DIB Trade Country Profiles Investing

United Kingdom: Investing

FDI in Figures

According to the World Investment Report 2021 published by UNCTAD, FDI inflows into the UK declined for the second year in a row, reaching USD 20 billion in 2020, compared to USD 45 billion in 2019 (-57%). Equity investments decreased by 35%, mainly due to some divestments (e.g. Swiss Re sold its ReAssure group to Phoenix Group Holding for USD 4.2 billion). The stock of FDI in 2020 was about USD 2.2 trillion. The UK was the 16th-largest recipient of global FDI flows, losing five positions from the previous year. The Brexit process has raised many concerns from some investors about increased trade costs with Europe and the volatility of the pound sterling. The main investment partners of the United Kingdom (in terms of FDI stocks) are the United States, the Netherlands, Luxembourg, Belgium, and the British offshore islands (Channel Islands and Isle of Man). Most FDI flows are directed to the financial services sector, professional, scientific and technical services, retail and wholesale trade, transportation and storage, and the IT sector. According to the latest figures from OECD, in the first half of 2021 FDI inflows to the UK totalled USD 45.5 billion, compared to disinvestment of USD 1.8 billion recorded in the same period one year earlier (when a negative inflow of USD 18 billion was recorded in Q2/2020 alone, following the outbreak of the COVID-19 pandemic).

The UK has amended the legal grounds on which the government can intervene in certain mergers under the Enterprise Act. The changes lowered the jurisdictional thresholds for merger review in three specific sectors: artificial intelligence, cryptographic authentication technology and advanced materials. The UK’s National Security and Investment Act 2021 (“NSIA 2021”) entered into force on 4 January 2022. The new law introduced a distinct investment screening regime for companies seeking to gain control of a company or asset in 17 sectors of the economy deemed relevant to the UK’s national security interests (e.g. energy, robotics, defence, AI, transport, communications, etc.). The process for notification will involve an electronic submission to the Investment Security Unit (“ISU”) at the Department for Business, Energy & Industrial Strategy (“BEIS”), which has the power to impose conditions on transactions and even to unwind or block them. Despite the Brexit process, the British economy is resisting: London remains the financial capital of Europe, home to the European headquarters of almost 60% of companies on the Fortune 500 ranking. Furthermore, Great Britain maintains a strong currency, and the country remains one of the most important European consumer markets. The United Kingdom was eighth out of 190 economies in the latest Doing Business ranking established by the World Bank, gaining a position compared to the previous edition.

Foreign Direct Investment	2019	2020	2021
FDI Inward Flow (million USD)	45,454	18,194	27,561
FDI Stock (million USD)	2,045,057	2,219,917	2,634,202
Number of Greenfield Investments*	1,537	1,023	1,073
Value of Greenfield Investments (million USD)	36,078	39,189	44,476

Source: UNCTAD, Latest available data.

Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.

FDI STOCKS BY COUNTRY AND INDUSTRY

Main Investing Countries	2019, in %
United States	24.5
Netherlands	10.7
Luxembourg	8.6
Belgium	7.5
UK Offshore Islands	7.4
Japan	5.8
Germany	5.8
France	4.6

Main Invested Sectors	2019, in %
Financial services	24.3
Professional, scientific and technical services	9.0
Retails and wholesale trade, repair of motor vehicles and motorcycles	7.3
Transportation and storage	6.8
Information and communication	6.4
Mining and quarrying	6.0
Electricity, gas, water and waste	5.6

Source: Office for National Statistics - Latest available data.

Main Foreign Companies: Many UK companies have been acquired by foreign companies: Chivas Brothers by Pernot Ricard (France), Aggregate Ind by Holcim (Switzerland), Paladin Resources by Talisman Energy (Canada), Body Shop by L'Oréal (France). Cadbury, Jaguar Land Rover and Asda are among the other big UK names owned by foreign companies.
Sources of Statistics: Department for Business, Energy & Industrial Strategy
Office for National Statistics

What to consider if you invest in the United Kingdom

Strong Points

One of the main strengths of the UK economy in attracting FDI is that its economy is one of the most liberal in Europe and its business environment is extremely favourable to FDI :

The country is ranked 8th in the World Bank's 2020 Doing Business guide.
The speed of launching a business is, for example, a very good indicator: setting up a business takes on average 13 days in the United Kingdom while the European average is 32 days. According to this indicator, the country is ranked first in Europe and sixth in the world.
London has many strengths: it is a world leader in the financial services sector, its banking sector is healthy and robust
Exports are structurally competitive and diversified
The legal framework is among the most flexible in the world
The unemployment rate is one of the lowest in Western economies.

Weak Points

The main weaknesses of the UK's economy are:

Too much contribution of the financial sector to the GDP
Lack of investment in infrastructure
An industrial sector that sometimes suffers from the high level of competitiveness and competition from the many foreign companies in the country
Productivity growth is very low
High government and household debt (131% of disposable income), high trade deficit
GDP per capita has stagnated for some years
The prospects for improving the British economy are difficult to measure in the post-Brexit context

Government Measures to Motivate or Restrict FDI

The U.K. government attempts to facilitate investment by providing foreign companies with access to largely integrated markets. Proactive policies foster international investment through administrative efficiency in order to promote innovation and achieve sustainable growth. The UK government is a strong advocate for the rights of all UK companies, regardless of their nationality or that of their owners.

A number of grants and other forms of business support are available in the United Kingdom, particularly in connection with qualifying research and development activities carried out by companies. If the qualifying expenses are incurred by small and medium-sized companies, the tax relief is generally an additional 130% deduction.
100% capital allowances are available to companies that incur capital expenditures for plant or equipment to conduct research and development.
Patent Box relief allows companies with qualifying patent income to be taxed on that income at an effective rate of 10% through a deduction against profits.
There is also a rate relief for businesses moving into an enterprise zone (up to £55,000 per annum for five years). In addition, 100% capital allowances are available for the first year for certain types of expenditure by businesses and companies based in certain enterprise zones.

The UK offers a welcoming environment to foreign investors, with foreign equity ownership restrictions in only a limited number of sectors covered by the Investing Across Sectors indicators. The Industry Act (1975) allows the U.K. government to prohibit the transfer of 30 percent or more of major British manufacturing companies to foreign owners if such a transfer is contrary to the interests of the country.
A new Bill to modernise the government’s powers to investigate and intervene in potentially hostile foreign direct investment that threatens UK national security entered into force in May 2021. The National Security and Investment Bill will strengthen the UK’s ability to investigate and intervene in mergers, acquisitions and other types of deals that could threaten our national security. Investments resulting in foreign control exceeding 15% of companies in 17 sectors pertaining to national security require mandatory notifications to the UK government.

For more information, please visit the website of Invest in Great Britain and Northern Ireland.

Protection of Foreign Investment

Bilateral Investment Conventions Signed By the United Kingdom: The UK has concluded several Bilateral Investment Treaties (BITs) with other countries. More information is available on the website of UNCTAD.
International Controversies Registered By UNCTAD: The ISDS Navigator contains information about known international arbitration cases initiated by investors against States pursuant to international investment agreements. The United Kingdom is involved in 87 cases as Home State of claimant and in 1 cases as Respondent State.
Organizations Offering Their Assistance in Case of Disagreement: ICCWBO , International court of arbitration, International chamber of commerce
ICSID , International Center for settlement of Investment Disputes
Member of the Multilateral Investment Guarantee Agency: The United Kingdom is a member of the MIGA convention.

Country Comparison For the Protection of Investors	United Kingdom	OECD	United States	Germany
Index of Transaction Transparency*	10.0	6.5	7.0	5.0
Index of Manager’s Responsibility**	7.0	5.3	9.0	5.0
Index of Shareholders’ Power***	8.0	7.3	9.0	5.0

Source: Doing Business - Latest available data.

Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action.

Procedures Relative to Foreign Investment

Freedom of Establishment: With a few exceptions, the UK does not discriminate between nationals and foreign individuals in the formation and operation of private companies. Some industries are partially government owned or controlled, for example the transport and energy sectors. Similarly, banking and insurance enterprises must obtain Financial Services Authority and government authorisation before operating in the UK. There are no laws or rules limiting foreign ownership and investment in the United Kingdom. Still, regardless of whether they are foreign or British, entities seeking to invest must abide by competition law, and regulatory approval may be required for acquisitions of large U.K. entities by investors.
Acquisition of Holdings: In the United Kingdom, a majority holding interest in the capital of a local company is legal. Depending on the market concerned there could be regulatory restrictions on foreign ownership of shares in UK companies, although the UK has traditionally operated a relatively liberal regime.
Obligation to Declare: The Enterprise Act 2002 governs the UK's foreign investment review regime. Grounds for intervention include public interest cases (section 42), special public interest cases (section 59) and protection of legitimate interests (section 67 and Article 21(4), Merger Regulation). The National Security and Investment Bill 2019-20 will strengthen the Government's powers to scrutinise investments, in particular those that may give rise to a national security risk.
Competent Organisation For the Declaration: Companies House
Requests For Specific Authorisations: Some industries are partially government owned or controlled, for example the transport and energy sectors. Similarly, banking and insurance enterprises must obtain Financial Services Authority and government authorisation before operating in the UK.

Office Real Estate and Land Ownership

Possible Temporary Solutions: Instant Offices, Flexi Offices
The Possibility of Buying Land and Industrial and Commercial Buildings: There are no restrictions on foreign ownership or occupation of real estate in the UK. However, a few formalities apply when a foreign company seeks to register a legal property title with the HM Land Registry.
Risk of Expropriation: Expropriation of corporate assets or nationalization of an industry requires a special Act of Parliament. In the event of nationalization, the British government follows customary international law, providing prompt, adequate, and effective compensation.

Investment Aid

Forms of Aid

The Department for International Trade of the Ministry of Industry and Trade provides its services in order to inform foreign companies on aids to set up in Great Britain. Companies zones have been created to encourage industrial and commercial development. These zones allow companies to benefit from tax exemptions. Companies can contact the Department for Business, Energy & Industrial Strategy to obtain further details relating to the different regions.
There are a number of grants and other forms of assistance available to businesses in the UK. Tax Relief for R&D investments and Patent Box Relief are the main forms of aid.

Privileged Domains

Services, R&D.

Privileged Geographical Zones

On November 16, 2020, the UK government opened the bidding process for the creation of at least seven new Freeports. The first are planned for 2021, as part of at least 10 across the UK. This is a Post-Brexit strategy to boost the economy and create thousands of jobs.
Freeports are a special kind of port where normal tax and customs rules do not apply. These can be airports as well as maritime ports. Freeports are similar to free zones, or ‘enterprise zones’, which are designated areas subject to a broad array of special regulatory requirements, tax breaks and government support.

Free-trade zones

The UK offers following free trade zones:

Liverpool Free Zone
Prestwick Airport Free Zone
Port of Sheerness Free Zone
Southampton Free Zone
Port of Tilbury Free Zone

Public aid and funding organisations

Invest UK

Investment Opportunities

The Key Sectors of the National Economy: Coal production, financial services, business services, aerospace, chemical, pharmaceutical and automotive industries.
High Potential Sectors: Renewable energies, information and communication technologies, creative industries (music, cinema, theater, design, etc.), or the luxury industry and distribution. For more information, click here.
Privatization Programmes: No new programs have been proposed since the large-scale privatisation program of the 1980s by the government of Margaret Thatcher.
Tenders, Projects and Public Procurement: Government Procurement Service, Government Procurement Service
Tenders Info, Tenders in the United Kingdom
DgMarket, Tenders Worldwide

Sectors Where Investment Opportunities Are Fewer

Monopolistic Sectors: The British economy is one of the most liberal in the world. However, the government retains differing levels of control over certain sectors including transport, energy, healthcare, defence and the media.

Finding Assistance For Further Information

Investment Aid Agency: Department for International Trade
Invest in Great (Support for exporters and inward investors)
Other Useful Resources: Invest in Great Britain Guide (PwC UK)
Invest in UK Platform
SmallBusiness.co.uk (Advice and resource platform for individual entrepreneurs and small businesses)
Doing Business Guides: United Kingdom Country Profile (KPMG)
Country Report on the United Kingdom (Euler Hermes)
Doing Business Report on the United Kingdom (World Bank)
United Kingdom Economic Snapshot (OECD)
Deloitte Tax Guide - United Kingdom
Doing Business in the United Kingdom - UHY

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