Investment


Investment Regulations

Company Law
The Company Law is expected to be enacted in the fall of 1999 and harmonizes the registration and incorporation process as well as applies uniform fees to both the West Bank and Gaza. It eliminates existing requirements for par value of the share and stated capital and simplifies the incorporation procedures. Under the existing law the following prevails. Company registration is done at the Ministry of Economy and Trade by filling out the required forms, attach the company registration certificate, and pay the fees.

Industrial Estates And Industrial Free Zones Law
The Law on Industrial Estates and Industrial Free Zones was enacted in November 1997. The law designates certain area free zones to facilitate the establishment of regional and international export centers. An Industrial Estate and Industrial Free Zone Authority was established to oversee such development. This is an independent and autonomous body overseeing the implementation of the estates and free zones, and creating an enabling and regulatory framework for the success of their operations. A private-sector developer is developing the infrastructure. All the Investment Law advantages pass to investors investing in the industrial zones.

Requirements for operation in Industrial Areas:

  1. Projects should be registered with the companies’ registrar in compliance with Palestinian rules.
  2. Projects should meet environmental requirements subject to Palestinian Environmental Law and under supervision of PIEFZA.
  3. When applications conform to rules and instruction in force, they will be processed by PIEFZA.
  4. Obtaining of certificate:
  1. Application form is obtained against payment and receipt of payment note.
  2. Applications should be directed to the Department of Operations of PFIEZA, which then evaluates the technical and environmental aspects of application
  3. Initially, a Memorandum of Understanding will be signed between the developer and the investor until required procedures are completed by PIEFZA.
  4. Environmental evaluation will be completed within 21 days from date of presentation of application.
  5. Following completion of environmental evaluation, companies’ registrar will be informed to request for approval for registration of company.
  6. Technical assessment of project will also be completed within the same time frame.
  7. Executive Director of PIEFZA will present application to Board of Directors for resolution within maximum of one month from date of submission, Board will decide on application within maximum period of two weeks.
  8. If a certificate is granted, it will be prepared and handed over within maximum period of one week from date of decision.

Foreign Company:

  • Foreign Company or branch may register locally
  • Requires special authorization
  • Audited financial reports must be submitted

 

Investment Climate

Openness to Foreign Investment
Following the national commitment of encouraging investors and building a modern market economy, the new Law on the Encouragement of Investment 1998 provides guarantees, incentives and benefits:
Guarantees:

  • Provides protection for all investors and investments and grants specific incentives for projects creating or expanding economic activities in certain sectors.
  • Prohibits discrimination against any investor on the basis of nationality.
  • Prohibits expropriation of investment; in the event of expropriation for a public purpose, enterprises will be compensated fair market value.
  • All confidential information is protected unless the investor gives his written consent or a court order from a Palestinian court compels disclosure.
  • Preferential treatment is permitted on a narrow basis arising from bilateral or multilateral agreements.

Benefits:

  • Free transfers of foreign currency and freedom for repatriation of income generated from investment in Palestine
  • Investors may invest in any sector of the Palestine economy under the free admission principle

Right to Private Ownership and Establishment
The new Law on the Encouragement of Investment 1998 provides guarantees, incentives and benefits:
Guarantees:

  • Provides protection for all investors and investments and grants specific incentives for projects creating or expanding economic activities in certain sectors.
  • Prohibits discrimination against any investor on the basis of nationality.
  • Prohibits expropriation of investment; in the event of expropriation for a public purpose, enterprises will be compensated fair market value.

Protecting your product from IPR infringement
Preparation is underway for an intellectual property law, which will allow registration of patents, trademarks, and trade names.

Investment Incentives
Incentives:

1. Exemption from Income Taxation:

  • Investments exceeding US$5 million are granted an additional 20-year period at the rate of 10%.
  • Any special investment in type and capital may be entitled to an additional 20-year period at the rate of 10%.
  • All investments will be exempt from income tax for the first five years.
  • Exemptions below US$1 million to $5 million are granted an additional 12-year period at the rate of 10%.

2. Exemption from Customs Duties:

  • Equipment and heavy machinery and their imported spare parts Other Exemptions:
  • Furniture imported for hotels, electrical appliances, and electronics imported for tourism enterprises, hotels and hospitals
  • A price increase in the value of fixed assets when increase is a result of rising prices outside the investor’ s contract
  • The exemption period may be extended for two years if local input in the equipment, machines, and fixtures exceed 60%
  • The exemption period may be extended up to five years depending on the nature and location of the enterprise
  • Additional exemptions may be granted to enterprises engaged in export, provided export percentage is not less than 30% of the total
  • Exemption from payment of VAT on specific items
  • VAT refunds

Transparency of the Regulatory System
The new laws govern transparency and availability of clear, unambiguous rules and regulations, which provides investors with uncontested ability for recourse to the legal system, and ensures added benefits to investors by invoking freedom on control of capital investment and tax exemptions and protection of investment against nationalization and expropriation.

Labor
The rate of participation of working-age population in the labor force (crude activity rate) remains relatively low, at around 42 per cent. The PCBS has estimated the size of the Palestinian labor force at 585,000 in 1998, an increase of 5.9 per cent from 1997. The average full employment rate grew to 78 per cent in 1998 (from an average of 69% in 1997), with the total number of employed in 1998 at about 456,000 leaving 91,000 persons unemployed (16 per cent of the labor force) and up to 38,000 underemployed (another 6.5 per cent).

The number of Palestinians working in Israel and the settlements increased steadily until 1992, when it reached its peak of 116,000. The number began declining after Israel adopted the work permits policy, and the rate of decline increased after 1993, reaching 37,000 in the spring of 1996. As workers with and without permits began sporadically to return to places of work in Israel, the total estimated number of Palestinians working in Israel reached around 70,000 by the fall of 1996. The total, including registered and non-registered workers averaged 75,000 in 1997 and grew significantly to 107,000 in 1998 – topping 100,000 for the first time in 6 years. The share of employment in Israel out of total Palestinian employment in the West Bank and Gaza reached its peak of 39 per cent in 1987 but by 1998, this had been sharply reduced to around 22 per cent.

According to PCBS projections, the resident Palestinian population is expected to exceed 3 million by the turn of the century, reflecting an annual population growth rate of 5.4 per cent. Together with an expatriate Palestinian population of an estimated 3.5 million, this constitutes a formidable reservoir of economic and human resources on which the future of the Palestinian national economy should be able increasingly to draw, in the productive trade and services sectors alike.

The Palestinian Labor force is characterized as being:

  • A relatively well educated labor force;
  • An aggressive and diversified entrepreneurial class that has strong extensions into wealthy expatriate communities and corporate structures in the Arab countries as well as in Europe and North America;
  • Experienced in trading with both the Arab countries and Israel, with a versatility acquired through operating in non-optimal circumstances;
  • Ready to open trade with other countries in the region, given that it does not have a large industrial base to protect

Efficient Capital Markets and Portfolio Investment

Capetal Markets Authority Law
The Capital Markets Authority Law was passed in May 1999. This law establishes an autonomous governmental institution with full legal jurisdiction to regulate the following non-banking-related financial institutions:

Palestine Security Exchange, Clearing, Deposit and Settlement Center, Management Officers, Financial Advisers, other Securities Professionals, Securities Companies, Issuers, Custodians, Custody Services, Major Holders, Public Offers, Tender Offers, Securities Holders, Private Placements, Institutional Placements, Underwriters, Collective Investment Schemes, Fund Administrators, Fund Custodians, Fund Overseers, Fund Sponsors, Portfolio Managers, Offerors, Insurance Agents, Insurance Brokers, Insurance Intermediaries, Insurance Companies and other Insurance Dealers, Venture Capital Companies, Leasing Companies and other non-banking Financial Intermediaries.

Objectives:

  • Provide an environment to achieve stable and sound non-banking financial market activities including, but not limited to, securities, issuance and trading activities, insurance activities, and leasing activities.
  • Safeguard the interest of the investors and the public.
  • Regulate disclosure of any adequate information and data of the non-banking financial sector.

Powers:

  • Formulate the policy guidelines for conducting the Authority’ s duties;
  • License, regulate, and supervise individuals and entities listed above in accordance with this law and other laws;
  • Adopt accounting, auditing, and performance evaluation standards for individuals and entities falling under the supervision of the Authority;
  • Determine standards, requirements, and duties for qualified auditors to audit the books and records of individuals and entities falling under the supervision of the Authority;
  • Impose administrative penalties in terms of fines according with the laws, corrective action or suspension of all or some of the activities of the supervised individuals and entities.

Banking Law and Regulations
The Palestinian Monetary Authority Law (central bank) enacted 1997, and the Banking Law, to be enacted, contain extensive provisions for the licensing and supervision of banks by the central banking authority, the Palestinian Monetary Agency (PMA). The PMA Law regulates and licenses all banks; local and foreign alike. The PMA supervises banking transactions and relations between banks, as well as regulates foreign currency exchange and sets financial and credit policies. Palestine has three currencies that constitute legal tender; the Jordanian Dinar, the US dollar, and the new Israeli shekel.

Commercial Banking Regulations:

  • Required reserves on deposits:
  • JD – 14% of deposits
  • US$ – 10% of deposits
  • NIS – 8% of deposits
  • Convertible currencies – 10% of deposits
  • Non-convertible currencies – 20% of deposits
    • Liquidity ratio/cash – 4%
    • Liquidity ratio/non-cash – 25%
    • Credit accorded to related parties – 20% of total equity base
    • Credit accorded to one client – 10% of equity base, 15% with prior approval of the PMA
    • Total credit portfolio for loans, which individually exceed 10% of equity base – double the total equity base
    • Provisioning on non-performing loans is allowed as in Jordan

    Source of Funds:

    Commercial banks can either obtain funds from customer deposits, inter-bank lending, the issuance of negotiable Certificates of Deposits (CDs), or securities. At present, customer deposits account for the majority of liabilities of the Palestinian banking system.

    Competition with Foreign Banks

    Due to the absence of a Palestinian currency, banks operating in Palestine compete for deposits with banks elsewhere; the competition being mostly for local resident deposits.

    Conversion and transfer policies
    No government currency conversion or transfer control or policy

    Expropriation and Compensation

    Investment Law
    Following the national commitment of encouraging investors and building a modern market economy, the new Law on the Encouragement of Investment 1998 superseded the 1995 law.

    Guarantees:

    • Provides protection for all investors and investments and grants specific incentives for projects creating or expanding economic activities in certain sectors.
    • Prohibits discrimination against any investor on the basis of nationality.
    • Prohibits expropriation of investment; in the event of expropriation for a public purpose, enterprises will be compensated fair market value.
    • All confidential information is protected unless the investor gives his written consent or a court order from a Palestinian court compels disclosure.
    • Preferential treatment is permitted on a narrow basis arising from bilateral or multilateral agreements.

    Dispute Settlement
    The new laws govern transparency and availability of clear, unambiguous rules and regulations, which provides investors with uncontested ability for recourse to the legal system, and ensures added benefits to investors by invoking freedom on control of capital investment and tax exemptions and protection of investment against nationalization and expropriation.

    When either an Investor or the Authority believes that a dispute between them has arisen, it may request that good faith negotiations begin according to procedures established in the Regulations. Either party to a dispute must request good faith negotiations before it may have access to the dispute settlement procedures provided hereunder:

    If good faith negotiations fail to resolve the dispute in the period of time specified in the Regulations, either party shall have the right to take the dispute to:

  • Binding, independent arbitration as provided in the Regulations
  • Palestinian courts