Investment Incentives

The Commonwealth government and state and territory governments provide a range of measures to assist investors with setting up and running a business and undertaking investment.  Types of assistance available vary by location, industry, and the nature of the business activity. Austrade provides coordinated government assistance to attracting FDI and is intended to serve as the national point-of-contact for investment inquiries.  State and territory governments similarly offer a suite of financial and non-financial incentives. Australian and State and Territory Governments provide selected grants to businesses for establishing or expanding a business, or for specific activities such as research.  The Commonwealth Government also provides incentives for companies engaging in research and development (R&D), and delivers a tax offset for expenditure on eligible R&D activities undertaken during the year. R&D activities conducted overseas are also eligible under certain circumstances, and the program is jointly administered by AusIndustry (Government agency) and the Australian Taxation Office (ATO). The Australian Government typically does not offer guarantees on, or jointly finance projects with, foreign investors.

Foreign Trade Zones/Free Ports/Trade Facilitation

Australia does not have any free trade zones or free ports.

Performance and Data Localization Requirements

As a general rule, foreign firms establishing themselves in Australia are not subject to local employment or forced localization requirements, performance requirements and incentives, including to senior management and board of directors.  Proprietary companies must have at least one director resident in Australia, while public companies are required to have a minimum of two resident directors. See Section 12 below for further information on rules pertaining to the hiring of foreign labor.

Under the Telecommunications (Interception and Access) Amendment (Data Retention) Bill 2015, telecommunications service providers are required to retain and secure, for two years, telecommunications data (not including content); to protect retained data through encryption; and to prevent unauthorized interference and access.  The Bill limits the range of agencies that are able to access telecommunications data and stored communications, establishes a “journalist information warrants regime.” Australia’s Personally Controlled Electronic Health Records Act prohibits the transfer of health data out of Australia in some situations.

Australia has a strong framework for the protection of intellectual property (IP), including software source code.  Foreign providers are not required to provide source code to the Government in exchange for operating in Australia. A current government enquiry is investigating the competition impacts of digital platforms, including the market implications of the algorithms used by these platforms and options for mandating the disclosure of these algorithms to regulators.  

The Government introduced legislation to Parliament in 2018 that would require encrypted messaging services to provide decrypted communications to the Government for selected national security purposes (the Telecommunications and Other Legislation Amendment (Assistance and Access) Act 2018).  Parts of this legislation were passed by parliament in December 2018, and the remaining aspects of it are subject to review by a parliamentary committee at the time of writing. Companies relying on secure encryption technologies have expressed concern about the impacts of this legislation on the security of the products, and the lack of sufficient judicial oversight in reviewing government requests for access to encrypted data.

Companies are generally not restricted in terms of how they store or transmit data within their operations.  The exception to this is the Personally Controlled Electronic Health Records Act (2012) which does require that certain personal health information is stored in Australia.  The Privacy Act (1988) and associated legislation places restrictions on the communication of personal information between and within entities, however, the requirements placed on international companies, and the transmission of data outside of Australia, are not treated differently under this legislation.  Finally, Australia’s data retention laws require telecommunications companies and internet service providers to retain customer metadata for a period of two years. The Australian Attorney-General’s Department is the responsible agency for most legislation relating to data and storage requirements.

Investment Incentives

Federal and provincial governments in Canada offer a wide array of investment incentives that municipalities are generally prohibited from offering. The incentives are designed to advance broader policy goals, such as boosting research and development or promoting regional economies. The funds are available to any qualified Canadian or foreign investor who agrees to use the monies for the stated purpose. For example, Export Development Canada can support inbound investment under certain specific conditions (e.g., investment must be export-focused; export contracts must be in hand or companies have a track record; there is a world or regional product mandate for the product to be produced).  The government also announced the USD 940 million Strategic Innovation Fund in 2017, which provides repayable or non-repayable contributions to firms of all sizes across Canada’s industrial and technology

sectors in an effort to grow and expand those industries.  One of the explicit goals of the program is to attract new investments to Canada.

The Liberal government invested USD 730 million over five years, beginning in 2018, to support five business-led supercluster projects that have the potential to accelerate economic and investment growth in Canada.  The superclusters are now operational, and feature projects in digital technologies, food production, advanced manufacturing, artificial intelligence in supply chain management, and ocean industries. 450 businesses, 60 post-secondary institutions, and 180 other partners are involved in the supercluster projects.  Several U.S. firms are participants, including Microsoft, Boeing, Lockheed Martin, and GE.

Several provinces offer an array of incentive programs and services aimed at attracting foreign investment that lower corporate taxes and incentivize research and development. The Province of Quebec officially re-launched its “Plan Nord” (Northern Plan) in April 2015, a 20-year sustainable development investment initiative that is intended to harness the economic, mineral, energy, and tourism potential of Quebec’s northern territory. Quebec’s government created the “Société du Plan Nord” (Northern Plan Company) to attract investors and work with local communities to implement the plan. Thus far, Plan Nord has helped finance mining projects in northern Quebec and began building the necessary infrastructure to link remote mines with ports. The provincial government is actively seeking other foreign investors who desire to take advantage of these opportunities.

Provincial incentives tend to be more investor-specific and are conditioned on applying the funds to an investment in the granting province. For example, Ontario’s Jobs and Prosperity Fund provides USD2.5 billion from 2013 to 2023 to enhance productivity, bolster innovation, and grow Ontario’s exports. To qualify, companies must have substantive operations (generally three years) and at least C10 million in eligible project costs. Alberta offers companies a 10 percent refundable provincial tax credit worth up to C400,000 annually for scientific research and experimental development encouraging research and development in Alberta as well as Alberta Innovation Vouchers worth C15,000 to C50,000 to help small early-stage technology and knowledge-driven businesses in Alberta get their ideas and products to market faster. Newfoundland and Labrador provide vouchers worth 75 percent of eligible project costs up to C15,000 for R&D, performance testing, field trials, and other projects.

Provincial incentives may also be restricted to firms established in the province or that agree to establish a facility in the province. Government officials at both the federal and provincial levels expect investors who receive investment incentives to use them for the agreed purpose, but no enforcement mechanism exists.

Incentives for investment in cultural industries, at both the federal and provincial level, are generally available only to Canadian-controlled firms. Incentives may take the form of grants, loans, loan guarantees, venture capital, or tax credits. Provincial incentive programs for film production in Canada are available to foreign filmmakers.

Foreign Trade Zones/Free Ports/Trade Facilitation

Under the NAFTA, Canada operates as a free trade zone for products made in the U.S. Most U.S. made goods enter Canada duty free.

Performance and Data Localization Requirements

Data localization is an evolving area in Canada. Privacy rules in two Canadian provinces, British Columbia and Nova Scotia, mandate that personal information in the custody of a public body must be stored and accessed only in Canada unless one of a few limited exceptions applies. These laws prevent public bodies such as primary and secondary schools, universities, hospitals, government-owned utilities, and public agencies from using non-Canadian hosting services.

The Canada Revenue Agency stipulates that tax records must be kept at a filer’s place of business or residence in Canada. Current regulations were written over 30 years ago and do not take into account current technical realities concerning data storage.

Investment Incentives

Federal and state investment incentives – including investment grants, labor-related and R&D incentives, public loans, and public guarantees – are available to domestic and foreign investors alike.  Different incentives can be combined. In general, foreign and German investors have to meet the same criteria for eligibility.

Germany Trade & Invest, Germany’s federal economic development agency, provides comprehensive information on incentives in English at:  www.gtai.com/incentives-programs  .

Foreign Trade Zones/Free Ports/Trade Facilitation

There are currently two free ports in Germany operating under EU law:  Bremerhaven and Cuxhaven. The duty-free zones within the ports also permit value-added processing and manufacturing for EU-external markets, albeit with certain requirements.  All are open to both domestic and foreign entities. In recent years, falling tariffs and the progressive enlargement of the EU have eroded much of the utility and attractiveness of duty-free zones.

Performance and Data Localization Requirements

In general, there are no requirements for local sourcing, export percentage, or local or national ownership.  In some cases, however, there may be performance requirements tied to the incentive, such as creation of jobs or maintaining a certain level of employment for a prescribed length of time.

U.S. companies can generally obtain the visas and work permits required to do business in Germany.  U.S. Citizens may apply for work and residential permits from within Germany. Germany Trade & Invest offers detailed information online at www.gtai.com/coming-to-germany  .

There are no localization requirements for data storage in Germany.  However, in recent years German and European cloud providers have sought to market the domestic location of their servers as a competitive advantage.

Investment Incentives

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.  DIT 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.  Questions remain as to the UK’s use of Free Trade Zones in a post-Brexit environment.

Performance and Data Localization Requirements

As of May 2018, companies operating in the UK comply with the EU General Data Protection Regulation (GDPR).  The UK presently intends to transpose the requirements of the GDPR into UK domestic law after the UK withdraws from the EU.  The potential impact of the UK leaving the EU on the free flow of data between the EU and the UK, and the UK and United States is unknown.     

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.

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.

Immigration policy is in the midst of sweeping reforms in the UK. Freedom of movement between the UK and EU member states is likely to soon come to an end and the government is looking at a post-Brexit system that will favour high-skilled migrants. 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 (Intra-company 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.

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.