US
US Rob Carlson, Kristen Winckler and Todd Schwartz, Paul Hastings
1 Overview of FDI in the jurisdiction
1.1 Which countries are the principal sources of FDI into your jurisdiction? On a cumulative basis, through the end of 2012, FDI into the US had reached approximately $2.7 trillion. In 2012, FDI approximated $166 billion, down from approximately $230 billion in 2011, and down from the height of approximately $310 billion in 2008, before the global economic recession took its toll on foreign investor activity. FDI by country varies year on year, but in 2012 the Netherlands, followed by France, the United Kingdom, Japan, Canada, Belgium, British Caribbean Islands, Luxembourg, South Korea, and Hungary, led the list of most active countries for sources of FDI, accounting for almost 90% of total FDI. China, at $1.4 billion FDI, was the largest investor of the BRICS countries [Brazil, Russia, India, China, South Africa] in 2012. These figures, however, may be misleading. In our experience, sovereign wealth funds and other foreign investment entities and investors often form investment vehicles in countries like the British Caribbean Islands through which to invest in the US to take advantage of their favourable tax laws, which could skew the numbers in favour of those countries.
1.2 What are the key sectors in your jurisdiction which attract, or the government is seeking to attract, FDI? In 2012, eight of the top sectors for FDI were manufacturing and chemical production, wholesale trade, mining, professional, scientific and technical services, retail trade, information, finance and insurance, and real estate. The number and type of deals we have seen in 2013 indicate an uptick in investments in healthcare (for example, medical device companies), technology, and energy and energy services sectors.
1.3 Is the government generally supportive of FDI? Which government, and regional, bodies are responsible for driving FDI in your jurisdiction? We find that the US government is generally supportive of FDI. For example, just as recently as October 31 2013, at the SelectUSA 2013 Investment Summit, President Barack Obama vowed to expand aggressively US efforts to increase FDI by, among other things: coordinating efforts at the federal level to attract FDI; making it easier for foreign investors to understand and comply with the various federal, state, and local requirements for doing business in the US; and creating a “a single point of contact” for interested investors. Though generally supportive, the US does not rank high against other countries with active FDI markets. In 2012, the OECD ranked the US 34th out of 55 countries in terms of regulatory restrictiveness to FDI (number one being the least restrictive).
2 Investment vehicle
2.1 What are the most common legal entities and (pass-through) vehicles used for FDI in your jurisdiction, and how long do they take to become operational? The legal entities and investment vehicles used for FDI vary depending on the size, type, and source of investment. It is typical, however, for foreign investors to utilise limited partnership and limited liability company vehicles for their investment, particularly when a private equity fund or other deal sponsor is engaged in the deal. If, however, investors are concerned about potential US tax payment or filing obligations, then those investors typically utilise a corporate entity investment vehicle.
2.2 What are the key requirements for establishment and operation of these vehicles which are relevant to FDI? Formation of these entities takes at most only a few days to complete (and sometimes within the same day). There are no rules regarding the establishment and operation of a private company that are specific to FDI. Corporations, partnerships, and limited liability companies are formed under the laws of one of the 50 individual states, and these state laws generally do not require that directors be residents of that state or even of the US.
3 Investment approval
3.1 For foreign investment approval (including national security review) explain the following: a) The regulator/s’ name, factors it must consider when making its deci- sions, and how much discretion it has; b) Any investment caps and other legislative restrictions; c) Which party must notify and when/if notification is mandatory or voluntary; d) What information must be included with notification and what is the review fee; e)How long does the review and approval process take, and are there any fast-track options; f) Is there the ability to consult on a named or unnamed basis; g) Does notification/review occur pre- or post-closing, and are there any pre- or post filing requirements unique to FDI; h)What is the position if no response is received on an application for approval and are there any rights of appeal from disapprovals?
The Committee on Foreign Investment in the United States (CFIUS) is an inter-agency committee that, working with the President, oversees national security implications of FDI. In 1988, Congress passed the Exon-Florio Amendment to the Defense Production Act (as amended, Exon-Florio), which granted the President the authority to block FDI that threatens to impair the national security of the US. Although CFIUS is authorised to initiate an investigation, many parties notify CFIUS of a transaction voluntarily. Parties are encouraged to act voluntarily because the transaction remains indefinitely subject to divestment or other appropriate remedies as determined by the President if the parties do not comply with the notification requirements. Foreign investors should be somewhat comforted by the fact that information submitted for CFIUS approval is protected from public disclosure, provided that disclosure to Congress or in any administrative or judicial proceeding is permitted under certain circumstances.
WWW.IFLR.COM IFLR REPORT | FOREIGN DIRECT INVESTMENT 2014 57
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