Fact Checked

What is a Foreign Investment Act?

Laura M. Sands
Laura M. Sands

A foreign investment act refers to the decision that an independent government has arrived upon, which legally determines whether or how foreign investments may be handled. Such acts are also used to govern how foreign investments are monitored once an investment has been allowed. Countries that allow foreign investors each have a separate foreign investment act and attributes of these foreign investment policies may vary.

A foreign investment act explicitly details whether or not foreign corporations and individual investors who are citizens of other countries are able to make capital investments within a specific foreign country. When such investments are allowed, a foreign investment act sets the guidelines and qualifications by which foreign investors must abide. Some of these guidelines deal specifically with how foreign investors will be taxed, the banking procedures each must follow and to what extent local employment must be created as a result of the investment. An investment act also specifies the minimum investment amount required for a foreigner to do business in another country, as well as the maximum amount one can invest. Special boards, committees and officers are generally put in place by a country’s government for the purpose of granting or denying permission to foreign investors and for enforcing the guidelines of a foreign investment act when a license to invest is given.

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The official law governing foreign investments may be called something other than a foreign investment act, as such titles will vary from country to country. For instance, while places like Saudi Arabia and Cuba may use the Foreign Investment Act title, in the United States this governance is referred to as the Foreign Investment and National Security Act of 2007, and in Canada it is known as the Foreign Investment Review Act. Other titles referring to a foreign investors act may also include a foreign investment bill or a foreign investment amendment in cases where adjustments have been made to previous investment acts.

While a foreign investment act is drafted to allow foreign investors the opportunity to acquire real estate and other business holdings within a foreign country, foreign investment policies also serve to benefit individual countries. New investments create new employment opportunities for native citizens, as well as generate additional revenue streams for governments. While investment acts do allow foreign investments, native governments are still able to maintain a level of control over investments through strict governance, and, in doing so, governments are also able to protect the rights of native citizens whether directly or indirectly affected by a particular investment act.

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