1. Openness To, and Restrictions Upon, Foreign 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. Surveys of U.S. investors in 2021 showed the greatest optimism about the business operating environment in France since 2008. U.S. companies find France’s good infrastructure, advanced 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 recent French efforts at structural reform, including a reduction in corporate and production tax, and advocacy for a global minimum tax within the European Union, perceived disincentives to investing in France include the persistently high tax environment, ongoing labor law rigidity, and a shortage of skilled labor.
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 maintains a national security review mechanism to screen high-risk investments. 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, review, 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 2014 Montebourg Decree.
On December 31, 2019 the government issued a decree to lower the threshold for vetting of foreign investment from outside Europe from 33 to 25 percent and then lowered it again to 10 percent on July 22, 2020, a temporary provision to prevent predatory investment during the COVID-19 crisis. This lower threshold is set to expire at the end of 2022. The decree also enhanced government-imposed conditions and penalties in cases of non-compliance and introduced a mechanism to coordinate the national security review of foreign direct investments with the European Union (EU Regulation 2019/452). The new European rules entered into force on October 11, 2020. The list of strategic sectors was also expanded to include the following activities listed in the EU Regulation 2019/452: agricultural products, when such products contribute to national food supply security; the editing, printing, or distribution of press publications related to politics or general matters; and R&D activities relating to quantum technologies and energy storage technologies. Separately, France expanded the scope of sensitive sectors on April 30, 2020, to include biotechnology companies.
Procedurally, the Minister of Economy, Finance, and Recovery has 30 business days following the receipt of a request for authorization to either: 1) declare that the investor is not required to obtain such authorization; 2) grant its authorization without conditions; or 3) declare that an additional review is required to determine whether a conditional authorization is sufficient to protect national interests. If an additional review is required, the Minister has an additional 45 business days to either clear the transaction (possibly subject to conditions) or prohibit it. The Minister is further allowed to deny clearance based on the investor’s ties with a foreign government or public authority. The absence of a decision within the applicable timeframe is a de facto rejection of the authorization.
The government also expanded the breadth of information required in the approval request. For example, a foreign investor must now disclose any financial relationship with or significant financial support from a State or public entity; a list of French and foreign competitors of the investor and of the target; or a signed statement that the investor has not, over the past five years, been subject to any sanctions for non-compliance with French FDI regulations.
In 2020, the government blocked at least one transaction—the attempted acquisition of a French firm by a U.S. company in the defense sector. In early 2021, the French government blocked the acquisition of French supermarket chain Carrefour by Canada’s Alimentation Couche-Tard on the basis that it was a threat to France’s food security and national sovereignty.
Business France is a government agency established with the purpose of promoting 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 financing and equity capital. The agency unveiled a website in English to help prospective businesses that are considering investments in the French market (https://www.businessfrance.fr/en/invest-in-France). The U.S. Embassy in Paris also collaborated with Business France to create a map of U.S. investment in each region of France (https://investinfrance.fr/wp-content/uploads/2017/08/Entreprises-americaines.pdf).
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 prioritized innovation early in his five-year mandate. In 2017, he launched a €10 billion ($11 billion) fund to back disruptive innovation in energy, the digital sector, and the climate transition by privatizing state-owned enterprises and introduced a four-year tech visa for entrepreneurs to come to France. He also introduced tax reforms that would tax capital gains, interest and dividends at a flat 30 percent, instead of the existing top rate of 45 percent.
In June 2020, the French government introduced a new €1.2 billion ($1.3 billion) plan to support French startups, concentrating on the health, quantum, artificial intelligence, and cybersecurity sectors. The plan included the creation of a €500 million ($550 million) investment fund to help startups overcome the COVID-19 crisis and continue to innovate. It also comprised a “French Tech Sovereignty Fund” launched in December 2020 by France’s public investment bank Bpifrance, with an initial commitment of €150 million ($165 million).
In October 2021, President Macron unveiled a €34 billion ($37.4billion) innovation investment strategy between 2022 and 2027, which mirrors the priorities of the European Commission’s investments in digital innovation and decarbonisation. France will invest by 2030 in breakthrough innovation in a wide variety of areas, including small nuclear fission reactors, green hydrogen production facilities, the production of two million electric and hybrid vehicles every year, research on developing France’s first low-carbon airplane, healthy and sustainable foods, and 20 drugs for cancer and chronic diseases as well as the development of new medical devices. Major industrial groups are encouraged to work with startups, which will also benefit from funding under this new plan. This plan comes on top of the €20 billion ($22 billion) from the 2021 Fourth Future Investment Program. A new Secretary General for Investment was appointed in January 2022 to ensure the coordination of these two innovation programs.
France’s sectors that traditionally attracted the most investment include aeronautics, agro-foods, digital, nuclear, rail, auto, chemicals and materials, forestry, eco-industries, shipbuilding, health, luxury, and extractive industries. However, Business France and Bpifrance are particularly interested in attracting foreign investment in the tech sector. The French government has developed the “French Tech” initiative to promote France as a location for start-ups and high-growth digital companies. French Tech offices have been established in 17 French cities and over 100 cities globally, including New York, San Francisco, Los Angeles, Shanghai, Hong Kong, Vietnam, Moscow, and Berlin. French Tech has special programs to provide support to startups at various stages of their development. The latest effort has been the creation of the French Tech 120 Program, which provides financial and administrative support to some 123 most promising tech companies. In 2019, €5 billion ($5.9 billion) in venture funding was raised by French startups, an increase of nearly threefold since 2015. Venture capital investment in French startups has doubled from €5.1 billion ($5.6 billion) in 2020 to over €10 billion ($11 billion) in 2021.
In March 2021, France launched, with the support of the European Commission and other member states, the Scale-Up Europe initiative bringing together over 300 start-up and scale-up founders, investors, researchers, and corporations, with the goal of creating 10 tech giants each valued at more than €100 billion ($110 billion) by 2030. French authorities supported the Scale-up Europe initiative designed to promote businesses across Europe to expand beyond their local and European markets. As part of that initiative, on February 8, 2022, France inaugurated a new European Investment Fund designed to increase European venture capital funds’ capacity to provide late-stage funding to EU-based start-ups and scale-ups. France and Germany have each committed €1 billion ($1.1 billion), along with €500 million ($565 million) from the European Investment Bank.
The website Guichet Enterprises (https://www.guichet-entreprises.fr/fr/) is designed to be a one-stop website for registering a business. The site, managed by the National Institute of Industrial Property (INPI), is available in both French and English although some fact sheets on regulated industries are only available in French on the website.
French firms invest more in the United States than in any other country and support approximately 765,100 American jobs. Total French investment in the United States reached $314.9 billion in 2020. France was still our tenth largest trading partner with approximately $115.7 billion in bilateral trade in 2021. The business promotion agency Business France also assists French firms with outward investment, which it does not restrict.
4. Industrial Policies
Following the election of 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 improved the operating environment in France, based on surveys of U.S. investors.
However, with the onset of the pandemic, Macron put an end to his planned pension reforms and introduced his overhaul of France’s unemployment insurance in stages throughout 2021. Under his new plan, employees must work longer to qualify for unemployment benefits: they are required to work at least six of the last 25 months, instead of four of the last 28 months under previous rules. Furthermore, employees under 57 years of age, earning €4,500 ($4,952) in pre-tax monthly wages, will see their benefits decrease by 30 percent after the seventh month of unemployment. The other major aspect of this reform mandates that the rules for calculating unemployment benefits are based on an average monthly income from work rather than the number of days worked, as was the case previously. The purpose is to ensure unemployment benefits never exceed the amount of the average monthly net salary (which is currently the case for some beneficiaries).
In 2021, the government’s focus shifted to mitigating France’s most severe economic crisis in the post-war era. The economy shrank 8.3 percent in 2020 compared to the year prior as a result of the COVID-19 pandemic. In response, the government implemented extensive direct fiscal support to households and businesses in 2020 and 2021. The “France Relaunch” recovery program was mainly comprised of loan guarantees, unemployment schemes that support workers’ wages, subsidies to vulnerable sectors, investment in green and developing technologies, production tax cuts and other tax benefits, and funding for research and development. The cost of the emergency measures was around €70 billion ($76.9 billion) in 2020 (2.9 percent of 2019 GDP), according to the national accounts. In 2021, the measures reached €64 billion ($70.3 billion), or 2.6 percent of 2019 GDP. The government’s agenda aims to bolster competitiveness, increase productivity, and accelerate the ecological transition.
In addition, the authorities announced a new investment plan to 2030 in October 2021. The plan, called “France 2030,” allocates €30 billion ($33 billion) over five years and aims to complement France Relance recovery plan. “France 2030” targets further investment in the energy sector (€8 billion/$8.8 billion), as well as the health (€7 billion/$7 billion) and transport sectors (€4 billion/$4.4 billion). The permanent production tax cuts (€10 billion annually), included in France Relance, bring the estimated level of support to around 7.1 percent of 2019 GDP for the period 2020-27.
Both “France Relaunch” and “France 2030” fiscal packages support France’s green transition, the “decarbonization of the French economy,” and the “French green hydrogen plan.” Measures include the energy renovation of public buildings, private housing, social housing, and the operating premises of VSEs (Very Small Enterprises) and SMEs (Small and Medium Enterprises); support for the rail sector in order to renovate the national network and develop freight; development of green hydrogen; support for public transport and the use of bicycles; aid for industrial companies to invest in equipment that emits less CO2; and support for the green transition of agricultural.
“France 2030” supports the transformation of France’s automotive, aerospace, digital, green industry, biotechnology, culture, and healthcare sectors. Its objectives include the development of small-scale nuclear reactors, becoming a leader in green hydrogen (hydrogen made using renewable energy sources), producing two million electric and hybrid vehicles, and decarbonizing France’s industry by reducing greenhouse gas emissions by 35 percent relative to 2015. Of the plan’s €30 billion ($33.8 billion) to be invested over the five years, €3-4 billion ($3.4-4.5 billion) will be spent beginning in 2022. Additionally, one-third of France’s €100 billion ($106 billion) “France Relance” pandemic recovery package is allocated to the ecological transition, including energy sector related investments. The plan also targets green technology, including the development of a hydrogen economy. With approximately two thirds of its electricity coming from nuclear power, France supports the use of nuclear energy to meet near-term emissions reductions targets. Of the developed economies, France has one of the lowest rates of greenhouse gas emissions per capita and per unit of GDP due to its reliance on nuclear power. France aims to phase out fossil fuels over the next decade, shut down the last of its coal plants by 2022, and end public financial support for fossil fuels and natural gas by 2025 and 2035, respectively. In October 2020, France announced it would phase out export guarantees for foreign projects involving fossil fuels by 2035.
France’s “Ma Prime Renov” scheme allocates €1.4 billion to homeowners to finance insulation, heating, ventilation, or energy audit works for single-family house or apartments in collective housing. Such investment will finance the thermal renovation of 400,000 households. To guarantee quality standards, the renovation projects must be carried out by companies with a label classified as “recognized as guarantor of the environment.”
Former PM Jean Castex presented in March 2022 France’s “Resilience Plan” to support households and businesses affected by sanctions associated with the Russia-Ukraine conflict. The first portion of the plan provides support for specific sectors impacted directly by the conflict: fisheries, agriculture and livestock, transportation and trucking, and construction. There are also non-sectoral support targeting exporting firms and energy-intensive companies, plus continued state-guaranteed loans and delayed tax collection for companies facing higher energy costs and exports difficulties. The additional measures in the “Resilience Plan” will cost the government an additional €5-6 billion ($5.5-6.6 billion), on top of previously-implemented measures that include a gas price cap (€10 billion/ $11 billion), electricity price cap (€8 billion/ $8.8 billion), and energy cheques and inflation offsets (€2 billion/ $2.2 billion).
France is subject to all EU free trade zone regulations. These allow member countries to designate portions of their customs’ territory as duty-free, where value-added activity is limited. France has several duty-free zones, which benefit from exemptions on customs for storage of goods coming from outside of the European Union. The French Customs Service administers them and provides details on its website (http://www.douane.gouv.fr). French legal texts are published online at http://legifrance.gouv.fr.
In September 2018, President Macron announced the extension of 44 Urban Free Zones (ZFU) in low-income neighborhoods and municipalities with at least 10,000 residents. The program provides incentives for employers, who have created 600 new jobs since 2016. Incentives include exemption from payment of payroll taxes and certain social contributions for five years, financed by €15 million ($17.7 million) a year in State funds.
While there are no mandatory performance requirements established by law, the French government will generally require commitments regarding employment or R&D from both foreign and domestic investors seeking government financial incentives. Incentives like PAT regional planning grants (Prime d’Amenagement du Territoire pour l’Industrie et les Services) and related R&D subsidies are based on the number of jobs created, and authorities have occasionally sought commitments as part of the approval process for acquisitions by foreign investors.
The French government imposes the same conditions on domestic and foreign investors in cultural industries: all purveyors of movies and television programs (i.e., television broadcasters, telecoms operators, internet service providers and video services) must contribute a percentage of their revenues toward French film and television productions. They must also abide by broadcasting cultural content quotas (minimum 40 percent French, 20 percent EU).
The 2018 Directive on audio-visual media services, implemented in France by a December 21, 2020 government decree, requires streaming services exceeding a certain revenue threshold to contribute 20 or 25 percent of their revenues in France to the development of French and European production, depending on how quickly they show movies after their theatrical release. For example, Netflix has signed the agreement under the new windowing rules and will benefit from having access to movies 15 months after their theatrical release. Other streaming services such as Disney Plus will have a 17-month window for new films. Netflix, Amazon, Disney Plus, and Apple TV Plus signed in December 2021 an agreement with France’s broadcasting authority CSA to start investing 20 percent of their annual revenues in French content.
6. Financial Sector
There are no administrative restrictions on portfolio investment in France, and there is an effective regulatory system in place to facilitate portfolio investment. France’s open financial market allows foreign firms easy access to a variety of financial products, both in France and internationally. France continues to modernize its marketplace; as markets expand, foreign and domestic portfolio investment has become increasingly important. As in most EU countries, France’s listed companies are required to meet international accounting standards. Some aspects of French legal, regulatory, and accounting regimes are less transparent than U.S. systems, but they are consistent with international norms. Foreign banks are allowed to establish branches and operations in France and are subject to international prudential measures. Under IMF Article VIII, France may not impose restrictions on the making of payments and transfers for current international transactions without the (prior) approval of the Fund.
Foreign investors have access to all classic financing instruments, including short-, medium-, and long-term loans, short- and medium-term credit facilities, and secured and non-secured overdrafts offered by commercial banks. These assist in public offerings of shares and corporate debt, as well as mergers, acquisitions and takeovers, and offer hedging services against interest rate and currency fluctuations. Foreign companies have access to all banking services. Most loans are provided at market rates, although subsidies are available for home mortgages and small business financing.
Euronext Paris (also known as Paris Bourse) is part of a regulated cross-border stock exchange located in six European countries. Euronext Growth is an alternative exchange for medium-sized companies to list on a less regulated market (based on the legal definition of the European investment services directive), with more consumer protection than the Marché Libre still used by a couple hundred small businesses for their first stock listing. A company seeking a listing on Euronext Growth must have a sponsor with status granted by Euronext and prepare a French language prospectus for a permit from the Financial Markets Authority (Autorité des Marchés Financiers or AMF), the French equivalent of the U.S. Securities and Exchange Commission. Small and medium-size enterprises (SMEs) may also list on Enternext, a subsidiary of the Euronext Group created in 2013. The bourse in Paris also offers Euronext Access, an unregulated exchange for start-ups.
France’s banking system recovered gradually from the 2008-2009 global financial crises and passed the 2018 stress tests conducted by the European Banking Authority. In the context of the COVID-19 outbreak, the European Banking Authority (EBA) launched an EU-wide stress test exercise in January 2021 and published its results in July 2021. The results of the stress tests confirmed the resilience of the French banking system over the entire time horizon of the exercise (2021-2023), despite using a particularly severe macroeconomic and financial scenario, which envisages a prolongation of the crisis between 2021 and 2023. A new EBA EU-wide stress test will be carried out in 2023.
Four French banks were ranked among the world’s 20 largest as of the end of 2020 (BNP Paribas SA; Crédit Agricole Group, Société Générale SA, Groupe BPCE). The assets of France’s top five banks totaled $7.7 trillion in 2020. Acting on a proposal from France’s central bank, Banque de France, in March 2020, the High Council for Financial Stability (HCSF) instructed the country’s largest banks to decrease the “countercyclical capital buffer” from 0.25 percent to zero percent of their bank’s risk-weighted assets, thereby increasing liquidity to help mitigate the impact of the pandemic-induced recession. As of January 2022, HCSF maintained the zero percent countercyclical capital buffer but with the intention of normalizing it to its pre-crisis level at its next meeting.
Banque de France is a member of the Eurosystem, which groups together the European Central Bank (ECB) and the national central banks of all countries that have adopted the euro. Banque de France is a public entity governed by the French Monetary and Financial Code. The conditions whereby it conducts its missions on national territory are set out in its Public Service Contract. The three main missions are monetary strategy; financial stability, together with the High Council of Financial Stability (HCSF) which implements macroprudential policy; and the provision of economic services to the community. In addition, it participates in the preparation and implementation of decisions taken centrally by the ECB Governing Council.
Foreign banks can operate in France either as subsidiaries or branches but need to obtain a license. Credit institutions’ licenses are generally issued by France’s Prudential Authority (Autorité de ContrôlePrudentiel et de Résolution or ACPR) which reviews whether certain conditions are met (e.g. minimum capital requirement, sound and prudent management of the bank, compliance with balance sheet requirements, etc.). Both EU law and French legislation apply to foreign banks. Foreign banks or branches are additionally subject to prudential measures and must provide periodic reports to the ACPR regarding operations in France, including detailed reports on their financial situation. At the EU level, the ‘passporting right’ allows a foreign bank settled in any EU country to provide their services across the EU, including France. There are about 944 credit institutions authorized to carry on banking activities in France; the list of foreign banks is available on this website: https://www.regafi.fr/spip.php?page=results&type=advanced&id_secteur=3&lang=en&denomination=&siren=&cib=&bic=&nom=&siren_agent=&num=&cat=01-TBR07&retrait=0
France has no sovereign wealth fund per se (none that use that nomenclature) but does operate funds with similar intents. The Public Investment Bank (Bpifrance) supports small and medium enterprises (SMEs), larger enterprises (Entreprises de Taille Intermedaire), and innovating businesses with over €36 billion ($39.6 billion) assets under management. The government strategy is defined at the national level and aims to fit with local strategies. Bpifrance may hold direct stakes in companies, hold indirect stakes via generalist or sectorial funds, venture capital, development or transfer capital. In November 2020, Bpifrance became a member of the One Planet Sovereign Wealth Funds (OPSWF) international initiative, which federates international sovereign wealth funds mobilized to contribute to the transition towards a more sustainable economy. Bpifrance stepped up its support for the ecological and energy transition, aiming to reach nearly €6 billion ($6.6 billion) per year by 2023.
7. State-Owned Enterprises
The 11 listed entities in which the French State maintains stakes at the federal level are Aeroports de Paris (50.63 percent); Airbus Group (10.92 percent); Air France-KLM (28.6 percent); EDF (83.88 percent), ENGIE (23.64 percent), Eramet (27.13 percent), La Française des Jeux (FDJ) (20.46 percent), Orange (a direct 13.39 percent stake and a 9.60 percent stake through Bpifrance), Renault (15.01 percent), Safran (11.23 percent), and Thales (25.67 percent). Unlisted companies owned by the State include SNCF (rail), RATP (public transport), CDC (Caisse des depots et consignations) and La Banque Postale (bank). In all, the government maintains majority and minority stakes in 88 firms in a variety of sectors.
Private enterprises have the same access to financing as SOEs, including from state-owned banks or other state-owned investment vehicles. SOEs are subject to the same tax burden and tax rebate policies as their private sector competitors. SOEs may get subsidies and other financial resources from the government.
France, as a member of the European Union, is party to the Agreement on Government Procurement (GPA) within the framework of the World Trade Organization. Companies owned or controlled by the state behave largely like other companies in France and are subject to the same laws and tax code. The Boards of SOEs operate according to accepted French corporate governance principles as set out in the (private sector) AFEP-MEDEF Code of Corporate Governance. SOEs are required by law to publish an annual report, and the French Court of Audit conducts financial audits on all entities in which the state holds a majority interest. The French government appoints representatives to the Boards of Directors of all companies in which it holds significant numbers of shares, and manages its portfolio through a special unit attached to the Ministry for the Economy and Finance Ministry, the shareholding agency APE (Agence de Participations de l’Etat). The State as a shareholder must set an example in terms of respect for the environment, gender equality and social responsibility. The report also highlighted that the State must protect its strategic assets and remain a shareholder in areas where the general interest is at stake.
In 2021, the French Government increased to 29.9 percent its existing 14.3 percent stake in the Air France-KLM group in a deal that injected €4 billion ($4.5 billion) into Air France and its Holding Company under the European State aid Temporary Framework. This recapitalization, through a mix of new shares and hybrid debt, constrains the group from taking more than a 10 percent stake in any competitor until three-quarters of that aid is repaid. It follows a €7 billion ($7.7 billion) bailout the government provided earlier in 2020. The French Government has pledged to reduce its stake to the pre-crisis level of 14.3 percent by the end of 2026.
The government was due to privatize many large companies in 2019, including ADP and ENGIE in order to create a €10 billion ($11 billion) fund for innovation and research. However, the program was delayed because of political opposition to the privatization of airport manager ADP, regarded as a strategic asset to be protected from foreign shareholders. The government succeeded in selling in November 2019 a 52 percent stake in gambling firm FDJ. The government continues to maintain a strong presence in some sectors, particularly power, public transport, and defense industries.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
French Statistical source*
USG or international statistical source
USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
* French Source : INSEE database for GDP figures and French Central Bank (Banque de France) for FDI figures. Accessed on March 21, 2022.
Table 3: Sources and Destination of FDI
Direct Investment from/in France Economy Data 2020
From Top Five Sources/To Top Five Destinations (U/S. Dollars, Millions)
Inward Direct Investment
Outward Direct Investment
“0” reflects amounts rounded to +/- USD 500,000.
Source: Bank of France.
Note: These figures represent the stock of foreign direct investment (FDI), not the annual flow of FDI. The United States was the second top investor by number of projects recorded in 2021 but remained in first place for jobs generated (10,118).
1. Openness To, and Restrictions Upon, Foreign Investment
The German government and industry actively encourage foreign investment. U.S. investment continues to account for the largest share of Germany’s 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 Climate Action (MEC) to review acquisitions of domestic companies by foreign buyers and 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 investment-related challenges facing foreign companies are broadly the same as those that face domestic firms, e.g., relatively high tax rates and energy costs, stringent environmental regulations, and labor laws that complicate hiring and dismissals. Germany Trade and Invest (GTAI), the country’s economic development agency, provides extensive information for investors: https://www.gtai.de/gtai-en/invest
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.
Companies seeking to open a branch office in Germany without establishing a new legal entity, (e.g., for the provision of employee placement services, such as providing temporary office support, domestic help, or executive search services), must register and have at least one representative located in Germany.
While there are no economy-wide limits on foreign ownership or control, Germany maintains an elaborate mechanism to screen foreign investments based on national security grounds. The legislative basis for the mechanism (the Foreign Trade and Payments Act and Foreign Trade and Payments Ordinance) has been amended several times in recent years to tighten parameters of the screening as technological threats evolve, particularly to address growing interest by foreign investors in both Mittelstand (mid-sized) and blue-chip German companies. Germany amended its investment screening mechanism May 1, 2021 and has now fully implemented the EU Screening Directive. With the amendment, firms must notify MEC of foreign investments and MEC can then screen investments in sensitive sectors and technologies if the buyer plans to acquire 10 percent or more of the company’s voting rights and may be required, regardless, for a non-EU company acquiring more than 25 percent of voting rights (https://www.bmwi.de/Redaktion/EN/Artikel/Foreign-Trade/investment-screening.html).
In the screening process, MEC considers “stockpile acquisitions” by the same investor in a German company or “atypical control investments” where an investor secures additional influence in company operations via side contractual agreements. MEC can also factor in combined acquisitions by multiple investors if all are controlled by one foreign government. The total time for the screening process, depending on the sensitivities of the investment, may take up 10 to 12 months. BMWK – Investment screening (bmwi.de)
The World Bank Group’s “Doing Business 2020” Index provides additional information on Germany’s investment climate. [Note: this report is no longer updated]. The American Chamber of Commerce in Germany publishes results of an annual survey of U.S. investors in Germany (“AmCham Germany Transatlantic Business Barometer.” https://www.amcham.de/publications).
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 (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. According to the World Bank’s Doing Business Report 2020, the median duration to register a business in Germany is eight days, though some firms have experienced longer processing times.
Micro-enterprises: fewer than 10 employees and less than €2 million annual turnover or less than €2 million in balance sheet total.
Small enterprises: fewer than 50 employees and less than €10 million annual turnover or less than €10 million in balance sheet total.
Medium-sized enterprises: fewer than 250 employees and less than €50 million annual turnover or less than €43 million in balance sheet total.
U.S.-based exporters seeking to sell in Germany (e.g., via commercial platforms) are required to register with one specific tax authority in Bonn, which can lead to significant delays due to capacity issues.
Germany’s federal government provides guarantees for investments by Germany-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. In 2020, the government issued investment guarantees amounting to €900 million for investment projects in 13 countries, with the majority of those in China and India.
4. Industrial Policies
Federal and state investment incentives – including investment grants, labor-related and R&D incentives, public loans, and public guarantees – are available to domestic and foreign investors alike. Different incentives can be combined. In general, foreign and German investors must meet the same criteria for eligibility.
Germany’s Climate Action Program provides targeted support for research and development into climate-friendly technologies, through which it aims to build on Germany’s position as a leading provider and a lead market for such technology. The Energy and Climate Fund, which is scheduled to reach a volume of $220 billion (200 billion euros) by 2026, is the main instrument for financing Germany’s energy transition and climate action measures. It facilitates investments in climate protection and security of supply.
The federal government also funds a program offering subsidized loans or nonrepayable cash grants to support the purchase of equipment leading to energy savings. Up to 45 percent of energy efficiency expenditures by large enterprises and 55 percent of expenditures by SMEs are eligible for coverage under the program.
There are currently two free ports in Germany operating under EU law: Bremerhaven and Cuxhaven. The duty-free zones within the ports also permit value-added processing and manufacturing for EU-external markets, albeit with certain requirements. All are open to both domestic and foreign entities. In recent years, falling tariffs and the progressive enlargement of the EU have eroded much of the utility and attractiveness of duty-free zones.
In general, there are no discriminatory export policies or import policies affecting foreign investors: no requirements for local sourcing, export percentage, or local or national ownership. In some cases, however, there may be performance requirements tied to an incentive, such as creation of jobs or maintaining a certain level of employment for a prescribed length of time.
Visa, residence, and work permit procedures for foreign investors are non-discriminatory and, for U.S. citizens (as investors or employees), generally liberal. No restrictions exist on the numbers of foreign managers brought in to supervise foreign investment projects. Work permits for managers can be granted for a maximum of three years and permits can only be renewed after a six-month “cooling off period.”
There are no general localization requirements for data storage in Germany. However, the invalidation of the Privacy Shield by the European Court of Justice in July 2020 in the Schrems II case has led not only to increased calls for localized data storage in Germany but also to greater scrutiny by the German data protection commissioners of U.S. service providers handling German user data. In recent years, German and European cloud providers have also sought to market the domestic location of their servers as a competitive advantage.
6. Financial Sector
As an EU member state with a well-developed financial sector, Germany welcomes foreign portfolio investment and has an effective regulatory system. Capital markets and portfolio investments operate freely with no discrimination between German and foreign firms. Germany has a very open economy, routinely ranking among the top countries in the world for exports and inward and outward foreign direct investment. As a member of the Eurozone, Germany does not have sole national authority over international payments, which are a shared task of the European Central Bank and the national central banks of the 19 member states, including the German Central Bank (Bundesbank). A European framework for national security screening of foreign investments, which entered into force in April 2019, provides a basis under European law to restrict capital movements into Germany because of threats to national security. Global investors see Germany as a safe place to invest. German sovereign bonds continue to retain their “safe haven” status.
Listed companies and market participants in Germany must comply with the Securities Trading Act, which bans insider trading and market manipulation. Compliance is monitored by the Federal Financial Supervisory Authority (BaFin) while oversight of stock exchanges is the responsibility of the state governments in Germany (with BaFin taking on any international responsibility). Investment fund management in Germany is regulated by the Capital Investment Code (KAGB), which entered into force on July 22, 2013. The KAGB represents the implementation of additional financial market regulatory reforms, committed to in the aftermath of the global financial crisis. The law went beyond the minimum requirements of the relevant EU directives and represents a comprehensive overhaul of all existing investment-related regulations in Germany with the aim of creating a system of rules to protect investors while also maintaining systemic financial stability.
Although corporate financing via capital markets is on the rise, Germany’s financial system remains mostly bank-based. Bank loans are still the predominant form of funding for firms, particularly the small- and medium-sized enterprises that comprise Germany’s “Mittelstand,” or mid-sized industrial market leaders. Credit is available at market-determined rates to both domestic and foreign investors, and a variety of credit instruments are available. Legal, regulatory, and accounting systems are generally transparent and consistent with international banking norms. Germany has a universal banking system regulated by federal authorities; there have been no reports of a shortage of credit in the German economy. After 2010, Germany banned some forms of speculative trading, most importantly “naked short selling.” In 2013, Germany passed a law requiring banks to separate riskier activities such as proprietary trading into a legally separate, fully- capitalized unit that has no guarantee or access to financing from the deposit-taking part of the bank. Since the creation of the European single supervisory mechanism (SSM) in November 2014, the European Central Bank directly supervises 21 banks located in Germany (as of January 2022), among them four subsidiaries of foreign banks.
Germany has a modern and open banking sector characterized by a highly diversified and decentralized, small-scale structure. As a result, it is extremely competitive, profit margins notably in the retail sector are low, and the banking sector is considered “over-banked” and in need of consolidation. The country’s “three-pillar” banking system consists of private commercial banks, cooperative banks, and public banks (savings banks/Sparkassen and the regional state-owned banks/Landesbanken). This structure has remained unchanged despite marked consolidation within each “pillar” since the financial crisis in 2009. By the end of 2020 the number of state banks (Landesbanken) had dropped from 12 to 6, savings banks from 446 in 2007 to 377, and cooperative banks from 1,234 to 818. Two of the five large private-sector banks have exited the market (Dresdner, Postbank). The balance sheet total of German banks dropped from 304 percent of GDP in 2007 to 192 percent of year-end 2020 GDP with banking sector assets worth €9.1 trillion. Market shares in corporate finance of the banking groups remained largely unchanged (all figures for end of 2021): commercial banks 25.5 percent (domestic 16.2 percent, foreign banks 9.3 percent), savings banks 31.2 percent, credit cooperative banks 22 percent, regional Landesbanken 9.3 percent, and development banks/building and loan associations/mortgage banks 12 percent.
Germany’s retail banking sector is healthy and well capitalized in line with ECB rules on bank capitalizations. The sector is dominated by globally active banks, Deutsche Bank (Germany’s largest bank by balance sheet total) and Commerzbank (fourth largest bank), with balance sheets of €1.32 trillion and €507 billion respectively (2020 figures). Commerzbank received €18 billion in financial assistance from the federal government in 2009, for which the government took a 25 percent stake in the bank (now reduced to 15.6 percent). Merger talks between Deutsche Bank and Commerzbank failed in 2019. The second largest of the top ten German banks with €595 billion of assets per year-end 2020 is DZ Bank, the central institution of the Cooperative Finance Group (after its merger with WGZ Bank in July 2016), followed by German branches of large international banks (UniCredit Bank, ING-Diba), development banks (KfW Group, NRW Bank), and state banks (LBBW, Bayern LB, Helaba, NordLB).
EUR bn (December 31, 2020)
Deutsche Bank AG
DZ Bank AG
Unicredit Bank AG
J.P. Morgan AG
ING Holding Deutschland GmbH
DKB Deutsche Kreditbank AG
German credit institutions’ operating business proved robust in 2020 despite the prolonged low interest rate environment and the coronavirus pandemic. Operating income rose by €1.8 billion (+1.5 percent) on the year to €120.5 billion. In 2020 German credit institutions reported however a pre-tax profit of only €14.3 billion, coming in below the long-term average of €17.6 billion and significantly lower than the average of the post-financial crisis years (2010 to 2018) of €25.4 billion. Their 2020 net interest income of €81.1 billion remained below the long-term average of €87.2 billion. Credit risk provisioning rose significantly due to the impact of the coronavirus pandemic on economic activity, reaching €5.3 billion or 0.8 percent of big banks’ annual average lending portfolio. The banking sector’s average return on equity before tax in 2020 slipped to 2.71 percent (after tax: 1.12 percent) (with savings banks and credit cooperatives generating a higher return, and big banks a negative return).
The German government does not currently have a sovereign wealth fund or an asset management bureau.
7. State-Owned Enterprises
The formal term for state-owned enterprises (SOEs) in Germany translates as “public funds, institutions, or companies,” and refers to entities whose budget and administration are separate from those of the government, but in which the government has more than 50 percent of the capital shares or voting rights. Appropriations for SOEs are included in public budgets, and SOEs can take two forms, either public or private law entities. Public law entities are recognized as legal personalities whose goal, tasks, and organization are established and defined via specific acts of legislation, with the best-known example being the publicly-owned promotional bank KfW (Kreditanstalt für Wiederaufbau). KfW’s mandate is to promote global development. The government can also resort to ownership or participation in an entity governed by private law if the following conditions are met: doing so fulfills an important state interest, there is no better or more economical alternative, the financial responsibility of the federal government is limited, the government has appropriate supervisory influence, and yearly reports are published.
Government oversight of SOEs is decentralized and handled by the ministry with the appropriate technical area of expertise. The primary goal of such involvement is promoting public interests rather than generating profits. The government is required to close its ownership stake in a private entity if tasks change or technological progress provides more effective alternatives, though certain areas, particularly science and culture, remain permanent core government obligations. German SOEs are subject to the same taxes and the same value added tax rebate policies as their private- sector competitors. There are no laws or rules that seek to ensure a primary or leading role for SOEs in certain sectors or industries. Private enterprises have the same access to financing as SOEs, including access to state-owned banks such as KfW.
The Federal Statistics Office maintains a database of SOEs from all three levels of government (federal, state, and municipal) listing a total of 19,009 entities for 2019, or 0.58 percent of the total 3.35 million companies in Germany. SOEs in 2019 had €646 billion in revenue and €632 billion in expenditures. Forty-one percent of SOEs’ revenue was generated by water and energy suppliers, 12 percent by health and social services, and 11 percent by transportation-related entities. Measured by number of companies rather than size, 88 percent of SOEs are owned by municipalities, 10 percent are owned by Germany’s 16 states, and two percent are owned by the federal government.
The Federal Ministry of Finance is required to publish a detailed annual report on public funds, institutions, and companies in which the federal government has direct participation (including a minority share) or an indirect participation greater than 25 percent and with a nominal capital share worth more than €50,000. The federal government held a direct participation in 106 companies and an indirect participation in 401 companies at the end of 2019 (per the Ministry’s April 2021 publication of full-year 2019 figures), most prominently Deutsche Bahn (100 percent share), Deutsche Telekom (32 percent share), and Deutsche Post (21 percent share). Federal government ownership is concentrated in the areas of infrastructure, economic development, science, administration/increasing efficiency, defense, development policy, and culture. As the result of federal financial assistance packages from the federally-controlled Financial Market Stability Fund during the global financial crisis of 2008/9, the federal government still has a partial stake in several commercial banks, including a 15.6 percent share in Commerzbank, Germany’s second largest commercial bank. In 2020, in the wake of the COVID-19 pandemic, the German government acquired shares of several large German companies, including CureVac, TUI, and Lufthansa in an attempt to prevent companies from filing for insolvency or, in the case of CureVac, to support vaccine research in Germany.
The 2021 annual report (with 2019 data) can be found here:
Publicly-owned banks constitute one of the three pillars of Germany’s banking system (cooperative and commercial banks are the other two). Germany’s savings banks are mainly owned by the municipalities, while the so-called Landesbanken are typically owned by regional savings bank associations and the state governments. Given their joint market share, about 40 percent of the German banking sector is thus publicly owned. There are also many state-owned promotional/development banks which have taken on larger governmental roles in financing infrastructure. This increased role removes expenditures from public budgets, particularly helpful considering Germany’s balanced budget rules, which took effect for the states in 2020.
Germany does not have any privatization programs currently. German authorities treat foreigners equally in privatizations of state-owned enterprises.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source*
USG or international statistical source
USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Host Country Gross Domestic Product (GDP) ($M USD)
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment
Outward Direct Investment
“0” reflects amounts rounded to +/- USD 500,000.
1. Openness To, and Restrictions Upon, Foreign Investment
Direct inward investment into Japan by foreign investors has been open and free since the Diet amended the Foreign Exchange and Foreign Trade Act (FEFTA) 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 Diet further amended FEFTA in 2019, updating Japan’s foreign investment review regime. The legislation became effective in May 2020 and lowered the ownership threshold for pre-approval notification to the government for foreign investors from ten percent to one percent in industries that could pose risks to Japanese national security. There are waivers for certain categories of investors.
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 2020, Japan’s inward FDI stock was JPY 39.7 trillion (USD 386 billion), a 15.6 percent increase over the previous year, achieving the target. The previous administration set a target for inward FDI stocks to double to JPY 80 trillion ($672.3 billion with 1.0 USD = ¥119) by 2030, set out in the Basic Policies released in June 2021 by then-Prime Minister Suga. Achieving this goal would put Japan’s FDI stock as a percentage of GDP at around 20 percent of the OECD average.
From time to time, the government’s “FDI Promotion Council,” composed of government ministers and private sector advisors, releases recommendations on improving Japan’s FDI environment. In a May 2018 report ( http://www.invest-japan.go.jp/documents/pdf/support_program_en.pdf), the council decided to launch the Support Program for Regional Foreign Direct Investment in Japan, recommending that local governments formulate a plan to attract foreign companies to their regions.
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, however, many of which relate more to prevailing business practices rather than to government regulations, although this varies by sector. Such challenges include an insular and consensual business culture that has traditionally resisted unsolicited mergers and acquisitions (M&A), especially when initiated by non-Japanese entities; a lack of multiple independent directors on many company boards (although board composition is changing); exclusive supplier networks and alliances between business groups that can restrict competition from foreign firms and domestic newcomers; cultural and linguistic challenges; and longstanding labor practices that tend to inhibit labor mobility. Business leaders have communicated to the U.S. Embassy that regulatory and governmental barriers are more likely to exist in mature, heavily regulated sectors than in new industries.
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 providers of broadcast infrastructure. Authorities count foreign ownership of Japanese companies invested in terrestrial broadcasters against these limits. The limits do not apply to communication satellite facility owners, program suppliers, or cable television operators.
The Foreign Exchange and Foreign Trade Act, as amended, governs investment in sectors deemed to have national security or economic stability implications. If a foreign investor wants to acquire over one percent of the shares of a listed company in the sectors set out below, it must provide prior notification and obtain approval from the Ministry of Finance and the ministry that regulates the specific industry. Designated sectors include weapons manufacturers, nuclear power, agriculture, aerospace, forestry, petroleum, electric/gas/water utilities, telecommunications, and leather manufacturing. There are waivers for certain categories of investors.
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.
The World Trade Organization (WTO) conducted its most recent review of Japan’s trade policies in July 2020 (available at directdoc.aspx (wto.org)).
The Japan External Trade Organization 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 online, 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, although there are indications of change underway. Japan established a new Digital Agency in September 2021 to promote the digital provision of government services and digital transformation in the private sector.
According to the 2020 World Bank “Doing Business” Report, it takes eleven 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. Although 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, Labour, and Welfare), the Japan Pension Service, the district Public Employment Security Office, and the district tax bureau. JETRO operates a one-stop business support center in Tokyo so that foreign companies can complete all necessary legal and administrative procedures at one location. In 2017, JETRO launched an online business registration system that allows businesses to register company documents but not immigration documentation.
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.
The Japan Bank for International Cooperation (JBIC) provides a variety of support for outward Japanese foreign direct investment. Most such 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 supports outward FDI projects 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 and third countries in Asia. (Note: Days after Russia’s invasion of Ukraine, JBIC announced on March 3, 2022, that it would review the agreement it signed in November 2021 providing for a JPY 220 billion ($1.8 billion) in loans regarding LNG development in Russia.) More information on JBIC is available at https://www.jbic.go.jp/en/index.html.
Nippon Export and Investment Insurance (NEXI) supports outward investment by providing exporters and investors insurance that protects them against risks and uncertainty in foreign countries that is not covered by private-sector insurers. Together, JBIC and NEXI act as Japan’s export credit agency.
Japan also employs specialized agencies and public-private partnerships to target outward investment in specific sectors. For example, the Fund Corporation for the Overseas Development of Japan’s Information and Communications Technology and Postal Services (JICT) supports overseas investment in global telecommunications, broadcasting, and postal businesses.
Similarly, the Japan Overseas Infrastructure Investment Corporation for Transport and Urban Development (JOIN) is a government-funded corporation to invest and participate in transport and urban development projects that involve Japanese companies. The fund specializes in overseas infrastructure investment projects such as high-speed rail, airports, and smart city projects with Japanese companies, banks, governments, and other institutions (e.g., JICA, JBIC, NEXI).
Finally, the Japan Oil, Gas and Metals National Corporation (JOGMEC) is a Japanese government entity administered by the Agency for Natural Resources and Energy under METI. JOGMEC provides equity capital and liability guarantees to Japanese companies for oil and natural gas exploration and production projects.
Japan places no restrictions on outbound investment, except under certain circumstances (e.g., with countries under international sanctions) that are listed in the appendix of the FEFTA.
Japan established a feed-in-tariff (FIT) system in 2012 to incentivize the diversification of its power supply. Under the FIT, approved renewable energy projects – including solar photovoltaic (PV), wind, geothermal, small-scale hydropower, and biomass – sell electricity to the transmission and distribution utilities at a fixed price for 20 years, and the utilities pass these costs on to end users through electricity rates. Solar PV has benefited most from the FIT scheme, with Japan now the world’s third largest solar market by installed capacity. Prices are set annually according to resource type and other conditions. Due to the cost of the FIT system – estimated at JPY 80.2 billion ($671 million) for 2022 – METI has reduced subsidy levels over time, particularly for solar PV projects. It has also taken other measures to control costs, such as introducing a capacity auction system for projects over a certain size.
In line with recent revisions to Japan’s Renewable Energy Act, a new “feed-in-premium” (FIP) scheme will go into effect in April 2022 alongside the existing FIT scheme. Under the FIP, approved projects can receive a premium – based on the variable wholesale power market price – in addition to any revenue earned through market or bilateral transactions. FIP projects over a certain size must also participate in the existing auction system. The revised Renewable Energy Act also established a limit on the time period within which new FIT or FIP projects must commence operations before losing their access to grid interconnection. Further, the revised act requires that new commercial solar projects secure funds necessary for end-of-life decommissioning. These changes to Japan’s renewable energy support scheme, while necessary to address the growing economic costs of the existing FIT scheme, is forcing project developers to change their business models and sharpen their ability to predict revenues. We cannot yet estimate the impact these changes will have on the growth of Japan’s renewable energy market.
Japan no longer has free-trade zones or free ports. Customs authorities allow the bonding of warehousing and processing facilities adjacent to ports on a case-by-case basis.
The National Strategic Special Zones Advisory Council chaired by the Prime Minister has established a total of ten National Strategic Special Zones (NSSZ) to implement selected deregulation measures intended to attract new investment and boost regional growth. Under the NSSZ framework, designated regions request regulatory exceptions from the central government in support of specific strategic goals defined in each zone’s “master plan,” which focuses on a potential growth area such as labor, education, technology, agriculture, or healthcare. Foreign-owned businesses receive equal treatment in the NSSZs; some measures aim specifically to ease customs and immigration restrictions for foreign investors, such as the “Startup Visa” adopted by the Fukuoka NSSZ.
The Japanese government has also sought to encourage investment in the Tohoku (northeast) region, which was devastated by the earthquake, tsunami, and nuclear “triple disaster” of March 11, 2011. Areas affected by the disaster have been included in a “Special Zone for Reconstruction” that features eased regulatory burdens, tax incentives, and financial support to encourage heightened participation in the region’s economic recovery.
The Diet approved a revision to add “advanced data technologies” as one of targeted growth areas for NSSZs in May 2020, which went into effect on September 1, 2020. The revision allowed regions to create “Super City National Strategic Zones,” on the condition that the zone will provide advanced services to its citizens through utilizing artificial intelligence (AI), big data or other data linkage platforms. The Cabinet Office website cited remote schooling/healthcare, cashless payment services, and one-stop administrative services as examples of such projects.
Japan does not maintain performance requirements or requirements for local management participation or local control in joint ventures.
Japan has no general restrictions on data storage. On January 1, 2020, the U.S.-Japan Digital Trade Agreement went into effect and specifically prohibits data localization measures that restrict where data can be stored and processed. These rules are extended to financial service suppliers, in circumstances where a financial regulator has the access to data needed to fulfill its regulatory and supervisory mandate.
6. Financial Sector
Japan maintains no formal restrictions on inward portfolio investment except for certain provisions covering national security. Foreign capital plays an important role in Japan’s financial markets, with foreign investors accounting for the majority of trading shares in the country’s stock market. Historically, many company managers and directors have resisted the actions of activist shareholders, especially foreign private equity funds, potentially limiting the attractiveness of Japan’s equity market to large-scale foreign portfolio investment, although there are signs of change. Some firms have taken steps to facilitate the exercise of shareholder rights by foreign investors, including the use of electronic proxy voting. The Tokyo Stock Exchange (TSE) maintains an Electronic Voting Platform for Foreign and Institutional Investors. All holdings of TSE-listed stocks are required to transfer paper stock certificates into electronic form.
The Japan Exchange Group (JPX) operates Japan’s two largest stock exchanges – in Tokyo and Osaka – with cash equity trading consolidated on the TSE since July 2013 and derivatives trading consolidated on the Osaka Exchange since March 2014.
In January 2014, the TSE and Nikkei launched the JPX Nikkei 400 Index. The index puts a premium on company performance, particularly return on equity (ROE). Companies included are determined by such factors as three-year average returns on equity, three-year accumulated operating profits and market capitalization, along with others such as the number of external board members. Inclusion in the index has become an unofficial “seal of approval” in corporate Japan, and many companies have taken steps, including undertaking share buybacks, to improve their ROE. The Bank of Japan has purchased JPX-Nikkei 400 exchange traded funds (ETFs) as part of its monetary operations, and Japan’s massive Government Pension Investment Fund (GPIF) has also invested in JPX-Nikkei 400 ETFs, putting an additional premium on membership in the index. The TSE and FSA revised the Corporate Governance Code in 2021 to reflect the realignment of TSE segmentations to be implemented in 2022. The revised guidelines require companies, to be listed in the “Prime Section,” a top-tier TSE section, to have more than one-third external directors.
Japan does not restrict financial flows and accepts obligations under IMF Article VIII.
Credit is available via multiple instruments, both public and private, although access by foreigners often depends upon visa status and the type of investment.
Banking services are easily accessible throughout Japan; it is home to many of the world’s largest private commercial banks as well as an extensive network of regional and local banks. Most major international commercial banks are also present in Japan, and other quasi-governmental and non-governmental entities, such as the postal service and cooperative industry associations, also offer banking services. For example, the National Federation of Agricultural Cooperative Associations offers services through its bank (Norinchukin Bank) to members of the organization. Japan’s financial sector is generally acknowledged to be sound and resilient, with good capitalization and with a declining ratio of non-performing loans. While still healthy, most banks have experienced pressure on interest margins and profitability as a result of an extended period of low interest rates capped by the Bank of Japan’s introduction of a negative interest rate policy in 2016, especially some of the regional banks.
The country’s three largest private commercial banks, often collectively referred to as the “megabanks,” are MUFG Bank (a banking subsidiary of Mitsubishi UFJ Financial Group), Mizuho Bank (Mizuho Financial Group), and SMBC (Sumitomo Mitsui Financial Group). Collectively, they hold assets reaching USD 6.0 trillion at September end of 2021. Japan’s second largest bank by assets – with more than USD 2.0 trillion – is Japan Post Bank, a financial subsidiary of the Japan Post Holdings(which holds 88.99 percent of the bank’s shares as of September 2021). Japan Post Bank offers services via 23,815 Japan Post office branches, at which Japan Post Bank services can be conducted, as well as Japan Post’s network of 31,901 ATMs nationwide, as of the end of March 2021.
Many foreign banks operate in Japan offering both banking and other financial services. Like their domestic counterparts, foreign banks are regulated by the Japan Financial Services Agency (FSA). According to the IMF, there have been no observations of reduced or lost correspondent banking relationships in Japan. There are 518 correspondent financial institutions that have current accounts at the country’s central bank (including 123 main banks; 11 trust banks; 50 foreign banks; and 247 credit unions).
Foreigners wishing to establish bank accounts must show a passport, visa, and foreigner residence card; temporary visitors may not open bank accounts in Japan. Other requirements (e.g., evidence of utility registration and payment, Japanese-style signature seal, etc.) may vary according to institution. Language may be a barrier to obtaining services at some institutions; foreigners who do not speak Japanese should research in advance which banks are more likely to offer bilingual services.
Japanese regulators are encouraging “open banking” interactions between financial institutions and third-party developers of financial technology applications through application programming interfaces (“APIs”) when customers “opt-in” to share their information. As a result of the government having set a target to have 80 banks adopt API standards by 2020, more than 100 subject banks reportedly have done so. Many of the largest banks are participating in various proofs of concept using blockchain technology. While commercial banks have not yet formally adopted blockchain-powered systems for fund settlement, they are actively exploring options, and the largest banks have announced intentions to produce their own virtual currencies at some point. The Bank of Japan is researching blockchain and its applications for national accounts and established a “Fintech Center” to lead this effort. The main banking regulator, the Japan Financial Services Agency also encourages innovation with financial technologies, including sponsoring an annual conference on “fintech” in Japan. In April 2017, amendments to the Act on Settlements of Funds went into effect, permitting the use of virtual currencies as a form of payment in Japan, but virtual currency is still not considered legal tender (e.g., commercial vendors may opt to accept virtual currencies for transactional payments, though virtual currency cannot be used as payment for taxes owed to the government). The law also requires the registration of virtual currency exchange businesses. There are currently 30 registered virtual currency exchanges in Japan, as of January 2022.
Japan does not operate a sovereign wealth fund.
7. State-Owned Enterprises
Japan has privatized most former state-owned enterprises (SOEs). Under the Postal Privatization Law, privatization of Japan Post group started in October 2007 by turning the public corporation into stock companies. The stock sale of the Japan Post Holdings Co. and its two financial subsidiaries, Japan Post Insurance (JPI) and Japan Post Bank (JPB), began in November 2015 with an IPO that sold 11 percent of available shares in each of the three entities. The postal service subsidiary, Japan Post Co., remains a wholly owned subsidiary of JPH. The Japanese government conducted additional public offerings of stock in September 2017 and October 2021, reducing the government ownership in the holding company to a little over one third. There were offerings in the insurance subsidiary in April 2019 and June 2021. JPH currently owns 88.99 percent of the banking subsidiary and 49.9 percent of the insurance subsidiary. Follow-on sales of shares in the two subsidiary companies will take place over time, but the government’s sale of JPH stocks in October 2021 is considered to be the last. The Postal Privatization Law requires the government to sell a majority share so that the government ownership would be “a little over one third” of all shares in JPH (which was completed in 2021), and JPH to sell all shares of JPB and JPI, as soon as possible.
These offerings mark the final stage of Japan Post privatization begun under former Prime Minister Junichiro Koizumi (2001-2006) and respond to long-standing criticism from commercial banks and insurers—both foreign and Japanese—that their government-owned Japan Post rivals have an unfair advantage.
While there has been significant progress since 2013 on private suppliers’ access to the postal insurance network, the U.S. government has continued to raise concerns about the preferential treatment given to Japan Post and some quasi-governmental entities compared to private sector competitors and the impact of these advantages on the ability of private companies to compete on a level playing field. A full description of U.S. government concerns regarding the insurance sector and efforts to address these concerns is available in the annual United States Trade Representative’s National Trade Estimate on Foreign Trade Barriers report for Japan.
In sectors previously dominated by state-owned enterprises but now privatized, such as transportation, telecommunications, and package delivery, U.S. businesses report that Japanese firms sometimes receive favorable treatment in the form of improved market access and government cooperation.
Deregulation of Japan’s power sector took a step forward in April 2016 with the full liberalization of retail electricity supply, allowing all consumers to choose their electricity provider. This change has led to increased competition from, and rapid growth in the number of, new entrants; as of March 2022, there were almost 750 registered electricity retailers nationwide. While the generation and transmission of electricity remain mostly in the hands of the legacy power utilities, new electricity retailers reached a 21-percent market share of the total volume of electricity sold as of November 2021. Japan implemented the third phase of its power sector reforms in April 2020 by requiring vertically integrated regional monopolies to “legally unbundle” the electricity transmission and distribution portions of their businesses from the power generation and retailing portions. The transmission and distribution businesses retain ownership of, and operational control over, the power grid in their regional service territories. In addition, many of the former vertically integrated regional monopolies created electricity retailers to compete in the fully deregulated retail market.
American energy companies have reported increased opportunities in this sector, but also report that the regional power utilities have advantages over new entrants with regard to understanding the regulatory regime, securing sufficient low-cost generation in the wholesale market, and accessing infrastructure. For example, while the wholesale market allows new retailers to buy electricity for sale to customers, legacy utilities, which control most of the generation, sell relatively little power into that market. This limits the supply and increases the cost of electricity that new retailers can sell to consumers. While the liquidity of the wholesale electricity market has increased in recent years, new entrants — including American companies — report that they have few other options for cost-effectively securing the electricity they need to meet their supply obligations. In addition, as the large power utilities still control transmission and distribution lines, new entrants in power generation are not able to compete due to limited access to power grids.
* Source for Host Country Data: *2020 Nominal GDP data from Economic and Social Research Institute, Cabinet Office, Japanese Government. February, 2022. (Note: uses exchange rate of 106.78 Yen to 1 U.S. Dollar and Calendar Year Average Data)
The discrepancy between Japan’s accounting of U.S. FDI into Japan and U.S. accounting of that FDI can be attributed to methodological differences, specifically with regard to indirect investors, profits generated from reinvested earnings, and differing standards for which companies must report FDI.
Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data (IMF CDIS, 2020)
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment
Outward Direct Investment
“0” reflects amounts rounded to +/- USD 500,000.
Table 4: Portfolio Investment
Portfolio Investment Assets (IMF CPIS, 2020 end)
Top Five Partners (Millions, current US Dollars)
Total Debt Securities
1. Openness To, and Restrictions Upon, Foreign Investment
The UK actively encourages inward FDI. 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, including through its newly created Office for Investment, actively promotes inward investment and prepares market information for a variety of industries. U.S. companies establishing British subsidiaries generally encounter no special nationality requirements on directors or shareholders. Once established in the UK, foreign-owned companies are treated no differently from UK firms. The UK government is a strong defender of the rights of any UK-registered company, irrespective of its nationality of ownership.
Foreign ownership is limited in only a few strategic private sector 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 of 1975, but it has never done so. Investments in energy and power generation require environmental approvals. Certain service activities (like radio and land-based television broadcasting) are subject to licensing.
The National Security and Investment Act (NSIA) 2021 came into force on January 4, 2022. The NSIA created a new screening regime for transactions which might raise national security concerns in the UK called the Investment Security Unit (ISU). The ISU sits within the Department for Business, Energy and Industrial Strategy (BEIS). It is responsible for identifying, addressing and mitigating national security risks to the UK arising when a person gains control of a qualifying asset or qualifying entity.
The UK requires that at least one director of any company registered in the UK be ordinarily resident in the country. The UK, as a member of the Organization for Economic Cooperation and Development (OECD), subscribes to the OECD Codes of Liberalization and is committed to minimizing limits on foreign investment.
The Economist Intelligence Unit and the OECD’s Economic Forecast Summary have current investment policy reports for the United Kingdom:
The UK government has promoted administrative efficiency successfully to facilitate business creation and operation. The online business registration process is clearly defined, though some types of companies cannot register as an overseas firm in the UK, including partnerships and unincorporated bodies. Registration as an overseas company is only required when the company has some degree of physical presence in the UK. After registering their business with the UK governmental body Companies House, overseas firms must separately register to pay corporation tax within three months. Since 2016, companies have had to declare all “persons of significant control.” This policy recognizes that individuals other than named directors can have significant influence on a company’s activity and that this information should be transparent. More information is available at this link: https://www.gov.uk/government/publications/guidance-to-the-people-with-significant-control-requirements-for-companies-and-limited-liability-partnerships. Companies House maintains a free, publicly searchable directory, available at https://www.gov.uk/get-information-about-a-company.
The UK offers a welcoming environment to foreign investors, with foreign equity ownership restrictions in only a limited number of sectors covered by the World Bank’s Investing Across Sectors indicators.
The British Overseas Territories (BOTs) comprise Anguilla, British Antarctic Territory, Bermuda, British Indian Ocean Territory, British Virgin Islands, Cayman Islands, Falkland Islands (Islas Malvinas), 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.
Many of the territories are now broadly self-sufficient. The UK’s Foreign, Commonwealth and Development Office (FCDO), however, maintains development assistance programs in St. Helena, Montserrat, and Pitcairn. This includes budgetary aid to meet the islands’ essential needs and development assistance to help encourage economic growth and social development to promote economic self-sustainability. In addition, all other BOTs receive small levels of assistance through “cross-territory” programs for issues such as environmental protection, disaster prevention, HIV/AIDS, and child protection.
Seven of the BOTs have financial centers: Anguilla, Bermuda, British Virgin Islands, Cayman Islands, Gibraltar, Montserrat, and the Turks and Caicos Islands. These territories have committed to the OECD’s Common Reporting Standard (CRS) for the automatic exchange of taxpayer financial account information. They are already exchanging information with the UK, and began exchanging information with other jurisdictions under the CRS from September 2017.
Of the BOTs, Anguilla is the only one to receive a “non-compliant” rating by the Global Forum for Exchange of Information on Request. The Global Forum has rated the other six territories as “largely compliant.” Anguilla, Bermuda, British Virgin Islands, Cayman Islands, Gibraltar, and the Turks and Caicos Islands have committed in reciprocal bilateral arrangements with the UK to hold beneficial ownership information in central registers or similarly effective systems, and to provide UK law enforcement authorities with near real-time access to this information. 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 on the assessed value of the property or the sales proceeds, whichever is greater.
British Virgin Islands: The government of the British Virgin Islands offers a series of incentive packages aimed at reducing the cost of doing business on the islands. This includes relief from corporation tax payments over specific periods, but companies must pay an initial registration fee and an annual license fee to the BVI Financial Services Commission. Crown land grants are not available to non-British Virgin Islanders, but private land can be leased or purchased following the approval of an Alien Land Holding License. Stamp duty is imposed on transfers of real estate and the transfer of shares in a BVI company owning real estate in the BVI at a rate of four percent for belongers (i.e., residents who have proven they meet a legal standard of close ties to the territory) and 12 percent for non-belongers. There is no corporate income tax, capital gains tax, branch tax, or withholding tax for companies incorporated under the BVI Business Companies Act. Payroll tax is imposed on every employer and self-employed person who conducts business in BVI. The tax is paid at a graduated rate depending upon the size of the employer. The current rates are 10 percent for small employers (those that have a payroll of less than $150,000, a turnover of less than $300,000 and fewer than seven employees) and 14 percent for larger employers. Eight percent of the total remuneration is deducted from the employee, while the remainder of the liability is met by the employer. The first $10,000 of remuneration is free from payroll tax.
Cayman Islands: There are no direct taxes in the Cayman Islands. In most districts, the government charges stamp duty of 7.5 percent on the value of real estate at sale, but certain districts, including Seven Mile Beach, are subject to a rate of nine percent. There is a one percent fee payable on mortgages of less than KYD 300,000 ($360,237), and one and a half percent on mortgages of KYD 300,000 ($360,237) 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 (Islas Malvinas): Companies located in the Falkland Islands (Islas Malvinas) are charged corporation tax at 21 percent on the first £1 million ($1.4 million) and 26 percent for all amounts more than £1 million ($1.4 million). The individual income tax rate is 21 percent for earnings below £12,000 ($16,800) and 26 percent above this level.
Gibraltar: 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 12.5 percent for all other companies. There are no capital or sales taxes. Gibraltar is not currently a part of the EU, and its post-Brexit relationship with the bloc is the subject of ongoing negotiations between London and Brussels. Under the terms of an agreement in principle reached between the UK and Spain on December 31, 2020, free movement of workers and goods across the land border between Gibraltar and Spain is temporarily continuing.
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.
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 $25,000. Depending on the island, the stamp duty rate may be up to 6.5 percent for purchases up to $250,000, eight percent for purchases $250,001 to $500,000, and 10 percent for purchases over $500,000.
The Crown Dependencies:
The Crown Dependencies are the Bailiwick of Jersey, the Bailiwick of Guernsey, and the Isle of Man. The Crown Dependencies are not part of the UK but are self-governing dependencies of the Crown. This means they have their own directly elected legislative assemblies, administrative, fiscal, and legal systems, and their own courts of law. The Crown Dependencies are not represented in the UK Parliament.
Jersey’s standard rate of corporate tax is zero percent. The exceptions to this standard rate are financial service companies, which are taxed at 10 percent; utility companies, which are taxed at 20 percent; and income specifically derived from Jersey property rentals or Jersey property development, taxed at 20 percent. A five percent VAT is applicable in Jersey.
Guernsey has a zero percent rate of corporate tax. Exceptions include some specific banking activities, taxed at 10 percent; utility companies, which are taxed at 20 percent; Guernsey residents’ assessable income is taxed at 20 percent; and income derived from land and buildings is taxed at 20 percent.
The Isle of Man’s corporate standard tax is zero percent. The exceptions to this standard rate are income received from banking business, which is taxed at 10 percent, and income received from land and property in the Isle of Man, which is taxed at 20 percent. In addition, a 10 percent tax rate also applies to companies that carry on a retail business in the Isle of Man and have taxable income in excess of £500,000 ($695,000) from that business. A 20 percent rate of VAT is applicable in the Isle of Man.
The tax data above are current as of March 2022.
The UK is one of the largest outward investors in the world, often through bilateral investment treaties (BITs), which are used to promote and protect investment abroad and have been adopted by many countries. The UK’s international investment position abroad (outward investment) in 2020 was $2.1 trillion. The main destination for UK outward FDI is the United States, which accounted for approximately 25 percent of UK outward FDI stocks at the end of 2020. Other key destinations include the Netherlands, Luxembourg, France, and Spain which, together with the United States, account for a little over half of the UK’s outward FDI stock. Europe and the Americas remain the dominant areas for UK international investment positions abroad.
4. Industrial Policies
The UK offers a range of incentives for companies of any nationality locating in depressed regions of the country, as long as the investment generates employment. DIT works with its partner organizations in the devolved administrations – Scottish Development International, the Welsh Government, and Invest Northern Ireland – and with London and Partners and Local Enterprise Partnerships (LEPs) throughout England–to promote each region’s particular strengths and expertise to overseas investors.
Local authorities in England and Wales also have power under the Local Government and Housing Act of 1989 to promote the economic development of their areas through a variety of assistance schemes, including the provision of grants, loan capital, property, or other financial benefit. Separate legislation, granting similar powers to local authorities, applies to Scotland and Northern Ireland.
Invest NI is the economic development agency for Northern Ireland. Invest NI provides guidance and support to businesses seeking to invest in Northern Ireland throughout the lifespan of their investment. This support includes grants for employment, R&D, training, and assistance with recruitment and real estate.
HMG offers tax incentives for businesses that purchase new:
Electric cars and cars with zero CO2 emissions
Plant and machinery for gas refueling stations, for example storage tanks, pumps
Gas, biogas and hydrogen refueling equipment
Zero-emission goods vehicles
Equipment for electric vehicle charging points
Plant and machinery for use in a freeport tax site
If businesses buy an eligible asset, they can deduct the full cost from their profits before tax. They cannot normally claim on items bought to lease to other people or for use within a home they let out. Most analysts suggest these incentives have helped uptake of green vehicles.
HMG’s Feed-In Tariff Scheme (FITS) ran from 2010 and was closed to new entrants in 2019. FITS helps to promote the uptake of renewable and low-carbon electricity generation technologies through payments made for the electricity a business generates and exports.
In March 2021, the UK government identified eight sites as post-Brexit freeports to spur trade, investment, innovation, and economic recovery. The eight sites are: East Midlands Airport, Felixstowe and Harwich, Humber, Liverpool City Region, Plymouth and South Devon, Solent, Thames, and Teesside. The UK government has said it will establish at least one freeport in each of Scotland, Wales, and Northern Ireland in the future. The designated areas will offer special customs and tax arrangements and additional infrastructure funding to improve transport links.
The EU’s General Data Protection Regulation (GDPR) is retained in domestic UK law as the UK GDPR, though the UK has the independence to keep the framework under review. Entities based in the UK must also continue to comply with the amended version of the Data Protection Act (DPA) 2018, which sits alongside UK GDPR. The Information Commissioner’s Office (ICO) is the UK’s independent data protection authority.
The UK permits transfers of data from the UK to the European Economic Area (EEA). In 2021, the EU Commission published data adequacy decisions for the UK. As a result, data transfers from the EEA to the UK are permitted in most cases. Transfers of personal data for the purposes of UK immigration control, or which would otherwise fall within the scope of the immigration exemption in the DPA 2018, are excluded from the scope of the adequacy decision.
While the UK GDPR does not impose data localization requirements, it requires controllers and processors of personal data to put in place appropriate technical and organizational measures to implement data protection effectively and safeguard individual rights. This may include an organization’s appointment of a data protection officer (DPO). A DPO is anyone an organization appoints to monitor internal compliance, inform and advise on data protection obligations, provide advice regarding Data Protection Impact Assessments (DPIAs), and act as a contact point for data subjects and the ICO. A DPO can be an existing employee or externally appointed, but must be independent, an expert in data protection, adequately resources, and report to the highest management level.
The UK has robust real property laws stemming from legislation including the Law of Property Act 1925, the Settled Land Act 1925, the Land Charges Act 1972, the Trusts of Land and Appointment of Trustees Act 1996, and the Land Registration Act 2002.
Interests in property are well enforced, and mortgages and liens have been recorded reliably since the Land Registry Act of 1862. The Land Registry is the government database where all land ownership and transaction data are held for England and Wales, and it is reliably accessible online: https://www.gov.uk/search-property-information-land-registry. Scotland has its own Registers of Scotland, while Northern Ireland operates land registration through the Land and Property Services.
Long-term physical presence on non-residential property without permission is not typically considered a crime in the UK. Police take action if squatters commit other crimes when entering or staying in a property.
The UK legal system provides a high level of intellectual property rights (IPR) protection. Enforcement mechanisms are comparable to those available in the United States. The UK is a member of the World Intellectual Property Organization (WIPO). The UK is also a member of the following major intellectual property protection agreements: the Bern Convention for the Protection of Literary and Artistic Works, the Paris Convention for the Protection of Industrial Property, the Universal Copyright Convention, the Geneva Phonograms Convention, and the Patent Cooperation Treaty. The UK has signed and, through implementing various EU Directives, enshrined into UK law the WIPO Copyright Treaty (WCT) and WIPO Performance and Phonograms Treaty (WPPT), known as the internet treaties.
The Intellectual Property Office (IPO) is the official UK government body responsible for intellectual property rights, including patents, designs, trademarks, and copyright. The IPO web site contains comprehensive information on UK law and practice in these areas.
According to the Intellectual Property Crime Report (IPCR) for 2019/20, imports of counterfeit and pirated goods to the UK accounted for as much as £13.6 billion ($18.8 billion) in 2016 – the equivalent of three percent of UK imports in genuine goods. The most recent IPCR for 2020/2021 does not quantify the UK’s counterfeit imports.
The UK is not on the Special 301 Report nor on the Notorious Markets List.
London houses one of the oldest and most developed financial markets in the world. London offers the full range of financial services underpinned by high quality regulation and strong standards of disclosure and transparency, a supportive market infrastructure, and a dynamic, highly skilled workforce.
The UK government is generally hospitable to foreign portfolio investment. Government policies are intended to facilitate the free flow of capital and to support the flow of resources in product and services markets. Foreign investors are able to obtain credit in local markets at normal market terms, and a wide range of credit instruments are available. The principles underlying legal, regulatory, and accounting systems are transparent, and they are consistent with international standards. In all cases, regulations have been published and are applied on a non-discriminatory basis by the Bank of England’s Prudential Regulation Authority (PRA).
The London Stock Exchange is one of the most active equity markets in the world and has seen robust activity in 2021 in terms of both the number of IPOs as well as the amount of equity raised. London’s markets have historically been the main financial hub serving the EU and have the advantage of bridging the gap between the day’s trading in the Asian markets and the opening of the U.S. market. Despite the pandemic and Brexit, the UK retains its global place and has the lead in trading in areas such as foreign exchange, cross border bank lending, and international insurance premium income. Starting in early 2021, the UK government, based on the review of the London listing regime led by Lord Hill, the UK’s former European Commissioner for Financial Services, has introduced a series of reforms to the UK’s listing regime to improve its competitiveness and enhance London’s attractiveness as a listing location for innovative and high growth businesses. Further reforms are expected during 2022 based on reviews and consultations now underway. In May 2017, the LSE launched a new market for non-equity securities, known as the International Securities Market (ISM). This market is aimed at professional investors and is outside the scope of the UK Prospectus Regulation regime. The Alternative Investment Market (AIM), established in 1995 as a sub-market of the London Stock Exchange, is specifically designed for smaller, rapidly expanding companies. The AIM has a more flexible regulatory system than the main market and has no minimum market capitalization requirements. Since its launch, the AIM has raised more than £68 billion ($95 billion) for more than 3,000 companies.
The UK banking sector assets totaled £10.3 trillion ($14.3 trillion) at the end of the first half of 2021, the third largest in the world and the largest in Europe. In 2020, the financial services sector contributed £164.8 billion ($221 billion) to the UK economy, accounting for 8.6 percent of total economic output. There were 1.1 million financial services jobs in the UK in Q1 2021, accounting for 3.3 percent of all jobs. The long-term impact of Brexit and the pandemic on the financial services industry has been minor so far. Some firms continue to move limited numbers of jobs outside the UK to service EU-based clients, but the UK is anticipated to remain a top financial hub.
The Bank of England (BoE) is the central bank of the UK. According to its guidelines, foreign banking institutions are legally permitted to establish operations in the UK as subsidiaries or branches. More than 200 foreign banks have branches in London, and London serves as an important center for global private and investment banking firms. Responsibilities for the prudential supervision of a foreign branch are split between the parent’s home state supervisors and the PRA. The PRA, however, expects the whole firm to meet the PRA’s threshold conditions. The PRA expects new foreign branches to focus on wholesale and corporate banking and to do so at a level that is not critical to the UK economy. The Financial Conduct Authority (FCA) is the regulator for all banks operating in the United Kingdom. For foreign bank branches operating in the UK, the FCA’s Threshold Conditions and conduct of business rules apply, including rules in areas such as anti-money laundering. Eligible deposits placed in foreign branches may be covered by the UK deposit guarantee program and therefore foreign branches may be subject to regulations concerning UK depositor protection.
There are no legal restrictions that prohibit foreign residents from opening a business bank account; setting up a business bank account as a non-resident is in principle straightforward. In practice, however, most banks will not accept applications from overseas due to fraud concerns and the additional administration costs. To open a personal bank account, an individual must at minimum present an internationally recognized proof of identification and prove residency in the UK. This is a problem for incoming FDI and American expatriates. Unless the business or the individual can prove UK residency, they will have limited banking options.
The pound sterling is a free-floating currency with no restrictions on its transfer or conversion. Exchange controls restricting the transfer of funds associated with an investment into or out of the UK are not exercised.
The United Kingdom does not maintain a national wealth fund. Although there have at time been calls to turn The Crown Estate – created in 1760 by Parliament as a means of funding the British monarchy – into a wealth fund, there are no current plans to do so. Moreover, with assets of just under $20 billion, The Crown Estate would be small in relation to other national funds.
There are 20 partially or fully state-owned enterprises in the UK. These enterprises range from large, well-known companies to small trading funds. Since privatizing the oil and gas industry, the UK has not established any new energy-related state-owned enterprises or resource funds.
The privatization of state-owned utilities in the UK is now essentially complete. With regard to future investment opportunities, the few remaining government-owned enterprises or government shares in other utilities are likely to be sold off to the private sector when market conditions improve.
Businesses in the UK are accountable for a due-diligence approach to responsible business conduct (RBC), or corporate social responsibility (CSR), in areas such as human resources, environment, sustainable development, and health and safety practices – through a wide variety of existing guidelines at national, EU, and global levels. There is a strong awareness of CSR principles among UK businesses, promoted by UK business associations such as the Confederation of British Industry and the UK government.
The British government fairly and uniformly enforces laws related to human rights, labor rights, consumer protection, environmental protection, and other statutes intended to protect individuals from adverse business impacts. The UK government adheres to the OECD Guidelines for Multinational Enterprises. It is committed to the promotion and implementation of these Guidelines and encourages UK multinational enterprises to adopt high corporate standards involving all aspects of the Guidelines. The UK has established a National Contact Point (NCP) to promote the Guidelines and to facilitate the resolution of disputes that may arise within that context. The NCP is part of the Department for International Trade. A Steering Board monitors the work of the UK NCP and provides strategic guidance. It is composed of representatives of relevant government departments and four external members nominated by the Trades Union Congress, the Confederation of British Industry, the All Party Parliamentary Group on the Great Lakes Region of Africa, and the NGO community.
In October 2021, the UK government introduced its Net Zero Strategy (NZS), which comprehensively sets out UK government plans to cut emissions, seize green economic opportunities, and use private investment to achieve a net zero economy by 2050. The NZS allocates £7.8 billion ($10.5 billion) in new spending and aims to leverage up to £90 billion ($118 billion) of private investment by 2030. In its latest spending review, Her Majesty’s Treasury’s (HMT) estimated that net-zero spending between 2021-22 and 2024-25 would total £25.5 billion ($34.5 billion). HMG has committed to several policies in its NZS, including:
1. Quadruple offshore wind capacity by 2030
2. 5GW of low carbon hydrogen production capacity by 2030
3. End the sale of new gasoline and diesel cars and vans by 2030
4. Install 600,000 heat pumps in homes by 2028
5. Capture and store 10Mt of CO2 per year by 2030
6. Restoring approximately 280,000 hectares of peat in England by 2050 and trebling woodland creation rates in England, contributing to the UK’s overall target of increasing planting rates to 30,000 hectares per year by the end of the Parliament
7. Eco-labelling regulation introduction by the late 2020s
8. Introduce Local Nature Recovery Strategies (LNRS), a spatial planning tool for nature, which allows local government and communities to identify priorities and opportunities for nature recovery and nature-based solutions across England
HMG’s public procurement policy states that contracting authorities should consider 1) creating new businesses, new jobs and new skills; 2) tackling climate change and reducing waste; 3) improving supplier diversity, innovation and resilience, alongside any additional local priorities in their procurement activities.
Through the Greening Finance Roadmap, HMT outlines the UK government’s intent to implement a detailed sovereign green taxonomy, which is expected to be published by the end of 2022, along with sustainable disclosure requirements that would serve as an integrated framework for sustainability throughout the UK economy.
Although isolated instances of bribery and corruption have occurred in the UK, U.S. investors have not identified corruption of public officials as a factor in doing business in the UK.
The Bribery Act 2010 amended and reformed UK criminal law and provided a modern legal framework to combat bribery in the UK and internationally. The scope of the law is extra-territorial. Under the Act, a relevant person or company can be prosecuted for bribery if the crime is committed abroad. The Act applies to UK citizens, residents, and companies established under UK law. In addition, non-UK companies can be held liable for a failure to prevent bribery if they do business in the UK.
Section 9 of the Act requires the UK government to publish guidance on procedures that commercial organizations can put in place to prevent bribery on their behalf. It creates the following offenses: active bribery, described as promising or giving a financial or other advantage; passive bribery, described as agreeing to receive or accepting a financial or other advantage; bribery of foreign public officials; and the failure of commercial organizations to prevent bribery by an associated person (corporate offense). This corporate criminal offense places a burden of proof on companies to show they have adequate procedures in place to prevent bribery (http://www.transparency.org.uk/our-work/business-integrity/bribery-act/adequate-procedures-guidance/). To avoid corporate liability for bribery, companies must make sure that they have strong, up-to-date and effective anti-bribery policies and systems. It is a corporate criminal offense to fail to prevent bribery by an associated person. The briber must be “associated” with the commercial organization, a term which will apply to, amongst others, the organization’s agents, employees, and subsidiaries. A foreign corporation which “carries on a business, or part of a business” in the UK may therefore be guilty of the UK offense even if, for example, the relevant acts were performed by the corporation’s agent outside the UK. The Act does not extend to political parties and it is unclear whether it extends to family members of public officials.
The UK formally ratified the OECD Convention on Combating Bribery in 1998 and ratified the UN Convention Against Corruption in 2006.
UK law provides criminal penalties for corruption by officials, and the government routinely implements these laws effectively. The Serious Fraud Office (SFO) is an independent government department, operating under the superintendence of the Attorney General with jurisdiction in England, Wales, and Northern Ireland. It investigates and prosecutes those who commit serious or complex fraud, bribery, and corruption, and pursues them and others for the proceeds of their crime.
All allegations of bribery of foreign public officials by British nationals or companies incorporated in the United Kingdom—even in relation to conduct that occurred overseas—should be reported to the SFO for possible investigation. When the SFO receives a report of possible corruption, its intelligence team makes an assessment and decides if the matter is best dealt with by the SFO itself or passed to a law enforcement partner organization, such as the Overseas Anti-Corruption Unit of the City of London Police (OACU) or the International Corruption Unit of the National Crime Agency. Allegations can be reported in confidence using the SFO’s secure online reporting form: https://www.sfo.gov.uk/contact-us/reporting-serious-fraud-bribery-corruption/.
Details can also be sent to the SFO in writing:
Serious Fraud Office
2-4 Cockspur Street
London, SW1Y 5BS
In March 2022, the UK strengthened its Unexplained Wealth Order (UWO) regime to enable law enforcement to investigate the origin of property and recover the proceeds of crime. A UWO is an investigatory order placed on a respondent whose assets appear disproportionate to their income to explain the origins of their wealth.
A UWO requires a person who is a Politically Exposed Person (PEP) or reasonably suspected of involvement in, or of being connected to a person involved in, serious crime to explain the origin of assets (minimum combined value of £50,000) that appear to be disproportionate to their known lawfully obtained income.
A UWO is not (by itself) a power to recover assets. However, any response from a UWO can be used in subsequent civil recovery proceedings.
A failure to respond will mean that the assets can be made subject to civil recovery action under the Proceeds of Crime Act 2002.
A person can also be found guilty of an offence if they provide false or misleading information in response to an UWO.
The UK’s terrorism threat level was at the third-highest rating (“substantial”) for most of 2021. On February 4, the UK lowered the threat level from “severe” to “substantial,” indicating a terrorist attack remains “likely” rather than “highly likely,” citing a “significant reduction in the momentum of attacks in Europe.” On November 15, 2021, following the October 15, 2021 stabbing of David Amess MP and the November 14, 2021 Liverpool bombing, the UK increased the threat level to “severe” due to an overall change in the threat picture. UK officials categorize Islamist terrorism as the greatest threat to national security, though they recognize the growing threat of racially and ethnically motivated terrorism (REMT), also referred to as “extreme right-wing” terrorism. On November 18, the Home Office reported that in the year ending March 2021, the UK’s Prevent counterterrorism program received more referrals related to “extreme right-wing” radicalization (1,229) than “Islamist” radicalization (1,064) for the first time. From March 2017 to December 2021, police and security services disrupted 32 plots, including 18 related to Islamist extremism; 12 to “extreme right-wing” extremism; and two to “left, anarchist, or single-issue terrorism.”
On February 9, 2022, the UK Government passed legislation designed to strengthen the political stability of Northern Ireland’s devolved Government. This legislation allows the Northern Ireland Executive cabinet and the NI Assembly to continue to function for an extended period should either the First Minister or deputy First Minister resign from their positions in the Executive. Northern Ireland’s terrorist threat level rating was reduced to substantial from severe in March 2022.
Environmental advocacy groups in the UK have been involved with numerous protests against a variety of business activities, including: airport expansion, bypass roads, offshore structures, wind farms, civilian nuclear power plants, and petrochemical facilities. These protests tend not to be violent but can be disruptive, with the aim of obtaining maximum media exposure.
Brexit has waned as a source of political instability. Nonetheless, the June 2016 EU referendum campaign was characterized by significant polarization and widely varying perspectives across the country. Differing views about the future UK-EU relationship continue to polarize political opinion across the UK. Some Scottish political leaders have indicated that the UK leaving the EU may provide justification to pursue another Referendum on Scotland leaving the UK.
Implementation of the Withdrawal Agreement has contributed to heightened political and sectarian tensions in Northern Ireland. The Northern Ireland Protocol, part of the Brexit Withdrawal Agreement, entered into force on January 1, 2021. The Protocol allows businesses based in Northern Ireland to export free from customs declarations, rules of origin certificates, and non-tariff barriers on the sale of goods to both Great Britain and the EU. Under the terms of the Protocol, Northern Ireland remains a part of the UK customs territory but is subject to EU standards and customs regulations as far as trade in goods is concerned. Goods shipped from Great Britain to Northern Ireland are subject to customs declarations but are tariff free unless deemed “at risk” of transshipment and use within the EU. Goods shipped to Northern Ireland from outside the EU are subject to the UK Global Tariff, unless deemed “at risk” of onward travel into the EU – in which case they would be liable to the EU’s Common Customs Tariff (CCT). Northern Ireland is included in the territorial scope of any free trade agreement the UK concludes with other countries, provided that such an agreement does not prejudice the application of the Protocol. Northern Ireland remains in the UK VAT area but will align with EU VAT rules; lower VAT rates or exemptions in the Republic of Ireland may be applied in Northern Ireland.
Checks on goods entering Northern Ireland, both physical and documentary, are conducted at the region’s ports and airports, not at the land border with the Republic of Ireland, where goods flow freely between the two jurisdictions. However, not all Protocol checks have yet been fully implemented because of temporary grace periods implemented by the UK in coordination with the EU, which remain in force. The EU and UK continue to discuss potential changes to the Protocol to ease the flow of goods between Great Britain and Northern Ireland.
The UK formally departed the bloc on January 31, 2020, following the ratification of the Withdrawal Agreement, and completed its transition out of the EU on December 31, 2020.
The Conservative Party, traditionally the UK’s pro-business party, was, until the COVID-19 pandemic, focused on implementing Brexit, a process many international businesses oppose because they expect it to make trade in goods, services, workers, and capital with the UK’s largest trading partners more problematic and costly, at least in the short term. In addition, the Conservative Party-led government has implemented a Digital Services Tax (DST), a two percent tax on the revenues of predominantly American search engines, social media services and online marketplaces which derive value from UK users and has legislated for an increase in the Corporation Tax rate from 19 percent to 25 percent. The Labour Party’s leader, Sir Keir Starmer, is widely acknowledged to be more economically centrist than his predecessor. In his first major economic speech following his election as Labour Party leader, Starmer declared his intention to repair and improve the party’s relationship with the business community but has proposed few policies as the UK’s political system contended with the COVID-19 crisis.
The UK’s labor force comprises more than 34.7 million workers. The employment rate between November 2021 and January 2022 was 75.6 percent, with 29.7 million workers employed full-time. There were 1.3 million workers unemployed in January 2022, or 3.9 percent. The female employment rate was 72.2 percent.
The most serious issue facing British employers is a skills gap derived from a high-skill, high-tech economy outpacing the educational system’s ability to deliver work-ready graduates. The government has placed a strong emphasis on improving the British educational system in terms of greater emphasis on science, research and development, and entrepreneurial skills, but any positive reforms will necessarily lag in delivering benefits. The UK’s skills base stands around the OECD average and continues to improve.
As of 2020, approximately 23.7 percent of UK workers belonged to a union. Public-sector workers represented a much higher share of union members at 52 percent, while the private sector was 13 percent. Manufacturing, transport, and distribution trades are highly unionized. Unionization of the workforce in the UK is prohibited only in the armed forces, public-sector security services, and police forces. Union membership has risen slightly in recent years, despite a previous downward trend.
In the 2019, a total of 234,000 working days were lost from 35 official labor disputes. The Trades Union Congress (TUC), the British nation-wide labor federation, encourages union-management cooperation.
On April 1, 2022, the UK raised the minimum wage to £9.50 ($12.47) an hour for workers ages 23 and over. The increased wage impacts about 2 million workers across Britain.
The 2006 Employment Equality (Age) Regulations make it unlawful to discriminate against workers, employees, job seekers, and trainees because of age, whether young or old. The regulations cover recruitment, terms and conditions, promotions, transfers, dismissals, and training. They do not cover the provision of goods and services. The regulations also removed the upper age limits on unfair dismissal and redundancy. It sets a national default retirement age of 65, making compulsory retirement below that age unlawful unless objectively justified. Employees have the right to request to work beyond retirement age and the employer has a duty to consider such requests.
HMG brought forward new immigration rules on January 1, 2021. The new rules have wide-ranging implications for foreign employees, students, and EU citizens. The new rules are points-based, meaning immigrants need to attain a certain number of points in order to be awarded a visa. The previous cap on visas has been abolished. Applicants will need to be able to speak English and be paid the relevant salary threshold by their sponsor. This will either be the general salary threshold of £25,600 ($33,600) or the going rate for their job, whichever is higher. If applicants earn less–but no less than £20,480 ($26,880)–they may still be able to apply by “trading” points on specific characteristics against their salary. For example, if they have a job offer in a shortage occupation or have a PhD relevant to the job. More details are available here: https://www.gov.uk/guidance/new-immigration-system-what-you-need-to-know
The DFC does not prioritize investments in the UK. Export-Import Bank of the United States (Ex-Im Bank) financing is available to support major investment projects in the UK. A Memorandum of Understanding (MOU) signed by Ex-Im Bank and its UK equivalent, the Export Credits Guarantee Department (ECGD), enables bilateral U.S.-UK consortia intending to invest in third countries to seek investment funding support from the country of the larger partner. This removes the need for each of the two parties to seek financing from their respective credit guarantee organizations.
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source*
USG or international statistical source
USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Host Country Gross Domestic Product (GDP) ($M USD)