U.S. and Macau (2005)

U.S. Department of State

Macau

2005 INVESTMENT CLIMATE STATEMENT -- MACAU

A. Openness to Foreign Investment

Macau became a Special Administrative Region (SAR) of the People's Republic of China on December 20, 1999. Macau's status since reverting to Chinese sovereignty is defined in the Sino-Portuguese Joint Declaration (1987) and the Basic Law, Macau’s constitution. Under the concept of "One Country, Two Systems" articulated in these documents, Macau is promised a high degree of autonomy in economic matters and its economic system is to remain unchanged for 50 years. Since reversion, the Macau Government has maintained a transparent, non-discriminatory and free market economy. Macau has separate membership in the World Trade Organization (WTO).

The Government hopes to diversify Macau's economy by attracting foreign investment and is committed to maintaining an investor-friendly environment. Corporate taxes are low. The tax rate is 15 percent for a company's net profits greater than USD 37,500 (300,000 patacas). For net profits less than USD 37,500, the tax ranges from 2 percent -15 percent. In his November 2004 annual policy address, Chief Executive Edmund Ho said that his administration planned to submit a proposal to the Legislative Assembly in 2005 to lower the rate of corporate income tax so that it is closer to the personal tax rate. The top personal tax rate is 12 percent, and a 12-13 percent corporate tax rate would be one of the lowest in the world.

The Government is seeking to develop Macau into a commercial and trade service provider for China, particularly the West Guangdong region. It also aims to facilitate trade and economic cooperation between China and Portuguese-speaking countries. In 2002, the Government ended a long-standing gaming monopoly when it awarded two gaming concessions to consortia with U.S. interests. This opening is significantly boosting the U.S. business profile and investment in Macau. In addition, a third U.S. gaming concern plans to team up with the former monopolist to build a large Las Vegas-style casino.

Macau and the PRC implemented a free trade agreement, the Closer Economic Partnership Arrangement (CEPA), on January 1, 2004. The agreement is similar to the Hong Kong-PRC CEPA. It provides for market opening in 501 product and 26 service sectors and provides for trade facilitation measures. Not all the products are exactly the same as those in the Hong Kong-PRC CEPA. In December 2003, the Government started the construction of the cross-border industrial zone located between northern part of Macau and Zhuhai. It is expected that manufacturers will be able to begin operating in the industrial zone in March of 2005.

Macau is heavily dependent on the gaming sector and tourism industries. In addition, a single product category, textiles and apparel, accounts for approximately 83 percent of its exports.

Foreign firms and individuals are free to establish companies, branches and representative offices without discrimination or undue regulation in Macau. There are no restrictions on the ownership of such establishments. Company directors are not required to be citizens of, or resident in, Macau.

The Government is liberalizing the telecommunications sector under a law passed in August 2001. Macau has liberalized the mobile phone market and Internet services. It has issued three mobile telephone licenses to two foreign companies and one local firm. In September 2004, the Government invited tenders for a license operating a Code Division Multiple Access (CDMA) network. The Government is still evaluating the five bidders’ proposals.

Certain requirements are imposed on three professional services sectors as described below. Under Macau law (Decree Law 14/95/M, 22/96M and 22/97/M), qualified professionals and executives may apply for the right of temporary residency.

i) Education - an individual applying to establish a school must have a Macau Certificate of Identity or have the right to reside in Macau. The principal of a school must be a Macau resident.

ii) Newspapers and magazines - applicants must first apply for business registration and register with the Government Information Bureau as an organization or an individual. The publisher of a newspaper or magazine must be a Macau resident or have the right to reside in Macau.

iii) Legal services - lawyers from foreign jurisdictions who seek to practice Macau law must first obtain residency in Macau. They also must pass an examination before they can register with the Lawyer's Association, a self-regulatory body. The examination is given in Chinese or Portuguese. After passing the examination, foreign lawyers are required to serve 18-month internship before they are able to practice law in Macau.

B. Conversion and Transfer Policies

Profits and other funds associated with an investment, including investment capital, earnings, loan repayments, lease payments, and capital gains, can be freely converted and remitted. The domestic currency, Macau Official Pataca (MOP), is pegged to the Hong Kong Dollar at 1.03 and indirectly to the U.S. Dollar at an exchange rate of approximately MOP8 = USD 1. The Monetary Authority of Macau, the de facto central bank, is committed to exchange rate stability through maintenance of the peg to the Hong Kong Dollar.

Although Macau imposes no restrictions either on capital flows or foreign exchange operations, exporters are required to convert 40 percent of foreign currency earnings into MOP. This legal requirement is not applied to tourism services.

C. Expropriation and Compensation

The U.S. Consulate General is not aware of any expropriation actions. Expropriation of property may occur if it is in the public interest. In such cases, the Macau SAR Government will exchange the private property with an equivalent public property based on the valuation and conditions of the property. The exchange of property is in accordance with established principles of international law. There is no remunerative compensation.

D. Dispute Settlement

The U.S. Consulate General is not aware of any investor-state disputes involving U.S. or other foreign investors or contractors and the SAR Government. Private investment disputes are normally handled in the courts or via private negotiation. Alternatively, disputes may be referred to the Hong Kong International Arbitration Center.

Macau has an arbitration law (Decree 55/98/M), which adopts the United Nations Commission on International Trade Law (UNCITRAL) model law for international commercial arbitration. The Macau SAR Government accepts international arbitration of investment disputes between itself and investors.

Macau's legal system is based on the rule of law and the independence of the judiciary. Macau has commercial and bankruptcy laws (Decree 40/99/M). Courts in Macau include the Court of Final Appeal, Intermediate Courts and Primary Courts. There is also an Administrative Court, which has jurisdiction over administrative and tax cases. These provide an effective means for enforcing property and contractual rights. Commercial and bankruptcy laws are written under the Macau Commercial Code (Decree 40/99/M).

E. Performance Requirements/Incentives

To attract foreign investment, the Macau SAR Government offers investment incentives to investors on a national treatment basis. These incentives are contained in Decrees 1/86/M, 58/99/M, 23/98/M and 49/85/M and provided if companies can fulfill at least one of the following purposes: promoting economic diversification, contributing to promotion of exports to new unrestricted markets, promoting added value within their activity's value chain, or contributing to technical modernization. There is no requirement that nationals own shares. These incentives are categorized as fiscal incentives, financial incentives and land concessions.

Fiscal incentives include full or partial exemption from profit/corporate tax, industrial tax, property tax, stamp duty for transfer of properties, and consumption tax. The tax incentives are consistent with the WTO Agreement on Subsidies and Countervailing Measures as they are neither export subsidies nor import substitution subsidies as defined in the WTO Agreement. Financial incentives include government-funded interest subsidies (ranging from 4-6 percent) on private bank Pataca loans for buying/leasing new equipment or construction/leasing of industrial buildings. Land concessions are granted to investors with a significant investment in Macau. In addition, Macau provides other subsidies for overseas promotions and applications for quality and environment management certification. Offshore companies are granted fiscal incentives and their managers and specialists who are not Macau residents are exempted from paying professional tax for the first 3 years of employment.

F. Right to Private Ownership and Establishment

Macau law and regulations provide for the right of foreign and domestic private entities to establish, acquire and dispose of interests in business enterprises.

G. Protection of Property Rights

Macau is a member of the World Intellectual Property Organization. Macau has acceded to the Berne Convention for the Protection of Literary and Artistic Works. Patents and trademarks are registered under Decree 97/99/M. Macau's copyright laws are TRIPS compatible and government offices are required to use only licensed software. The Macau SAR Government devotes considerable attention to intellectual property rights enforcement and coordinates with copyright holders. Source Identification Codes are stamped on all optical discs produced in Macau. Macau Economic Services (MES) uses an expedited prosecution arrangement to speed up punishment of accused pirate retailers.

The Macau Government has devoted considerable resources to combating optical disc piracy in recent years and claims to have closed down all illicit optical disc production lines. Piracy of television signals (and much U.S.-origin program content) is rampant. The Macau Government does not have a clear position on whether there is criminal liability for commercial end-use piracy of copyrighted works. The Consulate General has raised these issues with Macau officials and continues to do so.

H. Transparency of the Regulatory System

The Government has transparent policies and laws that establish clear rules and do not unnecessarily impede investment. The basic elements of a competition policy are set out in Macau's 1999 Commercial Code.

I. Efficient Capital Markets and Portfolio Investment

Macau allows free flows of financial resources. Foreign investors can obtain credit in the local financial market. At present, there are 24 financial institutions in Macau, including 11 local banks and 13 branches of banks incorporated outside Macau. In addition, there are ten moneychangers, two cash remittance companies, two financial intermediaries, two exchange counters and one representative office of a financial institution. These institutions provide a range of credit instruments. Banks with capital originally from China and Portugal have a combined market share of about 66 percent of total deposits in the banking system. Total deposits amounted to USD 14.0 billion in September 2004. In September 2004, banks in Macau maintained a capital adequacy ratio at 16.1 percent, well above the minimum 8 percent recommended by the Bank for International Settlements. Accounting systems in Macau are consistent with international norms.

Macau has no stock market, but companies can seek a listing in Hong Kong's stock markets. There is cooperation between Macau and Hong Kong financial regulatory authorities.

Under the Macau Insurance Ordinance, the Monetary Authority authorizes and monitors insurance companies. There are 11 life insurance companies and 15 non-life insurance companies in Macau. Total gross premium income from insurance services amounted to USD 198.2 million in 2003.

Offshore finance businesses, including credit institutions, insurers, underwriters, and offshore trust management companies, are regulated and supervised by the Monetary Authority. Profits derived from offshore activities are fully exempted from all form of taxes.

J. Political Violence

Macau is politically stable. The U.S. Consulate General is not aware of any incidents in recent years involving politically motivated damage to projects or installations.

K. Corruption

Macau's anti-corruption agency is called the Commission Against Corruption (CAC). The CAC has powers of arrest and detention. Its budget and manpower have been increased in recent years. The number of complaints of corruption handled by CAC has increased significantly as a result of these changes and a public outreach campaign. The CAC's overall effectiveness remains constrained by legislation limiting the scope of its authority to public, but not private sector corruption.

L. Bilateral Investment Agreements

Macau has signed investment protection agreements with Portugal and the Netherlands.

M. OPIC and Other Investment Insurance Programs

Overseas Private Investment Corporation (OPIC) coverage is not available in Macau.

N. Labor

Macau's recent high unemployment rate is decreasing. By the end of October 2004, the jobless rate was 4.5 percent, down from 6.1 percent in 2003. While the relocation of manufacturing facilities across the border to Zhuhai in China drove up unemployment rates, the increase in the number of gaming facilities and hotels are having a big positive impact on employment and some shortages of skilled workers are likely to develop. Macau has labor importation schemes for unskilled and skilled workers who cannot be recruited locally. The Government is considering additional measures. The current migrant labor pool is approximately 26,730, out of a total workforce of 223,000.

O. Foreign Trade Zones/Free Ports

Macau is a free port.

P. Foreign Direct Investment Statistics

According to the Enterprise Survey 2003 conducted by the Statistics and Census Service, there were 723 foreign direct investment companies in Macau, employing 28,623 workers. Hong Kong was the largest foreign investor in Macau, accounting for 72 percent of total foreign direct investment.

Table 1: Stock of foreign direct investment by country, 2003

Country	Amt USD Million	%Share of Total
Hong Kong	2,580	72
China	443.4	12.4
Portugal	343.8	9.6
U.K.	85.4	2.4
U.S.	78.3	2.2
Others	54.9	1.5
TOTAL	3,585	100

Source: Statistics and Census Service

Table 2: Stock of foreign direct investment by industry, 2003

Secton	Amount $USD	% of Total
Cultural, recreational, gaming and other services	2,105.1	58.7
Banks and securities	739.8	20.6
Industrial production	372.4	10.4
Transport, storage and Communications	174.2	4.9
Hotels and restaurants	137.4	3.8
Construction	68.7	1.9
Insurance	90.3	2.5
Wholesale and retail	-102.0	-2.8
TOTAL	3,585.8	100.0

Sources: Statistics and Census Service

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