Low tax systems attracting foreign investment

Nations with low tax systems are beating the competition in the global race for foreign investment, according to a new study. 

Lower tax jurisdictions like Singapore, Ireland and Belgium are outperforming the rest of the world when it comes to attracting foreign direct investment (FDI) in the wake of the credit crunch.

This is according to new research from accountancy network UHY. It was found that on average countries have attracted FDI worth 17 per cent of their GDP in the five years since the global recession.

In comparison, Belgium raked in the equivalent of 91 per cent of its GDP, and Singapore attracted the equivalent of 74 per cent of its GDP. Meanwhile, Ireland pulled in what would make up 44 per cent of its GDP. 

The report noted that a number of high-profile conglomerates have their European headquarters in Ireland. This list includes Google, Apple, Yahoo, LinkedIn and Paypal. These companies also have their Asian headquarters in Singapore. 

UHY chairperson Ladislav Hornan commented: “Small economies such as Singapore and Ireland can punch well above their weight by offering significant tax incentives to companies choosing to locate there.

“But those tax incentives only work because they also have a well-educated workforce, strong infrastructure and the sophisticated ecosystem of suppliers that a multinational needs when they decide to locate to a country.” 

He also pointed out that while labour, real estate and energy costs are usually significantly lower in emerging markets than in developed nations, research has shown that developed economies that offer the right incentives can attract even higher FDI levels. 

The UK was 14th on the list of 33 countries, raking in the equivalent of 13.5 per cent of its GDP. Italy and Japan were the two bottom performing countries looked at in the study.