flag Federated States of Micronesia Federated States of Micronesia: Investing

FDI in Figures

According to the latest data available from UNCTAD World Investment Report 2021, the FDI stock amounted to USD 235 million in 2020. FDI was almost nonexistent due to prohibitions on foreign ownership of land and business, difficulties in registering companies, poor private sector contract enforcement, poor protection of minority investors' rights, weak courts, and weak bankruptcy settlement management. Nevertheless, the situation has improved since 2014, even though investment data for Micronesia is not too reliable. The fishing sector (which includes licence fees for the right to extract halieutic resources from the territorial waters of the country) attracts most of the investments. This sector has taken a major place in the Micronesian economy due to the recent construction of fish processing plants. The tourism sector offers good business potential, although the impact of the Covid-19 pandemic has been significant. The main investing countries remain the United States and Japan.

The usage of the U.S. dollar as the national currency protects investors against unexpected currency fluctuations. Moreover, its fiscal system is very attractive since it has relatively low corporate taxes. However, its geographical isolation, insufficient development of infrastructures as well as a shortage of airline connections constitute important hindrances to FDI. Foreign ownership of land is prohibited, property rights are only well protected for citizens and, to a lesser degree, for foreign nationals who have lived in the country for five continuous year. Courts nominally support contractual agreements, but enforcement of judicial decisions has been historically weak. Micronesia ranked 158th out of 190 countries in the last Doing Business report issued by the World Bank, a two-position increase compared to the previous year. The business climate has deteriorated, particularly in terms of business creation and loan availability. The COVID-19 pandemic puts Small island developing economies in dire straits. A small and narrow economic base, high degree of openness and significant dependence on few large developed countries make small island economies extremely vulnerable to global economic shocks. These economies are often at the receiving end of global crises, as they are highly dependent on external flows—trade, remittances and external capital and borrowing—compared to other groups of developing countries (United Nations, 2021). The collapse in tourist arrivals not only directly affects income and employment in airlines, ground transport and hotels, but also adversely affects the rest of the economy, including agriculture and construction. Falling tourism, and subsequently, reducing tax revenues, will exacerbate fiscal balances of many small island economies and also reduce the flow of foreign direct investment (FDI), as the tourism sector is typically the largest recipient of FDI.

Micronesia’s economic freedom score is 61.0, making its economy the 82nd freest in the 2022 Index of Economic Freedom (Heritage, 2022). Micronesia is ranked 16th among 39 countries in the Asia–Pacific region, and its overall score is above the regional and world averages. Micronesia has two preferential trade agreements in force. The simple average tariff rate is 5.1 percent, but nontariff barriers and poor trade infrastructure limit overall trade freedom. Micronesia is not a member of the World Trade Organization. Numerous impediments discourage foreign investment. High credit costs and scarce access to financing constrain the small private sector. Much of the population does not use formal banking (Heritage, 2022).

 

Country Comparison For the Protection of Investors

  Federated States of Micronesia East Asia & Pacific United States Germany
Index of Shareholders’ Power*** 8.0 6.7 9.0 5.0

Source: Doing Business - Latest available data.

Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action.

 
Foreign Direct Investment 201920202021
FDI Inward Flow (million USD) 000
FDI Stock (million USD) 235.3235.3235.3
Number of Greenfield Investments* 0.00.00.0
Value of Greenfield Investments (million USD) 000

Source: UNCTAD - Latest available data

Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.

 

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Tax Rates

Sales tax
3% to 5% depending on the state
Company Tax
21%
Withholding Taxes
Dividend: 0%; Interest: 0%; Royalties: 0%.
Social Security Contributions Paid By Employers
7.5%
Other Domestic Resources
Customs & Tax Administration
Consult Doing Business Website, to obtain a summary of the taxes and mandatory contributions.
 
 

Individual Taxes

Personal income tax Progressive rate from 6% to 10%
From USD 0 to USD 11,000 6%
Above USD 11,000 10%
 
 

Country Comparison For Corporate Taxation

  Federated States of Micronesia East Asia & Pacific United States Germany
Number of Payments of Taxes per Year 21.0 23.4 10.6 9.0
Time Taken For Administrative Formalities (Hours) 128.0 195.1 175.0 218.0
Total Share of Taxes (% of Profit) 60.5 33.8 36.6 48.8

Source: Doing Business - Latest available data.

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Investment Opportunities

Tenders, Projects and Public Procurement
Asian Developement Bank, Proposed Projects in Asia
DgMarket, Tenders Worldwide
Setting Up a Company
Consult Doing Business Website, to know about procedures to start a Business in Federated States of Micronesia.
Useful Resources
Reasons to invest in Micronesia
 

Business Setup Procedures

Setting Up a Company Federated States of Micronesia East Asia & Pacific
Procedures (number) 7.00 7.25
Time (days) 16.00 29.73

Source: Doing Business.

 
 
 

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Latest Update: October 2022