Everything in the Investment Promotion Act 1992 turns on whether an enterprise is a foreign enterprise. The definitions are in section 3.
The chain of definitions
“enterprise” means any person, corporation, body or association of persons engaged, or proposed to be engaged, in carrying on business in an activity in the country.
“citizen” includes the State, a State body, and an enterprise wholly owned by a citizen — unless the control exercisable in law, or by any agreement between the shareholders or between the enterprise and a third party, or in practice, is maintained by a person other than a citizen.
“national enterprise” means an enterprise more than 50% of which is owned directly or indirectly by a citizen — unless control is maintained by a person other than a citizen, on the same terms.
“foreign enterprise” means an enterprise (a) which is not a national enterprise or a citizen; or (b) declared to be a foreign enterprise by the Minister under section 25A.
“foreign investor” — any person, corporation, body or association of persons that is not a citizen which makes or proposes to make an investment in the country.
“foreign investment” — investment by a non-citizen.
Control is the decisive test
Both the citizen and national enterprise definitions carry the same qualification. Ownership alone does not determine status; control does.
Three sources of control are named:
- Control exercisable in law — through the constitution, share classes, or voting rights;
- Control by agreement — a shareholders’ agreement, or an agreement between the enterprise and a third party;
- Control in practice — the informal reality, whatever the documents say.
So a company 60% owned by citizens is not a national enterprise if a foreign shareholder holds a veto over major decisions, appoints the managing director, or controls it in practice through a management agreement or funding arrangement.
The third limb — “or in practice” — is what defeats structures designed to look local on paper.
Working out the status
| Ownership | Control | Status |
|---|---|---|
| Wholly citizen-owned | Citizen | Citizen |
| Wholly citizen-owned | Non-citizen, in law, by agreement or in practice | Foreign enterprise |
| More than 50% citizen-owned | Citizen | National enterprise |
| More than 50% citizen-owned | Non-citizen | Foreign enterprise |
| 50% or less citizen-owned | Either | Foreign enterprise |
| Any | Any — but declared under s 25A | Foreign enterprise |
Section 25A — the Minister’s power
The Minister may, on the recommendation of the Authority, by notice in the National Gazette, declare an enterprise to be a foreign enterprise for the purposes of this Act.
The power converts an enterprise into a foreign enterprise regardless of its ownership. Once declared, it needs a certificate to carry on business, cannot carry on a reserved activity, and is exposed to the section 41 offences if it continues without one.
The section states no criteria and no procedure. It requires only a recommendation of the Authority and gazettal.
A declaration is a decision affecting rights, and would be amenable to judicial review on ordinary administrative law grounds. Note, however, that the appeal right in section 40 is confined to decisions about certificates — refusal, objectionable terms, refusal of variation, suspension or cancellation, and failure to decide. A section 25A declaration is not among them.
What counts as an investment
“Investment” means every kind of asset subject to the laws of Papua New Guinea, and includes:
- Movable and immovable property and other property rights, including charges, mortgages, liens and pledges;
- Shares, stocks and debentures of corporations, or interests in their property;
- A chose in action, a claim to money, or a claim to any performance having financial value;
- Intellectual and industrial property rights and goodwill;
- Business and analogous concessions conferred by law, including concessions to search for, cultivate, extract or exploit natural resources.
The breadth matters most for the investment guarantees in section 37, which protect a foreign investor’s property against nationalisation and secure the right to remit earnings.
In practice
- Do the analysis before incorporating. Status is determined by ownership and control, so shareholders’ agreements, management contracts and funding arrangements all bear on it.
- Do not rely on a 51% local shareholding alone. If a foreign party controls the company in practice, it is a foreign enterprise.
- Watch for drift. A national enterprise that becomes foreign through a change in shareholding must apply for a certificate within 14 days — section 32(4).
- Remember the reserved activities. A foreign enterprise cannot be certified for an activity reserved for citizens or national enterprises.
Sources
- Investment Promotion Act 1992 — ss 3, 25A, 27, 28, 32, 37, 40, 41
- Companies Act 1997
Before relying on anything here, read the current text of the Companies Act 1997 and check for later amendments. If a decision matters to you, get advice — start with the Office of the Public Solicitor, or find a firm in the law firms directory.