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 170 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 now require screening, regardless of their value or national origin. 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, although some U.S. companies have reported greater scrutiny of their investments in Australia.
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 increased funding for clean technology projects and both local and international companies can apply for grants to implement emission-saving equipment to their operations. Australia adopted a net-zero emissions target at the national level in November 2021 although made no change to its short-term goal of a 26-28 percent emission reduction by 2030 on 2005 levels. Australia’s eight states and territories have adopted both net-zero targets and a range of interim emission reduction targets set above the federal target. Various state incentive schemes may also be available to U.S. investors.
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.
According to its most recent report, the Belgian central bank expects gross domestic product (GDP) to grow 2.6% in 2022 despite economic headwinds linked to global supply chain bottlenecks, spiking energy costs, and uncertainty related to COVID-19 and the Russian invasion of Ukraine. Experts project that Belgium’s growth rate will slow but remain above potential, dipping slightly to 2.4% in 2023 and further to 1.6% in 2024. The labor market remains strong as overall job numbers continue to increase, and analysts anticipate that the unemployment rate will decline steadily to 5.7% by 2024. The inflation rate will likely continue to increase, largely driven by rising energy prices. The Belgian central bank expects the rate to peak in 2022 at 4.9% and then decline as energy markets stabilize. Belgium’s budget deficit is projected to reach 6.3% of GDP for 2021 – down from a high of 9.1% in 2020 – and will likely remain above 4% of GDP through 2024. The level of government debt will hold steady, with most experts projecting 108.9% of GDP in 2021, 106.3% in 2022 and 107.5% in 2023.
Belgium is a major logistical hub and gateway to Europe, a position that helps drives its economic growth. Since June 2015, the Belgian government has undertaken a series of measures to reduce the tax burden on labor and to increase Belgium’s economic competitiveness and attractiveness to foreign investment. A July 2017 decision to lower the corporate tax rate from 35% to 25% further improved the investment climate. The current coalition government has not signaled any intention to revise this tax rate.
Belgium boasts an open market well connected to the major economies of the world. As a logistical gateway to Europe, host to major EU institutions, and a central location closely tied to the major European economies, Belgium is an attractive market and location for U.S. investors. Belgium is a highly developed, long-time economic partner of the United States that benefits from an extremely well-educated workforce, world-renowned research centers, and the infrastructure to support a broad range of economic activities
Belgium has a dynamic economy and attracts significant levels of investment in chemicals, petrochemicals, plastics and composites; environmental technologies; food processing and packaging; health technologies; information and communication; and textiles, apparel and sporting goods, among other sectors. In 2021, Belgian exports to the U.S. market totaled $27.7 billion, registering the United States as Belgium’s fourth largest export destination. Key exports included chemicals (37.6%), machinery and equipment (10.9%), and precious metals and stones (5.9%). In terms of imports, the United States ranked as Belgium’s fourth largest supplier of imports, with the value of imported goods totaling $27.6 billion in 2021. Key imports from the United States included chemicals (38.8%), machinery and equipment (11%), and plastics (10.7%).
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.
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.
The COVID-19 crisis had a massive impact on Ireland’s economy and its effects will continue in 2022. The Irish government implemented varying degrees of lockdown measures in response to the COVID-19 pandemic from the onset in March 2020, including restrictions to close non-essential businesses and services for extended periods of time. Unemployment (including COVID-19 related temporary unemployment) peaked at 28.1 percent in April 2020. Ireland’s official unemployment rate remained around 5 percent (currently at 5.2 percent as of February 2022) due to the unprecedented pandemic related government assistance programs to businesses and workers furloughed due to COVID-19. Over the past two years, the government sustained a level of unprecedented deficit spending to combat the pandemic. Despite the prolonged difficulties caused by COVID-19, Ireland’s economy performed extremely well with GDP growth of 13.5 percent recorded in 2021 following growth of 5.9 percent in 2020. Most of this growth can be attributed to export focused industries (technology, pharmaceutical, and other large multinational companies headquartered in Ireland) while the domestic economy struggled with temporary business closures due to the restrictions. Russia’s invasion of Ukraine exasperated Ireland’s growing inflation concerns with fuel and gas price rises leading to price increases across all sectors, which could dampen consumer spending and confidence and could result in lower-than-expected growth for 2022.
The Irish government actively promotes foreign direct investment (FDI) and has had considerable success in attracting investment, particularly from the United States. There are over 950 U.S. subsidiaries in Ireland operating primarily in the following sectors: chemicals, biosciences, pharmaceutical and medical devices; computer hardware and software; internet and digital media; electronics, and financial services.
One of Ireland’s many attractive features as an FDI destination is its favorable 12.5 percent corporate tax (in place since 2003), the second lowest in the European Union (EU). Ireland signed the OECD Inclusive Framework Agreement, which institutes minimum corporate tax rate of 15 percent when implemented. Firms routinely note that they come to Ireland primarily for the high quality and flexibility of the English-speaking workforce; the availability of a multilingual labor force; cooperative labor relations; political stability; and pro-business government policies and regulators. Additional positive features include a transparent judicial system; transportation links; proximity to the United States and Europe; and Ireland’s geographic location making it well placed in time zones to support investment in Asia and the Americas. Ireland benefits from its membership of the EU and a barrier-free access to a market of almost 500 million consumers. In addition, the clustering of existing successful industries has created an ecosystem attractive to new firms. The United Kingdom’s (UK) departure from the EU, or Brexit, on January 1, 2021, leaves Ireland as the only remaining English-speaking country in the EU and may make Ireland even more attractive as a destination for FDI.
The Irish government treats all firms incorporated in Ireland on an equal basis. Ireland’s judicial system is transparent and upholds the sanctity of contracts, as well as laws affecting foreign investment. Conversely, Ireland’s ability to attract investment are often marred by relatively high labor and operating costs (such as for energy); skilled-labor shortages; licensing and permitting challenges (e.g., for zoning, rezoning, project permissions, etc.) Eurozone-risk; infrastructure in need of investment (such as in transportation, affordable housing, energy and broadband internet); high income tax rates; uncertainty in EU policies on some regulatory matters; and absolute price levels among the highest in Europe.
New data centers must meet new requirements regarding location, energy consumption and energy storage as Ireland’s electricity system struggles to meet demand for energy.
A formal national security screening process for foreign investment in line with the EU framework is expected to be in place by late 2022, though the original date was 2020 but delayed due to the pandemic. At present, investors looking to receive government grants or assistance through one of the four state agencies responsible for promoting foreign investment in Ireland are often required to meet certain employment and investment criteria.
Ireland uses the euro as its national currency and enjoys full current and capital account liberalization.
The government recognizes and enforces secured interests in property, both chattel and real estate. Ireland is a member of the World Intellectual Property Organization (WIPO) and a party to the International Convention for the Protection of Intellectual Property.
Several state-owned enterprises (SOEs) operate in Ireland in the energy, broadcasting, and transportation sectors. All of Ireland’s SOEs are open to competition for market share.
While Ireland has no bilateral investment treaties, the United States and Ireland have shared a Friendship, Commerce, and Navigation Treaty since 1950 that provides for national treatment of U.S. investors. The two countries have also shared a Tax Treaty since 1998, supplemented in December 2012 with an agreement to improve international tax compliance and to implement the U.S. Foreign Account Tax Compliance Act (FATCA).
Israel has an entrepreneurial spirit and a creative, highly educated, skilled, and diverse workforce. It is a leader in innovation in a variety of sectors, and many Israeli start-ups find good partners in U.S. companies. Popularly known as “Start-Up Nation,” Israel invests heavily in education and scientific research. U.S. firms account for nearly two-thirds of the more than 300 research and development (R&D) centers established by multinational companies in Israel. Israel has 117 companies listed on the NASDAQ, the fourth most companies after the United States, Canada, and China. Israeli government agencies, led by the Israel Innovation Authority, fund incubators for early-stage technology start-ups, and Israel provides extensive support for new ideas and technologies while also seeking to develop traditional industries. Private venture capital funds have flourished in Israel in recent years.
The COVID-19 pandemic shook Israel’s economy, but successful pre-pandemic economic policy buffers – strong growth, low debt, a resilient tech sector among them – mean Israel entered the COVID-19 crisis with relatively low vulnerabilities, according to the International Monetary Fund’s Staff Report for the 2020 Article IV Consultation. The fundamentals of the Israeli economy remain strong, and Israel’s economy rebounded strongly post-pandemic with 8.1 percent GDP growth in 2021. With low inflation and fiscal deficits that have usually met targets pre-pandemic, most analysts consider Israeli government economic policies as generally sound and supportive of growth. Israel seeks to provide supportive conditions for companies looking to invest in Israel through laws that encourage capital and industrial R&D investment. Incentives and benefits include grants, reduced tax rates, tax exemptions, and other tax-related benefits.
The U.S.-Israeli bilateral economic and commercial relationship is strong, anchored by two-way trade in goods and services that reached USD 45.1 billion in 2021, according to the U.S. Bureau of Economic Analysis, and extensive commercial ties, particularly in high-tech and R&D. The total stock of Israeli foreign direct investment (FDI) in the United States was USD 40.4 billion in 2020. Since the signing of the U.S.-Israel Free Trade Agreement in 1985, the Israeli economy has undergone a dramatic transformation, moving from a protected, low-end manufacturing and agriculture-led economy to one that is diverse, mostly open, and led by a cutting-edge high-tech sector.
The Israeli government generally continues to take slow, deliberate actions to remove trade barriers and encourage capital investment, including foreign investment. The continued existence of trade barriers and monopolies, however, have contributed significantly to the high cost of living and the lack of competition in key sectors. The Israeli government maintains some protective trade policies.
Israel has taken steps to meet its pledges to reduce greenhouse gas emissions, with planned investments in technologies and projects to slow the pace of climate change.
Italy’s successful vaccination campaign, an ambitious reform and investment plan funded and approved by the European Union, and Prime Minister Mario Draghi’s leadership which has boosted Italy’s role on the international stage, helped the Italian economy to grow a healthy 6.6 percent in 2021 – one of the fastest rates in Europe. Growth was underpinned by a robust 17 percent increase in investment. However, energy price spikes, supply chain disruptions, and Russia’s full-scale invasion of Ukraine create uncertainty affecting consumer and business confidence. Italy now forecasts its economy, the euro area’s third largest, will grow by 3.1 percent (down from a 4.7 percent projected in September 2021). For 2023, the government projects GDP will grow 2.4 percent (down from the previous target of 2.8 percent). The public debt, proportionally the highest in the eurozone after Greece’s, is targeted at 147 percent of GDP in 2022, down from 2020’s 156 percent, and projected to decline to 145 percent in 2023.
Italy’s National Resilience and Recovery Plan (NRRP) combines over €200 billion in investment to accelerate the digital and green transition coupled with wide-ranging reforms addressing the Italian economy’s longstanding drags on growth — namely its slow legal system, tax administration and bloated bureaucracy — while rebalancing policies to address gender, youth, and regional disparities. This combination of investment and reform, with some easing of fiscal constraints from Brussels, may reposition Italy, the eurozone’s second largest industrial base, as an engine for growth. In April 2022, the European Commission disbursed €21 billion in the first tranche of Next Generation EU funds pandemic aid to Italy after determining the Italian government successfully met the 51 objectives of its NRRP set out for 2021. Italy will have to achieve a further 45 milestones and targets by June 30, 2022, to receive the second tranche of funds worth €24.1 billion. Crucial for improving Italy’s investment climate and spurring growth is reform of Italy’s justice system, one of the slowest in Europe. According to the European Commission, the average Italian civil law case takes more than 500 days to resolve, versus an average of about 200 days in Germany, 300 in Spain and 450 in Greece. For U.S. investors, judicial reform and bureaucratic streamlining would minimize uncertainty and create a more favorable investment climate.
Italy is and will remain an attractive destination for foreign investment, with one of the largest markets in the EU, a diversified economy, and a skilled workforce. Italy’s economy, the eighth largest in the world, is dominated by small and medium-sized firms (SMEs), which comprise 99.9 percent of Italian businesses. Italy’s relatively affluent domestic market, access to the European Common Market, proximity to emerging economies in North Africa and the Middle East, and assorted centers of excellence in scientific and information technology research, remain attractive to many investors. Italy is the eighth largest consumer market in the world, the seventh largest manufacturing producer, and boasts a diversified economy and skilled workforce. The clustering of industry, the infrastructure, and the quality of life are also among the top reasons international investors decide to start or expand a business in Italy. According to Italy’s Institute of Statistics, over 15,000 foreign multinationals employ one out of seven Italian residents. Foreign companies account for 18 percent of Italian GDP and 14 percent of investments. Exports of pharmaceutical products, furniture, industrial machinery and machine tools, electrical appliances, automobiles and auto parts, food and wine, as well as textiles/fashion are an important source of external revenue. The sectors that have attracted significant foreign investment include telecommunications, transportation, energy, and pharmaceuticals. The government remains open to foreign investment in shares of Italian companies and continues to make information available online to prospective investors.
The Republic of Malta is a small, strategically located country 60 miles south of Sicily and 180 miles north of Libya, astride some of the world’s busiest shipping lanes. A politically stable parliamentary republic with a free press, Malta is considered a safe, secure, and welcoming environment for American investors to do business.
Malta joined the European Union in 2004, the Schengen visa system in 2007, and the Eurozone in 2008. With a population of about 516,100 and a total area of only 122 square miles, it is the EU’s smallest country in geographic size. The economy is based on services, primarily shipping, banking and financial services, online gaming, tourism, and professional, scientific, and technical activities. Manufacturing also plays a small, but important role. Maltese and English are the official languages.
Given its central location in one of the world’s busiest trading regions, as well as its relatively small economy, Malta recognizes the important contribution that international trade and investment provides to the generation of national wealth.
After robust economic growth of 5.3 percent in 2019, the Maltese economy registered a severe contraction in 2020 of -8.2 percent brought about by the COVID-19 pandemic. However, thanks to the improvement of the public health situation in Malta, which allowed for a significant relaxation of restrictive measures, real GDP growth rebounded strongly to 5.9 percent in 2021. Malta’s unemployment rate stood at 3.1 percent in February 2022.
While the top three credit rating agencies predicted the economic impact of the pandemic would be less pronounced on the Maltese economy when compared to other EU neighboring countries, Moody’s moved from a stable to a negative outlook. The current sovereign credit ratings are A-/A-2 with a stable outlook (S&P); A2 with a negative outlook (Moody’s); and A+ with a stable outlook (Fitch). Moody’s recent change to a negative outlook on the government’s debt burden is attributed to the Financial Action Task Force’s greylisting and risks linked to the recovery of the tourism sector.
In 2020, the Government of Malta revamped its citizenship-by-investment program, which provides citizenship by naturalization to applicants (and their dependents). The new program still offers a track to citizenship through the introduction of a residency requirement before the acquisition of Maltese citizenship. The residency program offers two investment routes to acquire citizenship: i) individuals can apply after a one-year residency period if they invest €750,000 ($875,000) or more; or ii) applicants can opt to pay €600,000 ($700,500) if they apply after a three-year residency period. IIP conditions include a €700,000 ($814,000) minimum for purchasing immovable property, or a €16,000 per year minimum for leasing immovable property (which must be retained for at least five years), and a €150,000 minimum for investment in stocks, bonds, or debentures. Applicants must also make a mandatory €10,000 ($11,600) philanthropic donation and pass a due diligence test before filing the application. In March 2022, the government suspended the processing of applications for nationals of the Russian Federation and Belarus. The suspension applies to both Malta’s citizenship-by-investment scheme as well as a residency through investment scheme, which must be renewed on a yearly basis.
In 2021, Mexico was the United States’ second largest trading partner in goods and services. It remains one of our most important investment partners. Bilateral trade grew 482 percent from 1993-2020, and Mexico is the United States’ second largest export market. The United States is Mexico’s top source of foreign direct investment (FDI) with a stock of USD 184.9 billion (2020 per the International Monetary Fund’s Coordinated Direct Investment Survey).
The Mexican economy averaged 2.1 percent GDP growth from 1994 to 2021, contracted 8.3 percent in 2020 — its largest ever annual decline — and rebounded 5 percent in 2021. Exports surpassed pre-pandemic levels by five percent thanks to the reopening of the economy and employment recovery. Still, supply chain shortages in the manufacturing sector, the COVID-19 omicron variant, and increasing inflation caused the economic rebound to decelerate in the second half of 2021. Mexico’s conservative fiscal policy resulted in a primary deficit of 0.3 percent of GDP in 2021, and the public debt decreased to 50.1 percent from 51.7 percent of GDP in 2020. The newly appointed Central Bank of Mexico (or Banxico) governor committed to upholding the central bank’s independence. Inflation surpassed Banxico’s target of 3 percent ± 1 percent at 5.7 percent in 2021. The administration maintained its commitment to reducing bureaucratic spending to fund an ambitious social spending agenda and priority infrastructure projects, including the Dos Bocas Refinery and Maya Train.
The United States-Mexico-Canada Agreement (USMCA) entered into force July 1, 2020 with Mexico enacting legislation to implement it. Still, the Lopez Obrador administration has delayed issuance of key regulations across the economy, complicating the operating environment for telecommunications, financial services, and energy sectors. The Government of Mexico (GOM) considers the USMCA to be a driver of recovery from the COVID-19 economic crisis given its potential to attract more foreign direct investment (FDI) to Mexico.
Investors report the lack of a robust fiscal response to the COVID-19 crisis, regulatory unpredictability, a state-driven economic policy, and the shaky financial health of the state oil company Pemex have contributed to ongoing uncertainties. The three major ratings agencies (Fitch, Moody’s, and Standard and Poor’s) maintained their sovereign credit ratings for Mexico unchanged from their downgrades in 2020 (BBB-, Baa1, and BBB, lower medium investment grade, respectively). Moody’s downgraded Pemex’s credit rating by one step to Ba3 (non-investment) July 2021, while Fitch and S&P maintained their ratings (BB- and BBB, lower medium and non-investment grades, respectively. Banxico cut Mexico’s GDP growth expectations for 2022, to 2.4 from 3.2 percent, as did the International Monetary Fund (IMF) to 2.8 percent from the previous 4 percent estimate in October 2021. The IMF anticipates weaker domestic demand, ongoing high inflation levels as well as global supply chain disruptions in 2022 to continue impacting the economy. Moreover, uncertainty about contract enforcement, insecurity, informality, and corruption continue to hinder sustained Mexican economic growth. Recent efforts to reverse the 2013 energy reforms, including the March 2021 changes to the electricity law (found to not violate the constitution by the supreme court on April 7 but still subject to injunctions in lower courts), the May 2021 changes to the hydrocarbon law (also enjoined by Mexican courts), and the September 2021 constitutional amendment proposal prioritizing generation from the state-owned electric utility CFE, further increase uncertainty. These factors raise the cost of doing business in Mexico.
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 37 percent of the Korea Composite Stock Price Index (KOSPI) total market capitalization as of February 2022.
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 innovative 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 inside the Korea Trade-Investment Promotion Agency (KOTRA) 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, adding mobility and biohealth in 2021 and 2022. 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 has taken a transparent approach in its COVID-19 response, under the leadership of the Korea Disease Control and Prevention Agency. Public health experts brief the public almost every day and the public has largely complied with social distancing guidelines and universal mask-wearing. These measures largely staved off the disease through the end of 2021, by which time over 80 percent of Koreans had been vaccinated and the government began relaxing social distancing measures. In February and March 2022, however, a new wave fueled by the omicron variant rapidly spread, peaking at over 621,000 positive cases on March 17. As of March 28, 2022, more than 12 million Koreans have tested positive for COVID-19 and total infections rose over ten million and deaths mounted. The pandemic’s economic impact has been limited. GDP dropped a mere one percent in 2020 before recovering by four percent in 2021, in part due to aggressive stimulus including more than USD 220 billion in 2020. As a result, the Korean domestic economy fared better than nearly all its OECD peers. The economic impact of the omicron outbreak remains uncertain, and Korea’s export-oriented economy remains vulnerable to external shocks, including supply chain disruptions and high energy prices, going forward.
Switzerland is welcoming to international investors, with a positive overall investment climate. The Swiss federal government enacts laws and regulations governing corporate structure, the financial system, and immigration, and concludes international trade and investment treaties. However, Switzerland’s 26 cantons (analogous to U.S. states) and largest municipalities have significant independence to shape investment policies locally, including incentives to attract investment. This federal approach has helped the Swiss maintain long-term economic and political stability, a transparent legal system, extensive and reliable infrastructure, efficient capital markets, and an excellent quality of life for the country’s 8.6 million inhabitants. Many U.S. firms base their European or regional headquarters in Switzerland, drawn to the country’s modest corporate tax rates, productive and multilingual workforce, and well-maintained infrastructure and transportation networks. U.S. companies also choose Switzerland as a gateway to markets in Eastern Europe, the Middle East, and beyond. Furthermore, U.S. companies select Switzerland because of favorable and less restrictive labor laws compared to other European locations as well as availability of a skilled workforce.
In 2019, the World Economic Forum rated Switzerland the world’s fifth most competitive economy. This high ranking reflects the country’s sound institutional environment and high levels of technological and scientific research and development. With very few exceptions, Switzerland welcomes foreign investment, accords national treatment, and does not impose, facilitate, or allow barriers to trade. According to the OECD, Swiss public administration ranks high globally in output efficiency and enjoys the highest public confidence of any national government in the OECD. The country’s competitive economy and openness to investment brought Switzerland’s cumulative inward direct investment to USD 1.4 trillion in 2020 (latest available figures) according to the Swiss National Bank, although nearly half of this amount is invested in regional hubs or headquarters that further invest in other countries.
In order to address international criticism of tax incentives provided by Swiss cantons, the Federal Act on Tax Reform and Swiss Pension System Financing (TRAF) entered into force on January 1, 2020. TRAF obliges cantons to offer the same corporate tax rates to both Swiss and foreign companies, while allowing cantons to continue to set their own cantonal tax rates and offer incentives for corporate investment. These can be deductions or preferential tax treatment for certain types of income (such as for patents), or expenses (such as for research and development). Switzerland joined the Statement of the OECD/G20 Inclusive Framework on Base Erosion and Profit Sharing (BEPS) in July 2021. It intends to implement the BEPS effective minimum corporate tax rate of 15 percent by January 2024, after a referendum to amend the Swiss constitution.
Personal income and corporate tax rates vary widely across Switzerland’s cantons. Effective corporate tax rates ranged between 11.85 and 21.04 percent in 2021, according to KPMG. In Zurich, for example, the combined effective corporate tax rate (including municipal, cantonal, and federal taxes),was 19.7 percent in 2021. The United States and Switzerland have a bilateral tax treaty.
Key sectors that have attracted significant investments in Switzerland include information technology, precision engineering, scientific instruments, pharmaceuticals, medical technology, and machine building. Switzerland hosts a significant number of startups. A new “blockchain act” came fully into force in August 2021, which is expected to benefit Switzerland’s already sizeable ecosystem for companies in blockchain and distributed ledger technologies.
There are no “forced localization” laws designed to require foreign investors to use domestic content in goods or technology (e.g., data storage within Switzerland). Switzerland follows strict privacy laws and certain personal data may not be collected in Switzerland.
Switzerland is a highly innovative economy with strong overall intellectual property protection. Switzerland enforces intellectual property rights linked to patents and trademarks effectively, and new amendments to the country’s Copyright Act to strengthen copyright enforcement on the internet came into force in April 2020.
There are some investment restrictions in areas under state monopolies, including certain types of public transportation, telecommunications, postal services, alcohol and spirits, aerospace and defense, certain types of insurance and banking services, and the trade in salt. The Swiss agricultural sector remains protected and heavily subsidized.
Liechtenstein’s investment conditions are identical in most key aspects to those in Switzerland, due to its integration into the Swiss economy. The two countries form a customs union, and Swiss authorities are responsible for implementing import and export regulations.
Both Liechtenstein and Switzerland are members of the European Free Trade Association (EFTA, which also includes Iceland and Norway). EFTA is an intergovernmental trade organization and free trade area that operates in parallel with the European Union (EU). Liechtenstein participates in the EU single market through the European Economic Area (EEA), unlike Switzerland, which has opted for a set of bilateral agreements with the EU instead.
Liechtenstein has a stable and open economy employing 40,328 people in 2020 (latest figures available), exceeding its domestic population of 39,055 and requiring a substantial number of foreign workers. In 2020, 70.6 percent of the Liechtenstein workforce were foreigners, mainly Swiss, Austrians and Germans, most of whom commute daily to Liechtenstein. Liechtenstein was granted an exception to the EU’s Free Movement of People Agreement, enabling the country not to grant residence permits to its workers.
Liechtenstein is one of the world’s wealthiest countries. Liechtenstein’s gross domestic product per capita amounted to USD 162,558 in 2019 (latest data available). According to the Liechtenstein Statistical Yearbook, the services sector, particularly in finance, accounts for 63 percent of Liechtenstein’s jobs, followed by the manufacturing sector (particularly mechanical engineering, machine tools, precision instruments, and dental products), which employs 36 percent of the workforce. Agriculture accounts for less than one percent of the country’s employment.
Liechtenstein’s corporate tax rate, at 12.5 percent, is one of the lowest in Europe. Capital gains, inheritance, and gift taxes have been abolished. The Embassy has no recorded complaints from U.S. investors stemming from market restrictions in Liechtenstein. The United States and Liechtenstein do not have a bilateral income tax treaty.
The Netherlands consistently ranks among the world’s most competitive industrialized economies. It offers an attractive business and investment climate and remains a welcoming location for business investment from the United States and elsewhere.
Strengths of the Dutch economy include the Netherlands’ stable political and macroeconomic climate, a highly developed financial sector, strategic location, well-educated and productive labor force, and high-quality physical and communications infrastructure. Investors in the Netherlands take advantage of its highly competitive logistics, anchored by the largest seaport and fourth-largest airport in Europe. In telecommunications, the Netherlands has one of the highest levels of internet penetration in the European Union (EU) at 96 percent and hosts one of the largest data transport hubs in the world, the Amsterdam Internet Exchange.
The Netherlands is among the largest recipients and sources of foreign direct investment (FDI) in the world and one of the largest historical recipients of direct investment from the United States. This can be attributed to the Netherlands’ competitive economy, historically business-friendly tax climate, and many investment treaties containing investor protections. The Dutch economy has significant foreign direct investment in a wide range of sectors including logistics, information technology, and manufacturing. Dutch tax policy continues to evolve in response to EU attempts to harmonize tax policy across member states.
Until the COVID-19 crisis, economic growth had placed the Dutch economy in a very healthy position, with successive years of a budget surplus, public debt that was well under 50 percent of GDP, and record-low unemployment of 3.5 percent. This allowed the Dutch government significant fiscal space to implement coronavirus relief measures. In response to COVID, the Dutch government implemented wide-ranging support for businesses affected by the COVID crisis, including support to cover employee wages, benefits to self-employed professions to bridge a loss of income, and compensation for fixed costs other than wages. The financial support measures added up to about $70.5 billion (€60 billion) in the first year of the crisis. These programs prevented a wave of bankruptcies – bankruptcy filings in 2020 and 2021 were the lowest in two decades.
The new coalition government announced in early 2022 plans to be climate neutral by 2050. The government said it would adjust domestic climate goals to at least 55 percent CO2 reduction by 2030 compared to 1990, with ambitions to aim higher for a 60 percent reduction. The government has named a Minister for Climate and Energy Policy to work on domestic issues in addition to a Climate Envoy focused on international efforts. The Netherlands joined the U.S.-EU Global Methane Pledge and promised to end all investment in new coal power generation domestically and internationally. In April 2022, the government joined the AIM for Climate initiative.
The 2019 National Climate Agreement contains policy and measures to achieve climate goals through agreements with various economic sectors on specific actions. The participating sectors include electricity, industry, “built environment,” traffic and transport, and agriculture.
The Netherlands business community suffered a two-pronged loss in the planned departure of two of its major national corporate champions. Energy leader Shell and food and household products conglomerate Unilever announced in 2021 a relocation of their corporate headquarters from The Hague and Rotterdam, respectively, to London. The companies cited concerns with Dutch tax law relative to dividend taxation and need for consolidated management structure. (Note: Both companies previously split their corporate governance between the Netherlands and the UK. End Note.)
In March 2022, the Dutch Central Planning Bureau (CPB) published its 2022 economic projections. Due to the Russian invasion of Ukraine, the outlook was marked by uncertainty and flagged “even higher” energy prices as the most important economic consequence. Because of increased energy prices and high inflation from the COVID pandemic, CPB estimates a 5.2% inflation rate for 2022 with a range of 6.0% and 3.0% depending on how long energy prices remain high. CPB estimated economic growth of 3.6% in 2022 and 1.7% in 2023. CPB predicted unemployment at 4 percent in 2022, down from 4.2% in 2021. The low unemployment rate reflects a similar challenge also faced by the United States – businesses are finding it difficult to recruit qualified staff. Government debt is expected to rise to 61 percent of GDP by 2025 due to increased spending under the new coalition government, including on defense, outlays to support an aging population, and support to low-income families to offset inflation in energy and food prices.
According to the U.S. Bureau of Economic Analysis (BEA), when measured by country of foreign parent, the Netherlands is the second largest destination for U.S. FDI abroad in 2020 after the UK, holding $844 billion out of a total of $6.1 trillion total outbound U.S. investment – about 14 percent. Investment from the Netherlands contributed $484 billion FDI to the United States, making it the fourth largest investor at the end of 2020 of about $4.6 trillion total inbound FDI to the United States– about 10.5 percent. Measured by ultimate beneficial owner (UBO), the Netherlands was the seventh largest investor at $236 billion. For the Netherlands, outbound FDI to the United States represented 14 percent of all direct investment abroad.
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.