The United Kingdom (UK) is a top global destination for foreign direct investment (FDI) and imposes few impediments to foreign ownership. The United States is the largest source of direct investment into the UK. 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 firms. 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-2019-to-2020.
Following a drop in inward investment each year since 2016 that mirrored global declines, and amidst a historically sharp but temporary recession related to the COVID-19 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 [carbon emissions], 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’s National Security and Investment Act, which came into effect in May 2021, significantly strengthened the UK’s existing investment screening powers. Investments resulting in foreign control generally exceeding 15 percent of companies in 17 sectors pertaining to national security require mandatory notifications to the UK government’s Investment Security Unit
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 maintains tariff-free trade between the UK and the EU but introduced a number of new non-tariff, administrative barriers. On January 1, 2021, the UK began reviewing cross-border activities with a UK-EU nexus in parallel to the European Commission.
The United States and the UK launched free trade agreement negotiations in May 2020, which were paused with the change in U.S. Administration. 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.
On April 8, 2021, the UK established the Digital Markets Unit, a new regulatory body that will be responsible for implementing upcoming changes to competition rules in digital markets. The Competition and Markets Authority (CMA), the UK’s competition regulator, has indicated that it intends to scrutinize and police the digital sector more thoroughly going forward. The EU’s General Data Protection Regulation (GDPR) no longer applies to the UK. Entities based in the UK must comply with the Data Protection Act (DPA) 2018, which incorporated provisions of the EU GDPR directly into UK law
In April 2020 a two percent digital services tax (DST) came into force that targets certain types of digital activity attributable to UK users. The in-scope digital services activities are: social media services; Internet search engines; and online marketplaces. If an activity is ancillary or incidental to an in-scope digital services activity, its revenues may also be subject to the DST.
In March 2021, The UK government identified eight sites as post-Brexit freeports to spur trade, investment, innovation and economic recovery. The eight sites are: East Midlands Airport, Felixstowe and Harwich, Humber region, Liverpool City Region, Plymouth, Solent, Thames, and Teesside. The designated areas will offer special customs and tax arrangements and additional infrastructure funding to improve transport links.
HMG brought forward new immigration rules on January 1, 2021. The new rules have wide-ranging implications for foreign employees, students, and EU citizens. The new rules are points-based, meaning immigrants need to attain a certain number of points in order to be awarded a visa. The previous cap on visas has been abolished. EU citizens who arrived before December 31, 2020, will not have to apply for a visa, but instead are eligible to apply for “settled” or “pre-settled” status, which allows them to live and work in the UK much the same as they were before the UK left the EU. EU citizens arriving to the UK after January 1, 2021, must apply for the relevant visa.
|TI Corruption Perceptions Index||2020||11 of 180||www.transparency.org/research/cpi/overview|
|World Bank’s Doing Business Report “Ease of Doing Business”||2020||8 of 190||www.doingbusiness.org/rankings|
|Global Innovation Index||2020||4 of 131||https://www.globalinnovationindex.org/analysis-economy|
|U.S. FDI in partner country (M USD, stock positions)||2019||$851,400||www.bea.gov/international/factsheet/|
|World Bank GNI per capita||2019||$49,040||data.worldbank.org/indicator/NY.GNP.PCAP.CD|
Currency conversions have been done using XE and Bank of England data.
6. Financial Sector
Capital Markets and Portfolio Investment
The City of London houses one of the largest and most comprehensive financial centers globally. London offers all forms of financial services: commercial banking, investment banking, insurance, venture capital, private equity, stock and currency brokers, fund managers, commodity dealers, accounting and legal services, as well as electronic clearing and settlement systems and bank payments systems. London is highly regarded by investors because of its solid regulatory, legal, and tax environments, a supportive market infrastructure, and a dynamic, highly skilled workforce.
The UK government is generally hospitable to foreign portfolio investment. Government policies are intended to facilitate the free flow of capital and to support the flow of resources in product and services markets. Foreign investors are able to obtain credit in local markets at normal market terms, and a wide range of credit instruments are available. The principles underlying legal, regulatory, and accounting systems are transparent, and are consistent with international standards. In all cases, regulations have been published and are applied on a non-discriminatory basis by the Bank of England’s Prudential Regulation Authority (PRA).
The London Stock Exchange is one of the most active equity markets in the world. London’s markets have the advantage of bridging the gap between the day’s trading in the Asian markets and the opening of the U.S. market. This bridge effect is also evidenced by the fact that many Russian and Central European companies have used London stock exchanges to tap global capital markets.
The Alternative Investment Market (AIM), established in 1995 as a sub-market of the London Stock Exchange, is specifically designed for smaller, rapidly expanding companies. The AIM has a more flexible regulatory system than the main market and has no minimum market capitalization requirements. Since its launch, the AIM has raised more than £68 billion ($95 billion) for more than 3,000 companies.
Money and Banking System
The UK banking sector is the largest in Europe and represents the continent’s deepest capital pool. More than 150 financial services firms from the EU are based in the UK. The financial and related professional services industry contributed approximately 10 percent of UK economic output in 2020, employed approximately 2.3 million people, and contributed the most to UK tax receipts of any sector. The long-term impact of Brexit on the financial services industry is uncertain at this time. Some firms have already moved limited numbers of jobs outside the UK in order to service EU-based clients, but the UK is anticipated to remain a top financial hub.
The Bank of England serves as the central bank of the UK. According to its guidelines, foreign banking institutions are legally permitted to establish operations in the UK as subsidiaries or branches. Responsibilities for the prudential supervision of a foreign branch are split between the parent’s home state supervisors and the Prudential Regulation Authority (PRA). The PRA, however, expects the whole firm to meet the PRA’s threshold conditions. The PRA expects new foreign branches to focus on wholesale and corporate banking and to do so at a level that is not critical to the UK economy. The Financial Conduct Authority (FCA) is the conduct regulator for all banks operating in the United Kingdom. For foreign branches the FCA’s Threshold Conditions and conduct of business rules apply, including areas such as anti-money laundering. Eligible deposits placed in foreign branches may be covered by the UK deposit guarantee program and therefore foreign branches may be subject to regulations concerning UK depositor protection.
There are no legal restrictions that prohibit foreign residents from opening a business bank account; setting up a business bank account as a non-resident is in principle straightforward. In practice, however, most banks will not accept applications from overseas due to fraud concerns and the additional administration costs. To open a personal bank account, an individual must at minimum present an internationally recognized proof of identification and prove residency in the UK. This can present a problem for incoming FDI and American expatriates. Unless the business or the individual can prove UK residency, they will have limited banking options.
Foreign Exchange and Remittances
The pound sterling is a free-floating currency with no restrictions on its transfer or conversion. Exchange controls restricting the transfer of funds associated with an investment into or out of the UK are not exercised.
Sovereign Wealth Funds
The United Kingdom does not maintain a national wealth fund. Although there have at time been calls to turn The Crown Estate – created in 1760 by Parliament as a means of funding the British monarchy – into a wealth fund, there are no current plans to do so. Moreover, with assets of just under $20 billion, The Crown Estate would be small in relation to other national funds.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
|Host Country Statistical source||USG or international statistical source||USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other|
|Host Country Gross Domestic Product (GDP) (M USD)||2018||$2,710,000||2019||$2,829,000||https://data.worldbank.org/
|Foreign Direct Investment||Host Country Statistical source||USG or international statistical source||USG or international Source of data: BEA; IMF; Eurostat; UNCTAD, Other|
|U.S. FDI in partner country (M USD, stock positions)||2019||$527,000||2019||$851,414||BEA data available at
|Host country’s FDI in the United States (M USD, stock positions)||2019||$524,000||2019||$505,088||https://www.selectusa.gov/
|Total inbound stock of FDI as percent host GDP||2018||25.3%||2019||11.3%||Calculated using respective GDP and FDI data|
|Direct Investment from/in Counterpart Economy|
|From Top Five Sources/To Top Five Destinations (USD, Billions)|
|Inward Direct Investment 2019||Outward Direct Investment 2018|
|Total Inward||2,155.9||Proportion||Total Outward||2,060||Proportion|
|Portfolio Investment Assets|
|Top Five Partners (Millions, current US Dollars)|
|Total||Equity Securities||Total Debt Securities|
|All Countries||100%||All Countries||100%||All Countries||100%|
|United States||1,077,839||32%||United States||549,159||30%||United States||528,680||34%|
|Germany||146,051||4%||China, P.R Mainland||49,373||3%||Ireland||82,148||5%|