India has issued detailed guidelines giving effect to the Cabinet’s January 15, 2004 decision to raise the limit for FDI in private banks to 74% and to allow foreign banks to open affiliates there. At least 26% of the paid-up capital will have to be held by resident Indians. The 74% foreign share in private banks will be allowed under the automatic clearance route. So far, the FDI ceiling in private banks had been capped at 49% but foreign portfolio investment of up to another 49% was also permitted. Foreign banks regulated by a banking supervisory authority in their home countries and meeting the licensing criteria of the Reserve Bank of India will be allowed to hold 100% paid-up capital in a wholly-owned subsidiary there.

Slovakia’s new income tax act, which took effect on January 1, applies a 19% tax rate on personal income, has liberalised the tax loss carry-forward rules and has abolished the thin capitalisation rules. The latter means that investors can fully leverage their investments with inter-company loans without providing the required capital ratio. Other important changes are the abolition of restrictions on certain types of advertising expenses, the tax deductibility of some expenses based on the accrual principle and not on the payment principle, the shortening of the tax depreciation of assets, and the removal of a price limit on passenger cars eligible for tax depreciation.

The Czech Republic has revised its foreign investment incentives programme aimed at attracting innovation-driven corporations. The measures target key technology-oriented industries, including microelectronics, semiconductors and opto-electronics. The revised programme includes reductions in the levels of required investment to receive incentives. The minimum investment requirement of $600,000, previously available only for research and development centres, has been extended to include regional headquarters, initiatives defined as software development centres and IT expert solution centres. The revised Investment Incentives Act also streamlines administrative functions to comply with EU standards.

In Indonesia, a decree has been passed that allows certain open-cut mining operations to be resumed in protected forests. The decree in effect recognises the validity of mining contracts signed before a forestry law passed in 1999 prohibited open-cut mining in protected forests. This regulation eliminates legal uncertainty in this area for multinational forestry companies. (see page 4)

China

has lifted its ban on foreign investment in television and film production companies. The State Administration of Radio, Film and Television has issued regulations that permit foreign media groups to hold stakes in joint venture production companies. The Chinese side should hold more than 51% of the shares in the joint venture. More foreign films and television programmes will be allowed as current quotas are eased. China’s Ministry of Commerce has promulgated the Regulations on Establishing Investment Company by Foreign Investors. Under the regulations, foreign investors are allowed to undertake logistics procurement; they can engage in outsourcing, purchasing and other logistics functions. They can also set up wholly-owned or joint-venture investment companies. To engage in direct investment, the company’s registered capital should be no less than $30m.

China has announced its intention to lift restrictions on foreign investment in retailing, including restrictions on foreign ownership and numbers of branches before December. The initiative is part of China’s commitment to the World Trade Organization to open up the services sector to foreign investors.

The Saudi Arabian General Investment Authority has reduced the number of investment sectors prohibited to foreign investment from 40 to 16.

Bahrain

is liberalising its telecommunications sector. A wide range of licences for national and international operators are available to private investors under a plan that envisages the full liberalisation of the telecommunications sector by July 1, 2004.

In Iraq, Basra governorate officials have announced the launch of a new foreign investment and reconstruction office for southern Iraq. The Basra governorate recently set up a committee to help investors to find suitable land and speed up project approvals.

In Chile, a Bill has been sent to Congress proposing the introduction of a 3% royalty on copper and sub-products from mines with an annual output of more than 60,000 tons.

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