Foreign investment issues

Investment restrictions

What restrictions, fees and taxes exist on foreign investment in or ownership of a project and related companies? Do the restrictions also apply to foreign investors or creditors in the event of foreclosure on the project and related companies? Are there any bilateral investment treaties with key nation states or other international treaties that may afford relief from such restrictions? Would such activities require registration with any government authority?

While there are no blanket restrictions, fees or taxes on foreign investment in or ownership of a project in the UK (ie, UK and non-UK owned companies are treated equally), there are nuances or additional requirements within industry specific legislation or regulations that apply to companies under foreign ownership. For example, non-EU entities wishing to own transmission systems are subject to articles 11 in Directives 2009/73/EC and 2009/72/EC (articles 11). Consequently, in addition to the ‘unbundling’ criteria that applies to all companies operating in that sector (ie, that the energy transmission network and the energy production and supply aspects have to be operated discretely), articles 11 impose a further requirement on non-EU entities to obtain a certification of ownership from the relevant National Regulatory Authority by proving that such certification would not negatively affect the security of energy supply.

Insurance restrictions

What restrictions, fees and taxes exist on insurance policies over project assets provided or guaranteed by foreign insurance companies? May such policies be payable to foreign secured creditors?

Effecting or carrying out insurance contracts as principal in the UK are regulated activities under article 10(1) and (2) of the Financial Services and Markets Act 2000 (Regulated Activity). Provided that non-UK insurance companies issuing insurance policies relating to project assets in the UK are not deemed to be carrying out a regulated activity, there are no corresponding restrictions, fees or taxes.

There are a number of considerations for determining whether an insurance contract has been effected or carried out in the UK. For example, ‘effecting an insurance contract’ is construed widely and not only includes the underwriting process or entry into the insurance contract, but the term also captures the negotiation process, confirmation of cover and the issuing of the insurance policy. The term ‘carrying out an insurance contract’ is also interpreted widely to encompass activities undertaken in relation to an insurance contract that has been entered into, including but not limited to, the handling of claims, settlement of claims and collection of premium.

If an insurance contract is deemed to be effected or carried out in the UK, a non-UK insurance company would require authorisation from the UK Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), and the insurance policy would need to be compliant with the FCA or PRA rules and regulations. A typical scenario where this would occur is when a non-UK insurance company acts through an agent in the UK. One exception to the above is where a non-UK insurance company is domiciled in the European Economic Area (EEA), in which case it would be governed by its own home state regulator. Under this exception, while EEA-domiciled insurance companies would still be bound by the principle of the ‘general good’ (ie, some FCA or PRA rules and regulations would still apply to them so as not to prejudice the application of the FCA/PRA customer protection rules), these companies can carry out a Regulated Activity by establishing a foreign branch in the UK or ‘passporting’ their services into the UK without the need for FCA or PRA authorisation. The ongoing discussions following the UK’s decision to leave the European Union will have an impact on this exception. This, in turn, may see the demand for insurance policies effected and carried out by local insurance companies in the UK rise as the EEA-domiciled insurance companies could receive the same regulatory treatment as non-UK non-EU insurance companies (ie, they will have to obtain FCA or PRA authorisation).

Worker restrictions

What restrictions exist on bringing in foreign workers, technicians or executives to work on a project?

In the UK, employers have an obligation to ensure that none of their employees are illegally working in the UK. Employers need, therefore, to be aware of the categories of migrant workers in the UK. Broadly, these can be divided into EEA/Swiss workers and non-EEA/Swiss workers.

Under the Immigration (European Economic Area) Regulations 2006, which give effect to the Free Movement of Persons Directive, EEA workers have the right to free movement across the EEA, and may therefore live and work in the UK without immigration permission (with the exception of Croatian nationals, who may enter and remain, but not work, in the UK without permission for up to three months, but who require a registration certificate to be permitted to work in the UK). Swiss workers enjoy similar rights of free movement.

Following the UK government’s decision to trigger article 50 on 29 March 2017, the UK is likely to leave the European Union (EU) on or after 31 October 2019. Following any UK departure from the EU, the automatic rights of EEA and Swiss migrants to freely move to and work in the UK are likely to come to an end. However, at present, it seems is possible that there will be a transition period following any departure, and it is likely that the free movement of people to the UK would continue during this period, but the length and the effect of any transition period are unknown, and therefore this is only speculation. Following any UK exit from the EU, the UK wouldintroduce a new migration regime with EEA or Swiss countries, but the details of this policy are yet to be confirmed.

For non-EEA countries, the UK currently operates a points-based immigration system, under which non-EEA nationals must apply for a visa to live, study or work in the UK. This points-based system operates on the basis of a ‘tiered’ system, comprising five tiers:

  • Tier 1: high-value migrants - this tier provides access into the UK for highly talented people who will contribute to the UK’s productivity and economic growth and intend to start a business or invest in the UK. Under this tier, the permission belongs to the individual, and he or she do not require the sponsorship of an employer. It includes four subcategories:
    • Exceptional talent - individuals who are recognised leaders or emerging leaders (and are endorsed as such by a designated competent body) in the fields of humanities, science, engineering, medicine, the arts or digital technology. Access can be granted for up to five years and four months (with the possibility of settlement after three to five years with an exceptional talent visa), and 21,000 places are available each year.
    • Investors - individuals who will invest significant amounts in the UK. To be granted access, these individuals must be able to invest at least £2 million into the UK market, and must open a UK-regulated investment account. Access can be granted for up to three years and four months, with an option to extend for up to two years. You can apply to settle after two years if you invest £10 million, three years if you invest £5 million and five years if you invest £2 million; (with the possibility of settlement after five years).
    • Entrepreneurs - individuals who wish to come to the UK as entrepreneurs. In order to be granted access, the individual must meet strict financial tests, having access to minimum levels of investment capital. Access can be granted for up to three years and four months, with an option to extend for up to two years (with the possibility of settlement after five years).
    • Graduate entrepreneurs - individuals who have graduated from a UK university, and are endorsed by the Department for International Trade as part of the elite graduate entrepreneur programme or by a UK higher education institution, a UK organisation as having a genuine and credible business idea. Places under this category are limited. Access can be granted for up to one year, with an option to extend for a further year. From July 2019, you will not be able to apply for a Tier 1 (graduate entrepreneur) visa.
  • Tier 2: highly skilled migrants - this tier similarly provides highly skilled migrants with access to the UK. Tier 2 differs from Tier 1 in that there are a number of minimum requirements that each migrant must meet, such as English language skills and maintenance requirements, and a migrant under Tier 2 must be issued with a Certificate of Sponsorship by its employer. It includes four subcategories:
    • General work visa - individuals who have been offered a skilled role by a UK employer that cannot be filled by a settled worker and includes workers coming to the UK to fill shortage occupations. This subcategory is limited to an annual limit of 20,700 admissions, (divided into monthly quotas, with those applicants scoring higher scores being granted higher priority), and the individual must be sufficiently skilled and paid the minimum level (usually £30,000) or the ‘appropriate rate’ for the job offered, for experienced workers, £20,800 for new entrants or the appropriate rate for the job - whichever is higher)). The quotas do not apply to applicants with an annual salary of £159,600 or above, and the monthly cap varies from month to month. Access can be granted for up to five years and 14 days, with the option to extend to a maximum total period of six years (with the possibility of settlement after five years).
    • Intra-company transfer - individuals being transferred by their company to a UK entity that is directly linked by common ownership or control. This can be as long-term staff (a period of up to five years, or for employees earning over £120,000 a period of up to nine years) or graduate trainees (a period of up to 12 months, or however long the training course lasts - whichever is shorter).
    • Sportsperson.
    • Minister of religion.
  • Tier 3: low-skilled workers - this was intended to be a scheme for access for low-skilled workers, but was never implemented as the UK government no longer felt the need to have such a scheme, given the free EEA or Swiss immigration. This may change following the UK’s exit from the EU.
  • Tier 4: students - individuals who wish to come to the UK to study. These migrants are usually sponsored by their education provider and are usually allowed to work full-time in vacations, and between 10 and 20 hours a week in term time. Students may also take part in work placements, though these must not exceed 3,350 per cent of the course length.
  • Tier 5: youth mobility and temporary workers - the youth mobility scheme allows young people (aged 18-30) from Australia, Canada, New Zealand, Japan, Korea, Taiwan, Hong Kong (Special Administrative Region) and Monaco to live and work temporarily in the UK for a period of two years. The temporary workers scheme allows temporary workers employed in certain sectors (creative and sporting, charity, religion, government authorised exchanges and under international agreements) to come to the UK. Those applying under this tier must be sponsored by their employer.

There are also certain non-points based system immigration categories, under which non-EEA citizens can gain access to the UK, which include the following:

  • UK Vnnovator Visa (for experienced business people coming to the UK to set up an innovative and viable business in the UK);
  • UK Start Up Visa (this has replaced the Tier 1 graduate entrepreneur visa scheme);
  • exempt persons (eg, diplomats or foreign ministers on official business);
  • domestic workers in a private household who have been employed by their private household for a year preceding the visa application;
  • representatives of overseas businesses posted in the UK and setting up a UK subsidiary;
  • Turkish business people or workers (this may change post-Brexit);
  • Commonwealth citizens who are able to prove that one of their grandparents was born in the UK; and
  • non-EEA/Swiss nationals working in the EU providing services in another member state (this may change post-Brexit).

As set out above, applicants under Tiers 2 and 5 must be sponsored by their prospective employers. To sponsor an applicant, an employer must be registered as a sponsor and obtain a sponsorship licence. If licensed to provide sponsorships, employers are advised to undertake the UK Home Office’s three-step ‘right to work’ checks. These involve:

  • obtaining the employee’s original identity documents (which must be documents included on the prescribed list of identity documents set out by the Home Office);
  • checking that the documents are valid, unaltered and original and relate to the employee (with the employee present); and
  • making a copy of the documents and keeping them securely stored, recording the date of the initial identity check, and any subsequent checks made.

Given the present political climate, in which the government is seeking to limit immigration (both legal and illegal), and with the Immigration Act 2016 placing tighter measures on employers to ensure they comply with their obligations, it is important to be thorough in ensuing compliance. An employer of an illegal worker who has not carried out the necessary checks can face a penalty of up to £20,000.

Equipment restrictions

What restrictions exist on the importation of project equipment?

The UK does not currently place any explicit barriers to entry on imports. Importers simply need to comply with the relevant UK and EU import duties and customs, other than in areas such as defence in which there are specific requirements (such as licensing and other restrictions).

One circumstance in which importers may face a barrier to entry is in the event that the European Commission deems a non-EU company to be ‘dumping’. Dumping is the practice of selling goods at an artificially low value (lower than normal market value in its domestic market) to damage the industries of EU companies.

In the infrastructure sphere, relevant recent action by the European Commission has included that against China for dumping solar panels and steel on the European market and against Malaysia regarding the dumping of solar glass.

Nationalisation laws

What laws exist regarding the nationalisation or expropriation of project companies and assets? Are any forms of investment specially protected (from nationalisation or expropriation)?

The UK is generally perceived to have minimal political risk and strong rule of law. On nationalisations, with the exceptions of a small number of rail companies (often interim nationalisations) and, in 2008 during the global financial crisis, the part nationalisation of some banks that may have collapsed otherwise (notably Northern Rock, the Royal Bank of Scotland and Lloyds) - all of which have subsequently been reprivatised or are in the process of such, there have been no material nationalisations since the 1970s.

Nationalisations of assets of significant value require a primary act of parliamentary legislation, which would provide a mechanism for compensating shareholders. Since the 2017 snap UK general election, the UK’s main opposition party, the Labour Party, has been strengthened and there is now a realistic possibility of it gaining power. Under Jeremy Corbyn and John McDonnell, the Labour Party has moved further to the left of the political spectrum and it is currently Labour Party policy to nationalise a number of key industry sectors (such as the railways) and review all private finance initiative (PFI) initiatives with a view to (most likely) legislating to nationalise some or all of these projects.