The Netherlands, UK and Ireland topped the list of international locations most commonly considered by U.S. tax advisors asked to research foreign investment opportunities, according to a survey conducted in May 2016 by Development Counsellors International (DCI). The tax advisors also ranked a country’s tax climate, a business-friendly government and access to talent as the top factors when considering an international location for new or expanding facilities.
Based on their client relationships, tax advisors offer a unique perspective on where U.S. companies are most likely to expand, their motivations for expanding overseas and the types of support most needed from investment promotion agencies (IPAs). DCI’s online survey of select tax advisors who frequently consult with clients on international location decisions gauged current and changing trends in foreign direct investment (FDI). The survey concluded the week of June 13, prior to the UK’s EU referendum (Brexit).
Four key findings emerged:
1) European countries – including the Netherlands, the UK, Ireland and Switzerland – are the most commonly considered international locations according to tax advisors asked to research foreign investment opportunities.
2) Primary factors considered by tax advisors when evaluating international locations include the country’s tax climate, a business-friendly government and access to talent.
3) Tax advisors identified proper due diligence as a common misstep that has consequences for companies during the FDI process.
Tax advisors caution against some of the most common mistakes during an international site selection process, including an overall lack of due diligence, attempting to operate in a new country without the assistance of an advisor who has greater in-country resources and not fully understanding the cost/financial implications of operating in target countries.
These findings provide an opportunity for IPAs to educate prospective investors on the advantages and challenges of operating a business within their borders. IPAs may also serve as a clearinghouse for advisors with in-country experience and the companies interested in investing in that location.
4) A constant flow of information from investment promotion agencies is critical to FDI.
A key to promoting a country or international region to attract FDI is having credible, up-to-date information readily available, according to the tax advisors surveyed. Having local or a host country’s tax compliance requirements accessible and easily understandable for a company is extremely important for tax advisors working with international companies.
In addition, company case studies of companies can help a host country make a strong case about how similar types of businesses have had success setting up and establishing operations in an overseas location.
“The most important thing an investment promotion agency can do to promote their country/region is…
…comprehensively explain the national/local requirements of domiciling/operating in the country/region.”
…to be active in the business community and have success stories ready to roll. Most CFOs want to know who else in their industry has located in a jurisdiction before they decide to go there.”
…provide facts that are recent and sourced.”
…promote the accessibility and trustworthiness of the government.”
…make local tax compliance requirements easy to understand and set up.”
Foreign Direct Investment on the Rise
After several years of decline, greenfield foreign direct investment (FDI) has shown a marked recovery. According to “The fDi Report, 2016” prepared by the Financial Times:
- In 2015, global greenfield FDI, as measured by capital investment, increased by nearly 9% to $713 billion, alongside an increase in job creation by 1% to 1.89 million.
- The U.S. was the highest ranked source country of FDI projects.
- The top three states for outward capital investment were California, New York and Texas, which invested $15.9 billion, $14.4 billion and $12 billion, respectively.
There are numerous considerations for U.S. companies evaluating international locations, including the tax implications of opening or expanding facilities overseas. Most U.S. companies considering an overseas location or expansion will, at some stage of the site selection process, consult a tax advisor for guidance on those locations offering the most opportunity from a business perspective, and assistance on navigating the various tax and regulatory issues involved in international site evaluations.