Foreign Investment Regulations
of the Federated States of
Micronesia
Section 1. Purpose and legal effect; authority of the Secretary
Section 2. Definitions
Section 3. National Red, Amber, and Green Lists
Section 4. Criteria for foreign investment in National Amber List economic sectors
Section 5. Application forms and submission requirements
Section 6. Action by the Secretary on applications - time periods
Section 7. Forms of permits
Section 8. Application fees and annual fees
Section 9. Modification or surrender of a permit
Section 10. EWA entitlements
Section 11. Reports by holders of permits
Section 12. Reports by the Department and by States
Section 13. Fines and penalties
Section 14. Assistance to States
Section 15. Permit Cancellation Hearing Procedures
Section 16. Repatriation of Capital
Schedule 1 - Economic Sectors on the National Red List (Category A)
Schedule 2 - Economic Sectors on the National Amber List (Category B)
Schedule 3 - Economic Sectors on the National Green List (Category C)
Schedule 4 - Criteria to be Met for Foreign Investment in Economic Sectors on the National Amber List
Schedule 5 - Application Form for FSM Foreign Investment Permit
Schedule 6 - Form of FSM Foreign Investment Permit
Schedule 7 - Application Fees, Annual Fees, and Modification Request Fees
Schedule 8 - Criteria for the Automatic Award of Additional EWAs
Schedule 9 - Form for Renewal and Annual Reports by FSM Foreign Investment Permit Holders
Schedule 10 - Fines and Penalties
Part I - General Provisions
(1) The purpose of these Regulations is to carry into effect and to facilitate implementation of the Foreign Investment Act of 1997 (Public Law No. 10-49, codified at 32 F.S.M.C. Ch. 2), hereinafter referred to as the Act.
(2) These Regulations, and any amendments thereto, shall have the force and effect of law.
(3) The Secretary of the Department of Economic Affairs of the National Government of the Federated States of Micronesia (hereinafter referred to as the Secretary) is vested with the authority to promulgate regulations necessary and proper to implement the Act, including rules and procedures regarding:
(a) categories of economic sectors and criteria to be used in evaluating applications for FSM Foreign Investment Permits in economic sectors on the National Amber List (Category B) (Sections 205 and 206 of the Act);
(b) forms to be used in applications for FSM Foreign Investment Permits (Section 207(1) of the Act);
(c) time periods within which the Secretary is to take action in response to an application for an FSM Foreign Investment Permit (Section 207(3) and (4) of the Act);
(d) application fees, if any, to accompany applications for FSM Foreign Investment Permits (Section 207(5) of the Act);
(e) forms of FSM Foreign Investment Permits (Section 209(1) of the Act);
(f) annual fees, if any, to be paid by holders of FSM Foreign Investment Permits (Section 209(2) and (3) of the Act);
(g) modifications to FSM Foreign Investment Permits (Section 209(5) of the Act);
(h) criteria for automatic entitlements to expatriate worker authorizations (EWAs) (Section 210(2) of the Act);
(i) reports to be submitted by holders of FSM Foreign Investment Permits (Section 213(1) of the Act);
(j) reports to be submitted by the Department and the States (Sections 214 and 215 of the Act);
(k) fines and penalties for contravention of the Act or these Regulations (Section 220 of the Act); and
(I) assistance to be offered by the Secretary to States regarding foreign investment regulation and promotion (Section 206(7) of the Act).
(4) More generally, the Secretary is responsible for carrying out the functions of the National Government relating to the regulation of foreign investment in the FSM in accordance with the provisions of the Act These functions include, among others, the following principal elements:
(a) issuing FSM Foreign Investment Permits in appropriate cases, and administering the foreign investment rules established by the Act or by these Regulations (Sections 206 and 207 of the Act);
(b) coordinating with State authorities regarding foreign investment policies, procedures, and promotion (Sections 206 and 207 of the Act);
(d) monitoring the activities of holders of FSM Foreign Investment Permits, including the collecting of fees (if any), keeping of records, publishing of reports, and, where necessary, modifying, cancelling, and suspending FSM Foreign Investment Permits and imposing fines and penalties (Sections 209, 213, 214, and 220 of the Act); and
(e) refraining from acting (and preventing States from acting) contrary to specified guarantees designed to provide confidence to foreign investors, including assurances against arbitrary expropriation, and implementing exemptions from future changes in laws and regulations (Sections 216, 217, and 218).
(1) When words defined in the Act are used in these Regulations, unless otherwise required by the context, the definitions provided in the Act shall govern.
(2) When words defined in this subsection are used in these Regulations, unless otherwise required by the context, the following definitions shall govern:
(a) 'business day' means a day on which the offices of the Secretary are open for public business.
(b) 'National Red List' means the Category A economic sectors - those in which foreign investment is prohibited anywhere in the territory of the FSM - as provided for in Section 205(1) of the Act.
(c) 'National Amber List' means the Category B economic sectors - those in which foreign investment is permitted in the territory of the FSM subject to the satisfaction of specific criteria - as provided for in Section 205(1) of the Act.
(d) 'National Green List' means the Category C economic sectors - those in which foreign investment is freely permitted in the territory of the FSM - as provided for in Section 205(1) of the Act.
(1) The economic sectors designated as being on the National Red List are listed in Schedule I to these Regulations.
(2) The economic sectors designated as being on the National Amber List are listed in Schedule 2 to these Regulations.
(3) The economic sectors designated as being on the National Green List are listed in Schedule 3 to these Regulations.
(4) The Secretary shall provide to the State agency responsible for administering foreign investment in each State written notification of any variations to the contents of Schedules 1, 2, or 3 within 5 business days after any such variation is made.
(1) The criteria to be met for foreign investment in National Amber List (Category B) economic sectors are listed in Schedule 4 to these Regulations.
(2) The Secretary shall provide to the State agency responsible for administering foreign investment in each State written notification of any variations to the contents of Schedule 4, within 5 business days after any such variation is made.
Permit Requirements and
Procedures
(1) Schedule 5 to these Regulations prescribes the form to be used in applying for an FSM Foreign Investment Permit.
(2) An application for an FSM Foreign Investment Permit shall be submitted (only one copy is required) either
(a) to the Secretary at the offices of the Department of Economic Affairs; or
(b) to the main office of the responsible State Government authorities in the State in whose territory the foreign investment takes place or is proposed to take place.
(1) Subject to the provisions of subsection (2) below, the following time periods shall apply to the Secretary's handling of an application for an FSM Foreign Investment Permit:
(a) to determine, under Section 207(3)(a) of the Act, which Category of economic sectors the application relates to -- within 5 business days after the application is submitted, unless the application is incomplete or does not provide enough information to make such a determination.
(b) to request, under Section 207(3)(d) of the Act, further information from the applicant, if the application is incomplete or does not provide enough information for the Secretary to determine (i) what economic sector(s) is (are) involved or (ii) whether the requirements of an FSM Foreign Investment Permit have been or will be met -- within 5 business days after the application is submitted.
(c) to deny an application, under Section 207(3)(b)(i) of the Act, if the Secretary has determined that the application relates to a foreign investment in a National Red List (Category A) economic sector -- within 1 business day after that determination.
(d) to deny an application, under Section 207(3)(b)(ii) of the Act, if the Secretary has determined that the application relates to a foreign investment in a National Amber List (Category B) economic sector -- within 5 business days after that determination.
(e) to issue an FSM Foreign Investment Permit, under Section 207(3)(e) of the Act -- within 5 business days after the determination that the application relates to a foreign investment in a National Amber List (Category B) or National Green List (Category C) economic sector.
(f) to forward the application to the responsible State authorities, under Section 207(3)(c) of the Act, if the Secretary has determined that the application relates to a foreign investment in an economic sector falling in a Category for State Regulation -- within 1 business day after that determination.
(g) to advise the applicant of an action described above in subsections (b), (c), (d), or (e) -- within 2 business days after the action has been taken.
(2) If it is impossible for the Secretary to take action on an application within the time periods prescribed above, the Secretary shall, by written notice, inform the applicant of that fact within one day after the expiration of the prescribed period, and shall indicate (a) why the action could not be taken within the prescribed period and (b) a specific date (no later than 10 days from the date of the written notice) by which the Secretary will take action.
FSM Foreign Investment Permits shall be in the form prescribed in Schedule 6 to these Regulations.
(1) An application fee shall not be required.
(2) An annual fee shall be payable to the Secretary by every holder of an FSM Foreign Investment Permit, to help defray the Secretary's cost in monitoring the foreign investment. The annual fee shall be in an amount specified in Schedule 7 to these Regulations. Upon payment of the annual fee, the FSM Foreign Investment Permit shall be renewed automatically, with no documentation necessary either by the holder of the FSM Foreign Investment Permit or by the Secretary.
(1) A modification of an FSM Foreign Investment Permit pursuant to Section 209(5) of the Act may be made under the following conditions and procedures:
(a) The holder of the FSM Foreign Investment Permit shall file with the Secretary a written request for modification, indicating (i) the nature of and reason for the change in the business that has prompted the request for modification; (ii) the alterations, if any, proposed in the degree of interest held by any noncitizen in the business entity; (iii) the specific provisions in the terms of the FSM Foreign Investment Permit that are proposed to be modified; and (iv) other information that would reasonably be considered pertinent to the Secretary's consideration of the request for modification.
(b) The Secretary, on receipt of such a request for modification, may require the holder of the FSM Foreign Investment Permit to provide additional information pertinent to the request. The Secretary may deny or suspend action on the request if the holder fails to provide any such information.
(c) A modification request fee shall be payable to the Secretary upon the filing of a written request for modification. The amount of such fee shall be as set forth in Schedule 7 of these Regulations.
(d) In evaluating the request for modification, the Secretary shall be guided by the principles applicable to the original issuance of an FSM Foreign Investment Permit, and shall not grant the request for modification if the foreign investment following such modification would not meet all the applicable criteria for issuance of an FSM Foreign Investment Permit.
(e) If the Secretary determines that the FSM Foreign Investment Permit should be modified, the Secretary may modify it as appropriate; such modification need not be precisely as requested by the holder of the FSM Foreign Investment Permit.
(f) The Secretary shall, within 5 business days after having received the written request for modification and any further information required pursuant to subsection (2)(b) above, notify the holder of the FSM Foreign Investment Permit as to whether the request for modification has been granted or denied, and, if it has been granted, the precise terms of the modification.
(2) Surrender of an FSM Foreign Investment Permit shall be carried out in appropriate cases as follows:
(a) The holder of the FSM Foreign Investment Permit shall notify the Secretary in writing of the reasons for the requested surrender.
(b) The Secretary shall determine whether any fees remain unpaid or any other requirements remain unfulfilled by the holder of the FSM Foreign Investment Permit, and require the holder to take appropriate action in that regard;
(c) If no further outstanding obligations remain, the Secretary shall declare the FSM Foreign Investment Permit surrendered and shall so notify the holder and any State authorities responsible for foreign investment in States where the holder formerly was engaged in business.
(1) The Secretary shall coordinate efforts with the Division of Immigration and Labor in implementing the provisions of Sections 210, 211, and 212 of the Act.
(2) The criteria for the automatic award of additional EWAs for senior management positions, pursuant to Section 210(2) of the Act, appear in Schedule 8 to these Regulations.
(3) The procedures for applying for additional EWAs pursuant to Section 10(4) of the Act shall be as follows (see Schedule 8):
(1) For the purpose of monitoring the amount and flow of foreign investment in the FSM, and to provide services to foreign investors and to the States, the Secretary shall, pursuant to Section 213 of the Act, collect reports from holders of FSM Foreign Investment Permits:
(a) on an annual basis, with the time of submission for each holder to be established by the Secretary or, failing that, by 15 January of each year.
(b) immediately in the case of a change in foreign ownership of the investment.
(2) The form to be used for the annual reports referred to in subsection (1) above appears as Schedule 9 to these Regulations.
(3) The Secretary may, in the case of a change-in-foreign-ownership report of the type referred to in subsection (2) above, request further information before taking any action under Section 213(2) of the Act.
(1) The information to be published annually pursuant to Section 214(1) of the Act shall include data, both on a national basis and on a State-by-State basis, regarding the number of foreign investments, the type of business entities they involve, the numbers of foreign investors, their shares of ownership in the business entities, and any unusual developments during the year being reported on, including cancellations or penalties imposed. Such information shall be published within three months after the end of each calendar year.
(2) The reports to be submitted by the Department to the States pursuant to Section 214(2) of the Act shall be in sufficient detail to permit State authorities to effectively monitor foreign investment activities within their territories and to prepare overall reports on such foreign investment as required in Section 215 of the Act and subsection (3) below.
(3) The reports to be submitted by State authorities to the Department pursuant to Section 215 of the Act shall be in sufficient detail to permit the Secretary to prepare overall reports as required in Section 214(1) of the Act and subsection (1) above. Such reports by the State authorities shall be submitted within two months after the end of each calendar year.
(1) Administrative fines and penalties applicable under Section 220(2)(b) are set forth in Schedule 10 of these Regulations.
(2) Any fines and monetary penalties assessed under Section 220(2)(b) of the Act shall be paid to the Department.
(1) The Secretary shall, pursuant to Section 206(7)(a) of the Act, provide assistance of the following type upon the request of a State:
(a) sharing of information on investors and potential investors, and their investments, for the purpose of evaluating applications, conducting enforcement actions, or designing promotional programs and incentives;
(b) organizing workshops or other programs for States and for potential investors regarding investment opportunities, rules, and procedures;
(c) responding to inquiries about National Government rules and policies on foreign investment regulation and promotion; and
(d) providing such other services as the Secretary may consider appropriate.
The following procedures shall be followed during any foreign investment permit cancellation hearing, as specified in Section 209(9) of the Act:
(1) The permit holder or the holder's registered agent or counsel shall be entitled to be physically present.
(2) The hearing shall be public, unless otherwise requested by the permit holder. The entire proceedings shall be tape recorded.
(3) The FSM Supreme Court Rules of Evidence shall not apply.
(4) The Secretary or his designee shall preside over the hearing. The Registrar of Corporations or counsel shall present the evidence of the grounds for cancellation of the permit. The permit holder or the holder's registered agent or counsel shall be afforded the right to be heard, to present evidence, to confront any adverse witness, and to be represented by counsel.
Any holder of a currently valid Foreign Investment Permit shall not repatriate any capital in excess of $50,000, which was brought into the FSM for, or that accrued on, a business entity to which such permit applies, without first obtaining the written permission of the Secretary.