The United Kingdom (UK) is a popular destination for foreign direct investment (FDI) and imposes few impediments to foreign ownership. In the past decade, the UK has been Europe’s top recipient of FDI. The UK government provides comprehensive statistics on FDI in its annual inward investment report:
The COVID pandemic triggered a massive expansion of government support for households and businesses. The government focused on supporting business cashflow and underwriting over £200 billion ($261 billion) in loans from banks to firms. Although aggregate investment grew by 5.3 percent in 2021, levels remain below their pre-pandemic peak. Most analysts expect a rebound in investment growth in 2022, however, driven in part by the government’s investment tax super-deduction, which allows business to claim back 130 percent of the cost of an eligible capital investment on their taxable profits up until March 2023, a more stable post-Brexit regulatory framework, and the reduction of economic and mobility restrictions imposed to cope with the pandemic. Most of these measures were phased out by October 2021. Their fiscal impact has been large, however, and the budget deficit reached 8.5 percent of GDP. The government has committed to fiscal consolidation, and in September 2021 announced that it planned to increase the corporation tax rate from 19 percent to 25 percent by 2023 and national insurance contributions by 2.5 percent to fund additional health and social care spending.
In response to declining inward foreign investment each year since 2016, and amidst the sharp but temporary recession related to the pandemic, the UK government established the Office for Investment in November 2020. The Office is focused on attracting high-value investment opportunities into the UK which “align with key government priorities, such as reaching net zero, investing in infrastructure, and advancing research and development.” It also aims to drive inward investment into “all corners of the UK through a ‘single front door.’”
The UK formally withdrew from the EU’s political institutions on January 31, 2020, and from the bloc’s economic and trading institutions on December 31, 2020. The UK and the EU concluded a Trade and Cooperation Agreement (TCA) on December 24, 2020, setting out the terms of their future economic relationship. The TCA generally maintains tariff-free trade between the UK and the EU but introduced several new non-tariff, administrative barriers. Market entry for U.S. firms is facilitated by a common language, legal heritage, and similar business institutions and practices. The UK is well supported by sophisticated financial and professional services industries and has a transparent tax system in which local and foreign-owned companies are taxed alike. The pound sterling is a free-floating currency with no restrictions on its transfer or conversion. There are no exchange controls restricting the transfer of funds associated with an investment into or out of the UK.
UK legal, regulatory, and accounting systems are transparent and consistent with international standards. The UK legal system provides a high level of protection. Private ownership is protected by law and monitored for competition-restricting behavior. U.S. exporters and investors generally will find little difference between the United States and the UK in the conduct of business, and common law prevails as the basis for commercial transactions in the UK.
The United States and UK have enjoyed a “Commerce and Navigation” Treaty since 1815 which guarantees national treatment of U.S. investors. A Bilateral Tax Treaty specifically protects U.S. and UK investors from double taxation. The UK has, however, taken some steps that particularly affect U.S. companies in the technology sector. A unilateral digital services tax came into force in April 2020, taxing digital firms—such as social media platforms, search engines, and marketplaces—two percent on revenue generated in the UK. The Competition and Markets Authority (CMA), the UK’s competition regulator, has indicated that it intends to scrutinize and police the sector more thoroughly. From 2020-2021, the CMA investigated the acquisition of Giphy by Meta Platforms (formerly Facebook). The CMA found that the acquisition may impede competition in both the supply of display advertising in the UK, and in the supply of social media services worldwide (including in the UK) and ordered Meta to sell Giphy.
The United States is the largest source of direct investment into the UK on an ultimate parent basis. Thousands of U.S. companies have operations in the UK. The UK also hosts more than half of the European, Middle Eastern, and African corporate headquarters of American-owned multinational firms.
In October 2021, the UK government introduced its Net Zero Strategy, 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 Net Zero Strategy 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).
The UK government is endeavoring to position the UK as the first net-zero financial center and a global hub for sustainable financial activity. The UK Infrastructure Bank, established in 2021, is providing £22 billion ($29 billion) of infrastructure finance to tackle climate change. In 2021 HMT sold £16 billion ($20.8 billion) worth of the UK’s Green Gilt to help fund green projects across the UK. Through the Greening Finance Roadmap, HMT outlines the UK government’s intent to implement a detailed sovereign green taxonomy, which is expected to be published by the end of 2022, along with sustainable disclosure requirements that would serve as an integrated framework for sustainability throughout the UK economy.
Currency conversions have been done using XE and Bank of England data.
|TI Corruption Perception Index||2021||11 of 180||http://www.transparency.org/research/cpi/overview|
|Global Innovation Index||2021||4 of 131||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, historical stock positions)||2020||$890,086||
|World Bank GNI per capita||2020||$45,870||https://data.worldbank.org/indicator/NY.GNP.PCAP.CD|
1. Openness To, and Restrictions Upon, Foreign Investment
2. Bilateral Investment Agreements and Taxation Treaties
The United Kingdom is a member of the OECD Inclusive Framework on Base Erosion and Profit Shifting (BEPS) and the Inclusive Framework’s October 2021 agreement on the global minimum corporate tax.