Canada actively encourages FDI and maintains a sound enabling environment. Investors are attracted to Canada’s proximity to the United States, highly skilled workforce, strong legal protections, and abundant natural resources. Once established, foreign-owned investments are treated equally to domestic investments. As of 2020, the United States had a stock of USD 422 billion of foreign direct investment in Canada. U.S. FDI stock in Canada represents 44 percent of Canada’s total investment. Canada’s FDI stock in the United States totaled USD 570 billion.

The USMCA modernizes the previous NAFTA investment protection rules and investor-state dispute settlement provisions. Parties to the USMCA agree to treat investors and investments of the other Parties in accordance with the highest international standards, and consistent with U.S. law and practice, while safeguarding each Party’s sovereignty and promoting domestic investment.

Invest in Canada is Canada’s investment attraction and promotion agency. It provides information and advice on doing business in Canada, strategic market intelligence on specific industries, site visits, and introductions to provincial, territorial, and municipal investment promotion agencies. Still, non-tariff barriers to trade across provinces and territories contribute to structural issues that have held back the productivity and competitiveness of Canada’s business sector.

Foreign investment in Canada is regulated under the provisions of the Investment Canada Act (ICA). U.S. FDI in Canada is also subject to the provisions of the World Trade Organization (WTO), the USMCA, and the NAFTA. The ICA mandates the review of significant foreign investments to ensure they provide an economic net benefit and do not harm national security.

Canada is not a party to the USMCA’s chapter on investor-state dispute settlement (ISDS). Ongoing NAFTA arbitrations are not affected by the USMCA, and investors can file new NAFTA claims by July 1, 2023, provided the investment(s) were “established or acquired” when NAFTA was still in force and remained “in existence” on the date the USMCA entered into force. An ISDS mechanism between the United States and Canada will cease following a three-year window for NAFTA-protected legacy investments.

The Canadian government announced revised ICA foreign investment screening guidelines on March 24, 2021. The revised guidelines include additional national security considerations such as sensitive technology areas, critical minerals, and sensitive personal data. The new guidelines are aligned with Innovation, Science, and Economic Development Canada’s April 2020 update on greater scrutiny for foreign investments by state-owned investors, as well as investments involving the supply of critical goods and services. The 2020-21 Investment Canada Act Annual Report (released February 2, 2022) indicated a record high 24 investments were subject either to formal national security review or heightened screening despite historically fewer total foreign investments in Canada due to COVID-19-related factors. In contrast, a total of 21 investments were subject to similar screening in the four years from 2016 to 2020. Still, some Canadian elected officials and national security experts assess national security standards should be heightened. The government is exploring proposed amendments to the National Security Review of Investments Regulations which would introduce a voluntary filing mechanism for investments by non-Canadians that do not require an application or a notification.

Foreign ownership limits apply to Canadian telecommunication, airline, banking, and cultural sectors. Telecommunication carriers, including internet service providers, that own and operate transmission facilities are subject to foreign investment restrictions if they hold a 10 percent or greater share of total Canadian communication annual market revenues as mandated by The Telecommunications Act. These investments require Canadian ownership of 80 percent of voting shares, Canadians holding 80 percent of director positions, and no indirect control by non-Canadians. If the company is a subsidiary, the parent corporation must be incorporated in Canada and Canadians must hold a minimum of 66.6 percent of the parent’s voting shares. Foreign ownership of Canadian airlines is limited to 49 percent with no individual non-Canadian able to control more than 25 percent by mandate of the 2018 Transportation Modernization Act. Canadian airlines cannot be directly or indirectly controlled by non-Canadians to meet Canadian Transportation Agency “control in fact” licensure requirements. Foreign banks can establish operations in Canada but are generally prohibited from accepting deposits of less than USD 112,000. Foreign banks must receive Department of Finance and the Office of the Superintendent of Financial Institutions (OSFI) approval to enter the Canadian market. Investment in cultural industries also carries restrictions, including a provision under the ICA that foreign investment in book publishing and distribution must be compatible with Canada’s national cultural policies and be of net benefit to Canada.

The World Trade Organization conducted a trade policy review of Canada in 2019. The report is available at: https://www.wto.org/english/tratop_e/tpr_e/tp489_e.htm . The Organization of Economic Cooperation and Development completed an Economic Forecast Summary and released the results in December 2021. The report is available at: http://www.oecd.org/economy/canada-economic-snapshot/ .

Individuals from Canadian civil society organizations, industry, and academic institutions regularly comment on and assess investment policy-related concerns. In January and February 2022, for example, subject matter experts gave evidence to Canada’s House of Commons Standing Committee on Industry and Technology regarding an investment policy decision concerning a high-profile critical mineral sector investment.

The Canadian government provides information necessary for starting a business at: https://www.canada.ca/en/services/business/start.html . Business registration requires federal or provincial government-based incorporation, the application of a federal business number and corporation income tax account from the Canada Revenue Agency, the registration as an extra-provincial or extra-territorial corporation in all other Canadian jurisdictions of business operations, and the application of relevant permits and licenses. In some cases, registration for these accounts is streamlined (a business can receive its business number, tax accounts, and provincial registrations as part of the incorporation process); however, this is not true for all provinces and territories.

Canada prioritizes export promotion and outward investment as a means to enhance future Canadian competitiveness and productivity. Canada’s Trade Commissioner Service offers a number of funding opportunities and support programs for Canadian businesses to break into and expand in international markets: https://www.tradecommissioner.gc.ca/funding_support_programs-programmes_de_financement_de_soutien.aspx?lang=eng&wbdisable=true . Canada does not restrict domestic investors from investing abroad except when recipient countries or businesses are designated under the government’s sanctions regime.

Canada’s regulatory transparency is similar to the United States. Regulatory and accounting systems, including those related to debt obligations, are transparent and consistent with international norms. Proposed legislation is subject to parliamentary debate and public hearings, and regulations are issued in draft form for public comment prior to implementation in the Canada Gazette, the government’s official journal of record. While federal and/or provincial licenses or permits may be needed to engage in economic activities, regulation of these activities is generally for statistical or tax compliance reasons. Under the USMCA, parties agreed to make publicly available any written comments they receive, except to the extent necessary to protect confidential information or withhold personal identifying information or inappropriate content.

Canada published regulatory roadmaps for clean technology, digitalization and technology neutrality, and international standards in June 2021. These roadmaps, part of the federal government’s multi-year Targeted Regulatory Review program, lay out plans to advance regulatory modernization to support economic growth and innovation. Canadian securities legislation does not currently mandate environmental, social, and governance (ESG) disclosure for public or private companies. The Canadian Securities Administrators, an umbrella organization of all provincial and territorial securities regulators, released two proposed ESG disclosure policies for public comment between October 2021 and February 2022. The policies would require climate-related governance disclosures and climate-related strategy, risk management and metrics and targets disclosures if adopted.

Canada publishes an annual budget and debt management report. According to the Ministry of Finance, the design and implementation of the domestic debt program are guided by the key principles of transparency, regularity, prudence, and liquidity.

Canada addresses international regulatory norms through its FTAs and actively engages in bilateral and multilateral regulatory discussions. U.S.-Canada regulatory cooperation is guided by Chapter 28 of the USMCA “Good Regulatory Practices” and the bilateral Regulatory Cooperation Council (RCC). The USMCA aims to promote regulatory quality through greater transparency, objective analysis, accountability, and predictability. The RCC is a bilateral forum focused on harmonizing health, safety, and environmental regulatory differences. Canada-EU regulatory cooperation is guided by Chapter 21 “Regulatory Cooperation” of the CETA and the Regulatory Cooperation Forum (RCF). CETA encourages regulators to exchange experiences and information and identify areas of mutual cooperation. The RCF seeks to reconstitute regulatory cooperation under the previous Canada-EU Framework on Regulatory Cooperation and Transparency. The RCF is mandated to seek regulatory convergence where feasible to facilitate trade. CPTPP Chapter 25 “Regulatory Coherence” seeks to encourage the use of good regulatory practices to promote international trade and investment, economic growth, and employment. The CPTPP also established a Committee on Regulatory Coherence charged with considering developments to regulatory best practices in order to make recommendations to the CPTPP Commission for improving the chapter provisions and enhancing benefits to the trade agreement.

Canada is a member of the WTO and notifies draft technical regulations to the WTO Committee on Technical Barriers to Trade. Canada is a signatory to the Trade Facilitation Agreement, which it ratified in December 2016.

Canada’s legal system is based on English common law, except for Quebec, which follows civil law. Law-making responsibility is split between the Parliament of Canada (federal law) and provincial/territorial legislatures (provincial/territorial law). Canada has both written commercial law and contractual law, and specialized commercial and civil courts. Canada’s Commercial Law Directorate provides advisory and litigation services to federal departments and agencies whose mandate includes a commercial component and has legal counsel in Montréal and Ottawa.

The judicial branch of government is independent of the executive branch and the current judicial process is considered procedurally competent, fair, and reliable. The provinces administer justice in their jurisdictions, including management of civil and criminal provincial courts.

Foreign investment in Canada is regulated under the provisions of the ICA. U.S. FDI in Canada is also subject to the provisions of the WTO, the USMCA, and the NAFTA. The purpose of the ICA is to review significant foreign investments to ensure they provide an economic net benefit and do not harm national security.

Canada relies on its Invest In Canada promotion agency to provide relevant information to foreign investors: https://www.investcanada.ca/ 

Competition Bureau Canada is an independent law enforcement agency charged with ensuring Canadian businesses and consumers prosper in a competitive and innovative marketplace as stipulated under the Competition Act, the Consumer Packaging and Labelling Act, the Textile Labelling Act, and the Precious Metals Marking Act. The Bureau is housed under the Department of Innovation, Science, and Economic Development (ISED) and is headed by a Commissioner of Competition. Competition cases, excluding criminal cases, are brought before the Competition Tribunal, an adjudicative body independent from the government. The Competition Bureau and Tribunal adhere to transparent norms and procedures. Appeals to Tribunal decisions may be filed with the Federal Court of Appeal as per section 13 of the Competition Tribunal Act. Criminal violations of competition law are investigated by the Competition Bureau and are referred to Canada’s Public Prosecution Service for prosecution in federal court.

The federal government announced in February 2022 an intention to review competition law and policy including specific evaluation of loopholes that allow for harmful conduct, drip pricing, wage fixing agreements, access to justice for those injured by harmful conduct, adaptions to the digital economy, and penalty regime modernization. The announcement cited competition as a key tool to strengthen Canadian post-pandemic economic recovery.

In September 2020, the Bureau signed the Multilateral Mutual Assistance and Cooperation Framework for Competition Authorities (MMAC) with the Australian Competition and Consumer Commission, the New Zealand Commerce Commission, the United Kingdom Competition & Markets Authority, the U.S. Department of Justice, and the U. S. Federal Trade Commission. The MMAC aims to improve international cooperation through information sharing and inter-organizational training.

Canadian federal and provincial laws recognize both the right of the government to expropriate private property for a public purpose and the obligation to pay compensation. The federal government has not nationalized a foreign firm since the nationalization of Axis property during World War II. Both the federal and provincial governments have assumed control of private firms, usually financially distressed companies, after reaching agreement with the former owners.

The USMCA, like the NAFTA, requires expropriation only be used for a public purpose and done in a nondiscriminatory manner, with prompt, adequate, and effective compensation, and in accordance with due process of law.

Bankruptcy in Canada is governed at the federal level in accordance with the provisions of the Bankruptcy and Insolvency Act (BIA) and the Companies’ Creditors Arrangement Act. Each province also has specific laws for dealing with bankruptcy. Canada’s bankruptcy laws stipulate that unsecured creditors may apply for court-imposed bankruptcy orders. Debtors and unsecured creditors normally work through appointed trustees to resolve claims. Trustees will generally make payments to creditors after selling the debtors assets. Equity claimants are subordinate to all other creditor claims and are paid only after other creditors have been paid in full per Canada’s insolvency ladder. In all claims, provisions are made for cross-border insolvencies and the recognition of foreign proceedings. Secured creditors generally have the right to take independent actions and fall outside the scope of the BIA.

Federal and provincial governments offer a wide array of investment incentives designed to advance broader policy goals, such as boosting research and development, and promoting regional economies. The funds are available to qualified domestic and foreign investors. Export Development Canada offers financial support to inward investments under certain conditions. The government maintains a Strategic Innovation Fund that offers funding to firms advancing “the Canadian innovative ecosystem.” Canada also provides incentives through the Innovation Superclusters Initiative, which is investing more than USD 700 million over five years (2017‑2022) to accelerate economic and investment growth in Canada. The five superclusters focus on digital technology, protein industries, advanced manufacturing, artificial intelligence, and the ocean. Foreign firms may apply for supercluster funding. A 2020 Canada Parliamentary Budget Office report concluded Supercluster Initiative spending lagged budgetary targets and the Initiative was unlikely to meet its ten-year goal to increase GDP by USD 37 billion.

Several provinces also offer incentive programs available to foreign firms. These incentives are normally restricted to firms established in the province or that agree to establish a facility in the province. Quebec is implementing “Plan Nord” (Northern Plan), a 25-year program to incentivize natural resource development in its northern and Arctic regions. The program provides financing to facilitate infrastructure, mining, tourism, and other investments. Ontario provides financial support to investments in targeted sectors (e.g., life sciences) and provincial areas including Northern Ontario, southwest Ontario, rural Ontario, and Eastern Ontario. Alberta offers companies a provincial tax credit worth up to USD 220,000 annually for scientific research and experimental development, as well as Alberta Innovation Vouchers worth up to USD 75,000 to help small early-stage technology and knowledge-driven businesses get their ideas and products to market faster.

The federal government and several provincial governments offer specific incentives for businesses owned by underrepresented investors. The Black Entrepreneurship Program, for example, is a partnership between the Government of Canada, Black-led business organizations, and financial institutions which will provide up to USD 160 million over four years (2021-2025) in loans to help Black Canadian business owners and entrepreneurs grow their businesses.

The federal government and several provincial governments offer incentives aimed at attracting and facilitating green investment. The federal government’s Clean Growth in Natural Resource Sectors Program is a USD 120 million fund to incentivize clean technology investment in the energy, mining, and forestry sectors. In April 2022, the federal government proposed a 50 percent tax credit for the construction of carbon capture, utilization, and storage projects for heavy greenhouse gas emitters.

Incentives for investment in cultural industries at both the federal and provincial level are generally available only to Canadian-controlled firms. Incentives may take the form of grants, loans, loan guarantees, venture capital, or tax credits. Provincial incentive programs for film production in Canada are available to foreign filmmakers.

Under the USMCA, Canada operates as a free trade zone for products made in the United States. Most U.S.-made goods enter Canada duty free.

As a general rule, foreign firms establishing themselves in Canada are not subject to local employment or forced localization requirements, although Canada has some requirements on local employment for boards of directors. Ordinarily, at least 25 percent of the directors of a corporation must be resident Canadians. If a corporation has fewer than four directors, however, at least one of them must be a resident Canadian. In addition, corporations operating in sectors subject to ownership restrictions (such as airlines and telecommunications) or corporations in certain cultural sectors (such as book retailing, video, or film distribution) must have a majority resident Canadian director.

Data localization is an evolving issue in Canada. The province of Quebec adopted a law in September 2021 that amends its data protection regime. Under the new law, the transfer of personal data outside of Quebec is limited to jurisdictions with data protection regimes possessing an adequate level of protection based on generally accepted data protection principles. Implementation of the law will be phased in 2021-2024. The federal government failed to pass a bill to modernize data protection and privacy standards in 2021, but pledged to re-introduce privacy legislation. Privacy rules in Nova Scotia mandate that personal information in the custody of a public body must be stored and accessed only in Canada unless one of the few limited exceptions applies. The law prevents public bodies such as primary and secondary schools, universities, hospitals, government-owned utilities, and public agencies from using non-Canadian hosting services. British Columbia maintained similar rules, however, the province passed legislation November 25, 2021 permitting some public bodies to disclose and store personal information outside of Canada to ensure operations, including meeting public health demand during the pandemic. Under the USMCA, parties are prevented from imposing data-localization requirements.

The Canada Revenue Agency stipulates that tax records must be kept at a filer’s place of business or residence in Canada. Current regulations were written over 30 years ago and do not consider current technical realities concerning data storage.

Canada’s capital markets are open, accessible, and regulated. Credit is allocated on market terms, the private sector has access to a variety of credit instruments, and foreign investors can get credit on the local market. Canada has several securities markets, the largest of which is the Toronto Stock Exchange, and there is sufficient liquidity in the markets to enter and exit sizeable positions. The Canadian government and Bank of Canada do not place restrictions on payments and transfers for current international transactions.

The Canadian banking system is composed of 35 domestic banks and 16 foreign bank subsidiaries. Six major domestic banks are dominant players in the market and manage close to USD 5.4 trillion in assets. Many large international banks have a presence in Canada through a subsidiary, representative office, or branch. Ninety-nine percent of Canadians have an account with a financial institution. The Canadian banking system is viewed as very stable due to high capitalization rates that are well above the norms set by the Bank for International Settlements. The OSFI, Canada’s primary banking regulator, announced in January 2022 revised capital, leverage, liquidity, and disclosure rules that incorporate the final Basel III banking reforms with additional adjustments to make them suitable for federally regulated deposit-taking institutions. Most of the revised rules will take effect in the second fiscal quarter of 2023, with those related to market risk and credit valuation adjustment risk taking effect in early 2024.

Foreign financial firms interested in investing submit their applications to the OSFI for approval by the Minister of Finance. U.S. and other foreign banks can establish banking subsidiaries in Canada. Several U.S. financial institutions maintain commercially focused operations, principally in the areas of lending, investment banking, and credit card issuance. Foreigners can open bank accounts in Canada with proper identification and residency information.

The Bank of Canada is the nation’s central bank. Its principal role is “to promote the economic and financial welfare of Canada,” as defined in the Bank of Canada Act. The Bank’s four main areas of responsibility are: monetary policy; promoting a safe, sound, and efficient financial system; issuing and distributing currency; and being the fiscal agent for Canada.

Canada does not have a federal sovereign wealth fund. The province of Alberta maintains the Heritage Savings Trust Fund to manage the province’s share of non-renewable resource revenue. The fund’s net financial assets were valued at USD 14 billion as of December 31, 2021. The Fund invests in a globally diversified portfolio of public and private equity, fixed income, and real assets. The Fund follows the voluntary code of good practices known as the “Santiago Principles” and participates in the IMF-hosted International Working Group of SWFs. The Heritage Fund holds approximately 50 percent of its value in equity investments, seventeen percent of which are domestic.

Canada defines responsible business conduct (RBC) as “Canadian companies doing business abroad responsibly in an economic, social, and environmentally sustainable manner.” The Government of Canada has publicly committed to promoting RBC and expects and encourages Canadian companies working internationally to respect human rights and all applicable laws, to meet or exceed international RBC guidelines and standards, to operate transparently and in consultation with host governments and local communities, and to conduct their activities in a socially and environmentally sustainable manner.

Canada encourages RBC by providing RBC-related guidance to the Canadian business community, including through Canadian embassies and missions abroad. Through its Fund for RBC, Global Affairs Canada provides funding to roughly 50 projects and initiatives annually. Canada also promotes RBC multilaterally through the OECD, the G7 Asia Pacific Economic Co-operation, and the Organization of American States. Canada promotes RBC through its trade and investment agreements via voluntary provisions for corporate social responsibility. Global Affairs Canada and the Canadian Trade Commissioner Service issued an Advisory to Canadian companies active abroad or with ties to Xinjiang, China in January 2021. The Advisory set clear compliance expectations for Canadian businesses with respect to forced labor and human rights involving Xinjiang.

The Canadian Ombudsperson for Responsible Enterprise is charged with receiving and reviewing claims of alleged human rights abuses involving Canadian companies foreign operations in the mining, oil and gas, and garment sectors. Contact information for making a complaint is available at: https://core-ombuds.canada.ca/core_ombuds-ocre_ombuds/index.aspx?lang=eng .

Canada is active in improving transparency and accountability in the extractive sector. The Extractive Sector Transparency Measures Act was brought into force on June 1, 2015. The Act requires extractive entities active in Canada to publicly disclose, on an annual basis, specific payments made to all governments in Canada and abroad. Canada joined the Extractive Industries Transparency Initiative (EITI) in February 2007, as a supporting country and donor. Canada’s Corporate Social Responsibility strategy, “Doing Business the Canadian Way: A Strategy to Advance Corporate Social Responsibility in Canada’s Extractive Sector Abroad” is available on the Global Affairs Canada website: http://www.international.gc.ca/trade-agreements-accords-commerciaux/topics-domaines/other-autre/csr-strat-rse.aspx?lang=eng .

A comprehensive overview of Canadian RBC information is available at: https://www.international.gc.ca/trade-agreements-accords-commerciaux/topics-domaines/other-autre/csr-rse.aspx?lang=eng#:~:text=RBC%20is%20about%20Canadian%20companies,laws%20and%20internationally%20recognized%20standards .

Canada is working toward reconciliation between Indigenous and non-Indigenous peoples including through the settlement of historical claims. The claims, made by First Nations against the Government of Canada, relate to the administration of land and other First Nation assets. As of March 2018 (the latest data provided by Canada), the Government of Canada has negotiated settlements on more than 460 specific claims. Hundreds of specific claims remain outstanding including 250 accepted for negotiation, 71 before the Specific Claims Tribunal, and 160 under review or assessment.

Additional Resources

Department of State

• Country Reports on Human Rights Practices;
• Trafficking in Persons Report;
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities;
• U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises; and;
• Xinjiang Supply Chain Business Advisory 

Department of the Treasury

• OFAC Recent Actions

Department of Labor

• Findings on the Worst Forms of Child Labor Report;
• List of Goods Produced by Child Labor or Forced Labor;
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World and;
• Comply Chain.

The Canadian Net-Zero Emissions Accountability Act enshrines in law the Government of Canada’s commitment to achieve net-zero greenhouse gas emissions by 2050.  The Act establishes a legally binding process to set five-year national emissions-reduction targets as well as develop credible, science-based emissions-reduction plans to achieve each target.  It establishes the 2030 greenhouse gas emissions target of reductions of 40-45 percent below 2005 levels by 2030 as Canada’s Nationally Determined Contribution (NDC) under the Paris Agreement.  The Act also establishes a requirement to set national emissions reduction targets for 2035, 2040, and 2045, ten years in advance. Canada issued on March 29, 2022, the first Emissions Reduction Plan under the Canadian Net-Zero Emissions Accountability Act. Progress under the plan will be reviewed in progress reports produced in 2023, 2025, and 2027. The 2030 Emissions Reduction Plan describes the measures Canada is undertaking to reduce emissions to 40 to 45 percent below 2005 levels by 2030 and achieve net-zero emissions by 2050.  This Plan reflects economy-wide measures such as carbon pricing and clean fuels, while also targeting actions sector by sector ranging from buildings to vehicles to industry and agriculture. The 2030 plan is designed to be evergreen and governments, businesses, non-profits, and communities across the country are expected to work together to reach these targets.

Canada’s 2020 Natural Climate Solutions Fund has three separate programs to encourage nature-based solutions including the Planting Two Billion Trees Program, Nature Smart Climate Solutions Fund, and the Agricultural Climate Solutions Program.

Canada’s Greening Government Strategy commits that the Government of Canada’s operations will be net-zero emissions by 2050 including government-owned and leased real property; government fleets, business travel, and commuting; procurement of goods and services; and national safety and security operations. The government intends to aid in the net-zero transition through green procurement that includes life-cycle assessment principles and the adoption of clean technologies and green products by including criteria that address greenhouse gas emissions reduction, sustainable plastics, and broader environmental benefits into procurements, among other efforts.

Corruption in Canada is low and similar to that found in the United States. Corruption is not an obstacle to foreign investment. Canada is a party to the UN Convention Against Corruption, the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, and the Inter-American Convention Against Corruption.

Canada’s Criminal Code prohibits corruption, bribery, influence peddling, extortion, and abuse of office. The Corruption of Foreign Public Officials Act prohibits individuals and businesses from bribing foreign government officials to obtain influence and prohibits destruction or falsification of books and records to conceal corrupt payments. The law has extended jurisdiction that permits Canadian courts to prosecute corruption committed by Canadian companies and individuals abroad. Canada’s anti-corruption legislation is vigorously enforced, and companies and officials guilty of violating Canadian law are effectively investigated, prosecuted, and convicted of corruption-related crimes. In March 2014, Public Works and Government Services Canada (now Public Services and Procurement Canada, or PSPC) revised its Integrity Framework for government procurement to ban companies or their foreign affiliates for 10 years from winning government contracts if they have been convicted of corruption. In August 2015, the Canadian government revised the framework to allow suppliers to apply to have their ineligibility reduced to five years where the causes of conduct are addressed and no longer penalizes a supplier for the actions of an affiliate in which it was not involved. PSPC has a Code of Conduct for Procurement, which counters conflict-of-interest in awarding contracts. Canadian firms operating abroad must declare whether they or an affiliate are under charge or have been convicted under Canada’s anti-corruption laws during the past five years to receive assistance from the Trade Commissioner Service.

Contact at the government agency or agencies that are responsible for combating corruption:
Mario Dion
Conflict of Interest and Ethics Commissioner (for appointed and elected officials, House of Commons)
Office of the Conflict of Interest and Ethics Commissioner
Parliament of Canada
66 Slater Street, 22nd Floor
Ottawa, Ontario (Mailing address)

Office of the Conflict of Interest and Ethics Commissioner
Parliament of Canada
Centre Block, P.O. Box 16
Ottawa, Ontario
K1A 0A6

Pierre Legault
Office of the Senate Ethics Officer (for appointed Senators)
Thomas D’Arcy McGee Building
Parliament of Canada
90 Sparks St., Room 526
Ottawa, ON K1P 5B4

Canada is politically stable with rare instances of civil disturbance. In January and February 2022, however, various groups of protestors occupied large parts of the downtown core of Ottawa and blocked commercial trade at several U.S.-Canada ports of entry. The initial protest movement of several hundred individuals claimed to be focused on the reversal of cross-border vaccine mandates. The movement attracted thousands of additional followers with a spectrum of political philosophies and grievances including far right extremist and anti-government groups. The protestors hindered hundreds of millions of dollars in daily two-way trade causing production slowdowns at several factories on both sides of the border. Many Ottawa residents complained of acts of harassment, desecration, and destruction by the protestors including deafening horn honking. The federal government invoked the never-before-used Emergencies Act to provide additional police powers to end the protests. Some commentators characterized the protests as a demonstration of growing politization within Canada.

Economic Section
490 Sussex Drive, Ottawa, Ontario
613-688-5335

The Czech government actively seeks to attract foreign investment via policies that make the country a competitive destination for companies to locate, operate, and expand.  The Czech investment incentives legislation (amended Act No. 72/2000 Coll., effective as of September 6, 2019) creates incentive payments for high value-added investments that focus on R&D and create jobs for university graduates.  The law eliminates incentives for investments targeting low-skilled labor and establishes more favorable rules for technological investments in sectors such as aerospace, information and communication technology, life sciences, nanotechnology, and advanced segments of the automotive industry.  In addition, due to COVID-19, the government approved November 30, 2020, an amendment to this statute, which enables producers of personal protective equipment, medical devices, and pharmaceuticals to more easily obtain investment incentives.

CzechInvest, the government investment promotion agency that operates under the Ministry of Industry and Trade (MOIT), negotiates on behalf of the Czech government with foreign investors.  In addition, CzechInvest provides assistance during implementation of investment projects, consulting services for foreign investors entering the Czech market, support for suppliers, and assistance for the development of innovative start-up firms.  There are no laws or practices that discriminate against foreign investors.

The Czech Republic is a recipient of substantial FDI.  Total foreign investment in the Czech Republic (equity capital + reinvested earnings + other capital) equaled USD 192.5 billion at the end of 2020, compared to USD 171.3 billion in 2019.

As a medium-sized, open, export-driven economy, the Czech market is strongly dependent on foreign demand, especially from EU partners.  In 2021, 84 percent of Czech exports went to fellow EU member states, with 32.4 percent to the Czech Republic’s largest trading partner, Germany, according to the Czech Statistical Office.  Since emerging from recession in 2013, the economy had enjoyed some of the highest GDP growth rates of the European Union until the COVID-19 outbreak.  While GDP declined by 5.6 percent in 2020, it rebounded in 2021 and grew by 3.3 percent.  The Ministry of Finance is forecasting 3.1 percent growth for 2022.

The Czech Republic has no plans to adopt the euro as it believes having its own currency and independent monetary policy is helpful for managing economic crises such as the one caused by the COVID-19 pandemic.

The slow pace of legislative and judicial reforms has posed obstacles to investment, competitiveness, and company restructuring.  The Czech government has harmonized its laws with EU legislation and the acquis communautaire.  This effort involved positive reforms of the judicial system, civil administration, financial markets regulation, protection and enforcement of intellectual property rights, and in many other areas important to investors.

While there have been many success stories involving American and other foreign investors, a handful have experienced problems, for example in the media industry.  Both foreign and domestic businesses voice concerns about corruption.

Long-term economic challenges include dealing with an aging population and diversifying the economy away from manufacturing toward a more high-tech, services-based, knowledge economy.

Foreign individuals or entities can operate a business under the same conditions as Czechs.  Foreign entities need to register their permanent branches with the Czech Commercial Register.  Some professionals, such as architects, physicians, lawyers, auditors, and tax advisors, must register for membership in the appropriate professional chamber.  In general, licensing and membership requirements apply equally to foreign and domestic professionals.

In response to the European Commission’s September 2017 investment screening directive, the Czech government adopted foreign investment screening legislation.  The law came into effect on May 1, 2021, and gives the government the ability to review greenfield investments and acquisitions by non-EU foreign investors.  The law allows the Ministry of Industry and Trade (MOIT) to screen FDI in virtually any sector of the Czech economy but specifies four high-risk sectors for which investment screening is mandatory: critical infrastructure, ICT systems used for critical infrastructure, military equipment, and sensitive dual use items.  Outside these critical sectors, non-EU investors are under no obligation to report acquisitions or greenfield investments, but MOIT can retroactively review investments at any point within five years if security concerns arise.  Screening of acquisitions is triggered when a non-EU buyer attempts to make a purchase that would give it at least 10 percent of the voting rights of a Czech company.  However, screening is possible at an even lower threshold in cases where the foreign investor has additional means of exerting potentially malign control over a Czech company, such as through appointment of staff to key positions.  Furthermore, the law gives regulators considerable leeway to designate an investor as “non-EU” if the investor is “indirectly controlled” by non-EU business or individuals.

As of early 2012, U.S. and other non-EU nationals could purchase real estate, including agricultural land, in the Czech Republic without restrictions.  However, following the implementation of the investment screening law as of May 1, 2021, land purchases by non-EU investors may be screened if located near critical infrastructure, such as military installations.  Enterprises are permitted to engage in any legal activity with the previously noted limitations in sensitive sectors.  The right of foreign and domestic private entities to establish and own business enterprises is guaranteed by law.  Laws on auditing, accounting, and bankruptcy are in force, including the use of international accounting standards (IAS).

The OECD last conducted an economic survey of the government in 2020.

Individuals must complete a number of bureaucratic requirements to set up a business or operate as a freelancer or contractor.  MOIT provides an electronic guide for obtaining a business license.  The guide offers step-by-step assistance, including links to related legislation and statistical data, and specifying authorities with whom to work (such as business registration, tax administration, social security, and municipal authorities).  The guide is available at: https://www.mpo.cz/en/business/licensed-trades/guide-to-licensed-trades/.  MOIT also has established regional information points to provide consulting services related to doing business in the Czech Republic and EU.  A list of contact points is available at:  https://www.businessinfo.cz/en/starting-a-business/starting-up-points-of-single-contact-psc/addresses-points-of-single-contact-psc/.

The average time required to start a business is 25 days according to the World Bank’s ‘Doing Business’ Index.  The Czech Republic’s Business Register is publicly accessible and provides details on business entities including legal addresses and major executives.  An application for an entry into the Business Register can be submitted in a hard copy, via a direct entry by a public notary, or electronically, subject to meeting online registration criteria requirements.  The Business Register is publicly available at:  https://or.justice.cz/ias/ui/rejstrik.  The Czech Republic’s Trade Register is an online information system that collects and provides information on entities facilitating small trade and craft-oriented business activities, as specifically determined by related legislation.  It is available online at:  http://www.rzp.cz/eng/index.html.

The Czech government does not incentivize outward investment.  The volume of outward investment is lower than incoming FDI.  According to the latest data from the Czech National Bank, Czech outward investments amounted to USD51.3 billion in 2020, compared to inward investments of USD 195.2 billion.  However, according to the Export Guarantee and Insurance Corporation (EGAP), Czech companies increasingly invest abroad to get closer to their customers, save on transport costs, and shorten delivery times.  As part of EU sanctions, there is a total ban on EU investment in North Korea as of 2017.

Tax, labor, environment, health and safety, and other laws generally do not distort or impede investment.  Policy frameworks are consistent with a market economy.  Fair market competition is overseen by the Office for the Protection of Competition (UOHS) (http://www.uohs.cz/en/homepage.html).  UOHS is a central administrative body entirely independent in its decision-making practice.  The office is mandated to create conditions for support and protection of competition and to supervise public procurement and state aid.

The government requires companies with over 500 employees to undertake environmental, social, and governance (ESG) disclosures to facilitate transparency.

All laws and regulations in the Czech Republic are published before they enter into force.  Opportunities for prior consultation on pending regulations exist, and all interested parties, including foreign entities, can participate.  A biannual governmental plan of legislative and non-legislative work is available online, along with information on draft laws and regulations (often only in the Czech language).  Business associations, consumer groups, and other non-governmental organizations, including the American Chamber of Commerce, can submit comments on laws and regulations.  Laws on auditing, accounting, and bankruptcy are in force.  These laws include the use of international accounting standards (IAS) for consolidated corporate groups.  Public finances are transparent.  The government’s budget and information on debt obligations are publicly available and published online.

Membership in the EU requires the Czech Republic to adopt EU laws and regulations, including rulings by the European Court of Justice (ECJ).

Czechoslovakia was a founding member of the GATT in 1947 and a member of the World Trade Organization (WTO).  Since the Czech Republic’s entry into the EU in 2004, the European Commission – an independent body representing all EU members – oversees Czech equities in the WTO and in trade negotiations.

The Czech Commercial Code and Civil Code are largely based on the German legal approach, which follows a continental legal system where the principal areas of law and procedures are codified.  The commercial code details rules pertaining to legal entities and is analogous to corporate law in the United States.  The civil code deals primarily with contractual relationships among parties.

The Czech Civil Code, Act. No. 89/2012 Coll. and the Act on Business Corporations, Act No. 90/2012 Coll. (Corporations Act) govern business and investment activities.  The Act on Business Corporations introduced substantial changes to Czech corporate law such as supervision over the performance of a company’s management team, decision-making process, and remuneration and damage liability.  Detailed provisions for mergers and time limits on decisions by the authorities on registration of companies are covered, as well as protection of creditors and minority shareholders.

The judiciary is independent of the executive branch.  Regulations and enforcement actions are appealable, and the judicial process is procedurally competent, fair, and reliable.

The Foreign Direct Investment agenda is governed by the Civil Code and by the Act on Business Corporations.  In addition, the newly adopted investment screening law, which came into effect on May 1, 2020, gives the government the ability to screen greenfield investments and acquisitions by non-EU investors for national security considerations.

The Czech Ministry of Industry and Trade maintains a “one-stop-shop” website available in Czech only at https://www.businessinfo.cz/, which aids foreign companies in establishing and managing a foreign-owned business in the Czech Republic, including navigating the legal requirements, licensing, and operating in the EU market.

The Office for the Protection of Competition (UOHS) is the central authority responsible for creating conditions that favor and protect competition.  UOHS also supervises public procurement and monitors state aid (subsidy) programs.  UOHS is led by a chairperson who is appointed by the president of the Czech Republic for a six-year term.

Government acquisition of property is done only for public purposes in a non-discriminatory manner and in full compliance with international law.  The process of tracing the history of property and land acquisition can be complex and time-consuming, but it is necessary to ensure clear title.  Investors participating in privatization of state-owned companies are protected from restitution claims through a binding contract with the government.

The government amended the bankruptcy law on June 1, 2019, expanding the categories of debtors qualified for debt discharge.   The basic debt relief period for individuals is currently five years.  However, if the debtor is a pensioner, disabled, his or her debt was created prior 18 years of age, or manages to repay at least 60 percent of debt, then the debt relief period shortened to three years.

The Czech Republic offers incentives to foreign and domestic firms alike that invest in the manufacturing sector, technology and R&D centers, and business support centers.  The amended Act No. 72/2000 Coll. came into force September 6, 2019, and shifted availability of incentive programs from all types of investments to only those requiring R&D and that create jobs for university graduates, as well as in specialized sectors such as aerospace, information and communication technology, life sciences, nanotechnology and advanced segments of the automotive industry.  Incentives are funded from the Czech Republic’s national budget as well as from EU Structural Funds.  The government provides investment incentives in the form of corporate income tax relief for 10 years, cash grants for job creation up to USD13,000 per job, cash grants for training up to 70 percent of training costs, and cash grants for the purchase of fixed assets up to 20 percent of eligible costs.  In response to COVID-19, the government approved November 30, 2020, an amendment to this law, which enables producers of personal protective equipment and medical products to more easily obtain investment incentives, because the state considers these products strategic for the protection of citizens’ lives and health during the pandemic.  In addition, film industry incentives cover up to 20 percent of eligible costs of foreign filmmakers.

The government does not typically issuing guarantees or engaging in joint financing for FDI projects.

The government primarily provides subsidies, as opposed to incentives (such as feed-in tariffs, discounts on electricity rates, or tax incentives) for clean energy investments.

Both Czech and EU laws permit foreign investors involved in joint ventures to take advantage of commercial or industrial customs-free zones into which goods may be imported and later exported without depositing customs duties.  Free trade zone treatment means duties need to be paid only in the event that the goods brought into the free trade zone are introduced into the local economy.  Since the Czech Republic became part of the single customs territory of the European Community and now offers various exemptions on customs tariffs, the original tariff-driven use of these free trade zones has declined.  The Czech Republic does not have special economic zones.

There are no government-imposed conditions on permission to invest.  The host government does not follow “forced localization.”

The visa process for non-EU foreign investors and their employees is the same for domestic, EU, and non-EU companies.

The Czech Republic abides by EU law governing data localization and performance.  The Czech Republic strongly supported creating the EU Regulation on free flow of non-personal data which came into effect in May 2019, stating that it would boost the competitive data economy and accelerate the development of artificial intelligence.

The July 16, 2020 ruling of the EU’s highest court in the Schrems II case, which invalidated the legal basis for the EU-U.S. Privacy Shield framework, has put a significant burden on companies transferring personal data from the Czech Republic to the United States.

The “Bill on Digitalization of Public Authorities (“Cloud Bill”) came into force February 1, 2022, marking the latest step in the country’s efforts to move government data to the cloud.   The legislation enables government ministries to partner with global cloud service providers to migrate government data to the cloud.  The legislation seeks to operationalize a “Cloud Catalogue” of cloud service providers that are certified as secure and trustworthy partners for government data.  The  legislation mandates that sensitive government data be stored in the EU but allows global cloud services providers (including U.S. companies) to transfer data overseas for routine maintenance purposes.  The legislation also allows cloud service providers managing Czech government data to comply with the U.S. CLOUD Act, which gives U.S. law enforcement agencies the right to access personal data stored outside the United States.

The Czech Republic is open to portfolio investment.  There are 54 companies listed on the Prague Stock Exchange (PSE).  The overall trade volume of stocks increased from CZK108.78 billion (USD4.7 billion) in 2019 to CZK125.31 (USD5.4 billion) in 2020, with an average daily trading volume of CZK501.23 million (USD21.7 million).

In March 2007, the PSE created the Prague Energy Exchange (PXE), which was later re-named to Power Exchange Central Europe, to trade electricity in the Czech Republic and Slovakia and, later, Hungary, Poland, and Romania.  PXE’s goal is to increase liquidity in the electricity market and create a standardized platform for trading energy.  In 2016, the German power exchange EEX acquired two thirds of PXE shares.  Following the acquisition, the PXE benefited from both an increased number of traders and increased trade volume.

The Czech National Bank, as the financial market supervisory authority, sets rules to safeguard the stability of the banking sector, capital markets, and insurance and pension scheme industries, and systematically regulates, supervises and, where appropriate, issues penalties for non-compliance with these rules.

The Central Credit Register (CCR) is an information system that pools information on the credit commitments of individual entrepreneurs and legal entities, facilitating the efficient exchange of information between CCR participants.  CCR participants consist of all banks and branches of foreign banks operating in the Czech Republic, as well as other individuals included in a special law.

As an EU member country, the local market provides credits and credit instruments on market terms that are available to foreign investors.

The Czech Republic respects IMF Article VIII.

Large domestic banks belong to European banking groups.  Most operate conservatively and concentrate almost exclusively on the domestic Czech market.  Despite the COVID-19 crisis, Czech banks remain healthy.  Results of regular banking sector stress tests, as conducted by the Czech National Bank, repeatedly confirm the strong state of the Czech banking sector which is deemed resistant to potential shocks.  Results of the most recent stress test conducted by the Czech National Bank are available at: https://www.cnb.cz/en/financial-stability/stress-testing/banking-sector/.  As of January 31, 2022, the total assets of commercial banks stood at CZK9,405 billion (approximately USD409 billion).  Foreign investors have access to bank credit on the local market, and credit is generally allocated on market terms.

The Czech National Bank has 10 correspondent banking relationships, including JP Morgan Chase Bank in New York and the Royal Bank of Canada in Toronto.  The Czech Republic has not lost any correspondent banking relationships in the past three years, and there are no relationships in jeopardy.

The Czech Republic does not currently regulate cryptocurrencies.

The Czech government does not operate a sovereign wealth fund.

The concept of responsible business conduct (RBC) is now widely understood, and every year is implemented by more companies in the Czech Republic.  As an adherent to the OECD Guidelines for Multinational Enterprises (MNE) and to the United Nations Guiding Principles of Business and Human Rights, the government promotes corporate social responsibility (CSR) and encourages local as well as foreign enterprises to adopt a ‘due diligence’ approach to RBC principles.  The Czech National Contact Point (NCP) has operated since 2013 at MOIT:  https://www.mpo.cz/dokument75865.html. The NCP working group consists of representatives of the government, employer organizations (Confederation of Industry and Trade), employee organizations (Czech-Moravian Confederation of Trade Unions), and NGOs.  The NCP closely and actively cooperates with other regional NCPs to share best practices, procedures, and experience.

In conjunction with the UN Commission on Business and Human Rights, in 2019 the Czech government approved a National Action Plan (NAP) for CSR for the years 2019-2023.  The major goal of the NAP is to establish fundamental principles and to motivate businesses and public administration to voluntarily implement specific CSR projects.  In 2015, the Sustainable Development Section of the Quality Council of the Czech Republic created a national Informational CSR Portal that provides businesses, NGOs, representatives of state administration, and the public with updates related to CSR in the Czech Republic.

The government strictly and effectively enforces legislation in the area of human rights, labor rights, consumer protection, and environmental protection to protect individuals from adverse business impacts.  Domestic standards are generally very high.  Negligence or failure to comply with this legislation results in serious consequences.

Shareholders are protected by legislation that clearly describes legal processes, organizational structures, administration, and management of all business components, including stakeholders.

Companies are not required to publicly disclose information about their RBC or CSR activities.  Various local NGOs monitor and advise CSR programs, such as the Association for Corporate Social Responsibility, the Business Leaders Forum, and Business for Society.  The Association for CSR is the host entity in the Czech Republic for the UN Global Compact, a UN strategic policy initiative for businesses that are committed to aligning their operations and strategies with 10 universally accepted principles in the areas of human rights, labor, environment, and anti-corruption.

Payments for extraction of minerals in the Czech Republic abide by the Mining Law, which requires that payments are processed for extracted minerals as well as for mined areas.  International trade with oil, natural gas, and minerals is not subject to any special legislation; it follows the general rules of international trade.  The Czech Republic is not an Extractive Industries Transparency Initiative (EITI)-compliant country or an EITI candidate.  The Czech government adheres to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas.  MOIT is responsible for implementation and compliance.

The Czech Republic joined The Montreux Document on Private Military and Security Companies on November 14, 2013.

Department of State

• Country Reports on Human Rights Practices;
• Trafficking in Persons Report;
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities;
• U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises; and;
• Xinjiang Supply Chain Business Advisory 

Department of the Treasury

• OFAC Recent Actions

Department of Labor

• Findings on the Worst Forms of Child Labor Report;
• List of Goods Produced by Child Labor or Forced Labor;
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World and;
• Comply Chain.

In statements to the public, the government has repeatedly endorsed the EU’s goal of carbon neutrality by 2050.  A key step toward that goal will be the country’s planned exit from coal by 2033 which currently contributes to one-third of the Czech Republic’s electricity production. Switching from coal will offer commercial opportunities in alternative sources of power and the infrastructure and energy storage capabilities necessary to bring it to market.  Nuclear energy is widely seen as the best alternative to coal, but solar, wind and to some extent, green hydrogen, will attract investment.

Two of the stated priorities for the Ministry of Environment include energy efficiency and adaptation.  In September 2021, the government approved an updated version of the national Climate Change Adaptation Strategy 2021 – 2030, which is in line with the EU Adaptation Strategy.  The adaptation strategy addresses all significant manifestations of climate change in the Czech Republic and aims to reduce vulnerability and increase the resilience of society and ecosystems to climate change and thus reduce its negative impacts.  The Strategy’s implementation document is the National Action Plan for Adaptation to Climate Change which assigns specific tasks to relevant ministries.

The Climate Protection Policy of the Czech Republic 2017 – 2030 defines the main goals and measures in the field of climate protection at the national level to ensure compliance with greenhouse gas emission reduction targets in line with international agreements, and thus contribute to transition to a sustainable low-emission economy.  By the end of 2023, the Ministry of Environment should submit to the government an update of the Climate Protection Policy, which will contain new measures the Czech Republic will have to take in the coming years to reach net-zero carbon emissions by 2050.  In 2022, the Czech Parliament is expected to pass legislation banning single use plastic.

Although the government strategies do not specify requirements for private sector contributions to achieving relevant targets, they include examples of positive and negative forms of financial motivation to encourage companies towards contributing to climate goals.

The Czech government offers a range of subsidy programs to achieve environmental goals.  For example, manufacturing companies can receive subsidies for installing low-carbon and smart technologies, using renewable resources, increasing energy savings, and reducing losses in heat distribution.  Companies can receive subsidies and soft loans from the EU Operational Program Environment (OPE) 2021-2027 which supports projects in the field of protection of nature, biodiversity, green infrastructure, circular economy, sustainable water management, renewable resources, energy efficiency and reduction of greenhouse gas emissions.

Public procurement policies include environmental considerations, including resource efficiency, pollution abatement, and climate resilience.

Current law criminalizes both payment and receipt of bribes, regardless of the perpetrator’s nationality.  Prison sentences for bribery or abuse of power can be as high as 12 years for officials.  There have been several successful cases prosecuting corruption, though some experts have noted proceedings can be lengthy and subject to delays.  The National Center for Organized Crime (NCOZ) is primarily responsible for investigating high-level corruption cases, however some experts have raised concerns about cumbersome procedural requirements.  Anti-corruption laws authorize seizures of proceeds or instruments of crime and apply equally to Czech and foreign investors.

Czech law obliges legislators, members of the cabinet, and other selected public officials to declare their assets annually.  Summarized declarations are available online and complete declarations are available upon request from the Ministry of Justice, which can impose penalties of up to CZK50,000 (approximately USD2,170) for non-compliance.  The law also requires judges, prosecutors and directors of research institutions to disclose their assets, however their declarations are not publicly available for security reasons.

In addition to the financial disclosure law, the government regulates political parties financing, public procurements, and the register of public contracts.  The law on the register of public contracts requires all national, regional, and local authorities as well as private companies to make publicly available all newly concluded contracts (including subsidies and repayable financial assistance) valued at CZK50,000 (USD2,170) or more within 30 days; noncompliance renders contracts null and void.  Additionally, as of November 2019, major state-owned companies are required to publish all contracts, except in limited circumstances.  The Registry of Contracts has a website in Czech only at: https://smlouvy.gov.cz/.

Public procurement law requires every contracting authority to post winning contracts on its website within 15 working days of signing.  Subject to limited exceptions, the law mandates more than one bidder for all public procurements and requires bidders to disclose their ownership structure prior to bidding.  In addition to general conflict-of-interest law, the procurement law also addresses some conflict-of-interest issues related to government procurements.   The Council of Europe’s Group of States Against Corruption (GRECO) evaluation report listed missing whistleblower protection and regulation of lobbying as problematic.

The “Beneficial Ownership Bill” came into force in June 1, 2021.  The law is a part of a transposition of an EU convention on anti-money laundering and counterterrorism financing and requires transparency regarding the real (or “beneficial”) ownership of companies seeking subsidies or public contracts.  The law bars anonymously owned companies from applying for public subsidies or tenders, although it does not empower officials to challenge discrepancies or irregularities in a company’s ownership structure, absent a court finding.  However, the European Commission asserted in December 2021 that the Czech law does not meet EU requirements, because it allows two types of owners to be listed for one company:  one with “final influence” and one who is the “final recipient of benefits”.  The European Commission also criticized the carveout that public research institutions, SOEs, political parties, schools, and some other associations are not required to declare their beneficial ownership.  The Czech government reported March 2022 it would make changes to the law to comply with EU requirements.

According to a law which came into force in January 2020, candidates filling supervisory board positions in state-owned companies must be selected in a clear, transparent process that prioritizes technical expertise and is reviewed by an advisory committee whose members are apolitical experts.  Separately, the government recommends companies maintain internal codes of conduct that, among other things, prohibit bribery of public officials.

The Council of Europe’s anti-money laundering body MONEYVAL reported at the end of 2021 that the Czech Republic has considerably improved its implementation of measures against money laundering and terrorist financing since 2020.

The government ratified the OECD Anti-Bribery Convention in 2000 and the UN Convention against Corruption in 2014.  According to the 2017 OECD Phase 4 Evaluation Report, the Czech Republic should take steps to improve enforcement of its foreign bribery laws, enhance efforts to detect, investigate, and prosecute foreign bribes, increase protections for whistleblowers, and better implement the criminal liability of the legal entities law.

Several NGOs such as Frank Bold, Transparency International, and Anticorruption Endowment Fund receive corruption reports online.  The reports most frequently involve minor offenses, such as attempts to bribe police officers or other public officials to receive benefits or avoid liability.  While there is not a specific law to protect NGOs involved in investigating corruption, NGO activities are protected under the Charter of Fundamental Rights and Freedom that protects civil society and free speech.

Contact at government agency responsible for combating corruption:

Conflict of Interest and Anti-Corruption Department
Anti-Corruption Unit
Ministry of Justice of the Czech Republic
Vyšehradská 16
12800 Prague 2
https://www.justice.cz/      
+420 221 997 595
korupce@msp.justice.cz

Contact at “watchdog” organizations:

Transparency International Czech Republic
Sokolovska 260/143
+420-224 240 895
posta@transparency.cz
https://www.transparency.cz/   

Frank Bold
Udolni 33, Brno
tel: +420 545 213 975
info@frankbold.org
https://frankbold.org/ 

Anticorruption Endowment Fund
Nadacni Fond Proti Korupci
Revoluční 8, building A, 5th floor, 110 00 Praha 1
+420 226 209 047
info@nfpk.cz
https://www.nfpk.cz/ 

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

The DPIIT, under the Ministry of Commerce and Industry, is the lead investment agency, responsible for the formulation of FDI policy and the facilitation of FDI inflows. It compiles all policies related to India’s FDI regime into a single document that is updated every year. This updated policy compilation can be accessed at: http://dipp.nic.in/foreign-direct–investment/foreign–direct–investment-policy.  The DPIIT disseminates information about India’s investment climate and, through the Foreign Investment Implementation Authority (FIIA), plays an active role in resolving foreign investors’ project implementation problems. The DPIIT oftentimes consults with lead ministries and stakeholders. However, there have been specific incidences where some relevant stakeholders reported being left out of consultations.

In most sectors, foreign and domestic private entities can establish and own businesses and engage in remunerative activities. However, there are sectors of the economy where the government continues to retain equity limits for foreign capital as well as management and control restrictions. For example, India caps FDI in the Insurance Sector at 74 percent and mandates that insurance companies retain “Indian management and control.” Similarly, India allows up to 100 percent FDI in domestic airlines but has yet to clarify governing substantial ownership and effective control (SOEC) rules. A list of investment caps is accessible in the DPIIT’s consolidated FDI circular at: https://dpiit.gov.in/foreign-direct-investment/foreign-direct-investment-policy .

The Indian Government has continued to liberalize FDI policies across sectors. Notable changes during 2021 included:

Increasing the FDI cap for the insurance sector to 74 percent from 49 percent, albeit while retaining an “Indian management and control” requirement.

Increased the FDI cap for the pensions sector to 74 percent from 49 percent. The rider of “Indian management and control” is applicable in the pension sector.

Eliminated the FDI cap in the telecom sector. 100 percent FDI allowed for insurance intermediaries.

Eliminated the FDI cap for insurance intermediaries and state-run oil companies.

Increased the FDI cap for defense manufacturing units to 74 percent from 49 percent and up to 100 percent if the investment is approved under the Government Route review process.

Since the abolition of the Foreign Investment Promotion Board (FIPB) in 2017, FDI screening has been progressively liberalized and decentralized. All FDI into India must complete either an “Automatic Route” or “Government Route” review process. FDI in most sectors fall under the Automatic Route, which simply requires a foreign investor to notify India’s central bank, the Reserve Bank of India (RBI), and comply with relevant domestic laws and regulations for that sector. In contrast, investments in specified sensitive sectors – such as defense – require review under the Government Route to obtain the prior approval of the ministry with jurisdiction over the relevant sector along with the concurrence of the DPIIT.

In 2020, India issued Press Note 3 requiring all proposed FDI by nonresident entities located in (or having “beneficial owners” in) countries that share a land border with India to obtain prior approval via the Government Route. This screening requirement applies regardless of the size of the proposed investment or relevant sector. The rule primarily impacted the People’s Republic of China, whose companies had more FDI in India, but other neighboring countries affected include Pakistan, Bangladesh, Nepal, Myanmar, and Bhutan.

A. Third-party investment policy reviews

https://www.oecd.org/economy/india-economic-snapshot/ 

https://www.worldbank.org/en/country/india/overview 

https://www.wto.org/english/tratop_e/tpr_e/tp503_e.htm 

B. Civil society organization reviews of investment policy-related concerns

https://www.ncaer.org/publication_details.php?pID=370 

https://www.orfonline.org/research/jailed-for-doing-business/ 

The DPIIT is responsible for formulation and implementation of promotional and developmental measures for growth of the industrial sector. The DPIIT also is responsible for the overall industrial policy and facilitating and increasing FDI flows to the country.

However, Invest India  is the government’s lead investment promotion and facilitation agency and is managed in partnership with the DPIIT, state governments, and business chambers. Invest India works with investors through their investment lifecycle to provide support with market entry strategies, deep dive industry analysis, partner search, and policy advocacy as required. Businesses can register online through the Ministry of Corporate Affairs (MCA) website: http://www.mca.gov.in/ .

To fast-track the regulatory approval process, particularly for major projects, the government created the digital multi-modal Pro-Active Governance and Timely Implementation (PRAGATI) initiative in 2015. The Prime Minister personally monitors the PRAGATI process, to ensure government entities meet project deadlines. As of September 2021, the Prime Minister had chaired 38 PRAGATI meetings with 297 projects, worth around $200 billion, approved and cleared. In 2014, the government also formed an inter-ministerial committee, led by the DPIIT, to track investment proposals requiring inter-ministerial approvals. Business and government sources report this committee meets informally on an ad hoc basis as they receive reports from companies and business chambers seeking assistance with stalled projects.

According to data from the Ministry of Commerce’s India Brand Equity Foundation (IBEF), outbound investment from India has both increased and changed which countries and sectors it targets. During the last ten years, Overseas Investment Destination (OID) shifted away from resource-rich countries, such as Australia, UAE, and Sudan, toward countries providing higher tax benefits, such as Mauritius, Singapore, the British Virgin Islands, and the Netherlands. Indian firms invest overseas primarily through mergers and acquisitions (M&A) to get direct access to newer and more extensive markets and better technologies and increasingly achieve a global reach. According to RBI data, outward investment from India in 2021 totaled around $29 billion compared with around $30 billion the previous year. The RBI’s recorded total of outward investment includes equity capital, loans, and issuance of guarantees.

Policies pertaining to foreign investments are framed by the DPIIT, and implementation is undertaken by lead federal ministries and sub-national counterparts. Some government policies are written in a way that can be discriminatory to foreign investors or favor domestic industry. For example, India bars foreign investors from engaging in multi-brand retail, which also limits foreign e-Commerce investors to a “market-place model.” On most occasions major rules are framed after thorough discussions by government authorities and require the approval of the cabinet and, in some cases, the Parliament as well. However, in some instances the rules have been enacted without any consultative process.

The Indian Accounting Standards were issued under the supervision and control of the Accounting Standards Board, a committee under the Institute of Chartered Accountants of India (ICAI), and has government, academic, and professional representatives. The Indian Accounting Standards are named and numbered in the same way as the corresponding International Financial Reporting Standards. The National Advisory Committee on Accounting Standards recommends these standards to the MCA, which all listed companies must then adopt. These can be accessed at: https://www.mca.gov.in/content/mca/global/en/acts-rules/ebooks/accounting-standards.html 

India is a member of the South Asia Association for Regional Cooperation (SAARC), an eight- member regional block in South Asia. India’s regulatory systems are aligned with SAARC’s economic agreements, visa regimes, and investment rules. Dispute resolution in India has been through tribunals, which are quasi-judicial bodies. India has been a member of the WTO since 1995, and generally notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade; however, at times there are delays in publishing the notifications. The Governments of India and the United States cooperate in areas such as standards, trade facilitation, competition, and antidumping practices.

India adopted its legal system from English law and the basic principles of the Common Law as applied in the UK are largely prevalent in India. However, foreign companies need to adjust for Indian law when negotiating and drafting contracts in India to ensure adequate protection in case of breach of contract. The Indian judiciary provides for an integrated system of courts to administer both central and state laws. The judicial system includes the Supreme Court as the highest national court, as well as a High Court in each state or a group of states which covers a hierarchy of subordinate courts. Article 141 of the Constitution of India provides that a decision declared by the Supreme Court shall be binding on all courts within the territory of India. Apart from courts, tribunals are also vested with judicial or quasi-judicial powers by special statutes to decide controversies or disputes relating to specified areas.

Courts have maintained that the independence of the judiciary is a basic feature of the Constitution, which provides the judiciary institutional independence from the executive and legislative branches.

The government has a policy framework on FDI, which is updated every year and formally notified as the Consolidated FDI Policy ( https://dpiit.gov.in/foreign-direct-investment/foreign-direct-investment-policy ). The DPIIT issues policy pronouncements on FDI through the Consolidated FDI Policy Circular, Press Notes, and press releases that are also notified by the Ministry of Finance as amendments to the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 under the Foreign Exchange Management Act (FEMA), 1999. These notifications take effect from the date of issuance of the Press Notes/Press Releases, unless specified otherwise therein. In case of any conflict, the relevant Notification under the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 will prevail. The payment of inward remittance and reporting requirements are stipulated under the Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019 issued by the RBI.

The government has introduced “Make in India” and “Self-Reliant India” programs that include investment policies designed to promote domestic manufacturing and attract foreign investment. The “Digital India” program aims to open new avenues for the growth of the information technology sector. The “Start-up India” program creates incentives to enable start-ups to become commercially viable and grow. The “Smart Cities” program creates new avenues for industrial technological investment opportunities in select urban areas.

The central government has successfully established independent and effective regulators in telecommunications, banking, securities, insurance, and pensions. India’s antitrust body, the Competition Commission of India (CCI) reviews cases against cartelization and abuse of dominance and is a well-regarded regulator. The CCI’s investigations wing is required to seek the approval of the local chief metropolitan magistrate for any search and seizure operations. The CCI conducts capacity-building programs for government officials and businesses.

Tax experts confirm that India does not have domestic expropriation laws in place. The Indian Parliament on August 6, 2021, repealed a 2012 law that authorized retroactive taxation. In first proposing the repeal on August 5, Finance Minister Nirmala Sitharaman committed the government to refund the disputed amounts from outstanding cases under the old law. The Indian government has been divesting from state owned enterprises (SOEs) since 1991. In February 2021, the Finance Minister detailed an ambitious program to privatize roughly $24 billion in state owned enterprises as part of the FY 2021-22 (March 31-April 1) budget.

India made resolving contract disputes and insolvency easier with the enactment of the Insolvency and Bankruptcy Code (IBC) in 2016. The World Bank noted that the IBC introduced the option of insolvency resolution for commercial entities as an alternative to liquidation or other mechanisms of debt enforcement, reshaping the way insolvent companies can restore their financial well-being or are liquidated. The IBC created effective tools for creditors to successfully negotiate and receive payments. As a result, the overall recovery rate for creditors jumped from 26.5 to 71.6 cents on the dollar, and the time required for resolving insolvency also was reduced from 4.3 years to 1.6 years. India is now, by far, one of the best performers in South Asia in resolving insolvency and does better than the average for OECD high-income economies in terms of the recovery rate, time taken, and cost of proceedings.

India enacted the Arbitration and Conciliation Act in 1996, based on the United Nations Commission on International Trade Law (UNCITRAL) model to align its adjudication of commercial contract dispute resolution mechanisms with global standards. The government established the International Center for Alternative Dispute Resolution (ICADR) as an autonomous organization under the Ministry of Law and Justice to promote the settlement of domestic and international disputes through alternate dispute resolution. The World Bank has also funded ICADR to conduct training for mediators in commercial dispute settlement.

Judgments of foreign courts have been enforced under multilateral conventions, including the Geneva Convention. India is a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). However, Indian firms are known to file lawsuits in domestic courts to delay paying an arbitral award. Several cases are currently pending, the oldest of which dates to 1983. In 2021, Amazon received an interim award against Future Retail from the Singapore International Arbitration Centre. However, Future Retail has refused to accept the findings and initiated litigation in Indian courts. India is not a member state to the International Centre for the Settlement of Investment Disputes (ICSID).

The Permanent Court of Arbitration (PCA) at The Hague and the Indian Law Ministry agreed in 2007 to establish a regional PCA office in New Delhi, although this remains pending. The office would provide an arbitration forum to match the facilities offered at The Hague but at a lower cost.

In November 2009, the Department of Revenue’s Central Board of Direct Taxes established eight dispute resolution panels across the country to settle the transfer-pricing tax disputes of domestic and foreign companies. In 2016 the government approved amendments that would allow Commercial Courts, Commercial Divisions, and Commercial Appellate Divisions of the High Courts Act to establish specialized commercial divisions within domestic courts to settle long-pending commercial disputes.

Since formal dispute resolution is expensive and time consuming, many businesses choose methods, including ADR, for resolving disputes. The most used ADRs are arbitration and mediation. India has enacted the Arbitration and Conciliation Act based on the UNCITRAL Model Law. In cases that involve constitutional or criminal law, traditional litigation remains necessary.

The introduction and implementation of the IBC in 2016 overhauled of the previous framework for insolvency with much-needed reforms. The IBC created a uniform and comprehensive creditor-driven insolvency resolution process that encompasses all companies, partnerships, and individuals (other than financial firms). According to the World Bank, the time required for resolving insolvency was reduced significantly from 4.3 years to 1.6 years after implementation of the IBC. The law, however, does not provide for U.S. style Chapter 11 bankruptcy provisions.

In August 2016, the Indian Parliament passed amendments to the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, and the Debt Recovery Tribunals Act. These amendments targeted helping banks and financial institutions recover loans more effectively, encouraging the establishment of more asset reconstruction companies (ARCs), and revamping debt recovery tribunals. The Finance Minister announced in her February 2021 budget speech to Parliament plans to establish the National Asset Reconstruction Company Limited (NARCL), or “bad bank” to resolve large cases of corporate stress. In October 2021, the RBI approved the license to set up the NARCL.

On May 10, 2021, the Securities and Exchange Board of India (SEBI) issued a circular to introduce new environment, social, and governance (ESG) reporting requirements for the top 1,000 listed companies by market capitalization. According to this circular, new disclosure will be made in the format of the Business Responsibility and Sustainability Report (BRSR), which is a notable departure from SEBI’s existing Business Responsibility Report and a significant step toward bringing sustainability reporting up to existing financial reporting standards. BRSR reporting will be voluntary for FY 2021-22 and mandatory from FY 2022-23 for the top 1,000 listed companies by market capitalization. This is to provide companies subject to these requirements with sufficient time to adapt to the new requirements.

The regulatory environment in terms of foreign investment has been eased to make it investor friendly. The measures taken by the government opened new sectors for foreign direct investment, increased the investment limit of existing sectors, and simplified other conditions of the FDI policy. The government also adopted production linked incentives to promote manufacturing in pharmaceuticals, automobiles, textiles, electronics, and other sectors. Details can be accessed at- https://www.investindia.gov.in/production-linked-incentives-schemes-india 

The government established several foreign trade zone initiatives to encourage export-oriented production. These include Special Economic Zones (SEZs), Export Processing Zones (EPZs), Software Technology Parks (STPs), and Export Oriented Units (EOUs). According to the Ministry of Commerce and Industry, as of February 2022, 425 SEZ’s have been approved and 376 SEZs were operational with 5,604 operating units. The SEZs are treated as foreign territory, and businesses operating within the zones are not subject to customs regulations, FDI equity caps, or industrial licensing requirements and enjoy tax holidays and other tax breaks. Since 2018, the Indian government also announced guidelines for the establishment of the National Industrial and Manufacturing Zones (NIMZs), envisaged as integrated industrial townships to be managed by a special purpose vehicle and led by a government official. So far, three NIMZs have received “final approval” and 13 more have received “in-principal approval.” In addition, eight investment regions along the Delhi-Mumbai Industrial Corridor (DIMC) have also been established as NIMZs. EPZs are industrial parks with incentives for foreign investors in export-oriented businesses. STPs are special zones with similar incentives for software exports. EOUs are industrial companies, established anywhere in India, that export their entire production and are granted duty-free import of intermediate goods; income tax holidays; exemption from excise tax on capital goods, components, and raw materials; and a waiver on sales taxes. These initiatives are governed by separate rules and granted different benefits, details of which can be found at: http://www.sezindia.nic.in,  

https://www.stpi.in/  

http://www.fisme.org.in/export_schemes/DOCS/B- 

1/EXPORT%20ORIENTED%20UNIT%20SCHEME.pdf and http://www.makeinindia.com/home. 

The Indian government does issue guarantees to investments but only for strategic industries.

The government has an ambitious target of installing 500 gigawatts of renewable energy (RE) by 2030 and has introduced several schemes and policies  supporting clean energy deployment. State governments used to provide feed-in tariffs during the initial stages of RE development. However, with the RE sector becoming competitive, the scheme was discontinued in 2016. Most projects now are awarded through a Tariff Based Competitive Bidding Process . The Ministry of New & Renewable Energy (MNRE) provides ‘ Must Run ’ status to RE projects. MNRE offers Production Linked Incentives (PLI) under the National Program on High Efficiency Solar PV Modules. The PLI scheme was initially offered for just under $617 million and was oversubscribed. Under the FY 2022-23 budget, it was expanded by another $2.6 billion. The Ministry of Heavy Industry (MHI) launched the National Electric Mobility Mission to provide a roadmap for the faster adoption of electric vehicles. Can be accessed at https://policy.asiapacificenergy.org/sites/default/files/National%20Electric%20Mobility%20Mission%20Plan%202020.pdf . MHI also launched a PLI scheme National Program on Advance Chemistry Cell (ACC) Battery Storage  to promote battery manufacturing. The Department of Science & Technology leads Carbon Capture Utilization & Storage (CCUS)  efforts to enable near-zero CO2 emissions from power plants and carbon-intensive industries with the program limited to R&D and pilots. The Bureau of Energy Efficiency (BEE) leads the National Mission on Enhanced Energy Efficiency  and manages several programs promoting Energy Efficiency  across sectors, including buildings, E-Mobility, fuel efficiency for heavy duty vehicles and passenger cars, demand side management, standards, and labelling and certification. The National Hydrogen Mission was launched in August 2021, with the aim to meeting Climate targets and making India a green hydrogen hub. Carbon Capture Utilization & Storage (CCUS)  efforts to enable near-zero CO2 emissions from power plants and carbon-intensive industries with the program limited to R&D and pilots. The Bureau of Energy Efficiency (BEE) leads the National Mission on Enhanced Energy Efficiency  and manages several programs promoting Energy Efficiency  across sectors, including buildings, E-Mobility, fuel efficiency for heavy duty vehicles and passenger cars, demand side management, standards, and labelling and certification. The National Hydrogen Mission was launched in August 2021, with the aim to meeting Climate targets and making India a green hydrogen hub.

Preferential Market Access (PMA) for government procurement has created substantial challenges for foreign firms operating in India. The government and SOEs give a 20 percent price preference to vendors utilizing more than 50 percent local content. However, PMA for government procurement limits access to the most cost effective and advanced ICT products available. In December 2014, PMA guidelines were revised and reflect the following updates:

1. Current guidelines emphasize that the promotion of domestic manufacturing is the objective of PMA, while the original premise focused on the linkages between equipment procurement and national security.
2. Current guidelines on PMA implementation are limited to hardware procurement only. Former guidelines were applicable to both products and services.
3. Current guidelines widen the pool of eligible PMA bidders, to include authorized distributors, sole selling agents, authorized dealers, or authorized supply houses of the domestic manufacturers of electronic products, in addition to OEMs, provided they comply with the following terms:
   1. The bidder shall furnish the authorization certificate by the domestic manufacturer for selling domestically manufactured electronic products.
   2. The bidder shall furnish the affidavit of self-certification issued by the domestic manufacturer to the procuring agency declaring that the electronic product is domestically manufactured in terms of the domestic value addition prescribed.
   3. It shall be the responsibility of the bidder to furnish other requisite documents required to be issued by the domestic manufacturer to the procuring agency as per the policy.
4. The current guidelines establish a ceiling on fees linked with the compliance procedure. There would be a complaint fee of roughly $3,000, or one percent of the value of the domestically manufactured electronic product being procured, subject to a maximum of about $7,500, whichever is higher.In January 2017, the Ministry of Electronics & Information Technology (MeitY) issued a draft notification under the PMA policy, stating a preference for domestically manufactured servers in government procurement. A current list of PMA guidelines, notified products, and tendering templates can be found on MeitY’s website: http://meity.gov.in/esdm/pma 

In April 2018, the RBI, announced, without prior stakeholder consultation, that all payment system providers must store their Indian transaction data only in India. The RBI mandate went into effect on October 15, 2018, despite repeated requests by industry and U.S. officials for a delay to allow for more consultations. In July 2019, the RBI, again without prior stakeholder consultation, retroactively expanded the scope of its 2018 data localization requirement to include banks, creating potential liabilities going back to late 2018. The RBI policy overwhelmingly and disproportionately has affected U.S. banks and investors, who depend on the free flow of data to both achieve economies of scale and to protect customers by providing global real-time monitoring and analysis of fraud trends and cybersecurity. In 2021, the RBI banned American Express, Diners Club, and Mastercard from issuing new cards for non-compliance with the data localization rule. In November 2021, the RBI deemed Diners Club compliant and permitted them to resume issuing new cards, but the ban on Mastercard and American Express continues.

In addition to the RBI data localization directive for payments companies and banks, the government formally introduced its draft Personal Data Protection Bill (PDPB) in December 2019 which has remained pending in Parliament. The PDPB would require “explicit consent” as a condition for the cross-border transfer of sensitive personal data, requiring users to fill out separate forms for each company that held their data. Additionally, Section 33 of the bill would require a copy of all “sensitive personal data” and “critical personal data” to be stored in India, potentially creating redundant local data storage. The localization of all “sensitive personal data” being processed in India could directly impact IT exports. In the current draft no clear criteria for the classification of “critical personal data” has been included. The PDPB also would grant wide authority for a newly created Data Protection Authority to define terms, develop regulations, or otherwise provide specifics on key aspects of the bill after it becomes a law. The implementation of a New Information Technology Rule through Intermediary Guidelines and a Digital Media Ethics Code added further uncertainty to how existing rules will interact with the PDPB and how non-personal data will be handled.

Indian stocks experienced significant losses at the start of 2021, stemming from the effects of the COVID-19 pandemic on the economy. By midyear, markets began to recover, with India’s stock benchmarks reaching record highs and becoming among the top performers globally. Indian companies raised a combined $15.57 billion through 121 IPOs in 2021, the highest amount ever raised in a single calendar year compared with the previous high of $8.4 billion in 2017.

Foreign investment inflows drove markets higher through February 2021. However, these investments began exiting the market when faced with the potential for faster-than-expected withdrawal of monetary stimulus and the Delta variant of COVID-19. Domestic institutional investors compensated outflows of foreign investment through significant investment in Indian stocks. Foreign investors’ net investment in 2021 was about $7 billion, significantly lower than the $14.5 billion in 2020 and $19 billion in 2019. Domestic investors put about $12.5 billion in 2021 into Indian domestic equity markets. Indian investors opened 27.4 million new stock trading accounts in 2021, up from 10.5 million accounts opened in 2020.

The SEBI is considered one of the most progressive and well-run of India’s regulatory bodies.  The SEBI regulates India’s securities markets, including enforcement activities and is India’s direct counterpart to the U.S. Securities and Exchange Commission (SEC).  The Board oversees seven exchanges: BSE Ltd. (formerly the Bombay Stock Exchange), the National Stock Exchange (NSE), the Metropolitan Stock Exchange, the Calcutta Stock Exchange, the Multi Commodity Exchange (MCX), the National Commodity & Derivatives Exchange Limited, and the Indian Commodity Exchange.

Foreign venture capital investors (FVCIs) must register with the SEBI to invest in Indian firms. They can also set up domestic asset management companies to manage funds. All such investments are allowed under the automatic route, subject to SEBI and RBI regulations, as well as FDI policy. FVCIs can invest in many sectors, including software, information technology, pharmaceuticals and drugs, biotechnology, nanotechnology, biofuels, agriculture, and infrastructure.

Companies incorporated outside India can raise capital in India’s capital markets through the issuance of Indian Depository Receipts (IDRs) based on SEBI guidelines. Standard Chartered Bank, a British bank was the only foreign entity to list in India but delisted in June 2020. Experts attribute the lack of interest in IDRs to initial entry barriers, lack of clarity on conversion of the IDRs holdings into overseas shares, lack of tax clarity, and the regulator’s failure to popularize the product.

External commercial borrowing (ECB), or direct lending to Indian entities by foreign institutions, is allowed if it conforms to parameters such as minimum maturity; permitted and non-permitted end-uses; maximum all-in-cost ceiling as prescribed by the RBI; funds are used for outward FDI or for domestic investment in industry, infrastructure, hotels, hospitals, software, self-help groups or microfinance activities, or to buy shares in the disinvestment of public sector entities. The rules are published by the RBI: https://rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=11510 

According to RBI data, ECB by corporations and non-banking financial companies reached $38.8 billion in 2021. Companies have been increasingly tapping overseas markets for funds to take advantage of low interest rates in global markets. On December 8, 2021, the RBI announced a switch in calculation of interest rates for ECB and trade credits from the London Interbank Offered Rate (LIBOR) to alternative reference rates (ARRs).

The RBI has taken several steps in the past few years to bring the activities of the offshore Indian rupee (INR) market in Non-Deliverable Forwards (NDF) onshore, with the goal of deepening domestic markets, enhancing downstream benefits, and obviating the need for an NDF market. FPIs with access to currency futures or the exchange-traded currency options market can hedge onshore currency risks in India and may directly trade in corporate bonds.

The RBI allowed banks to freely offer foreign exchange quotes to non-resident Indians. The RBI has stated that trading on INR derivatives would be allowed and settled in foreign currencies in International Financial Services Centers (IFSCs). In June 2020, the RBI allowed foreign branches of Indian banks and branches located in IFSCs to participate in the NDF. With the INR trading volume in the offshore market higher than the onshore market, the RBI felt the need to limit the impact of the NDF market and curb volatility in the movement of the INR. In August 2021, the RBI released a working paper  discussing the influence of offshore markets on onshore markets.

The International Financial Services Centre at Gujarat International Financial Tech-City (GIFT City) is being developed to compete with global financial hubs. In January 2016, BSE Ltd. was the first exchange to start operations there. The NSE, domestic banks, and foreign banks have also started IFSC banking units in GIFT city. As part of its FY 2021-22 budget proposal, the government recommended establishing an international arbitration center in GIFT City to help facilitate faster resolution of commercial disputes, akin to the operation of the Singapore International Arbitration Centre (SIAC) or London Commercial Arbitration Centre (LCAC).

The public sector remains predominant in the banking sector, with public sector banks (PSBs) accounting for about 66 percent of total banking sector assets. However, the share of public banks in total loans and advances has fallen sharply in the last five years (from 70.84 percent in FY 2015-16 to 58.68 percent in FY 2021-22), primarily driven by stressed balance sheets and non-performing loans. In recent years, several new licenses were granted to private financial entities, including two new universal bank licenses and 10 small finance bank licenses. The government announced plans in 2021 to privatize two PSBs. This followed Indian authorities consolidating 10 public sector banks into four in 2019, which reduced the total number of PSBs from 18 to 12. However, the government has yet to introduce the necessary legislation needed to privatize PSBs. Although most large PSBs are listed on exchanges, the government’s stakes in these banks often exceeds the 51 percent legal minimum. Aside from the large number of state-owned banks, directed lending and mandatory holdings of government paper are key facets of the banking sector. The RBI requires commercial banks and foreign banks with more than 20 branches to allocate 40 percent of their loans to priority sectors which include agriculture, small and medium enterprises, export-oriented companies, and social infrastructure. Additionally, all banks are required to invest 18 percent of their net demand and time liabilities in government securities.

PSBs continue to face two significant hurdles: capital constraints and poor asset quality. As of September 2021, gross non-performing loans represented 6.9 percent of total loans in the banking system, with the PSBs having a larger share of 8.8 percent of their loan portfolio. The government announced its intention to set up the NARCL and India Debt Resolution Company Limited (IDRCL) to take over legacy stressed assets from bank balance sheets. With the IBC in place, banks are making progress in non-performing asset recognition and resolution.

To address asset quality challenges faced by public sector banks, the government has injected $32 billion into public sector banks in recent years. The capitalization largely aimed to address the capital inadequacy of public sector banks and marginally provide for growth capital. Bank mergers and capital raising from the market, improved public sector banks’ total capital adequacy ratio (CAR) from 13.5 percent in September 2020 to 16.6 percent in September 2021.

Women’s lack of sufficient access to finance remained a major impediment to women’s entrepreneurship and participation in the workforce. According to experts, women are more likely than men to lack financial awareness, confidence to approach a financial institution, or possess adequate collateral, often leaving them vulnerable to poor terms of finance. Despite legal protections against discrimination, some banks reportedly remained unwelcoming toward women as customers. International Finance Corporation (IFC) analysts have described Indian women-led Micro, Small, and Medium Enterprises (MSME) as a large but untapped market that has a total finance requirement of $29 billion (72 percent for working capital). However, 70 percent of this demand remained unmet, creating a shortfall of $20 billion.

The government-affiliated think tank NITI-Aayog provides information on networking, mentorship, and financing to more than 25,000 members via its Women Entrepreneurship Platform (WEP), launched in March 2018. The government’s financial inclusion scheme Pradhan Mantri Jan Dhan Yojana (PMJDY) provides universal access to banking facilities with at least one basic banking account for every adult, financial literacy, access to credit, insurance, and pension. As of March 2, 2022, 249 million women comprised 55 percent of the program’s 448 million beneficiaries. In 2015, the government started the Micro Units Development and Refinance Agency Ltd. (MUDRA), which supports the development of micro-enterprises. The initiative encourages women’s participation and offers collateral-free loans of around $15,000 to non-corporate, non-farm small and micro enterprises. As of October 29, 2021, 215 million loans have been extended to women borrowers.

In FY 2016, the Indian government established the National Infrastructure Investment Fund (NIIF), India’s first sovereign wealth fund, to promote investments in the infrastructure sector. The government agreed to contribute $3 billion to the fund, with an additional $3 billion raised from the private sector primarily from foreign sovereign wealth funds, multilateral agencies, endowment funds, pension funds, insurers, and foreign central banks. Currently, the NIIF manages over $4.3 billion in assets through its funds: Master Fund, Fund of Funds, and Strategic Opportunities Fund. The NIIF Master Fund is focused on investing in core infrastructure sectors including transportation, energy, and urban infrastructure.

Among Indian companies there is a general awareness of standards for responsible business conduct. The MCA administers the Companies Act of 2013 and is responsible for regulating the corporate sector in accordance with the law. The MCA is also responsible for protecting the interests of consumers by ensuring competitive markets. The Companies Act of 2013 also established the framework for India’s corporate social responsibility (CSR) laws, mandating that companies spend an average of two percent of their average net profit of the preceding three fiscal years. While the CSR obligations are mandated by law, non-government organizations (NGOs) in India also track CSR activities and provide recommendations in some cases for effective use of CSR funds. According to the MCA website, in FY 2020-21, 8,633 companies spent $2.72 billion on more than 25,000 CSR projects across India.

The MCA released the National Guidelines on Responsible Business Conduct, 2018 (NGRBC) on March 13, 2019, to improve the 2011 National Voluntary Guidelines on Social, Environmental & Economic Responsibilities of Business. The NGRBC aligned with the United Nations Guiding Principles on Business & Human Rights (UNGPs).

India does not adhere to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas. There are provisions to promote responsible business conduct throughout the supply chain.

India is neither a member of Extractive Industries Transparency Initiative (EITI), nor a member of the Voluntary Principles on Security and Human Rights.

Department of State

• Country Reports on Human Rights Practices;
• Trafficking in Persons Report;
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities;
• U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises; and;
• Xinjiang Supply Chain Business Advisory 

Department of the Treasury

• OFAC Recent Actions

Department of Labor

• Findings on the Worst Forms of Child Labor Report;
• List of Goods Produced by Child Labor or Forced Labor;
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World and;
• Comply Chain.

The Government of India launched the National Action Plan on Climate Change (NAPCC) on June 30, 2008, outlining eight “National Missions: on climate change. These include:

1. National Solar Mission
2. National Mission for Enhanced Energy Efficiency
3. National Mission on Sustainable Habitat
4. National Water Mission
5. National Mission for Sustaining the Himalayan Eco-system
6. National Mission for a Green India
7. National Mission for Sustainable Agriculture
8. National Mission on Strategic Knowledge for Climate Change

In addition, India has the Biological Diversity Act 2002 that focuses on the conservation of biological resources, managing its sustainable use, and enabling the fair and equitable sharing of benefits arising out of the use and knowledge of biological resources with the local communities. The Act has a three-tier structure to regulate access to biological resources:

The National Biodiversity Authority (NBA)

The State Biodiversity Boards (SBBs)

The Biodiversity Management Committees (BMCs) (at local level)

India does not yet have a system of ecosystem services, but the government is currently discussing within its interagency and with outside stakeholders the value of developing a strategy for ecosystem services.

During the CoP 26 in Glasgow, Prime Minister Modi announced that India planned to reach net-zero carbon emissions by 2070. The government is now developing a strategy and a detailed plan to achieve that goal.

The government has regulatory systems in place that include pollution standards, biodiversity off-sets through compensatory forestation, and a forest policy and wildlife management plans with numerous national parks and wildlife sanctuaries that protect forests and biodiversity. At CoP 26 Prime Minister Modi called for making LIFE – Lifestyle for Environment – a global movement that advances sustainable lifestyles as a part of addressing the climate crisis.

While there is no sustainable public procurement law in India, the General Financial Rules (GFR) 2017 contain provisions that allow purchasing authorities to include environmental criteria when making procurements. Ministry of Finance procurement manuals also emphasize this ability. Various public sector entities and some government departments have started considering environmental and energy efficiency criteria in their procurement decisions. In addition, the government constituted a taskforce on sustainable public procurement in 2018 with the mandate to:

Review international best practices in Sustainable Public Procurement (SPP)

Identify the current status of SPP in India across Government organizations

Prepare a draft Sustainable Procurement Action Plan

Recommend an initial set of product/service categories (along with their specifications) where SPP can be implemented

However, the government has not yet developed a sustainable procurement action plan or policy mandating sustainable public procurement.

India is a signatory to the United Nation’s Conventions Against Corruption and is a member of the G20 Working Group against corruption. India, with a score of 40, ranked 86 among 180 countries in Transparency International’s 2020 Corruption Perception Index.

Corruption is addressed by the following laws: The Companies Act, 2013; the Prevention of Money Laundering Act, 2002; the Prevention of Corruption Act, 1988; the Code of Criminal Procedures, 1973; the Indian Contract Act, 1872; and the Indian Penal Code of 1860. Anti- corruption laws amended since 2004 have granted additional powers to vigilance departments in government ministries at the central and state levels and elevated the Central Vigilance Commission (CVC) to be a statutory body. In addition, the Comptroller and Auditor General is charged with performing audits on public-private-partnership contracts in the infrastructure sector based on allegations of revenue loss to the exchequer.

Other statutes approved by parliament to tackle corruption include:

The Benami Transactions (Prohibition) Amendment Act of 2016

The Real Estate (Regulation and Development) Act, 2016, enacted in 2017

The Whistleblower Protection Act, 2011 was passed in 2014 but has yet to be operationalized

The Companies Act, 2013 established rules related to corruption in the private sector by mandating mechanisms for the protection of whistleblowers, industry codes of conduct, and the appointment of independent directors to company boards. However, the government has not established any monitoring mechanism, and it is unclear the extent to which these protections have been instituted. No legislation focuses particularly on the protection of NGOs working on corruption issues, though the Whistleblowers Protection Act, 2011 may afford some protection once implemented.

In 2013, Parliament enacted the Lokpal and Lokayuktas Act, which created a national anti- corruption ombudsman and required states to create state-level ombudsmen within one year of the law’s passage. A national ombudsman was appointed in March 2019.

India is a signatory to the United Nations Conventions against Corruption and is a member of the G20 Working Group against Corruption. India is not a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

The Indian chapter of Transparency International was closed in 2019.

Matt Ingeneri
Economic Growth Unit Chief
U.S. Embassy New Delhi
Shantipath, Chanakyapuri New Delhi
+91 11 2419 8000 ingeneripm@state.gov 

Mr. Suresh Patel
Central Vigilance Commissioner
Satarkta Bhavan , Block-A
GPO Complex, INA New Delhi – 110 023
Ph: +91-11- 24651020
www.cvc.gov.in 

India is a multiparty, federal, parliamentary democracy with a bicameral legislature. The president, elected by an electoral college composed of the state assemblies and parliament, is the head of state, and the prime minister is the head of government. National parliamentary elections are held every five years. Under the constitution, the country’s 28 states and eight union territories have a high degree of autonomy and have primary responsibility for law and order. Electors chose President Ram Nath Kovind in 2017 to serve a five-year term. Following the May 2019 national elections, Prime Minister Modi’s Bharatiya Janata Party (BJP) led National Democratic Alliance (NDA) received a larger majority in the lower house of Parliament, or Lok Sabha, than it had won in the 2014 elections and returned Modi for a second term as prime minister. Observers considered the parliamentary elections, which included more than 600 million voters, to be free and fair, although there were reports of isolated instances of violence.

Matt Ingeneri
Economic Growth Unit Chief
U.S. Embassy New Delhi
Shantipath, Chanakyapuri
New Delhi
+91 11 2419 8000
ingeneripm@state.gov

Turkey acknowledges that it needs to attract significant new foreign direct investment (FDI) to meet its ambitious development goals. As a result, Turkey has one of the most liberal legal regimes for FDI among Organization for Economic Cooperation and Development (OECD) members. According to the Central Bank of Turkey’s balance of payments data, Turkey attracted a total of USD 7.59 billion of FDI in 2021, almost USD 1.8 billion higher than 2020’s USD 5.79 billion. The figures demonstrate that Turkey needs to take steps to stabilize its macroeconomic fundamentals, in addition to improve enforcement of international trade rules, ensure the transparency and timely execution of judicial awards, increase engagement with foreign investors on policy issues, and to implement consistent monetary and fiscal economic policies to promote strong, sustainable, and balanced growth. Turkey also needs to take other political measures to increase stability and predictability for investors. A stable banking sector, tight fiscal controls, efforts to reduce the size of the informal economy, increased labor market flexibility, improved labor skills, and continued privatization of state-owned enterprises would, if pursued, have the potential to improve the investment environment in Turkey.

Most sectors open to Turkish private investment are also opened to foreign participation and investment. All investors, regardless of nationality, face similar challenges: macroeconomic instability, excessive bureaucracy, a slow judicial system, relatively high and inconsistently applied taxes, and frequent changes in the legal and regulatory environment. Structural reforms that would create a more transparent, equal, fair, and modern investment and business environment remain stalled. Venture capital and angel investing are still relatively new in Turkey.

Turkey does not screen, review, or approve FDI specifically. However, the government has established regulatory and supervisory authorities to regulate different types of markets. Important regulators in Turkey include the Competition Authority; the Excessive Pricing Evaluation Board; Energy Market Regulation Authority; Banking Regulation and Supervision Authority; Information and Communication Technologies Authority; Tobacco, Tobacco Products and Alcoholic Beverages Market Regulation Board; Privatization Administration; Public Procurement Authority; Radio and Television Supreme Council; and Public Oversight, Accounting, and Auditing Standards Authority. Screening mechanisms are executed to maintain fair competition and for other economic benefits. If an investment fails a review, possible outcomes can vary from a notice to remedy, which allows for a specific period to correct the problem, to penalty fees. The Turkish judicial system allows for appeals of any administrative decision, including tax courts that deal with tax disputes.

There are no general limits on foreign ownership or control. However, there is increasing pressure in some sectors for foreign investors to partner with local companies and transfer technology, and some discriminatory barriers to foreign entrants, based on “anti-competitive practices,” especially in the information and communication technology (ICT) sector and the pharmaceuticals sector. In many areas, Turkey’s regulatory environment is business friendly. Investors can establish a business in Turkey irrespective of nationality or place of residence. There are no sector-specific restrictions that discriminate against foreign investor access, which are prohibited by World Trade Organization (WTO) regulations.

The OECD published an Environmental Performance Review for Turkey in February 2019, noting the country was the fastest growing among OECD members, and an Economic Survey of Turkey in 2021, which noted that investor confidence in policy predictability could not be consolidated, and risk premium and exchange rate volatility remained very high. The OECD survey which includes details on policy recommendations can be found at: https://www.oecd.org/turkey/oecd-environmental-performance-reviews-turkey-2019-9789264309753-en.htm 

Turkey’s most recent investment policy review through the World Trade Organization (WTO) was conducted in March 2016. Turkey has cooperated with the World Bank to produce several reports on the general investment climate that can be found at: https://www.wto.org/english/tratop_e/tpr_e/tp431_e.htm 

The International Investors Association (YASED)’s members represent 85 percent of all FDI in Turkey. YASED has a working group structure to support the demands of investors and targets common themes to express investors’ perspectives and concerns to the government to shape the policymaking processes. YASED’s publications can be found at: https://www.yased.org.tr/reports 

The Presidency of the Republic of Turkey Investment Office is the official organization for promoting Turkey’s sectoral investment opportunities to the global business community and assisting investors before, during, and after their entry into Turkey. Its website is clear and easy to use, with information about legislation and company establishment. https://www.invest.gov.tr/en/pages/home-page.aspx

The conditions for foreign investors setting up a business and transferring shares are the same as those applied to local investors. International investors may establish any form of company set out in the Turkish Commercial Code (TCC), which offers a corporate governance approach that meets international standards, fosters private equity and public offering activities, creates transparency in managing operations, and aligns the Turkish business environment with EU legislation as well as with the EU accession process.

Turkey defines micro, small, and medium-sized enterprises according to Decision No. 2022/5315 of the Official Gazette dated March 17, 2022:

1. Micro-sized enterprises: fewer than 10 employees and less than or equal to 5 million Turkish lira in net annual sales or financial statement.
2. Small-sized enterprises: fewer than 50 employees and less than or equal to 50 million Turkish lira in net annual sales or financial statement.
3. Medium-sized enterprises: fewer than 250 employees and less than or equal to 250 million Turkish lira in net annual sales or financial statement.

The government promotes outward investment via investment promotion agencies and other platforms. It does not restrict domestic investors from investing abroad.

The GOT has adopted policies and laws that, in principle, should foster competition and transparency. The GOT makes its budgetary spending reports available online. Copies of draft bills are generally made available to the public by posting them to the websites of the relevant ministry, Parliament, or Official Gazette. Foreign companies in several sectors; however, claim that regulations are applied in a nontransparent manner. Public tender decisions and regulatory updates can be opaque and politically driven.

Accounting, legal, and regulatory procedures appear to be consistent with international norms, including standards set forth by the International Financial Reporting Standards (IFRS), the EU, and the OECD. Publicly traded companies adhere to international accounting standards and are audited by well-respected international firms. Turkey is a member of the OECD Inclusive Framework on Base Erosion and Profit Shifting (BEPS) and is party to the Inclusive Framework’s October 2021 deal on the two-pillar solution to global tax challenges, including a global minimum corporate tax.

In 2021, Turkey’s Office of the Presidency partnered with the United Nations Development Program (UNDP) to assess the Impact Investing Ecosystem in Turkey and the Sustainable Development Goal (SDG) Investor Map Turkey. These efforts provided preliminary steps towards environmental, social, and governance (ESG) regulations. Turkey’s Capital Markets Board (CMB) amended its Corporate Governance Communique on Turkey’s Sustainability Principles Compliance Framework for publicly traded companies in 2020. The Framework offers publicly traded companies an opportunity to take their social, environmental, and governance impact seriously, beyond shareholders’ demands. There is no standard ESG legal framework but the GOT recommends that all companies operating in Turkey proactively adopt EGT standards.

Turkey is a candidate for EU membership; however, the accession process has stalled, with the opening of new chapters put on hold. Some, though not all, Turkish regulations have been harmonized with the EU, and the country has adopted many European regulatory norms and standards. Turkey is a member of the WTO, though it does not notify all draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT).

Turkey’s legal system is based on civil law, provides means for enforcing property and contractual rights, and has written commercial and bankruptcy laws. Turkey’s court system is overburdened, which sometimes results in slow decisions and judges lacking sufficient time to consider complex issues. Judgments of foreign courts, under certain circumstances, need to be upheld by local courts before they are accepted and enforced. Recent developments reinforce the Turkish judicial system’s need to undertake significant reforms to adopt fair, democratic, and unbiased standards. The government is currently implementing a series of judicial reform packages introduced since 2019, but Amnesty International noted the reforms “fail to bring Turkey’s laws in line with human rights law and standards, and rather tinker at the edges of a system marked by the deepening erosion of independence of the judiciary.” The judiciary remains subject to influence, particularly from the executive branch, and faces significant challenges that limit judicial independence. The judicial reform strategy’s nine priorities are: protecting and improving rights and freedoms, improving judicial independence, objectivity and transparency, improving both the quality and quantity of human resources, increasing performance and productivity, enabling the right of defense to be used effectively, making justice more approachable, increasing the effectiveness of the penal justice system, simplifying civil justice and administrative procedures, and popularizing alternative mediation methods.

Turkey’s investment legislation is simple and complies with international standards, offering equal treatment for all investors. The New Turkish Commercial Code No. 6102 (“New TCC”) was published in February , 2011. The backbone of the investment legislation is made up of the Encouragement of Investments and Employment Law No. 5084, Foreign Direct Investments Law No. 4875, international treaties, and various laws and related sub-regulations on the promotion of sectorial investments. Regulations related to mergers and acquisitions include: the Turkish Code of Obligations: Article 202 and Article 203; the Turkish Commercial Code: Articles 134-158; the Execution and Bankruptcy Law: Article 280; the Law on the Procedures for the Collection of Public Receivables: Article 30; and the Law on Competition: Article 7.

https://www.invest.gov.tr/en/ 

The Competition Authority is the sole authority on competition issues in Turkey and handles private sector transactions. Public institutions are exempt from its authority. The Constitutional Court can overrule the Competition Authority’s finding of innocence in a competition case. There have been some cases of Turkish courts blocking foreign company operations based on competition concerns, with a few investigations into foreign companies initiated. Such cases can take over a year to resolve, during which time the companies can be prohibited from doing business in Turkey, which benefits their (local) competitors.

The Government of Turkey established a related board, called the Excessive Pricing Evaluation Board, in 2019 and under the authority of the Ministry of Trade. As inflation has increased, exacerbated by the economic impacts of the COVID-19 pandemic, some private sector contacts note a marked increase in the frequency and aggressiveness of audits by the board. The board reportedly uses a “secret comparable,” whereby a product’s price is compared against that of another company whose name is not revealed. In 2021, an increasingly active Competition Authority of Turkey (RK) has stepped up its investigations with the purported intent of protecting consumers from anticompetitive behavior and price gouging. On October 29, 2022, RK fined five supermarkets and one supplier a combined USD 283 million for violating antitrust regulations.

Under the U.S.-Turkey Bilateral Investment Treaty (BIT), expropriation can only occur in accordance with due process of law, can only be for a public purpose, and must be non-discriminatory. Compensation must be prompt, adequate, and effective. The GOT occasionally expropriates private real property for public works or for state industrial projects. The GOT agency expropriating the property negotiates the purchase price. If the owners of the property do not agree with the proposed price, they are able to challenge the expropriation in court and ask for additional compensation. There are no known outstanding expropriation or nationalization cases for U.S. firms. Although there is not a pattern of discrimination against U.S. firms, the GOT has aggressively targeted businesses, banks, media outlets, and mining and energy companies with alleged ties to the so-called “Fethullah Terrorist Organization (FETO)” and/or the July 2016 attempted coup, including the expropriation of over 1,100 private companies worth more than USD 11 billion.

ICSID Convention and New York Convention

Turkey is a member of the International Centre for the Settlement of Investment Disputes (ICSID) and is a signatory to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. Foreign arbitral awards will be enforced if the country of origin of the award is a New York Convention state, if the dispute is commercial under Turkish law, and if none of the grounds under Article V of the New York Convention are proved by the opposing party.

Investor-State Dispute Settlement

U.S. investors generally have full access to Turkey’s local courts and the ability to take the government directly to international binding arbitration if a breach of the U.S.-Turkey Bilateral Investment Treaty has occurred.

International Commercial Arbitration and Foreign Courts

Turkey adopted the International Arbitration Law, based on the United Nations Commission on International Trade Law (UNCITRAL) model law, in 2001. Local courts accept binding international arbitration of investment disputes between foreign investors and the state. In practice, however, Turkish courts have sometimes failed to uphold international arbitration awards involving private companies and have favored Turkish firms. There are two main arbitration bodies in Turkey: the Union of Chambers and Commodity Exchanges of Turkey (www.tobb.org.tr ) and the Istanbul Chamber of Commerce Arbitration and Mediation Center (www.itotam.com/en ). Most commercial disputes can be settled through arbitration, including disputes regarding public services. Parties decide the arbitration procedure, set the arbitration rules, and select the language of the proceedings. The Istanbul Arbitration Center was established in October 2015 as an independent, neutral, and impartial institution to mediate both domestic and international disputes through fast-track arbitration, emergency arbitrator, and appointments for ad hoc procedures. Its decisions are binding and subject to international enforcement (www.istac.org.tr/en ).

As of January 2019, some commercial disputes may be subject to mandatory mediation; if the parties are unable to resolve the dispute through mediation, the case moves to a trial.

Turkey criminalizes bankruptcy and has a bankruptcy law based on the Execution and Bankruptcy Code No. 2004 (the “EBL”), published in t 1932, and numbered 2128.

Turkey’s investment incentives program consists of four main pillars: the General Investment Incentive Scheme, Regional Investment Incentive Scheme, Priority Investment Incentive Scheme, and the Strategic Investment Incentive Scheme. These incentives can provide corporate tax reductions; customs duty exemptions; value added tax (VAT) exemption and VAT refunds; support with the employer’s share social security premiums; income tax withholding allowances; land allocation; and interest rate support for investment loans. The incentive schemes are updated almost every year by the Ministry of Industry and Technology, and the Presidency of the Republic of Turkey Investment Office publishes these offerings on their websites.

https://www.invest.gov.tr/en/ 

https://www.invest.gov.tr/en/library/publications/lists/investpublications/guide-to-state-incentives-for-investments-in-turkey.pdf

Renewable energy investments

Investments in electrical power generation from biomass, solar energy, hydroelectric energy, geothermal energy, and wind energy are supported within the framework of the general incentive system and can receive VAT and customs tax exemptions. Green investments can also receive investment support under Turkey’s Priority Investment Scheme.

Project-Based Investment Incentives

There is a special category of investment incentives that is tailored for projects that will serve the country’s current or future critical needs such as security of supply, reduction of foreign dependency, realization of technological transformation, innovation, and R&D-intensive and high-value-added solutions. Incentives for these types of projects are screened by the Ministry of Industry and Technology and approved by presidential decree.

There are no restrictions on foreign firms operating in any of Turkey’s 18 free zones. The zones are open to a wide range of activities, including manufacturing, storage, packaging, trading, banking, and insurance. Foreign products enter and leave the free zones without imposition of customs or duties if they are exported to third country markets. Income generated in the zones is exempt from corporate and individual income taxation and from the value-added tax, but firms are required to make social security contributions for their employees. Additionally, standardization regulations in Turkey do not apply to the activities in the free zones, unless the products are imported into Turkey. Sales to the Turkish domestic market are allowed with goods and revenues transported from the zones into Turkey subject to all relevant import regulations.

Taxpayers who possessed an operating license as of February 6, 2004, do not have to pay income or corporate tax on their earnings in free zones for the duration of their license. Earnings based on the sale of goods manufactured in free zones are exempt from income and corporate tax until the end of the year in which Turkey becomes a member of the European Union. Earnings secured in a free zone under corporate tax immunity and paid as dividends to real person shareholders in Turkey, or to real person or legal-entity shareholders abroad, are subject to 15 percent withholding tax.

https://www.ticaret.gov.tr/serbest-bolgeler 

The government mandates a local employment ratio of five Turkish citizens per foreign worker. These schemes do not apply equally to senior management and boards of directors, but their numbers are included in the overall local employment calculations. Foreign legal firms are forbidden from working in Turkey except as consultants; they cannot directly represent clients and must partner with a local law firm. There are no onerous visa, residence, work permits or similar requirements inhibiting mobility of foreign investors and their employees. There are no known government-imposed conditions on permissions to invest.

Recent laws targeting the Information and Communication Technology (ICT) sector have increased regulations on data, social media, online marketing, online broadcasting, tax collection, and payment platforms. ICT and other companies report GOT pressure to localize data, which it views as a precursor to greater GOT access to user information and source code. Law No. 6493 on Payment and Security Systems, Payment Services, and e-money Institutions, also requires financial institutions to establish servers in Turkey to localize data. The Turkish Banking Regulation and Supervision Agency (BDDK) is the authority that issues business licenses if companies localize their IT systems in Turkey and keep the original data (not copies) in Turkey. Regulations on data localization, internet content, and taxation/licensing have resulted in the departure of several U.S. tech companies from the Turkish market and have chilled investment by other possible entrants to the e-commerce and e-payments sectors. The laws potentially affect all companies that collect private user data, such as payment information provided online for a consumer purchase.

Turkey enacted the Personal Data Protection Law in April 2016. The law regulates all operations performed upon personal data including obtaining, recording, storage, and transfer to third parties or abroad. For all data previously processed before the law went into effect, there was a two-year transition period. After two years, all data had to be compliant with new legislation requirements, erased, or anonymized. All businesses are urged to assess how they currently collect and store data to determine vulnerabilities and risks regarding legal obligations. The law created the Data Protection Authority (KVKK), which is charged with monitoring and enforcing corporate data use.

There are no performance requirements imposed as a condition for establishing, maintaining, or expanding investment in Turkey. GOT requirements for disclosure of proprietary information as part of the regulatory approval process are consistent with internationally accepted practices, though some companies, especially in the pharmaceutical sector, worry about data protection during the regulatory review process. Enterprises with foreign capital must send their activity report submitted to shareholders, their auditor’s report, and their balance sheets to the Ministry of Trade, Free Zones, Overseas Investment and Services Directorate, annually by May. Turkey grants most rights, incentives, exemptions, and privileges available to national businesses to foreign business on a most-favored-nation (MFN) basis. U.S. and other foreign firms can participate in government-financed and/or subsidized research and development programs on a national treatment basis.

Offsets are an important aspect of Turkey’s military procurement, and increasingly in other sectors, and such guidelines have been modified to encourage direct investment and technology transfer. The GOT targets the energy, transportation, medical devices, and telecom sectors for the usage of offsets. In February 2014, Parliament passed legislation requiring the Ministry of Science, Industry, and Technology, currently named the Ministry of Industry and Technology, to establish a framework to incorporate civilian offsets into large government procurement contracts. The Ministry of Health (MOH) established an office to examine how offsets could be incorporated into new contracts. The law suggests that for public contracts above USD 5 million, companies must invest up to 50 percent of contract value in Turkey and “add value” to the sector. In general, labor, health, and safety laws do not distort or impede investment, although legal restrictions on discharging employees may provide a disincentive to labor-intensive activity in the formal economy.

The Turkish Government encourages and offers an effective regulatory system to facilitate portfolio investment. Since the start of 2020, a currency crisis that has been exacerbated by the COVID-19 pandemic, and high levels of dollarization have raised liquidity concerns among some commentators. Existing policies facilitate the free flow of financial resources into product and factor markets. The government respects IMF Article VIII by refraining from restrictions on payments and transfers for current international transactions. Credit is generally allocated on market terms, though the GOT has increased low- and no-interest loans for certain parties, and pressured state-owned banks to increase their lending, especially for stimulating economic growth and public projects. Foreign investors can get credit on the local market. The private sector has access to a variety of credit instruments.

The Turkish Government adopted a framework Capital Markets Law in 2012, aimed at bringing greater corporate accountability, protection of minority-shareholders, and financial statement transparency. Turkish capital markets in 2020 drew growing interest from domestic investors, according to data from the Central Registry Agency (MKK). In 2021, the number of local real investors reached 2.3 million, up an average of 65,200 per month, with the total portfolio value reaching USD 22.2 billion.

The Turkish banking sector remains relatively healthy. The estimated total assets of the country’s largest banks were as follows at the end of 2021: Ziraat Bankasi A.S. – USD 102.69 billion, Turkiye Vakiflar Bankasi – USD 77.08 billion, Halk Bankasi – USD 67.49 billion, Is Bankasi – USD 69.44 billion, Garanti Bankasi– USD 56.78 billion, Yapi ve Kredi Bankasi – USD 58.51 billion, Akbank – USD 57.15 billion. According to the Turkish Banking Regulation and Supervision Agency (BDDK), the share of non-performing loans in the sector was approximately 3.15 percent at the end of 2021, though there appears to have been some regulatory forbearance during the COVID pandemic. The only requirements for a foreigner to open a bank account in Turkey are a passport copy and either an identification number from the Ministry of Foreign Affairs or a Turkish tax identification number.

The BDDK monitors and supervises Turkey’s banks. The BDDK is headed by a board whose seven members are appointed for six-year terms. Bank deposits are protected by an independent deposit insurance agency, the Savings Deposit Insurance Fund (TMSF). Because of historically high local borrowing costs and short repayment periods, foreign and local firms frequently seek credit from international markets to finance their activities. Foreign banks are allowed to establish operations in the country.

Foreign Exchange

Turkish law guarantees the free transfer of profits, fees, and royalties, and repatriation of capital. This guarantee is reflected in Turkey’s 1990 Bilateral Investment Treaty (BIT) with the United States, which mandates unrestricted and prompt transfer in a freely usable currency at a legal market-clearing rate for all investment-related funds. There is little difficulty in obtaining foreign exchange in Turkey, and there are no foreign-exchange restrictions. Throughout 2021, the GOT continued to encourage businesses to conduct trade in lira. An amendment to the Decision on the Protection of the Value of the Turkish Currency was made with Presidential Decree No. 85 in September 2018 wherein the GOT tightened restrictions on Turkey-based businesses conducting numerous types of transactions using foreign currencies or indexed to foreign currencies. The Turkish Ministry of Treasury and Finance may grant exceptions, however. Funds associated with any form of investment can be freely converted into any world currency. A limit on banks’ currency swap, forward and option transactions with non-resident partners at 10 percent of their capital since September 2020. In November 2020, the limit for swaps, forward and option transactions where banks pay Turkish lira at maturity was raised to up to 30 percent, depending on their remaining maturities. Turkey took a variety of such measures to prop up the Turkish lira, including the mandatory surrender and repatriation requirements on FX export proceeds; generally, within 180 days and at least 80 percent had to be surrendered to a local bank in exchange for Turkish liras. In January 2020, the surrender requirement was dropped, but the repatriation requirement remained. However, in January 2022 the Central Bank of the Republic of Turkey (CBRT) announced it would buy 25 percent of all euro, dollar, or British Pound-denominated export income from exporters.

There is no limit on the amount of foreign currency that may be brought into Turkey, but not more than 25,000 Turkish lira or 10,000 euros worth of foreign currency may be taken out without declaration. Although the Turkish lira is fully convertible, most international transactions are denominated in U.S. dollars or euros due to their universal acceptance. Banks deal in foreign exchange and do borrow and lend in foreign currencies. While for the most part foreign exchange is freely traded and widely available, a May 2019 government decree imposed a settlement delay for FX purchases by individuals of more than USD 100,000; there is also a 0.2 percent tax on FX purchases. The settlement delay provision was repealed in December of 2020. Foreign investors are free to convert and repatriate their Turkish lira profits.

The exchange rate was heavily managed by the CBRT with a “dirty float” regime until November 2020, when a new central bank governor assumed responsibility. After several months of increased policy rates, tight monetary policy, and a more stable Turkish lira, the governor was fired, because of which the lira quickly depreciated by 10 percent. Macroeconomic policy has remained largely unpredictable since then.

Remittance Policies

In Turkey, there have been no recent changes or plans to change investment remittance policies. Waiting periods for dividends, return on investment, interest and principal on private foreign debt, lease payments, royalties, and management fees do not exceed 60 days. There are no limitations on the inflow or outflow of funds for remittances of profits or revenue.

The GOT announced the creation of a sovereign wealth fund (called the Turkey Wealth Fund, or TVF) in August 2016. Unlike traditional sovereign wealth funds, the controversial fund consists of shares of state-owned enterprises (SOEs) and is designed to serve as collateral for raising foreign financing. However, the TVF has not launched any major projects since its inception. Several leading SOEs, such as natural gas distributor BOTAS, Turkish Airlines, and Ziraat Bank have been transferred to the TVF, which in 2020 became the largest shareholder in domestic telecommunications firm Turkcell. Critics worry management of the fund is opaque and politicized. The fund’s consolidated financial statements are available on its website (https://www.tvf.com.tr/en/investor-relations/reports ), although independent audits are not made publicly available. Firms within the fund’s portfolio appear to have increased their debt loads substantially since 2016. International ratings agencies consider the fund a quasi-sovereign. The fund was already exempt from many provisions of domestic commercial law and new legislation adopted April 16, 2020, granted it further exemptions from the Capital Markets Law and Turkish Commercial Code, while also allowing it to take ownership of distressed firms in strategic sectors. Turkey issued government debt securities worth USD 4.16 billion in April 2019 to support its state banks and TVF injected 21 billion Turkish Lira of additional capital in May 2020 into three public banks engaged in COVID-19 measures (Ziraat, Halkbank and Vakifbank).

In Turkey, responsible business conduct (RBC) is gaining traction. Reforms carried out as part of the EU harmonization process have had a positive effect on laws governing Turkish associations, especially non-governmental organizations (NGOs). However, recent democratic backsliding has reversed some of these gains, and there has been increasing pressure on civil society since the coup attempt.

Turkey has a National Contact Point (NCP), or central coordinating office, to assist companies in their efforts to adopt a due-diligence approach to responsible conduct. The NCP performs informative activities for the introduction of the Economic Cooperation and Development Organization (OECD)’s Guidelines for Multinational Enterprises and finalize the applications of alleged violations regarding the implementation of the Guidelines in an impartial, predictable, and fair manner and in accordance with the principles and standards included in the Guidelines. The Ministry of Industry and Technology’s General Directorate of Incentive Implementation and Foreign Investments is designated as the NCP of Turkey to promote the Guidelines, to examine and resolve complaints.Contact Information for the NCP:

Dr. Mehmet Yurdal ŞahinDirector General of Incentive Implementation and Foreign InvestmentMinistry of Industry and Technology turkeyncp@sanayi.gov.tr  Tel: +90 312 201 6702

NGOs and business associations are active in the economic sector; the Turkish Union of Chambers and Commodity Exchanges (TOBB) and the Turkish Industrialists’ and Businessmen’s Association (TÜSIAD) issue regular reports and studies, and hold events aimed at encouraging Turkish companies to become involved in policy issues. In addition to influencing the political process, these two NGOs also assist their members with civic engagement. The Business Council for Sustainable Development Turkey (http://www.skdturkiye.org/en ) and the Corporate Social Responsibility Association in Turkey (www.csrturkey.org ), founded in 2005, are two NGOs devoted exclusively to issues of responsible business conduct. The Turkish Ethical Values Center Foundation, the Private Sector Volunteers Association (www.osgd.org ) and the Third Sector Foundation of Turkey (www.tusev.org.tr ) also play an important role.

Additional Resources

Department of State

• Country Reports on Human Rights Practices;
• Trafficking in Persons Report;
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities;
• U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises; and;
• Xinjiang Supply Chain Business Advisory

Department of the Treasury

• OFAC Recent Actions

Department of Labor

• Findings on the Worst Forms of Child Labor Report;
• List of Goods Produced by Child Labor or Forced Labor;
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World and;
• Comply Chain

Climate Issues

Turkey has a Climate Change Action Plan 2011-2023, which can be found at https://webdosya.csb.gov.tr/db/iklim/editordosya/iklim_degisikligi_stratejisi_EN(2).pdf . In addition, the GOT signed the Paris Agreement in 2015 and ratified it on October 6, 2021. Turkey has registered its first non-binding Nationally Determined Contributions (NDCs) within the UN Framework Convention on Climate Change (UNFCCC). The NDC targets announced a 21 percent reduction target in greenhouse gases by 2030. Turkey is on its way to becoming a green energy leader, with 52 percent of installed electricity capacity from renewables and official goals to increase this number, but still lacks a plan to phase out coal power generation. In February 2022, the GOT held its first Climate Council. Coal currently accounts for over 30 percent of Turkey’s electricity production. The EU is Turkey’s biggest external market, and Turkish exporters will be subject to the EU’s carbon border tax, which could be as high as USD 1.8 billion annually, according to the Turkish Industry and Business Association. In August 2021, Turkey adopted a “Green Deal Action Plan” to comply with the European Green Deal. Turkey lacks an emissions trading system.

Corruption remains a concern, a reality reflected in Turkey’s sliding score in recent years in Transparency International’s annual Corruption Perceptions Index, where it ranked 96 of 180 countries and territories around the world in 2021. Government mechanisms to investigate and punish alleged abuse and corruption by state officials remained inadequate, and impunity remained a problem. Though independent in principle, the judiciary remained subject to government, and particularly executive branch, interference, including with respect to the investigation and prosecution of major corruption cases. (See the Department of State’s annual Country Reports on Human Rights Practices for more details: https://www.state.gov/reports-bureau-of-democracy-human-rights-and-labor/country-reports-on-human-rights-practices/). Turkey is a participant in regional anti-corruption initiatives such as the G20 Anti-Corruption working group. The Presidential State Supervisory Council is responsible for combating corruption.

Public procurement reforms were designed in Turkey to make procurement more transparent and less susceptible to political interference, including through the establishment of an independent public procurement board with the power to void contracts. Critics claim that government officials have continued to award large contracts to firms friendly with the ruling Justice and Development Party (AKP), especially for large public construction projects.

Turkish legislation prohibits bribery, but enforcement is uneven. Turkey’s Criminal Code makes it unlawful to promise or to give any advantage to foreign government officials in exchange for their assistance in providing improper advantage in the conduct of international business. The Financial Action Task Force (“FATF”) placed Turkey in October 2021 onto its list of countries subject to increased monitoring. Turkey was added alongside 22 other jurisdictions, for strategic deficiencies in its regime to counter money laundering, terrorist financing, and proliferation financing.

The provisions of the criminal law regarding bribing of foreign government officials are consistent with the provisions of the Foreign Corrupt Practices Act of 1977 of the United States (FCPA). There are, however, several differences between Turkish law and the FCPA. For example, there is no exception under Turkish law for payments to facilitate or expedite performance of a “routine governmental action” in terms of the FCPA. Another difference is that the FCPA does not provide for punishment by imprisonment, while Turkish law provides for punishment by imprisonment from 4 to 12 years. The Presidential State Supervisory Council, which advises the Corruption Investigations Committee, is responsible for investigating major corruption cases brought to its attention by the Committee. Nearly every state agency has its own inspector corps responsible for investigating internal corruption. The Parliament can establish investigative commissions to examine corruption allegations concerning cabinet ministers; a majority vote is needed to send these cases to the Supreme Court for further action.

Turkey ratified the OECD Convention on Combating Bribery of Public Officials and passed implementing legislation in 2003 to make bribing foreign, as well as domestic, officials illegal. In 2006, Turkey’s Parliament ratified the UN Convention against Corruption.

Resources to Report Corruption

Contact at government agency or agencies are responsible for combating corruption:

Organization: Presidential State Supervisory Council
Address: Beştepe Mahallesi, Alparslan Türkeş Caddesi, Devlet Denetleme Kurulu, Yenimahalle
Telephone number: Phone: +90 312 470 25 00
Fax: +90 312 470 13 03

Name: Seref Malkoc
Title: Chief Ombudsman
Organization: The Ombudsman Institution
Address: Kavaklidere Mah. Zeytin Dali Caddesi No:4 Cankaya ANKARA
Telephone number: +90 312 465 22 00
Email address: iletisim@ombudsman.gov.tr 

The period between 2015 and 2016 was one of the more violent times in Turkey since the 1970s. However, since January 2017, Turkey has experienced historically low levels of violence even when compared to past periods of calm, and the country has greatly ramped up internal security measures. Turkey can experience politically motivated violence, generally at the level of aggression against opposition politicians and political parties. A July 2016 attempted coup resulted in the death of more than 240 people and injured over 2,100 others. Since the July 2015 collapse of the cessation of hostilities between the government and the terrorist Kurdistan Workers’ Party (PKK), along with sister organizations like the Kurdistan Freedom Hawks (TAK), have regularly targeted security forces, with civilians often getting injured or killed by PKK and TAK attacks. (Both the PKK and TAK have been designated as terrorist organizations by the United States.)

Other U.S.-designated terrorist organizations such as the Islamic State of Iraq and Greater Syria (ISIS) and the leftist Revolutionary People’s Liberation Party/Front (DHKP/C) are present in Turkey and have conducted attacks in 2013, 2015, 2016, and early 2017. The indigenous Marxist-Leninist insurgent group, DHKP/C, for example, which was established in the 1970s and designated a terrorist organization by the U.S. in 1997, is responsible for several attacks against the U.S. Embassy in Ankara and the U.S. Consulate General Istanbul in recent years, including a suicide bombing at the embassy in 2013 that killed one local employee. The DHKP/C has stated its intention to commit further attacks against the United States, NATO, and Turkey. Still, widespread internal security measures, especially following the failed July 2016 coup attempt, seem to have hobbled its success. In addition, violent extremists associated with ISIS and other groups transited Turkey enroute to Syria in the past, though increased scrutiny by government officials and a general emphasis on increased security – including a newly constructed 911 km wall along Turkey’s border with Syria – has significantly curtailed this access route, especially when compared to the earlier years of the conflict.

There have been past instances of violence against religious missionaries and others perceived as proselytizing for a non-Islamic religion in Turkey, though none in recent years. On past occasions, perpetrators have threatened and assaulted Christian and Jewish individuals, groups, and places of worship, many of which receive specially assigned police protection, both for institutions and leadership. Anti-Semitic discourse periodically features in both popular rhetoric and public media, and evangelizing activities by foreigners tend to be viewed suspiciously by the country’s security apparatus. However, government officials support religious freedom as policy and points to Turkey’s religious minorities as a sign of the country’s diversity. Religious minority figures periodically meet with the country’s president and other senior members of national political leadership.

The IMF’s Coordinated Direct Investment Survey (CDIS) data is not consistent with Turkey’s data as reported by the Central Bank of the Republic of Turkey, which can be found at: https://www.tcmb.gov.tr/wps/wcm/connect/TR/TCMB+TR/Main+Menu/Istatistikler/Odemeler+Dengesi+ve+Ilgili+Istatistikler/Uluslararasi+Yatirim+Pozisyonu/

IMF’s Coordinated Direct Investment Survey (CDIS) data available at: http://data.imf.org/?sk=40313609-F037-48C1-84B1-E1F1CE54D6D5&sId=1482331048410

Economic Specialist
American Embassy Ankara
110 Atatürk Blvd.
Kavaklıdere, 06100 Ankara – Turkey
Phone: +90 (312) 455-5555
Email: Ankara-ECON-MB@state.gov

The UAE actively seeks FDI, citing it as a key part of long-term economic development plans. In 2021, as part of the series of reforms to commemorate the UAE’s 50th anniversary, the government announced a series of programs to with the goal of attracting $150 billion worth foreign investment in the coming decade. The COVID-19 pandemic accelerated government efforts to attract foreign investment to promote economic growth.

Under Federal Decree-Law No (26) of 2020, the “Commercial Companies Law,” onshore UAE companies are no longer required to have a UAE national or a Gulf Cooperation Council (GCC) national as a majority shareholder. UAE joint stock companies no longer must be chaired by an Emirati citizen or have Emirati citizens comprise the majority of its board. Local branches of foreign companies no longer must have a UAE national or a UAE-owned company act as an agent. In March 2021, an intra-emirate committee recommended a list of strategically important sectors requiring additional licensing restrictions. The Abu Dhabi Department of Economic Development (ADDED) published in May 2021 a list of 1,105 commercial and industrial business activities that are eligible for 100 percent foreign ownership, effective June 2021. In August 2021, ADDED introduced the “Reduction Program” to facilitate investment and ease of doing business in Abu Dhabi emirate by reducing requirements and cutting fees. As part of the program, Abu Dhabi cut business startup fees by 94 percent in 2021. In June 2021, the Dubai government published guidelines for full ownership procedures for more than 1,000 commercial and industrial activities.

Federal Law No (32) of 2021 introduced two new types of companies: the special purpose acquisition company, or “SPAC,” and the special purpose vehicle, or “SPV.” The law also amended certain provisions related to Limited Liability Companies and public joint stock companies and introduced a regime to allow for the division of Joint Stock Companies.

Non-tariff barriers to investment persist in the form of visa sponsorship and distributorship requirements. Several constituent emirates have introduced new long-term residency visas and land ownership rights to attract and retain expatriates with sought-after skills in the UAE.

The Federal Decree-Law No (26) of 2020, outlined above, reduced limits on foreign control and right to private ownership of companies. Neither Embassy Abu Dhabi nor Consulate General Dubai (collectively referred to as Mission UAE) has received any complaints from U.S. investors that they have been disadvantaged relative to other non-GCC investors.

UAE officials emphasize the importance of facilitating business investment and tout the broad network of free trade zones as attractive to foreign investors. The UAE’s business registration process varies by emirate, but generally happens through an emirate’s Department of Economic Development. The UAE issued Federal Law No (37) of 2021 on commercial registry law to make the Economic Register a comprehensive reference for economic activities in the country and enable use of the unified economic register number as a digital identity for establishments. Links to information portals from each of the emirates are available at https://ger.co/economy/197 . Dubai waived and reduced fees for a total of 88 services provided by various Dubai Government entities in July 2021.

In September 2021, the UAE introduced the “Green Visa,” which allows self-employed individuals meeting certain professional requirements to achieve residency for themselves and family members without obtaining a work permit, a shift from previous immigration policies. The UAE also created a “Freelancers Visa” and expanded “Golden Visa” eligibility to include certain managers, CEOs, specialists in science, engineering, health, education, business management, and technology. The Golden Visa, first announced in 2019, allows foreigners who make major investments or focus on in-demand professions to live and work in the UAE without Emirati sponsors and offers extended visa validity compared to the UAE’s traditional work-related visa program.

The UAE introduced in September 2021 a single online platform to present all foreign investment opportunities in the UAE: invest.ae .

Dubai launched the Invest in Dubai platform, a “single-window” service in February 2021 to enable investors to obtain trade licenses and launch their business quickly. In August 2020, the Dubai International Financial Center (DIFC) introduced a new license for startups, entrepreneurs, and technology firms, starting at $1,500 per year. In January 2022, ADDED announced it had removed more than 20,000 requirements to set up businesses in the emirate as part of an ongoing overhaul of procedures. Twenty-six local and federal partner entities participated in the reductions program.

As part of Dubai Multi Commodities Center’s (DMCC) broader environment, social, and governance strategy, the DMCC announced in February 2022 that it will bring 20 social and environmental impact-driven businesses into its community through an Impact Scale-Up Program. Accordingly, the DMCC will provide qualifying companies with substantial discounts on business setup costs for five years.

Five-year residence visas are available for investors who purchase property worth $1.4 million or more, and 10-year residence visas are available for individuals who invest $2.8 million in a business. The government also provides visas for entrepreneurs and specialized talent in science, medicine, and specialized technical fields. The Abu Dhabi Department of Culture and Tourism launched in February 2021, the Creative Visa for individuals working in cultural and creative industries, including heritage, performing arts, visual arts, design and crafts, gaming and e-sports, media, and publishing.

The UAE is an important participant in global capital markets, including through several sizeable sovereign wealth funds, as well as through several emirate-level, government-related investment corporations.

The onshore regulatory and legal framework in the UAE continues to generally favor local Emirati investors over foreign investors.

The Trade Companies Law requires all companies to apply international accounting standards and practices, generally the International Financial Reporting Standards (IFRS).

The Securities and Commodities Authority (SCA) Board Decision issued a decision in 2020 that public joint stock companies listed on the Abu Dhabi Securities Exchange (ADX) or the Dubai Financial Market (DFM) must publish a sustainability report. In March 2021, the SCA made it mandatory for listed companies to have at least one female representative on their board.

Generally, legislation is only published after it has been enacted into law and is not formally available for public comment beforehand. Government-friendly press occasionally reports details of high-profile legislation. The government may consult with large private sector stakeholders on draft legislation on an ad hoc basis. Final versions of federal laws are published in Arabic in an official register “The Official Gazette,” though there are private companies that translate laws into English. The UAE Ministry of Justice (MoJ) maintains a partial library of translated laws on its website. Other ministries and departments inconsistently offer official English translations via their websites. The emirates of Abu Dhabi, Dubai, and Sharjah publish official gazettes online in Arabic. Regulators are not required to publish proposed regulations before enactment.

As a GCC member, the UAE maintains regulatory autonomy, but coordinates efforts with other GCC members through the GCC Standardization Organization (GSO). In 2021, the UAE submitted 109 notifications to the WTO committee, including notifications of emergency measures and issues relating to Intellectual Property Rights.

Islam is identified as the state religion in the UAE constitution and serves as the principal source of domestic law. Common law principles, such as following legal precedents, are generally not recognized in the UAE, although lower courts commonly follow higher court judgments. Judgments of foreign civil courts are typically recognized and enforceable under local courts. Domestic law is a dual legal system of civil and Sharia laws – the majority of which has been codified. Most codified legislation in the UAE is a mixture of Islamic law and other civil laws.

The legal system of the country is generally divided between a British-based system of common law used in offshore free trade zones (FTZs) and onshore domestic law. The United States District Court for the Southern District of New York signed a memorandum with the DIFC courts providing companies operating in Dubai and New York with procedures for the mutual enforcement of financial judgments. The Abu Dhabi-based financial free zone hub Abu Dhabi Global Market (ADGM) signed a Memorandum of Understanding (MoU) with the Abu Dhabi Judicial Department in February 2018 allowing reciprocal enforcement of judgments, decisions, orders, and arbitral awards between ADGM and Abu Dhabi courts.

The UAE constitution stipulates each emirate can set up a local emirate-level judicial system (local courts) or rely exclusively on federal courts. The Federal Judicial Authority has jurisdiction over all cases involving a “federal entity.” The Federal Supreme Court in Abu Dhabi is the highest federal court. Federal courts have exclusive jurisdiction in seven categories of cases: disputes between emirates; disputes between an emirate and the federal government; cases involving national security; interpretation of the constitution; questions over the constitutionality of a law; and cases involving the actions of appointed ministers and senior officials while performing their official duties. The federal government administers the courts in Ajman, Fujairah, Umm al Quwain, and Sharjah, including vetting, appointing, and paying judges. Judges in these courts apply both local and federal law, as appropriate. Dubai, Ras Al Khaimah, and Abu Dhabi administer their own local courts, hiring, vetting, and paying local judges and attorneys. Abu Dhabi operates both local (the Abu Dhabi Judicial Department) and federal courts in parallel.

Employment Law: In December 2021, the UAE issued Federal Law No (33) of 2021, which took effect on February 2, 2022, and repealed UAE Federal Law No (8) of 1980. The new labor law defines contracts, working hours, leave entitlements, safety, and healthcare regulations.

The new labor law also sets a minimum wage for employees in the private sector to be determined by the UAE Cabinet.

Trade unions, strikes, and collective bargaining is prohibited. Expatriates’ legal residence in the UAE is tied to their employer (kafala system), but skilled labor usually has more flexibility in transferring their residency visa. In 2009, the UAE Ministry of Human Resources and Emiratization (MOHRE) introduced a Wages Protection System (WPS) to ensure unbanked workers were paid according to the terms of their employment agreement. Most domestic workers remain uncovered by the WPS.

The constitution prohibits discrimination based on religion, race, and national origin. The new labor law protects UAE government efforts to enhance the participation of Emirati citizens and notes that such efforts do not constitute discrimination. Federal Law No (06) of 2020 stipulates equal wages for women and men in the private sector.

The DIFC issued amendments in September 2021 to The DIFC Employment Law No (2) of 2019, addressing issues such as paternity leave, sick pay, and end-of-service settlements. ADGM also issued new employment regulations with effect in January 2020, which allowed employers and employees more flexibility in negotiating notice periods and introduced protective provisions for employees ages 15-18.

The UAE signaled throughout 2021 its intention to develop a more commercially friendly legislative environment to strengthen foreign investment. In March 2021, the UAE government announced it would allow full foreign investments in the industrial investments as part of its ten-years comprehensive industrial strategy the so called “Operation 300 Billion,” by updating the industrial law to support local entrepreneurs and attract foreign direct investment. It said the new industrial law would include flexible conditions to provide opportunities to small and medium-sized companies and allow 100 percent foreign ownership.

The Commercial Companies Law removes the restriction that the nominal value of a share in a joint stock company must be no less than $272,000. The new law also makes certain changes to the provisions regulating limited liability companies and public joint stock companies. It abolishes the maximum and minimum percentage of the founders’ contribution to the company’s capital, and cancels the legal limitation of the subscription period. The law eliminates the requirement for the nationality of the members of the board of directors, and allows companies to transform into a public joint stock company and offer new shares without being restricted to a certain percentage. It allows companies to divide and create legal rules governing division operations. Branches of foreign companies licensed in the UAE would be also allowed to transform into a commercial company with UAE citizenship.

To register with the Abu Dhabi Securities Exchange, go to: https://www.adx.ae/English/Pages/Members/BecomeAMember/default.aspx

To obtain an investor number for trading on Dubai Exchanges, go to: http://www.nasdaqdubai.com/assets/docs/NIN-Form.pdf

The Ministry of Economy’s Competition Regulation Committee reviews transactions for competition-related concerns.

Mission UAE is not aware of foreign investors subjected to any expropriation in the UAE in the recent past. There are no federal rules governing compensation if expropriations were to occur. Individual emirates would likely treat expropriations differently. In practice, authorities would be unlikely to expropriate unless there were a compelling development or public interest need to do so.

The bankruptcy law for companies, Federal Decree Law No (9) of 2016, came into effect in February 2019. The law covers companies governed by the Commercial Companies Law, FTZ companies (with a few exceptions for free zones with their own bankruptcy and insolvency regime, such as the DIFC and ADGM), sole proprietorships, and companies conducting professional business. It allows creditors owed $27,225 or more to file insolvency proceedings against a debtor 30 business days after written notification to the debtor. The law decriminalized “bankruptcy by default,” ending a system in which out-of-cash businesspeople faced potential criminal liability, including fines and potential imprisonment, if they did not initiate insolvency procedures within 30 days. In October 2020, the UAE Cabinet approved amendments to the law and added provisions regarding “Emergency Situations” that impinge on trade or investment, to enable individuals and business to overcome credit challenges during extraordinary circumstances such as pandemics, natural and environmental disasters, and wars. Under the amendments, a debtor may request a grace period from creditors, or negotiate a debt settlement for a period up to 12 months.

The bankruptcy law for individuals, Insolvency Law No (19) of 2019, came into effect in November 2019. It applies only to natural persons and estates of the deceased. The law allows a debtor to seek court assistance for debt settlement or to enter liquidation proceedings as a result of the inability to pay for an extended period of time. Under this law, a debtor facing financial difficulties may apply to the court for assistance and guidance in the settlement of his financial commitments through one or more court-appointed experts, or through a court-supervised binding settlement plan.

All FTZs offer unique incentives to foreign investors. The UAE does not offer incentives to underrepresented investor groups nor does it yet offer green investment incentives.

There are numerous FTZs throughout the UAE. Foreign companies generally enjoy the same investment opportunities within those zones as Emirati citizens. All FTZs provide 100 percent import and export tax exemptions, 100 percent exemptions from commercial levies, 100 percent repatriation of capital and multi-year leases, easy access to ports and airports, buildings for lease, energy connections (often at subsidized rates), and assistance in labor recruitment. In addition, FTZ authorities provide extensive support services, such as visa sponsorship, worker housing, dining facilities, and physical security. Free zone businesses which conduct business with mainland UAE, will be subject to corporate tax from June 1, 2023.

FTZs have their own independent authorities with responsibility for licensing and helping companies establish their businesses. Investors can register new companies in an FTZ, or license branch or representative offices. All Abu Dhabi FTZs as well as several Dubai FTZs offer dual licensing in cooperation with local Department of Economic Development. A dual license enables an LLC established in an FTZ to obtain an onshore license allowing the company to conduct onshore business in that emirate without partnering with an Emirati national, recruiting extra staff using the services of an onshore labor office, or to rent extra office space onshore.

The cabinet published Federal Decree Law No (45) of 2021 in November 2021 regarding personal data protection (the Data Protection Law). The law came into effect in January 2022, and the executive regulations are due to be issued in March 2022. The law indicates that personal data may be transferred outside the UAE, if the country or territory to which the personal data is to be transferred has adequate protection of personal data, or if the UAE accedes to bilateral or multilateral agreements related to personal data protection with the countries to which the personal data is to be transferred. The UAE Data Office, established under a separate law (Federal Decree Law No (44) of 2021), will be the single national data privacy regulator.

All foreign defense contractors with over $10 million in contract value over a five-year period must participate in the Tawazun Economic Program, previously known as the UAE Offset Program. This program also requires defense contractors that are awarded contracts valued at more than $10 million to establish commercially viable joint ventures with local business partners, which would be projected to yield profits equivalent to 60 percent of the contract value.

The UAE does not force foreign investors to use domestic content in goods or technology or compel foreign IT providers to turn over source code, but it strongly encourages companies to utilize local content. In February 2018, the Abu Dhabi National Oil Company (ADNOC) launched the In-Country Value (ICV) strategy, which gives preference in awarding contracts to foreign companies that use local content and employ Emiratis. In February 2020, the Abu Dhabi Department of Economic Development and ADNOC signed an agreement to standardize ADNOC’s ICV certification program across the Abu Dhabi Government’s procurement process.

The UAE issued investment fund regulations in September 2012 known as the “twin peak” regulatory framework designed to govern the marketing of investment funds established outside the UAE to domestic investors and the establishment of local funds domiciled inside the UAE. These regulations gave the Securities and Commodities Authority (SCA), rather than the Central Bank, authority over the licensing, regulation, and marketing of investment funds. The marketing of foreign funds, including offshore UAE-based funds, such as those domiciled in the DIFC, require the appointment of a locally licensed placement agent. The UAE government has also encouraged certain high-profile projects to be undertaken via a public joint stock company to allow the issuance of shares to the public. The UAE government requires any company carrying out banking, insurance, or investment services for a third party to be a public joint stock company.

The UAE has three stock markets: Abu Dhabi Securities Exchange, Dubai Financial Market, and NASDAQ Dubai. SCA, the onshore regulatory body, classifies brokerages into two groups: those that engage in trading only while the clearance and settlement operations are conducted through clearance members, and those that engage in trading clearance and settlement operations for their clients. Under the regulations, trading brokerages require paid-up capital of $820,000, whereas trading and clearance brokerages need $2.7 million. Bank guarantees of $367,000 are required for brokerages to trade on the bourses.

In March 2021, the SCA issued new corporate governance rules under the Chairman of SCA Board Decision No (03 R.M) of 2020 concerning adopting the Corporate Governance Guide for Public Joint Stock Companies. The new Rules describe the principles and objectives of corporate governance which are centered around the key pillars of accountability, fairness, disclosure, transparency, and responsibility.

In January 2022, the SCA approved the Special Purpose Acquisition Company (SPAC) regulatory framework, paving the way for the listing of the first SPAC on ADX during 2022.

Credit is generally allocated on market terms, and foreign investors can access local credit markets. Interest rates usually closely track those in the United States since the local currency is pegged to the dollar.

The UAE has a robust banking sector with 48 banks, 21 of which are foreign institutions, and six which are GCC-based banks. The number of national bank branches declined to 521 in September 2021, compared to 559 in September 2020, due to bank mergers and the transition to online banking.

Non-performing loans (NPL) comprised 8.2 percent of outstanding loans in Q2 2021, compared with 7.4 percent in Q2 2020, according to figures from the Central Bank of the UAE (CBUAE). The CBUAE recorded total sector assets of $897 billion as of November 2021.

The banking sector remains well-capitalized but has experienced a decline in lending and a rise in NPL as a result of the pandemic. These factors have significantly reduced reported profits as banks have made greater provisions for non-performing loans. On March 15, 2020, the CBUAE announced the USD $ 27.2 billion Targeted Economic Support Scheme (TESS) stimulus package, which included USD $13.6 billion in zero-interest, collateralized loans for UAE-based banks, and USD $13.6 billion in funds freed up from banks’ capital buffers. In November 2020, the CBUAE extended TESS to June 2021. In April 2021, the CBUAE extended parts of the TESS until mid-2022, accordingly financial institutions will continue to be eligible to access the collateralized USD $13.6 billion zero-cost liquidity facility. CBUAE’s financing for loan deferrals under the TESS was terminated at end of 2021, marking the first stage of the gradual exit strategy from the measures implemented during the pandemic. In December 2021, the CBUAE extended relief measures regarding banks’ capital buffers and liquidity and stable funding requirements until 30 June 2022. This includes temporary lowering of the capital conservation buffer, and the capital buffer for systemically important domestic banks.

Abu Dhabi maintains several major sovereign wealth funds. The Abu Dhabi Investment Authority (ADIA) is chaired by UAE President Khalifa Bin Zayed Al Nahyan and holds assets of approximately $829 billion. Mubadala Investment Company is chaired by Abu Dhabi Crown Prince Mohammed Bin Zayed Al Nahyan with estimated total assets of approximately $250 billion. Board members of each fund are appointed by the ruler of Abu Dhabi and is the chair of Mubadala. Abu Dhabi Holding (ADQ) includes both investment portfolios and state-owned firms with interests in agriculture, aviation, financial services, healthcare, industries, logistics, media, real estate, tourism and hospitality, transport and utilities with estimated total assets of approximately $ 110 billion. Emirates Investment Authority, the UAE’s federal sovereign wealth fund has estimated assets of $86 billion. The Investment Corporation of Dubai (ICD) is Dubai’s primary sovereign wealth fund, with an estimated $301.6 billion in assets according to ICD’s June 2021 financial report.

There is a general expectation that businesses in the UAE adhere to responsible business conduct standards, and the UAE’s Governance Rules and Corporate Discipline Standards (Ministerial Resolution No 518 of 2009) encourage companies to apply social policy towards supporting local communities. In January 2021, the corporate social responsibility (CSR) UAE Fund announced that it would launch an index as an annual performance measurement tool for CSR & Sustainability practices in the UAE. Many companies maintain CSR offices and participate in CSR initiatives, including mentorship and employment training; philanthropic donations to UAE-licensed humanitarian and charity organizations; and initiatives to promote environmental sustainability. The UAE government actively supports and encourages such efforts through official government partnerships, as well as through private foundations.

In December 2021, the Dubai Executive Council approved a CSR policy to raise the role of companies and private establishments in social and economic development, and to align their projects and contributions with the priorities set by the government.

The UAE has not subscribed to the OECD Guidelines for Multinational Enterprises and has not actively encouraged foreign or local enterprises to follow the specific United Nations Guiding Principles on Business and Human Rights. The UAE government has not committed to adhere to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas, nor does it participate in the Extractive Industries Transparency Initiative. The Dubai Multi-Commodities Center (DMCC), however, passed the DMCC Rules for Risk-Based Due Diligence in the Gold and Precious Metals Supply Chain.

The UAE has pledged to reach net zero carbon emissions by 2050 and announced it would invest $163 billion in clean and renewable energy and key technologies.

The UAE has made significant progress in developing its urban infrastructure, as the country diversifies from an hydrocarbons-focused economy to a knowledge-based economy. UAE’s per capita energy and water consumption are among the highest in the world, leading to a heavy carbon footprint. The UAE is one of the world’s most water-scarce nations, caused by a dry climate, high temperatures, and very low levels of precipitation. With limited natural freshwater resources, the country relies on desalinated seawater to meet its demand for potable water.

The UAE takes the need to address and mitigate negative impacts on the environment seriously and has taken steps to demonstrate the importance of the issue, including establishing the Ministry of Climate Change and Environment (MOCCAE) in 2016. The UAE launched a National Climate Change Plan in 2017 and was one of the first Gulf countries to ratify and sign the Paris Accord in 2015. The UAE has adopted policies and strategies aimed at addressing the impacts of climate change, improving air quality, reducing the emission of greenhouse gases, improving water and food security, promoting low-carbon energy, and conserving the UAE’s natural resources.

The UAE aims to increase its global competitiveness by increasing the share of low-carbon energy in the country’s total energy mix; establishing robust recycling and waste management industries, including several waste-to-energy plants; developing massive reverse osmosis seawater desalination plants to replace older, energy-intensive thermal plants; improving water efficiency through “reduce and reuse” initiatives; implementing green standards in the construction and management of buildings; and adopting green products and technologies. The UAE and local governments in Dubai and Abu Dhabi have launched various platforms to engage businesses to share knowledge and best practices. The Abu Dhabi Future Energy Company (MASDAR), founded by the Abu Dhabi government’s Mubadala Investment Company and co-owned by government-owned energy firm the Abu Dhabi National Energy Company (TAQA) and ADNOC, develops and finances greenfield renewable energy projects in UAE and abroad.

The UAE has strict laws, regulations, and enforcement against corruption and has pursued several high-profile cases. The UAE federal penal code and the federal human resources law criminalize embezzlement and the acceptance of bribes by public and private sector workers. There is no evidence that corruption of public officials is a systemic problem. In August 2021, the president of the UAE issued a federal decree holding ministers and senior officials accountable for wrongdoing. Under the decree, the Public Prosecution can receive and accordingly investigate complaints against senior official and take necessary actions, including banning travel and freezing family financial accounts.

The Companies Law requires board directors to avoid conflicts of interest. In practice, however, given the multiple roles occupied by relatively few senior Emirati government and business officials, conflicts of interest exist. Business success in the UAE also still depends much on personal relationships. The monitoring organizations GAN Integrity and Transparency International describe the corruption environment in the UAE as low-risk and rate the UAE highly on anti-corruption efforts both regionally and globally. Some observers note, however, that the involvement of members of the ruling families and prominent merchant families in certain businesses can create economic disparities in the playing field, and most foreign companies outside the UAE’s free zones rely on an Emirati national partner, often with strong connections, who retains majority ownership. The UAE has ratified the United Nations Convention against Corruption.

There are no civil society organizations or NGOs investigating corruption within the UAE.

Resources to Report Corruption

Contact at government agency or agencies are responsible for combating corruption:

Dr. Harib Al Amimi
President
State Audit Institution
20th Floor, Tower C2, Aseel Building, Bainuna (34th) Street, Al Bateen, Abu Dhabi, UAE
+971 2 635 9999
info@saiuae.gov.ae , reportfraud@saiuae.gov.ae

Violent crimes and crimes against property are rare.  U.S. citizens should take the same security precautions in the UAE that one would practice in the United States or any large city abroad.  In March 2022, the United States published a travel advisory for UAE noting pandemic concerns and the potential for missile or drone strikes.  The latest information can be found at https://travel.state.gov/.  Visitors should enroll in the Smart Traveler Enrollment Program (STEP) to receive security messages.

Samuel Juh
Economic Officer
First Street, Umm Hurair -1
Dubai UAE
Juhshk@state.gov

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:

http://country.eiu.com/united-kingdom 
https://www.oecd.org/economy/united-kingdom-economic-snapshot/ 

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.

https://www.gov.uk/government/organisations/department-for-international-trade 
https://www.gov.uk/set-up-business 
https://www.gov.uk/topic/company-registration-filing/starting-company 
http://www.doingbusiness.org/data/exploreeconomies/united-kingdom/starting-a-business 

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.

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 UK-adopted international accounting standards (IAS) instead of the EU-adopted IAS for financial years beginning on or after January 1, 2021.  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 Office of Communications (Ofcom), the Water Services Regulation Authority (Ofwat), the Office of Gas and Electricity Markets (Ofgem), the Office of Fair Trading (OFT), the Rail Regulator, the Prudential Regulatory Authority (PRA), and the Financial Conduct Authority (FCA).  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 FCA is a regulatory enforcement mechanism designed to address 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: https://register.fca.org.uk/.   

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 competitive.

https://www.gov.uk/government/policies/business-regulation 
https://www.gov.uk/government/organisations/regulatory-delivery 

The UK’s withdrawal from the EU has not yet caused dramatic shifts in the UK’s regulatory regimes but has opened the door to regulatory divergence.  The future regulatory direction of the UK remains uncertain as the UK determines whether to maintain the current regulatory regime inherited from the EU or to deviate towards new regulations.  The UK is an independent member of the WTO and actively seeks to comply with all WTO obligations.

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.  The current judicial process remains procedurally competent, fair, and reliable, which helps position London as an international hub for dispute resolution with over 10,000 cases filed per annum.

The Economic Crime (Transparency and Enforcement) Act 2022, which took effect March 15, 2022, established a registry of foreign beneficial owners of real property (freeholds or leases of seven years or more) expected to go into place in September 2022.  The Act requires registry of ultimate beneficial owners, including those controlling at least 25 percent of overseas entities that own such property.  The requirement applies retroactively to properties purchased in England and Wales since 1999 and in Scotland since December 2014.  Entities or their officers who refuse to register or keep their information up to date face tough restrictions on selling the property, and those who break the rules could face a fine of up to £2,500 ($3,270) per day or up to five years in prison.

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 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.

The National Security and Investment (NSI) Act 2021 – which applies equally to foreign or domestic investment – requires mandatory reporting of significant investments (generally over 25 percent) in 17 sensitive sectors; the reporting requirement extends to investments in intellectual property and in higher education and research.  The UK government aims to review cases expeditiously, with most reviews of notifications completed within 30 days.

Alleged tax avoidance by multinational companies, including by 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 ended on 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 for non-ring-fenced companies, with marginal tax relief granted for companies with profits falling between £300,000 ($420,000) and £1.5 million ($2.1 million).  On March 3, 2021, Chancellor of the Exchequer Rishi Sunak announced that, starting in 2023, UK corporate tax would increase to 25 percent for companies with profits over £250,000 ($346,000).  A small profits rate (SPR) will also be introduced so that companies with profits of £50,000 ($69,000) or less will continue to pay Corporation Tax at 19 percent.  Companies with profits between £50,000 ($69,000) and £250,000 ($346,000) will pay tax at the main rate reduced by a marginal relief providing a gradual increase in the effective Corporation Tax rate.  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, such as cloud computing.  A special rate of 20 percent is given to unit trusts and open-ended investment companies.  There are different Corporation Tax rates for companies that make profits from oil extraction or oil rights in the UK or UK continental shelf, known as “ring-fenced” companies.  Small “ring-fenced” companies are taxed at a rate of 19 percent for profits up to £300,000 ($420,000), and 30 percent for profits over £300,000 ($420,000).  A supplementary tax known as the bank Corporation Tax Surcharge, is applied to companies in the banking sector at eight percent of profits in excess of £25 million ($33 million).  To maintain equitable tax rates for banks with the upcoming tax rise, the government has changed the surcharge rate to three percent applied to profits above £100 million ($132 million), starting in April 2023.

The UK has a simple system of personal income tax.  The marginal tax rates for 2020-2021 are as follows: up to £12,570 ($16,500), 0 percent; £12,501 ($17,370) to £57,700 ($75,740), 20 percent; £57,701 ($75,740) to £150,000 ($196,900), 40 percent; and over £150,000 ($196,900), 45 percent.

UK citizens also make mandatory payments of about 13.25 percent of income into the National Insurance system, which funds healthcare, 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 £30,000 ($42,000).  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 £60,000 ($84,000).

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:

https://www.gov.uk/government/collections/investment-in-the-uk-guidance-for-overseas-businesses  

The UK competition regime is established by the Competition Act 1998 and the Enterprise Act 2002, as amended by the Enterprise and Regulator Reform Act 2013.  This legislative framework created the UK’s independent competition authority, the Competition and Markets Authority (CMA), which is responsible for enforcing UK competition law.  The government has limited powers to intervene in either the assessment of mergers or the investigation of markets.

Before Brexit, the prohibitions in UK law on abusing dominant market positions and anti-competitive agreements were based on and underpinned by equivalent provisions in EU law.  Since Brexit, under the terms of the UK-EU trade agreements, EU competition law is no longer enforced in the UK, and the UK and EU now operate separate competition regimes.

The CMA is responsible for:

1. investigating phase 1 and phase 2 mergers,
2. conducting market studies and market investigations,
3. investigating possible breaches of prohibitions against anti-competitive agreements under the Competition Act 1998,
4. bringing criminal proceedings against individuals who commit cartel offenses,
5. enforcing consumer protection legislation, particularly the Unfair Terms in Consumer Contract Directive and Regulations,
6. encouraging sectoral regulators to use their powers to protect competition,
7. considering regulatory references and appeals, and,
8. regulation of public sector subsidies to business.

While merger notification in the UK is voluntary, the CMA may impose substantial fines or suspense orders on potentially non-compliant transactions.  The CMA has no prosecutorial authority, but it may refer entities for prosecution in extreme cases, such as those involving cartel activity, which carries a penalty of up to five years imprisonment.

In 2021, the UK established the Digital Markets Unit on a non-statutory basis within the CMA to oversee and operationalize a forthcoming pro-competition regime for digital markets.  Powers for the DMU and the new regulatory regime will require new legislation.  In the interim, the DMU is supporting and advising the government on establishing the statutory regime, including by gathering evidence on digital markets.

In addition to the CMA, the Takeover Panel, the Financial Conduct Authority, and the Pensions Regulator have principal regulatory authority:

1. The Takeover Panel is an independent body, operating per the (the “Code”), which regulates takeovers of public companies, and some private companies, centrally managed or controlled in the UK, the Isle of Man, Jersey, and Guernsey.  The Code provides a binding set of rules for takeovers aimed at ensuring fair treatment for all shareholders in takeover bids, including requiring bidders to provide information about their intentions after a takeover.
2. The Financial Conduct Authority administers Listing Rules, Prospectus Regulation Rules, and Disclosure Guidance and Transparency Rules, which can apply to takeovers of publicly listed companies.
3. The Pensions Regulator has powers to intervene in investments in pension schemes.

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 all international investment agreements.  Expropriation of corporate assets or the nationalization of industry requires a special act of Parliament.  In response to the 2007-2009 financial crisis, the UK government nationalized Northern Rock bank (sold to Virgin Money in 2012) and took major stakes in the Royal Bank of Scotland (RBS) and Lloyds Banking Group.

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 on 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 courts that support efficient resolution of disputes.  They also choose London-based arbitration because of the general prevalence of the English language and 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 the arbitration rules that apply.  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 1996 governs all arbitrations seated in England, Wales, and Northern Ireland, both domestic and international.  The full text of the Arbitration Act can be found here: http://www.legislation.gov.uk/ukpga/1996/23/data.pdf.  

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.  The court may also, however, 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 Report Ranks the UK 14 out of 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 15 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 enabled companies undergoing a rescue or restructuring process to continue trading and help them avoid insolvency.  These measures expired in March 2022.

HMG does not currently require environmental, social, and governance disclosure to help investor and consumers distinguish between high- and low-quality investments.  The majority of ESG reporting is not currently mandatory in the UK.  However, some specific metrics that come under the ESG regulation reporting umbrella are mandatory, including:

1. Greenhouse gas reporting:  Mandatory for quoted companies since 2013 under the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013.
2. Energy use:  Quoted companies must report on their global energy use, and large businesses must disclose their UK annual energy use and greenhouse gas emissions. This is required by the Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018.
3. Gender pay gap:  Any employer with a headcount of 250 or more must comply with gender pay gap reporting regulations.
4. Modern Slavery: UK organizations with an annual turnover of £36 million ($47 million) or more must publish an annual statement setting out the steps to prevent modern slavery.

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:

1. Electric cars and cars with zero CO2 emissions
2. Plant and machinery for gas refueling stations, for example storage tanks, pumps
3. Gas, biogas and hydrogen refueling equipment
4. Zero-emission goods vehicles
5. Equipment for electric vehicle charging points
6. 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.

https://www.gov.uk/government/organisations/intellectual-property-office   

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.

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ .

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.

Foreign Exchange

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.

Remittance Policies

Not applicable.

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.

The results of a UK government consultation on CSR can be found here: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/300265/bis-14-651-good-for-business-and-society-government-response-to-call-for-views-on-corporate-responsibility.pdf.  

Information on UK regulations and policies relating to the procurement of supplies, services and works for the public sector, and the relevance of promoting RBC, are found here: https://www.gov.uk/guidance/public-sector-procurement-policy.   

Additional Resources

Department of State

• Country Reports on Human Rights Practices;
• Trafficking in Persons Report;
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities;
• U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises; and;
• Xinjiang Supply Chain Business Advisory

Department of the Treasury

• OFAC Recent Actions

Department of Labor

• Findings on the Worst Forms of Child Labor Report;
• List of Goods Produced by Child Labor or Forced Labor;
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World and;
• Comply Chain

Climate Issues

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.

The UK ranked fourth in the Global Energy Innovation Index (GEII), five spaces higher than its 2016 score.  The GEII is available here: https://itif.org/publications/2021/10/18/2021-global-energy-innovation-index-national-contributions-global-clean  

The UK ranked 17th in the Green Future Index (GFI), which noted that 40 percent of its energy is derived from renewable sources.  The GFI is available here: https://www.technologyreview.com/2021/01/25/1016648/green-future-index/  

The UK ranked 23rd in the Green Growth Index (GGI), a fall of eight spaces from its 2005 ranking.  The GGI is available here: https://greengrowthindex.gggi.org/wp-content/uploads/2021/01/2020-Green-Growth-Index.pdf  

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:

SFO Confidential

Serious Fraud Office

2-4 Cockspur Street

London, SW1Y 5BS

United Kingdom

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.

U.S. Embassy London
Economic Section
33 Nine Elms Ln
London SW11 7US
United Kingdom
+44 (0)20-7499-9000
LondonEconomic@state.gov