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Australia

Executive Summary

Australia is generally welcoming to foreign investment, which is widely considered to be an essential contributor to Australia’s economic growth and productivity. The United States is by far the largest source of foreign direct investment (FDI) for Australia. According to the U.S. Bureau of Economic Analysis, the stock of U.S. FDI totaled USD 162 billion in January 2020. The Australia-United States Free Trade Agreement, which entered into force in 2005, establishes higher thresholds for screening U.S. investment for most classes of direct investment.

While welcoming toward FDI, Australia does apply a “national interest” test to qualifying investment through its Foreign Investment Review Board screening process. Various changes to Australia’s foreign investment rules, primarily aimed at strengthening national security, have been made in recent years. This continued in 2020 with the passage of the Foreign Investment Reform (Protecting Australia’s National Security) Act 2020, which broadens the classes of foreign investments that require screening, with a particular focus on defense and national security supply chains. All foreign investments in these industries will now require screening, regardless of their value or national origin. The legislation also provides the Treasurer with new powers to require certain investments to be scrutinized even if they do not fall within existing guidelines. Additionally, in March 2020 the Australian government announced all foreign direct investment would be reviewed over the course of the COVID-19 crisis, a period which ceased when the Foreign Investment Reform legislation commenced in January 2021. Despite the increased focus on foreign investment screening, the rejection rate for proposed investments has remained low and there have been no cases of investment from the United States having been rejected in recent years.

In response to a perceived lack of fairness, the Australian government has tightened anti-tax avoidance legislation targeting multi-national corporations with operations in multiple tax jurisdictions. While some laws have been complementary to international efforts to address tax avoidance schemes and the use of low-tax countries or tax havens, Australia has also gone further than the international community in some areas.

Australia has a strong legal system grounded in procedural fairness, judicial precedent, and the independence of the judiciary. Property rights are well established and enforceable. The establishment of government regulations typically requires consultation with impacted stakeholders and requires approval by a central regulatory oversight body before progressing to the legislative phase. Anti-bribery and anti-corruption laws exist, and Australia performs well in measures of transparency. Australia’s business environment is generally conducive to foreign companies operating in the country, and the country ranks fourteenth overall in the World Bank’s Ease of Doing Business Index.

The Australian government is strongly focused on economic recovery from the COVID-driven recession Australia experienced in 2020, the country’s first in three decades. In addition to direct stimulus and business investment incentives, it has announced investment attraction incentives across a range of priority industries, including food and beverage manufacturing, medical products, clean energy, defense, space, and critical minerals processing. U.S. involvement and investment in these fields is welcomed.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 11 of 179 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2019 14 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2020 23 of 131 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2019 USD 162 billion http://www.bea.gov/international/factsheet/
World Bank GNI per capita 2019 USD 55,100 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Australia is generally welcoming to foreign direct investment (FDI), with foreign investment widely considered to be an essential contributor to Australia’s economic growth. Other than certain required review and approval procedures for designated types of foreign investment described below, there are no laws that discriminate against foreign investors.

A number of investment promotion agencies operate in Australia. The Australian Trade Commission (often referred to as Austrade) is the Commonwealth Government’s national “gateway” agency to support investment into Australia. Austrade provides coordinated government assistance to promote, attract, and facilitate FDI, supports Australian companies to grow their business in international markets, and delivers advice to the Australian Government on its trade, tourism, international education and training, and investment policy agendas. Austrade operates through a number of international offices, with U.S. offices primarily focused on attracting foreign direct investment into Australia and promoting the Australian education sector in the United States. Austrade in the United States operates from offices in Boston, Chicago, Houston, New York, San Francisco, and Washington, DC. In addition, state and territory investment promotion agencies also support international investment at the state level and in key sectors.

Limits on Foreign Control and Right to Private Ownership and Establishment

Within Australia, foreign and domestic private entities may establish and own business enterprises and may engage in all forms of remunerative activity in accordance with national legislative and regulatory practices. See Section 4: Legal Regime – Laws and Regulations on Foreign Direct Investment below for information on Australia’s investment screening mechanism for inbound foreign investment.

Other than the screening process described in Section 4, there are few limits or restrictions on foreign investment in Australia. Foreign purchases of agricultural land greater than AUD 15 million (USD 11 million) are subject to screening. This threshold applies to the cumulative value of agricultural land owned by the foreign investor, including the proposed purchase. However, the agricultural land screening threshold does not affect investments made under the Australia-United States Free Trade Agreement (AUSFTA). The current threshold remains AUD 1.216 billion (USD 940 million) for U.S. non-government investors. Investments made by U.S. non-government investors are subject to inclusion on the foreign ownership register of agricultural land and to Australian Tax Office (ATO) information gathering activities on new foreign investment.

The Foreign Investment Review Board (FIRB), which advises Australia’s Treasurer, may impose conditions when approving foreign investments. These conditions can be diverse and may include: retention of a minimum proportion of Australian directors; certain requirements on business activities, such as the requirement not to divest certain assets; and certain taxation requirements. Such conditions are in keeping with Australia’s policy of ensuring foreign investments are in the national interest.

Other Investment Policy Reviews

Australia has not conducted an investment policy review in the last three years through either the OECD or UNCTAD system. The WTO reviewed Australia’s trade policies and practices in 2019, and the final report can be found at: https://www.wto.org/english/tratop_e/tpr_e/tp496_e.htm .

The Australian Trade Commission compiles an annual “Why Australia Benchmark Report” that presents comparative data on investing in Australia in the areas of Growth, Innovation, Talent, Location, and Business. The report also compares Australia’s investment credentials with other countries and provides a general snapshot on Australia’s investment climate. See: http://www.austrade.gov.au/International/Invest/Resources/Benchmark-Report .

Business Facilitation

Business registration in Australia is relatively straightforward and is facilitated through a number of government websites. The government’s business.gov.au website provides an online resource and is intended as a “whole-of-government” service providing essential information on planning, starting, and growing a business. Foreign entities intending to conduct business in Australia as a foreign company must be registered with the Australian Securities and Investments Commission (ASIC). As Australia’s corporate, markets, and financial services regulator, ASIC’s website provides information and guides on starting and managing a business or company in the country.

In registering a business, individuals and entities are required to register as a company with ASIC, which then gives the company an Australian Company Number, registers the company, and issues a Certificate of Registration. According to the World Bank “Starting a Business” indicator, registering a business in Australia takes two days, and Australia ranks 7th globally on this indicator.

Outward Investment

Australia generally looks positively towards outward investment as a way to grow its economy. There are no restrictions on investing abroad. Austrade, Export Finance Australia (EFA), and various other government agencies offer assistance to Australian businesses looking to invest abroad, and some sector-specific export and investment programs exist. The United States is the top destination, by far, for Australian investment overseas.

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
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2020 $1.50 trillion 2019 $1.39 trillion www.worldbank.org/en/country
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2019 $158 billion 2019 $162 billion BEA data available at https://apps.bea.gov/international/factsheet/
Host country’s FDI in the United States ($M USD, stock positions) 2019 $112 billion 2019 $81 billion BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-enterprises-comprehensive-data
Total inbound stock of FDI as % host GDP 2019 53% 2019 51% UNCTAD data available at
https://stats.unctad.org/handbook/
EconomicTrends/Fdi.html  
 

* Source for Host Country Data: Australian Bureau of Statistics

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 714,250 100% Total Outward 579,259 100%
USA 143,737 20% USA 102,160 18%
UK 89,061 12% UK 100,509 17%
Japan 81,341 11% New Zealand 58,576 10%
Netherlands 38,384 5% Canada 24,588 4%
Canada 33,007 5% Singapore 19,695 3%
“0” reflects amounts rounded to +/- USD 500,000.
Table 4: Sources of Portfolio Investment
Portfolio Investment Assets
Top Five Partners (Millions, current US Dollars)
Total Equity Securities Total Debt Securities
All Countries 912,160 100% All Countries 621,379 100% All Countries 299,781 100%
United States 387,323 42% United States 298,353 48% United States 88,971 30%
United Kingdom 80,348 9% United Kingdom 44,312 7% United Kingdom 36,037 12%
Japan 50,190 5% Cayman Islands 32,567 5% Germany 20,219 7%
Cayman Islands 43,167 5% Japan 30,395 5% Japan 19,795 7%
Germany 31,475 3% France 18,586 3% Netherlands 15,307 5%

China

Executive Summary

In 2020, the People’s Republic of China (PRC) became the top global Foreign Direct Investment (FDI) destination. As the world’s second-largest economy, with a large consumer base and integrated supply chains, China’s economic recovery following COVID-19 reassured investors and contributed to higher FDI and portfolio investments. In 2020, China took significant steps toward implementing commitments made to the United States on a wide range of IP issues and made some modest openings in its financial sector. China also concluded key trade agreements and implemented important legislation, including the Foreign Investment Law (FIL).

China remains, however, a relatively restrictive investment environment for foreign investors due to restrictions in key economic sectors. Obstacles to investment include ownership caps and requirements to form joint venture partnerships with local Chinese firms, industrial policies such as Made in China 2025 (MIC 2025) that target development of indigenous capacity, as well as pressure on U.S. firms to transfer technology as a prerequisite to gaining market access. PRC COVID-19 visa and travel restrictions significantly affected foreign businesses operations increasing their labor and input costs. Moreover, an increasingly assertive Chinese Communist Party (CCP) and emphasis on national companies and self-reliance has heightened foreign investors’ concerns about the pace of economic reforms.

Key investment announcements and new developments in 2020 included:

On January 1, the FIL went into effect and effectively replaced previous laws governing foreign investment.

On January 15, the U.S. and China concluded the Economic and Trade Agreement between the Government of the United States of America and the Government of the People’s Republic of China (the Phase One agreement). Under the agreement, China committed to reforms in its intellectual property regime, prohibit forced transfer technology as a condition for market access, and made some openings in the financial and energy sector. China also concluded the Regional Comprehensive Economic Partnership (RCEP) agreement on November 15 and reached a political agreement with the EU on the China-EU Comprehensive Agreement on Investment (CAI) on December 30.

In mid-May, PRC leader Xi Jinping announced China’s “dual circulation” strategy, intended to make China less export-oriented and more focused on the domestic market.

On June 23, the National Development and Reform Commission (NDRC) and Ministry of Commerce (MOFCOM) announced new investment “negative lists” to guide foreign FDI.

Market openings were coupled, however, with restrictions on investment, such as the Rules on Security Reviews on Foreign InvestmentsChina’s revised investment screening mechanism.

While Chinese pronouncements of greater market access and fair treatment of foreign investment are welcome, details and effective implementation are still needed to ensure foreign investors truly experience equitable treatment.

 

Table 1: Key Metrics and Rankings

 

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 78 of 180 http://www.transparency.org/research/cpi/overview 
World Bank’s Doing Business Report 2020 31 of 190 http://www.doingbusiness.org/en/rankings 
Global Innovation Index 2020 14 of 131 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, historical stock positions) 2020 USD 116.2 https://apps.bea.gov/international/factsheet/ 
World Bank GNI per capita 2020 USD 10,410 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

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
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2020 $14,724,435 2019 $14,343,000 www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data: BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2019 $87,880 2019 $116,200 BEA data available at https://apps.bea.gov/international/factsheet/ 
Host country’s FDI in the United States ($M USD, stock positions) 2019 $7,721,700 2019 $37,700 BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data 
Total inbound stock of FDI as % host GDP 2020 $16.5% 2019 12.4% UNCTAD data available at https://unctadstat.unctad.org/wds/TableViewer/tableView.aspx  https://unctadstat.unctad.org/CountryProfile/GeneralProfile/en-GB/156/index.html 

* Source for Host Country Data:

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 $2,938,482 100% Total Outward $2,198,881 100%
China, P.R., Hong Kong $1,430,303 48.7% China, P.C., Hong Kong $1,132,549 51.5%
British Virgin Islands $316,836 10.8% Cayman Islands $259,614 11.8%
Japan $147,881 5.0% British Virgin Islands $127,297 5.8%
Singapore $102,458 3.5% United States $67,855 3.1%
Germany $67,879 2.3% Singapore $38,105 1.7%
“0” reflects amounts rounded to +/- USD 500,000.

Table 4: Sources of Portfolio Investment

Portfolio Investment Assets
Top Five Destinations (Millions, current US Dollars)
Total Equity Securities Total Debt Securities
All Countries $645,981 100% All Countries $373,780 100% All Countries $272,201 100%
China, P. R.: Hong Kong $226,426 35% China, P. R.: Hong Kong $166,070 44% United States $68,875 25%
United States $162,830 25% United States $93,955 25% China, P. R.: Hong Kong $60,356 22%
Cayman Islands $55,086 9% Cayman Islands $36,192 10% British Virgin Islands $43,486 16%
British Virgin Islands $45,883 7% United Kingdom $11,226 3% Cayman Islands $18,894 7%
United Kingdom $21,805 3% Luxembourg $9,092 2% United Kingdom $10,579 4%

Hong Kong

Executive Summary

Hong Kong became a Special Administrative Region (SAR) of the People’s Republic of China (PRC) on July 1, 1997, with its status defined in the Sino-British Joint Declaration and the Basic Law.  Under the concept of “one country, two systems,” the PRC government promised that Hong Kong will retain its political, economic, and judicial systems for 50 years after reversion.  The PRC’s imposition of the National Security Law (NSL) on June 30, 2020 undermined Hong Kong’s autonomy and introduced heightened uncertainty for foreign and local firms operating in Hong Kong.  As a result, the U.S. Government has taken measures to eliminate or suspend Hong Kong’s preferential treatment and special trade status, including suspension of most export control waivers, revocation of reciprocal shipping income tax exemption treatments, establishment of a new marking rule requiring goods made in Hong Kong to be labeled “Made in China,”  and imposition of sanctions against former and current Hong Kong government officials.

On July 16, 2021, the Department of State, along with the Department of the Treasury, the Department of Commerce, and the Department of Homeland Security, issued an advisory to U.S. businesses regarding potential risks to their operations and activities in Hong Kong.

 

Since the enactment of the NSL in Hong Kong, U.S. citizens traveling or residing in Hong Kong may be subject to increased levels of surveillance, as well as arbitrary enforcement of laws and detention for purposes other than maintaining law and order.

On economic issues, Hong Kong generally pursues a free market philosophy with minimal government intervention.  The Hong Kong government (HKG) generally welcomes foreign investment, neither offering special incentives nor imposing disincentives for foreign investors.

Hong Kong provides for no distinction in law or practice between investments by foreign-controlled companies and those controlled by local interests.  Foreign firms and individuals are able to incorporate their operations in Hong Kong, register branches of foreign operations, and set up representative offices without encountering discrimination or undue regulation.  There is no restriction on the ownership of such operations.  Company directors are not required to be citizens of, or resident in, Hong Kong.  Reporting requirements are straightforward and are not onerous.

Despite the imposition of the NSL by Beijing, significant curtailments in individual freedoms, and the end of Hong Kong’s ability to exercise the degree of autonomy it enjoyed in the past, Hong Kong remains a popular destination for U.S. investment and trade.  Even with a population of less than eight million, Hong Kong is the United States’ twelfth-largest export market, thirteenth largest for total agricultural products, and sixth-largest for high-value consumer food and beverage products.  Hong Kong’s economy, with world-class institutions and regulatory systems, is bolstered by its competitive financial and professional services, trading, logistics, and tourism sectors, although tourism suffered steep drops in 2020 due to COVID-19.  The service sector accounted for more than 90 percent of Hong Kong’s nearly USD 348 billion gross domestic product (GDP) in 2020.  Hong Kong hosts a large number of regional headquarters and regional offices.  Approximately 1,300 U.S. companies are based in Hong Kong, according to Hong Kong’s 2020 census data, with more than half regional in scope.  Finance and related services companies, such as banks, law firms, and accountancies, dominate the pack.  Seventy of the world’s 100 largest banks have operations in Hong Kong.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 11 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2020 3 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2020 11 of 131 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2019 USD 81,883 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2019 USD 50,800 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Hong Kong is the world’s second-largest recipient of foreign direct investment (FDI), according to the United Nations Conference on Trade and Development’s (UNCTAD) World Investment Report 2020, with a significant amount bound for mainland China.  The HKG’s InvestHK encourages inward investment, offering free advice and services to support companies from the planning stage through to the launch and expansion of their business.  U.S. and other foreign firms can participate in government financed and subsidized research and development programs on a national treatment basis.  Hong Kong does not discriminate against foreign investors by prohibiting, limiting, or conditioning foreign investment in a sector of the economy.

Capital gains are not taxed, nor are there withholding taxes on dividends and royalties.  Profits can be freely converted and remitted.  Foreign-owned and Hong Kong-owned company profits are taxed at the same rate – 16.5 percent.  The tax rate on the first USD 255,000 profit for all companies is currently 8.25 percent.  No preferential or discriminatory export and import policies affect foreign investors.  Domestic industries receive no direct subsidies.  Foreign investments face no disincentives, such as quotas, bonds, deposits, or other similar regulations.

According to HKG statistics, 3,983 overseas companies had regional operations registered in Hong Kong in 2020.  The United States has the largest number with 690.  Hong Kong is working to attract more start-ups as it works to develop its technology sector, and about 26 percent of start-ups in Hong Kong come from overseas.

Hong Kong’s Business Facilitation Advisory Committee is a platform for the HKG to consult the private sector on regulatory proposals and implementation of new or proposed regulations.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign investors can invest in any business and own up to 100 percent of equity.  Like domestic private entities, foreign investors have the right to engage in all forms of remunerative activity.

The HKG owns virtually all land in Hong Kong, which the HKG administers by granting long-term leases without transferring title.  Foreign residents claim that a 15 percent Buyer’s Stamp Duty on all non-permanent-resident and corporate buyers discriminates against them.

The main exceptions to the HKG’s open foreign investment policy are:

Broadcasting – Voting control of free-to-air television stations by non-residents is limited to 49 percent.  There are also residency requirements for the directors of broadcasting companies.

Legal Services – Foreign lawyers at foreign law firms may only practice the law of their jurisdiction.  Foreign law firms may become “local” firms after satisfying certain residency and other requirements.  Localized firms may thereafter hire local attorneys but must do so on a 1:1 basis with foreign lawyers.  Foreign law firms can also form associations with local law firms.

Other Investment Policy Reviews

Hong Kong last conducted the Trade Policy Review in 2018 through the World Trade Organization (WTO).  https://www.wto.org/english/tratop_e/tpr_e/g380_e.pdf

Business Facilitation

The Efficiency Office under the Innovation and Technology Bureau is responsible for business facilitation initiatives aimed at improving the business regulatory environment of Hong Kong.

The e-Registry (https://www.eregistry.gov.hk/icris-ext/apps/por01a/index) is a convenient and integrated online platform provided by the Companies Registry and the Inland Revenue Department for applying for company incorporation and business registration.  Applicants, for incorporation of local companies or for registration of non-Hong Kong companies, must first register for a free user account, presenting an original identification document or a certified true copy of the identification document.  The Companies Registry normally issues the Business Registration Certificate and the Certificate of Incorporation on the same day for applications for company incorporation.  For applications for registration of a non-Hong Kong company, it issues the Business Registration Certificate and the Certificate of Registration two weeks after submission.

Outward Investment

As a free market economy, Hong Kong does not promote or incentivize outward investment, nor restrict domestic investors from investing abroad.  Mainland China and British Virgin Islands were the top two destinations for Hong Kong’s outward investments in 2019 (based on most recent data available).

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
Economic Data Year Amount Year Amount  
Host Country Gross Domestic Product (GDP) ($M USD) 2020 $347,529 2019 $365,712 www.worldbank.org/en/country
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2019 $44,974 2019 $81,883 BEA data available at
https://apps.bea.gov/
international/factsheet/
Host country’s FDI in the United States ($M USD, stock positions) 2019 $14,679 2019 $14,110 BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
Total inbound stock of FDI as % host GDP 2019 507.5% 2019 506.5% UNCTAD data available at
https://stats.unctad.org/
handbook/EconomicTrends/Fdi.html

* Source for Host Country Data: Hong Kong Census and Statistics Department 

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 1,732,495 100% Total Outward 1,763,164 100%
British Virgin Islands 606,804 35% China, P.R.: Mainland 800,640 45%
China, P.R.: Mainland 475,641 27% British Virgin Islands 579,860 33%
Cayman Islands 152,048 9% Cayman Islands 70,492 4%
United Kingdom 139,120 8% Bermuda 55,091 3%
Bermuda 99,514 6% United Kingdom 53,858 3%
“0” reflects amounts rounded to +/- USD 500,000.
Table 4: Sources of Portfolio Investment
Portfolio Investment Assets
Top Five Partners (Millions, current US Dollars)
Total Equity Securities Total Debt Securities
All Countries 1,830,229 100% All Countries 1,167,955 100% All Countries 662,274 100%
Cayman Islands 635,236 35% Cayman Islands 608,914 52% United States 156,543 24%
China, P.R.: Mainland 352,531 19% China, P.R.: Mainland 206,829 18% China, P.R.: Mainland 145,702 22%
United States 204,360 11% Bermuda 109,838 9% Japan 51,682 8%
Bermuda 112,021 6% United Kingdom 60,483 5% Luxembourg 42,742 6%
United Kingdom 85,496 5% United States 47,817 4% Australia 37,143 6%

India

Executive Summary

The Government of India continued to actively court foreign investment. In the wake of COVID-19, India enacted ambitious structural economic reforms, including new labor codes and landmark agricultural sector reforms, that should help attract private and foreign direct investment. In February 2021, the Finance Minister announced plans to raise $2.4 billion though an ambitious privatization program that would dramatically reduce the government’s role in the economy. In March 2021, parliament further liberalized India’s insurance sector, increasing the foreign direct investment (FDI) limits to 74 percent from 49 percent, though still requiring a majority of the Board of Directors and management personnel to be Indian nationals.

In response to the economic challenges created by COVID-19 and the resulting national lockdown, the Government of India enacted extensive social welfare and economic stimulus programs and increased spending on infrastructure and public health. The government also adopted production linked incentives to promote manufacturing in pharmaceuticals, automobiles, textiles, electronics, and other sectors. These measures helped India recover from an approximately eight percent fall in GDP between April 2020 and March 2021, with positive growth returning by January 2021.

India, however, remains a challenging place to do business. New protectionist measures, including increased tariffs, procurement rules that limit competitive choices, sanitary and phytosanitary measures not based on science, and Indian-specific standards not aligned with international standards, effectively closed off producers from global supply chains and restricted the expansion in bilateral trade.

The U.S. government continued to urge the Government of India to foster an attractive and reliable investment climate by reducing barriers to investment and minimizing bureaucratic hurdles for businesses.

 
Measure Year Index/ Rank Website Address
TI Corruption Perception Index 2020 86 of 180 https://www.transparency.org/en/countries/india
World Bank’s Doing Business Report: “Ease of Doing Business” 2019 63 of 190   https://www.doingbusiness.org/en/rankings?region=south-asia
Innovation Index 2020 48 of 131 https://www.wipo.int/global_innovation_index/en/2020
U.S. FDI in partner country (Million. USD stock positions) 2019 45,883 https://apps.bea.gov/international/factsheet/factsheet.cfm?Area=612&UUID=67171087-ee34-4983-ac05-984cc597f1f4
World Bank GNI per capita (USD) 2019 2120 https://data.worldbank.org/indicator/ny.gnp.pcap.cd

1. Openness To, and Restrictions Upon, Foreign Investment

Policies toward Foreign Direct Investment

Changes in India’s foreign investment rules are notified in two different ways: (1) Press Notes issued by the Department for Promotion of Industry and Internal Trade (DPIIT) for most sectors, and (2) legislative action for insurance, pension funds, and state-owned enterprises in the coal sector. FDI proposals in sensitive sectors, however, require the additional approval of the Home Ministry.

DPIIT, under the Ministry of Commerce and Industry, is India’s chief investment regulator and policy maker. It compiles all policies related to India’s FDI regime into a single document to make it easier for investors to understand, and this consolidated policy is updated every year. The updated policy can be accessed at: http://dipp.nic.in/foreign-directinvestment/foreigndirectinvestment-policy.  DPIIT, through the Foreign Investment Implementation Authority (FIIA), plays an active role in resolving foreign investors’ project implementation problems and disseminates information about the Indian investment climate to promote investments. The Department establishes bilateral economic cooperation agreements in the region and encourages and facilitates foreign technology collaborations with Indian companies and DPIIT oftentimes consults with lead ministries and stakeholders. There however have been multiple incidents where relevant stakeholders reported being left out of consultations.

Limits on Foreign Control and Right to Private Ownership and Establishment

In most sectors, foreign and domestic private entities can establish and own businesses and engage in remunerative activities. Several sectors of the economy continue to retain equity limits for foreign capital as well as management and control restrictions, which deter investment. For example, the 2015 Insurance Act raised FDI caps from 26 percent to 49 percent, but also mandated that insurance companies retain “Indian management and control.” In the parliament’s 2021 budget session, the Indian government approved increasing the FDI caps in the insurance sector to 74 percent from 49 percent. However, the legislation retained the “Indian management and control” rider. In the August 2020 session of parliament, the government approved reforms that opened the agriculture sector to FDI, as well as allowed direct sales of products and contract farming, though implementation of these changes was temporarily suspended in the wake of widespread protests. In 2016, India allowed up to 100 percent FDI in domestic airlines; however, the issue of substantial ownership and effective control (SOEC) rules that mandate majority control by Indian nationals have not yet been clarified. A list of investment caps is accessible at: http://dipp.nic.in/foreign-directinvestment/foreign-directinvestment-policy .

Screening of FDI

All FDI must be reviewed under either an “Automatic Route” or “Government Route” process. The Automatic Route simply requires a foreign investor to notify the Reserve Bank of India of the investment and applies in most sectors. In contrast, investments requiring review under the Government Route must obtain the approval of the ministry with jurisdiction over the appropriate sector along with the concurrence of DPIIT. The government route includes sectors deemed as strategic including defense, telecommunications, media, pharmaceuticals, and insurance. In August 2019, the government announced a new package of liberalization measures and brought a number of sectors including coal mining and contract manufacturing under the automatic route.

FDI inflows were mostly directed towards the largest metropolitan areas – Delhi, Mumbai, Bangalore, Hyderabad, Chennai – and the state of Gujarat. The services sector garnered the largest percentage of FDI. Further FDI statistics are available at: http://dipp.nic.in/publications/fdistatistics. 

Other Investment Policy Reviews

OECD’s Indian Economic Snapshot: http://www.oecd.org/economy/india-economic-snapshot/ 

WTO Trade Policy Review: https://www.wto.org/english/tratop_e/tpr_e/tp503_e.htm 

2015-2020 Government of India Foreign Trade Policy: http://dgft.gov.in/ForeignTradePolicy 

Business Facilitation

DPIIT is responsible for formulation and implementation of promotional and developmental measures for growth of the industrial sector, keeping in view national priorities and socio- economic objectives. While individual lead ministries look after the production, distribution, development and planning aspects of specific industries allocated to them, DPIIT is responsible for overall industrial policy. It is also responsible for facilitating and increasing the FDI flows to the country.

Invest India  is the official investment promotion and facilitation agency of the Government of India, which is managed in partnership with DPIIT, state governments, and business chambers. Invest India specialists work with investors through their investment lifecycle to provide support with market entry strategies, industry analysis, partner search, and policy advocacy as required. Businesses can register online through the Ministry of Corporate Affairs website: http://www.mca.gov.in/ . After the registration, all new investments require industrial approvals and clearances from relevant authorities, including regulatory bodies and local governments. To fast-track the approval process, especially in the case of major projects, Prime Minister Modi started the Pro-Active Governance and Timely Implementation (PRAGATI initiative) – a digital, multi-modal platform to speed the government’s approval process. As of January 2020, a total of 275 project proposals worth around $173 billion across ten states were cleared through PRAGATI. Prime Minister Modi personally monitors the process to ensure compliance in meeting PRAGATI project deadlines. The government also launched an Inter-Ministerial Committee in late 2014, led by the DPIIT, to help track investment proposals that require inter-ministerial approvals. Business and government sources report this committee meets informally and on an ad hoc basis as they receive reports of stalled projects from business chambers and affected companies.

Outward Investment

The Ministry of Commerce’s India Brand Equity Foundation (IBEF) claimed in March 2020 that outbound investment from India had undergone a considerable change in recent years in terms of magnitude, geographical spread, and sectorial composition. Indian firms invest in foreign markets primarily through mergers and acquisition (M&A). According to a Care Ratings study, corporate India invested around $12.25 billion in overseas markets between April and December 2020. The investment was mostly into wholly owned subsidiaries of companies. In terms of country distribution, the dominant destinations were the Unites States ($2.36 billion), Singapore ($2.07 billion), Netherlands ($1.50 billion), British Virgin Islands ($1.37 billion), and Mauritius ($1.30 million).

Italy

Executive Summary

Italy, the first western country struck by the pandemic, saw its economy shrink by 8.9% in 2020, the sharpest contraction since World War II.  As of May 5, 2021, Italy has reported over 122,000 COVID-19 deaths, the six-highest tally in the world.  The government has spent more than €130 billion on stimulus measures (though it is able to borrow at a low cost thanks to support from the European Central Bank).  Repeated hikes to government spending will probably drive Italy’s budget deficit close to 12% of national output in 2021, up from 9.5% in 2020.  However, Italy also is slated to receive the largest share of the European Union’s pandemic recovery fund (Next Generation EU).  The over €200 billion in NGEU funds for Italy will represent the largest transfer to Italy since the Marshall Plan.  The National Recovery and Resilience Plan (NRRP) is designed to deploy the funds to accelerate the transition to a digital economy by focusing on digitization/innovation, the green energy transition, health, infrastructure, education/research, and equity.  Italy on April 30 submitted its NRRP to Brussels for approval and disbursement of its share of NGEU funds.

The government expects Italy’s economy to grow by approximately 4.5% in 2021 and 4.8% in 2022 but faces an uphill battle to push ahead with long-needed structural reform aimed at boosting Italy’s productivity and growth by fixing the country’s tax regime, its byzantine bureaucracy, and its sluggish courts.  Italy ranks 58th out of 190 countries in the 2020 World Bank’s “Doing Business” survey.  Notably, it ranks 97th on securing building permits, 98th for starting businesses, 122nd at enforcing contracts, and 128th on tax rules.  The government’s efforts to implement new investment promotion policies to market Italy as a desirable investment destination have been hampered by Italy’s slow economic growth, unpredictable tax regime, multi-layered bureaucracy, and time-consuming legal and regulatory procedures.

Yet, Italy remains an attractive destination for foreign investment, with one of the largest markets in the EU, a diversified economy, and a skilled workforce.  Italy’s economy, the eleventh largest in the world, is dominated by small and medium-sized firms (SMEs), which comprise 99.9 percent of Italian businesses.  Italy’s relatively affluent domestic market, access to the European Common Market, proximity to emerging economies in North Africa and the Middle East, and assorted centers of excellence in scientific and information technology research, remain attractive to many investors.  Tourism is an important source of external revenue, generating approximately €70 billion a year, as are exports of pharmaceutical products, furniture, industrial machinery and machine tools, electrical appliances, automobiles and auto parts, food and wine, as well as textiles/fashion.  The sectors that have attracted significant foreign investment include telecommunications, transportation, energy, and pharmaceuticals.

The government remains open to foreign investment in shares of Italian companies and continues to make information available online to prospective investors.  There were two significant investment-related policy developments during 2020:  implementation of a digital services tax (DST) that primarily affects tech firms and media companies, and the Italian government’s expansion of its Golden Power investment screening authority.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 52 of 175 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2019 58 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2020 28 of 131 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2019 $34,900 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2019 $34,530 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Italy welcomes foreign direct investment (FDI).  As a European Union (EU) member state, Italy is bound by the EU’s treaties and laws.  Under EU treaties with the United States, as well as OECD commitments, Italy is generally obliged to provide national treatment to U.S. investors established in Italy or in another EU member state.

EU and Italian antitrust laws provide Italian authorities with the right to review mergers and acquisitions for market dominance.  In addition, the Italian government may block mergers and acquisitions involving foreign firms under its investment screening authority (known as “Golden Power”) if the proposed transactions raise national security concerns.  Enacted in 2012 and further implemented through decrees or follow-on legislation in 2015, 2017, 2019 and 2020, the Golden Power law allows the Government of Italy (GOI) to block foreign acquisition of companies operating in strategic sectors: defense/national security, energy, transportation, telecommunications, critical infrastructure, sensitive technology, and nuclear and space technology.  In March 2019, the GOI expanded the Golden Power authority to cover the purchase of goods and services related to the planning, realization, maintenance, and management of broadband communications networks using 5G technology.  Under the April 6, 2020 Liquidity Decree the Prime Minister’s Office issued, the government strengthened Italy’s investment screening authority to cover all sectors outlined in the EU’s March 2019 foreign direct investment screening directive.  The decree also extends (at least until June 30, 2021) Golden Power review to certain transactions by EU-based investors and gives the government new authorities to investigate non-notified transactions.

The Italian Trade Agency (ITA) is responsible for foreign investment attraction as well as promoting foreign trade and Italian exports.  According to the latest figures available from the ITA, foreign investors own significant shares of 12,768 Italian companies.  As of 2019, these companies had overall sales of €573.6 billion and employed 1,211,872 workers.  ITA operates under the coordination of the Italian Ministry of Economic Development and the Ministry of Foreign Affairs.  As of April 2021, ITA operates through a network of 79 offices in 65 countries.  ITA promotes foreign investment in Italy through Invest in Italy program: http://www.investinitaly.com/en/.  The Foreign Direct Investment Unit is the dedicated unit of ITA for facilitating the establishment and development of foreign companies in Italy.

While not directly responsible for investment attraction, SACE, Italy’s export credit agency, has additional responsibility for guaranteeing certain domestic investments.  Foreign investors – particularly in energy and infrastructure projects – may see SACE’s project guarantees and insurance as further incentive to invest in Italy.

Additionally, Invitalia is the national agency for inward investment and economic development operating under the Italian Ministry of Economy and Finance.  The agency focuses on strategic sectors for development and employment.  Invitalia finances projects both large and small, targeting entrepreneurs with concrete development plans, especially in innovative and high-value-added sectors.  For more information, see https://www.invitalia.it/eng.  The Ministry of Economic Development (https://www.mise.gov.it/index.php/en/) within its Directorate for Incentives to Businesses also has an office with some responsibilities relating to attraction of foreign investment.

Italy’s main business association (Confindustria) also helps companies in Italy:  https://www.confindustria.it/en.

Limits on Foreign Control and Right to Private Ownership and Establishment

Under EU treaties and OECD obligations, Italy is generally obliged to provide national treatment to U.S. investors established in Italy or in another EU member state.  EU and Italian antitrust laws provide national authorities with the right to review mergers and acquisitions over a certain financial threshold.  The Italian government may block mergers and acquisitions involving foreign firms to protect the national strategic interest or in retaliation if the government of the country where the foreign firm is from applies discriminatory measures against Italian firms.  Foreign investors in the defense and aircraft manufacturing sectors are more likely to encounter resistance from the many ministries involved in reviewing foreign acquisitions than are foreign investors in other sectors.

Italy maintains a formal national security screening process for inbound foreign investment in the sectors of defense/national security, transportation, energy, telecommunications, critical infrastructure, sensitive technology, and nuclear and space technology through its “Golden Power” legislation.  Italy expanded its Golden Power authority in March 2019 to include the purchase of goods and services related to the planning, realization, maintenance, and management of broadband communications networks using 5G technology.  On April 6, 2020 the GOI passed a Liquidity Decree in which the Prime Minister’s office made three main changes to its Golden Power authority to prevent the hostile takeover of Italian firms as they weather the financial impact of the COVID-19 crisis.  First, under the decree Golden Power authority now encompasses the financial sector (including insurance and credit) and all the sectors listed under the EU’s March 19, 2019 regulations establishing a framework for the screening of foreign direct investment.  The Italian government previously had adopted only some of the sectors in the EU regulations when it passed its National Cybersecurity Perimeter legislation in November 2019.  The EU regulations cover:  (1) critical infrastructure, physical or virtual, including energy, transport, water, health, communications, media, data processing or storage, aerospace, defense, electoral or financial infrastructure, and sensitive facilities, as well as land and real estate; (2) critical technologies and dual use items, including artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defense, energy storage, quantum and nuclear technologies, and nanotechnologies and biotechnologies; (3) supply of critical inputs, including food security, energy, and raw materials; (4) access to sensitive information; and (5) freedom of the media.

Second, until the end of the COVID-19 pandemic, EU-based investors must notify Italy’s investment screening authority if they seek to acquire, purchase significant shares in, or change the core activities of an Italian company in one of the covered sectors.  Previously EU-based investors had to notify the government only of transactions deemed strategic to national interests, such as in the defense sector.  Third, the government now has the power to investigate non-notified transactions and require that both public and private entities cooperate with the investigation.  In addition to being able to fine companies for non-notified transactions, the government can impose risk mitigation measures for non-notified transactions.  An interagency group led by the Prime Minister’s office reviews acquisition applications and makes recommendations for Council of Ministers’ decisions.

Other Investment Policy Reviews

The OECD published its Economic Survey for Italy in April 2019.  See https://www.oecd.org/economy/surveys/Italy-2019-OECD-economic-survey-overview.pdf.

Business Facilitation

Italy has a business registration website, available in Italian and English, administered through the Union of Italian Chambers of Commerce:  http://www.registroimprese.it.  The online business registration process is clear and complete, and available to foreign companies.  Before registering a company online, applicants must obtain a certified e-mail address and digital signature, a process that may take up to five days.  A notary is required to certify the documentation.  The precise steps required for the registration process depend on the type of business being registered.  The minimum capital requirement also varies by type of business. Generally, companies must obtain a value-added tax account number (partita IVA) from the Italian Revenue Agency; register with the social security agency (Istituto Nazionale della Previdenza Sociale INPS); verify adequate capital and insurance coverage with the Italian workers’ compensation agency (Istituto Nazionale per L’Assicurazione contro gli Infortuni sul Lavoro – INAIL); and notify the regional office of the Ministry of Labor.  According to the World Bank Doing Business Index 2020, Italy’s ranking decreased from 67 to 98 out of 190 countries in terms of the ease of starting a business:  it takes seven procedures and 11 days to start a business in Italy.  Additional licenses may be required, depending on the type of business to be conducted.

Invitalia and the Italian Trade Agency’s Foreign Direct Investment Unit assist those wanting to set up a new business in Italy.  Many Italian localities also have one-stop shops to serve as a single point of contact for, and provide advice to, potential investors on applying for necessary licenses and authorizations at both the local and national level.  These services are available to all investors.

Outward Investment

Italy neither promotes, restricts, nor incentivizes outward investment, nor restricts domestic investors from investing abroad.

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
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2019 $2,041,512 (€1,787,664)** 2019 $2,003,576 www.worldbank.org/en/country
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international
Source of data:  BEA; IMF;
Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2019 $11,450

(€9,613)

2019 $34,900 BEA data available at
https://apps.bea.gov/
international/factsheet/
Host country’s FDI in the United States ($M USD, stock positions) 2019 $46,617(€39,137) 2019 $43,660 BEA data available at
https://www.bea.gov/
international/direct-investment-
and-multinational-enterprises-
comprehensive-data
Total inbound stock of FDI as % host GDP 2019 22.2% 2019 22.3% UNCTAD data available at
https://unctad.org/topic/
investment/world-investment-
report

* Italian GDP data are taken from ISTAT, the official statistics agency.  ISTAT publishes preliminary year end GDP data in early February and issues revised data in early March.  Italian FDI data are from the Bank of Italy and are the latest available; new data are released in May.

**2020 GDP is $1,967,248 (€1,651,595).

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 $445,197 100% Total Outward $554,969 100%
Luxembourg $88,154 20% The Netherlands $50,086 9%
France $79,536 18% Spain $45,643 8%
The Netherlands $76,012 17% United States $43,824 8%
United Kingdom $61,596 14% Germany $41,705 8%
Germany $40,770 9% Luxembourg $35,879 7%
“0” reflects amounts rounded to +/- USD 500,000.
Table 4: Sources of Portfolio Investment
Portfolio Investment Assets
Top Five Partners (Millions, current US Dollars)
Total Equity Securities Total Debt Securities
All Countries $1,697,139 100% All Countries $1,011,578 100% All Countries $685,561 100%
Luxembourg $696,507 41% Luxembourg $670,079 66% Spain $118,488 17%
Ireland $172,884 10% Ireland $150,724 15% France $107,823 16%
France $168,602 10% France $60,779 6% United States $97,797 14%
United States $145,829 9% United States $48,032 5% Germany $54,604 8%
Spain $122,122 7% Germany $20,484 2% Nether-lands $52,943 8%

The statistics above show Italy’s largest investment partners to be within the European Union and the United States.  This is consistent with Italy being fully integrated with its EU partners and the United States.

Portugal

Executive Summary

Portugal’s economic recovery and pro-business policies increased market attractiveness in 2019, a positive year before the country was hard-hit by the COVID-19 pandemic in 2020. The country’s notable recovery since concluding an EU/IMF bailout adjustment program in 2014 culminated in a first-ever budget surplus in 2019.  Portugal recovered its investment-grade sovereign bond ratings and now enjoys record-low financing costs. While the country continues to hold strong potential for U.S. investors, the Covid-19 pandemic has had a serious impact on the economy.

The Portuguese economy contracted by 7.6% in 2020, the most severe yearly drop since 1928. The pandemic also increased the already problematic public debt by over €20 billion to 133.7% of GDP in 2020, from 117.7% in 2019. As of early 2021, the government predicted a budget deficit of 7.3% in 2020 and 4.3% in 2021. However, the government was able to contain a significant rise in unemployment, which at 6.8% in 2020, was higher than the 2019 figure of 6.5%, but was well below the government’s October forecast of 8.7%, as the labor market showed resilience during the first year of the pandemic. However, in January 2021, the government imposed a second lockdown to counter spiking COVID-19 numbers that continued to impact the tourism, hospitality, and retail sectors. The depth of the pandemic’s impact on the banking and tourism sectors will depend largely on the length of global travel restrictions and retail closures.

Portugal will have a once-in-a-generation chance to boost its economic recovery, using around €14 billion in European Union (EU) grants expected to flow to state coffers between 2021 and 2026, to support its Recovery and Resilience Plan. The government is expected to allocate the funds in support of energy and digital transitions.

Before the pandemic, 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.

The banking sector faced considerable challenges in recent years, including the costly central bank-led bailing out of Banco Espírito Santo in 2014 and Banif in 2015 from the global financial crisis. Even so, banks regained momentum since, restructuring and strengthening capital structures to address the lingering stock of non-performing loans. They are now in the frontline of the Covid-19 economic shock, supporting pandemic-related credit lines and debt moratoria programs initiated by the government. While banks entered the pandemic in a relatively strong position, investors are particularly attentive to the potential aftershocks related to the end of the extraordinary bank credit moratorium introduced to temporarily shield borrowers. Portugal’s economy is fully integrated in the European Union. Portugal’s primary trading partners are Spain, France, Germany, the United Kingdom, and the United States.

Beyond Europe, Portugal maintains significant links with former colonies including Brazil, Angola, Mozambique, Cape Verde, and Guinea-Bissau.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 33 of 175 http://www.transparency.org/research/cpi/overview 
World Bank’s Doing Business Report 2020 39 of 190 http://www.doingbusiness.org/en/rankings 
Global Innovation Index 2020 31 of 131 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, historical stock positions) 2019 USD 2.4 bln https://apps.bea.gov/international/factsheet/ 
World Bank GNI per capita 2019 USD 23,200 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The government of Portugal recognizes the importance of foreign investment and sees it as a driver of economic growth, with an overall positive attitude towards foreign direct investment (FDI).  Portuguese law is based on a principle of non-discrimination, meaning foreign and domestic investors are subject to the same rules.  Foreign investment is not subject to any special registration or notification to any authority, with exceptions for a few specific activities.

The Portuguese Agency for Foreign Investment and Commerce (AICEP) is the lead for promotion of trade and investment.  AICEP is responsible for attracting FDI, global promotion of Portuguese brands, and export of goods and services.  It is the primary point of contact for investors with projects over € 25 million or companies with a consolidated turnover of more than € 75 million.  For foreign investments not meeting these thresholds, AICEP will make a preliminary analysis and direct the investor to assistance agencies such as the Institute of Support to Small- and Medium- Sized Enterprises and Innovation (IAPMEI), a public agency within the Ministry of Economy that provides technical support, or to AICEP Capital Global, which offers technology transfer, incubator programs, and venture capital support.  AICEP does not favor specific sectors for investment promotion. It does, however, provide a “Prominent Clusters” guide on its website,  where it advocates investment in Portuguese companies by sector. Additionally, Portugal has introduced the website Simplex, designed to help navigate starting a business.

The Portuguese government maintains regular contact with investors through the Confederation of Portuguese Business (CIP), the Portuguese Commerce and Services Confederation (CCP), the Portuguese Chamber of Commerce and Industry (CCIP), among other industry associations.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are no legal restrictions in Portugal on foreign investment.  To establish a new business, foreign investors must follow the same rules as domestic investors, including mandatory registration and compliance with regulatory obligations for specific activities.  There are no nationality requirements and no limitations on the repatriation of profits or dividends.

Non-resident shareholders must obtain a Portuguese taxpayer number for tax purposes.  EU residents may obtain this number directly with the tax administration (in person or by means of an appointed proxy); non-EU residents must appoint a Portuguese resident representative to handle matters with tax authorities.

Portugal enacted a national security investment review framework in 2014, which gave the Council of Ministers authority to block specific foreign investment transactions that would compromise national security.  Reviews can be triggered on national security grounds in strategic industries like energy, transportation, and communication. Investment reviews can be conducted in cases where the purchaser acquiring control is an individual or entity not registered in an EU member state.  In such instances, the review process is overseen by the applicable Portuguese ministry according to the assets in question. Portugal has yet to activate its investment screening mechanism.

Portuguese government approval is required in the following sensitive sectors: defense, water management, public telecommunications, railways, maritime transportation, and air transport.  Any economic activity that involves the exercise of public authority also requires government approval; private sector companies can operate in these areas only through a concession contract.

Portugal additionally limits foreign investment with respect to the production, transmission, and distribution of electricity, the production of gas, the pipeline transportation of fuels, wholesale services of electricity, retailing services of electricity and non-bottled gas, and services incidental to electricity and natural gas distribution.  Concessions in the electricity and gas sectors are assigned only to companies with headquarters and effective management in Portugal.

Investors wishing to establish new credit institutions or finance companies, acquire a controlling interest in such financial firms, and/or establish a subsidiary must have authorization from the Bank of Portugal (for EU firms) or the Ministry of Finance (for non-EU firms).  Non-EU insurance companies seeking to establish an agency in Portugal must post a special deposit and financial guarantee and must have been authorized for such activity by the Ministry of Finance for at least five years.

Other Investment Policy Reviews

Business Facilitation

To combat the perception of a cumbersome regulatory environment, the government has created a ‘cutting red tape’ the website Simplex (simplex.gov.pt) that details measures taken since 2005 to reduce bureaucracy, and the Empresa na Hora (“Business in an Hour”) program that facilitates company incorporation by citizens and non-citizens in less than 60 minutes.  More information is available at Empresa na Hora.

In 2007, the government established AICEP, a promotion agency for investment and foreign trade that also manages industrial parks and provides business location solutions for investors through its subsidiary AICEP Global Parques.

Established in 2012, Portugal’s “Golden Visa” program gives fast-track residence permits to foreign investors meeting certain conditions, including making capital transfers, job creation or real estate acquisitions. As of 2021, the government is planning to introduce changes to the “Golden Visa” program that includes restricting the purchase of real estate to regions in the interior, in the Azores and Madeira, a package of measures expected to kick-in in 2022. Between 2012 and 2020, Portugal issued 9,444 ‘Golden Visas’, representing €5.67 billion of investment, of which €5.1 billion went into real estate. Chinese nationals dominate the ‘Golden Visa’ issuance, with 5,672, followed by Brazilian nationals, with 994. Other measures implemented to help attract foreign investment include the easing of some labor regulations to increase workplace flexibility and EU-funded programs.

Portuguese citizens can alternatively register a business online through the “Citizen’s Portal” available at Portal do Cidadão.  Companies must also register with the Directorate General for Economic Activity (DGAE), the Tax Authority (AT), and with the Social Security administration.  The government’s standard for online business registration is a two to three day turnaround but the online registration process can take as little as one day.

Portugal defines an enterprise as micro-, small-, and medium-sized based on its headcount, annual turnover, or the size of its balance sheet.  To qualify as a micro-enterprise, a company must have fewer than 10 employees and no more than €2 million in revenues or €2 million in assets.  Small enterprises must have fewer than 50 employees and no more than €10 million in revenues or €10 million in assets. Medium-sized enterprises must have fewer than 250 employees and no more than €50 million in revenues or €43 million in assets.  The Small- and Medium-Sized Enterprise (SME) Support Institute (IAPMEI)   offers financing, training, and other services for SMEs based in Portugal.

More information on laws, procedures, registration requirements, and investment incentives for foreign investors in Portugal is available at AICEP’s website.

Outward Investment

The Portuguese government does not restrict domestic investors from investing abroad.  On the contrary, it promotes outward investment through AICEP’s customer managers, export stores and its external commercial network that, in cooperation with the diplomatic and consular network, are operating in about 80 markets.  AICEP provides support and advisory services on the best way of approaching foreign markets, identifying international business opportunities for Portuguese companies, particularly SMEs.

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
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) (Million) 2019 €213,949 2019 $238,785 www.worldbank.org/en/country  EUROSTAT 
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 (Million) 2019 €1,808 2019 $2,425 BEA data available at
https://apps.bea.gov/
international/factsheet/ 

Bank of Portugal 
Host country’s FDI in the United States ($M USD, stock positions) 2019 €1,245 2019 $1,100 BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data 
Total inbound stock of FDI as % host GDP N.A. N.A. 2019 69% UNCTAD data available at
https://stats.unctad.org/
handbook/Economic
Trends/Fdi.html

* Eurostat and Bank of Portugal:

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 161,639 100% Total Outward 58,076 100%
The Netherlands 34,364 21% Spain 14,269 25%
Luxembourg 31,237 19% The Netherlands 12,095 21%
Spain 29,629 18% Luxembourg 3,444 6%
France 10,978 7% Brazil 3,439 6%
United Kingdom 10,806 7% Angola 2,482 4%
Table 4: Sources of Portfolio Investment
Portfolio Investment Assets
Top Five Partners (Millions, current US Dollars)
Total Equity Securities Total Debt Securities
All Countries 168,038 100% All Countries 43,482 100% All Countries 124,556 100%
Spain 26,802 16% Luxembourg 18,460 42% Spain 23,663 19%
Luxembourg 21,558 13% Ireland 7,159 16% Italy 20,568 17%
Italy 20,921 12% United States 6,442 15% International Organizations 17,905 14%
International Organizations 17,905 11% Spain 3,139 7% France 12,766 10%
United States 15,105 9% Japan 1,142 3% United States 8,663 7%

Russia

Executive Summary

The Russian Federation remained in 28th place out of 190 economies in the World Bank’s Doing Business 2020 Report, reflecting modest incremental improvements in the regulatory environment in prior years. The World Bank paused the publication of the Doing Business 2021 report to assess a number of irregularities that have been reported, therefore no updates since last report are available. However, fundamental structural problems in Russia’s governance of the economy continue to stifle foreign direct investment throughout Russia. In particular, Russia’s judicial system remains heavily biased in favor of the state, leaving investors with little recourse in legal disputes with the government. Despite on-going anticorruption efforts, high levels of corruption among government officials compound this risk.

Throughout 2020, a prominent U.S. investor, who was arrested in February 2019 over a commercial dispute, remained under modified house arrest.  Moreover, Russia’s import substitution program gives local producers advantages over foreign competitors that do not meet localization requirements. Finally, Russia’s actions since 2014 have resulted in EU and U.S. sanctions – restricting business activities and increasing costs.

U.S. investors must ensure full compliance with U.S. sanctions, including sanctions against Russia in response to its invasion of Ukraine, election interference, other malicious cyber activities, human rights abuses, use of chemical weapons, weapons proliferation, illicit trade with North Korea, support to Syria and Venezuela, and other malign activities. Information on the U.S. sanctions program is available at the U.S. Treasury’s website: https://www.treasury.gov/resource-center/sanctions/Pages/default.aspx . U.S. investors can utilize the “Consolidated Screening List” search tool to check sanctions and control lists from the Departments of Treasury, State, and Commerce: https://www.export.gov/csl-search .

Russia’s Strategic Sectors Law (SSL) established an approval process for foreign investments resulting in a controlling stake in one of Russia’s 46 “strategic sectors.” The law applies to foreign states, international organizations, and their subsidiaries, as well as to “non-disclosing investors” (i.e., investors not disclosing information about beneficiaries, beneficial owners, and controlling persons).

Since 2015, the Russian government has had an incentive program for foreign investors called Special Investment Contracts (SPICs). These contracts, managed by the Ministry of Industry and Trade, allow foreign companies to participate in Russia’s import substitution programs by providing access to certain subsidies to foreign producers who establish local production. In August 2019, the Russian government introduced “SPIC-2.0,” which incentivizes long-term private investment in high-technology projects and technology transfer in manufacturing.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 129 of 180 http://www.transparency.org/research/cpi/overview 
World Bank’s Doing Business Report 2019* 28 of 190 http://www.doingbusiness.org/en/rankings * last year’s ranking due to the WB putting a pause on issuing the 2021 DB Report
Global Innovation Index 2020 47 of 131 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, historical stock positions) 2019 $14,439 https://www.bea.gov/international/di1usdbal 
World Bank GNI per capita 2019 $11,260 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The Ministry of Economic Development (MED) is responsible for overseeing investment policy in Russia. The Russian Direct Investment Fund (RDIF) was established in 2011 to facilitate direct investment in Russia and has already attracted over $40 billion of foreign capital into the Russian economy through long-term strategic partnerships. In 2013, Russia’s Agency for Strategic Initiatives (ASI) launched an “Invest in Russian Regions” project to promote FDI in Russian regions. Since 2014, ASI has released an annual ranking of Russia’s regions in terms of the relative competitiveness of their investment climates and provides potential investors with information about regions most open to foreign investment. In 2021, 40 Russian regions improved their Regional Investment Climate Index scores (https://asi.ru/investclimate/rating). The Foreign Investment Advisory Council (FIAC), established in 1994, is chaired by the Prime Minister and currently includes 53 international company members and four companies as observers. The FIAC allows select foreign investors to directly present their views on improving the investment climate in Russia and advises the government on regulatory rulemaking.

Russia’s basic legal framework governing investment includes 1) Law 160-FZ, July 9, 1999, “On Foreign Investment in the Russian Federation;” 2) Law No. 39-FZ, February 25, 1999, “On Investment Activity in the Russian Federation in the Form of Capital Investment;” 3) Law No. 57-FZ, April 29, 2008, “Foreign Investments in Companies Having Strategic Importance for State Security and Defense (Strategic Sectors Law, SSL);” and 4) the Law of the RSFSR No. 1488-1, June 26, 1991, “On Investment Activity in the Russian Soviet Federative Socialist Republic (RSFSR),” and (5) Law No. 69-FZ. April 1, 2020, “On Investment Protection and Promotion Agreements in the Russian Federation.” This framework of laws nominally attempts to guarantee equal rights for foreign and local investors in Russia. However, exemptions are permitted when it is deemed necessary to protect the Russian constitution, morality, health, human rights, or national security or defense, and to promote its socioeconomic development. Foreign investors may freely use the profits obtained from Russia-based investments for any purpose, provided they do not violate Russian law.

The new 2020 Federal Law on Protection and Promotion of Investments applies to investments made under agreements on protection and promotion of investments (“APPI”) providing for implementation of a new investment project. APPI may be concluded between a Russian legal entity (the organization implementing the project established by a Russian or a foreign company) and a regional and/or the federal government. APPI is a private law agreement coming under the Russian civil legislation (with exclusions provided for by the law). Support measures include reimbursement of (1) the costs of creating or reconstructing the infrastructure and (2) interest on loans needed for implementing the project. The maximum reimbursable costs may not exceed 50 percent of the costs actually incurred for supporting infrastructure facilities and 100 percent of the costs actually incurred for associated infrastructure facilities. The time limit for cost recovery is five years for the supporting infrastructure and ten years for the associated infrastructure.

Limits on Foreign Control and Right to Private Ownership and Establishment

Russian law places two primary restrictions on land ownership by foreigners. The first is on the foreign ownership of land located in border areas or other “sensitive territories.” The second restricts foreign ownership of agricultural land, including restricting foreign individuals and companies, persons without citizenship, and agricultural companies more than 50-percent foreign-owned from owning land. These entities may hold agricultural land through leasehold rights. As an alternative to agricultural land ownership, foreign companies typically lease land for up to 49 years, the maximum legally allowed.

In October 2014, President Vladimir Putin signed the law “On Mass Media,” which took effect on January 1, 2015. The law restricts foreign ownership of any Russian media company to 20 percent (the previous law applied a 50 percent limit to Russia’s broadcast sector). U.S. stakeholders have raised concerns about similar limits on foreign direct investments in the mining and mineral extraction sectors and describe the licensing regime as non-transparent and unpredictable. In December 2018, the State Duma approved in its first reading a draft bill introducing new restrictions on online news aggregation services. If adopted, foreign companies, including international organizations and individuals, would be limited to a maximum of 20 percent ownership interest in Russian news aggregator websites. The second, final hearing was planned for February 2019, but was postponed. To date, this proposed law has not been passed.

Russia’s Commission on Control of Foreign Investment (Commission) was established in 2008 to monitor foreign investment in strategic sectors in accordance with the SSL. Between 2008 and 2019, the Commission received 621 applications for foreign investment, 282 of which were reviewed, according to the Federal Antimonopoly Service (FAS). Of those 282, the Commission granted preliminary approval for 259 (92 percent approval rate), rejected 23, and found that 265 did not require approval (https://fas.gov.ru/news/29330). International organizations, foreign states, and the companies they control are treated as single entities under the Commission, and with their participation in a strategic business, are subject to restrictions applicable to a single foreign entity. There have been no updates regarding the number of applications received by the Commission since 2019. Due to COVID-19, the Commission met only twice since then, in December 2020 and February 2021.

Pursuant to legal amendments to the SSL that entered into force August 11, 2020, a foreign investor is deemed to exercise control over a Russia’s strategic entity even if voting rights in shares belonging to the investor have been temporarily transferred to other entities under the pledge or trust management agreement, or repo contract or a similar arrangement. According to the FAS, the amendments were aimed to exclude possible ways of circumventing the existing foreign investments control rules by way of temporary transfer of voting rights in the strategic entity’s shares.

In an effort to reduce bureaucratic procedures and address deficiencies in the SSL, on May 11, President Putin signed into law a draft bill introducing specific rules lifting restrictions and allowing expedited procedures for foreign investments into certain strategic companies for which strategic activity is not a core business.

Since January 1, 2019, foreign providers of electronic services to business customers in Russia (B2B e-services) have new Russian value-added tax (VAT) obligations. These obligations include VAT registration with the Russian tax authorities (even for VAT exempt e-services), invoice requirements, reporting to the Russian tax authorities, and adhering to VAT remittance rules.

Other Investment Policy Reviews

The WTO conducted the first Trade Policy Review (TPR) of the Russian Federation in September 2016. The next TPR of Russia will take place in October 2021, with reports published in September. (Related reports are available at https://www.wto.org/english/tratop_e/tpr_e/tp445_e.htm ).

The United Nations Conference on Trade and Development (UNCTAD) issues an annual World Investment Report covering different investment policy topics. In 2020, the focus of this report was on international production beyond the pandemic ( https://unctad.org/en/Pages/Publications/WorldInvestmentReports.aspx ). UNCTAD also issues an investment policy monitor ( https://investmentpolicyhub.unctad.org/IPM ).

Business Facilitation

The Federal Tax Service (FTS) operates Russia’s business registration website: www.nalog.ru . Per law (Article 13 of Law 129-FZ of 2001), a company must register with a local FTS office, and the registration process should not take more than three days. Foreign companies may be required to notarize the originals of incorporation documents included in the application package. To establish a business in Russia, a company must register with FTS and pay a registration fee of RUB 4,000. As of January 1, 2019, the registration fee has been waived for online submission of incorporation documents directly to the Federal Tax Service (FTS).

The publication of the Doing Business report was paused in 2020, as the World Bank is assessing its data collection process and data integrity preservation methodology.

The 2019 ranking acknowledged several reforms that helped Russia improve its position. Russia made getting electricity faster by setting new deadlines and establishing specialized departments for connection. Russia also strengthened minority investor protections by requiring greater corporate transparency and made paying taxes easier by reducing the tax authority review period of applications for VAT cash refunds. Russia also further enhanced the software used for tax and payroll preparation.

Outward Investment

The Russian government does not restrict Russian investors from investing abroad. Since 2015, Russia’s “De-offshorization Law” (376-FZ) requires that Russian tax residents notify the government about their overseas assets, potentially subjecting these assets to Russian taxes.

While there are no restrictions on the distribution of profits to a nonresident entity, some foreign currency control restrictions apply to Russian residents (both companies and individuals), and to foreign currency transactions. As of January 1, 2018, all Russian citizens and foreign holders of Russian residence permits are considered Russian “currency control residents.” These “residents” are required to notify the tax authorities when a foreign bank account is opened, changed, or closed and when funds are moved in a foreign bank account. Individuals who have spent less than 183 days in Russia during the reporting period are exempt from the reporting requirements and restrictions using foreign bank accounts. On January 1, 2020, Russia abolished all currency control restrictions on payments of funds by non-residents to bank accounts of Russian residents opened with banks in OECD or FATF member states. This is provided that such states participate in the automatic exchange of financial account information with Russia. As a result, from 2020 onward, Russian residents will be able to freely use declared personal foreign accounts for savings and investment in wide range of financial products.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Please note that the following tables include FDI statistics from three different sources, and therefore will not be identical. Table 2 uses BEA data when available, which measures the stock of FDI by the market value of the investment in the year the investment was made (often referred to as historical value). This approach tends to undervalue the present value of FDI stock because it does not account for inflation. BEA data is not available for all countries, particularly if only a few US firms have direct investments in a country. In such cases, Table 2 uses other sources that typically measure FDI stock in current value (or, historical values adjusted for inflation). Even when Table 2 uses BEA data, Table 3 uses the IMF’s Coordinated Direct Investment Survey (CDIS) to determine the top five sources of FDI in the country. The CDIS measures FDI stock in current value, which means that if the U.S. is one of the top five sources of inward investment, U.S. FDI into the country will be listed in this table. That value will come from the CDIS and therefore will not match the BEA data.

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
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($trillion USD) 2020 $1.423 2019 $1.699 www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data: BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2019 $5,092 2019 $14,439 BEA data available at https://www.bea.gov/international/
direct-investment-and-multinational-enterprises-
comprehensive-data
 

CBR data available at https://cbr.ru/statistics/macro_itm/svs/
Host country’s FDI in the United States ($M USD, stock positions) 2019 $7,362 2019 $4,371 BEA data available at https://www.bea.gov/international/
direct-investment-and-multinational-enterprises-
comprehensive-data
 
Total inbound stock of FDI as % host GDP 2019 $33.4% 2019 27.4% UNCTAD data available at https://unctad.org/en/Pages/DIAE/World%20Investment%20Report/
Country-Fact-Sheets.aspx
 

* Source for Host Country Data: FDI data – Central Bank of Russia (CBR); GDP data – Rosstat (GDP) (Russia’s GDP was RUB 110,046 billion in 2019, according to Rosstat. The yearly average RUB-USD- exchange rate in 2019, according to the CBR, was RUB 64.7362 to the USD).

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data (as of January 1, 2021)
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 537,118 100% Total Outward 470,098 100%
Cyprus 153,355 28.6% Cyprus 200,435 43%
Bermuda 47,991 8.9% Netherlands 33.839 7.2%
Netherlands 46,712 8.7% Austria 29,702 6.2%
UK 41,961 7.8% UK 25,126 5.3%
Luxemburg 32,250 6% Switzerland 21,923 4.7%
“0” reflects amounts rounded to +/- USD 500,000.
Table 4: Portfolio Investment
Portfolio Investment Assets (as of October 1, 2020)
Top Five Partners (Millions, US Dollars)
Total Equity Securities Total Debt Securities
All Countries 98,918 100% All Countries 14,131 100% All Countries 84,786 100%
Ireland 26,108 29% United States 6,844 48.4% Ireland 25,246 29.8%
Luxemburg 17,455 22% Cyprus 1,000 7.1% Luxemburg 16,913 19.9%
U.S. 11,422 11% Netherlands 951 6.7% UK 10,306 12.2%
UK 10,984 7% Ireland 863 6.1% Netherlands 6,201 7.3%
Netherlands 7,152 6% UK 678 4.8% Cyprus 4,752 5.6%

United Kingdom

Executive Summary

The United Kingdom (UK) is a top global destination for foreign direct investment (FDI) and imposes few impediments to foreign ownership.  The United States is the largest source of direct investment into the UK.  Thousands of U.S. companies have operations in the UK.  The UK also hosts more than half of the European, Middle Eastern, and African corporate headquarters of American-owned firms.  The UK government provides comprehensive statistics on FDI in its annual inward investment  report:   https://www.gov.uk/government/statistics/department-for-international-trade-inward-investment-results-2019-to-2020.

Following a drop in inward investment each year since 2016 that mirrored global declines, and amidst a historically sharp but temporary recession related to the COVID-19 pandemic, the UK government established the Office for Investment in November 2020.  The Office is focused on attracting high-value investment opportunities into the UK which “align with key government priorities, such as reaching net zero [carbon emissions], investing in infrastructure, and advancing research and development.  It also aims to drive inward investment into “all corners of the UK through a ‘single front door.’”

The UK’s National Security and Investment Act, which came into effect in May 2021, significantly strengthened the UK’s existing investment screening powers.  Investments resulting in foreign control generally exceeding 15 percent of companies in 17 sectors pertaining to national security require mandatory notifications to the UK government’s Investment Security Unit

The UK formally withdrew from the EU’s political institutions on January 31, 2020, and from  the bloc’s economic and trading institutions on December 31, 2020.  The UK and the EU concluded a Trade and Cooperation Agreement (TCA) on December 24, 2020, setting out the terms of their future economic relationship.  The TCA maintains tariff-free trade between the UK and the EU but introduced a number of new non-tariff, administrative barriers.   On January 1, 2021, the UK began reviewing cross-border activities with a UK-EU nexus in parallel to the European Commission.

The United States and the UK launched free trade agreement negotiations in May 2020, which were paused with the change in U.S. Administration.  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.

On April 8, 2021, the UK established the Digital Markets Unit, a new regulatory body that will be responsible for implementing upcoming changes to competition rules in digital markets.  The Competition and Markets Authority (CMA), the UK’s competition regulator, has indicated that it intends to scrutinize and police the digital sector more thoroughly going forward.   The EU’s General Data Protection Regulation (GDPR) no longer applies to the UK.  Entities based in the UK must comply with the Data Protection Act (DPA) 2018, which incorporated provisions of the EU GDPR directly into UK law

In April 2020  a two percent digital services tax (DST) came into force that targets certain types of digital activity attributable to UK users. The in-scope digital services activities are: social media services; Internet search engines; and online marketplaces.  If an activity is ancillary or incidental to an in-scope digital services activity, its revenues may also be subject to the DST.

In March 2021, The UK government identified eight sites as post-Brexit freeports to spur trade, investment, innovation and economic recovery.  The eight sites are: East Midlands Airport, Felixstowe and Harwich, Humber region, Liverpool City Region, Plymouth, Solent, Thames, and Teesside.  The designated areas will offer special customs and tax arrangements and additional infrastructure funding to improve transport links.

HMG brought forward new immigration rules on January 1, 2021. The new rules have wide-ranging implications for foreign employees, students, and EU citizens.  The new rules are points-based, meaning immigrants need to attain a certain number of points in order to be awarded a visa.  The previous cap on visas has been abolished.  EU citizens who arrived before December 31, 2020, will not have to apply for a visa, but instead are eligible to apply for “settled” or “pre-settled” status, which allows them to live and work in the UK much the same as they were before the UK left the EU.  EU citizens arriving to the UK after January 1, 2021, must apply for the relevant visa.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 11 of 180 www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report “Ease of Doing Business” 2020 8 of 190 www.doingbusiness.org/rankings
Global Innovation Index 2020 4 of 131 https://www.globalinnovationindex.org/analysis-economy  
U.S. FDI in partner country (M USD, stock positions) 2019 $851,400 www.bea.gov/international/factsheet/
World Bank GNI per capita 2019 $49,040 data.worldbank.org/indicator/NY.GNP.PCAP.CD 

Currency conversions have been done using XE and Bank of England data.

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

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 pound sterling is a free-floating currency with no restrictions on its transfer or conversion.  There are no exchange controls restricting the transfer of funds associated with an investment into or out of the UK.

UK legal, regulatory, and accounting systems are transparent and consistent with international standards.  The UK legal system provides a high level of investor protections.  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 UK actively encourages inward FDI.  The Department for International Trade, including through its newly created Office for Investment, actively promotes inward 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 UK 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 private sector companies for national security reasons, 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 of 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 be ordinarily resident in the country.

The UK’s National Security and Investment Act, which came into effect in May 2021, significantly strengthened the UK’s existing investment screening powers.  Investments resulting in foreign control generally exceeding 15 percent of companies in 17 sectors pertaining to national security require mandatory notifications to the UK government’s Investment Security Unit (see https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/965784/nsi-scope-of-mandatory-regime-gov-response.pdf for details).  The regime operates separately from competition law.  The bill provides authority to a newly created Investment Security Unit to review investments retroactively for a period of five years.

Other Investment Policy Reviews

The Economist Intelligence Unit, World Bank Group’s “Doing Business 2020,” and the OECD’s Economic Forecast Summary (December 2020) have current investment policy reports for the United Kingdom:

http://country.eiu.com/united-kingdom

http://www.doingbusiness.org/data/exploreeconomies/united-kingdom/

https://www.oecd.org/economy/united-kingdom-economic-snapshot/  

Business Facilitation

The UK government has promoted administrative efficiency to facilitate business creation and operation.  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 the company has some degree of physical presence in the UK.  After registering their business with the UK governmental body Companies House, overseas firms must separately register to pay corporation tax within three months.  On average, the process of setting up a business in the UK requires 13 days, compared to the European average of 32 days, putting the UK in first place in Europe and sixth in the world.

As of April 2016, companies have to declare all “persons of significant control.”  This policy recognizes that individuals other than named directors can have significant influence on a company’s activity and that this information should be transparent.  More information is available at this link: https://www.gov.uk/government/publications/guidance-to-the-people-with-significant-control-requirements-for-companies-and-limited-liability-partnerships.  Companies House maintains a free, publicly searchable directory, available at https://www.gov.uk/get-information-about-a-company.

The UK offers a welcoming environment to foreign investors, with foreign equity ownership restrictions in only a limited number of sectors covered by the World Bank’s Investing Across Sectors indicators.

https://www.gov.uk/government/organisations/department-for-international-trade

https://www.gov.uk/set-up-business

https://www.gov.uk/topic/company-registration-filing/starting-company

http://www.doingbusiness.org/data/exploreeconomies/united-kingdom/starting-a-business

Special Section on the British Overseas Territories and Crown Dependencies

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 authority 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.

Many of the territories are now broadly self-sufficient.  The UK’s Foreign, Commonwealth and Development Department (FCDO), however, 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.

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 have long exchanged information with the UK, and began exchanging information with other jurisdictions under the CRS from September 2017.

Of the BOTs, Anguilla is the only one to receive a “non-compliant” rating by the Global Forum for Exchange of Information on Request, putting it on the EU list of non-cooperative tax jurisdictions.  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 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.

Anguilla:  Anguilla has 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 on the assessed value of the property or the sales proceeds, whichever is greater.

British Virgin Islands:  The government of the British Virgin Islands offers a series of tax 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 transfers of real estate and the transfer of shares in a BVI company owning real estate in the BVI at a rate of four percent for belongers (i.e., residents who have proven they meet a legal standard of close ties to the territory) 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 $150,000, a turnover of less than $300,000 and fewer than seven employees) and 14 percent for larger employers.  Eight percent of the total remuneration is deducted from the employee, the remainder of the liability is met by the employer.  The first $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 7.5 percent on the value of real estate at sale, but 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 £1 million ($1.4 million) and 26 percent for all amounts in excess of £1 million ($1.4 million).  The individual income tax rate is 21 percent for earnings below £12,000 ($16,800) and 26 percent above this level.

Gibraltar:  With BREXIT, Gibraltar is not currently a part of the EU, but under the terms of an agreement in principle reached between the UK and Spain on December 31, 2020, it is set to become a part of the EU’s passport-free Schengen travel area.  The UK and EU are set to begin negotiations on a treaty on the movement of people and goods between Gibraltar and the bloc.  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.  There are no capital or sales taxes.

Montserrat:   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 Australia.  The government allows 100 percent foreign ownership of businesses, but the administration of public utilities remains wholly in the public sector.

St. Helena:  The  government offers tax-based incentives, which are considered on the merits of each project – particularly tourism projects.  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 a commercially viable harbor.  Residents exist on fishing, subsistence farming, and handcrafts.

The Turks and Caicos Islands:  Through an “open arms” investment 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” policy, but property purchasers must pay a stamp duty on purchases over $25,000.  Depending on the island, the stamp duty rate may be up to 6.5 percent for purchases up to $250,000, eight percent for purchases $250,001 to $500,000, and 10 percent for purchases over $500,000.

The Crown Dependencies:  The Crown Dependencies are the Bailiwick of Jersey, the Bailiwick of Guernsey, and the Isle of Man.  The Crown Dependencies are not part of the UK but are self-governing dependencies of the Crown.  This means they have their own directly elected legislative assemblies, administrative, fiscal and legal systems, and their own courts of law.  The Crown Dependencies are not represented in the UK Parliament.  The following tax data are current as of April 2021:

Jersey’s standard rate of corporate tax is zero percent.  The exceptions to this standard rate are financial service companies, which are taxed at 10 percent; utility companies, which are taxed at 20 percent; and income specifically derived from Jersey property rentals or Jersey property development, taxed at 20 percent.  A five percent VAT is applicable in Jersey.

Guernsey has a zero percent rate of corporate tax.  Exceptions include some specific banking activities, taxed at 10 percent; utility companies, which are taxed at 20 percent; Guernsey residents’ assessable income is taxed at 20 percent; and income derived from land and buildings is taxed at 20 percent.

The Isle of Man’s corporate standard tax is zero percent.  The exceptions to this standard rate are income received from banking business, which is taxed at 10 percent, and income received from land and property in the Isle of Man, which is taxed at 20 percent.  In addition, a 10 percent tax rate also applies to companies which carry on a retail business in the Isle of Man and have taxable income in excess of £500,000 ($695,000) from that business.  A 20 percent rate of VAT is applicable in the Isle of Man.

Outward Investment

The UK is one of the largest outward investors in the world, undergirded by numerousbilateral investment treaties (BITs) .  The UK’s international investment position abroad (outward investment) increased from £1,453 billion ($1,938) in 2018 to £1,498 ($1,912) by the end of 2019.  The main destination for UK outward FDI is the United States, which accounted for approximately 25 percent of UK outward FDI stocks at the end of 2019.  Other key destinations include the Netherlands, Luxembourg, France, and Spain which, together with the United States, account for a little under half of the UK’s outward FDI stock.  Europe and the Americas remain the dominant areas for UK international investment positions abroad, accounting for eight of the top 10 destinations for total UK outward FDI.

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
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) (M USD) 2018 $2,710,000 2019 $2,829,000 https://data.worldbank.org/
country/united-kingdom
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) 2019 $527,000 2019 $851,414 BEA data available at
https://apps.bea.gov/
international/factsheet/ 
Host country’s FDI in the United States (M USD, stock positions) 2019 $524,000 2019 $505,088 https://www.selectusa.gov/
country-fact-sheet/United-Kingdom 
Total inbound stock of FDI as percent host GDP 2018 25.3% 2019 11.3% Calculated using respective GDP and FDI data
Table 3: Sources and Destination of FDI 
Direct Investment from/in Counterpart Economy 
 From Top Five Sources/To Top Five Destinations (USD, Billions)
Inward Direct Investment 2019 Outward Direct Investment 2018
Total Inward 2,155.9 Proportion Total Outward 2,060 Proportion
USA 527.8 24.5% USA 525.2 25.3%
Netherlands 231.3 10.7% Netherlands 215.4 10.4%
Luxembourg 185.9 8.6% Luxembourg 132.6 6.4%
Belgium 161 7.5% France 104 5.0%
Japan 125.2 7.4% Spain 104 5.0%
 Table 4: Sources of Portfolio Investment
Portfolio Investment Assets
Top Five Partners (Millions, current US Dollars)
Total Equity Securities Total Debt Securities
All Countries 100% All Countries 100% All Countries 100%
United States 1,077,839 32% United States 549,159 30% United States 528,680 34%
Ireland 422,939 13% Ireland 340,790 19% France 131,552 8%
Luxembourg 184,953 6% Luxembourg 144,231 8% Germany 101,282 7%
France 171,948 5% Japan 81,081 5% Int’l Orgs 96,055 6%
Germany 146,051 4% China, P.R Mainland 49,373 3% Ireland 82,148 5%

Investment Climate Statements
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