As Europe’s largest economy, Germany is a major destination for foreign direct investment (FDI) and has accumulated a vast stock of FDI over time. Germany is consistently ranked as one of the most attractive investment destinations based on its reliable infrastructure, highly skilled workforce, positive social climate, stable legal environment, and world-class research and development.
The United States is the leading source of non-European foreign investment in Germany. Foreign investment in Germany mainly originates from other European countries, the United States, and Japan. FDI from emerging economies (and China) has grown slowly over 2015-2018, albeit from low levels.
The German government continues to strengthen provisions for national security screening inward investment in reaction to an increasing number of high-risk acquisitions of German companies by foreign investors in recent years, particularly from China. German authorities strongly support the European Union framework to coordinate Member State screening of foreign investments, which entered into force in April 2019, and are currently enacting implementing legislation.
In 2018, the government lowered the threshold for the screening of investments, allowing authorities to screen acquisitions by foreign entities of at least 10 percent of voting rights of German companies that operate or provide services related to critical infrastructure. The amendment also added media companies to the list of sensitive businesses.
Further amendments, still in draft as of May 2020, will
a) introduce a more pro-active screening based on “prospective impairment” of public order or security by an acquisition, rather than a de facto threat,
b) take into account the impact on other EU member states, and
c) formally suspend transactions during the screening process.
Furthermore, acquisitions by foreign government-owned or funded entities will now trigger a review, and the healthcare industry will be considered a sensitive sector to which the stricter 10% threshold applies. The Federal Ministry for Economic Affairs and Energy said it would draft a further amendment later in 2020 which would include a list of sensitive technologies (similar to the current list of critical infrastructure) to include artificial intelligence, robotics, semiconductors, biotechnology, and quantum technology. Foreign investors who seek to acquire at least 10% of ownership rights of a German company in one those fields would be required to notify the government and potentially become subject to an investment review. With these draft and planned amendments, Germany is implementing the 2019 EU Screening Regulation.
German legal, regulatory, and accounting systems can be complex and burdensome but are generally transparent and consistent with developed-market norms. Businesses operate within a well regulated, albeit high cost, environment. Foreign and domestic investors are treated equally when it comes to investment incentives or the establishment and protection of real and intellectual property. Foreign investors can rely on the German legal system to enforce laws and contracts; at the same time, this system requires investors to closely track their legal obligations. New investors should ensure they have the necessary legal expertise, either in-house or outside counsel, to meet all national and EU regulations.
German authorities are committed to fighting money laundering and corruption. The government promotes responsible business conduct and German SMEs are aware of the need for due diligence.
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 must meet the same criteria for eligibility.
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 an 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 https://www.gtai.de/gtai-en/invest/investment-guide/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.
Ireland
Executive Summary
The COVID-19 crisis has already had a serious impact on Ireland’s economy in 2020 and will continue to do so in 2021. An economy bustling with activity with a forecasted budget surplus turned by mid-March to an economy with surging unemployment with a virtual shut-down. Ireland’s government introduced emergency wage measures for out-of-work employees as the unemployment rate surged from 5 to 22 percent. This sudden unexpected expenditure, the need for additional sovereign borrowing, and lack of economic activity will push Ireland to a budget deficit in 2020 and 2021. The government is hopeful its emergency measures will help businesses and its once-sound economy to quickly return from its COVID-19 enforced hibernation.
The Irish government actively promotes foreign direct investment (FDI) and has had considerable success in attracting U.S. investment, in particular. There are over 700 U.S. subsidiaries in Ireland operating primarily in the following sectors: chemicals, bio-pharmaceuticals and medical devices, computer hardware and software, internet and digital media; electronics, and financial services.
One of Ireland’s most attractive features as an FDI destination is its 12.5 percent corporate tax (since 2003). Firms also choose Ireland for other factors including the quality and flexibility of the English-speaking workforce; the availability of a multilingual labor force; cooperative labor relations; political stability; and pro-business government policies and regulators. Additional positive features include a transparent judicial system; transportation links; proximity to the United States and Europe; and Ireland’s geographic location making it well placed in time zones to support investment in Asia and the Americas. Ireland benefits from its membership of the European Union (EU) and a barrier-free access to a market of almost 500 million consumers. In addition, the clustering of existing successful companies has created an ecosystem attractive to new firms. The United Kingdom’s (UK) departure from the EU, or Brexit, leaves Ireland as the only remaining English-speaking country in the EU and may make Ireland even more attractive as a destination for FDI.
The Irish government treats all firms incorporated in Ireland on an equal basis. Ireland’s judicial system is transparent and upholds the sanctity of contracts, as well as laws affecting foreign investment. Conversely, Ireland’s ability to attract investment are often marred by: high labor and operating costs (such as for energy); skilled-labor shortages; Eurozone-risk; a sometimes-deficient infrastructure (such as in transportation, housing, energy and broadband Internet); uncertainty in EU policies on some regulatory matters; and absolute price levels among the highest in Europe.
A formal screening process for foreign investment in Ireland is still being developed. At present, investors looking to receive government grants or assistance through one of the four state agencies responsible for promoting foreign investment in Ireland are often required to meet certain employment and investment criteria.
Ireland uses the euro as its national currency and enjoys full current and capital account liberalization.
The government recognizes and enforces secured interests in property, both chattel and real estate. Ireland is a member of the World Intellectual Property Organization (WIPO) and a party to the International Convention for the Protection of Intellectual Property.
Several state-owned enterprises (SOEs) operate in Ireland in the energy, broadcasting, and transportation sectors. All of Ireland’s SOEs are open to competition for market share.
The United States and Ireland do not have a Bilateral Investment Treaty, but since 1950 have shared a Friendship, Commerce, and Navigation Treaty, which provides for national treatment of U.S. investors. The two countries have also shared a Tax Treaty since 1998, supplemented in December 2012 with an agreement to improve international tax compliance and to implement the U.S. Foreign Account Tax Compliance Act (FATCA).
Three Irish organizations – IDA Ireland, EI, and Udaras – have regulatory authority for administering grant aid to investors for capital equipment, land, buildings, training, and R&D. Foreign and domestic business enterprises that seek grant aid from these organizations must submit detailed investment proposals. These proposals typically include information on fixed assets (capital), labor, and technology/R&D components, and establish targets using criteria such as sales, profitability, exports, and employment. The submitted information is kept confidential, and each investment proposal is subject to an economic appraisal before support is offered or denied.
Ireland’s investment agencies and foreign investors jointly establish employment creation targets, which usually serve as the basis for performance requirements. The agencies will only pay grant aid after the foreign investors have attained externally audited performance targets. Grant aid agreements generally have a repayment term of five years after the date on which the last installment is paid. Parent companies of the investor generally must also guarantee repayment of the government grant if the grant-aided company closes before an agreed period of time elapses, normally ten years after the grant was paid. There are no requirements foreign investors must procure locally, or allow nationals to own shares.
The current EU Regional Aid Guidelines (RAGs) that apply to Ireland operate through 2020. The RAGs govern the maximum grant aid the Irish government can provide to firms/businesses, which are graded based on their location. The differences in the various aid ceilings reflect the less developed status of business/infrastructure in regions outside the greater Dublin area.
While investors are free, subject to planning permission, to choose the location of their investment, IDA Ireland has actively encouraged investment in regions outside Dublin since the 1990s. Investment regionalization became Irish government policy in 2001, officially seeking to spread investment more evenly around the country. The IDA Ireland’s strategy targets locating over 50 percent of all new FDI investments outside the two main urban centers of Dublin and Cork. In an effort to encourage the location of firms outside Dublin, IDA Ireland has developed “magnets of attraction”, providing cluster areas of activity around the country and supported construction of business parks in counties Galway and Louth, especially for the biotechnology sector.
There are no restrictions, de jure or de facto, on participation by foreign firms in government-financed and/or -subsidized R&D programs on a national basis. In fact, the government strongly encourages and incentivizes (via a partial tax break) foreign companies to conduct R&D as part of its national strategy to build a more knowledge-intensive, innovation-based economy. Science Foundation Ireland (SFI), the state science agency, has been responsible for administering Ireland’s R&D funding since 2000. Under its current strategy, SFI is investing over USD 200 million annually in R&D activities. SFI is targeting leading researchers in Ireland and overseas to promote the development of biotechnology, information and communications technology; and energy. SFI has specific research centers of excellence, hubs that draw researchers from Ireland’s universities for research on specific themes.
The U.S.-Ireland Research and Development Partnership (UIRDP), launched in 2006, is a unique initiative involving funding agencies across three jurisdictions: the United States, Ireland, and Northern Ireland (NI). Under the program, a ‘single-proposal, single-review’ mechanism is facilitated by the National Science Foundation and National Institutes of Health in the United States, which accept submissions from tri-jurisdictional (U.S., Ireland, and NI) teams for existing funding programs. All proposals submitted under the auspices of UIRDP must have significant research involvement from researchers in all three jurisdictions. In 2015, the UIRDP program topics expanded to include agricultural research; and in 2019 cybersecurity was also incorporated as a topic.
A key aspect of government support is a tax credit on the cost of eligible research, development, and innovation (RDI) activity; and on buildings used for RDI activity. A tax credit of 25 percent is subject to certain conditions and is available for R&D activities carried out in a wide variety of science and technology areas such as software development, engineering, food and beverage production, medical devices, pharmaceuticals, financial services, agriculture and horticulture. A number of U.S. firms have already used these tax credits to build and operate R&D facilities. The Irish government’s Knowledge Development Box (KDB), introduced in 2016, also offers a lower tax rate for certain R&D activities carried out in Ireland.
Foreign Trade Zones/Free Ports/Trade Facilitation
The government established Shannon duty-free Processing Zone under legislation in 1957. Back then, firms operating in the area were entitled to a number of taxation and duty-free benefits not available elsewhere in Ireland. Nowadays, all firms in Ireland are now treated equally and the Shannon Free Zone (SFZ) as it is now called, continues to operate albeit without any additional taxation benefits.
All firms operating in the SFZ area have the same investment opportunities and tax incentives as indigenous Irish companies. More than 150 companies operate within the 254-hectare business park. The following U.S. companies are located in SFZ: Benex (Becton Dickinson), Connor-Winfield, Digital River, Enterasys Networks, Extrude Hone, GE Capital Aviation Services, GE Money, Sensing, Genworth Financial, Intel, Illinois Tool Works, Kwik-Lok, Lawrence Laboratories (Bristol Myers Squibb), Le Bas International, Magellan Aviation Services, Maidenform, Melcut Cutting Tools (SGS Carbide Tools), Mentor Graphics, Molex, Phoenix American Financial Services, RSA Security, Shannon Engine Support (CFM International), SPS International/Hi-Life Tools (Precision Castparts Corp), Sykes Enterprises, Symantec, Travelsavers Corp, Viking Pump, Western Well Tool, Xerox, and Zimmer.
The Shannon Group currently operates the SFZ, as well as Shannon Airport.
Performance and Data Localization Requirements
Visa, residence, and work permit procedures for foreign investors are non-discriminatory and, for U.S. citizens (as investors or employees), generally liberal. No restrictions exist on the numbers of, and duration of employment for, foreign managers brought in to supervise foreign investment projects, though all work permits must be renewed annually. There are no discriminatory export policies or import policies affecting foreign investors.
Data Storage
The government does not follow forced localization nor does it require foreign information technology providers to turn over source code and/or provide access to surveillance (e.g., backdoors into hardware and software, or encryption keys). There are no rules on maintaining minimum amounts of data storage in Ireland. Many U.S. firms already operate data centers in Ireland.
Portugal
Executive Summary
Portugal’s economic recovery and positive pro-business policies increased market attractiveness in 2019. The country’s notable recovery since concluding an EU/IMF bailout adjustment program in 2014 culminated in a first-ever budget surplus in 2019. Following the crisis, Portugal recovered its investment-grade sovereign bond ratings and saw its Finance Minister, Mário Centeno, become head of Eurogroup Finance Ministers. While Portugal continues to hold strong potential for U.S. investors, the Covid-19 pandemic has had a serious impact on the economy. The depth of Portugal’s economic downturn and the resulting effect on the banking and tourism sectors depend on the length of global travel restrictions and retail closures.
In 2019, Portugal attracted €9.2 billion in FDI inflows, including €122 million from the United States. Unemployment dropped to 6.5 percent and GDP growth was 2.2 percent, falling from 2.6 percent in 2018. Despite slowing growth, Portugal has continued to reduce its public debt, which fell to 117.7 percent of GDP in 2019, compared to 121.5 percent the year before. Nonetheless, the country’s high debt-to-GDP ratio remains a weak point.
The services sector, particularly Portugal’s tourism industry, served as an engine of economic recovery, while textiles, footwear, and agriculture moved up the value chain and became more export-oriented over the last decade. The auto sector, together with heavy industry, technology, agriculture, construction and energy remain influential clusters. In 2019, Portugal also unveiled a package of urban mobility and transport infrastructure tenders, privileging railway, as it attempts to ramp up public investment.
The banking sector faced considerable challenges in recent years, including the costly central bank-led resolution of Banco Espírito Santo in 2014 and Banif in 2015. Even so, banks regained momentum during 2019, restructuring and strengthening capital structures to address the lingering stock of non-performing loans. They will now be in the frontline of the Covid-19 economic shock, with a likely rise in foreclosures, bad loans and bankruptcies.
Portugal’s economy is fully integrated in the European Union (EU). Portugal’s primary trading partners are Spain, France, Germany, the United Kingdom and the United States. Portugal complies with EU law for equal treatment of foreign and domestic investors. Portugal has reduced the bureaucratic hurdles to establishing a business over the last few years, even introducing a website named Simplex, designed to help ‘cut the red tape.’
Beyond Europe, Portugal maintains significant links with former colonies including Brazil, Angola, Mozambique, Cape Verde and Guinea-Bissau. Portugal is one of 19 Eurozone members; the European Central Bank (ECB) acts as central bank for the euro (EUR) and determines monetary policy.
The Portuguese government offers investment incentives that can be tailored to individual investors’ needs and capital, based on industry, investment size, and project sustainability, including grants, tax credits and deferrals, access to loans and reduced cost of land. Investment agency AICEP actively recruits investors across the globe, intermediating the terms on a case-by-case basis for the larger investments. The Autonomous Regions of Madeira and the Azores also offer investment incentives. Since Portugal is an EU Member, potential investors may be able to access European aid programs providing further incentives to invest in Portugal. Such funds have been used by Portugal to co-finance key investments in the areas of research and development, information and communications technology, transport, water, solid waste, energy efficiency and renewable energy, urban regeneration, health, education, and culture. Through Portugal Ventures, a state-financed private equity company, the government has a risk capital arm that finances the growth of the Portuguese entrepreneurship ecosystem. This entity is part of the public business sector, operating under the same terms and conditions that apply to private companies and subject to the general domestic and community competition rules. As a venture capital firm, its funds are under the supervision of the Portuguese Securities Market Commission, CMVM.
Foreign Trade Zones/Free Ports/Trade Facilitation
Portugal has one foreign trade zone (FTZ)/free port in the Autonomous Region of Madeira, established in 1987. Continued operation of the International Business Centre of Madeira’s corporate tax regime is authorized by EU rules on incentives granted to member states. Industrial and commercial activities, international service activities, trust and trust management companies, and offshore financial branches are all eligible. Companies established in the foreign trade zone/free port enjoy import- and export-related benefits, financial incentives, tax incentives for investors and companies. In March 2019, the EU Commission expressed concern that Portuguese authorities are not providing proper oversight of tax breaks offered in the Madeira FTZ to ensure they comply with EU regulations. Under EU rules, company profits benefitting from income tax reductions must originate exclusively from activities carried out in Madeira and these companies must create and maintain jobs in Madeira, conditions the Commission is concerned Portuguese authorities may have failed to respect.
Performance and Data Localization Requirements
Portugal does not impose performance requirements or mandate specific local employment conditions for foreign investors. Qualification standards for investment incentives are applied uniformly to domestic and foreign investors. There is a high level of labor mobility between Portugal and other EU member states. To work in Portugal, non-EU foreign nationals must be sponsored for a work permit by a Portuguese employer. There are no nationality-related restrictions that affect a foreign national’s ability to serve in senior management or on a board of directors. Foreign or expatriate workers with appropriate work authorizations are entitled to the same rights and subject to the same laws as employees with Portuguese citizenship.
While Portugal does not force data localization, according to the Portuguese Data Protection Law (pursuant to the EU’s 1995 Data Protection Directive) “data controllers,” i.e., people or corporations that process personal data, must register with the National Commission for Data Protection (CNPD). Data transfers outside of the EU are only allowed if the recipient country or company ensures an adequate level of protection. Portugal is subject to new rules stipulated in the EU’s General Data Protection Regulation.
There are no requirements for foreign IT providers to turn over source code and/or provide access to encryption; the same rules apply to foreign IT providers as apply to national providers.
Data transfers to other countries within the EU do not require prior authorization from the CNPD. Data transfers to countries outside the EU can only take place in compliance with the Data Protection Law, meaning the receiving state must also provide an adequate level of protection to personal data. If the receiving state does not ensure an adequate level of protection, the CNPD can authorize the transfer under specific conditions, as outlined in Act 67/98. CNPD can also authorize a transfer or a set of transfers of personal data to a receiving state that does not provide an adequate level of protection only if the controller provides adequate safeguards to protect the privacy and fundamental rights and freedoms of individuals. This can be through appropriate contractual clauses or if a transfer to the United States, through adherence to the U.S.-EU Privacy Shield principles. The CNPD is responsible for overseeing all enforcement of local data storage rules.
Generally, there are no excessively onerous visa, residence, work permit, or similar requirements inhibiting mobility of foreign investors and their employees. Portugal does not follow ‘forced localization’, the policy in which foreign investors must use domestic content in goods or technology.
Spain
Executive Summary
Spain is open to foreign investment and is actively seeking to attract additional investment. Spain enjoyed economic growth of at least three percent from 2015-2017, leading analysts to declare Spain’s recovery from the housing and financial crises of the past decade. Although growth slowed in 2018 and 2019, Spain continued to notch solid growth rates of at least 2.0 percent, outperforming most other EU member states. In 2019, Spanish GDP grew by 2.0 percent, and public debt fell to 95.5 percent of GDP, and unemployment dropped to 13.8 percent – the lowest level since 2008. In 2020, however, Spain’s economy has contracted dramatically as a result of the COVID-19 pandemic. Although a strong economic rebound is expected in 2021, but Spain’s economy will take several years to recover to pre-crisis GDP levels. Service-based industries, particularly those related to tourism, are most vulnerable to the economic shock. The Spanish government’s fiscal position will also deteriorate as the Spanish government deploys fiscal stimulus, expands unemployment benefits, and garners less tax revenues as a result of the crisis. Spain’s key economic risks are high public debt levels, ballooning pension costs for its aging population, and the duality of the labor market.
In spite of COVID-19’s shock to the economy and a corresponding spike in Spain’s already high unemployment rate, Spain’s excellent infrastructure, large domestic market and access to the European Common Market, well-educated workforce, and robust export possibilities remain draws for foreign investors. Spanish law permits foreign ownership in investments up to 100 percent, and capital movements are completely liberalized. According to Spanish data, in 2019, foreign direct investment flow into Spain was EUR 22.4 billion, 54.8 percent less than in 2018. Of this total, EUR 609 million came from the United States, the eighth largest investor in Spain in new foreign direct investment. Foreign investment is concentrated in the energy, real estate, finance and insurance, engineering, and construction sectors.
Since its 2008 financial crisis and subsequent fiscal and financial reforms, Spain’s access to affordable financing from international financial markets has increased, which has improved Spain’s credibility and solvency, in turn generating more investor confidence. Spain’s credit ratings were raised in 2018 and 2019, and Spanish issuances of public debt have been oversubscribed, reflecting strong investor appetite for investment in Spain. However, small and medium-sized enterprises (SMEs)—which account for more than 99 percent of Spanish businesses—still have some difficulty accessing credit and are likely to face additional hurdles as a result of the COVID-19 pandemic. Defaults on loans to both small businesses and consumers are likely to rise after steadily falling from their 2014 peaks.
A range of investment incentives exist in Spain, and they vary according to the authorities granting incentives and the type and purpose of the incentives. The national government provides financial aid and tax benefits for activities pursued in certain industries that are considered priority industries (e.g., mining, technological development, research and development, etc.), given these industries’ potential effect on the nation’s overall economy. Regional governments also provide similar incentives for most of these industries. Financial aid includes both nonrefundable subsidies and interest relief on loans obtained by beneficiaries—or combinations of the two.
Since Spain is a European Union (EU) Member State, potential investors are able to access European aid programs, which provide further incentives for investing in Spain. Spain’s central government provides numerous financial incentives for foreign investment, which are designed to complement European Union financing. The Ministry of Economy and Digital Advancement assists businesses seeking investment opportunities through the Directorate General for International Trade and Investments and the Directorate General for Innovation and Competitiveness. These directorates provide support to foreign investors in both the pre- and post-investment phases. Most grants seek to promote the development of select economic sectors; however, while these sectoral subsidies are often preferential, they are not exclusive.
A comprehensive list of incentive programs is available at the website:
In 2013, Spain passed the “Law of Entrepreneurs,” which established an entrepreneur visa for investors and entrepreneurs. Entrepreneurs may apply for the visa with a business plan that has been approved by the Spanish Commercial Office. Entrepreneurs must also demonstrate the intent to develop the project in Spain for at least one year. Investors who purchase at least EUR 2 million in Spanish bonds or acquire at least EUR 1 million in shares of Spanish companies or Spanish banks deposits may also apply. Foreigners who acquire real estate with an investment value of at least EUR 500,000 are also eligible.
Spain’s 17 regional governments, known as autonomous communities, provide additional incentives for investments in their region. Many are similar to the incentives offered by the central government and the EU, but they are not all compatible. Additionally, some autonomous community governments grant investment incentives in areas not covered by state legislation but which are included in EU regional financial aid maps. Royal Decree 899/2007, of July 6, 2007, sets out the different types of areas that are entitled to receive aid, along with their ceilings. Each area’s specific aspects and requirements (economic sectors, investments which can be subsidized, and conditions) are set out in the Royal Decrees determining the different areas. Most are granted on an annual basis.
Incentives from national, regional or municipal governments and the European Union are granted to Spanish and foreign companies alike without discrimination. The most notable incentives include those aimed at fostering innovation, technological improvement, and research and development projects.
Foreign Trade Zones/Free Ports/Trade Facilitation
Both the mainland and islands (and most Spanish airports and seaports) have numerous free trade zones where manufacturing, processing, sorting, packaging, exhibiting, sampling, and other commercial operations may be undertaken free of any Spanish duties or taxes. Spain’s seven free zone ports are located in Vigo, Cadiz, Barcelona, Santander, Seville, Tenerife, and the Canary Islands—all of which fall under the EU Customs Union, permitting the free circulation of goods within the EU. The entire province of the Canary Islands is a Special Economic Zone (SEZ), offering fiscal benefits that include a reduced corporate tax rate, a reduced Value-Added Tax (VAT) rate, and exemptions for transfer taxes and stamp duties. The Spanish territories of Ceuta and Melilla also offer unique tax incentives; they do not impose a VAT but instead tax imports, production, and services at a reduced rate. Spanish customs legislation also allows companies to have their own free trade areas. Duties and taxes are payable only on those items imported for use in Spain. These companies must abide by Spanish labor laws.
Performance and Data Localization Requirements
Spain does not have performance and localization requirements for investors.
The Spanish Data Protection Agency and the Spanish Police request data from companies, although the companies may refuse unless required by court order.
At the time of writing, Her Majesty’s Government (HMG) is enforcing social distancing guidelines in an effort to stop the spread of the COVID-19 pandemic. Non-essential businesses are closed and Britons have been told to stay and work at home. This has led to a sharp and abrupt fall in economic growth, investment, trade, and employment. HMG has initiated several programs to mitigate the economic damage of the lockdown. The Coronavirus Job Retention Scheme (CJRS) pays up to 80 percent of a furloughed worker’s monthly wage, up to £2,500 ($ 3,100) and several programs have been established, in coordination with the Bank of England, to provide HMG-backed bridge financing loans for firms facing cash flow issues.
On June 23, 2016, the UK held a referendum on its continued membership in the European Union (EU) resulting in a decision to leave. The UK formally withdrew from the EU’s political institutions on January 31, 2020, while remaining a de facto member of the bloc’s economic and trading institutions during a transition period that is scheduled to end on December 31, 2020. The terms of the UK’s future relationship with the EU are still under negotiation, but it is widely expected that trade between the UK and the EU will face more friction following the UK’s exit from the single market. At present, the UK enjoys relatively unfettered access to the markets of the 27 other EU member states, equating to roughly 450 million consumers and $15 trillion worth of GDP. Prolonged COVID and Brexit-related uncertainty may continue to diminish the overall attractiveness of the UK as an investment destination for U.S. companies.
On the other hand, the United States and the UK launched free trade agreement virtual negotiations in May 2020. 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 the 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 early signs of increased protectionism against foreign investment, however. HM Treasury announced a unilateral digital services tax, which came into force in April 2020, taxing certain digital firms—such as social media platforms, search engines, and marketplaces—two percent on revenue generated in the UK.
The United States is the largest source of FDI into the UK. Thousands of U.S. companies have operations in the UK, including all of the Fortune 100 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 EUSingle Market.
Companies operating in the UK must comply with the EU’s General Data Protection Regulation (GDPR). The UK has incorporated the requirements of the GDPR into UK domestic law though the Data Protection Act of 2018. After it leaves the EU, the UK will need to apply for an adequacy decision from the EU in order to maintain current data flows.
The UK offers a range of incentives for companies of any nationality locating in economically 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 whether the UK will continue to employ Free Trade Zones and Free Ports in a post-Brexit environment.
Performance and Data Localization Requirements
The UK does not mandate “forced localization” of data 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 comply with the EU General Data Protection Regulation. The UK presently intends to transpose the requirements of the GDPR into UK domestic law after the UK withdraws from the EU. The 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 at this time. 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 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.
In addition, those who enter the UK under Tier 2 (Intra-company transfer) 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.
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 means that employers must 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 by increasing the Tier 2 minimum salary threshold to GBP 30,000 for experienced workers. This change was phased in, with the minimum threshold increased to GBP 25,000 in fall 2016 and to GBP 30,000 in April 2017. 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. From April 2017, extra weighting was added 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 also waived the resident labor market test for these applications.