Foreign Investment


Introductory Provisions


§ 201. Short title.
§ 202. Purpose of this chapter.
§ 203. Definition.

§ 201. Short title.

This chapter is known and may be cited as the "Foreign Investment Act of 1997".

Source: PL 10-49 § 4.

Editor’s note: The division of this chapter into parts in PL 10-49 was changed to subchapters in accordance with standard code format.

Cross-reference: For provisions on Trade and Property Rights, see title 1 (General Provisions), § 113 of this code.

§ 202. Purpose of this chapter.

The purpose of this chapter is to encourage foreign investment within the territory of the FSM in a manner that serves the economic, social, and cultural interests of its citizens. This purpose shall be borne in mind in the implementation and interpretation of the provisions of this chapter.

Source: PL 10-49 § 5.

§ 203. Definition.

When words defined in this section are used in this chapter, unless otherwise required by the context, the following definitions shall govern:

(1) “business entity” means any sole proprietorship, partnership, company, corporation, joint venture, or other association of persons engaging in business;

(2) “character criteria” means the criteria established in the FSM Foreign Investment Regulations pursuant section 205(3) of this chapter;

(3) “citizen” means a citizen of the FSM;

(4) “Department” means the Department of Resources and Development of the FSM or its successor;

(5) “engaging in business” means carrying out any activity relating to the conduct of a business, and shall include the activities enumerated in subsection (5)(a) of this section but shall not include the activities enumerated in subsection (5)(b) of this section:

(a) “engaging in business” shall include:

(i) buying, selling, leasing, or exchanging goods, products, or property of any kind for commercial purposes;

(ii) buying, selling, or exchanging services of any kind for commercial purposes;

(iii) conducting negotiations for transactions of the types described in items (i) or (ii) of this section; provided, however, that negotiations with licensed importers for periods of less than 14 days per calendar year shall not be considered “engaging in business”;

(iv) appointing a representative, agent, or distributor by a noncitizen to perform any of the acts described in items (i) through (iii) of this section, unless said representative, agent, or distributor has an independent status and transacts business in its name for its own account and not in the name of or for the account of any noncitizen principal;

(v) maintaining a stock of goods in the FSM for the purpose of having the same processed by another person in the FSM;

(vi) establishing or operating a factory, workshop, processing plant, warehouse, or store, whether wholesale or retail;

(vii) mining or exploring for minerals, or the commercial exploitation or extraction of other natural resources;

(viii) providing services as a management firm or professional consultant in the management, supervision, or control of any business entity; and

(ix) providing professional services as an attorney, physician, dentist, engineer, surveyor, accountant, auditor, or other professional providing service for a fee; provided, however, that such a professional shall not be considered to be "engaging in business" unless he or she, while present in the FSM, performs his or her respective professional services for more than 14 days in any calendar year;

(b) engaging in business shall not include:

(i) the publication of general advertisements through newspapers, brochures, or other publications, or through radio or television;

(ii) the conducting of scientific research or investigations, if

(A) the research or investigation is sponsored by a university, college, agency, or institution normally engaged in such activities primarily for purposes other than commercial profit, and

(B) the particular research or investigation at issue is not for purposes of, or expected to yield, commercial profit;

(iii) the collection of information by a bona fide journalist for news publication or broadcast;

(iv) maintaining or defending any action or suit, or participating in administrative proceedings, arbitration, or mediation;

(v) maintaining bank accounts; or

(vi) the lawful sale of corporate shares or other interests or holdings in a business entity acquired not for speculation or profit; or

(vii) the making of occasional sales as defined by the FSM Foreign Investment Regulations;

(6) “foreign investment” means any activity in the FSM by a noncitizen that amounts to “engaging in business” as defined above;

(7) “Foreign Investment Permit” means an FSM Foreign Investment Permit, a State Foreign Investment Permit, or a Pre-Existing Foreign Investment Permit;

(8) “foreign investor” means a noncitizen who is engaging in business in the FSM, as defined above;

(9) “FSM” means the Federated States of Micronesia;

(10) “FSM Foreign Investment Permit” means a permit issued by the Secretary in accordance with the provisions of this chapter;

(11) “FSM Foreign Investment Regulations” means Regulations promulgated by the Secretary in accordance with the provisions of this chapter;

(12) “noncitizen” means any person who is not a citizen of the FSM, and any business entity in which any ownership interest is held by a person who is not a citizen of the FSM;

(13) “ownership interest” in a business entity means ownership of or control over, whether directly, indirectly, legally or beneficially, some or all of the shares of, property or assets of, voting rights in, or rights to profits or revenue from, that business entity; provided, however, that:

(a) ownership interest shall not include a bona fide security interest in real or personal property for the purpose of securing a loan or other obligation; and

(b) any interest owned or controlled by the spouse, minor child, or other dependent of a person shall be counted as owned or controlled by that person in determining whether he or she has an ownership interest in a business entity, provided that this subsection shall not apply to a noncitizen spouse who is married to a citizen and who does not hold an ownership interest in his or her own right;

(14) “person” includes both individuals and legal entities;

(15) “Pre-Existing Foreign Investment Permit” means a permit issued by the Secretary or by a State prior to the date on which this Act took effect, and which has not expired according to its terms or been suspended or canceled;

(16) “Secretary” means the Secretary of the Department Economic Affairs of the FSM;

(17) “State” means one of the States of the FSM;

(18) “State Foreign Investment Legislation” means legislation enacted and currently effective in one of the States to regulate foreign investment within that State;

(19) “State Foreign Investment Permit” means a permit issued by authorized officials within one of the States pursuant to relevant State Foreign Investment Legislation;

(20) “Substantial ownership interest” means an ownership interest in a business entity of at least 30 percent.

Source: PL 10-49 § 6; PL 14-32 § 1.

Case annotations: By statute the practice of law is specifically included in businesses engaged in by noncitizens requiring a foreign investment permit. 32 F.S.M.C. 203. Michelsen v. FSM, 5 FSM R. 249, 254 (App. 1991).