor can apply for the purchase of real property on the same basis as a Bangladeshi citizen.


exit are preserved. There are essentially two ways by which a business can terminate- a business may choose to wind up on its own initiative under Section 286 of CA 1994 or a competent court under the CA 1994 s 241 can wind up a company.

Investors do have the opportunity to sell their shares to local concerns after which they may leave the country. The sales proceeds can be repatriated after proper and prior authorization from BB. As per FX Guidelines for such prior authorization of BB, the foreign investor is required to submit encashment certificate(s), form 117, copy of the registration certificate obtained from BIDA, if any, and other relevant reporting documents applicable for inward remittance, through its AD.


The legal system of Bangladesh is a common law legal system that is modelled to a great extent on the English Common Law legal system. Therefore, contractual enforcement follows the trend that is familiar to most other common law traditions. One of the most striking prin-ciples of legal protection and enforceability is found in the Constitution Art 31 which affords the protection of the law to all within the juris-dictional boundaries of Bangladesh i.e. to both citizens and non-citizens alike.

In addition, it is widely becoming the status quo that commercial entities resort to methods of alternative dispute resolution (‘ADR’) to obtain a more amicable settlement of disputes, to pre-serve business relationships as far as possible. The Civil Procedure Code (Amendment) Act, 2012 (‘CPC 2012’) inserted sections 89A and 89B to allow parties to settle their disputes through arbitration and mediation. The growing inclination towards the use of ADR is evidenced by commercial parties regularly inserting ADR clauses into their contractual documents and agreements.

Bangladesh being a member of MIGA, addi-tional protection against political risks such as expropriation, war-damage and inconvert-ibility are also provided to foreign investors. Moreover, FPIA 1980 provides protection to foreign investors against expropriation and nationalization. In the event, where expropri-ation is necessary, the GOB is to adequately compensate the investors with the market value of the investment as per the said Act.


Bangladesh has signed bilateral double taxation treaties with 28 countries, including Austria, the Belgium-Luxembourg Economic Union, China, Denmark, France, Germany, India, Indonesia, Iran, Italy, Japan, Democratic People’s Republic of Korea, Republic of Korea, Malaysia, Netherlands, Pakistan, Philippines, Poland, Romania, Singapore, Switzerland, Thailand, Turkey, United Arab Emirates, United Kingdom, United States, Uzbekistan and Vietnam. These treaties provide such ben-efits as tax holidays and prevent such incidences as double taxation, promoting good trade rela-tions and creating an environment conducive to proliferate investment.

Moreover, Bangladesh does have investment protection treaties with Asia-Pacific juris-dictions namely through, Asia-Pacific Trade Agreement (‘APTA’), South Asian Free Trade Area (‘SAFTA’) and Bay of Bengal Initiative for Multi-Sectoral, Technical and Economic Cooperation (‘BIMSTEC’).


Bangladesh is both a signatory to the Paris Convention on Industrial Property (instituted in the year 1883 and revised as it stands in 1979)


Under the said act, the DOE is required to issue “Environmental Safety Clearance Certificates” when it is satisfied that the applicants have con-formed to the requisite safety standards. Any proposal for an undertaking that is industrial in nature must contain a comprehensive and appropriate environmental impact assessment and proposed environmental impact manage-ment measures.

Usually the DOE takes a minimum of 15 working days to issue an Environmental Safety Clearance Certificate for industries with low levels of adverse impact. For ventures that may pose a significant impact, the processing time extends to around 30 days or more.


BIDA is the principal private investment pro-motion and facilitation agency of Bangladesh, which provides information regarding invest-ments in Bangladesh. Also, the Bangladesh Small Cottage and Industry Corporation (BSCIC) is dedicated to the advancement of small cottage industries in the private sector. Investors seeking to set up in the various EPZs often consult with BEPZA which possesses approval granting jurisdiction for all projects located in the designated EPZ.

In addition, there are numerous law firms and privately owned commercial think-tanks that are able to provide specialist knowledge and advice in various commercial matters on a more customer-oriented basis.


BIDA has drafted the One-Stop Service Act, 2017 aiming to attract foreign investors by

since 1991 and continues to be a member of WIPO since 1985. The importance of having a legal infrastructure to promote and protect intellectual property rights as an attraction to foreign investment is well understood and the legislations governing this vital area are listed below:

(a) Patent and Design Act, 1911;

(b) Patent and Designing Rule, 1933;

(c) Copyright Act, 1999;

(d) Trademarks Act, 2009 amended in 2015;

(e) Geographical Indication of Goods (Registration and Protection) Act, 2013;

(f) Trademarks (Amendments) Act, 2015; and

(g) Geographical Indication of Goods Act, 2015.


Bangladesh is a country in the South-East Asian region with a particularly rich ecological diversity. It lies on one of the world’s richest delta regions boasting a rich network of nav-igable rivers, and fertile land for agriculture and habitation sustaining the livelihoods of many. Bangladesh also boasts possession of two-thirds of the world’s largest mangrove forest (the Sundarbans) and the world’s longest sea-beach at Cox’s Bazaar. It is considered to be of paramount importance that the richness in this country’s ecology is maintained and therefore the Department of the Environment (‘DOE’) is duty-bound to ensure that new and old ventures alike ensure that due respect and diligence is paid towards the protection of the environment. The Bangladesh Environment Conservation Act, 1995 (amended in 2010) is currently the main legislation governing envi-ronmental protection in Bangladesh, which provides the legal basis for the Environment Conservation Rules, 1997 (amended in 2002).

About the Authors:Masud Khan Senior Partner, The Legal Circle


T: +88 019 2080 4522

N.M. Eftakharul Alam Bhuiya

Senior Associate, The Legal Circle

E: [email protected]: +88 017 1112 0550

Sameera M Reza

Senior Associate, The Legal Circle


T: +88 017 7734 5636

W: www.legalcirclebd.com

A: The High Tower (9th floor), 9 Mohakhali C/A, Dhaka 1212, Bangladesh

T: +88 02 5881 4311


licenses, land registration and mutation, envi-ronmental clearances, construction permits, explosives licenses and boiler certificates, connections for power, gas, water, telephone and the internet. It is expected that such a Once-Stop Service Centre will reduce the cost of doing business for foreign investors and will also reduce the time to obtain all regulatory permissions for doing business in Bangladesh.


Please see answer to question numbers 1 and 8, which details the benefits, key considerations and incentives granted to foreign investors in Bangladesh, which makes it the most liberal jurisdiction for FDI in South Asia.

providing quick services from a single window. This law is being enacted in order to reduce various complexities in getting clearance from different government offices as was the case earlier. Rules will be framed under the said Act describing the timeframe for receiving various services from the “Once-Stop Service Centre”. Any failure to provide services within the timeframe stipulated in the rules will be deemed as ‘misconduct’ and will be punishable under the law.

According to the Act, four organizations- namely BIDA, BEPZA, Bangladesh Economic Zone Authority and Bangladesh Hi-tech Park Authority will act as the “Central One-Stop Service Authority” in their respective area. Sixteen (16) types of services will be provided to the investors from the Once-Stop Service Centre, which include issuance of trade

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India has emerged as one of the most attrac-tive destinations for foreign investment from around the globe. The United Nations Conference on Trade and Development’s World Investment Report 2017 ranks India within the top ten countries around the world for attracting foreign direct investment (‘’FDI’’) inflows and fourth amongst the Asian countries. According to the said report, India’s total FDI inflow in the year 2016 was USD 44,486 bn. As per the statistics made available by the Department of Industrial Policy and Promotion, the FDI into India during the period from April-September 2016 rose 30% year on year with the most investments in the service sector industries followed by telecom-munications and trading.

There are several reasons for India to remain as a top-notch destination for FDI inflow. While some of these are specific to different business sectors, many are common to all sectors. One of the key attraction across the board remains the low cost of labour intensive set up ranging from manufacturing units (which require both unskilled and skilled labour) to any service industry such as information technology (which needs an expert and technically skilled workforce).

Essentially the initiatives of the Government of India, have persistently worked towards liberalizing the FDI regime, and succeeded in boosting the growth of FDI over the years.


Foreign investments into India are gov-erned by the Foreign Direct Investment Policy (‘’FDI Policy’’) of India issued by the Ministry of Commerce and Industry through the Department of Industrial Policy and Promotion.

With liberalization being the focus of the gov-ernment of India for over two decades, FDI in most of the sectors except few is permitted up to 100% under the automatic route. FDI in cer-tain sectors is still reserved under the approval route either up to 100% or over and above the prescribed sectoral cap for strategic or security reasons. Broadly, the FDI Policy lays down the sectoral cap on FDI in various business/indus-try sectors and terms and conditions relating to FDI in each of the said sectors.

Although there is no prior approval required in relation to the FDI except in few sectors, post investment notification is required to be provided to the Government of India. The FDI Policy prescribes various reporting requirements, including notification of receipt of remittance in foreign currency as FDI and allotment of shares to a foreign resident.

Additionally, a transaction involving foreign currency is governed by the Foreign Exchange Management Act 1999 (‘’FEMA’’) and regu-lations issued thereunder the central bank of India namely, the Reserve Bank of India. FEMA

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regulations play a vital role in governing FDI transactions.


Over the last few years, the government of India has revised the FDI norms to open the gates for FDI in most of the sectors and has been persistently making efforts to liberalize the FDI Policy to the greatest extent. The sectoral caps and restrictions are reviewed and revised from time to time with the aim of liberalization of the regime unless justified for the larger public interest and security reasons.

The current FDI Policy prohibits foreign investment in the sectors of lottery business, online lotteries, manufacturing of cigarettes or tobacco or tobacco related products, atomic energy, railways, gambling and betting includ-ing casinos, chit funds, ‘nidhi’ companies, trading in transferable development rights and the business of real estate or construction of farmhouses. Broadly, the restriction in terms of sectoral caps is 49% for most of the capped sectors. Investment that is over and above 49% of FDI in the capped sectors requires prior government approval.

The FDI Policy is applicable across India and the above described sectoral caps are applicable across all states. Among these sectors, it is only in relation to the sector of multi-brand retail that the state governments have been given discretion to permit FDI even up to 51%.


The current FDI Policy permits FDI through various business vehicles which primarily include a company, sole proprietorship and a limited liability partnership.

Conventionally, FDI has always been brought into India to be infused in a company which may either be a private or a public limited com-pany. A major consideration for foreign entities looking to bring FDI into India is whether to set up a wholly owned subsidiary to carry out business operations in India independently or to form a joint venture company with an expe-rienced Indian partner. In our experience, the decision between a wholly owned subsidiary and a joint venture company is influenced by the nature of business activity that is to be carried out and the level of local assistance that will be required to run the business effectively.

FDI in more recently liberalized business vehi-cles such as sole proprietorships and limited liability partnerships, are not common ways of infusing foreign direct investment into India at present.

The government of India, has recently integrated and simplified the process for incor-porating a company for foreign investors who are incorporating a joint venture company or a wholly owned subsidiary. Upon filing a single form, a company can be incorporated within 6-7 working days. The main requirements for incorporating a company are a minimum of two shareholders and two directors (one director being an Indian national).


There are very few sectors in which FDI can be brought in only with prior government approval. These are mining and mineral sep-aration of titanium bearing minerals and ores, publishing/printing of scientific and technical magazines/specialty journals/ periodicals, publication of facsimile edition of foreign news-papers, private security agencies, multi brand retail trading, pharmaceutical (brownfield) and satellites.


and talked about of these being the requirement for all foreign multi-brand retailers to source at least 30% of the values of procurement of manufactured/processed products from Indian micro, small or medium industries.

Depending on the sector of business, there are also a number of industry specific regulators that regulate the functioning of entities in a particular industry, for instance the IRDAI (Insurance Regulatory and Developmental Authority of India) which regulates the functioning of the insurance and reinsurance companies in India, by way of issuing guide-lines and circulars. Similarly, the telecom industry is regulated by the TRAI (Telecom Regulatory Authority of India).

Foreign investment in other sectors such as manufacturing in the defence, insurance, power exchange, private sector banking and infrastructure companies in security are less restricted as FDI is permitted without central government approval up to a specified percent-age and investments crossing the prescribed threshold require central government approval. Additionally, FDI in certain sectors such as banking, broadcasting and multi brand retail trading are only permissible up to a specified limit regardless of government approval.

There are also sectors which are fully liberal-ized and 100% FDI under these sectors falls under the automatic route. These sectors include agriculture and animal husbandry, plantation sector, mining and exploration of metal and non-metal ores, greenfield projects under civil aviation and pharmaceutical companies, construction development (town-ships, housing, built-up infrastructure, new and existing industrial parks), cash and carry wholesale trading/wholesale trading, e-com-merce activities, railway infrastructure, asset reconstruction companies etc.

All applications for FDI proposed under the approval route are required to be submitted with the Foreign Investment Promotion Board (‘’FIPB’’), an inter-ministerial body housed in the Department of Economic Affairs in the finance ministry responsible for processing foreign direct investment (FDI) proposals. The FIPB offers a single window clearance system for applications for FDI in India that are under the approval route but there are no fixed time-lines for processing the application.

In an attempt to promote FDI in the country and reduce the timelines for approval, the Union Cabinet in May, 2017 approved the abolishment of the FIPB and is in the process of putting in place a new mechanism under which the proposals will be approved by the ministries of the concerned sectors as per a standard operating procedure approved by the central government, which is likely to prescribe strict timelines for granting such approvals.


FDI in most sectors has been liberalized and government approval is only required for either investments exceeding the sectorial caps or investments in the few sectors that the government has reserved.

For strategic reasons the FDI Policy specifies certain sectors wherein any foreign investment will require government approval. Such sectors include mining and mineral separation of tita-nium bearing minerals and ores, publishing/printing of scientific and technical magazines/specialty journals/ periodicals, publication of facsimile edition of foreign newspapers, private security agencies, multi brand retail trading, pharmaceutical (brownfield) and satellites.

In addition to the restrictions described above, which are imposed by way of government approvals, the FDI Policy also lays down cer-tain sector specific controls. The most recent



The FDI Policy and Foreign Trade Policy place restrictions on conducting business in certain countries and on any business which flows from certain countries into India. Some of these restrictions prescribed are:

• A citizen of Bangladesh or an entity incor-porated in Bangladesh can invest only under the Government approval route. Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government approval route, in sectors other than defense, space and atomic energy and sectors prohibited for foreign investment.

• Non-Resident Indians in and citizens of, Nepal and Bhutan are permitted to

many multi-national corporations (include Fortune 500 companies) in establishing their presence in India in a variety of sec-tors including automobiles, biotechnology, chemicals, energy, financial services, health-care 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, out-sourcing, 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 her international clients.

Her client commitment and consistent delivery of high quality services have been recognised by her clients and peers. Among various accolades, she was awarded the National Law Day Award - 2000 by the Union Law Minister for “Excellence in Corporate Law and for unique contribution in bringing foreign exchange into India”.

Manjula ChawlaPartner, Phoenix Legal

Manjula Chawla, a partner based in Delhi office, concentrates in the areas of strategic corporate investments, corporate finance and restructuring, mergers & acquisitions, joint ventures, and general corporate and commercial matters. She has over 25 years of experience in the field of foreign investments and since the early years of liberalisation, she has assisted



exemption), area based incentives (for units set up in State of Jammu and Kashmir, North-East India, State of Uttrakhand and State of Himachal Pradesh) and sector specific incentives (Modified Special Incentive Package Scheme in Electronics). In addition to the above, every State has its own policy relating to incentives which are generally provided under the industrial policy of the concerned State.


At present, there are 8 functional SEZ’s desig-nated in India, in the States of Maharashtra, Kerala, Uttar Pradesh, Gujarat, Tamil Nadu, Andhra Pradesh and West Bengal.

Apart from the above designated SEZ’s, an SEZ in the State of Madhya Pradesh is ready for operations and the Government of India has given its approval for setting up 18 more SEZ’s across the country, specifically in the States of Karnataka, Gujarat, Rajasthan, Maharashtra, Tamil Nadu, West Bengal, Orissa, Uttar Pradesh and Andhra Pradesh.

Units set-up in SEZ’s are required to achieve a positive net foreign exchange earnings as per the prescribed guidelines, provide the Development Commissioner and Zone Customs with a periodic report and execute a bond with the Zone Customs for operating in an SEZ.

10. What are the main taxes that could apply to foreign investors in your jurisdiction? (For example, Personal Income Tax, Corporation Tax, Value Added Tax and Social Security Payments.)

An individual who is a resident in India has to pay taxes on his/ her worldwide income. If the person is a Non- resident, the tax has to be paid only on his/ her income which is received or accrued or deemed to be received or deemed to

invest in the capital of Indian companies on repatriation basis, subject to the con-dition that the amount of consideration for such investment shall be paid only by way of inward remittance in free foreign exchange through normal banking channels.

• The import or export of arms and ammu-nition, to or from Iraq, is prohibited, except for such export to the Government of Iraq which can be made after securing a “No Objection Certificate” from the Department of Defense Production.

• The direct or indirect export or import of various items to or from the Democratic People’s Republic of Korea (North Korea) is prohibited.

• The direct or indirect export or import of all items, materials, equipment, goods and technology that could contribute to Iran’s reprocessing, water-related activities, or to the development of nuclear weapon delivery systems, to or from Iran, is prohibited.

• The direct or indirect import of charcoal from Somalia is prohibited, on account of the UN Security Council Resolution 2036 in 2012. Importers of charcoal are required to submit a declaration to cus-toms authorities that the consignment has not originated in Somalia.


The central government offers incentives for setting up units/facilities in areas designated as special economic zones (“SEZ’s”) and National Investment and Manufacturing Zones and units which are set up as export oriented units. Such incentives offered in special economic zones or export oriented units, can differ from state to state.

The central government also offers export incentives (such as duty drawback, duty


cess, in the hands of the company, paying the dividends or buy backing the shares.

On the indirect tax front, there are numerous taxes that are applicable, such as Service Tax, Excise Duty, Value Added Tax, Entry Tax etc. However, it has been proposed to introduce a unified code for such indirect taxes on the goods and services, in which all the indirect taxes are proposed to be subsumed into one Goods and Service Tax (GST). The same is proposed to be applicable from July 1, 2017.


India has a strong framework of employment legislations and this includes a plethora of central and state legislations, regulating employees, their relations with employers and work environment.

The Industrial Disputes Act 1947 (“ID Act”), is the primary legislation which regulates the affairs of workman employed in an industry to carry out any skilled, technical, operational, clerical or supervisory work for hire or reward. However, the scope of workman, under the ID Act excludes employees engaged in a manage-rial or administrative capacity and employees employed in supervisory category, drawing wages exceeding INR 10,000 a month. The ID Act provides for statutory benefits to workman covered under the scope and obligations of the employer in instances relating to retrenchment, transfer, closing of undertaking, in order to ensure protection of workman in such cases.

The Factories Act 1948, is another essential piece of legislation which lays down the rights of a workman engaged in a factory premises and the obligations of an employer required to provide a favorable work environment to such employees. The Factories Act covers provisions relating to inter alia conditions in relation to

be accrued in India. Such taxes have to be paid as per the relevant slab rates, with a maximum marginal rate of 30% plus applicable surcharge and cess.

International companies or investors seeking to invest in India and/or set up operations in India, can consider different entities for the said purpose. Foreign entities, depending upon the business purpose, can set up a liaison office, project office or a branch office in India. Non-resident companies (operating in India via a branch office/ liaison office/ project office) are chargeable to tax at a rate of 40% and applicable surcharge and cess for the income earned from business in India.

Investment can also be made in India in Limited Liability Partnership, partnership or a private limited company. For tax purposes, a LLP and Partnership firm are considered as the same and the income is taxable at the rate of 30% plus applicable surcharge and cess. LLP and Partnerships are liable for payment of alternate minimum tax at the rate of 18.5% plus applicable surcharge and cess on the book profits, if the tax computed at the rate of 30% on the profits as per the provisions of income tax act is less than the tax computed at the rate of 18.5% on the book profits.

On the other hand, domestic companies are liable to pay tax at a rate of 25% plus applicable surcharge and cess if taxable income is up to Rs. 50 crore and at a rate of 30% plus applicable surcharge and cess, if taxable income exceeds Rs. 50 crore. The domestic company is liable to pay minimum alternate tax at the rate of 18.5% on the books profits, if the tax computed on the income as per the provisions of the income tax act is less than it.

Accumulated income of the domestic company can be distributed to the foreign investor by way of dividend, or buy back of shares. Distribution of dividend is exigible to dividend distribution tax at the rate of 20.35% and buy back of unlisted shares is also exigible to tax at the rate of 20% plus applicable surcharge and



We understand that block means ‘not permitted’.

There are certain sectors in which FDI is not permitted or is prohibited (discussed in earlier responses). Apart from these, FDI over and above the sectoral limit, wherever prescribed, is subject to approval of the government. The government thus has discretion in permitting or ‘blocking’ FDI over and above the sectoral limit, which has been exercised by the gov-ernment very thoughtfully (more often than not involving the relevant ministry of the government regulating the industry/ sector under consideration).


The primary legislation regulating the inward and outward remittance of money to and from India is the Foreign Exchange Management Act 1999 (“FEMA”). FEMA is a central legislation and is applicable to all parts of India and to all branches, offices and agencies outside India, owned or controlled by a person who is a resident of India.

Broadly the FEMA permits only an authorized person to deal in foreign exchange or foreign security and prescribes a number of regulations in relation to the transfer, receipt and usage of foreign exchange.

The Reserve Bank of India (“RBI”), the central institution of the country which handles the monetary policies of India, established and incorporated pursuant to the authority granted under FEMA, has an important role to play in transactions involving foreign exchange. In certain cases foreign exchange transactions are permissible only with the prior approval of

the health, safety, welfare, working hours and leave of workers in factories.

In addition to central legislations, each State in India has detailed employment regulations spe-cific to the concerned state. Every state has its own Shops and Establishment Act /legislation. The Shops and Establishment Acts regulate the conditions of work and employment in every state.

Foreign nationals appointed to work in India or providing consultation services, may apply either for a business visa or an employment visa depending on the nature and duration of their stay.


Acquisition of immovable property in India by foreign investors is governed by Foreign Exchange Management (Acquisition and transfer of immovable property in India) Regulations, 2000. The said regulations permit only Indian citizens, person of Indian origin and a branch, office or other place of business, established in India in accordance with the FEMA (Establishment in India of Branch or Office or other Place of Business) Regulations, 2000, to acquire property in India.

Foreign nationals are not permitted to purchase any immovable property in India. However, a foreign national who has resided in India for more than 182 days during the preceding finan-cial year, and has a continued presence in India in the current financial year for the purpose of employment, business or any activity that would require him/her to stay in India for a long duration, may purchase immovable prop-erty in India. Citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal and Bhutan however will require the prior approval of the RBI to acquire any property in India.


investor, more specifically, the price at which shares owned by the foreign investor, are trans-ferred and is required to be in compliance with the applicable FEMA regulations.

Apart from restrictions under the contractual terms, FDI is subject to sector specific condi-tions prescribed under the FDI Policy. Among the said conditions, expiry of minimum lock-in for the FDI is a pre-condition in case of con-struction and development sector for a foreign investor to exit and repatriate investments before the completion of project under the automatic route. In such a case, penalties under FEMA regulations will ensue if the prescribed conditions are not met with.

the RBI such as transfer of shares of an Indian company held by a Non-Resident Indian to a Non-Resident.


At the outset, under the prevailing FEMA regulations, there are no express restrictions, approval requirements or penalties specifically in cases of withdrawal of FDI.

Usually, the exit of a foreign investor is governed by the provisions of the contract 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

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 invest-ments 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 regu-larly 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, pharmaceu-tical, food and beverage and information technology.Ritika Ganju

Partner, Phoenix Legal




An investor in India is protected by the effec-tive enforcement of the contractual provisions governing his investment.

An aggrieved investor, in case of a dispute, may enforce the provisions of the contract before the courts in India provided the same qualifies as a valid contract under the provisions of the Indian Contract Act 1872.

Apart from the Supreme Court and High Court, which are established in each state, the investor can approach the National Company Law Tribunal which is a quasi-judicial body in India, specifically set up to adjudicate issues relating to companies in India.

As a practice, parties entering into contracts for governing their investment, usually include an arbitration clause, which can be enforced in case of any dispute. As agreed under the contract, parties may opt for ad-hoc or insti-tutional arbitration. Unlike ad-hoc arbitration, wherein the arbitrator is decided by the court in line with the provisions of Arbitration and Conciliation Act 1996, the parties can decide the arbitrator, venue and seat of arbitration in accordance with the rules of the institution agreed.

India has also Investor Protection Treaties with various countries in place to protect the rights of foreign investors.


India has signed the Bilateral Investment Promotion and Protection Agreements (‘’BIPA’’) with 83 countries, of which 72 are currently in force. Australia, China, Indonesia and South Korea, are a few of the Asia-Pacific

jurisdictions with which a BIPA has been executed.

India is a signatory to a number of industry and cause specific multilateral treaties such as the ‘Statute of the International Renewable Energy Agency’, agreement on trade in goods under the framework agreement on comprehensive economic cooperation between the Republic of India and the Association of Southeast Asian Nations (“ASEAN”), protocol to amend the framework agreement on comprehensive eco-nomic cooperation between India and ASEAN.

However, India is currently not a signatory to any multilateral treaty particularly focusing on foreign investments.


Patents are governed and registered under the Indian Patent Act 1970. In the event someone uses a patented invention without the permis-sion or consent of the patent owner, then the owner of the patent can approach a court of law for obtaining remedies including but not lim-ited to injunctions and damages. The Patent Act provides for both civil and criminal remedies for patent infringement.

Trademarks are governed and registered under the Trade Marks Act 1999. The owner of a registered trade mark and a user of the registered trade mark can file a suit before the jurisdictional district court for infringement of trade marks, seeking an injunction on the non-permitted use of such trade marks by third parties. However, the owner of an unregistered trade mark has no remedies under the Trade Marks Act to prohibit the use of such unreg-istered trade marks by third parties, except to bring a claim for the tort of passing off.

The Copyright Act 1957 along with the Copyright Rules 2013, are the laws gov-erning copyright protection to original literary, dramatic, musical and artistic works;


cinematograph films and sound recordings in India. The rights granted under the Copyright Act to an author/ owner include the exclusive right to do or authorize any third party to reproduce the work, issue copies of the work or use the work. The author also has certain special rights i.e. to claim authorship of the work and restrain or claim damages with respect to any alteration or modification in relation to the work, if such alteration or mod-ification would be prejudicial to his reputation even after partial or complete assignment of the work. The Copyright Act provides for both civil and criminal remedies for copyright infringement. In the event of infringement, the copyright owner is entitled to remedies by way of injunction, damages, and order for seizure of the infringing articles.

Industrial Designs in India are protected under the Designs Act 2000. The Designs Act 2000 provides for civil remedies in cases of infringement of copyright in a design, but does not provide for criminal actions against the infringing party. The civil remedies available in such cases are injunctions, damages and compensation.

Protection to plant varieties is provided under the Plant Varieties and Farmers Rights Act 2001. The legislation was enacted after India ratified the Trade Related Aspects of Intellectual Property Rights Agreement in 1994. The act provides for a unique system for protection of plant varieties and addresses the concerns for equitable sharing of benefits. A plant variety is registered under this legislation if it conforms to the criteria of novelty, distinc-tiveness, uniformity and stability. The owner of the plant variety acquires an exclusive right to produce, sell, market, distribute, import or export of the variety. In case of infringement, the owner may approach a court of law for obtaining remedies including but not limited to injunctions, damages and share of profits.

The Geographical Indications of Goods (Registration and Protection) Act 1999 has

been framed with the object of providing protection, as a geographical indication, to any agricultural goods, natural or manufactured goods or any goods of handicraft and food industry. In case of infringement, a court of law may grant remedies including but not limited to injunctions, damages or account of profits with or without any order for the delivery-up of the infringing labels and indications for destruction or removal.


The framework of all the environmental policies and regulations in the country are issued by the Ministry of Environment, Forest and Climate Change (“MOEF”). THE MOEF is the nodal agency under the administration of the Central Government, for the planning, promotion, co-ordination and overseeing the implementation of India’s environmental and forestry policies and programmes.

The primary environment regulations for-mulated by the MOEF, are the Environment (Protection) Act 1986 and the Environment (Protection) Rules 1986 which provide the framework for the protection and improvement of environment.

The MOEF vide notification dated September 14, 2006 made prior environmental clearance mandatory for 38 categories of industries engaged in construction of new projects or activities or the expansion or modernization of existing projects or activities engaged in mining of minerals, offshore and onshore oil and gas exploration, cement plants, nuclear power projects and processing of nuclear fuel, leather/skin/hide processing industry, chemical fertilizers, sugar industry and others, subject to prescribed conditions. These sectors are prescribed under the notification, in addition to obtaining prior environmental clearance, are


through this initiative assists the foreign inves-tor with various aspects of their investment such as, location identification, expediting regulatory approvals, facilitating meetings with relevant government and corporate officials and also initiates remedial action on problems faced by investors.

In addition to organizations established by the government, investors also have the option to approach the FICCI. FICCI is a non-gov-ernment, not-for-profit organization which expresses the views and concerns of business industry. FICCI helps in influencing policy decision favorable to the business industry and engagement with policy makers.


In an attempt to promote FDI in the country and reduce the timelines for approval, the Union Cabinet in May, 2017 approved the abolishment of the FIPB and is in the process of putting in place a new mechanism under which the proposals will be approved by the ministries of the concerned sectors as per a standard operating procedure approved by the central government, which is likely to prescribe strict timelines for granting such approvals.

One of the major reform this year is expected to be the introduction of the codified GST tax on July 1. The implementation of GST is expected to bring out efficiency and cost reduction in business operations. Tax experts predict that GST assures increase in FDI across the sectors.

also required to submit compliance reports to the concerned regulatory authority.

The MOEF has also framed regulations for pre-vention and control of water and air pollution. These are the Water (Prevention and Control of Pollution) Act 1974 and Water (Prevention and Control of Pollution) Rules 1975 and Air (Prevention and Control of Pollution) Act 1981 and Air (Prevention and Control of Pollution) Rules 1982.

The aforesaid regulations authorize each state to establish a state pollution control board, which is responsible for issuing approval to industries proposing to engage in activities likely to effect the levels of water and air pollution.

Therefore, foreign investors proposing to establish industries in areas notified by the Government under the regulations relating to air and water pollution, are required to obtain prior approval from the concerned state pollu-tion control boards.


The Department of Industrial Policy and Promotion (“DIPP”), established under the Ministry of Commerce and Industry, has been specifically set up to facilitate investment and technology f lows into the country and for monitoring the industrial development..

The Government of India has also launched 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 invest-ment promotion agency of the Government, mandated to facilitate investments into India. Invest India provides for sector-and state-spe-cific inputs and support to investors through the entire investment cycle. The Government

About the Authors:Manjula Chawla



Ritika Ganju



W: www.phoenixlegal.in

A: Second floor, 254, Okhla Industrial Estate, Phase III, New Delhi – 110020

T: +91 11 49830000

F: +91 11 49830099



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.

mailto:manjula.chawla%40phoenixlegal.in?subject=

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Investors have the choice of investing indirectly (through funds or the Stock Exchange) or directly (which generally entails taking direct equity in a limited liability company).

Foreign direct investment (FDI) must be under-taken through a legal entity incorporated under Indonesian law and domiciled in Indonesia, unless a particular law provides otherwise. Foreign investment directly into a partnership (of individuals) is therefore precluded.

Except for oil and gas contracts and construc-tion undertaken through a representative office, the vehicle for FDI is therefore a limited liability company. This company may be either wholly foreign owned or a joint venture with one or more Indonesian partners. Either foreign individuals and/or foreign legal entities may be founders of such companies. These companies are commonly referred to as PMA (Penanaman Modal Asing or foreign investment) companies. But apart from the ownership of capital, they are companies exactly the same as any other company established in Indonesia. They are all perseroan terbatas or PT.

FDI investors are faced with a basic two-part process: (1) obtaining approval from the Investment Coordinating Board (BKPM) for the specific investment, and (2) obtaining approval from the Ministry of Law and Human Rights (MOLHR) for the company itself. The BKPM process does not apply to oil and gas, banking and finance, and construction using a Representative Office.


The main pieces of legislation regulating FDI and to which your users will refer are:

(a) Law No. 25 of 2007 on Investment (the “Investment Law”);

(b) Law No. 40 of 2007 on the Limited Liability Company (the “Company Law”);

(c) Presidential regulations on business activ-ities closed or open to investment with restrictions (the Negative List) as amended from time to time. The current applicable Negative List is Presidential Regulation No. 44 of 2016;

(d) Indonesian Civil Code (which among other things establishes the principles upon which contracts are formed).

This legislation applies to all investment activity, but the Negative List and the Investment Law have specific provisions for FDI.

Features of the Investment Law(a) There is one law covering all investment

(domestic and foreign).

(b) The law deals with direct and not with indi-rect investment (capital market) – which latter is the role of capital markets law.

(c) Foreign investors must generally invest through a limited liability company (although there are longstanding excep-tions in oil and gas, and construction, not affected by this law).

Jurisdiction: IndonesiaFirm: Hutabarat Halim & RekanAuthor: Nini N. Halim, Peter G. Fanning, Milanti T. Kirana

http://www.hhrlawyers.com/

Jurisdictional Q&A – Indonesia 43

(d) It recognizes that all companies established in Indonesia are Indonesian entities. The previous use of the term ‘foreign company’ in investment legislation to describe an Indonesian company with foreign own-ership is gone, (but there are restrictions on ‘foreign capital’ which includes the capital of an Indonesian company with any foreign ownership – and more on this later). However other regulations, particu-larly in the resources area, uses the term ‘national company’ when a company with full Indonesian ownership is intended. This can be confusing, as the term is not defined.

(e) The term of an investment project is limited only by the life of the company which owns the project, and the term can be indefinite if the founders want it this way (although rel-evant operating licenses must be obtained and renewed as required).

(f) If 100% foreign ownership is available, divestment is not required (except if this is required by pre-existing BKPM approv-als and by some other legislation such as regulations made under Law 4 of 2009 on Mining).

(g) Nationalization of private assets is stated in Law 27 of 2007 on Capital Investment not to be intended However it is made clear in the same law that if there is nationali-zation, there will be compensation based on market value, with an disputes resolved through arbitration. (Indonesia has never repeated the nationalization of the assets of its former Dutch colonists which it undertook in the early sixties, and is very careful to make clear that that is a thing of the past).

(h) It provides that if a business activity is not specifically restricted in some way (whether that restriction is based on the source of capital or otherwise) then the activity is open to any private investor, domestic or foreign.

(i) It provides for facilities to be provided to investors – whether related to taxation, land use, immigration or importation. (The specifics are left to specific executive regulation).

(i) It provides for facilities to be provided to investors – whether related to taxation, land use, immigration or importation. (The specifics are left to specific executive regulation).

(j) Business licenses are to be obtained through what are referred to as ‘one stop integrated services’ (“PTSP”). These ser-vices may be at national or district level.

(k) The role of BKPM is set out in some detail in the law. Its duties relate to coordination, analysis and promotion. The basic business license for a PMA company is the license (i.e. approval) granted by BKPM.

(l) It provides for the resolution of disputes between the investors and government through international arbitration.

(m) There is provision that agreements under which shares are held for another’s benefit (with specific reference to agreements between domestic and foreign investors) are illegal.

(n) Provision is made for existing investment approvals to continue until their validity expires.

As to the effectiveness of the PTSP system, most FDI is monitored by the Investment Coordinating Board (BKPM), which was first established by Presidential Decree in 1973. Direct investment in oil and gas is managed by an authority established under Law No 22 of 2001 on Oil and Gas, known as SKKMigas. Direct investment in banking is managed by a Financial Service Authority. Direct investment in construction may be undertaken through a (Public Works approved) Representative Office.

By Law No. 5 of 1968, Indonesia ratified the 1965 Convention on the Settlement of Investment Disputes between States and


company conducting business activities in a natural resources field and/or related to natural resources must implement principles of good corporate social responsibility, at the cost of the company. This concept will be further regulated by government regulation.

As many foreign investors entered Indonesia under the aegis of the 1995 company law, the new law’s transitional provisions are relevant. One important hurdle to such investors is the required revision of their Articles of Association to comply with the new law. A company’s Articles of Association which have been approved or notified to the MOLHR before the enactment of Law No. 40 of 2007, remain in effect unless in contradiction of Law No. 40 of 2007. The Articles of a company which has not obtained status as a legal entity, or whose amendments have not been approved or notified to the MOLHR prior to the effective date of Law No. 40 of 2007, must be adjusted to fully comply with the new provisions. A com-pany which has already obtained legal entity status pursuant to the prevailing laws, should have adjusted their Articles of Association for compliance within 1 (one) year of the effective date of Law No. 40 of 2007 (i.e., by 16 August 2008). Companies failing to have adjusted their Articles in this time period can be dissolved by a decision of the District Court, on the basis of an application from the public prosecutor or any interested party.


All business activities are stated in the negative List to be open to investment activity, except those which are closed or open with restric-tions. A presidential regulation (occasionally revised and replaced) sets out activities which are closed to private investment or open with restrictions (the so-called Negative List).

Restrictions are not necessarily as to foreign capital. They may instead, or also, restrict activity to Indonesian-owned SMEs, or

Nationals of other States (the Washington Convention), thus allowing for such disputes involving foreign investors to be submitted to international arbitration under the World Bank’s ICSID rules.

Many countries have individual Bilateral Investment Treaties or Agreements for the Promotion and Protection of Investments (all generally referred to as BITs) with Indonesia which clarify and/or add to the general pro-tection offered, but these are in the process of being replaced by what are seen to be more ‘modern’ treaties.

Features of the Company LawThe current Company Law provides greater guidance than its predecessor, for both foreign, and domestic business players, and standardizes practices that have developed over the years. Although similar to Law No. 1 of 1995, the 2007 law addresses matters which had previously been regulated only by implementing regulations. Some highlights of the Company Law include the following: (i) accommodating various new stipulations, among others, including the SABH (Sistem Administrasi Badan Hukum) or the Legal Entity Administration System; (ii) increasing the minimum authorized capital of a company, from IDR 20.000.000 to IDR 50.000.000, which capital may be made in cash or in kind; (iii) stipulating that companies engaged in business on the basis of Syariah principles, shall have a Syariah Supervisory Council in addition to a Board of Commissioners; (iv) specifying that GMS may be held by way of electronic media, such as teleconference, video conference or other electronic media (as long as the partic-ipants can see each other); (v) providing that a company may have one or more independent commissioners and one appointed or delegate commissioner; (vi) modifying the general pro-cedure to amend the Articles of Association; and (vii) modifies certain procedures related to the change of status from a private to a public company. Another noteworthy addition is the codified requirement that a


require partnerships, or be restricted to certain locations, or require special licenses.

Therefore, for many fields of activity, foreign ownership of a PMA company may be 100% of the issued capital. But restrictions can also be put in place by separate regulations, as they are for advertising, horticulture, real estate brokering, ship ownership, coastal resorts and mining – which can cause confusion.

In an attempt to be very specific about the activ-ity intended, the government has expanded the use of the voluminous Standard Classification of Fields of Activity in Indonesia (KBLI). All activity has a KBLI number. However, this does not mean that all activity that comes within a specific KBLI number is covered by the same restrictions. The restriction generally depends on the sector within which the activity takes place, as the regulation attempts to make quite clear.

Where an investor wishes to undertake differ-ing activities with differing restrictions, it may be advisable to establish separate companies to undertake the different activities.


Domestic investment may be through a number of business forms, including a sole proprie-torship. However FDI must be undertaken through a legal entity incorporated under Indonesian law and domiciled in Indonesia, unless a particular law provides otherwise. This means, a limited liability company, bearing in mind the exceptions found in the oil and gas, and construction sectors.

There is only one kind of limited liability company in Indonesia – not the mixture of corporations and hybrid partnership/compa-nies and companies without shareholders and simplified company structures you may find elsewhere.

Companies must have at least two shareholders to set policy, at least one director to manage those policies (company law does not recognize officers), and at least one commissioner to step in if directors step out of line.

Subject to the completion of all required doc-uments under the discretion of the BKPM, the estimated time of setting up an FDI company is approximately 14 – 21 working days. This includes the process of ratification of a legal entity by the MOLHR.


As earlier mentioned above, FDI is moni-tored by the Investment Coordinating Board (BKPM) as the gatekeeper for foreign investor to enter into Indonesia by the granting of the In-Principle License. Direct investment in oil and gas is managed by an authority estab-lished under Law No 22 of 2001 on Oil and Gas, known as SKKMigas. Direct investment in banking is managed by a Financial Service Authority. Direct investment in construction may be undertaken through a (Public Works approved) Representative Office.


(a) Oil and gas;

(b) Mining;

(c) Banking and financial institution.

More open or unrestricted sectors:(a) Industry;

(b) Trading;

(c) Services e.g. food and beverages services, consultation.


comfort with respect to the status of the land, the investor acquiring land in an industrial estate is also assured that it is clearly and per-manently designated for industrial use.

Industrial companies located in the bonded areas are provided with additional incentives, such as exemptions from import duty, excise, income tax and value added tax on luxury goods on the importation of capital goods and equipment including raw materials for the production process.


Foreign investors must comply with various taxation requirements under the prevailing Indonesian tax laws and regulations as follows:

(a) Income Tax;

(b) Withholding taxes (WHT) – generally a prepayment of income tax, sometimes in the form of a final tax; and

(c) Value Added Tax (VAT) – generally 10%

Both companies (at a maximum rate of 25%) and individual employees (at a maximum rate of 30%) are subject to income tax. Employers must contribute to four distinct social security programmes, some of which also require an employee contribution.


Manpower-Related Key IssuesPursuant to Law No. 13 of 2003 on Manpower (the “Manpower Law”) and its related regu-lations, the Indonesian Government aims to encompass the labour welfare through the


No. Conversely, facilities can be applied to doing business within ASEAN.


Rights granted to investors in the Investment Law are:

(a) the right to transfer assets and to repatri-ate capital, after-tax profits and dividends, expatriate salaries, etc;

(b) taxation reduction and exemptions and accelerated depreciation;

(c) rights to land, immigration and import facilities;

(d) provision for arbitration of investment disputes.

There is a tax holiday facility for a pioneer industry (as defined, which may include an expansion of activity in that industry) which has an investment plan amounting to IDR 1 trillion at the minimum.

Any foreign investment that: (i) has a total investment value of at least IDR 100 billion, and/or (ii) absorbs Indonesian manpower of at least 1000 people, may have its investment license issued by the BKPM within 3 (three) hours (as long as the paperwork is already complete).


Zoning and environmental permits are already in place in such zones. These estates are divided into parcels for which land rights are readily available. An investor must submit a letter of confirmation of availability from the Industrial Estate along with its application. In addition to


within a certain period of time but the agreement must be for no longer than 2 (two) years, while a non-fixed agreement can be used for day-to-day work with an indefinite employment period.

(f) Company Regulations. Any company which employs at least 10 (ten) employees is obliged to make a company regulation and also register it with the Ministry of Manpower. The substance of this company regulation must at least consist of the provisions on the rights and obligations of the employer, the rights and obligations of the employee, working conditions, company orders, and the period of validity of regulations.

(g) Manpower Social Security. The Manpower Law requires an employer to provide welfare to its employees in the form of man-power social security, which comprise of: (i) Jaminan Kecelakaan Kerja (employment accident benefit), (ii) Jaminan Kematian (death benefit), (iii) Jaminan Hari Tua (old age benefit), (iv) Jaminan Pemeliharaan Kesehatan (health benefit), and (v) pension. For this purpose, an employer must regis-ter all employees with the Social Security Board (Badan Penyelenggara Jaminan Kesehatan or “BPJS”) as the current operator of manpower social security in Indonesia.

(h) Expatriates. With the aim of supporting the transfer of knowledge and technology to Indonesian employees, the employment of expatriates is permitted on a fixed term basis and for certain positions. Any expa-triates employed in Indonesia must obtain a proper work permit from the Ministry of Manpower and Transmigration and a residency visa from the Directorate General of Immigration. Their conditions will generally be as stated in their contracts of employment.

following key points to be concerned by foreign investors.

(a) Working hours. The normal working hours in Indonesia are 7 hours per day for 6 working days in a week or 8 hours per day for 5 working days in a week. Work in excess of the normal working hours will usually be considered as overtime which may result in a compensation payment to the employee.

(b) Annual leave. Each employee in Indonesia is annually entitled to 12 working days of leave. Subject to the company’s regulation, an employee also can be granted other leave on certain events, i.e. maternity, marriage, or death of family members.

(c) Religious Holiday Allowance (Tunjangan Hari Raya or “THR”). Prior to a major religious holiday in Indonesia (either Eid Mubarak or Christmas), the employer must pay the THR to each employee who has worked for at least three consecutive months. A pro rata payment will be made to any employee who has worked for 3 months but less than 12 months, while any employee who has worked for 12 months must receive the full THR payment in the amount of 1 month’s salary.

(d) Termination. The termination of employ-ment in Indonesia principally must be mutually agreed by the employer and the employee. Following the termination, the employer will be obliged to make a certain severance payment which depends on the working period and the type of employ-ment agreement.

(e) Employment Agreement. The employment relationship in Indonesia can be either by a fixed term agreement or a non-fixed agreement subject to the type of work and the employment period. A fixed term agreement can only be used for seasonal work which of its nature will be completed


(g) Personnel Placement Supervisor;

(h) Employee Career Development Supervisor;

(i) Personnel Administrator;

(j) Chief Executive Officer;

(k) Personnel and Careers Specialist;

(l) Personnel Specialist;

(m) Career Advisor;

(n) Job Advisor;

(o) Job Advisor and Counseling;

(p) Employee Mediator;

(q) Job Training Administrator;

(r) Job Interviewer;

(s) Job Analyst.


All companies (regardless of whether nationally or foreign-owned) are restricted to registered leasehold rights over land – freehold land may be held only by individual Indonesians. Foreign investment companies are entitled to obtain Right to Build (HGB), Right to Cultivate (HP), and Right of Use (Hak Pakai or HGU). In order for foreign investors to obtain such rights, the land area required must be identified in the application. The investor must then obtain a Location Permit which will specify the amount and intended use of the land (in effect, a zoning permit). This permit is already in place within industrial estates.


Yes. The Negative List (referred to above) has clearly stipulated the business activities that are closed or open with requirements for foreign investment.


Manpower Plan Approval After receipt of the In-Principle Approval, the investor must submit a Foreign Manpower Utilization Plan (Rencana Penggunaan Tenaga Kerja Warga Negara Asing Pendatang or RPTKA) reflecting the number of expatriate positions expected to be used.

The Manpower Plan must set out the number of positions to be occupied by foreigners in the company’s organizational chart, wages to be paid, the qualifications required of the foreigners, the period of employment, the number of Indonesian employees who will be assigned as counterparts and the program for the training of Indonesian staff to replace the foreigner. The latter two requirements do not apply to foreigners who are company directors.

When an investor has received an approved Manpower Plan, which is intended to cover a five year period, separate applications must be filed for each foreign person to be employed. Manpower approval must be followed by Immigration approval and police and local government registration of the individuals concerned.

Double Position(a) Prohibition of double position for Directors

in the same business from the Anti-Monopoly perspective;

(b) Expatriates are not allowed to work in more than one company. Except for expa-triates who act as a member of the Board of Directors or Board of Commissioners in more than one company (same position within the board).

Certain Positions Prohibited to Expatriates (a) Personnel/HR Director;

(b) Industrial Relation Manager;

(c) Human Resource Manager;

(d) Personnel Development

(e) Personnel Development Supervisor;

(f) Personnel Recruitment Supervisor;


will obtain protection in carrying out their business activities.

(b) Transparent information on the businesses to be engaged;

(c) Rights to obtain services;

(d) Various form of facilities in accordance with prevailing laws and regulations.

In addition, as part of a protection to the foreign investor, the Investment Law stipulates provi-sions for the settlement of dispute in the event that a dispute arises between the government of Indonesia and the foreign investor (Article 32 of Investment Law). Such dispute: (i) must firstly be settled through deliberation to reach con-sensus, and (ii) if the foregoing settlement fails, the parties may settle it through arbitration or any alternative dispute resolution including international arbitration (non-litigation).


Indonesia has 45 active Bilateral Investment Treaties (BITs) – out of 63 signed. 13 of these are with Asia-Pacific jurisdictions. Formal notice to terminate has been given for the termination of 20 BITS (8 in the Asia-Pacific). These are in the process of being replaced with bilateral and multi-lateral comprehensive agreements. Six new bilateral and two new regional trade and investment treaties are in place.


There is no particular intellectual property rights (IPR) applicable to foreign investors. In Indonesia, there are 7 types of IPR protec-tions which apply to Indonesian individuals and companies including FDI companies, as follows:

(a) Copyright;

(b) Patent;

Rupiah currency as the lawful currency of the Republic of Indonesia must be used as the payment instrument for any cash and non-cash transactions conducted within the Indonesian Territory that is: (i) intended for payment pur-poses, (ii) intended to fulfill obligations that must be paid in cash, and/or (iii) other financial services transactions, – whether it is conducted by Indonesian or non-Indonesian parties.

It must also be noted that the mandatory use of Rupiah currency includes the price of goods and/or services either in writing or via electronic media, as stated in the price tag, contract, purchase order, and invoice. In addi-tion, this also includes the prohibition of dual quotation (Rupiah and any other currency) of the price of goods and/or services.


There is no restriction relating to the with-drawal of investment by the foreign investor. In the event that the said investor transfers its ownership in the FDI company to a local party then the relevant approval will be the approval of the change of status of the FDI company obtained from the BKPM and the MOLHR – which are administrative in nature.


Under Article 14 of Investment Law, each investor is entitled to obtain the following:

(a) Certainties of right, law and protection, by which the government of Indonesia: (i) ensures that the investors will obtain the rights granted to them so long as they have fulfilled their obligations, (ii) recognises legal provisions and regulations as the basic foundation in every measure and policy for investors, (iii) ensures that the investors


(c) Trademark;

(d) Geographical Indication;

(e) Industrial Design;

(f) Layout design of integrated circuit; and

(g) Trade secrets.


An industrial/manufacturing company is required to have an Environmental Management Programme of Work (Upaya Pengelolaan Lingkungan – “UKL”), an Environmental Monitoring Programme of Work (Upaya Pemantauan Lingkungan – “UPL”), and a Waste Disposal License. For a services company, the BKPM will require a statement letter stating that such company is willing to (among other things) maintain the preservation of natural resources and the envi-ronment within the location of the business, and maintain the health, hygiene and beauty of the environment.

Certain major activities such as a power station first require an environment impact statement (AMDAL).


Foreign investors may obtain information from the website of the BKPM.


In 2016, the Government issued Presidential Regulation No. 44 dated 12 May 2016, which was promulgated on 18 May 2016 (the Negative List). This Negative List revoked the previous Presidential Regulation No. 39 dated 23 April 2014 on the same subject.

There are approximately 35 business lines that have been taken out of the Negative List, which means the said businesses are now open for a 100% foreign investment. One of these is the restaurant business for which permitted foreign investment previously was set at a maximum of 51%. Other business lines such as distributor-ship (that is not affiliated with the production) and warehousing are now open for a maximum of 67% foreign investment from previously 33%.


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.

About the Authors:Nini N. Halim

Partner, Hutabarat Halim & Rekan


Peter G. Fanning

Foreign Legal Consultant, Hutabarat Halim & Rekan


Milanti T. Kirana

Senior Associate, Hutabarat Halim & Rekan


W: www.hhrlawyers.com

A: 20/F DBS Bank Tower, Ciputra World 1, Jl. Prof. DR. Satrio Kav. 3-5 Jakarta 12940, Indonesia

T: +62 21 2988 5988

F: +62 21 2988 5989


mailto:nini.halim%40hhrlawyers.com?subject=

mailto:[email protected]

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Although the Japanese economy experienced a low growth rate and significant deflation following the financial crisis in 2008, Japan’s investment environment is improving as its economy recovers. This trend can be seen in several reports. According to the Japan External Trade Organization (“JETRO”), the stock of inward FDI was recorded at JPY 24.4 trillion (about USD 220 billion) in 2015, which is a his-torically high level. It is estimated the inward FDI stock will be JPY 26.7 trillion (about USD 240 billion) as of the end of June 2016 due to a large number of inbound M&As in the first half of 2016, including the acquisition of New Kansai Intl Airports-Op Concession by Kansai Airports and an SPV formed by ORIX-VINCI Airports Consortium as well as the acquisi-tion of USJ Co. Ltd. by NBC Universal Media LLC. Also, according to the UNCTAD World Investment Report 2016, Japan was ranked 6th as a prospective destination for FDI, which is four spots higher than it was in 2014.

Japan is well-known as an attractive destina-tion for FDI by reason of the massive size of its market, its well-educated consumers, and its position as a leader in advanced technology. In addition to these, the government has recently been active in promoting inward FDI. Those activities include reducing the corporate tax rate to a 20% level, enhancing corporate governance by introducing the Japanese Stewardship Code, which provides principles for institutional investors to promote sustain-able growth of companies through constructive and purposeful dialogue, and the Corporate

Governance Code, which establishes funda-mental principles for corporate governance of listed companies in Japan, promoting reforms of bedrock regulations in the sectors of medical care and energy, and simplifying regulations and administrative procedures.


The Foreign Exchange and Foreign Trade Act (the “FEFTA”) and its related laws are the main legislation applicable to foreign investment. That legislation was enacted to enable the proper development of foreign transactions and to maintain peace and safety in Japan as well as in the international community by providing the minimum necessary control and coordination. The basic requirements imposed on foreign investment under the FEFTA is that “foreign investors” that make “inward direct investments” are required to give pre-invest-ment notices or post-investment reports to the minister who has jurisdiction.

In addition to the FEFTA, there are several laws related to specific business sectors that prohibit foreign investors from holding, as a whole, more than a certain percentage of the shares of any company in those sectors. These laws can also function as a restriction on foreign investment.

Jurisdiction: JapanFirm: STW & Partners Author: Masanori Tsujikawa and Yutaka Adachi


Jurisdictional Q&A – Japan 53


(1) Restrictions under the FEFTA

Investments requiring pre-investment notice

Investments requiring pre-investment notice are subject to review and approval by the relevant ministers, i.e. the Minister of Finance and the minister who has jurisdiction over the business of the target company. They can recommend investors to change the content pertaining to an investment or discontinue an investment if they find through a review that the investment might impair national security or have an adverse effect on the Japanese econ-omy. They can also issue an order to change the content pertaining to an investment or discon-tinue an investment if the investors refuse to accept that recommendation. Violating such an order would attract a criminal penalty.

A pre-investment notice is required when a “foreign investor” makes an “inward direct investment” in a company that engages in a business that might relate to national secu-rity (e.g. weapon manufacturing, aviation, nuclear power related business) or a certain field of business (e.g. agriculture, forestry, fisheries, telecommunications). Therefore, the circumstances where a pre-investment notice is required are basically very limited.

To clarify those terms,

(a) “Foreign Investor” means;

(i) any individual who is a non-resident,

(ii) any organization established pursuant 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

either all the positions of directors or representative directors, and

(b) “Inward Direct Investment” includes, among others, the following acts;

(i) acquisition of the shares or equity of a non-listed company (other than acquisition from foreign investors),

(ii) acquisition of 10% or more of the shares or equity of a listed company,

(iii) transfer of shares or equity of a non-listed company to a foreign investor from a non-resident individual who acquired the shares when he or she was a resident,

(iv) consent to a substantial change of the business purpose of a company, and

(v) establishment of a branch office, etc.

Procedures and timelines

A pre-investment notice must be filed with the Minister of Finance and the minister who has jurisdiction over the business of the target company through the Bank of Japan no later than six months before the investment. A wait-ing period of 30 days after the notice applies to such investments and foreign investors may not complete the transaction during that period. The waiting period is usually shortened to two weeks, but it can be extended up to five months if the relevant ministers determine that is necessary.

(2) Restrictions at local levels of governmentThese restrictions do not differ at local levels of government.


variety of management structures within the KK model.

KKs must have at least one director and one shareholder, and at least one of the directors must be a representative director. Also, KKs must hold an annual meeting of sharehold-ers within a certain period after the end of each fiscal year. The Companies Act does not generally require KKs to have corporate auditors, officers (shikkoyaku), a board of directors, or a board of corporate auditors, but KKs with certain management struc-tures or a certain amount of capital or debt are required to appoint corporate auditors and/or officers or have a board of directors and/or a board of corporate auditors, etc. There are no citizenship requirements for officers or employees of KKs. There used to be a requirement that at least one represent-ative director of a KK must be a resident in Japan, but that requirement was abolished in 2015.

(b) Shareholders’ liability

The liability of each shareholder with respect to KKs in Japan is limited to the capital contribution it has made. After making a capital contribution, a share-holder will not be liable for any liabilities of the KK.

(3) Godo Kaisha

Incorporation

It usually takes around one to one and a half months to complete the incorporation process of a GK.

The incorporation process of GKs is less complicated than that of KKs. For example, the articles of incorporation do not have to be notarized by a public notary.

There are no minimum capital requirements for a new GK. There are no requirements on the number of shareholders or their citizenship. Hence, a foreign entity can be the sole member (a “member” is a person or entity that invests in a GK) of a GK.

4. What are the most common business vehicles for foreign investors? How long do they take to be set up? What are the key requirements for the establishment and operation of these vehicles.

(1) Business Vehicles in JapanIf a foreign investor wishes to start a business in Japan, it has the following three main options as a business vehicle:

(i) a stock company (kabushiki kaisha, “KK”);

(ii) a limited liability company (godo kaisha, “GK”); or

(iii) a registered branch.

While a KK is the most common business vehicle in Japan, GKs are also common for foreign entities establishing subsidiaries in Japan due to the flexibility in their manage-ment structure and lower management costs. By utilizing a GK in Japan, a foreign parent company might receive tax advantages in its home country in certain jurisdictions (e.g. the U.S.). If a foreign investor wishes to do business continuously in Japan without establishing a subsidiary, it might also consider establishing a registered branch office.

(2) Kabushiki Kaisha

Incorporation

It usually takes about one to two months to complete the incorporation process of a KK.

There are no minimum capital requirements for a new KK, but there are some regulated businesses in Japan such as financial services that have minimum capital requirements. There are no requirements regarding the number of shareholders or their citizenship, so a foreign entity can be the sole shareholder of a KK.

Operation

(a) Management structures

The Companies Act of Japan (the “Companies Act”) provides for a wide


annual meeting of shareholders, there is no such requirement for GKs to hold an annual meeting of members each year.

There are no citizenship requirements for representative members and their execu-tive managers or employees of GKs. There used to be a requirement that at least one representative member or its executive manager must be a resident in Japan, but that requirement was abolished in 2015.

(b) Members’ rights and liabilities

As explained above, members have general rights to operate their business affairs. In that sense, unlike KKs, ownership and

Operation

(a) Management structures

As a general rule, each member has the authority to operate its business affairs based on decisions by the majority of the members. Also, a GK may designate members as “members who execute the GK’s business” (gyomu shikko shain). In that case, each member who executes the GK’s business has authority to operate its business affairs based on the decisions by the majority of the members who execute the GK’s business. Unlike the requirement mentioned above that KKs must hold an

Masanori Tsujikawa is a partner at STW & Partners. He practices in various areas including mergers and acquisitions, competition law and dispute resolutions. In the field of mergers and acquisitions, he renders a wide range of M&A-related advice, including advice relating to corporate law,

securities law, merger control, regulation specific to the relevant industries, drafting and negotiating contracts and post-merger integration, to corporate clients from vari-ous 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.

He graduated from the University of Tokyo (LL.B.) and obtained an LL.M. degree at the University of Chicago Law School in 2012. He is admitted to practice law in Japan (2006) and in New York (2013). He worked at Arnold & Porter LLP (currently, Arnold & Porter Kaye Scholer LLP) in Washington D.C. office and Brussels office from 2012 to 2013 as a foreign attorney.

Masanori TsujikawaPartner, STW & Partners



under the FEFTA can be waived simply because the target company conducts its business only in a certain sector.


The FEFTA imposes special restrictions on inward direct investment by investors from countries that are not in the List No. 1 in the Order on Inward Direct Investment that is a subordinate ordinance of the FEFTA; those investors must make a pre-investment notice irrespective of the nature of the business of the target company. As of the time of writing, the number of countries in the List is 163.

In addition, citizens and companies of North Korea, Iran and Russia might be prohibited from conducting business activities to a certain extent because of economic sanctions currently imposed by the Japanese government on those countries.


The Japanese government and municipal gov-ernments offer various grants and incentives to foreign investors at different times. Currently, the Act on Special Measures for the Promotion of Research and Development Business, etc. by Specified Multinational Enterprises (the so-called “Act for Promotion of Japan as an Asian Business Center”) is in effect. That Act was introduced in order to promote activities to make Japan more attractive to foreign inves-tors that are looking to establish research and development bases and supervisory bases. That Act provides the following incentives to foreign investors that intend to establish an affiliated company in Japan and meet certain require-ments. (Some of the incentives are applicable only to small and medium sized enterprises the requirement of which is stipulated under the Act.):

management are, in principle, unseparated in GKs. The liability of each member with respect to GKs in Japan is limited to the capital contributions it has made. After making a capital contribution, a member will not be liable for any liabilities of the GK.

(4) Registered Branch Office

Establishment

It usually takes around one month to complete the establishment process of a registered branch office.

Representative

A foreign investor must ensure that at least one representative of the branch office in Japan (e.g., the branch manager) has a Japanese address.

Corporate obligations

Because a registered branch is just a branch of a foreign company, the foreign company itself owes liabilities arising from the operation of its registered branch in Japan. Therefore, unlike KK models and GK models, foreign investors cannot limit their liabilities to their capital investment in this model.


Please see Q.3(1)b.


In terms of the feasibility of FDI, it can be said that the business sectors that are subject to a pre-investment notice requirement are heavily regulated sectors since most foreign investment now requires only post-investment reports. On the other hand, there are no sectors that are more open or unrestricted. No obligations


are offered in order to attract foreign investors. Currently, the Act on Comprehensive Special Zones is in effect.

Under that Act, Tokyo is designated as one of seven designated Comprehensive Special Zones for International Competitiveness. Tokyo is designated as an “Asia Headquarter Special Zone.” The Government of Japan and the Tokyo Metropolitan Government are taking measures to (i) attract foreign companies that own technologies related to the fourth industrial revolution such as Internet of Things, Big Data and AI and (ii) maintain Tokyo’s position as an Asian hub. For example, if a foreign investor is certified as a company that conducts a desig-nated business in Tokyo, certain tax merits such as special depreciation allowances and other

(i) Assistance for fund raising

(ii) Acceleration of patent examinations

(iii) Reduction of patent fees

(iv) Simplified investment procedures

(v) Acceleration of entry examinations for Certificates of Eligibility for Status of Residence applied for by foreign nationals who intend to work in Japan


The Japanese government offers various special economic and industrial zones whose purpose is to activate the economy, and some of those

Yutaka Adachi is a senior associate at STW & Partners. His main areas of practice are international and domestic M&A transac-tions, joint venture transactions, private equity and venture financing transactions.

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 Law in 2014. He was admitted to practice law in Japan in 2008 and in New York State in 2015. Before joining STW and Partners, he worked at Simpson Thacher & Bartlett LLP in New York as an international asso-ciate from 2014 to 2015 and DLA Piper in Palo Alto as a law clerk from 2015 to 2017.

Yutaka AdachiSenior Associate, STW & Partners



eliminated by the operation of applicable tax treaties.

(4) Social Security PaymentsEmployers are required to bear a certain por-tion of the premiums for the following social and labor insurances for each of its employees:

(i) Welfare pension insurance (koseinenkin-hoken);

(ii) Health insurance (kenko-hoken);

(iii) Unemployment insurance (koyo-hoken); and

(iv) Worker accident compensation insurance (rosai-hoken).


(1) OverviewJapanese employment laws provide very strong protection for employees because Japanese employees traditionally work under the notion that they will continue to work for the same employer for their lifetime, so Japanese employ-ment laws are designed to protect employees from having their employment terminated.

(2) Dismissal (Kaiko)An employer’s right to dismiss an employee is severely restricted in Japan, and it is very difficult for an employer to lawfully unilaterally terminate an employee. A dismissal would be invalid if it is not based on objectively rea-sonable grounds and is not considered to be appropriate in general societal terms (Article 16 of the Labor Contracts Act). If a court finds a dismissal to be invalid, it will reinstate the dismissed employee and order the employer to pay the aggregate amount of the salary the employee would have received up to the date of the judgement had the employer not unilater-ally terminated the employment contract.

tax deductions are available for investments in machinery or buildings used for the designated businesses. Also, foreign investors may apply for certain subsidies that can be used for costs and expenses related to the incorporation and launch of a company in Tokyo.


(1) Corporate TaxThe taxes levied in Japan on income gener-ated by domestic and foreign activities of a corporation (KK or GK) include corporate tax, corporate inhabitant tax and enterprise tax (collectively “corporate taxes”). A foreign company that establishes a registered branch office in Japan is subject to corporation taxes only for the income generated in Japan by that branch office.

The effective tax rate for a business vehicle including local tax is 29.97% for the business year ending March 31, 2018, and 29.74% for the business year ending March 31, 2019 and the business year ending March 31, 2020.

(2) Consumption TaxConsumption tax is a type of value added tax (VAT). The consumption tax rate is generally 8% on services provided in Japan and sales of goods in Japan by a business vehicle. It is expected the consumption tax rate will be raised to 10% from October 2019.

(3) Tax on DividendsForeign corporate shareholders without a per-manent establishment in Japan are only subject to withholding tax. The basic withholding tax rate is approximately 20%.

Foreign corporate shareholders with a per-manent establishment in Japan are subject to withholding tax and must file a tax return. The withholding tax rate can be reduced or


are obligated to use their best efforts to avoid redundancy. Court precedents have found that redundancy is an abuse of termination rights in most cases where a company implemented redundancy without trying to take other meas-ures such as transferring employees within the company or to other group companies or offer-ing severance packages to encourage employees to retire voluntarily.

(4) Working VisasUnder the Immigration Control and Refugee Recognition Act, foreign employees must obtain visas allowing them to work in Japan during their stay (working visa). There are various types of employees for whom working visas are granted. One of those is “employees dispatched from foreign parent company or affiliated company etc. for a specified period.”


Yes. The FEFTA requires a non-resident that acquires real property or rights concerning real property from a resident to file a post-in-vestment report of that capital transaction with the Ministry of Finance, through the Bank of Japan, within 20 days from the acquisition. There is an exception if a non-resident makes that acquisition:

(i) for his or her own residential use or the residential use of his or her relatives or employees;

(ii) for his or her use for the purpose of engag-ing in non-profit business in Japan; or

(iii) for his or her own use as an office.


As described in Q3, foreign investments requir-ing pre-investment notice might be blocked in certain circumstances.

According to court precedents, if an employee is terminated based on any of the following grounds, it could be considered a dismissal based on objectively reasonable grounds:

(i) the employee was unable to perform his or her duties adequately, lacked the requisite ability or competence due to a physical or mental disability, or performed extremely poorly;

(ii) the employee engaged in misconduct in material breach of disciplinary provisions of employment rules;

(iii) termination is necessary due to economic conditions (seiri kaiko); or

(iv) termination was requested based on a union shop agreement with a labor union.

(3) Termination due to Redundancy (Seiri Kaiko)Termination due to redundancy (seiri kaiko) means termination of employment in order to downsize workforce due to economic condi-tions. Unlike unilateral termination in other circumstances, termination due to redundancy is conducted for reasons attributable to the employer, so the validity is strictly examined. Court precedents have developed four factors that must be considered when examining the validity of termination due to redundancy:

(i) there must be a strong need to reduce the workforce;

(ii) the employer must use its best efforts to avoid termination by seeking other alter-native measures;

(iii) the employees to be dismissed must be selected using a reasonable and fair standard; and

(iv) termination procedures must be reasona-ble and proper.

As to the above criterion in (i), court precedents suggest that redundancy must be conducted based on sufficient managerial necessity due to financial difficulties or similar factors. In rela-tion to the criterion in (ii), employers in Japan


capital transactions that require post-invest-ment reports.

In addition, any receipt of a payment by a non-resident made from Japan to a foreign state or any payment made from a foreign state to Japan must be reported to the Minister of Finance if the amount exceeds JPY 30 million.


There are no approval requirements or potential penalties with respect to the withdrawal of an investment by a foreign investor. A foreign investor only needs to make a report if it filed a pre-investment notice upon the acquisition and it is to dispose of the shares pertaining to that notice.


(1) Litigation in Japanese courts

Court System and Rules of Procedure

There are basically three levels of courts in Japan: (i) district courts, (ii) high courts and (iii) the Supreme Court. Parties that have an objection to a judgment made by a district court may appeal to a high court, and parties that have an objection to a judgment made by a high court may appeal to the Supreme Court. The Supreme Court can hear cases based on grounds of (a) a violation of the Constitution, (b) serious procedural breaches by lower courts, and (c) important issues concerning the con-struction of laws.

According to a survey report published by the Supreme Court of Japan, the average length of civil cases in courts of first instance was 9.2 months in 2014 and more than 90% of the civil cases in courts of first instances were completed within two years. However, the duration of litigation depends on factors such

The first case where the Minister of Finance and the Minister of Economy, Trade and Industry blocked a foreign investment was in 2008. A foreign investment fund filed a pre-invest-ment notice to acquire 20% of the outstanding shares of an electric power company. The MOF and the METI recommended that investment be discontinued because it was likely to disturb the maintenance of public order. The fund refused to accept the recommendation and submitted a letter of explanation. The MOF and the METI reviewed the letter and issued a stop order determining that the letter did not affect the judgement on the likelihood of the distur-bance of the maintenance of public order. The fund decided to discontinue the investment.

In addition to that case, the bids for the acqui-sition of Toshiba’s memory chip business are currently in place. It was reported that the METI might recommend or issue an order to modify or stop that planned acquisition of the business by foreign investors. The Minister of Economy, Trade and Industry, mentioned that he will scrutinize the investment from the viewpoint of national security if he receives a pre-investment notice on the acquisition of that business.


The FEFTA defines several types of transactions that are typically accompanied by international funds transfers referred to as “capital trans-actions,” such as loan transactions between residents and non-residents and acquisitions of securities by residents from non-residents. Basically, there are no requirements on capital transactions, but it is necessary to obtain gov-ernmental approval if a capital transaction is likely to disturb the Japanese government from fulfilling its international obligations under treaties or to have an adverse effect on Japan’s international balance of trade, the Japanese yen exchange rate, or any financial or capital market in Japan. There are also a few types of


those conventions are enforceable in Japanese courts. Conversely, the enforcement of arbitral awards made in Japan is guaranteed in those foreign treaty countries.

Foreign investors can avoid the language issues in litigation proceedings in Japan mentioned above by using arbitration proceedings. Arbitration at the JCAA can be conducted in English if the parties agree. Also, a for-eign lawyer practicing outside of Japan may represent a party to the proceedings of an international arbitration case in regard to civil affairs where the place of arbitration is located in Japan and all or part of the parties have domiciles or principal places of business in a foreign country.


Japan has signed several bilateral investment treaties with Asia-Pacific countries including China, South Korea, Hong Kong, Vietnam, Cambodia and Myanmar.

These treaties have similar provisions such as the following.

(i) Most-Favored-Nation Treatment: The Japanese government promises to give treatment that is not less advantageous than the treatment given to investors from any other country.

(ii) National Treatment: The Japanese govern-ment promises to give treatment that is not less advantageous than the treatment given to business entities in Japan.

(iii) Prohibition of Performance Requirements: The Japanese government will not require the performance of certain activities by investors as a condition on investing in Japan.

(iv) Fair and Equitable Treatment: The Japanese government owes several obligations to

as the complexity of the case and practically speaking, it is not uncommon for a civil case to take 18 months or more.

In Japanese court proceedings, the parties are required to use the Japanese language, and all evidence in a foreign language should be accompanied by a Japanese translation. Court cost such as filing fees, travel expenses and daily allowances for witnesses are borne by the losing party. However, attorney’s fees are not included in “court costs” in that sense.

Foreign investors may avail themselves of the Japanese court system by filing a lawsuit. However, if a plaintiff does not have a business office in Japan and the court receives a petition from the defendant, the court will make an order to the effect that the plaintiff is required to provide security for court costs (Article 75 of the Code of Civil Procedure).

Enforceability of Foreign Judgments

Foreign judgments are enforceable in Japan after their legality and conclusiveness have been reviewed by a Japanese court. For a foreign judgment to be enforceable in Japan, it needs to be a final judgment where the enforcement of that judgment would not violate Japanese laws or be contrary to public order or good morals. It is also necessary that the courts in the country in which that judgment was given would treat a Japanese judgment reciprocally by enforcing a judgment rendered in Japan by applying requirements similar to those of Japan.

(2) Arbitration

Although arbitration is not that common in Japan, Japan has an arbitration institution called the Japan Commercial Arbitration Association (JCAA). Arbitration awards granted both within and outside of Japan have the same effect as final and conclusive Japanese court judgments. Also, as Japan has signed and ratified the 1927 Geneva Convention and the 1958 New York Convention, arbitral awards rendered in countries that are signatories to


(iii) measures to restore the reputation of the rights holder; and

(iv) destruction of articles or facilities related to infringement.

Criminal penalties might also be imposed.

(2) Protection of copyrightsCopyrights arise automatically and no registra-tion is necessary under the Copyright Act. If a copyright is infringed, the remedies available under relevant laws are as follows:

(i) injunctions;

(ii) damage compensation;

in addition, if a moral right of the copyright owner is infringed,

(iii) the following measures to restore the rep-utation of the rights holder:

(a) inclusion of the copyright owner’s name on the infringing work;

(b) announcement measures to correct the infringing work; and

(c) apology announcement.


(3) Protection of trade secretsIn addition to the above intellectual prop-erty rights, trade secrets that meets certain requirements are protected under the Unfair Competition Prevention Act. Types of trade secrets include any production method, sales system, or other useful technical information or operation information related to a business activity. The remedies available under the Unfair Competition Prevention Act are as follows:

(i) injunctions;

(ii) damage compensation; and

(iii) measures to restore the reputation of the rights holder.


protect investors, including the obligation to pay careful attention to the protection of investors, guarantee of due process, prohibition of arbitrary measures.

(v) Investor-State Dispute Sett lement: Investors may appeal for arbitration to the ICSID and UNCITRAL to claim damages due to a default by the Japanese govern-ment on an investment treaty.

In addition to these bilateral investment treaties, Japan has signed, bilaterally or mul-tilaterally, with several Asia-Pacific countries Economic Partnership Agreements (EPAs) and Free Trade Agreements (FTAs) that have investor protection provisions, such as the Trans-Pacific Strategic Economic Partnership Agreement.

Japan is also currently involved in negotiations on several other multilateral EPAs and FTAs. Those include the Regional Comprehensive Economic Partnership Agreement between the 10 ASEAN countries, Japan, South Korea, Australia, New Zealand and China, the Free Trade Area of the Asia-Pacific between the 21 countries and territories comprising APEC, and a tri-partite agreement between China, South Korea and Japan.


The following intellectual property rights protections are available in Japan to owners of intellectual property rights, irrespective of the nationality of the owners.

(1) Protection of patents, trademarks and design rightsPatents, trademarks and design rights are protected upon registration. When those rights are infringed, the remedies available under relevant laws are as follows:

(i) injunctions;

(ii) damage compensation;


of Japan as an Asian Business Center, as mentioned in Q8. The Cabinet Office holds jurisdiction over the Act on Comprehensive Special Zone as mentioned in Q9. Those are examples of institutions that potential foreign investors can turn to for more information.


As of the time of writing, a bill for partial revision of the FEFTA is being submitted to the Diet for approval. Under the new FEFTA, regulations on foreign investment will be strengthened as follows.

(1) Specified acquisition

The revision introduces a new term “specified acquisition”, which means the acquisition of shares of a non-listed company by a foreign investors from another foreign investor.

The transfer of non-listed shares between foreign investors is not currently regulated because “inward direct investment” does not include such transactions. Under the new FEFTA, however, foreign investors who conduct specified acquisition must file a pre-acquisition notice with the Minister of Finance and the minister with jurisdiction over the business of the target company if the specified acquisition might be the one that holds significant risks of harming national security (the “specified acquisition harming national security”). Same as the inward direct investment requiring pre-investment notice, the ministers have authority to recommend or issue an order to modify or block a specified acquisition if they determine through a review that the specified acquisition is the specified acquisition harming national security.

(2) Order for actionUnder the current FEFTA, the content of a recommendation or an order to be issued by the relevant minister against a violation of


Lawyers usually check to confirm compliance with the Soil Contamination Countermeasures Act during legal due diligence for M&A trans-actions when they find the target company’s business might cause soil contamination. Under that Act, prefectural governors are required to designate areas that are found not to conform with statutory environmental standards as Areas Which Require Action. If a real estate is designated as such an area, the relevant prefectural governor will instruct the owner, manager or occupier of that area to remove pollution to the extent necessary to prevent harm to human health, which some-times results in significant expense.

Although soil contamination is one of the most common issues highlighted in legal due dili-gence, Japanese environmental laws provide for similar regulations regarding matters such as air pollution, water pollution, noise, vibrations, and offensive odors. A foreign investor needs to carefully check that the target company is in compliance with those laws if the target company engages in activities that might cause environmental problems.


The Japan External Trade Organization (“JETRO” https://www.jetro.go.jp/en/) is a government related organization that promotes mutual trade and investment between Japan and the rest of the world. JETRO takes various measures to encourage foreign investment in Japan. The Ministry of Finance and the Bank of Japan hold jurisdiction over the FEFTA. METI holds jurisdiction over the Act for Promotion

About the Authors:Masanori Tsujikawa

Partner, STW & Partners


Yutaka Adachi

Senior Associate, STW & Partners


W: www.stwlaw.jp/en/

A: 6F Hibiya Daibiru Building 1-2-2 Uchisaiwai-cho, Chiyoda-ku Tokyo 100-0011, Japan

T: +81 3 3596 7300

F: +81 3 3596 7330



The Council of Experts Concerning the Japanese Version of the Stewardship Code belonging to the Financial Services Agency adopted the Japanese Stewardship Code on February 26, 2014. The Code provides the principles that are considered to be useful for institutional investors as “responsible inves-tors” to fulfil stewardship responsibilities. The “stewardship responsibilities” refer to “the responsibilities of institutional investors to enhance the medium to long-term investment return for their clients and beneficiaries by improving and fostering the investee compa-nies’ corporate value and sustainable growth through constructive engagement or purpose-ful dialogue”. The Code expects institutional 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.

a regulation on inward direct investment is limited; only recommendations or orders to change the content pertaining to an investment or discontinue an investment is available. The revision, however, establishes a new system that enables relevant ministers to issue orders to take other necessary measures (e.g. orders to sell stock) to foreign investors who have completed inward direct investment that might impair national security or a specified acquisition harming national security but did not comply with the requirements under the FEFTA. Such an order may be issued if, for example, a foreign investor has completed the transaction without filing a pre-investment/acquisition notice, the foreign investor has completed the transaction during waiting period, the foreign investors made false statement when filing the pre-investment/acquisition notice or the foreign investors violated the recommendation or order of modification or discontinuance of the investment or acquisition.

mailto:masanori.tsujikawa%40stwlaw.jp?subject=

mailto:yutaka.adachi%40stwlaw.jp?subject=

http://www.hhrlawyers.com


Number of partners: 11 Number of lawyers: 4

English and Japanese

Languages:

Office Address: 6F Hibiya Daibiru Building, 1-2-2 Uchisaiwai-cho, Chiyoda-ku Tokyo 100-0011, Japan

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.

As a midsize firm, STW & Partners does not have any particular practice group but sets up a team comprising of lawyers with specialized knowledge and experience, which makes it a very unique international firm in Japan. Each lawyer at STW & Partners strives to fully understand the overall picture of each case, combine his or her expertise and experience through consultation with other attorneys, analyze and verify litigation strategies, with an aim to achieving the best possible outcome for clients.

All lawyers at STW & Partners have vast experience in dealing with dispute resolution matters in both domestic and international aspects including matters with relation to the Companies Act (eg shareholder derivative action), intellectual property rights (eg patent infringement litigation), antitrust (eg conspiracy and cartels), intercompany transactions, real estate (eg warranties against defects and rent increase/decrease), insolvency (eg requests for avoidance), labour, tax, and corporate crime.

STW & Partners has wide-ranging experience in advising on various including management decision, corporate governing structures (eg board of directors and board of statutory auditors), officers’ remuneration, stock options, internal governance systems, capital policies (eg capital increase/ decrease and treasury stock), information

- disclosure, insider trading, and shareholders agreements. The firm also handles various aspects of corporate disputes on behalf of companies in many industries including actions seeking directors’ liability, disputes involving controlling rights, and M&A disputes. STW & Partners represents a variety of clients involved in mergers and acquisitions. Regardless of the transaction structure (eg restructuring, business transfer, capital increase through third party allotment including venture financing, acquisition of own shares, share purchase, tender offer, or management buyout), whether the companies involved are listed, or the volume of the transaction, the firm advises on the full range of M&A transactions from friendly acquisitions to hostile takeovers and transactions brought about by insolvency.

STW & Partners has significant experience in handling infringement litigation, trials, and actions for trial decision revocations, and other disputes concerning intellectual property rights such as patents, trademarks, copyrights and unfair competition both in and outside of Japan. The firm’s practice in this area involves negotiating and reviewing license agreements on behalf of its clients across the world. The firm has actively handled various IT-related legal issues including data privacy and disputes.

STW & Partners has significant experience acting on behalf of debtors, creditors, sponsors and other stakeholders in legal insolvency proceedings, including civil rehabilitation, corporate reorganization, bankruptcy, special liquidation, and voluntary liquidation. Various types of business entities including listed companies and SMEs rely on the high level of restructuring and insolvency expertise at the firm. The firm provides comprehensive legal advice to clients facing restructuring or insolvency issues in a timely manner, working closely with lawyers who have detailed knowledge of litigation, M&As, corporate matters, finance, intellectual property, real estate, and labor practice.

STW & Partners handles criminal and administrative procedures and civil cases involving violations of antitrust laws, including actions for compensation for damage and shareholder derivative actions. The firm has close relationships with law firms around the world, which enable the firm to provide the best possible solutions in negotiations with foreign executive agencies, class actions and other civil actions. The firm has assisted a number of clients with antitrust aspects in their commercial transactions and the establishment of compliance structures based on its extensive experience in cases in Japan and other jurisdictions. The firm aims to appropriately resolve cross-border disputes by strengthening relationship with firms in the US and EU and coordinating with Asian firms.

Firm

Main areas of practice:

Litigation / Dispute Resolution:

Intellectual Property / IT:

Antitrust/Competition:

Corporate / M&A:

Restructuring / Insolvency:

Information:



The Macau Special Administrative Region (Macau) is a former dependent territory under Portuguese administration. Like Hong Kong in 1997, Macau became a Special Administrative Region (SAR) of the People’s Republic of China (PRC) on 20 December 1999, under a joint declaration signed between Portugal and the PRC in 1987. The Basic Law of Macau Special Administrative Region stipulates that Macau’s social and economic system shall remain unchanged for 50 years following the hando-ver in 1999 until 2049, based on the Chinese formula of ‘one country, two systems’.

There are few tariffs or restrictions and Macau is free of foreign exchange control on current capital international transactions. Macau SAR runs its own independent public finance system and is self-governed, with the exception of for-eign and defence affairs which are within the responsibility of the central PRC government.

Macau’s legal currency is the pataca (MOP$), which is freely convertible and pegged to the Hong Kong Dollar, which, in turn, is pegged to the USD, being the average exchange rate roughly USD 1.00 = MOP 8.00.

Macau’s economy is heavily dependent on tour-ism (mainly gaming) and light manufacturing (textiles and garments). Information from the Statistics and Census Service (DSEC) showed 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 bil-lion at the end of 2014; besides, stock of inward

FDI in the Financial Sector was MOP$37.935 billion at the end of the same year.


There is no specific investment legislation in place in Macau as no restrictions on foreign investment exist in general.


Certain exceptions notwithstanding, there are no restrictions placed on foreign investment in Macau as there are no special rules governing foreign investment. Both overseas and domestic corporations register under the same set and are subject to the same regulations on business, such as the Macau Commercial Code (Decree-Law 40/99/M).

The law 7/2003 governs the import and export activities from and to the Macau Special Administrative Region, it’s main principle being the freedom of entry, exit and transit of goods in the Region.

There are limited foreign control limits in few areas (education, legal services and newspapers).

Jurisdiction: MacauFirm: Rato, Ling, Lei & Cortés

Advogados Author: Pedro Cortés

Jurisdictional Q&A – Macau 67


To establish a permanent presence in Macau through a local branch, foreign companies must register the establishment of the branch with the Macau Commercial and Moveable Properties Registry (MCMPR). To initiate the establishment of a branch it is necessary to reserve the name(s) of the branch with the MCMPR. Usually, the branch shall have the same name of the overseas company, adding the reference “Macau Branch”. Furthermore, it is necessary to choose a Portuguese or a Chinese name for the branch. To reserve the name and obtain a Certificate of Admissibility of Trade Name, it is necessary to inform the MCMPR of the scope of activity proposed for the branch in Macau. Where trademarks under the name proposed to the branch have been already registered with the Macau Economic Bureau, consent of the holders of such trademarks may be required to use that name to establish the Macau branch.

A foreign company that wishes to establish a branch in Macau must appoint one individual with permanent residence in Macau as repre-sentative of the branch. However, the MCMPR may allow the appointment of a representative, who does not reside permanently in Macau nor is a Macau citizen, but has a professional residence in Macau that could become the registered address of the branch.

The following documents are required to be submitted to the MCMPR to incorporate a branch of a foreign company in Macau:

(a) Certificate stating the name(s) of the branch;

(b) Certified true copy of the Incorporation Act of the foreign company;

(c) Memorandum and Articles of Association of the foreign company issued by the

Registrar of Companies at the country of incorporation – its authenticity must be certified by a Public Notary of the country of incorporation of the overseas company and duly apostilled as per the Convention Abolishing the Requirement of Legalisation for Foreign Public Documents (Hague Convention 1961) or be legalized by a Chinese Consulate;

(d) List of Directors and/or other persons who represent the overseas company certified by a Public Notary of the country of incor-poration of the overseas company and duly apostilled as per the Hague Convention 1961 or legalized by the Chinese Consulate; and

(e) Minutes of a Resolution passed in a General Meeting or Board of Directors in accordance with the laws of the country of incorporation of the overseas company and also certified by a Public Notary of the country of incorporation of the overseas company and duly apostilled as per the Hague Convention 1961 or legalized by the Chinese Consulate – this Resolution shall include the following:

(i) decision to set up the branch in Macau;

(ii) name of the branch;

(iii) scope of activity;

(iv) address of the branch in Macau;

(v) capital allocated to the activity of the branch of the overseas company in Macau;

(vi) appointment of the company repre-sentative(s) for the branch in Macau with full authority to act on its behalf to sign the relevant documents for the incorporation of the branch; and

(vii) signatures of the representative(s) that will bind the branch in any documents/acts to be signed/performed for and on behalf of the branch.


Joint Stock Companies

The other company form often used in Macau is the joint stock company (sociedade anónima). Joint stock companies must have a minimum share capital of MOP$1,000,000 and at least 25 percent (25%) of the registered share capital must be paid up at the time of incorporation of the company.

The capital of a joint stock company must be divided into shares, all of which have the same nominal value, which cannot be lower than MOP$100, represented by share certificates. The shares are, in general, freely transferable. The liability of a shareholder is limited to the value of the shares subscribed.

The MCC requires a minimum of three share-holders to incorporate this type of company. The management of a joint stock company is entrusted to a board of directors. The appoint-ment of a company secretary and a supervisory board or sole supervisor is mandatory for joint stock companies:

(a) that are owned by ten or more shareholders; or

(b) that issue bonds.

Company RegistrationOnce the form or type of business vehicle is decided, an application for the registration of the company must be filled at the MCMPR with the proposed name and the definition of its business object. A company name will not be accepted if it is identical to another existing company. A company may be incorporated with either a Portuguese or Chinese name or both. In addition to the Chinese and Portuguese names, a company can be also incorporated with an English name.

For the incorporation of a company registration with the commercial register, the Incorporation Act and the Articles of Association must be 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,

(f) A declaration on the commencement of operations needs to be filed with the Macau Finance Bureau for tax registration (Industrial Tax, “The Declaration of the Commencement of Activities – Form M/1) before the company or the branch initiates the business activity in Macau.

Companies

Private Limited Companies by Quotas

Private limited companies by quotas are the most popular type of company and the most common option for small and medium sized enterprises. The vast majority of companies incorporated in Macau are of this type. The liability of the shareholders (also called quota holders) of private limited companies by quotas is limited to the value of the quotas held by them.

In principle, private limited companies by quotas (sociedade por quotas) should have a minimum of two quota holders with both hold-ing quotas of at least MOP$1,000 to a maximum of 30 (thirty) quota holders. Note that the MCC also allows for the possibility of a single quota holder, in which case the company will have a different form, i.e., it would be a limited liability company by a sole shareholder. The minimum capital requirement for private limited compa-nies by quotas is MOP$25,000.

The quota holders can be other companies or individuals and there is no legal restriction on the nationality or residence of the quota holders. Under the relevant rules of the MCC, at least one director must be appointed and this person does not need to be a Macau resident. A company secretary may be also appointed, although this is not mandatory.

Inter vivos transfer of quotas is subject to the registration with the MCMPR and must be made in writing with certification of the sig-nature of the parties made by a Macau notary.


of incorporation, object of business, its capital, the identification of the share/quota holders, its shares/quotas, and the directors in charge of the management of the Macau company, etc.

For tax assessment purposes, registration with the Macau Finance Bureau is additionally required. Also, as already mentioned, special industry-specific approval and registration requirements may apply.

The entire process may take up to 20 days to be completed.


In general terms, to comply with the require-ments and the regulatory procedures prescribed by law, registration in the MCMPR and in Macau Finance Bureau is mandatory.

Nevertheless, there are specific sectors that require Government approval such as Finance, Insurance, Banking and Offshore Companies, Gaming (Concessionaries and Promoters), Television and Media or the Concessionaries of Public Services (Electricity, Water and Gas).

Once the form or type of business vehicle is decided, a prior application must be filed with the MCMPR requesting the commercial denomination of the company and, once it has been approved, the shareholders may incor-porate the company, their signatures being certified by a Notary in the incorporation act.


As mentioned, special approval requirements exist for certain industry sectors, such as in finance, insurance, banking, for off-shore companies, gaming (concessionaries and promoters), television and media or for con-cessionaries of public services (electricity, water

the following additional documents must be submitted:

(a) A Certificate of Incorporation to be issued by the Company’s Registry of the country of incorporation of the overseas company, certified by a Public Notary, his capacity being confirmed by means of the Hague Convention 1961 or by a Chinese Consulate;

(b) A resolution passed by the General Meeting or by the Board of Directors comprising the following:

(i) the decision to jointly with other share (quota) holders to incorporate a company in Macau, indicating the type of business to be developed and capital to be subscribed;

(ii) the appointment of the overseas company representative for signing the contract for incorporating the new company in Macau for and on its behalf; and

(iii) the appointment of the overseas company representative entitled to act on its behalf in all dealings of the company to be incorporated, namely, giving the representative powers to attend and pass resolutions for and on behalf of the overseas company at any general meeting of the new company – this document must be certified by Notary Public in the country of incorporation of the overseas company and duly apostilled as per the Hague Convention 1961 or legalized in a Chinese Consulate.

(c) The Declarations of acceptance of office by the directors who will compose the Administration or the Board of Directors of the Macau company.

Upon completion of the registration process, the MCMPR will issue a Commercial Certificate of Incorporation of the Company confirming the type and name of the company, the date



The Mainland and Macao Closer Economic Partnership Arrangement (CEPA) signed in 2003 between People’s Republic of China and the Macau Special Administrative Region is the free trade agreement (FTA) in place in Macau. It has, since its implementation, had ten supplementary agreements covering 3 major economic and trade areas: Trade in Goods, Trade in Services and Trade and Investment Facilitation.

Among others, the referred FTA covers Zero Tariff in Trade in Goods, Rules of Origin, Certificate of Origin, Definition and Related Regulations in the Mainland and Macau.

Recently, Macau and Hong Kong have started negotiations on a FTA. This new arrangement is deemed to cover, inter alia, “commitment to bind tariff at zero, minimizing non-tariff barriers, avoiding imposing trade remedies, customs facilitation procedures, liberalization and facilitation of trade in services, and legal and institutional arrangements.”

Hengqin Island, (located at a distance of 180 meters from Macau) is a special economic zone of the People’s Republic of China and has different incentives for Macau companies and investments.


In Macau, there are income taxes, taxes on certain expenditure goods and services, and 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.

and gas). The media industry is more open than the other industries, which are highly restricted and regulated.


There are no general restrictions on doing busi-ness in place, with the exception of restrictions on those countries or territories upon which the People’s Republic of China have imposed sanctions.


Investment incentives offered to investors, are found in several pieces of legislation, provided that the companies prove that they are involved in the following: promotion of economic diver-sification and added value within the value chain of their activities, contribution to pro-motion of exports to new unrestricted markets or contribution to technical modernization.

The incentives are in the following categories:

(a) Fiscal incentives – full or partial exemption from taxes (profit/corporate, property tax, stamp duty for transfer of properties and other taxes); industrial tax is currently exempted for all companies;

(b) Financial – incentives by government- funded interest subsidies;

(c) Export diversification – subsidies given to companies and trade associations attending trade promotion activities organized by the Macau Trade and Investment Promotion Institute (IPIM).

There are other subsidies in place, such as those for installation and anti-pollution equipment.


which intends to tax the utility value of their fruition expressed in the form of the effective or potential rent.


The employment issue is one of the most important to businesses looking to establish themselves in the Macau market, as it can often be difficult to identify appropriate staff to fill required positions.

Despite the Law 21/2009, dated 27 October 2009 – which is the special law that governs the hiring of non-resident workers – the truth is that the regulations governing the hiring of workers from overseas remain stringent and the processing time for obtaining the required working permits for foreigners is normally quite long.

Recruiting Local Resident Workers The “Labour Relations Law” of Macau – Law 7/2008, dated 5 August 2008 – is a general piece of legislation that applies to all employer-em-ployee relationships established in Macau.

Employment contracts may be fixed, temporary or indefinite contracts, and are not subject to any special form as they may be made orally or in writing. However, fixed-term employment contracts and employment contracts of minors must be made in written form. Also, fixed-term employment contracts can only be concluded to the satisfaction of the temporary needs of the company.

Social Security and InsuranceFor new employees hired by a local entity in Macau, both the Macau Finance Department and the Social Security Fund must be notified within 15 (fifteen) days of commencement of the employment.

The tax system of Macau includes professional tax, complementary tax, industrial tax, as well as real estate tax.

Stamp duty is also levied on certain types of transactions.

Professional TaxProfessional tax is imposed on the income from work, in cash or in kind, of a contractual nature or not, fixed or variable, regardless of origin or location, currency and the stipulated methods for calculation and payment. Income from work constitutes all income earned from rendering work on another’s account or on one’s own account.

The tax rate is progressive and the amount taxa-ble is only the portion in excess of the threshold established and not the entire amount.

Complementary Tax Complementary Income Tax is similar to the corporate profits tax, which may be defined as a percentage taken from the net profit. It has the characteristics of a scheduler tax because it is levied on the revenue earned by the activities carried out in Macau.

Complementary tax is progressive and the amount taxable is only the portion in excess of the threshold and not the entire amount.

According to Law 21/78/M of 9th September, Complementary Income tax is paid on the total income derived from the SAR by all corpora-tions, irrespective of their head office address.

Current Higher Complementary Income tax stands at 12%.

Industrial TaxIndustrial Tax or Business Tax, of which pay-ment has been exempted for some years, may be considered as a kind of business registration charge levied according to the classification of the activity developed by the taxpayers.

Real Estate TaxReal Estate Tax is a tax levied annually on the profits derived from the urban real estate,


(a) Public domain lands – those that, by law are considered as such; and

(b) Private ownership lands – those in which a right of ownership has been definitively constituted by private entities.

According to Macau Land Law, available (res in commercium) lands may be the object of:

(1) Sale;

(2) Concession by Aforamento;

(3) Concession Leasehold; and

(4) Precarious use or occupation.

As far as the annual rent is concerned, it is established in the Concession Leasehold Contract – which is the more common juridical regime – taking into consideration the laws and regulations that establish the rents.

The term for a concession cannot exceed 25 years and, subsequently, may be renewed successively for 10 years, provided that the concessionaire of the land submits a declaration with the Macau Government at least 6 months before the term is up.

The renewal is subject to a payment of a lump sum special contribution, which shall be fixed from time to time by the Macau Government, by reference to the updated rent calculated according to the law which regulates the rent of the land’s lease concession at the time of the renewal.

The Government of Macau is the entity gov-erning the management of the land according to the Basic Law and is represented by the Chief Executive, who is responsible for the concession of lands and any other rights related to the lands.


There are no processes in Macau that can block foreign investment under specific circumstances.

Hiring Non-Resident WorkersIn accordance with the Macau law, non-resi-dents from Mainland China or other countries are not permitted to work in Macau, unless they have first obtained a valid working permit issued by the Macau Government’s competent authorities – commonly called a Blue Card – which allows the entrance and temporary residence of non-residents in Macau for work-ing purposes only.

Hiring of high skilled workersThe granting of a temporary residence permit depends, essentially, on the fulfillment of one condition namely that only investors, invest-ment projects entrepreneurs, person or persons in a management position or qualified holders of academic or technical certificates, may apply for the temporary residence permit; and the observation of one requisite, namely that the skills or duties of the applicant have to be considered of particular interest for the Region.

The decision about the particular interest of the technical skills of applicant is within the competence of the Chief Executive, and has been now delegated to the Secretary for the Economy and Finance.


Foreign investors can acquire real property and land in Macau.

The Basic Law of Macau Article 6, states that the law shall protect the right of private ownership of property; the land and natural resources within Macau are the the property of the State, with the exception of private lands recognized as such according to the laws in force in Macau before the establishment of the Special Administrative Region of Macau.

This being said, according to Macau Land Law, we may consider two main types of lands, considering their juridical regime, as follows:


circumstances or the subject matter of the decision being challenged. Normally, appeals from a final decision of the lower court on the merits of the claim will suspend enforcement of that decision.

The Second Instance Court is an Appeal court of the decisions of the First Instance Court. However, its primary jurisdiction is to decide on matters mainly related with Political Organs.

The Last Instance Court is the final arbiter of appeal, which enforces and is the ultimate bastion of the legality of the system.

Without prejudice to bilateral agreements on the recognition and enforcement of foreign judgments, the Civil Proceedings Code gen-erally provides for expedited proceedings for enforcement of foreign judgments.

MSAR also leaves the door open for the dis-putes to be settled by non-judicial means, such as arbitration, outside the Court system. The option is supported by the large autonomy that parties enjoy in MSAR legal system concerning civil and commercial matters.

The statutes on arbitration oversee a special regime for international commercial arbitra-tion, as regulated by Decree-law 55/98/M, dated 23 November 1998, based on UNCITRAL rules.

Domestic arbitrations are regulated by the Arbitration Law, Decree Law 29/96/M, dated 11 June 1996.

There are specialized bodies for the Judges (Judiciary Council), Public Prosecutors (Council of the Public Prosecutor) and for licensed Lawyers (Macau Lawyers’ Association, a pro-fessional association empowered with public interest functions).


Macau is a free port without any exchange controls affecting the flow of capital.


Except for the contractual remedies available to the parties, there are no restrictions, approval requirements or potential penalties if a foreign investor withdraws their investment in Macau.


General judicial mechanisms are available in Macau, which is a Rule of Law system based on the Civil Law. Disputes in MSAR can be settled with resort either to judicial or to non-judicial means.

The Judicial system of MSAR is composed of three different levels:

(a) First Instance Courts;

(b) Second Instance Court;

(c) Last Instance Court.

The First Instance Court, comprises a special-ized court, the administrative and the Judicial Base Court which, with some exceptions, is the common one for citizens to access justice. All the questions, apart from the administrative field, are submitted there and decided in conformity.

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



There are no special environmental policies and regulations that (potential) foreign investors should be aware of prior or throughout the investment process in Macau.


Macau Trade and Investment Promotion Institute (IPIM) is the governmental body which “aims to assist both local and overseas enterprises to achieve business goals in a competitive market, obtain information, understand the current market trends and grasp business opportunities”. Hence, it is one of the bodies which (potential) foreign investors can turn to for more information on investment in Macau.

Other bodies are Chambers of Commerce, specially the Macau European Chamber of Commerce and the American Chamber of Commerce.


There have not been any recent proposals for reforms or regulatory changes that will impact foreign investment in Macau.


There are no bilateral or multilateral invest-ment protection treaties with Asia-Pacific jurisdictions that are commonly used for investing in Macau.


Intellectual Property is regulated by the IPR of Macau, whereas Authors’ Rights are protected by the Regime on Authors’ Rights.

IPR makes the distinction between commer-cial establishments, trademarks, patents and designs.

According to the IPR, a trademark may consist of words, letters, numerals, sounds, the shape of goods or their packaging, designs or patterns, or colours and any combination of the above.

The Economic Bureau is responsible for the registration of trademarks and the MCMPR for the registration of commercial names.

The remedy for trademark infringement in Macau can be obtained by administrative and judicial measures.

Administrative ProtectionIn Macau, the administrative protection in the field of intellectual property is a relatively strong protection. The Customs Department of Macau is the entity responsible for the enforcement and prevention of the violations of the IP rights.

Judicial ProtectionThe principal measure for remedy of IP rights infringement is judicial protection, which is governed by specific rules in the IPR.

About the Author:Pedro CortésSenior Partner, Rato, Ling, Lei & Cortés Advogados


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A: Avenida da Amizade, 555, Landmark Office Tower, 23rd Floor, Macau SAR

T: +853 2856 2322

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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.

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Viewed as a sound model of socio-political stability and economic prosperity, Mauritius has firmly established itself as a unique invest-ment destination, with good fundamentals for growing wealth. The island has built up a strong financial services sector with an efficient regulatory regime, well-established banking institutions and a stock exchange which is one of the leading exchanges in Africa. The latest OECD report confirms once again that Mauritius is largely compliant with global requirements and that it can be compared to countries such as the UK, US, Singapore and Hong Kong.

The Mauritian legal system is a hybrid system which draws legal principles from both French civil law and British common law traditions; its procedures are largely derived from the English system, while its substance is based in the Napoleon Code of 1804. Commercial and contractual law is also based on the Civil Code. The Supreme Court is the highest judicial authority and the country has maintained the right of appeal against final judgments of the Supreme Court to the judicial committee of the Privy Council of England. Mauritius is a member of the International Court of Justice.

Mauritius is also known as an International Arbitration Centre for the region. It embraced this new model of dispute settlement as it offers a tailor-made option for investors which cater for a cheaper and fast out-of-court alternative to settle commercial disputes which would

safeguard confidentiality. The International Arbitration Act offers a simple and ready-made mechanism for the incorporation of arbitration clauses in the constitution of Global Business companies based in Mauritius. In addition, investors can also have the additional comfort of the availability of a pool of international arbitrators for settling disputes. Arbitration is preferred across sectors for the f lexible approach over the rigidity of courts.

Mauritius combines the traditional advantages of being an offshore financial centre (no capital gains tax, no withholding tax, no capital duty on issued capital, confidentiality of company information, exchange liberalisation and free repatriation of profits and capital) with the distinct advantages of being a treaty based jurisdiction with a substantial network of double taxation avoidance treaties and invest-ment promotion and protection agreements. The combination of fiscal and non-fiscal advantages together with the diverse prod-uct-base have been the key ingredients of the Mauritius success story. Although Mauritius is better known as a gateway for the structuring of investments into India and increasingly Africa, it has also grown to become a leading jurisdic-tion for private client services in the region. To date, Mauritius has concluded 45 tax treaties.

Other factors making Mauritius an ideal investment hub are its strategic geographical location in the Indian Ocean and favourable time zone (GMT+4), its large multilingual pool of highly capable and skilled workforce, the state-of-the-art infrastructure with high

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Jurisdictional Q&A – Mauritius 77

internet connectivity and modern port and airport facilities.

The key growth sectors in 2016 were real estate activities; financial and insurance activities; manufacturing and wholesale & retail trade; and accommodation and food service activities; information and communication technology. According to the data release report of the Bank of Mauritius for 2016, Foreign Direct Investment (FDI) inflows to the tune of MUR 13.6 bn have been recorded for the four quarters of 2016 as compared to MUR 9.7 bn in 2015. Real estate and financial services remain the most attractive sectors which were the main recipients of FDI. Real Estate activities recorded FDI to the tune of MUR 9.9 bn of which IRS/RES/IHS accounted for MUR 7.9 bn. Direct investment flows of MUR 2.1 bn were recorded in the financial services sector while the man-ufacturing sector registered MUR 511 million.


The following foreign investment legislations are in place in Mauritius:

The Investment Promotion Act of 2000 sets out the legal framework and makes provision for the promotion and facilitation of investment in Mauritius including the establishment of the Board of Investment.

The Business Facilitation (Miscellaneous Provisions) Act 2017 provides for amendments to the legislative framework that are necessary for the removal of constraints in relation to permits, licences, authorisations and clearances to further facilitate the doing of business, and for related matters.

The Companies Act of 2001 sets out the legal framework for the setting up and operation of companies in Mauritius.

The Business Registration Act 2002 provides for the registration of persons carrying on

business in Mauritius, registration of business names, allocation of a single business registra-tion number and issue of a business registration card.


In general there are no restrictions on foreign investment in Mauritius, except for foreign ownership in Mauritian sugar companies listed on the stock exchange. Not more than 15% of the voting capital of a sugar company can be held by a foreign investor without written con-sent from the Financial Services Commission.

Investments made by foreign investors in immovable property (whether freehold or leasehold), or in a company holding freehold or leasehold immovable property in Mauritius, require approval from the Prime Minister’s Office under the Non-Citizens (Property Restriction) Act 1975.


There are various vehicles used to structure a business including:

(a) Companies;

(b) Societés (derived from French law) often described in Mauritius as civil or

(c) commercial partnerships;

(d) Limited partnerships;

(e) Limited Liability Partnership;

(f) Trusts; and

(g) Foundations.

CompaniesCompanies can be incorporated or registered under the Companies Act 2001 and can be


liable only up to the maximum amount of its commitment.

A limited partnership can elect to have a separate legal personality. Irrespective of whether a limited partnership has elected legal personality, the partners are still liable for the partnership’s debts (general partners have unlimited liability whereas limited partners are liable to the extent of their contribution or other agreement). A limited partnership can be incorporated within 3 working days.

Limited Liability Partnership Limited liability partnership (LLP) intro-duced by the Limited Liability Partnerships Act is the new type of partnership vehicle. It combines features of both a company and a limited partnership. It can be used for offering professional or consultancy services and also legal services through the holding of a Global Legal Advisory Services Licence issued by the Financial Services Commission.

An LLP can be set up by two or more partners. The LLP Act also provides for the conversion of an existing entity or unincorporated body to an LLP and the re-domiciliation of foreign LLPs or Mauritian LLPs to and from Mauritius.

There are no restrictions on the residency of the partners and a partner can be an individual, an entity or an unincorporated body.

The LLP is required to appoint a manager resi-dent in Mauritius at all times which should be a local management company if the LLP holds a Category 1 Global Business Licence or a person qualified as a secretary if such is not the case.

The LLP should be registered with the Registrar of LLP. A partnership agreement should be put in place by the partners which will provide for the governance of the LLP and the rights and duties of the partners. The LLP can hold a Category 1 Global Business Licence if it would conduct a major part of its business outside Mauritius. In such case, the LLP Act provides for public records of the LLP not to be available

either private or public. A private company is limited to 25 shareholders and cannot offer shares to the public. Companies can have a limited or unlimited life.

Companies can be:

(a) Limited by shares. The liability of its members is limited to any amount unpaid on the shares held by the shareholder.

(b) Limited by guarantee. The liability of its members is limited to the amount that the members undertake to contribute to the assets of the company in the event of it being wound up.

(c) Limited by shares and by guarantee.

(d) Unlimited. Where there is no limit on the liability of its shareholders.

A company is the most common form of busi-ness vehicle for structuring funds in Mauritius.

The majority of Mauritius-established entities are set up as companies and regulators are familiar with the structure of a company as a business vehicle. A company can be incorpo-rated within 3 working days.

SociétésSociétés are set up under the Civil Code or Commercial Code. The participants’ interests are referred to as “parts sociales”. Sociétés are fiscally transparent and the liability of the “limited partners” can be limited. A société commerciale must be registered with the Registrar of Companies.

The disadvantage of sociétés are that they are based on a form of French partnership law and French legal concepts and terminology are not understood by all investors.

Limited partnershipsA limited partnership is set up under the Limited Partnerships Act 2011. A limited partnership can elect to have legal personality and must have at least one general partner who is liable for all the debts and obligations of the partnership, and one limited partner who is


for inspection, and its audited financial state-ments to be filed with the FSC.

TrustsTrusts are formed under the Trusts Act 2001. They can be created either as a “purpose” or “beneficiaries” trust. Participants are issued with units in the trust. Trusts are easy to set up because a trust does not require any

registration, incorporation or corporate filings. However, the lack of formality and reporting requirements make a trust less transparent than a company. In addition, trusts do not have corporate personality and trustees are subject to fiduciary duties. A trust can be set up within 1 working day.

Foundations

Jason acts for public and private compa-nies, 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 Smith in their corporate insolvency and restructuring divisions. He is qualified as a Barrister both in England and Wales and the Republic of Mauritius.

The Chambers Global Guide describes Jason as someone who “blends accounting knowl-edge with an in-depth knowledge of private international law” and client feedback in the Chambers Global Guide describes him as “extremely responsive, applying a western work ethic and with world class experience.”

Jason HarelCo-Founding Partner, BLC Robert & Associates

Jason Harel is a co-founding partner of BLC Robert and boasts substantial experience in corporate M&A, workout transactions as well as taxation. He gener-ally practises in the areas of corporate and commercial law, mergers and acquisitions, corporate insolvency, real estate, tax but also advises on litigation matters.

Consistently identified as a ‘leading prac-titioner’ in his field by legal directories,

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requires the authorisation of the Prime Minister’s Office (PMO).

A written application must be made to the PMO, detailing the precise location of the property, a site plan showing its extent, the nature of the interest intended to be purchased or otherwise acquired or held, and the reasons for which the application is made. The PMO may, at its entire discretion, request such other information it may require.

It may take 3 to 6 months to obtain approval of the PMO. A certificate of authorisation, setting out any particular conditions that must be respected by the applicant, is issued where the PMO authorises the application.


There are no restricted sectors as such in Mauritius. However, the banking, non-bank-ing financial services sector, the ICT sector, Freeport activities and tourism activities are heavily regulated. Licences are required prior to start of operation and the following regulatory bodies are in place to supervise the activities:

a) The Bank of Mauritius for banking services;

b) The Financial Services Commission (FSC) for the non-bank financial services sector;

c) The ICTA for the ICT sector and Postal Services in Mauritius;

d) The Board of Investment for Freeport; and.

e) The Tourism Authority for the overall operations of tourist enterprises.

f) Investment is more open and encouraged in the following sectors: Ocean Economy

Renewable Energ y, Smart Cit ies , Education, Healthcare, Life Sciences, Water Management, Fishing, Seafood Processing and Aquaculture, Hospitality and Property Development, Film Industry, Agro-Industry, Manufacturing and Logistics.

A foundation is set up under the Foundations Act 2012. A foundation can be set up for any purpose specified in its charter provided its objects are not contrary to the laws of Mauritius. Purposes can be charitable, non-charitable or both and for the benefit of a person or a class of persons to carry out a specified purpose, or both. A foundation can be incorporated within 3 working days.

Global Business LicenceMauritius offers two types of Global Business Licence:

a) Category 1 Global Business Licence (GBL 1).

b) Category 2 Global Business Licence (GBL 2).

Any corporation, whether company, trust, société, limited partnership, limited laiblility partnership or foundation can apply for a GBL 1. A GBL 1 entity is resident for tax purposes and so can take advantage of double tax treaties with countries that have them with Mauritius. The main characteristic of a GBL 1 is that it must be managed and controlled from Mauritius. A GBL 1 can be incorporated within 3 working days.

A private company can also be licensed as a GBL 2. A GBL 2 is not considered resident for Mauritius tax and is therefore not liable to tax in the country.

A GBL 2 does not benefit from double tax treaties. There are also certain restrictions on the activities permitted by a GBL 2 under the Financial Services Act 2007 A GBL 2 can be incorporated within 5 working days.


Investments made by foreign investors in immovable property (whether freehold or leasehold) or in a company holding freehold or leasehold immovable property in Mauritius


goods destined for re-export and provides an ideal place for warehousing, processing and distribution of goods.

To operate in the Freeport zones, a company must be registered under the Companies Act 2001 (CA2001). A foreign company registered under CA2001 can also apply for a Freeport certificate. There is no minimum capital for foreigners wishing to invest in a Freeport company. In order to set up a company in the Mauritius Freeport, application for a Freeport certificate should be made to the Board of Investment (BOI), Freeport Unit, by a private Freeport developer or Freeport operator. An annual fee of MUR 20,000 must be paid by the Freeport Operator at time of issue of Freeport certificate to BOI. An annual fee of MUR 200, 000 applies in case of Freeport developer.

The government of Mauritius is still in the process of establishing special economic zones that will help expand investment opportunities between the countries in the African region.

There are several industrial zones around the island that cater for manufacturing industries mainly with all the necessary amenities and infrastructure in place.


Personal Income TaxIncome is taxable when either:

(a) It was earned in Mauritius (whether the employee was resident in Mauritius or elsewhere).

(b) It was earned at a time when the employee was resident in Mauritius (whether earned in Mauritius or elsewhere).


There are no restrictions on doing business with certain countries or jurisdictions, except for countries banned by UN sanctions.

However, there are product-specific restrictions on imports from certain countries.


Investment incentives are applied uniformly to both domestic and foreign investors. Mauritius is a low tax jurisdiction and offers a number of other fiscal incentives such as:

a) Flat corporate and income tax rate of 15%.

b) 100% foreign ownership is permitted in certain circumstances.

c) No minimum foreign capital is required.

d) No tax on dividends.

e) No capital gains tax.

f) Free repatriation of profits, dividends and capital.

g) Accelerated depreciation on the acquisition of plant, machinery and equipment.

h) Exemption from customs duty on equipment.

i) Direct cash incentives for employers involved in recruiting and training.

j) Enhanced investment tax credit for invest-ments in the textile sector.

k) Extensive network of double tax avoidance treaties.


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


Withholding TaxDividends – there is no withholding tax on dividends

Interest – A 15% withholding tax generally applies to interest paid by any person, other than a bank or non-bank deposit-taking institution, to any person other than a com-pany resident in Mauritius, unless specifically exempted.

Royalties – The general rate of withholding tax on royalties paid to non-residents is 15 %, although specified non-residents are exempted. A 10% withholding tax generally applies to royalties paid to residents.

Value Added Tax (VAT)VAT applies to goods and services. It is charge-able on taxable supplies of goods and services made in Mauritius by taxable persons in the course any business. VAT is also payable on importation of goods into Mauritius, irrespec-tive of whether the importer is taxable or not. The rate of VAT is 15% on a taxable supply or 0% on a zero-rated supply. Goods and services which are exported and certain goods and services which are supplied on the local market are zero rated supplies.

Social Security PaymentEmployees’ contributions are set out in the National Pensions Act 1976 and the National Savings Fund Act 1995 as follows:

(a) National pensions fund: 3%.

(b) National savings fund: 1%.

Contributions to the funds must be calculated on the employee’s basic wage (not exceeding MUR16,655 a month).

From 2016, employees must file an annual tax return by 30 September for the employment period 1 July to 30 June.

EmployersEmployers’ contributions are set out in the National Pensions Act 1976 and the National Savings Fund Act 1995 as follows:

Employees are subject to monthly tax under the pay-as-you-earn (PAYE) scheme at the flat rate of 15%. An employee whose emoluments do not exceed MUR23,078 a month is exempt from PAYE. A tax resident employee is entitled to an income exemption threshold, which is deducted from income to arrive at the charge-able amount (if any).

Corporate Taxation

Tax resident business

Income derived from Mauritius or elsewhere by business vehicles resident in Mauritius are subject to tax in Mauritius, subject to certain exceptions.

Non-tax resident business

Income derived from Mauritius by business vehicles that are not resident in Mauritius will be taxed in Mauritius, subject to the business vehicle qualifying for relief under a double tax treaty between Mauritius and the country where the business vehicle is resident.

A GBL 1 company is taxed at a flat corporate rate of 15% on business profits, although for-eign tax credits will be allowed to the full extent on the Mauritius tax for taxes paid at source (where this can be evidenced). Alternatively, a system of foreign tax credits of 80% effectively reduces the income tax rate to 3% on the qual-ifying income of the company. The tax payable in Mauritius can be less than 3% (and can be reduced to nil), where the actual foreign taxes are more than 12%.

A GBL 2 company is not resident in Mauritius for the purposes of qualifying for relief under a double tax treaty except for exchange of information purposes, if the treaty provides for it. It cannot benefit from relief under the networks of Double Tax Avoidance Agreements (DTAAs) to which Mauritius is a party. A GBL 1 company is a resident in Mauritius for tax purposes, but a GBL 2 company is an exempt body and is therefore not liable to pay tax in Mauritius.



The main piece of legislation governing employ-ment law in Mauritius is the Employment

(a) National pensions fund: 6%.

(b) National savings fund: 2.5%.

(c) Monthly training levy of 1.5% of basic wage of every employee.

Employers must file a return with details of employees by 15 August.

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 and other large players in the local indus-try. Fayaz has also advised on cross border employment matters, offshore companies employing staffs in Mauritius and advises on all aspects of employment laws to our foreign clients in Mergers and Acquisitions transactions.

Fayaz joined BLC Robert as a pupil under Mr. Iqbal Rajahbalee, Senior Counsel, and was thereafter admitted to the Bar of Mauritius in January 2010. Fayaz read law at the University of Manchester (United Kingdom) and was called to the Bar of England and Wales at the Honourable Society of Lincoln Inns.

Fayaz Hajee Abdoula Senior Associate, BLC Robert & Associates

Fayaz Hajee Abdoula is a Senior Associate at BLC Robert with Mergers and Acquisitions, Company Law and Employment Law as his area of expertise.

Since joining BLC Robert in 2009, he has obtained a wide range of experience in Mergers and Acquisitions transactions. Fayaz has advised on some major transac-tions which would include but not limited to, representing a financial conglomerate in the potential purchase of a Mauritius real estate fund; a purchase bid in respect

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Rights Act 2008 which covers: employment contracts; minimum age for employment; hours of work; remuneration; and other basic terms and conditions of employment.

Other legislation includes:

(a) the Employment Relations Act 2008 which governs trade unions, fundamental rights of workers and employers, collective bar-gaining, dispute resolution and related matters;

(b) the Sex Discrimination Act 2002 which prohibits discrimination on the ground of sex in various circumstances;

(c) the Investment Promotion Act 2000 which provides for the issue of occupation permits to foreign professionals;

(d) Remuneration Orders issued by the Ministry of Labour, Industrial Relations and Employment. Sets out the additional rules of employment in industries operating with specific needs;

(e) the Additional Remuneration Act 2016 which is amended annually and provides for payment of additional remuneration to employees of the private sector to com-pensate for the rise in the cost of living/inflation;

(f) the Private Pensions Schemes Act 2012 which provides a regulatory framework for the operation of private pensions in Mauritius;

(g) the End of Year Gratuity Act 2001 which provides for payment of an end of year gratuity to employees of the private sector;

(h) the Non-citizens (Employment Restriction) Act 1975 which provides work permits for expatriates;

(i) the Occupational Safety and Health Act 2005 which governs safety, health and welfare of employees at work; and

(j) the Recruitment of Workers Act 1993 which governs private recruitment agencies.

An application for occupation permit can be made by foreign professionals or investors. An occupation permit is a combined work and res-idence permit that allows a foreign professional to reside and work in Mauritius. Applications for an occupation permit can be submitted in any the following three categories:

Investor

The business activity should generate a turno-ver exceeding MUR 4 million annually with an initial investment of USD 100,000 per investor or its equivalent in freely convertible foreign currency.

In case there is more than one investor, the turnover criteria should apply in respect of each applicant (i.e. MUR 8 million for two applicants, MUR 12 million for three appli-cants, and so on);

Professional

Basic salary should exceed MUR 60,000 monthly. However, the basic salary for the category of Professional in the ICT Sector should exceed MUR 30, 000 per month. For all applications submitted prior to 31 October 2015, the salary threshold of MUR 45,000 still applies;

Self Employed

Income from the business activity should exceed MUR 600,000 annually for the first two years of activity with an initial investment of USD 35,000 or its equivalent in freely converti-ble foreign currency. The annual income for the third year must exceed MUR 1,200,000.

The process takes approximately ten working days. When approved, the foreign professional is registered with the Board of Investment and the Passport and Immigration Office issues the occupation permit.


Javed Niamut is a barrister at BLC Robert and is mainly involved in corporate, tax and employment law matters.

Since joining BLC Robert in March 2012, he has acted for various international clients on corporate restructurings, joint ventures and mergers and acquisitions. He has recently acted for one of the most established independent private equity firms in Asia in connection with the acquisition of a leading provider of company formations, trust, corporate and fund administration services. He has also

Javed Niamut Associate, BLC Robert & Associates

advised a subsidiary of the World’s largest paper company by volume in corporate law matters.

He is well versed in domestic and inter-national 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 work permits, issues of recruitment and termination and the implementation and structuring of employee share ownership schemes and options plans. He has recently advised one of the top ten largest phar-maceutical companies in the world on the restructuring of its workforce in Mauritius.

Javed read law at Oxford Brookes University and completed the Bar Vocational Course at the University of the West of England. He was called to the Bar of England & Wales in 2011 at the Honourable society of the Middle Temple. He is also a member of the Bar Association in Mauritius since January 2013.


The holding of interests in real property (whether freehold or leasehold) by foreign entities requires the authorisation of the Prime Minister’s Office (PMO).

Certain statutory exceptions to the requirement of obtaining the authorisation of the PMO include:

(a) Holding immovable property for commer-cial purposes under a lease agreement not exceeding 20 years; and/or

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Mauritius has signed Investment Promotion and Protection Agreements with the following Asia Pacific countries: China, India, Indonesia, Pakistan, Republic of Korea and Singapore.


Intellectual property is protected under two branches – industrial property and copyright.

The Industrial Property Office’s (IPO) responsi-bilities include handling and administration of

applications for the protection of patents, indus-trial designs and trademarks. Applications are made using prescribed forms and paying statutory fees. The duration of protection for: (a) patents is 20 years; (b) industrial designs is 5 years; and (c) trademarks is 10 years.

An Industrial Property Tribunal (IPT) exists to, inter alia, hear appeals of persons aggrieved by certain IPO decisions and confirm, amend or cancel such decisions. The IPT is also empow-ered to invalidate decisions as to whether patents should have been granted, or industrial designs or trademarks been registered.

The Copyright Act 2014 (CA 2014) provides for effective protection of copyright and related rights. An author who registers his artistic, literary or scientific work with the Rights Management Society (RMS) secures economic rights (reproduction, adaptation, distribution) and moral rights (claiming authorship, object-ing to distortion or alteration) that subsist in the copyright material, and reinforces the claim of authorship by depositing such material with the RMS. The RMS may represent and defend the interests of its members in Mauritius.

(b) Purchasing luxury villas, apartments, penthouses or other similar properties under the Invest Hotel Scheme, Property Development Scheme and Smart City Scheme.


There are no such processes in Mauritius that can block foreign investment.


There is no exchange control in Mauritius. No approval is required for the repatriation of profits, dividends, or capital gains earned by a foreign investor in Mauritius.


There are no such restrictions, approval requirements or potential penalties if a for-eign investor withdraws his investment from Mauritius


Contract enforcement can be done either through the court or through arbitration. Effective mechanisms are in place for arbitra-tion in Mauritius.

Mauritius has entered into numerous Investment Promotion and Protection Agreements (“IPPAs”). IPPAs promote and protect the interests of investors from one country in the territory of the country where the investment is being made.


requirements. BOI acts as the single interface with all investors and liaises with relevant authorities for the granting of work permits, residence permits and other relevant permits required by the investor to operate in Mauritius. www.investmauritius.com

Financial Services Promotion Agency (FSPA) has the mandate to promote Mauritius as a premier financial centre and as a platform for structuring cross border investments in key markets. www.mauritiusifc.mu

Non-governmental bodiesMauritius Chamber of Commerce and Industry (MCCI) is a not-for-profit private sector institution in Mauritius which provides a wide array of services through dedicated resources across the business spectrum such as trade facilitation, economic analysis, trade negotiations, advocacy, advisory services, net-working, arbitration and market intelligence. www.mcci.org

COMESA Regional Investment Agency aims to liberalise and promote trade facilitation in the region.www.comesaria.org

The Mauritius Africa Fund was set up as a public company limited by shares and will encourage domestic enterprises to invest in Africa. www.mauritiusafricafund.com


The Business Facilitation (Miscellaneous Provisions) Act 2017 is introducing the follow-ing key amendments:

Amendments to existing legislations such as the Companies Act, the Local Government Act and the Business Registration Act will be made in order to facilitate the setting-up of a business within less than one working day and registration of businesses and incorporation of companies will be made within two hours.


Prior to undertaking certain development activ-ities in Mauritius, foreign investors are required to carry out a Preliminary Environment Report (PER) or an Environment Impact Assessment (EIA) on such project and obtain a PER approval or EIA licence (as applicable). Projects of a lesser scale and which by their very nature, are not highly polluting require a PER while a full EIA is required where significant adverse environmental impacts will likely result from development of the project. The Environment Protection Act 2002 provides for a list of activ-ities which require a PER or an EIA. A PER or an EIA may be required for any non- listed activity, which, by reason of its nature, scope, scale and sensitive location could have an impact on the environment.

Some of the relevant regulations and guidelines are:

The Environment Protection (Applications for PER Approval and EIA Licence) (Processing Fees) Regulations 2011.

A proponent’s guide to Environmental Impact Assessment (EIA)

A Proponent’s guide to preliminary Environmental Report (PER) (Yvette note this hyperlink too)


Government agenciesThe Board of Investment (BOI) is the gov-ernment agency responsible for promoting investment in Mauritius, and it also helps guide investors through legal and regulatory

http://environment.govmu.org/English/eia/Documents/eia/PROPONENT'S%20EIA%20GUIDELINES.pdf

http://environment.govmu.org/English/eia/Documents/eia/PROPONENT'S%20EIA%20GUIDELINES.pdf

http://environment.govmu.org/English/eia/Documents/eia/propguidePER%20011009.pdf




(IP Box). The preferential tax regime of the IP box will complement the Regulatory Sandbox License.

h) GBC1 will be required to fulfil at least two (currently one) of the six FSC criteria to demonstrate substance.


Doing business in Mauritius is both easy and smooth and complies with best practices in terms of transparency, good governance and ethics. Mauritius is top ranked in Africa and 49th globally in the World Bank’s Ease of Doing Business 2016 Report. In 2016, Mauritius again topped the list of African Countries in the Mo Ibrahim Index of Corporate Governance. The country adopted internationally accepted anti-money laundering and terrorist financing legislations and is listed in the OECD white list of offshore jurisdiction.

Mauritius has the right scheme and framework to position itself as the key Financial Centre, Trading hub and Doing Business Platform. This platform rests on two fundamental pillars namely: a credible and substantive interna-tional financial centre and a good regional logistics platform.

The open and business friendly economy of Mauritius combined with its modern infra-structures makes it an attractive place for investors. A new business can be set up and be operational within 3 working days. The country’s Investment regulations are in line with the WTO’s agreement on Trade Related Investment Measures.

The Investment Promotion Act is being amended to implement a national electronic licensing platform which will provide a single point of entry for application, processing and determination for permits and licenses. This project also includes the setting up of a cen-tralized Electronic Registry of licenses which will hold and provide critical data on licensing requirements.

The following are some of the measures pro-posed on 8 June 2017 during the 2017- 2018 budget speech by the Government of Mauritius:

a) The creation of an Economic Development Board (EDB) integrating BOI, Enterprise Maurit ius, the Financia l Serv ices Promotion Agency and the Mauritius Africa Fund to ensure greater coherence and effectiveness in implementing policies and actions.

b) The EDB will collaborate in the creation of a Regional Fintech Association to create links with other international institutions such as Innovate Finance London and Fintech Circle.

c) An Innovator Occupation Permit will be introduced for innovative start-ups with a minimum operational expenditure of 20% for Research and Development purposes.

d) High tech machines and equipment brought by investors from abroad will be considered as part of the minimum investment of USD 100,000 required to obtain an Occupation Permit.

e) An 8-year income tax holiday on the income derived from the totality of Intellectual Property Assets will be given for new companies involved in innovation-driven activities.

f) 8-year income tax holiday will be given for new companies engaged in the manufac-turing of pharmaceutical products, medical devices and high-tech products.

g) The introduction of an Innovation Box Regime for Intellectual Property assets

About the Authors:Jason Harel, BLC Robert & Associates

Co-Founding Partner


Fayaz Hajee Abdoula

Senior Associate, BLC Robert & Associates


Javed Niamut

Associate, BLC Robert & Associates


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Myanmar is strategically located near the Indian Ocean between China, India and Thailand, and is endowed with many natural resources including natural gas, precious stones and minerals. It has also been growing rapidly since opening up its economy in 2011, with estimated growth in 2016 of around 6.5 per cent (6.5%) and a forecast growth for 2017 of around 6.7 per cent (6.7%). This, together with its large consumer market of over 50 million people, provides significant investment opportunities for foreign investors in a wide range of sectors. In addition, according to its 2014 census, around 55 per cent (55%) of its population is below the age of 30, indicating strong long-term growth prospects for the market.

Foreign investment in Myanmar has grown significantly since 2011. According to the Directorate of Investment and Company Administration (“DICA”), over $15 billion worth of foreign investment has been approved to take place in Myanmar over 2015-16 and 2016-17. The most significant sectors for foreign investment in 2016-17 were telecommunica-tions and manufacturing, with $3 billion and $1.2 billion respectively of approved foreign investment, while foreign investment in oil and gas has been significant historically.


On 18 October 2016, Myanmar passed the Myanmar Investment Law (“MIL”), which replaced the 2012 Foreign Investment Law (“FIL”). Under the MIL, a permit is generally required from the Myanmar Investment Commission (“MIC”), which administers the MIL, for investments in large-scale projects. This includes investments that are strategically important, are capital intensive, may have a large impact on the environment or local community, use state-owned land, and are otherwise designated.

Foreign investors may also obtain an endorse-ment from the MIC to have the right to enter into long-term leases of land or obtain tax incentives as noted in question 8, even where a permit from the MIC is not required. There are also sectoral limitations on foreign investment, as noted in question 6.


Notification No. 15/2017 titled ‘List of 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

Jurisdiction: MyanmarFirm: MHM Yangon Author: Takeshi Mukawa and Ben Swift

http://www.mhmjapan.com

Jurisdictional Q&A – Myanmar 93

ministry or may only be made through a joint venture with a Myanmar company (in which the Myanmar company has at least a 20 per cent (20%) shareholding). The MIL Notification is discussed in more detail in question 6.

By way of background, under the 1914 Myanmar Companies Act (“MCA”), compa-nies incorporated in Myanmar are classified as either a “foreign company” if they have any foreign ownership, or otherwise as a “Myanmar company”. DICA, which administers the MCA, maintains different systems of registration for Myanmar companies and foreign companies (a foreign company’s registration number has “FC” in it). If a company changes its classifi-cation, DICA requires that it apply to amend its registration number. DICA only changed its practice in early 2017 to permit Myanmar com-panies to change their registration to become foreign companies, allowing foreign investors to acquire Myanmar companies.

The Transfer of Immoveable Property Restriction Act 1987 also prohibits the transfer to, or acquisition or lease for more than one year by, foreign companies, of immoveable property. A foreign company with an MIC permit or endorsement and a land rights authorisation may lease immoveable property with an initial term of up to 50 years (with two extensions of ten years each). In addition, as noted in question 21, the draft Myanmar Companies Law (“MCL”) which will replace the MCA is expected to allow Myanmar com-panies to have up to 35 per cent (35%) foreign shareholding while remaining classified as a “Myanmar company”.

The MCL will also abolish the requirement in the MCA for foreign companies to obtain a permit to trade, which in practice has rarely been given to foreign companies intending to engage in trading activities (however, as noted in question 21, the Ministry of Commerce (“MOC”) has been slowly liberalising trading restrictions).

In terms of regional-level restrictions, certain approvals under the MIL will be delegated to regional-level governments. Notification No. 11/2017 titled ‘Prescribing investment capital amount for investment activities for State and Regional Investment Committees to issue endorsement order’, issued by the MIC on 3 March 2017, provides that state and regional investment committees can approve investments worth up to US$5 million. The MIC is currently working with these bodies to improve their capacity to ensure they are able to administer the MIL appropriately, and their capacity to do so remains a key concern in implementation of the MIL.


Common business vehiclesA foreign investment may be structured as either a subsidiary company or a branch under the MCA. As in other jurisdictions, generally the foreign company will be liable for all liabilities incurred by its branch, while it will have limited liability with respect to a Myanmar subsidiary, and as noted in question 10, a branch may be subject to higher taxes than a subsidiary in some cases, such as for some withholding taxes.

Foreign investments into Myanmar are often structured as investments by a company incorporated in jurisdictions like Singapore, which have a double tax treaty with Myanmar (see question 10) or offer investor treaty pro-tections (see question 17), and such a structure also generally makes it easier to obtain finance offshore and was previously administratively easier to exit (see question 5).

Timing for establishmentGenerally, a branch can be registered within one week, provided that the necessary


documents (such as the foreign company’s corporate charter, financial information and other required information) is available and it has paid the registration fee (around US$370) and stamp duty (around US$120).

In order to register a subsidiary, a company must first submit a name check form with the relevant fee to DICA to check the availability of the proposed company name, and then submit its corporate charter, details of its company officers and other required information and pay the registration fee (around US$370). If these documents are provided, the process may take around one month.

It should be noted that for both local subsidi-aries and branches, the minimum investment required for a “services company” is US$50,000, and for other companies, US$150,000. The law does not define when a company is a “services company” and DICA determines this on a case-by-case basis based on the objects clause in the company’s corporate charter. It is not clear whether or how DICA will maintain this distinction under the MCL, which is expected to abolish objects clauses. In addition, a minimum of two shareholders are required to register a company, including a subsidiary

Criteria set out in MIL s.36

Explanation set out in MIR

Strategic importance to Myanmar

(i) Investment of over US$20 million in sectors such as transport, energy, 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 investments

(i) Investment worth over US$100 million

Significant environmental or social impact

(i) Projects requiring an environmental impact analysis under the Environmental Conservation Law, or which are in designated, 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 land or buildings

(i) This does not include land use rights pursuant to a statutory land 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 investments

None prescribed to date


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 transac-tions, 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.

Takeshi MukawaCo-Representative Partner, MHM Yangon

(this requirement is expected to be abolished under the MCL).

In terms of operating in Myanmar, as in other jurisdictions, companies may conduct their business in accordance with their corporate charter, and will generally maintain their registration, provided they comply with the annual filing requirements in the MCA by submitting DICA’s Form E, together with the audited financial reports within 21 days of its annual general meeting. A branch is generally required to file the financial reports filed by its parent in its place of incorporation.


Circumstances in which government approval is required for foreign investmentAs noted in question 2, the approval of the MIC is generally required for large-scale investments in Myanmar. The circumstances in which a permit is required under the MIL, as described 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.



DICA has discretion regarding whether it will publish such a summary.

The assessment criteria for permit applications are set out in the MIR rule 64 and include consideration of the character of the investor, the compliance of the investor and the making of the investment with Myanmar law, as well as the compatibility of the investment with the development and security, and economic, social and cultural policies, of Myanmar, or its states and regions.

In addition, other government approvals are required for investments in certain sectors as noted in question 6.

In terms of existing investments with MIC permits, the MIC typically took around two weeks to one month to process applications for purchases of shares in, or the business of, such investments under the FIL, and this is expected to continue under the MIL.


Under the MIL Notification, only Myanmar companies may undertake certain investments which are of a local character (such as printing local language periodicals) or relate to certain businesses (such as artisanal oil wells and mini-markets). The MIL Notification also lists approvals required prior to investment in certain sectors. For example, the approval of the Ministry of Health and Sports is required for investments in businesses for the supply of health services. In addition, a joint venture (in which the Myanmar partner has at least a 20 per cent shareholding) is required in other sectors.

The approval of MOC is required for retail-ing and wholesale services, and a note in the MIL Notification states that import or export activities shall be in accordance with MOC’s policy. Because MOC’s policy has historically been to not grant an import licence

In the context of acquisitions of existing investments, the Myanmar-language version of the MIR (which is the binding version) requires the MIC’s approval for the direct or indirect acquisition of a majority of the assets or shares of a company with an MIC permit (but not a company with an MIC endorsement). The previous practice under the FIL did not require such approval from the MIC, making it easier for offshore transactions involving companies holding an MIC permit to be exited through sale of the shares in the offshore parent company.

Process and timeline for approvalsThe MIC provides an investment screening service under the MIR through which it can issue non-binding guidance to investors regarding the likely application of the MIL to their proposed investment. This is likely to be a first step for certain investors. Under the MIR, an investment screening application will be assessed by the MIC within ten days of submission.

In terms of applications for an MIC permit, the person required to make the application is the investor (or their representative), or a relevant government authority if such authority holds a ‘significant ownership interest’ in the investor, and the investment is or will be made pursuant to a grant or concession from the authority, or as otherwise stated in law. The MIC has 15 busi-ness days to undertake an initial assessment regarding whether the application is complete and a further 60 business days for a permit or 30 business days for an endorsement to under-take a substantive assessment of the application and grant the permit or endorsement.

As part of this review process, the MIC may publish a summary of the application for public comment within ten business days. It should be noted that while the unofficial English transla-tion of the MIR provides that DICA will publish such a summary and consult publicly on MIC applications, according to the Myanmar-language version (which is the binding version),



Myanmar does not have any restrictions on doing business with any countries or territories.


Under the MIL, the MIC has discretion to grant corporate income tax exemptions for periods of three, five or seven years for investments in des-ignated “promoted sectors” depending on the designated development status (or “zone”) of the place of investment. An investor may obtain these exemptions by applying for a permit or endorsement from the MIC and making a tax incentive application.

The promoted sectors are set out in Notification No. 13/2017 titled ‘Classification of Promoted Sector’, issued by the MIC on 1 April 2017 and currently include investment in agriculture, forestry and related services, manufacturing, establishment of industrial zones and urban areas, urban development (such as utilities), infrastructure (such as roads, rail, ports, airports, power and telecommunications) and services (such as education, health and tourism). Notification No. 10/2017 issued by the MIC on 22 February 2017 sets out the devel-opment status of each township in Myanmar for purposes of determining the zones for the tax incentives.

In addition, the MIC may grant exemption from customs and other taxes for imports of materials during the construction or preparation of the investment and inputs for export-oriented businesses.

to foreign companies without an MIC permit, it is possible that foreign companies applying in future without an MIC permit will experience difficulties in obtaining an import licence (the situation in relation to foreign companies holding an MIC endorsement is also not clear). It is also unclear whether MOC will, in practice, grant approval to foreign companies for retailing and wholesale services. However, as noted in question 21, MOC has been slowly liberalising trading restrictions.In general, the MIL Notification liberalised many restrictions to foreign investment. For example, it permits 100 per cent (100%) foreign investment in the establishment and operation of offices or commercial buildings. Foreign investors can also invest through a joint venture with a Myanmar company in a number of sectors, including the development, sale and lease of residential apartments and condominiums.In addition to legal restrictions, there are also practical restrictions on foreign investment in some sectors. For example, no foreign insurer has been awarded a licence under the Insurance Business Law of 1996 to undertake an insur-ance business (foreign insurers may only conduct such a business in partnership with Myanma Insurance, the state-owned insurer, or in special economic zones (“SEZ”) under Notification 2/2017 of the Insurance Business Regulatory Board of Myanmar).Banking businesses are regulated by the Central Bank of Myanmar (“CBM”) under the 2016 Financial Institutions Law. Under this law, a foreign bank may only acquire all or a substantial part of a local bank’s business with CBM approval, and such approval has not been provided to date (as of June 2017). Foreign 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).


(such distribution is permitted within the SEZ only) are much higher, including a minimum investment of at least US$25 million.

Investments in SEZs are permitted to lease land for up to 50 years with an extension of 25 years. In addition, a number of incentives can apply. Investors are entitled to exemption from corporate income tax for seven years for free zone investments, and five years for promotion zone investments. Investors in both zones are entitled to a 50 per cent discount on corporate income tax in the five years following the rele-vant initial tax exemption period, and a further 50 per cent discount in the subsequent five year period on profits reinvested in the business within one year.


The main taxes applicable to foreign invest-ments are corporate and personal income tax, commercial tax, special goods tax and stamp duty. Companies are subject to a 25 per cent tax on earnings and a ten per cent tax on capital gains income (40-50 per cent on oil and gas investments), irrespective of whether they are a Myanmar tax resident or non-resident.

Withholding taxes apply for certain categories of corporate income, with varying withholding rates depending on the taxpayer’s residency. Myanmar tax residents can offset withholding taxes against their end of fiscal year tax lia-bility, while for non-residents it is their final tax liability. Under Notification No. 51/2017 issued by the Ministry of Planning and Finance (“MOPF”) on 22 May 2017, the withholding amounts since 1 April 2017 are 0 per cent (0%) on interest payments, 10 per cent (10%) on royalties, and 2 per cent (2%) on payments under contracts for residents, and 15 per cent (15%) for interest or royalty payments and 2.5 per cent (2.5%) for payments under contracts for non-residents.


An SEZ has been established in Thilawa under the 2014 Special Economic Zone Law (“SEZL”) in a Japan-Myanmar owned joint venture. Two other SEZs have been approved for devel-opment in Dawei in Tanintharyi Region, and Kyaukphyu in Rakhine State but are still in the early stages of development. Under the SEZL, foreign investors can invest with the permission of the SEZ management committee, in its ‘free zone’ portion if they are export-oriented, and in the ‘promotion zone’ portion if their goods or services will be sold in the SEZ (permitted on a wholesale or retail basis) or Myanmar (permitted on a wholesale basis only).

Under Notif ication No. 1/2015 of the Ministry of National Planning and Economic Development (“SEZ Rules”), an application to invest in an SEZ must include an application form (called a Form E), and requires informa-tion regarding the proposed investment site and the plan to develop its investment. The SEZ’s management committee is required to make its decision on the application within 30 days.

The minimum criteria for approval to invest in Thilawa SEZ depends on the nature of the investment and is set out in Instruction 2/2015, issued by the Thilawa SEZ management com-mittee on 27 May 2015. The thresholds in this instruction are only minimum requirements however, and generally higher standards will apply in practice. Under the instruction, for example, a company must export at least 75 per cent of its products to register as a free zone investor. Companies may register in the promotion zone to sell products they manu-facture if they meet the prescribed criteria, including local value adding, making a min-imum investment of at least US$2 million and establishing a warehouse on their SEZ site. The thresholds to register in the promotion zone to distribute other manufacturer’s products


applies to a much narrower set of goods such as tobacco, alcohol, precious stones and petroleum products) has much higher rates of taxation (for natural gas the rate is eight per cent (8%), but for wines worth over US$20, it is 50 per cent (50%) of the price per litre).

Myanmar has a progressive personal income tax for residents with a top marginal tax rate of 25 per cent (25%), and top tax bracket of around US$21,900. A f lat tax of 35 per cent (35%) applies to non-residents. In addition, under the Social Security Law 2012 and the Social Security Rules 2014, employees are required to contribute two per cent (2%), and employers three per cent (3%), up to a maximum limit of US$4.40 and US$6.60, respectively, in social security contributions.

Under the Myanmar Stamp Act 1899, stamp duty is payable on legal instruments depending on their nature. For example, stamp duty of 0.1 per cent (0.1%) of the value of the transfer price applies for share transfers (following the amendment of the dutiable amount under Notification No. 146/2016 issued by MOPF), and for joint venture agreements, it will generally be around US$100.

Importantly, under Notification No. 51/2017 issued by MOPF on 22 May 2017, some large or mid-sized taxpayers are exempt from withholding sums from payments of around US$1,000 or less to resident taxpayers and are required only to notify the Internal Revenue Department of such payments. The withhold-ing rates can also be reduced if a double tax treaty applies. Myanmar currently has double tax treaties with India, the Republic of Korea, Laos, Malaysia, Singapore, Thailand, Vietnam and the United Kingdom. Under its double tax treaty with Singapore for example, the amount withheld on interest payments will be reduced to 8 per cent (8%) if it is to a bank or financial institution, or 10 per cent (10%) if it is to any other person, while the amount withheld for royalties for patents, designs or models is the same as for Myanmar tax residents.

Myanmar also has two turnover-based taxes, under the 1990 Commercial Tax Law and 2016 Special Goods Tax Law. The Commercial Tax Law applies by exception to all goods and ser-vices not listed in the Union Tax Law 2017 with a rate of taxation of generally around five per cent (5%). The Special Goods Tax Law (which

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.

Ben SwiftSenior Legal Advisor, MHM Yangon




Employment regulations in MyanmarEmployment is primarily regulated contrac-tually. Under the Employment and Skills Development Law 2013, an employer is required to finalise a written employment contract within 30 days of commencement of employ-ment and file it with the local Ministry of Labour, Immigration and Population township office. In practice such offices will only accept contracts which are in their prescribed form.

In addition, there are a number of labour laws that regulate minimum standards of employ-ment, such as for overtime and occupational health and safety. Myanmar has amended several of these laws and there continues to be a push for further amendment.

In particular, under the Shops and Establishment Law 2016, employees may work only up to six days, and any work in excess of eight hours per day or 48 hours per week is considered overtime work and must be paid at twice the normal hourly wage. Such overtime is generally capped at 12 hours per week (16 hours in special cases). There are more specific regulations for some sectors (such as factories and oilfields) under sectoral labour laws.

Foreign national employeesMost foreign national employees work under a business visa, and if they intend to stay in Myanmar for longer than 90 days, they are required to also obtain a stay permit and for-eign registration certificate. The immigration section of the one stop service centre of the Thilawa SEZ can assist investors in the SEZ with the employment of foreign nationals.


As noted in question 3, a foreign person cannot purchase land in Myanmar. However a foreign investor with an MIC permit or endorsement and a land rights authorisation, and investors in Thilawa SEZ, can enter into long-term leases for land.


As noted in question 6, certain sectors are closed to all private sector investment and certain other sectors are closed to foreign investment. In addition, the Competition Law 2015, which entered into force on 24 February 2017, prohibits mergers and acquisitions which have the purpose of ‘extremely raising market dominance’ or lessening competition in a limited market. However, this is a new law and as of June 2017, no regulations have been issued to implement it, and nor has the Competition Commission been formed.


It is generally understood in practice that all remittances of funds from outside Myanmar to within Myanmar (and vice versa) are gov-erned by the Foreign Exchange Management Law 2012 (“FEML”). Under the FEML, remit-tances are classified as ordinary transactions (for example, this could include short-term operational remittances or fees), or capital transactions (for example, loans or business investments). As a general rule, prior approval must be obtained from the CBM for capital transactions, but not ordinary transactions. However, the definition of both categories in the FEML is unclear and the CBM’s practice is inconsistent, so in practice it is necessary to


arbitral awards. A party seeking to enforce a foreign arbitral award must present to the court the original or duly authenticated copy of the award and the original or duly certified copy of the agreement for arbitration, together with evidence that the award is a foreign arbitral award. An arbitral award may be refused rec-ognition only by reason of certain prescribed procedural flaws (which are broadly in line with the UNCITRAL model law).

More broadly, Myanmar’s judicial system is still developing to cater to the needs of foreign investors, which includes the recognition of foreign court judgments.

Chapter XVII of the MIR provides for the MIC to form an Investor Assistance Committee to mediate disputes between foreign investors and the Myanmar government and its ministries and agencies. The MIL rule 83 and the MIR rule 73 provide that no court or arbitral proceedings are permissible until an investor has sought to resolve the dispute through this committee. It is not clear whether this provision would limit standing in a Myanmar court or enforcement of arbitral awards.

In addition, the MIR rule 165(f) states that the Investor Assistance Committee will assist in establishing a grievance and dispute settlement mechanism, although it is unclear whether this would be an alternate option or replace contractual forum choice clauses, in particular with respect to investor-government disputes.


Myanmar is a party to a number of bilat-eral and regional investment protection treaties, including with Japan. It is also party to the ASEAN free trade area agreement and ASEAN’s regional trade agreements with Japan, Australia and New Zealand, India, China and the Republic of Korea.

confirm with the CBM how to deal with each foreign remittance.

The rules under the FEML provide that the prior approval of the CBM is required for the disbursement of foreign loans in Myanmar. The CBM issued an announcement in July 2016, providing that in relation to this approval requirement, it will take into consideration matters relevant to the borrower, including the capital amount already brought into Myanmar, terms of the loan agreement and the debt-to-equity ratio. It is not necessary to obtain CBM approval for each subsequent remittance for the repayment of the loan principal and interest.

Under the FEML and Notification 7/2014 of the CBM, Myanmar residents (including Myanmar-incorporated companies) can open offshore foreign currency accounts with CBM approval, provided they file monthly bank statements with the CBM. In practice, we understand the CBM has been willing, in the context of project financing, to approve such companies using offshore foreign currency accounts for the purpose of obtaining foreign currency-denominated loans. The funds from these loans are then transferred into Myanmar by the Myanmar-resident company itself.


There are no penalties for withdrawing from an investment. However prior approval may be required as noted in question 5.


Myanmar is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”) and the Arbitration Law of 2016 provides for the enforcement of foreign


multiple registrations of the same mark to be made, and companies should remain vigilant of third party registrations of their trademarks. Marks should be periodically reregistered to maintain public awareness of their ownership.

In practice, Myanmar law does not provide any protections for patents or designs. It is possi-ble to register patents and designs under the Registration Act 1908 s 18(f), which provides for the registration of documents not required to be otherwise registered under that law. However, such registration will not provide any protections under the law, and registrants should be careful not to disclose sensitive information regarding their patents or designs.


Under the Environmental Impact Assessment Procedure (“EIAP”) set out in Notification No. 616/2015 issued by the Ministry of Environmental Conservation and Forestry on 29 December 2015 pursuant to the Environmental Conservation Law 2012, an environmental impact assessment is required for prescribed investments and any investment that has the potential to cause ‘adverse impacts’ (such as environmental, social, socio-economic, health, cultural, occupational, community or safety impacts) to any entity, person, ecosystem or natural resource.

For projects likely to have such an adverse impact, an initial assessment of the impact is required, and if the impact is likely to be sig-nificant, a third party assessor registered with the Environment Conservation Department of the Ministry of Environmental Conservation and Forestry must be appointed to assess the environmental impact of the project. This assessment will include a scoping study, impact assessment and review by the government, and the government may require the investor to

However, Myanmar has not yet ratified the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, and disputes under its trade agreements will generally be subject to arbitration under the rules of the United Nations Commission on International Trade Law. Awards granted under such arbitrations will be enforceable in accordance with the New York Convention.


Myanmar is in the process of updating its intellectual property laws. As a party to the Agreement on Trade-Related Aspects of Intellectual Property Rights (“TRIPS”), under the extension granted by the World Trade Organisation on 11 June 2013 under TRIPS art 66.1 to the least developed countries, Myanmar has until 1 July 2021 to implement its interna-tional obligations to safeguard intellectual property.

Myanmar is not a party to the Berne Convention for the Protection of Literary and Artistic Works and the Myanmar Copyright Act 1914 provides no protection for foreign cop-yright. However works published or authored in Myanmar and works by Myanmar citizens are protected.

There is no trademark law in Myanmar. However, like most common law countries, it has an unregistered trademark system enforce-able by actions for passing off under the Specific Relief Act 1877 (as well as product labelling, import and consumer protection laws which proscribe false marking of goods). Owners of trademarks may register their rights under the Registration Act 1909 s 18(f) and the Inspector General of Registration Direction 13, to ease the evidentiary barriers to enforcing their trademark rights and put the public on notice to prevent infringement.

However, as the registration office’s database is not electronically maintained, it is possible for


also been reports that Myanmar is considering lifting restrictions on foreign participation in the banking and insurance sectors. It is likely that in future, foreign companies will also be permitted to engage in other related economic activities such as acting as non-bank financial institutions and trading on the Yangon Stock Exchange.


Myanmar is ASEAN’s newest jurisdiction to open to foreign investment. While it has made much progress in improving its investment environment, there is still a long way to go. The MIL and MIR in particular, were intended by the Myanmar government to be best-in-class in ASEAN, but it remains to be seen how these will be implemented. A further test for Myanmar’s investment friendliness is in how quickly the MCL is passed. Investors should also bear in mind the ongoing infrastructure challenges experienced by Myanmar in making investment decisions. Around two thirds of Myanmar’s population does not have access to the national electricity grid, and the State Counsellor has specifically identified power and transportation as key sectors for development.

formulate an environmental management plan setting out mitigation measures.


Under the MIL, DICA maintains a one-stop service centre to assist foreign investors investing in Myanmar. In addition, as noted in question 5, the MIC provides an investment screening service, under which it can issue non-binding guidance to an investor regarding the application of the MIL to their proposed investment. The Thilawa SEZ also maintains a one-stop service centre that is authorised to issue all permits and licences required to invest in the Thilawa SEZ.


Myanmar is expected to pass the MCL in 2017 (as of June 2017 the draft MCL is being consid-ered by Parliament). This law will modernise the MCA, for example by improving compa-nies’ ability to manage their capital structure. 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 com-pany 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

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New Zealand generally has an open policy towards foreign investment, and the require-ments for overseas companies to comply with New Zealand company laws are not onerous. New Zealand was ranked first in the World Bank 2017 economy rankings for ease of starting and operating a business in its local regulatory environment.

The New Zealand economy is stable and the public sector is transparent, ranking as the least corrupt country in the world in Transparency International’s Corruption Perceptions Index for 2016.

Foreign direct investment was $98.7 billion as at 30 June 2016, making up 25.2% of total investment in New Zealand.


Approval of foreign investment in New Zealand is principally regulated by the Overseas Investment Act 2005 (‘OIA’).

The OIA applies to certain investments by “overseas persons”. An overseas person is any person who is not a New Zealand citizen and is not ordinarily resident in New Zealand. This includes any body corporate that is incorpo-rated outside New Zealand and any company, partnership, body corporate or trust which is 25% or more owned or controlled by overseas persons.

Investments by overseas persons which require consent under the OIA are further discussed in question 3 below.


Foreign investment requires consent from the Overseas Investment Office (‘OIO’) or relevant ministers of the New Zealand government if it will result in an overseas person (or its asso-ciate) acquiring a direct interest in, or 25% or more ownership and/or control of interests in, sensitive land and/or significant business assets.

‘Significant business assets’ are high-value businesses with more than NZ$100 million of assets. ‘Sensitive land’ includes the foreshore or seabed, reserves and non-urban land.

All applications for consent are tested against prescribed investment criteria. Applicants must:

(a) be of good character;

(b) have relevant business experience or acumen;

(c) be able to demonstrate a financial commit-ment to the investment; and

(d) be eligible for visa or entry permission under New Zealand’s immigration laws.

Applicants for sensitive land consent must also demonstrate that their investment will (or is likely to) benefit New Zealand and, in certain cases, that the benefit is substantial and identifiable.

In addition to the above restrictions under the OIA, certain industries require sector- specific approval to make an investment. These

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Jurisdictional Q&A – New Zealand 107

approval requirements or ownership restric-tions typically treat potential foreign investors the same as domestic investors.

Foreign investment is regulated at a national level and does not differ at local levels of government.


A limited liability company, whether overseas or domestic, is the most commonly used business structure in New Zealand. Other commonly used vehicles include partnerships, limited partnerships and joint ventures.

Common structures for offshore entities investing in New Zealand include incorporat-ing or acquiring a local subsidiary company or registering a branch of an existing overseas company.

Registration and formation For a company to be incorporated, the com-pany’s name must first be approved by the Registrar of Companies. Basic details of the company must be provided in an online form, including:

(a) information about the directors;

(b) details of shareholders and the number of shares;

(c) the company address;

(d) director and shareholder consent certifi-cates; and

(e) company constitution. A constitution is not mandatory but is useful to permit certain corporate actions.

This process can be completed on the same day for minimal fees.

An overseas company carrying on business in New Zealand must be registered as an overseas company on New Zealand’s overseas company register, and provide the following information:

(a) where and when the company is incor p- orated;

(b) information about the directors;

(c) its place of business or, if more than one, its principal place of business in New Zealand; and

(d) where and on whom documents can be served in New Zealand.

Registration of an overseas company is a simple process completed online for a minimal fee.

More information can be found on the New Zealand Companies Office’s website at www.companiesoffice.govt.nz/companies.

Companies must update the Registrar of Companies to reflect any changes to directors’ details, the company’s address, the company’s constitution and shareholdings.

Reporting requirements

Annual returnCompanies must file an annual return confirm-ing details (including the company’s address, the number of shares, who the shareholders are and who the directors are) each year in their allocated filing month for a small fee. If the annual return is not filed by the due date, the company risks being removed from the companies register.

Financial statements Certain companies must prepare and file audited financial statements annually with the Registrar of Companies, including: (a) large overseas companies (New Zealand

incorporated companies which are sub-sidiaries of overseas companies or overseas companies registered in New Zealand, whose assets or revenue exceed a certain threshold);

(b) large companies (companies incorporated in New Zealand, whose assets or revenue exceed a certain threshold); and

(c) companies with 10 or more sharehold-ers. Such companies can opt out of the


investment in sensitive land; see question 3 for further details in this regard.

Applications for consent are made by way of a letter from the applicant to the OIO along with supporting information. In relation to sensitive land applications, this includes a detailed business plan addressing the benefits to New Zealand.

The Minister of Finance and the Minister of Land Information are primarily responsible for assessing applications made under the OIA. However, those Ministers have delegated authority to the OIO to grant certain applica-tions. Applications that can be decided by the OIO under this delegated authority are those which relate to investment in:

(a) significant business assets; or

(b) sensitive land, except where the sensitive land includes special land, land on other islands, the foreshore and seabed or the bed of a lake, or where land adjoins the foreshore of the bed of a lake.

There is no statutory timeframe within which an application for consent must be decided once submitted. The average assessment time for the OIO on applications made during the period from July 2016 to April 2017 was:

(a) 114 working days for decisions involving significant business assets;

(b) 108 working days for decisions involving sensitive land which are made by the OIO; and

(c) 146 working days for decisions involving sensitive land which are made by Ministers.

The quality and level of information provided by the applicant will impact the time period in which the OIO makes its decision.

Application fees range from NZ$13,000 and NZ$54,000, depending on the nature of the assets and investment.

requirement to prepare audited financial statements provided they are not large domestic companies or large overseas com-panies, and 95% of the shareholders support a motion opting out of the requirement.

From 31 May 2017, large companies and large overseas companies are no longer required to prepare audited financial statements where the large company or large overseas company is covered under group financial statements prepared by an overseas parent.

Annual reports Large companies and large overseas companies must also prepare annual reports containing information specified by the Companies Act 1993. From 31 May 2017, such companies are no longer required to prepare an annual report, where this is supported by 95% or more of the shareholders.

Tax returnsCompanies subject to New Zealand tax must file relevant tax returns to Inland Revenue (New Zealand’s tax authority). When such tax returns must be filed will depend on a number of factors, including the type of tax (described in further detail in Question 10). For example:

(a) The due date for filing annual income tax returns depends on the balance date of the company. An extension to file tax returns is generally available for taxpayers that are registered with a tax agent.

(b) Returns for Goods and Services Tax can be filed monthly, every two months or six months, depending on the annual turnover of the relevant business.


A transaction requires consent under the OIA if it will result in an overseas investment in significant business assets or an overseas

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 acqui-sition 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 commer-cial finance portfolio.

• Advised Intermediate Capital Group in relation to the IPO of Tegel Foods.

• Advised TPG in relation to the acquisi-tion and then ASX IPO of Inghams.

• Acted for Lempriere Australia in relation to the merger and partial di-vestment of its wool scour assets with Cavalier.

Matthew is a corporate partner at Mayne Wetherell. Matthew has considerable experience on a wide range of corporate activity including domestic and foreign M&A, joint ventures and equity capital markets,

Matthew OlsenPartner, Mayne Wetherell


markets. Food safety regulations focus on the processes of food production, and operate on a sliding scale, whereby businesses preparing foods that are of a higher risk operate under more stringent requirements. An animal prod-ucts regime applies to all animal materials and products, requiring them to meet standards ensuring they are “fit for intended purpose”.

The financial services industry is primarily regulated by the Financial Markets Authority under the Financial Markets Conducts Act 2013, and is supported by the New Zealand Stock Exchange. Debt and equity market rules and regulations include disclosure and reporting requirements, with penalties


The Commerce Commission (‘ComCom’) is New Zealand’s regulatory agency and regulates the price and quality of goods and services in markets where there is little or no competition, including in the telecommunications, electric-ity and dairy industries.

Food and beverage is one of the more heavily regulated sectors in New Zealand. These restrictions also relate to primary industries, where strong food safety standards contribute to the performance of exports in international

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No, New Zealand’s trade arrangements apply at a national level.


Taxes applicable to companies:

The main types of taxes applicable to compa-nies in New Zealand are income tax and goods and services tax (GST):

(a) Income tax applies on a company’s net income after allowable deductions at 28%. Income tax applies on the worldwide income of New Zealand residents and New Zealand sourced income of non-residents, subject to double tax agreements.

(b) GST is imposed on the supply of certain goods and services in New Zealand and on certain goods and services imported into New Zealand, at a rate of 15%.

Taxes applicable to individuals:

Individuals are subject to marginal income tax rates depending on their taxable income, ranging from 10.5% (for taxable income up to NZ$14,000) to 33% (for taxable income over NZ$70,000).

Any tax on an employee’s salary or wages withheld by an employer through the “pay as you earn” (PAYE) scheme is offset against the employee’s income tax liability.

Employers can be required to deduct KiwiSaver (elective superannuation) contributions for employees who have elected into the govern-ment scheme, designed to assist the retirement of New Zealand citizens and permanent residents.

for misconduct such as insider trading and market manipulation. A strict framework applies to financial advisors, and is recognised as commensurate with those in international jurisdictions. Innovative funding entities, such as crowdfunding and peer-to-peer lending, are encouraged, with specific reporting and disclosure requirements tailored to their fields.

In the ICT sector, New Zealand is known for its low barriers to entry, and innovation is encour-aged. Similarly in high-value manufacturing, the government actively supports innovation and change, awarding grants to a number of companies to assist in entrepreneurship.


New Zealand is generally supportive of free and open trade and has 16 free trade agreements with World Trade Organisation members, including Australia and China.

New Zealand sanctions are based on those imposed by the UN Security Council, which prohibit the export of arms to sanctioned juris-dictions and dealing in assets of, or providing assets or funds to, persons identified in the Consolidated United Nations Security Council Sanctions List.

New Zealand also has tariffs for a small number of imported goods (see https://tariff-finder.fta.govt.nz/).


Non-tax incentives for foreign investors are generally not available in New Zealand. However, ad hoc incentives are available for specific sectors. For example, the Employment Relations (Film Production Work) Amendment Act 2010 secured concessions for a foreign investor by amending employment rules for the film industry.

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(unless they seek to provide more than the minimum standards), including entitlement to breaks and leave.

Collective employment agreements apply to employees who are members of a union that is party to the collective agreement with the employer. It is possible for an employee who is bound by a collective agreement to agree to additional terms and conditions of employment with the employer.

The following legislation also applies to New Zealand employment arrangements:

(a) Human Rights Act 1993;

(b) Parental Leave and Employment Protection Act 1987;

(c) Holidays Act 2003; and

(d) Health and Safety at Work Act 2015.

Establishing a company in New Zealand does not in and of itself create any residency rights. However, Zealand’s visa framework provides a number of options to overseas persons who run their own business or make investments in New Zealand.

Residency and Visas

Entrepreneur Work Visa

People who wish to run their own business in New Zealand can apply for an Entrepreneur Work Visa. Those holding the Entrepreneur Work Visa are able to operate their business in New Zealand initially for 12 months, and for a further 24 months once the individual has taken steps to set-up the business.

To qualify, the applicant must:

(a) provide a detailed business plan;

(b) be able to claim at least 120 on Immigration New Zealand’s eligibility points scale; and

(c) have at least NZ$100,000 to invest in their business (this capital investment require-ment may be waived for businesses in the science or ICT sectors).

There are no comprehensive capital gains tax, gift, stamp, or estate duties in New Zealand.

11.What are some of the employment regulations in your jurisdiction that foreign investors should be aware of? Is it possible to secure residency permits or work visas for foreign nationals under investment?

Employment LawThe Employment Relations Act 2000 is the main legislation that governs the relationships between employees and employers in New Zealand. It aims to:

(a) promote collective bargaining;

(b) regulate the operation of unions;

(c) address the inherent inequality of power in employment relationships;

(d) provide a framework for personal griev-ances and disputes; and

(e) prescribe basic protections for individual employees.

Every employee must have a written employ-ment agreement under the Employment Relations Act 2000. Individual employment agreements must contain certain information, including at a minimum:

(a) the names of the employer and the employee;

(b) a description of the work;

(c) the location of the workplace;

(d) the agreed hours;

(e) the salary and how it will be paid;

(f) a plain explanation of how to resolve employment relationship problems; and

(g) an employee protection provision explain-ing the process to be undertaken if the business is sold or transferred.

Certain terms are implied by law and do not need to be included in employment agreements



The only restrictions on foreign investors acquiring real property in New Zealand are the restrictions on significant business assets and sensitive land under the OIA discussed in Questions 2 and 3.


Other than the investment approval processes discussed above, there is no other unique process that could block a foreign investment.


There are no exchange controls on foreign- exchange transactions undertaken in New Zealand, either by New Zealand residents or non-residents. There is also no restriction on the movement of cash in or out of New Zealand, but disclosure is required where sums exceed NZ$10,000 or transactions are otherwise suspicious.

The Anti-Money Laundering and Countering the Financing of Terrorism Act 2009 places obligations on New Zealand’s financial institu-tions, banks and businesses to detect and deter money laundering and terrorism financing in respect of both domestic and foreign investors.


There are no approval requirements for when 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

Entrepreneur Residence Visa

People who are granted an Entrepreneur Work Visa will also be able to apply for an Entrepreneur Residence Visa once they have run their businesses for 2 years (or 6 months if they meet extra conditions, including having invested NZ$500,000 and created at least 3 new jobs in New Zealand) allowing the person and their family to live, work and study indefinitely in New Zealand.

Investor / Investor Plus Visa

People who wish to invest funds in a business and live in New Zealand can apply for residence under Investor / Investor Plus categories.

To qualify for the Investor Visa, the applicant must:

(a) invest at least NZ$3 million over a 4 year period in acceptable investments in New Zealand, including equity in a public or private business, bonds or a new residen-tial property development for commercial purposes (‘Acceptable Investments’);

(b) reside in New Zealand for at least 146 days in each of the last 3 years of the 4 year investment period or 438 days over the entire investment period;

(d) have a minimum of 3 years’ business experience;

(e) satisfy English language requirements; and

(f) be 65 years old or less.

To qualify for the Investor Plus Visa, the applicant must:

(a) invest at least NZ$10 million over a 3 year period in Acceptable Investments in New Zealand; and

(b) reside in New Zealand for at least 44 days in each of the last 2 years of the 3 year investment period or 88 days over the entire investment period.


In 2008, New Zealand became the first Organisation for Economic Co-operation and Development (‘OECD’) member country to sign a free trade agreement with China. Investment protections for Chinese investors under this agreement include:

• equal treatment of their investment with that of a national of New Zealand or any other country;

• fair and equitable treatment;

• protection against expropriation of their investment; and

• the option to engage neutral third party arbitration for disputes.


New Zealand has a central intellectual property register operated by the Intellectual Property Office of New Zealand, and recognises certain unregistered rights such as copyright, trade secrets and unregistered trade marks.

New Zealand is a signatory to, among others, the Paris Convention, the Agreement on Trade-Related Aspects of Intellectual Property Rights and the Madrid Protocol (a treaty administered by the International Bureau of the World Intellectual Property Organization).

PatentsThe main type of patent is a patent of inven-tion. A patent of addition can be granted for improvements or modifications to an invention that is already patented.

An invention is patentable if it:

(a) is a manner of manufacture;

(b) involves a novel and inventive step;

(c) is useful; and

(d) is not excluded under the Patents Act 2013 (e.g. for being contrary to public policy or morality).

exchange and has securities that confer voting rights quoted on the registered exchange’s securities market, it will be considered a Code Company. The Takeovers Code applies to Code Companies to ensure that shareholders are well informed of, and can participate in, changes of control.


Contracts can be enforced by any party to a contract against the other party or parties. In addition, where a promise in a contract confers a benefit on a person who is not a party to the contract, the promisor is generally also under an obligation, enforceable at the suit of that person, to perform that promise.

Disputes in relation to the enforcement of a contract can be efficiently resolved through local courts or, if agreed upon by the parties, through arbitration. Most cases are resolved in the District Court in under a year. The major-ity of cases in the High Court are generally resolved within nine months. Procedures are not materially different than other common law jurisdictions.


New Zealand has a number of bilateral and multilateral free trade agreements, includ-ing treaties with Australia, China, Korea, Malaysia, Singapore and Thailand. These treaties contain investment protection pro-visions which broadly aim to encourage the free flow of investment between parties on a mutually advantageous basis, while ensuring investments are protected and secure. Investing through the treaties does not avoid the foreign investment regime under the OIA, which is, in each case, specifically excluded.


Any kind of plant can be registered (excluding algae and bacteria). The register is administered by the Plant Variety Rights Office (which is part of the Intellectual Property Office of New Zealand).

(b) Domain names: these can be registered as a trade mark or, as with an unregistered trade mark, gain protection from the tort of passing off and the Fair Trading Act 1986.

(c) Confidential information and trade secrets: these are protected by the tort of breach of confidence, the law of contract and employ-ment law.


The Environmental Protection Authority (‘EPA’) is the governmental agency responsible for environmental management under various regimes, including:

• the Emissions Trading Scheme;

• the Hazardous Substances and New Organisms Act 1996;

• ozone depleting chemicals regulations;

• rules surrounding hazardous waste imports and exports; and

• environmental effects of activities in the Exclusive Economic Zone.

Various other agencies work with, and report to, the EPA including Maritime NZ, WorkSafe New Zealand, the Ministry of Health, the Ministry for Primary Industries, New Zealand Transport Agency, New Zealand Customs Service and the Department of Conservation.

Use and development of environmental resources (air, land and water) is controlled by the Resource Management Act 1991 (‘RMA’), which is also administered by the EPA as well as local and regional government.

Registration protects a patent for 20 years, provided that all fees are paid and there has not been a successful application to revoke its registration.

Trade marksA trade mark is defined in the Trade Marks Act 2002 as a sign that is capable of being represented graphically and capable of distin-guishing one person’s goods or services from another’s. In addition, a trade mark must not be prevented from registration on any absolute or relative ground, such as being confusingly similar to another mark.

A trade mark term is 10 years. Registration can be indefinitely renewed for further periods of 10 years.

Registered designsA design is registrable under the Designs Act 1956 if it is novel in New Zealand and can be applied to an article of manufacture, unless the features of design for which protection is sought are dictated solely by the function of the article.

The term of a design registration is 15 years. After the term has expired, the design may be used by any other party.

Unregistered designsUnregistered designs can be protected by copyright laws.

CopyrightThe property right of copyright automatically vests in certain categories of original work. There is no registration system. Generally, copyright in a literary, dramatic, musical or artistic work expires 50 years from the end of the calendar year in which the author dies.

OthersThe other main intellectual property rights in New Zealand include:

(a) Plant variety rights: these are protected under the Plant Variety Rights Act 1987.


Minor amendments to the Companies Act 1993 have come into force from time to time. For example, from 31 May 2017, the Registrar of Companies will be conferred the power to remove an overseas company registered in New Zealand from the register of overseas compa-nies in New Zealand, if:

(a) the Registrar is satisfied that the overseas company has ceased to carry on business in New Zealand; and

(b) 20 working days’ notice has been given to the public and to the overseas company to object to the removal if the company is still carrying on business in New Zealand.


New Zealand has a wide network of double tax treaties, including with China, Japan and Malaysia.

Investment New Zealand is a government agency (a division of New Zealand Trade & Enterprise) in charge of attracting and facilitat-ing foreign direct investment. Investment New Zealand provides case management services for major investments including:

• providing information on potential investment opportunities in New Zealand, and assisting companies during the investigation and due diligence phase;

• facilitating location visits by investment decision-makers;

• making referrals to sources of independ-ent professional advice; and

• providing links to relevant private organ-isations and agencies of central and local government to ensure projects attract support where available.

The RMA’s principal purpose is the sustainable management of New Zealand’s natural and physical resources. A consent process applies for the approval of any development and these resource consents apply to land use, subdi-vision, water permits, coastal permits, and discharge permits. Applications are made to local authorities in accordance with the RMA. Issues under the RMA are adjudicated in the Environment Court of New Zealand.

Regard must also be had to the traditions of the Maori (New Zealand’s native people) and their cultural values. One of the guiding principles of the RMA is the relationship of Maori with their ancestral lands, water, and other valued objects and sites, and consultation with Maori is required in many instances.


New Zealand Trade & Enterprise (NZTE) is the national body responsible for driving foreign direct investment in New Zealand. NZTE provides information and support to investors by facilitating their investments and assisting them with navigating local regulation. The local councils of each region also generally facilitate foreign direct investment.


New class exemptions to the investment screening regime under the OIA came into force in February 2017. These class exemptions exempt transactions that may be considered ‘less sensitive’ including, for example, certain transactions between two overseas persons where approval under the OIA has previously been granted in connection with the relevant land.

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Nigeria is Africa’s most populous nation (the latest National Population Commission esti-mate puts the population at about 193 million people based on the population of 140 million recorded in the last census conducted in 2006) with large deposits of oil and gas as well as other natural resources which include but are not limited to bitumen, limestone, coal, iron ore, lead and zinc, most of which are largely unexploited. Consequently, Nigeria is the largest market in Africa for virtually all prod-ucts. In addition, Nigeria provides numerous lucrative investment opportunities in varying sectors: infrastructure, telecommunications, construction, solid minerals, fast moving consumer goods, agriculture and oil and gas sectors.

The Nigerian legal framework encourages investment as Nigeria is a free market with largely deregulated exchange control regula-tions. Various incentives have also been put in place by the Nigerian government to encourage foreign investment into the country. These incentives are discussed in more detail in subsequent responses below.

The total value of the capital that was imported into Nigeria in the first quarter of 2017 was estimated to be $908.27 million, an increase of 27.75% relative to the same quarter of 2016. Of this figure, foreign direct investment accounted for 23.27% ($211.38 million), portfolio invest-ment accounted for 34.53% ($313.61 million),

while other investments accounted for 42.20% ($383.28 million). Some of the sectors in which the largest amounts of investments were made in this quarter are servicing, telecommunica-tions, banking and oil and gas1.


There are a number of Nigerian legislations which contain provisions that regulate both for-eign investment and participation in Nigerian businesses. The principal legislation is the Nigerian Investment Promotion Commission Act, Cap N117, Laws of the Federation of Nigeria (“LFN”) 2004 (“NIPC Act”).

The NIPC Act established the Nigerian Investment Promotion Commission (“NIPC”) as the agency responsible for the promotion, co-ordination and supervision of all foreign investments in Nigeria. The NIPC Act provides that non-Nigerians may invest and participate in the operation of any enterprise in Nigeria except the following enterprises on ‘the neg-ative list’ in the NIPC Act s 31 which both foreign and Nigerian investors are prohibited from participating in:

• the production of arms, ammunition, etc.;

Jurisdiction: NigeriaFirm: Udo Udoma &

Belo-OsagieAuthor: Jumoke Lambo, Kunle Durosinmi-Etti and Feyikemi Adagunodo

1 National Capital Importation Report Q1 2017 published by the National Bureau of Statistics

http://www.uubo.org

Jurisdictional Q&A – Nigeria 119

• the production of and dealing in narcotic drugs and psychotropic substances;

• the production of military and para-mil-itary wears and accoutrement, including those of the Police and the Customs, Immigration and Prison Services; and

• such other items as the Federal Executive Council may, from time to time, determine.

The NIPC Act further provides:

• that an enterprise in which there is to be foreign participation must be incorpo-rated or registered as required under the Companies and Allied Matters Act Cap C20, LFN 2004 (“CAMA”) (the principal regulation that regulates the activities of companies in Nigeria);

• that after incorporation, the company must be registered with the NIPC before it can commence business operations in Nigeria;

• that a foreign enterprise may purchase the shares of any Nigerian enterprise in any convertible foreign currency;

• a guarantee against expropriation or nationalisation of any enterprise by any government in Nigeria and states that there shall be no acquisition of an enterprise to which the Act applies by the Federal Government, unless the acqui-sition is in the national interest or for a public purpose and under a law which makes provision for the payment of fair and adequate compensation; and a right of access to the courts for the determination of the investor’s interest or right and the amount of compensation to which he is entitled. The NIPC Act also stipulates that no person shall be compelled by law to surrender his interest in the capital of any enterprise to any other person.

Other legislation that contain provisions on foreign investments in Nigeria are:

(a) The CAMA, which requires foreign inves-tors to incorporate a Nigerian entity in order to carry on business in Nigeria and sets out the various ways by which the Nigerian entity may be established.

(b) The Immigration Act 2015, which provides that the consent of the Minister of Interior (this consent takes the form of a business permit) must be obtained by any foreigner that intends to set up a business in Nigeria.

(c) The Investments and Securities Act 2007 (“ISA 2007”) which empowers the Securities and Exchange Commission to keep and maintain records of all Foreign Direct Investments and Foreign Portfolio Investments in Nigeria.

(d) The Foreign Exchange (Monitoring and Miscellaneous Provisions) Act, Cap F34 LFN 2004 (“FEMM Act”), which sets out the foreign exchange regulations that are applicable in Nigeria.

(e) The National Office for Technology Acquisition and Promotion Act, Cap N62 LFN 2004, which regulates the transfer of foreign technology to Nigeria.

(f) The Industrial Inspectorate Act, Cap. I8 LFN 2004, which makes provision for the investigation and monitoring of the under-takings of industries in Nigeria, including investments.


Under the NIPC Act, foreign ownership is permitted in all industries excluding the prohibited industries on the negative list. However, there are restrictions to the level of foreign participation that is permitted in the following sectors:

(i) Oil and gas: To be competitive in the award of contracts, at least 51% of the shares of the company are required to be owned by Nigerians.


COREN who hold at least 55% of the company’s shares.

(vii) Aviation: To qualify for the grant of an aviation licence or permits, the Nigerian Civil Aviation Authority must be satisfied that an applicant is a Nigerian citizen or a company reg-istered in Nigeria and controlled by Nigerian nationals. This requirement does not apply to licences or permits needed by any person for the purpose of operating an aircraft for private use only.

(viii) Pharmacy: The Pharmacist Council of Nigeria Act 2004 provides for the registration of non-Nigerian citizens only if the applicant’s home country grants reciprocal registration to Nigerians and where the applicant has been resident in Nigeria for at least 12 months prior to the application.


There are a number of company structures which are recognised by the CAMA. These include:

(a) Limited liability companies (public or private).

(b) Companies with unlimited liability.

(c) Companies limited by guarantee.

(d) Incorporated trustees.

(e) Registered business names.

A foreign investor that wishes to set up in Nigeria would have to incorporate an entity using one of these structures. Notwithstanding the fact that a foreign investor may want to open a branch or subsidiary in Nigeria, because the CAMA does not recognise these concepts, the Nigerian entity would have to be

(ii) Shipping: The Coastal and Inland Shipping (Cabotage) Act states that no vessel other than one that is wholly owned and manned by a Nigerian citizen, built and registered in Nigeria is permitted to engage in domestic coastal carriage of cargo and passengers within the costal, territo-rial, inland waters, island or any point within the exclusive economic zone of Nigeria. Vessels of any type or size are also prohibited from trading or engaging in any domestic trading in the inland waters unless such vessels are wholly owned by Nigerians. These restrictions notwithstanding, the law confers on the Minister in charge of shipping, the power to grant waivers and authorise a departure from this strict regime if the Minister is satisfied that no wholly owned Nigerian vessel is available or suitable to provide the required services or to perform the relevant activity.

(iii) Broadcasting: A company applying for a broadcasting licence must demonstrate that it is not representing any foreign interests and that it is substantially owned and operated by Nigerians.

(iv) Advertising: Only a national agency (that is, an agency in which Nigerians own not less than 74.9% of the equity) can advertise to the Nigerian market.

(v) Private security: A foreign investor cannot acquire an equity interest in, or sit on the board of, a Nigerian private security guard company.

(vi) Engineering: A company engaged in engineering services must be registered with the Council for the Regulation of Engineering in Nigeria (“COREN”). One of the requirements for registra-tion is that the company must have Nigerian directors registered with the


incorporated under one of the structures listed above. Section 54 of the CAMA provides that in order to do business in Nigeria, a foreign investor must incorporate a separate entity in Nigeria, and until a foreign company is so incorporated it “shall not have a place of busi-ness or an address for service of documents or processes in Nigeria for any purposes other than the receipt of notices and other documents as matters preliminary to incorporation under [the CAMA]”.

Notwithstanding this general rule, Section 56 of the CAMA empowers the Federal Executive Council, at its discretion, to grant limited exemptions to this mandatory incorporation requirement. Such exemptions are, however, rare and are usually only granted for limited periods in respect of specific government-spon-sored projects.

Of the various company structures available, the most common structure for a profit-mak-ing enterprise is the private limited liability

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 compliance.

Jumoke is recognised by the Nigerian edition of Who’s Who Legal for her M&A practice. Her work has also been noted in the International Financial Law Review’s Expert Guides. She is a fellow of the Centre for International Legal Studies (CILS) and a member of the Nigerian Bar Association and the International Bar Association. She has attended several conferences and semi-nars where she has given talks on a variety of areas including employment law. She is one of the key representatives of the firm on the Employment Law Alliance.

Jumoke LamboPartner, Udo Udoma & Belo-Osagie

Jumoke Lambo is a Partner and co-head of the firm’s Technology, Media and Telecommunications, Aviation, Labour and Employment and Business Development teams. She also oversees Alsec Nominees Limited, its company secretarial practice. Her specialisations include foreign investment, regulatory compliance, TMT, aviation, capital mar-kets particularly mergers & acquisitions and employment law.

http://www.uubo.org


The procedure and requirements for incorporating a private or a public limited lia-bility company are essentially the same. These requirements include the following:

(i) The proposed company name must be approved by the CAC;

(ii) The company must have a minimum of 2 shareholders (who may be indi-viduals or corporate entities). With the limited exceptions already highlighted in our response to question 3 above, companies in Nigeria may be 100% foreign owned. The initial subscribers must, between them, subscribe for at least 25% of the authorised share capital of the company;

(iii) The company must have a minimum of 2 directors (they may also be the shareholders of the company, and may be foreign nationals);

(iv) The company must have a registered office;

(v) An indication of the nature of the business to be carried on by the company must be contained in the Memorandum and Articles of Association of the company; and

(vi) A private limited liability company must have a minimum authorised share capital of NGN10,000.00 while that of a public limited liability company must be NGN500,000.00. If, however, the company is to have foreign equity participation and will require foreign investment approvals, then the minimum authorised share capital of the company must be at least NGN10,000,000.00 (ten million Naira), whether it is a private or public company.

company. The advantages of this structure include:

• It is straightforward to incorporate (the process can be completed within two weeks of the submission of the application to the Corporate Affairs Commission (“CAC” – Nigeria’s companies registry).

• Profits can be paid out to shareholders.

• This type of entity has perpetual succession and may incur liabilities of its own, i.e. the shareholders have limited liability. Any liability that a foreign investor may incur as a shareholder is limited to the amount unpaid in respect of any shares held by a foreign investor in the capital of the company.

It is relatively easy to transfer shares in a private company, should a foreign investor wish to divest itself of its interest in the company.

Limited liability companies may be incorpo-rated within two weeks of the submission of the appropriate application at the CAC. After the incorporation process has been completed, any company with foreign participation will need to be registered with the NIPC under the NIPC Act, must register with tax authorities, and must obtain a business permit and expatriate quota approvals for any expatriate personnel to be employed by the company, (if applicable), from the Federal Ministry of the Interior (“FMI”) before it can commence business in Nigeria. All together, these processes may, all things being equal, take between 12 to 15 weeks to complete.

Depending on the proposed area of business, additional requirements may apply, such as the Department of Petroleum Resources’ registra-tion and licensing requirements for companies in the oil and gas sector, a banking licence for companies in the banking sector and Nigerian Communications Commission licences or permits for companies in the telecommuni-cations sector. The timelines indicated do not include the times for processing these specific approvals.



No.


There are several investment incentives avail-able to investors in Nigeria which are aimed at reducing their tax liabilities.

(a) The Pioneer Status scheme grants com-panies operating in certain industries (usually industries where the government is trying to develop and attract investment into) a non-renewable income tax holiday for a period of three years, which can be extended for two additional years.

(b) Purchasers of local plant and equipment are entitled to an investment allowance of 10%.

(c) Capital gains tax (“CGT”) is not levied on gains from the sale of shares, stocks and treasury bills.

(d) Nigerian companies with up to 25% imported foreign equity are exempt from paying minimum tax.

(e) Interest earned by a foreign company on its deposits in domiciliary accounts in Nigeria is exempt from tax.

(f) Companies engaging in the use of Nigeria’s natural gas resources are entitled to:

• a tax free holiday for an initial period of three years (renewable after two years); or

• an additional investment allowance of 35%.

(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,

The statutory fees payable to incorporate a company in Nigeria are dependent on the authorised share capital of the company.


As indicated in our response to question 4 above, any company with foreign participation must register with the NIPC, with the Nigerian tax authorities, and must obtain a business permit and expatriate quota approvals for any expatriate personnel proposed to be employed by the company, from the FMI before it can commence business in Nigeria. Other reg-ulatory/government approvals may also be applicable, depending on the sector in which the investment is being made.


Some of the heavily regulated sectors in Nigeria are:

(i) Banking;

(ii) Insurance;

(iii) Telecommunications;

(iv) Aviation;

(v) Oil and gas;

(vi) Food and drugs; and

(vii) Maritime.

Some of the more open sectors in Nigeria are:

(i) Agriculture;

(ii) Haulage and road transportation; and

(iii) Textiles.


Any entity which intends to undertake an approved activity within any of the free trade zones is required to apply to the relevant Export Zone Authority (“Authority”) in writ-ing for approval to do so and to submit such documents and information in support of the application, as the Authority may require from time to time.

Once the application is approved by the Authority, it becomes a Free Zone Entity (“FZE”). The FZE is, thereafter, required to apply for an operating licence in order to carry out business within the free trade zone. As soon as an FZE is issued an operating licence, it is officially incorporated in Nigeria and does not require any additional paperwork, provided that it does not wish to carry on business outside the free trade zone. A licence is considered personal to the licensee. It may not be transferred, assigned, or purported to be transferred or assigned in whole or in part without the prior written consent of the issuing Authority.

The licence granted to the FZE and all applica-ble incentives, however, are only valid within the free trade zone. Consequently, where the FZE carries on any business outside the free trade zone (i.e. within the Nigerian customs territory), it will be liable to pay all applicable taxes on the profits derived from such activities.

With regard to the employment of non-Nigeri-ans by the FZE, the FZE shall apply on behalf of the non-Nigerian citizen to the Authority for the purpose of immigration and employment permits, in such manner as may be prescribed by the Authority.

corporate and supranational bonds, are exempt from tax until 1st January 2022.

(i) In certain circumstances, interest on loans granted to Nigerian companies by foreign companies are entitled to tax exemption.


Yes. The Nigeria Export Processing Zones Act, Cap N107 LFN 2004 (the “NEPZ Act”) provides that the President may, from time to time, des-ignate such area as he thinks fit to be an export processing zone. An investor is permitted to register an enterprise with, and obtain a licence from the Nigeria Export Processing Zone Authority (“NEPZA”) to carry on its business within an export processing (also known as free trade) zone. There are currently about 14 (four-teen) operational free trade zones in Nigeria, with another 18 (eighteen) free trade zones at various stages of development or construction.

The free trade zones offer several incentives to investors including the following:

• exemption from all legislative provisions pertaining to taxes, levies, duties and foreign exchange regulations;

• repatriation of foreign capital investment in the free trade zones at any time along with profits and dividends earned from the investment;

• waiver of all import and export licences;

• rent-free land during construction stage;

• 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.


Ad valorem rates range from 0.15% to 3%.

(e) Information technology development levy

The following types of companies with an annual turnover of at least NGN100 million must pay 1% of their profits before tax to the Federal Inland Revenue Service:

• Cyber companies and internet providers;

• Pension managers and pension related companies;

• Banks and other financial institutions;

• Insurance companies; and

• Telecommunication companies.

(f) Withholding tax

Withholding tax on rents, dividends, royalties and interest is 10% (reduced to 7.5% where the recipient is registered in a country with which Nigeria has a double taxation treaty). Fees for management or technical services are taxed at 10% for com-panies and 5% for individuals. Contracts of supplies are taxed at 5%.

(g) VAT

VAT is charged at 5% on goods and ser-vices other than those exempted by law. Exempted goods include:

• Medical and pharmaceutical products;

• Basic food items;

• Books; and

• Exports.

Exempted services include:

• Medical services;

• Services provided by community banks;

• Mortgage institutions; and

• All exported services.


The most common taxes applicable to foreign investors in Nigeria are outlined below:

(a) Companies’ income tax

Companies’ income tax is assessed at 30% of the total assessable profits from all sources accruing in, derived from, brought into or received in Nigeria in any year of assessment. A company must make this payment within six months from the end of its accounting year.

(b) CGT

CGT is imposed on gains arising from the disposal of capital assets, at a rate of 10%. Exemptions from CGT include (among others):

• gains on a disposal of stock, shares, and other government securities such as treasury bonds, premium bonds and savings certificates;

• gains arising from acquisitions, mergers, or takeovers provided that no cash payment is made in respect of the shares acquired; and

• gains made on any asset used for the purpose of a trade or business that are used for replacing old assets sold.

(c) Tertiary education tax

Tertiary education tax is imposed at a rate of 2%.

(d) Stamp duties

Stamp duty is imposed on documents at varying rates which could either be ad valorem or nominal. The nominal rate is currently:

• NGN500 for the original document; and

• NGN50 for counterparts.


(h) National cyber security levy

Under the Cybercrimes Act 2015, the following companies are required to pay a levy of 0.005% on all electronic transactions into a fund held with the Central Bank of Nigeria:

• Telecommunications companies;

• Internet service providers;

• Banks and other financial institutions;

• Insurance companies;

• The Nigerian Stock Exchange.


The main laws regulating employment relation-ships in Nigeria are:

• The 1999 Constitution of the Federal Republic of Nigeria as amended (“Constitution”);

• The Labour Act, Cap L1 LFN 2004;

• The Pension Reform Act 2014 which provides for the establishment of a con-tributory pension scheme;

• The Employees’ Compensation Act 2010 (“ECA”) ;

• The Personal Income Tax Act, Cap P8 LFN 2004 (as amended) (“PIT”) ;

• The National Health Insurance Scheme Act, Cap N42 LFN 2004;

• The Industrial Training Fund Act, Cap I9 LFN 2004 (as amended) (“ITF”) ;

• The Trade Unions Act Cap T14 LFN 2004 (as amended) ;

• The National Minimum Wage Act, Cap N61 LFN 2004;

• The National Industrial Court Act, 2006.

The ECA, ITF, PIT and the Constitution apply to both Nigerian employees and

foreign employees. The other laws apply to only Nigerian employees. None of the above laws, however, apply to Nigerians working abroad.

It is possible to procure resident and work permits for foreign employees and management staff or directors who want to reside in Nigeria. These permits are easy to obtain provided that the employer takes the rights steps to procure the relevant permits. The first step of the pro-cess is for the employer to apply to the FMI for expatriate quota positions to cover the number of non-Nigerian personnel it seeks to employ. The process for obtaining such expatriate quota positions usually takes between eight to ten weeks to complete from the date of submission of the application to the FMI.

The exact number of quota positions granted is at the discretion of the FMI, which has estab-lished a committee to determine the number of quota positions any company may have. The discretion to grant expatriate quota approvals is dependent to a large extent on the ability of the applicant to adduce satisfactory evidence that there are no suitably qualified Nigerians who can provide the required services.

Once the relevant expatriate quota approvals have been obtained, the employer will also have to acquire visas for the prospective employ-ees. Such employees will need to apply for a Subject-to-Regularisation (“STR”) visa from the Nigerian Embassy/High Commission in their country of usual residence to enable them to enter Nigeria for the purpose of taking up employment. The cost of obtaining this visa is determined by the relevant Nigerian Embassy/High Commission in the employee’s country of usual residence. After obtaining the STR visa, the expatriate can travel to Nigeria and on arrival will have a period of three months to regularise their immigration status by obtaining a Combined Expatriate Residence Permit & Alien Card (“CERPAC”), the approval document which evidences that the expatriate can reside and take up employment in Nigeria. CERPACs are granted for 12 months and can



Under the Land Use Act Cap L5 LFN 2004 (“LUA”), which governs land ownership and administration in Nigeria), all land comprised in the territory of each state in the federation is vested in the Governor of that State (and in the case of federal land, the President). The LUA states that such land is held in trust and administered for the use and common benefit of all Nigerians in accordance with the provi-sions of the Act. The view expressed by some, therefore, is that since land in Nigeria should be administered for the use and common benefit of all Nigerians, foreigners cannot be granted land in Nigeria.

There is, however, another argument that since the LUA s 46 empowers the National Council of States to make regulations for certain matters, including “the transfer by assignment or oth-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

be renewed. Expatriates can be accompanied to Nigeria by their families, and the applications for these dependents must be submitted on behalf of such persons.

The application for a CERPAC is made to the Nigeria Immigration Service. A temporary CERPAC can normally be obtained within three to six days of the application being submitted to the Comptroller General, Immigration Department, Lagos. The

permanent CERPAC may be granted within six weeks of submission of the application.

The requirements outlined above do not apply to nationals of member states of the Economic Community of West African States (“ECOWAS”). Nationals of ECOWAS member states are entitled to freedom of movement, to reside and to work in Nigeria. They are, however, required to apply for an ECOWAS res-idence card on arrival in Nigeria. The ECOWAS residence card is valid for a term of two years and can be renewed following its expiration.

Feyikemi Adagunodo is an associate and a member of the firm’s corporate and com-mercial 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.

Feyikemi AdagunodoAssociate, Udo Udoma & Belo-Osagie

http://www.uubo.org


The Central Bank of Nigeria (“CBN”), in June 2016, introduced a single f lexible Nigerian interbank foreign exchange market (“FX Market”). Notwithstanding this, the FX Market continued to experience serious liquidity chal-lenges. Thus, the CBN took several steps to enhance liquidity and ensure timely settlement of eligible transactions. As part of such steps, the CBN issued a circular in April, 2017 titled “Establishment of Investors’ and Exporters’ FX Window” (the “Circular”) to introduce a special Investors’ and Exporters’ FX Window (“Window”) with effect from 24th April, 2017.

Some of the major highlights of the Circular include the following:

• Transactions for which parties are per-mitted to access the Window include (i) invisible transactions such as loan repay-ments and interest payments, dividends/income remittances, capital repatriation and any other eligible invisible transac-tions (excluding international airlines tickets sales remittances); (ii) bills for collection transactions; and (iii) any other trade-related payment obligations (at the instance of the customer).

• All documentation requirements (includ-ing, where applicable, CCIs or approval of the National Office for Technology Acquisition and Promotion) for eligible transactions for the purchase of FX in the FX Market will continue to apply to transactions carried out in the Window.

• International airlines and tickets sale remittances are excluded from the Window.

• The supply of FX to the Window will be through portfolio investors, exporters (which should include oil companies), Authorised Dealers (i.e. Nigerian banks) and other parties with foreign currency to exchange to Naira (including domiciliary accounts holders). The CBN will also par-ticipate in the Window from time to time

could own land in certain circumstances. To the best of our knowledge, the National Council of States has not made any such regulations or otherwise authorised the Governors to grant leases to non-Nigerians but prior to the prom-ulgation of the LUA, various States enacted Acquisition of Land by Aliens Law which allowed foreign entities to own land subject to the consent of the Governor of the State and for a term not exceeding 25 years.

While we note that it is unclear whether the acquisition of land by a foreigner is valid under Nigerian law, we should mention, from a prac-tical perspective, that we are not aware that any Governor has granted consent to any transfer of leasehold interest to a non-Nigerian since the promulgation of the LUA.


Yes. Foreign investments into any prohibited business on the ‘negative list’ (see our response to question 2) will be blocked and also busi-nesses where the maximum threshold for the level of foreign ownership (see our response to question 3) has been exceeded will be sanc-tioned and this could include cancelling all the foreign investment approvals that have been granted to the business.


The FEMM Act provides that foreign inves-tors that intend to access the official foreign exchange market for the purpose of remitting their dividends, interest or capital must obtain a Certificate of Capital Importation (“CCI”) as evidence that their investment was brought into Nigeria. CCIs are issued by Authorised Dealers (that is, banks licensed by the Central Bank of Nigeria to deal in foreign exchange) within 24 to 48 hours after the investor has brought its foreign investment into Nigeria.


agreement between the parties. Foreign inves-tors are guaranteed 100% free repatriation of their investment capital and profits by virtue of the NIPC Act and the FEMM Act. The ability to access foreign exchange for this purpose will, however, be dependent on availability of same.


Contract enforcement mechanisms The most common contract enforcement mechanism available in Nigeria is an action instituted against a defaulting party in a Nigerian court. Parties to a contract may also agree to submit their disputes to alternative dispute resolution mechanisms such as media-tion and arbitration under Nigerian law or the law of any other jurisdiction agreed between the parties.

Investor protection mechanismsThe NIPC Act provides the basic and acceptable legal framework for the protection of foreign investors. The NIPC Act provides that subject to certain exceptions contained in the Act, a foreigner may invest and participate in any enterprise in Nigeria. Under the NIPC Act, foreign investors are guaranteed unconditional transfer of funds attributable to the investment such as dividends, profits, payments in respect of loan servicing, and the remittance of pro-ceeds obtained from the sale or liquidation of assets or any interest in the investment. This fund transfer will be done through an Authorised Dealer in freely convertible currency.

The NIPC Act expressly provides for guarantees against expropriation, nationalisation, and the requirement for any investor to surrender his capital, except if such an action is done in the national interest or for public purpose and under a law which provides for the prompt payment of fair and adequate compensation. The Act gives a right of access to investors to

(as a buyer or seller) to promote liquidity and professional market conduct.

• The exchange rates for transactions in the Window will be as agreed between Authorised Dealers and their counter-parties i.e. on a willing buyer and willing seller basis. In other words, the CBN has not set a band or pegged a rate for the Window.

• To provide support for appropriate benchmarking and facilitate derivatives activities in the Window, a new fixing has been developed - the Nigerian Autonomous Foreign Exchange Fixing (“NAFEX”).

• Participants are permitted to hedge their FX exposures. Authorised Dealers are required to provide the market with required FX hedges including forwards, swaps, futures and options.

• The CBN will continue to provide liquid-ity in the derivatives market with the Naira-settled OTC FX Futures which will, going forward, settle on NAFEX.

With this Circular, it appears that the CBN has partially deregulated the FX Market and ‘floated’ the Naira. This is, however, not yet a full ‘float’ for the participants in the Window as the CBN will still occasionally intervene in the Window.

This Circular has also not affected the CBN prohibition on the funding of certain items and services with forex derived from the inter-bank market and bureaux de change and the ban on the pricing of goods and services consumed in Nigeria in any currency other than the Naira.


There are no government imposed restrictions of penalties. These may, however, be appli-cable contractually based on the terms of the


part of Nigeria’s domestic laws by the National Assembly.


Innovations and inventions are generally protected by Nigerian intellectual property laws. The Copyright Act, Cap C28 LFN 2004 protects literary works (including computer programmes), musical works, artistic works, cinematographs and broadcasts. The Patents and Designs Act, Cap P2, LFN 2004 protects industrial designs as well as inventions which are new or an improvement upon an existing patented invention, result from inventive activ-ity and are capable of industrial application. The Trade Marks Act, Cap T13, LFN 2004 pro-tects owners of registered trademarks. Owners of unregistered trademarks are not protected by the Trade Marks Act but are entitled to seek relief under the English common law princi-ples applicable in Nigeria. A person whose IP rights are infringed is entitled to institute legal proceedings in the requisite Nigerian court and obtain reliefs (which may include damages, order for account, injunctions and delivery-up of the infringing articles etc.) against the infringing party. Infringement of copyright also constitutes a crime punishable with a term of imprisonment under the Copyright Act.

Trademarks, patents and industrial designs must be registered in accordance with the pro-cedure prescribed in the relevant legislations in order to enjoy protection under Nigerian law. Copyright subsists automatically in a work from the moment the work is created. Registration is, therefore, not a prerequisite to copyright protection under Nigerian law. The Nigerian Copyright Commission (the “Commission”) however, administers and operates a notification/depository scheme. Under this scheme, creators of copyright works or persons who have acquired any copyright in

apply to the courts for a determination of their interest and the amount of compensation to be paid. Where such compensation is required to be paid, there shall be issued an authorisation for its repatriation in convertible currency.

Lastly, the NIPC Act provides that disputes between a foreign investor and any government in Nigeria arising out of an investment shall be submitted to arbitration within the framework of any investment treaty entered into between the government of Nigeria and any state of which the foreign investor is a national, or in accordance with any other international machinery for the settlement of investment disputes as agreed upon. It further provides that where there is a disagreement between the Nigerian government and the foreign investor on the mode of dispute settlement, the dispute shall be submitted to the International Centre for Settlement of Investment Disputes for arbitration.


Nigeria has concluded several bilateral investment promotion treaties with different countries including China, France, Germany, Italy, Korea, Netherlands, Finland, Russia, Romania, Serbia, South Africa, Spain, Sweden, Switzerland, Taiwan Province of China, Egypt, Jamaica, Turkey, Uganda and the United Kingdom. These treaties are supposed to pro-tect investments in the case of war, revolution, expropriation or nationalisation. They are also entered into to guarantee the transfer of interests, dividends, profits and other income as well as compensation for dispossession or loss to the same extent that the contracting states would compensate their citizens. Under the Constitution, treaties cannot have the force of law until they have been ratified and made


In addition to this, the primary legislation for the protection of the environment in Nigeria is the National Environmental Standards and Regulations Enforcement Agency Act 2007 (“NESREA Act”). The NESREA Act established the National Environmental Standards and Regulations Enforcement Agency (the “Agency”), as an agency in the Federal Ministry of Environment, Housing and Urban Development and grants it wide-ranging powers to protect and develop the environment in Nigeria.

The Agency has responsibility for the protection and development of the environment, biodiver-sity conservation and sustainable development of Nigeria’s natural resources in general and for liaison with relevant stakeholders within and outside Nigeria on matters of enforcement relating to the environmental standards, reg-ulations, rules, laws, policies and guidelines. The Agency is also charged with responsibility

respect of eligible works may give notice of/reg-ister their copyright with the Commission. The purpose of this scheme is to provide notifica-tion to the Commission of the creation and/or existence of a work and also serve as evidence of authorship/ownership in legal proceedings in which there are competing interests.


Yes. Environmental policy in Nigeria has its basis in the Constitution. Section 20 of the Constitution provides that the government has a duty to protect and improve the environment and safeguard the water, air and land, forest and wildlife of Nigeria.

Kunle Durosinmi-Etti is an Associate and specialises in corporate and com-mercial transactions including corporate restructuring, capital markets, real estate, acquisitions, banking and finance. His capital market experience includes public offerings of debt securities on the interna-tional 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-ates and was a core member of the team that provided secretarial support to the Capital Markets Solicitors Association.

Kunle Durosinmi-EttiAssociate, Udo Udoma & Belo-Osagie

http://www.uubo.org


for enforcing environmental laws, regulations and standards and with deterring people, industries and organisations from polluting and degrading the environment. The NESREA Act ss 7(h) and (j) empower the Agency to enforce, through compliance monitoring, the environmental regulations and standards relating to noise, air, land, the seas, oceans and other water bodies and environmental control measures through registration, licensing and permitting systems. The oil and gas sector is, however, specifically excluded from the scope of the Agency’s responsibilities and environ-mental matters relating to the oil and gas sector are regulated and enforced by the Department of Petroleum Resources.

Another key legislation that deals with envi-ronmental standards is the Environmental Impact Assessment Act, Cap E12, LFN 2004 (“EIA Act”), which prohibits both the public and private sectors of the economy from embarking on or authorising any project or activity without prior consideration, at an early stage, of their environmental effects. “Environmental Effect” is defined in the EIA Act as any change that a project may cause to the environment, regardless of whether such changes occur within or outside Nigeria as well as any changes that may occur in health or socio-economic conditions. An environmental impact assessment (“EIA”) must be concluded and submitted to the Agency before commenc-ing any project or activity.

The EIA Act also specifies the matters that must, at a minimum, be included in the EIA. The information provided will be examined by the Agency and on the successful completion of an EIA, a certificate will be issued.


Potential foreign investors may direct enquiries to or request further information from the NIPC. Such enquiries are typically undertaken through a Nigerian lawyer / law firm who may also assist with the investment or business establishment process.


There is a proposal by the Senate of the National Assembly to repeal the CAMA (Nigeria’s companies’ law) and the ISA 2007 (Nigeria’s securities’ law) and to enact new laws to replace them. It is anticipated that these new laws will introduce changes to foreign investment activities in Nigeria, although it is not yet clear what form these changes will take.

In addition, the Petroleum Industry Governance Bill (“PIB”) has just been passed by the Nigerian Senate, which is the upper chamber of the Nigerian National Assembly. It is, however, yet to be passed by the House of Representatives, the lower chamber. Subsequent to being passed by both houses of the National Assembly, the Bill will also need to be assented to by the President of the Federal Republic of Nigeria. If passed in its current form, the PIB will harmonise petroleum regu-latory functions and restructure the affairs of the Nigerian National Petroleum Corporation.


No.


About the Authors:Jumoke Lambo

Partner, Udo Udoma & Belo-Osagie


Kunle Durosinmi-Etti

Associate, Udo Udoma & Belo-Osagie


Feyikemi Adagunodo

Associate, Udo Udoma & Belo-Osagie


W: www.uubo.org

A: 10th & 13th Floors, St. Nicholas House,

Catholic Mission Street,

Lagos, Nigeria

T: +234-1-4622307-10

F: + 234 1 4622311


mailto:jumoke.lambo%40uubo.org?subject=

mailto:kunle.durosinmi-etti%40uubo.org?subject=



Also called the Gateway to Southeast Asia, the Philippines is an archipelago of over 7,100 islands in the western Pacific Ocean. The Philippines is centrally and strategically located in the Southeast Asia region, and is surrounded by Malaysia, Indonesia, Vietnam, Taiwan, China, and Japan, which allows the country direct access to global sea routes and maritime traffic.

The country is abundant in natural resources: mineral deposits, including both metallic and non-metallic minerals, f ishery and agricultural resources, and diverse flora and fauna. The Philippines also boasts of a young and fast-growing population. The Philippine Statistics Authority reported a population of more than 100 million as of August 2015, with an average annual population growth rate of 1.72% from 2010 to 2015. The young popula-tion is composed of a skilled work force that is highly proficient in the English language and with relatively low labor costs.

It is also worth noting that the Philippines ranked 7th out of 144 countries in the Global Gender Gap Report 2016 of the World Economic Forum, which measures gender-based gaps in access to resources and opportunities. This is the highest performing country in the East Asia and Pacific region.

The country is also posed to be the 20th largest economy in the world by the year 2050 based on projected trends in demographics, capital investment, education levels and tech-nological progress by PriceWaterhouseCoopers.

Economic growth through productive foreign investments and trade has been a policy of the government in recent year – thus, the government has liberalized its laws on foreign investments by creating special economic zones, and granting incentives for and easing restrictions on such investments.


The Philippines’ chief legislation on foreign investments is the Foreign Investments Act of 1991 (Republic Act No. 7042) (FIA). The FIA provides the basic guide for the entry of foreign investments into the country, allowing as much as 100% foreign participation in most enterprises, except in areas wholly or partially reserved to Philippine nationals under the Philippine constitution, special laws and the Foreign Investments Negative List (FINL).

Incentives are available to foreign investors under certain laws depending on the activity to be conducted in the Philippines. Various government agencies, including the Board of Investments (BOI) and the Philippine Economic Zone Authority (PEZA), may grant fiscal and non-fiscal incentives for local and foreign enterprises engaged in certain activities. Regional or Area Headquarters (RHQ), Regional Operating Headquarters (ROHQ) and regional warehouses established by multinational corporations are also granted incentives under the Omnibus Investments Code. Enterprises locating and operating in

Jurisdiction: PhilippinesFirm: Martinez Vergara Gonzalez & Serrano Author: Rosalia S. Bartolome- Alejo and Erika B. Paulino

Jurisdictional Q&A – Philippines 135

certain special economic and freeport zones may likewise enjoy incentives as provided under special laws.


Restrictions on foreign investment include limitations on full foreign ownership of certain businesses (such as mass media, tele-communications, public utilities), prohibition on foreign ownership of private lands, and required minimum inward remittance of cap-ital, among others. Foreign direct investments may be registered with the Bangko Sentral ng Pilipinas (BSP) to allow full repatriation of capital using foreign exchange purchased from the Philippine banking system.

The FIA provides for the formulation of the FINL, a shortlist of investment areas or activi-ties which are open to foreign investors and/or reserved to Philippine nationals. The current FINL is available at the following link:

http://www.officialgazette.gov.ph/2015/05/29/executive-order-no-184-s-2015/


Common business vehicles are domestic stock corporations or branch offices. Multinational corporations may likewise establish a rep-resentative office, RHQ or ROHQ. These entities may be established thru registration with the Philippine Securities and Exchange Commission (SEC). The registration process may take about two to four weeks.

Domestic Corporation

Foreign investors may engage in business in the Philippines by organizing a domestic stock corporation as a local subsidiary. The subsidi-ary becomes a legally independent unit from its

foreign parent company, governed exclusively by Philippine laws.

The formation of a domestic stock corporation requires it to have at least five but not more than 15 incorporators who must be natural persons, and majority of whom are residents of the Philippines. At least 25% of the author-ized capital stock at incorporation must be subscribed, and at least 25% of the subscribed capital paid-up. A minimum paid-in capital of P5,000 is required where foreign ownership in the corporation does not exceed 40%. For 100% foreign-owned domestic corporations, a minimum paid up capital of US$200,000 is required if the corporation will engage in busi-ness as a domestic market enterprise. For 100% foreign-owned domestic corporations engaging in business as an export enterprise, only the P5,000 minimum paid up capital is required.

Branch OfficeA branch office does not have a juridical per-sonality separate from its parent corporation and is thus not required to have its own board of directors and other corporate officers.

To obtain a branch license, the foreign corpora-tion’s head office must prove its legal existence in its country of origin, its financial soundness, and its authorization to set up a branch in the Philippines. The branch will need to appoint a resident agent in the Philippines.

Branch offices that will engage in domestic market enterprises are required to have a minimum paid-up capital of US$200,000. Export-oriented branches, on the other hand, are generally subject to a minimum capital of only P5,000. Additionally, within 60 days after its registration, a branch office must deposit with the SEC securities with an actual market value of at least P100,000.

Other Forms of Corporate VehiclesRepresentative Office

A “representative office” or “liaison office” is a local office of a foreign corporation which deals directly with the clients of the parent





Depending on the type of activity to be under-taken in the Philippines, special licenses, clearances or permits may have to be secured in addition to the primary registration with the SEC. Some of the businesses that require special licenses include banks, insurance companies, financing and lending companies, securities brokerage, investment houses, hospitals, health maintenance organizations, and recruitment for overseas employment.

In addition, any enterprise seeking to avail itself of incentives under special laws must apply for registration with the relevant regulatory authority. For instance, for incentives under the Omnibus Investment Code, registration must be secured with the BOI.

Process and timeline for approval of the reg-istration depend on the respective rules and regulations of the relevant regulatory authority.


Please refer to the reply under question (3), on the areas covered under the FINL.


There are no restrictions on doing business under Philippine laws that are applicable only to certain countries or territories. The Philippines currently does not have a sanctions regime (financial or economic) in place.

company but does not derive income from the Philippines. It is fully subsidized by its head office and undertakes such activities as information dissemination, promotion of the company’s products, as well as quality control of products. A representative office is required to have an initial minimum inward remittance in the amount of US$30,000 to cover its oper-ating expenses.

Regional Headquarters

RHQs are branch offices that serve as a supervi-sory, communication, and coordinating center for its head office, affiliates, subsidiaries, or branches in the Asia-Pacific region and other foreign markets. RHQs are neither allowed to derive any income from sources within the Philippines nor to participate in any manner in the management of any subsidiary or branch office it might have in the Philippines. RHQs are likewise restricted from soliciting or mar-keting goods and services whether on behalf of its affiliates or any other company.

RHQs are required to remit to the Philippines at least US$50,000 or such amount as may be necessary to cover its operations.

Regional Operating Headquarters

A multinational company may register an ROHQ for the purpose of providing qualifying services to its affiliates, subsidiaries or branches in the Philippines, in the Asia-Pacific Region and in other foreign markets. These qualifying services include, among others, sourcing or procurement of raw materials, corporate finance advisory services, marketing control and sales promotion, training and personnel management, logistic services and data processing.

Licensed ROHQs are required to remit to the Philippines such amount as may be necessary to cover its operations in the Philippines, which should not be less than US$200,000.



Incentives available to foreign investors include those that qualify for registration with the BOI under the Omnibus Investments Code, with the PEZA, or with special economic zones.

Local and foreign enterprises engaged in activities included in the Investment Priorities Plan may register with the BOI to qualify for entitlement to fiscal and non-fiscal incentives. The most recent IPP (which took effect on March 18, 2017) may be accessed at the follow-ing link:

http://www.dti.gov.ph/media/advisories/99-main-content/london-news/10368- investment-priorities-plan-2017-boi- finalises-policies-and-guidelines-for-pref-ferred-investment-activities

Fiscal incentives available to BOI-registered enterprises include:

• Income tax holiday (ITH) for six years (for pioneer firms) and four years (for non- pioneer firms)

• Additional 50% deduction from taxable income for labor expense for the first five years from BOI registration

• Exemption from national and local contrac-tor’s tax

• Exemption from taxes and import duties

• Exemption from wharfage dues and export tax, duty, imposts and fees for exports

Non-tax incentives include:

• Simplified customs procedures for the importation of equipment, spare parts, raw materials and supplies, and exports of processed products

• Unrestricted use of consigned machinery, equipment and spare parts

• Employment of foreign nationals in super-visory, technical or advisory positions for a period not exceeding five years from its registration

• Access by registered export-oriented enter-prises to bonded manufacturing/ trading system

RHQs, ROHQs, and enterprises registered with the PEZA and other special economic zones are also granted fiscal and non-fiscal incen-tives, including preferential income tax rate, value-added tax (VAT) zero-rating, exemption from local taxes, tax and duty free importation of training materials and equipment, among others.


Special Economic Zone Act of 1995The law, implemented by the PEZA, provides for the creation of special economic zones (“ecozones”) and grants fiscal and non-fiscal incentives to enterprises located within an ecozone and registered with the PEZA.

Incentives that are available to ecozone enterprise, depending of the type of registered activity, are as follows:

• ITH or 100% exemption from corporate income tax for six years (for pioneer projects) or four years (for non-pioneer projects)

• 5% preferential tax rate on gross income

• Tax and duty free importation of raw mate-rials, capital equipment, machineries and spare parts

• Exemption from wharfage dues and export tax, impost or fees

• VAT zero-rating of local purchases of goods and services, subject to certain conditions

• Exemption from payment of any and all local government imposts, fees, licenses or taxes

• Exemption from expanded withholding tax

• Simplified import – export procedures

http://www.dti.gov.ph/media/advisories/99-main-content/london-news/10368-investment-priorities-plan-2017-boi-finalises-policies-and-guidelines-for-prefferred-investment-activities






Tourism Act of 1999The Tourism Act of 1999 (RA No. 9593) created the Tourism Infrastructure and Enterprises Zone Authority (TIEZA) and provided for the creation of Tourism Enterprise Zones (TEZs). Tourism enterprises locating within TEZs and registered with TIEZA are entitled to the following fiscal and non-fiscal incentives:

• ITH for a period of six years from the start of business operations

• 5% preferential tax rate on gross income

• 100% exemption from all taxes and customs duties on importations of capital invest-ment and equipment

• Exemption from customs duties and national taxes on the importation of trans-portation and the spare parts

• Exemption from taxes and customs duties on the importation of goods actually con-sumed in the course of rendering services; and tax credit equivalent to all national internal revenue taxes paid on all local-ly-sourced goods and services

• Employment of foreign nationals in exec-utive, supervisory, technical or advisory positions

• Special investor’s resident visa for foreign nationals with an investment of at least US$200,000

• Full repatriation of the proceeds of the liquidation of foreign investment


Tax on Corporations For tax purposes, corporations are classified as: (1) “domestic corporations”, those organized in the Philippines; or (2) “foreign corporations” (corporations which are not domestic), and

• Employment of non-resident foreign nationals in supervisory, technical or advi-sory positions

• Special non-immigrant visa with multiple entry privileges for non-resident foreign investors, officers, and employees in super-visory, technical or advisory position, and their spouses and unmarried children under 21 years of age

Bases Conversion Development Act of 1992The Bases Conversion and Development Act of 1992 (RA No. 7227) created the Subic Bay Metropolitan Authority (SBMA) and the Bases Conversions Development Authority (BCDA). SBMA has jurisdiction over the Subic Special Economic Zone and the Subic Freeport Zone. BCDA, in turn, has implementing arms over its subsidiaries such as John Hay Management Corporation for the John Hay Special Economic Zone (located at Baguio City) and Poro Point Management Corporation for the Poro Point Freeport Zone (PPFZ) (located at Poro Point, San Fernando City, La Union).

Enterprises operating within the zones and registered under this act enjoy the following incentives and benefits:

• Exemption from national and local taxes and in lieu thereof, 5% tax on gross income

• Tax and duty-free importations of raw materials, capital and equipment

• Permanent resident status within the rel-evant special economic zone for foreign investors, his/her spouse and dependent children under 21 years of age

Other ecozones created under various special laws include the Zamboanga City Special Economic Zone (located in San Ramon, Zamboanga City), the PHIVIDEC Industrial Estates (located in the municipalities of Tagaloan and Villanueva, Misamis Oriental), and the Aurora Special Economic Zone (located in the municipality of Casiguran, Aurora).


Applicable Tax Domestic Corporation

Regular Corporate Income Tax (RCIT)

30% on the net taxable income (gross income less allowable deductions)

Minimum Corporate Income Tax (MCIT)

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

Tax on Passive Income

• 20% final tax on interest on currency bank deposit and yield or any 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 Profits Remittances

15% tax on profits remitted by a branch to its head office

Tax on Cash or Property Dividends

Exempt

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 Accumulated Earnings Tax

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


(1) Importations are generally subject to customs duties. Anti-dumping duty, countervailing duty, marking duty, and discriminating duty may likewise be due under special circumstances;

(2) Local government units impose business taxes based on gross sales or receipts; and

(3) Real property taxes on lands, buildings and other improvements thereon.


The Labor Code of the Philippines is the primary governing law in the Philippines covering employment standards and the legal framework for negotiating, adjusting and administering those standards and other incidents of employment.

Some Key Labor Standards

Working Hours

Eight hours normal working day, with 60 minutes time off for regular meals (which is not compensable).

Overtime Work

Work rendered after the normal eight hours of work shall be paid an overtime rate.

Night-Shift Differential Pay

A night shift differential of not less than 10% of the regular wage shall be paid for each hour of work performed between 10 p.m. and 6 a.m.

Weekly Rest Period

Rest period of not less than 24 consecutive hours after every six consecutive normal workdays.

Service Incentive Leave

An employee who has rendered at least one year of service is entitled to a yearly service incentive leave of five days with pay.

which may be “resident foreign corporations” (foreign corporations engaged in business in the Philippines), or “nonresident foreign cor-porations” (foreign corporations not engaged in business in the Philippines). A domestic cor-poration is taxable on all income derived from sources within and outside the Philippines; while a foreign corporation, whether or not engaged in business in the Philippines, is tax-able only on income derived from Philippine sources.

The following internal revenue taxes are generally applicable to domestic corporations and to resident foreign corporations (such as a Philippine branch of a foreign corporation):

Nonresident foreign corporations are, in general, subject to a final tax of 30% on gross income received during each taxable year from all sources within the Philippines such as interests, dividends, rents, royalties, salaries, premiums, gains, etc.

Tax on Individuals Individuals are classified for tax purposes as:

(a) citizens,

(b) nonresident citizens, or

(c) alien individuals, who may either be a res-ident alien or nonresident alien. An alien individual, whether a resident or not of the Philippines, is taxable only on income derived from Philippine sources.

Income of citizens, resident aliens and non-resident aliens engaged in business in the Philippines is taxed at progressive rates ranging from 5% to 32%. Cash and/or property divi-dends received by these taxpayers are subject to a 10% final tax.

For nonresident aliens not engaged in business in the Philippines, income tax is at 25% of income (interest, dividends, rents, salaries, etc.).

Other ImpostsOther imposts and taxes imposed by the gov-ernment in addition to the above are as follows:


In the event that the foreign national will be working in the Philippines, the foreign national, through a Philippine employer, is required, as a general rule, to first secure an alien employment permit and the appropriate work or special resident visa.

Prearranged Employment or 9(g) Visa

This is available to a foreign national pro-ceeding to the Philippines for a prearranged employment in a Philippine entity.

Treaty Trader’s / Investor or 9(d) Visa

Foreign national businessmen may be admit-ted as nonimmigrants for their entry into the Philippines to develop and direct the opera-tions of an enterprise in which he has invested a substantial amount of capital.

Special Investor’s Resident Visa (SIRV)

This entitles the holder to reside in the Philippines for an indefinite period as long as the required qualifications and investments are maintained. The SIRV program requires investors to remit at least $75,000 into the country and invest the same in viable economic activities pursuant to the Omnibus Investments Code.

Special Non-immigrant Visa

This may be issued upon approval of the Secretary of Justice for public interest or policy considerations. Foreign nationals employed by enterprises registered with the PEZA and BOI may apply for this type of visa.


Ownership of private lands is limited to citizens of the Philippines or to corporations that are 60% owned by Philippine citizens. Foreign ownership of private lands is, except in cases of hereditary succession, limited only to the foreign national’s 40% interest in a landholding company.

Minimum Wage

Minimum wages are set by law or the Regional Wage Councils.

13th Month Pay

Every employee is entitled to a 13th month pay, which shall be at least 1/12 of the basic salary earned within a calendar year.

Retirement Pay

The minimum retirement pay of ½ month salary for every year of service is payable to employees who have served at least five years of service upon compulsory retirement at the age of 65 or upon optional retirement at 60 or more but not 65.

Paid Time-Off

(a) Female employees are entitled to maternity leave of 60/78 days.

(b) The father of a newborn baby is allowed to go on paid leave for seven days.

(c) In addition to the foregoing, solo parents are granted paid leave of not more than 7 working days.

Security of TenureThe right to security of tenure is enshrined in Philippine law. Following this principle, an employer may not terminate the services of an employee except for just or authorized causes provided under the law and subject to compli-ance with procedural due process.

Entry and Work Requirements (Immigration)A foreign national, who is not a “restricted” national, may enter the Philippines without obtaining an entry business visa from the Philippine Embassy or the Consulate from the country of origin or residence. Upon arrival in the Philippines, the foreign national will be granted a 9(a) visa valid for seven to 21 days, depending on his nationality. If the foreigner is a “restricted” national, he must obtain from the Philippine Embassy or Consulate in his country of origin or residence, a 9(a) visa before entering the country.


consummating and implementing their agree-ments until the transaction is deemed approved by the PCC or the PCC issues a “no objection” or “no further action” decision on the matter.


Inward foreign investments (in cash or in kind) need not be registered with the BSP, unless the foreign exchange needed to service the repatriation of capital and the remittance of dividends and profits shall be purchased from the banking system. For registration purposes, foreign currency cash remittances need not be converted to pesos.

Investments in the form of foreign loans (loans from offshore sources or foreign currency loans from resident banks), on the other hand, generally require prior approval of and regis-tration with the BSP, if these will be serviced with foreign exchange to be sourced from the banking system. BSP regulates foreign/foreign currency loans to ensure that the principal and interest thereon can be serviced in an orderly manner and with due regard to the economy’s overall debt servicing capacity.


There is generally no restriction on withdrawal of foreign investments in the Philippines. Foreign direct investments registered with the BSP may be fully repatriated using foreign exchange purchased from the Philippine bank-ing system.


Philippine law treats foreign investors in the same way as their domestic counterparts. Hence, the remedies under Philippine general

Foreign investors may, however, own con-dominium units in condominium projects where title to the common areas are held by a corporation, provided that the total foreign interest in the condominium project does not exceed 40%.

Foreign investors may also lease private lands up to 75 years. Under the Investor’s Lease Act (R.A. No. 7692), lease agreements may be entered into with Filipino landowners for the establishment of industrial estates, factories, assembly or processing plants, agro-industrial enterprises, land development for industrial, or commercial use, tourism, and other similar priority productive endeavors. The lease period is for 50 years, renewable once for another 25 years.


A license to do business must be secured from the SEC, and special licenses (depending on the nature of activity) from the relevant regulatory body, must be secured. Application for license or permits may be denied for failure to comply with rules and regulations and applicable law (including the FINL). The practice of certain professions by foreign nationals may be allowed, subject to reciprocity.

Anti TrustThe Philippine Competition Act requires par-ties to an acquisition to notify the Philippine Competition Commission (PCC) before the execution of definitive agreements relating to the transaction where the following thresholds are met: (a) the annual turnover in, into, or from the Philippines, or value of the assets in the Philippines of the ultimate parent entity of at least one of the acquiring or acquired enti-ties, including that of all entities that it controls exceeds Php1 billion; and (b) the value of the transaction exceeds Php1 billion.

Parties covered by the compulsory noti-fication requirement are prohibited from


laws on contract enforcement and on stake-holder protection are likewise available to foreign investors. However, foreign corpora-tions engaging in business in the Philippines without the required license will not be allowed to institute or maintain any action or proceed-ing before any court or administrative body in the Philippines.

The Omnibus Investment Code likewise pro-vides for basic rights and guarantees to which all investors and registered enterprises are entitled which includes:

(a) The basic rights and guarantee provided in the Constitution;

(b) The right to repatriation of investments and remittance of earnings; and

(c) Freedom from expropriation; and (d) pro-tection from requisition of investment.

The foregoing protections are further provided in investment treaties entered into by the Philippines with other states.


The Philippines is a party to 38 bilateral investment treaties (32 of which are in force), including those with China, India, Korea, Taiwan, Thailand and Vietnam. These treaties similarly provide for the promotion, encour-agement and admission of investments in each other’s areas; fair and equitable treatment of foreign investments and full protection and security, no less favorable than that accorded to its own investors; freedom from expropriation; and guarantee of transfer of profits, earnings and repatriation.

The Philippines is also a founding member of the Association of Southeast Asian Nations (ASEAN). Other member countries of the ASEAN are Brunei, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Singapore,

Thailand and Vietnam. Under the ASEAN Comprehensive Investment Agreement entered in to force on March 29, 2012, the member states declared their cooperation to create a free and open investment environment through the consolidation and expansion of existing agree-ments between the ASEAN member countries.


Protection of intellectual property (IP) rights in the Philippines is codified under the Intellectual Property Code of the Philippines (IPC), implemented by the Intellectual Property Office (IPO). The IPC was enacted pursuant to the Philippines’ commitment under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

Among the IP rights protected under the IPC are the following:

Patents

Patentable inventions are granted protection for a term of 20 years from the filing date of the application for registration with the IPO. The IPC follows the first-to-file rule, in that the right to a patent shall belong to the person who first files an application for registration.

Trademarks, Service Marks and Trade Names

Rights to a mark are acquired through regis-tration with the IPO. However, priority right is given to a foreign national who previously filed an application for registration of the same mark in other countries. A certificate of registration shall remain in force for 10 years.

Copyright

Literary and artistic works, and certain deriv-ative works, are copyrightable under the IPC. The rights of an author shall last during his lifetime and for 50 years after his death.

The IPC likewise provides for the requirements of “technology transfer arrangements” (TTAs). TTAs refer to contracts involving the transfer of


systematic knowledge for product manufactur-ing, the application of a process, or rendering of service, including management contracts. Transfer, assignment or licensing of IP rights is also considered a TTA. TTAs shall not include certain provisions which are deemed to have an adverse effect on competition and trade, and shall include mandatory provisions relating to governing law, continued access to improvements, arbitration, and responsibility for taxes. TTAs which do not conform with the IPC requirements shall be unenforceable, unless approved and registered with the IPO.


Significant Philippine environmental laws currently in force, and implemented by the Department of Environment and Natural Resources, are:

• The Ecological Solid Waste Management Act of 2000 (R.A. No. 9003), providing for the government’s program on ecological solid waste management (management of control, transfer, transport, processing and disposal of solid waste) and the institutional mechanism for its implementation

• The Philippine Clean Water Act of 2004 (R.A. No. 9275), providing for a compre-hensive water quality management in all water bodies, but primarily applying to the abatement and control of pollution from land based sources

• The Philippine Clean Air Act of 1999 (R.A. No. 8749), providing for a comprehensive air pollution control policy for the preven-tion and abatement of air pollution

• The Toxic Substances, Hazardous and Nuclear Waste Control Act of 1990 (R.A. No. 6969), providing for the regulations on importation, manufacture, processing,

handling, storage, transportation, sale, distribution, use and disposal of all unreg-ulated chemical substances and mixtures

• The Presidential Decree No. 1586, establish-ing the Environmental Impact Statement (EIS) System. The EIS System requires entities to first secure an Environmental Compliance Certificate before it can undertake certain projects or activities considered environmentally critical.


Foreign investors may reach out to the BOI, the lead government agency responsible for the promotion of investments in the Philippines:

Board of InvestmentsA: Investment Assistance Center (IAC) Ground Floor Industry and Investments Building 385 Senator Gil Puyat Avenue Makati City, PhilippinesT: +895 36 40 / +895 36 41 / +895 36.5DL: 895.83.22 E: [email protected] W: http://investphilippines.gov.ph/incentives/

board-of-investments

or the SEC for more information on company formation at:

Securities and Exchange Commission A: Secretariat Building,

PICC Complex Roxas Boulevard, Pasay City 1307 Philippines

W: http://www.sec.gov.ph

mailto:bossac%40boi.gov.ph?subject=

http://investphilippines.gov.ph/incentives/board-of-investments/

http://investphilippines.gov.ph/incentives/board-of-investments/

http://www.sec.gov.ph/

About the Authors:Rosalia S. Bartolome-Alejo

Partner, Martinez Vergara Gonzalez & Serrano


Erika B. Paulino

Partner, Martinez Vergara Gonzalez & Serrano


W: www.mvgslaw.com

A: 33rd Floor, The Orient Square, F. Ortigas, Jr. Road, Ortigas Center 1600 Pasig City, Metro Manila, Philippines

T: +63 2 687 1195

F: +63 2 687 1197



The National Competitiveness Council and the Economic Development Cluster commenced a review of current laws and regulations aimed at streamlining regulatory procedure includ-ing simplifying documentary requirements and implementing regulatory reforms to start a business in the Philippines in 2016. A Nationwide Streamlining of Business Permits and Licensing Systems (BPLS) Program was likewise launched in 2011 by the Department

of Trade and Industry and the Department of the Interior and Local Governance to improve business licensing processes at the local govern-ment level and make starting a business easier.


The salient features of the Philippines regula-tory framework on foreign investments are discussed under the replies to the preceding questions.

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RIAA BARKER GILLETTE

A GLOBAL ALLIANCE OF LAW FIRMS WORKING FOR BUSINESSES AND INDIVIDUALS At RIAA Barker Gillette Middle East, we believe every client is unique and tailor our services to meet your needs. We aim to get advice and information to you in a quick, considered and cost effective manner.

www.riaabarkergillette.com

We are a corporate, commercial and dispute resolution firm based in the heart of Dubai, United Arab Emirates.

The firm forms part of a Global Alliance offering capabilities in seven countries and twelve cities from New York to Beijing.

We have years of expertise and flair, not just in narrow specialist fields but in wider background areas and interests.

The firm prides itself on its approachable and collegiate feel and the accessibility of its partners.

CORE SERVICES

Company Commercial Corporate M&A Dispute Resolution Banking and Finance

T: +971 4 4019410 E: [email protected]

RIAA Barker Gillette (Middle East) LLP

Registered with the Government of Dubai Legal Affairs Department and the Dubai Financial Services Authority

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RIAABG ME Advert edited NT.pdf 1 20/06/2017 17:03

Jurisdictional Q&A – United Arab Emirates 147

RIAA BARKER GILLETTE

A GLOBAL ALLIANCE OF LAW FIRMS WORKING FOR BUSINESSES AND INDIVIDUALS At RIAA Barker Gillette Middle East, we believe every client is unique and tailor our services to meet your needs. We aim to get advice and information to you in a quick, considered and cost effective manner.

www.riaabarkergillette.com

We are a corporate, commercial and dispute resolution firm based in the heart of Dubai, United Arab Emirates.

The firm forms part of a Global Alliance offering capabilities in seven countries and twelve cities from New York to Beijing.

We have years of expertise and flair, not just in narrow specialist fields but in wider background areas and interests.

The firm prides itself on its approachable and collegiate feel and the accessibility of its partners.

CORE SERVICES

Company Commercial Corporate M&A Dispute Resolution Banking and Finance

T: +971 4 4019410 E: [email protected]

RIAA Barker Gillette (Middle East) LLP

Registered with the Government of Dubai Legal Affairs Department and the Dubai Financial Services Authority

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RIAABG ME Advert edited NT.pdf 1 20/06/2017 17:03


The United Arab Emirates (UAE) is a federation of seven emirates and its strategic location makes it the renowned commercial and finan-cial hub of the Middle East. The UAE is seeking to diversify its economy into various industry sectors, and move away from the oil based economy, by establishing sector-focused free zones and implementing reform initiatives to attract and facilitate foreign investment.

According to the 2016 Global Investment Report by the UNCTAD1, UAE’s annual net foreign direct investment (FDI) f lows have continued to rise for the fifth consecutive year and it has received the ninth highest FDI in Asia. UAE topped the Arab countries in FDI flows, and the volume of accumulative foreign investments in the UAE developed and amounted to US $126.6 billion in 2015 from US$ 115.6 billion in 2014.

Foreign investors are driven to invest in the UAE due to the general absence of corporate and income taxation, absence of exchange controls and limited restrictions on the repatri-ation of capital, exemptions from custom duties and several domestic regulations, which are applicable within the customs territory. Other factors enhancing the attractiveness of the UAE as an investment location are its strong and profitable banking sector, its large and diverse pool of expatriate labour, good transport and production infrastructures, and its access to low-cost energy.

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


Federal Law No. 2 of 2015 on Commercial Companies (CCL), Federal Law No. 18 of 1981 concerning the Organization of Trade Agencies, Federal Law No. 1 of 1979 regarding the Regulation of Industries, and the Federal Regulation of Conditions of Purchases, Tenders and Contracts Financial Order No.16 of 1975 are the main laws governing foreign investment in the UAE.

The CCL has the objective to continue UAE’s development into a global standard market and business environment and, in particular, raise levels of good corporate governance, protection of shareholders and promotion of social responsibility of companies.

The UAE’s government currently is in the process of issuing new draft laws which cover arbitration, commercial fraud, anti-dumping, and foreign investment. It is expected that the proposed investment law, will make the business ownership requirements less stringent, support economic diversification and promote competition in the economy.


Although UAE laws and regulations intend to support FDI, it currently favours state nationals over foreign investors.

Under the CCL, foreign ownership of a com-pany is restricted to 49 per cent since there is

Jurisdiction: United Arab EmiratesFirm: RIAA Barker Gillette

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a requirement that 51 per cent of the company needs to be owned by a UAE national or a company wholly owned by a UAE national. For public joint-stock companies, there is an addi-tional requirement that the chair and majority of the board members should be UAE nationals. This ownership restriction varies depending on the sector and circumstances. For instance, foreign ownership in the insurance sector is limited to 25 per cent whereas in the financial services sector, it is limited to 40 per cent.

In the case of a branch office of a foreign com-pany, a UAE agent needs to be appointed for sponsorship. Nonetheless, these restrictions do not apply to companies wholly owned by GCC nationals, or corporate shareholders that are wholly owned by a GCC national.

The aforementioned restrictions do not apply in the UAE free zones. However, businesses established in a free zone may not conduct their business outside the free zone area.

There are also restrictions regarding foreign ownership of real estate, which is only permis-sible for designated areas in each emirate.

Lastly, foreign investors, who seek to distribute their products in the UAE must have an exclu-sive agent, who needs be a UAE national or a company wholly owned by a UAE national


For a foreign investor to conduct business, they can establish a formal legal presence in the UAE through any of the following means:

(a) Incorporating a local “on-shore” entity;

(b) Registering a branch or representative office of a foreign company;

(c) Establishing a free zone entity; or

(d) Establishing Offshore/International Business Companies (IBC)

Incorporating a local entityUAE’s CCL sets out five different forms:

(1) Joint Limited Company;

(2) Simple Commandite Company;

(3) Limited Liability Company;

(4) Public Joint Stock Company; and

(5) Private Joint Stock Company.

However, the foreign investors commonly operate through a Limited Liability Company (LLC).

A LLC requires 2 to 50 shareholders and pro-vides the benefit of limited liability. The 51/49 ownership rule applies to LLCs, where 51 per cent of the share capital should be owned by a UAE national with the exception of GCC nationals who can have 100 per cent ownership. It is possible to have a mutual agreement on the profit and loss distribution, and allocation of liquidation proceeds.

There is no minimum capital requirement; however, the LLC should have “sufficient capi-tal” which would be decided by the Department of Economic Development (DED) of the rele-vant emirate. Audited accounts must be filed when renewing license and physical premises are needed as the registered office.

The approximate time frame for incorporation is four weeks.

Branch/ Representative Office A branch or a representative office of a foreign company is suitable for companies who have a limited scope of activities in the UAE. Branch offices do not have separate legal identity to its parent company and are generally restricted to carrying out activities permitted by the Ministry of Economy. A UAE national or a company wholly owned by UAE nationals is needed as a service agent to deal with local and federal government requirements.

Such a branch office can negotiate and enter into contracts on behalf of the parent company and can provide supporting activities. However,


include the Jebel Ali Free Zone (JAFZA) and Ras Al Khaimah Investment Authority.

These allow international businesses to operate with 100 per cent foreign ownership. There is no minimum capital requirement and no requirement of filing audited accounts. IBCs allow the companies to acquire freehold prop-erty within approved areas and the option of maintaining multi-currency bank accounts. Companies under offshore regimes can enjoy the advantage of Double Taxation Avoidance Agreements which the UAE has entered into with several other countries.

When setting up an IBC, the investor does not need to visit the UAE in person, does not need to deposit capital in a bank account, and no financial statements need to be submitted. It provides complete privacy and confiden-tiality ensuring a highly conducive business environment. IBCs require a registered agent who is eligible to form the offshore company, and whose registered address is the registered address of the offshore company.

The approximate time frame for incorporation is one to three days.


Business registration processes vary in each emirate, and are generally done through the emirates’ Department of Economic Development (DED). The company is also usu-ally required to be registered with the Chamber of Commerce and Industry, the Ministry of Labour, and the General Authority of Pension and Social Security. The DED issues licenses with the exception of hotels and tourism licenses, which are issued by the Department of Tourism and Commerce Marketing.

There is no formal FDI review process in place, but restriction on foreign ownership of land and stock are common. Also, non-tariff barriers to investment are present in the form

only the parent company can fulfil contracts that require goods and services, or alternatively, a commercial agent can be appointed.

Representative offices can only market and con-duct production capability studies and are not allowed to perform any commercial activity.

The approximate time frame for incorporation is four to six weeks.

Free Zone Entities The UAE has introduced a number of free zones to attract foreign investment. Each free zone has its own regulatory authority with their own rules and regulations. Generally, the free zones are industry focused, and issue licenses for spe-cific types of activities. Though free zones allow 100 per cent ownership, free zone entities are not allowed to do business outside the free zone area. Such entities can hire expatriates, and are exempt from incorporation tax. However, they have a minimum office space requirement with heavier administration requirements, and a restriction on the number of visas allocated per square meter of the office space.

Most of the free zones have two main types of limited liability companies: Free Zone Establishment (FZE) and Free Zone Company (FZCO/FZC/FZ-LLC). The main difference between these two is the number of share-holders; a FZE requires only one shareholder while the latter requires between two to five shareholders. There is a minimum share capital requirement. However, the amount depends on the free zone, the structure and the activities of the company.

The approximate time frame for incorporation is usually two to eight weeks.

Offshore/ International Business Companies (IBC)Offshore companies are suitable for investors who do not intend to engage in any business within the UAE. Generally offshore companies act as holding companies and do not carry on commercial activities. Free zones which offer the concept of offshore companies in the UAE


of restrictive agency, sponsorship, and distrib-utorship requirements.

Examples of categories that need prior approval for a grant of license include:

• Banks, financial institutions and financial services providers, which need approval from the UAE Central Bank;

• Manufacturing companies from the Ministry of Finance; and

• Pharmaceutical and medical products from the Ministry of Health.

In addition, businesses engaged in oil and gas production related industries are required to follow a more detailed procedure.


Some of the regulated sectors in the UAE include:

BankingThe UAE Central Bank is primarily responsible for overseeing banks in the UAE, except in the DIFC, where the Dubai Financial Services Authority (DFSA) is the regulatory authority. The Central Bank’s responsibilities include issuing currency, advising the government on monetary issues, acting as a bank for other

Hasan Rizvi is the Middle East Managing Partner of RIAA Barker Gillette (Middle East) LLP. He specialises in corporate, commercial and private equity. Hasan’s areas of practice include project finance, restructuring, corporate finance and dispute resolution. He has acted on a number of high profile transactions across the

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 forma-tion, investment structuring and regulatory compliance.

Hasan has worked extensively on infra-structure and energy projects, equity and debt capital markets transactions, and corporate restructurings.

His private client expertise covers strategic advisory services to high-net-worth individ-uals and family groups in relation to family offices, private investments and holding structures.

Prior to establishing RIAA Barker Gillette (Middle East) LLP, Hasan achieved partner status at various other international law firms. He has been based in the Middle East for more than 15 years.

Hasan RizviManaging Partner, RIAA Barker Gillette (Middle East) LLP

http://www.riaabarkergillette.com/uae


HealthcareThe Ministry of Health, and the health author-ities of each emirate administer the public healthcare services in the UAE. These author-ities are responsible for licensing companies and individuals providing healthcare services, improving healthcare information systems and standards, developing a comprehensive healthcare insurance and funding policy, building and managing health facilities and regulating areas of healthcare, including the practice of medicine, dentistry, nursing and pharmaceuticals.

The Ministry of Health along with the Medicines Pricing and Companies Committee regulate prices of both imported and locally manufactured medicines; they tend to favour lower prices to ensure affordability for patients.

MediaThe UAE allows media outlets to establish themselves onshore or in the various media free zones across the emirates. Regardless of where the media companies operate, the National Media Council (NMC) is the federal regulator responsible for publishing licences and issuing press credentials to editors, although there may be additional regulatory authorities for free zones. The role of the NMC also includes ensuring the implementation of media laws, and compliance with regulations, including content regulations that prohibit content criticising the UAE government, its rulers and content that can damage the UAE economy, among other prohibitions. Accordingly, the NMC may cancel licences for violations of content regulations.

Oil and GasUnder the UAE Constitution, each emirate has complete ownership and control of the natural resources in its territory. Consequently, each has its own regulatory body and policies regarding the industry. In relation to oil, Abu Dhabi owns approximately 94 per cent of the national oil reserves, followed by Dubai with

banks and the government, and formulat-ing and supervising the implementation of banking policies. The Central Bank, ensures compliance with banking laws and supervises the other banks by requiring periodic reports, it has powers to inspect records and accounts of banks at its discretion, and can appoint admin-istrators or representatives to manage a bank.

The recently issued Federal Decree Law No. 9 of 2016 on Bankruptcy serves as an instrument of stability and risk mitigation enabling the creation of a pre-emptive settlement regime in the UAE.

Lastly, the UAE is also aligned with regulatory frameworks such as IFRS9 and Basel III, to enhance the credentials of financial instru-ments in the UAE and also to prepare itself for potential market shocks.

InsuranceThe UAE established the Insurance Authority to ensure a suitable environment for the devel-opment of the insurance sector. It enforces its provisions to supervise and control insurance companies and insurance related professions by granting licenses, issuing regulations, and by de-registering companies for breaches of regulations.

Securities and CommoditiesTo improve the efficiency of the UAE capital markets through the development of the necessary legislations, the Securities and Commodities Authority (SCA) was established.

The SCA has wide powers to regulate the securities markets, by establishing controls and producing frameworks pertaining to licensing and membership of the market, list-ing of securities, disclosure and transparency requirements, and arbitration. The SCA is also in charge of communication with international markets in order to exchange information and expertise and join relevant organisations and associations.



There is no public record of whether trans-actions with specific territories, countries or entities are prohibited in the UAE. However, while the UAE does not have a sanctions regime in force; it enforces European Union (EU), United Nations (UN) and United States (US) sanctions on an ad hoc basis through the issuance of internal directives. For instance, the Ministry of Interior confirmed the implemen-tation of UN sanctions on Iran, North Korea, Libya, Sudan and Somalia.


One of the most attractive features of the UAE for foreign investment is that it is largely a tax-free jurisdiction. Currently, there are no federal laws on corporate income tax. However there are tax decrees in the separate emirates that limit tax imposition to certain entities such as branches of foreign banks, courier companies, insurance companies and oil companies.

The various free zones across the UAE are another feature that draws foreign investment. These free zones allow 100 per cent foreign ownership of a company, and full entitlement to company profits. There are also no customs levied on imports in the free zone.

Other incentives include the strong and profitable banking sector, large and diverse pool of expatriate labour, and developed infrastructure.


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

approximately 4 per cent; the remainder is split between the other emirates.

In Abu Dhabi, the Supreme Petroleum Council establishes policies and ensures that they are implemented. It also forms the board of direc-tors of the Abu Dhabi National Oil Company, which is state-owned, and is the dominant company in the sector.

In Dubai, the Dubai Supreme Council of Energy develops policies, and coordinates with the Department of Petroleum Affairs to admin-ister the exploration and production of oil and gas. The council also has representatives from the Emirates National Oil Company, which is owned by the Dubai government.

TelecommunicationThe Telecommunications Regulatory Authority (TRA) is responsible for the oversight of all telecommunications and information technol-ogy industries. The TRA’s detailed regulatory framework covers areas such as competition rules, price control, allocation of scarce resources, consumer protection requirements and reporting obligations.

Water and ElectricityAlthough there are federal laws governing electricity and water supply, they are limited. Each emirate therefore has the responsibility to regulate the industry based on its own economic agenda.

Private companies may only generate electric-ity, since only state-owned authorities may transmit and distribute it.

Abu Dhabi and Dubai also have Regulation and Supervision Bureaus, which issue licences and regulations, and monitor compliance with policies.



There is no federal law on tax, thus each emirate has its own laws relating to tax.

Currently, there is no personal tax, capital gains tax and withholding tax levied in the UAE. In practice, corporation tax is levied on oil, gas and petrochemical companies, and branches of foreign banks.

Oil and gas companies also have to pay royalties on the total revenue derived, and income tax on the net profit after depreciation, as stipulated by the emirate’s government. However, oil companies are usually owned by state-owned entities and where there is a consortium of companies, the foreign companies will only be minority shareholders.

It is important to note that the UAE has entered into double taxation treaties with several coun-tries to reduce the potential burden of tax being imposed on foreign companies operating in the UAE.

Furthermore, the UAE has recently announced its plan to impose value added tax (VAT) from 1 January 2018, which will apply to most transac-tions of goods and services. The tax rate is likely to be 5 per cent. This also means that businesses would be required to register themselves in accordance with the forthcoming VAT regime.

In addition, municipal taxes are also imposed, and the rate varies in every emirate. There is also an indirect tax imposed on rental incomes from residential and commercial properties.

There are no social security taxes imposed on expatriates in the UAE. However, UAE national employees, in accordance with specific regula-tions, 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

zone in the UAE, inspired the other emirates to set up their own free zones to attract foreign investors and businesses. Since then, the UAE has established over 40 free zones, and each caters to a specific business category such as ICT, media, finance, gold and jewellery, and equipment.

An independent Free Zone Authority (FZA) is responsible for governing the zone, setting the regulations, issuing licenses and assisting companies with establishing their businesses in the free zone. For instance, the DFSA is the financial services regulatory authority of the DIFC. It authorises and registers institutions and individuals who wish to conduct financial services in or from the DIFC. It also supervises regulated parties to ensure compliance with DFSA laws, regulations and rules, and enforces DFSA administered legislation.

Procedures for setting up are usually straight-forward and can be completed quickly. Although each free zone has its own set of rules on how investors can set up their businesses, the general procedure includes:

• A questionnaire from the relevant FZA which will assist in assessing a company’s requirements;

• License application, planning documents, and a consumer request for electricity;

• Provisional approval and lease agreement; and

• Meetings with the authority to finalise details of the project.

Apart from the free trade zones, the UAE has established special economic zones for small-and-medium sized businesses. Examples include the Zones Corp in Abu Dhabi, and Industrial City in Dubai, and Rak Maritime City in Ras Al-Khaimah.


residence permit lasts for a maximum period of three years, but can expire earlier if the investor is outside the UAE for over six months.

In order to obtain the investor visa, either AED 10,000 or AED 20,000 should be deposited with the UAE government, and proof is required to show that the investor has sufficient funds to make a significant investment in the UAE. If the visa is required to invest in real estate, then at least AED 1,000,000 worth of property should be purchased. Furthermore, to invest in a UAE business, the visa needs approval from the UAE immigration authorities, which provides authorisation to live and work in the UAE.


The UAE’s Constitution grants each emirate the right to legislate and govern real estate ownership in its territory. Dubai imposes the least restrictions on foreign ownership of land, making it the most attractive for real estate investment in the UAE. The other emirates offer varying degrees of rights with Fujairah offering the most limited rights.

In Dubai, only UAE nationals, GCC nationals, companies owned 100 per cent by UAE and/or GCC nationals and public joint-stock com-panies can own property located in any area in Dubai. It should be noted that this does not include a company incorporated in the UAE or GCC with a foreign shareholder.

A non-UAE/GCC national can own property in designated areas outlined in Regulation No. 3 of 2006 (as amended by Regulation No. 1 of 2010) in three ways:

(1) Freehold;

(2) Leasehold (up to 99 years); and

(3) Usufruct (up to 99 years).

This also applies to foreign companies, subject to the Dubai Land Department’s (DLD) policy

renewal, and fees for the local sponsorship agent of a branch office.


Employment Regulations in UAEFederal Law No 8. of 1980 on Regulation of Labour Relations (Labour Law) imposes cer-tain minimum standards on working hours, vacation and public holidays, leave policies, employee records, safety standards and termi-nation of employment.

It is important to note that the Labour Law is favourable to hiring UAE nationals; preferences for vacancies are given to UAE nationals, then GCC nationals and then to nationals of other countries. Foreign nationals need to obtain approval from the Ministry of Labour to get employed. Moreover, the Emiratisation policy which is applicable to both public and private sector and local/international companies, stip-ulates a minimum percentage of UAE nationals to be employed.

Free zones have their own set of employment laws and employee grievance procedures.

Furthermore, all registered institutions in the UAE have to transfer their worker’s salaries through the Wages Protection System, with the exception of some free zones like the DIFC.

Federal Law No. 7 of 1999 for Pension and Social Security governs the UAE’s pensions and social security scheme.

Residency permits/work visa for foreign nationals under investmentThe UAE has created investment driven immi-gration programmes in order to accommodate and encourage foreign investment.

The UAE provides the option of obtaining an investor visa that provides a temporary residence permit to its holder. The temporary



Disputes are usually resolved through direct negotiation and settlement between parties, through recourse to the court, or arbitration. The UAE’s accession to the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards (UN Convention), which became effective in November 2006, makes an arbitration award issued in the UAE enforce-able in all 138 states that have acceded to the UN Convention.

There are no specific courts for commercial disputes. Instead all commercial cases are heard by the civil courts, which includes: the Court of First Instance, Court of Appeal and the Court of Cassation.


The UAE has entered into various Bilateral Investment Treaties (BIT) with Asia-Pacific jurisdictions, including China, Malaysia, South Korea, India and Pakistan among others. Some common features of these BITs include:

• The requirement for each contracting party to treat investments fairly and equitably;

• Prohibition on expropriation;

• Prohibition on government measures that are unreasonable, arbitrary or discrimina-tory and that could harm investment;

• Most favoured nation protection, which guarantees that treatment of investors will be no less favourable than the treatment accorded to investments of its own inves-tors or investors of any third state; and

• Investor-state dispute resolution, which provides mechanisms to resolve disputes between investors and the host state.

which allows the following types of companies to own property:

• Offshore companies incorporated in JAFZA or the Dubai Multi Commodities Centre Free Zone;

• Companies incorporated within free zones in Dubai;

• Companies incorporated in the DIFC, pro-vided a special approval has been obtained by the DLD to purchase property outside the DIFC; and

• Companies incorporated onshore in Dubai, such as LLCs and private joint-stock companies.


As mentioned previously, the CCL requires companies incorporated in the UAE to have at least 51 per cent ownership by a UAE national. Moreover, even branch offices of foreign com-panies are required to have a UAE national service agent.


There are currently no foreign currency or exchange controls in the UAE.


Currently, there are no such restrictions or pen-alties as the UAE intends to welcome foreign investment. However, there could be changes with the enactment of the proposed investment law.


In general, remedies for enforcement of the above rights include damages, fines and imprisonment.

On the international front, the UAE is a member of international treaties and organi-sation such as the Agreement on Trade Related Aspects of Intellectual Property Rights, the World Intellectual Property Organisation, the Paris Convention for the Protection of Industrial Property, and the Berne Convention for the Protection of Literary and Artistic Works amongst others. Consequently, inter-national intellectual property rights are also recognised and respected in the UAE.

In line with UAE’s Vision 2021 to encourage innovation and create an attractive economic environment, the Ministry of Economy has signed a Memorandum of Understanding with the Korean Intellectual Property Office to establish the International Centre of Patent Registration in the UAE. This facility will include an international team of patent experts for patent evaluation, conducting research studies on areas of intellectual property, and training professionals in the field.


Although FDI helps to achieve economic growth, it is important to see its effect on envi-ronmental degradation. The UAE, by winning the Expo 2020 bid, focuses on sustainable development to promote the scope of complete welfare for all generations by achieving the environmental and economic aims of society with lesser negative effects.

The vision of Ministry of Climate Change and Environment is, ‘we strive towards integrated management for environment ecosystem and


The UAE recognises the importance of intel-lectual property rights in fostering innovation, research and development, whilst securing consumer confidence. The UAE has a range of laws providing protection for intellectual property, and remedies for infringement of relating rights.

Federal Law No. 17 of 2002, as amended by Federal Law No. 31 of 2006 (Patents Law) protects patents. In addition, as a result of the UAE’s membership of the GCC, if an applica-tion for a GCC patent is made, then protection can be granted in the six member countries. However, the effectiveness of enforcement of a GCC patent in the UAE is unclear.

Federal Law No. 7 of 2002 on Copyrights and Related Rights protects a range of works. In the case of infringement, it is possible to request the court for an injunction to stop the use of the work, seize copies or seize income generated from the use.

Federal Law No. 37, as amended by Federal Laws No. 19 of 2000 and No. 8 of 2002 (Trademarks Law) protects trademarks and trade names. The trademark registration process can be quite lengthy. It is also noteworthy that although Dubai customs has an efficient system for seizing goods on the grounds of infringement, other emirates are not as proficient.

In the case of confidential information, there are a number of national laws that protect trade secrets and confidential information including, the Patents Law; Federal Law No. 3 of 1987 on issuance of the Penal Code; Federal Law No. 5 of 1985 on the Civil Transactions Law and the CCL. In the absence of a uniform law on this area, there is uncertainty regarding protection of these rights. Nevertheless, protection pro-vided by a contract can be effectively enforced.


the process. The respective websites and repre-sentatives at the offices of these authorities can provide relevant information, expert advice, and practical help. For instance, Dubai FDI is a department of the DED in Dubai which provides support to foreign businesses looking to invest in Dubai.

Apart from the above-mentioned ministries, the Department of Tourism and Commerce Marketing, the UAE Central Bank, the Ministry of Finance and Industry and the Ministry of Health also provide the necessary information on investment in the UAE on their websites, or alternatively, the potential investor can visit these offices.

Financial service providers, banks and law firms in UAE also can assist potential foreign investors.


Although the current legal framework favours nationals over foreign investors, UAE laws and regulations are evolving in support of foreign investments.

The CCL provides a stronger basis for corporate regulation. In addition, it is also anticipated that the proposed investment law will make the ownership requirements less stringent.


It is a principle of international law that every state is sovereign in controlling the entry and establishment of foreign businesses within its territory. The new generation of investment laws that have been implemented in countries share the common element of shifting from restricting FDIs towards regulating the entry of FDIs. With this view both the UAE and Asia

natural resources to realise green economy for the present and future generations’ 2.

In 2009, the UAE embraced renewable energy by hosting the International Renewable Agency. The green economy for sustainable development initiative was launched in 2012 as a pathway to jointly enhance the country’s economic growth ambitions, social develop-ment priorities and vital environmental goals. In 2015, the UAE Cabinet issued a decision to approve and to implement the ‘UAE Green Agenda 2015-2030’.

UAE has applied a series of fundamental policies and guiding principles to install sus-tainable development at the core of its vision for growth, as captured in the ‘UAE Vision 2021’.

The Federal Environmental Authority also has prepared a draft of environmental protection legislation including provisions on water, soil, air pollution, noise pollution, the protection and preservation of wildlife, environmental disasters and the handling of hazardous materials and waste. Entities will be required to comply with these provisions, and also with the UAE treaty obligations.


The UAE welcomes foreign investments by having government agencies that provide investors with necessary information on investment.

The business registration process in the UAE varies based on the emirate, and is generally done through the DED. The company is usually required to be registered with DED, Chamber of Commerce and Industry, the Ministry of Labour, and the General Authority of Pension and Social Security with a required notary in

2 ‘UAE Ministry of Climate Change and Environment’ (Moccae.gov.ae, 2017)


W: www.riaabarkergillette.com/uae

A: Dubai International Financial Centre, Gate Village Building 2, Level 3, Suite 301, PO Box 507014, Dubai, United Arab Emirates

T: +971 4 401 9411

About the Author:Hasan Rizvi

Managing Partner, RIAA Barker Gillette (Middle East) LLP


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 desti-nation 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.

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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.

As a midsize firm, STW & Partners does not have any particular practice group but sets up a team comprising of lawyers with specialized knowledge and experience, which makes it a very unique international firm in Japan. Each lawyer at STW & Partners strives to fully understand the overall picture of each case, combine his or her expertise and experience through consultation with other attorneys, analyze and verify litigation strategies, with an aim to achieving the best possible outcome for clients.

All lawyers at STW & Partners have vast experience in dealing with dispute resolution matters in both domestic and international aspects including matters with relation to the Companies Act (eg shareholder derivative action), intellectual property rights (eg patent infringement litigation), antitrust (eg conspiracy and cartels), intercompany transactions, real estate (eg warranties against defects and rent increase/decrease), insolvency (eg requests for avoidance), labour, tax, and corporate crime.

STW & Partners has wide-ranging experience in advising on various including management decision, corporate governing structures (eg board of directors and board of statutory auditors), officers’ remuneration, stock options, internal governance systems, capital policies (eg capital increase/ decrease and treasury stock), information

- disclosure, insider trading, and shareholders agreements. The firm also handles various aspects of corporate disputes on behalf of companies in many industries including actions seeking directors’ liability, disputes involving controlling rights, and M&A disputes. STW & Partners represents a variety of clients involved in mergers and acquisitions. Regardless of the transaction structure (eg restructuring, business transfer, capital increase through third party allotment including venture financing, acquisition of own shares, share purchase, tender offer, or management buyout), whether the companies involved are listed, or the volume of the transaction, the firm advises on the full range of M&A transactions from friendly acquisitions to hostile takeovers and transactions brought about by insolvency.

STW & Partners has significant experience in handling infringement litigation, trials, and actions for trial decision revocations, and other disputes concerning intellectual property rights such as patents, trademarks, copyrights and unfair competition both in and outside of Japan. The firm’s practice in this area involves negotiating and reviewing license agreements on behalf of its clients across the world. The firm has actively handled various IT-related legal issues including data privacy and disputes.

STW & Partners has significant experience acting on behalf of debtors, creditors, sponsors and other stakeholders in legal insolvency proceedings, including civil rehabilitation, corporate reorganization, bankruptcy, special liquidation, and voluntary liquidation. Various types of business entities including listed companies and SMEs rely on the high level of restructuring and insolvency expertise at the firm. The firm provides comprehensive legal advice to clients facing restructuring or insolvency issues in a timely manner, working closely with lawyers who have detailed knowledge of litigation, M&As, corporate matters, finance, intellectual property, real estate, and labor practice.

STW & Partners handles criminal and administrative procedures and civil cases involving violations of antitrust laws, including actions for compensation for damage and shareholder derivative actions. The firm has close relationships with law firms around the world, which enable the firm to provide the best possible solutions in negotiations with foreign executive agencies, class actions and other civil actions. The firm has assisted a number of clients with antitrust aspects in their commercial transactions and the establishment of compliance structures based on its extensive experience in cases in Japan and other jurisdictions. The firm aims to appropriately resolve cross-border disputes by strengthening relationship with firms in the US and EU and coordinating with Asian firms.

Firm

Main areas of practice:

Litigation / Dispute Resolution:

Intellectual Property / IT:

Antitrust/Competition:

Corporate / M&A:

Restructuring / Insolvency:

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from LexisNexis®

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