Foreign investment law and policy in Papua New Guinea

An overview of the foreign investment law and policy in Papua New Guinea including certification, reserved activities and guarantees.

Foreign investment in PNG is regulated by the National Government with the assistance of the Investment Promotion Authority (IPA). The IPA’s approach is to promote and assist foreign investment.

Investment Promotion Authority

The main powers and functions of the IPA are:

(a) To promote and facilitate investment in the country by citizens and foreign investors

(b) To provide for the grant of a certificate to a foreign enterprise

(c) To define the activities open to a foreign investor

(d) To provide for a register of foreign investment opportunities

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(e) To promote investments which will materially benefit the country and its people and which contribute to economic growth, create employment, utilise domestic resources and, in particular, renewable resources, assist in skills acquisition, increase the volume and value of exports, develop remote areas of the country, facilitate increased ownership of investment by citizens, promote import replacement or are likely to effect any combination of the aims specified above

(f) To monitor the impact of investment and the activities of enterprises

The IPA consists of five key divisions. These are the Business Registration, Regulation & Certification Division, Investor Servicing & Export Promotion Division, Intellectual Property Office of PNG, Securities Commission of PNG, and the Corporate Services Division.

The Board of the IPA and the Government are moving, with the assistance of the International Finance Corporation, towards more investment promotion and a much more streamlined regulatory framework to encourage foreign investment. A recent example of this is the online registration system, which is based on the New Zealand system and funded by the National Government.

First point of contact

The IPA has been designed as the first point of contact for a potential new investor in PNG. A foreign investor should approach the IPA during the early stages of considering investing in PNG (along with relevant industry bodies such as a chamber of commerce). The IPA will assist in facilitating the proposals, identify relevant Government departments and assist investors in obtaining the required approvals, licences and permits.

Meaning of ‘foreign’

A ‘foreign enterprise’ is an enterprise which is 50 per cent or more owned directly or indirectly by non-citizens, is controlled by non-citizens or is declared by the Minister for Commerce and Industry to be a foreign enterprise. An ‘enterprise’ is a person, company, body or association of persons.

Certification

A foreign enterprise must first obtain certification from the IPA before it:

(i) establishes or uses an office in PNG; or

(ii) administers, rents, manages, or otherwise deals with property in the country as an owner, agent, legal representative, or trustee, whether by a servant or agent or otherwise; or

(iii) maintains an agent, employee, or officer for the purpose of soliciting or procuring or entering into orders, arrangements, agreements, or contracts (whether conditional or not), whether or not the agent, employee, or officer is continuously resident in the country; or

(iv) maintains an office, agency, or branch (however described), whether or not the office, agency, or branch is also used for one of those purposes by another enterprise; or

(v) makes an application for, or is issued, any permit, licence, lease or authority issued for commercial purposes by the State or by the National Government or Provincial Government or any other level of government or a unit, department, agency or instrumentality of the State or of a Provincial Government or anybody, authority or instrumentality established by the State or under an Act.

In the case of an unincorporated joint venture each foreign participant must seek certification.

Before the IPA will grant certification, the foreign enterprise must complete a formal application, provide specified information and pay the required fee.

Provided the foreign enterprise has properly completed its application, the IPA will respond within 35 days. Certification enables the foreign enterprise to carry on business in a particular activity at a specific location within the country set out in the certificate.

A foreign enterprise need not seek certification if its only activities in PNG are:

(i) being a party to  legal proceedings or settling  legal proceedings ,a claim or a dispute; or

(ii) holding meetings of its directors or shareholders or carrying on other activities concerning its internal affairs; or

(iii) maintaining a bank account; or

(iv) effecting a sale of property through an independent contractor; or

(v) soliciting or procuring an order that becomes a binding contract only if the order is accepted outside the country; or

(vi) creating evidence of a debt or creating a charge on property; or.

(vii) securing or collecting any of its debts or enforcing its rights in relation to securities relating to those debts; or

(viii) conducting an isolated transaction that is completed within a period of 31 days not being one of a number of similar transactions repeated from time to time; or

(ix) investing its funds or holding property.

The IPA may grant certification subject to any terms and conditions it considers appropriate. However, provided a proposed investment does not fall within a list of investment activities restricted to citizens of PNG, certification is usually not conditional on maintaining a minimum level of local equity.

Foreign enterprises are restricted from going into restricted activities regardless of local equity.

Reserved activities

Certain activities presently reserved for PNG citizens under what is called the Cottage and Business Activities List (CBAL). The CBAL replaces what used to be called the Reserved Activities List.

These activities include traditional and small-scale agricultural, forestry and fisheries activities, traditional arts and crafts, alluvial mining, certain small retail and wholesale activities.

For more information, visit the IPA website, www.ipa.gov.pg.

Certification criteria

Certification conditions can be varied with the IPA’s agreement. The IPA may suspend or cancel a certificate if a foreign enterprise breaches its terms. A foreign enterprise must notify the IPA where there are any changes in its control and re-apply for certification. The exception to this is where the enterprise is a public company listed on a stock exchange that is a member of the Federation Internationaledes Bourses de Valeurs.

Certified enterprises wishing to expand or diversify their operations must lodge an Application for Variation with the IPA.

Failure to comply with the Investment Promotion Act (that is, the Act which establishes and regulates the IPA) may have serious consequences for a foreign investor.

For example, where a foreign enterprise enters into a contract, arrangement, or understanding with another entity without possession of a certificate at the time, or the contract entered into by the parties relates to business activities other than those the foreign enterprise was certified to engage in, the court may, on the application of the other party or the IPA, declare the contract unlawful and void.

Relevant factors considered by the IPA in evaluating a foreign investment proposal include:

• the potential for positive development of human and natural resources
• the investor’s past record in PNG and elsewhere
• the creation of additional employment and income-earning opportunities
• the likelihood the proposal will generate additional government revenue and contribute to economic growth
• the transfer of technologies and skills and the contribution to training citizens of PNG
• the likely environmental impact

Guarantees

The Investment Promotion Act contains the following investment guarantees for certified foreign investors:

(i) protection against nationalisation or expropriation other than in accordance with law, for a public purpose and on payment of compensation

(ii) subject to taxation and exchange control laws, a foreign investor is entitled to repatriate capital and remit earnings, and certain other payments (including any compensation received from nationalisation or expropriation of its investments) overseas; and

(iv) will not be discriminated against on the basis of their origins. Similar types of guarantees may be available to some investors under bilateral agreements for the protection of investment. PNG has entered into such agreements with Germany, Australia and the United States of America.

This section was provided by Dentons PNG for Business Advantage PNG.