Compare current FIA, 28 PNC 101 et seq. with HB 8-3-1, HB3, SD5

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1 Compare current FIA, 28 PNC 101 et seq. with HB 8-3-1, HB3, SD5 28 PNC 101 and Regulations HB 8-3-1, HB3, SD5 Type of Business Structure allowed for foreign investors Board Any form of business enterprise allowed: Business enterprise defined as proprietorship, partnership, corporation, trust, joint venture, association, r any other form of business organization established in the Republic of the purpose of carrying on a business (28 PNC 102(c)) 1) Board Tasks: a. Review and approval of application for foreign investment b. Monitor and enforce compliance with Act, including spot inspections c. Review procedures of Board and advise President d. Submit annual report to President and OEK e. Other matters 2) FIB has seven members, appointed President with advice and consent of Senate. 3) Members serve at pleasure of President 4) Meet no less than once per month 28 PNC 104 Administrative Procedures Act ( APA ) applies (28 PNC 117) Corporations only (Section 8) 1) Board Tasks: a. regulating and enforcing foreign business law b. Submit annual report to President and OEK c. Reviews all Registrar issued charters for Palau Foreign Investment ( PFI )and issues approval certificates d. Monitoring and enforcing compliance with conditions of PFI charters, including spot inspections e. Review procedures and regulations of FIA and advise President f. Collaborate with AG office in investigation and prosecution under Act g. Perform other duties assigned by President or prescribed by law 2) FIA composed of seven members, appointed by President with advice and consent of Senate 3) President needs cause to terminate Board member. 4) Meet once annually and whenever majority of members determine meeting necessary 1

2 5) Members receive $50/day if doing business in Palau, $100/day and per diem if off-island APA applies Application Process and Requirements (1) Obtain corporate charter from Registrar of Corporations, submitting: a. By-laws b. Articles of incorporation c. Stock certificate/affidavit (2) Apply to Foreign Investment Board ( FIB ). Requirements include: a. $500 fee b. $500,000 capital investment or workforce of at least 20% Palauan c. 3 year business plan d. Information on stockholders, officers, partners including: police clearance, resume, financial affidavit, passport e. Local agent as resident of Palau f. Present details on how meeting other criteria including: 1. Economic and social programs related to land and marine resources; community related social services; 2. Employment opportunities for Palauans g. $500 fee for every non-citizen employee (3) Within 15 days of submission (provided application is complete) FIB forwards application to President, OEK, Chamber of Commerce and Governor (4) Within 90 days of submission of completed application, (1) Obtain Palau Foreign Investment ( PFI ) charter from Registrar of Corporations, submitting at least: a. By laws b. Articles of incorporation c. Stock certificate/affidavit d. Other documentation required unclear (2) Registrar forwards PFI charter to Foreign Investment Authority ( FIA ) for granting of approval certificate. Requirements include: a. $1,000 fee b. Sworn statement the PFI has or will make minimum investment of $250,000 c. Banking in Palau d. Local agent as resident of Palau e. One board meeting a year in Palau f. $500 fee for every non-citizen employee g. $2,500 annually for business license h. Other requirements such as police clearance, resume, financial affidavit are unknown. (3) Within 120 days after end of first full calendar year of corporation file accountant certificate swearing $250,000 capital investment (cash or assets) (4) Within 120 days of issuance of PFI charter, corporation will: a. Open and maintain office in Palau b. Hire at least one Palauan staff full time 2

3 decision by FIB on granting of Foreign Investment Approval Certificate (Section 9) (28 PNC 108) Categories of Businesses allowed and disallowed When does foreign business need or not need approval; Professionals Foreign business can operate any type of business except: (1) Must have Palauan ownership interest if: a. Handicraft and gift shops b. Bakeries c. Bar services no associated with restaurant/hotel of 50+ rooms d. Operations manufacturing products being wholly produced by wholly Palauan manufacturing enterprises e. Equipment rentals for both land and water f. Any other business that the FIB may determine (2) Reserved exclusively for citizens: a. Wholesale/retail sale of goods b. All land transportation including buses, taxis, car rentals c. Guides: tours, fishing, diving and other forms of water transport but not bareboat charters d. Travel and tour agencies e. Commercial fishing for other than highly migratory species. (28 PNC 105) Foreign business enterprise need approval where established in the Republic which means maintaining a physical presence in the Republic including: 1) Operating or establishing an office, store, etc 2) Hiring, appointing, sending representative, distributor, agent All businesses exclusive for Palauan citizens Foreign corporations may engage ONLY in following business activities: (1) Commercial carriers (2) Shipping (3) Development of hotels/condos 50+ rooms (4) Commercial fishing of highly migratory species (5) Canneries (6) Garment factories (7) Pharmaceutical development (8) Auto manufacturing/assembly (9) Banking (10) Oil exploration Wholes/retail distribution of petroleum products but not gas stations or selling gas to public (Section 9) Business or business activity means any type of commerce or trade with the object of profit or gain except: 1) Foreign companies doing business exclusively for contract with ROP 2) Non-profit organizations with religious, charitable, scientific, 3

4 more than 30 days per year transacting business 3) Construction, building, assembly projects 4) Importing items for resale or wholesale 5) Paying taxes to ROP 6) Hiring employees 7) Obtaining business licenses 8) Other acts that would constitute personal jurisdiction. (28 PNC 102(c); Regulations, Part 2, Section 1(a)) But is not a business enterprise if: 1) Foreign companies doing business exclusively for contract with ROP 2) Non-profit organizations with religious, charitable, scientific, literary, educational goals 3) Non-profit orgs for national or international athletics 4) Non-profit orgs for prevention of cruelty to children or animals 5) Practice of law or medicine (exclusive) (28 PNC 102(c)) environmental (new), literary, educational purposes or to foster national or international athletics or prevention of cruelty to children or animals. 3) Publishing of general or classified ads for newspapers, brochures, publications, radio or television 4) Conduct of scientific research or investigations 5) Collection of information by bona fide journalist (but not for publication of newspapers, brochures, or other publications) 6) Maintaining or defending lawsuits, participation in administrative actions, arbitration, mediation 7) Opening and maintaining bank accounts 8) Performing services auxiliary to existing contract of sale 9) Effective sales from outside Palau and exporting same to Palau 10) Option to lease property less than 2 years 11) Meetings of directors or shareholders 12) Effecting sales through independent contractors 13) Conducting isolated transactions completed within 30 days and repeated 14) Production/filming within 180 days and not repeated 15) Delivering or taking delivery of raw materials including fish, agricultural and marine materials or processed goods Penalties Administrative: Board may modify, suspend or revoke a FIAC under certain conditions (28 PNC 112) Criminal: (1) Misdemeanor, one year, $25,000 or both if: a) Carrying on business enterprise without FIAC b) Have ownership interest in business enterprise without FIAC c) Has business beyond scope of FIAC (Section 16(a)) No administrative powers in Act Criminal: 1) Violation of Act is misdemeanor, no jail, $25,000 fine 2) Deportation at President s discretion Amnesty program -- No prosecution for previous violation of foreign investment law if: 1) Business applying in good faith, within 6 months of Act OR 2) If business terminated within 90 days of passage of Act. 4

5 d) Fraud, misrep, bribery, unlawful influence in obtaining FIAC e) Engaging in business after revocation or expiration of FIAC (2) If carry on business without FIAC then disqualified from obtaining FIAC (3) Aiding and abetting a crime with same penalties (28 PNC 113, 114) Investor Visas No power over the granting of investor visas, solely under the discretion of Immigration Transfers responsibility for approval and renewal of Investor Visas to FIA from Immigration. (1) Application fee of $1,000 (2) 25% ownership requirement for investor visa (3) Four investor visas per PFI corp. (4) If felony in last 10 years, no visa (5) Term of five years (6) Only 4 dependant visas per investor unless waived for cause by President 5