Australia

Executive Summary

Australia is generally welcoming to foreign investment as such investment is widely considered to be an essential contributor to Australia’s economic growth and productivity.  The United States is the dominant source of foreign direct investment (FDI) in Australia. According to the U.S. Bureau of Economic Analysis, the stock of U.S. FDI totaled USD168 billion in January 2018.

Australia runs an annual current-account deficit and, therefore, is dependent on foreign investment, both FDI and portfolio investment.  Mining and resources attracts, by far, the largest share of FDI from the United States. Real estate investment is the second largest recipient of FDI from the United States, although remains much smaller than mining investment in absolute terms.  The Australia-United States Free Trade Agreement 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 types of investment through its Foreign Investment Review Board review process.  Various changes to the foreign investment rules have been made in recent years, primarily aimed at strengthening national security. The Security of Critical Infrastructure Act 2018 was introduced in July 2018, providing information-collection powers to the Critical Infrastructure Centre and requiring the establishment of a register of critical infrastructure assets.  This will facilitate the Centre playing a greater role in advising the Treasurer on particular cases of foreign investment where national security concerns are present. The related Telecommunications Sector Security Reforms came into force in September 2018 to manage national security concerns surrounding investment in the telecommunications sector.

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.  This trend will likely continue in 2019 as both of the main political parties are considering options to further strengthen anti-avoidance measures focused on multi-national corporations.

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. Finally, Australia’s business environment is generally conducive to foreign companies operating in the country, and it ranks 18th overall in the World Bank’s Ease of Doing Business Index.

Table 1

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 13 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report “Ease of Doing Business” 2018 18 of 190 https://www.doingbusiness.org/rankings
Global Innovation Index 2018 20 of 126 https://www.globalinnovationindex.org/content/page/data-analysis
U.S. FDI in partner country ($M USD, stock positions) 2017 USD 169 http://www.bea.gov/international/factsheet/
World Bank GNI per capita 2017 USD 51,360 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 certain 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 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 AUD15 million (USD11 million) is 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 1.154 billion (USD808 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.

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 last WTO review of Australia’s trade policies and practices took place in April 2015, and can be found at https://www.wto.org/english/tratop_e/tpr_e/tp412_e.htm  .  Australia is not scheduled for a WTO trade policy review in 2019.

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 Commonwealth Department of Industry, Innovation and Science’s business.gov.au web site 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, the ASIC website provides information and guides on starting and managing a business or company.

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 2.5 days, and Australia ranks 7th globally on this indicator.

Outward Investment

Australia generally looks positively towards outward investment as a ways to grow its economy.  There are no restrictions on domestic investors. Austrade, the Export Finance and Insurance Corporation (Efic), and various other government agencies offer assistance to Australian businesses looking to invest abroad, and some sector-specific export and investment programs exist.

Austria

Executive Summary

Austria has a well-developed market economy that welcomes foreign direct investment, particularly in technology and R&D.  The country benefits from a skilled labor force, and a high standard of living, with its capital Vienna consistently placing at the top of global quality-of-life rankings.  

With more than 50 percent of its GDP attributed to exports, Austria’s economy is closely tied to other EU economies, especially Germany’s, its largest trading partner, followed by the U.S.  The economy features a large service sector and an advanced industrial sector specialized in high-quality component parts, especially for vehicles. The agricultural sector is small but highly developed.

Austria’s economy grew from 2017-18.  GDP increased by 2.7 percent in 2018, leading to a decrease in the unemployment rate to 4.8 percent. However, positive momentum has slowed since then, with GDP growth forecast to reach only 1.7 percent in 2019 and 1.6 percent in 2020.

The country’s location between Western European industrialized nations and growth markets in Central, Eastern, and Southeastern Europe (CESEE) has led to a high degree of economic, social, and political integration with fellow European Union (EU) member states and the CESEE.

Some 300 U.S. companies have investments in Austria, and many have expanded their original investment over time.  U.S. Foreign Direct Investment into Austria totaled approximately EUR 14.5 billion (USD 16.5 billion) in 2018, according to the Austrian National Bank, and U.S. companies support over 20,000 jobs in Austria.  Altogether, Austria offers a stable and attractive climate for foreign investors.

The most positive aspects of Austria’s investment climate include:

  • Relatively high political stability;
  • Harmonious labor-management relations and low incidence of labor unrest;
  • Highly skilled labor across sectors;
  • High levels of productivity and international competitiveness;
  • Excellent quality of life through high levels of personal security and high-quality health, telecommunications, and energy infrastructure.

Negative aspects of Austria’s investment climate include:

  • A high overall tax burden;
  • A large public sector and a complex regulatory system with extensive bureaucracy;
  • Low-to-moderate innovation dynamics.

Key sectors that have historically attracted significant investment in Austria:

  • Automotive;
  • Pharmaceuticals;
  • Financial.

Key issue to watch:

  • Austria’s government has announced a comprehensive tax-reform plan for the coming years. This plan includes lowering the corporate tax rate from 25 percent to around 20 percent in 2022, reducing personal income tax in 2021, and increasing the permissible amount of hours worked per week from 50 to 60.  The government is hoping to increase Austria’s attractiveness as a business location by reducing bureaucracy, reducing labor market protections and lowering non-wage labor costs.

Table 1: Key Metrics and Rankings

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 14 of 175 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2019 26 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2018 21 of 126 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, stock positions) 2017 $7,800 http://www.bea.gov/international/factsheet/
World Bank GNI per capita 2018 $45,440 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The Austrian government welcomes foreign direct investment, particularly when such investments have the potential to create new jobs, support advanced technology fields, promote capital-intensive industries, and enhance links to research and development.

There are no specific legal, practical or market access restrictions on foreign investment.  American investors have not complained of discriminatory laws against foreign investors. Corporate taxes are relatively low (25 percent flat tax), and the government plans to reduce them further in a tax reform to be implemented by 2022. U.S. citizens and investors have reported that it is difficult to establish and maintain banking services since the U.S.-Austria Foreign Account Tax Compliance Act (FATCA) Agreement went into force in 2014, as some Austrian banks have been reluctant to take on this reporting burden.

Potential investors should also factor in Austria’s lengthy environmental impact assessments in their investment decision-making.  The requirement that over 50 percent of energy providers must be publicly-owned creates a potential additional burden for investments in the energy sector.  Strict liability and co-existence regulations in the agriculture sector restrict research and virtually outlaw the cultivation, marketing, or distribution of biotechnology crops.

Austria’s national investment promotion company, the Austrian Business Agency (ABA), is the first point of contact for foreign companies aiming to establish their own business in Austria.  It provides comprehensive information about Austria as a business location, identifies suitable sites for greenfield investments, and consults in setting up a company. ABA provides its services free of charge.

Austrian agencies do not press investors to keep investments in the country, but the Federal Economic Chamber (WKO), and the American Chamber of Commerce in Austria (Amcham) carry out annual polls among their members to measure their satisfaction with the business climate, thus providing early warning to the government of problems investors have identified.

Limits on Foreign Control and Right to Private Ownership and Establishment

There is no principal limitation on establishing and owning a business in Austria. A local managing director must be appointed to any newly-started enterprise.  For non-EU citizens to establish and own a business, the Austrian Foreigner’s Law mandates a residence permit that includes the right to run a business. Many Austrian trades are regulated, and the right to run a business in many trades sectors is only granted when certain preconditions are met, such as certificates of competence, and recognition of foreign education.  There are no limitations on ownership of private businesses. Austria maintains an investment screening process for takeovers of 25 percent or more in the sectors of national security and public services such as energy and water supply, telecommunications, and education services, where the Austrian government retains the right of approval. The screening process has been rarely used since its introduction in 2012, but could pose a de facto barrier, particularly in the energy sector. In April 2019, the EU Regulation on establishing a framework for the screening of foreign direct investments into the Union entered into force.  It creates a cooperation mechanism through which EU countries and the EU Commission will exchange information and raise concerns related to specific investments which could potentially threaten the security of EU countries.

Other Investment Policy Reviews

Not applicable.

Business Facilitation

While the World Bank ranks Austria as the 26th best country in 2019 with regard to “ease of doing business” (www.doingbusiness.org), starting a business takes time and requires many procedural steps (Austria ranked 118 in this category in 2019).

In order to register a new company, or open a subsidiary in Austria, a company must first be listed on the Austrian Companies’ Register at a local court.  The next step is to seek confirmation of registration from the Austrian Federal Economic Chamber (WKO) establishing that the company is really a new business.  The investor must then notarize the “declaration of establishment,” deposit a minimum capital requirement with an Austrian bank, register with the tax office, register with the district trade authority, register employees for social security, and register with the municipality where the business will be located.  Finally, membership in the WKO is mandatory for all businesses in Austria.

For companies with sole proprietorship, it is possible under certain conditions to use an online registration process via government websites in German to either found or register a company: https://www.usp.gv.at/Portal.Node/usp/public/content/gruendung/egruendung/269403.html  or www.gisa.gv.at/online-gewerbeanmeldung . It is advisable to seek information from ABA or the WKO before applying to register a firm.

The website of the ABA contains further details and contact information, and is intended to serve as a first point of contact for foreign investors in Austria: https://investinaustria.at/en/starting-business/ .

According to the World Bank, the average time to set up a company in Austria is 21 days, well above the EU average of 12.5 days.

Outward Investment

The Austrian government encourages outward investment.  There is no special focus on specific countries, but the United States is seen as an attractive target country given the U.S. position as the second biggest market for Austrian exports.  Advantage Austria, the “Austrian Foreign Trade Service” is a special section of the WKO that promotes Austrian exports and also supports Austrian companies establishing an overseas presence. Advantage Austria operates six offices in the United States in Washington, DC, New York, Chicago, Atlanta, Los Angeles, and San Francisco.  The Ministry for Digital and Economic Affairs and the WKO run a joint program called “Go International,” providing services to Austrian companies that are considering investing for the first time in foreign countries. The program provides grants in form of contributions to “market access costs,” and also provides “soft subsidies,” such as counselling, legal advice, and marketing support.

Belgium

Executive Summary

The Belgian economy is expected to grow 1.3 percent in 2019, primarily driven by domestic demand and net exports. Private consumption growth was slower than in surrounding countries, mainly caused by higher inflation. Low energy prices and interest rates, and a favorable euro/dollar exchange rate continue to stimulate economic growth and fuel exports, especially given Belgium’s unique position as a logistical hub and gateway to Europe.  Since June 2015, the Belgian government has undertaken a series of measures to reduce the tax burden on labor and to increase Belgium’s economic competitiveness and attractiveness to foreign investment. The July 2017 decision to lower the corporate tax rate from 35 to 25 percent is expected to make a further improve the investment climate.

Belgium boasts an open market well connected to the major economies of the world. As a logistical gateway to Europe, host to the EU institutions and a central location closely tied to the major European economies (Germany in particular), Belgium is an attractive market and location for U.S. investors. Foreign and domestic investors are expected to take advantage of improved credit opportunities and increased consumer and business confidence. Finally, Belgium is a highly-developed, long-time economic partner of the United States that benefits from an extremely well-educated workforce, world-renowned research centers, and the infrastructure to support a broad range of economic activities. Brexit, however, creates uncertainties and it is hard to predict what the impact will be on the Belgian economy.

To fully realize Belgium’s employment potential, it will be critical to address the fragmentation of the labor market. Jobs growth accelerated in 2017 and 2018, driven by the cyclical recovery and the positive impact of past reforms. Older workers account for much of the employment increase, whereas progress has been more limited in integrating vulnerable groups—especially immigrants born outside the EU, the young, and the low-skilled. Moreover, large regional disparities in unemployment rates persist, and there is a significant skills mismatch in several key sectors.

Belgium has a dynamic economy and continues to attract significant levels of investment in chemicals, petrochemicals, plastic and composites; environmental technologies; food processing and packaging; health technologies; information and communication; and textiles, apparel and sporting goods, among other sectors.

Table 1: Key Metrics and Rankings

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 17 of 180 https://www.transparency.org/country/BEL
World Bank’s Doing Business Report 2018 45 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2018 25 of 126 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, stock positions) 2017 $54,954 http://www.bea.gov/international/factsheet/ 
World Bank GNI per capita 2017 USD 41.790 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Belgium has traditionally maintained an open economy that is highly dependent on international trade.  Since WWII, foreign investment has played a vital role in the Belgian economy, providing technology and employment.  It is a key economic policy of the government to make Belgium a more attractive destination to foreign investment. Though the federal government regulates important elements of foreign direct investment such as salaries and labor conditions, it is primarily the responsibility of the regions to attract FDI.  Flanders Investment and Trade (FIT), Wallonia Foreign Trade and Investment Agency (AWEX), and Brussels Invest and Export are the three investment promotion agencies who seek to attract FDI to Flanders, Wallonia and the Brussels Capital Region, respectively.

The regional investment promotion agencies have focused their industrial strategy on key sectors including aerospace and defense; agribusiness, automotive and ground transportation; architecture and engineering; chemicals, petrochemicals, plastics and composites; environmental technologies; food processing and packaging; health technologies; information and communication; and services.

Foreign corporations account for about one-third of the top 3,000 corporations in Belgium.  According to Graydon, a Belgian company specializing in commercial and marketing information, there are currently more than one million companies registered in Belgium. The federal government and the regions do not have specific policies that prioritize investment retention or maintain an ongoing dialogue with investors.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are currently no limits on foreign ownership or control in Belgium.  There are no distinctions between Belgian and foreign companies when establishing or owning a business or setting up a remunerative activity.

Other Investment Policy Reviews

Over the past 3 years, the country has not been the subject of third-party investment policy reviews (IPRs) through a multilateral organization such as the OECD, WTO, or UNCTAD.

Business Facilitation

In order to set up a business in Belgium, one must:

  1. Deposit at least 20 percent of the initial capital with a Belgian credit institution and obtain a standard certification confirming that the amount is held in a blocked capital account;
  2. Deposit a financial plan with a notary, sign the deed of incorporation and the by-laws in the presence of a notary, who authenticates the documents and registers the deed of incorporation.  The authentication act must be drawn up in either French, Dutch or German (Belgium’s three official languages);
  3. Register with one of the Registers of legal entities, VAT and social security at a centralized company docket and obtain a company number.

In most cases, the business registration process can be completed within one week.

https://www.business.belgium.be/en/managing_your_business/setting_up_your_business  

http://procedures.business.belgium.be/en/procedures-iframe/?_ga=2.174982369.210217559.1555582522-1537979373.1536327711  

Based on the number of employees, the projected annual turnover and the shareholder class, a company will qualify as a small or medium-sized enterprise (SME) according to the meaning of the Promotion of Independent Enterprise Act of February 10, 1998.  For a small or medium-sized enterprise, registration will only be possible once a certificate of competence has been obtained. The person in charge of the daily management of the company must prove his or her knowledge of business management, with diplomas and/or practical experience. In the Global Enterprise Register, Belgium currently scores 7 out of 10 for ease of setting up a limited liability company.

Business facilitation agencies provide for equitable treatment of women and underrepresented minorities in the economy.

The three Belgian regions each have their own investment promotion agency, whose services are available to all foreign investors.

Outward Investment

The Belgian governments do not promote outward investment as such.  There are also no restrictions to certain countries or sectors, other than those where Belgium applies UN resolutions.

Canada

Executive Summary

Canada and the United States (U.S.) have one of the largest and most comprehensive investment relationships in the world. U.S. investors are attracted to Canada’s strong economic fundamentals, its proximity to the U.S. market, its highly skilled work force, and abundant resources. As of 2017, the U.S. had a stock of USD391 billion of foreign direct investment (FDI) in Canada.  U.S. FDI stock in Canada represents 49 percent of Canada’s total investment. Canada’s FDI stock in the U.S. totaled USD523 billion.

U.S. FDI in Canada is subject to the provisions of the Investment Canada Act (ICA), the World Trade Organization (WTO), and the 1994 North American Free Trade Agreement (NAFTA). Chapter 11 of NAFTA contains provisions such as “national treatment” designed to protect cross-border investors and facilitate the settlement of investment disputes.  NAFTA does not exempt U.S. investors from review under the ICA, which has guided foreign investment policy in Canada since its implementation in 1985. The ICA provides for review of large acquisitions by non-Canadian investors and includes the requirement that these investments be of “net benefit” to Canada. The ICA also has provisions for the review of investments on national security grounds.  The Canadian government has blocked investments on only a few occasions.

Canada, the United States, and Mexico completed negotiations for a modernized and rebalanced NAFTA agreement on September 30, 2018.  The new United States-Mexico-Canada Agreement (USMCA) was signed by all three countries November 30, 2018 and will come into force after the completion of the domestic ratification processes by each individual member of the agreement.  The agreement updates NAFTA’s provisions with respect to investment protection rules and investor-state dispute settlement procedures to better reflect U.S. priorities related to foreign investment. All Parties to the agreement have agreed to treat investors and investments of the other Parties in accordance with the highest international standards, and consistent with U.S. law and practice, while safeguarding each Party’s sovereignty and promoting domestic investment.

Although foreign investment is a key component of Canada’s economic development, restrictions remain in key sectors. Under the Telecommunications Act, Canada maintains a 46.7 percent limit on foreign ownership of voting shares for a Canadian telecom services provider. However, a 2012 amendment exempts foreign telecom carriers with less than 10 percent market share from ownership restrictions in an attempt to increase competition in the sector. In May 2018, Canada eased its foreign ownership restrictions in the aviation sector, which increased foreign ownership limits of Canadian commercial airlines to 49 percent from 25 percent. Investment in cultural industries also carries restrictions, including a provision under the ICA that foreign investment in book publishing and distribution must be compatible with Canada’s national cultural policies and be of “net benefit” to Canada. Canada is open to investment in the financial sector, but barriers remain in retail banking.

Table 1

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 9 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report “Ease of Doing Business” 2019 22 of 190 doingbusiness.org/rankings
Global Innovation Index 2018 18 of 128 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in Partner Country ($M USD, stock positions) 2017 $391,208 http://www.bea.gov/international/factsheet/
World Bank GNI per capita 2017 $47,270 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Canada and the United States (U.S.) have one of the largest and most comprehensive investment relationships in the world. U.S. investors are attracted to Canada’s strong economic fundamentals, its proximity to the U.S. market, its highly skilled work force, and abundant resources. As of 2017, the U.S. had a stock of USD391 billion of foreign direct investment (FDI) in Canada.  U.S. FDI stock in Canada represents 49 percent of Canada’s total investment. Canada’s FDI stock in the U.S. totaled USD523 billion.

U.S. FDI in Canada is subject to the provisions of the Investment Canada Act (ICA), the World Trade Organization (WTO), and the 1994 North American Free Trade Agreement (NAFTA). Chapter 11 of NAFTA contains provisions such as “national treatment” designed to protect cross-border investors and facilitate the settlement of investment disputes.  NAFTA does not exempt U.S. investors from review under the ICA, which has guided foreign investment policy in Canada since its implementation in 1985. The ICA provides for review of large acquisitions by non-Canadian investors and includes the requirement that these investments be of “net benefit” to Canada. The ICA also has provisions for the review of investments on national security grounds.  The Canadian government has blocked investments on only a few occasions.

Canada, the United States, and Mexico completed negotiations for a modernized and rebalanced NAFTA agreement on September 30, 2018.  The new United States-Mexico-Canada Agreement (USMCA) was signed by all three countries November 30, 2018 and will come into force after the completion of the domestic ratification processes by each individual member of the agreement.  The agreement updates NAFTA’s provisions with respect to investment protection rules and investor-state dispute settlement procedures to better reflect U.S. priorities related to foreign investment. All Parties to the agreement have agreed to treat investors and investments of the other Parties in accordance with the highest international standards, and consistent with U.S. law and practice, while safeguarding each Party’s sovereignty and promoting domestic investment.

Although foreign investment is a key component of Canada’s economic development, restrictions remain in key sectors. Under the Telecommunications Act, Canada maintains a 46.7 percent limit on foreign ownership of voting shares for a Canadian telecom services provider. However, a 2012 amendment exempts foreign telecom carriers with less than 10 percent market share from ownership restrictions in an attempt to increase competition in the sector. In May 2018, Canada eased its foreign ownership restrictions in the aviation sector, which increased foreign ownership limits of Canadian commercial airlines to 49 percent from 25 percent. Investment in cultural industries also carries restrictions, including a provision under the ICA that foreign investment in book publishing and distribution must be compatible with Canada’s national cultural policies and be of “net benefit” to Canada. Canada is open to investment in the financial sector, but barriers remain in retail banking.

Table 1

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 9 of 180 http://www.transparency.org/research/cpi/overview  
World Bank’s Doing Business Report “Ease of Doing Business” 2019 22 of 190 doingbusiness.org/rankings  
Global Innovation Index 2018 18 of 128 https://www.globalinnovationindex.org/analysis-indicator  
U.S. FDI in Partner Country ($M USD, stock positions) 2017 $391,208 http://www.bea.gov/international/factsheet/  
World Bank GNI per capita 2017 $47,270 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD  

 

Denmark

Executive Summary

Denmark is regarded by many independent observers as one the world’s most attractive business environments and is characterized by political, economic, and regulatory stability. It is a member of the European Union (EU) and Danish legislation and regulations conform to EU standards on virtually all issues. It maintains a fixed exchange rate policy, with the Danish Krone linked closely to the Euro. Denmark is a social welfare state with a thoroughly modern market economy reliant on free trade in goods and services. It is a net exporter of food, fossil fuels, chemicals and wind power, but depends on raw material imports for its manufacturing sector. Within the EU, Denmark is among the strongest supporters of liberal trade policy. Transparency International regularly ranks Denmark as having among the world’s lowest levels of perceived public sector corruption.

The Danish economy is enjoying a solid upswing. GDP growth averaged 2.0 percent annually over the last three years (2016 – 2018) and 2.3 percent 2015 – 2017.  GDP grew 1.4 percent in 2018 but 2.6 percent Q4 2017 – Q4 2018. The Danish Government estimates that growth will continue at 1.7 percent in 2019 and 1.6 percent in 2020. . Employment is at a historical high with a labor force of 2,776,036, and unemployment at 3.7 percent at the start of 2019.  Danish companies are performing well, and their willingness to invest in order to meet market demand is high. With the current low unemployment, the risk of labor bottleneck issues is increasing in certain sectors, mainly construction, where demand for skilled labor outstrips supply. Danish consumers enjoy increased purchasing power due to increased employment, low interest rates, and positive real wage trends. Observers believe the economy is at full capacity and that economic growth will continue in coming years, although as the competition for economic resources intensifies, it will likely become increasingly difficult to maintain growth rates at this level.

Denmark is an open economy, highly reliant on international trade, with exports accounting for about 55 percent of GDP.  Developments in its major trading partners – Germany, Sweden, the United States and the UK – have substantial impact on Danish national accounts. Gross unemployment, a national definition, was 3.7 percent at the start of 2019, and is forecast to remain subdued in coming years. The OECD Harmonized Unemployment Rate was 5.0 percent in February 2019.

Denmark is a major international development assistance donor, having contributed DKK 16.3 billion (USD 2.6 billion) in 2018, with 68 percent of Danish assistance being bilateral and 32 percent multilateral. Denmark is one of six countries meeting the UN requirement of ODA contribution of 0.7 percent of GNI. Danish assistance in 2017 amounted to 0.74 percent of GNI.

The entrepreneurial climate, including female-led entrepreneurship, is strong; Denmark is a relatively large contributor to the World Bank’s Women Entrepreneurship Finance Facility with a USD 10.6 million contribution.

Underlying macroeconomic conditions in Denmark are sound, with an attractive investment climate. Denmark is strategically situated to link continental Europe with the Nordic and Baltic countries. Transport and communications infrastructures are efficient. Denmark is among world leaders in high-tech industries such as information technology, life sciences, clean energy technologies, and shipping.

Note:  Separate reports on the investment climates for Greenland and for the Faroe Islands can be found at the end of this report.

Table 1: Key Metrics and Rankings

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 1 of 180 http://www.transparency.org/research/cpi/overview 
World Bank’s Doing Business Report 2019 3 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2018 8 of 126 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, stock positions) 2017 $13,873 http://www.bea.gov/international/factsheet/ 
World Bank GNI per capita 2017 $55,220 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

A small country with an open economy, Denmark is highly dependent on foreign trade, with exports comprising the largest component (55 percent) of GDP. Danish trade and investment policies are liberal. In general, investment policies are forward-looking, aimed at fostering and developing businesses, especially in high-growth sectors. The Economist Intelligence Unit (EIU) ranks Denmark second globally and first regionally on its business environment ranking. The EIU characterizes Denmark’s business environment as among the most attractive in the world, reflecting a sound macroeconomic framework, excellent infrastructure, low bureaucracy and a friendly policy towards private enterprise and competition. Principal concerns include a high personal tax burden, low productivity growth and uncertainties relating to Brexit, as the UK is a close trading partner that shares many of Denmark’s policy goals within the EU. Overall, however, operating conditions for companies should remain broadly favorable. Denmark scores top marks in various categories, including the political and institutional environment, macroeconomic stability, foreign investment policy, private enterprise policy, financing, and infrastructure.

As of January 2019, the EIU rated Denmark an “AA” country on its Country Risk Service, with a stable outlook. Sovereign risk rated “AA,” and political risk “AAA.” Denmark ranked tenth out of 140 on the World Economic Forum’s 2018 Global Competitiveness Report, third on the World Bank’s 2019 Doing Business ranking, and fifth on the EIU 2018 Democracy Index. “The Big Three” credit rating agencies Standard & Poor’s, Moody’s, and Fitch Group all score Denmark AAA.

“Invest in Denmark,” an agency of the Ministry of Foreign Affairs and part of the Danish Trade Council, provides detailed information to potential investors. The website for the agency is www.investindk.com  .

Corporate tax records of all companies, associations and foundations, which pay taxes in Denmark, were made public beginning in December 2012 and are updated annually. The corporate tax rate is 22 percent.

Limits on Foreign Control and Right to Private Ownership and Establishment

As an EU member state, Denmark is bound by EU rules on free movement of goods, capital, persons and certain services. Denmark welcomes foreign investment and does not distinguish between EU and other investors. There are no additional permits required by foreign investors, nor any reported bias against foreign companies from municipal or national authorities.

Denmark’s central and regional governments actively encourage foreign investment on a national-treatment basis, with relatively few limits on foreign control. A foreign or domestic private entity may freely establish, own, and dispose of a business enterprise in Denmark. The capital requirement for establishing a corporation (A/S) or Limited Partnership (P/S) is DKK 400,000 (approx. USD  63,317) and for establishing a private limited liability company (ApS) DKK 40,000 (approx. USD 6,331.

As of 15 April, it is no longer possible to set up an “Entrepreneurial Company” (IVS). The company type was intended to allow entrepreneurs a cheap and simple way to incorporate with limited liability, with a starting capital of only DKK1 (USD 0.16). Due to repeated instances of fraud and unintended use of the IVS, it has been abolished. Simultaneously, the capital requirements to set up a Private Limited Company were lowered, bringing Denmark more in line with other Scandinavian countries, and to ensure it will continue to be cheap and simple to establish limited liability companies in Denmark. Currently there are approx. 45,000 IVS in existence. These companies have a deadline of 2 years to re-register as Private Limited Companies (ApS), with a minimum capital of DKK 40,000. If they fail to re-register, they will be forcibly dissolved.  No restrictions apply regarding the residency of directors and managers.

Since October 2004, any private entity may establish a European public limited company (SE company) in Denmark. The legal framework of an SE company is subject to Danish corporate law, but it is possible to change the nationality of the company without liquidation and re-founding. An SE company must be registered at the Danish Business Authority if the official address of the company is in Denmark. The minimum capital requirement is EUR 120,000 (approx. USD 135,000).

Danish professional certification and/or local Danish experience are required to provide professional services in Denmark. In some instances, Denmark may accept an equivalent professional certification from other EU or Nordic countries on a reciprocal basis. EU-wide residency requirements apply to the provision of legal and accountancy services.

Ownership restrictions are applied in the following sectors:

  • Hydrocarbon exploration: Requires 20 percent Danish government participation on a “non-carried interest” basis.
  • Defense materials: The law governing foreign ownership of Danish defense companies (L538 of May 26, 2010) stipulates that the Minister of Justice has to approve foreign ownership of more than 40 percent of the equity or more than 20 percent of the voting rights, or if foreign interests gain a controlling share in a defense company doing business in Denmark. This approval is generally granted unless there are security or other foreign policy considerations weighing against approval.
  • Maritime: There are foreign (non-EU resident) ownership requirements on Danish-flagged vessels other than those owned by an enterprise incorporated in Denmark. Ships owned by Danish citizens, Danish partnerships or Danish limited liability companies are eligible for registration in the Danish International Ships Register (DIS). Ships owned by EU or European Economic Area (EEA) entities with a genuine link to Denmark are also eligible for registration, and foreign companies with a significant Danish interest can register a ship in the DIS.
  • Aviation: For an airline to be established in Denmark it must have majority ownership and be effectively controlled by an EU state or a national of an EU state, unless otherwise provided for through an international agreement to which the EU is a signatory.
  • Securities Trading: Non-resident financial institutions may engage in securities trading on the Copenhagen Stock Exchange only through subsidiaries incorporated in Denmark.
  • Real Estate: Purchases of designated vacation properties, or ‘summer houses’, are restricted to citizens of Denmark. Such properties cannot be inhabited year-round, and are located in municipally designated ‘summer house area’ zones, typically near coastlines. EU citizens and companies from EU member states can purchase any type of real estate, except vacation properties, without prior authorization from the authorities. Companies and individuals from non-EU countries that have been present/resident in Denmark for at least five years in total and are currently resident in Denmark can also purchase real estate, except vacation properties, without prior authorization. Non-EU companies or individuals that do not meet these requirements can only purchase real estate with the permission of the Danish Ministry of Justice. Permission is freely given to people with a Danish residency permit, except with regard to purchases of vacation properties.

Other Investment Policy Reviews

The most recent UNCTAD review of Denmark occurred in March 2013, available here: http://unctad.org/en/PublicationsLibrary/webdiaeia2013d2_en.pdf . There is no specific mention of Denmark in the latest WTO Trade Policy Review of the European Union, revised in October 2017.

An EU Commission Staff Working Paper on the investment environment in Denmark is available here: https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/eu-economic-governance-monitoring-prevention-correction/european-semester/european-semester-your-country/denmark_en   while a 2015 private sector investment and taxation review by Deloitte can be found here: http://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-denmarkguide-2015.pdf .

Denmark ranked first out of 175 in Transparency International’s 2018 Corruption Perceptions Index. It received a ranking of 3 out of 190 for “Ease of Doing Business” in the World Bank’s 2019 Doing Business Report, placing it first in Europe. In the World Economic Forum’s Global Competitiveness report for 2018, Denmark was ranked 10 out of 140 countries.

The World Intellectual Property Organization’s (WIPO) Global Innovation Index ranked Denmark 8 out of 126 in 2018

Business Facilitation

The Danish Business Authority (DBA) is responsible for business registrations in Denmark. As a part of the Danish Business Authority, “Business in Denmark” provides information on relevant Danish rules and online registrations to foreign companies in English. The Danish business registration website is www.virk.dk  . It is the main digital tool for licensing and registering companies in Denmark and offers a business registration processes that is clear and complete.

Registration of sole proprietorships and partnerships is free of charge, while there is a fee for registration of other business types: DKK 670 (USD 106) if the registration is done digitally and DKK 2150 (USD 340) if the registration form is sent by e-mail or post.

The process for establishing a new business is distinct from that of registration. The Ministry of Foreign Affairs “Invest in Denmark” program provides a step-by-step guide to establishing a business, along with other relevant resources which can be found here: www.investindk.com/Downloads  .The services are free of charge and available to all investors, regardless of country of origin.

Processing time for establishing a new business varies depending on the chosen business entity. Establishing a Danish Limited Liability Company (Anpartsselskab – ApS), for example, generally takes four to six weeks for a standard application. Establishing a sole proprietorship (Enkeltmandsvirksomhed) is simpler, with processing generally taking about one week.

Those providing temporary services in Denmark must provide their company details to the Registry of Foreign Service Providers (RUT). The website (www.virk.dk  ) provides English guidance on how to register a service with RUT. A digital employee’s signature, referred to as a NemID, is required for those wishing to register a foreign company in Denmark. A CPR number (a 10-digit personal identification number) and valid ID are needed to obtain a NemID, though not Danish citizenship.

In the Danish Financial Statements Act no. 1580 of 10 January 2015 section 7(2), small enterprises are defined as enterprises with fewer than 50 employees and whose annual turnover does not exceed DKK 89 million (approx. USD 13.6 million) or annual balance sheet total does not exceed DKK 44 million (approx. USD 6.7 million). Medium-sized enterprises are defined as enterprises with fewer than 250 employees and either have an annual turnover that does not exceed DKK 313 million (approx. USD 47.5 million) or annual balance sheet total does not exceed DKK 156 million (approx. USD 23.7 million).

Outward Investment

Danish companies are not restricted from investing abroad, and Danish outward investment has exceeded inward investments for more than a decade.

Finland

Executive Summary

Finland is a Nordic country located north of the Baltic States bordering Russia, Sweden, and Norway, possessing a stable and modern economy, including a world-class investment climate.  It is a member of the European Union and part of the euro area. The country has a highly skilled, educated and multilingual labor force, with strong expertise in Information Communications Technology (ICT), shipbuilding, forestry, and renewable energy.  

Key challenges for foreign investors include a rigid labor market and bureaucratic red tape in starting certain businesses, although in June 2016 the Government enacted a Competitiveness Pact that aims to reduce labor costs, increase hours worked, and introduce more flexibility into the wage bargaining system.  An aging population and the shrinking working-age population are the most pressing issues that could limit growth opportunities for Finland.

Finland’s center-right government, headed by Prime Minister Juha Sipila, resigned in early March after failing to push through an overhaul of social and health care programs, the reform package known as SOTE.  The Sipila government intended the package to address the needs of an aging population while improving efficiency and reducing public spending by EUR 3 billion, about USD 3.4 billion, by 2029.

At the end of 2017, the total stock of FDI in Finland totaled USD 83.0 billion, of which equity accounted for USD 78.9 billion and the value of debt capital for USD 4.1 billion.  By country, Sweden contributes the biggest stock of foreign direct investment in Finland USD 29.3 billion (35 percent), followed by the Netherlands USD 16.5 billion (20 percent), Luxembourg USD 14.1 billion (17 percent), and Denmark USD 6.3 billion (8 percent).  According to a joint research conducted by Rhodium Group and Mercator Institute for China, investments from China increased approximately USD 282 million in 2017 and USD 236 million in 2018, totaling USD 8.6 billion.

The GOF has taken steps to attract additional investment by cutting the corporate tax rate from 24.5 percent to 20 percent in 2014, simplifying the residence permit system for foreign experts, and creating a network called Business Finland that promotes foreign investment and the country’s international image.  This one-stop shop brings together the services of a variety of state-funded agencies. Both foreign and domestic companies can benefit from GOF investment incentives, research and development support, and innovation systems.

The U.S. Embassy in Helsinki, through the Foreign Commercial Service and Political/Economic Sections, is a strong partner for U.S. businesses that wish to connect to the Finnish market.  Finnish companies are very active in the fields of information technology, energy, biotech, and clean technology, sectors that the government has selected – along with Arctic expertise – as priorities in their innovation policy.  With excellent transportation links to the Nordic-Baltic region and Russia, Finland can be a good hub for establishing regional operations.

The Finnish MyData initiative is a relatively new human-centric system that is designed to ensure that access to personal data remains under the control of the individual instead of organizations (such as businesses or the government, among others).  This initiative may impact foreign digital service companies, depending on how it is ultimately developed and implemented.

On January 1, 2018, Finpro, the Finnish trade promotion organization, and Tekes, the Finnish Funding Agency for Innovation, united to become Business Finland, which is now the single operator helping Finnish SMEs go international, encouraging foreign direct investment in Finland, and promoting tourism.  Business Finland has around 600 staff, nearly 40 offices abroad, and operates 20 regional offices in Finland. Business Finland is part of the Team Finland network and its website is https://www.businessfinland.fi/en/do-business-with-finland/home/.  Invest in Finland is the official investment promotion agency, and is part of Business Finland.

Table 1: Key Metrics and Rankings

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 3 of 180 https://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2019 17 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2018 7 of 126 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, stock positions) 2017 $3,318 https://apps.bea.gov/international/factsheet/factsheet.cfm?Area=306
World Bank GNI per capita 2017 $44,580 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The Finnish government is open to foreign direct investment.  There are no general regulatory limitations relating to acquisitions.  A mixture of domestic and EU competition rules govern mergers and acquisitions.  Finland does not preclude foreign investment, but some tax policies may make it unattractive to investors.  Finnish tax authorities treat the movement of ownership of shares in a Finnish company into a foreign company as a taxable event, though Finland complies with EU directives that require it to allow such transactions based in other EU member states without taxing them.

Finland does not grant foreign-owned firms any special treatment like tax holidays or other subsidies that are not available to other firms.  Instead, Finland relies on policies that seek to offer both domestic and international firms better operating conditions, an educated labor force, and well-functioning infrastructure.  Companies benefit from preferential trade arrangements through Finland’s membership in the EU and World Trade Organization (WTO), in addition to the protection offered by Finland’s bilateral investment treaties with sixty-seven countries.  The corporate income tax rate is 20 percent.

On January 1, 2018, Finpro, the Finnish trade promotion organization, and Tekes, the Finnish Funding Agency for Innovation, united to become Business Finland.  Business Finland is now the single operator helping Finnish SMEs go international, encouraging foreign direct investment in Finland, and promoting tourism. Business Finland supports the Government’s objectives to spread the Finnish innovation system and double SME export volumes by 2020.  Business Finland has around 600 staff, nearly 40 offices abroad, and operates 20 regional offices in Finland. Business Finland is part of the Team Finland network and its website is https://www.businessfinland.fi/en/do-business-with-finland/home/  .  Invest in Finland is the official investment promotion agency, and is part of Business Finland.

Limits on Foreign Control and Right to Private Ownership and Establishment

The Regulation of the European Parliament and the Council on establishing a framework for the national security screening of high risk foreign investments into the Union entered into force on April 10, 2019.  At the moment, 14 Member States, including Finland, have national screening systems in place. Although there are differences in their form and scope, they all aim to maintain security and public order at the national level.  Numerous Member States are currently updating their screening systems or adopting new systems.

The law that governs foreign investments is the Act on the Monitoring of Foreign Corporate Acquisitions in Finland (172/2012).  The Ministry of Employment and the Economy (TEM) monitors and confirms foreign corporate acquisitions. TEM decides whether an acquisition conflicts with “vital national interests” including securing national defense, as well as safeguarding public order and security.  If TEM finds that a key national interest is jeopardized, it must refer the matter to the Council of State, which may refuse to approve the acquisition.

In the civilian sector, TEM primarily monitors transactions related to Finnish enterprises considered critical to maintaining functions fundamental to society, such as energy, communications, or food supply.  Monitoring only applies to foreign owners domiciled outside the EU and European Free Trade Association (EFTA). More information is at https://www.finlex.fi/fi/laki/alkup/2012/20120172   (Available only in Finnish and Swedish).

For defense acquisitions, monitoring applies to all foreign owners, who must apply for prior approval.  “Defense” includes all entities that supply or have supplied goods or services to the Finnish Ministry of Defense, the Finnish Defense Forces, the Finnish Border Guard, as well as entities dealing in dual-use goods.  The substantive elements in evaluating the application are identical to those applied to other corporate acquisitions.

On February 26, 2019, the Finnish Parliament approved a law (HE 253/2018) that requires non-EU/ETA foreign individuals or entities to receive Defense Ministry permission before they purchase land in Finland.  Even companies registered in Finland, but whose decision-making bodies are at least of one-tenth non-EU/ETA origin will have to seek a permit. The law, which is set to take effect in 2020, states that non-EU/ETA property purchasers can still buy residential housing and condominiums without restrictions.

Right to private ownership

Private ownership is normal in Finland, and in most fields of business participation by foreign companies or individuals is unrestricted.  When the government privatizes state-owned enterprises, both private and foreign participation is allowed except in enterprises operating in sectors related to national security.

National Security Screening of FDI

TEM is the authority responsible for monitoring and confirming corporate acquisitions.  Filing an application/notification is voluntary, but the Ministry may request information connected to a foreigner’s corporate acquisition.  The law does not specify a time limit for filing, and a foreign owner may file either before or after the transaction. A transaction is considered approved if the Ministry does not request additional information, initiate further proceedings within six weeks, or refuse to confirm the transaction within three months.  The Ministry cannot render opinions before an application is filed. It is, however, possible for investors to contact the Ministry for guidance beforehand. There is no official template for the notification, but it must include information on the monitored entity’s pre-and post-transaction ownership structure and the acquiring entity’s ownership structure.  If known, an acquiring entity must also state its intentions relating to the monitored entity. There are no fees.

Other Investment Policy Reviews

Finland has been a member of the WTO and the EU since 1995.  The WTO conducted its Trade Policy Review of the European Union (including Finland) in May 2017:  https://www.wto.org/english/tratop_e/tpr_e/tp457_e.htm  .  The Organization for Economic Cooperation and Development (OECD) 2018 economic survey for Finland can be found here:  http://www.oecd.org/eco/surveys/economic-survey-finland.htm  .  The Research Institute of the Finnish Economy (ETLA) regularly publishes reviews of different sectors and factors that may affect investment:  https://www.etla.fi/en/publications/dp1267-en/  .

Business Facilitation

All businesses in Finland must be publicly registered at the Finnish Trade Register.  Businesses must also notify the Register of any changes to registration information and most must submit their financial statements (annual accounts) to the register.  The website is: https://www.prh.fi/en/kaupparekisteri.html  .  The Business Information System BIS (“YTJ” in Finnish, https://www.prh.fi/en/kaupparekisteri/rekisterointipalvelut/ytj.html  ) is an online service enabling investors to start a business or organization, report changes, close down a business, or conduct searches.

Permits, licenses, and notifications required depend on whether the foreign entrepreneur originates from a Nordic country, the European Union, or elsewhere.  The type of company also affects the permits required, which can include the registration of the right to residency, residence permits for an employee or self-employed person, and registration in the Finnish Population Information System.  A foreigner may need a permit from the Finnish Patent and Registration Office to serve as a partner in a partnership or administrative body of a company. For more information: https://www.suomi.fi/company/responsibilities-and-obligations/permits-and-obligations  .  Improvements made in 2016 to the residence permit system for foreign experts, defined as those with special expertise, a university degree, and who earn at least EUR 3,000 gross per month, should help attract experts to Finland.  An online permit application (https://enterfinland.fi/eServices  ) available since November 2016 has made it easier for family members to acquire a residence permit.

The practice of some trades in Finland requires only notification or registration with the authorities.  Other trades, however, require a separate license; companies should confirm requirements with Finnish authorities.  Entrepreneurs must take out pension insurance for their employees, and certain fields obligate additional insurance.  All businesses have a statutory obligation to maintain financial accounts, and, with the exception of small companies, businesses must appoint an external auditor.

Finland is the 17th best country in the world for doing business, according to the World Bank Group’s 2019 Doing Business Index; it ranked 43rd on “Starting a Business”  (http://www.doingbusiness.org/data/exploreeconomies/finland  ).  According to a 2016 study (FDI Attractiveness Scoreboard) by the European Commission, Finland is the most attractive EU country for FDI in terms of the political, regulatory and legal environment.

Gender inequality is low in Finland, which ranks fourth in the 2018 World Economic Forum Global Gender Gap Index.  The employment gap between men and women aged 15-64 is the third lowest in the OECD. According to the World Economic Forum, Finland’s Economic Participation and Opportunity gender gap widened slightly in 2018 due to a decreasing share of women among legislators, senior officials and managers.  However, Finland is currently one of the top-ranked countries that have reached parity in Educational Attainment.

Outward Investment

Business Finland, part of the Team Finland network, helps Finnish SMEs go international, encourages foreign direct investment in Finland, and promotes tourism.  Business Finland has a staff of around 600 persons and nearly 40 offices abroad. It operates 20 regional offices in Finland and focuses on agro technology, cleantech, connectivity, ecommerce, education, ICT and digitalization, mining, and mobility as a service.  While many of Business Finland’s programs are export-oriented, they also seek to offer business and network opportunities. More info here:  https://www.businessfinland.fi/en/do-business-with-finland/home/  .  In 2018, the Ministry of Education and Culture launched the Team Finland Knowledge network to enhance international education and research cooperation and the export of Finnish educational expertise.  North America will be one of the initial focus regions.

France and Monaco

Executive Summary

Please see the end of this report for a summary of the investment climate of Monaco.

France welcomes foreign investment and has a stable business climate that attracts investors from around the world. The French government devotes significant resources to attracting foreign investment through policy incentives, marketing, overseas trade promotion offices, and investor support mechanisms. France has an educated population, first-rate universities, and a talented workforce. It has a modern business culture, sophisticated financial markets, strong intellectual property protections, and innovative business leaders. The country is known for its world-class infrastructure, including high-speed passenger rail, maritime ports, extensive roadway networks, public transportation, and efficient intermodal connections. High-speed (3G/4G) telephony is nearly ubiquitous.

In 2018, France was the ninth largest global market for foreign direct investment (FDI) inflows with a year-on-year increase of 2 percent. In total, there are more than 28,000 foreign-owned companies doing business in France. It is the home to 29 of the world’s 500 largest companies. The World Economic Forum ranked France 17th in terms of global competitiveness in 2018. The United States is the seventh largest foreign investor in France. Around 4,600 U.S. companies in France, of all sizes, employ over 460,000 French citizens.

Following the election of French President Emmanuel Macron in May 2017, the French government implemented significant labor market and tax reforms. By relaxing the rules on companies to hire and fire employees and by offering investment incentives, Macron has buoyed business confidence in France. According to the 2018 American Chamber of Commerce in France – Bain Barometer Survey on the attitudes of U.S. investors in France, 86 percent of American investors surveyed found Macron’s reforms to be substantial and good for improving France’s investment prospects and image in the United States. From mid-November 2018, Macron faced weekly “Yellow Vest” protests over the high cost of living, taxes and social exclusion. Among U.S. investors in France, 62 percent said the current social climate was a “nuisance” for U.S. companies operating in France. Nevertheless, 42 percent of U.S. firms still plan to hire new employees in France over the next two to three years. Investors in technology, in particular, found the climate for development of digital technologies and other innovations to be attractive in France.

France’s GDP growth was 1.5 percent in 2018, down sharply from 2.7 percent in 2017. The budget deficit decreased to 2.6 percent of GDP in 2018. However, the OECD forecasts the budget deficit to reach 3.3 percent of GDP in 2019, due to the cost of the government’s €10.3 billion (USD 11.72 billion) emergency package to address the economic and social needs of middle-class and retired workers in response to the “Yellow Vest” protest movement. France’s public debt ratio, at 98.7 percent of GDP, remains one of the highest in the Euro-Zone.

Key issues to watch in 2019 include: 1) whether President Macron is able to maintain the pace of economic reform, and 2) opportunities and challenges resulting from Brexit.

Table 1: Key Metrics and Rankings

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 21 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2019 32 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2018 16 of 126 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, stock positions) 2017 USD 85,572 http://www.bea.gov/international/factsheet/
World Bank GNI per capita 2017 USD 37,970 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

France welcomes foreign investment. In the current economic climate, the French government sees foreign investment as a means to create additional jobs and stimulate growth. Investment regulations are simple, and a range of financial incentives are available to foreign investors, who report they find France’s skilled and productive labor force, good infrastructure, technology, and central location in Europe attractive. France’s membership in the European Union (EU) and the Eurozone facilitates the efficient movement of people, services, capital, and goods. However, notwithstanding French efforts at economic and tax reform, market liberalization, and attracting foreign investment, perceived disincentives to investing in France include the relatively high tax environment. Labor market fluidity is improving due to labor market reforms introduced by the Macron Administration, but it is still rigid compared to some OECD economies.

Limits on Foreign Control and Right to Private Ownership and Establishment

France is among the least restrictive countries for foreign investment. With a few exceptions in certain specified sectors, there are no statutory limits on foreign ownership of companies. Foreign entities have the right to establish and own business enterprises, and engage in all forms of remunerative activity.

France does maintain a national security review mechanism. French law stipulates that control by acquisition of a domiciled company or subsidiary operating in certain sectors deemed crucial to France’s national interests relating to public order, public security and national defense are subject to prior notification, screening, and approval by the Economy and Finance Minister. Other sectors requiring approval include energy infrastructure; transportation networks; public water supplies; electronic communication networks; public health protection; and installations vital to national security. In 2018, four additional categories – semiconductors, data storage, artificial intelligence and robotics – were added to the list requiring a national security review. For all listed sectors, France can block foreign takeovers of French companies according to the provisions of the Montebourg Decree.

In 2018, the government held equity positions in approximately 81 firms. Most of the positions were relatively small, but did include provisions, which prevent foreign takeover of these firms. Exceptions, where the government had large holdings included, among others, Aeroports de Paris (50.6 percent), Engie, and Renault. In January 2018, the government sold 4.0 percent of its holding in Engie, lowering its stake to 23.64 percent of the energy company. The government also sold 5.0 percent of its stake in Renault, resulting in its ownership of 15.01 percent of the automaker.

Other Investment Policy Reviews

Given the level of development and stability of the investment climate, France has not recently been the subject of international organizations’ investment policy reviews. The OECD Economic Forecast for France (November 2018) can be found here: http://www.oecd.org/economy/france-economic-forecast-summary.htm  .

Business Facilitation

Business France is a government agency established with the purpose to promote new foreign investment, expansion, technology partnerships, and financial investment. Business France provides services to help investors understand regulatory, tax, and employment policies as well as state and local investment incentives, and government support programs. Business France also helps companies find project finance and potential equity acquisitions. Business France recently unveiled a website in English to help prospective businesses considering the French market (https://www.businessfrance.fr/en/invest-in-France  ).

In addition, France’s public investment bank, Bpifrance, assists foreign businesses to find local investors when setting up a subsidiary in France. It also supports foreign startups in France through the government’s French Tech Ticket program, which provides them with funding, a resident’s permit, and incubation facilities. Both business facilitation mechanisms provide for equitable treatment of women and minorities.

President Macron has made innovation one of his priorities with a EUR 10 billion fund that is being financed through privatizations of State-owned enterprises. France’s priority sectors for investment include: aeronautics, agro-foods, digital, nuclear, rail, auto, chemicals and materials, forestry, eco-industries, shipbuilding, health, luxury, and extractive industries. In the near-term, the French government intends to focus on driverless vehicles, batteries, the high-speed train of the future, nano-electronics, renewable energy, and health industries.

Business France and Bpifrance are particularly interested in attracting foreign investment in the tech sector. The French government has developed a brand “French Tech” to promote France as a location for start-ups and high-growth digital companies. In addition to offices in 17 French cities, French Tech offices have been established in cities including New York, San Francisco, Los Angeles, Shanghai, Hong Kong, Vietnam, Moscow, Berlin, and 14 others.

The website Guichet Enterprises (https://www.guichet-entreprises.fr/fr/  ) is designed to be a one-stop website for registering a business. The site is available in both French and English although some fact sheets on regulated industries are only available in French on the website.

Outward Investment

French firms invest more in the United States than in any other country and support approximately 678,000 American jobs. Total French investment in the United States reached USD 275.5 billion in 2018. France was our eighth-largest trading partner with approximately USD 128 billion in bilateral trade in 2018. The business promotion agency Business France also assists French firms with outward investment. There is no restriction on outward investment.

Germany

Executive Summary

As Europe’s largest economy, Germany is a major destination for foreign direct investment (FDI) and has accumulated a vast stock of FDI over time.  Germany is consistently ranked by business consultancies and the UN Conference on Trade and Development (UNCTAD) as one of the most attractive investment destinations based on its reliable infrastructure, highly skilled workforce, positive social climate, stable legal environment, and world-class research and development.

The United States is the leading source of non-European foreign investment in Germany.  Foreign investment in Germany was broadly stable during the period 2013-2016 (the most recent data available) and mainly originated from other European countries, the United States, and Japan.  FDI from emerging economies (particularly China) grew substantially over 2013-2016, albeit from a low level.

German legal, regulatory, and accounting systems can be complex and burdensome, but are generally transparent and consistent with developed-market norms.  Businesses enjoy considerable freedom within a well-regulated environment. Foreign and domestic investors are treated equally when it comes to investment incentives or the establishment and protection of real and intellectual property.  Foreign investors can fully rely on the legal system, which is efficient and sophisticated. At the same time, this system requires investors to closely track their legal obligations. New investors should ensure they have the necessary legal expertise, either in-house or outside counsel, to meet all requirements.

Germany has effective capital markets and relies heavily on its modern banking system.  Majority state-owned enterprises are generally limited to public utilities such as municipal water, energy, and national rail transportation.  The primary objectives of government policy are to create jobs and foster economic growth. Labor unions are powerful and play a generally constructive role in collective bargaining agreements, as well as on companies’ work councils.

German authorities continue efforts to fight money laundering and corruption.  The government supports responsible business conduct and German SMEs are increasingly aware of the need for due diligence.

The German government amended domestic investment screening provisions, effective June 2017, clarifying the scope for review and giving the government more time to conduct reviews, in reaction to an increasing number of acquisitions of German companies by foreign investors, particularly from China.  The amended provisions provide a clearer definition of sectors in which foreign investment can pose a “threat to public order and security,” including operators of critical infrastructure, developers of software to run critical infrastructure, telecommunications operators or companies involved in telecom surveillance, cloud computing network operators and service providers, and telematics companies.  All non-EU entities are now required to notify Federal Ministry for Economic Affairs and Energy in writing of any acquisition of or significant investment in a German company active in these sectors. The new rules also extend the time to assess a cross-sector foreign investment from two to four months, and for investments in sensitive sectors, from one to three months, and introduce the possibility of retroactively initiating assessments for a period of five years after the conclusion of an acquisition.  Indirect acquisitions such as those through a Germany- or EU-based affiliate company are now also explicitly subject to the new rules. In 2018, the government further lowered the threshold for the screening of investments, allowing authorities to screen acquisitions by foreign entities of at least 10 percent of voting rights of German companies that operate critical infrastructure (down from 25 percent), as well as companies providing services related to critical infrastructure.  The amendment also added media companies to the list of sensitive businesses to which the lower threshold applies. German authorities strongly supported the European Union’s new framework to coordinate national security screening of foreign investments, which entered into force in April 2019.

Table 1: Key Metrics and Rankings

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 11 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2019 24 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2018 9 of 126 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, stock positions) 2017 136 billion USD https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2017 43,490 USD http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Germany has an open and welcoming attitude towards FDI.  The 1956 U.S.-Federal Republic of Germany Treaty of Friendship, Commerce and Navigation affords U.S. investors national treatment and provides for the free movement of capital between the United States and Germany. As an OECD member, Germany adheres to the OECD National Treatment Instrument and the OECD Codes of Liberalization of Capital Movements and of Invisible Operations.  The Foreign Trade and Payments Act and the Foreign Trade and Payments Ordinance provide the legal basis for the Federal Ministry for Economic Affairs and Energy to review acquisitions of domestic companies by foreign buyers, to assess whether these transactions pose a risk to the public order or national security (for example, when the investment pertains to critical infrastructure).  For many decades, Germany has experienced significant inbound investment, which is widely recognized as a considerable contributor to Germany’s growth and prosperity. The German government and industry actively encourage foreign investment. U.S. investment continues to account for a significant share of Germany’s FDI. The investment-related challenges foreign companies face are generally the same as for domestic firms, for example, high marginal income tax rates and labor laws that complicate hiring and dismissals.

Limits on Foreign Control and Right to Private Ownership and Establishment

Under German law, a foreign-owned company registered in the Federal Republic of Germany as a GmbH (limited liability company) or an AG (joint stock company) is treated the same as a German-owned company.  There are no special nationality requirements for directors or shareholders.

However, Germany does prohibit the foreign provision of employee placement services, such as providing temporary office support, domestic help, or executive search services.

While Germany’s Foreign Economic Law permits national security screening of inbound direct investment in individual transactions, in practice no investments have been blocked to date.  Growing Chinese investment activities and acquisitions of German businesses in recent years – including of Mittelstand (mid-sized) industrial market leaders – led German authorities to amend domestic investment screening provisions in 2017, clarifying their scope and giving authorities more time to conduct reviews.  The government further lowered the threshold for the screening of acquisitions in critical infrastructure and sensitive sectors in 2018, to 10 percent of voting rights of a German company. The amendment also added media companies to the list of sensitive sectors to which the lower threshold applies, to prevent foreign actors from engaging in disinformation.  In a prominent case in 2016, the German government withdrew its approval and announced a re-examination of the acquisition of German semi-conductor producer Aixtron by China’s Fujian Grand Chip Investment Fund based on national security concerns.

Other Investment Policy Reviews

The World Bank Group’s “Doing Business 2019” and Economist Intelligence Unit both provide additional information on Germany investment climate.  The American Chamber of Commerce in Germany publishes results of an annual survey of U.S. investors in Germany on business and investment sentiment (“AmCham Germany Transatlantic Business Barometer”).

Business Facilitation

Before engaging in commercial activities, companies and business operators must register in public directories, the two most significant of which are the commercial register (Handelsregister) and the trade office register (Gewerberegister).

Applications for registration at the commercial register, which is publically available under www.handelsregister.de  , are electronically filed in publicly certified form through a notary.  The commercial register provides information about all relevant relationships between merchants and commercial companies, including names of partners and managing directors, capital stock, liability limitations, and insolvency proceedings.  Registration costs vary depending on the size of the company.

Germany Trade and Invest (GTAI), the country’s economic development agency, can assist in the registration processes (https://www.gtai.de/GTAI/Navigation/EN/Invest/Investment-guide/Establishing-a-company/business-registration.html  ) and advise investors, including micro-, small-, and medium-sized enterprises (MSMEs), on how to obtain incentives.

In the EU, MSMEs are defined as follows:

  • Micro-enterprises:  less than 10 employees and less than €2 million annual turnover or less than €2 million in balance sheet total.
  • Small-enterprises:  less than 50 employees and less than €10 million annual turnover or less than €10 million in balance sheet total.
  • Medium-sized enterprises:  less than 250 employees and less than €50 million annual turnover or less than €43 million in balance sheet total.

Outward Investment

The Federal Government provides guarantees for investments by German-based companies in developing and emerging economies and countries in transition in order to insure them against political risks.  In order to receive guarantees, the investment must have adequate legal protection in the host country. The Federal Government does not insure against commercial risks.

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, Hong Kong’s mini-constitution. 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. Hong Kong pursues a free market philosophy with minimal government intervention. The Hong Kong Government (HKG) welcomes foreign investment, neither offering special incentives nor imposing disincentives for foreign investors.

Hong Kong’s well-established rule of law is applied consistently and without discrimination. There is 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.

Hong Kong remains an excellent destination for U.S. investment and trade. Despite a population of less than eight million, Hong Kong is America’s tenth-largest export market, seventh-largest for total agricultural products, and fifth-largest for high-value consumer food and beverage products. Hong Kong’s economy, with world-class institutions and regulatory systems, is based on competitive financial and professional services, trading, logistics, and tourism. The service sector accounts for more than 90 percent of its nearly USD 365 billion gross domestic product (GDP) in 2018. Hong Kong hosts a large number of regional headquarters and regional offices. More than 1,400 U.S. companies are based in Hong Kong, 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 here.

Table 1: Key Metrics and Rankings

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 14 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2019 4 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2018 14 of 126 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, stock positions) 2017 USD 81,234 http://www.bea.gov/international/factsheet/
World Bank GNI per capita 2017 USD 46,310 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 third-largest recipient of foreign direct investment (FDI) according to the United Nations Conference on Trade and Development’s (UNCTAD) World Investment Report 2018. 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, nor other similar regulations.

According to HKG statistics, 3,955 overseas companies had regional operations registered in Hong Kong in 2018. The United States has the largest number with 724. About 35 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 all land in Hong Kong, which the HKG administers by granting long-term leases without transferring title. Expatriates 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 Economic Analysis and Business Facilitation Unit under the Financial Secretary’s Office 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 restricts domestic investors from investing abroad. Mainland China and British Virgin Islands were the top two destinations for Hong Kong’s outward investments in 2017.

Ireland

Executive Summary

The Irish government actively promotes foreign direct investment (FDI) and has had considerable success in attracting U.S. investment, in particular.  Currently, there are approximately 700 U.S. subsidiaries in Ireland operating primarily in the following sectors: chemicals, bio-pharmaceuticals and medical devices, computer hardware and software, electronics, and financial services.

One of Ireland’s most attractive features as an FDI destination is its low corporate tax rate, which has remained at 12.5 percent since 2003.  Other factors cited by foreign firms include the quality and flexibility of the English-speaking workforce; availability of a multilingual labor force; cooperative labor relations; political stability; and pro-business government policies and regulators.  Additional positive features include a transparent judicial system; transportation links; proximity to the United States and Europe; and Ireland’s geographic location, which leaves it well placed in time zones to support investment in Asia and the Americas.  Ireland also benefits from its membership in the European Union (EU) and resulting access to a Single Market of 500 million consumers, plus the drawing power of existing companies operating successfully in Ireland (a so-called “clustering” effect). The planned withdrawal by the United Kingdom (UK) from the EU, or Brexit, will leave Ireland as the only remaining English-speaking country in the EU and may make Ireland even more attractive as a destination for FDI.

The Irish government treats all firms incorporated in Ireland on an equal basis.  Ireland’s judicial system is transparent and upholds the sanctity of contracts, as well as laws affecting foreign investment.  Conversely, the following factors hurt Ireland’s ability to attract investment: high labor and operating costs (such as for energy); skilled-labor shortages; Eurozone-risk; sometimes-deficient infrastructure (such as in transportation, housing, energy and broadband Internet); uncertainty in EU policies on some regulatory matters; and absolute price levels among the highest in Europe.

There is no formal screening process for foreign investment in Ireland.  Investors looking to receive government grants or assistance through one of the four state agencies responsible for promoting foreign investment in Ireland are often required, however, to meet certain employment and investment criteria.

Ireland uses the euro as its national currency and enjoys full current and capital account liberalization.

The government recognizes and enforces secured interests in property, both chattel and real estate.  Ireland is a member of the World Intellectual Property Organization (WIPO) and a party to the International Convention for the Protection of Intellectual Property.

Several state-owned enterprises (SOEs) operate in Ireland in the energy, broadcasting, and transportation sectors.  All of Ireland’s SOEs are open to competition for market share.

The United States and Ireland do not have a Bilateral Investment Treaty, but since 1950 have shared a Friendship, Commerce, and Navigation Treaty, which provides for national treatment of U.S. investors.  The two countries also have shared a Tax Treaty since 1998, supplemented in December 2012 with an agreement to improve international tax compliance and to implement the U.S. Foreign Account Tax Compliance Act (FATCA).

Table 1: Key Metrics and Rankings

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 18 of 180 http://www.transparency.org/research/cpi/overview 
World Bank’s Doing Business Report 2019 23 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2018 10 of 126 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, stock positions) 2017 $446,383 http://www.bea.gov/international/factsheet/ 
World Bank GNI per capita 2017 $55,290 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The Irish government actively promotes FDI, a strategy that has fueled economic growth since the mid-1990s.  The principal goal of Ireland’s investment promotion has been employment creation, especially in technology-intensive and high-skill industries.  More recently, the government has focused on Ireland’s international competitiveness by encouraging foreign-owned companies to enhance research and development (R&D) activities and to deliver higher-value goods and services.

The Irish government’s actions have achieved considerable success in attracting U.S. investment in particular.  The stock of American FDI in Ireland stood at USD 446 billion in 2017, more than the U.S. total for China, India, Russia, Brazil, and South Africa (the so-called BRICS countries) combined.  There are approximately 700 U.S. subsidiaries currently in Ireland employing roughly 155,000 people and supporting work for another 100,000. This figure represents a significant proportion of the 2.28 million people employed in Ireland.  U.S. firms operate primarily in the following sectors: chemicals, bio-pharmaceuticals and medical devices, computer hardware and software, electronics, and financial services.

U.S. investment has been particularly important to the growth and modernization of Irish industry over the past 25 years, providing new technology, export capabilities, management and manufacturing best practices, and employment opportunities.  The activities of U.S. firms in Ireland span from the manufacturing of high-tech electronics, computer products, medical devices, and pharmaceuticals to retailing, banking, finance, and other services. More recently, Ireland has also become an important R&D center for U.S. firms in Europe, and a magnet for U.S. internet/digital media investment.  Industry leaders like Google, Amazon, eBay, PayPal, Facebook, Twitter, LinkedIn, and Electronic Arts use Ireland as the hub or important part of their respective European, and sometimes Middle Eastern, African, and/or Indian operations.

U.S. companies are attracted to Ireland as an exporting sales and support platform to the EU market of 500 million consumers and other global markets, mainly the Middle East and Africa.  Ireland is a successful FDI destination for many reasons, including a corporate tax rate of 12.5 percent for all domestic and foreign firms; a well-educated, English-speaking workforce; the availability of a multilingual labor force; cooperative labor relations; political stability; and pro-business government policies and regulators.  Ireland also benefits from a transparent judicial system; good transportation links; proximity to the United States and Europe, and the drawing power of existing companies operating successfully in Ireland (a so-called “clustering” effect).

Conversely, factors that negatively affect Ireland’s ability to attract investment include high labor and operating costs (such as for energy) costs; sporadic skilled-labor shortages; residual fallout from Ireland’s economic and financial restructuring; and sometimes-deficient infrastructure (such as in transportation, energy and broadband quality).  Ireland also suffers from housing and high-quality office space shortages; uncertainty in EU policies on some regulatory matters; and absolute price levels that are among the highest in Europe. Some Irish government agencies have in the past expressed concern that energy costs and the reliability of energy supply also could undermine Ireland’s attractiveness as a FDI destination.  The American Chamber of Commerce in Ireland has noted the need for greater attention to a “skills gap” in the supply of Irish graduates to the high technology sector. It also has asserted that high personal income tax rates can make attracting talent from abroad difficult.

In 2013, Ireland became the first country in the Eurozone to exit the EU, European Central Bank, and International Monetary Fund (EU/ECB/IMF, or so-called Troika) bailout program.  Compliance with the terms of the Troika program came at a substantial economic cost with gross domestic product (GDP) stagnation, austerity measures, and high unemployment (15 percent).  The economy has since recovered and has been the fastest growing Eurozone economy for the past five years, with a growth rate of 6 percent in 2018. Meanwhile, government initiatives to attract investment have continued to stimulate job creation and employment.  As a result, unemployment levels have fallen dramatically and the Central Bank of Ireland forecasts that Ireland’s unemployment rate will fall to 4.9 percent in 2019. Against this good economic background, there is a resurgent interest in Ireland as an investment destination.  Since exiting the bailout program, the Irish government has successfully returned to international sovereign debt markets, and successful bonds sales exemplify renewed international confidence in Ireland’s recovery.

Brexit and its Implications for Ireland

The UK’s exit from the EU will leave Ireland as the only remaining English-speaking country in the bloc.  Ireland is the only EU country to share a land border with the UK. It is still unclear what the full economic consequences of Brexit will be for Ireland as it loses a close EU ally on policy matters.  Econometric models from the Irish Department of Finance and from the Central Bank of Ireland suggest Brexit will cut economic growth modestly in the near term. Ireland is heavily dependent on the UK as an export market, especially for food products, and sectors such as food and agri-business may be hardest hit.  Ireland also sources many imports from the UK, which could raise costs if supply chains are disrupted. A number of UK-based firms (including US firms) have moved headquarters or opened subsidiary offices in Ireland to facilitate ease of business with other EU countries.

Industrial Promotion

Six government departments and organizations have responsibility to promote investment into Ireland by foreign companies:

  • The Industrial Development Authority of Ireland (IDA Ireland) has overall responsibility for promoting and facilitating FDI in all areas of the country, except in the Shannon Free Zone (see below).  IDA Ireland is also responsible for attracting foreign financial and insurance firms to Dublin’s International Financial Services Center (IFSC). IDA Ireland maintains seven U.S. offices (in New York, NY; Boston, MA; Chicago, IL; Mountain View, CA; Irvine, CA; Atlanta, GA; and Austin, TX), as well as offices throughout Europe and Asia.
  • Enterprise Ireland (EI) promotes joint ventures and strategic alliances between indigenous and foreign companies.  The agency also assists foreign firms that wish to establish food and drink manufacturing operations in Ireland. EI has five offices in the United States (New York, NY; Austin, TX; Boston, MA; Chicago, IL; and Mountain View, CA), as well as offices in Europe, South America, the Middle East, and Asia.
  • Shannon Group (formerly the Shannon Free Airport Development Company) promotes FDI in the Shannon Free Zone (see description below) and owns properties in the Shannon region as potential green-field investment sites.  Since 2006 and the Industrial Development Amendments Act, EI assumed responsibility for investment by Irish firms in the Shannon region. IDA Ireland remains responsible for FDI in the Shannon region outside the Shannon Free Zone.
  • Udaras na Gaeltachta (Udaras) has responsibility for economic development in those areas of Ireland where the predominant language is Irish, and works with IDA Ireland to promote overseas investment in these regions.
  • Department of Foreign Affairs and Trade (DFAT) has responsibility for economic messaging and supporting the country’s trade promotion agenda as well as diaspora engagement to attract investment.
  • Department of Business, Enterprise and Innovation (DBEI) supports the creation of good jobs by promoting the development of a competitive business environment in which enterprises will operate with high standards and grow in sustainable markets.

Limits on Foreign Control and Right to Private Ownership and Establishment

Irish law allows foreign corporations (registered under the Companies Act 2014 or previous legislation and known locally as a public limited company, or plc for short) to conduct business in Ireland.  Any company incorporated abroad that establishes a branch in Ireland must file certain papers with the Registrar of Companies. A foreign corporation with a branch in Ireland will have the same standing in Irish law for purposes of contracts, etc., as a domestic company incorporated in Ireland.  Private businesses are not competitively disadvantaged to public enterprises with respect to access to markets, credit, and other business operations.

No barriers exist to participation by foreign entities in the purchase of state-owned Irish companies.  Residents of Ireland may, however, be given priority in share allocations over all other investors. In 1998, the Irish government sold the state-owned telecommunications company Eircom, and Irish residents received priority in share allocations.  In 2005, the Government privatized the national airline Aer Lingus through a stock market flotation, but it chose to retain about a one-quarter stake. U.S. investors purchased shares during its privatization. In 2015, the International Airlines Group (IAG) purchased the Government’s remaining stake in the airline.

Citizens of countries other than Ireland and EU member states can acquire land for private residential or industrial purposes.  Under Section 45 of the Land Act, 1965, all non-EU nationals must obtain the written consent of the Land Commission before acquiring an interest in land zoned for agricultural use.  There are many equine stud farms and racing facilities owned by foreign nationals. No restrictions exist on the acquisition of urban land.

Ireland does not have formal investment screening legislation, but as an EU member it may need to implement any future common EU investment screening regulations/directives.

Other Investment Policy Reviews

The Economist Intelligence Unit and World Bank’s Doing Business 2019 provide current information on Ireland’s investment policies.

Business Facilitation

All firms must register with the Companies Registration Office (www.cro.ie).  As well as registering companies, the CRO also can register a business/trading name, a non-Ireland based foreign company (external company), or a limited partnership.  A firm or company registered under the Companies Act 2014 becomes a body corporate as and from the date mentioned in its certificate of incorporation. The website permits online data submission.  Firms must submit a signed paper copy of this online application to the CRO, unless the applicant company has already registered with www.revenue.ie (the website of Ireland’s tax collecting authority, the Office of the Revenue Commissioners).

Outward Investment

Enterprise Ireland assists Irish firms in developing partnerships with foreign firms mainly to develop and grow indigenous firms.

Israel

Executive Summary

Israel has an entrepreneurial spirit and a creative, highly educated, skilled, and diverse workforce.  It is a leader in innovation in a variety of sectors, and many Israeli start-ups find good partners in American companies.  Popularly known as “Start-Up Nation,” Israel invests heavily in education and scientific research. U.S. firms account for nearly two-thirds of the more than 300 research and development (R&D) centers established by multinational companies in Israel.  Israel has the third most companies listed on the NASDAQ, after the United States and China. Various Israeli government agencies, led by the Israel Innovation Authority, fund incubators for early stage technology start-ups, and Israel provides extensive support for new ideas and technologies while also seeking to develop traditional industries.  Private venture capital funds have flourished in Israel in recent years.

The fundamentals of the Israeli economy are strong, and the economy proved flexible and adaptable through the worldwide financial crisis.  A 2018 International Monetary Fund (IMF) report said Israel’s economy is thriving, enjoying solid growth and historically low unemployment.  With low inflation and fiscal deficits that have usually met targets, most analysts consider Israeli government economic policies as generally sound and supportive of growth.  Israel seeks to provide supportive conditions for companies looking to invest in Israel, through laws that encourage capital and industrial R&D investment. Incentives and benefits include grants, reduced tax rates, tax exemptions, and other tax-related benefits.

The U.S.-Israeli bilateral economic and commercial relationship is strong, anchored by two-way trade in goods that reached USD 35.4 billion in 2018, according to the U.S. Census Bureau, and extensive commercial ties, particularly in high-tech and R&D.  The total stock of Israeli foreign direct investment (FDI) in the United States was USD 39.3 billion in 2017, according to the U.S. Department of Commerce. This year marks the 34th anniversary of the U.S.-Israel Free Trade Agreement (FTA), the United States’ first-ever FTA.  Since the signing of the FTA, the Israeli economy has undergone a dramatic transformation, moving from a protected, low-end manufacturing and agriculture-led economy to one that is diverse, open, and led by a cutting-edge high-tech sector.

The Israeli government generally continues to take slow, deliberate actions to remove some trade barriers and encourage capital investment, including foreign investment.  The continued existence of trade barriers and monopolies, however, have contributed significantly to the high cost of living and the lack of competition in key sectors. The Israeli government maintains some protective trade policies, usually in favor of domestic producers.

Table 1: Key Metrics and Rankings

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 34 of 180 https://www.transparency.org/country/ISR 
World Bank’s Doing Business Report 2019 49 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2018 11 of 126 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, stock positions) 2018 $26,700 http://www.bea.gov/international/factsheet/ 
World Bank GNI per capita 2017 $37,270 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Israel is open to foreign investment and the government actively encourages and supports the inflow of foreign capital.

The Israeli Ministry of Economy and Industry’s ‘Invest in Israel’ office serves as the government’s investment promotion agency facilitating foreign investment.  ‘Invest in Israel’ offers a wide range of services including guidance on Israeli laws, regulation, taxes, incentives, and costs, and facilitation of business connections with peer companies and industry leaders for new investors.  ‘Invest in Israel’ also organizes familiarization tours for potential investors and employs a team of advisors for each region of the world.

Limits on Foreign Control and Right to Private Ownership and Establishment

The Israeli legal system protects the rights of both foreign and domestic entities to establish and own business enterprises, as well as the right to engage in remunerative activity.  Private enterprises are free to establish, acquire, and dispose of interests in business enterprises. As part of ongoing privatization efforts, the Israeli government encourages foreign investment in privatizing government-owned entities.

Israel’s policies aim to equalize competition between private and public enterprises, although the existence of monopolies and oligopolies in several sectors stifles competition.  In the case of designated monopolies, defined as entities that supply more than 50 percent of the market, the government controls prices.

Israel does not maintain a centralized investment screening (approval) mechanism for inbound foreign investment.  Investments in regulated industries (e.g. banking and insurance) require approval by the relevant regulator. Investments in certain sectors may require a government license.  Other regulations may apply, usually on a national treatment basis.

Other Investment Policy Reviews

The World Trade Organization (WTO) conducted its fifth and latest trade policy review of Israel in July 2018.  In the past three years, the Israeli government has not conducted any investment policy reviews through the Organization for Economic Cooperation and Development (OECD) or the United Nations Conference on Trade and Development (UNCTAD).  The OECD concluded an Economic Survey of Israel in March 2018.

The 2018 OECD Economic Survey of Israel can be found at http://www.mof.gov.il/Releases/SiteAssets/Pages/OECD18/2018-oecd-economic-survey-Israel.pdf 

Business Facilitation

The Israeli government is fairly open and receptive to companies wishing to register businesses in Israel.  Israel ranked 45th in the “Starting a Business” category of the World Bank’s 2019 Doing Business Report, falling eight places from its 2018 ranking.  Israel continues to institute reforms to make it easier to do business in Israel, but some challenges remain.

The business registration process in Israel is relatively clear and straightforward.  Four procedures are required to register a standard private limited company and take 12 days to complete, on average, according to the Ministry of Finance.  The foreign investor must obtain company registration documents through a recognized attorney with the Ministry of Justice and obtain a tax identification number for company taxation and for value added taxes (VAT) from the Ministry of Finance.  The cost to register a company averages around USD 1,000 depending on attorney and legal fees.

The Israeli Ministry of Economy and Industry’s “Invest in Israel” website provides useful information for companies interested in starting a business or investing in Israel.  The website is http://www.investinisrael.gov.il/Pages/default.aspx  .

Outward Investment

The Israel Export and International Cooperation Institute is an Israeli government agency operating independently, under the Ministry of Economy, that helps facilitate trade and business opportunities between Israeli and foreign companies.  More information on their activities is available at http://www.export.gov.il/eng/About/About/  .

In general, there are no restrictions on Israeli investors seeking to invest abroad.  However, investing abroad may be restricted on national security grounds or in certain countries or sectors where the Israeli government deems such investment is not in the national interest.

Italy

Executive Summary

Italy’s economy, the eighth largest in the world, is fully diversified, and dominated by small and medium-sized firms (SMEs), which comprise 99.9 percent of Italian businesses.  Italy is an original member of the 19-nation Eurozone. Germany, France, the United States, the United Kingdom, Spain, and Switzerland are Italy’s most important trading partners, with China continuing to gain ground.  Tourism is an important source of external revenue, 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.  Italy continues to attract less foreign direct investment than many industrialized nations. Italy does not share a bilateral investment treaty with the United States.

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.  The government remains open to foreign investment in shares of Italian companies and continues to make information available online to prospective investors. The Italian government’s efforts to implement new investment promotion policies to position Italy as a desirable investment destination have been undermined in part by Italy’s slow economic growth and lack of consistent progress on structural reforms that could reduce lengthy and often inconsistent legal and regulatory procedures, unpredictable tax structure, and layered bureaucracy.  

Table 1

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 53 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report “Ease of Doing Business” 2018 51 of 190 http://www.doingbusiness.org/rankings
Global Innovation Index 2018 31 of 126 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country (M USD, stock positions) 2017 $30,708 http://www.bea.gov/international/factsheet/
World Bank GNI per capita 2017 $31,020 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 Union’s treaties and laws.  Under the EU treaties with the United States, 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 the “Golden Power” law if the transactions appear to raise national security concerns.  This law was enacted in 2012 and further implemented with decrees in 2015, 2017, and 2019.  The Golden Power law allows the Government of Italy (GOI) to block foreign acquisition of companies operating in strategic sectors (identified as defense/national security, energy, transportation, telecommunications, critical infrastructure, sensitive technology, and nuclear and space technology).  On March 26, 2019 the GOI issued a decree expanding 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.  Per Italian law, Parliament must confirm the decree within 60 days. The GOI’s Golden Power authority always applies in cases involving the sectors above in which the potential purchaser is a non-EU company; it is extended to EU companies if the target of the acquisition is involved in defense/national security activities.  In this respect, the GOI has a say regarding the ownership of private companies as well as ones in which the government has a stake. This law replaced the “Golden Share” which the GOI previously held in former state-owned firms that were partially privatized in the 1990s and 2000s. The law also allows the State to maintain oversight over entire strategic sectors as opposed to individual companies, and by replacing the Golden Share legislation, has enabled Italy to address accusations the Golden Shares violated European treaties.   An interagency group led by the Prime Minister’s office reviews acquisition applications and prepares the dossiers/ recommendations for the Council of Ministers’ decision.   

According to the latest figures available from the Italian Trade Agency (ITA), foreign investors own significant shares of 12,768 Italian companies.  These companies employed 1,211,872 workers with overall sales of EUR 573.6 billion. ITA operates under the umbrella of the Italian Ministry of Economic Development.

The Italian Trade Agency (ITA) operates Invest in Italy: http://www.investinitaly.com/en/.   The Foreign Investments Attraction Department is a dedicated unit of ITA for facilitating the establishment and the development of foreign companies in Italy.  As of April 2019, ITA maintained a presence in 65 countries to assist foreign investors.  

Invitalia is the national agency for inward investment and economic development, owned by the Italian Ministry of Economy and Finance.  The agency focuses on strategic sectors for development and employment.  It places an emphasis on southern Italy, where investment and development lag in comparison to the rest of the country.  Invitalia finances projects both large and small, targeting entrepreneurs with concrete development plans, especially in innovative and high-added-value sectors.  For more information, see https://www.invitalia.it/eng  .  The Ministry of Economic Development also has a program to attract innovative investments: https://www.mise.gov.it  

Italy’s main business association (Confindustria) also provides assistance to 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 Italian national local 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 if national security concerns are raised or on the principle of reciprocity if the government of the foreign firm applies discriminatory measures against Italian firms.  Foreign investors in the defense or aircraft manufacturing sectors are more likely to encounter resistance from the many ministries involved in reviewing foreign acquisitions.  

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 under its “Golden Power” legislation, and where there may be market concentration (antitrust) issues.  Italy’s Golden Power legislation was expanded on March 26, 2019 to include the purchase of goods and services related to the planning, realization, maintenance, and management of broadband communications networks using 5G technology. (Per Italian law Parliament must confirm the law within 60 days for it to remain in force.) To our knowledge, U.S. investors have not been disadvantaged relative to other foreign investors under the mechanisms described above.

Other Investment Policy Reviews

An OECD Economic Survey was published for Italy in April 2019.  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.  Foreign companies may use the online process. 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 2018, Italy is ranked 67 out of 190 countries in terms of the ease of starting a business: it takes six procedures and six 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 potential investors and provide advice in obtaining necessary licenses and authorizations.  These services are available to all investors.

Outward Investment

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

Japan

Executive Summary

Japan is the world’s third largest economy, the United States’ fourth largest trading partner, and was the second largest contributor to U.S. foreign direct investment (FDI) in 2017.  The Japanese government actively welcomes and solicits foreign investment, and has set ambitious goals for increasing inbound FDI. Despite Japan’s wealth, high level of development, and general acceptance of foreign investment, inbound FDI stocks as a share of gross domestic product (GDP) are the lowest in the Organization for Economic Co-operation and Development (OECD).

Japan’s legal and regulatory climate is highly supportive of investors in many respects.  Courts are independent, sophisticated, and ostensibly provide equal treatment to foreign investors.  The country’s regulatory system is improving transparency and developing new regulations in line with international norms.  Capital markets are deep and broadly available to foreign investors. Japan maintains strong protections for intellectual property rights with generally robust enforcement.  The country remains a large, wealthy, and sophisticated market with world-class corporations, research facilities, and technologies. Nearly all foreign exchange transactions, including transfers of profits, dividends, royalties, repatriation of capital, and repayment of principal, are freely permitted.  As such, the sectors that have historically attracted the largest foreign direct investment in Japan are electrical machinery, finance, and insurance.

On the other hand, foreign investors in the Japanese market continue to face numerous challenges.  A traditional aversion towards mergers and acquisitions within corporate Japan has inhibited foreign investment, and weak corporate governance has led to low returns on equity and cash hoarding among Japanese firms, although business practices may be improving in both areas, particularly in corporate governance.  Investors and business owners must also grapple with inflexible labor laws and a highly regimented labor recruitment system that can significantly increase the cost and difficulty of managing human resources. The Japanese government has recognized many of these challenges and is pursuing initiatives to improve investment conditions.

Levels of corruption in Japan are low, but deep relationships between firms and suppliers may limit competition in certain sectors and inhibit the entry of foreign firms into local markets.

Future changes in Japan’s investment climate are largely contingent on the success of structural reforms to the Japanese economy.  Recent changes have strengthened corporate governance and increased female labor force participation. Nevertheless, further reforms are necessary to improve economic performance.

Table 1

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 18 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report “Ease of Doing Business” 2018 39 of 190 http://www.doingbusiness.org/rankings
Global Innovation Index 2018 13 of 126 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country (M USD, stock positions) 2017 $129,064 https://www.bea.gov/international/factsheet/
World Bank GNI per capita 2017 $38,550 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Toward Foreign Direct Investment

Direct inward investment into Japan by foreign investors has been open and free since the Foreign Exchange and Foreign Trade Act (the Forex Act) was amended in 1998.  In general, the only requirement for foreign investors making investments in Japan is to submit an ex post facto report to the relevant ministries.

The Japanese Government explicitly promotes inward FDI and has established formal programs to attract it.  In 2013, the government of Prime Minister Shinzo Abe announced its intention to double Japan’s inward FDI stock to JPY 35 trillion (USD 318 billion) by 2020 and reiterated that commitment in its revised Japan Revitalization Strategy issued in August 2016.  At the end of June 2018, Japan’s inward FDI stock was JPY 29.9 trillion (USD 270 billion), a small increase over the previous year. The Abe Administration’s interest in attracting FDI is one component of the government’s strategy to reform and revitalize the Japanese economy, which continues to face the long-term challenges of low growth, an aging population, and a shrinking workforce.

In April 2014, the government established an “FDI Promotion Council” comprised of government ministers and private sector advisors.  The Council remains active and continues to release recommendations on improving Japan’s FDI environment. The Ministry of Economy, Trade and Industry (METI) and the Japan External Trade Organization (JETRO) are the lead agencies responsible for assisting foreign firms wishing to invest in Japan.  METI and JETRO have together created a “one-stop shop” for foreign investors, providing a single Tokyo location—with language assistance—where those seeking to establish a company in Japan can process the necessary paperwork (details are available at http://www.jetro.go.jp/en/invest/ibsc/  ).  Prefectural and city governments also have active programs to attract foreign investors, but they lack many of the financial tools U.S. states and municipalities use to attract investment.

Foreign investors seeking a presence in the Japanese market or seeking to acquire a Japanese firm through corporate takeovers may face additional challenges, many of which relate more to prevailing business practices rather than to government regulations, though it depends on the sector.  These include an insular and consensual business culture that has traditionally been resistant to unsolicited mergers and acquisitions (M&A), especially when initiated by non-Japanese entities; exclusive supplier networks and alliances between business groups that can restrict competition from foreign firms and domestic newcomers; cultural and linguistic challenges; and labor practices that tend to inhibit labor mobility.  Business leaders have communicated to the Embassy that regulatory and governmental barriers are more likely to exist in mature, heavily regulated sectors than in new industries.

The Japanese Government established an “Investment Advisor Assignment System” in April 2016 in which a State Minister acts as an advisor to select foreign companies with “important” investments in Japan.  The system aims to facilitate consultation between the Japanese Government and foreign firms. Of the nine companies selected to participate in this initiative to date, seven are from the United States.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private enterprises have the right to establish and own business enterprises and engage in all forms of remunerative activity.  Japan has gradually eliminated most formal restrictions governing FDI. One remaining restriction limits foreign ownership in Japan’s former land-line monopoly telephone operator, Nippon Telegraph and Telephone (NTT), to 33 percent.  Japan’s Radio Law and separate Broadcasting Law also limit foreign investment in broadcasters to 20 percent, or 33 percent for broadcasters categorized as “facility-supplying.” Foreign ownership of Japanese companies invested in terrestrial broadcasters will be counted against these limits.  These limits do not apply to communication satellite facility owners, program suppliers or cable television operators.

The Foreign Exchange and Foreign Trade Act governs investment in sectors deemed to have national security or economic stability implications.  If a foreign investor wants to acquire over 10 percent of the shares of a listed company in certain designated sectors, it must provide prior notification and obtain approval from the Ministry of Finance and the ministry that regulates the specific industry.  Designated sectors include agriculture, aerospace, forestry, petroleum, electric/gas/water utilities, telecommunications, and leather manufacturing.

U.S. investors, relative to other foreign investors, are not disadvantaged or singled out by any ownership or control mechanisms, sector restrictions, or investment screening mechanisms.

Other Investment Policy Reviews

The World Trade Organization (WTO) conducted its most recent review of Japan’s trade policies in March 2017 (available at https://www.wto.org/english/tratop_e/tpr_e/tp451_e.htm  ).

The OECD released its biennial Japan economic survey results on April 15, 2019 (available at http://www.oecd.org/economy/surveys/japan-economic-snapshot/  ).

Business Facilitation

The Japan External Trade Organization (JETRO) is Japan’s investment promotion and facilitation agency.  JETRO operates six Invest Japan Business Support Centers (IBSCs) across Japan that provide consultation services on Japanese incorporation types, business registration, human resources, office establishment, and visa/residency issues.  Through its website (https://www.jetro.go.jp/en/invest/setting_up  /), the organization provides English-language information on Japanese business registration, visas, taxes, recruiting, labor regulations, and trademark/design systems and procedures in Japan.  While registration of corporate names and addresses can be completed through the internet, most business registration procedures must be completed in person. In addition, corporate seals and articles of incorporation of newly established companies must be verified by a notary.

According to the 2018 World Bank “Doing Business” Report, it takes 12 days to establish a local limited liability company in Japan.  JETRO reports that establishing a branch office of a foreign company requires one month, while setting up a subsidiary company takes two months.  While requirements vary according to the type of incorporation, a typical business must register with the Legal Affairs Bureau (Ministry of Justice), the Labor Standards Inspection Office (Ministry of Health, Labor, and Welfare), the Japan Pension Service, the district Public Employment Security Office, and the district tax bureau.  In April 2015, JETRO opened a one-stop business support center in Tokyo so that foreign companies can complete all necessary legal and administrative procedures in one location; however, this arrangement is not common throughout Japan. JETRO has announced its intent to develop a full online business registration system, but it was not operational as of March 2019.

No laws exist to explicitly prevent discrimination against women and minorities regarding registering and establishing a business. Neither special assistance nor mechanisms exist to aid women or underrepresented minorities.

Outward Investment

The Japan Bank for International Cooperation (JBIC) provides a variety of support to Japanese foreign direct investment.  Most support comes in the form of “overseas investment loans,” which can be provided to Japanese companies (investors), overseas Japanese affiliates (including joint ventures), and foreign governments in support of projects with Japanese content, typically infrastructure projects.  JBIC often seeks to support outward FDI projects that aim to develop or secure overseas resources that are of strategic importance to Japan, for example, construction of liquefied natural gas (LNG) export terminals to facilitate sales to Japan. More information is available at https://www.jbic.go.jp/en/index.html  .

There are no restrictions on outbound investment; however, not all countries have a treaty with Japan regarding foreign direct investment (e.g., Iran).

Luxembourg

Executive Summary

Luxembourg, the only Grand Duchy in the world, is a landlocked country in northwestern Europe surrounded by Belgium, France, and Germany.  Despite its small landmass and small population (614,000), Luxembourg is the second-wealthiest country in the world when measured on a Gross Domestic Product (GDP) per capita basis.

Since 2002, the Luxembourg Government has proactively implemented policies and programs to support economic diversification and to attract foreign direct investment.  The Government focused on key innovative industries that showed promise for supporting economic growth: logistics, information and communications technology (ICT), health technologies including biotechnology and biomedical research; clean energy technologies, and most recently, space technology and financial services technologies.

While the economy has evolved and flourished, its 2018 GDP did not grow as strongly as projected.  However, the economy did post a GDP growth rate of 2.6 percent, higher than the EU average of 2 percent.  The Luxembourg government projects a growth rate of 3 percent in 2019. Luxembourg offers a diverse and stable platform and outsized growth potential for a wide variety of U.S. investments and trade within the EU and beyond.

Luxembourg remains a financial powerhouse thanks to the exponential growth of the investment fund sector through the launch and development of cross-border funds (UCITS) in the 1990s.  Luxembourg is the world’s second-largest investment fund asset domicile, after only the United States, with USD 5 trillion of assets in custody in financial institutions.

Luxembourg is consistently ranked as one of the world’s most open and transparent economies and has no restrictions on foreign-ownership.  It is also consistently ranked as one of the world’s most competitive and least-corrupt economies.

Luxembourg ranks as the world’s safest city in the Mercer city index.

Over the past decade, Luxembourg has adopted major fiscal reforms to counter money-laundering, terrorist-financing, and tax evasion.

The Government of Luxembourg actively supports the development of new sectors in an effort to diversify the country’s economy, given the dominance of the financial sector.  Target sectors include space, logistics, and information technology, including financial technology and biomedicine.

Luxembourg launched its SpaceResources.lu initiative in 2016 and in 2017 announced a fund offering financial support for the space resources industry.  More than 50 companies dedicated to space initiatives are now active in Luxembourg.

Luxembourg has positioned itself as “the gateway to Europe” to establish European company headquarter operations by virtue of its central European location and advanced road, railway, and air connectivity.  Due to uncertainties related to Brexit, some 50 insurers, asset managers and banking institutions have decided to re-locate their EU headquarters to Luxembourg or transfer a significant part of their activity to the country.

Luxembourg is actively seeking logistics companies to expand the new logistics hub at Luxembourg Airport, home to Cargolux, Europe’s largest all cargo airline. Inaugurated in 2017, the Luxembourg Intermodal Terminal (LIT) is ideally positioned as an international hub for the consolidation of multimodal transport flows across Europe and beyond.

Luxembourg is also seeking ICT companies to use the existing high-security, state-of-the-art datacenters, affording high-speed internet connectivity to major international data hubs.  Through various initiatives, Luxembourg seeks to attract financial technology and biomedical start-ups and small companies to make Luxembourg home.

Table 1: Key Metrics and Rankings

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 9 of 175 http://www.transparency.org/research/cpi/overview 
World Bank’s Doing Business Report 2019 66 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2018 15 of 126 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, stock positions) 2017 $676,418 http://www.bea.gov/international/factsheet/ 
World Bank GNI per capita 2017 $70,260 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Luxembourg offers a public policy framework and political stability, which remain highly attractive for foreign investors, particularly for U.S. investors, given the focus on growth sectors and the historically strong bilateral relationship between the two countries.  The government has increased its outreach toward companies looking to expand in Europe.

In the March 2017 Regional Competitiveness Index published by the European Union (EU), Luxembourg is ranked one of the best European regions to attract business.  Ranked seventh with a score of 91 out of 100 (behind London and other regions of the United Kingdom; Utrecht, Netherlands; Stockholm, Sweden; Copenhagen, Denmark; Paris, France; and Munich, Germany), Luxembourg demonstrates “the ability to provide an attractive and sustainable environment for attracting businesses and citizens.”

Key points considered are health, infrastructure, higher education, labor efficiency, and innovation.  According to the Index, Luxembourg ranks number one for innovation – a direct result of the increase in incentives and support for research and development, as well as for start-up ventures through the state lending agency (capital investment subsidies, financing of equipment, and seed aid to start-up entities).

In 2017, Luxembourg’s Deputy Prime Minister and Minister of the Economy and Foreign Trade, Etienne Schneider, unveiled a strategy to promote economic growth focusing on attracting FDI and supporting companies’ moving into other markets.  The Luxembourg “Let’s Make It Happen” campaign, developed by the state Trade and Investment Board, focuses on five key objectives:

  • Improving Luxembourg-based companies’ access to international markets
  • Attracting FDI in a “targeted, service-oriented” way
  • Strengthening the country’s international “economic-promotion network”
  • Improving Luxembourg’s image as a “smart location” for high-performance business and industry
  • Ensuring the coherence of economic promotion efforts

There is no overall economic or industrial strategy that has discriminatory effects on foreign investors, either at a market-access or post-establishment phase of investment.  Luxembourg strives to attract and retain foreign investors with its unique model of “easy-access to decision-makers” and its known ability to “act swiftly.”

The Trade and Investment Board has taken the lead in investment promotion and includes representatives from the ministries of Economy, Higher Education and Research, Finance, Foreign and European Affairs, and State.  Public-private trade associations such as FEDIL (Business Federation of Luxembourg, the main employers’ trade association), the Luxembourg Chamber of Commerce, and the Chamber of Skilled Trades and Crafts, as well as Luxinnovation, are also represented.

The Board is working in cooperation with Luxembourg embassies and trade and investment offices worldwide, as well as economic and commercial attachés, honorary consuls, and foreign trade advisers, to attract FDI and retain investors. In 2016, the Ministry of the Economy expanded the role of Luxinnovation to incorporate promotion of Luxembourg abroad and to attract FDI into the country.

Limits on Foreign Control and Right to Private Ownership and Establishment

There is a right for foreign and domestic private entities to establish and own business enterprises and engage in all forms of remunerative activity.  There are no limits on foreign ownership or control, and there are no sector-specific restrictions.

General screening of foreign investment exists in line with that of domestic investment, with routine and non-discriminatory screening mechanisms.  There are no major sectors/matters in Luxembourg in which foreign investors are denied national (domestic) treatment.

Other Investment Policy Reviews

The World Bank’s Doing Business 2019 Economy Profile provides additional detail on Luxembourg’s investment climate.

Luxembourg is included in Trade Policy Reviews (TPRs) of the EU/EC; see the TPR gateway for explanations and background.

Business Facilitation

In terms of the United Nations Conference on Trade and Development (UNCTAD) Global Action Menu for Investment Facilitation, Luxembourg’s business facilitation efforts are aligned with most of the recommended action points.  Over the past decade, Luxembourg has been furthering accessibility and transparency in investment policies and regulations, as well as procedures relevant to investors.

The Government has improved the efficiency of investment administrative procedures, notably in the context of the overall “Digitalization” movement to offer a multitude of government services online or electronically.  It usually takes 2-3 months to register a business, depending on the complexity of the business itself. On a scale of 1 to 10, Luxembourg rates 6.5 in website registration clarity and completeness of instructions to register a limited liability company, according to the Global Enterprise Registration portal of the Global Entrepreneurship Network of UNCTAD.

The Government provides a website in multiple languages, including English that explains the business registration process: http://www.guichet.public.lu/en  .  A new business must register with the Registry of Commerce (Registre du Commerce: https://www.rcsl.lu/  .)  Foreign companies can use the site (after translating from the original French language), but it is best to consult with a local lawyer or fiduciary to complete the overall process.  It is necessary to engage a notary to submit the company’s by-laws for registration.

In 2017, the Government reduced the required minimum capitalization of a new company from 12,500 euro to just 1 euro (symbolic), to encourage start-up creation.  Between January 2017 and January 2018, over 680 such simplified limited liability companies (Société à responsabilité limitée simplifiée SARL-S) have registered.  According to the Luxembourgish Chamber of Commerce, one client out of three has requested information on SARL-S.

After receiving a certificate from the Registry of Commerce, companies are required by law to register with and pay annual dues to the Luxembourg Chamber of Commerce , as well as the Social Security Administration, the Tax Administration (Administration des Contributions Directes) and the Value-Added-Tax Authority (TVA = taxe à la valeur ajoutée).  The company will receive an official registration number reflecting the date of inception of the entity, and this number will be used in all business transactions and correspondence with administrative authorities.

The House of Entrepreneurship, opened in 2016 within the Luxembourg Chamber of Commerce, also provides guidance on the entire registration and creation process of a business.  Between 2016 and 2018, the House of Entrepreneurship was contacted 30,000 times.

The Ministry of Economy continues to support networks and associations acting in favor of female entrepreneurship. The Law of December 15, 2016 incorporated the principle of equal salaries in the Grand Duchy’s legislation, which makes any difference in the salaries paid to men and women carrying out the same task or work of equal value, illegal.

In general, the most promising instruments are outside the jurisdiction of the Ministry of Economy but are critical.  For example, there has been an increase in the number of childcare centers close to business districts which is helping dual career families better manage.

Outward Investment

The same government services website listed above, http://www.guichet.public.lu/en  , includes an “International Trade” tab which provides guidance on outward investment by Luxembourgish companies on various topics including intra-EU trade and services; import, export, and transit; licensing; and transport.  The Luxembourg Government promotes outward investment via the Trade and Investment Board, which functions as a promotion entity for both inward and outward investment.

The “Let’s Make It Happen” initiative, among its many missions, is working to facilitate access to international markets for Luxembourgish companies and to strengthen Luxembourg’s international economic promotion network. Luxembourg does not restrict domestic investors from investing abroad.

Netherlands

Executive Summary

The Netherlands consistently ranks among the world’s most competitive industrialized economies.  It offers an attractive business and investment climate and remains a welcoming location for business investment from the United States and elsewhere.

Strengths of the Dutch economy include the Netherlands’ stable political and macroeconomic climate, a highly developed financial sector, strategic location, well-educated and productive labor force, and high-quality physical and communications infrastructure.  Investors in the Netherlands take advantage of its highly competitive logistics, anchored by the largest seaport and fourth-largest airport in Europe. In telecommunications, the Netherlands has one of the highest internet penetrations in the European Union (EU) at 96 percent and hosts one of the largest data transport hubs in the world, the Amsterdam Internet Exchange.

The Netherlands is among the largest recipients and sources of foreign direct investment (FDI) in the world and one of the largest historical recipients of direct investment from the United States.  This can be attributed to the Netherlands’ competitive economy, historically business-friendly tax climate, and many investment treaties containing investor protections. The Dutch economy has significant foreign direct investment in a wide range of sectors including logistics, information technology, and manufacturing.  Dutch tax policy continues to evolve in response to EU attempts to harmonize tax policy across member states.

In the wake of the worldwide financial crisis a decade ago, the Dutch government implemented significant reforms in key policy areas, including the labor market, the housing sector, the energy market, the pension system, and health care.  Dutch reform policies were crafted in close consultation with key stakeholders, including business associations, labor unions, and civil society groups. This consultative approach, often referred to as the Dutch “polder model,” is how Dutch policy is generally developed.

After years of recovery, with associated “catch-up” rates of economic growth, the macroeconomic outlook in the Netherlands is for a stable but low-growth economy.  The Dutch government projects a period of lower GDP growth of 1.5 percent in 2019 and 2020. Projected drivers of growth include increased government spending, as well as invigorated domestic consumption by households as unemployment reaches record lows.

  • The Netherlands is a top destination for U.S. FDI abroad, holding just under USD 900 billion out of a total of USD 6 trillion total outbound U.S. investment – about 16 percent.
  • Dutch investors contribute USD 367 billion FDI to the United States of the USD 4 trillion total inbound FDI– about 10 percent.

Table 1: Key Metrics and Rankings

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 8 of 180 https://www.transparency.org/news/feature/corruption_perceptions_index_2017#table
World Bank’s Doing Business Report 2018 36 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2018 2 of 126 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, stock positions) 2017 $936,728  http://www.bea.gov/international/factsheet/ 
World Bank GNI per capita 2017 $46,180 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The Netherlands is the sixteenth-largest economy in the world and the fifth largest in the European Monetary Union (the eurozone), with a gross domestic product (GDP) of over USD 900 billion (773 billion euros).  According to the International Monetary Fund (IMF), the Netherlands is consistently among the three largest source and recipient economies for foreign direct investment (FDI) in the world, although the Netherlands is not the ultimate destination for the majority of this investment.  The government of the Netherlands maintains liberal policies toward FDI, has established itself as a platform for third-country investment with some 145 investment agreements in force, and adheres to the Organization for Economic Cooperation and Development (OECD) Codes of Liberalization and Declaration on International Investment, including a National Treatment commitment and adherence to relevant guidelines.

The Netherlands is the recipient of eight percent of all FDI inflow into the EU.  Of all EU member states, it is the top recipient of U.S. FDI, at over 16 percent of all U.S. FDI abroad as of 2017.  The Netherlands has become a key export platform and pan-regional distribution hub for U.S. firms. Roughly 60 percent of total U.S. foreign-affiliate sales in the Netherlands are exports, with the bulk of them going to other EU members.

In 2014, foreign-owned companies made inward direct investment worth USD 15.8 billion (14.2 billion euros) – just over 30 percent of total corporate investment in durable goods in the Netherlands.  Foreign investors provide 19 percent of Dutch employment in the private sector (860,200 jobs). U.S. firms contribute the most among foreign firms to employment, responsible for 214,000 jobs. In its 2017 investment report, the UN Conference on Trade and Development (UNCTAD) identified the Netherlands as the world’s fifth largest destination of global FDI inflows and the third largest source of FDI outflows.

Although policy makers fear that a Brexit will be detrimental for the Dutch economy, so far the Netherlands is benefitting from companies exiting the United Kingdom in anticipation of Brexit.  According to the Netherlands Foreign Investment Agency (NFIA), the number of companies interested in moving to the Netherlands because of Brexit increased from 80 in 2017 to 150 in 2018 to 250 in 2019.  The companies are coming mainly from the health, creative industry, financial services, and logistics sectors.  The Dutch Authority for the Financial Markets (AFM) has predicted Amsterdam will emerge as a main post-Brexit financial trading center in Europe for automated trading platforms and other ‘fintech’ firms, allowing these companies to keep their European trading within the confines of the EU after Brexit.

Dutch tax authorities provide a high degree of customer service to foreign investors, seeking to provide transparent, precise tax guidance that makes long-term tax obligations more predictable.  Advance Tax Rulings (ATR) and Advance Pricing Agreements (APA) are guarantees given by local tax inspectors regarding long-term tax commitments for a particular acquisition or Greenfield investment.  Dutch tax policy continues to evolve as the EU seeks to harmonize tax measures across members states. A more detailed description of Dutch tax policy for foreign investors can be found at http://investinholland.com/incentives-and-taxes/   and http://investinholland.com/incentives-and-taxes/fiscal-climate/  .

Dutch corporations and branches of foreign corporations are currently subject to a corporate tax rate of 25 percent on taxable profits, which puts the Netherlands in the middle third among EU countries’ corporate tax rates and below the tax rates of its larger neighbors.  Profits up to USD 240,000 (200,000 euros) are taxed at a rate of 19 percent.  In October 2018, the Dutch government announced it would lower its corporate tax rate to 20.5 percent in 2021, with profits up to USD 240,000 taxed at a 15 percent rate from 2021 onwards.

Dutch corporate taxation generally allows for exemption of dividends and capital gains derived from a foreign subsidiary.  Surveys of the corporate tax structure of EU member states note that both the corporate tax rate and the effective corporate tax rate in the Netherlands are around the EU average.  Nevertheless, the Dutch corporate tax structure ranks among the most competitive in Europe considering other beneficial measures such as ATAs and/or APAs. The Netherlands also has no branch profit tax and does not levy a withholding tax on interest and royalties.

Maintaining an investment-friendly reputation is a high priority for the Dutch government, which provides public information and institutional assistance to prospective investors through the Netherlands Foreign Investment Agency (NFIA) (https://investinholland.com/  ). Historically, over a third of all “Greenfield” FDI projects that NFI attracts to the Netherlands originate from U.S. companies.  Additionally, the Netherlands business gateway at https://business.gov.nl/   – maintained by the Dutch government – provides information on regulations, taxes, and investment incentives that apply to foreign investors in the Netherlands and clear guidance on establishing a business in the Netherlands.

The NFIA maintains six regional offices in the United States (Washington, DC; Atlanta; Boston; Chicago; New York City; and San Francisco).  The American Chamber of Commerce in the Netherlands (https://www.amcham.nl/  ) also promotes U.S. and Dutch business interests in the Netherlands.

Limits on Foreign Control and Right to Private Ownership and Establishment

With few exceptions, the Netherlands does not discriminate between national and foreign individuals in the establishment and operation of private companies.  The government has divested its complete ownership of many public utilities, but in a number of strategic sectors, private investment – including foreign investment – may be subject to limitations or conditions.  These include transportation, energy, defense and security, finance, postal services, public broadcasting, and the media.

Air transport is governed by EU regulation and subject to the U.S.-EU Air Transport Agreement.  U.S. nationals can invest in Dutch/European carriers as long as the airline remains majority-owned by EU governments or nationals from EU member states.  Additionally, the EU and its member states reserve the right to limit U.S. investment in the voting equity of an EU airline on a reciprocal basis that the United States allows for foreign nationals in U.S. carriers.

In concert with the European Union, the Dutch government is considering how to best protect its economic security but also continue as one of the world’s most open economies.  The Netherlands has no formal foreign investment screening mechanism, but the government has begun discussions about developing targeted investment-screening for certain vital sectors that could represent national security vulnerabilities.  The government is in the process of finalizing legislation that will establish investment screening mechanisms in the first of those vital sectors: telecommunications. The Netherlands has certain limitations on foreign ownership in sectors that are deemed of vital national interest (transportation, energy, defense and security, finance, postal services, public broadcasting, and the media).  There is no requirement for Dutch nationals to have an equity stake in a Dutch registered company.

Other Investment Policy Reviews

The Netherlands has not recently undergone an investment policy review by the OECD, World Trade Organization (WTO), or UNCTAD.

Business Facilitation

All companies must register with the Chamber of Commerce and apply for a fiscal number with the tax administration, which allows expedited registration for small- and medium-sized enterprises (SMEs) with fewer than 50 employees:  https://www.kvk.nl/english/ordering-products-from-the-commercial-register/  .

The World Bank’s 2019 Ease of Doing Business Index ranks the Netherlands as number 22 in starting a business.  The Netherlands ranks better than the OECD average on registration time, the number of procedures, and required minimum capital.

The Netherlands business gateway at https://business.gov.nl/   – maintained by the Dutch government – provides a general checklist for starting a business in the Netherlands: https://business.gov.nl/starting-your-business/checklists-for-starting-a-business/general-checklist-for-starting-a-business-in-the-netherlands/  .  The Dutch American Friendship Treaty (DAFT) from 1956 gives U.S. citizens preferential treatment to operate a business in the Netherlands, providing ease of establishment that most other non-EU nationals do not enjoy.  U.S. entrepreneurs applying under the DAFT do not need to satisfy a strict, points-based test and do not have to meet pre-conditions related to providing an innovative product. U.S. entrepreneurs setting up a sole proprietorship only have to register with the Chamber of Commerce and demonstrate a minimum investment of 4,500 euros.  DAFT entrepreneurs receive a two-year residence permit, with the possibility of renewal for five subsequent years.

New Zealand

Executive Summary

New Zealand has an international reputation for an open and transparent economy where businesses and investors can make commercial transactions with ease.  Major political parties are committed to an open trading regime and sound rule of law practices.  This is regularly reflected in high global rankings in the World Bank’s Ease of Doing Business report and Transparency International’s Perceptions of Corruption index.  In the aftermath of the global financial crisis, the government and the Reserve Bank made substantive legislative and regulatory changes to the financial system.  This included the establishment of the Financial Markets Authority, enacting comprehensive Anti-Money Laundering and Countering Financing of Terrorism legislation, and implementing macro-prudential policy to help identify and address systemic risk in the finance sector.  This year the Reserve Bank will continue its review proposing to increase banks’ capital requirements to add further resilience to the financial system.

Since the new Labour party-led government coalition took power in October 2017, there has been a modest shift in economic priorities to more social initiatives while continuing to acknowledge New Zealand’s dependence on trade.  The government has indicated a slight change in focus in trade agreement negotiations and has amended employment legislation passed by the previous government.  It has also passed a range of legislation that aligns New Zealand law with international norms such as the criminalization of cartel behavior.

The government has also passed legislation – and proposed further legislation – that tightens rules governing the ability of overseas persons to invest in New Zealand.  In December 2017, the government tightened regulations on rural land, and in October 2018 passed legislation to make the purchase of residential property by foreigners subject to overseas investment screening.  In April 2019, the government released a 122-page consultation document for the second phase of proposed changes to the overseas investment regime.  The second phase considers restricting foreign investment in New Zealand assets that have a “national interest,” introducing regulations for overseas companies that extract water in New Zealand and bottle for export, and considering other assets that should be subject to screening, particularly those that fall below the current NZD 100 million (USD 68 million) threshold.

The government introduced a bill requiring non-resident companies to charge New Zealand sales tax on low-value items they export to New Zealand, and considered the implementation of a digital services tax to target large multinational companies before the OECD releases expected guidelines.  The government categorically ruled out a capital gains tax, leaving New Zealand one of just several Organization for Economic Co-operation and Development (OECD) countries to not have one.

The Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) agreement entered into force on December 30, 2018 for New Zealand, and instituted immediate tariff cuts on some key products, with subsequent cuts in early 2019.  It is the first free trade agreement New Zealand has secured with Japan, Canada, and Mexico.

Half of New Zealand’s foreign direct investment (FDI) comes from Australia, with the United States ranking second, constituting about seven percent.  Similarly, over half of New Zealand’s outward direct investment goes to Australia, with the United States ranked second at about 14 percent.  The 2019 Investment Climate Statement for New Zealand uses the exchange rate of NZD 1 = USD 0.68.

Table 1: Key Metrics and Rankings

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 2 of 175 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2019 1 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2018 22 of 126 https://www.globalinnovationindex.org/analysis-indicator
U.S.  FDI in partner country ($M USD, stock positions) 2017 $11,938 http://www.bea.gov/international/factsheet/
World Bank GNI per capita 2017 $38,970 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Foreign investment in New Zealand is generally encouraged without discrimination.  New Zealand has an open and transparent economy, where businesses and investors can generally make commercial transactions with ease.  Successive governments accept that foreign investment is an important source of financing for New Zealand and a means to gain access to foreign technology, expertise, and global markets.  Some restrictions do apply in a few areas of critical interest including certain types of land, significant business assets, and fishing quotas. These restrictions are facilitated by a screening process conducted by the Overseas Investment Office (OIO), described in the next section.

New Zealand has a rapidly expanding network of bilateral investment treaties and free trade agreements that include investment components.  New Zealand also has a well-developed legal framework and regulatory system, and the judicial system is generally effective in enforcing property and contractual rights.  Investment disputes are rare, and there have been no major disputes in recent years involving U.S. companies.

The Labour Party-led government has embarked on a program of tighter screening of some forms of foreign investment.  It has also focused on different aspects of trade agreement negotiation compared with the previous government, such as an aversion to investor-state dispute settlement provisions, and moved to restrict the availability of permits for oil and gas exploration.  This will be discussed below in a later section.

Crown entity New Zealand Trade and Enterprise (NZTE) is New Zealand’s primary investment promotion agency.  In addition to its New Zealand central and regional presence, it has 40 international locations, including four offices in the United States.  Approximately half of the NZTE staff is based overseas. The NZTE offers to help investors develop their plans, access opportunities, and facilitate connections with New Zealand-based private sector advisors: https://www.nzte.govt.nz/investment-and-funding/how-we-help.  Once investors independently complete their negotiations, due diligence, and receive confirmation of their investment, the NZTE offers aftercare advice. The NZTE works to channel investment into regional areas of New Zealand to build capability and to promote opportunities outside of the country’s main cities. 

In recent years new visa categories were created for investors and for entrepreneurs, and measures introduced to allow foreign investors – under certain circumstances – to bid alongside New Zealand businesses for contestable government funding for research and innovation grants.  Most of the programs which are operated by NZTE, the Ministry of Business, Innovation, and Employment (MBIE), and Callaghan Innovation, provide support through skills and knowledge, or supporting innovative business ventures. Grants are available, but many are co-funded, requiring some investment by the business owner, and extra conditions apply to non-resident applicants.  For more see: https://www.business.govt.nz/how-to-grow/getting-government-grants/what-can-i-get-help-with/

The New Zealand-United States Council, established in 2001, is a non-partisan organization funded by business and the government.  It fosters a strong and mutually beneficial relationship between New Zealand and the United States through both government-to-government contacts, and business-to-business links.  The American Chamber of Commerce in Auckland provides a platform for New Zealand and U.S. businesses to network among themselves and with government agencies.

Limits on Foreign Control and Right to Private Ownership and Establishment

[Sectors:]

The New Zealand government does not discriminate against U.S. or other foreign investors in their rights to establish and own business enterprises.  It has placed separate limitations on foreign ownership of airline Air New Zealand and telecommunications provider Spark New Zealand (Spark).

Air New Zealand’s constitution requires that no person who is not a New Zealand national hold 10 percent or more of the voting rights without the consent of the Minister of Transport.  There must be between five and eight board directors, at least three of which must reside in New Zealand. In 2013 the government sold a partial stake in Air New Zealand reducing its equity interest from 73 percent to 53 percent.

Spark’s constitution requires at least half of its Board be New Zealand citizens, and at least one director must live in New Zealand.  It requires no person shall have a relevant interest in 10 percent or more of the voting shares without the consent of the Minister of Finance and the Spark Board, and no person who is not a New Zealand national can purchase a relevant interest in more than 49.9 percent of the total voting shares without approval from the Minister of Finance.  This telecommunications service obligation (TSO) – formerly known as the “Kiwishare obligation” – has been in operation since Spark’s privatization in 1990, and was motivated in part because of the vital emergency call service it provides. There are TSOs for charge-free local calling (provided by Spark and supported by Chorus), and for the services for deaf, hearing impaired, and speech impaired people (provided by Sprint International).

The establishment of telecommunications infrastructure provider Chorus resulted from a demerger of Spark in 2011.  Chorus owns most of the telephone infrastructure in New Zealand, and provides wholesale services to telecommunications retailers, including Spark.  The demerger freed Spark from the TSO, but obligated Chorus as a natural monopoly and infrastructure provider. To date the New Zealand government has granted approval to two private companies – in April 2012 and December 2017 – to exceed the 10 percent threshold, and increase their interest in Chorus up to 15 percent.

[National Security: TICSA]

New Zealand screens overseas investment mainly for economic reasons, but has legislation that outlines a framework to protect the national security of telecommunication networks.  The Telecommunications (Interception and Security) Act 2013 (TICSA) sets out the process for network operators to work with the Government Communications Security Bureau (GCSB) – in accordance with Section 7   – to prevent, sufficiently mitigate, or remove security risks arising from the design, build, or operation of public telecommunications networks; and interconnections to or between public telecommunications networks in New Zealand or with networks overseas.   In April 2019 the government signaled it would be considering a “national interest” restriction on foreign investment, when it issued a document for public consultation  .

[Economic Security: OIO]

New Zealand otherwise screens overseas investment to ensure quality investments are made that benefit New Zealand.  Failure to obtain consent before purchase can lead to significant financial penalties. The Overseas Investment Office (OIO) is responsible for screening foreign investment that falls within certain criteria specified in the Overseas Investment Act 2005. 

The OIO requires consent be obtained by overseas persons wishing to acquire or invest in significant business assets, sensitive land, farm land, or fishing quota, as defined below.

A “significant business asset” includes: acquiring 25 percent or more ownership or controlling interest in a New Zealand company with assets exceeding NZD 100 million (USD 68 million); establishing a business in New Zealand that will be operational more than 90 days per year and expected costs of establishing the business exceeds NZD 100 million; or acquiring business assets in New Zealand that exceed NZD 100 million. 

OIO consent is required for overseas investors to purchase “sensitive land” either directly or acquiring a controlling interest of 25 percent or more in a person who owns the land.  Non-residential sensitive land includes land that: is non-urban and exceeds five hectares (12.35 acres); is part of or adjoins the foreshore or seabed; exceeds 0.4 hectares (1 acre) and falls under of the Conservation Act of 1987 or it is land proposed for a reserve or public park; is subject to a Heritage Order, or is a historic or wahi tapu area (sacred Maori land); or is considered “special land” that is defined as including the foreshore, seabed, riverbed, or lakebed and must first be offered to the Crown.  If the Crown accepts the offer, the Crown can only acquire the part of the “sensitive land” that is “special land,” and can acquire it only if the overseas person completes the process for acquisition of the sensitive land.

The Waitangi Tribunal was established by the Treaty of Waitangi Act 1975 to hear Maori claims relating to the loss of land and resources as a result of historical breaches by the Crown of the Treaty of Waitangi signed in 1840.  Maori land claims may not be lodged relating to privately owned land and affect only land owned by the Crown. Some private land titles are noted with a memorial recording that the land, when Crown land, would be subject to a claim and therefore repurchased by the Crown for market value at some future time.  No land in New Zealand has to date been the subject of a repurchase decision.

Where a proposed acquisition involves “farm land” (land used principally for agricultural, horticultural, or pastoral purposes, or for the keeping of bees, poultry, or livestock), the OIO can only grant approval if the land is first advertised and offered on the open market in New Zealand to citizens and residents.  The Crown can waive this requirement in special circumstances at the discretion of the relevant Minister.

Commercial fishing in New Zealand is controlled by the Fisheries Act, which sets out a quota management system that prohibits commercial fishing of certain species without the ownership of a fishing quota which specifies the quantity of fish that may be taken.  OIO legislation together with the Fisheries Act, requires consent from the relevant Ministers in order for an overseas person to obtain an interest in a fishing quota, or an interest of 25 percent or more in a business that owns or controls a fishing quota.

For investments that require OIO screening, the investor must demonstrate in their application they meet the criteria for the “Investor Test” and the “Benefit to New Zealand test.” The former requires the investor to display the necessary business experience and acumen to manage the investment, demonstrate financial commitment to the investment, and be of “good character” meaning a person who would be eligible for a permit under New Zealand immigration law.

The “Benefit to New Zealand test” requires the OIO assess the investment against 21 factors, which are set out in the OIO Act and Regulations.  The OIO applies a counterfactual analysis to those benefit factors that are capable of having a counterfactual applied, the onus is upon the investor to consider the likely counterfactual if the overseas investment does not proceed.  Economic factors are given weighting, particularly if the investment will create new job opportunities, retain existing jobs, and lead to greater efficiency or productivity domestically.

For all four categories the threshold is higher for Australian investors.  Australian non-government investors are screened at NZD 530 million (USD 360 million) and Australian government investors at NZD 111 million (USD 75 million) for 2019, with both amounts reviewed each year in accordance with the 2013 Protocol on Investment to the New Zealand-Australia Closer Economic Relations Trade Agreement.  Separately, non-government investors from CPTPP countries face a screening threshold of NZD 200 million (USD 136 million).

The OIO Regulations set out the fee schedule for lodging new applications which can be costly, currently ranging between NZD 13,000 (USD 8,800) to NZD 54,000 (USD 36,700).  The Overseas Investment Act does not prescribe timeframes within which the OIO must make a decision on any consent applications, and current processing times regularly exceed six months.  In recent years some investors have abandoned their applications, and have been vocal in their frustration with costs and time frames involved in obtaining OIO consent.

The OIO monitors foreign investments after approval.  All consents are granted with reporting conditions, which are generally standard in nature.  Investors must report regularly on their compliance with the terms of the consent. Offenses include: defeating, evading, or circumventing the OIO Act; failure to comply with notices, requirements, or conditions; and making false or misleading statements or omissions.  If an offense has been committed under the Act, the High Court has the power to impose penalties, including monetary fines, ordering compliance, and ordering the disposal of the investor’s New Zealand holdings.

Other Investment Policy Reviews

New Zealand has not conducted an Investment Policy Review through the OECD or the United Nations Conference on Trade and Development (UNCTAD) in the past three years.  New Zealand’s last Trade Policy Review was in 2015 and the next will take place in 2021: https://www.wto.org/english/tratop_e/tpr_e/tp416_e.htm 

Business Facilitation

The New Zealand government has shown a strong commitment to continue efforts to streamline business facilitation.  According to the World Bank’s Ease of Doing Business 2019 report New Zealand is ranked first in “Starting a Business,” “Registering Property,” “Getting Credit,” and is ranked second for “Protecting Minority Investors.”

There are no restrictions on the movement of funds into or out of New Zealand, or on the repatriation of profits.  No additional performance measures are imposed on foreign-owned enterprises, other than those that require OIO approval.  Overseas investors must adhere to the normal legislative business framework for New Zealand-based companies, which includes the Commerce Act 1986, the Companies Act 1993, the Financial Markets Conduct Act 2013, the Financial Reporting Act 2013, and the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT).  The Contract and Commercial Law Act 2017 was passed to modernize and consolidate existing legislation underpinning contracts and commercial transactions. 

The tightening of anti-money laundering laws has impacted the cross-border movement of remittance orders from New Zealanders and migrant workers to the Pacific Islands.  Banks, non-bank institutions, and people in occupations that typically handle large amounts of cash, are required to collect additional information about their customers and report any suspicious transactions to the New Zealand Police.  If an entity is unable to comply with the AML/CFT in its dealings with a customer, it must not do business with that person. For banks this would mean not processing certain transactions, withdrawing the banking products and services it offers, and choosing not to have that person as a customer.  This has resulted in some banks charging higher fees for remittance services in order to reduce their exposure to risks, which has led to the forced closing of accounts held by some money transfer operators. Phase 1 sectors which include financial institutions, remitters, trust and company service providers, casinos, payment providers, and lenders have had to comply with the AML/CFT since 2013.  Under Phase 2 the AML/CFT was extended to lawyers, conveyancers from July 2018, accountants, and bookkeepers from October 2018, and realtors from January 2019.

In order to combat the increasing use of New Zealand shell companies for illegal activities, the Companies Amendment Act 2014 and the Limited Partnerships Amendment Act 2014 introduced new requirements for companies registering in New Zealand.  Companies must have at least one director that either lives in New Zealand, or lives in Australia and is a director of a company incorporated in Australia. New companies incorporated must provide the date and place of birth of all directors, and provide details of any ultimate holding company.  The Acts introduced offences for serious misconduct by directors that results in serious losses to the company or its creditors, and aligns the company reconstruction provisions in the Companies Act with the Takeovers Act 1993 and the Takeovers Code Approval Order 2000.

The Companies Office holds an overseas business-related register, and provides that information to persons in New Zealand who intend to deal with the company or to creditors in New Zealand.  The information provided includes where and when the company was incorporated, if there is any restriction on its ability to trade contained in its constitutional documents, names of the directors, its principal place of business in New Zealand, and where and on whom documents can be served in New Zealand.  For further information on how overseas companies can register in New Zealand: https://www.companiesoffice.govt.nz/companies/learn-about/starting-a-company/register-an-overseas-company-other 

The New Zealand Business Number (NZBN) Act 2016 allows the allocation of unique identifiers to eligible entities to enable them to conduct business more efficiently, interact more easily with the government, and to protect the entity’s security and confidentiality of information.  All companies registered in New Zealand have had NZBNs since 2013, and are also available to other types of businesses such as sole traders and partnerships.

Tax registration is recommended when the investor incorporates the company with the Companies Office, but is required if the company is registering as an employer and if it intends to register for New Zealand’s consumption tax, the Goods and Services Tax (GST), which is currently 15 percent.  Companies importing into New Zealand or exporting to other countries which have a turnover exceeding NZD 60,000 (USD 40,800) over a 12-month period, or expect to pass NZD 60,000 in the next 12 months, must register for GST. Non-resident businesses that conduct a taxable activity supplying goods or services in New Zealand and make taxable supplies in New Zealand, must register for GST:  https://www.ird.govt.nz/index/all-tasks. From 2014, non-resident businesses that do not make taxable supplies in New Zealand have been able to claim GST if they meet certain criteria  

To comply with GST registration, overseas companies need two pieces of evidence to prove their customer is a resident in New Zealand, such as their billing address or IP address, and a GST return must be filed every quarter even if the company does not make any sales.

In 2016 mandatory GST registration was extended to non-resident suppliers of “remote services” to New Zealand customers, if they meet the NZD 60,000 annual sales threshold.  In 2018, the government introduced legislation that if enacted, will require non-resident suppliers of low-value import goods to register for GST, if they meet the NZD 60,000 annual sales threshold.  Both are discussed in a later section.

Outward Investment

The New Zealand government does not place restrictions on domestic investors to invest abroad.

NZTE is the government’s international business development agency.  It promotes outward investment and provides resources and services for New Zealand businesses to prepare for export and advice on how to grow internationally.  The Ministry of Foreign Affairs and Trade (MFAT) and Customs New Zealand each operates business outreach programs that advise businesses on how to maximize the benefit from FTAs to improve the competitiveness of their goods offshore, and provides information on how to meet requirements such as rules of origin.

Norway

Executive Summary

Norway is a modern, highly-developed country with a small but very strong economy.  Per capita GDP is among the highest in the world, boosted by success in the oil and gas sector and other world-class industries like shipping, shipbuilding and aquaculture.  The major industries are supported by a strong and growing professional services industry (finance, ICT, legal), and there are emerging opportunities in cleantech, medtech and biotechnology.  Strong collaboration between industry and research institutions attracts international R&D activity and funding. The economy has rebounded from the 2014-15 downturn in the oil and gas sector.

Norway is a safe and straightforward place to do business, ranked 7 out of 190 countries in the World Bank’s 2018 Doing Business Report, and 7 out of 180 on Transparency International’s 2018 Corruption Perceptions Index.  Norway is politically stable, with strong property rights protection and an effective legal system. Productivity is significantly higher than the EU average.

Norwegian lawmakers and businesses welcome foreign investment as a matter of policy and the government generally grants national treatment to foreign investors.  Some restrictions exist on foreign ownership and use of natural resources and infrastructure. The government remains a major owner in the Norwegian economy and retains monopolies on a few activities, such as the retail sale of alcohol.

While not a member of the European Union (EU), Norway is a member of the European Economic Area (EEA; including Iceland and Liechtenstein) with access to the EU single market’s movement of persons, goods, services and capital).  The Norwegian government continues to liberalize its foreign investment legislation with the aim of conforming more closely to EU standards and has cut bureaucratic regulations over the last decade to make investment easier.  Foreign direct investment in Norway stood at USD 150 billion at the end of 2017 and has more than doubled over the last decade. In 2013, the government established “Invest in Norway,” the official investment promotion agency, to help attract and assist foreign investors.  There are about 5,500 foreign-owned companies in Norway, and over 650 U.S. companies have a presence in the country, employing more than 45,000 people.

Table 1: Key Metrics and Rankings

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 7 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2019 7 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2018 19 of 126 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, stock positions) 2017 32,318 http://www.bea.gov/international/factsheet/
World Bank GNI per capita (USD) 2017 75,990 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Norwegian lawmakers and businesses welcome foreign investment as a matter of policy and the government generally grants national treatment to foreign investors.  In 2013, the Government established “Invest in Norway,” the official investment promotion agency, to help attract and assist foreign investors, particularly in the key offshore petroleum sector and in less developed regions such as northern Norway .

While not a member of the European Union, Norway is an EEA signatory and continues to liberalize its foreign investment legislation to conform more closely to EU standards.  Current laws, rules, and practices follow below.

Limits on Foreign Control and Right to Private Ownership and Establishment

Norway’s investment policies vis-á-vis third countries, including the United States, will likely continue to be governed by reciprocity principles and by bilateral and international agreements.  The European Economic Area (EEA) free trade accord, which came into force for Norway in 1995, requires the country to apply principles of national treatment to EU members and the other EEA members – Iceland and Liechtenstein – in certain areas where foreign investment was prohibited or restricted in the past.  Norway’s investment regime is generally based on the national treatment principle, but ownership restrictions exist on some natural resources and on some activities (fishing/ maritime/ road transport). State ownership in companies can be used as a means of ensuring Norwegian ownership and domicile for these firms.

Government Monopolies

Norway has traditionally barred foreign and domestic investors alike from investing in certain industries, including postal services, railways, and the retail sale of alcohol.  In 2004, Norway slightly relaxed the restrictions, allowing foreign companies to bid on certain commercial postal services (e.g., air express services between countries) and railway cargo services (notably between Norway and Sweden).  In 2016, the government initiated a reform of the railway sector leading to the first railway line opening for competition in 2018. The government has a mandate to allow foreign investment in hydropower (limited to 20 percent of equity), but rarely does so.  However, the government has fully opened the electricity distribution system to foreign participation, making it one of the most liberalized power sectors in the world.

Ownership of Real Property

Foreign investors may generally own real property, though ownership of certain real assets is restricted.  Companies must obtain a concession to acquire rights to own or use various kinds of real property, including forests, mines, tilled land, and waterfalls.  Foreign companies need not seek concessions to rent real estate, e.g. commercial facilities or office space, provided the rental contract period does not exceed ten years.  The two major laws governing concessions are the Act of December 14, 1917, and the Act of May 31, 1974.

Petroleum Sector

The Petroleum Act of November 1996 (superseding the 1985 Petroleum Act) sets forth the legal basis for Norwegian authorities’ awards of petroleum exploration rights, production blocks and follow-up activity.  The Act covers governmental control over exploration, production, and transportation of petroleum.

Foreign oil companies report no discrimination in the award of petroleum exploration and development blocks in recent licensing rounds.  The Norwegian government has implemented EU directives requiring equal treatment of EEA oil and gas companies. The Norwegian offshore concession system complies with EU directive 94/33/EU of May 30, 1994, which governs conditions for awards and hydrocarbon development.  Norway’s concession process operates on a discretionary basis, with the Ministry of Petroleum and Energy awarding licenses based on which company or group of companies it views will be the best overall operator for a particular field, rather than purely competitive bids. A number of U.S. energy companies are present on the Norwegian Continental Shelf (NCS).

The Norwegian government has dismantled former tight controls over the gas pipeline transit network that carries gas to the European market.  All gas producers and operators on the NCS are free to negotiate gas sales contracts on an individual basis, with access to the gas export pipeline network guaranteed.

Norwegian authorities encourage the use of Norwegian goods and services in the offshore petroleum sector, but do not require it.  The Norwegian share of the total supply of goods and services on the NCS has remained at approximately 50 percent over the last decade.

Manufacturing Sector

Norwegian legislation granting national treatment to foreign investors in the manufacturing sector dates from 1995.  Legislation was repealed in July 2002 that formerly required both foreign and Norwegian investors to notify and, in some cases, file burdensome reports to the Ministry of Industry and Trade if their holdings of a company’s equity exceeded certain threshold levels.  Foreign investors are not currently required to obtain government authorization before buying shares of Norwegian corporations.

Financial and Other Services

In 2004, the Norwegian government liberalized restrictions on acquisitions of equity in Norwegian financial institutions.  Current regulations delegate responsibility for acquisitions to the Norwegian Financial Supervisory Authority and streamline the process. Financial Supervisory Authority permission is required for acquisitions of Norwegian financial institutions that exceed defined threshold levels (20, 25, 33 or 50 percent).  The Authority assesses the acquisitions to ensure that prospective buyers are financially stable and that the acquisition does not unduly limit competition.

The Authority applies national treatment to foreign financial groups and institutions, but nationality restrictions still apply to banks.  At least half the members of the board and half the members of the corporate assembly of a bank must be nationals and permanent residents of Norway or another EEA nation.  Effective January 1, 2005, there is no ceiling on foreign equity in a Norwegian financial institution as long as the Authority has granted permission for the acquisition.

The Finance Ministry has abolished remaining restrictions on the establishment of branches by foreign financial institutions, including banks, mutual funds and others.  Under the liberalized regime, Norway grants branches of U.S. and other foreign financial institutions the same treatment as domestic institutions.

Media

Media ownership is regulated by the Media Ownership Act of 1997 and the Norwegian Media Authority.  No individual party, domestic or foreign, may control more than 1/3 of the national newspaper, radio and/or television markets without a concession.  National treatment is granted in line with Norway’s obligations under the EEA accord. The introduction and growing importance of new media forms (including those emerging from the internet and wireless industries) has raised concerns that the existing domestic legal regime (which largely focuses on printed media) is becoming outmoded.

Other Investment Policy Reviews

The Organization for Economic Cooperation and Development (OECD) conducted an Economic Survey for Norway in 2018:  https://www.oecd-ilibrary.org/economics/oecd-economic-surveys-norway-2018_eco_surveys-nor-2018-en  

Business Facilitation

Altinn is a web portal that serves as a one-stop shop for establishing a company and contains the necessary forms; it also provides an electronic dialogue between the business/industry sector, citizens and other stakeholders, and government agencies.  The business registration processes are straight-forward, complete, and open to foreign companies. Please note, however, that registration of Norwegian Registered Foreign Business Enterprises (NUF) cannot be done electronically. A guide for establishing a business is available at the following address: https://www.altinn.no/en/start-and-run-business/  

Outward Investment

The government does not incentivize outward investment.  Norway’s Government Pension Fund Global, the largest sovereign wealth fund in the world, owns 1.4 percent of all listed companies in the world.

Portugal

Executive Summary

Portugal’s economy is fully integrated into the European Union (EU).  Fellow EU member states are Portugal’s primary trading partners and investors.  Portugal complies with EU law for equal treatment of foreign and domestic investors.  Beyond Europe, Portugal maintains significant links with former colonies including Brazil, Angola, and Mozambique.  Portugal is one of 19 Eurozone members; the European Central Bank (ECB) acts as central bank for the euro (EUR) and determines monetary policy.

The services sector in general, and Portugal’s tourism industry in particular, has been an engine of economic recovery, while traditional sectors like textiles, footwear, and agriculture have moved up the value chain and become more export-oriented.  The auto sector, together with heavy industry, the tech sector, construction and energy also remain influential clusters.

Portugal’s economic recovery and pro-business policies continue to make it an attractive market for investment.  In 2018, Portugal attracted EUR 118.6 billion in FDI inflows, including USD 2.1 billion from the United States. In 2018, the economy continued its upward trajectory and completed its EUR 78 billon EU-IMF-ECB bailout program.  Unemployment dropped below 7 percent and GDP growth was 2.1 percent, falling from 2.7 percent in 2017. Despite slowing growth, Portugal has continued to reduce its public debt, slashing it to 121.5 percent of GDP in 2018, compared to 124.8 percent the year before.  Nonetheless, the country’s high debt-to-GDP ratio remains a weak point.

Portugal’s banking sector has faced challenges in recent years, including the costly central bank-led resolution of Banco Espirito Santo (succeeded by Novo Banco) in 2014 and Banif in 2015.  Even so, the sector’s biggest private banks have regained momentum while continuing to undergo restructuring and recapitalizations to address the lingering stock of non-performing loans.

Table 1: Key Metrics and Rankings

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 30 of 180 http://www.transparency.org/research/cpi/overview 
World Bank’s Doing Business Report 2019 34 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2018 32 of 126 https://www.globalinnovationindex.org/analysis-indicator 
U.S.  FDI in partner country ($M USD, stock positions) 2017 $2,060 http://www.bea.gov/international/factsheet/ 
World Bank GNI per capita 2017 $19,820 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.  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 the attraction of foreign direct investment (FDI), global promotion of Portuguese brands, and export of goods and services.  It is the primary point of contact for investors with projects over EUR 25 million or companies with a consolidated turnover of more than EUR 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: http://www.portugalglobal.pt/EN/SourceFromPortugal/prominent-clusters/Pages/prominent-clusters.aspx  .

The Portuguese government maintains regular contact with investors through the Confederation of Portuguese Business (CIP), the Portuguese Chamber of Commerce and Industry and AICEP.  More information can be found at these websites:

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.

Shareholders not resident in Portugal 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.

There are national security limitations on both foreign and domestic investments with regard to certain economic activities.  Portuguese government approval is required in the following sectors: defense, water management, public telecommunications, railway, 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 manufacturing 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.

Portugal also limits foreign investment in the provision of executive search services, placement services of office support personnel, and publicly-funded social services.

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.

Portugal enacted a national security investment review framework in 2014, giving the Council of Ministers authority to block specific foreign investment transactions.  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 belonging to the European Union.  In such instances, the review process is overseen by the relevant Portuguese ministry according to the assets in question.

Other Investment Policy Reviews

The OECD presented in February 2019 its latest Economic Survey of Portugal, including an updated macro overview and a set of policy recommendations.  The report can be found at: http://www.oecd.org/economy/surveys/Portugal-2019-economic-survey-overview.pdf 

Business Facilitation

Since 2010, the Portuguese Government has prioritized policies to increase the country’s appeal as a destination for foreign investment.  In 2007, the Government established AICEP, a promotion agency for investment and foreign trade that also, through its subsidiary AICEP Global Parques, manages industrial parks and provides business location solutions for investors.

The government has developed effective warehouse and transport logistics, especially at the Sines Port terminal southwest of Lisbon, and telecommunications infrastructure has improved.  In March 2018, construction began on an 80-kilometer railway line between Evora and Elvas, which will improve commercial transportation between the Portuguese ports of Sines and Lisbon, and the Southwestern European Logistics Platform (PLSWE) in Badajoz, Spain, reducing freight transportation times to the rest of Europe.  On January 11, the Portuguese Government launched a EUR 22 billion infrastructure investment plan for 2019 to 2030, listing 72 projects across transportation, energy and water.

Established in 2012, Portugal’s “Golden Visa” program gives fast-track residence permits to foreign investors meeting certain conditions, including making a capital transfer of at least EUR 1 million, creating at least 10 jobs in Portugal, or acquisition of real estate worth at least EUR 500 million.  Since 2012, Portugal has issued 7,208 golden visas to investors. Visa programs such as Portugal’s “Golden Visa” initiative have recently come under scrutiny in the European Union.

Other measures implemented to help attract foreign investment include the easing of some labor regulations to increase workplace flexibility and the creation of a special EU-funded program, Portugal 2020, for projects above EUR 25 million.  Finally, to combat the perception of a cumbersome regulatory climate, the Government has created a “Cutting Red Tape” website detailing 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 http://www.empresanahora.pt/ENH/sections/EN_homepage   and http://www.cuttingredtape.mj.pt/uk/asp/default.asp  .

Portuguese citizens can alternatively register a business online through the “Citizen’s Portal” available at: https://bde.portaldocidadao.pt/evo/landingpage.aspx  .  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 service 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 less than 10 employees and no more than EUR 2 million in revenues or EUR 2 million in assets.  Small enterprises must have less than 50 employees and no more than EUR 10 million in revenues or EUR 10 million in assets. Medium-sized enterprises must have less than 250 employees and no more than EUR 50 million in revenues or EUR 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: http://www.iapmei.pt/  .

More information on laws, procedures, registration requirements, and investment incentives for foreign investors in Portugal is available on AICEP’s website: http://www.portugalglobal.pt/  
EN/InvestInPortugal/investorsguide2/
howtosetupacompany/Paginas/ForeignInvestment.aspx
 
.

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 of Portuguese companies, particularly SMEs. See more at: http://www.portugalglobal.pt/PT/sobre-nos/
Paginas/sobre-nos.aspx#sthash.aifdjkOs.dpuf
 
.

Singapore

Executive Summary

Singapore maintains an open, heavily trade-dependent economy, characterized by a predominantly open investment regime, with strong government commitment to maintaining a free market and to actively managing Singapore’s economic development. U.S. companies regularly cite transparency and lack of corruption, business-friendly laws and regulations, tax structure, customs facilitation, intellectual property protections, and well-developed infrastructure as attractive features of the investment climate. The World Bank’s Doing Business 2018 report ranked Singapore as the world’s second-easiest country in which to do business.  The Global Competitiveness Report 2018 by the World Economic Forum ranked Singapore as the second-most competitive economy globally. Singapore typically ranks as the least corrupt country in Asia and one of the least corrupt in the world, and actively enforces its robust anti-corruption laws. Transparency International’s 2018 Corruption Perception Index placed Singapore as the third least corrupt nation. The U.S.-Singapore Free Trade Agreement (USSFTA), which came into force on January 1, 2004, expanded U.S. market access in goods, services, investment, and government procurement, enhanced intellectual property protection, and provided for cooperation in promoting labor rights and environmental protections.

Singapore has a diversified economy and attracts substantial foreign investment in manufacturing (petrochemical, electronics, machinery, and equipment) and services (financial services, wholesale and retail trade, and business services). The government actively promotes the country as a research and development (R&D) and innovation center for businesses by offering tax incentives, research grants, and partnership opportunities with domestic research agencies. U.S. direct investment in Singapore in 2017 reached USD 274.3 billion, primarily in non-bank holding companies, manufacturing (particularly computers and electronic products), and finance and insurance – an increase of 7.4 percent from the previous year.  The investment outlook remains positive due to regional GDP growth. In 2018, U.S. companies pledged USD 4.1 billion in future investments in Singapore’s manufacturing and services sectors.

Looking ahead, Singapore is poised to attract foreign investments in digital innovation and cybersecurity. The Government of Singapore (hereafter, “the government”) is investing heavily in automation, artificial intelligence, and integrated systems under its Smart Nation banner and seeks to establish itself as a regional hub.

In recent years, the government has tightened foreign labor policies to encourage firms to improve productivity and employ more Singaporean workers. The government introduced measures in the 2019 budget to further decrease the ratio of mid- and low-skilled foreign workers to local employees in a firm from 40 percent to 38 percent beginning January 1, 2020 and then down to 35 percent in 2021. These cuts, which target the service sector, were taken despite industry concerns about skills gaps. To address some of these concerns, the government has introduced programs that partially subsidize the cost to firms of recruiting, hiring, and training local workers.

Table 1: Key Metrics and Rankings

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 3 of 175 http://www.transparency.org/research/cpi/overview 
World Bank’s Doing Business Report 2018 2 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2018 5 of 126 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, stock positions) 2017 $274,260 http://www.bea.gov/international/factsheet/ 
World Bank GNI per capita 2017 $54,530 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Singapore maintains a heavily trade-dependent economy characterized by an open investment regime, with some licensing restrictions in the financial services, professional services, and media sectors. The World Bank’s Doing Business 2018 report ranked Singapore as the world’s second-easiest country in which to do business. The 2018 Global Competitiveness Report ranks Singapore as the second -most competitive economy globally. The 2004 USSFTA expanded U.S. market access in goods, services, investment, and government procurement, enhanced intellectual property protection, and provided for cooperation in promoting labor rights and the environment.

The Government of Singapore is committed to maintaining a free market, but it also actively plans Singapore’s economic development, including through a network of government-linked corporations (GLCs). As of February 2019, the top three Singapore-listed GLCs accounted for 13.1 percent of total capitalization of the Singapore Exchange (SGX). Some observers have criticized the dominant role of GLCs in the domestic economy, arguing that they have displaced or suppressed private sector entrepreneurship and investment.

Singapore’s legal framework and public policies are generally favorable toward foreign investors. Foreign investors are not required to enter into joint ventures or cede management control to local interests, and local and foreign investors are subject to the same basic laws. Apart from regulatory requirements in some sectors (reference Limits on National Treatment and Other Restrictions), eligibility for various incentive schemes depends on investment proposals meeting the criteria set by relevant government agencies. Singapore places no restrictions on reinvestment or repatriation of earnings or capital. The judicial system, which includes international arbitration and mediation centers and a commercial court, upholds the sanctity of contracts, and decisions are generally considered to be transparent and effectively enforced.

Singapore’s Economic Development Board (EDB) is the lead investment promotion agency that facilitates foreign investment into Singapore (https:www.edb.gov.sg). EDB undertakes investment promotion and industry development and works with international businesses, both foreign and local, by providing information and facilitating introductions and access to government incentives. The government maintains close engagement with investors through the EDB, which provides feedback to other government agencies to ensure that infrastructure and public services remain efficient and cost-competitive.

Exceptions to Singapore’s general openness to foreign investment exist in telecommunications, broadcasting, the domestic news media, financial services, legal and accounting services, and ports and airports sectors, as well as property ownership. Under Singapore law, articles of incorporation may include shareholding limits that restrict ownership in corporations by foreign persons.

Telecommunications

Since 2000, the Singapore telecommunications market has been fully liberalized. This move has allowed foreign and domestic companies seeking to provide facilities-based (e.g. fixed line or mobile networks) or services-based (e.g. local and international calls and data services over leased networks) telecommunications services to apply for licenses to operate and deploy telecommunication systems and services. Singapore Telecommunications (SingTel) – a GLC that is majority owned by Temasek, a state-owned investment company with the Singapore Minister for Finance as its sole shareholder – faces competition in all market segments. However, its main competitors, M1 and StarHub, are also GLCs. In December 2018, Australian telco TPG Telecom announced a limited, free mobile service to run through 2019. TPG offers only subscriber identity module (SIM) services in Singapore. In the past three years, four Singapore start-ups offering mobile virtual network operator services (MVNOs) have also entered the market. The three established Singapore telecommunications competitors are expected to strengthen their partnerships with the MVNOs in a defensive move against TPG’s entry.

As of November 2018, Singapore has 69 facilities-based operators and 257 services-based (individual) operators offering prepaid services. Since 2007, SingTel has been exempted from dominant licensee obligations for the residential and commercial portions of the retail international telephone services. SingTel is also exempted from dominant licensee obligations for wholesale international telephone services, international managed data, international IP transit, leased satellite bandwidth (VSAT, DVB-IP, satellite TV Downlink, and Satellite IPLC), terrestrial international private leased circuit, and backhaul services. The info-communications Media Development Authority (IMDA) granted Singtel’s exemption after assessing that the market for these services had effective competition.

In April 2017, Singapore held a General Spectrum Auction for mobile airwaves, the largest such auction in 16 years, allocating additional blocks of spectrum to accommodate increasing demand for mobile data services. Singtel, Starhub, M1, and TPG paid a combined total of USUSD 870 million (SUSD 1.15billion) in this heavily-bid auction for additional frequency bands.  To facilitate 5G technology and service trials, IMDA has waived frequency fees for companies interested in conducting 5G trials for equipment testing, research, and assessment of commercial potential.

Singapore’s IMDA operates as both the regulatory agency and the investment promotion agency for the country’s telecommunications sector. IMDA conducts public consultations on major policy reviews and provides decisions on policy changes to relevant companies.

Media

The local free-to-air broadcasting, cable, and newspaper sectors are effectively closed to foreign firms. Section 44 of the Broadcasting Act restricts foreign equity ownership of companies broadcasting in Singapore to 49 percent or less, although the Act does allow for exceptions. Individuals cannot hold shares that would make up more than five percent of the total votes in a broadcasting company without the government’s prior approval. The Newspaper and Printing Presses Act (NPPA) restricts equity ownership (local or foreign) of newspaper companies to less than five percent per shareholder and requires directors to be Singapore citizens. Newspaper companies must issue two classes of shares, ordinary and management, with the latter available only to Singapore citizens or corporations approved by the government. Holders of management shares have an effective veto over selected board decisions.

Singapore regulates content across all major media outlets. The government controls the distribution, importation, and sale of any newspaper and has curtailed or banned the circulation of some foreign publications. Singapore’s leaders have also brought defamation suits against foreign publishers, which have resulted in the foreign publishers issuing apologies and paying damages. Several dozen publications remain prohibited under the Undesirable Publications Act, which restricts the import, sale, and circulation of publications that the government considers contrary to public interest. Examples include pornographic magazines, publications by banned religious groups, and publications containing extremist religious views. Following a routine review in 2015, the then-Media Development Authority lifted a ban on 240 publications, ranging from decades-old anti-colonial and communist material to adult interest content.

Singaporeans generally face few restrictions on the internet. However, the IMDA has blocked various websites containing material that the government deems objectionable, such as pornography and racist and religious hatred sites. Online news websites that report regularly on Singapore and have a significant reach are individually licensed, which requires these sites to submit a bond of USD 40,000 (SGD 50,000) and to adhere to requirements to remove prohibited content within 24 hours of notification from IMDA. Some view this regulation as a way to censor online critics of the government. In December 2018 authorities charged the editor of an online news site with criminal defamation following the publication of a contributor’s allegedly defamatory letter, although the editor had removed the post when advised to do so by the authorities.

In April 2019, the government introduced legislation in Parliament to counter “deliberate online falsehoods.” The legislation, called the Protection from Online Falsehoods and Manipulation Bill, would require websites to run corrections alongside “online falsehoods” and would impose penalties on sites or individuals that spread “misinformation,” as determined by the government.

Pay-Television

MediaCorp TV is the only free-to-air TV broadcaster and is 100 percent owned by the government via Temasek Holdings (Temasek). Local Pay-TV providers are StarHub and Singtel, which are both partially owned by Temasek or its subsidiaries. Local free-to-air radio broadcasters are MediaCorp Radio Singapore, which is also owned by Temasek Holdings, SPH Radio, owned by the publically-held Singapore Press Holdings, and So Drama! Entertainment, owned by the Singapore Ministry of Defense. BBC World Services is the only foreign free-to-air radio broadcaster in Singapore.

To rectify the high degree of content fragmentation in the Singapore pay-TV market, and shift the focus of competition from an exclusivity-centric strategy to other aspects such as service differentiation and competitive packaging, the MDA implemented cross-carriage measures in 2011 requiring pay-TV companies designated by MDA to be Receiving Qualified Licensees (RQL) – currently SingTel and StarHub – to cross-carry content subject to exclusive carriage provisions. Correspondingly, Supplying Qualified Licensees (SQLs) with an exclusive contract for a channel are required to carry that content on other RQL pay-TV companies. In February 2019, the IMDA proposed to continue the current cross-carriage measures. The Motion Picture Association of America (MPAA) has expressed concern that this measure restricts copyright exclusivity. Content providers consider the measures an unnecessary interference in a competitive market that denies content holders the ability to negotiate freely in the marketplace, and an interference with their ability to manage and protect their intellectual property. More common content is now available across the different pay-TV platforms, and the operators are beginning to differentiate themselves by originating their own content, offering subscribed content online via PCs and tablet computers, and delivering content via fiber networks.

Streaming services have entered the market, which MPAA has found leads to a significant reduction in intellectual property infringements. StarHub and Singtel have both partnered with multiple content providers, including U.S. companies, to provide streaming content in Singapore and around the region.

Banking and Finance

The Monetary Authority of Singapore (MAS) regulates all banking activities as provided for under the Banking Act. Singapore maintains legal distinctions between foreign and local banks and the type of license (i.e. full service, wholesale, and offshore banks) held by foreign commercial banks. As of March 2019, 28 foreign full-service licensees and 97 wholesale banks operated in Singapore. An additional 27 merchant banks are licensed to conduct corporate finance, investment banking, and other fee-based activities. Offshore and wholesale banks are not allowed to operate Singapore dollar retail banking activities. Only Full Banks and “Qualifying Full Banks” (QFBs) can operate Singapore dollar retail banking activities but are subject to restrictions on the number of places of business, ATMs, and ATM networks. Additional QFB licenses may be granted to a subset of full banks, which provide greater branching privileges and greater access to the retail market than other full banks. As of March 2019, there are ten banks operating QFB licenses.

Except in retail banking, Singapore laws do not distinguish operationally between foreign and domestic banks. Currently, all banks in Singapore are required to maintain a Domestic Banking Unit (DBU) and an Asian Currency Unit (ACU), separating international and domestic banking operations from each other. Transactions in Singapore dollars can be booked only in the DBU whereas transactions in foreign currency are typically booked in the ACU. The ACU is an accounting unit that the banks use to book all their foreign currency transactions conducted in the Asian Dollar Market (ADM). This enables additional prudential requirements to be imposed on banks’ domestic businesses in Singapore, while also avoiding undue restrictions on the offshore activities of banks. Following public consultations, MAS initiated a 30-month implementation timeline from February 2017 for the removal of the DBU-ACU divide, which will be aligned with the revisions made to MAS 610 (Submission of Statistics and Returns).

The government initiated a banking liberalization program in 1999 to ease restrictions on foreign banks and has supplemented this with phased-in provisions under the USSFTA, including removal of a 40 percent ceiling on foreign ownership of local banks and a 20 percent aggregate foreign shareholding limit on finance companies. The Minister in charge of the Monetary Authority of Singapore must approve the merger or takeover of a local bank or financial holding company, as well as the acquisition of voting shares in such institutions above specific thresholds of five percent, 12 percent, or 20 percent of shareholdings.

Although Singapore’s government has lifted the formal ceilings on foreign ownership of local banks and finance companies, the approval of controllers of local banks ensures that this control rests with individuals or groups whose interests are aligned with the long-term interests of the Singapore economy and Singapore’s national interests. Of the 29 full-service licenses granted to foreign banks, three have gone to U.S. banks. U.S. financial institutions enjoy phased-in benefits under the USSFTA. Since 2006, U.S.-licensed full-service banks that are also QFBs, which is only one as of March 2019, have been able to operate at an unlimited number of locations (branches or off-premises ATMs) versus 25 for non-U.S. full-service foreign banks with QFB status. U.S. and foreign full-service banks with QFB status can freely relocate existing branches and share ATMs among themselves. They can also provide electronic funds transfer and point-of-sale debit services and accept services related to Singapore’s compulsory pension fund. In 2007, Singapore lifted the quota on new licenses for U.S. wholesale banks.

Locally and non-locally incorporated subsidiaries of U.S. full-service banks with QFB status can apply for access to local ATM networks. However, no U.S. bank has come to a commercial agreement to gain such access. Despite liberalization, U.S. and other foreign banks in the domestic retail-banking sector have reported to still face barriers. Under the enhanced QFB program launched in 2012, MAS requires QFBs it deems systemically significant to incorporate locally. If those locally incorporated entities are deemed “significantly rooted” in Singapore, with a majority of Singaporean or permanent resident members, Singapore may grant approval for an additional 25 places of business, of which up to ten may be branches. Local retail banks do not face similar constraints on customer service locations or access to the local ATM network. As noted above, U.S. banks are not subject to quotas on service locations under the terms of the USSFTA.  Holders of credit cards issued locally by U.S. banks incorporated in Singapore cannot access their accounts through the local ATM networks. They are also unable to access their accounts for cash withdrawals, transfers, or bill payments at ATMs operated by banks other than those operated by their own bank or at foreign banks’ shared ATM network. Nevertheless, full-service foreign banks have made significant inroads in other retail banking areas, with substantial market share in products like credit cards and personal and housing loans.

In January 2019, MAS announced the passage of the Payment Services Bill after soliciting public feedback for design of the bill. The bill requires more payment services such as digital payment tokens, dealing in virtual currency and merchant acquisition, to be licensed and regulated by MAS. It also limits the amount of money stored in personal mobile wallets and how much can be transferred to another user’s bank accounts in a year. Regulations are tailored to the type of activity preformed and address issues related to terrorism financing, money laundering, and cyber risks.

Singapore has no trading restrictions on foreign-owned stockbrokers. There is no cap on the aggregate investment by foreigners regarding the paid-up capital of dealers that are members of the SGX. Direct registration of foreign mutual funds is allowed provided MAS approves the prospectus and the fund. The USSFTA has relaxed conditions foreign asset managers must meet in order to offer products under the government-managed compulsory pension fund (Central Provident Fund Investment Scheme).

Legal Services

The Legal Services Regulatory Authority (LSRA) under the Ministry of Law oversees the regulation, licensing, and compliance of all law practice entities and the registration of foreign lawyers in Singapore. Foreign law firms with a licensed Foreign Law Practice (FLP) may offer the full range of legal services in foreign law and international law but cannot practice Singapore law except in the context of international commercial arbitration. U.S. and foreign attorneys are allowed to represent parties in arbitration without the need for a Singapore attorney to be present. To offer Singapore law, FLPs require either a Qualifying Foreign Law Practice (QFLP) license, a Joint Law Venture (JLV) with a Singapore Law Practice (SLP), or a Formal Law Alliance (FLA) with a SLP. The vast majority of Singapore’s 127 foreign law firms operate FLPs, while QFLPs and JLVs each number in the single digits.

The QFLP licenses allow foreign law firms to practice in permitted areas of Singapore law, which excludes constitutional and administrative law, conveyancing, criminal law, family law, succession law, and trust law. As of March 2019 there are nine QFLPs in Singapore, including five U.S. firms. In January 2019, the Ministry of Law announced the deferral to 2020 of the decision to renew the licenses of five QFLPs, which were set to expire in 2019 so that the government can better assess their contribution to Singapore along with the other four firms whose licenses were also extended to 2020. Decisions on the renewal considers the firms’ quantitative and qualitative performance such as the value of work that the Singapore office will generate, the extent to which the Singapore office will function as the firm’s headquarter for the region, the firm’s contributions to Singapore, and the firm’s proposal for the new license period.

A Joint Law Venture (JLV) is a collaboration between a Foreign Law Practice and Singapore Law Practice, which may be constituted as a partnership or company. The Director of Legal Services in the Legal Services Regulatory Authority (LSRA) will consider all the relevant circumstances including the proposed structure and its overall suitability to achieve the objectives for which JLV are permitted to be established. There is no clear indication on the percentage of shares that each JLV partner may hold in the JLV.

Law degrees from designated U.S., British, Australian, and New Zealand universities are recognized for purposes of admission to practice law in Singapore. Under the USSFTA, Singapore recognizes law degrees from Harvard University, Columbia University, New York University, and the University of Michigan. Singapore will admit to the Singapore Bar law school graduates of those designated universities who are ranked among the top 70 percent of their graduating class or have obtained lower-second class honors (under the British system).

Engineering and Architectural Services

Engineering and architectural firms can be 100 percent foreign-owned. Engineers and architects are required to register with the Professional Engineers Board and the Board of Architects, respectively, to practice in Singapore. All applicants (both local and foreign) must have at least four years of practical experience in engineering or two years of practical training in architectural works, and pass written and oral examinations set by the respective Board.

Accounting and Tax Services

Major international accounting firms operate in Singapore. Registration as a public accountant under the Accountants Act is required to provide public accountancy services (i.e. the audit and reporting on financial statements and other acts that are required by any written law to be done by a public accountant) in Singapore, although registration as a public accountant is not required to provide other accountancy services, such as accounting, tax, and corporate advisory work. All accounting entities that provide public accountancy services must be approved under the Accountants Act and their supply of public accountancy services in Singapore must be under the control and management of partners or directors who are public accountants ordinarily resident in Singapore. In addition, if the accounting entity firm has two partners or directors, at least one of them must be a public accountant. If the business entity has more than two partners or directors, two-thirds of the partners or directors must be public accountants.

Energy

Singapore further liberalized its gas market with the amendment of the Gas Act and implementation of a Gas Network Code in 2008, which were designed to give gas retailers and importers direct access to the onshore gas pipeline infrastructure. However, key parts of the local gas market, such as town gas retailing and gas transportation through pipelines remain controlled by incumbent Singaporean firms. Singapore has sought to grow its supply of Liquefied Natural Gas (LNG), and BG Singapore Gas Marketing Pte Ltd (acquired by Royal Dutch Shell in February 2016) was appointed in 2008 as the first aggregator with an exclusive franchise to import LNG to be sold in its re-gasified form in Singapore. In October 2017, Shell eastern Trading Pte Ltd and Pavilion Gase Pte Ltd were awarded import licenses to market up to 1 Million Tonnes Per Annum (Mtpa) or for three years, whichever occurs first. This also marked the conclusion of the first exclusive franchise awarded to BG Singapore Gas Marketing Pte Ltd.

In November 2018, Singapore began a progressive launch of an Open Electricity Market that will be completed in May 2019. Over 1.4 million households and business accounts will have the option of buying electricity from a retailer licensed by the Energy Market Authority (EMA). To participate in the Open Electricity Market licensed retailers must satisfy additional credit, technical, and financial requirements set by EMA in order to sell electricity to households and small businesses. There are two types of electricity retailers: Market Participant Retailers (MPRs) and Non-Market Participant Retailers (NMPRs). MPRs have to be registered with the Energy Market Company (EMC) to purchase electricity from the National Electricity Market of Singapore (NEMS) to sell to contestable consumers. NMPRs need not register with EMC to participate in the NEMS since they will purchase electricity indirectly from the NEMS through the Market Support Services Licensee (MSSL). As of April 2019, there were 13 firms in the market, including foreign and local.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and local entities may readily establish, operate, and dispose of their own enterprises in Singapore subject to certain requirements. A foreigner who wants to incorporate a company in Singapore is required to appoint a locally resident director; foreigners may continue to reside outside of Singapore.  Foreigners who wish to incorporate a company and be present in Singapore to manage its operations are strongly advised to seek approval from the Ministry of Manpower (MOM) before incorporation. Except for representative offices (where foreign firms maintain a local representative but do not conduct commercial transactions in Singapore) there are no restrictions on carrying out remunerative activities. As of October 2017, foreign companies may seek to transfer their place of registration and be registered as companies limited by shares in Singapore under Part XA (Transfer of Registration) of the Companies Act. Such transferred foreign companies are subject to the same requirements as locally-incorporated companies.

All businesses in Singapore must be registered with the Accounting and Corporate Regulatory Authority (ACRA). Foreign investors can operate their businesses in one of the following forms: sole proprietorship, partnership, limited partnership, limited liability partnership, incorporated company, foreign company branch or representative office. Stricter disclosure requirements were passed in March 2017 requiring foreign company branches registered in Singapore to maintain public registers of their members, while locally incorporated companies. Foreign company branches registered in Singapore as well as limited liability partnerships will be required to maintain registers of controllers (generally defined as individuals or legal entities with more than 25 percent interest or control of the companies and foreign companies) aimed at preventing money laundering.

While there is currently no cross-sectional screening process for foreign investments, investors are required to seek approval from specific sector regulators for investments into certain firms. These sectors include energy, telecommunications, broadcasting, the domestic news media, financial services, legal services, public accounting services, ports and airports, and property ownership. Under Singapore law, Articles of Incorporation may include shareholding limits that restrict ownership in corporations by foreign persons.

Singapore does not maintain an investment screening mechanism for inbound foreign investment. There are no reports of U.S. investors being especially disadvantaged or singled out relative to other foreign investors.

Other Investment Policy Reviews

Singapore underwent a trade policy review with the World Trade Organization (WTO) in July 2016. No major policy recommendations were raised. This was the country’s only policy review in the past three years. (https://www.wto.org/english/tratop_e/tpr_e/tp443_e.htm)

The OECD and United Nations Industrial Development Organization (UNIDO) released a joint report in February 2019 on the ASEAN-OECD Investment Program. The Program aims to foster dialogue and experience sharing between OECD countries and Southeast Asian economies on issues relating to the business and investment climate. It is implemented through regional policy dialogue, country investment policy reviews, and training seminars. (http://www.oecd.org/countries/singapore/seasia.htm  )

The OECD released a Transfer Pricing Country Profile for Singapore in June 2018. The country profiles focus on countries’ domestic legislation regarding key transfer pricing principles, including the arm’s length principle, transfer pricing methods, comparability analysis, intangible property, intra-group services, cost contribution agreements, transfer pricing documentation, administrative approaches to avoiding and resolving disputes, safe harbors and other implementation measures. (http://www.oecd.org/countries/singapore/transfer-pricing-country-profile-singapore.pdf )

The OECD released a peer review report in March 2018 on Singapore’s implementation of internationally agreed tax standards under Action Plan 14 of the base erosion and profit shifting (BEPS) project. Action 14 strengthens the effectiveness and efficiency of the mutual agreement procedure, a cross-border tax dispute resolution mechanism.

The UNCTAD has not conducted an IPR of Singapore.

Business Facilitation

Singapore’s online business registration process is clear and efficient and allows foreign companies to register branches. All businesses must be registered with the Accounting & Corporate Regulatory Authority (ACRA) through Bizfile, its online registration and information retrieval portal (http://bizfile.gov.sg  ), including any individual, firm or corporation that carries out business for a foreign company. Applications are typically processed immediately after the application fee is paid, but may take between 14 days to two months if the application is referred to another agency for approval or review. The process of establishing a foreign-owned limited liability company in Singapore is among the fastest of the countries surveyed by IAB.

ACRA provides a single window for business registration. However, additional regulatory approvals (e.g. licensing or visa requirements) are obtained via individual applications to the respective Ministries or Statutory Boards. Additional information and business support on registering a branch of a foreign company is available through the EDB (https://www.edb.gov.sg/en/how-we-help/setting-up.html  ). Furthermore, GuideMeSingapore by corporate services firm Hawskford provides details on setting up a business in Singapore (https://www.guidemesingapore.com/).

Foreign companies may lease or buy privately or publicly held land in Singapore, though there are some restrictions on foreign ownership of property. Foreign companies are free to open and maintain bank accounts in foreign currency. There is no minimum paid-in capital requirement, but at least one subscriber share must be issued for valid consideration at incorporation.

At GER (ger.co), Singapore’s online business registration process scores 7/10 in Online Single Windows (https://www.bizfile.gov.sg/).

Business facilitation processes provide for fair and equal treatment of women and minorities, and there are no mechanisms that provide special assistance to women and minorities.

Outward Investment

Singapore places no restrictions on domestic investors investing abroad. The government promotes outward investment through Enterprise Singapore, a statutory board under the Ministry of Trade and Industry (MTI). It provides market information, business contacts, and financial assistance and grants for internationalizing companies. While it has a global reach and runs overseas centers in major cities across the world, a large share of its overseas centers are located in major trading and investment partners and regional markets like China, India, and ASEAN.

Spain

Executive Summary

Spain is open to foreign investment and is actively seeking to attract additional investment to sustain its strong economic growth. Spain had a GDP growth rate in 2018 of 2.6 percent—one of the highest in the EU. Spain’s excellent infrastructure, large domestic market, well-educated workforce, and robust export possibilities are key selling points for foreign investors. Spanish law permits foreign ownership in investments up to 100 percent, and capital movements are completely liberalized. According to Spanish data, in 2018, foreign direct investment flow into Spain was EUR 52.8 billion, 31.6 percent more than in 2017. Of this total, EUR 948 million came from the United States, the eighth-largest investor in Spain in new foreign direct investment. Foreign investment is concentrated in the energy, real estate, finance and insurance, engineering, and construction sectors.

The Spanish economy sustained its strong and balanced growth in 2018, due in large part to strong domestic consumption, although Spain maintains a relatively high unemployment rate—14.4 percent at the close of 2018—and high levels of household and public indebtedness. Spain’s economy has benefitted from favorable external factors, namely low global energy prices and the European Central Bank’s expansionary monetary policy. As it recovered, Spain’s economy diversified, becoming more export competitive. As a result, Spain has had a current account surplus since 2013.

Following the global financial and euro crises, the Spanish government implemented a series of labor market reforms and restructured the banking system. In 2013, the Spanish government adopted the Market Unity Guarantee Act, which eliminated duplicative administrative controls by implementing a single license system to facilitate the free flow of all goods and services throughout Spain. Since the law’s adoption five years ago, Spain’s National Commission on Markets and Competition (CNMC)—the public-sector authority in charge of competition and regulatory matters—has taken 381 actions to enforce the law. However, certain provisions have been declared unconstitutional by Spanish courts, and some U.S. companies continue to complain about the difficulties in dealing with variances in regional regulations within Spain.

Since its financial crisis, Spain also has regained access to affordable financing from international financial markets, which has improved Spain’s credibility and solvency, in turn generating more investor confidence. Spain’s credit ratings were raised in 2018, and Spanish issuances of public debt have been oversubscribed, reflecting strong investor appetite for investment in Spain. However, small and medium-sized enterprises (SMEs) still have some difficulty accessing credit.

In implementing its fiscal consolidation program, the government took actions between 2012 and 2014 that negatively affect U.S. and other investors in the renewable energy sector on a retroactive basis. As a result, Spain is facing several international arbitration claims. Spanish law protects property rights and those of intellectual property. The government has amended the Intellectual Property Act, the Civil Procedure Law, and the Penal Code to strengthen online protection. In 2018, internet piracy decreased by 3 percent compared to 2017, although piracy continues at high levels.

Table 1

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 41 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report “Ease of Doing Business” 2019 30 of 190 https://www.doingbusiness.org/rankings
Global Innovation Index 2018 28 of 126 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in Partner Country ($M USD, stock positions) 2017 $33,128 http://www.bea.gov/international/factsheet/
World Bank GNI per capita 2017 $27,180 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Foreign direct investment (FDI) has played a significant role in modernizing the Spanish economy during the past 40 years. Attracted by Spain’s large domestic market, export possibilities, and growth potential, foreign companies set up operations in large numbers. Spain’s automotive industry is mostly foreign-owned. Multinationals control half of the food production companies, one-third of chemical firms, and two-thirds of the cement sector. Several foreign investment funds acquired networks from Spanish banks, and foreign firms control about one-third of the insurance market.

The Government of Spain recognizes the value of foreign investment. Spain offers investment opportunities in sectors and activities with significant added value. There have not been any major changes in Spain’s regulations for investment and foreign exchange under the current Spanish Socialist Workers Party (PSOE) administration, which took office in June 2018. Spanish law permits 100 percent foreign ownership in investments (limits apply regarding audio-visual broadcast licenses; see next section), and capital movements are completely liberalized. Due to its degree of openness and the favorable legal framework for foreign investment, Spain has received significant foreign investments in knowledge-intensive activities in the past few years. New FDI into Spain increased by 31.6 percent in 2018 according to Spain’s Industry, Trade, and Tourism Ministry data, continuing the growing path of gross FDI flow into Spain that began significantly in 2014. In 2018, 19.2 percent of total gross investments were investments in new facilities or the expansion of productive capacity, while 59 percent of gross investments were in acquisitions of existing companies. In 2018 the United States had a gross direct investment in Spain of EUR 984 million, accounting for 2.1 percent of total investment and representing a decrease of 52 percent compared to 2017. U.S. FDI stock in Spain stayed relatively steady between 2013 (USD 33.9 billion) to 2017 (USD 33.1 billion).

Limits on Foreign Control and Right to Private Ownership and Establishment

Spain has a favorable legal framework for foreign investors. Spain has adapted its foreign investment rules to a system of general liberalization, without distinguishing between EU residents and non-EU residents. Law 18/1992 of July 1, which established rules on foreign investments in Spain, provides a specific regime for non-EU persons investing in certain sectors: national defense-related activities, gambling, television, radio, and air transportation. For EU residents, the only sectors with a specific regime are the manufacture and trade of weapons or national defense-related activities. For non-EU companies, the Spanish government restricts individual ownership of audio-visual broadcasting licenses to 25 percent. Specifically, Spanish law permits non-EU companies to own a maximum of 25 percent of a company holding a digital terrestrial television broadcasting license; and for two or more non-EU companies to own a maximum of 50 percent in aggregate. In addition, under Spanish law a reciprocity principle applies (art. 25.4 General Audiovisual Law). The home country of the (non-EU) foreign company must have foreign ownership laws that permit a Spanish company to make the same transaction.

Spain is one of the 14 countries of the 28 EU member states that has established mechanisms to evaluate the possible risks of direct foreign investments. The cornerstone on which the control system is structured is the probable impact “on security and public order” of the arrival of foreign capital into Spain. Critical sectors include energy, transport, communications, technology, defense, and data processing and storage, among others.

The Spanish Constitution and Spanish law establish clear rights to private ownership, and foreign firms receive the same legal treatment as Spanish companies. There is no discrimination against public or private firms with respect to local access to markets, credit, licenses, and supplies.

Other Investment Policy Reviews

Spain is a signatory to the convention on the Organization for Economic Co-operation and Development (OECD). Spain is also a member of the World Trade Organization (WTO) and the United Nations Conference on Trade and Development (UNCTAD). Spain has not conducted Investment Policy Reviews with these three organizations within the past three years.

Business Facilitation

For setting up a company in Spain, the two basic requirements include incorporation before a Public Notary and filing with the Mercantile Register (Registro Mercantil). The public deed of incorporation of the company must be submitted. It can be submitted electronically by the Public Notary. The Central Mercantile Register is an official institution that provides access to companies’ information supplied by the Regional Mercantile Registers after January 1, 1990. Any national or foreign company can use it but must also be registered and pay taxes and fees. According to the World Bank’s Doing Business report, the process to start a business in Spain should take about two weeks.

“Invest in Spain” is the Spanish investment promotion agency to facilitate foreign investment. Services are available to all investors.

Useful web sites:

Outward Investment

Among the financial instruments approved by the Spanish Government to provide official support for the internationalization of Spanish enterprise are the Foreign Investment Fund (FIEX), the Fund for Foreign Investment by Small and Medium-sized Enterprises (FONPYME), the Enterprise Internationalization Fund (FIEM), and the Fund for Investment in the tourism sector (FINTUR). The Spanish Government also offers financing lines for investment in the electronics, information technology and communications, energy (renewables), and infrastructure concessions sectors.

Sweden

Executive Summary

Sweden is generally considered a highly-favorable investment destination.  Sweden offers an extremely competitive, open economy with access to new products, technologies, skills, and innovations.  Sweden also has a well-educated labor force, outstanding communication infrastructure, and a stable political environment, which makes it a choice destination for U.S. and foreign companies.  Low levels of corporate tax, the absence of withholding tax on dividends, and a favorable holding company regime are additional incentives for doing business in Sweden.

Sweden’s attractiveness as an investment destination is tempered by a few structural, business challenges.  These include high personal and VAT tax regimes. In addition, the high cost of labor, rigid labor laws and regulations, a persistent housing shortage, and the general high cost of living in Sweden can present challenges to attracting, hiring, and maintaining talent for new firms entering Sweden.  Historically, the telecommunications, information technology, healthcare, energy, and public transport sectors have attracted the most foreign investment. However, manufacturing, wholesale, and retail trade have also recently attracted increased foreign funds.

Overall, investment conditions remain largely favorable.  Forbes Magazine ranked Sweden second in “The Best Countries for Business for 2019,” a ranking that takes into account factors such as property rights, innovation, taxes, technology, corruption, freedom, red tape, and investor protection.  In the World Economic Forum’s 2017-2018 Competitiveness Report Sweden was ranked twelfth out of 138 countries in overall competiveness and productivity.  Also in 2018, Transparency International ranked Sweden as one of the most corruption-free countries in the world –third out of 180.

In addition, Sweden is well equipped to embrace the Fourth Industrial Revolution, with a superior IT infrastructure.  Bloomberg’s 2019 Innovation Index ranked Sweden in seventh place among the most innovative nations on earth. Sweden is a global leader in adopting new technologies and setting new consumer trends.  U.S. and other exporters can take advantage of a test market full of demanding, highly sophisticated customers.

Table 1: Key Metrics and Rankings

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 3 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2019 12 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2018 3 of 126 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country (Millions USD, stock positions) 2018 $54,150 http://www.bea.gov/international/factsheet/
World Bank GNI per capita 2018 $52,590 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

There are no laws or practices that discriminate or are alleged to discriminate against foreign investors, including and especially U.S. investors, by prohibiting, limiting or conditioning foreign investment in a sector of the economy [either at the pre-establishment (market access) or post-establishment phase of investment].  Until the mid-1980s, Sweden’s approach to direct investment from abroad was quite restrictive and governed by a complex system of laws and regulations. Sweden’s entry into the European Union (EU) in 1995 largely eliminated all restrictions. National security restrictions to investment remain in the defense and other sensitive sectors, as addressed in the next section “Limits on Foreign Control and Right to Private Ownership and Establishment.”

The Swedish Government recognizes the need to further improve the business climate for entrepreneurs, education, and the flow of research from lab to market.  Swedish authorities have implemented a number of reforms to improve the business regulatory environment and to attract more foreign investment.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are very few restrictions on where and how foreign enterprises can invest, and there are no equity caps, mandatory joint-venture requirements, or other measures designed to limit foreign ownership or market access.  However, Sweden does maintain some limitations in a select number of situations:

  • Accountancy:  Investment in the accountancy sector by non-EU-residents cannot exceed 25 percent.
  • Legal services:  Investment in a corporation or partnership carrying out the activities of an “advokat,” or lawyer, cannot be done by non-EU residents.
  • Air transport:  Foreign enterprises may be restricted from access to international air routes unless bilateral intergovernmental agreements provide otherwise.
  • Air transport:  Cabotage is reserved to national airlines.
  • Maritime transport:  Cabotage is reserved to vessels flying the national flag.
  • Defense:  Restrictions apply to foreign ownership of companies involved in the defense industry and other sensitive areas.

Swedish company law provides various ways a business can be organized.  The main difference between these forms is whether the founder must own capital and to what extent the founder is personally liable for the company’s debt.  The Swedish Act (1992:160) on Foreign Branches applies to foreign companies operating through a branch and also to people residing abroad who run a business in Sweden.  A branch must have a president who resides within the European Economic Area (EEA). All business enterprises in Sweden (including branches) are required to register at the Swedish Companies Registration Office, Bolagsverket.  An invention or trademark must be registered in Sweden in order to obtain legal protection. A bank from a non-EEA country needs special permission from the Financial Supervision Authority (Finansinspektionen) to establish a branch in Sweden.

Sweden does not maintain a national security screening mechanism for inbound foreign investment.  However, the government is currently considering how to implement the EU Commission’s recently approved investment screening framework, as well as tightening national investment policies.  Suggested regulations would not likely be in place until 2021 at the earliest. U.S. investors are treated equally relative to other foreign investors in terms of ownership and scrutiny of investments.

Other Investment Policy Reviews

The Organization for Economic Cooperation and Development (OECD) published an economic snapshot for Sweden in March 2019:  https://www.oecd.org/economy/surveys/OECD-economic-survey-Sweden-2019-executive-summary-brochure.pdf 

Business Facilitation

Business Sweden’s Swedish Trade and Investment Council is the investment promotion agency tasked with facilitating business.  The services of the agency are available to all investors.

At http://www.verksamt.se , a collaboration of several Swedish government agencies have posted relevant guides and services pertaining to registering, starting, running, expanding and/or closing a business.  Sweden defines a micro enterprise as one with less than 10 employees, a small enterprise with less than 50 employees, and a medium enterprise with less than 250 employees.  All forms of business enterprise, except for sole traders, must register with the Swedish Companies Registration Office, Bolagsverket, before starting operations. Sole traders may apply for registration in order to be given exclusive rights to the name in the county where they will be operating. Online applications to register an enterprise can be made at http://www.bolagsverket.se/en .  The process of registering an enterprise can take a few days or up to a few weeks, depending on the complexity and form of the business enterprise.  All business enterprises, including sole traders, must also register with the Swedish Tax Agency, Skatteverket, before starting operations. Relevant information and guides can be found at http://www.skatteverket.se .  Depending on the nature of business, companies may also need to register with the Environmental Protection Agency, Naturvårdsverket, or, if real estate is involved, the county authorities.  Non EU/EEA citizens need a residence permit, obtained from the Swedish Board of Migration, Migrationsverket, in order to start up and/or run a business.

Outward Investment

The Government of Sweden has commissioned the Swedish Exports Credit Guarantee Board (EKN) to promote Swedish exports and the internationalization of Swedish companies.  EKN insures exporting companies and banks against non-payment in export transactions, thereby reducing risk and encouraging expanding operations. As part of its export strategy presented in 2015, the Swedish Government has also launched Team Sweden to promote Swedish exports and investment.  Team Sweden is tasked with making export market entry clear and simple for Swedish companies and consists of a common network for all public initiatives to support exports and internationalization.

The Government does not generally restrict domestic investors from investing abroad.  The only exceptions are related to matters of national security and national defense; the Inspectorate of Strategic Products (ISP) is tasked with control and compliance regarding the sale and exports of defense equipment and dual-use products. ISP is also the National Authority for the Chemical Weapons Convention and handles cases concerning targeted sanctions.

Switzerland and Liechtenstein

Executive Summary

At the national level, the Swiss government enacts laws and regulations governing corporate structure, the financial system, and immigration, and concludes international trade and investment treaties.  The Swiss federal system grants Switzerland’s 26 cantons (i.e., states) and largest municipalities significant independence to shape investment policies and set incentives to attract investment.  This federal approach to governance has helped the Swiss maintain long-term economic and political stability, a transparent legal system, an extensive and reliable infrastructure, efficient capital markets, and an excellent quality of life for the country’s 8.4 million inhabitants.  Many U.S. firms base their European or regional headquarters in Switzerland, drawn to the country’s low corporate tax rates, productive and multilingual workforce, and famously well maintained infrastructure and transportation networks.  U.S. companies also choose Switzerland as a gateway to markets in Eastern Europe, the Middle East, and beyond.  Furthermore, U.S. companies select Switzerland because hiring and firing practices are less restrictive than in other European locations.

In 2018, the World Economic Forum rated Switzerland the world’s fourth most competitive economy.  This high ranking reflects the country’s sound institutional environment and high levels of technological and scientific research and development.  With very few exceptions, Switzerland welcomes foreign investment, accords national treatment, and does not impose, facilitate, or allow barriers to trade.  According to the OECD, Swiss public administration ranks high globally in output efficiency and enjoys the highest public confidence of any national government in the OECD.  Switzerland’s judiciary system is equally efficient, posting the shortest trial length of any of the OECD’s 35 member countries. The country’s competitive economy and openness to investment brought Switzerland’s cumulative inward direct investment to USD 750 billion in 2016 (latest available figures) according to Swiss government sources.

Many of Switzerland’s cantons make significant use of financial incentives to attract investment to their jurisdictions.  Some of the more forward-leaning cantons have occasionally waived taxes for new firms for up to ten years. However, this practice has been criticized by the European Union – Switzerland’s top trading partner – with which Switzerland has many bilateral treaties.  The first proposal to introduce legislation that would have abolished preferential corporate tax treatment for foreign companies (CTR III) was rejected by Swiss voters in a February 12, 2017 referendum. The new Federal Act on Tax Reform and Swiss Pension System (AHV) Financing (TRAF) proposal to bring Switzerland’s corporate tax system in line with OECD standards was approved by the Swiss parliament on September 28, 2018 and was accepted by 64.4 percent of Swiss voters in a May 19, 2019 popular vote. 

Entering into force on January 1, 2020, TRAF will oblige Swiss cantons to offer the same corporate tax rates to both Swiss and foreign companies, but will allow cantons to continue to set their own cantonal rates and offer incentives for corporate investment through deductions and preferential tax treatment for certain types of income.

Individual income tax and corporate tax rates vary widely across Switzerland’s 26 cantons, depending upon cantonal tax incentives.  In 2017–2018, Zurich, which is sometimes used as a reference point for corporate location tax calculations within Switzerland, had a combined corporate tax rate of 21.15 percent, which includes municipal, cantonal, and federal tax.

Key sectors that have attracted significant investments in Switzerland include IT, precision engineering, scientific instruments, pharmaceuticals, and machine building.  Switzerland hosts a significant number of startups.

There are no “forced localization” laws designed to require foreign investors to use domestic content in goods or technology (e.g., data storage within Switzerland).  The Swiss Federal Council decided on February 9, 2014, to exclude foreign-held companies from bidding on particular critical infrastructure projects that have a strong nexus between information and communication technologies (ICT) and the Federal Administration.  While the Federal Council’s decision does not spell out specific sectors subject to this exclusion, it is widely interpreted to apply to ICT projects linked to areas such as Switzerland’s defense, railways, energy grid, and the Swiss National Bank. A legal interpretation of this decision is still pending.  Were a foreign bidder to challenge a bidding exclusion based on this decision, a Swiss court would determine whether the ruling applied to the specific sector involved.

Switzerland follows strict privacy laws and certain data may not be collected in Switzerland, as it is deemed personal and particularly “worthy of protection.”

According to WIPO’s World Intellectual Property Indicators, in 2017 (latest available) Switzerland ranked 8th globally in filing patents, 11th in industrial designs, and 14th in trademarks, reflecting Switzerland’s overall strong intellectual property protection.  While Switzerland enforces intellectual property rights linked to patents and trademarks effectively, enforcement of copyright on the internet has been less effective. In 2018, USTR confirmed Switzerland’s ranking on its Special 301 Watch List due to protection of copyrighted material online.  If approved by parliament in 2019, a new Copyright Act is expected to address this issue as of 2020.

Some formerly public Swiss monopolies continue to retain market dominance despite partial or full privatization.  As a result, foreign investors sometimes find it difficult to enter these markets (e.g., telecommunications, certain types of public transportation, postal services, alcohol and spirits, aerospace and defense, certain types of insurances and banking services, and salt).  Additionally, the OECD ranks Switzerland’s educational, healthcare, and agriculture costs and subsidies as relatively “high” when rated against output. The Swiss agricultural sector remains one of the most protected and heavily subsidized markets in the world. Switzerland’s agricultural sector receives heavy government support (direct payments comprise two thirds of an average farm’s profits) and has one of the lowest levels of productivity among OECD members.

Liechtenstein

Liechtenstein’s investment conditions are identical in most key aspects to those in Switzerland, due to its integration into the Swiss economy.  The two countries form a customs union and Swiss authorities are responsible for implementing import and export regulations. Both countries are members of the European Free Trade Association (EFTA, including Iceland and Norway), an intergovernmental trade organization and free trade area that operates in parallel with the European Union (EU).  Liechtenstein participates in the EU single market through the European Economic Area (EEA), unlike Switzerland, which has opted for a set of bilateral agreements with the EU instead.  Liechtenstein has a stable and open economy employing 38,661 people (2017), exceeding its domestic population of 38,114 (2017) and requiring a substantial number of foreign workers. In 2017, 70.1 percent of the Liechtenstein workforce were foreigners, mainly Swiss, Austrians and Germans, 55 percent of which commute daily to Liechtenstein.  (Liechtenstein was granted an exception to the EU Free Movement of People Agreement, enabling the country not to grant residence permits to its workers). Liechtenstein is one of the world’s wealthiest countries. Liechtenstein’s gross domestic product per capita (at current USD) amounted to USD 164,993 in 2016 and is the highest in the world.  According to the Liechtenstein Statistical Yearbook, the services sector, particularly in finance, accounts for 61.9 percent of Liechtenstein’s jobs, followed by the manufacturing sector (particularly machine tools, precision instruments, and dental products), which employs 38 percent of the workforce.  Agriculture accounts for less than 1 percent of the country’s employment.

Liechtenstein reformed its tax system in 2011.  Its corporate tax rate, at 12.5 percent, is one of the lowest in Europe.  Capital gains, inheritance, and gift taxes have been abolished. The Embassy has no recorded complaints from U.S. investors stemming from market restrictions in Liechtenstein.

Table 1: Switzerland – Key Metrics and Rankings

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 3 of 180 https://www.transparency.org/research/cpi/overview 
World Bank’s Doing Business Report “Ease of Doing Business” 2018 38 of 190 https://www.doingbusiness.org/rankings 
Global Innovation Index 2018 1 of 126 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, stock positions) 2017 $249, 968 https://www.bea.gov/international/factsheet/ 
World Bank GNI per capita 2017 $80,560 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

With the exception of a heavily protected agricultural sector, foreign investment into Switzerland is generally not hampered by significant barriers, with no reported discrimination against foreign investors or foreign-owned investments.  Incidents of trade discrimination do exist, for example with regards to agricultural goods such as bovine genetics products. Some city and cantonal governments offer access to an ombudsman, who may address a wide variety of issues involving individuals and the government, but does not focus exclusively on investment issues.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic enterprises may engage in various forms of remunerative activities in Switzerland and may freely establish, acquire, and dispose of interests in business enterprises in Switzerland.  There are, however, some investment restrictions in areas under state monopolies, including certain types of public transportation, postal services, alcohol and spirits, aerospace and defense, certain types of insurance and banking services, and the trade in salt.  Restrictions (in the form of domicile requirements) also exist in air and maritime transport, hydroelectric and nuclear power, operation of oil and gas pipelines, and the transportation of explosive materials. Additionally, the following legal restrictions apply within Switzerland:

Corporate boards: The board of directors of a company registered in Switzerland must consist of a majority of Swiss citizens residing in Switzerland; at least one member of the board of directors who is authorized to represent the company (i.e., to sign legal documents) must be domiciled in Switzerland.  If the board of directors consists of a single person, this person must have Swiss citizenship and be domiciled in Switzerland. Foreign controlled companies usually meet these requirements by nominating Swiss directors who hold shares and perform functions on a fiduciary basis. Mitigating these requirements is the fact that the manager of a company need not be a Swiss citizen and, with the exception of banks, company shares can be controlled by foreigners.  The establishment of a commercial presence by persons or enterprises without legal status under Swiss law requires an establishment authorization according to cantonal law. The aforementioned requirements do not generally pose a major hardship or impediment for U.S. investors.

Hostile takeovers: Swiss corporate shares can be issued both as registered shares (in the name of the holder) or bearer shares.  Provided the shares are not listed on a stock exchange, Swiss companies may, in their articles of incorporation, impose certain restrictions on the transfer of registered shares to prevent hostile takeovers by foreign or domestic companies (article 685a of the Code of Obligations).  Hostile takeovers can also be annulled by public companies; however, legislation introduced in 1992 made this practice more difficult.  Public companies must cite in their statutes significant justification (relevant to the survival, conduct, and purpose of their business) to prevent or hinder a takeover by a foreign entity.  Furthermore, public corporations may limit the number of registered shares that can be held by any shareholder to a percentage of the issued registered stock. In practice, many corporations limit the number of shares to 2-5 percent of the relevant stock.  Under the public takeover provisions of the 2015 Federal Act on Financial Market Infrastructures and Market Conduct in Securities and Derivatives Trading and its 2019 amendments, a formal notification is required when an investor purchases more than 3 percent of a Swiss company’s shares.  An “opt-out” clause is available for firms which do not want to be taken over by a hostile bidder, but such opt-outs must be approved by a super-majority of shareholders and must take place well in advance of any takeover attempt.

Banking: Those wishing to establish banking operations in Switzerland must obtain prior approval from the Swiss Financial Market Supervisory Authority (FINMA), a largely independent agency, administered under the Swiss Federal Department of Finance.  FINMA promotes confidence in financial markets and works to protect customers, creditors, and investors. FINMA approval of bank operations is generally granted if the following conditions are met: reciprocity on the part of the foreign state; the foreign bank’s name must not give the impression that the bank is Swiss; the bank must adhere to Swiss monetary and credit policy; and a majority of the bank’s management must have their permanent residence in Switzerland.  Otherwise, foreign banks are subject to the same regulatory requirements as domestic banks.

Banks organized under Swiss law must inform FINMA before they open a branch, subsidiary, or representation abroad.  Foreign or domestic investors must inform FINMA before acquiring or disposing of a qualified majority of shares of a bank organized under Swiss law.  If exceptional temporary capital outflows threaten Swiss monetary policy, the Swiss National Bank, the country’s independent central bank, may require other institutions to seek approval before selling foreign bonds or other financial instruments.  On December 20, 2008, government deposit insurance of individual current accounts held in Swiss banks was raised from CHF 30,000 to CHF 100,000.

Insurance: A federal ordinance requires the placement of all risks physically situated in Switzerland with companies located in the country.  Therefore, it is necessary for foreign insurers wishing to provide liability coverage in Switzerland to establish a subsidiary or branch in-country.

U.S. investors have not identified any specific restrictions that create market access challenges for foreign investors.

Other Investment Policy Reviews

The World Trade Organization’s (WTO) September 2017 Trade Policy Review of Switzerland and Liechtenstein includes investment information.  Other reports containing elements referring to the investment climate in Switzerland include the OECD Economic Survey of November 2017.

Business Facilitation

The Swiss government-affiliated non-profit organization Switzerland Global Enterprise (SGE) has a nationwide mandate to attract foreign business to Switzerland on behalf of the Swiss Confederation.  SGE promotes Switzerland as an economic hub and fosters exports, imports, and investments. Larger regional offices include the Greater Geneva-Berne Area (that covers large parts of Western Switzerland), the Greater Zurich Area, and the Basel Area.  Each canton has a business promotion office dedicated to helping facilitate real estate location, beneficial tax arrangements, and employee recruitment plans. These regional and cantonal investment promotion agencies do not require a minimum investment or job-creation threshold in order to provide assistance. However, these offices generally focus resources on attracting medium-sized entities that have the potential to create between 50 and 249 jobs in their region.

References:

Switzerland has a dual system for granting work permits and allowing foreigners to create their own companies in Switzerland.  Employees who are citizens of the EU/EFTA area can benefit from the EU Free Movement of Persons Agreement. U.S. citizens who are not citizens of an EU/EFTA country and want to become self-employed in Switzerland must meet Swiss labor market requirements.  The criteria for admittance, usually not creating a hindrance for U.S. persons, are contained in the Federal Act on Foreign Nationals (FNA), the Decree on Admittance, Residence and Employment (VZAE) and the provisions of the FNA and the VZAE.

Setting up a company in Switzerland requires registration at the relevant cantonal Commercial Registry.  The cost for registering a company is typically USD 1,300 – USD 15,200, depending on the company type. These costs mainly cover the Public Notary and entry into the Commercial Registry.

Other steps/procedures for registration include: 1) placing paid-in capital in an escrow account with a bank; 2) drafting articles of association in the presence of a notary public; 3) filing a deed certifying the articles of association with the local commercial register to obtain a legal entity registration; 4) paying the stamp tax at a post office or bank after receiving an assessment by mail; 5) registering for VAT; and 6) enrolling employees in the social insurance system (federal and cantonal authorities).

The World Bank Doing Business Report 2019 ranks Switzerland 38th in the ease of doing business among the 190 countries surveyed, and  77th in the ease of starting a business, with a  six-step registration process and 10 days required to set up a company.

Outward Investment

While Switzerland does not explicitly promote or incentivize outward investment, Switzerland’s export promotion agency Switzerland Global Enterprise facilitates overseas market entry for Swiss companies through its Swiss Business Hubs in several countries, including the United States.  Switzerland does not restrict domestic investors from investing abroad.

United Kingdom

Executive Summary

The United Kingdom (UK) actively encourages foreign direct investment (FDI).  The UK imposes few impediments to foreign ownership and throughout the past decade, has been Europe’s top recipient of FDI.  The UK government provides comprehensive statistics on FDI in its annual inward investment report: https://www.gov.uk/government/statistics/department-for-international-trade-inward-investment-results-2017-to-2018.

On June 23, 2016, the UK held a referendum on its continued membership in the European Union (EU) resulting in a decision to leave the EU.  On March 29, 2017, the UK initiated the formal process of withdrawing from the EU, widely known as “Brexit”.  Under EU rules, the UK and the EU had two years to negotiate the terms of the UK’s withdrawal.  At the time of writing, the deadline for the UK’s departure has been extended until October 31, 2019.  The terms of the UK’s future relationship with the EU are still under negotiation, but it is widely expected that trade between the UK and the EU will be more difficult and expensive in the short-term.  At present, the UK enjoys relatively unfettered access to the markets of the other 27 EU member-states, equating to roughly 450 million consumers and USD 15 trillion worth of GDP. Prolonged uncertainty surrounding the terms of the UK’s departure from the EU and the terms of the future UK-EU relationship may continue to detrimentally impact the overall attractiveness of the UK as an investment destination for U.S. companies. 

Market entry for U.S. firms is facilitated by a common language, legal heritage, and similar business institutions and practices.  The UK is well supported by sophisticated financial and professional services industries and has a transparent tax system in which local and foreign-owned companies are taxed alike.  The British pound is a free-floating currency with no restrictions on its transfer or conversion. Exchange controls restricting the transfer of funds associated with an investment into or out of the UK do not exist.

UK legal, regulatory, and accounting systems are transparent and consistent with international standards.  The UK legal system provides a high level of protection. Private ownership is protected by law and monitored for competition-restricting behavior.  U.S. exporters and investors generally will find little difference between the United States and the UK in the conduct of business, and common law prevails as the basis for commercial transactions in the UK.

The United States and UK have enjoyed a “Commerce and Navigation” Treaty since 1815 which guarantees national treatment of U.S. investors.  A Bilateral Tax Treaty specifically protects U.S. and UK investors from double taxation. There are early signs of increased protectionism against foreign investment, however.  HM Treasury announced a unilateral digital services tax which is due to come into force in April 2020, targeting digital firms, such as social media platforms, search engines, and marketplaces, with a 2 percent tax on revenue generated in the UK.  

The United States is the largest source of FDI into the UK.  Many U.S. companies have operations in the UK, including all top 100 of the Fortune 500 firms.  The UK also hosts more than half of the European, Middle Eastern and African corporate headquarters of American-owned firms.  For several generations, U.S. firms have been attracted to the UK both for the domestic market and as a beachhead for the EU Single Market.    

Companies operating in the UK must comply with the EU’s General Data Protection Regulation (GDPR).  The UK has incorporated the requirements of the GDPR into UK domestic law though the Data Protection Act of 2018.  After it leaves the EU, the UK will need to apply for an adequacy decision from the EU in order to maintain current data flows      

Table 1

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 11 of 180 www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report “Ease of Doing Business” 2018 9 of 189 www.doingbusiness.org/rankings
Global Innovation Index 2018 5 of 127 www.globalinnovationindex.org/gii-2018-report
U.S. FDI in partner country (M USD, stock positions) 2017 $747,600 www.bea.gov/international/factsheet/
World Bank GNI per capita 2017 $40,530 data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The UK encourages foreign direct investment.  With a few exceptions, the government does not discriminate between nationals and foreign individuals in the formation and operation of private companies.  The Department for International Trade actively promotes direct foreign investment, and prepares market information for a variety of industries. U.S. companies establishing British subsidiaries generally encounter no special nationality requirements on directors or shareholders. Once established in the UK, foreign-owned companies are treated no differently from UK firms.   The British Government is a strong defender of the rights of any British-registered company, irrespective of its nationality of ownership.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign ownership is limited in only a few national security-sensitive companies, such as Rolls Royce (aerospace) and BAE Systems (aircraft and defense).  No individual foreign shareholder may own more than 15 percent of these companies. Theoretically, the government can block the acquisition of manufacturing assets from abroad by invoking the Industry Act 1975, but it has never done so in practice.  Investments in energy and power generation require environmental approvals. Certain service activities (like radio and land-based television broadcasting) are subject to licensing. The Enterprise Act of 2002 extends powers to the UK government to intervene in mergers and acquisitions which might give rise to national security implications and into which they would not otherwise be able to intervene.

The UK requires that at least one director of any company registered in the UK must be ordinarily resident in the UK.  The UK, as a member of the Organization for Economic Cooperation and Development (OECD), subscribes to the OECD Codes of Liberalization, committed to minimizing limits on foreign investment.

While the UK does not have a formalized investment review body to assess the suitability of foreign investments in national security sensitive areas, an ad hoc investment review process does exist and is led by the relevant government ministry with regulatory responsibility for the sector in question (e.g., the Department for Business, Energy, and Industrial Strategy who would have responsibility for review of investments in the energy sector).  To date, U.S. companies have not been the target of these ad hoc reviews. The UK is currently considering revisions to its national security review process related to foreign direct investment. (https://www.gov.uk/government/consultations/national-security-and-infrastructure-investment-review ).

The Government has proposed to amend the turnover threshold and share of supply tests within the Enterprise Act 2002. This is to allow the Government to examine and potentially intervene in mergers that currently fall outside the thresholds in two areas: (i) the dual use and military use sector, (ii) parts of the advanced technology sector. For these areas only, the Government proposes to lower the turnover threshold from £70 million (USD 92 million) to £1 million (USD 1.3 million) and remove the current requirement for the merger to increase the share of supply to or over 25 percent.

Other Investment Policy Reviews

The Economist’s “Intelligence Unit”, World Bank Group’s “Doing Business 2018”, and the OECD’s “Economic Forecast Summary (May 2019) have current investment policy reports for the United Kingdom:

Business Facilitation

The UK government seeks to facilitate investment by offering overseas companies access to widely integrated markets.  Proactive policies encourage international investment through administrative efficiency in order to promote innovation and achieve sustainable growth.  The online business registration process is clearly defined, though some types of company cannot register as an overseas firm in the UK, including partnerships and unincorporated bodies. Registration as an overseas company is only required when it has some degree of physical presence in the UK.  After registering a business with the UK government body, named Companies House, overseas firms must register to pay corporation tax within three months. The process of setting up a business in the UK requires as few as thirteen days, compared to the European average of 32 days, which puts the country in first place in Europe and sixth place in the world for ease of establishing a business.  As of April 2016, companies have to declare their Persons of Significant Control (PSC’s).  This change in 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 this link: 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 Investing Across Sectors indicators.  As in all other EU member countries, foreign equity ownership in the air transportation sector is limited to 49 percent for investors from outside of the European Economic Area (EEA). Furthermore, the Industry Act (1975) enables the UK government to prohibit transfer to foreign owners of 30 percent or more of important UK manufacturing businesses, if such a transfer would be contrary to the interests of the country.  While these provisions have never been used in practice, they are still included in the Investing Across Sectors indicators, as these strictly measure ownership restrictions defined in the laws.

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 responsibility for their own affairs. Local self-government is usually provided by an Executive Council and elected legislature. Governors or Commissioners are appointed by the Crown on the advice of the British Foreign Secretary, and retain responsibility for external affairs, defense, and internal security. However, the UK imposed direct rule on the Turks and Caicos Islands in August 2009 after an inquiry found evidence of corruption and incompetence.  Its Premier was removed and its constitution was suspended. The UK restored Home Rule following elections in November 2012.

Many of the territories are now broadly self-sufficient.  However, the UK’s Department for International Development (DFID) maintains development assistance programs in St. Helena, Montserrat, and Pitcairn.  This includes budgetary aid to meet the islands’ essential needs and development assistance to help encourage economic growth and social development in order to promote economic self-sustainability.  In addition, all other BOTs receive small levels of assistance through “cross-territory” programs for issues such as environmental protection, disaster prevention, HIV/AIDS and child protection. The UK also lends to the BOTs as needed, up to a pre-set limit, but assumes no liability for them if they encounter financial difficulty.

Seven of the BOTs have financial centers:  Anguilla, Bermuda, British Virgin Islands, Cayman Islands, Gibraltar, Montserrat, and the Turks and Caicos Islands.  These Territories have committed to the OECD’s Common Reporting Standard (CRS) for the automatic exchange of taxpayer financial account information.  They are already exchanging information with the UK, and began exchanging information with other jurisdictions under the CRS from September 2017. 

The OECD Global Forum on Transparency and Exchange of Information for Tax Purposes has rated Anguilla as “partially compliant” with the internationally agreed tax standard.  Although Anguilla sought to upgrade its rating in 2017, it still remains at “partially compliant” as of April 2019. The Global Forum has rated the other six territories as “largely compliant.”  Anguilla, Bermuda, British Virgin Islands, Cayman Islands, Gibraltar and the Turks and Caicos Islands have also committed in reciprocal bilateral arrangements with the UK to hold beneficial ownership information in central registers or similarly effective systems, and to provide UK law enforcement authorities with near real-time access to this information.  These arrangements came into effect in June 2017. 

Anguilla:  Anguilla is a neutral tax jurisdiction.  There are no income, capital gains, estate, profit or other forms of direct taxation on either individuals or corporations, for residents or non-residents of the jurisdiction.  The territory has no exchange rate controls. Non-Anguillan nationals may purchase property, but the transfer of land to an alien includes a 12.5 percent tax.

British Virgin Islands:  The government of the British Virgin Islands welcomes foreign direct investment and offers a series of incentive packages aimed at reducing the cost of doing business on the islands.  This includes relief from corporation tax payments over specific periods but companies must pay an initial registration fee and an annual license fee to the BVI Financial Services Commission.  Crown land grants are not available to non-British Virgin Islanders, but private land can be leased or purchased following the approval of an Alien Land Holding License. Stamp duty is imposed on transfer of real estate and the transfer of shares in a BVI company owning real estate in the BVI at a rate of 4 percent for belongers and 12 percent for non-belongers.  There is no corporate income tax, capital gains tax, branch tax, or withholding tax for companies incorporated under the BVI Business Companies Act. Payroll tax is imposed on every employer and self-employed person who conducts business in BVI. The tax is paid at a graduated rate depending upon the size of the employer. The current rates are 10 percent for small employers (those which have a payroll of less than USD 150,000, a turnover of less than USD 300,000 and fewer than 7 employees) and 14 percent for larger employers. Eight percent of the total remuneration is deducted from the employee, the remainder of the liability is met by the employer. The first USD 10,000 of remuneration is free from payroll tax.

Cayman Islands:  There are no direct taxes in the Cayman Islands.  In most districts, the government charges stamp duty of 7.5 percent on the value of real estate at sale; however, certain districts, including Seven Mile Beach, are subject to a rate of nine percent.  There is a one percent fee payable on mortgages of less than KYD 300,000, and one and a half percent on mortgages of KYD 300,000 or higher. There are no controls on the foreign ownership of property and land.  Investors can receive import duty waivers on equipment, building materials, machinery, manufacturing materials, and other tools.

Falkland Islands:  Companies located in the Falkland Islands are charged corporation tax at 21 percent on the first GBP one million and 26 percent for all amounts in excess of GBP one million.  The individual income tax rate is 21 percent for earnings below USD 15,694 (GBP 12,000) and 26 percent above this level.

Gibraltar:  The government of Gibraltar encourages foreign investment.  Gibraltar has a buoyant economy with a stable currency and few restrictions on moving capital or repatriating dividends.  The corporate income tax rate is 20 percent for utility, energy, and fuel supply companies, and 10 percent for all other companies.  There are no capital or sales taxes. Gibraltar is currently a part of the EU and receives EU funding for projects that improve the territory’s economic development.

Montserrat:  The government of Montserrat welcomes new private foreign investment.  Foreign investors are permitted to acquire real estate, subject to the acquisition of an Alien Land Holding license which carries a fee of five percent of the purchase price.  The government also imposes stamp and transfer fees of 2.6 percent of the property value on all real estate transactions. Foreign investment in Montserrat is subject to the same taxation rules as local investment, and is eligible for tax holidays and other incentives.  Montserrat has preferential trade agreements with the United States, Canada, and 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 island of St. Helena is open to foreign investment and welcomes expressions of interest from companies wanting to invest.  Its government is able to offer tax based incentives which will be considered on the merits of each project – particularly tourism projects.  All applications are processed by Enterprise St. Helena, the business development agency.

Pitcairn Islands:  The Pitcairn Islands have approximately 50 residents, with a workforce of approximately 29 employed in 10 full-time equivalent roles.  The territory does not have an airstrip or safe harbor. Residents exist on fishing, subsistence farming, and handcrafts.

The Turks and Caicos Islands:  The islands operate an “open arms” investment policy.  Through the policy, the government commits to a streamlined business licensing system, a responsive immigration policy to give investment security, access to government-owned land under long-term leases, and a variety of duty concessions to qualified investors.  The islands have a “no tax” status, but property purchasers must pay a stamp duty on purchases over USD 25,000. Depending on the island, the stamp duty rate may be up to 6.5 percent for purchases up to USD 250,000, eight percent for purchases USD 250,001 to USD 500,000, and 10 percent for purchases over USD500,000.

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. 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.

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. VAT is not applicable in Jersey as it is not part of the EU VAT tax area.

Guernsey has a zero percent rate of corporate tax.  Some 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 who carry on a retail business in the Isle of Man and have taxable income in excess of £500,000 from that business.  VAT is applicable in the Isle of Man as it is part of the EU customs territory.

This tax data is current as of April 2019.  

Outward Investment

The UK is one of the largest outward investors in the world, often protected through Bilateral Investment Treaties (BITs), which have been concluded with many countries.  The UK’s international investment position abroad (outward investment) increased from GBP 1,696.5 billion in 2017 to GBP 1,713.3 billion in 2018. By the end of 2018 the UK’s stock of outward FDI was GBP 1,713 billion, a 52 rise percent since 2002.  The main destination for UK outward FDI is the United States, which accounted for approximately 23 percent of UK outward FDI stocks at the end of 2017. Other key destinations include the Netherlands, Luxembourg, France, and Ireland 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 British FDI positions abroad, accounting for 16 of the top 20 destinations for total UK outward FDI.  The UK’s international investment position within the Americas was GBP 401.9 billion in 2017. This is the third largest recorded value in the time series since 2006 for the Americas.  The United States, at GBP 329.3 billion, continued to be the largest destination for UK international investment positions abroad within the Americas in 2017.