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Maximizing the Value of Inbound Capital in Data Centers

What Foreign Investors Need to Know About Regulations, Tax Efficiency and Stakeholder Engagement

The U.S. data center market presents foreign investors with both lucrative opportunity and paralyzing risk. The United States represents roughly half of the global data center market, and while the state and federal regulatory environment is inarguably complex, it is also more predictable than many emerging markets. How investors move capital into and out of U.S.-based data center assets through the web of regulatory, tax and compliance requirements can make or break their returns.

Navigating The Regulatory And Political Maze

Every inbound investment into the U.S. digital infrastructure benefits from careful regulatory review. A data center may look like real estate, but its servers can store sensitive training data, customer information or computing capacity with dual-use potential. Any investment involving a foreign government-linked entity requires upfront regulatory planning—ideally before site selection or joint venture (“JV”) negotiations begin.

Before finalizing a location or partnership, foreign investors should assess whether the project qualifies as a “Technology, Infrastructure, or Data (‘TID’) U.S. business”—covering critical technology, infrastructure or sensitive personal data.¹ This classification determines whether a transaction falls under the Committee on Foreign Investment in the United States (“CFIUS”) jurisdiction. Proximity to military or government installations or strategic energy corridors can also trigger CFIUS real estate oversight, making early site screening essential.

CFIUS reviews transactions that might affect national security, and artificial intelligence (“AI”)-related infrastructure fits in that category. Smart investors address CFIUS concerns proactively, often partnering with established U.S. entities that help provide credibility and local expertise—while potentially mitigating national security concerns.

Facilities handling U.S. government or personal data must also comply with U.S. Department of Justice (“DOJ”) restrictions on transfers to countries of concern. Infrastructure-as-a-Service providers must verify foreign customers and monitor for malicious cyber activity under new U.S. Department of Commerce (“DOC”) rules. These obligations make early compliance planning essential—ideally before site selection—to ensure all CFIUS, DOC and DOJ requirements are integrated into the investment strategy.

Investors can avoid these scenarios with the right legal, technical and operational due diligence. This includes complying not only with CFIUS but also with the U.S. Export Administration Regulations (“EAR”) and the U.S. Office of Foreign Assets Control (“OFAC”), which enforces economic and trade sanctions. The cost of getting compliance wrong far exceeds the cost of getting it right early.

This complex regulatory environment is prompting construction teams to adapt. General contractors face expanded compliance requirements, including documentation of equipment provenance, cybersecurity protocols for digital design tools and in some cases, labor and data-handling restrictions tied to government or AI-related workloads. Procurement is no longer just a cost-and-schedule function; it’s a compliance exercise that determines whether imported electrical gear or automation systems meet federal sourcing expectations.

Export Controls, National Security And Compliance

Data centers embody critical technology, and even informal information-sharing can create risks under the EAR. The moment a foreign entity invests in a U.S. business—especially one involving high-performance computing, advanced cooling or proprietary network protocols—the risk of a “deemed export” rises.

Under the EAR, a transfer of controlled technology or software to a foreign national within the U.S. is considered an export to that person’s home country.² For a sovereign fund or government-linked JV, appointing foreign nationals to technical or management roles can require an export license. Violations invite heavy fines, license revocations and criminal liability.

Export controls on advanced chips and interconnects further complicate cross-border operations. These laws and regulations can limit which technologies may be installed, serviced or accessed by foreign personnel and often overlap with CFIUS requirements.

This risk is managed through strict compliance frameworks: proprietary information must be correctly classified and access tightly controlled. These compliance playbooks might include foreign-personnel screening, restricted party screening, license management, affiliation diligence and supply chain vetting to avoid restricted vendors. These frameworks not only safeguard sensitive information but also demonstrate proactive alignment with U.S. national security expectations, helping provide confidence to regulators, investors and project stakeholders alike.

What is the price for this confidence in compliance? Preconstruction schedules are lengthening; soft costs are rising, and developers increasingly favor U.S.-based supply chains and trusted vendor ecosystems. Taken together, regulatory scrutiny, export controls and security compliance have become major factors in how and where data centers are built, adding a new dimension to project risk management and shaping the next generation of digital infrastructure delivery.

Partnerships And Joint Ventures

One obvious path in navigating the challenges of cross-border data center investment is pursuing partnerships and JVs. The right partner can help accelerate permitting, strengthen government relations and reduce foreign exchange and political risks. Yet, every partnership carries trade-offs. Investors must balance access and alignment with compliance and control.

For inbound U.S. investment, foreign investors increasingly partner with real estate investment trusts (“REITs”) or data center operators to gain credibility and speed. Such partnerships can help reassure regulators and local communities while easing the burden of compliance with CFIUS, OFAC and deemed-export regulations.

Effective partnerships start with rigorous vetting of development partners and early negotiation of JV terms addressing CFIUS mitigation, DOJ restrictions and data-handling protocols.

However, even well-structured JVs face another, softer challenge: earning a social license to operate. Communities that once courted data centers for jobs and tax revenue are now pushing back over energy, water and land usage. The most forward-thinking investors are responding with “bring-your-own-power” strategies, coupled with public outreach—integrating renewable generation or modular nuclear capacity to reduce public grid dependence and community tension. Engaging strategic communications teams has now become the norm rather than the exception.

Ultimately, the best partnerships function as ecosystems—combining global capital, local expertise and regulatory credibility. They are built not only on term sheets and equity splits but on trust, transparency and early engagement with the communities that grant permission to grow.

Tax Incentives And Structural Efficiency

Besides bringing credibility, a local partner can also help a foreign investor with local tax issues. The U.S. operates under a significant amount of separate state regimes that are in addition to federal requirements, creating both opportunity and complexity for foreign investors. .

Given the significant value-add to a data center development project, state tax incentives should not be considered an afterthought. State tax efficiencies do not just shape the financial model of a data center project; they influence how and where data centers are built and how quickly they reach revenue service. Developers who understand how to integrate state tax incentives into their construction delivery models can gain meaningful schedule and cost advantages.

For example, (personal) property and sales tax abatements (e.g., on power shells, GPUs, chillers, transformers and switchgear) directly affect procurement timing and cash flow sequencing. States that offer construction-phase abatements can make or break a project’s internal rate of return, which, in turn, drives go/no-go decisions and influences the delivery model, e.g., design-build, construction management-at-risk or engineering, procurement and construction. This complexity demands tight coordination among tax advisors and locally-expert legal counsel in the development phase.

The states that are most open to negotiation of tax incentives are continuously changing. For example, Pennsylvania is currently going aggressively after data center development activity, bolstered by a relative abundance of power supply in the state. On the other hand, in states where community activism against new data center construction is rampant, often because of strains on both the power grid and water supply, politicians are paring back incentive programs.

From a federal tax perspective, foreign investors should solicit advice on the most efficient way to fund their U.S.-located data center-related investments. Publicly traded companies can often avail themselves of favorable tax treaties, reducing the withholding tax on future cash repatriations from the business once the data center is turning a profit.

Tax structuring for private investors is typically more complex, but the rewards can be significant for foreign investors. Private investors, organized through funds managed by private equity managers or otherwise, can in many cases utilize a U.S. REIT structure. This structure could provide foreign investors with an exit exempt from U.S. taxation. Foreign investors with sovereign wealth or global pension plan status could potentially enhance their after-tax returns even more, availing themselves of domestic tax exemptions. Careful planning and tight coordination between construction managers and finance is required to ensure targets are met and cash flow is optimized.

Moving Beyond Speed To Market

Data centers are more than the infrastructure of a new economy—they are its proof of discipline. The U.S. remains the world’s most attractive market for digital infrastructure, but its complexity demands more than capital. Success depends on integrating compliance, tax strategy, financing and community engagement into a single investment architecture.

When regulation, tax efficiency and stakeholder engagement are treated as core design principles rather than constraints, projects move faster, costs stabilize and risks diminish. Regulatory alignment reduces mid-project disruptions; well-structured tax incentives strengthen cash flow and procurement predictability; and community partnerships accelerate permitting and workforce readiness. Together, these factors transform uncertainty into advantage, turning disciplined planning into measurable construction performance.

The investors who win will be those who treat regulation as strategy, sustainability as financial design and partnerships as trust-building—not transactions. In this new era of AI infrastructure, insight and precision, not speed alone, will determine who captures the value of the next industrial revolution.

Footnotes:

1: 31 C.F.R. § 800.248 (2020), eCFR :: 31 CFR 800.248 -- TID U.S. business.

2: 15 C.F.R. 734.13 (2016), eCFR: 15 CFR 734.13 -- Export.