US
Exon-Florio requires a three-step process: (1) formal notification to CFIUS and a 30-day review period; (2) a 45-day investigation period for transactions that have raised national security concerns; and (3) a 15-day presidential review period for those transactions that are determined to pose a threat or impairment to national security. The President is authorised to suspend, prohibit, or impose conditions on the transaction to mitigate the identified national security threats. These conditions can range from requiring a subsidiary with sensitive technology to have an independent board of directors comprised of US citizens, to requiring foreign-owned firms to obtain approval to sell certain goods, to requiring firms to adopt IT security policies.
Though Exon-Florio gives the President substantial power over FDI that implicates national security risks, historically the office of the President has been reserved in taking action. According to the 2012 CFIUS Annual Report to Congress, from 2009 to 2011, there were 269 notices delivered to CFIUS, 12 of which were withdrawn, 100 of which resulted in investigations, and none of which resulted in a presidential decision. In fact, it appears that since 1988, out of the 2,666 notices received, only 14 have resulted in a presidential decision.
3.2 Briefly explain the investment restrictions for any special/restricted sectors. Aside from the national security approvals (noted above), there are industry- specific approvals that a foreign investor must consider.
There are restrictions against foreign ownership in the telecommunications space, particularly with respect to any broadcast and other radio station licences (governed by the Federal Communications Commission). In addition, foreign investment in the US banking sector could implicate numerous federal regulators (such as the Federal Reserve Board, FDIC, Office of the Comptroller of the Currency, and Office of Thrift Supervision) and state regulators. States have sole regulatory authority over insurance companies.
3.3 Which authority oversees competition clearance, when is notification mandatory, and briefly explain the merger clearance process? The US Federal Trade Commission (FTC) and the Department of Justice (DOJ) conduct competition reviews with respect to both foreign and domestic transactions. The Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR) requires parties to submit a notification for certain transactions prior to closing. Whether the notice requirement is triggered under HSR depends on, among other things, the effect on US commerce, the size of the transaction, and the size of the parties involved. Once the parties file their notification, there is generally a 30-day waiting period for the FTC and DOJ to review the transaction. However, transactions can be unwound post-closing as FTC/DOJ approval does not exempt the transaction from other anti-trust compliance laws.
4. Tax and grants
4.1 Are there tax structures and/or favourable intermediary tax jurisdictions that are particularly useful for FDI into the country? Typical entities used to make corporate acquisitions or strategic joint ventures in the US include US limited liability companies (LLCs) and limited partnerships, which are fiscally transparent in the US, and in the case of US real estate-related investment, US real estate investment trusts (REITs), which are effectively tax transparent. While the US has an extensive treaty network, the utility of non-US intermediaries depends on the jurisdiction from which the investor comes. Where foreign investors prefer to avoid US tax filing obligations, they tend to invest through corporate vehicles instead.
4.2 What are the applicable corporate tax rates? The US federal income tax rate on domestic corporations ranges from 15% to 35% (that is, where net income exceeds $10 million). Certain corporate entities can qualify for an effective federal income tax rate of zero, such as S corporations, REITs and regulated investment companies (such as qualifying mutual funds). Limitations apply to the use and qualification of such entities. US LLCs are generally not subject to federal income tax at the entity level, unless an affirmative election is made to be taxed as a corporation.
4.3 Does the government have any FDI tax incentive schemes in place? The US is notable for the degree to which its states and localities compete with each other to attract investment, including FDI. For example, New York provides a state investment tax credit of five percent of an investment, up to $350 million, and four percent thereafter. Many states use tax incentives to attract investment, in many cases calibrated to out-compete schemes offered by neighboring jurisdictions.
4.4 Other than through the tax system, does the government provide any other financial support to FDI investors? The United States Department of Commerce markets dozens of federal programmes to foreign investors. Opportunities include renewable energy incentives, research and development support, rural development funding and other grants. US states and localities offer similar programmes.
5 Operating locally
5.1 What is the most common governing law of contracts and local business language? Delaware typically serves as the state of choice for newly formed entities. It has the most developed laws governing the relationships among equity owners, management, and boards of directors (or comparable bodies).
5.2 Explain any local content or local participation requirements relevant to foreign investors. N/A
5.3 How difficult is it for foreign investors to secure expatriate visas for shareholder representatives and workers? The level of difficulty varies depending on the country of origin. Foreign investors are advised to seek strong immigration counsel in the US to assist with the process.
5.4 What foreign currency or exchange restrictions should foreign investors be aware of? N/A
5.5 Does the country prohibit domestic companies from doing business in any foreign jurisdictions? See the discussion below regarding OFAC.
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IFLR REPORT | FOREIGN DIRECT INVESTMENT 2014
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