The United Kingdom (UK) actively encourages foreign direct investment (FDI). The UK imposes few impediments to foreign ownership and throughout the past decade, has been Europe’s top recipient of FDI. The UK government provides comprehensive statistics on FDI in its annual inward investment report: https://www.gov.uk/government/publications/dit-inward-investment-results-for-the-tax-year-2015-to-2016.
Long-term political, economic, and regulatory stability, coupled with relatively low rates of taxation and inflation, has made the UK attractive to foreign investors. Market entry for U.S. firms is facilitated by a common language, legal heritage, and similar business institutions and practices. The UK is well supported by sophisticated financial and professional services industries and has a transparent tax system in which local and foreign-owned companies are taxed alike. The British pound is a free-floating currency with no restrictions on its transfer or conversion. Exchange controls restricting the transfer of funds associated with an investment into or out of the UK do not exist.
UK legal, regulatory, and accounting systems are transparent and consistent with international standards. The UK legal system provides a high level of protection. Private ownership is protected by law and monitored for competition-restricting behavior. U.S. exporters and investors generally will find little difference between the United States and UK in the conduct of business, and common law prevails as the basis for commercial transactions in the UK.
The United States and UK have enjoyed a “Commerce and Navigation” Treaty since 1815 which guarantees national treatment of U.S. investors. A Bilateral Tax Treaty specifically protects U.S. and UK investors from double taxation. There are no signs of increased protectionism against foreign investment, and none are expected.
The United States is the largest source of FDI into the UK. Many U.S. companies have operations in the UK, including all top 100 of the Fortune 500 firms. The UK also hosts more than half of the European, Middle Eastern and African corporate headquarters of American-owned firms. For several generations, U.S. firms have been attracted to the UK both for the domestic market and as a beachhead for the European Union Single Market. On June 23, 2016, the UK held a referendum on its continuing membership in the EU and the British public voted to leave the EU. On March 29, 2017, the UK initiated the formal process of withdrawing from the EU. Under EU rules, the UK and the EU have two years to negotiate the terms of the UK’s withdrawal. The terms of the UK’s future relationship with the EU are unknown at this time. UK political leaders have said the UK intends to leave the EU Single Market and Customs Union and negotiate a comprehensive Free Trade Agreement with the EU. The uncertainty surrounding the terms of the UK’s departure from the EU and the terms of the future UK-EU relationship may impact the overall attractiveness of the UK as an investment destination for U.S. companies.
|TI Corruption Perceptions Index||2016||10 of 175||http://www.transparency.org/
|World Bank’s Doing Business Report “Ease of Doing Business”||2016||7 of 190||doingbusiness.org/rankings|
|Global Innovation Index||2016||3 of 128||https://www.globalinnovationindex.org/
|U.S. FDI in partner country ($M USD, stock positions)||2015||$593.0 billion||http://www.bea.gov/
|World Bank GNI per capita||2015||$43,390||http://data.worldbank.org/
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Toward Foreign Direct Investment
The UK encourages foreign direct investment. With a few exceptions, the government does not discriminate between nationals and foreign individuals in the formation and operation of private companies. The Department of International Trade actively promotes direct foreign investment, and prepares market information for a variety of industries. U.S. companies establishing British subsidiaries generally encounter no special nationality requirements on directors or shareholders. Once established in the UK, foreign-owned companies are treated no differently from UK firms. The British Government is a strong defender of the rights of any British-registered company, irrespective of its nationality of ownership.
Limits on Foreign Control and Right to Private Ownership and Establishment
Foreign ownership is limited in only a few strategically privatized companies, such as Rolls Royce (aerospace) and BAE Systems (aircraft and defense). No individual foreign shareholder may own more than 15 percent of these companies. Theoretically, the government can block the acquisition of manufacturing assets from abroad by invoking the Industry Act 1975, but it has never done so. Investments in energy and power generation require environmental approvals. Certain service activities (like radio and land-based television broadcasting) are subject to licensing.
The UK requires that at least one director of any company registered in the UK must be ordinarily resident in the UK. The UK, as a member of the Organization for Economic Cooperation and Development (OECD), subscribes to the OECD Codes of Liberalization, committed to minimal limits on foreign investment.
While the UK does not have a formalized investment review body to assess the suitability of foreign investments in national security sensitive areas, an ad hoc investment review process does exist and is led by the relevant government ministry with regulatory responsibility for the sector in question (e.g., the Department for Business, Energy, and Industrial Strategy who would have responsibility for review of investments in the energy sector). U.S. companies have not been the target of these ad hoc reviews.
Other Investment Policy Reviews
The Economist’s “Intelligence Unit” and World Bank Group’s “Doing Business 2017” have current investment policy reports for the United Kingdom:
The UK government seeks to facilitate investment by offering overseas companies access to widely integrated markets. Proactive policies encourage international investment through administrative efficiency. The online business registration process is clearly defined, though some types of companies cannot register as an overseas firm in the UK, including partnerships and unincorporated bodies. Registration as an overseas company is only required when it has some degree of physical presence in the UK. After registering a business with the UK government, overseas firms must register for the corporation tax within three months. The process of setting up a business in the UK requires as few as thirteen days, compared to the European average of 32 days, which puts the country in first place in Europe and sixth place in the world.
The UK offers a welcoming environment to foreign investors, with foreign equity ownership restrictions in only a limited number of sectors. As in all other European Union member countries, foreign equity ownership in the air transportation sector is limited to 49 percent for investors from outside of the European Economic Area (EEA). Furthermore, the Industry Act (1975) enables the UK government to prohibit transfer to foreign owners of 30 percent or more of important UK manufacturing businesses, if such a transfer would be contrary to the interests of the country. While these provisions have never been used in practice, they are still accounted for in theWorld Bank’s “Doing Business” indicators for “Investing Across Sectors” , as these strictly measure ownership restrictions defined in the laws.
Here are relevant websites with additional information:
Special Section on the British Overseas Territories
The British Overseas Territories (BOTs) comprise Anguilla, British Antarctic Territory, Bermuda, British Indian Ocean Territory, British Virgin Islands, Cayman Islands, Falkland Islands, Gibraltar, Montserrat, Pitcairn Islands, St. Helena, Ascension and Tristan da Cunha, Turks and Caicos Islands, South Georgia and South Sandwich Islands, and Sovereign Base Areas on Cyprus. The BOTs retain a substantial measure of responsibility for their own affairs. Local self-government is usually provided by an Executive Council and elected legislature. Governors or Commissioners are appointed by the Crown on the advice of the British Foreign Secretary, and retain responsibility for external affairs, defense, and internal security. However, the UK imposed direct rule on the Turks and Caicos Islands in August 2009 after an inquiry found evidence of corruption and incompetence. Its Premier was removed and its constitution was suspended. The UK restored Home Rule following elections in November 2012.
Many of the territories are now broadly self-sufficient. However, the UK’s Department for International Development (DFID) maintains development assistance programs in St. Helena, Montserrat, and Pitcairn. This includes budgetary aid to meet the islands’ essential needs and development assistance to help encourage economic growth and social development in order to promote economic self-sustainability. In addition, all other BOTs receive small levels of assistance through “cross-territory” programs for issues such as environmental protection, disaster prevention, HIV/AIDS and child protection. The UK also lends to the BOTs as needed, up to a pre-established limit, but assumes no liability if they encounter financial difficulty.
Many of the BOTs, particularly those in the Caribbean, have been hit hard by the global financial crisis. In the Cayman Islands, the British Virgin Islands, the Turks and Caicos and Anguilla, decreases in financial services activity and tourism have resulted in falling output and government revenue. To mitigate the impact of the crisis, the territories are reprioritizing government expenditures and looking at ways to increase revenue. Additionally, BOTs which have signed fiscal framework agreements with the UK may request higher borrowing limits.
Seven of the BOTs have financial centers: Anguilla, Bermuda, British Virgin Islands, Cayman Islands, Gibraltar, Montserrat, and the Turks and Caicos Islands. These Territories have committed to the OECD’s Common Reporting Standard (CRS) for the automatic exchange of taxpayer financial account information. They are already exchanging information with the UK, and are expected to start exchanging information with other jurisdictions under the OECD CRS from September 2017.
The OECD Global Forum on Transparency and Exchange of Information for Tax Purposes has rated Anguilla as “partially compliant” with the internationally agreed tax standard. Anguilla will seek to upgrade its rating at a review in 2017. The Global Forum has rated the other six territories as “largely compliant.” Anguilla, Bermuda, British Virgin Islands, Cayman Islands, Gibraltar and the Turks and Caicos Islands have also committed in reciprocal bilateral arrangements with the UK to hold beneficial ownership information in central registers or similarly effective systems, and to provide UK law enforcement authorities with near real-time access to this information. These arrangements are due to come into effect by June 2017. Montserrat committed in 2015 to establish a publicly accessible register of beneficial ownership information.
Anguilla: Anguilla is a neutral tax jurisdiction. There are no income, capital gains, estate, profit or other forms of direct taxation on either individuals or corporations, for residents or non-residents of the jurisdiction. The territory has no exchange rate controls. Non-Anguillan nationals may purchase property, but the transfer of land to an alien includes a 12.5 percent tax.
British Virgin Islands: The government of the British Virgin Islands welcomes foreign direct investment and offers a series of incentive packages aimed at reducing the cost of doing business on the islands. This includes relief from corporation tax payments over specific periods but companies must pay an initial registration fee and an annual license fee to the BVI Financial Services Commission. Crown land grants are not available to non-British Virgin Islanders, but private land can be leased or purchased following the approval of an Alien Land Holding License. Stamp duty is imposed on transfer of real estate and the transfer of shares in a BVI company owning real estate in the BVI at a rate of 4 percent for “belongers” and 12 percent for “non-belongers”. There is no corporate income tax, capital gains tax, branch tax, or withholding tax for companies incorporated under the BVI Business Companies Act. Payroll tax is imposed on every employer and self-employed person who conducts business in BVI. The tax is paid at a graduated rate depending upon the size of the employer. The current rates are 10 percent for small employers (those which have a payroll of less than USD 150,000, a turnover of less than USD 300,000 and fewer than 7 employees) and 14 percent for larger employers. Eight percent of the total remuneration is deduction from the employee, the remainder of the liability is met by the employer. The first USD 10,000 of remuneration is free from payroll tax.
Cayman Islands: There are no direct taxes in the Cayman Islands. In most districts, the government charges stamp duty of six percent on the value of real estate at sale; however, certain districts, including Seven Mile Beach, are subject to a rate of nine percent. There is a one percent fee payable on mortgages of less than KYD 300,000, and one and a half percent on mortgages of KYD 300,000 or higher. There are no controls on the foreign ownership of property and land. Investors can receive import duty waivers on equipment, building materials, machinery, manufacturing materials, and other tools.
Falkland Islands: Companies located in the Falkland Islands are charged corporation tax at 21 percent on the first GBP one million and 26 percent for all amounts in excess of GBP one million. The individual income tax rate is 21 percent for earnings below USD 16,882 (GBP 12,000) and 26 percent above this level.
Gibraltar: The government of Gibraltar encourages foreign investment. Gibraltar has a buoyant economy with a stable currency and few restrictions on moving capital or repatriating dividends. The corporate income tax rate is 20 percent for utility, energy, and fuel supply companies, and 10 percent for all other companies. Gibraltar has no capital or sales taxes. It is a part of the EU and receives EU funding for projects that improve the territory’s economic development. However, in light of the March 29, 2017 start of the two-year process to withdraw from the EU, and given its shared border with Spain, an EU member, Gibraltar’s economic situation is likely to alter significantly in the future.
Montserrat: The government of Montserrat welcomes new private foreign investment. Foreign investors are permitted to acquire real estate, subject to the acquisition of an Alien Land Holding license which carries a fee of five percent of the purchase price. The government also imposes stamp and transfer fees of 2.6 percent of the property value on all real estate transactions. Foreign investment in Montserrat is subject to the same taxation rules as local investment, and is eligible for tax holidays and other incentives. Montserrat has preferential trade agreements with the United States, Canada, and Europe. The government allows 100 percent foreign ownership of businesses but the administration of public utilities remains wholly in the public sector.
St. Helena: The island of St. Helena is open to foreign investment and welcomes expressions of interest from companies wanting to invest. Its government is able to offer tax-based incentives which will be considered on the merits of each project – particularly tourism projects that will be trading in preparation for the start of commercial flights, anticipated in late 2017 or early 2018. All applications are processed by Enterprise St. Helena, the business development agency.
Pitcairn Islands: The Pitcairn Islands have approximately 50 residents, with a workforce of approximately 29 employed in 10 full-time equivalent roles. The territory does not have an airstrip or safe harbor. Residents exist on fishing, subsistence farming, and handcrafts.
The Turks and Caicos Islands: The islands operate an “open arms” investment policy. Through the policy, the government commits to a streamlined business licensing system, a responsive immigration policy to give investment security, access to government owned land under long-term leases, and a variety of duty concessions to qualified investors. The islands have a “no tax” status, but property purchasers must pay a stamp duty on purchases over USD 25,000. Depending on the island, the stamp duty rate may be up to 6.5 percent for purchases up to USD 250,000, eight percent for purchases USD 250,001 to USD 500,000, and 10 percent for purchases over $500,000.
The UK is one of the largest outward investors in the world, often through Bilateral Investment Treaties (BITs) which are used to promote and protect investment abroad and have been adopted by many countries. However, the UK’s international investment position abroad (outward investment) fell from £1,078.7 billion in 2014 to £1,052.1 billion in 2015. Despite the fall in ranking, the UK remains one of the world’s largest foreign direct investors, second only to the United States. By the end of 2011 the UK’s stock of outward FDI was £1,098 billon, having risen by 75 percent since 2002. The main destination for UK outward FDI is the United States, which accounted for approximately 19 percent of UK outward FDI stocks at the end of 2011. Other key destinations include the Netherlands, Luxembourg, France and Ireland which, together with the U.S., cover more than half of the UK’s outward FDI stock.
Europe and the Americas remain the dominant areas for UK international investment positions abroad, accounting for 50.1 percent and 32.6 percent of total UK outward FDI positions respectively. The UK’s international investment position within the Americas experienced a decline in 2015 for the first time since 2010, falling by £24.7 billion to a level of £342.8 billion. Despite this decline, the level in 2015 remains the second largest recorded value in the time series since 2006 for the Americas. The U.S., at £237.3 billion, continued to be the largest destination for UK international investment positions abroad within the Americas in 2015.
2. Bilateral Investment Agreements and Taxation Treaties
The UK has concluded 110 Bilateral Investment Treaties, which are known in the UK as Investment Promotion and Protection Agreements (IPPAs). They include: Albania, Angola, Antigua and Barbuda, Argentina, Armenia, Azerbaijan, Bahrain, Bangladesh, Barbados, Belarus, Belize, Benin, Bolivia, Bosnia and Herzegovina, Brazil, Bulgaria, Burundi, Cameroon, Chile, China, Colombia, Congo, Costa Rica, Côte d’Ivoire, Croatia, Cuba, Czech Republic, Dominica, Ecuador, Egypt, El Salvador, Estonia, Ethiopia, Gambia, Georgia, Ghana, Grenada, Guyana,, Haiti, Honduras, Hong Kong, China SAR, Hungary, India, Indonesia, Jamaica, Jordan, Kazakhstan, Kenya, Korea Republic of, Kuwait, Kyrgyzstan, Lao People’s Democratic Republic, Latvia, Lebanon, Lesotho, Libya, Lithuania, Malaysia, Malta, Mauritius, Mexico, Moldova, Mongolia, Morocco, Mozambique, Nepal, Nicaragua, Nigeria, Oman, Pakistan, Panama, Papua New Guinea, Paraguay, Peru, Philippines, Poland, Qatar, Romania, Russian Federation, Saint Lucia, Senegal, Serbia, Sierra Leone, Singapore, Slovakia, Slovenia, South Africa, Sri Lanka, Swaziland, Tanzania, United Republic of, Thailand, Tonga, Trinidad and Tobago, Tunisia, Turkey, Turkmenistan, Uganda, Ukraine, United Arab Emirates, Uruguay, Uzbekistan, Vanuatu, Venezuela, Bolivarian Republic of, Vietnam, Yemen, Zambia, and Zimbabwe. For a full list of all treaties with investment provisions currently in force, see: http://investmentpolicyhub.unctad.org/IIA/CountryBits/221#iiaInnerMenu
The United States and the UK have enjoyed a Commerce and Navigation Treaty since 1815 which guarantees national treatment of U.S. investors. A Bilateral Tax Treaty specifically protects U.S. and UK investors from double taxation. The UK has its own bilateral tax treaties with more than 100 countries and a network of about a dozen double taxation agreements.
3. Legal Regime
Transparency of the Regulatory System
U.S. exporters and investors generally will find little difference between the United States and UK in the conduct of business. The regulatory system provides clear and transparent guidelines for commercial engagement. Common law prevails in the UK as the basis for commercial transactions, and the International Commercial Terms (INCOTERMS) of the International Chambers of Commerce are accepted definitions of trading terms. In terms of accounting standards and audit provisions firms in the UK must use the International Financial Reporting Standards (IFRS) set by the International Accounting Standards Board (IASB) and approved by the European Commission. The UK’s Accounting Standards Board provides guidance to firms on accounting standards and works with the IASB on international standards
Statutory authority over prices and competition in various industries is given to independent regulators, for example Ofcom, Ofwat, Ofgem, the Office of Fair Trading (OFT), the Rail Regulator, and the Prudential Regulatory Authority (PRA). The PRA was created out of the dissolution of the Financial Services Authority (FSA) in 2013. The PRA reports to the Financial Policy Committee (FPC) in the Bank of England. The PRA is responsible for supervising the safety and soundness of individual financial firms, while the FPC takes a systemic view of the financial system and provides macro-prudential regulation and policy actions. The Consumer and Markets Authority (CMA) acts as a single integrated regulator focused on conduct in financial markets. The Financial Conduct Authority (FCA) is a regulatory enforcement mechanism designed to address financial and market misconduct through legally reviewable processes. These regulators work to protect the interests of consumers while ensuring that the markets they regulate are functioning efficiently. Most laws and regulations are published in draft for public comment prior to implementation
The UK government publishes regulatory actions, including draft text and executive summaries, on the Department for Business, Energy & Industrial Strategy webpage listed below. The current policy requires repealing two regulations for any new one in order to make the business environment more competitive.
The primary difference between the regulatory environment in the UK and the United States is that so long as the UK is a member of the European Union, it is mandated to comply with and enforce EU regulations and directives. The U.S. government has expressed concerns about the degree of transparency and accountability in the EU regulatory process. The extent to which the UK will maintain the EU regulatory regime after the UK withdraws from the EU is unknown at this time.
International Regulatory Considerations
The UK’s withdrawal from the EU may result in an extended period of regulatory uncertainty across the economy as the UK determines the extent to which it will maintain and enforce the EU regulatory regime, which is expected to be incorporated as UK law through the “Great Repeal Act”, or seek to deviate from the regulatory regime after it withdraws from the EU.
The UK is an independent member of the WTO, and actively seeks to comply with all its WTO obligations.
Legal System and Judicial Independence
The UK is a common law country. UK business contracts are legally enforceable in the UK, but not in the United States or other foreign jurisdictions. International disputes are resolved through litigation in UK courts or by arbitration, mediation, or some other alternative dispute resolution (ADR) method. The UK has a long history of applying the rule of law to business disputes. The current judicial process remains procedurally competent, fair, and reliable, which helps position London as an international hub for commercial dispute resolution, with over 10,000 cases filed per year.
Laws and Regulations on Foreign Direct Investment
There is no specific statute governing or restricting foreign investment in the UK. The procedure for establishing a company in the UK is identical for British and foreign investors. No approval mechanisms exist for foreign investment. Foreigners may freely establish or purchase enterprises in the UK, with few exceptions, and acquire land or buildings.
Extreme tax incentives and ”tax avoidance”, or structuring ones finances to maximize tax deductions by multinational companies, including several major U.S. firms, has been a controversial political issue and subject to investigations by the UK Parliament and EU authorities. However, foreign and UK firms remain subject to the same tax laws, and several UK firms have also been criticized for tax avoidance. Foreign investors may have access to certain EU and UK regional grants and incentives designed to attract industry to areas of high unemployment, but these do not include tax concessions.
As of 2016, the UK taxes corporations 21 percent on profits over USD 2.1 million (GBP 1.5 million). Small companies are taxed at a rate of 20 percent for profits up to USD 426,000 (GBP 300,000) and marginal tax relief is granted on profits between these thresholds. Tax deductions are allowed for expenditure and depreciation of assets used for trade purposes. These include machinery, plant, industrial buildings, and assets used for research and development. A special rate of 20 percent is given to unit trusts and open-ended investment companies. There are different corporation tax rates for companies that make profits from oil extraction or oil rights in the UK or UK continental shelf. These are known as ‘ring fence’ companies: small companies are taxed at a rate of 19 percent for profits up to USD 426,000 (GBP 300,000), and 30 percent for profits over USD 426,000 (GBP 300,000).
The UK has a simple system of personal income tax. The basic income tax rate for 2015-2016 is divided into three tiers: 20 percent on earned income up to the first USD 44,807 (GBP 31,785); earnings between USD 44,807 (GBP 31,785) and USD 211,456 (GBP 150,000) are taxed at 40 percent; and earnings above USD 211,456 (GBP 150,000) are taxed at 45 percent. UK citizens also make mandatory payments of about 12 percent of income into the National Insurance system, which funds social security and retirement benefits. The UK requires non-domiciled residents of the UK to either pay tax on their worldwide income or the tax on the relevant part of their remitted foreign income being brought into the UK. If they have been resident for seven years or more, and they choose to pay tax only on their remitted earnings, they may be subject to an additional charge of USD 48,141 (GBP 30,000) or USD 83,235 (GBP 50,000).
The Scottish Parliament has the legal power to increase or decrease the basic income tax rate in Scotland, currently 20 percent, by a maximum of three percentage points. The Scottish Government has been opposed to increasing tax rates, mainly because any financial advantage gained by an increase in taxes would be offset by the need to establish a new administrative body to manage the new revenue.
For guidance on laws and procedures relevant to foreign investment in the UK, follow the link:
Competition and Anti-Trust Laws
UK competition law contains both British and European elements. The Competition Act 1998 and the Enterprise Act 2002 are the most important statutes for cases with a purely national dimension. However, if the impact of a business’ conduct crosses borders, EU law applies. Section 60 of the Competition Act 1998 provides that UK rules are to be applied in line with European jurisprudence.
The Companies Act of 1985, administered by the Department for Business, Energy & Industrial Strategy (BEIS), governs ownership and operation of private companies. On November 8, 2006 the UK passed the Companies Act of 2006 to replace the 1985 Act. The law simplifies and modernizes existing rules rather than make any dramatic shift in the company law regime.
BEIS uses a transparent code of practice that is fully in accord with EU merger control regulations, in evaluating bids and mergers for possible referral to the Competition Commission. The Competition Act of 1998 strengthened competition law and enhanced the enforcement powers of the Office of Fair Trading (OFT). Prohibitions under the act relate to competition-restricting agreements and abusive behavior by entities in dominant market positions. The Enterprise Act of 2002 established the OFT as an independent statutory body with a Board, and gives it a greater role in ensuring that markets work well. Also, in accordance with EU law, if deemed in the public interest, transactions in the media or that raise national security concerns may be reviewed by the BEIS Secretary of State.
In 2014, through the Enterprise and Regulatory Reform Act 2013, the Competition Commission and the OFT merged into a single Non-Departmental Government Body: the Competition and Markets Authority (CMA). The CMA is the primary regulatory body for competition law enforcement. Competition law is closely connected with law on deregulation of access to markets, state aids and subsidies, the privatization of state owned assets, and the establishment of independent sector regulators. The CMA is responsible for investigating mergers that could restrict competition, conducting market studies and investigations where there may be competition problems, investigating breaches of EU and UK prohibitions, initiating criminal proceedings against individuals who commit cartel offenses, and enforcing consumer protection legislation. This body is unlikely to alter UK competition policy.
UK competition law has three main tasks: 1) prohibiting agreements or practices that restrict free trading and competition between business entities (this includes in particular the repression of cartels); 2) banning abusive behavior by a firm dominating a market, or anti-competitive practices that tend to lead to such a dominant position (practices controlled in this way may include predatory pricing, tying, price gouging, refusal to deal and many others); and 3) supervising the mergers and acquisitions of large corporations, including some joint ventures. Transactions that are considered to threaten the competitive process can be prohibited altogether, or approved subject to “remedies” such as an obligation to divest part of the merged business or to offer licenses or access to facilities to enable other businesses to continue competing.
Although the CMA has general review authority, specific “watchdog” agencies such as Ofgem (the electricity and gas markets regulation authority), Ofcom (the communications regulation authority), and Ofwat (the water services regulation authority) are also charged with seeing how the operation of those specific markets work.
Expropriation and Compensation
The OECD, of which the UK is a member, states that when a government expropriates property, compensation should be prompt, adequate and effective. The right to fair compensation and due process is uncontested and is reflected in all international investment agreements. Additionally, some recent agreements have clarified that, except in rare circumstances, non-discriminatory regulatory actions that are designed and applied to protect legitimate public welfare objectives, such as public health, safety and the environment, are not considered to constitute expropriations.
In the UK, expropriation of corporate assets or the nationalization of industry requires a special act of Parliament. A number of key UK banks became subject to full or part-nationalization from early 2008 as a response to the financial crisis and banking collapse. The first bank to become nationalized was the Northern Rock in February 2008, and by March 2009 the UK Treasury had taken a 65 percent stake in the Lloyds Banking Group and a 68 percent stake in the Royal Bank of Scotland (RBS). In the event of nationalization, the British government follows customary international law by providing prompt, adequate, and effective compensation.
As a member of the International Center for Settlement of Investment Disputes (ICSID), the UK accepts binding international arbitration between foreign investors and the state. As a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the UK provides local enforcement on arbitration judgments decided in other signatory countries.
London is a thriving center for the resolution of international disputes through arbitration under a variety of procedural rules such as those of the London Court of International Arbitration, the International Chamber of Commerce, the Stockholm Chamber of Commerce, the American Arbitration Association International Centre for Dispute Resolution, and many others. Many of these arbitrations involve parties with no connection to the jurisdiction, but are drawn to the jurisdiction because they perceive it to be a neutral venue with an arbitration law and courts that support arbitration. They also choose London-based arbitration because of the general prevalence of the English language and law in international commerce. A wide range of contractual and non-contractual claims can be referred to arbitration in this jurisdiction including disputes involving intellectual property rights, competition disputes, and statutory claims. There are no restrictions on foreign nationals acting as arbitration counsel or arbitrators in this jurisdiction. There are few restrictions on foreign lawyers practicing in the jurisdiction as evidenced by the fact that over 200 foreign law firms have offices in London.
ICSID Convention and New York Convention
The UK is a member of the International Center for Settlement of Investment Disputes (ICSID) and a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The latter convention has territorial application to Gibraltar (September 24, 1975), Hong Kong (January 21, 1977), Isle of Man (February 22, 1979), Bermuda (November 14, 1979), Belize and Cayman Islands (November 26, 1980), Guernsey (April 19, 1985), Bailiwick of Jersey (May 28, 2002), and British Virgin Islands (February 24, 2014).
The United Kingdom has consciously elected not to follow the UNCITRAL Model Law on International Commercial Arbitration. Enforcement of an arbitral award in the UK is dependent upon where the award was granted. The process for enforcement in any particular case is dependent upon the seat of arbitration and the arbitration rules that apply. Arbitral awards in the UK can be enforced under a number of different regimes, namely: The Arbitration Act of 1996, The New York Convention, The Geneva Convention 1927, The Administration of Justice Act 1920, the Foreign Judgments (Reciprocal Enforcement) Act 1933, and Common Law.
The Arbitration Act 1996 governs all arbitrations seated in England, Wales and Northern Ireland, both domestic and international. The full text of the Arbitration Act can be found here: http://www.legislation.gov.uk/ukpga/1996/23/data.pdf .
The Arbitration Act is heavily influenced by the UNCITRAL Model Law, but it has some important differences. For example, the Arbitration Act covers both domestic and international arbitration; the document containing the parties’ arbitration agreement need not be signed; an English court is only able to stay its own proceedings and cannot refer a matter to arbitration; the default provisions in the Arbitration Act require the appointment of a sole arbitrator as opposed to three arbitrators; a party retains the power to treat its party-nominated arbitrator as the sole arbitrator in the event that the other party fails to make an appointment (where the parties’ agreement provides that each party is required to appoint an arbitrator); there is no time limit on a party’s opposition to the appointment of an arbitrator; parties must expressly opt out of most of the provisions of the Arbitration Act which confer default procedural powers on the arbitrators; and there are no strict rules governing the exchange of pleadings. Section 66 of the Arbitration Act applies to all domestic and foreign arbitral awards. Sections 100 to 103 of the Arbitration Act provide for enforcement of arbitral awards under the New York Convention 1958. Section 99 of the Arbitration Act provides for the enforcement of arbitral awards made in certain countries under the Geneva Convention 1927.
Under Section 66 of the Arbitration Act, the court’s permission is required for an international arbitral award to be enforced in the UK. Once the court has given permission, judgment may be entered in terms of the arbitral award and enforced in the same manner as a court judgment or order. Permission will not be granted by the court if the party against whom enforcement is sought can show that (a) the tribunal lacked substantive jurisdiction and (b) the right to raise such an objection has not been lost.
The length of proceedings varies greatly. If the parties have a relatively straightforward dispute, co-operate, and adopt a fast track procedure, arbitration can be concluded within months or even weeks. In a substantial international arbitration involving complex facts, many witnesses and experts and post-hearing briefs, the arbitration could take many years. A reasonably substantial international arbitration will likely take between one and two years.
There are two alternative procedures that can be followed in order to enforce an award. The first is to seek leave of the court for permission to enforce. The second is to begin an action on the award, seeking the same relief from the court as set out in the tribunal’s award. Enforcement of an award made in the jurisdiction may be opposed by challenging the award. However, the court also may refuse to enforce an award that is unclear, does not specify an amount, or offends public policy. Enforcement of a foreign award may be opposed on any of the limited grounds set out in the New York Convention. A stay may be granted for a limited time pending a challenge to the order for enforcement. The court will consider the likelihood of success and whether enforcement of the award will be made more or less difficult as a result of the stay. Conditions that might be imposed on granting the stay include such matters as paying a sum into court. Where multiple awards are to be rendered, the court may give permission for the tribunal to continue hearing other matters, especially where there may be a long delay between awards. UK courts have a good record of enforcing arbitral awards. The courts will enforce an arbitral award in the same way that they will enforce an order or judgment of a court. At the time of writing, there are no examples of the English courts enforcing awards which were set aside by the courts at the place of arbitration.
Most awards are complied with voluntarily. If the party against whom the award was made fails to comply, the party seeking enforcement can apply to the court. The length of time it takes to enforce an award which complies with the requirements of the New York Convention will depend on whether there are complex objections to enforcement which require the court to investigate the facts of the case. If a case raises complex issues of public importance the case could be appealed to the Court of Appeal and then to the Supreme Court. This process could take around two years. If no complex objections are raised, the party seeking enforcement can apply to the court using a summary procedure that is fast and efficient. There are time limits relating to the enforcement of the award. Failure to comply with an award is treated as a breach of the arbitration agreement. An action on the award must be brought within six years of the failure to comply with the award or 12 years if the arbitration agreement was made under seal. If the award does not specify a time for compliance, a court will imply a term of reasonableness.
The UK has strong bankruptcy protections going back to the Bankruptcy Act of 1542. In modern days, both individual bankruptcy and corporate insolvency are regulated in the UK primarily by the Insolvency Act 1986 and the Insolvency Rules 1986, regulated through determinations in UK courts. The World Bank’s Doing Business Report Ranks the UK 13/189 for ease of resolving insolvency.
Regarding individual bankruptcy law, the court will oblige a bankrupt individual to sell assets to pay dividends to creditors. A bankrupt person must inform future creditors about the bankrupt status and may not act as the director of a company during the period of bankruptcy. Bankruptcy is not criminalized in the UK, and the Enterprise Act of 2002 dictates that for England and Wales, bankruptcy will not normally last longer than 12 months. At the end of the bankrupt period, the individual is normally no longer held liable for bankruptcy debts unless the individual is determined to be culpable for his or her own insolvency, in which case the bankruptcy period can last up to fifteen years.
For corporations declaring insolvency, UK insolvency law seeks to equitably distribute losses between creditors, employees, the community, and other stakeholders in an effort to rescue the company. Liability is limited to the amount of the investment. If a company cannot be rescued, it is liquidated and assets are sold to pay debts to creditors, including foreign investors.
4. Industrial Policies
On August 2, 2016 the UK Prime Minister chaired the first meeting of the “Cabinet Committee on Economy and Industrial Strategy”, bringing together the heads of 11 other ministries to set out her vision for a state-boosted industrial renaissance. The prime minister emphasized that the objective of the government’s new industrial strategy should be to deliver an economy that works for all. According to a publicly posted Green Paper that sets out the initial vision, targeted interventions – ranging from tax breaks and deregulation to strategic procurement decisions and specific investment in particular skills – have been combined with free market economic policies to nurture growth in particular sectors and places.
The UK offers a range of incentives for companies of any nationality locating in depressed regions of the country, as long as the investment generates employment. UKTI works with its partner organizations in the devolved administrations – Scottish Development International, the Welsh Government and Invest Northern Ireland – and with London and Partners and Local Enterprise Partnerships (LEPs) throughout England, to promote each region’s particular strengths and expertise to overseas investors.
Local authorities in England and Wales also have power under the Local Government and Housing Act of 1989 to promote the economic development of their areas through a variety of assistance schemes, including the provision of grants, loan capital, property, or other financial benefit. Separate legislation, granting similar powers to local authorities, applies to Scotland and Northern Ireland. Where available, both domestic and overseas investors may also be eligible for loans from the European Investment Bank.
Foreign Trade Zones/Free Ports/Trade Facilitation
The cargo ports and freight transportation ports at Liverpool, Prestwick, Sheerness, Southampton, and Tilbury used for cargo storage and consolidation are designated as Free Trade Zones. No activities that add value to commodities are permitted within the Free Trade Zones, which are reserved for bonded storage, cargo consolidation, and reconfiguration of non-EU goods. The Free Trade Zones offer little benefit to U.S. exporters or investors, or any other non-EU exporters or investors.
Performance and Data Localization Requirements
The UK Government does not mandate local employment, though at least one director of any company registered in the UK must be ordinarily resident in the UK.
New immigration rules (HC1888) that came into effect on April 6, 2012 have wide-ranging implications for foreign employees, primarily affecting businesses looking to sponsor migrants under Tier 2 as well as migrants looking to apply for settlement in the UK. In particular, the UK Government has introduced a 12-month cooling off period for Tier 2 (General) applications similar to the one that is currently in place for Tier 2 (intracompany transfer). The effect of this is that, while those who enter the UK under Tier 2 (General) to work for one company will be able to apply in-country under Tier 2 (General) to work for another company, if they leave the UK, they will not be able to apply to re-enter the UK under a fresh Tier 2 (general) permission until twelve months after their previous Tier 2 (general) permission has expired.
In addition, those who enter the UK under Tier 2 (intra-company transfer) after April 6, 2011 will not be able to change their status in-country to Tier 2 (General) under any circumstances. If they leave the UK, they will also not be able to apply to enter the UK under Tier 2 (general) until 12 months after their previous Tier 2 (intra-company transfer) permission has expired.
These provisions represent a significant tightening of the Tier 2 requirements. One of the consequences is that, where an individual is sent to the UK on assignment under Tier 2 (intracompany transfer), and the sponsoring company subsequently wishes to hire them permanently in the UK, they will not be able to apply either to remain in the UK under Tier 2 (General) or leave the UK and submit a Tier 2 (General) application overseas.
This change will mean that employers will have to carefully consider the long-term plans for all assignees that they send to the UK and whether Tier 2 (intracompany transfer) is the most appropriate category. This is because, if the assignee is subsequently required in the UK on a long-term basis, it will not be possible for them to make a new application under Tier 2 (General) until at least twelve months after their Tier 2 (intra-company transfer) permission has expired.
In 2016, the British government updated requirements for Tier 2 visas. It increases the Tier 2 minimum salary threshold to £30,000 for experienced workers. This change will be phased in, with the minimum threshold increased to £25,000 in fall 2016 and to £30,000 in April 2017. The minimum threshold for new entrants will remain at £20,800. Employers will continue to be able to recruit non-EEA graduates of UK universities without first testing the resident labor market and without being subject to the annual limit on Tier 2 (General) places, which will remain at 20,700 places per year. Additionally, it shall give extra weighting within the Tier 2 (General) limit to businesses sponsoring overseas graduates, and will allow graduates to switch roles within a company once they have secured a permanent job at the end of their training program. These changes took effect from fall 2016.
From April 2017, there will be extra weighting within the Tier 2 (General) limit where the allocation of places is associated with the relocation of a high-value business to the UK or, potentially, supports an inward investment. It will also waive the resident labor market test for these applications.
The UK does not follow “forced localization” and does not require foreign IT firms to turn over source code. The Investigatory Powers Act became law in November 2016 addressing encryption and government surveillance. It permitted the broadening of capabilities for data retention and the investigatory powers of the state related to data.
As of May 2018, companies operating in the UK will need to comply with the EU General Data Protection Regulation. The GDPR will have a significant impact on the business practices of companies operating in the UK. The extent to which the UK will maintain the requirements of the GDPR after the UK withdraws from the EU is unknown at this time.
5. Protection of Property Rights
The UK has robust real property laws stemming from legislation including the Law of Property Act 1925, the Settled Land Act 1925, the Land Charges Act 1972, the Trusts of Land and Appointment of Trustees Act 1996, and the Land Registration Act 2002.
Interests in property are well enforced, and mortgages and liens have been recorded reliably since the Land Registry Act of 1862. The Land Registry is the government database where all land ownership and transaction data is held for England and Wales, and it is reliably accessible online: https://www.gov.uk/search-property-information-land-registry . Scotland has its own Registers of Scotland, while Northern Ireland operates land registration through the Land and Property Services.
Long-term physical presence on non-residential property without their permission is not typically considered a crime in the UK. Police take action if squatters commit other crimes when entering or staying in a property. A long-term squatter on otherwise unoccupied land can become the registered owner of property they have occupied without the owner’s permission.
Intellectual Property Rights
The UK legal system provides a high level of intellectual property rights (IPR) protection. Enforcement mechanisms are comparable to those available in the United States. The UK is a member of the World Intellectual Property Organization (WIPO). The UK is also a member of the major intellectual property protection agreements: the Bern Convention for the Protection of Literary and Artistic Works, the Paris Convention for the Protection of Industrial Property, the Universal Copyright Convention, the Geneva Phonograms Convention, and the Patent Cooperation Treaty. The UK has signed and, through implementing various EU Directives, enshrined into UK law the WIPO Copyright Treaty (WCT) and WIPO Performance and Phonograms Treaty (WPPT), known as the internet treaties.
The Intellectual Property Office (IPO) is the official UK government body responsible for intellectual property rights including patents, designs, trademarks and copyright. The IPO web site contains comprehensive information on UK law and practice in these areas:
The British government tracks and reports seizures of counterfeit goods and regards the production and subsequent sale as a criminal act. The Intellectual Property Crime Report for 2014-15 highlights the incidence of IPC and the harm caused to the UK economy, with over 1.6 million infringing items removed at the borders during that period.
The Special 301 Report is an annual, congressionally-mandated review of the global state of intellectual property rights protection and enforcement. It is conducted by the Office of the U.S. Trade Representative to identify countries with commercial environments possibly harmful to intellectual property. The UK is not on the list.
IP lawyers are abundant in the United Kingdom; virtually every major U.S. law firm operates in the London market. For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ .
6. Financial Sector
Capital Markets and Portfolio Investment
The City of London houses one of the largest and most comprehensive financial centers globally. London offers all forms of financial services: commercial banking, investment banking, insurance, venture capital, private equity, stock and currency brokers, fund managers, commodity dealers, accounting and legal services, as well as electronic clearing and settlement systems and bank payments systems. London is highly regarded by investors because of its solid regulatory, legal, and tax environments, a supportive market infrastructure, and a dynamic, highly skilled workforce.
The UK government is generally hospitable toward foreign portfolio investment. Government policies are intended to facilitate the free flow of capital and to support the flow of resources in product and services markets. Foreign investors are able to obtain credit in local markets at normal market terms, and a wide range of credit instruments are available. The principles underlying legal, regulatory, and accounting systems are transparent, and they are consistent with international standards. In all cases, regulations have been published and are applied on a non-discriminatory basis by the PRA.
The London Stock Exchange is one of the most active equity markets in the world. London’s markets have the advantage of bridging the gap between the day’s trading in the Asian markets and the opening of the U.S. market. This bridge effect is also evident as many Russian and Central European companies have used London stock exchanges to tap global capital markets. The Alternative Investment Market (AIM), established in 1995 as a sub-market of the London Stock Exchange, is specifically designed for smaller, growing companies. The AIM has a more flexible regulatory system than the Main Market and has no minimum market capitalization requirements. Since its launch, the AIM has raised approximately USD 38 billion (GBP 24 billion) for more than 2,200 companies.
Money and Banking System
The UK banking sector is the largest in Europe. According to TheCityUK, more than 150 financial services firms from the EU are based in the UK. EU banks in the UK hold USD 2.3 trillion (GBP 1.4 trillion) in assets, which is 17 percent of total bank assets in the UK. The financial and related professional services industry contributed approximately 12.6 percent of total UK GDP in 2013, employed around 1.16 million people, and contributed USD 1.1 trillion (GBP 650 billion) in tax receipts (which is 11.7 percent of total UK tax receipts). While banks remained concerned that excessive regulation in the wake of the financial crisis could drive business and talent away from London, the UK is expected to maintain its position as a top financial hub.
The Bank of England serves as the central bank of the UK by maintaining monetary and fiscal stability. According to Bank of England guidelines, foreign banking institutions are legally permitted to establish operations in the UK as subsidiaries or branches. Responsibilities for the prudential supervision of a non-European Economic Area (EEA) branch are split between the parent’s Home State Supervisors (HSS) and the Bank of England’s Prudential Regulation Authority (PRA). But the PRA expects the whole firm to meet the PRA’s Threshold Conditions. The PRA has set out its approach to supervising branches and its appetite for allowing international banks to operate as branches in the United Kingdom in documents that can be found online: http://www.bankofengland.co.uk/pra/Pages/default.aspx . In particular, the PRA expects new non-EEA branches to focus on wholesale banking and to do so at a level that has no potential adverse impact to the UK economy. The FCA is the conduct regulator for all banks operating in the United Kingdom. For non-EEA branches the FCA’s Threshold Conditions and conduct of business rules apply, including areas such as anti-money laundering. Eligible deposits placed in non-EEA branches may be covered by the UK deposit guarantee program and therefore non-EEA branches may be subject to regulations concerning UK depositor protection.
There are no legal restrictions that prohibit non-UK residents from opening a business bank account. However, most banks will not accept applications from overseas due to fraud concerns and the additional administration costs. To open a personal bank account, an individual must at minimum present an internationally recognized proof of identification and prove residency in the UK.
UK banks were particularly hard-hit by the global financial crisis. Large-scale lay-offs were common and mergers, nationalizations, and bank failures have left a consolidated playing field. In 2011, Northern Rock, wholly nationalized by the government during the financial crisis, was sold back to the private sector. In 2008, the Government also announced a series of “bank rescue measures” including taking large equity stakes in two key banks, the Royal Bank of Scotland and Lloyds Banking Group. Government stakes are managed at arm’s-length by UK Financial Investments (UKFI) and are approved by the European Commission to comply with state intervention rules. The UK took a 40 percent stake in Lloyds but has since sold off some GBP 9 (USD 13.95) billion worth of Lloyds shares, reducing its holdings to less than 22 percent. The UK Government currently holds about 81 percent of the Royal Bank of Scotland.
At this time, the UK has the strongest financial services sector in the EU by reason of history, time-zone, language, legal system, critical mass of skillsets, expertise in professional services and London’s cultural appeal. The UK’s withdrawal from the EU will impact the financial services sector and poses some risk to global financial stability. A period of prolonged uncertainty could increase sterling volatility, the risk-premia on assets, cost and availability of financing, as well as relationships with EU-based financial institutions.
Foreign Exchange and Remittances
The British pound sterling (GBP) is a free-floating currency with no restrictions on its transfer or conversion. Exchange controls restricting the transfer of funds associated with an investment into or out of the UK are not exercised.
The Finance Act 2004 repealed the old rules governing thin capitalization, which allowed companies to assess their borrowing capacity on a consolidated basis. Under the new rules, companies which have borrowed from a UK-based or overseas parent need to show that the loan could have been made on a stand-alone basis or face possible transfer pricing penalties. These rules were not established to limit currency transfers, but rather to limit attempts by multinational enterprises to present what is in substance an equity investment as a debt investment to obtain more favorable tax treatment.
Sovereign Wealth Funds
The United Kingdom does not maintain a national wealth fund. Although there have at time been calls to turn The Crown Estate – created in 1760 by Parliament as a means of funding the British monarchy – into a wealth fund, there are no current plans in motion. Moreover, with assets of just under USD 12 billion, The Crown Estate would be small in relation to other national funds.
7. State-Owned Enterprises
The UK government has identified 20 partially or fully state-owned enterprises, although it acknowledged the list is not complete: https://www.gov.uk/government/publications/companies-that-have-the-uk-taxpayer-as-a-shareholder . The enterprises range from large, well-known companies to small trading funds. Some of these, where appropriate, are due to be sold to the private sector over the next few years. The government has already successfully sold Northern Rock, the bank nationalized during the financial crisis. It has also sold its shares in Tote, the betting firm, for USD 444 million (GBP 265 million). Since privatizing the oil and gas industry, the UK has not established any state-owned companies or resource funds.
The UK Shareholder Executive merged with the UK Financial Investments in April 2016 to form a single holding company, UK Government Investments (UKGI) under HM Treasury. UKGI works with government departments and management teams to help government-owned companies perform effectively. It advises government ministers and officials on a wide range of shareholder issues including objectives, governance, finance, strategy, performance, monitoring, board appointments and remuneration. It sets overall objectives for the businesses and agrees on a strategic plan with the board for delivering those objectives. The board is then accountable for delivery. Where appropriate, it appoints the Chair and actively participates in other board appointments. It sets compensation principles, works with the business to agree dividend policy, and monitors performance. Under the terms of the Government-Owned Business Framework, the UK government must provide all external financing for state-owned business. Businesses are charged at the market rate to ensure they do not receive any commercial advantage from the ability to borrow at, or below, the market rate.
During 2008 and 2009, the UK government nationalized two banks, Northern Rock and Bradford & Bingley, and took significant stakes in the Royal Bank of Scotland (RBS) and Lloyds Banking Group. The government’s stake in these banks was managed at arm’s-length by UK Financial Investments (UKFI), a company wholly owned by HM Treasury. With the exception of Bradford & Bingley (which will be wound down), UKFI will execute an investment strategy for disposing of the investments through sale, redemption or buy-back. The UK government does not intend to be a permanent investor in UK financial institutions. The government successfully sold the “good bank” section of Northern Rock to Virgin Money. Additionally, in March 2014, UKFI announced it would begin selling off Lloyds shares. Further sales of RBS and Lloyds are expected once market conditions improve. The rescue packages were authorized by the European Commission under EC Treaty state aid rules, which ensures state aid packages do not result in significant market distortions. At the end of 2009, the European Commission approved state aid measures for RBS and Lloyds but insisted on substantial divestments to limit market distortions. These divestments of retail branches have been fulfilled.
The privatization of state-owned utilities in the UK is now essentially complete. With regard to future investment opportunities, the few remaining government-owned enterprises or government shares in other utilities are likely to be sold off to the private sector when market conditions improve.
8. Responsible Business Conduct
There is a general awareness of expectations and voluntary standards for responsible business conduct. Businesses in the UK are accountable for some activities that fall under corporate social responsibility – such as human resources, environmental issues, sustainable development, and health and safety practices – through a wide variety of existing guidelines at national, EU and global levels. There is a strong awareness of corporate social responsibility principles among UK businesses, promoted by UK business associations such as the Confederation of British Industry and the UK government.
The British government consistently enforces laws related to human rights, labor rights, consumer protection, environmental protection, and other statutes intended to protect individuals from adverse business impacts. The UK government adheres to the OECD Guidelines for Multinational Enterprises. It is committed to the promotion and implementation of these guidelines and encourages UK multinational enterprises to adopt high corporate standards involving all aspects of the guidelines. The UK established a National Contact Point (NCP) to promote the guidelines and to consider complaints that a multinational enterprise’s behavior is inconsistent with them. The UK NCP is housed in BEIS and is partially funded by DFID. A Steering Board monitors the work of the UK NCP and provides strategic guidance. It is composed of representatives of relevant government departments and four external members nominated by the Trades Union Congress, the Confederation of British Industry, the All Party Parliamentary Group on the Great Lakes Region of Africa, and the NGO community.
The results of a UK government consultation on corporate social responsibility can be found here: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/300265/bis-14-651-good-for-business-and-society-government-response-to-call-for-views-on-corporate-responsibility.pdf .
The UK updated its National Action Plan on Business and Human Rights in May 2016;
Information on UK and EU regulations and policies relating to the procurement of supplies, services and works for the public sector, and the relevance of promoting responsible business conduct, are found here: https://www.gov.uk/guidance/public-sector-procurement-policy .
Although isolated instances of bribery and corruption have occurred in the UK, U.S. investors have not identified corruption of public officials as a factor in doing business in the UK.
The Bribery Act 2010 came into force on July 1, 2011. It amends and reforms the UK criminal law and provides a modern legal framework to combat bribery in the UK and internationally. The scope of the law is extra-territorial. Under the Bribery Act, a relevant person or company can be prosecuted for bribery if the crime is committed abroad. The Act applies to UK citizens, residents and companies established under UK law. In addition, non-UK companies can be held liable for a failure to prevent bribery if they do business in the UK.
Section 9 of the Act requires the UK Government to publish guidance on procedures that commercial organizations can put in place to prevent bribery on their behalf. It creates the following offenses: active bribery, described as promising or giving a financial or other advantage, passive bribery, described as agreeing to receive or accepting a financial or other advantage, bribery of foreign public officials, and the failure of commercial organizations to prevent bribery by an associated person (corporate offense). This corporate criminal offense places a burden of proof on companies to show they have adequate procedures in place to prevent bribery. To avoid corporate liability for bribery, companies must make sure that they have strong, up-to-date and effective anti-bribery policies and systems. The first prosecution under the Act (a domestic case) went forward in 2011. A UK administrative clerk faced charges under Section 2 of the Act for requesting and receiving a bribe intending to improperly perform his functions as a result.
The Bribery Act creates a corporate criminal offense making illegal the failure to prevent bribery by an associated person. The briber must be “associated” with the commercial organization, a term which will apply to, amongst others, the organization’s agents, employees and subsidiaries. A foreign corporation which “carries on a business, or part of a business” in the UK may therefore be guilty of the UK offense even if, for example, the relevant acts were performed by the corporation’s agent outside the UK. The Act does not extend to political parties and it is unclear whether it extends to family members of public officials.
UN Anticorruption Convention, OECD Convention on Combatting Bribery
The UK formally ratified the OECD Convention on Combating Bribery in December 1998. The UK also signed the UN Convention Against Corruption in December 2003 and ratified it in 2006. The UK has launched a number of initiatives to reduce corruption overseas. The OECD Working Group on Bribery (WGB) criticized the UK’s implementation of the Anti-Bribery convention. The OECD and other international organizations promoting global anti-corruption initiatives pressured the UK to update its anti-bribery legislation which was last amended in 1916. In 2007, the UK Law Commission began a consultation process to draft a Bribery Bill that met OECD standards. A report was published in October 2008 and consultations with experts from the OECD were held in early 2009. The new Bill was published in draft in March 2009 and adopted by Parliament with cross-party support as the 2010 Bribery Act in April 2010.
Resources to Report Corruption
UK law provides criminal penalties for corruption by officials, and the government routinely implements these laws effectively. The Serious Fraud Office (SFO) is an independent government department, operating under the superintendence of the Attorney General with jurisdiction in England, Wales, and Northern Ireland. It investigates and prosecutes those who commit serious or complex fraud, bribery, and corruption, and pursues them and others for the proceeds of their crime.
The SFO is the UK’s lead agency to which all allegations of bribery of foreign public officials by British nationals or companies incorporated in the United Kingdom should be reported – even in relation to conduct that occurred overseas. Some of these allegations, where they involve serious or complex fraud and corruption, may fall to the SFO to investigate. Some may be more appropriate for other agencies to investigate, such as the Overseas Anti-Corruption Unit of the City of London Police (OACU) or the International Corruption Unit of the National Crime Agency. When the SFO receives a report of possible corruption, its intelligence team makes an assessment and decides if the matter is best dealt with by the SFO or passed to one of its law enforcement partners. Allegations can be reported in confidence using the SFO’s secure online reporting form: https://www.sfo.gov.uk/contact-us/reporting-serious-fraud-bribery-corruption/ .
Details can also be sent to the SFO in writing:
Serious Fraud Office
2-4 Cockspur Street
London, SW1Y 5BS
10. Political and Security Environment
The UK is politically stable but shares with the rest of the world an increased threat of terrorist incidents. With the Northern Ireland Assembly elections of May 2011, Northern Ireland marked the successful completion of the first full term of representative, power-sharing government in its history. Despite continuing political stability and progress, certain small but potentially violent groups opposed to the peace settlement have targeted police, military, and justice-related entities with firearms and explosives. It is likely possible that these groups, to include dissident republican groups such as the Real IRA and Continuity IRA, will attempt future attacks on security targets. Most recently, in December 2012 and January 2013, frequent violent demonstrations have taken place in Belfast in reaction to a decision by Belfast City Hall to limit the amount of days the Union flag will fly over the building. Some of these demonstrations have turned violent, resulting in injuries to police, opposition, and personal property, arrests and in some cases, criminal charges being brought against the participants. These demonstrations remain highly localized and do not negatively affect the positive overarching investment climate in Northern Ireland.
Environmental advocacy groups in the UK have been involved with numerous protests against a variety of business activities, including airport expansion, bypass roads, offshore structures, wind farms, civilian nuclear power plants, and petrochemical facilities. These protests tend not to be violent but can be disruptive, with the aim of obtaining maximum media exposure.
The June 2016 EU referendum was preceded by significant polarization and much different perspectives across the country. This polarization has resulted in few incidents of political violence. But, differing perspectives on what should be the terms of the future UK-EU relationship continues to cause political polarization. The people of Scotland voted to remain in the EU and political leaders in Scotland have indicated they will seek to have a referendum on Scottish independence before the UK formally leaves the EU. The prospect of Scotland leaving the UK is an additional source of uncertainty.
11. Labor Policies and Practices
The UK’s labor force is the second largest in the European Union, at just over 40 million people. In the first quarter of 2017, the employment rate was 74.6 percent, and unemployment hit a 42-year low. In March 2017, 31.85 million workers were employed, equivalent to 74.6 percent of the working age population, the highest employment rate since 1791. As of the same date, unemployment was 1.58 million or 4.7 percent of the workforce, which is lower than the EU average. For the three months of 2017, the unemployment rate for 16 to 24 year olds was 12.3 percent, lower than for a year earlier (13.7 percent). It has not been lower since August to October 2004.
The most serious issue facing British employers is a skills gap derived from a high-skill, high-tech economy outpacing the educational system’s ability to deliver work-ready graduates. The government has placed a strong emphasis on improving the British educational system in terms of greater emphasis on science, research and development, and entrepreneurial skills. The UK’s skills base stands just above the OECD average and is improving.
Approximately 26 percent of UK employees belong to a union. Public-sector workers have a much higher share of union members, nearly 60 percent, while the private sector is about 15 percent. Manufacturing, transport, and distribution trades are highly unionized. Unionization of the workforce in the UK is prohibited only in the armed forces, public-sector security services, and police forces. Union membership has been relatively stable in the past few years, although the trend has been slightly downward over the past decade.
Once-common militant unionism is less frequent, but occasional bouts of industrial action, or threatened industrial action, can still be expected. Recent strike action was motivated in part by the Coalition Government’s deficit reduction program impacts on highly unionized sectors. In the 12 months to January 2015, there were 802,000 working days lost from 214 official labor disputes. Privatization of traditional government entities has accelerated such thinking. The Trades Union Congress (TUC), the British nation-wide labor federation, encourages union-management cooperation as do most of the unions likely to be encountered by a U.S. investor.
On April 1, 2016, the UK raised the minimum wage from $9.50 (GBP 6.70) an hour to $10.15 (GBP 7.20) an hour an hour for workers ages 25 and over. The increased wage impacts about 1.8 million workers across Britain. The government plans to raise the National Living Wage to $12.70 an hour (GBP 9) by 2020.
The UK decision to leave the EU has also introduced uncertainty into the labor market, with questions surrounding the rights of workers from other EU countries currently in the UK, the future rights of employers to hire workers from EU countries, and the extent to which the UK will maintain EU rules on workers’ rights.
The 2006 Employment Equality (Age) Regulations make it unlawful to discriminate against workers, employees, job seekers and trainees because of age. The regulations cover recruitment, terms and conditions, promotions, transfers, dismissals and training. They do not cover the provision of goods and services. The regulations also removed the upper age limits on unfair dismissal and redundancy. It sets a national default retirement age of 65, making compulsory retirement below that age unlawful unless objectively justified. Employees have the right to request to work beyond retirement age and the employer has a duty to consider such requests.
12. OPIC and Other Investment Insurance Programs
OPIC does not operate in the UK. Export-Import Bank (ExIm Bank) financing is available to support major investment projects in the UK. A Memorandum of Understanding (MOU) signed by ExIm Bank and its UK equivalent, the Export Credits Guarantee Department (ECGD), enables bilateral U.S.-UK consortia intending to invest in third countries to seek investment funding support from the country of the larger partner. This removes the need for each of the two parties to seek financing from their respective credit guarantee organizations.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
|Host Country Statistical Source||USG or International Statistical Source||USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
|Host Country Gross Domestic Product (GDP) ($M USD)||2015||$2.858 trillion||2015||$2.788 trillion||www.worldbank.org/en/country/unitedkingdom|
|Foreign Direct Investment||Host Country Statistical Source||USG or International Statistical Source||USG or international Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
|U.S. FDI in partner country ($M USD, stock positions)||2014||$253 billion||2015||$593,028 billion||BEA data available at http://bea.gov/international/direct_investment_
|Host country’s FDI in the United States ($M USD, stock positions)||2014||$239.8||2015||$483,841||BEA data available at http://bea.gov/international/direct_investment_
|Total inbound stock of FDI as percent host GDP||2014||8%||2014||21%||N/A|
Table 3: Sources and Destination of FDI
|Direct Investment from/in Counterpart Economy Data|
|From Top Five Sources/To Top Five Destinations (US Dollars, Millions)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||1,554,303||Proportion||Total Outward||1,563,865||Proportion|
|United States||432,987||28%||United States||353,390||23%|
|“0” reflects amounts rounded to +/- USD 500,000.|
Table 4: Sources of Portfolio Investment
|Portfolio Investment Assets|
|Top Five Partners (Millions, U.S. Dollars)|
|Total||Equity Securities||Total Debt Securities|
|All Countries||Amount||Proportion||All Countries||Amount||Proportion||All Countries||Amount||Proportion|
|United States||930,658||26%||United States||540,871||33%||United States||389,786||19%|
14. Contact for More Information
U.S. Embassy London
24 Grosvenor Square
The U.S. Embassy in London anticipates relocation in 2017. Please check online for more details.