London Tower Bridge

How Europe, India and Africa are incentivizing foreign investment

Related topics

Three of the world’s most diverse regions are offering attractive business incentives – but capitalizing on them requires guidance.

In brief

  • Governments in Europe, India and Africa are offering a range of incentives in order to attract businesses from around the world.
  • The sheer variety and specificity of these incentives creates a very complex environment for businesses aiming to find the one that works best for them.
  • A detailed understanding of this landscape is vital to facilitating effective decision-making - this could entail working with a partner with feet on the ground.

As the world fights to recover from the economic impact of COVID-19, authorities across the globe are on the hunt for foreign investment. And they’re turning to subsidies, cash grants and tax deductions to entice it.

This is welcome news for international businesses, many of whom are seeking new avenues of recovery themselves, in a global operating environment that seems to be constantly shifting.

As to where a particular company may choose to locate, relocate or expand into, these days the world is their oyster. Their decision may have to accommodate certain factors, such as the need to remain close to critical markets, or to have confidence in the stability of the local economy. But being given extra support to pursue research and development (R&D), build that new facility or create new jobs can make a vital difference between shying away from a new venture or seizing the opportunity that comes from making a bold, long-term commitment.

For these adventurous multinational businesses, Europe, India and Africa offer the vast and diverse opportunities you’d expect of an area spanning three continents.

These regions include the European Union (EU), as well as 23 European states that aren’t members of that bloc. Then there’s the sprawling diversity and energy of Africa’s 54 countries; and India, which offers a tantalizing market of 1.39 billion people alone.

“What we've learned from recent crises, especially COVID-19, is there’s a need to reorganize the global economic landscape,” says Frank Burkert, EY EMEIA Global Incentives, Innovation and Location Co-Leader and EY EMEIA Sustainability Leader. “Whether it’s the EU’s heavy investment in clean technologies, a post-Brexit United Kingdom (UK) looking to decouple its supply chain from Asia, or India seeking to end its reliance on electronics imports, countries are keen to attract new business to their shores. And they’ve shown they’re prepared to offer compelling reasons to come.”

Crowded apartment buildings

Chapter 1


EU countries remain a favored investment destination, but Brexit and the need to decouple supply chains from Asia is having an impact.


Europe is made up of 50 countries, most easily divided into the 27 that are members of the EU and the 23 that aren’t – from Monaco and Moldova to Serbia and Switzerland. And, following the conclusion of Brexit in 2020, this latter group can welcome a new member: the UK.

The EU remains the focal point for investment interest in Europe. It is renowned for the strength of its knowledge-based economy and for innovation. Investors are attracted by a large, skilled workforce, and the stable tax and regulatory environment that offers long-term consistency and few surprises.

The importance of this investment can’t be overstated. According to the European Commission, foreign direct investment totaled €7.2 trillion as of the end of 2018, accounting for 45% of the EU’s gross domestic product. Meanwhile, foreign-owned firms account for a quarter of business R&D in France, Germany and Spain; between 30% and 50% in Portugal and Sweden; and more than 50% in Austria, Belgium, and Ireland.1

Of all the investment possibilities in the regions featured in this article, the EU may feel like the safest bet. This is in part because 2021 marked the start of a seven-year structural fund period, with a budget of €1.8 trillion to fuel its recovery from the COVID-19 pandemic and meet its broader strategic goals.2

Key among these goals is the need to decouple supply chains from Asia. In the wake of COVID-19 disruption, this is now seen as imperative. Governments are actively trying to bring manufacturing plants, and their associated suppliers and R&D facilities, closer to home, with a specific focus on semiconductor technology, hydrogen, electric vehicles and batteries.

While the above trends apply to the UK as well as the EU, Brexit means investors may now be treating the two regions very differently.

“A lot of companies previously landed themselves in the UK when wanting a base for EU operations, because of its language and stable economy, and its currency, which offered a natural hedge against the euro,” says Simon Moger, Executive Director, Global Location Services & Incentives, Ernst & Young LLP. “Companies considering such a move now are casting their search more widely, including additional EU member states which offer greater certainty around trade agreements."

What the region offers

Incentives overview

The EU is now offering blended funding – a combination of tax benefits, cash grants, guarantees and loans – to provide much-needed capital to support investment and innovation, and enable growth. 

Member states are free to offer discretionary incentives to businesses moving or expanding into the EU – within limits governed by European State Aid rules, designed to prevent unfair competition and create a level playing field for all member states.

The permitted amounts vary from region to region. Incentives of up to 50% are permissible in the most disadvantaged areas of the EU, for example, such as certain parts of Hungary, Poland and Romania. For big capex investments in other areas, the incentive allowance may be more like 10%.

Meanwhile, any company seeking incentives for investments in the EU larger than €100 million needs approval from the European Commission, which can be a complex, long and arduous process.

“Companies seeking investment incentives for larger projects should consider them as early as possible in their decision-making process, particularly if a European Commission approval will be required,” says Moger, “Companies are likely to need to provide robust evidence as part of the process, in particular showing why they required the incentives, and also that only the minimum necessary had been requested.”

Companies seeking investment incentives for larger projects should consider them as early as possible in their decision-making process, particularly if a European Commission approval will be required.

Critically, the EU State aid regime is currently undergoing change to reflect the new strategic priorities of the Union enshrined in the “European Green Deal”. At the end of 2021, the EU will adopt new guidelines for basically all relevant incentive areas – such as regional aid, important projects of Common European Interest, environmental and energy aid, and R&D&I aid. These rules will apply on investments and projects to be approved by EU member states from 2022 onwards.

R&D incentives

The majority of European countries offer R&D tax credits, open to most companies conducting R&D – in anything from tech to pharma, food and financial services.

France’s R&D tax credit structure is particularly strong, allowing 25% cash credit on expenditure. At the start of 2021, Germany introduced a matching incentive. As R&D tax credits aren't classed as State Aid, companies don't have to embark on a major approvals process in order to claim them.

Many European countries also offer patent boxes. Here, income generated from a patent which relates to R&D will be taxed at a lower rate.

“Depending on a particular country’s legislation, companies may be able to combine various incentives,” says Burkert. “In some states, a company filing an R&D credit, while receiving grant funding too, will have to reduce its expenditure base by the total it received in the grant.”

Incentives are, of course, also available in European states outside the EU. In the UK, for example, income from patents related to R&D is taxed at 10% instead of 20%, while its tax credit scheme offers 12% credit for large companies, and potentially up to 26% credit for SMEs.

Sustainability incentives

Under the European Green Deal, EU member states are committed to meeting increasingly ambitious emissions goals. To do so, they’re actively seeking to introduce more renewables, use more recycled materials, and improve energy efficiency.

And the EU is putting serious money behind it. “A third of the EU’s new €1.8 trillion budget is dedicated to sustainability,” says Burkert. “It's huge.”

No surprise, then, that sustainability is a major focus of EU incentives: companies of all sizes can receive subsidies, often in the form of cash grants, for investing in cleantech, adopting circular economy processes, and greening their supply chains.

The EU’s €1 billion Innovation Fund, for example, is being used to support floating wind farms, carbon capture mechanisms and energy storage, all of which could help make sectors such as cement and steelmaking more sustainable. The fund is fed by EU carbon market revenues and further funding is expected to follow over the next decade.3

low angle view of gateway

Chapter 2


Double-digit growth projections, an educated workforce and business friendlier policies augment state and federal tax incentives programs.


India has plenty to entice the overseas investor. Its growth for 2022 is forecast at 11%, making it the only economy in the world expecting to hit double digits.4 It boasts a highly skilled young population – well educated, English-speaking, and with a median age of 28.5 And it’s becoming increasingly business-friendly too. As recently as 2014, India placed a lowly 134th out of 189 countries in the World Bank’s Ease of Doing Business rankings.6 By 2020, it had made a striking rise to 63rd.  

“Indian authorities have worked hard to make the business environment more attractive,” says Bhavesh Thakkar, Partner, Indirect Tax, Ernst and Young LLP. “Where it used to take months to incorporate a company, for example, the process can now be complete in around 48 hours.”

The country has also built a strong intellectual property (IP) rights ecosystem and embarked on a drive to modernize its infrastructure. And in 2014, it launched the successful Make in India program, promoting India as a manufacturing hub. Targeting both international export markets and India’s domestic market – its population of 1.39 billion representing vast potential in itself7 – the initiative successfully drew multinationals making everything from consumer goods to vehicles.

As for attracting specific sectors, India is looking at electronics manufacturers and pharmaceutical companies in order to break its reliance on imports from Asia. It’s also focusing on companies that will drive large-scale employment, especially those in automotive, food processing and textiles.

“Having 65% of the population below 35 is a very significant demographic dividend,” says Thakkar. “But if you're not able to provide them with employment, which in India largely means manufacturing, this quickly becomes a demographic disaster.”

What the region offers

Incentives overview

State-level incentives in India can be divided into three main categories – those linked to capital, to expenditure, and to tax. 
With capital-linked incentives, 20%-25% of the project cost may come straight back to the company as an incentive (with specified upper limits). Incentives linked to expenditure involve reductions in tariffs for electricity and water, for example, and in property taxes and stamp duties. This can be discretionary, depending on the size of the investment.

Most important, however, are incentives around taxes. Here, taxes paid to the state government over a period of 10-12 years will come back to the company as a subsidy, subject to a limit of 60%-70% of the project cost. 

“By combining all these incentives, a company may see up to 70%-80% of its project cost coming back as a subsidy over 10-12 years,” says Thakkar. “With the discretion for this to increase.”

At the federal level, meanwhile, there’s no scope for negotiating incentives. These are sector-specific and linked to production, in sectors ranging from electronics and food processing to textiles. Through these, a company may receive 3%-4% of the sales for goods it produces in India, whether sold there or overseas.

Additionally, a lower corporate tax rate of 15% for new manufacturing entities was announced in October 2019, further contributing to investor savings, provided commercial production begins before March 2023.

R&D incentives

R&D incentives have started to gain traction at India’s state government level. A handful of states now offer capital subsidies for companies setting up R&D facilities. Some areas offer expenditure-related subsidies for R&D too.   

These are largely discretionary and offered by state governments – if an interested party is able to prove it’s proposing genuinely cutting-edge R&D. These are generally granted as cash back of a certain percentage of the incoming investment.

India’s federal government, meanwhile, offers R&D deductions of 100%, and a patent box system with a concessional tax rate of 10% on royalty income.8

Yet as India’s focus is largely on using incentives to spur job creation in manufacturing, it lags behind the US and Europe in terms of R&D subsidies. As far as R&D incentives go, India is still in the nascent stages.

Sustainability incentives

India currently offers no incentives directly related to sustainability.

low angle view of gateway

Chapter 3


Africa’s 54 countries offer plenty of opportunity – but businesses will have to dig to find the tax incentives.


Africa is a vast, hugely diverse continent comprising 54 countries.9 It offers similarly sprawling opportunities for multinationals seeking new markets for organic growth. This potential, however, doesn’t come without distinct challenges.

Each African nation has a unique business environment, yet many tax authorities can be aggressive and focused on multinationals. And while all countries have regulation, there can sometimes be a disconnect between law and practice, which organizations have to navigate.

Despite this, the continent is clearly appealing to outside investors – note the wealth of operators in physical infrastructure across the continent, for example. “Pockets are deep in Africa because of the money coming in from global donors overseas,” says Burkert. “In fact, there's much more money being spent in Africa than in Europe.”

While certain strengths apply broadly across the continent – such as extensive natural resources – others depend very much on the level of development attained by each country.

In East Africa, for example, the prime recipient for overseas attention has traditionally been Kenya, where strong economic structures make it easy to do business, compared with many other parts of Africa. In West Africa, investment centers around English-speaking Nigeria which has updated its legislation and adopted international standards in a bid to become more investor-friendly.

“Nigeria is working hard to overcome perceptions around historic corruption, and remains a compelling proposition,” says Natasha Meintjes, Global Compliance and Reporting Services Partner, Ernst & Young Advisory Services (Pty) Ltd. “It’s oil-rich and coastal, with a huge population hungry for consumer goods, and a very strong financial services sector.”

Among the French-speaking nations, meanwhile, the Ivory Coast is Africa's most popular investment hub. Then there’s South Africa, a very mature economy that has suffered political challenges and economic fragility, yet remains another compelling investment destination. 

It’s widely recognized that Africa isn't without its difficulties and in the wake of COVID-19, businesses are rethinking their strategies and the role that the continent has to play in the global picture. With a limited incentives landscape, Africa may find it harder than other regions to woo foreign investment. Yet in the right areas, for the right companies, there is opportunity across the continent.

What the region offers

Incentives overview

Companies seeking incentives in Africa will have to dig hard to find them. Most African governments aren’t offering cash grants and the incentives that are available will be on a more discretionary basis. Many require pre-approval, and this can take up to 12 months.

African incentives tend to be given at a national level, in the form of tax allowances or reduction in the tax rate, and will be specific to each country and its level of development. They lean toward job creation in the extractive industries, exports, infrastructure and manufacturing.

Nigeria, for example, offers limited tax holidays for companies producing glass, fertilizer and steel. Ivory Coast, meanwhile, offers discretionary capital investment incentives for activities in certain regions. Companies can claim 35-40% off their total investment in any assets they acquire for their business or agricultural activity.

One rule common to African incentives is that companies aren’t allowed to claim more than one for any particular project. This means companies have to do their research before deciding which to accept.

“You can't double dip,” says Heleen Etzebeth, Quantitative Services Leader, Ernst & Young Advisory Services (Pty) Ltd. “A company has to understand which incentive would give them a better return, and pay attention to the period over which they can make use of that return.”

A company has to understand which incentive would give them a better return, and pay attention to the period over which they can make use of that return.

The one exception to the general African incentives picture is South Africa, which offers an extensive range, from cash grants for developing infrastructure, to a suite of compelling R&D incentives (see below).

R&D incentives

While Europe and the US offer major R&D incentives, African incentives tend to relate to infrastructure rather than innovation. Yet some R&D enticements do exist – South Sudan, for example, offers a 100% R&D tax deduction, while Tunisia gives an additional bonus 50% for companies that have applied R&D in specific sectors.

South Africa takes a different approach here, too. It offers a 150% tax deduction for any venture developing new patentable innovation, where the work improves a process, or researches anything of scientific or tech nature and comes up with new IP.

“As South Africa’s tax rate is 28%, companies can get a 42% tax deduction on any work that’s R&D-related,” says Etzebeth. “This is even open to companies employing South African companies to perform their R&D, meaning the IP sits outside of South Africa.”

Sustainability incentives

Africa offers some energy-efficiency incentives that allow companies to claim tax deductions. Again, South Africa is leading the way, with its 12L tax incentive, which has delivered extensive CO2 savings in the mining and manufacturing industries, among others, since its introduction in 2013.10

South Africa also introduced its Carbon Offset Administration System in 2020, introducing carbon tax credits, which companies can use to offset up to 10% of their total liability, depending on the sector. Those liable for high carbon tax can buy credits from other organizations to further reduce those liabilities.11

There are specific incentives available in some African states for companies reducing their electricity and water use. Again, any incentives here will be discretionary in nature. Tunisia, for example, offers an additional 50% for companies investing in cleantech projects, and for energy savings and the development of renewable energy.

Sheep graze the green, bumpy land beside a bendy road near Edale in the Peak District, Derbyshire. A summer landscape with the warm glow of evening sunlight.

Chapter 4

Bumps in the road

Language, restrictions and other obstacles can add complexity to securing incentives that are offered.

While the regions featured above may be hugely disparate in terms of operating environments, there’s one thing that’s true across the board – organizations shouldn’t expect an obstacle-free ride – either in how they conduct business generally, or their experience of accessing incentives.

Take the issue of language. While Africa has hundreds, areas of Europe where English isn’t widely spoken can prove equally incomprehensible for companies from elsewhere, for example. And while India is a single country, it contains over 100 different regional languages too.

In India, incentives often come with restrictive clauses, including lock-in periods that prevent companies from disposing of assets or moving infrastructure. Further, the disbursal of funds may be time consuming. These procedural hurdles can be hard to understand, making compliance difficult.

Africa, meanwhile, battles against poverty, fraud and corruption, with most African countries sitting low in global rankings for ease of doing business.

And while instability in Africa may prove off-putting, investors may be deterred from investing in Europe for the opposite reason – regulation there can feel too stifling for certain companies seeking extra freedom to innovate.

Then there’s the issue of navigating the incentives landscape itself. Investors in Africa face a similar problem – every incentive will be managed by a different department, and the rules may change on a daily basis.

“A company may have to deal with different regulators and various bodies for the different aspects, in order for an incentive to be legally right and accepted, and for the company to get the benefits it should,” says Meintjes.

Penalties for mistakes can be severe. In South Africa, a company that underpays its tax could incur the due taxes plus an additional 200%.

Yet things can be equally complex in Europe, too.

“European State aid is a difficult structure if a company wants to make decisions quickly,” says Christian Koller, Senior Manager, EY Global Incentives, Innovation and Location Services, Ernst & Young AG. “It’s very administrative. Companies need to dedicate large resources to managing certain fundings, as time-to-cash can take at least nine months. Member states may not understand the rules properly either. And this can lead to repercussions when certain things are agreed to but can’t be delivered when it comes to compliance.”

overhead view of cityscape sand dunes

Chapter 5

Experienced navigators

When pursuing incentives for foreign investment, it helps to know the right questions to ask. Consultants on the ground can help.

The world of incentives is incredibly complex. Each region and its countries present specific issues, which require help from consultants on the ground – to carry out thorough risk management and ensure compliance with complex rules, many of which will be hidden from plain sight.

“Often when companies are investing into a country, they miss asking the question they didn’t know to ask,” says Meintjes. “Many fail to understand the options available, to make sure they’re setting up the company for future success, making it easy to transfer money in and out of the country further down the line, for example. A consultant on the ground will know about the changes to subsidies and incentives. They see it on a daily basis.”

In India, highly competitive states often disguise the real value of their incentives in the rush to claim its own offering as the best. An experienced adviser will understand what’s really to be gained.

“Promises will be given, and a company can easily look at the huge amount of incentives on paper. However a realistic evaluation of what is actually available is essential, while also keeping each state’s payment history in mind,” says Thakkar.

In the EU, meanwhile, the finer details of European State aid rules are so complex they escape even the representatives of member states themselves. As such, hiring an adviser can be invaluable for the effective planning of an incentive strategy.

“Just spending time up front with an adviser is immeasurably beneficial,” says Koller. “If you get the process wrong at the start, it's almost always irrecoverable.”


Governments across Europe, India and Africa are doing their utmost to attract foreign direct investment (FDI) through a range of incentives. What is clear, however, is that the landscape is remarkably complex and diverse on many levels.

The decision to relocate or launch a business in a new location can be both labor and cost intensive. Therefore, it is critical to understand the lay of the land so that any potential pitfalls can be avoided.

About this article


Related articles

How jurisdictions in Asia-Pacific invite businesses from around the world

Countries in the most diverse region on the planet are offering attractive incentives to business – but understanding how they differ is key.