Palau Legislature Looks To Tighten Foreign Investment Laws

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Pacific Islands Development Program, East-West Center With Support From Center for Pacific Islands Studies, University of Hawai‘i

Key differences between House, Senate versions of law

By L. N. Reklai

KOROR, Palau (Island Times, May 3, 2016) – Palau’s Senate referred back House Bill 9-6-1, HDI amending the existing foreign investment law in Palau. Changes included 3 existing proposals for more effective action, according to Senate Committee Report.

Committee Report states it is aware that some believe "unrestricted foreign investment is the best path for Palau. "Committee recognizing that foreign investment is an integral part of Palau’s economy" but it says, "the original intent of the Foreign Investment Act – protecting and encouraging Palauan-owned businesses – remains an important goal and an effective, common-sense regulation is in the best interests of the Republic."

The bill includes 9 major changes to the original law. One, the proposal to expand the role of Foreign Investment Board (FIB) to include promotion of foreign investment was removed. FIB recommended that it be removed due to potential conflict between its regulatory role and a promotional role.

Two, it incorporated and expanded the definition of a "business enterprise" and "carrying on a business". Just having a name on a legal document like a business license, is no longer the only definition of ownership.

Under the definition, there are 11 criteria to determining if a person or group could be considered owners. If a person or group meets 3 out of 11, that person or persons can be considered owner regardless of whose name the business is listed under. This makes it easier to identify "front" operations according to the report.

On local ownership, the bill clarifies rentals of land and water transportation vehicles and reorganizes so that they are clearly understood.

The bill recommends increasing minimum investment amount to $1 million and forbid transfer of ownership for one year after receiving an FIB permit.

Other important changes include changes to application procedures, FIAC requirements, FIB powers, reporting requirement and penalties and enforcement.

This House bill has been amended by the Senate and is referred back for House to review the changes Senate made and take action on those changes.

Senate R&D Committee members, Senators Mason Whipps, Regis Akitaya, Hokkons Baules, Joel Toribiong, Uduch Sengebau-Senior, Phillip Reklai and Rukebai Inabo, unanimously signed the report.

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