a. What are the key sectors in the UK that attract, or to which the government is seeking to attract, China outbound investment (COI)?

Between 2000 and 2014, COI into Europe totaled €46 billion. During this period, the UK attracted the most COI, with a cumulative total of €12.2 billion. The principal areas for COI into the UK between 2010 and 2015 were real estate, mining and energy, transportation, construction, financial services and hospitality.

UK sports teams have also been a focus for Chinese investors, with City Football Group, the owner of Manchester City, recently attracting a $400 million investment for a 13% stake from a Chinese consortium led by CMC Holdings Ltd. and the recent ¢G60 million purchase of Aston Villa F.C. by a Chinese consortium.

The UK government focused on attracting high-quality investment projects that will build on current strengths and generate long-term economic value for, and skilled employment in, the UK. As such, focus sectors include advanced manufacturing and engineering, technology and financial services. It is also keen to attract support for projects to improve the UK infrastructure (such as the High Speed 2 railway) and to meet the UK's future energy needs (Hinkley Point).

b. Is the government generally supportive of COI? Which national and regional governmental bodies are responsible for driving COI in the UK?

Historically, the UK government has been wholly supportive of COI. Successive governments have invested significant time and effort in promoting the UK as an attractive Chinese investment destination. In October 2015, the Chinese President was welcomed to the UK and, during his visit, more than ¢G30 billion worth of trade and investment deals were announced, creating over 3,900 jobs across the UK.

Following the recent referendum in the UK in which the electorate supported leaving the European Union (Brexit), international trade with non-EU countries is likely to be more important for the UK in the coming decade than ever before. However, recently, the UK government delayed approval of the Hinkley Point C nuclear power deal, with some commentators indicating that this is down to concerns of international investors investing in sensitive UK infrastructure.

Following Brexit, the Department for International Trade (DIT) has responsibility for promoting British trade across the world. UK Trade and Investment (UKTI), which previously had overall responsibility for foreign direct investment into the UK, remains responsible for driving the government's policy of increasing the number of exporters and inbound investors to the UK but now reports into DIT.

UKTI works with a range of partners such as Invest Northern Ireland, Scottish Enterprise and Business Wales to promote all regions of the UK. Other non-governmental organizations, such as the China-Britain Business Council and the British Chamber of Commerce in China, also provide support and guidance to COI participants in the UK.

c. What are the notable Chinese investments or M&A that have recently taken place in the UK?

The significant Chinese interest in UK sports has seen teams including West Bromwich Albion, Wolverhampton Wanderers, Aston Villa, and most notably City Football Group, all targeted by PRC investors.

The pharmaceutical industry has also attracted recent COI, with Creat Group Corp. acquiring Bio Products Laboratory Ltd. for $1.2 billion. Real estate also continues to be an attractive proposition for Chinese investors, with multiple acquisitions in this sector including Fosun Property Holdings Ltd. acquiring a majority stake in Resolution Property Plc, the UK-based real estate investments firm, and Ping An Insurance (Group) Company of China, Ltd. acquiring the Tower Place Office building in London.

One of the highest profile recent transactions was Bright Food (Group) Co. Ltd.'s acquisition of iconic UK brand Weetabix Ltd., the UK's second-largest breakfast cereal producer. This continues a trend for COI in the global food industry, following Shuanghui International Holdings Ltd.'s $7.1 billion acquisition of Smithfield Foods, Inc.

Section 2: Investment vehicles and capital

a. What are the most common legal entities and vehicles used for COI in the UK? How long do they take to become operational?

Depending on a company's corporate structure and overall tax objectives, there are various vehicles and jurisdictions that could be used for COI into the UK. A number of Chinese investors invest through Luxembourg, but other jurisdictions in Europe are also used, including the Netherlands and Ireland.

In terms of UK legal entities, the most common vehicle for COI is a private limited company. Others often used include public limited companies (PLCs), limited liability partnerships (LLPs) and limited partnerships. It is also possible for overseas companies to establish a place of business or a branch office directly in the UK.

Companies and LLPs can be incorporated on a same day basis. A UK establishment must be registered at Companies House within one month of opening. However, while there is no legal requirement for a company to have a bank account, one is generally needed to become fully operational. Given the need for banks to undertake “know your customer” (KYC) checks on new clients, opening a bank account can become the part of the establishment process, which takes longest.

b. What are the key criteria for establishment and operation of these vehicles that are relevant to COI (e.g. capital requirements, local directors)?

There are no particular rules applicable to COI in relation to the establishment and operation of these vehicles. A private limited company can be established with minimal share capital (¢G1) and one director. There is no company law requirement for any UK resident directors, although residence of directors is one factor to be considered as part of an investor's tax planning.

Section 3: Investment approval

a. Explain the process and timing for foreign investment approval (including any national security review).

There are no specific approvals required for foreign investors seeking to acquire UK assets. However, if the target company operates in a regulated sector (see Section 3b) or operates a business that has contracts with the UK government (e.g. defense companies which have contracts with, or with key suppliers to, the Ministry of Defense), its contracts are likely to include change of control termination rights, and consideration should be given to obtaining a waiver of these rights before proceeding with the acquisition or investment.

b. Briefly explain in the investment restrictions for any specifically regulated/restricted sectors (e.g. natural resources, financial services, telecoms and infrastructure) including whether the government is entitled to any special rights (e.g. golden shares) in those sectors.

There are a number of industries in which companies require permits or authorizations from regulators to operate, such as gas and electricity (Office of Gas and Electricity Markets, or Ofgem), broadcasting (Office of Communications, or Ofcom), water and sewage (Water Services Regulation Authority), financial services, banks and insurance (Financial Conduct Authority, or FCA).

Although there is no particular restriction or prohibition on COI into these sectors, the terms of the permits or authorizations may well contain consent rights for the relevant regulator or other provisions that will be relevant to COI, such as an obligation to notify or obtain consent to a substantial change of shareholding or control, an obligation to maintain an investment grade rating or for parent company guarantees, a need to maintain a certain number of independent non-executive directors or ring-fencing of assets used in the regulated sector from other assets of the investor group.

As also seen in many countries, foreign ownership of airlines in the UK is limited. To obtain an operating license, an EU air carrier must be majority-owned and effectively controlled by EU nationals. It remains to be seen how Brexit will affect ownership restrictions on UK airlines.

Upon privatization of certain companies, the UK government often retained a golden share which prevents or restricts FDI into those companies, often on grounds of national security. Companies in which the UK government currently holds a golden share include BAE Systems Plc, Rolls Royce Holdings Plc and NATS Holdings Ltd., as well as certain dockyards.

c. Which authority oversees competition clearance, when is notification mandatory, and what is the merger clearance process (including whether pre- or post-closing)?

Mergers which have a “community dimension” will fall within the jurisdiction of the European Commission (EC), and filings are mandatory if certain thresholds are exceeded. Details of EC competition filings are outside the scope of this note.

Under the UK system (which will only apply if the EC system does not), a merger situation arises where two or more enterprises cease to be distinct and either a 25% market share test is triggered or the turnover of the target exceeds ¢G70 million. There is no need to notify a merger in advance. However, by proceeding without clearance, the buyer or investor takes a risk that the merger or investment may subsequently be referred to the UK Competition Commission, which could lead to the deal being prohibited or imposed with onerous conditions.

d. Are there any unique processes that could potentially block a foreign investment, e.g. consent from labor unions?

There are no unique processes which could block a foreign investment. However, depending on the circumstances, there may be obligations to consult and inform unions (or employees) which could result in significant fines if ignored. Similarly, if the investee or target company has a defined benefit pension scheme that has a deficit, specific advice should be sought to avoid the investor potentially incurring direct liability.

e. Are there any approval requirements when a foreign investor increases or exits its investments?

There are no approval requirements specific to foreign investors. However, regulated sectors (see Section 3b) may have approval thresholds that apply to all investors (for instance, FCA approval is required if an investor acquires a stake of more than, or increases an existing stake to above, 10% in a financial services business regulated by the FCA).

Equally, if a foreign investor is building a stake in a PLC to which the City Code on Takeovers and Mergers (UK Takeover Code) applies, there are rules that require the investor to make a mandatory offer for the entire target company if it acquires more than a 30% stake. However, these rules apply equally to all investors, regardless of nationality.

Section 4: Tax and grants

a. Does the UK have a favorable tax regime?

The UK has an expansive network of double taxation treaties, and the current rate of corporation tax in the UK at 20% is already the most competitive in the G20. This is set to fall to 19% in 2017 and to 17% by 2020, and may fall further still (the previous Chancellor announced plans for decreasing the rate to 15%). Furthermore, corporation tax powers have recently been delegated to Northern Ireland, which will introduce a corporation tax rate of 12.5% from April 2018.

The UK does not impose a capital gains tax charge on the sale of most UK assets (such as shares and certain commercial real estate) held by a non-UK resident entity for investment purposes.

The UK also has a broadly territorial tax regime, where the focus is on taxing profits earned in the UK. The key planks for this are a dividend exemption for withholding tax, elective branch exemption and a reformed Controlled Foreign Company (CFC) regime. In circumstances where income taxed in an overseas jurisdiction also falls within the UK nexus, the UK has a domestic double taxation relief which seeks to prevent income being taxed overseas and in the UK.

b. Does the UK impose withholding taxes on repatriation of profits?

The UK does not generally impose withholding tax on dividends or other distributions, regardless of the location of the recipient.

The UK imposes withholding tax at 20% on payments of interest (and royalties), but these are subject to a number of domestic exemptions (such as if the loans notes are listed on a recognized stock exchange) and reliefs under a relevant double taxation treaty.

c. Does the government have any FDI tax incentive schemes in place?

Highly competitive tax incentives include qualifying expenses for research and development (the UK provides for up to 225% tax relief), and a patent box regime which applies a reduced rate of corporation tax to qualifying patents and other intellectual property rights. Tax support is also available for non-residents seeking to invest significant amounts in the UK.

d. Other than through the tax system, does the government provide any other financial support to FDI Investors? If so, please provide an overview.

Through various government development agencies and local business support organizations, a wide range of grants and incentives are available to support business in the UK. This includes the Regional Growth Fund, which aims to create economic growth and sustainable employment in England, and Invest NI (investni.com), which has developed an innovative range of incentives and support packages to encourage businesses to establish in Northern Ireland.

e. Are there any reciprocal tax arrangements between the UK and China? If so, how can they aid investors?

The double taxation treaty between China and the UK reduces the withholding tax rate on interest payments from 20% to 10% (and in the case of certain government or state sponsored entities, this can be reduced to zero).

There is also a separate double taxation treaty between Hong Kong and the UK, and this reduces the withholding tax rate on interest payments to zero, if the lender entity is an individual, bank or publicly traded company resident in Hong Kong.

Section 5: FX controls and local operations

a. What foreign currency or exchange restrictions should foreign investors be aware of?

There are no foreign currency or exchange control restrictions affecting inbound investment to, or outbound investment from, the UK.

b. Are there any legal restrictions on bringing in foreign workers? How difficult is it to secure expatriate visas for shareholder representatives, senior managers and workers in practice?

Currently, any person holding a passport from an European Economic Area (EEA) country or Switzerland will not need a visa to live or work in the UK. Any other person wanting to live and work in the UK will need to apply for a visa and there are no specific rules applicable to Chinese nationals. There are specific rules to fast track applications for entrepreneurs and high-value investors, as well as those to facilitate multinationals wishing to transfer employees to the UK.

After the Brexit vote, there is considerable doubt as to whether the right of free movement of workers into the UK from the EEA/Switzerland will continue to be unrestricted. Any restriction on this right will hopefully lead to a more streamlined visa process for applicants from the rest of the world, including China, as the UK seeks to deepen trading relationships with non-EEA countries.

Section 6: Dispute resolution

a. Does the UK have a bilateral investment protection treaty with China or other jurisdictions commonly used for investing into the country?

The UK and China have had a bilateral investment protection treaty since 1986. The key effects for Chinese investors seeking to invest in the UK are the promotion of investment opportunities and the protection of investment, equality of treatment with UK domestic investors, compensation for certain types of loss in relation to their investment, protection against expropriation of their investment, and the ability to repatriate their investment and any returns.

b. How efficient are local courts' enforcement and dispute resolution proceedings and are there any procedural features foreign investors must be aware of?

The courts in the UK are very efficient at dealing with disputes and parties are able to effectively enforce their rights through court proceedings. Proceedings are generally completed within one to two years, although more complex cases can take longer and can be further prolonged by appeals. That said, urgent matters may be heard more quickly and there is also scope in clear-cut cases to obtain a summary judgment much more quickly.

The UK courts employ an adversarial system, with each party's case being extensively tested. The parties are required to disclose all documents in their possession relevant to the dispute (save for privileged documents). Witnesses generally provide evidence in chief by way of a written witness statement and are then examined orally at trial.

The UK has a 'ßloser pays'® rule in relation to the costs of court proceedings, so that an unsuccessful party generally pays a large portion of the successful party's costs. Claimants from outside the EU or European Free Trade Area (EFTA) may be required to provide security for costs.

Investors should note that England and Wales, Northern Ireland and Scotland are each separate jurisdictions within the UK, with their own court systems.

c. Do local courts respect foreign judgments and are international arbitration awards enforceable?

The UK courts generally respect foreign judgments, unless they can be challenged on the grounds of fraud or public policy.

Save for certain exceptions, a foreign judgment cannot be enforced directly and instead will need to be enforced by way of fresh legal proceedings in the UK. However, a proceeding on a foreign judgment is often determined on a summary basis and UK courts take a narrow view of the possible defenses to such an action.

If a foreign judgment is from a court in certain Commonwealth jurisdictions, or an EU or EFTA member state, it may be enforced directly in the UK once it has been registered.

Arbitration awards are enforceable in the UK by way of an application to a UK court. The UK is a party to the 1958 New York Convention and so enforcement of an arbitration award made in another contracting state to the New York Convention may only be refused on very limited grounds.

d. Are local judgments and arbitration awards from the UK generally enforceable in other jurisdictions?

The question of whether a judgment from a UK court is enforceable in another jurisdiction is a question for the law of the state in which enforcement is to take place. The UK is a party to the New York Convention, which allows arbitration awards from the UK to be relatively easily enforced in the courts of other member states.

Author biographies

Ronan O'Sullivan

Ronan O'Sullivan is the chair of the London office of Paul Hastings and vice chair of the global Corporate Department. Mr. O'Sullivan focuses his practice on mergers and acquisitions and corporate finance and has considerable experience in private and public takeover work, joint ventures and domestic and cross-border restructurings.

Garrett Hayes

Garrett Hayes is a partner in the Corporate practice of the Paul Hastings London office. Mr. Hayes' experience covers a broad range of cross-border and domestic M&A and corporate advisory mandates. His practice includes a broad range of general corporate work and includes advising on fundraising, strategic investments and joint ventures. He also represents private equity sponsors, management teams and portfolio companies on fund formation, leveraged buyouts, equity incentive arrangements, restructurings and exits.

英国

Ronan O'Sullivan 和 Garrett Hayes
普衡律师事务所

第一节︰中国境外投资