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LAND AREA: 811 SQ. KM. BACKGROUND Kiribati (pronounced Kiribass) has 33 coral atolls widely dispersed over a vast area of the Pacific Ocean and has an Exclusive Economic Zone (EEZ) covering 3.5 million square kilometers. For administrative and demographic purposes, Kiribati is divided into atoll island groups, the Gilbert, Line and Phoenix Groups. The 17 islands of the Gilbert Group which include Tarawa, are all inhabited. Kiritimati (Christmas Island), the largest atoll, accounts for 48 percent of the country's total land area and is the administrative center of the Line and Phoenix Groups. The Kiribati economy is small with few resources. The agricultural base, including subsistence, is narrow and averages 30 percent of GDP. Copra is the only important cash crop and commercial fishing (mainly tuna) is undertaken by the small fleet of the national fishing company. The service sector accounts for 61 percent of GDP with the major activity coming from Government services. Trade and hotels account for 14 percent with tourism remaining underdeveloped although it has the potential of becoming the second largest industry after fisheries development. INVESTMENT CLIMATE Government Policy The Government of Kiribati aims to improve on the growth performance of the country by encouraging private sector investment, diversification of the economy and instituting appropriate policies and measures. Foreign investment is generally encouraged. Investors who wish to establish an enterprise must make application to the Foreign Investment Commission (FIC) which is chaired by the Secretary for Commerce, Industry and Tourism. Granting of FIC licenses is on a case by case basis. All proposals put to the Commission are considered under the following guidelines:
Investment Incentives A range of incentives are offered to those wishing to invest in Kiribati. These incentives are not automatic but available on a case-by case basis. It is up to the investor to initiate any request for such assistance. Pioneer Status Any company that wishes to establish a business in Kiribati may apply to the Internal Revenue Board for 'pioneer status'. This allows for a reduced company tax rate of 10 percent for five years with the exception of business operations on South Tarawa and Christmas Island. Depreciation Allowance New plant and equipment are allowed a depreciation allowance of 25 percent in the first year and 15 percent thereafter on a reducing balance, while used plant and equipment are allowed a flat 15 percent. New and used buildings are depreciated at five percent of cost in the first year and on a straight-line basis thereafter. Depreciation allowance for new ships is 20 percent in the first year and 10 percent thereafter on a straight line basis, while the rate for used ships is set at 10 percent. Carry Forward of Losses Losses from previous years may be carried forward for up to three consecutive years but should be offset against like income. Loan Interest Deduction Interest payable on both foreign and local loans may be 100 percent free of tax deductions for income tax purposes but with total debt deductions restricted to an equity ratio of 3:1. Customs Duties Import duties are generally low and full or partial exemptions of import duties may be granted on capital items. These include building materials, plant and equipment, furniture and fittings and boats. Direct Government Investment The Government may assist by equity involvement or through joint-venturing a project. Assistance may be in the form of a financial contribution or through another resource contribution such as land (land cannot be owned by foreigners, but for investment purposes it can be leased at low rates on a long-term basis). Development of Infrastructure Assistance may be provided for development projects, such as tourism. This may take the form of the development of or improvement of general infrastructure such as roads, port facilities, airport development, electricity and water supplies. Restrictions and Limitations on Foreign Investment The Government of Kiribati imposes restrictions on Foreign Investment only where local expertise or local industry already exists (for example, handicraft) or where the local, natural or social environment could be adversely affected. Access to Land, Capital and Labor Land The Kiribati Government owns about two-thirds of the land, the bulk of which is in the Line and Phoenix Groups. Although total land area in the country is small, suitable land still exists in certain areas for development. Christmas and Fanning islands in the Line group and Canton island in the Phoenix group have been earmarked by the Government as prime areas for future development. Land in the country cannot be bought by foreigners. However, for investment purposes, land can be leased on a long-term basis. All inquires and approval for Government land is handled by the Lands and Survey Division (LSD) of the Ministry of Home Affairs. Investors may enter into direct negotiation with private landowners on the terms and conditions for leasing. Capital The Development Bank of Kiribati is willing to lend for tourism development projects up to a maximum of around US$180,000, provided the project is financially viable and meets the Bank's lending criteria. The Bank of Kiribati may also provide short term loans of up five years to the hotel sector for working capital requirements. The possibility also exists for co-financing between the two banks, but for most large scale foreign investment projects, the investor would be expected to provide the funds from abroad. Investors securing their rights to own and operate their business in Kiribati are able to obtain Government guarantees to repatriate after-tax profits, original capital, loan and interest repayments, know-how fees and other service charges. Labor The workforce is generally well educated with sufficient labor existing for most skilled categories of work. Unskilled and semi-skilled labor is available in abundance. Where qualified local persons are not available to fill a position, the foreign investor may recruit from overseas. REGULATORY FRAMEWORK Review and Approval Mechanisms for Foreign Investment Overseas investment in Kiribati is controlled under the Foreign Investment Act 1985 and the Foreign Investment Regulation 1986. For investment over US$ 180,000, approval must be sought from Cabinet on advice from the FIC. For investment less than US$180,000, the FIC may approve the investment directly. The average time involved in processing an investment application from point of submission to final approval is two to three months. If the application is accepted, the FIC often sets performance criteria relating to employment, training of local staff, and production targets, including a timetable for implementation. To ensure compliance, the firm is expected to submit quarterly reports. Competition Policy Price Controls Price controls exist on selected items, including essential commodities such as mineral fuels and basic food groups. OPERATIONAL PROCEDURES Labor and Labor Regulations The number of people engaged in the formal paid workforce is about 11,000 or approximately 14 percent of the total population. About 70 percent of the formal paid workforce is employed in the public sector, primarily for central and local government or government corporations. Village work, which incorporates subsistence activities, occupies over 20,000 people. The country does not at present have a minimum wages legislation although enactment plans are underway. The hotel industry is partly unionized. Prevailing wage levels in the private sector range from around 45 to 60 US cents an hour for unskilled workers to over 90 US cents an hour for supervisory level workers. Government wage rates are marginally higher. Banking There is no central monetary authority in Kiribati and the official currency is the Australian dollar. The Development Bank of Kiribati is authorized to make long term loans to private enterprises engaged in agriculture, fisheries, industry and services. The only commercial bank, the Bank of Kiribati, is owned jointly by the Australian bank, Westpac (51 percent) and the Government (49 percent). Special Visas Investors are normally granted visas for one year with provision for annual extensions. Taxation Income Taxes Individuals Personal income tax is set at 25 percent of gross income for the first US$36.000 and at 35 percent for amounts in excess. Companies Normal company tax is based on a flat rate of 25 percent of net profits for the first US$36,000 and 35 percent for amounts in excess. Hotel Tax Hotel tax is based on a flat rate of 10 percent of turnover and applies to all hotels and motels. Withholding Tax Withholding tax on dividends paid to overseas investors is 30 percent, except for dividends paid to an Australian resident where the rate is 15 percent. PROMOTION OF INVESTMENT OPPORTUNITIES The only official promotional document is the 'Investment Opportunities in the Republic of Kiribati' produced by the Department of Trade and Industry and the Ministry of Foreign Affairs, New Zealand, 1988. Other promotional documents include:
Contact For Further Information: Secretary
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