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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, proximity to the U.S. market, highly skilled work force, and abundant resources.  Canada encourages foreign direct investment (FDI) by promoting stability, global market access, and infrastructure. The United States is Canada’s largest investor, accounting for 44 percent of total FDI. As of 2020, the amount of U.S. FDI totaled USD 422 billion, a 5 percent increase from the previous year. Canada’s FDI stock in the United States totaled USD 570 billion, a 15 percent increase from the previous year.

Canada attracted USD 61 billion inward FDI flows in 2021 (the highest since 2007), a rebound from COVID-19-related decreases in 2020 according to Canada’s national statistical office.

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 guidelines followed 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. The 2022 budget proposal included language that could limit foreign ownership of real estate for a two-year period (to cool an overheated market and lack of housing for Canadians). 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.

Canada has taken steps to address the climate crisis by establishing the Canadian Net-Zero Emissions Accountability Act that enshrines in law the Government of Canada’s commitment to achieve net-zero greenhouse gas emissions by 2050 and issuing the 2030 Emissions Reduction Plan that describes the measures Canada is undertaking to reduce emissions to 40 to 45 percent below 2005 levels by 2030 and achieve net-zero emissions by 2050.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 13 of 180 http://www.transparency.org/research/cpi/overview
Global Innovation Index 2020 16 of 132 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2019 USD 402,255 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2020 USD 43,580 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

6. Financial Sector

8. Responsible Business Conduct

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

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

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

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

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

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

Additional Resources

Department of State

Department of the Treasury

Department of Labor

9. Corruption

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

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

10. Political and Security Environment

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

14. Contact for More Information

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

Czechia

Executive Summary 

The Czech Republic is a medium-sized, open economy with 71 percent of its GDP based on exports, mostly from the automotive and engineering industries.  According to the Czech Statistical Office, most of the country’s exports go to the European Union (EU), with 32.4 percent going to Germany alone.  The United States is the Czech Republic’s second largest non-EU export destination, following the United Kingdom.  While the Czech GDP dropped by 5.6 percent due to the economic impact of COVID-19 in 2020, it rebounded in 2021 to 3.3 percent according to the Czech Statistical Office.  The Ministry of Finance forecasts 3.1 percent growth for 2022.

The “Bill on Screening of Foreign Investments” entered into force May 1, 2021.  The law gives the government the ability to screen greenfield investments and acquisitions by non-EU investors.

The Czech Republic has taken strides to diversify its traditional investments in engineering into new fields of research and development (R&D) and innovative technologies.  EU structural funding has enabled the country to open a number of world-class scientific and high-tech centers.  EU member states are the largest investors in the Czech Republic.

The United States announced on February 15, 2020 plans to provide up to USD 1 billion in financing through the Development Finance Corporation (DFC) to the Three Seas Initiative Investment Fund, the dedicated investment vehicle for the Three Seas Initiative and its participating Central and Eastern European countries.  The Three Seas Initiative seeks to reinforce security and economic growth in the region through the development of energy, transportation, and digital infrastructure.  In December 2020 the DFC approved the first tranche of U.S. financial support for the Three Seas Initiative Investment Fund amounting to USD 300 million.

The European Bank for Reconstruction and Development (EBRD) agreed March 24, 2021, to a request from the Czech cabinet to return as an investor to the Czech Republic after a 13-year pause to help mitigate the impact of the COVID-19 pandemic on the economy.  The EBRD’s investments in the Czech Republic primarily focus on private sector assistance and should reach EUR 100 – 200 million annually (USD109-218 million).  The EBRD plans to be involved in investment projects in the Czech Republic temporarily (maximum five years).

The continued economic fallout from COVID-19 resulted in the Czech Republic’s highest historic state budget deficit of 419.7 billion crowns (USD 18.2 billion) in 2021.  In 2021, the Czech Republic appropriated approximately USD17 billion for the COVID-19 response, including USD7.7 billion in direct support, USD 6.7 billion in healthcare and social services expenses, and USD2.3 billion in loan guarantees.

The Czech Republic has adopted environmental strategies and policies to address the climate crisis.  Public procurement policies include environmental considerations, and the government provides subsidies to companies for using modern low-carbon technologies, renewables, and resource-effective processes.

There are no significant risks to doing business responsibly in areas such as labor and human rights in the Czech Republic.

The Czech Republic fully complies with EU and the Organization for Economic Cooperation and Development (OECD) standards for labor laws and equal treatment of foreign and domestic investors.  Wages continue to trail those in neighboring Western European countries (Czech wages are roughly one-third of comparable German wages).  While wage growth slowed in 2020 following the coronavirus pandemic, resulting in a 3.1 percent year-on-year increase, wages rose by 6.1 percent in 2021, according to the Czech Statistical Office.  As of the fourth quarter of 2021, wages grew primarily in the real estate, accommodation, and hospitality sectors.  As of January 2022, the unemployment rate remained the lowest in the EU, at only 2.3 percent.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 49 of 180 http://www.transparency.org/research/cpi/overview
Global Innovation Index 2021 24 of 132 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2020 5,629 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2020 22,070 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment 

3. Legal Regime  

4. Industrial Policies  

6. Financial Sector  

8. Responsible Business Conduct  

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

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

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

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

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

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

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

9. Corruption  

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

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

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

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

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

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

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

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

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

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 that should help attract private and foreign direct investment (FDI). 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 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.

Parliament passed the Taxation Laws (Amendment) Bill on August 6, 2021, repealing a law adopted by the Congress-led government of Manmohan Singh in 2012 that taxed companies retroactively. The Finance Minister also said the Indian government will refund disputed amounts from outstanding cases under the old law. While Prime Minister Modi’s government had pledged never to impose retroactive taxes, prior outstanding claims and litigation led to huge penalties for Cairn Energy and telecom operator Vodafone.  Both Indian and U.S. business have long advocated for the formal repeal of the 2012 legislation to improve certainty over taxation policy and liabilities.

India continued to increase and enhance implementation of the roughly $2 trillion in proposed infrastructure projects catalogued, for the first time, in the 2019-2024 National Infrastructure Pipeline. The government’s FY 2021-22 budget included a 35 percent increase in spending on infrastructure projects. In November 2021, Prime Minister Modi launched the “Gati Shakti” (“Speed Power”) initiative to overcome India’s siloed approach to infrastructure planning, which Indian officials argue has historically resulted in inefficacies, wasteful expenditures, and stalled projects. India’s infrastructure gaps are blamed for higher operational costs, especially for manufacturing, that hinder investment.

Despite this progress, India remains a challenging place to do business. New protectionist measures, including strict enforcement and potential expansion of data localization measures, increased tariffs, 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 and investment.

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.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank/
Amount
Website Address
TI Corruption Perception Index 2021 85 of 180 https://www.transparency.org/en/countries/india 
Innovation Index 2021 46 of 132 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country (Million. USD stock positions) 2020 $41,904 usdia-position-2020.xlsx (live.com) 

 

 

World Bank GNI per capita (USD) 2020 $1,920 https://databank.worldbank.org/views/reports/reportwidget.aspx?Report_Name=CountryProfile&Id=b450fd57&tbar=y&dd=y&inf=
n&zm=n&country=IND
 

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

6. Financial Sector

8. Responsible Business Conduct

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

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

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

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

9. Corruption

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

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

Other statutes approved by parliament to tackle corruption include:

The Benami Transactions (Prohibition) Amendment Act of 2016

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

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

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

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

10. Political and Security Environment

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

14. Contact for More Information

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

Turkey

Executive Summary

Turkey experienced strong economic growth on the back of the many positive economic and banking reforms it implemented between 2002 and 2007, and it weathered the global economic crisis of 2008-2009 better than most countries, establishing itself as a relatively stable emerging market with a promising trajectory of reforms and a strong banking system. However, over the last several years, economic and democratic reforms have stalled and by some measures regressed. GDP growth was 2.6 percent in 2018 as the economy entered a recession in the second half of the year. Challenged by the continuing currency crisis, particularly in the first half of 2019, the Turkish economy grew by only 0.9 percent in 2019. Turkey’s expansionist monetary policy pushed Turkey’s economy to grow by 1.8 percent in 2020 despite the pandemic, though high inflation and persistently high unemployment have been exacerbated. In 2021, Turkey’s GDP grew 11 percent year-over-year (YOY), the highest growth rate in ten years. However, this year growth is expected to be around 3.3 percent, but with significant downside risks. The spending of over USD 100 billion in foreign reserves in a vain attempt to stop the lira’s devaluation, and unorthodox monetary policies that have fueled inflation have left Turkey vulnerable to external shocks.

Despite recent growth, the government’s economic policymaking remains opaque, erratic, and politicized, contributing to long-term and sometimes acute depreciation of the Turkish lira. In September 2021, the Central Bank of Turkey embarked on a series of rate cuts that lowered the key interest rate by 500 basis points, leaving real rates deeply negative. Inflation in 2021 was 48.7 percent and unemployment 11.2 percent, with a slight recovery in labor force participation (52.9 percent).

Macroeconomic instability and the government’s push to require manufacturing and data localization in many sectors have negatively impacted foreign investment into the country. Turkey has maintained its 2020 digital service taxes but agreed to a plan to rescind the tax once pillar one of the OECD Inclusive Framework on a global minimum tax is implemented. Other issues of importance include tax reform and the decreasing independence of the judiciary and the Central Bank.

Laws targeting the Information and Communication Technology (ICT) sector have increased regulations on data, social media platforms, online marketing, online broadcasting, tax collection, and payment platforms. ICT and other companies report Government of Turkey (GOT) pressure to localize data, which the GOT views as a precursor to greater access to user information and source code. Law No. 6493 on Payment and Security Systems, Payment Services, and E-money Institutions also requires financial institutions to establish servers in Turkey to localize data. The Turkish Banking Regulation and Supervision Agency (BDDK) is the authority that issues business licenses if companies localize their IT systems in Turkey and keep the original data (not copies) in Turkey.

Regulations on data localization, internet content, and taxation/licensing have chilled investment by other possible entrants to the e-commerce and e-payments sectors. The laws affect all companies that collect private user data, such as payment information provided online for a consumer purchase.

In 2020, a law requiring social network providers (SNPs) that serve more than one million users in Turkey to appoint a domestic representative entered into force. The SNPs in-country representatives are obliged to accept service of documents from the Information and Communication Technologies Authority (ICTA), which mainly requests removal of content on the grounds of articles 9 and 9/A of local Law No. 5651. The SNP’s country representative must be a Turkish citizen or a legal person registered in Turkey, and easily accessible to local users.

The immediate impact of the COVID-19 pandemic on the economy was sharp, but Turkey managed to contain the number of COVID-19 cases relatively effectively with targeted lockdowns and thanks to its strong health-services infrastructure. The tourism sector, which generates demand for products and various service sectors, was particularly affected. The GOT provided support to protect corporate liquidity, employment, and household incomes. Government investment incentives were refined during the pandemic to attract FDI and encourage green investments. The pandemic exacerbated structural challenges related to high unemployment and the country’s widespread informal economy, which hit the informal sector workers and the self-employed the hardest. While there has been progress in creating quality jobs over the past 15 years, the number of jobs decreased after both the 2018 financial turmoil and because of COVID-19.

Turkey ratified the Paris Agreement in 2021 and continues to make progress on its green initiatives. Turkey’s FDI incentive packages are updated regularly, and in 2021 they were altered to include more incentives targeted at green projects as identified by the Ministry of Industry and Technology.

The opacity and inconsistency of government economic decision making, and concerns about the government’s commitment to the rule of law, have led to historically low levels of foreign direct investment (FDI). While there are still an estimated 1,700 U.S. businesses active in Turkey, many with long-standing ties to the country, the share of American activity is relatively low given the size of the Turkish economy. Investment inflows in 2021 were USD 14.1 billion, an increase of 19 percent from 2019 and the highest rate in the last five years. However, real estate acquisition by foreign nationals accounted for 41 percent of the total inflows in 2021 with USD 5.8 billion, and equity capital inflows were the biggest slice of the FDI pie with USD 7.6 billion. Increased protectionist measures continue to add to the challenges of investing in Turkey. Progress in combatting corruption is also necessary for many of the GOT’s current and future policies to work effectively.

Turkey’s investment climate is positively influenced by its favorable demographics and prime geographical position, providing access to multiple regional markets. Turkey is an island of relative stability in a turbulent region, making it a popular hub for regional operations. Turkey has a relatively educated work force, well-developed infrastructure, and a consumption-based economy.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perception Index 2021 96 of 180 http://www.transparency.org/research/cpi/overview
Global Innovation Index 2021 41 of 132 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2020 $5,814 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2020 $9,050 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD

 

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

6. Financial Sector

8. Responsible Business Conduct

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

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

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

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

Additional Resources

Department of State

Department of the Treasury

Department of Labor

Climate Issues

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

9. Corruption

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

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

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

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

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

Resources to Report Corruption

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

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

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

10. Political and Security Environment

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

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

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

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data:  BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount  
Host Country Gross Domestic Product (GDP) ($M USD) 2021 $795,950 2020 $719,920 * www.turkstat.gov.tr
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2021 $1,430 2020 $5,814 BEA data available athttps://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data 

*https://evds2.tcmb.gov.tr/index.php?/evds/dashboard/4944

Host country’s FDI in the United States ($M USD, stock positions) 2020 $1,557 2020 $2,578 BEA data available at https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
Total inbound stock of FDI as % host GDP 2019 19.9% 2019 21.9% UNCTAD data available at

https://unctad.org/en/Pages/DIAE/World percent20Investment percent20Report/Country-Fact-Sheets.aspx   

* www.tcmb.gov.tr

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

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data (through 2020)
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 124923 100% Total Outward 50,726 100%
Qatar 32,445 26% North Macedonia 19,668 39%
North Macedonia 17,994 4% United Kingdom 5,211 10%
United Kingdom 13,083 10% Germany 2,561 5%
Germany 9,360 7% Austria 2,286 .5%
Luxembourg 5,291 4% Jersey 2,285 4.5%
“0” reflects amounts rounded to +/- USD 500,000.

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

14. Contact for More Information:

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

United Arab Emirates

Executive Summary

The Government of the United Arab Emirates (UAE) is urgently pursuing economic diversification and regulatory reforms to promote private sector development; reduce dependence on hydrocarbon revenues; and build a knowledge economy buttressed by advanced technology and clean energy.

The UAE serves as a major trade and investment hub for the Middle East and North Africa, as well as increasingly for South Asia, Central Asia, and Sub-Saharan Africa. Multinational companies cite the UAE’s political and economic stability, excellent infrastructure, developed capital markets, and a perceived absence of systemic corruption as factors contributing to the UAE’s attractiveness to foreign investors. The UAE seeks to attract foreign direct investment (FDI) by i) not charging taxes or making restrictions on the repatriation of capital; ii) allowing relatively free movement into the country of labor and low barriers to entry (effective tariffs are five percent for most goods); and iii) offering FDI incentives.

The UAE in 2021 launched broad economic and social reforms to strengthen pandemic recovery, respond to growing regional economic competition, and commemorate its 50-year founding anniversary with a series of reforms.

The UAE and the country’s seven constituent emirates have passed numerous initiatives, laws, and regulations to attract more foreign investment. Recent measures include visa reforms to attract and retain expatriate professionals, a drive to create new international economic partnerships, major investments in critical industries, and policies to encourage Emirati entrepreneurship and labor force participation. These economic development projects offer both challenges and opportunities for foreign investors in the coming years. In 2022, UAE changed its work week for government bodies from Sunday to Thursday to Monday to Thursday with a half day on Friday in order to more closely align with world markets.

Additionally, the UAE approved a comprehensive reform of the national legal system, which, among other aims, developed the legal frameworks around data privacy, investment, regulation and legal protection of industrial property, copyrights, trademarks, and residency. The first-ever federal data protection law regulates how personal data are processed across the UAE, with separate laws on government, financial, and healthcare data to follow. The new Commercial Companies law removes restrictions to facilitate further mergers and acquisition activity. The federal trademark law further expands the scope of legal protection for companies’ trademarks, products, innovations, and trade names by protecting non-traditional patterns of trademarks. These legal reforms are broadly considered to be positive by U.S. companies, but investors will need to carefully consider how these broad changes affect their operations.

The Ministry of Finance announced in January 2022 that the UAE will introduce a federal corporate tax on business profits starting in 2023 as part of its membership in the OECD Inclusive Framework on Base Erosion and Profit Shifting. Companies await further guidance on how the new tax policy will be implemented, but it is expected to have a broad and significant impact on companies operating both inside in the UAE and “offshore” in the country’s many economic free zones.

The UAE announced in October 2021 that it would pursue net zero greenhouse gas emissions by 2050, to include an investment of $163 billion in renewable energy.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 24 of 180 http://www.transparency.org/research/cpi/overview
Global Innovation Index 2021 33 out of 132 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2020 $19.5 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2020 $39,410 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

6. Financial Sector

8. Responsible Business Conduct

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

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

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

 

9. Corruption

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

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

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

Resources to Report Corruption

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

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

10. Political and Security Environment

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

14. Contact for More Information

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

United Kingdom

Executive Summary    

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.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perception Index 2021 11 of 180  http://www.transparency.org/research/cpi/overview
Global Innovation Index 2021 4 of 131 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2020 $890,086  https://www.bea.gov/data/intl-trade-investment/direct-investment-country-and-industry 

 

World Bank GNI per capita 2020 $45,870 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD

 

1. Openness To, and Restrictions Upon, Foreign Investment   

3. Legal Regime   

4. Industrial Policies   

Investment Climate Statements
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The Lessons of 1989: Freedom and Our Future