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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, its proximity to the U.S. market, its highly skilled work force, and abundant resources. As of 2018, the United States had a stock of USD 401 billion of foreign direct investment (FDI) in Canada. U.S. FDI stock in Canada represents 46 percent of Canada’s total investment. Canada’s FDI stock in the United States totaled US$511 billion.

The full impact of COVID-19 on Canada’s economy is yet to be seen. Private sector analysts predict Canada’s GDP will shrink between 1 and 6 percent in 2020. IMF’s April 2020 World Economic Outlook forecasts Canada’s annual GDP in 2020 will contract by 6.2 percent. A majority of small- and medium-sized enterprises are responding to steep declines in sales and mandated closures with layoffs, with more than 44 percent indicating on April 14 they might not survive should business restrictions remain in place until the end of May. Despite a rapidly changing business environment, borders and supply chains are functioning well.

U.S. FDI in Canada is subject to the provisions of the Investment Canada Act (ICA), the World Trade Organization (WTO), and the 1994 North American Free Trade Agreement (NAFTA). Chapter 11 of NAFTA contains provisions such as “national treatment” designed to protect cross-border investors and facilitate the settlement of investment disputes. NAFTA does not exempt U.S. investors from review under the ICA, which has guided foreign investment policy in Canada since its implementation in 1985. The ICA provides for review of large acquisitions by non-Canadian investors and includes the requirement that these investments be of “net benefit” to Canada. The ICA also has provisions for the review of investments on national security grounds. The Canadian government has blocked investments on only a few occasions.

The Canadian government announced April 18, 2020 enhanced scrutiny of certain foreign investments under the ICA, which will apply until the economy recovers from the effects of the COVID-19 pandemic. While all investments will continue to be examined on their own merits, the Government will scrutinize with particular attention foreign direct investments of any value in Canadian businesses that are related to public health or involved in the supply of critical goods and services to Canadians. The Government will also subject all foreign investments by state-owned investors, or investors with close ties to foreign governments, to enhanced scrutiny under the Investment Canada Act.

Canada, the United States, and Mexico signed a modernized and rebalanced NAFTA agreement – the United States-Mexico-Canada Agreement (USMCA) – November 30, 2018 and a protocol of amendment to the USMCA on December 10, 2019. President Trump signed legislation implementing the USMCA on January 29, 2020. The agreement will come into force after the completion of the domestic ratification processes by each individual member of the agreement, likely in 2020. The agreement updates NAFTA’s provisions with respect to investment protection rules and investor-state dispute settlement procedures to better reflect U.S. priorities related to foreign investment. All Parties to the agreement have agreed to treat investors and investments of the other Parties in accordance with the highest international standards, and consistent with U.S. law and practice, while safeguarding each Party’s sovereignty and promoting domestic investment.

Although foreign investment is a key component of Canada’s economic growth contributing 1.9 percent to GDP, restrictions remain in key sectors. Under the Telecommunications Act, Canada maintains a 46.7 percent limit on foreign ownership of voting shares for a Canadian telecom services provider. However, a 2012 amendment exempts foreign telecom carriers with less than 10 percent market share from ownership restrictions in an attempt to increase competition in the sector. In May 2018, Canada eased its foreign ownership restrictions in the aviation sector, which increased foreign ownership limits of Canadian commercial airlines to 49 percent from 25 percent. Investment in cultural industries also carries restrictions, including a provision under the ICA that foreign investment in book publishing and distribution must be compatible with Canada’s national cultural policies and be of “net benefit” to Canada. Canada is open to investment in the financial sector, but barriers remain in retail banking.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 12 of 180 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2020 23 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2019 17 of 129 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2018 $401,874 http://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2018 $44,940 http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Canada and the United States have one of the largest and most comprehensive investment relationships in the world. U.S. investors are attracted to Canada’s strong economic fundamentals, its proximity to the U.S. market, its highly skilled work force, and abundant resources. As of 2018, the United States had a stock of US$401 billion of foreign direct investment (FDI) in Canada. U.S. FDI stock in Canada represents 46 percent of Canada’s total investment. Canada’s FDI stock in the United States totaled US$511 billion.

Canada, the United States, and Mexico signed a modernized and rebalanced NAFTA agreement – the United States-Mexico-Canada Agreement (USMCA) – on November 30, 2018 and a protocol of amendment to the USMCA on December 10, 2019. President Trump signed legislation implementing the USMCA on January 29, 2020. The agreement will come into force after the completion of the domestic ratification processes by each individual member of the agreement, likely in 2020. The agreement updates NAFTA’s provisions with respect to investment protection rules and investor-state dispute settlement procedures to better reflect U.S. priorities related to foreign investment. All Parties to the agreement have agreed to treat investors and investments of the other Parties in accordance with the highest international standards, and consistent with U.S. law and practice, while safeguarding each Party’s sovereignty and promoting domestic investment.

Invest in Canada is Canada’s investment attraction and promotion agency. It provides information and advice on doing business in Canada, strategic market intelligence on specific industries, site visits, as well as introductions to provincial, territorial, and local investment promotion agencies who can help companies access local opportunities, networks, and programs.

Limits on Foreign Control and Right to Private Ownership and Establishment

U.S. FDI in Canada is subject to the provisions of the Investment Canada Act (ICA), the World Trade Organization (WTO), and the 1994 North American Free Trade Agreement (NAFTA). Chapter 11 of NAFTA contains provisions such as “national treatment” designed to protect cross-border investors and facilitate the settlement of investment disputes. NAFTA does not exempt U.S. investors from review under the ICA, which has guided foreign investment policy in Canada since its implementation in 1985. The ICA provides for review of large acquisitions by non-Canadian investors and includes the requirement that these investments be of “net benefit” to Canada. The ICA also has provisions for the review of investments on national security grounds. The Canadian government has blocked investments on a few occasions.

The Canadian government announced April 18 enhanced scrutiny of certain foreign investments under the ICA, which will apply until the economy recovers from the effects of the COVID-19 pandemic. While all investments will continue to be examined on their own merits, the Government will scrutinize with particular attention foreign direct investments of any value in Canadian businesses that are related to public health or involved in the supply of critical goods and services to Canadians. The Government will also subject all foreign investments by state-owned investors, or investors with close ties to foreign governments, to enhanced scrutiny under the Investment Canada Act.

Although foreign investment is a key component of Canada’s economic growth contributing 1.9 percent to GDP, restrictions remain in key sectors. Under the Telecommunications Act, Canada maintains a 46.7 percent limit on foreign ownership of voting shares for a Canadian telecom services provider. However, a 2012 amendment exempts foreign telecom carriers with less than 10 percent market share from ownership restrictions in an attempt to increase competition in the sector. In May 2018, Canada eased its foreign ownership restrictions in the aviation sector, which increased foreign ownership limits of Canadian commercial airlines to 49 percent from 25 percent. Investment in cultural industries also carries restrictions, including a provision under the ICA that foreign investment in book publishing and distribution must be compatible with Canada’s national cultural policies and be of “net benefit” to Canada. Canada is open to investment in the financial sector, but barriers remain in retail banking.

Other Investment Policy Reviews

The World Trade Organization conducted a trade policy review of Canada in 2019. The report is available at: https://www.wto.org/english/tratop_e/tpr_e/tp489_e.htm .

Business Facilitation

Canada ranks third out of 190 countries in the World Bank’s Doing Business survey on starting a business. The Canadian government has a business registration page available at: https://www.canada.ca/en/services/business/start/register-with-gov.html?it=government/registering-your-business/&it=eng/page/2730/ . Corporations must incorporate either through the federal or provincial government, apply for a federal business number and corporation income tax account from the Canada Revenue Agency, register as an extra-provincial or extra-territorial corporation in all other Canadian jurisdictions where you plan to do business, and apply for any permits and licenses the business may need. In some cases, registration for these accounts is streamlined (a business can receive its business number, tax accounts, and provincial registrations as part of the incorporation process); however, this is not true for all provinces and territories.

Outward Investment

Canada’s trade diversification strategy promotes trade and investment opportunities, primarily through export promotion and negotiation of free trade agreements, which generally have investment chapters.

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) 2018 $1,352,603 2018 $1,713,000 www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data: BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2018 $313,069 2018 $401,874 BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
 
Host country’s FDI in the United States ($M USD, stock positions) 2018 $458,746 2018 $511,176 BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
 
Total inbound stock of FDI as % host GDP 2018 $676,064 2018 52.2% UNCTAD data available at
https://unctad.org/en/Pages/DIAE/
World%20Investment%20Report/
Country-Fact-Sheets.aspx
 

* Source for Host Country Data:

  • Host Country Source: Office of the Chief Economist, State of Trade 2019, Global Affairs Canada.
  • Host Country Source: Statistics Canada
  • Note: Data converted to U.S. dollars using yearly average currency conversions from IRS
Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 642,572 100% Total Outward 936,122 100%
United States 297,670 46% United States 436,181 47%
Netherlands 78,224 12% United Kingdom 80,149 9%
Luxembourg 40,927 6% Luxembourg 66,028 7%
United Kingdom 36,913 6% Barbados 47,521 5%
Switzerland 33,830 5% Bermuda 34,460 4%
“0” reflects amounts rounded to +/- USD 500,000.
Table 4: Sources of Portfolio Investment
Portfolio Investment Assets
Top Five Partners (Millions, current US Dollars)
Total Equity Securities Total Debt Securities
All Countries 1,599,773 100% All Countries 1,200,859 100% All Countries 398,914 100%
United States 988,562 62% United States 717,341 60% United States 271,221 68%
United Kingdom 87,458 5% United Kingdom 68,708 6% United Kingdom 18,751 5%
Japan 62,038 4% Japan 55,151 5% Australia 10,087 3%
France 39,837 2% France 32,991 3% Germany 8,066 2%
Cayman Islands 33,899 2% Cayman Islands 29,510 2% Japan 6,887 2%

China

Executive Summary

The People’s Republic of China (PRC) is the top global Foreign Direct Investment (FDI) destination after the United States due to its large consumer base and integrated supply chains.  In 2019, China made some modest openings in the financial sector and passed key pieces of legislation, including a new Foreign Investment Law (FIL).  China remains, however, a relatively restrictive investment environment for foreign investors due to restrictions in key economic sectors.  Obstacles to investment include ownership caps and requirements to form joint venture partnerships with local Chinese firms, industrial policies such as Made in China 2025 (MIC 2025), as well as pressures on U.S. firms to transfer technology as a prerequisite to gaining market access.  These restrictions shield Chinese enterprises – especially state-owned enterprises (SOEs) and other enterprises deemed “national champions” – from competition with foreign companies.

The Chinese Communist Party (CCP) in 2019 marked the 70th anniversary of its rule, amidst a wave of Hong Kong protests and international concerns regarding forced labor camps in Xinjiang.  Since the CCP 19th Party Congress in 2017, CCP leadership has underscored Chairman Xi Jinping’s leadership and expanded the role of the party in all facets of Chinese life:  cultural, social, military, and economic.  An increasingly assertive CCP has caused concern among the foreign business community about the ability of future foreign investors to make decisions based on commercial and profit considerations, rather than CCP political dictates.

Key investment announcements and new developments in 2019 included:

  • On March 17, 2019, the National People’s Congress passed the new FIL that effectively replaced previous laws governing foreign investment.
  • On June 30, 2019, the National Development and Reform Commission (NDRC) and Ministry of Commerce (MOFCOM) jointly announced the release of China’s three “lists” to guide FDI.  Two “negative lists” identify the industries and economic sectors from which foreign investment is restricted or prohibited based on location, and the third list identifies sectors in which foreign investments are encouraged.  In 2019, some substantial openings were made in China’s financial services sector.
  • The State Council also approved the Regulation on Optimizing the Business Environment and Opinions on Further Improving the Utilization of Foreign Investment, which were intended to assuage foreign investors’ mounting concerns with the pace of economic reforms.

While Chinese pronouncements of greater market access and fair treatment of foreign investment are welcome, details and effective implementation are needed to improve the investment environment and restore investors’ confidence.  As China’s economic growth continues to slow, officially declining to 6.1% in 2019 – the slowest growth rate in nearly three decades – the CCP will need to deepen its economic reforms and implementation.  Moreover, the emergence of the Coronavirus (COVID-19) pandemic in Wuhan, China in December 2019, will place further strain on China’s economic growth and global supply chains.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
Transparency International’s Corruption Perceptions Index 2019 137 of 180 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2019 31 of 190 http://www.doingbusiness.org/
en/rankings
Global Innovation Index 2019 14 of 126 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, stock positions) 2018 USD116,518 https://apps.bea.gov/international/
factsheet/
World Bank GNI per capita 2018 USD9,460 http://data.worldbank.org/indicator/
NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

China continues to be one of the largest recipients of global FDI due to a relatively high economic growth rate and an expanding consumer base that demands diverse, high-quality products.  FDI has historically played an essential role in China’s economic development.  However, due to recent stagnant FDI growth and gaps in China’s domestic technology and labor capabilities, Chinese government officials have prioritized promoting relatively friendly FDI policies promising market access expansion and non-discriminatory, “national treatment” for foreign enterprises through general improvements to the business environment.  They also have made efforts to strengthen China’s regulatory framework to enhance broader market-based competition.

In 2019, China issued an updated nationwide “negative list” that made some modest openings to foreign investment, most notably in the financial sector, and promised future improvements to the investment climate through the implementation of China’s new FIL.  MOFCOM reported that FDI flows to China grew by 5.8 percent year-on-year in 2019, reaching USD137 billion.  In 2019, U.S. businesses expressed concern over China’s weak protection and enforcement of intellectual property rights (IPR); corruption; discriminatory and non-transparent anti-monopoly enforcement that forces foreign companies to license technology at below-market prices; excessive cyber security and personal data-related requirements; increased emphasis on the role of CCP cells in foreign enterprises, and an unreliable legal system lacking in both transparency and the rule of law.

China seeks to support inbound FDI through the “Invest in China” website, where MOFCOM publishes laws, statistics, and other relevant information about investing in China.  Further, each province has a provincial-level investment promotion agency that operates under the guidance of local-level commerce departments.  See:  MOFCOM’s Investment Promotion Website 

Limits on Foreign Control and Right to Private Ownership and Establishment

Entry into the Chinese market is regulated by the country’s “negative lists,” which identify the sectors in which foreign investment is restricted or prohibited, and a catalogue for encouraged foreign investment, which identifies the sectors the government encourages foreign investment to be allocated to.

  • The Special Administrative Measures for Foreign Investment Access (̈the “Nationwide Negative List”);
  • The Special Administrative Measures for Foreign Investment Access to Pilot Free Trade Zones (the “FTZ Negative List”) used in China’s 18 FTZs
  • The Industry Catalogue for Encouraged Foreign Investment (also known as the “FIC”).   The central government has used the FIC to encourage FDI inflows to key sectors – in particular semiconductors and other high-tech industries that would help China achieve MIC 2025 objectives.  The FIC is subdivided into a cross-sector nationwide catalogue and a separate catalogue for western and central regions, China’s least developed regions.

In addition to the above lists, MOFCOM and NDRC also release the annual Market Access Negative List  to guide investments.  This negative list – unlike the nationwide negative list that applies only to foreign investors – defines prohibitions and restrictions for all investors, foreign and domestic.  Launched in 2016, this negative list attempted to unify guidance on allowable investments previously found in piecemeal laws and regulations.  This list also highlights what economic sectors are only open to state-owned investors.

In restricted industries, foreign investors face equity caps or joint venture requirements to ensure control is maintained by a Chinese national and enterprise.  These requirements are often used to compel foreign investors to transfer technology in order to participate in China’s market.  Foreign companies have reported these dictates and decisions are often made behind closed doors and are thus difficult to attribute as official Chinese government policy.  Foreign investors report fearing government retaliation if they publicly raise instances of technology coercion.

Below are a few examples of industries where these sorts of investment restrictions apply:

  • Preschool, general high school, and higher education institutes require a Chinese partner.
  • Establishment of medical institutions also require a Chinese JV partner.

Examples of foreign investment sectors requiring Chinese control include:

  • Selective breeding and seed production for new varieties of wheat and corn.
  • Basic telecommunication services.
  • Radio and television listenership and viewership market research.

Examples of foreign investment equity caps include:

  • 50 percent in automobile manufacturing (except special and new energy vehicles);
  • 50 percent in value-added telecom services (except e-commerce domestic multiparty communications, storage and forwarding, call center services);
  • 50 percent in manufacturing of commercial and passenger vehicles.

The 2019 editions of the nationwide and FTZ negative lists and the FIC for foreign investment came into effect July 30, 2019.  The central government updated the Market Access Negative List in October 2019.  The 2019 foreign investment negative lists made minor modifications to some industries, reducing the number of restrictions and prohibitions from 48 to 40 in the nationwide negative list, and from 45 to 37 in China’s pilot FTZs.  Notable changes included openings in the oil and gas sector, telecommunications, and shipping of marine products.  On July 2, 2019, Premier Li Keqiang announced new openings in the financial sector, including lifting foreign equity caps for futures by January 2020, fund management by April, and securities by December.  While U.S. businesses welcomed market openings, many foreign investors remained underwhelmed and disappointed by Chinese government’s lack of ambition and refusal to provide more significant liberalization.  Foreign investors noted these announced measures occurred mainly in industries that domestic Chinese companies already dominate.

Other Investment Policy Reviews

China is not a member of the Organization for Economic Co-Operation and Development (OECD), but the OECD Council established a country program of dialogue and co-operation with China in October 1995.  The OECD completed its most recent investment policy review for China in 2008 and published an update in 2013.

China’s 2001 accession to the World Trade Organization (WTO) boosted China’s economic growth and advanced its legal and governmental reforms.  The WTO completed its most recent investment trade review for China in 2018, highlighting that China remains a major destination for FDI inflows, especially in real estate, leasing and business services, and wholesale and retail trade.

Business Facilitation

In 2019, China climbed more than 40 spots in the World Bank’s Ease of Doing Business Survey to 31st place out of 190 economies.  This was partly due to regulatory reforms that helped streamline some business processes, including improvements to addressing delays in construction permits and resolving insolvency.  This ranking does not account for major challenges U.S. businesses face in China like IPR violations and forced technology transfer.  Moreover, China’s ranking is based on data limited only to the business environments in Beijing and Shanghai.

Created in 2018, the State Administration for Market Regulation (SAMR) is now responsible for business registration processes.  The State Council established a new website in English, which is more user-friendly than SAMR’s website, to assist foreign investors looking to do business in China.  In December 2019, China also launched a Chinese-language nationwide government service platform on the State Council’s official website.  The platform connected 40 central government agencies with 31 provincial governments, providing information on licensing and project approvals by specific agencies.  The central government published the website under its “improving the business climate” reform agenda, claiming that the website consolidates information and offers cross-regional government online services.

Foreign companies still complain about continued challenges when setting up a business relative to their Chinese competitors.  Numerous companies offer consulting, legal, and accounting services for establishing wholly foreign-owned enterprises, partnership enterprises, joint ventures, and representative offices in China.  Investors should review their options carefully with an experienced advisor before choosing a corporate entity or investment vehicle.

Outward Investment

Since 2001, China has pursued a “going-out” investment policy.  At first, the Chinese government mainly encouraged SOEs to secure natural resources and facilitate market access for Chinese exports.  In recent years, China’s overseas investments have diversified with both state and private enterprises investing in nearly all industries and economic sectors.  While China remains a major global investor, total outbound direct investment (ODI) flows fell 8.2 percent year-on-year in 2019 to USD110.6 billion, according to MOFCOM data.

In order to suppress significant capital outflow pressure, the Chinese government created “encouraged,” “restricted,” and “prohibited” outbound investment categories in 2016 to guide Chinese investors, especially in Europe and the United States.  While the guidelines restricted Chinese outbound investment in sectors like property, hotels, cinemas, entertainment, and sports teams, they encouraged outbound investment in sectors that supported Chinese industrial policy by acquiring advanced manufacturing and high-tech assets.  Chinese firms involved in MIC 2025 targeted sectors often receive preferential government financing, subsidies, and access to an opaque network of investors to promote and provide incentives for outbound investment.  The guidance also encourages investments that promote China’s One Belt One Road (OBOR) initiative, which seeks to create connectivity and cooperation agreements between China and dozens of countries via infrastructure investment, construction projects, real estate, etc.

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) 2019*   $14,380,000 2018 $13,608,000 www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical source* USG or international Source of data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S.  FDI in partner country ($M USD, stock positions) 2018(**)     $109,958 2018          $116,518 BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
 
Host country’s FDI in the United States ($M USD, stock positions) 2018(**)      $39,557 2018          $39,473 BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
 
Total Inbound Stock as a % of GDP 2018(**) 15.9% 2018 12.1% UNCTAD data available at
https://unctad.org.en/Pages/DIAE/
World%
 

20Investment%20Report/
Country-Fact-Sheets.aspx 
 

*China’s National Bureau of Statistics (converted at 6.8 RMB/USD estimate)
**China’s 2019 Yearbook (Annual Economic Data from China’s Economic Ministries:  MOFCOM, NBS, and Ministry of Finance)

Table 3:  Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward $2,814,067 100% Total Outward $1,982,270 100%
China, PR: Hong Kong $1,378,383 48.96% China, PR: Hong Kong $958,904 48.37%
British Virgin Islands $302,553 10.75% Cayman Islands $237,262 11.96%
Japan $166,817 6.13% British Virgin Islands $119,658 6.03%
Singapore $115,035 4.08% United States $67,038 3.38%
Germany $78,394 2.78% Singapore $35,970 1.81%
“0” reflects amounts rounded to +/- USD 500,000.

Source:  IMF Coordinated Direct Investment Survey (CDIS)

Table 4:  Sources of Portfolio Investment
Portfolio Investment Assets
Top Five Partners (Millions, US Dollars)
Total Equity Securities Total Debt Securities
All Countries $560,250 100% All Countries $303,4000 100% All Countries $256,849 100%
China, PR: Hong Kong $179,672 32.0% China, PR: Hong Kong $121,883 40.1% China, PR: Hong Kong $57,789 22.5%
Cayman Islands $47,917  8.5% Cayman Islands  $28,323  9.3% British Virgin Island  $38,230 14.8%
British Virgin Island $40,270  7.1% Luxembourg  $8,786  2.8% Cayman Islands  $19,594 7.6%
Luxembourg  $13,712  2.4% Japan  $7,012  2.3% Germany  $7,660 2.9%
Germany  $12,294  2.1% Ireland  $6,829  2.2% Singapore  $7,122 2.7%

France and Monaco

Executive Summary

France welcomes foreign investment and has a stable business climate that attracts investors from around the world. The French government devotes significant resources to attracting foreign investment through policy incentives, marketing, overseas trade promotion offices, and investor support mechanisms. France has an educated population, first-rate universities, and a talented workforce. It has a modern business culture, sophisticated financial markets, a strong intellectual property rights regime, and innovative business leaders. The country is known for its world-class infrastructure, including high-speed passenger rail, maritime ports, extensive roadway networks, public transportation, and efficient intermodal connections. High-speed (3G/4G) telephony is nearly ubiquitous.

In 2019, the United States was the leading foreign investor in France with a stock of foreign direct investment (FDI) totaling over $87 billion. More than 4,500 U.S. firms operate in France, supporting nearly 500,000 jobs. The United States exported $59.6 billion of goods and services to France in 2019.

Following the election of French President Emmanuel Macron in May 2017, the French government implemented significant labor market and tax reforms. By relaxing the rules on companies to hire and fire employees and by offering investment incentives, Macron has buoyed ease of doing business in France. However, Macron will likely delay or abandon the second phase of his envisioned reforms for unemployment benefits and pensions due to more pressing concerns related to the COVID-19 crisis.

Business France, the government investment promotion agency, recently unveiled a website in English to help prospective businesses that are considering investments in the French market (https://www.businessfrance.fr/en/invest-in-France).

Recent reforms have extended the investigative and decision-making powers of France’s Competition Authority. France implemented the European Competition Network or ECN Directive on April 11, 2019, allowing the French Competition Authority to impose heftier fines (above €3 million / $3.3 million) and temporary measures to prevent an infringement that may cause harm.

On December 31, 2019 the government issued a national security decree that lowered the threshold for State vetting of foreign investment from outside Europe from 33 to 25 percent and enhanced government-imposed conditions and penalties in cases of non-compliance. The decree further introduced a mechanism to coordinate the national security review of foreign direct investments with the European Union (EU Regulation 2019/452). The new rules entered into force on April 1, 2020. The list of strategic sectors was also expanded to include the following activities listed in the EU Regulation 2019/452: agricultural products, when such products contribute to national food supply security; the editing, printing, or distribution of press publications related to politics or general matters; and R&D activities relating to quantum technologies and energy storage technologies.

Economy and Finance Minister Bruno Le Maire announced on April 29, 2020 that France would further reinforce its control over foreign investments by including biotechnologies in the strategic sectors subject to FDI screening, effective on May 1, 2020 and through the end of the year. This includesloweringfrom 25 to 10 percent the threshold for government approval of non-European investment in French companies, which was implemented in response to the COVID-19 crisis to limit predatory acquisitions of distressed assets and is valid at least until the end of 2020.

In 2019 France passed a digital services tax. The 2019 tax law reduces corporate tax on profits over €500,000 ($550,000) to 31 percent for 2019, 28 percent in 2020, 26.5 percent in 2021 and 25 percent in 2022.

In 2020, the impact of the COVID-19 pandemic on France’s macroeconomic outlook will be severe. GDP shrank 5.8 percent in the first quarter of 2020 compared to the previous quarter, the sharpest economic contraction since 1949. France’s official statistical agency INSEE attributed this fall to the government’s restrictions on economic activity due to the pandemic. However, the GDP figure incorporates only two weeks of France’s confinement, which began March 17, leading economists to predict that second quarter figures will be significantly worse. The Q1 figure marks the second consecutive quarter of economic contraction, after shrinking 0.1 percent in Q4 of 2019, meaning France has officially fallen into a technical recession. Finance Minister Bruno Le Maire announced in April 2020 that he expects economic activity to decline by 8 percent in 2020, the public deficit to increase to 9 percent of GDP, and debt to rise to 115 percent of GDP.

In response to the economic impact of the pandemic, the government launched a €410 billion ($447 billion) emergency fiscal package in March 2020. The bulk of the package aims to support businesses through loan guarantees and deferrals on tax and social security payments. The remainder is allocated to stabilizing households and demand, largely through its €24 billion ($26 billion) temporary unemployment scheme that allows workers to stay home while continuing to collect a portion of their wages.

Although France’s emergency fund is sizeable at 16 percent of GDP, it is not sufficient to fully absorb the economic impact of the pandemic. Key issues to watch in 2020 include: 1) the degree to which COVID-19 continues to agitate the macroeconomic environment; and 2) the size and scope of recovery measures, including additional fiscal support from the government of France, a broader EU rescue package, and the monetary response from the European Central Bank.

Table 1: Key Metrics and Rankings  
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 23 of 180 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2019 32 of 190 http://www.doingbusiness.org/
en/rankings
Global Innovation Index 2019 16 of 129 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2018 USD 86,863 http://apps.bea.gov/international/
factsheet/
World Bank GNI per capita 2018 USD 41,080 http://data.worldbank.org/indicator/
NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

France welcomes foreign investment. In the current economic climate, the French government sees foreign investment as a means to create additional jobs and stimulate growth. Investment regulations are simple, and a range of financial incentives are available to foreign investors, who report they find France’s skilled and productive labor force, good infrastructure, technology, and central location in Europe attractive. France’s membership in the European Union (EU) and the Eurozone facilitates the efficient movement of people, services, capital, and goods. However, notwithstanding French efforts at economic and tax reform, market liberalization, and attracting foreign investment, perceived disincentives to investing in France include the relatively high tax environment. Labor market fluidity is improving due to labor market reforms but is still rigid compared to some OECD economies.

Limits on Foreign Control and Right to Private Ownership and Establishment

France is among the least restrictive countries for foreign investment. With a few exceptions in certain specified sectors, there are no statutory limits on foreign ownership of companies. Foreign entities have the right to establish and own business enterprises and engage in all forms of remunerative activity.

France maintains a national security review mechanism to screen high-risk investments. French law stipulates that control by acquisition of a domiciled company or subsidiary operating in certain sectors deemed crucial to France’s national interests relating to public order, public security and national defense are subject to prior notification, review, and approval by the Economy and Finance Minister. Other sectors requiring approval include energy infrastructure; transportation networks; public water supplies; electronic communication networks; public health protection; and installations vital to national security. In 2018, four additional categories – semiconductors, data storage, artificial intelligence and robotics – were added to the list requiring a national security review. For all listed sectors, France can block foreign takeovers of French companies according to the provisions of the Montebourg Decree.

On December 31, 2019 the government issued a decree that lowered the threshold for State vetting of foreign investment from outside Europe from 33 to 25 percent and enhanced government-imposed conditions and penalties in cases of non-compliance. The decree further introduced a mechanism to coordinate the national security review of foreign direct investments with the European Union (EU Regulation 2019/452). The new rules entered into force on April 1, 2020. The list of strategic sectors was also expanded to include the following activities listed in the EU Regulation 2019/452: agricultural products, when such products contribute to national food supply security; the editing, printing, or distribution of press publications related to politics or general matters; and R&D activities relating to quantum technologies and energy storage technologies.

Procedurally, the Minister of Economy and Finance has 30 business days following the receipt of a request for authorization to either: 1) declare that the investor is not required to obtain such authorization; 2) grant its authorization without conditions; or 3) declare that an additional review is required to determine whether a conditional authorization is sufficient to protect national interests. If an additional review is required, the Minister has an additional 45 business days to either clear the transaction (possibly subject to conditions) or prohibit it. The Minister is further allowed to deny clearance based on the investor’s ties with a foreign government or public authority. The absence of a decision within the applicable timeframe is a de facto rejection of the authorization.

The government has also expanded the breadth of information required in the approval request. For example, a foreign investor must now disclose any financial relationship with or significant financial support from a State or public entity; a list of French and foreign competitors of the investor and of the target; or a signed statement that the investor has not, over the past five years, been subject to any sanctions for non-compliance with French FDI regulations.

Economy and Finance Minister Bruno Le Maire announced on April 29, 2020 that France would further reinforce its control over foreign investments by including biotechnologies in the strategic sectors subject to FDI screening, effective on May 1, 2020 and through the end of the year. This includes lowering from 25 to 10 percent the threshold for government approval of non-European investment in French companies, which was implemented in response to the COVID-19 crisis to limit predatory acquisitions of distressed assets and is valid at least until the end of 2020.

Other Investment Policy Reviews

France has not recently been the subject of international organizations’ investment policy reviews. The OECD Economic Survey for France (April 2019) can be found here: http://www.oecd.org/economy/france-economic-forecast-summary.htm .

Business Facilitation

Business France is a government agency established with the purpose of promoting new foreign investment, expansion, technology partnerships, and financial investment. Business France provides services to help investors understand regulatory, tax, and employment policies as well as state and local investment incentives and government support programs. Business France also helps companies find project financing and equity capital. Business France recently unveiled a website in English to help prospective businesses that are considering investments in the French market (https://www.businessfrance.fr/en/invest-in-France ).

In addition, France’s public investment bank, Bpifrance, assists foreign businesses to find local investors when setting up a subsidiary in France. It also supports foreign startups in France through the government’s French Tech Ticket program, which provides them with funding, a resident’s permit, and incubation facilities. Both business facilitation mechanisms provide for equitable treatment of women and minorities.

President Macron has made innovation one of his priorities with a €10 billion ($11 billion) fund that is being financed through privatizations of State-owned enterprises. France’s priority sectors for investment include:  aeronautics, agro-foods, digital, nuclear, rail, auto, chemicals and materials, forestry, eco-industries, shipbuilding, health, luxury, and extractive industries. In the near-term, the French government intends to focus on driverless vehicles, batteries, the high-speed train of the future, nano-electronics, renewable energy, and health industries.

Business France and Bpifrance are particularly interested in attracting foreign investment in the tech sector. The French government has developed the “French Tech” initiative to promote France as a location for start-ups and high-growth digital companies. In addition to 17 French cities, French Tech offices have been established in 100 cities around the world, including New York, San Francisco, Los Angeles, Shanghai, Hong Kong, Vietnam, Moscow, and Berlin. French Tech has special programs to provide support to startups at various stages of their development. The latest effort has been the creation of the French Tech 120 Program, which provides financial and administrative support to some 123 most promising tech companies. In 2019, €5 billion ($5.5 billion) in venture funding was raised by French startups, an increase of nearly threefold since 2015. In September 2019, President Emmanuel Macron convinced major asset managers such as AXA and Natixis to invest €5 billion ($5.5 billion) into French tech companies over the next three years. He also announced the creation of a listing of France’s top 40 startups “Next 40” with the highest potential to grow into unicorns.

The website Guichet Enterprises (https://www.guichet-entreprises.fr/fr/ ) is designed to be a one-stop website for registering a business. The site is available in both French and English although some fact sheets on regulated industries are only available in French on the website.

Outward Investment

French firms invest more in the United States than in any other country and support approximately 728,500 American jobs. Total French investment in the United States reached $326.4 billion in 2018. France was our ninth largest trading partner with approximately $136 billion in bilateral trade in 2019. The business promotion agency Business France also assists French firms with outward investment, which it does not restrict.

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
French Gross Domestic Product (GDP) ($M USD) 2018 $2,780,644       2018        $2,777,535 www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in France ($M USD, stock positions) 2018 $55,518 2018 $86,863 BEA data available at
https://www.bea.gov/
international/direct-investment-and-multinational-
enterprises-comprehensive-data
 
France’s FDI in the United States ($M USD, stock positions) 2018 $244,655 2018 $292,721 BEA data available at
https://www.bea.gov/
international/direct-investment-and-multinational-
enterprises-comprehensive-data
 
Total inbound stock of FDI as % French GDP 2018 30.6% 2018 29.7% UNCTAD data available at
https://unctad.org/en/Pages/DIAE/
World%20Investment%20Report/
Country-Fact-Sheets.aspx
 

* Source for Host Country Data: INSEE database for GDP figures and French Central Bank (Banque de France) for FDI figures. Accessed on April 27, 2020.

Table 3: Sources and Destination of FDI
Direct Investment from/in France Economy Data in 2018
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 825,023 100% Total Outward 1,507,926 100%
Luxembourg 184,489 22% United States 237,198 15%
United Kingdom 107,911 13% The Netherlands 177,372 12%
The Netherlands 107,576 13% Belgium 174,673 11%
Switzerland 93,313 11% United Kingdom 148,105 9%
Germany 72,607 8% Italy 104,196 7%
“0” reflects amounts rounded to +/- USD 500,000.

The IMF’s Coordinated Direct Investment Survey (CDIS) database is consistent with France’s Central Bank database.  The Netherlands appears as the second country destination for French FDI.  This could be related to the fact that a few big French companies (Danone, Total, Thalès, Airbus, Air Liquide) have their headquarters based in the Netherlands because of its attractive corporate tax policy.

Table 4: Sources of Portfolio Investment
Portfolio Investment Assets
Portfolio Investment Assets as of June 2019
Total Equity Securities Total Debt Securities
All Countries 2,986,638 100% All Countries 912,807 100% All Countries 2,073,832 100%
Luxembourg 526,602 17% Luxembourg 294,471 32% United States 256,496 12%
United States 354,640 12% United States 98,144 10% The Netherlands 243,098 11%
The Netherlands 306,534 10% Germany 85,594 9% Luxembourg 232,132 11%
Italy 234,998 7% Ireland 75,975 8% Italy 200,512 9%
United Kingdom 207,314 7% The Netherlands 63,436 7% United Kingdom 184,136 8%

The IMF’s Coordinated Portfolio Investment Survey (CPIS) database is consistent with France’s Central Bank database.  Luxembourg is a very attractive hub for asset and investment management in Europe.

Germany

Executive Summary

As Europe’s largest economy, Germany is a major destination for foreign direct investment (FDI) and has accumulated a vast stock of FDI over time.  Germany is consistently ranked  as one of the most attractive investment destinations based on its reliable infrastructure, highly skilled workforce, positive social climate, stable legal environment, and world-class research and development.

The United States is the leading source of non-European foreign investment in Germany.  Foreign investment in Germany mainly originates from other European countries, the United States, and Japan.  FDI from emerging economies (and China) has grown slowly over 2015-2018, albeit from low levels.

The German government continues to strengthen provisions for national security screening inward investment in reaction to an increasing number of high-risk acquisitions of German companies by foreign investors in recent years, particularly from China.  German authorities strongly support the European Union framework to coordinate Member State screening of foreign investments, which entered into force in April 2019, and are currently enacting implementing legislation.

In 2018, the government lowered the threshold for the screening of investments, allowing authorities to screen acquisitions by foreign entities of at least 10 percent of voting rights of German companies that operate or provide services related to critical infrastructure. The amendment also added media companies to the list of sensitive businesses.

Further amendments, still in draft as of May 2020, will
a) introduce a more pro-active screening based on “prospective impairment” of public order or security by an acquisition, rather than a de facto threat,
b) take into account the impact on other EU member states, and
c) formally suspend transactions during the screening process.

Furthermore, acquisitions by foreign government-owned or funded entities will now trigger a review, and the healthcare industry will be considered a sensitive sector to which the stricter 10% threshold applies.  The Federal Ministry for Economic Affairs and Energy said it would draft a further amendment later in 2020 which would include a list of sensitive technologies (similar to the current list of critical infrastructure) to include artificial intelligence, robotics, semiconductors, biotechnology, and quantum technology. Foreign investors who seek to acquire at least 10% of ownership rights of a German company in one those fields would be required to notify the government and potentially become subject to an investment review.  With these draft and planned amendments, Germany is implementing the 2019 EU Screening Regulation.

German legal, regulatory, and accounting systems can be complex and burdensome but are generally transparent and consistent with developed-market norms.  Businesses operate within a well regulated, albeit high cost, environment.  Foreign and domestic investors are treated equally when it comes to investment incentives or the establishment and protection of real and intellectual property.  Foreign investors can rely on the German legal system to enforce laws and contracts; at the same time, this system requires investors to closely track their legal obligations. New investors should ensure they have the necessary legal expertise, either in-house or outside counsel, to meet all national and EU regulations.

German authorities are committed to fighting money laundering and corruption.  The government promotes responsible business conduct and German SMEs are aware of the need for due diligence.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 9 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2019 22 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2019 9 of 129 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2018 140.331 billion USD  https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2018 54,560 USD http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The German government and industry actively encourage foreign investment. U.S. investment continues to account for a significant share of Germany’s FDI. The 1956 U.S.-Federal Republic of Germany Treaty of Friendship, Commerce and Navigation affords U.S. investors national treatment and provides for the free movement of capital between the United States and Germany. As an OECD member, Germany adheres to the OECD National Treatment Instrument and the OECD Codes of Liberalization of Capital Movements and of Invisible Operations.  The Foreign Trade and Payments Act and the Foreign Trade and Payments Ordinance provide the legal basis for the Federal Ministry for Economic Affairs and Energy to review acquisitions of domestic companies by foreign buyers, to assess whether these transactions pose a risk to the public order or national security (for example, when the investment pertains to critical infrastructure).  For many decades, Germany has experienced significant inbound investment, which is widely recognized as a considerable contributor to Germany’s growth and prosperity.  The investment-related challenges facing foreign companies are broadly the same as face domestic firms, e.g high tax rates and labor laws that complicate hiring and dismissals. Germany Trade and Invest (GTAI), the country’s economic development agency, provides extensive information for investors:  https://www.gtai.de/gtai-en/invest

Limits on Foreign Control and Right to Private Ownership and Establishment

Under German law, a foreign-owned company registered in the Federal Republic of Germany as a GmbH (limited liability company) or an AG (joint stock company) is treated the same as a German-owned company.  There are no special nationality requirements for directors or shareholders.

The provision of employee placement services, such as providing temporary office support, domestic help, or executive search services, requires registration of a business in Germany.

Germany maintains an elaborate mechanism to screen foreign investments based on national security grounds.  The legislative basis for the mechanism (the Foreign Trade and Payments Act and Foreign Trade and Payments Ordinance) has been amended several times in recent years in an effort to tighten parameters of the screening as technological threats evolve, particularly to address growing  investment interest by malevolent actors in both Mittelstand (mid-sized) and blue chip German companies.  Amendments to implement the 2019 EU Screening Regulation are in draft or have been announced as of May 2020.  In addition, authorities will make “prospective impairment” of public order and security the new trigger for an investment review, in place of the current standard (which requires a de facto threat).

Other Investment Policy Reviews

The World Bank Group’s “Doing Business 2020” and Economist Intelligence Unit both provide additional information on Germany’s investment climate.  The American Chamber of Commerce in Germany also publishes results of an annual survey of U.S. investors in Germany (“AmCham Germany Transatlantic Business Barometer”, https://www.amcham.de/publications).

Business Facilitation

Before engaging in commercial activities, companies and business operators must register in public directories, the two most significant of which are the commercial register (Handelsregister) and the trade office register (Gewerberegister).

Applications for registration at the commercial register, which is  available under www.handelsregister.de , are electronically filed in publicly certified form through a notary.  The commercial register provides information about all relevant relationships between merchants and commercial companies, including names of partners and managing directors, capital stock, liability limitations, and insolvency proceedings.  Registration costs vary depending on the size of the company.

Germany Trade and Invest (GTAI), the country’s economic development agency, can assist in the registration processes  (https://www.gtai.de/gtai-en/invest/investment-guide/establishing-a-company/business-registration-65532 ) and advises investors, including micro-, small-, and medium-sized enterprises (MSMEs), on how to obtain incentives.

In the EU, MSMEs are defined as follows:

  • Micro-enterprises:  less than 10 employees and less than €2 million annual turnover or less than €2 million in balance sheet total.
  • Small-enterprises:  less than 50 employees and less than €10 million annual turnover or less than €10 million in balance sheet total.
  • Medium-sized enterprises:  less than 250 employees and less than €50 million annual turnover or less than €43 million in balance sheet total.

Outward Investment

Germany’s federal government provides guarantees for investments by Germany-based companies in developing and emerging economies and countries in transition in order to insure them against political risks.  In order to receive guarantees, the investment must have adequate legal protection in the host country. The Federal Government does not insure against commercial risks.

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) 2019 €3,435,800 2018 $3,948,000 www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2018 €81,988 2018 $140,331 BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
 
Host country’s FDI in the United States ($M USD, stock positions) 2018 €247,508 2018 $324,151 BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
 
Total inbound stock of FDI as % host GDP 2018 23.0% 2018 23.5% UNCTAD data available at
https://unctad.org/en/Pages/DIAE/
World%20Investment%20Report/
Country-Fact-Sheets.aspx
 
 

* Source for Host Country Data: Federal Statistical Office DESTATIS, Bundesbank; http://www.bundesbank.de  (German Central Bank, 2018 data published in April 2020, only available in €)

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward $939,189 100% Total Outward $$1,643,698 100%
The Netherlands $178,045 19.0% United States $299,328 18.2%
Luxembourg $165,567 17.6% Luxembourg $185,976 11.3%
United States $105,714 11.3% The Netherlands $165,686 10.1%
Switzerland $88,934 9.5% United Kingdom $144,224 8.8%
United Kingdom $64,559 6.9% France $97,067 5.9%
“0” reflects amounts rounded to +/- USD 500,000.
Table 4: Sources of Portfolio Investment
Portfolio Investment Assets
Top Five Partners (Millions, current US Dollars)
Total Equity Securities Total Debt Securities
All Countries $3,609,694 100% All Countries $1,304,519 100% All Countries $2,305,175 100%
Luxembourg $686,162 19.0% Luxembourg $564,143 43.2% France $346,260 15.0%
France $447,458 12.4% United States $178,181 13.7% United States $260,562 11.3%
United States $438,743 12.2% Ireland $136,831 10.5% The Netherlands $255,640 11.1%
The Netherlands $300,669 8.3% France $101,198 7.8% United Kingdom $155,759 6.8%
Ireland $205,964 5.7% Switzerland 56,588 4.3% Spain $133,531 5.8%

Italy

Executive Summary

Italy’s economy, the eighth largest in the world, is fully diversified, and dominated by small and medium-sized firms (SMEs), which comprise 99.9 percent of Italian businesses.  Yet Italy continues to attract less foreign direct investment than many other European industrialized nations.  The government’s efforts to implement new investment promotion policies to position Italy as a desirable investment destination have been undermined in part by Italy’s slow economic growth, unpredictable tax regime, multi-layered bureaucracy, and  time-consuming and often inconsistent legal and regulatory procedures.

There were several significant investment-related policy developments during 2019, including enactment of a digital services tax (DST) that primarily targets tech firms and media companies; the Italian government’s extension of its Golden Power investment screening authority to procurement of 5G-related goods and services from non-EU suppliers; and the government’s March 2019 signing of a memorandum of understanding (MOU) with China to endorse partnership with the Belt and Road Initiative (BRI).  While the MOU is neither a treaty nor an agreement, Italy’s signature signaled the Italian government’s keen interest in attracting investment from China in its infrastructure.

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.  The government remains open to foreign investment in shares of Italian companies and continues to make information available online to prospective investors.  Tourism is an important source of external revenue, as are exports of pharmaceutical products, furniture, industrial machinery and machine tools, electrical appliances, automobiles and auto parts, food, and wine, as well as textiles/fashion.  The sectors that have attracted significant foreign investment include telecommunications, transportation, energy, and pharmaceuticals.

Italy is an original member of the 19-nation Eurozone.  Germany, France, the United States, the United Kingdom, Spain, and Switzerland are Italy’s most important trading partners, with China continuing to gain ground.  Italy’s economy outperformed expectations for 2019, with modest GDP growth of 0.3%, (exceeding consensus projections of 0.2%); a government budget deficit of 1.6% of GDP, the lowest level registered since 2009, and an unchanged public debt to GDP percentage of 134.8%.  Another positive factor was that government borrowing fell from 2.2% of GDP in 2018 to 1.6% of GDP in 2019.  The significant decrease in debt servicing costs reflected the decrease in yields on Italian government bonds during 2019.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 51 of 180 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2019 58 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2019 30 of 129 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2018 $38,479 https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data
World Bank GNI per capita 2018 $33,730 http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Italy welcomes foreign direct investment (FDI).  As a European Union (EU) member state, Italy is bound by the European Union’s treaties and laws.  Under the EU treaties with the United States, as well as OECD commitments, Italy is generally obliged to provide national treatment to U.S. investors established in Italy or in another EU member state.

EU and Italian antitrust laws provide Italian authorities with the right to review mergers and acquisitions for market dominance.  In addition, the Italian government may block mergers and acquisitions involving foreign firms under the “Golden Power” law if the proposed transactions raise national security concerns.  This law was enacted in 2012 and further implemented with decrees or legislation in 2015, 2017, and 2019.  The Golden Power law allows the Government of Italy (GOI) to block foreign acquisition of companies operating in strategic sectors (identified as defense/national security, energy, transportation, telecommunications, critical infrastructure, sensitive technology, and nuclear and space technology).  In March 2019, the GOI issued a decree expanding the Golden Power authority to cover the purchase of goods and services related to the planning, realization, maintenance, and management of broadband communications networks using 5G technology.  The GOI’s Golden Power authority applies in all cases in which the potential purchaser is a non-EU company.  The authority extends to cases involving EU companies if the target of the acquisition engages in defense/national security activities.  In this respect, the GOI has a say regarding the ownership of private companies as well as ones in which the government has a stake.  An interagency group led by the Prime Minister’s office reviews acquisition applications and prepares the dossiers/ recommendations for the Council of Ministers’ decisions.

According to the latest figures available from the Italian Trade Agency (ITA), foreign investors own significant shares of 12,768 Italian companies.  As of the end of 2019, these companies employed 1,211,872 workers with overall sales of EUR 573.6 billion.  ITA operates under the umbrella of the Italian Ministry of Economic Development.

The Italian Trade Agency (ITA) promotes foreign investment through Invest in Italy:  http://www.investinitaly.com/en/ .  The Foreign Investments Attraction Department is a dedicated unit of ITA for facilitating the establishment and the development of foreign companies in Italy.  As of April 2019, ITA maintained a presence in 65 countries to assist foreign investors.

Additionally, Invitalia is the national agency for inward investment and economic development and is part of the Italian Ministry of Economy and Finance.  The agency focuses on strategic sectors for development and employment.  It places an emphasis on southern Italy, where investment and development lag in comparison to the rest of the country.  Invitalia finances projects both large and small, supporting entrepreneurs with concrete development plans, especially in innovative and high-value-added sectors.  For more information, see https://www.invitalia.it/eng .  The Ministry of Economic Development also has a program to attract innovative investments:  https://www.mise.gov.it .

Italy’s main business association (Confindustria) also provides assistance to companies in Italy:  https://www.confindustria.it/en .

Limits on Foreign Control and Right to Private Ownership and Establishment

Under EU treaties and OECD obligations, Italy is generally obliged to provide national treatment to U.S. investors established in Italy or in another EU member state.

EU and Italian antitrust laws provide national authorities with the right to review mergers and acquisitions over a certain financial threshold.  The Italian government may block mergers and acquisitions involving foreign firms to protect the national strategic interest or in retaliation if the government of the foreign firm applies discriminatory measures against Italian firms.  Foreign investors in the defense or aircraft manufacturing sectors are more likely to encounter resistance from the many ministries involved in reviewing foreign acquisitions than foreign investors in other sectors.

Italy maintains a formal national security screening process for inbound foreign investment in the sectors of defense/national security, transportation, energy, telecommunications, critical infrastructure, sensitive technology, and nuclear and space technology under its “Golden Power” legislation, and where there may be market concentration (antitrust) issues.  Italy’s Golden Power legislation was expanded in March 2019 to include the purchase of goods and services related to the planning, realization, maintenance, and management of broadband communications networks using 5G technology.

Other Investment Policy Reviews

An OECD Economic Survey was published for Italy in April 2019.  See   https://www.oecd.org/economy/surveys/Italy-2019-OECD-economic-survey-overview.pdf 

Business Facilitation

Italy has a business registration website, available in Italian and English, administered through the Union of Italian Chambers of Commerce: http://www.registroimprese.it.   The online business registration process is clear and complete, and available to foreign companies.  Before registering a company online, applicants must obtain a certified e-mail address and digital signature, a process that may take up to five days.  A notary is required to certify the documentation.  The precise steps required for the registration process depend on the type of business being registered.  The minimum capital requirement also varies by type of business. Generally, companies must obtain a value-added tax account number (partita IVA) from the Italian Revenue Agency; register with the social security agency (Istituto Nazionale della Previdenza Sociale INPS); verify adequate capital and insurance coverage with the Italian workers’ compensation agency Istituto Nazionale per L’Assicurazione contro gli Infortuni sul Lavoro (INAIL); and, notify the regional office of the Ministry of Labor.  According to the World Bank Doing Business Index 2020, Italy’s ranking decreased from 67 to 98 out of 190 countries in terms of the ease of starting a business:  it takes six procedures and 11 days to start a business in Italy.  Additional licenses may be required, depending on the type of business to be conducted.

Invitalia and the Italian Trade Agency’s Foreign Direct Investment Unit assist those wanting to set up a new business in Italy.  Many Italian localities also have one-stop shops to serve as a single point of contact for, and provide advice to, potential investors on applying for necessary licenses and authorizations at both the local and national level.  These services are available to all investors.

Outward Investment

Italy neither promotes, restricts, nor incentivizes outward investment, nor restricts domestic investors from investing abroad.

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) 2019 €1,787,664 2018 $2,083,864 www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2018 €10,696 2018 $38,479 BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data 
Host country’s FDI in the United States ($M USD, stock positions) 2018 €36,670 2018 $38,626 BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data 
Total inbound stock of FDI as % host GDP 2018 23.9% 2018 20.8% UNCTAD data available at
https://unctad.org/en/Pages/DIAE/
World%20Investment%20Report/
Country-Fact-Sheets.aspx
 

* Italian GDP data are taken from ISTAT, the official statistics agency.  ISTAT publishes preliminary year end GDP data in early February and issues revised data in early March.  Italian FDI data are from the Bank of Italy and are the latest available; new data are released in May.

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward $426,429 100% Total Outward $554,303 100%
France $92,843 22% The Netherlands $64,351 12%
The Netherlands $75,230 18% Luxembourg $44,905 8%
Luxembourg $75,105 18% Germany $44,134 8%
United Kingdom $55,049 13% United States $42,275 8%
Germany $33,810 8% Spain $40,186 7%
“0” reflects amounts rounded to +/- USD 500,000.
Table 4: Sources of Portfolio Investment
Portfolio Investment Assets
Top Five Partners (Millions, current US Dollars)
Total Equity Securities Total Debt Securities
All Countries 1,648,337 100% All Countries $1,009,969 100% All Countries $638,368 100%
Luxembourg 686,927 42% Luxembourg $661,365 65% Spain $107,486 17%
France 170,664 10% Ireland $144,680 14% France $98,665 15%
Ireland 161,766 10% France $72,008 7% United States $95,712 15%
United States 139,134 8% United States $43,421 4% Germany $52,897 8%
Spain 112,195 7% United Kingdom $23,329 2% Nether-lands $49,425 8%

The statistics above show Italy’s largest investment partners to be within the European Union and the United States.  This is consistent with Italy being fully integrated with its EU partners and the United States.

Japan

Executive Summary

Japan is the world’s third largest economy, the United States’ fourth largest trading partner,

and was the third largest contributor to U.S. foreign direct investment (FDI) in 2018.  The Japanese government actively welcomes and solicits foreign investment and has set ambitious goals for increasing inbound FDI.  Despite Japan’s wealth, high level of development, and general acceptance of foreign investment, inbound FDI stocks, as a share of GDP, are the lowest in the OECD.

Japan’s legal and regulatory climate is highly supportive of investors in many respects.  Courts are independent, but attorney-client privilege does not exist in civil, criminal or administrative matters.  There is no right to have counsel present during criminal or administrative interviews. The country’s regulatory system is improving transparency and developing new regulations in line with international norms.  Capital markets are deep and broadly available to foreign investors.  Japan maintains strong protections for intellectual property rights with generally robust enforcement.  The country remains a large, wealthy, and sophisticated market with world-class corporations, research facilities, and technologies.  Nearly all foreign exchange transactions, including transfers of profits, dividends, royalties, repatriation of capital, and repayment of principal, are freely permitted.  The sectors that have historically attracted the largest foreign direct investment in Japan are electrical machinery, finance, and insurance.

On the other hand, foreign investors in the Japanese market continue to face numerous challenges.  A traditional aversion towards mergers and acquisitions within corporate Japan has inhibited foreign investment, and weak corporate governance has led to low returns on equity and cash hoarding among Japanese firms, although business practices are improving in both areas.  Investors and business owners must also grapple with inflexible labor laws and a highly regimented labor recruitment system that can significantly increase the cost and difficulty of managing human resources.  The Japanese government has recognized many of these challenges and is pursuing initiatives to improve investment conditions.

Levels of corruption in Japan are low, but deep relationships between firms and suppliers may limit competition in certain sectors and inhibit the entry of foreign firms into local markets.

Future changes in Japan’s investment climate are largely contingent on the success of structural reforms to the Japanese economy. Efforts to strengthen corporate governance and increase female and senior citizen labor force participation have the potential to improve Japan’s economic performance.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 18 of 180 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report “Ease of Doing Business” 2019 29 of 190 http://www.doingbusiness.org/rankings
Global Innovation Index 2018 15 of 127 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country (M USD, stock positions) 2017 USD 129,064  https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2018 USD 41,310 http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Toward Foreign Direct Investment

Direct inward investment into Japan by foreign investors has been open and free since the Foreign Exchange and Foreign Trade Act (the Forex Act) was amended in 1998.  In general, the only requirement for foreign investors making investments in Japan is to submit an ex post facto report to the relevant ministries. The Act was amended in 2019, updating Japan’s foreign investment review regime.  The legislation becomes effective in May 2020 and lowers the ownership threshold for pre-approval notification to the government for foreign investors to 1 percent from 10 percent in industries that could pose risks to national security.  There are waivers for certain categories of investors.

The Japanese Government explicitly promotes inward FDI and has established formal programs to attract it.  In 2013, the government of Prime Minister Shinzo Abe announced its intention to double Japan’s inward FDI stock to JPY 35 trillion (USD 318 billion) by 2020 and reiterated that commitment in its revised Japan Revitalization Strategy issued in August 2016.  At the end of 2018, Japan’s inward FDI stock was JPY 30.7 trillion (USD 285 billion), 6.2 percent increase over the previous year. The Abe Administration’s interest in attracting FDI is one component of the government’s strategy to reform and revitalize the Japanese economy, which continues to face the long-term challenges of low growth, an aging population, and a shrinking workforce.

The government’s “FDI Promotion Council,” comprised of government ministers and private sector advisors, releases recommendations on improving Japan’s FDI environment.  In a May 2018 report  ( http://www.invest-japan.go.jp/documents/pdf/support_program_en.pdf ), the council decided to launch the Support Program for Regional Foreign Direct Investment in Japan, recommending that local governments formulate a plan to attract foreign companies to their regions.

The Ministry of Economy, Trade and Industry (METI) and the Japan External Trade Organization (JETRO) are the lead agencies responsible for assisting foreign firms wishing to invest in Japan.  METI and JETRO have together created a “one-stop shop” for foreign investors, providing a single Tokyo location—with language assistance—where those seeking to establish a company in Japan can process the necessary paperwork (details are available at http://www.jetro.go.jp/en/invest/ibsc/ ).  Prefectural and city governments also have active programs to attract foreign investors, but they lack many of the financial tools U.S. states and municipalities use to attract investment.

Foreign investors seeking a presence in the Japanese market or seeking to acquire a Japanese firm through corporate takeovers may face additional challenges, many of which relate more to prevailing business practices rather than to government regulations, though it depends on the sector.  These include an insular and consensual business culture that has traditionally been resistant to unsolicited mergers and acquisitions (M&A), especially when initiated by non-Japanese entities; a lack of independent directors on many company boards (even though this is changing); exclusive supplier networks and alliances between business groups that can restrict competition from foreign firms and domestic newcomers; cultural and linguistic challenges; and labor practices that tend to inhibit labor mobility.  Business leaders have communicated to the Embassy that regulatory and governmental barriers are more likely to exist in mature, heavily regulated sectors than in new industries.

The Japanese Government established an “Investment Advisor Assignment System” in April 2016 in which a State Minister acts as an advisor to select foreign companies with “important” investments in Japan.  The system aims to facilitate consultation between the Japanese Government and foreign firms.  Of the nine companies participating in this initiative, seven are from the United States.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private enterprises have the right to establish and own business enterprises and engage in all forms of remunerative activity.  Japan has gradually eliminated most formal restrictions governing FDI.  One remaining restriction limits foreign ownership in Japan’s former land-line monopoly telephone operator, Nippon Telegraph and Telephone (NTT), to 33 percent.  Japan’s Radio Law and separate Broadcasting Law also limit foreign investment in broadcasters to 20 percent, or 33 percent for broadcasters categorized as “facility-supplying.”  Foreign ownership of Japanese companies invested in terrestrial broadcasters will be counted against these limits.  These limits do not apply to communication satellite facility owners, program suppliers or cable television operators.

The Foreign Exchange and Foreign Trade Act governs investment in sectors deemed to have national security or economic stability implications.  If a foreign investor wants to acquire over one percent of the shares of a listed company in certain designated sectors, it must provide prior notification and obtain approval from the Ministry of Finance and the ministry that regulates the specific industry.  Designated sectors include weapons manufacturers, nuclear power, agriculture, aerospace, forestry, petroleum, electric/gas/water utilities, telecommunications, and leather manufacturing.  There are waivers for certain categories of investors.

U.S. investors, relative to other foreign investors, are not disadvantaged or singled out by any ownership or control mechanisms, sector restrictions, or investment screening mechanisms.

Other Investment Policy Reviews

The World Trade Organization (WTO) conducted its most recent review of Japan’s trade policies in March 2017 (available at https://www.wto.org/english/tratop_e/tpr_e/tp451_e.htm ).

The OECD released its biennial Japan economic survey results on April 15, 2019 (available at http://www.oecd.org/japan/economic-survey-japan.htm ).

Business Facilitation

The Japan External Trade Organization (JETRO) is Japan’s investment promotion and facilitation agency.  JETRO operates six Invest Japan Business Support Centers (IBSCs) across Japan that provide consultation services on Japanese incorporation types, business registration, human resources, office establishment, and visa/residency issues.  Through its website (https://www.jetro.go.jp/en/invest/setting_up/ ), the organization provides English-language information on Japanese business registration, visas, taxes, recruiting, labor regulations, and trademark/design systems and procedures in Japan.  While registration of corporate names and addresses can be completed online, most business registration procedures must be completed in person.  In addition, corporate seals and articles of incorporation of newly established companies must be verified by a notary.

According to the 2020 World Bank “Doing Business” Report, it takes eleven days to establish a local limited liability company in Japan.  JETRO reports that establishing a branch office of a foreign company requires one month, while setting up a subsidiary company takes two months.  While requirements vary according to the type of incorporation, a typical business must register with the Legal Affairs Bureau (Ministry of Justice), the Labor Standards Inspection Office (Ministry of Health, Labor, and Welfare), the Japan Pension Service, the district Public Employment Security Office, and the district tax bureau.  JETRO operates a one-stop business support center in Tokyo so that foreign companies can complete all necessary legal and administrative procedures in one location. In 2017, JETRO launched an online business registration system that allows businesses to register company documents  but cannot be used for the registration of immigration documentation.

No laws exist to explicitly prevent discrimination against women and minorities regarding registering and establishing a business.  Neither special assistance nor mechanisms exist to aid women or underrepresented minorities.

Outward Investment

The Japan Bank for International Cooperation (JBIC) provides a variety of support to Japanese foreign direct investment.  Most support comes in the form of “overseas investment loans,” which can be provided to Japanese companies (investors), overseas Japanese affiliates (including joint ventures), and foreign governments in support of projects with Japanese content, typically infrastructure projects.  JBIC often seeks to support outward FDI projects that aim to develop or secure overseas resources that are of strategic importance to Japan, for example, construction of liquefied natural gas (LNG) export terminals to facilitate sales to Japan.  More information is available at https://www.jbic.go.jp/en/index.html .

Nippon Export and Investment Insurance (NEXI) supports outward investment by providing exporters and investors insurance that protects them against risks and uncertainty in foreign countries that is not covered by private-sector insurers.

Japan also employs specialized agencies and public private partnerships to target outward investment in specific sectors.  For example, the Fund Corporation for the Overseas Development of Japan’s Information and Communications Technology and Postal Services (JICT) supports overseas investment in global telecommunications, broadcasting, and postal businesses.

Similarly, the Japan Overseas Infrastructure Investment Corporation for Transport and Urban Development (JOIN) is a government-funded corporation to invest and participate in transport and urban development projects that involve Japanese companies.  The fund specializes in overseas infrastructure investment projects such as bullet trains, airports, and green city projects with Japanese companies, banks, institutions (i.e., JICA, JBIC, NEXI), and governments.

Finally, the Japan Oil, Gas and Metals National Corporation (JOGMEC) is a Japanese government entity administered by the Agency for Natural Resources and Energy under METI.  JOGMEC provides equity capital and liability guarantees to Japanese companies for oil and natural gas exploration and production projects.

Japan places no restrictions on outbound investment.

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) 2017 USD 4,955,654 2017 USD 4,859,950 World Bank
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) 2017 USD 59,695 2017 USD 129,064 BEA
Host country’s FDI in the United States (M USD, stock positions) 2017 USD 490,608 2017 USD 476,878 BEA
Total inbound stock of FDI as % host GDP 2017 5.2% 2017 4.17% OECD

Table 3: Sources and Destination of FDI

*2017 Nominal GDP data from “Annual Report on National Accounts for 2017”, Economic and Social Research Institute, Cabinet Office, Japanese Government.  January 25, 2018. (Note: uses exchange rate of 110.0 Yen to 1 U.S. Dollar and Calendar Year Data)

The discrepancy between Japan’s accounting of U.S. FDI into Japan and U.S. accounting of that FDI can be attributed to methodological differences, specifically with regard to indirect investors, profits generated from reinvested earnings, and differing standards for which companies must report FDI.

Direct Investment from/in Counterpart Economy Data (IMF CDIS, 2017)
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 202,441 100% Total Outward 1,497,525 100%
United States 50,033 24.7% United States 479,995 32%
France 30,108 14.9% United Kingdom 151,634 10.1%
Netherlands 26,642 13.2% China 117,568 7.9%
Singapore 17,831 8.8% Netherland 114,317 7.6%
United Kingdom 13,734 6.8% Australia 68,042 4.5%
“0” reflects amounts rounded to +/- USD 500,000.
Table 4: Sources of Portfolio Investment
Portfolio Investment Assets (IMF CPIS, June 2018)
Top Five Partners (Millions, US Dollars)
Total Equity Securities Total Debt Securities
All Countries 2,435,531 100% All Countries 1,578,257 100% All Countries 893,493 100%
United States 1,095,979 45.0% United States 862,284 54.6% United States 233,695 26.2%
United Kingdom 179,273 7.4% United Kingdom 126,848 8.0% France 113,093 12.7%
Luxembourg 158,063 6.5% Luxembourg 113,881 7.2% Hong Kong 58,509 6.5%
France 142,979 5.9% Ireland 79,597 5.0% United Kingdom 52,425 5.9%
Ireland 115,650 4.7% Cayman Islands 45,090 2.9% Luxembourg 44,182 4.9%
  Portfolio Investment Liabilities (IMF CPIS, June 2018)
Top Five Partners (Millions, US Dollars)
Total Equity Securities Total Debt Securities
All Countries 2,754,252 100% All Countries 1,856,556 100% All Countries 1,466,360 100%
United States 918,352 33.3% United States 932,010 50.2% United States 309,668 21.1%
United Kingdom 327,174 11.9% United Kingdom 252,465 13.6% Belgium 202,066 13.8%
Luxembourg 282,413 10.3% Luxembourg 101,212 5.5% Luxembourg 175,561 12.0%
Belgium 136,695 5.0% Belgium 64,898 3.5% China Mainland 129,378 8.8%
France 134,562 4.9% Canada 59,856 3.2%  United Kingdom 102,592 7.0%

Macau

Executive Summary

Macau became a Special Administrative Region (SAR) of the People’s Republic of China (PRC) on December 20, 1999. Macau’s status since reverting to Chinese sovereignty is defined in the Sino-Portuguese Joint Declaration (1987) and the Basic Law. Under the concept of “one country, two systems” articulated in these documents, Macau enjoys a high degree of autonomy in economic matters, and its economic system is to remain unchanged for 50 years following the 1999 reversion to Chinese sovereignty. The Government of Macau (GOM) maintains a transparent, non-discriminatory, and free-market economy. The GOM is committed to maintaining an investor-friendly environment.

In 2002, the GOM ended a long-standing gaming monopoly, awarding two gaming concessions and one sub-concession to consortia with U.S. interests. This opening encouraged substantial U.S. investment in casinos and hotels and has spurred rapid economic growth.

Macau is today the biggest gaming center in the world, having surpassed Las Vegas in terms of gambling revenue. U.S. investment over the past decade is estimated to exceed USD 23.8 billion. In addition to gaming, Macau hopes to position itself as a regional center for incentive travel, conventions, and tourism, though to date it has experienced limited success in diversifying its economy. In 2007, business leaders founded the American Chamber of Commerce of Macau.

Macau also seeks to become a “commercial and trade cooperation service platform” between mainland China and Portuguese-speaking countries. The GOM has various policies to promote these efforts and to create business opportunities for domestic and foreign investors.

In September 2016, the GOM announced its first Five-Year Development Plan (2016-2020). Highlights include establishing a trade cooperation service platform between mainland China and Portuguese-speaking countries, improving the structure of industries, increasing the quality of life, protecting the environment, and strengthening government efficiency.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index N/A x of 175 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report N/A x of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index N/A x of 129 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2016 USD 2,541 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2018 USD 79,110 http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Under the concept of “one country, two systems,” Macau enjoys a high degree of autonomy in economic matters, and its economic system is to remain unchanged until at least 2049. The GOM maintains a transparent, non-discriminatory, and free-market economy. Macau has separate membership in the World Trade Organization (WTO) from that of mainland China.

There are no restrictions placed on foreign investment in Macau as there are no special rules governing foreign investment. Both overseas and domestic firms register under the same set and are subject to the same regulations on business, such as the Commercial Code (Decree 40/99/M).

Macau is heavily dependent on the gaming sector and tourism. The GOM aims to diversify Macau’s economy by attracting foreign investment and is committed to maintaining an investor-friendly environment. Corporate taxes are low, with a tax rate of 12 percent for companies whose net profits exceed MOP 300,000 (USD 37,500). For net profits less than USD 37,500, the tax ranges from three percent to 12 percent. The top personal tax rate is 12 percent. The tax rate of casino concessionaries is 35 percent on gross gaming revenue, plus a four percent contribution for culture, infrastructure, tourism, and a social security fund.

In 2002, the GOM ended a long-standing gaming monopoly, awarding two gaming concessions to consortia with U.S. interests. This opening has encouraged substantial U.S. investment in casinos and hotels and has spurred rapid economic growth. Macau is attempting to position itself to be a regional center for incentive travel, conventions, and tourism. In March 2019, the GOM extended for two years the gaming licenses of SJM (a locally-owned company) and MGM China (a joint venture with investment from U.S.-owned MGM Resorts International that holds a sub-concession from SJM), that were set to expire in 2020. The concessions of all six of Macau’s gambling concessionaires and sub-concessionaires are now set to expire in 2022. The GOM is currently drafting a bill to guide the gaming concession retendering process.

The Macau Trade and Investment Promotion Institute (IPIM) is the GOM agency responsible for promoting trade and investment activities. IPIM provides one-stop services, including notary service, for business registration, and it applies legal and administrative procedures to all local and foreign individuals or organizations interested in setting up a company in Macau.

Macau maintains an ongoing dialogue with investors through various business networks and platforms, such as the IPIM, the Macau Chamber of Commerce, AmCham Macau, and the Macau Association of Banks.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign firms and individuals are free to establish companies, branches, and representative offices without discrimination or undue regulation in Macau. There are no restrictions on the ownership of such establishments. Company directors are not required to be citizens of, or resident in, Macau, except for the following three professional services which impose residency requirements:

Education – an individual applying to establish a school must have a Certificate of Identity or have the right to reside in Macau. The principal of a school must be a Macau resident.

Newspapers and magazines – applicants must first apply for business registration and register with the Government Information Bureau as an organization or an individual. The publisher of a newspaper or magazine must be a Macau resident or have the right to reside in Macau.

Legal services – lawyers from foreign jurisdictions who seek to practice Macau law must first obtain residency in Macau. Foreign lawyers must also pass an examination before they can register with the Lawyer’s Association, a self-regulatory body. The examination is given in Chinese or Portuguese. After passing the examination, foreign lawyers are required to serve an 18-month internship before they are able to practice law in Macau.

Other Investment Policy Reviews

Macau last conducted the WTO Trade Policy Review in May 2013. https://www.wto.org/english/tratop_e/tpr_e/g281_e.pdf

Business Facilitation

Macau provides a favorable business and investment environment for enterprises and investors. The IPIM helps foreign investors in registering a company and liaising with the involved agencies for entry into the Macau market. The business registration process takes less than 10 working days. http://www.ipim.gov.mo/en/services/one-stop-service/handle-company-registration-procedures/ .

Outward Investment

Macau, as a free market economy, does not promote or incentivize outward investment, nor does it restrict domestic investors from investing abroad. Hong Kong and mainland China were the top two destinations for Macau’s outward investments in 2018.

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) 2018 $55,040 2018 $55,084 www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or internationalSource of data: BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2018 $398 N/A N/A BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
 
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A 2017 $51 BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
 
Total inbound stock of FDI as % host GDP 2018 67% 2018 53% UNCTAD data available at
https://unctad.org/en/Pages/DIAE/
World%20Investment%20Report/
Country-Fact-Sheets.aspx
 

* Source for Host Country Data: Macau Statistics and Census Service

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 34,911 100% Total Outward 2,930 100%
China, P.R.: Hong Kong 9,800 28% China, P.R.: Mainland 1,631 56%
British Virgin Islands 9,123 26% China, P.R.: Hong Kong 1,141 39%
China, P.R.: Mainland 6,241 18% Cayman Islands 74 3%
Cayman Islands 6,078 17% British Virgin Islands 70 2%
Portugal 1,134 3% Cyprus 0 0%
“0” reflects amounts rounded to +/- USD 500,000.
Table 4: Sources of Portfolio Investment
Portfolio Investment Assets
Top Five Partners (Millions, current US Dollars)
Total Equity Securities Total Debt Securities
All Countries 11,324,581 100% All Countries 7,929,155 100% All Countries 3,395,426 100%
Cayman Islands 1,686,670 15% Cayman Islands 1,234,954 16% Canada 505,494 15%
United Kingdom 1,346,345 12% United Kingdom 929,469 12% Cayman Islands 451,716 13%
Japan 1,003,988 9% Japan 775,570 10% United Kingdom 416,876 12%
Canada 975,929 9% Canada 470,435 6% C Japan 228,418 7%
France 558,074 5% Switzerland 442,195 6% Netherlands, The 184,339 5%

United Kingdom

Executive Summary

The United Kingdom (UK) actively encourages foreign direct investment (FDI).  The UK imposes few impediments to foreign ownership and throughout the past decade, 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-2018-to-2019.

At the time of writing, Her Majesty’s Government (HMG) is enforcing social distancing guidelines in an effort to stop the spread of the COVID-19 pandemic.  Non-essential businesses are closed and Britons have been told to stay and work at home.  This has led to a sharp and abrupt fall in economic growth, investment, trade, and employment.  HMG has initiated several programs to mitigate the economic damage of the lockdown.  The Coronavirus Job Retention Scheme (CJRS) pays up to 80 percent of a furloughed worker’s monthly wage, up to £2,500 ($ 3,100) and several programs have been established, in coordination with the Bank of England, to provide HMG-backed bridge financing loans for firms facing cash flow issues.

On June 23, 2016, the UK held a referendum on its continued membership in the European Union (EU) resulting in a decision to leave.  The UK formally withdrew from the EU’s political institutions on January 31, 2020, while remaining a de facto member of the bloc’s economic and trading institutions during a transition period that is scheduled to end on December 31, 2020.  The terms of the UK’s future relationship with the EU are still under negotiation, but it is widely expected that trade between the UK and the EU will face more friction following the UK’s exit from the single market.  At present, the UK enjoys relatively unfettered access to the markets of the 27 other EU member states, equating to roughly 450 million consumers and $15 trillion worth of GDP.  Prolonged COVID and Brexit-related uncertainty may continue to diminish the overall attractiveness of the UK as an investment destination for U.S. companies.

On the other hand, the United States and the UK launched free trade agreement virtual negotiations in May 2020.  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 British pound is a free-floating currency with no restrictions on its transfer or conversion.  Exchange controls restricting the transfer of funds associated with an investment into or out of the UK do not exist.

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.  There are early signs of increased protectionism against foreign investment, however.  HM Treasury announced a unilateral digital services tax, which came into force in April 2020, taxing certain digital firms—such as social media platforms, search engines, and marketplaces—two percent on revenue generated in the UK.

The United States is the largest source of FDI into the UK.  Thousands of U.S. companies have operations in the UK, including all of the Fortune 100 firms.  The UK also hosts more than half of the European, Middle Eastern, and African corporate headquarters of American-owned firms.  For several generations, U.S. firms have been attracted to the UK both for the domestic market and as a beachhead for the EUSingle Market.

Companies operating in the UK must comply with the EU’s General Data Protection Regulation (GDPR).  The UK has incorporated the requirements of the GDPR into UK domestic law though the Data Protection Act of 2018.  After it leaves the EU, the UK will need to apply for an adequacy decision from the EU in order to maintain current data flows.

Table 1
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 12 of 180 www.transparency.org/research/cpi/overview 
World Bank’s Doing Business Report “Ease of Doing Business” 2019 8 of 190 www.doingbusiness.org/rankings 
Global Innovation Index 2019 5 of 127 www.globalinnovationindex.org/
gii-2018-report
 
U.S. FDI in partner country (M USD, stock positions) 2018 $757,781 apps.bea.gov/international/factsheet/ 
World Bank GNI per capita 2018 $41,770 data.worldbank.org/indicator/
NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The UK encourages foreign direct investment.  With a few exceptions, the government does not discriminate between nationals and foreign individuals in the formation and operation of private companies.  The Department for International Trade actively promotes direct foreign investment, and prepares market information for a variety of industries.  U.S. companies establishing British subsidiaries generally encounter no special nationality requirements on directors or shareholders. Once established in the UK, foreign-owned companies are treated no differently from UK firms.  The British Government is a strong defender of the rights of any British-registered company, irrespective of its nationality of ownership, reflected in the fact that the UK has never had to defend an investment dispute at the level of international arbitration.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign ownership is limited in only a few strategic private sector companies, such as Rolls Royce (aerospace) and BAE Systems (aircraft and defense).  No individual foreign shareholder may own more than 15 percent of these companies.  Theoretically, the government can block the acquisition of manufacturing assets from abroad by invoking the Industry Act of 1975, but it has never done so.  Investments in energy and power generation require environmental approvals. Certain service activities (like radio and land-based television broadcasting) are subject to licensing.  The Enterprise Act of 2002 extends powers to the UK government to intervene in mergers which might give rise to national security implications and into which they would not otherwise be able to intervene.

The UK requires that at least one director of any company registered in the UK be ordinarily resident in the UK.  The UK, as a member of the Organization for Economic Cooperation and Development (OECD), subscribes to the OECD Codes of Liberalization and is committed to minimizing limits on foreign investment.

While the UK does not have a formalized investment review body to assess the suitability of foreign investments in national security sensitive areas, an ad hoc investment review process does exist and is led by the relevant government ministry with regulatory responsibility for the sector in question (e.g., the Department for Business, Energy, and Industrial Strategy would have responsibility for review of investments in the energy sector).  U.S. companies have not been the target of these ad hoc reviews.  The UK is currently considering ways to revise its rules related to foreign direct investment that may implicate UK national security interests. (https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/690623/Government_Response_final.pdf ).  The Government has proposed to amend the turnover threshold and share-of-supply tests within the Enterprise Act 2002, in orderto give the Government more leeway to examine and potentially intervene in high-risk mergers that currently fall outside the thresholds in two areas: (i) the dual use and military use sector and, (ii) parts of the advanced technology sector.  For these areas only, the Government proposes to lower the turnover threshold from £70 million ($92 million) to £1 million ($1.3 million) and remove the current requirement for the merger to increase the share of supply to or over 25 percent.

Other Investment Policy Reviews

The Economist’s “Intelligence Unit”, World Bank Group’s “Doing Business 2018”, and the OECD’s “Economic Forecast Summary (May 2019) have current investment policy reports for the United Kingdom:

http://country.eiu.com/united-kingdom 
http://www.doingbusiness.org/data/exploreeconomies/united-kingdom/ 
http://www.oecd.org/economy/united-kingdom-economic-forecast-summary.htm 

Business Facilitation

The UK government has promoted administrative efficiency  to facilitate business creation and operation.  The online business registration process is clearly defined, though some types of company cannot register as an overseas firm in the UK, including partnerships and unincorporated bodies.  Registration as an overseas company is only required when the company has some degree of physical presence in the UK.  After registering their business with the UK governmental body Companies House, overseas firms must separately register to pay corporation tax within three months.  On average, the process of setting up a business in the UK requires thirteen days, compared to the European average of 32 days, putting the UK in first place in Europe and sixth in the world.  As of April 2016, companies have to declare all “persons of significant control.”  This policy recognizes that individuals other than named directors can have significant influence on a company’s activity and that this information should be transparent.  More information is available at this link: https://www.gov.uk/government/publications/guidance-to-the-people-with-significant-control-requirements-for-companies-and-limited-liability-partnerships .  Companies House maintains a free, publicly searchable directory, available at this link: https://www.gov.uk/get-information-about-a-company .  

The UK offers a welcoming environment to foreign investors, with foreign equity ownership restrictions in only a limited number of sectors covered by the World Bank’s Investing Across Sectors indicators.  As in all other EU member countries, foreign equity ownership in the air transportation sector is limited to 49 percent for investors from outside of the European Economic Area (EEA).  It remains to be determined how this will change after the UK leaves the transition period with the EU on December 31, 2020.  https://invest.great.gov.uk/int/ 

https://www.gov.uk/government/organisations/department-for-international-trade 
https://www.gov.uk/set-up-business 
https://www.gov.uk/topic/company-registration-filing/starting-company 
http://www.doingbusiness.org/data/exploreeconomies/united-kingdom/starting-a-business 

Special Section on the British Overseas Territories and Crown Dependencies

The British Overseas Territories (BOTs) comprise Anguilla, British Antarctic Territory, Bermuda, British Indian Ocean Territory, British Virgin Islands, Cayman Islands, Falkland Islands, Gibraltar, Montserrat, Pitcairn Islands, St. Helena, Ascension and Tristan da Cunha, Turks and Caicos Islands, South Georgia and South Sandwich Islands, and Sovereign Base Areas on Cyprus.  The BOTs retain a substantial measure of responsibility for their own affairs.  Local self-government is usually provided by an Executive Council and elected legislature.  Governors or Commissioners are appointed by the Crown on the advice of the British Foreign Secretary, and retain responsibility for external affairs, defense, and internal security.  However, the UK imposed direct rule on the Turks and Caicos Islands in August 2009 after an inquiry found evidence of corruption and incompetence.  Its Premier was removed and its constitution was suspended.  The UK restored Home Rule following elections in November 2012.

Many of the territories are now broadly self-sufficient.  However, the UK’s Department for International Development (DFID) maintains development assistance programs in St. Helena, Montserrat, and Pitcairn.  This includes budgetary aid to meet the islands’ essential needs and development assistance to help encourage economic growth and social development in order to promote economic self-sustainability.  In addition, all other BOTs receive small levels of assistance through “cross-territory” programs for issues such as environmental protection, disaster prevention, HIV/AIDS and child protection.

Seven of the BOTs have financial centers:  Anguilla, Bermuda, British Virgin Islands, Cayman Islands, Gibraltar, Montserrat, and the Turks and Caicos Islands.  These Territories have committed to the OECD’s Common Reporting Standard (CRS) for the automatic exchange of taxpayer financial account information.  They are already exchanging information with the UK, and began exchanging information with other jurisdictions under the CRS from September 2017.

The OECD Global Forum on Transparency and Exchange of Information for Tax Purposes has rated Anguilla as “partially compliant” with the internationally agreed tax standard.  Although Anguilla sought to upgrade its rating in 2017, it still remains at “partially compliant” as of May 2020.  The Global Forum has rated the other six territories as “largely compliant.”  Anguilla, Bermuda, British Virgin Islands, Cayman Islands, Gibraltar and the Turks and Caicos Islands have also committed in reciprocal bilateral arrangements with the UK to hold beneficial ownership information in central registers or similarly effective systems, and to provide UK law enforcement authorities with near real-time access to this information.  These arrangements came into effect in June 2017.

Anguilla:  Anguilla is a neutral tax jurisdiction.  There are no income, capital gains, estate, profit or other forms of direct taxation on either individuals or corporations, for residents or non-residents of the jurisdiction.  The territory has no exchange rate controls.  Non-Anguillan nationals may purchase property, but the transfer of land to an alien includes an additional 12.5 percent surcharge.

British Virgin Islands:  The government of the British Virgin Islands welcomes foreign direct investment and offers a series of incentive packages aimed at reducing the cost of doing business on the islands.  This includes relief from corporation tax payments over specific periods but companies must pay an initial registration fee and an annual license fee to the BVI Financial Services Commission.  Crown land grants are not available to non-British Virgin Islanders, but private land can be leased or purchased following the approval of an Alien Land Holding License.  Stamp duty is imposed on transfer of real estate and the transfer of shares in a BVI company owning real estate in the BVI at a rate of 4 percent for belongers (i.e., residents who have proven they meet a legal standard of close ties to the territory) and 12 percent for non-belongers.  There is no corporate income tax, capital gains tax, branch tax, or withholding tax for companies incorporated under the BVI Business Companies Act.  Payroll tax is imposed on every employer and self-employed person who conducts business in BVI.  The tax is paid at a graduated rate depending upon the size of the employer.  The current rates are 10 percent for small employers (those which have a payroll of less than $150,000, a turnover of less than $300,000 and fewer than 7 employees) and 14 percent for larger employers.  Eight percent of the total remuneration is deducted from the employee, the remainder of the liability is met by the employer.  The first $10,000 of remuneration is free from payroll tax.

Cayman Islands:  There are no direct taxes in the Cayman Islands.  In most districts, the government charges stamp duty of 7.5 percent on the value of real estate at sale; however, certain districts, including Seven Mile Beach, are subject to a rate of nine percent.  There is a one percent fee payable on mortgages of less than KYD 300,000, and one and a half percent on mortgages of KYD 300,000 or higher.  There are no controls on the foreign ownership of property and land.  Investors can receive import duty waivers on equipment, building materials, machinery, manufacturing materials, and other tools.

Falkland Islands:  Companies located in the Falkland Islands are charged corporation tax at 21 percent on the first GBP one million and 26 percent for all amounts in excess of GBP one million.  The individual income tax rate is 21 percent for earnings below $15,694 (GBP 12,000) and 26 percent above this level.

Gibraltar:  The government of Gibraltar encourages foreign investment.  Gibraltar has a stable currency and few restrictions on moving capital or repatriating dividends.  The corporate income tax rate is 20 percent for utility, energy, and fuel supply companies, and 10 percent for all other companies.  There are no capital or sales taxes.  Gibraltar is unique among British Overseas Territories in having been a part of the European Union’s single market,    Gibraltar left the EU with the rest of the UK and its final status is currently subject to negotiations between the UK and Spain.

Montserrat:  The government of Montserrat welcomes new private foreign investment.  Foreign investors are permitted to acquire real estate, subject to the acquisition of an Alien Land Holding license which carries a fee of five percent of the purchase price.  The government also imposes stamp and transfer fees of 2.6 percent of the property value on all real estate transactions.  Foreign investment in Montserrat is subject to the same taxation rules as local investment, and is eligible for tax holidays and other incentives.  Montserrat has preferential trade agreements with the United States, Canada, and Australia.  The government allows 100 percent foreign ownership of businesses but the administration of public utilities remains wholly in the public sector.

St. Helena:  The island of St. Helena is open to foreign investment and welcomes expressions of interest from companies wanting to invest.  Its government is able to offer tax based incentives which will be considered on the merits of each project – particularly tourism projects.  All applications are processed by Enterprise St. Helena, the business development agency.

Pitcairn Islands:  The Pitcairn Islands have approximately 50 residents, with a workforce of approximately 29 employed in 10 full-time equivalent roles.  The territory does not have an airstrip or safe harbor.  Residents exist on fishing, subsistence farming, and handcrafts.

The Turks and Caicos Islands:  The islands operate an “open arms” investment policy.  Through the policy, the government commits to a streamlined business licensing system, a responsive immigration policy to give investment security, access to government-owned land under long-term leases, and a variety of duty concessions to qualified investors.  The islands have a “no tax” status, but property purchasers must pay a stamp duty on purchases over $25,000.  Depending on the island, the stamp duty rate may be up to 6.5 percent for purchases up to $250,000, eight percent for purchases $250,001 to $500,000, and 10 percent for purchases over $500,000.

The Crown Dependencies:

The Crown Dependencies are the Bailiwick of Jersey, the Bailiwick of Guernsey and the Isle of Man.  The Crown Dependencies are not part of the UK but are self-governing dependencies of the Crown.  This means they have their own directly elected legislative assemblies, administrative, fiscal and legal systems and their own courts of law.  The Crown Dependencies are not represented in the UK Parliament.

Jersey has a  zero percent standard rate of corporate tax .  The exceptions to this standard rate are financial service companies, which are taxed at 10 percent, utility companies, which are taxed at 20 percent, and income specifically derived from Jersey property rentals or Jersey property development, taxed at 20 percent.  VAT is not applicable in Jersey as it is not part of the EU VAT tax area.

Guernsey has a zero percent rate of corporate tax.  Exceptions include some specific banking activities, taxed at 10 percent, utility companies, which are taxed at 20 percent, Guernsey residents’ assessable income is taxed at 20 percent, and income derived from land and buildings is taxed at 20 percent.

The Isle of Man’s corporate standard tax is zero percent.  The exceptions to this standard rate are income received from banking business, which is taxed at 10 percent and income received from land and property in the Isle of Man which is taxed at 20 percent.  In addition, a 10 percent tax rate also applies to companies who carry on a retail business in the Isle of Man and have taxable income in excess of £500,000 from that business.  VAT is applicable in the Isle of Man as it is part of the EU customs territory.

The tax data above are current as of April 2020.

Outward Investment

The UK remains one of the world’s largest foreign direct investors, currently ranked fourth.  The UK’s international investment position abroad (outward investment) increased from GBP 1,713.3 billion in 2018 to GBP 1,857.7 in 2019, dropping to .   GBP 1,805 billion by the end of 2019.  The main destination for UK outward FDI is the United States, which accounted for approximately 21 percent of UK outward FDI  at the end of 2018.  Other key destinations include the Netherlands, Luxembourg, France, and Spain which, together with the United States, account for a little under half of the UK’s outward FDI stock.

The UK’s international investment position within the Americas was GBP 419.7 billion in 2018.  This is the largest recorded value in the time series since 2009 for the Americas.

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) 2018 $2,850,000 2018 $2,666,000 https://data.worldbank.org/country/united-kingdom  
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) 2018 $367,395 2018 $757,781 BEA data available at
www.bea.gov/international/factsheet  /
Host country’s FDI in the United States (M USD, stock positions) 2018 $367,000 2018 $579,219 https://www.selectusa.gov/
country-fact-sheet/United-Kingdom
 
 
Total inbound stock of FDI as percent host GDP 2018 17.6% 2018 36.5% Calculated using respective
GDP and FDI data
Table 3: Sources and Destination of FDI 
Direct Investment from/in Counterpart Economy 

From Top Five Sources/To Top Five Destinations (USD, Billions)

Inward Direct Investment 2018 Outward Direct Investment 2018
Total Inward 2,028.9 Proportion Total Outward 1,753 Proportion
USA 556.6 27.4% USA 344.4 19.6%
Netherlands 183.7 9.0% Netherlands 204.5 11.7%
Luxembourg 148.2 7.3% Luxembourg 149.5 8.5%
Belgium 126 6.2% France 105.4 6.0%
Japan 119.3 5.9% Spain 94.9 5.4%
Table 4: Sources of Portfolio Investment
Portfolio Investment Assets
Top Five Partners (USD Millions)
Total Equity Securities Total Debt Securities
Country Amount % Country Amount %  Country Amount %
USA 1,150,129 34% USA 711,877 37% USA 438,252 33%
Ireland 246,975 7% Ireland 200,933 10% France 108,245 8%
France 191,416 6% Japan 126,848 6% Germany 107,224 8%
Japan 179,273 5% Luxembourg 104,678 5% Netherlands 70,922 5%
Germany 173,635 5% France 83,170 4% Japan 52,425 4%
Investment Climate Statements
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