Denmark is regarded by many independent observers as one of the world’s most attractive business environments and ranks highly in indices measuring political, economic, and regulatory stability. It is a member of the European Union (EU), and Danish legislation and regulations conform to EU standards on virtually all issues. It maintains a fixed exchange rate policy, with the Danish Krone linked closely to the Euro. Denmark is a social welfare state with a thoroughly modern market economy heavily driven by trade in goods and services. Given that exports account for about 60 percent of GDP, the economic conditions of its major trading partners – the United States, Germany, Sweden, and the United Kingdom – have a substantial impact on Danish national accounts.
Denmark is a world leader in “green technology” industries, such as offshore wind and energy efficiency, and in sectors such as shipping and life sciences. Denmark is a net exporter of food. Its manufacturing sector depends on raw material imports. Within the EU, Denmark is among the strongest supporters of liberal trade policy. Transparency International regularly ranks Denmark as being perceived as the least corrupt nation in the world. Denmark is strategically situated to link continental Europe with the Nordic and Baltic countries. Transport and communications infrastructures are efficient.
The Danish economy experienced a contraction of 2.1 percent of GDP in 2020 due to COVID-19 followed by a 4.7 percent rebound in 2021, thereby weathering the pandemic with among the lowest declines in GDP in the EU. Denmark’s economic activity and employment have surpassed their pre-pandemic levels and trends, but companies across sectors cite labor shortages as a key challenge. In May 2022, the Ministry of Finance revised its GDP growth projections, forecasting 3.5 percent GDP growth in 2022, decelerating to 2 percent annual GDP growth in 2023. The Ministry projects the Danish economy will weather headwinds from the Russian invasion of Ukraine and surging energy prices, as well as elevated levels of inflation, due to its robust foundation, although economic activity will be at a slightly lower level. The Ministry anticipates the impact will mainly be through increased inflation and disruption of trade. Denmark’s underlying macroeconomic conditions, however, are healthy, and the investment climate is sound. The entrepreneurial climate, including female-led entrepreneurship, is robust.
New legislation establishing a foreign investment screening mechanism to prevent threats to national security and public order came into effect on July 1, 2021. The mechanism requires mandatory notification for investments in the following five sectors: defense, IT security and processing of classified information, companies producing dual-use items, critical technology, and critical infrastructure. It allows for voluntary notification for all sectors. The legislation does not apply to Greenland or to the Faroe Islands, though both are looking into potential legislation.
In 2020, the Danish parliament passed the Danish Climate Act, which established a statutory target for reducing greenhouse gas emissions by 70 percent from 1990 levels in 2030 and achieving net zero by 2050. In April 2022, the government presented a reform proposal on Danish energy policy to move towards the above goals and simultaneously achieve independence from Russian natural gas. The proposal includes plans for increased domestic production of biogas as well as natural gas from the North Sea, a quadrupling of combined onshore wind and solar power production capacity by 2030, and an expansion of district heating. The government also proposed green taxation to finance the transition with a differentiated carbon emission tax in addition to the EU carbon trading system.
Note: Additional information on the investment climates in the constituent parts of the Kingdom of Denmark, the Faroe Islands and Greenland, can be found at the end of this report.
1. Openness To, and Restrictions Upon, Foreign Investment
3. Legal Regime
4. Industrial Policies
5. Protection of Property Rights
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: https://www.gov.uk/government/statistics/department-for-international-trade-inward-investment-results-2020-to-2021.
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.
1. Openness To, and Restrictions Upon, Foreign Investment
2. Bilateral Investment Agreements and Taxation Treaties
The UK has concluded 105 bilateral investment treaties, which are known in the UK as Investment Promotion and Protection Agreements. For a complete current list, including actual treaties, see: http://investmentpolicyhub.unctad.org/IIA/CountryBits/221#iiaInnerMenu
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.
3. Legal Regime
4. Industrial Policies