An official website of the United States Government Here's how you know

Official websites use .gov

A .gov website belongs to an official government organization in the United States.

Secure .gov websites use HTTPS

A lock ( ) or https:// means you’ve safely connected to the .gov website. Share sensitive information only on official, secure websites.

Australia

Executive Summary

Australia is generally welcoming to foreign investment, which is widely considered to be an essential contributor to Australia’s economic growth and productivity. The United States is by far the largest source of foreign direct investment (FDI) for Australia. According to the U.S. Bureau of Economic Analysis, the stock of U.S. FDI totaled USD 162 billion in January 2020. The Australia-United States Free Trade Agreement, which entered into force in 2005, establishes higher thresholds for screening U.S. investment for most classes of direct investment.

While welcoming toward FDI, Australia does apply a “national interest” test to qualifying investment through its Foreign Investment Review Board screening process. Various changes to Australia’s foreign investment rules, primarily aimed at strengthening national security, have been made in recent years. This continued in 2020 with the passage of the Foreign Investment Reform (Protecting Australia’s National Security) Act 2020, which broadens the classes of foreign investments that require screening, with a particular focus on defense and national security supply chains. All foreign investments in these industries will now require screening, regardless of their value or national origin. The legislation also provides the Treasurer with new powers to require certain investments to be scrutinized even if they do not fall within existing guidelines. Additionally, in March 2020 the Australian government announced all foreign direct investment would be reviewed over the course of the COVID-19 crisis, a period which ceased when the Foreign Investment Reform legislation commenced in January 2021. Despite the increased focus on foreign investment screening, the rejection rate for proposed investments has remained low and there have been no cases of investment from the United States having been rejected in recent years.

In response to a perceived lack of fairness, the Australian government has tightened anti-tax avoidance legislation targeting multi-national corporations with operations in multiple tax jurisdictions. While some laws have been complementary to international efforts to address tax avoidance schemes and the use of low-tax countries or tax havens, Australia has also gone further than the international community in some areas.

Australia has a strong legal system grounded in procedural fairness, judicial precedent, and the independence of the judiciary. Property rights are well established and enforceable. The establishment of government regulations typically requires consultation with impacted stakeholders and requires approval by a central regulatory oversight body before progressing to the legislative phase. Anti-bribery and anti-corruption laws exist, and Australia performs well in measures of transparency. Australia’s business environment is generally conducive to foreign companies operating in the country, and the country ranks fourteenth overall in the World Bank’s Ease of Doing Business Index.

The Australian government is strongly focused on economic recovery from the COVID-driven recession Australia experienced in 2020, the country’s first in three decades. In addition to direct stimulus and business investment incentives, it has announced investment attraction incentives across a range of priority industries, including food and beverage manufacturing, medical products, clean energy, defense, space, and critical minerals processing. U.S. involvement and investment in these fields is welcomed.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 11 of 179 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2019 14 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2020 23 of 131 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2019 USD 162 billion http://www.bea.gov/international/factsheet/
World Bank GNI per capita 2019 USD 55,100 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Australia is generally welcoming to foreign direct investment (FDI), with foreign investment widely considered to be an essential contributor to Australia’s economic growth. Other than certain required review and approval procedures for designated types of foreign investment described below, there are no laws that discriminate against foreign investors.

A number of investment promotion agencies operate in Australia. The Australian Trade Commission (often referred to as Austrade) is the Commonwealth Government’s national “gateway” agency to support investment into Australia. Austrade provides coordinated government assistance to promote, attract, and facilitate FDI, supports Australian companies to grow their business in international markets, and delivers advice to the Australian Government on its trade, tourism, international education and training, and investment policy agendas. Austrade operates through a number of international offices, with U.S. offices primarily focused on attracting foreign direct investment into Australia and promoting the Australian education sector in the United States. Austrade in the United States operates from offices in Boston, Chicago, Houston, New York, San Francisco, and Washington, DC. In addition, state and territory investment promotion agencies also support international investment at the state level and in key sectors.

Limits on Foreign Control and Right to Private Ownership and Establishment

Within Australia, foreign and domestic private entities may establish and own business enterprises and may engage in all forms of remunerative activity in accordance with national legislative and regulatory practices. See Section 4: Legal Regime – Laws and Regulations on Foreign Direct Investment below for information on Australia’s investment screening mechanism for inbound foreign investment.

Other than the screening process described in Section 4, there are few limits or restrictions on foreign investment in Australia. Foreign purchases of agricultural land greater than AUD 15 million (USD 11 million) are subject to screening. This threshold applies to the cumulative value of agricultural land owned by the foreign investor, including the proposed purchase. However, the agricultural land screening threshold does not affect investments made under the Australia-United States Free Trade Agreement (AUSFTA). The current threshold remains AUD 1.216 billion (USD 940 million) for U.S. non-government investors. Investments made by U.S. non-government investors are subject to inclusion on the foreign ownership register of agricultural land and to Australian Tax Office (ATO) information gathering activities on new foreign investment.

The Foreign Investment Review Board (FIRB), which advises Australia’s Treasurer, may impose conditions when approving foreign investments. These conditions can be diverse and may include: retention of a minimum proportion of Australian directors; certain requirements on business activities, such as the requirement not to divest certain assets; and certain taxation requirements. Such conditions are in keeping with Australia’s policy of ensuring foreign investments are in the national interest.

Other Investment Policy Reviews

Australia has not conducted an investment policy review in the last three years through either the OECD or UNCTAD system. The WTO reviewed Australia’s trade policies and practices in 2019, and the final report can be found at: https://www.wto.org/english/tratop_e/tpr_e/tp496_e.htm .

The Australian Trade Commission compiles an annual “Why Australia Benchmark Report” that presents comparative data on investing in Australia in the areas of Growth, Innovation, Talent, Location, and Business. The report also compares Australia’s investment credentials with other countries and provides a general snapshot on Australia’s investment climate. See: http://www.austrade.gov.au/International/Invest/Resources/Benchmark-Report .

Business Facilitation

Business registration in Australia is relatively straightforward and is facilitated through a number of government websites. The government’s business.gov.au website provides an online resource and is intended as a “whole-of-government” service providing essential information on planning, starting, and growing a business. Foreign entities intending to conduct business in Australia as a foreign company must be registered with the Australian Securities and Investments Commission (ASIC). As Australia’s corporate, markets, and financial services regulator, ASIC’s website provides information and guides on starting and managing a business or company in the country.

In registering a business, individuals and entities are required to register as a company with ASIC, which then gives the company an Australian Company Number, registers the company, and issues a Certificate of Registration. According to the World Bank “Starting a Business” indicator, registering a business in Australia takes two days, and Australia ranks 7th globally on this indicator.

Outward Investment

Australia generally looks positively towards outward investment as a way to grow its economy. There are no restrictions on investing abroad. Austrade, Export Finance Australia (EFA), and various other government agencies offer assistance to Australian businesses looking to invest abroad, and some sector-specific export and investment programs exist. The United States is the top destination, by far, for Australian investment overseas.

4. Industrial Policies

Investment Incentives

The Commonwealth Government and state and territory governments provide a range of measures to assist investors with setting up and running a business and undertaking investment. Types of assistance available vary by location, industry, and the nature of the business activity. Austrade provides coordinated government assistance to attracting FDI and is intended to serve as the national point-of-contact for investment inquiries. State and territory governments similarly offer a suite of financial and non-financial incentives.

The Commonwealth Government also provides incentives for companies engaging in research and development (R&D) and delivers a tax offset for expenditure on eligible R&D activities undertaken during the year. R&D activities conducted overseas are also eligible under certain circumstances, and the program is jointly administered by government’s AusIndustry program and the Australian Taxation Office (ATO). The Australian Government typically does not offer guarantees on, or jointly finance projects with, foreign investors.

The Australian government announced a new USD 1.1 billion Modern Manufacturing Strategy in 2020 in response to the COVID-19 pandemic. The Strategy is primarily grants-based and provides funding to businesses to commercialize ideas and scale-up production in six target industries: resources technology and critical minerals processing; food and beverage; medical products; clean energy; defense; and space industry. Further details of the Strategy can be found on the Department of Industry, Science, Energy and Resources’ website: https://www.industry.gov.au/data-and-publications/make-it-happen-the-australian-governments-modern-manufacturing-strategy/our-modern-manufacturing-strategy 

Foreign Trade Zones/Free Ports/Trade Facilitation

Australia does not have any free trade zones or free ports.

Performance and Data Localization Requirements

As a general rule, foreign firms establishing themselves in Australia are not subject to local employment or forced localization requirements, performance requirements and incentives, including to senior management and board of directors. Proprietary companies must have at least one director resident in Australia, while public companies are required to have a minimum of two resident directors. See Section 12 below for further information on rules pertaining to the hiring of foreign labor.

Under the Telecommunications (Interception and Access) Amendment (Data Retention) Bill 2015, telecommunications service providers are required to: retain and secure, for two years, telecommunications data (not including content); protect retained data through encryption; and prevent unauthorized interference and access. The Bill limits the range of agencies allowed to access telecommunications data and stored communications, and establishes a “journalist information warrants regime.” Australia’s Personally Controlled Electronic Health Records Act prohibits the transfer of health data out of Australia in some situations.

The Australian parliament passed legislation in December 2018 that would require encrypted messaging services to provide decrypted communications to the government for selected national security purposes (the Telecommunications and Other Legislation Amendment (Assistance and Access) Act 2018). Companies relying on or manufacturing secure encryption technologies have expressed concern about the impacts of this legislation on the security of the products and the lack of sufficient judicial oversight in reviewing government requests for access to encrypted data.

Australia has a strong framework for the protection of intellectual property (IP), including software source code. Foreign providers are not required to provide source code to the government in exchange for operating in Australia. In February 2021, the Australian parliament passed the Treasury Laws Amendment (News Media and Digital Platforms Mandatory Bargaining Code) Bill 2021, which among other things requires designated digital platforms to notify media companies of significant changes to their algorithms with at least 14-days’ notice of such changes. However, technology companies are not required to provide source code for algorithms, or any other such IP, to the government for any purpose.

Companies are generally not restricted in terms of how they store or transmit data within their operations. The exception to this is the Personally Controlled Electronic Health Records Act (2012) which does require that certain personal health information is stored in Australia. The Privacy Act (1988) and associated legislation place restrictions on the communication of personal information between and within entities. The requirements placed on international companies, and the transmission of data outside of Australia, are not treated differently under this legislation. The Australian Attorney-General’s Department is the responsible agency for most legislation relating to data and storage requirements.

Canada

Executive Summary

Canada and the United States have one of the largest and most comprehensive investment relationships in the world. U.S. investors are attracted to Canada’s strong economic fundamentals, its proximity to the U.S. market, its highly skilled work force, and abundant resources.  Canada encourages foreign direct investment (FDI) by promoting its stability, global market access, and infrastructure. The United States is Canada’s largest investor, accounting for 47 percent of total FDI. As of 2019, the amount of U.S. FDI totaled USD 402 billion, a 9.2 percent increase from the previous year. Canada’s FDI stock in the United States totaled USD 496 billion, a 12 percent increase from the previous year.

Initial reports indicate Canada suffered a significant decrease in FDI due to the ongoing COVID-19 pandemic. Data from Canada’s national statistical office show inward investment flows decreased by roughly 50 percent in 2020 as compared to 2019.

The United States-Mexico-Canada Agreement (USMCA) came into force on July 1, 2020, replacing the North American Free Trade Agreement (NAFTA). The USMCA supports a strong investment framework beneficial to U.S. investors. Foreign investment in Canada is regulated by the Investment Canada Act (ICA). 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. In March 2021, the Canadian government announced revised ICA foreign investment screening guidelines that include additional national security considerations such as sensitive technology areas, critical minerals, and sensitive personal data. The new guidelines follow an April 2020 ICA update, which provides for greater scrutiny of foreign investments by state-owned investors, as well as investments involving the supply of critical goods and services.

Despite a generally welcoming foreign investment environment, Canada maintains investment stifling prohibitions in the telecommunication, airline, banking, and cultural sectors. Ownership and corporate board restrictions prevent significant foreign telecommunication and aviation investment, and there are deposit acceptance limitations for foreign banks. Investments in cultural industries such as book publishing are required to be compatible with national cultural policies and be of net benefit to Canada. In addition, 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.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 11 of 175 http://www.transparency.org/research/cpi/overview 
World Bank’s Doing Business Report 2020 23 of 190 http://www.doingbusiness.org/en/rankings 
Global Innovation Index 2020 17 of 131 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, historical stock positions) 2019 $402,255 https://apps.bea.gov/international/factsheet/ 
World Bank GNI per capita 2019 $46,370 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon Foreign Investment

Policies Towards Foreign Direct Investment

Canada actively encourages FDI and maintains a sound enabling environment (23 out of 190 countries on the World Bank’s 2020 Doing Business Report). 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 2019, the United States had a stock of USD 402 billion of foreign direct investment in Canada. U.S. FDI stock in Canada represents 47 percent of Canada’s total investment. Canada’s FDI stock in the United States totaled USD 496 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.

Limits on Foreign Control and Right to Private Ownership and Establishment

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.

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. 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.

Other Investment Policy Reviews

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 Development completed an Economic Forecast Summary and released the results in March 2021. The report is available at: http://www.oecd.org/economy/canada-economic-snapshot/ 

Business Facilitation

Canada ranks 3 out of 190 countries on starting a business in the 2020 World Bank’s Ease of Doing Business rankings. 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.

Outward Investment

Canada prioritizes export promotion and inward investment. Outward investment has been identified as a tool to enhance future Canadian competitiveness and productivity. Canada does not restrict domestic investors from investing abroad except when recipient countries or businesses are designated under the government’s sanctions regime.

4. Industrial Policies

Investment Incentives

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’s Jobs and Prosperity Fund is providing USD 2 billion from 2013 to 2023 to enhance productivity, bolster innovation, and grow Ontario’s exports. To qualify, companies must have substantive operations (generally three years) and at least USD 5.6 million in eligible project costs. 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.

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.

Foreign Trade Zones/Free Ports/Trade Facilitation

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.

Performance and Data Localization Requirements

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 federal government introduced draft privacy legislation (Bill C-11) in Parliament November 17, 2020 to modernize data protection and privacy standards. The provincial government of Quebec introduced draft privacy legislation (Bill 64) in June 2020, and the provinces of Ontario and British Columbia are in the early legislative processes of developing privacy legislation. Privacy rules in two Canadian provinces, British Columbia and Nova Scotia, mandate that personal information in the custody of a public body must be stored and accessed only in Canada unless one of a few limited exceptions applies. These laws prevent public bodies such as primary and secondary schools, universities, hospitals, government-owned utilities, and public agencies from using non-Canadian hosting services. 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.

China

Executive Summary

In 2020, the People’s Republic of China (PRC) became the top global Foreign Direct Investment (FDI) destination. As the world’s second-largest economy, with a large consumer base and integrated supply chains, China’s economic recovery following COVID-19 reassured investors and contributed to higher FDI and portfolio investments. In 2020, China took significant steps toward implementing commitments made to the United States on a wide range of IP issues and made some modest openings in its financial sector. China also concluded key trade agreements and implemented important legislation, including the Foreign Investment Law (FIL).

China remains, however, a relatively restrictive investment environment for foreign investors due to restrictions in key economic sectors. Obstacles to investment include ownership caps and requirements to form joint venture partnerships with local Chinese firms, industrial policies such as Made in China 2025 (MIC 2025) that target development of indigenous capacity, as well as pressure on U.S. firms to transfer technology as a prerequisite to gaining market access. PRC COVID-19 visa and travel restrictions significantly affected foreign businesses operations increasing their labor and input costs. Moreover, an increasingly assertive Chinese Communist Party (CCP) and emphasis on national companies and self-reliance has heightened foreign investors’ concerns about the pace of economic reforms.

Key investment announcements and new developments in 2020 included:

On January 1, the FIL went into effect and effectively replaced previous laws governing foreign investment.

On January 15, the U.S. and China concluded the Economic and Trade Agreement between the Government of the United States of America and the Government of the People’s Republic of China (the Phase One agreement). Under the agreement, China committed to reforms in its intellectual property regime, prohibit forced transfer technology as a condition for market access, and made some openings in the financial and energy sector. China also concluded the Regional Comprehensive Economic Partnership (RCEP) agreement on November 15 and reached a political agreement with the EU on the China-EU Comprehensive Agreement on Investment (CAI) on December 30.

In mid-May, PRC leader Xi Jinping announced China’s “dual circulation” strategy, intended to make China less export-oriented and more focused on the domestic market.

On June 23, the National Development and Reform Commission (NDRC) and Ministry of Commerce (MOFCOM) announced new investment “negative lists” to guide foreign FDI.

Market openings were coupled, however, with restrictions on investment, such as the Rules on Security Reviews on Foreign InvestmentsChina’s revised investment screening mechanism.

While Chinese pronouncements of greater market access and fair treatment of foreign investment are welcome, details and effective implementation are still needed to ensure foreign investors truly experience equitable treatment.

 

Table 1: Key Metrics and Rankings

 

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 78 of 180 http://www.transparency.org/research/cpi/overview 
World Bank’s Doing Business Report 2020 31 of 190 http://www.doingbusiness.org/en/rankings 
Global Innovation Index 2020 14 of 131 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, historical stock positions) 2020 USD 116.2 https://apps.bea.gov/international/factsheet/ 
World Bank GNI per capita 2020 USD 10,410 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

4. Industrial Policies

Investment Incentives

To attract foreign investment, different provinces and municipalities offer preferential packages like a temporary reduction in taxes, import/export duties, land use, research and development subsidies, and funding for initial startups.  Often, these packages stipulate that foreign investors must meet certain benchmarks for exports, local content, technology transfer, and other requirements.  However, many economic sectors that China deems sensitive due to broadly defined national or economic security concerns remain closed to foreign investment.

Foreign Trade Zones/Free Ports/Trade Facilitation

In 2013, the State Council announced the Shanghai pilot FTZ to provide open and high-standard trade and investment services to foreign companies. China gradually scaled up its FTZ pilot program to a total of 20 FTZs and one Free Trade Port.  China’s FTZs are in: Shanghai, Tianjin, Guangdong, Fujian, Chongqing, Hainan, Henan, Hubei, Liaoning, Shaanxi, Sichuan, Zhejiang, Jiangsu, Shandong, Hebei, Heilongjiang, Guangxi, Yunnan provinces, Beijing, Shanghai FTZ Lingang Special Area and Hainan Free Trade Port.  The goal of China’s FTZs/FTP is to provide a trial ground for trade and investment liberalization measures and to introduce service sector reforms, especially in financial services, that China expects to eventually introduce in other parts of the domestic economy. The FTZs promise foreign investors “national treatment” investment in industries and sectors not listed on China’s negative lists.  However, the 2020 FTZ negative list lacked substantive changes, and many foreign firms report that in practice, the degree of liberalization in FTZs is comparable to opportunities in other parts of China.

Hong Kong

Executive Summary

Hong Kong became a Special Administrative Region (SAR) of the People’s Republic of China (PRC) on July 1, 1997, with its status defined in the Sino-British Joint Declaration and the Basic Law.  Under the concept of “one country, two systems,” the PRC government promised that Hong Kong will retain its political, economic, and judicial systems for 50 years after reversion.  The PRC’s imposition of the National Security Law (NSL) on June 30, 2020 undermined Hong Kong’s autonomy and introduced heightened uncertainty for foreign and local firms operating in Hong Kong.  As a result, the U.S. Government has taken measures to eliminate or suspend Hong Kong’s preferential treatment and special trade status, including suspension of most export control waivers, revocation of reciprocal shipping income tax exemption treatments, establishment of a new marking rule requiring goods made in Hong Kong to be labeled “Made in China,”  and imposition of sanctions against former and current Hong Kong government officials.

On July 16, 2021, the Department of State, along with the Department of the Treasury, the Department of Commerce, and the Department of Homeland Security, issued an advisory to U.S. businesses regarding potential risks to their operations and activities in Hong Kong.

 

Since the enactment of the NSL in Hong Kong, U.S. citizens traveling or residing in Hong Kong may be subject to increased levels of surveillance, as well as arbitrary enforcement of laws and detention for purposes other than maintaining law and order.

On economic issues, Hong Kong generally pursues a free market philosophy with minimal government intervention.  The Hong Kong government (HKG) generally welcomes foreign investment, neither offering special incentives nor imposing disincentives for foreign investors.

Hong Kong provides for no distinction in law or practice between investments by foreign-controlled companies and those controlled by local interests.  Foreign firms and individuals are able to incorporate their operations in Hong Kong, register branches of foreign operations, and set up representative offices without encountering discrimination or undue regulation.  There is no restriction on the ownership of such operations.  Company directors are not required to be citizens of, or resident in, Hong Kong.  Reporting requirements are straightforward and are not onerous.

Despite the imposition of the NSL by Beijing, significant curtailments in individual freedoms, and the end of Hong Kong’s ability to exercise the degree of autonomy it enjoyed in the past, Hong Kong remains a popular destination for U.S. investment and trade.  Even with a population of less than eight million, Hong Kong is the United States’ twelfth-largest export market, thirteenth largest for total agricultural products, and sixth-largest for high-value consumer food and beverage products.  Hong Kong’s economy, with world-class institutions and regulatory systems, is bolstered by its competitive financial and professional services, trading, logistics, and tourism sectors, although tourism suffered steep drops in 2020 due to COVID-19.  The service sector accounted for more than 90 percent of Hong Kong’s nearly USD 348 billion gross domestic product (GDP) in 2020.  Hong Kong hosts a large number of regional headquarters and regional offices.  Approximately 1,300 U.S. companies are based in Hong Kong, according to Hong Kong’s 2020 census data, with more than half regional in scope.  Finance and related services companies, such as banks, law firms, and accountancies, dominate the pack.  Seventy of the world’s 100 largest banks have operations in Hong Kong.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 11 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2020 3 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2020 11 of 131 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2019 USD 81,883 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2019 USD 50,800 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Hong Kong is the world’s second-largest recipient of foreign direct investment (FDI), according to the United Nations Conference on Trade and Development’s (UNCTAD) World Investment Report 2020, with a significant amount bound for mainland China.  The HKG’s InvestHK encourages inward investment, offering free advice and services to support companies from the planning stage through to the launch and expansion of their business.  U.S. and other foreign firms can participate in government financed and subsidized research and development programs on a national treatment basis.  Hong Kong does not discriminate against foreign investors by prohibiting, limiting, or conditioning foreign investment in a sector of the economy.

Capital gains are not taxed, nor are there withholding taxes on dividends and royalties.  Profits can be freely converted and remitted.  Foreign-owned and Hong Kong-owned company profits are taxed at the same rate – 16.5 percent.  The tax rate on the first USD 255,000 profit for all companies is currently 8.25 percent.  No preferential or discriminatory export and import policies affect foreign investors.  Domestic industries receive no direct subsidies.  Foreign investments face no disincentives, such as quotas, bonds, deposits, or other similar regulations.

According to HKG statistics, 3,983 overseas companies had regional operations registered in Hong Kong in 2020.  The United States has the largest number with 690.  Hong Kong is working to attract more start-ups as it works to develop its technology sector, and about 26 percent of start-ups in Hong Kong come from overseas.

Hong Kong’s Business Facilitation Advisory Committee is a platform for the HKG to consult the private sector on regulatory proposals and implementation of new or proposed regulations.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign investors can invest in any business and own up to 100 percent of equity.  Like domestic private entities, foreign investors have the right to engage in all forms of remunerative activity.

The HKG owns virtually all land in Hong Kong, which the HKG administers by granting long-term leases without transferring title.  Foreign residents claim that a 15 percent Buyer’s Stamp Duty on all non-permanent-resident and corporate buyers discriminates against them.

The main exceptions to the HKG’s open foreign investment policy are:

Broadcasting – Voting control of free-to-air television stations by non-residents is limited to 49 percent.  There are also residency requirements for the directors of broadcasting companies.

Legal Services – Foreign lawyers at foreign law firms may only practice the law of their jurisdiction.  Foreign law firms may become “local” firms after satisfying certain residency and other requirements.  Localized firms may thereafter hire local attorneys but must do so on a 1:1 basis with foreign lawyers.  Foreign law firms can also form associations with local law firms.

Other Investment Policy Reviews

Hong Kong last conducted the Trade Policy Review in 2018 through the World Trade Organization (WTO).  https://www.wto.org/english/tratop_e/tpr_e/g380_e.pdf

Business Facilitation

The Efficiency Office under the Innovation and Technology Bureau is responsible for business facilitation initiatives aimed at improving the business regulatory environment of Hong Kong.

The e-Registry (https://www.eregistry.gov.hk/icris-ext/apps/por01a/index) is a convenient and integrated online platform provided by the Companies Registry and the Inland Revenue Department for applying for company incorporation and business registration.  Applicants, for incorporation of local companies or for registration of non-Hong Kong companies, must first register for a free user account, presenting an original identification document or a certified true copy of the identification document.  The Companies Registry normally issues the Business Registration Certificate and the Certificate of Incorporation on the same day for applications for company incorporation.  For applications for registration of a non-Hong Kong company, it issues the Business Registration Certificate and the Certificate of Registration two weeks after submission.

Outward Investment

As a free market economy, Hong Kong does not promote or incentivize outward investment, nor restrict domestic investors from investing abroad.  Mainland China and British Virgin Islands were the top two destinations for Hong Kong’s outward investments in 2019 (based on most recent data available).

4. Industrial Policies

Investment Incentives

Hong Kong imposes no export performance or local content requirements as a condition for establishing, maintaining, or expanding a foreign investment.  There are no requirements that Hong Kong residents own shares, that foreign equity is reduced over time, or that technology is transferred on certain terms.  The HKG does not have a practice of issuing guarantees or jointly financing foreign direct investment projects.

The HKG allows a deduction on interest paid to overseas-associated corporations and provides an 8.25 percent concessionary tax rate derived by a qualifying corporate treasury center.

The HKG offers an effective tax rate of around three to four percent to attract aircraft leasing companies to develop business in Hong Kong.

The HKG has set up multiple programs to assist enterprises in securing trade finance and business capital, expanding markets, and enhancing overall competitiveness.  These support measures are available to any enterprise in Hong Kong, irrespective of origin.

Hong Kong-registered companies with a significant proportion of their research, design, development, production, management, or general business activities located in Hong Kong are eligible to apply to the Innovation and Technology Fund (ITF), which provides financial support for research and development (R&D) activities in Hong Kong.  Hong Kong Science & Technology Parks (Science Park) and Cyberport are HKG-owned enterprises providing subsidized rent and financial support through incubation programs to early-stage startups.

The HKG offers additional tax deductions for domestic expenditure on R&D incurred by firms.  Firms enjoy a 300 percent tax deduction for the first HKD 2 million (USD 255,000) qualifying R&D expenditure and a 200 percent deduction for the remainder.  Since 2017, the Financial Secretary has announced over HKD 120 billion (USD 15.3 billion) in funding to support innovation and technology development in Hong Kong.  These funds are largely directed at supporting and adding programs through the ITF, Science Park, and Cyberport.

In February 2009, HKD 20 billion (USD 2.6 billion) was  earmarked for the Research Endowment Fund, which provides research grants to academics and universities.  In February 2018, another HKD 10 billion (USD 1.3 billion) was set aside to provide financial incentives to foreign universities to partner with Hong Kong universities and establish joint research projects housed in two research clusters in Science Park, one specializing in artificial intelligence and robotics and the other specializing in biotechnology.  In February 2018, another HKD 20 billion (USD 2.6 billion) was appropriated to begin construction on a second, larger Science Park, located on the border with Shenzhen, which is intended to provide a much larger number of subsidized-rent facilities for R&D which are also expected to have special rules allowing mainland residents to work onsite without satisfying normal immigration procedures.

The Technology Talent Admission Scheme provides a fast-track arrangement for eligible technology companies/institutes to admit overseas and mainland technology talent to undertake R&D for them in the areas of biotechnology, artificial intelligence, cybersecurity, robotics, data analytics, financial technologies, and material science are eligible for application.  The Postdoctoral Hub Program provides funding support to recipients of the ITF, as well as incubatees and tenants of Science Park and Cyberport, to recruit up to two postdoctoral talents for R&D. Applicants must have a doctoral degree in a science, technology, engineering, and mathematics-related discipline from either a local university or a well-recognized non-local institution.

In July 2020, the HKG launched a USD 256.4 million Re-industrialization Funding Scheme to subsidize manufacturers, on a matching basis, setting up smart production lines in Hong Kong.

The Pilot Bond Grant Scheme launched by the Hong Kong Monetary Authority (HKMA) in May 2018 is aimed at improving Hong Kong’s competitiveness in the international bond market by enhanced tax concessions for qualifying debt instruments.  The HKG supports first-time issues with a grant of up to 50 percent of the eligible issuance expenses, with a cap of HKD 2.5 million (USD 320,500) for issues with a credit rating from a credit rating agency recognized by the Hong Kong Monetary Authority (HKMA), or a cap of HKD 1.25 million (USD 160,200) for issues that do not have a credit rating and where neither the issuer nor the issue’s guarantor have a credit rating.

In October 2020, the HKG launched a USD 38 million pilot subsidy scheme to encourage the logistics industry to enhance productivity through the application of technology.

Starting from December 2020, a USD 25.6 million Green Tech Fund (GTF) is open for applications.  The GTF provides funding supports to R&D projects which can help Hong Kong decarbonize and enhance environmental protection.  The amount of funding for each project ranges from USD 320,500 to USD 3.9 million, and each project may last up to five years.

In February 2021, the HKG announced a proposal to strengthen Hong Kong’s position as an asset management center.  The HKG planned to introduce in the second quarter of 2021 new legislation to facilitate the re-domicile of foreign investment funds to Hong Kong for registration as Open-ended Fund Companies (OFCs).  The HKG would provide subsidies to cover 70 percent of the expenses (capped at HKD 1 million or USD 125,000) paid to local professional service providers for OFCs set up in or re-domiciled to Hong Kong in the coming three years.

In February 2021, the HKG announced it would consolidate the Pilot Bond Grant Scheme and the Green Bond Grant Scheme into a Green and Sustainable Finance Grant Scheme to subsidize eligible bond issuers and loan borrowers to cover their expenses on bond issuance and external review services.

Foreign Trade Zones/Free Ports/Trade Facilitation

Hong Kong, a free port without foreign trade zones, has modern and efficient infrastructure making it a regional trade, finance, and services center.  Rapid growth has placed severe demands on that infrastructure, necessitating plans for major new investments in transportation and shipping facilities, including a planned expansion of container terminal facilities, additional roadway and railway networks, major residential/commercial developments, community facilities, and environmental protection projects.  Construction on a third runway at Hong Kong International Airport is scheduled for completion by 2023.

Hong Kong and mainland China have a Free Trade Agreement Transshipment Facilitation Scheme that enables mainland-bound consignments passing through Hong Kong to enjoy tariff reductions in the mainland.  The arrangement covers goods traded between mainland China and its trading partners, including ASEAN members, Australia, Bangladesh, Chile, Costa Rica, Iceland, India, New Zealand, Pakistan, Peru, South Korea, Sri Lanka, Switzerland, and Taiwan.

The HKG launched in December 2018 phase one of the Trade Single Window (TSW) to provide a one-stop electronic platform for submitting ten types of trade documents, promoting cross-border customs cooperation, and expediting trade declaration and customs clearance.  Phase two is expected to be implemented in 2023.

The latest version of CEPA has established principles of trade facilitation, including simplifying customs procedures, enhancing transparency, and strengthening cooperation.

Performance and Data Localization Requirements

The HKG does not mandate local employment or performance requirements.  It does not follow a forced localization policy making foreign investors use domestic content in goods or technology.

Foreign nationals normally need a visa to live or work in Hong Kong.  Short-term visitors are permitted to conduct business negotiations and sign contracts while on a visitor’s visa or entry permit.  Companies employing people from overseas must show that a prospective employee has special skills, knowledge, or experience not readily available in Hong Kong.

Hong Kong allows free and uncensored flow of information, though the imposition of the NSL created certain limits on freedom of expression and content, especially those that may be viewed as politically-sensitive such as advocating for Hong Kong’s independence from mainland China.  The freedom and privacy of communication is enshrined in Basic Law Article 30.  The HKG has no requirements for foreign IT providers to turn over source code and does not interfere with data center operations.  However, the NSL introduced a heightened risk of PRC and Hong Kong authorities using expanded legal authorities to collect data from businesses and individuals in Hong Kong for actions that may violate “national security.” For more information, please refer to the Hong Kong business advisory released jointly by the Department of State, along with the Department of the Treasury, the Department of Commerce, and the Department of Homeland Security on July 16, 2021.

The NSL grants Hong Kong police broad authorities to conduct wiretaps or electronic surveillance without warrants in national security-related cases.  The NSL also empowers police to conduct searches, including of electronic devices, for evidence in national security cases.  Police can also require Internet service providers to provide or delete information relevant to these cases.  In January 2021, the organizer of an online platform alleged that local Internet providers have made the site inaccessible for users in Hong Kong following requests from the Hong Kong government.  One ISP subsequently confirmed that they it blocked a website “in compliance with the requirement issued under the National Security Law.”

Hong Kong does not currently restrict transfer of personal data outside the SAR, but the dormant Section 33 the Personal Data (Privacy) Ordinance would prohibit such transfers unless the personal data owner consents or other specified conditions are met.  The Privacy Commissioner is authorized to bring Section 33 into effect at any time, but it has been dormant since 1995.

In January 2020, the HKG introduced a discussion paper to the LegCo and proposed certain changes to the Personal Data (Privacy) Ordinance with the aim of strengthening data protection in Hong Kong.  One of the amendments proposed was to require data users to formulate a clear data retention policy which specified a retention period for the personal data collected.  Feedback from the LegCo on this discussion paper formed the basis of further consultations with stakeholders and more concrete legislative amendment proposals.  There is no indication on the timeline of any legislative amendments to the Ordinance.

In December 2020, Hong Kong’s Securities and Futures Commission (SFC) required licensed corporations in Hong Kong to seek the SFC’s approval before using the following for storing regulatory records: 1) premises controlled exclusively by an external data storage provider(s) located inside or outside Hong Kong, such as cloud service providers like Google Cloud, Microsoft Azure or Amazon AWS; or 2) server(s) for data storage at data centers located inside or outside Hong Kong.

India

Executive Summary

The Government of India continued to actively court foreign investment. In the wake of COVID-19, India enacted ambitious structural economic reforms, including new labor codes and landmark agricultural sector reforms, that should help attract private and foreign direct investment. In February 2021, the Finance Minister announced plans to raise $2.4 billion though an ambitious privatization program that would dramatically reduce the government’s role in the economy. In March 2021, parliament further liberalized India’s insurance sector, increasing the foreign direct investment (FDI) limits to 74 percent from 49 percent, though still requiring a majority of the Board of Directors and management personnel to be Indian nationals.

In response to the economic challenges created by COVID-19 and the resulting national lockdown, the Government of India enacted extensive social welfare and economic stimulus programs and increased spending on infrastructure and public health. The government also adopted production linked incentives to promote manufacturing in pharmaceuticals, automobiles, textiles, electronics, and other sectors. These measures helped India recover from an approximately eight percent fall in GDP between April 2020 and March 2021, with positive growth returning by January 2021.

India, however, remains a challenging place to do business. New protectionist measures, including increased tariffs, procurement rules that limit competitive choices, sanitary and phytosanitary measures not based on science, and Indian-specific standards not aligned with international standards, effectively closed off producers from global supply chains and restricted the expansion in bilateral trade.

The U.S. government continued to urge the Government of India to foster an attractive and reliable investment climate by reducing barriers to investment and minimizing bureaucratic hurdles for businesses.

 
Measure Year Index/ Rank Website Address
TI Corruption Perception Index 2020 86 of 180 https://www.transparency.org/en/countries/india
World Bank’s Doing Business Report: “Ease of Doing Business” 2019 63 of 190   https://www.doingbusiness.org/en/rankings?region=south-asia
Innovation Index 2020 48 of 131 https://www.wipo.int/global_innovation_index/en/2020
U.S. FDI in partner country (Million. USD stock positions) 2019 45,883 https://apps.bea.gov/international/factsheet/factsheet.cfm?Area=612&UUID=67171087-ee34-4983-ac05-984cc597f1f4
World Bank GNI per capita (USD) 2019 2120 https://data.worldbank.org/indicator/ny.gnp.pcap.cd

1. Openness To, and Restrictions Upon, Foreign Investment

Policies toward Foreign Direct Investment

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, however, require the additional approval of the Home Ministry.

DPIIT, under the Ministry of Commerce and Industry, is India’s chief investment regulator and policy maker. It compiles all policies related to India’s FDI regime into a single document to make it easier for investors to understand, and this consolidated policy is updated every year. The updated policy can be accessed at: http://dipp.nic.in/foreign-directinvestment/foreigndirectinvestment-policy.  DPIIT, through the Foreign Investment Implementation Authority (FIIA), plays an active role in resolving foreign investors’ project implementation problems and disseminates information about the Indian investment climate to promote investments. The Department establishes bilateral economic cooperation agreements in the region and encourages and facilitates foreign technology collaborations with Indian companies and DPIIT oftentimes consults with lead ministries and stakeholders. There however have been multiple incidents where relevant stakeholders reported being left out of consultations.

Limits on Foreign Control and Right to Private Ownership and Establishment

In most sectors, foreign and domestic private entities can establish and own businesses and engage in remunerative activities. Several sectors of the economy continue to retain equity limits for foreign capital as well as management and control restrictions, which deter investment. For example, the 2015 Insurance Act raised FDI caps from 26 percent to 49 percent, but also mandated that insurance companies retain “Indian management and control.” In the parliament’s 2021 budget session, the Indian government approved increasing the FDI caps in the insurance sector to 74 percent from 49 percent. However, the legislation retained the “Indian management and control” rider. In the August 2020 session of parliament, the government approved reforms that opened the agriculture sector to FDI, as well as allowed direct sales of products and contract farming, though implementation of these changes was temporarily suspended in the wake of widespread protests. In 2016, India allowed up to 100 percent FDI in domestic airlines; however, the issue of substantial ownership and effective control (SOEC) rules that mandate majority control by Indian nationals have not yet been clarified. A list of investment caps is accessible at: http://dipp.nic.in/foreign-directinvestment/foreign-directinvestment-policy .

Screening of FDI

All FDI must be reviewed under either an “Automatic Route” or “Government Route” process. The Automatic Route simply requires a foreign investor to notify the Reserve Bank of India of the investment and applies in most sectors. In contrast, investments requiring review under the Government Route must obtain the approval of the ministry with jurisdiction over the appropriate sector along with the concurrence of DPIIT. The government route includes sectors deemed as strategic including defense, telecommunications, media, pharmaceuticals, and insurance. In August 2019, the government announced a new package of liberalization measures and brought a number of sectors including coal mining and contract manufacturing under the automatic route.

FDI inflows were mostly directed towards the largest metropolitan areas – Delhi, Mumbai, Bangalore, Hyderabad, Chennai – and the state of Gujarat. The services sector garnered the largest percentage of FDI. Further FDI statistics are available at: http://dipp.nic.in/publications/fdistatistics. 

Other Investment Policy Reviews

OECD’s Indian Economic Snapshot: http://www.oecd.org/economy/india-economic-snapshot/ 

WTO Trade Policy Review: https://www.wto.org/english/tratop_e/tpr_e/tp503_e.htm 

2015-2020 Government of India Foreign Trade Policy: http://dgft.gov.in/ForeignTradePolicy 

Business Facilitation

DPIIT is responsible for formulation and implementation of promotional and developmental measures for growth of the industrial sector, keeping in view national priorities and socio- economic objectives. While individual lead ministries look after the production, distribution, development and planning aspects of specific industries allocated to them, DPIIT is responsible for overall industrial policy. It is also responsible for facilitating and increasing the FDI flows to the country.

Invest India  is the official investment promotion and facilitation agency of the Government of India, which is managed in partnership with DPIIT, state governments, and business chambers. Invest India specialists work with investors through their investment lifecycle to provide support with market entry strategies, industry analysis, partner search, and policy advocacy as required. Businesses can register online through the Ministry of Corporate Affairs website: http://www.mca.gov.in/ . After the registration, all new investments require industrial approvals and clearances from relevant authorities, including regulatory bodies and local governments. To fast-track the approval process, especially in the case of major projects, Prime Minister Modi started the Pro-Active Governance and Timely Implementation (PRAGATI initiative) – a digital, multi-modal platform to speed the government’s approval process. As of January 2020, a total of 275 project proposals worth around $173 billion across ten states were cleared through PRAGATI. Prime Minister Modi personally monitors the process to ensure compliance in meeting PRAGATI project deadlines. The government also launched an Inter-Ministerial Committee in late 2014, led by the DPIIT, to help track investment proposals that require inter-ministerial approvals. Business and government sources report this committee meets informally and on an ad hoc basis as they receive reports of stalled projects from business chambers and affected companies.

Outward Investment

The Ministry of Commerce’s India Brand Equity Foundation (IBEF) claimed in March 2020 that outbound investment from India had undergone a considerable change in recent years in terms of magnitude, geographical spread, and sectorial composition. Indian firms invest in foreign markets primarily through mergers and acquisition (M&A). According to a Care Ratings study, corporate India invested around $12.25 billion in overseas markets between April and December 2020. The investment was mostly into wholly owned subsidiaries of companies. In terms of country distribution, the dominant destinations were the Unites States ($2.36 billion), Singapore ($2.07 billion), Netherlands ($1.50 billion), British Virgin Islands ($1.37 billion), and Mauritius ($1.30 million).

4. Industrial Policies

The regulatory environment in terms of foreign investment has been eased to make it investor friendly. The measures taken by the Government are directed to open new sectors for foreign direct investment, increase the sectoral limit of existing sectors, and simplifying other conditions of the FDI policy. The Indian government has issued guarantees to investments but only in cases of strategic industries.

Foreign Trade Zones/Free Ports/Trade Facilitation

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). 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 the following: 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. According to the Ministry of Commerce and Industry, as of October 2020, 426 SEZ’s have been approved and 262 SEZs were operational. SEZs are treated as foreign territory — businesses operating within SEZs are not subject to customs regulations nor have FDI equity caps. They also receive exemptions from industrial licensing requirements and enjoy tax holidays and other tax breaks. In 2018, the Indian government 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 headed by a government official. So far, three NIMZs have been accorded final approval and 13 have been accorded in-principal approval. In addition, eight investment regions along the Delhi-Mumbai Industrial Corridor (DIMC) have also been established as NIMZs. 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 GOI’s revised Foreign Trade Policy, which will be effective for five years starting April 1, 2021, is expected to include a new regionally focused District Export Hubs initiative in addition to existing SEZs and NIMZs

Performance and Data Localization Requirements

Preferential Market Access (PMA) for government procurement has created substantial challenges for foreign firms operating in India. State-owned “Public Sector Undertakings” and the government accord 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:

a. The bidder shall furnish the authorization certificate by the domestic manufacturer for selling domestically manufactured electronic products.

b. 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.

c. 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 complaint procedure. There would be a complaint fee of INR 200,000 ($3,000) or one percent of the value of the Domestically Manufactured Electronic Product being procured, subject to a maximum of INR 500,000 ($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. 

Research and Development

The Government of India allows for 100 percent FDI in research and development through the automatic route.

Data Storage & Localization

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. 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. U.S. payments companies have been able to implement the mandate for the most part, though at great cost and potential damage to the long-term security of their Indian customer base, which will receive fewer services and no longer benefit from global fraud detection and anti-money-laundering/combatting the financing of terrorism (AML/CFT) protocols. Similarly, U.S. banks have been able to comply with RBI’s expanded mandate, though incurring significant compliance costs and increased risk of cybersecurity vulnerabilities.

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. Reports on Non-Personal Data and the implementation of a New Information Technology Rule 2021 with Intermediary Guidelines and Digital Media Ethics Code added further uncertainty to how existing rules will interact with the PDPB and how non-personal data will be handled. 5.Protection of Property Rights

South Korea

Executive Summary

The Republic of Korea (ROK) offers foreign investors political stability, public safety, world-class infrastructure, a highly skilled workforce, and a dynamic private sector.  Following market liberalization measures in the 1990s, foreign portfolio investment has grown steadily, exceeding 36 percent of the Korea Composite Stock Price Index (KOSPI) total market capitalization as of February 2021.

Studies by the Korea International Trade Association, however, have shown that the ROK underperforms in attracting FDI relative to the size and sophistication of its economy due to a complicated, opaque, and country-specific regulatory framework, even as low-cost producers, most notably China, have eroded the ROK’s competitiveness in the manufacturing sector.  A more benign regulatory environment will be crucial to foster innovations such as fifth generation (5G) mobile communications that enable smart manufacturing, autonomous vehicles, cloud computing, and the Internet of Things – technologies that could fail to mature under restrictive regulations that do not align with global standards.  The ROK government has taken steps to address regulatory issues over the last decade, notably with the establishment of a Foreign Investment Ombudsman to address the concerns of foreign investors.  In 2019, the ROK government created a “regulatory sandbox” program to spur creation of new products in the financial services, energy, and tech sectors.  Industry observers recommend additional procedural steps to improve the investment climate, including Regulatory Impact Analyses (RIAs) and wide solicitation of substantive feedback from foreign investors and other stakeholders.

The revised U.S.-Korea Free Trade Agreement (KORUS) entered into force January 1, 2019, and helps secure U.S. investors broad access to the ROK market.  Types of investment assets protected under KORUS include equity, debt, concessions, and intellectual property rights.  With a few exceptions, U.S. investors are treated the same as ROK investors in the establishment, acquisition, and operation of investments in the ROK.  Investors may elect to bring claims against the government for alleged breaches of trade rules under a transparent international arbitration mechanism.

The ROK’s COVID-19 response has been exemplary, serving as a global role model.  It has been science-driven, with the Korea Disease Control and Prevention Agency leading from day one; transparent, with public health experts briefing the public almost every day; and trusted, with public compliance on social distancing guidelines, including universal mask-wearing.  Largely due to successful handling of COVID-19, including through sound fiscal and monetary responses, the ROK was able to manage the pandemic without shutting down the economy, and GDP dropped a mere one percent in 2020.  The ROK government was also aggressive in pursuing economic stimulus, devoting more than USD 220 billion to stimulus in 2020.  As a result, the Korean domestic economy fared better than nearly all its OECD peers.  The risk of a COVID resurgence still looms, and Korea’s export-oriented economy remains vulnerable to external shocks, including supply chain disruptions, going forward.  The attention of the public, the government, and the health establishment has now turned to the task and logistics of mass vaccination.  In late February, the Moon administration launched the vaccination program nationwide, with the goal of achieving herd immunity by November.  President Moon has promised to inoculate all residents for free in 2021, beginning with front-line healthcare workers.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 33 of 180 https://www.transparency.org/cpi2020
World Bank’s Doing Business Report 2020 5 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2020 10 of 131 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, stock positions) 2018 $61,822 https://www.selectusa.gov/servlet/servlet.FileDownload?file=015t0000000LKNs

https://www.bea.gov/sites/default/files/2020-07/dici0720_0.pdf

World Bank GNI per capita 2019 $33,790 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The ROK government welcomes foreign investment.  In a March 2019 meeting, President Moon Jae-in equated the foreign business community’s success with the Korean economy’s progress.  The ROK government offers incentives to foreign companies bringing in technology and investments contributing to the ROK’s manufacturing sector.  Hurdles for foreign investors in the ROK include regulatory opacity, inconsistent interpretation of regulations, unanticipated regulatory changes, underdeveloped corporate governance, rigid labor policies, Korea-specific consumer protection measures, and the political influence of large conglomerates, known as chaebol.

The 1998 Foreign Investment Promotion Act (FIPA) is the principal law pertaining to foreign investment in the ROK.  FIPA and related regulations categorize business activities as open, conditionally- or partly-restricted, or closed to foreign investment.  FIPA also includes:

  • Simplified procedures to apply to invest in the ROK;
  • Expanded tax incentives for high-technology investments;
  • Reduced rental fees and lengthened lease durations for government land (including local government land);
  • Increased central government support for local FDI incentives;
  • Creation of “Invest KOREA,” a one-stop investment promotion center within the Korea Trade-Investment Promotion Agency (KOTRA) to assist foreign investors; and
  • Establishment of a Foreign Investment Ombudsman to assist foreign investors.

The ROK National Assembly website provides a list of laws pertaining to foreigners, including FIPA, in English (http://korea.assembly.go.kr/res/low_03_list.jsp?boardid=1000000037).

The Korea Trade-Investment Promotion Agency (KOTRA) facilitates foreign investment through its Invest KOREA office (also on the web at http://investkorea.org).  For investments exceeding 100 million won (about USD 88,000), KOTRA helps investors establish domestically-incorporated foreign-invested companies.  KOTRA and the Ministry of Trade, Industry and Energy (MOTIE) organize a yearly Foreign Investment Week to attract investment to South Korea.  In February 2021, Trade Minister Yoo Myung-hee met with representatives of foreign-invested firms in the ROK and noted the critical role they play in the ROK economy and job creation.  The ROK’s key official responsible for FDI promotion and retention is the Foreign Investment Ombudsman.  The position is commissioned by the ROK President and heads a grievance resolution body that collects and analyzes concerns from foreign firms; coordinates reforms with relevant administrative agencies; and proposes new policies to promote foreign investment.  More information on the Ombudsman can be found at http://ombudsman.kotra.or.kr/eng/index.do.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities can establish and own business enterprises and engage in remunerative activity across many sectors of the economy.  However, under the Foreign Exchange Transaction Act (FETA), restrictions on foreign ownership remain for 30 industrial sectors, including three that are closed to foreign investment (see below).  Relevant ministries must approve investments in conditionally- or partially-restricted sectors.  Most applications are processed within five days; cases that require consultation with more than one ministry can take 25 days or longer.  The ROK’s procurement processes comply with the World Trade Organization (WTO) Government Procurement Agreement.

The following is a list of restricted sectors for foreign investment.  Figures in parentheses generally denote the Korean Industrial Classification Code, while those for air transport industries are based on the Civil Aeronautics Laws:

Completely Closed

  •  Nuclear power generation (35111)
  •  Radio broadcasting (60100)
  •  Television broadcasting (60210)

Restricted Sectors (no more than 25 percent foreign equity)

  •  News agency activities (63910)

Restricted Sectors (less than 30 percent foreign equity)

  • Newspaper publication, daily (58121)  (Note: Other newspapers with the same industry code 58121 are restricted to less than 50 percent foreign equity.)
  • Hydroelectric power generation (35112)
  • Thermal power generation (35113)
  • Solar power generation (35114)
  • Other power generation (35119)

Restricted Sectors (no more than 49 percent foreign equity)

  • Newspaper publication, non-daily (58121)  (Note: Daily newspapers with the same industry code 58121 are restricted to less than 30 percent foreign equity.)
  • Television program/content distribution (60221)
  • Cable networks (60222)
  • Satellite and other broadcasting (60229)
  • Wired telephone and other telecommunications (61210)
  • Mobile telephone and other telecommunications (61220)
  • Other telecommunications (61299)

Restricted Sectors (no more than 50 percent foreign equity)

  • Farming of beef cattle (01212)
  • Transmission/distribution of electricity (35120)
  • Wholesale of meat (46313)
  • Coastal water passenger transport (50121)
  • Coastal water freight transport (50122)
  • International air transport (51)
  • Domestic air transport (51)
  • Small air transport (51)
  • Publishing of magazines and periodicals (58122)

Open but Separately Regulated under Relevant Laws

  • Growing of cereal crops and other food crops, except rice and barley (01110)
  • Other inorganic chemistry production, except fuel for nuclear power generation (20129)
  • Other nonferrous metals refining, smelting, and alloying (24219)
  • Domestic commercial banking, except special banking areas (64121)
  • Radioactive waste collection, transportation, and disposal, except radioactive waste management (38240)

Other Investment Policy Reviews

The WTO conducted its seventh Trade Policy Review of the ROK in October 2016.  The Review does not contain any explicit policy recommendations.  It can be found at: https://www.wto.org/english/tratop_e/tpr_e/tp446_e.htm

The ROK has not undergone investment policy reviews from the OECD or United Nations Conference on Trade and Development (UNCTAD) within the past three years.

Business Facilitation

Registering a business remains a complex process that varies according to the type of business being established, and requires interaction with KOTRA, court registries, and tax offices.  Foreign corporations can enter the market by establishing a local corporation, local branch, or liaison office.  The establishment of local corporations by a foreign individual or corporation is regulated by FIPA and the Commercial Act; the latter recognizes five types of companies, of which stock companies with multiple shareholders are the most common.  Although registration can be filed online, there is no centralized online location to complete the process.  For small- and medium-sized enterprises (SMEs) and micro-enterprises, the online business registration process takes approximately three to four days and is completed through Korean language websites.  Registrations can be completed via the Smart Biz website, https://www.startbiz.go.kr/.  The UN’s Global Enterprise Registration (GER), which evaluates whether a country’s online registration process is clear and complete, awarded Smart Biz 2.5 of 10 possible points and suggested improvements in registering limited liability companies.  The Invest KOREA information portal received 2 of 10 points.  The Korea Commission for Corporate Partnership and the Ministry of Gender Equality and Family (http://www.mogef.go.kr/) are charged with improving the business environment for minorities and women.  Some local governments provide guaranteed bank loans for women and/or the disabled.

Outward Investment

The ROK does not have any restrictions on outward investment.  The ROK has several institutions to assist small business and middle-market firms with such investments.

  • KOTRA has an Outbound Investment Support Office that provides counseling to ROK firms and holds regular investment information sessions.
  • The ASEAN-Korea Centre, which is primarily funded by the ROK government, provides counseling and business introduction services to Korean SMEs considering investments in the Association of Southeast Asian Nations (ASEAN) region.
  • The Defense Acquisition Program Administration opened an office in 2019 to advise Korean defense SMEs on exporting unrestricted defense articles.

4. Industrial Policies

Investment Incentives

The ROK government provides the following general incentives for foreign investors:

  • Cash incentives for qualified foreign investments in free trade zones, foreign investment zones, free economic zones, industrial complexes, and similar facilities;
  • Tax and cash incentives for the creation and expansion of workplaces for high-tech businesses, factories, and research and development centers;
  • Reduced rent for land and site preparation;
  • Grants for establishment of community facilities for foreigners;
  • Reduced rent for state or public property; and
  • Preferential financial support for investing in major infrastructure projects.

Additionally, the ROK government provides incentives for investments that would increase ROK-based production of materials, parts, and equipment in six critical industrial sectors: semiconductors, displays, automobiles, electronics, machinery, and chemicals.  The Seoul Metropolitan government provides separate support for SMEs, high-technology businesses, and the biomedical industry.

Note that corporate tax exemption for foreign direct investment is limited to firms registered by the end of 2018.  The ROK government does not issue guarantees or jointly finance foreign direct investment projects.

Foreign Trade Zones/Free Ports/Trade Facilitation

The Ministry of Economy and Finance (MOEF) administers tax and other incentives to stimulate advanced technology transfer and investment in high-technology services.  There are three types of special areas for foreign investment – Free Economic Zones, Free Investment Zones, and Tariff-Free Zones – where favorable tax incentives and other support for investors are available.  The ROK aims to attract more foreign investment by promoting its seven Free Economic Zones: Incheon (near Incheon airport); Busan/Jinhae (in South Gyeongsang Province); Gwangyang Bay (in South Gyeongsang Province); Gyeonggi (in Gyeonggi Province); Daegu/Gyeongbuk (in North Gyeongsang Province); East Coast (in Donghae and Gangneung); and Chungbuk (in North Chungcheong Province).  Additional information is available at http://www.fez.go.kr/global/en/index.do.  There are also 26 Foreign Investment Zones designated by local governments to accommodate industrial sites for foreign investors.  Special considerations for foreign investors vary among these zones.  In addition, there are four foreign-exclusive industrial complexes in Gyeonggi Province designed to provide inexpensive land, with the national and local governments providing assistance for leasing or selling in the sites at discounted rates.

Performance and Data Localization Requirements

There are no ROK requirements that firms hire local workers.  Foreigners planning to work during their stay in the ROK are required by law to apply for a visa.  Sponsoring employers file work permits and visa applications.  Hiring firms are required to confirm that prospective employees of foreign nationality have a valid work permit prior to making a job offer.  Once approved, the Ministry of Justice will issue a Certificate of Confirmation of Visa Issuance (CCVI) to the foreign worker.  The worker submits this certificate with the relevant visa application forms to the ROK embassy or consulate in the applicant’s country of residence.  Work visas are usually valid for one year, and issuance generally takes two to four weeks.  Changing a tourist visa to a work visa is not possible within the ROK; applicants for work visas must submit their applications to an ROK embassy or consulate.  The ROK has not imposed performance requirements on new foreign investment since 1992; there are no performance requirements regarding local content, local jobs, R&D activity, or domestic shares in the company’s capital.  Other conditions to invest in the ROK are elaborated in FIPA.

Recent ROK-specific security regulations on the use of cloud computing by public services (broadly defined) effectively deter U.S. firms from offering cloud services in the ROK.  In January 2016, the ROK government announced guidelines requiring Common Criteria Certification for cloud computing services for ROK government agencies or public institutions; the IT Security Certification Center may require disclosure of source code as part of Common Criteria Certification, which renders it difficult for U.S. cloud service providers to enter the Korean public cloud market.  Furthermore, restrictive ROK data privacy law governs any companies that collect, use, transfer, outsource, or process personal information.  The Personal Information Protection Act (PIPA) imposes strict conditions on transferring personal information out of the country, requiring data controllers to obtain each end-user’s consent to transfer personal information out of the ROK.  In the case of overseas transfer of personal information for the purpose of Information and Communications Technology (ICT) outsourcing, the data controller may forgo obtaining each individual’s consent if the data controller discloses in its privacy policy certain information about the overseas transfer, including the purpose and destination of the overseas transfer; similar requirements apply to transfer of personal information of end-users to a third party within the ROK.  In addition, regulations prohibit financial companies in the ROK from transferring customers’ personal information and related financial transaction data overseas.  As such, this financial transaction data cannot be outsourced to overseas ICT vendors, and financial companies in the ROK must store customers’ financial transaction data locally in the ROK.  The Financial Services Commission sets Korea’s financial policies and directs the Financial Supervisory Service in the enforcement of those policies.  The ROK government and legislature are considering further restrictions on the use of personal information.

Investment Climate Statements
Edit Your Custom Report

01 / Select A Year

02 / Select Sections

03 / Select Countries You can add more than one country or area.

U.S. Department of State

The Lessons of 1989: Freedom and Our Future