The UK remains Europe’s leading destination for foreign investment and, in the global marketplace, is second only to the US for inward investment. In 2013, Foreign Direct Investment (FDI) in the UK reached an unprecedented £975bn – an 8.3 per cent increase that, according to the UKTI, underlines overseas investors’ long-term interest and confidence in the UK economy.
Analysts estimate that the UK’s inward FDI stock could reach £1.5tn by 2020 – and with China recently announcing a £125bn investment in UK infrastructure by 2025, and sustained investment from companies in the US, Canada, France and Germany, current trends reinforce the belief. In parallel, investment from the Asia Pacific region and leading emerging markets continues to rise year-on-year. It’s clear that Britain is not only open for business, it’s widely recognised as one of the most attractive markets on the global stage. But for foreign-owned companies seeking to trade in the UK, setting up – and sustaining – a business in an overseas territory presents numerous challenges. Making sure the inward journey runs smoothly and compliantly requires good, and on-going, professional advice that covers a rich tapestry of rules and regulations.
The immediate considerations when setting up a new corporate structure in an unfamiliar foreign environment are manifold; taxation, accounting, property and people are often the highest priority. In addition, aspects such as commercial contracts, intellectual property, infrastructure and regulatory compliance are also critical.
Beyond the essentials of the legal formation of a commercial entity, one of the most important early issues is securing the right human capital – and in the case of foreign investors this commonly cascades into challenges around immigration. Multinational companies setting up operations in Britain typically require key employees from their domestic market to migrate to the UK.
These can often be senior managers expected to play a crucial operational role ahead of, and beyond, launch. However, with inward investment not confined solely to start-ups, the immigration challenge can also apply to foreign companies that have invested in – or indeed acquired – going concerns in the UK and similarly wish to bring key workers from their local market into the country. How effectively companies navigate that inward journey can have both commercial and human implications. Getting it wrong can lead to avoidable personal dramas at border control – and significantly undermine companies’ operational plans and growth strategies.
The UK government’s recent attempts to reduce net immigration have made it harder for people from outside of the EU to work in the UK without a commercial sponsor. As such, the most common mechanism to ensure an appropriate working visa and residency is to secure a Tier 2 Sponsorship license for skilled workers. However, as recently as November 2014, the UK Border Agency has reformed its guidance under the points-based system and is limiting the number of Tier 2 immigrants to fewer than 2,000 per month. In addition, the permanent right to remain under Tier 2 is also being made more difficult to achieve.
Securing a Tier 2 Sponsorship license can be a lengthy and onerous process. It requires proactive planning and a robust understanding of regulatory requirements in the UK. Moreover, the successful award of a sponsorship license will depend on companies meeting a range of criteria, some of which overlap with common aspects of employment law.
Ahead of any sponsorship application, companies must ensure they have the appropriate policies and procedures in place – not least employment handbooks and contracts of employment. The ability to demonstrate effective procedures, as well as ensuring that relevant processes and documentation are drafted correctly, forms an important part of the assessment process. In some cases, applying companies can be subjected to an audit from the UK Home Office.
For existing UK operations bringing in skilled migrant labour from a parent companies’ domestic market, policies and procedures are generally – though not always – sufficiently robust. But for start-ups, this aspect alone can uncover cultural differences in employment policies that must be overcome. A trusted legal partner that has experience of managing and responding to those cultural sensitivities can help resolve any issues and accelerate the application process. They can also ensure that all the relevant paperwork is optimally completed.
One of the most important procedures to have in place is an Absence Management system. Once a sponsorship license is issued, the company effectively becomes the Authorising Officer and is ultimately responsible for migrant employees. Businesses must therefore prove that their absence management systems protect against the risk of foreign workers going AWOL. Likewise, if an employment is terminated, businesses have a duty to inform the Home Office, but will retain responsibility for the individual until they have left the country. Once again, the ability to demonstrate effective procedures to manage the migration process, from end-to-end, is critical to the application.
Beyond the obvious business considerations, and the need to satisfy Border Agency requirements to secure the appropriate sponsorship and visa arrangements, immigration also involves important human considerations. Clearly, the major business challenge is to ensure that individuals gain legal entry to the country, but at both ends of every migrant employment the potential for impactful human disruption is significant. Failure to meet visa requirements at the outset can mean entire families are refused entry with distressing repercussions. Likewise, when a license expires, families face the risk of being deported. Sponsorship licenses are only maintained for fixed periods of time – but with the legislation that surrounds it both complex and evolving, the need to ensure that employees are supported with the best legal advice at all times is paramount.
Immigration is just one piece in the complex jigsaw of inward investment. As the rate of FDI in Britain continues to increase, any international business looking to set up in the UK should consider early engagement with legal and professional services experts. Inward investment is not a one-off destination, it’s a perpetual journey that encounters all of the common challenges that every business faces. These can encompass, but are not restricted to, taxation, employment issues, real estate acquisition, partnering, contracting, e-commerce and data protection. Securing the support of a full-service law firm can help foreign companies align for growth – and overcome the many pitfalls along the way.
To thrive, the most successful inward investors will seek proactive dialogue with a trusted legal partner and develop a long-term partnership that can support them at every point of the business lifecycle.
Britain is indeed open for business. Getting the right legal team on side can help ensure your company flourishes in its new environment – and that your long-term investment goes inwards and upwards.
James Townsend, partner, employment, BP Collins LLP.
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