FDI Law: Everything You Need To Know

FDI law regulates foreign direct investments, a situation in which an investor who has significant influence over a business that exists in a different economy.3 min read

FDI law regulates foreign direct investments, a situation in which an investor who lives in one national economy has significant influence or control over a business that exists in a different economy, according to the International Monetary Fund.

FDI Characteristics

This type of investment consists of:

• A long-term relationship between the business and the investor
• Ownership of more than 10 percent of the business's voting shares, either directly or indirectly
• Substantial influence over the operations of the business

While portfolio investment is passive, FDI is considered active investment because of its managerial component. Unlike the widespread nationalization practiced from the 1950s through the 1970s, today FDI is supported across the globe for its ability to stabilize economies, encourage growth, and share technology and knowledge.

Laws Governing FDI

This form of investment is regulated by international laws as well as the applicable domestic laws for both economies involved in a transaction. The latter primarily focuses on safeguarding investors, attracting FDI, resolving disputes, and establishing security measures, tax incentives, and standards for national treatment.

International law for FDI comprises multilateral treaties, inter alia, bilateral investment treaties, judicial decisions, and established international law. Multilateral treaties are designed to be used when national laws conflict and include Agreement on Trade-Related Investment Measures and the Agreement on Trade-Related Aspects of Intellectual Property. Although no attempts to create an overarching treaty of this kind have been successful, U.S. FDIs are governed by bilateral treaties with more than 40 nations.