1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
The UK encourages foreign direct investment. With a few exceptions, the government does not discriminate between nationals and foreign individuals in the formation and operation of private companies. The Department for International Trade actively promotes direct foreign investment, and prepares market information for a variety of industries. U.S. companies establishing British subsidiaries generally encounter no special nationality requirements on directors or shareholders. Once established in the UK, foreign-owned companies are treated no differently from UK firms. The British Government is a strong defender of the rights of any British-registered company, irrespective of its nationality of ownership, reflected in the fact that the UK has never had to defend an investment dispute at the level of international arbitration.
Limits on Foreign Control and Right to Private Ownership and Establishment
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 Enterprise Act of 2002 extends powers to the UK government to intervene in mergers which might give rise to national security implications and into which they would not otherwise be able to intervene.
The UK requires that at least one director of any company registered in the UK be ordinarily resident in the UK. The UK, as a member of the Organization for Economic Cooperation and Development (OECD), subscribes to the OECD Codes of Liberalization and is committed to minimizing limits on foreign investment.
While the UK does not have a formalized investment review body to assess the suitability of foreign investments in national security sensitive areas, an ad hoc investment review process does exist and is led by the relevant government ministry with regulatory responsibility for the sector in question (e.g., the Department for Business, Energy, and Industrial Strategy would have responsibility for review of investments in the energy sector). U.S. companies have not been the target of these ad hoc reviews. The UK is currently considering ways to revise its rules related to foreign direct investment that may implicate UK national security interests. ( ). The Government has proposed to amend the turnover threshold and share-of-supply tests within the Enterprise Act 2002, in orderto give the Government more leeway to examine and potentially intervene in high-risk mergers that currently fall outside the thresholds in two areas: (i) the dual use and military use sector and, (ii) parts of the advanced technology sector. For these areas only, the Government proposes to lower the turnover threshold from £70 million ($92 million) to £1 million ($1.3 million) and remove the current requirement for the merger to increase the share of supply to or over 25 percent.
Other Investment Policy Reviews
The Economist’s “Intelligence Unit”, World Bank Group’s “Doing Business 2018”, and the OECD’s “Economic Forecast Summary (May 2019) have current investment policy reports for the United Kingdom:
The UK government has promoted administrative efficiency to facilitate business creation and operation. The online business registration process is clearly defined, though some types of company cannot register as an overseas firm in the UK, including partnerships and unincorporated bodies. Registration as an overseas company is only required when the company has some degree of physical presence in the UK. After registering their business with the UK governmental body Companies House, overseas firms must separately register to pay corporation tax within three months. On average, the process of setting up a business in the UK requires thirteen days, compared to the European average of 32 days, putting the UK in first place in Europe and sixth in the world. As of April 2016, companies have to declare all “persons of significant control.” This policy recognizes that individuals other than named directors can have significant influence on a company’s activity and that this information should be transparent. More information is available at this link: . Companies House maintains a free, publicly searchable directory, available at this link: .
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. As in all other EU member countries, foreign equity ownership in the air transportation sector is limited to 49 percent for investors from outside of the European Economic Area (EEA). It remains to be determined how this will change after the UK leaves the transition period with the EU on December 31, 2020.
Special Section on the British Overseas Territories and Crown Dependencies
The British Overseas Territories (BOTs) comprise Anguilla, British Antarctic Territory, Bermuda, British Indian Ocean Territory, British Virgin Islands, Cayman Islands, Falkland Islands, Gibraltar, Montserrat, Pitcairn Islands, St. Helena, Ascension and Tristan da Cunha, Turks and Caicos Islands, South Georgia and South Sandwich Islands, and Sovereign Base Areas on Cyprus. The BOTs retain a substantial measure of responsibility for their own affairs. Local self-government is usually provided by an Executive Council and elected legislature. Governors or Commissioners are appointed by the Crown on the advice of the British Foreign Secretary, and retain responsibility for external affairs, defense, and internal security. However, the UK imposed direct rule on the Turks and Caicos Islands in August 2009 after an inquiry found evidence of corruption and incompetence. Its Premier was removed and its constitution was suspended. The UK restored Home Rule following elections in November 2012.
Many of the territories are now broadly self-sufficient. However, the UK’s Department for International Development (DFID) maintains development assistance programs in St. Helena, Montserrat, and Pitcairn. This includes budgetary aid to meet the islands’ essential needs and development assistance to help encourage economic growth and social development in order to promote economic self-sustainability. In addition, all other BOTs receive small levels of assistance through “cross-territory” programs for issues such as environmental protection, disaster prevention, HIV/AIDS and child protection.
Seven of the BOTs have financial centers: Anguilla, Bermuda, British Virgin Islands, Cayman Islands, Gibraltar, Montserrat, and the Turks and Caicos Islands. These Territories have committed to the OECD’s Common Reporting Standard (CRS) for the automatic exchange of taxpayer financial account information. They are already exchanging information with the UK, and began exchanging information with other jurisdictions under the CRS from September 2017.
The OECD Global Forum on Transparency and Exchange of Information for Tax Purposes has rated Anguilla as “partially compliant” with the internationally agreed tax standard. Although Anguilla sought to upgrade its rating in 2017, it still remains at “partially compliant” as of May 2020. The Global Forum has rated the other six territories as “largely compliant.” Anguilla, Bermuda, British Virgin Islands, Cayman Islands, Gibraltar and the Turks and Caicos Islands have also committed in reciprocal bilateral arrangements with the UK to hold beneficial ownership information in central registers or similarly effective systems, and to provide UK law enforcement authorities with near real-time access to this information. These arrangements came into effect in June 2017.
Anguilla: Anguilla is a neutral tax jurisdiction. There are no income, capital gains, estate, profit or other forms of direct taxation on either individuals or corporations, for residents or non-residents of the jurisdiction. The territory has no exchange rate controls. Non-Anguillan nationals may purchase property, but the transfer of land to an alien includes an additional 12.5 percent surcharge.
British Virgin Islands: The government of the British Virgin Islands welcomes foreign direct investment and offers a series of incentive packages aimed at reducing the cost of doing business on the islands. This includes relief from corporation tax payments over specific periods but companies must pay an initial registration fee and an annual license fee to the BVI Financial Services Commission. Crown land grants are not available to non-British Virgin Islanders, but private land can be leased or purchased following the approval of an Alien Land Holding License. Stamp duty is imposed on transfer of real estate and the transfer of shares in a BVI company owning real estate in the BVI at a rate of 4 percent for belongers (i.e., residents who have proven they meet a legal standard of close ties to the territory) and 12 percent for non-belongers. There is no corporate income tax, capital gains tax, branch tax, or withholding tax for companies incorporated under the BVI Business Companies Act. Payroll tax is imposed on every employer and self-employed person who conducts business in BVI. The tax is paid at a graduated rate depending upon the size of the employer. The current rates are 10 percent for small employers (those which have a payroll of less than $150,000, a turnover of less than $300,000 and fewer than 7 employees) and 14 percent for larger employers. Eight percent of the total remuneration is deducted from the employee, the remainder of the liability is met by the employer. The first $10,000 of remuneration is free from payroll tax.
Cayman Islands: There are no direct taxes in the Cayman Islands. In most districts, the government charges stamp duty of 7.5 percent on the value of real estate at sale; however, certain districts, including Seven Mile Beach, are subject to a rate of nine percent. There is a one percent fee payable on mortgages of less than KYD 300,000, and one and a half percent on mortgages of KYD 300,000 or higher. There are no controls on the foreign ownership of property and land. Investors can receive import duty waivers on equipment, building materials, machinery, manufacturing materials, and other tools.
Falkland Islands: Companies located in the Falkland Islands are charged corporation tax at 21 percent on the first GBP one million and 26 percent for all amounts in excess of GBP one million. The individual income tax rate is 21 percent for earnings below $15,694 (GBP 12,000) and 26 percent above this level.
Gibraltar: The government of Gibraltar encourages foreign investment. Gibraltar has a stable currency and few restrictions on moving capital or repatriating dividends. The corporate income tax rate is 20 percent for utility, energy, and fuel supply companies, and 10 percent for all other companies. There are no capital or sales taxes. Gibraltar is unique among British Overseas Territories in having been a part of the European Union’s single market, Gibraltar left the EU with the rest of the UK and its final status is currently subject to negotiations between the UK and Spain.
Montserrat: The government of Montserrat welcomes new private foreign investment. Foreign investors are permitted to acquire real estate, subject to the acquisition of an Alien Land Holding license which carries a fee of five percent of the purchase price. The government also imposes stamp and transfer fees of 2.6 percent of the property value on all real estate transactions. Foreign investment in Montserrat is subject to the same taxation rules as local investment, and is eligible for tax holidays and other incentives. Montserrat has preferential trade agreements with the United States, Canada, and Australia. The government allows 100 percent foreign ownership of businesses but the administration of public utilities remains wholly in the public sector.
St. Helena: The island of St. Helena is open to foreign investment and welcomes expressions of interest from companies wanting to invest. Its government is able to offer tax based incentives which will be considered on the merits of each project – particularly tourism projects. All applications are processed by Enterprise St. Helena, the business development agency.
Pitcairn Islands: The Pitcairn Islands have approximately 50 residents, with a workforce of approximately 29 employed in 10 full-time equivalent roles. The territory does not have an airstrip or safe harbor. Residents exist on fishing, subsistence farming, and handcrafts.
The Turks and Caicos Islands: The islands operate an “open arms” investment policy. Through the policy, the government commits to a streamlined business licensing system, a responsive immigration policy to give investment security, access to government-owned land under long-term leases, and a variety of duty concessions to qualified investors. The islands have a “no tax” status, but property purchasers must pay a stamp duty on purchases over $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 has a zero percent standard rate of corporate tax . The exceptions to this standard rate are financial service companies, which are taxed at 10 percent, utility companies, which are taxed at 20 percent, and income specifically derived from Jersey property rentals or Jersey property development, taxed at 20 percent. VAT is not applicable in Jersey as it is not part of the EU VAT tax area.
Guernsey has a zero percent rate of corporate tax. Exceptions include some specific banking activities, taxed at 10 percent, utility companies, which are taxed at 20 percent, Guernsey residents’ assessable income is taxed at 20 percent, and income derived from land and buildings is taxed at 20 percent.
The Isle of Man’s corporate standard tax is zero percent. The exceptions to this standard rate are income received from banking business, which is taxed at 10 percent and income received from land and property in the Isle of Man which is taxed at 20 percent. In addition, a 10 percent tax rate also applies to companies who carry on a retail business in the Isle of Man and have taxable income in excess of £500,000 from that business. VAT is applicable in the Isle of Man as it is part of the EU customs territory.
The tax data above are current as of April 2020.
The UK remains one of the world’s largest foreign direct investors, currently ranked fourth. The UK’s international investment position abroad (outward investment) increased from GBP 1,713.3 billion in 2018 to GBP 1,857.7 in 2019, dropping to . GBP 1,805 billion by the end of 2019. The main destination for UK outward FDI is the United States, which accounted for approximately 21 percent of UK outward FDI at the end of 2018. Other key destinations include the Netherlands, Luxembourg, France, and Spain which, together with the United States, account for a little under half of the UK’s outward FDI stock.
The UK’s international investment position within the Americas was GBP 419.7 billion in 2018. This is the largest recorded value in the time series since 2009 for the Americas.
3. Legal Regime
Transparency of the Regulatory System
U.S. exporters and investors generally will find little difference between the United States and UK in the conduct of business. The regulatory system provides clear and transparent guidelines for commercial engagement. Common law prevails in the UK as the basis for commercial transactions, and the International Commercial Terms (INCOTERMS) of the International Chambers of Commerce are accepted definitions of trading terms. In terms of accounting standards and audit provisions firms in the UK must use the International Financial Reporting Standards (IFRS) set by the International Accounting Standards Board (IASB) and approved by the European Commission, at least currently. The UK’s Accounting Standards Board provides guidance to firms on accounting standards and works with the IASB on international standards.
Statutory authority over prices and competition in various industries is given to independent regulators, for example the Competition and Markets Authority (CMA), Office of Communications (Ofcom), the Water Services Regulation Authority (Ofwat), the Office of Gas and Electricity Markets (Ofgem), the Rail Regulator, and the Prudential Regulatory Authority (PRA). The PRA was created out of the dissolution of the Financial Services Authority (FSA) in 2013. The PRA reports to the Financial Policy Committee (FPC) in the Bank of England. The PRA is responsible for supervising the safety and soundness of individual financial firms, while the FPC takes a systemic view of the financial system and provides macro-prudential regulation and policy actions. The CMA acts as a single integrated regulator focused on enforcement of the UK’s competition laws. The Financial Conduct Authority (FCA) is a regulator that addresses financial and market misconduct through legally reviewable processes. These regulators work to protect the interests of consumers while ensuring that the markets they regulate are functioning efficiently. Most laws and regulations are published in draft for public comment prior to implementation. The FCA maintains a free, publicly searchable register of their filings on regulated corporations and individuals here: .
The UK government publishes regulatory actions, including draft text and executive summaries, on the Department for Business, Energy & Industrial Strategy webpage listed below. The current policy requires the repeal of two regulations for any new one in order to make the business environment more efficient.
Unlike the United States, the UK currently lacks independent authority in setting its regulatory regime. As long as the UK remains in the transition period with the European Union, it must comply with and enforce EU regulations and directives. Any U.S. government concerns about the degree of transparency and accountability in the EU regulatory process therefore also apply to the UK as an EU member state. The extent to which the UK will maintain the EU regulatory regime after the UK withdraws from the EU is unknown at this time. The UK is expected to leave the EU’s economic relationships on December 31, 2020.
International Regulatory Considerations
The UK’s withdrawal from the EU may result in a period in which the future regulatory direction of the UK is uncertain as the UK determines the extent to which it will either maintain and enforce the current EU regulatory regime or deviate towards new regulations in any particular sector. The UK is an independent member of the WTO, and actively seeks to comply with all WTO obligations.
Legal System and Judicial Independence
The UK is a common-law country. UK business contracts are legally enforceable in the UK, but not in the United States or other foreign jurisdictions. International disputes are resolved through litigation in the UK Courts or by arbitration, mediation, or some other alternative dispute resolution (ADR) method. The UK has a long history of applying the rule of law to business disputes; judicial proceedings have a reputation for being competent, fair, and reliable, which helps position London as an international hub for dispute resolution with over 10,000 cases filed per annum.
Laws and Regulations on Foreign Direct Investment
There are few statutes governing or restricting foreign investment in the UK. The procedure for establishing a company in the UK is identical for British and foreign investors. No approval mechanisms exist for foreign investment, apart from the ad hoc process outlined in Section 1. Foreigners may freely establish or purchase enterprises in the UK, with a few limited exceptions, and acquire land or buildings. As noted above, the UK is currently reviewing its procedures and has proposed new rules for restricting foreign investment in those sectors of the economy with higher risk for affecting national security.
Alleged tax avoidance by multinational companies, including several major U.S. firms, has been a controversial political issue and subject of investigations by the UK Parliament and EU authorities. Foreign and UK firms are subject to the same tax laws, however, and several UK firms have also been criticized for tax avoidance. Foreign investors may have access to certain EU and UK regional grants and incentives designed to attract industry to areas of high unemployment, but these do not include tax concessions. Access to EU grants will end after December 31, 2020.
In 2015, the UK flattened its structure of corporate tax rates. The UK currently taxes corporations at a flat rate of 19 percent, with certain exceptions,, with marginal tax relief granted for companies with profits falling between $391,000 (GBP 300,000) and $1.96 million (GBP 1.5 million). Tax deductions are allowed for expenditure and depreciation of assets used for trade purposes. These include machinery, plant, industrial buildings, and assets used for research and development. A special rate of 20 percent is given to unit trusts and open-ended investment companies. Companies that make profits from oil extraction or oil rights in the UK, including its continental shelf, are known as “ring fence” companies. Small ”ring fence” companies are taxed at a rate of 19 percent for profits up to $391,000 (GBP 300,000), and 30 percent for profits over $391,000 (GBP 300,000).
The UK has a simple system of personal income tax. The marginal tax rates for 2019-2020 are as follows: up to GBP 12,500, zero percent; GBP 12,501 to GBP 50,000, 20 percent; GBP 50,001 to GBP 150,000, 40 percent; and over GBP 150,000, 45 percent.
UK citizens also make mandatory payments of about 12 percent of income into the National Insurance system, which funds social security and retirement benefits. The UK requires non-domiciled residents of the UK to either pay tax on their worldwide income or the tax on the relevant part of their remitted foreign income being brought into the UK. If they have been resident in the UK for seven tax years of the previous nine, and they choose to pay tax only on their remitted earnings, they may be subject to an additional charge of $39,141 (GBP 30,000). If they have been resident in the UK for 12 of the last 14 tax years, they may be subject to an additional charge of $78,282 (GBP 60,000).
The Scottish Parliament has the legal power to increase or decrease the basic income tax rate in Scotland, currently 20 percent, by a maximum of three percentage points.
For guidance on laws and procedures relevant to foreign investment in the UK, follow the link below:
Competition and Anti-Trust Laws
UK competition law prohibits anti-competitive behavior within the UK through Chapters I and II of the Competition Act of 1998 and the Enterprise Act of 2002. The UK’s Competition and Markets Authority (CMA) is responsible for implementing these laws by investigating potentially anti-competitive behaviors, including cases involving state aid, cartel activity, or mergers that threaten to reduce the competitive market environment. While merger notification in the UK is voluntary, the CMA may impose substantial fines or suspense orders on potentially non-compliant transactions. The CMA prosecutes cartel activity both as a civil and criminal offense. The criminal offense carries a penalty of up to five years imprisonment; CMA shares concurrent jurisdiction with the Serious Fraud Office over criminal cartel matters. The CMA is also responsible for ensuring consumer protection, conducting market research, and overseeing sectoral regulators, such as those involved in the regulation of the UK’s energy, water, and communications markets.
Until December 31, 2020, EU competition policy will continue to apply in the UK. The UK will continue to refer cross-border cases with an EU-nexus to the European Commission, pursuant to Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU). After December 31, 2020, the UK will begin reviewing cross-border activities with a UK-EU nexus in parallel to the European Commission. The UK government has indicated there are no plans for any immediate, fundamental changes to its competition law regime following its withdrawal from the EU.
UK competition law requires:
1) the prohibition of agreements or practices that restrict free trading and competition between business entities (this includes in particular the repression of cartels);
2) the banning of abusive behavior by a firm dominating a market, or anti-competitive practices that tend to lead to such a dominant position (practices controlled in this way may include predatory pricing, tying, price gouging, refusal to deal and many others); and,
3) the supervision of mergers and acquisitions of large corporations, including some joint ventures.
Any transactions which could threaten competition also fall into scope of the UK’s regulators. UK law provides for remedies to problematic transactions, such as an obligation to divest part of the merged business or to offer licenses or access to facilities to enable other businesses to continue competing.
Expropriation and Compensation
The UK is a member of the OECD and adheres to the OECD principle that when a government expropriates property, compensation should be timely, adequate, and effective. In the UK, the right to fair compensation and due process is uncontested and is reflected in the fact that there are no public instances of the government needing to defend an international arbitration dispute with an investor. Expropriation of corporate assets or the nationalization of industry requires a special act of Parliament. A number of key UK banks became subject to full or partial nationalization as a response to the 2007-2009 financial crisis. However, these were privatized once the banks returned to financial viability.
As a member of the World Bank-based International Center for Settlement of Investment Disputes (ICSID), the UK accepts binding international arbitration between foreign investors and the State. As a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the UK provides local enforcement of arbitration judgments decided in other signatory countries.
London is a thriving center for the resolution of international disputes through arbitration under a variety of procedural rules such as those of the London Court of International Arbitration, the International Chamber of Commerce, the Stockholm Chamber of Commerce, the American Arbitration Association International Centre for Dispute Resolution, and others. Many of these arbitrations involve parties with no connection to the jurisdiction, but who are drawn to the jurisdiction because they perceive it to be a fair, neutral venue with an arbitration law and experienced courts that support efficient resolution of disputes. They also choose London-based arbitration because of the general prevalence of the English language and Common Law in international commerce. A wide range of contractual and non-contractual claims can be referred to arbitration in this jurisdiction including disputes involving intellectual property rights, competition, and statutory claims. There are no restrictions on foreign nationals acting as arbitration counsel or arbitrators in this jurisdiction. There are few restrictions on foreign lawyers practicing in the jurisdiction as evidenced by the fact that over 200 foreign law firms have offices in London.
ICSID Convention and New York Convention
In addition to its membership in ICSID, the UK is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The latter convention has territorial application to Gibraltar (September 24, 1975), Hong Kong (January 21, 1977), Isle of Man (February 22, 1979), Bermuda (November 14, 1979), Belize and Cayman Islands (November 26, 1980), Guernsey (April 19, 1985), Bailiwick of Jersey (May 28, 2002), and British Virgin Islands (February 24, 2014).
The United Kingdom has consciously elected not to follow the UNCITRAL Model Law on International Commercial Arbitration. Enforcement of an arbitral award in the UK is dependent upon where the award was granted. The process for enforcement in any particular case is dependent upon the seat of arbitration and applicable arbitration rules . Arbitral awards in the UK can be enforced under a number of different regimes, namely: The Arbitration Act 1996, The New York Convention, The Geneva Convention 1927, The Administration of Justice Act 1920 and the Foreign Judgments (Reciprocal Enforcement) Act 1933, and Common Law.
The Arbitration Act is heavily influenced by the UNCITRAL Model Law, but it has some important differences. For example, the Arbitration Act covers both domestic and international arbitration; the document containing the parties’ arbitration agreement need not be signed; an English court is only able to stay its own proceedings and cannot refer a matter to arbitration; the default provisions in the Arbitration Act require the appointment of a sole arbitrator as opposed to three arbitrators; a party retains the power to treat its party-nominated arbitrator as the sole arbitrator in the event that the other party fails to make an appointment (where the parties’ agreement provides that each party is required to appoint an arbitrator); there is no time limit on a party’s opposition to the appointment of an arbitrator; parties must expressly opt out of most of the provisions of the Arbitration Act which confer default procedural powers on the arbitrators; and there are no strict rules governing the exchange of pleadings. Section 66 of the Arbitration Act applies to all domestic and foreign arbitral awards. Sections 100 to 103 of the Arbitration Act provide for enforcement of arbitral awards under the New York Convention 1958. Section 99 of the Arbitration Act provides for the enforcement of arbitral awards made in certain countries under the Geneva Convention 1927.
Under Section 66 of the Arbitration Act, the court’s permission is required for an international arbitral award to be enforced in the UK. Once the court has given permission, judgment may be entered in terms of the arbitral award and enforced in the same manner as a court judgment or order. Permission will not be granted by the court if the party against whom enforcement is sought can show that (a) the tribunal lacked substantive jurisdiction and (b) the right to raise such an objection has not been lost.
The length of arbitral proceedings can vary greatly. If the parties have a relatively straightforward dispute, cooperate, and adopt a fast track procedure, arbitration can be concluded within months or even weeks. In a substantial international arbitration involving complex facts, many witnesses and experts and post-hearing briefs, the arbitration could take many years. A reasonably substantial international arbitration will likely take between one and two years.
There are two alternative procedures that can be followed in order to enforce an award. The first is to seek leave of the court for permission to enforce. The second is to begin an action on the award, seeking the same relief from the court as set out in the tribunal’s award. Enforcement of an award made in the jurisdiction may be opposed by challenging the award. However, the court also may refuse to enforce an award that is unclear, does not specify an amount, or offends public policy. Enforcement of a foreign award may be opposed on any of the limited grounds set out in the New York Convention. A stay may be granted for a limited time pending a challenge to the order for enforcement. The court will consider the likelihood of success and whether enforcement of the award will be made more or less difficult as a result of the stay. Conditions that might be imposed on granting the stay include such matters as paying a sum into court. Where multiple awards are to be rendered, the court may give permission for the tribunal to continue hearing other matters, especially where there may be a long delay between awards. UK courts have a good record of enforcing arbitral awards. The courts will enforce an arbitral award in the same way that they will enforce an order or judgment of a court. At the time of writing, there are no examples of the English courts enforcing awards which were set aside by the courts at the place of arbitration.
Most awards are complied with voluntarily. If the party against whom the award was made fails to comply, the party seeking enforcement can apply to the court. The length of time it takes to enforce an award which complies with the requirements of the New York Convention will depend on whether there are complex objections to enforcement which require the court to investigate the facts of the case. If a case raises complex issues of public importance the case could be appealed to the Court of Appeal and then to the Supreme Court. This process could take around two years. If no complex objections are raised, the party seeking enforcement can apply to the court using a summary procedure that is fast and efficient. There are time limits relating to the enforcement of the award. Failure to comply with an award is treated as a breach of the arbitration agreement. An action on the award must be brought within six years of the failure to comply with the award or 12 years if the arbitration agreement was made under seal. If the award does not specify a time for compliance, a court will imply a term of reasonableness.
The UK has strong bankruptcy protections going back to the Bankruptcy Act of 1542. Today, both individual bankruptcy and corporate insolvency are regulated in the UK primarily by the Insolvency Act 1986 and the Insolvency Rules 1986, regulated through determinations in UK courts. The World Bank’s Doing Business IndexRanks the UK 14/190 for ease of resolving insolvency.
Regarding individual bankruptcy law, the court will oblige a bankrupt individual to sell assets to pay dividends to creditors. A bankrupt person must inform future creditors about the bankrupt status and may not act as the director of a company during the period of bankruptcy. Bankruptcy is not criminalized in the UK, and the Enterprise Act of 2002 dictates that for England and Wales, bankruptcy will not normally last longer than 12 months. At the end of the bankrupt period, the individual is normally no longer held liable for bankruptcy debts unless the individual is determined to be culpable for his or her own insolvency, in which case the bankruptcy period can last up to fifteen years.
For corporations declaring insolvency, UK insolvency law seeks to distribute losses equitably between creditors, employees, the community, and other stakeholders in an effort to rescue the company. Liability is limited to the amount of the investment. If a company cannot be rescued, it is liquidated and assets are sold to pay debts to creditors, including foreign investors. In March 2020, the UK government announced it would introduce legislation to change existing insolvency laws in response to COVID-19. The new measures seek to enable companies undergoing a rescue or restructuring process to continue trading and help them avoid insolvency.
5. Protection of Property Rights
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, here: . 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.
Intellectual Property Rights
The UK legal system provides a high level of intellectual property rights (IPR) protection, and 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 major IP agreements: the Berne 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. By implementing various EU directives, UK law encompasses the WIPO Copyright Treaty and WIPO Performance and Phonograms Treaty, known together as the internet treaties. Since its departure from the EU, it should be noted that the UK will not be implementing the 2019 Directive (2019/790) on Copyright in the Digital Single Market and has formally withdrawn from the Unified Patent Court.
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:
The British government tracks and reports seizures of counterfeit goods and regards the production and subsequent sale as a criminal act. The Intellectual Property Crime Report for 2018/19 highlights the incidence of IPR infringement and the harm caused to the UK economy, showing that almost 4 percent of all UK imports in 2018 were counterfeit, worth £9.3 billion ($12 billion). This translates to around 60,000 jobs lost and almost £4 billion ($5.2 billion) in lost tax revenue.
The UK is not included in USTR’s 2020 Special 301 Report. USTR’s 2019 Notorious Markets report includes amazon.co.uk, based in the UK, due to high levels of counterfeit goods on the platform, but the report also notes the UK has blocking orders in place for a number of torrent and infringing websites. The 2019 report further details the “innovative approaches to disrupting ad-backed funding of pirate sites” taken by the London Police Intellectual Property Crime Unit (PIPCU) and IPO.
6. Financial Sector
Capital Markets and Portfolio Investment
The City of London houses one of the largest and most comprehensive financial centers globally. London offers all forms of financial services: commercial banking, investment banking, insurance, venture capital, private equity, stock and currency brokers, fund managers, commodity dealers, accounting and legal services, as well as electronic clearing and settlement systems and bank payments systems. London is highly regarded by investors because of its solid regulatory, legal, and tax environments, 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. London’s markets have the advantage of bridging the gap between the day’s trading in the Asian markets and the opening of the U.S. market. This bridge effect is also evidenced by the fact that many Russian and Central European companies have used London stock exchanges to tap global capital markets. 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 $85 billion (GBP 68 billion) for more than 3,000 companies.
Money and Banking System
The UK banking sector is the largest in Europe and represents the continent’s deepest capital pool. More than 150 financial services firms from the EU are based in the UK. The financial and related professional services industry contributed approximately 10 percent of UK Economic Output in 2019, employed approximately 2.3 million people, and contributed the most to UK tax receipts of any sector. The long-term impact of Brexit on the financial services industry is uncertain at this time. Some firms have already moved limited numbers of jobs outside the UK in order to service EU-based clients, but anticipate the UK will remain a top financial hub.
The Bank of England (BoE) serves as the central bank of the UK. According to BoE guidelines, foreign banking institutions are legally permitted to establish operations in the UK as subsidiaries or branches. Responsibilities for the prudential supervision of a non-European Economic Area (EEA) branch are split between the parent’s home state supervisors and the PRA. However, the Prudential Regulation Authority (PRA) expects the whole firm to meet the PRA’s threshold conditions. The PRA expects new non-EEA branches to focus on wholesale and corporate banking and to do so at a level that is not critical to the UK economy. The FCA is the conduct regulator for all banks operating in the United Kingdom. For non-EEA branches the FCA’s Threshold Conditions and conduct of business rules apply, including areas such as anti-money laundering. Eligible deposits placed in non-EEA branches may be covered by the UK deposit guarantee program and therefore non-EEA branches may be subject to regulations concerning UK depositor protection.
There are no legal restrictions that prohibit non-UK residents from opening a business bank account; setting up a business bank account as a non-resident is in principle straightforward. However, in practice 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.
Foreign Exchange and Remittances
The British 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.
Sovereign Wealth Funds
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 in motion. Moreover, with assets of just under $12 billion, The Crown Estate would be small in relation to other national funds.
8. Responsible Business Conduct
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. HMG 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 UK NCP is housed in BEIS and is partially funded by DFID. 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.
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 came into force on July 1, 2011. It amends and reforms the UK criminal law and provides a modern legal framework to combat bribery in the UK and internationally. The scope of the law is extra-territorial. Under the Bribery 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 ( ). To avoid corporate liability for bribery, companies must make sure that they have strong, up-to-date and effective anti-bribery policies and systems. The Bribery Act creates a corporate criminal offense making illegal the failure 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.
UN Anticorruption Convention, OECD Convention on Combatting Bribery
The UK formally ratified the OECD Convention on Combating Bribery in December 1998. The UK also signed the UN Convention Against Corruption in December 2003 and ratified it in 2006. The UK has launched a number of initiatives to reduce corruption overseas. The OECD Working Group on Bribery (WGB) criticized the UK’s implementation of the Anti-Bribery convention. The OECD and other international organizations promoting global anti-corruption initiatives pressured the UK to update its anti-bribery legislation which was last amended in 1916. In 2007, the UK Law Commission began a consultation process to draft a Bribery Bill that met OECD standards. A report was published in October 2008 and consultations with experts from the OECD were held in early 2009. The new Bill was published in draft in March 2009 and adopted by Parliament with cross-party support as the 2010 Bribery Act in April 2010.
Resources to Report Corruption
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: .
Details can also be sent to the SFO in writing:
Serious Fraud Office
2-4 Cockspur Street
London, SW1Y 5BS
10. Political and Security Environment
The UK is politically stable but continues to be a target for both domestic and global terrorist groups. Terrorist incidents in the UK have significantly decreased in frequency and severity since 2017, which saw five terrorist attacks that caused 36 deaths. In 2019, the UK suffered one terrorist attack resulting in three deaths (including the attacker), and another two attacks in early 2020 caused serious injuries and resulted in the death of one attacker. In November 2019, the UK lowered the terrorism threat level to substantial, meaning the risk of an attack was reduced from “highly likely” to “likely.” UK officials categorize Islamist terrorism as the greatest threat to national security, though officials identify a rising threat from racially or ethnically motivated extremists, which they refer to as “extreme right-wing” terrorism. Since March 2017, police and security services have disrupted 15 Islamist and seven extreme right-wing plots.
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 what should be the terms of the future UK-EU relationship continue to polarize political opinion across the UK. The people of Scotland voted to remain in the EU and Scottish political leaders have indicated that the UK leaving the EU may provide justification to pursue another Referendum on Scotland leaving the UK. A failure to fully implement the Withdrawal Agreement could contribute to political and sectarian tensions in Northern Ireland.
The process of Brexit itself has been politically fraught. The UK was originally due to leave the EU on March 29, 2019, but then-Prime Minister (PM) Theresa May and her successor Boris Johnson had to ask for four delays in total as they both were unable to bring together a majority in the House of Commons to ratify the Withdrawal Agreement setting out the terms of the UK’s departure from the bloc. The prolonged political paralysis resulted in an early General Election on December 12, 2019, which gave PM Johnson a solid 80-seat majority in the House of Commons and a clear mandate to press ahead with the UK’s withdrawal from the EU. The UK formally departed the bloc on January 31, 2020, following the ratification of the Withdrawal Agreement, and entered a transition period during which the country is effectively still a member of the EU without voting rights, while continuing talks on its long-term future economic and security arrangements with the bloc. The transition is currently scheduled to end on December 31, 2020, and HMG has categorically ruled out any extension. The challenging timeline for negotiating an agreement of such breadth and complexity makes the prospect of no deal at the end of the transition period a real possibility at the time of writing.
Both main political parties have recently tacked in a less business-friendly direction. 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 has implemented a Digital Services Tax (DST), a 2% tax on the revenues of predominantly American search engines, social media services and online marketplaces which derive value from UK users. The DST has delayed a reduction in the Corporation Tax rate from 19 percent to 17 percent. The Conservative Party also intends to limit and reduce international immigration, an issue that was a main driver of the UK’s vote to leave the EU. The opposition Labour Party, until a resounding electoral loss in December 2019, was led by Jeremy Corbyn MP and Chancellor John McDonnell MP, who promoted policies opposed by business groups including laws that would give employees and shareholders the right to a binding vote on executive remuneration, make trade union rights stronger and more expansive, increase corporation tax, and nationalize utility companies. The Labour Party’s new leader, former Brexit Shadow Secretary, Sir Keir Starmer MP, although widely acknowledged to be more economically centrist, has proposed few policies as the UK’s political system contends with the COVID-19 crisis.
11. Labor Policies and Practices
The UK’s labor force is just over 41 million people. For the period between December 2019 and February 2020, the employment rate was 76.6 percent, with 33 million workers employed – the highest employment rate since 1971. Unemployment also hit a 43-year low with 1.36 million unemployed workers, or just 4 percent (no change from a year earlier).
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 improved the British educational system in terms of greater emphasis on science, research and development, and entrepreneurial skills, but any positive reforms will necessarily deliver benefits with a lag.
As of 2018, approximately 23.5 percent of UK employees belonged to a union. Public-sector workers have a much higher share of union members, at 52.5 percent, while the private sector is 13.2 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 been relatively stable in the past few years, although the trend has been downward over the past decade.
Once-common militant unionism is less frequent, but occasional bouts of industrial action, or threatened industrial action, can still be expected. Recent strike action was motivated in part by the Coalition Government’s deficit reduction program impacts on highly unionized sectors. In the 2018, there were 273,000 working days lost from 81 official labor disputes. The Trades Union Congress (TUC), the British nation-wide labor federation, encourages union-management cooperation as do most of the unions likely to be encountered by a U.S. investor.
On April 1, 2020, the UK raised the minimum wage to GBP 8.72 ($10.86) an hour for workers ages 25 and over. The increased wage impacts about 2 million workers across Britain.
The UK decision to leave the EU has also introduced uncertainty into the labor market, with questions surrounding the rights of workers from other EU countries currently in the UK, the future rights of employers to hire workers from EU countries, and the extent to which the UK will maintain EU rules on workers’ rights.
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.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
|Direct Investment from/in Counterpart Economy
From Top Five Sources/To Top Five Destinations (USD, Billions)
|Inward Direct Investment 2018||Outward Direct Investment 2018|
|Total Inward||2,028.9||Proportion||Total Outward||1,753||Proportion|
|Portfolio Investment Assets|
|Top Five Partners (USD Millions)|
|Total||Equity Securities||Total Debt Securities|