China Outbound Investment Guide 2013

China Outbound
Investment Guide
A fully bilingual guide published in

conjunction with |
:
Arendt & Medernach
Bezen & Partners
Bharucha & Partners
Blakes, Cassels & Graydon
Candioti Gatto Bicain & Ocantos
G Elias & Co
Homburger
P+P Pllath + Partners
WongPartnership
2013
Fourth edition |
Transactions,
Disputes, Advice
, ,
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IntroductIon |
IntroductIon |
Editor
David Tring (david.tring@euromoneyasia.com)
+852 2842 6964
Translator
Susan Mok (susan.mok@euromoneyasia.com)
+852 2842 6924
Staff writer
Eve Yao (eve.yao@euromoneyasia.com)
+852 2842 6916
Welcome to the china outbound Investment Guide 2013.

As always, outbound investment increased considerably in the past year. At the end of 2012, chinese
companies outbound investment stood at $77.2 billion, up 14% from the previous year. of those
investments, $37.8 billion or 49% consisted of M&A transactions, up from 44% in 2011.
these figures propel the country into the number three spot in terms of global outbound investment
rankings, behind the uS and Japan.
the increase in Europe-bound investments, which rose 21%, is noteworthy. the uS also received a
large share of china outbound investment, up 48% from the previous year.
Production manager
Andy Alcock (andy.alcock@euromoneyasia.com)
+852 2842 6928
Some of the largest deals in 2012 included Bright Foods acquisition of 60% of cereal maker
Weetabix, china Investments purchase of 10% in Londons Heathrow Airport and Sany Heavy
Industrys takeover of Putzmeister Holding, Germanys largest concrete pump maker.
Publisher
Peter Ollier (peter.ollier@euromoneyasia.com)
+852 2842 6941
these figures and deals show that china outbound investment is diversifying. companies are looking
to tap into new areas and also acquire well-established brands.
Published by
Asia Law & Practice
Euromoney Institutional Investor (Jersey) Ltd
27/F, 248 Queens Road East
Wanchai, Hong Kong
EUROMONEY INSTITUTIONAL INVESTOR (JERSEY) LTD 2013
ISBN 978-962-936-215-7
Disclaimer
The material in this periodical does not constitute advice
and no liability is assumed in relation to it. The materials
referred to in this publication are publicly available. All information
contained herein was believed to be correct at the time of
publication in May 2013
All rights reserved
20135
Directors, Euromoney Institutional Investor

(Jersey) Ltd
Peter Richard Ensor, Tony Shale, Anita Rye
Divisional director, Legal Media Group
Danny Williams
Head of marketing, Asia
Thomas Berry
CEO, Euromoney Institutional Investor, Asia
Tony Shale
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Gareth Fox
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Foreign companies are also warming up to chinese investments, as they can provide the perfect
opportunity to introduce products into the mainland market.
It is a good strategy for Western companies, said one lawyer who worked on the Bright Food deal.
chinese people are known for their adoration of brand names and through this deal the uK outfit
could become an instant hit in china.
outbound investments are set to increase further and the deals are going to become more
complex. this is backed up by the fact that the chinese government is encouraging privately-owned
enterprises to invest outside of the countrys borders.
While state-owned enterprises (SoEs) have dominated the outbound investment so far, privatelyowned companies are ready to move. there is much that private companies can learn from SoEs, but
they need to be cautious.
the importance of due diligence and integration planning are areas private companies need to work
on. realising the significance of these issues early on will help ensure investments are successful.
thank you to all the firms who participated and I hope you find this guide useful.
2013
2012772
14%37849%201144%
21%
48%
201260%10%
david tring |
Editor |
www.chinalawandpractice.com
China OutbOund investment Guide 2013
>>
contEntS |
contents |
ArGEntInA |
A time to seize opportunities | . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
candioti Gatto Bicain & ocantos |
cAnAdA |
Investing in net benefits to Canada | . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Blakes, cassels & Graydon |
GErMAny |
M&A basics in Germany | . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
IndIA |
Investing in India: Opportunities and pitfalls | : . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Bharucha & Partners
LuxEMBourG |
Luxembourg: The gateway to Europe | . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Arendt & Medernach
nIGErIA |
Commencing investment into Nigeria | . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
G Elias & co
SInGAPorE |
Investing in Singapore: Business vehicles and M&A | . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
WongPartnership |
SWItzErLAnd |
Reliability and neutrality: Investing in Switzerland | . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Homburger
turKEy |
Turkey: An economy centred on foreign investment | . . . . . . . . . . . . . . . . . . . . . . . 79
Bezen & Partners
<<
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C1010AAH Buenos Aires, Argentina
Tel. +54 11 5236 9000
Fax. +54 11 5236 9001
www.cgbo.com.ar
ArGEntInA
A time to seize opportunities

by alejandro Candioti
t can be hard to be optimistic about investment oppor- drugs market with annual sales of almost US$5 billion. There are
tunities in Argentina. For a second consecutive year, the approximately 300 pharmaceutical laboratories in Argentina, out
countrys economy has endured inflation at an annual rate of of which the eight largest companies control nearly 80% of the
25%, which gradually deteriorates the competitiveness of most pharmaceutical drugs market. Due to increasing labour costs and
economic activities. Imports of all kinds are subject to signifi- inflation, smaller laboratories are faced with the need to merge or
cant restrictions and bureaucracy, causing considerable delays sell their products. A trend of consolidation of the pharmaceutiin customs clearing, or worse, effective bans. Exchange control cal sector in Argentina has already been observed since 2010 and
restrictions imposed by the Central Bank constitute insurmount- it is expected that in a few more years, the total number of laboable obstacles for the payment of dividends or repatriation of ratories will be significantly reduced by way of mergers and asset
capital to foreign investors. Official statistics are considered unre- acquisitions.
liable and companies often resort to private consultants for more
equal treatment under law for chinese investors
accurate data.
In 2012, the Argentine government renationalised YPF, the Argentine law protects foreign investors on an equal footing with
largest oil producer of Argentina that had been sold by the gov- local businesses. The US Constitution inspired the Argentine
ernment to Spains Repsol in the early 1990s. Restrictions on the Constitution, which was promulgated in 1853. However, its
access to foreign currency by individuals has greatly increased drafters set the distinct goal of developing immigration policies
and more recently, during the first quarter of 2013, the govern- to settle the territory, stimulate commerce, avoid desert territories
ment imposed a three-month freeze on supermarkets retail prices and enlarge the country. From the outset, the Argentine Constiand restricted retail.
tution declares in its preamble that it is adopted for all men of
A slowing of the Argentine economy, combined with a the world who wish to dwell on Argentine soil.
weakening of the global demand for commodities produced by
More specifically, Article 20 of the Constitution guarantees
Argentina are at the origin of such trade restrictions and capital equal treatment under the law to all foreigners living or carrying
controls. Various independent consultants
forecast Argentinas GPD growth for 2013 at a
disappointing 0.9%.
In spite of this seemingly unattractive business
In September 2011, Chinas Ministry of
environment, Chinese companies continue to invest in
Commerce, the Ministry of Foreign Affairs and
the National Development and Reform Com- Argentina, mainly in the oil and gas and mining sectors
mission published the Industry Guidelines for
Outbound Investment in Various Countries (
), which is intended to provide small and out any business in Argentina. It literally provides that: foreignmedium-sized enterprises (SMEs) with an overview of foreign ers in the Argentine territory enjoy all the civil rights of a citizen;
investment priorities, foreign investment regulations and indus- they may engage in their industry, trade or profession, own,
trial development zones in 115 countries around the world. purchase or transfer real property, They are not obligated to
Argentina is excluded from the industry guidelines, most likely assume citizenship, or to pay extraordinary compulsory taxes.
because Chinese state-owned companies already dominate most
The Argentine foreign investment law No. 21, 382 of 1976 and
of the promising investment opportunities here, leaving little its implementing regulations further establishes that:
room for SME activity, according to Dereck Scissors, senior
research fellow at The Heritage Foundation, a conservative think 1) Foreign investors may invest in Argentina in any economic
tank based in Washington DC.
activity whether industrial, mining, oil and gas, agricultural,
In spite of this seemingly unattractive business environment,
commercial, financial, retail or services, without the need
Chinese companies continue to invest in Argentina, mainly in the
for any type of prior approval and under conditions equal to
oil and gas and mining sectors. Total investment in Argentina by
those applicable to Argentine investors. Only a few activities
Chinese businesses over the past 10 years surpassed US$20 billion
are excluded from this principle, like broadcasting and the
at the end of 2012.
acquisition of real estate in frontier areas. There is also no
Two areas for Chinese investors to focus on in the coming
obligation to be associated with domestic investors or any
years are the pharmaceutical industry and oil and gas exploration.
other type of restrictions or conditions.
Relative to its size, Argentina has a significant pharmaceutical 2) Foreign investors are entitled to repatriate their investments
>>
ArGEntInA
and to remit profits abroad at any time, subject only to the

compliance of Central Bank foreign exchange regulations.
3) The principle of equal treatment between domestic and
foreign investors is reaffirmed. Those foreign investors making
capital investments in Argentina, either for the promotion
of economic activities or the extension or improvement
of existing activities, have the same rights and obligations
conferred by the Argentine Constitution and local laws as
Argentine investors.
chinese investment protection

All guarantees available to Chinese investors under Argentine
foreign investment regulations have been reinforced and
enhanced in a treaty for the protection of bilateral investment
signed between the Peoples Republic of China and the Republic
of Argentina on November 5 1992, which was subsequently
ratified by both nations and came into force on August 1 1994.
With regard to Chinese investors, the aim of the treaty is to
encourage investment in Argentina. The treaty provides Chinese
businesses with a safe environment in which to develop their
activities through several guarantees and commitments voluntarily assumed by the Republic of Argentina. These guarantees
deal both with foreign investor protection issues and dispute resolution clauses providing for international arbitration.
National treatment, which assures that the Chinese investor

shall be subject to a treatment not less favourable than that
granted to local investors, and the most favoured nation
treatment, by means of which the Argentine state shall
recognise any better treatment which was previously granted
to investors and investments from other countries.
Prompt, adequate and effective compensation in case of
nationalisation, expropriation or measures tantamount to
expropriation, regardless of the form, intent or purpose of
such measures.
Unrestricted remittance abroad of liquid assets belonging to
Chinese investors, comprising dividends and other current
profits, loans and capital repatriations.
An umbrella clause, arguably elevating the Argentine states
breaches of contractual rights to the level of breaches of an
international obligation under the treaty.
International arbitration for investment disputes, submitting
all controversies, which may arise between Chinese investors
and the Republic of Argentina to the jurisdiction of an ad hoc
arbitration tribunal.
Foreign exchange regulations

Argentine foreign exchange regulations discourage speculative
and flight capital by imposing a one year no-interest bearing
mandatory deposit on 30% of all inbound foreign
exchange that does not qualify as exempt from
All guarantees available to Chinese investors under
such measures, pursuant to the regulations of
Argentine foreign investment regulations have
the Central Bank of the Republic of Argentina.
Remittances of currency to be used as contribeen reinforced and enhanced in a treaty for the
butions required for direct investments in the
protection of bilateral investment
country or for the purchase of stock in domestic
companies by direct investors are exempt from
The rules and guarantees contained in the treaty may not be such restriction, and particularly:
overridden or restricted by the Argentine state through local laws
and regulations. This is because the Republic of Argentina has 1) Capitalisation of local companies representing 10% or more
signed and ratified the Vienna Convention on the Law of Treaties,
of the recipient companys total equity;
which provides that a party may not invoke the provisions of its 2) The inflows of funds from non-residents for the purpose of
internal law as justification to avoid performance of its obligathe purchase of real estate, under certain conditions;
tions under a treaty. Furthermore, according to the Argentine 3) Income arising from loans taken out with multilateral and
constitution, treaties in force between the Republic of Argentina
bilateral credit organisations as well as official credit agencies
and a foreign nation enjoy a higher legal ranking than federal and
and;
local laws and regulations.
4) Income arising from foreign financial loans within the nonThe treaty includes the following principles relevant to
financial private sector.
Chinese investors:
These are aimed at investment in non-financial assets or
Fair and equitable treatment, full protection and legal training for micro-enterprises or improvements to be made in
security, which require the Argentine state to provide Chinese residences and family homes. This is as long as such loans are
investors with a stable and predictable investment environ- incurred and repaid over a period of no less than two years,
ment. Government measures challenging the stability of the including capital and interest repayments.
investment environment by changing the rules and creating
Foreign exchange regulations also regulate the outbound
uncertainty, for example, may constitute a breach of the flow of funds from Argentina. Remittance of dividends or
referred to standards of treatment. This is particularly so if capital to a foreign beneficiary are subject to a double
they contradict reasonable expectations based on which authorisation by the AFIP, the Argentine tax authority, and
Chinese investors were induced to act.
depending on the amount to be transferred, by the Central
Exclusion of arbitrary or discriminatory measures, which Bank of the Republic of Argentina. In 2012, authorisations were
prevents the Argentine state from impairing the management, seldom granted, in order to protect Argentinas international
use and enjoyment of Chinese investments.
monetary reserves.
6
<<
ArGEntInA
Legal vehicles for investment

Chinese companies and business owners
may carry out their activity in Argentina on
a permanent basis through various means.
These include the appointment of a local
commercial representative, the setting up of
an Argentine branch, incorporation of a local
corporate entity (subsidiary), the acquisition
of equity in an existing Argentine company
and entering into a joint venture agreement
or the settling of a trust.
The main types of investment vehicle
utilised by non-resident individuals and
foreign companies are the branch and the
local commercial company, in the form of a
corporation (sociedad annima) or a limited
liability company (sociedad de responsabilidad limitada).
AuThOR BIOGRAphy
ALEjANdRO CANdIOTI
Partner
Alejandro candioti is an international transaction lawyer based in Buenos
Aires and a partner at candioti Gatto Bicain & ocantos. He handles the
full range of corporate work, principally mergers and acquisitions and
contracts. He also advises on joint ventures, privatisations, reorganisations,
divestments, private equity and other commercial arrangements and
associated regulatory issues. Also, a significant part of his practice has
involved assisting clients in public offerings and private placements of equity and debt
securities.
While he covers the full range of business markets, much of Alejandros work is
concentrated in the information technology, oil and gas, and pharmaceutical industries. In
addition to representing clients on their acquisitions, disposals and restructurings he also
has wide expertise of advising on shareholder disputes.
His varied professional practice has given him the ability to advise clients across a
broad range of commercial and financing issues, providing experienced counsel and
executive judgment when needed.
Alejandro is a mentor at Endeavor, a non-profit organisation headquartered in new
york that transforms emerging markets by establishing high-impact entrepreneurship as
the leading force for economic development.
He is a member of the Advisory Board of the Argentine-chinese chamber of
commerce and is actively involved in the business and trade development activities of the
chamber.
He also writes frequently on business law issues affecting chinas inbound and
outbound investment, and operates www.leychina.com, a source of china legal and
business information in Spanish for his clients and anyone interested in china.
branch of a foreign company

Any company duly organised and existing
in accordance with the laws of the Peoples
Republic of China or any other country may
set up a branch in Argentina. In principle,
it is not necessary to allocate capital to the
Argentine branch. The branch must keep
separate accounting records in Argentina and
file annual financial statements with the local
commercial companies supervisory authority. From a fiscal and
social security standpoint, the branch is treated under Argentine
law as an entity separated and distinct from its home office.
Commercial company
Commercial companies must have at least two shareholders or
members, which can be either corporate entities or individuals.
A minimum capital of AR$100,000 is required for corporations.
Contributions in real estate, equipment or other non-monetary
assets must be made in full at the time of subscription.
Except for specific cases provided by law, there are no nationality or residence requirements for ownership. Foreign individuals,
whether resident in Argentina or not, or foreign companies, may
hold up to 100% of the share capital. Transfers of shares of a corporation are generally unrestricted and any limitations included
in the companys by- laws may not effectively impair the transferability of shares.
The company can be managed by a single manager or director,
or by a board. There is no nationality requirement all of the
directors or managers may be foreigners but in all companies
the majority of managers or directors must be domiciled in
Argentina to ensure managements ability to perform its duties.
Other investment vehicles
Other legal vehicles that Chinese companies and businesses may
use to invest in Argentina are joint ventures and trusts.
The joint venture instrument most commonly used in
Argentina is the Unin Transitoria de Empresas (UTE). A UTE
is a contractual business arrangement between two or more
persons, which may include foreign companies and individuals,

made for the exploitation of a particular business or commercial
endeavour. A UTE is not a legal entity separated from its parties,
but rather a contract law instrument. However, Argentine federal
and local tax and social security laws treat the UTE as distinct
taxpayers and employers. One of the key attractions of the UTE
legal regime is that it allows the allocation in different proportions of a partys contribution obligations, share of profits and
endurance of losses. Joint ventures other than UTEs are also
permitted under the general principles of Argentine law.
Argentine taxation
The Argentine tax system may be divided into three categories:
taxes, charges and contributions. Charges and contributions are
normally lower than taxes and are intended to compensate the
state for some specific activity in the form of individualised service
to the party called taxpayer. Most taxes are levied as indirect
consumer taxes. Certain Argentine taxes, like VAT, turnover
taxes and stamp duty, are similar in form and nature to such taxes
in China, however rates tend to be higher in Argentina.
Federal taxes
1) Corporate income tax: The general rate applicable to the
taxable income of companies is 35%. Dividends distributed
up to the net taxable income are not taxed further.
Local companies, branches of foreign companies and
foreign individuals domiciled in Argentina are taxed on a
worldwide income basis. They may credit foreign income
taxes against their Argentine tax liability up to the amount of
>>
ArGEntInA
the increase in such liability resulting from including foreign

source income in the taxable base.
Non-resident companies without a branch or other
permanent establishment in Argentina must pay taxes only
on their Argentine sources of income and capital gains. Tax
is normally levied in the form of a final withholding tax at
various effective rates depending on the particular type of
income. These rates are calculated as the 35% on a prescribed
percentage of the gross payment.
Resident individuals in Argentina are liable for income tax
at progressive rates on their worldwide income. Rates range
from 10% to 35%. Non-resident individuals are taxed only on
Argentine-source income. Tax is levied as a final withholding
tax at various effective rates depending on the particular type
of income.
2) Value added tax: VAT is applied to the delivered cost of the
product or service at each change of hands, with a credit given
for taxes paid at earlier stages of production. Imports are
subject to tax at the same rates that apply to similar domestic
items.
The general rate for VAT is 21%, but some services and
utilities such as mobile phones, electricity, gas and water
supply have a VAT rate of 27%.
3) Import duties: The tariffs range between 0% and 35%. As a
result of the Customs Union, effective on January 1 1995,
among members of Mercosur (Argentina, Brazil, Paraguay,
Uruguay and Venezuela), most of the goods that form the
year or more, and certificates of deposit with local banks, are

exempt from this tax.
7) Tax on transfer of real estate: Real estate transactions of properties located in Argentina, owned by individual residents or
non-residents, are subject to a tax of 1.5%, only if this transaction is not subject to income tax.
Provincial and municipal taxes
1) Turnover tax: This tax is levied on each commercial transaction. No credit is given for tax paid at previous stages. Tax
rates vary between 1% and 4% depending on the type of
activity and the law of each province.
2) Stamp duty: Stamp tax is levied on public or private instruments upon formal execution. The rate varies between 0.8%
and 1.5%. Some jurisdictions have eliminated this tax for
certain transactions.
3) Tax on real estate: Provinces and municipalities tax real estate
located in their respective jurisdiction. This tax varies on each
jurisdiction.
double taxation treaties and other tax agreements

Argentina and China have not yet entered into a treaty for the
avoidance of double taxation and the prevention of fiscal evasion
with respect to taxes on income and capital. However, Argentina
is a party to double taxation treaties in force with 15 countries,
namely Australia, Belgium, Bolivia, Brazil, Canada, Denmark,
Finland, France, Germany, Italy, Netherlands, Norway, Sweden,
Switzerland and the UK.
Chinese companies and businesses investing
in
Argentina through a corporate vehicle
Argentina has various incentive programmes in place,
domiciled in any of these jurisdictions may
designed to promote and facilitate foreign investment
benefit from the lower tax rates applicable
in the country. These programmes are implemented by
under the relevant double taxation treaty (such
as income tax withholding rates reduced from
the national, provincial and municipal authorities
31.5% to 10% or 12%) provided the investment
scenario is properly structured.
tariff universe of the Mercosur are subject to the common
In 2011, a tax information exchange agreement came into
external tariff. Import duties in commerce among the force between Argentina and China. More recently, in March
members of Mercosur have been practically removed.
2013, a customs information exchange agreement was signed,
Imports in Argentina are levied by statistical tax and the which is pending ratification by both countries.
rate is 0.5% calculated on the cost, insurance and freight (CIF)
value and the payment of VAT (the rate ranges between 21% Investment incentives
and 10.5%) and income tax. A payment of a rate, usually 3%, Argentina has various incentive programmes in place, designed
shall be required to be made as a tax advance.
to promote and facilitate foreign investment in the country.
4) Tax on assets: A tax is levied on worldwide assets of Argentine These programmes are implemented by the national, procompanies. The tax rate is 1% and the payment of this tax and vincial and municipal authorities and include horizontal and
of the income tax may be mutually compensated during a sector incentives, as well as relocation, innovation, technologi10-year consecutive fiscal term.
cal development, employment, investment financing and export
5) Excise tax: This tax is levied on specific consumer goods and promotion incentives.
at different rates, including cigarettes, alcoholic beverages,
Investment incentives for capital goods and infrastructure
fuels and lubricants, wine, luxury articles and furs. The first include:
consumer or importer pays excise tax.
6) Tax on personal assets: Individuals with personal assets Accelerated depreciation for income tax purposes and early
valued at more than AR$305,000 are subject to an annual tax
refund of VAT (Law 26360).
on personal assets ranging from 0.5 to 1.25% depending on Reduction of import duties on capital goods from non-Merthe individuals declared wealth. Certain types of investment,
cosur countries (Decree 1026/2012).
like stocks traded on any Argentine exchange held for one Tax credit of 14% of the value of goods produced, to encourage
8
<<
ArGEntInA
investment in, and production of, capital goods, information

technology, telecommunications and agricultural machinery
(Decrees 379/2001, 917/2010, 362/2011).
VAT reduction of 50% in the purchase and import of finished
capital goods and IT and telecommunications products and
parts (Decrees 493/2001, 496/2001, 615/2001, 733/2001,
959/2001).
Reduction to zero of tariffs on imported capital goods that

make up a complete and independent production line (Resolution 256/2000).
Temporary import of capital goods without being subject to
import duties, for a period of up to three years (Law 22415,
Decree 1001/1982; Customs Office Resolution 34/1998,
Decree 142/2010).
>>
25%
2)
20121990Repsol 3)
YPF
2013

2013GDP0.9%
1992115
20119 199481
115

Derek Scissors
2012
10
200
50300
80%
2010

1853

20
197621, 382
1)
10
<<
2013
30%
(Alejandro Candioti)
Endeavor
www.leychina.com
1)
10%
2)
3)
4)
AFIP
2012
(sociedad annima) (sociedad de responsabilidad limitada)
AR$100,000
100%
Unin Transitoria de Empresas

(UTE)UTE
UTE
UTE
UTE
UTE
1) 35%
35%
10%35%
2013
>>
11
2)
21%
27%
3) 0%35%
0.8%1.5%
3)
15
31.5%10%
199511 12%
2011
20133
0 . 5 %
CIF21%10.5%
3%
4) 1%
10
5)
6) AR$305,000 26360
0.51.25%
1026/2012

7)
14%379/2001917/2010
1.5%
362/2011

50%493/2001496/2001615/2001
733/2001959/2001
1)
1%4%
256/2000
22415
2)
1001/198234/1998142/2010
12
<<
2013
ed
Chinas most
prestigious
annual legal
awards
It
da davi o r
vid d t I A
.tr rin
ing g L e
@e +8 5 n Q
ur 2
om 2 8 u I r
I
on 4 2
ey 6 9 e s
as 6 4
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co
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BeIjIng septem Ber 12 2013
CLPs seventh awards ceremony

and annual flagship event
categories for 2013 include:
8 deal categories
5 team categories
15 firm categories
7 regional city categories
9 individual categories
2 in-house categories
www.china la w and practic e.c o m
cAnAdA
Investing in net benefits to canada

by Calvin Goldman, Jason Gudofsky and aleksandra Petkovic
oreign direct investment (FDI) into Canada from China,

largely from Chinese state-owned enterprises (SOEs), has
rapidly increased in recent years. In 2004, FDI from China
stood at C$113 million and in 2011, it reached C$10.9 billion.
This increase is primarily attributable to growing interest in
Canadas natural resource sector and is highlighted by a number
of significant investments over the past few years, including, for
example, the 2011 acquisition by China Petroleum & Chemical
Corporation (Sinopec) of Canadian conventional oil and gas
producer Daylight Energy for C$2.2 billion and the 2011 acquisition by China National Offshore Oil Corporation (CNOOC) of
Alberta oil sands developer OPTI Canada for C$2.1 billion. Most
recently, on December 7 2012, the Minister of Industry approved
CNOOCs proposed acquisition of Nexen for C$15.1 billion,
which represents the largest foreign acquisition by a Chinese
SOE. All signs point to sustained and likely increasing Chinese
foreign investment in Canada, particularly as demand for natural
resources and energy continue to increase.
Canada Foreign Investment Promotion and Protection Agreement

(FIPA), which was signed by Canadas Minister of International
Trade and Minister for the Asia-Pacific Gateway, Ed Fast, and
Chinas Minister of Commerce, Chen Deming, on September 8
2012. The FIPA is designed to confer greater protection to foreign
investors against discriminatory treatment and serves to enhance
predictability of the policy framework affecting foreign investors
and their investments. It was tabled in the Canadian Parliament
on September 26 2012 and is now awaiting ratification.
In addition, on August 15 2012, Canada and China
announced the release of a joint Economic Complementarities
Study, highlighting potential bilateral economic complementarities and prospects for growth. The study examines seven
economic sectors (including natural resources, machinery and
equipment, transportation, infrastructure, aerospace, clean technology and environmental goods and services) and reports that
its completion facilitates forming the foundation of exploratory
discussions to deepen Canadian-Chinese trade and economic
relations. It concludes that: Canadian and Chinese governments
should continue to deepen and strengthen our bilateral trade
Increasing scrutiny of foreign investment

The increase in investment from China comes
at a time of heightened government and public
scrutiny of foreign investment. In March 2012, The current Canadian government is highly interested
the Canadian Council of Chief Executives
published a paper entitled Chinese Foreign Direct in increasing economic ties with China and expanding
Investment in Canada: Threat or Opportunity? The foreign investment in Canada
paper examines the impact on Canada of Asias
rising economic power. The author calls on the
federal government to depoliticise the foreign investment review and investment ties through appropriate bilateral instruments to
ensure that Chinese and Canadian citizens can continue to build
process and adopt a streamlined national security test.
While foreign investments by SOEs are closely scrutinised, a prosperous and sustainable future.
Also, on November 11 2012, the Canadian government signed
concerns regarding foreign investment have not been limited to
SOEs. The Canadian governments preliminary decision to deny a long-awaited double tax treaty with Hong Kong, which should
Anglo-Australian miner BHP Billitons proposed acquisition of facilitate trade and investment, particularly from Hong Kong into
Canadas Potash Corporation of Saskatchewan in 2010 generated Canada. The treaty also may present new opportunities for strucsignificant controversy (BHP Billiton ultimately dropped its bid turing some investments by Chinese enterprises into Canada.
for the Canadian company) and demonstrated that the government will not hesitate to turn down transactions that it does not Foreign investment under the IcA
consider to be of net benefit to Canada.
The Investment Canada Act (ICA) is a federal statute of broad
application regulating the establishment and acquisitions of
closer economic ties
control of Canadian businesses by non-Canadians. Except with
The current Canadian government is highly interested in increas- respect to cultural businesses, the Investment Review Division
ing economic ties with China and expanding foreign investment of Industry Canada (Investment Canada) administers the ICA
in Canada. In February 2012, Canadian Prime Minister Stephen under the direction of the Minister of Industry. Transactions
Harper and Chinese Premier Wen Jiabao signed a series of joint involving business activities relating to Canadas cultural heritage
initiatives, including agreements to cooperate on energy, natural or national identity, such as publishing, film, video, music and
resources, technology, innovation and agriculture. They also broadcasting, are administered by the Cultural Sector Investconcluded 18 years of negotiations toward a definitive China- ment Review of the Department of Canadian Heritage (Canadian
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15
cAnAdA
Heritage) under the direction of the Minister of Canadian

Heritage. An investment subject to the ICA will be either reviewable, in which case it is subject to both a reporting obligation
and a pre-closing approval process, or else it will be notifiable, in
which case it is subject to only a post-closing reporting obligation.
All investments by non-Canadian investors involving Canadian
entities, whether reviewable or notifiable, and even those that are
neither reviewable nor notifiable, are subject to the possibility
of a national security review. The rules relating to acquisition of
control and whether an investor is a Canadian are complex
and comprehensive.
statutory framework
Generally speaking, for a transaction to be reviewable a nonCanadian investor must acquire control of a Canadian business
through a direct acquisition of assets or equity and the aggregate
book value of the assets being acquired, including assets situated
outside of Canada, must exceed the applicable monetary
threshold. A direct acquisition of control for the purpose of the
ICA is the acquisition of a Canadian business by virtue of the
acquisition of all or substantially all of its assets or a majority,
or in some cases, one-third or more of the voting interests of a
Canadian entity, provided that the entity directly or indirectly
qualifies as a Canadian business for the purposes of the ICA.
If the acquisition of control of an existing business by a nonCanadian is not reviewable, so either the Canadian business is
being acquired indirectly provided that the Canadian business
is not a cultural business or the applicable monetary threshold
is not exceeded, the transaction will be notifiable. Notification
requires the non-Canadian investor to provide limited information to Investment Canada at any time before or within 30 days
after closing the transaction.
In 2009, and again in June 2012, the government released
for public consultation proposed amendments to the Investment
Canada Regulations, which would implement amendments to the
ICA that were passed in 2009. These amendments would move
the current threshold for direct acquisitions by WTO investors
create new powers for the Minister to make what are known
as control in fact determinations in respect of SOE investors,
potentially bringing more transactions by SOE investors within
the purview of an ICA review.
net benefit to canada
A reviewable transaction may not be completed unless the investment has been reviewed and the responsible Minister is satisfied
that the investment is likely to be of net benefit to Canada. The
non-Canadian investor must make an application to Investment Canada setting out, among other things, particulars of the
proposed transaction and its post-closing plans for the Canadian
business. The ICA requires the relevant Minister to take these
factors into account, where relevant, when determining if an
investment is likely to be of net benefit to Canada:
The effect of the investment on the level and nature of

economic activity in Canada, including, the effect on employment, on resource processing, on the utilisation of parts,
components and services produced in Canada and on exports
from Canada;
The degree and significance of participation by Canadians in
the Canadian business and in any industry or industries in
Canada of which the Canadian business forms a part;
The effect of the investment on productivity, industrial efficiency, technological development, product innovation and
product variety in Canada;
The effect of the investment on competition within any
industry or industries in Canada;
The compatibility of the investment with national industrial,
economic and cultural policies, taking into consideration
industrial, economic and cultural policy objectives enunciated by the government or legislature of any province likely to
be significantly affected by the investment; and
The contribution of the investment to Canadas ability to
compete in world markets.
Once an application has been made, there is

an initial waiting period of up to 45 days. The
Although on its face the regime seems harsh,
Minister can extend the waiting period unilaterrelatively few investments have proved to be
ally by 30 days, and the Minister and investor can
agree to any additional period.
problematic since the legislation was enacted in
Although on its face the regime seems harsh,
1985
relatively few investments have proved to be
problematic since the legislation was enacted in
(that is, investors controlled by persons who are citizens of WTO 1985. The practical negative effects are the reality of delay and
member countries) from a C$344 million book value of assets negotiation. Generally speaking, the reviews typically extend
test to a C$600 million enterprise value threshold, increasing beyond the initial 45 day period.
In addition, while undertakings are not mandatory under the
progressively to C$1 billion over a four-year period. The current
asset-based financial thresholds of C$5 million will still apply ICA, in practice, the Minister requires the investor to commit to
for investments in cultural businesses. The government has not binding undertakings in virtually every reviewable transaction,
in order to secure a net benefit determination. Undertakings
indicated when it will adopt the new regulations.
On April 29 2013, the government announced proposed typically govern the ongoing operation of the Canadian business
amendments to the ICA, which do not extend the new enterprise and address, among other things, employment levels in Canada,
value threshold to SOE investors, who will continue to be subject participation by Canadians on the board of directors of the
to the existing C$344-million book value of assets threshold Canadian business and in senior management positions, the
(subject to an annual adjustment). In addition, the amendments location of the head office, future capital expenditures and
16
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cAnAdA
research and development in Canada by the

Canadian business and continued community
involvement. The precise scope of the undertakings and their duration are subject to
negotiation between the investor and the
Minister. According to guidelines established
by Investment Canada, these undertakings
will be reviewed by Investment Canada on a
12 to 18 month basis.
AuThOR BIOGRAphIES
CALvIN S. GOLdMAN Q.C.
Partner
calvin S. Goldman Q.c. is co-chair of Blakes competition, antitrust
and foreign investment group. He began his professional career at
Blakes in 1976, after he clerked for Justice Spence of the Supreme
court of canada. He remained with Blakes specialising in antitrust
litigation until 1986, when he was appointed to be the director (since
renamed to commissioner) of the competition Bureau in the canadian
government. He returned to private practice in 1990. cals practice covers all aspects
of canadian competition law, including domestic and international mergers, abuse of
dominance, cartels, civil reviewable matters and counselling on trade practices, as well as
representation in foreign investment reviews under the Investment canada Act.
state-owned enterprises
In 2007, Investment Canada released
guidelines setting out supplementary considerations to qualify the net benefit criteria
where the investor is an SOE. Pursuant to the
Investment by state-owned enterprises Net
jASON GudOFSky
benefit assessment Guidelines (SOE GuidePartner
lines), the Minister will expect additional
undertakings from SOE investors. In parJason Gudofsky is a partner in Blakes competition, antitrust and foreign
ticular, the Minister will seek undertakings
investment group. He advises domestic and foreign firms on all aspects
pertaining to the corporate governance and
of competition law. He regularly provides strategic advice to firms
involved in merger and joint venture transactions, including providing
reporting structure of the SOE, how and to
risk assessments, navigating reviews through the canadian competition
what extent the SOE is owned and controlled
Bureau and, where appropriate, coordinating and working with economists
by a foreign state, and whether the Canadian
and foreign counsel. In addition to advising on mergers, Jason provides advice on all other
business to be acquired will have the ability
aspects of competition law, including in respect of strategic alliances, unilateral conduct,
to continue operating on a commercial basis.
cartel investigations and compliance matters. He has been involved in the negotiation of
From a governance perspective, the assesscomplex remedies and orders with the competition Bureau and before the competition
ment will include whether the SOE adheres to
tribunal in the context of both mergers and cartel investigations.
Jason advises foreign and canadian vendors under the Investment canada Act
Canadian standards of corporate governance,
and represents clients before the Investment review division of Industry canada
including its commitments to transparand the cultural Sector Investment review branch of canadian Heritage. He has
ency and disclosure, independent members
negotiated undertakings in a wide range of industries to secure net benefit to canada
of the board of directors, independent audit
determinations.
committees and equitable treatment of shareholders. In addition, Investment Canada
will evaluate whether the SOE adheres to
MIChAEL LAFFIN
Partner
Canadian laws and practices, as well as the
effect of the investment on the level and
Mike Laffin is a partner in Blakes energy group and chair of Blakes Asia
nature of economic activity in Canada,
region practice. He provides strategic corporate and energy advice to
including the effect on employment, procanadian and international oil and gas companies, and has extensive
duction and capital levels in Canada. From
experience negotiating, structuring, advising, and opining on all aspects
a commercial orientation perspective, the
of conventional and unconventional oil and gas matters. He has in-depth
Minister will assess whether the Canadian
knowledge of all aspects of the canadian oil sands, LnG and marketing
in canada, midstream and infrastructure issues, petroleum and natural gas joint ventures
business to be acquired will continue to have
and acquisition and divestment of assets and corporations. Mike has negotiated
the ability to operate on a commercial basis
and supervised large-scale projects related to domestic, international and offshore
with respect to: (i) where to export; (ii) where
transactions, joint ventures, take-over bids and financings. He is very involved in resource
to process; (iii) the participation of Canadians
and trade matters involving Asia.
in its operations in Canada and elsewhere;
(iv) the impact of the investment on productivity and industrial efficiency in Canada; (v) support of ongoing a shift in how investments by SOEs will be reviewed under the
innovation, research and development and; (vi) the appropriate ICA. Among various amendments to the SOE Guidelines, the
level of capital expenditures to maintain the Canadian business in government broadened the definition of what may constitute an
a globally competitive position.
SOE to include an enterprise that is owned, controlled or influenced, directly or indirectly by a foreign government. This new
policy statement and revised soe guidelines
definition, namely to include the term influence, introduces a
On December 7 2012, the Canadian government released a potentially wide expansion to what may constitute an SOE.
The proposed amendments to the ICA that were announced
Policy Statement and revised its SOE Guidelines, clarifying the
foreign investment review process in Canada and signalling on April 29 2013 expand the definition of what may constitute
>>
17
cAnAdA
an SOE. In addition to capturing foreign governments and their

agencies, the proposed definition of an SOE also includes any
entity that is controlled or influenced, directly or indirectly,
by such a government or agency, as well as an individual who
is acting under the direction of or who is acting under the
influence of such a government or agency. Unlike the concept
of control, which is defined under the ICA, the concepts of
influence and direction are potentially quite broad. Furthermore, neither term has been judicially considered under the
ICA.
In addition, the government underscored that free market
principles and industrial efficiency will be considered in reviews
of investments by SOEs. In particular, the government will
closely examine the degree of control or influence the SOE would
likely exert over the Canadian business and on the industry and,
most importantly, the extent to which the foreign state is likely to
exercise control or influence over the SOE.
Essentially, under the revised SOE Guidelines, an SOE investor
must be able to demonstrate the following commitments, which
will need to be reflected in its undertakings with the Minister:
The Canadian business must remain commercially oriented
such that decisions will be made on a commercial basis.
The Canadian business must be free from political influence.
The Canadian business will adhere to Canadian laws and
practices, including free market principles.
The investor will adopt standards and practices to promote
sound corporate governance and transparency.
The investment will lead to positive contributions on the productivity and industrial efficiency of the Canadian business.
The government also announced that foreign state control
of Canadian oil sands has reached a point at which further such
state control generally would not be of net benefit to Canada
The Minister may refer the transaction to the Governor in

Council (the executive branch of the Canadian federal government) for review. The Governor in Council then may take any
measures considered advisable to protect national security
including: (1) blocking the transaction (where the investment
has not been implemented), (2) authorising the transaction on
the basis of written undertakings or other terms and conditions,
or (3) ordering a divestiture of the Canadian business (where the
investment has been implemented).
The term national security is not defined in the ICA and
there has been some concern that the national security provisions of the ICA would not be limited to acquisitions affecting
only national defence, but possibly capture economic, infrastructural, environmental (e.g., natural resources) or other notions of
national security.
The Minister has 45 days, plus a notice period, after receiving
notice of the investment (or after implementation of the investment, if an application for review or notification is not required or,
in the case of a notification, filed in advance) to initiate national
security review. The proposed amendments to the ICA that were
announced on April 29 2013 also extend the time period during
which the Minister must make a net benefit determination in connection with an investment undergoing a national security review
by 25 days, and introduce additional flexibility for the Minister
and an investor to agree to an even longer timeline for concurrent reviews. According to the governments policy statement of
December 7 2012, the government will only use the new flexibility under the national security review timelines in exceptional
circumstances.
We are aware of only one transaction since the new regime
came into force where an investment was terminated owing to a
national security review George Forrest International Afriques
proposed acquisition of Forsys Metals and its uranium assets
in Namibia. The nature of the Ministers concerns has not been
disclosed publicly and the review, like the transaction, was never completed.
These recent transactions demonstrate that the review

process under the ICA is grounded not only in legal
considerations but also in political and economic
considerations. The investors advisory team needs to
reflect this dynamic
and, going forward, acquisitions of control of Canadian oil sands
businesses by SOEs will satisfy the net benefit test only under
exceptional circumstances. Outside of the oil sands, there are no
sector-specific restrictions on acquisitions of control by SOEs,
although all reviewable investments by SOEs will be scrutinised
closely.
national security review
As of March 2009, the Minister also may review any investment,
regardless of size, where the Minister has reasonable grounds
to believe that the investment could be injurious to national
security. In doing so, the Minister may require that the investor
provide any additional information considered necessary for the
review.
18
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enhanced transparency and

enforcement
On June 29 2012, amendments to the ICA that
are designed to increase transparency of the
review process came into force. In particular,
the amendments allow the Minister to provide
public notice of his decision to approve a reviewable transaction
or reject it on the grounds that it does not constitute a net benefit
to Canada, as well as reasons for any such provisional decision. In
addition, the amendments allow the Minister to accept security
from a foreign investor to ensure compliance with the investors
undertakings.
If an investor fails to honour its undertakings, the ICA allows
the Minister to demand that the investor comply with the undertakings or justify any non-compliance. Where the investor does
not fulfil the demand, the Minister can agree to new undertakings by the investor, or else bring an application to a superior
court for a range of remedies, including divestiture, an order
requiring compliance and a penalty of up to C$10,000 per day for
each breach.
cAnAdA
In recognition of the potentially lengthy and costly litigation process, on May 25 2012, the government issued Mediation
Guidelines, introducing a formal mediation process as an alternative to litigation where the Minister believes that an investor
has failed to comply with its commitments. The guidelines
allow the Minister and the investor to enter into an agreement
to mediate if both parties believe that mediation may assist in
resolving a dispute relating to compliance with undertakings. The
Minister then may either accept new undertakings as a result of
the mediation process, or demand that the investor comply with
its prior commitments or justify non-compliance. If the investor
fails to act in accordance with the Ministers demand, the Minister
still may initiate court proceedings. Taken together, these changes
reflect a shift towards greater transparency and more effective
enforcement under the ICA.
going forward
All non-Canadian investors need to take into account the goingforward costs of adhering to undertakings when negotiating
agreements that are subject to approval under the ICA and factor
these costs into the economics of the transaction. Vendors also
may negotiate participation rights in a transaction agreement
to ensure that SOE investors make appropriate commitments to
secure ICA approval.
Investors that propose to acquire interests in Canadian businesses involved in sensitive areas, such as uranium extraction,
technology, or possibly critical infrastructure, may face scrutiny
under the national security review provisions of the ICA, even if
those interests are not controlling ones.
In addition, and as demonstrated by recent high-profile
transactions (including BHP Billitons proposed acquisition of
Potash Corporation and LSEs proposed acquisition of TMX),
other stakeholders can play an influential role in the net benefit

determination under the ICA. These recent transactions demonstrate that the review process under the ICA is grounded not
only in legal considerations but also in political and economic
considerations. The investors advisory team needs to reflect this
dynamic.
Additional considerations for soe investors
The political concerns over SOE investment in Canada and
elsewhere have been the result of a perceived lack of transparency
of SOE motivations and doubts as to their accountability
standards, adherence to corporate and international norms and
anti-corruption protections. Concerns about SOE investment
continue to persist in the media and some SOEs might be
discouraged from investing in Canada due to the perception that
the regulatory approval process will be challenging and complex.
Investment Canada should be expected to continue to insist
that Chinese SOE investors commit to transparent corporate governance and a commercial orientation for the Canadian business
for so long as they hold a controlling interest in a Canadian
business, in addition to the standard undertakings related to
employment, capital expenditures and other undertakings, often
required of investors.
Nevertheless, as recent experience shows, these concerns
can be overcome. A well-planned government relations and
communications strategy, coordinated by counsel working closely
with the non-Canadian investor, can mitigate the likelihood of
a transaction being derailed for political reasons. Indeed, the
importance of a well-developed strategic approach to obtaining
appropriate approvals cannot be underestimated, both when
promoting the transaction and negotiating undertakings, and
securing Ministerial approval.
>>
19
SOE
(FDI) 2004 1.13
2011 109
FDI
2011 22
Daylight Energy
2011 21 OPTI
Canada 2012 12 7
151 Nexen Inc.
2012 11 11
ICA
Investment Canada ActICA
Investment Review Division of Industry Canada

-Investment Canada
ICA
Department of Canadian Heritage

(Cultural Sector Investment Review)
ICA
2012 3 (the Canadian Council of Chief Executives)

(Chinese Foreign Direct Investment in
Canada: Threat or Opportunity?)
SOE
SOE 2010
(BHP Billiton)
(Potash Corporation of
Saskatchewan)
2012 2 (Stephen Harp-

er)

18
FIPA ICA
Ed Fast201298
FIPA ICA

FIPA2012926
2012 8 15
(Economic Complementarities Study)
30

2009 Investment
Canada Regulations 2012

20
<<
2013
2009
ICA ICA
WTO WTO
3.44
610
500
2013429ICA
SOE
3.44
SOE
SOE
ICA
ICA
()
1976
Spence 1986
(Competition Bureau)
1990
(Investment Canada
Act)
(Competition
Bureau)
(Competition Tribunal)
(Investment Canada Act)
(LNG)

12 18
2007
45 SOE
30 Investment by
state-owned enterprises Net benefit assessment Guidelines
1985 SOESOE
SOE
45 SOE
ICA SOE

SOE

2013
>>
21
(i) (ii) (iii)

(iv)
(v) (vi)
45
2013429ICA
25
2012127
George Forrest International Afrique Forsys

Metals
SOE
2012127
SOE
ICASOESOE
SOE
SOE
2013429ICASOE 2012629ICA
SOE

ICA
1985
ICA
SOE
SOE

SOE
ICA
SOESOE
1
20125
25Mediation Guidelines

ICA
SOE
SOE
SOE ICA
ICA
20093
ICA

Governor in Council

1 ICA
23 ICA
ICA
ICA
SOE
SOE
SOE
22
<<
2013
SOE
SOE
SOE
2013
>>
23
GErMAny
m&A basics in germany

by Jens hrmann and Otto haberstock
p+p pllath + partners
ermany has the largest economy in Europe and is one

the worlds leading exporters of merchandise, with
exports accounting for more than one-third of the
national output. The economy in Germany is regulated by a legal
framework that is highly efficient, cost-effective and predictable,
with statutory law, instead of case law, providing a high-level of
legal certainty. The World Economic Forums Global Competitiveness Report 2012-2013 gave Germany a top-ranking in the
category of efficiency of legal framework.
Foreign investment has peaked since the financial crisis in
2008 and 2009. This is because of Germanys businesses having
shown remarkable strength, even during the Euro crisis. As
the majority of large German businesses are privately-held,
sometimes by founders or their families, the sale of these businesses triggers a search for the best possible successor.
In particular, Chinese investors have shown an unprecedented
interest in owning German-based businesses. This is mainly in
the traditional automotive and machinery industries, resulting
in some quite prominent and successful takeovers. But the challenges for Asian and especially Chinese participants in auction
sales can prove rather intense.
large degree of the parties legal relations can be based on existing

statutory German law, by which the relevant Codes provide
adequate solutions for many situations that typically occur.
For the most part, this also applies to sale and purchase agreements (SPA) in the acquisition of shares, although in recent years
the influence of Anglo-Saxon legal culture has been considerable.
However, comparatively short German-style documents continue
to prevail in many equity-financed transactions and in transactions involving medium-sized German companies.
These short German SPAs are possible since many key areas of
corporate and contract law are already covered by comprehensive
statutory laws. On issues like remedies for violation of warranties
and the calculation of damages caused by contributory negligence and delay, in general it is possible to rely on statutory law.
Consequently, the wording of the contracts sometimes gives little
guidance on practical handling issues since it is to be understood
within the context of statutory law and general legal principles.
The universal structure of German law SPAs is similar to
standards used elsewhere. Core elements of the SPA are, as in
many other jurisdictions, the purchase price and respective
share deal versus asset deal

The wording of the contracts sometimes give little
When investing in German companies, investors
guidance on practical handling issues since it is to be
can choose to buy shares in a certain target
company or its assets. Typically, share deals are understood within the context of statutory law and
seen more often. This is because asset deals are general legal principles
more complicated, as any asset to be transferred
must be specified in the agreement. In addition,
the transfer of ongoing commercial agreements with suppliers adjustment procedures. Since the subprime difficulties in 2007,
and customers from the seller to the purchaser usually requires net financial debt and working capital adjustments as of the
consent of the other contractual party. This can sometimes lead closing date, have again become more frequent. So-called locked
to the contractual party trying to renegotiate the terms and con- box mechanisms or agreements that provide for a fixed purchase
ditions of the concerned agreement. From a sellers perspective, a price that is determined based on past figures and not subject
to adjustments are still used. A second major part of an SPA
share deal is generally favourable from a tax perspective.
Situations may occur though where it is better to buy assets, concerns representations and warranties, which are comparable
for example, if the target company has filed for insolvency or if to those in other jurisdictions.
A major deviation from Anglo-Saxon SPAs is the distinction
the purchaser only wants to buy a certain business unit by way of
spin-off. An asset deal may also be advantageous for the purchaser between the sale and the transfer of shares (or assets), which are
described as two separate transactions. The sale constitutes only
from a tax perspective due to a possible step-up.
If the transaction is structured as an asset deal, the employees the obligation to transfer the share while the transfer constitutes
of the business unit concerned are automatically transferred to the actual transfer of ownership (in rem). The transfer is usually
the purchaser by operation of law. However, each employee is subject to the closing conditions, like antitrust clearance and
payment of the purchase price.
allowed to object to the transfer.
Another German peculiarity is that any German law
sale and purchase agreements
agreement involving the transfer of private limited liability shares
Commercial agreements under German law are substantially or real property must be notarised. This means that the SPA itself
shorter than Anglo-Saxon-type agreements. This is because a and any ancillary agreement and all annexes (other than lists
>>
25
GErMAny
and tables to which an exception applies) must be read aloud

by or in front of a notary. German notary fees are governed by a
mandatory non-negotiable fee schedule and are calculated on the
basis of the transaction value. They range from 10 to an approximate maximum of 55,000. The maximum usually applies to a
transaction value of 60 million or more. These fees are customarily borne by the purchaser.
types of business organisation
Private limited liability company (Gmbh)
The form of a GmbH is the most frequently used corporation form in Germany. The foundation of a GmbH, as well as
the transfer of shares, requires notarisation by a public notary.
Provided that the nominal share capital is fully paid in after the
foundation of a GmbH and is not repaid, the shareholders of
a GmbH are in general not personally liable for the companys
debts. The German Limited Liability Company Act provides for
capital maintenance rules pursuant to which it is generally prohibited to repay the nominal share capital to shareholders.
The corporate bodies of a GmbH consist of the management
and the shareholder assembly. Under German law, the managing
directors may be appointed and removed relatively easily by
the shareholders at any time they wish. In addition, to the two
mandatory bodies, the shareholders of a GmbH can opt to
implement an advisory board or a supervisory board. If a certain
number of employees are exceeded (500), mandatory labour law
requires setting up a supervisory board. The occupation and
competences of the supervisory board depend on the number of
employees (500/2000).
on the powers of representation (internally in relation to the

company) may be imposed, for example, the rules of procedure of
the management board.
The members of the supervisory board are elected by the shareholders meeting unless employee representatives are required by
mandatory law (depending on the number of employees).
The minimum stated share capital of an AG amounts to
50,000, whereby the minimum nominal amount per share is 1.
In contrast to the law governing the GmbH, the sale and transfer
of shares in an AG does not require a specific form, hence notarisation is also not required. However, according to the articles of
association, the transfer of registered shares, as opposed to bearer
shares, may be subject to the consent of the AG.
Any actions with respect to the shares in a listed AG must
comply with insider law, the violation of which regularly constitutes a criminal offence.
Partnerships
Different types of partnerships can be seen in Germany, with
the limited partnership most common, in particular a GmbH as
general partner, so-called GmbH & Co. KG.
regulatory framework
Foreign investment approvals
In addition to antitrust law, if applicable, the acquisition of
companies with offices or places of business in Germany by
investors with their seats or management outside the EU or
European Free Trade Area is partly restricted.
Since 2009, each direct or indirect acquisition of at least 25%
of the voting rights of a German company by an acquirer may
in theory be reviewed by the German Ministry of
Economics (GMoE). The Ministry will review the
Another German peculiarity is that any German law
transaction within three months from signing,
publication of the decision to make a takeover
agreement involving the transfer of private limited
bid, or the publication that control was obtained.
liability shares or real property must be notarised
If the GMoE requests the delivery of documents
relating to the acquisition, it has an additional
stock corporation (aG)
two months to issue orders or prohibit the acquisition in case it
In addition to the GmbH, the second major type of German endangers the public order or security of the Federal Republic of
corporate entity is the AG. The shares in an AG may be, but do Germany.
In case of the acquisition of a German company that manunot have to be, publicly listed. In fact, most of the German AGs
are not listed but are privately held by a smaller number of share- factures or develops military weapons, cryptographic systems or
other defence-related goods, the transaction must be announced
holders, like a large family.
The legal regime that applies to an AG is considerably stricter to the GMoE as well.
Since generally, the investment climate in Germany continues
than to a GmbH. As a rule of thumb, the articles of association
of an AG may only contain provisions that deviate from those to be very friendly to foreign investment and the regulation is
contained in the German Stock Corporation Act, if this is mainly targeted to the very few businesses relevant to national
expressly permitted. In contrast, the articles of association of a security, it has in practice never proven to be an obstacle in the
GmbH may contain any provision, unless such provision is pro- vast majority of transactions which will not be subject to any
hibited under the German Limited Liability Company Act. This review.
means the flexibility in structuring an AG is quite limited in
Public financial control
particular with respect to its corporate governance.
The three mandatory corporate bodies of an AG are the man- When acquiring publicly traded shares in German companies,
agement board, the supervisory board and the shareholders investors are subject to various regulatory requirements under
meeting. A major difference to a GmbH is that the manage- German takeover laws.
ment board is not subject to instructions from the shareholders
When acquiring or selling shares in companies admitted
meeting or the supervisory board. However, certain restrictions for trading on a regulated market and in so doing exceeding
26
<<
GErMAny
or falling below certain thresholds in

AuThOR BIOGRAphIES
voting rights (namely 3%, 5%, 10%, 15%,
20%, 25%, 30%, 50% or 75%) any investor
jENS hRMANN
must notify the company and the German
Partner
financial supervisory authority (Bundesanstalt fr Dienstleistungsaufsicht or BaFin)
Jens is a partner with P+P in Munich and specialises in M&A and private
without undue delay and at the latest, within
equity. In particular, he focuses on private equity transactions, joint
ventures as well as capital markets law. Jens studied law in Konstanz,
four trading days. A similar obligation also
Germany.
applies to warrants or financial instruments
that give an unconditional right to acquire
shares in such companies. Voting rights may
generally not be exercised if the notification
OTTO hABERSTOCk
requirement has not been complied with. The
Partner
suspension may last for six months if the notiotto is a partner with P+P in Munich. He focuses on M&A, private equity
fication was omitted due to gross negligence
and venture capital transactions, as well as general corporate law and has
or wilful misconduct.
advised private equity funds, corporations, entrepreneurs and management
Any purchaser of listed shares up to or
teams on many buy-out, investment, IPo or similar transactions. He is
exceeding the threshold of 10% must disclose
admitted to the bars in Munich and new york.
the objective of the purchase and the source of
financing to the issuer within 20 trading days.
Public tender offers are exempt from this disclosure, as well as purchases by investment companies regulated once the 30% control threshold has been met, the bidder must
under the UCITS directive. The issuer is then required to publish immediately publish the decision or announce that the control
threshold has been met. As a rule, the bidder then has a period
such disclosed information to the public.
When acquiring shares in AGs not listed on a regulated of four weeks to prepare an offer document containing the full
market and which exceed a threshold of more than 25% of the terms of the offer and to submit the document to BaFin for veriregistered share capital, the purchaser must notify the company fication. Upon approval of the document by BaFin, the bidder
must immediately publish the offer. The acceptance period that
and the company has to publish this notification.
No similar notification requirements apply to purchases of starts with the publication may not generally be less than four
weeks and not more than 10 weeks. In certain cases, the accepshares or interest in companies of other legal types like GmbHs.
tance period extends by operation of law.
tender offer
For both voluntary and mandatory offers, the consideration
to
be
offered to all other shareholders must at least be equal to the
If shares in the relevant company are admitted for trading on
a regulated market, public tender offers can be made by way of higher of:
two main types of offers, namely voluntary offers and mandatory
offers. Voluntary offers aimed at the acquisition of control over a the highest consideration that the bidder (or certain persons
related to or acting together with) has granted or promised
company are called takeover offers. As opposed to a mandatory
to pay for the acquisition of shares, during a period of six
offer which must be made to all outside shareholders upon the
months preceding publication of the offer document; or
acquisition of control in any way, other than by a takeover bid. For
example, control can be gained through an off-market purchase
of shares (block sale), purchases from the stock exchange, sub- the weighted average domestic stock market prices of the
shares during the three month period preceding publication
scription in a capital increase, or a merger.
of the bidders decision to make a takeover offer or of the
Control is established by directly or indirectly holding 30% or
bidders attainment of the 30% threshold.
more of the voting rights in the target AG. To determine whether
the 30% threshold has been met, the voting rights directly held
The consideration may be adjusted to a higher price if the
by a shareholder and certain voting rights imputed to it must be
combined. For example, voting rights that are owned by a subsid- bidder (or certain persons related to or acting together with)
iary, or by a third party for the account of the shareholder, shall acquires further shares. This can either be during the acceptance
be deemed as voting rights of the relevant shareholder. In par- period or, by way of an off-market transaction, within one year
ticular, the voting rights of a third party with whom a shareholder after the lapse of the acceptance period and for a consideration
coordinates its conduct with respect to the AG are imputed to exceeding the value of the consideration specified in the offer. An
the shareholder (acting in concert). Coordination between the exception exists for the acquisition of shares in connection with a
shareholder and a third party shall be deemed to exist in cases in statutory obligation to grant compensation to shareholders of the
which they agree on the exercise of voting rights or otherwise act target company.
Takeover offers and mandatory offers basically follow the
together with the purpose of affecting permanent and significant
same legal regime. An important deviation, however, is that
changes to the companys business approach.
Once the bidder has decided to make a takeover offer or a mandatory offer may not be made subject to conditions
>>
27
GErMAny
precedent, whereas for voluntary offers, conditions precedent

are generally permissible. In practice, voluntary offers may
sometimes be subject to the achievement of certain acceptance
thresholds in order to ensure that a certain percentage of voting
rights is obtained.
Based on the fact that a mandatory offer cannot be made
subject to conditions precedent, an attempt is often made and it is
possible, to structure the transaction in order to have a voluntary
offer rather than a mandatory offer. This may be achieved by a
combination of a private transaction comprising 30% or more of
the voting rights together with a voluntary offer.
out of the process simply because the next mandatory offer is not
delivered on time.
For bidders from countries like China, providing for a strict
system of governmental approvals for foreign investment or
currency exports, it has sometimes proven quite difficult to
obtain the respective consents and documentation within the
strict timeframe provided by the auction procedure. Since many
European sellers do consider such governmental approvals a
serious threat to the successful completion of a sale to a Chinese
investor, it is advisable to have a comprehensive overview of all
such approval requirements, a clear path on how to work through
the respective requirements and to show a high level of transpar-
private m&A procedures

The private acquisition of a company or its
business is generally not subject to regulations
Time is of the essence and a bidder may be taken out
in respect of the procedure or the conditions.
Individual contractual freedom applies here, of the process simply because the next mandatory
within the general limits of public policy and fair offer is not delivered on time
dealing.
Many businesses are being sold by way of an
auction process, typically organised by one of the domestic or ency to the sellers. This helps them understand what results can
international investment banks or M&A advisory firms. In order reasonably be expected in a certain timeframe. Many successful
to create a high level of competition and transaction security Chinese investments in Germany have already helped establish
for the seller, these auction processes follow a relatively strict an understanding for these specific items and are proof that all
schedule of different stages of due diligence and initial and con- such governmental requirements can be dealt with in a satisfacfirmatory offers. Time is of the essence and a bidder may be taken tory manner.
28
<<
Jens Hrmann otto Haberstock

p+p pllath + partners
2012-2013
20082009
10
55,0006
GmbH

-
500

500/2000
-
SPA AG

2007

2013
>>
29
3%5%10%15%20%
25%30%50%70%
jENS hRMANN
BaFin
4
JensP+P
Jens
10%
OTTO hABERSTOCk
20
OttoP+P
UCITS
25%
51

30%
30%
GmbH & Co. KG
30%
200925% BaFinBaFin
GMoE
GMoE
GMoE
GMoE

30%
30
<<
2013
30%
2013
>>
31
Bharucha & Partners was founded in March 2008 on immutable principles of professional ethics and excellence.
M. P. Bharucha , Alka Bharucha , Justin Bharucha and Vivek A. Vashi are the founding partners of the firm.
Within a span of 3 years the firm has grown to 3 offices in 2 cities with 7 partners and 38 associates. Our expertise in
corporate and commercial practice with mergers and acquisitions, banking and finance, litigation, arbitration,
capital markets and financial regulation is well recognized and we count leading international and Indian corporate
houses, banks, financial institutions and funds amongst our clients.
We advise clients on domestic as well as cross-border mergers and acquisitions having advised both buy and sell
sides on transactions structured as private arrangements or bidding processes involving listed and unlisted
corporates in diverse industries.
Bharucha & Partners offers a blend of rich
experience, creativity and the energy of youth.
Each partner has a proven track record of handling
complex commercial transactions or disputes. Each
associate has been individually groomed or
selected as sharing the qualities and vision of the
partners. Some of our most recent accolades are:
Mergers & Acquisitions

Corporate Restructuring
Joint Ventures
Private Equity
Banking
Structured Finance
Projects and Project finance
Capital Markets
Highly recommended firm in

corporate / M& A
Litigation
International and Domestic Arbitration
Intellectual Property
Telecoms
Chambers Asia- Pacific

Asias Leading Lawyers for
Business - 2011
Information Technology
Real Estate
Employment Laws
Financial Regulation
Email: sr.partner@bharucha.in
www.bharucha.in
Cecil Court, 4th floor,

M. K. Bhushan Marg
Colaba
Mumbai 400 039. India
Tel: +91 22 2289 9300
Fax: +91 22 2282 3900
Hague Building,
9, S.S. Ram Gulam Marg
Ballard Estate,
Mumbai 400 001. India
Tel: +91 22 6132 3900
Fax: +91 22 6633 3900
Enkay House,
4/48 Malcha Marg S. C.
Diplomatic Enclave,
New Delhi 110 021. India
Tel: +91 11 45939300
Fax: +91 11 4593 9399
IndIA
Investing in India: opportunities and pitfalls

by Justin bharucha and donnie dominic George
Bharucha & partners
uring the last decade, China has emerged as Indias opened in each zone of the country. India is divided into four
largest trading partner, with US$75 billion in bilateral zones, namely north, south, east and west.
A foreign investor may also open a project office if it has
trade for the financial year ended March 31 2012 and
secured a contract from an Indian company to carry out a
US$40 billion trade deficit in Chinas favour.
Paradoxically, Chinese foreign direct investment in India project in India, provided that execution of the project meets
is comparatively small at US$239 million from April 2000 to the prescribed criteria. This is an office at the project site and is
November 2012, especially when compared to investments made appropriate if the business in India is limited to executing infraby other Asian countries. For example, Japan invested US$13 structure projects. A project office cannot conduct marketing
activities nor engage in any other business development.
billion during the same period.
Opportunities exist to correct this imbalance. With the
changing environment and labour demographic in China, there investing in a company
are considerable incentives for manufacturers to set up centres in A foreign investor may also enter India by directly investing into
India, with reduced labour costs. India also estimates to spend an existing company or by incorporating a new company, effecUS$1 trillion on infrastructure development over the next five tively foreign direct investment.
years, creating many avenues for Chinese companies to invest in
The World Bank Group in its Doing Business Report 2013
and increase trade with India. The two countries are also working ranked India 173 out of 185 economies in respect of ease of
together to ensure greater Chinese investment in India to correct starting a business. As the ranking suggests, the process of
the trade deficit.
incorporating a company can be cumbersome. This is particuSome Chinese companies have already established an India larly true in cases where the company is incorporated with only
presence and are looking to capitalise on the opportunities the foreign investors. For this reason, companies are often incorpocountry has to offer. Huawei, the Chinese telecom
equipment maker, will invest US$2 billion in
India over the next four years, which includes India also estimates to spend uS$1 trillion on
setting up an R&D centre. Chinese companies
infrastructure development over the next five years,
are already implementing highway projects worth
over US$2.5 billion and this is set to increase creating many avenues for Chinese companies to
three-fold over the next few years.
invest in and increase trade with India
Chinese investments in India are treated
the same as investments from other countries.
In sectors like power, telecommunications and infrastructure, rated by Indian nationals and subsequently transferred to foreign
which have implications on national security, foreign investment investors. The transfer can be made at par so that it is tax neutral
is subject to a higher degree of scrutiny and this applies equally for all parties concerned.
to any Chinese investment in these sectors. A lot of historical
adverse perception on Chinese investment falls into this space, Foreign direct investment
but opportunities subsist and have increased.
Foreign direct investment (FDI) is administered by the RBI and
the Indian government. The government acts through various
establishing an India presence
departments including the Department of Industrial Policy and
Foreign investors can establish an Indian presence by setting up Promotion (DIPP), which formulates policy on foreign direct
a branch office or incorporating a company. The decision will be investment (FDI Policy). The FDI Policy prescribes inter alia the
percentage of investment possible in each sector, specific conbased on the specifics of the proposed business in India.
ditions to which the foreign investment is subject and whether
branch or liaison office
prior government approval is required. This is referred to as the
A branch or liaison office can be opened in India only with prior approval route or when not applicable the automatic route, which
approval from the Reserve Bank of India (RBI), unless it is estab- applies equally to external commercial borrowings.
Foreign investment up to 100% of the Indian company is
lished in a special economic zone to carry out manufacturing
or service activities. It is not possible to carry on a fully-fledged permitted in many sectors and in sectors where foreign investbusiness with a branch office, as only certain activities prescribed ment is capped, like telecommunications and insurance, prior
by the RBI are permitted. Also, only one branch office can be permission of the FIPB is required to invest in excess of that cap.
>>
33
IndIA
Only in a few sectors like lottery business, gambling and betting,

real estate business or construction of farm houses, manufacturing of cigars, cheroots, cigarillos and cigarettes, is foreign
investment completely prohibited.
FDI may be effected only through: (i) vanilla equity shares;
(ii) compulsorily convertible preference shares; and (iii) compulsorily convertible debentures. The principle is that FDI must
be effected through equity or instruments which mandatorily
convert to equity at a conversion ratio which is established at the
time of issue. In each case, the subscription or secondary acquisition of such instruments must be effected in accordance with
applicable pricing guidelines, which stipulate a floor price when
a foreign investor is the acquirer and a cap on the sale consideration when the foreign investor is selling to an Indian entity.
FDI can be effected through a wholly-owned subsidiary or
joint venture. Joint ventures and wholly-owned subsidiaries
have met with varying degrees of success. Much depends on the
requirements of the business and in a joint venture, each partys
intent to genuinely cooperate. The advantages and disadvantages
of each model are similar to those obtained in other jurisdictions
and impose restrictions on foreign exchange transactions. The
differences relate to matters of process and procedure with issues
like enforcement. The foreign investor must make the choice
based on specifics of the investment. However, in sectors where
foreign investment up to 100% of the Indian company is prohibited, setting up a joint venture is the only option.
Financial investment
A foreign investor can also choose to establish a presence in India
through financial investments. Foreign institutional investors
(FIIs) and foreign venture capital investors (FVCIs) are permitted
to make financial investments in India subject to applicable rules
and regulations.
outside India and which meets the criteria prescribed by the

Securities and Exchange Board of India (SEBI) and is registered
with it.
The SEBI is the securities market watchdog and regulates the
functioning of FIIs. It also prescribes the criteria which an entity
must fulfil in order to be registered as an FII with the SEBI.
The Portfolio Investment Scheme permits FIIs to purchase
shares and convertible debentures on a recognised stock exchange
through a registered broker. An FII can hold up to 10% of the
paid-up equity capital or paid-up value of each series of convertible debentures issued by an Indian company subject to an overall
cap of 24% on all FII holdings. However, the overall cap of 24%
can be increased up to the sectoral cap prescribed by the FDI
Policy in certain circumstances.
Foreign venture capital investors
Considering the FDI Policy, FVCIs looking to invest must be
registered with the SEBI. As with FIIs, the SEBI prescribes the eligibility criteria for FVCIs and only those entities which match the
prescribed criteria will be granted registration.
An SEBI registered FVCI is permitted to invest in: (i) an
Indian venture capital undertaking; (ii) a domestic venture capital
fund which is registered with the SEBI; (iii) in equity, equity
linked instruments, debt, debt instruments and debentures issued
by an Indian venture capital undertaking or venture capital fund
and in units of schemes and, or, funds set up by a venture capital
fund; and (iv) securities listed on a recognised stock exchange.
FVCIs are also permitted to make foreign direct investments into
Indian companies.
FVCI investment differs from FDI in that there are certain
exemptions and tax benefits available to FVCIs. However, the
FVCI route is not suitable for strategic investment.
Lending to an Indian company

Indian companies are also permitted to access offshore funds by
way of external commercial borrowings (ECBs). ECBs are heavily
regulated and the specifics of each ECB will determine whether
the permission of the RBI is required.
Companies eligible to raise ECBs can do
AuThOR BIOGRAphIES
so only from internationally recognised
sources like international banks, international
juSTIN BhARuChA ANd dONNIE dOMINIC GEORGE
capital markets, multilateral financial instiPartner and Associate
tutions, export credit agencies, suppliers of
equipment, foreign collaborators and foreign
Justin Bharucha is a partner and donnie dominic George
equity holders.
is an associate at Bharucha & Partners. Justin and donnie
Under the automatic route, the maximum
advise on transaction mandates principally relating to
amount
of an ECB is US$750 million, but for
mergers and acquisitions where foreign investors (strategic
hotels,
hospitals
and software companies, the
as well as financial investors like private equity firms) are
involved and also financing mandates including external
limit is US$200 million in a financial year.
commercial borrowings.
To raise amounts greater than the limits pretheir practice also includes corporate restructuring, corporate compliance, regulatory
scribed under the automatic route, eligible
compliance, telecommunications, structured finance, employment laws, corporate criminal
borrowers will have to approach the RBI
litigation, power and real estate.
under the approval route.
Justin and donnie have worked extensively on mandates involving chinese clients
ECBs can only be raised for a permitted
illustratively, advising reliance communications with respect to external commercial
end-use
which must be specified upfront.
borrowings availed from china development Bank and Industrial and commercial Bank of
china.
Permitted uses include import of capital
goods, funding new plant and machinery,
Foreign institutional investors

FIIs are permitted to invest in the capital of a company incorporated in India under the Portfolio Investment Scheme. According
to Indian law, an FII is an entity established or incorporated
34
<<
IndIA
or modernising and expanding an existing plant, creating real

physical assets in the hotel, hospital, and software businesses, and
most importantly, funding infrastructure projects.
ECBs cannot be raised for investment in the real estate sector
nor for working capital, general corporate finance or repayment
of existing Indian rupee-denominated credit facilities.
Chinese banks hold a significant ECB portfolio. For example,
China Development Bank has advanced facilities for over US$2
billion to Reliance Communications.
Indian Revenue assessed the value of each share at INR183/- and

accordingly raised a claim which is presently being challenged.
Employee legislation in India is cumbersome and compliance
is a big issue, especially for labour intensive businesses engaged in
manufacturing or infrastructure. Labour in India is highly politicised, which complicates matters further and low mobility of
labour and difficulties in relocating facilities are common issues.
Nonetheless, a concerted effort to streamline existing labour
laws is underway and hopefully the changes will become apparent
in the near future.
Environment protection is an increasingly important issue
and every foreign investor must ensure that the Indian company
in question complies with applicable law. This is increasingly
important in the Indian context as inadequate compliance can
have adverse consequences.
complying with Indian law

Companies in India are regulated by both the Central (federal)
and the State (provincial) governments.
Over the past few years, foreign investors in India have been
affected by the aggressive positions taken by the Indian Revenue.
The issue first arose with Vodafones acquisition
of the company that is today Vodafone India.
This US$11.2 billion transaction was structured Companies are often incorporated by Indian
offshore, where the vendor and the purchaser
nationals and subsequently transferred to foreign
were both foreign investors. However, the Indian
Revenue sought to assess the transaction to investors
income tax in India. When this levy was rejected
by the Supreme Court of India, the Indian
India offers tremendous opportunities for foreign investors
Revenue persuaded the government to amend the Income Tax
Act to assess such transaction to tax with retrospective effect from and is actively seeking foreign investment in areas where Chinese
businesses hold a market-leading advantage. However, the impor1962, when the present act was brought on the statute book.
Since then, the Indian Revenue has consistently signalled tance of carefully structuring an investment to be tax efficient and
its aggressive position, most recently by raising a claim of US$1 compliant with Indian law cannot be over emphasised. Chinese
billion with respect to an equity infusion in Shell India by Shell investment into India should ensure that these issues are considGas in 2008. Shell Gas invested INR10/- per share while the ered at inception before actually remitting capital to India.
>>
35
:
Justin Bharucha donnie dominic George
Bharucha & partners
2012331750
400
20004201211
2.39
130
20
25
(FDI)
(DIPP)
100%
(FIPB)
() ()
()
(RBI)
1

100%
(FIIs) (FVCIs)
(World Bank Group) 2013 (Portfolio Investment Scheme)

(Doing Business Report 2013)
185173
36
<<
2013
(SEBI)
10%
24%
24%
juSTIN BhARuChA dONNIE dOMINIC GEORGE
Justin BharuchaDonnie Dominic GeorgeBharucha &

PartnersJustinDonnie
()
JustinDonnieReliance Communications
() ()
()
20Reliance Communications
() ()
(Indian Revenue)
VodafoneVodafone
112
()
(Income Tax Act) 1962
()
2008 (Shell Gas) (Shell India)
10INR10/-
INR183/-
(ECBs)

7.5

2013
>>
37
the leading business

law firm
in Luxembourg
Hong Kong Representative Office

Suites 1601 - 1603, 16th Floor, Jardine House
1 Connaught Place, Central, Hong Kong
Tel: (852) 2801 5808
more than 290 legal experts offering solutions to the most

challenging legal issues across all areas of Luxembourg
business law
LuxEMBourG
Luxembourg: the gateway to europe

by stphane Karolczuk
Arendt & Medernach
uxembourg is a rather small country surrounded by

Belgium, France and Germany. At the heart of Europe,
Luxembourg has taken advantage of its position to rapidly
develop into a major European financial centre, thanks to its
flexible and secure legal and regulatory environment, an interesting tax regime including a broad network of double taxation
treaties and an international, specialised and multilingual
workforce.
Over the years, these features have attracted more than
140 international banks including Bank of China (BOC) and
Industrial and Commercial Bank of China (ICBC), which have
settled around the centre of the 1000-year-old former fortress.
Fund sponsors, including China Asset Management Company
and other well-known Chinese asset managers, have also been
attracted by Luxembourg investment funds and have created
more than 3,800 investment funds, representing approximately
2,359 billion (US$3,188 billion) to distribute their strategies to
European investors. Luxembourg is the first location for investment funds distributed on a cross-border basis. See figure 1 for
the number of funds resident in Luxembourg and assets under
management. In addition, a number of multinational companies,
including Huawei and SAIC, have decided to use Luxembourg as
their gateway to Europe and its single market.
This article aims at introducing the reader to the main opportunities available to Chinese investors and entrepreneurs to
structure their global or European strategies using Luxembourg.
It will summarise why Luxembourg is selected for its products,
services and legal solutions and why it is increasingly considered by Chinese companies, fund sponsors, service providers and
legal advisers as part of their plans to develop or invest outside
mainland China, access new markets, in particular the European
market and reach new investors on a global basis.
ucIts the best solution for retail funds
Undertaking for Collective Investment in Transferable Securities
(UCITS) is the retail fund vehicle distributed on a pan-European
basis, using a European passport. Most Luxembourg UCITS are
set up by foreign sponsors in order to be marketed to European
investors and on a worldwide basis. See figure 2 for an overview of
the origin of promoters of Luxembourg funds.
Unlike local fund structures or funds setup in offshore centres
like the Cayman Islands or the British Virgin Islands (BVI),
Luxembourg UCITS are widely accepted by a large number of
investors and distributors not only in Europe, but also in the
Middle East, South America and Asia, where they represent a significant portion of funds distributed.
Figure 1: Funds resident in Luxembourg and assets under management
(Source: ALFI/cSSF 2013)
billions
No. of funds/units
16000
Funds
Units
3000
Net assets
14000
2500
12000
2000
10000
8000
1500
6000
1000
4000
500
2000
0
90
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 Feb 13
>>
39
LuxEMBourG
Figure 2: Origin of promoters of Luxembourg funds

(Source: ALFI/cSSF 2013)
Sweden 1.9%
Luxembourg 2%
region. Furthermore, they are eligible investments in the PRC

under the Qualified Domestic Institutional Investor (QDII)
scheme.
Others 6%
non-ucIts regulated funds

Luxembourg offers a wide array of vehicles for investment in asset
Belgium 5%
classes or the implementation of strategies which are not eligible
for UCITS (for example, hedge funds, real estate, funds of funds,
France 7.2%
and private equity strategies). Regulated structures include Specialised Investment Funds (SIFs), investment companies in risk
Italy 7.8%
capital (SICARs) and, to a lesser extent, Undertakings for Collective Investment (UCIs).
A SIF is a regulated vehicle dedicated to institutional, profesGermany 15.8%
sional and other sophisticated investors, such as a high net worth
UK 14.1%
individual (HNWI).
This investment vehicle provides a flexible framework to
Switzerland 14.8%
diverse investment types and strategies like hedge funds-, real
estate funds- and private equity funds-like strategies, while at the
UCITS are subject to a harmonised legal framework and same time ensuring a cost and time efficient fund set up.
SIFs are not subject to quantitative investment restrictions
benefit from a European passport, which makes those funds
freely marketable throughout the European Union (EU) from and such flexibility allows them to combine investments in
Luxembourg and subject to a simplified notification procedure. private equity with other strategies, for example investments in
Outside of the EU, Luxembourg UCITS need to be registered with listed companies or derivatives.
Risk diversification must be ensured at all times (following
local regulators for public distribution, but are recognised and
the initial portfolio build-up phase), and not more than 30% of
therefore often benefit from a fast track registration procedure.
Pursuant to UCITS rules, UCITS funds may only invest, the SIFs assets or commitments may be invested in securities of
subject to specific conditions, in certain eligible assets. In addition the same type issued by the same issuer.
SIFs may invest up to 100% of their net assets in a diversified
to restrictions applicable to the eligible assets into which they can
invest, UCITS are also subject to certain liquidity and diversifica- portfolio of A-shares, up to 100% of their net assets in a diversified portfolio of Dim Sum bonds and they may also invest up to
tion requirements.
100% of their net assets in one single Hong Kong
domiciled RQFII fund, subject to certain condiOne important question Chinese companies should
tions. This flexibility, together with the European
consider is whether a new investment should be
passport that will be available to AIFMD
compliant alternative investment fund managers
made directly from China or whether it would be
(AIFMs) (see below), will create unprecedented
more efficient to use Luxembourg as an entry point to
opportunities for Chinese asset managers to
Europe
access the European market.
The SICAR has a similar investor profile
Asset managers having a greater China focus may consider to the SIF, catering exclusively to well-informed investors. It is
using UCITS to gain exposure to Chinese assets directly through specifically designed for private equity, as it aims at directly or
the Qualified Foreign Institutional Investor (QFII) scheme, indirectly contributing assets to entities in view of their launch,
subject to certain limitations. Or indirectly using financial development or listing on a stock exchange, without being subject
derivative instruments, or by investing in offshore renminbi to the risk-spreading requirements applicable to SIFs.
(CNH) denominated securities (like Dim Sum bonds listed on
a stock exchange or traded over-the-counter in Hong Kong) or the Alternative Investment Fund managers directive
Hong Kong domiciled Renminbi Qualified Foreign Institutional (AIFmd)
Investor (RQFII) funds. With the relaxation of the QFII rules in Certain of the investment vehicles referred to above (other than
the Peoples Republic of China (PRC), possibly the opening of the UCITS) will in the near future be impacted by an important
RQFII scheme to structures other than Hong Kong domiciled European regulation, called the AIFMD. The goal of the AIFMD
funds, and the expected free convertibility of renminbi, one is to further strengthen investor protection by setting higher
may expect that in the short term future, UCITS will have even standards for transparency, valuation, appropriate risk and
better access to Chinese products, making it even easier for asset liquidity management, as well as the disclosure and management
managers from that part of the world to market their products to of conflicts of interests among fund decision-makers.
European, Middle-Eastern, South American and Asian retail and
The possibility to distribute offshore funds to EU investors
institutional investors.
will be greatly impacted by the AIFMD as: (i) private placement
Luxembourg UCITS are distributed in the entire Asia Pacific exemptions will be restricted or even abolished in certain
Netherlands 2%
40
<<
US 23.4%
LuxEMBourG
jurisdictions and (ii) funds will have to comply with certain

requirements, which will be technically and legally challenging
for traditional offshore funds such as Cayman Islands funds or
BVI funds.
AIFMs will receive a passport allowing for pan-European
marketing of investment vehicles complying with the AIFMD.
This passport will create unprecedented opportunities for Chinese
asset managers to access the European market. It is expected that
Luxembourg will take advantage of its expertise in UCITS funds
and its existing fund servicing infrastructure to service new AIFs
and AIFMs under the AIFMD and thus strengthen its reputation
as the gateway to Europe.
tax aspects
Besides investment funds, Luxembourg is widely used as a
middle jurisdiction for tax optimisation purposes. One important
question Chinese companies should consider is whether a new
investment should be made directly from China or whether it
would be more efficient to use Luxembourg as an entry point to
Europe. The use of Luxembourg as a holding company location
may offer substantial tax advantages to Chinese companies
making outbound investments. Luxembourg has long been recognised as a prime location for setting up holding companies. The
well-known socit de participations financires (SOPARFI) refers
to ordinary, unregulated, fully-taxable Luxembourg resident
companies whose main activity is the holding of shares benefiting
from the participation exemption.
From a tax perspective, a SOPARFI is subject to the common
tax system in Luxembourg. Since SOPARFIs are tax residents
subject to corporate income taxes, they benefit from Luxembourgs double tax treaty network, as well as from the European
Directives, including the EU Parent-Subsidiary Directive.
The main advantages of using a Luxembourg SOPARFI as an
intermediate holding company may be summarised as follows:
Luxembourg has entered into 64 comprehensive double tax treaties based on the
OECD model tax convention on income
and capital in order to avoid or reduce the
domestic withholding taxes and the risks
of double taxation.
In the Asian market, Luxembourg is
actively building relationships with 11
double tax treaties entered into with various
Asian countries or regions (including the
PRC, the Hong Kong Special Administrative Region, India, Indonesia, Japan,
Malaysia, Mongolia, Singapore, South
Korea, Thailand and Vietnam).
By virtue of the European Directives (the
EU Parent-Subsidiary Directive relative to
dividend payments and the EU Interest
and Royalty Directive), dividend, interest
and royalty payments made by an EU
company to a Luxembourg SOPARFI are
fully exempt from domestic withholding
tax, under certain conditions.
There are no or only low taxes upon exit and repatriation of

proceeds to investors. Luxembourg does not levy withholding
tax on liquidation proceeds or on interest paid by a Luxembourg SOPARFI to its corporation shareholders. Profits
distributed to corporation shareholders are generally exempt
from dividend withholding tax under Luxembourg law
(subject to certain conditions) and the tax treaty concluded
between Luxembourg and Hong Kong.
Luxembourg SOPARFIs can benefit from the participation
exemption, which fully exempts dividend income, liquidation
proceeds and capital gains realised on the disposal of shares
to the extent that certain conditions are fulfilled. Qualified
shareholdings in eligible subsidiaries are also exempt from
net worth tax and losses realised on the disposal of shares and
are always deductible. In comparison with foreign participation exemption regimes, the Luxembourg regime is generally
acknowledged to have less stringent conditions.
Luxembourg domestic tax laws further provide for an attractive intellectual property (IP) regime with exemptions of up
to 80% on the income and gains generated by IP rights and
no withholding tax on royalty payments whatever the beneficiary of the income may be.
There is no capital duty on capital contributions and no controlled foreign corporation rules in Luxembourg.
A Double Tax Treaty (DTT) between Hong Kong and Luxembourg allows a tax efficient repatriation of profits and cash from
Europe, via Luxembourg, to Hong Kong and China, without
incurring additional tax costs.
One of the main benefits of the DTT is the possibility for a
Luxembourg company to distribute dividends to the Hong Kong
parent company free of withholding tax. In particular, provided
that the Hong Kong company holds at least 10% of the share
capital in the Luxembourg company or has invested at least 1.2
million in the acquisition of shares in the Luxembourg company,
AuThOR BIOGRAphy
STphANE kAROLCzuk
Head of Hong Kong office
Stphane Karolczuk is head of Arendt & Medernachs representative
office in Hong Kong, where he advises clients based in the Asia Pacific
region regarding their Luxembourg legal and regulatory questions.
As a senior associate of the investment funds practice, Stphane
also advises international clients on all issues relating to investment
funds, such as the structuring, registration, marketing, public offering and
listing of Luxembourg and foreign investment funds. He also advises and assists clients
in relation to the selection and setting-up of investment structures, drafting of contractual
and marketing documentation, and liaises with the Luxembourg financial regulator, the
commission de Surveillance du Secteur Financier (cSSF) and the Luxembourg Stock
Exchange in relation to such matters.
From September 2007 to January 2009, Stphane was seconded to Arendt &
Medernachs representative office in new york in view of developing an investment
management helpdesk advising uS clients in relation to Luxembourg investment funds
questions. He has been permanently based in Hong Kong since September 2009.
Stphane graduated from the university of Brussels (Belgium) and the university of
Ghent (Belgium). He is admitted to practice in Hong Kong as registered foreign lawyer, as
well as in Luxembourg and Brussels.
>>
41
LuxEMBourG
Figure 3: Country of origin of

Luxembourg banks
Andorra 2
Qatar 3
Portugal 3
Israel 3
Brazil 3
Others 11
Germany 37
Netherlands 4
China 4
Luxembourg 5
Japan 5
US 6
France 14
Belgium 6
Sweden 8
Switzerland 11
UK 8
and EMIs to conduct business on the basis of their Luxembourg

authorisation within other EEA countries (Member States of the
European Union as well as contracting parties to the European
Economic Area Agreement) via a branch or on a cross-border
basis provided that the credit institution or EMI has complied
with a notification procedure, the European passport.
Foreign banks may establish themselves in Luxembourg by
setting up a branch or a subsidiary. A dual establishment setup
with one subsidiary and one branch in Luxembourg enables
non-EEA banks to benefit from two advantages linked to the
characteristics of, and the rules applicable to, subsidiaries and
branches:
-
Italy 9
a subsidiary authorised as a credit institution may benefit

from the European passport and can thus freely conduct
business activities in other EEA countries (whereas a branch
of a non-European bank is not allowed to do so);
the branch allows financing to be directly sourced from the
credit institution in the home country. The subsidiary in Luxembourg therefore does not necessarily need to be highly
capitalised since all financing may pass through the branch.
the Luxembourg dividend withholding tax rate on dividends

repatriated to the Hong Kong parent company is reduced to
zero percent. In other cases, the dividend withholding tax is 10%
pursuant to the DTT.
credit institutions and electronic money institutions

By establishing themselves in Luxembourg, foreign banks
or credit institutions can benefit from an access point to the
European market using the European passport, as well as provide
their local clients with a portal dedicated to European investments (see figure 3).
Two Chinese banks are currently established in the territory
of Luxembourg, namely BOC and ICBC.
Under Luxembourg law, credit institutions are all-purpose
banks (universal bank principle). This means that they can
provide all the traditional banking services like acceptance of
deposits and other repayable funds, lending activities, issuance of
electronic money, all investment and other financial services such
as management of assets, investment advice, or other services
falling within the scope of the law on the financial sector.
Both credit institutions and EMIs are subject to a largely

similar authorisation process. The authorisation is granted by the
Minister of Finance upon written application, after due examination by the Luxembourg regulatory authority, the CSSF. In
practice, the authorisation of the Minister of Finance may be
obtained within a short time period. From a tax perspective, a
low effective tax rate may be achieved with an appropriate tax
planning.
other advantages of Luxembourg

Luxembourg is a prime location for setting-up holding, financing,
leasing, IP and trading intermediary vehicles. It has also developed
an export-driven industry and enjoys a high level of cross-border
trade, investment and employment.
Luxembourgs competitiveness and flexibility have already
attracted recognised multinational companies
like Amazon, Arcelor Mittal, China Airlines,
A double Tax Treaty between hong kong and
Dupont de Nemours, Ferrero, Procter & Gamble,
Luxembourg allows a tax efficient repatriation of
SES, Skype, iTunes, Huawei and SAIC.
In addition, many key international logistics
profits and cash from Europe, via Luxembourg, to
providers
are located in Luxembourg, like Kuehne
hong kong and China, without incurring additional
+ Nagel and Panalpina. The Luxembourg governtax costs
ment has in fact notably developed a logistics
hub, offering efficient access to cargo railways and
For foreign banks wishing to issue electronic money for highway connections throughout Europe, from the North Sea to
online payments, for example of goods or services, the lighter the Mediterranean Sea. Luxembourg has also recently announced
regime applicable to electronic money institutions (EMIs) may the creation of a free trade zone near the airport.
Considering the advantages available to HNWIs with regard
be an option. A specific authorisation is nonetheless required for
mortgage banks. For the purpose of this article, the regime appli- to the structuring of their global wealth or the European portion
thereof, from an asset protection, diversification and estate
cable to mortgage banks will not be further discussed.
Luxembourg rules regarding credit institutions and EMIs planning perspectives, Luxembourg offers well-tested structures
derive from European rules laying out a global framework that are tax efficient and at least tax neutral. The SOPARFI and
for financial services throughout Europe. This harmonised the SIF, in particular, do provide for a number of advantages to
framework allows, in particular, Luxembourg credit institutions structure Chinese HNWIs assets, from Hong Kong or Singapore,
(for example the Luxembourg subsidiary of a Chinese bank) for example.
42
<<
LuxEMBourG
Similarly, the Family Wealth Management Company (SPF) is

an investment company dedicated to the management of private
wealth for individuals and intermediary vehicles acting exclusively for the management of the private assets of an individual or
a group of individuals.
Life insurance products are also used to transfer ownership
of the assets underlying the policy to the insurance company.
Insurance products benefit from tax advantages, a favourable tax
treatment and from broad international tax recognition.
For listings, the Luxembourg Stock Exchange (LuxSE) is today
the principal centre for the listing of international securities. It
currently lists around 45,000 securities, out of which 30,000
bonds represent 42% of the total international bonds listed on
EU markets. This makes LuxSE the first listing venue for international bonds.
Over the years, the Luxembourg finance industry has
developed a broad range of financial products, services and legal
solutions for banks, financial service providers, fund sponsors and
multinational companies. This has resulted in them often selecting
Luxembourg as their gateway to Europe and intensively using
Luxembourg investment vehicles to reach investors worldwide.
With the opening of the Chinese economy, opportunities are
becoming more available to Chinese companies or fund sponsors
wishing to structure outbound investments of Chinese capital
or set up investment structures marketable to the rest of the
world.
>>
43
stphane Karolczuk
Arendt & Medernach
23590318803800
UCITS
UCITS
UCITS
UCITS
UCITS
UCITS
UCITS
UCITSUCITS
UCITS
QFIIUCITS
RQFII
QFIIRQFII
UCITS
1 (ALFI/CSSF 2013)

16000
3000
14000
2500
12000
2000
10000
8000
1500
6000
1000
4000
500
2000
0
90
44
<<
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
2013
2 (ALFI/CSSF 2013)

UCITS
(ii)
AIFMAIFMD
UCITS
AIFMDAIFAIFM
SOPARFI
SOPARFI
SOPARFI
SOPARFI
UCITS
UCITS
SIF
SICAR
64
UCI
SIF
11

SIFSIF
SOPARFI
SIF
30%
SOPARFI
SIF100%A
100%RQFII
AIFMD
AIFM SOPARFI
SICARSIF
STphANE kAROLCzuk
SIF
Stphane KarolczukArendt & Medernach
AIFMD
UCITS
AIFMD
AIFMD(i)
Stphane
CSSF
2007920091StphaneArendt & Medernach
2009
9
Stphane
2013
>>
45

80%
10%120
10%
EMI
3

EMI
CSSF
(Amazon)(Arcelor Mittal)
(Dupont de Nemours)(Ferrero)
(Procter & Gamble)SESSkypeiTunes
Kuehne + NagelPanalpina
SOPARFISIF
EMI
SPF

EMI
LuxSE
45,000
30,00042%
LuxSE

46
<<
2013
asialaw
A well respected
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Visit: www.asialaw.com/AIHC13 Email: karen.ko@euromoneyasia.com
Call: +852 2912 8038
G. ELIAS & CO.
(Solicitors and Advocates)
Founded in 1994, we are one of Nigerias

leading business law firms.
We have an international outlook and an outstanding record of carrying out critical, innovative
and complex work to the highest standards. We are a firm of twenty-three lawyers and three
partners. We offer a wide range of services to business enterprises (whether controlled by private
sector or by public sector owners) in respect of transactions, advisory work, regulatory work,
litigation and arbitration.
Traditionally, our diverse clients have included upstream oil companies, financial institutions,
producers of branded consumer goods and services and information technology and
telecommunications companies. More recently, both the Nigerian economy generally and our
client lists have seen significant growth in the number of local, regional and global participants in
the transport, real estate development and food products sectors.
Our clients range from foremost global multinational enterprises to a number of ambitious, homegrown fledglings. We have and maintain numerous contacts in Nigerian business and government
circles, and with law firms and lawyers organizations based both in and outside Nigeria.
We aim to do the most complex, critical and innovative work of serious business clients, whether
the clients are young or old, local or international, famous or self-effacing, big or small. Our
paramount aim is absolutely always to offer our clients service of the very highest quality. We are
known for our sensitivity to clients business needs and concerns and promptness in responding to
and executing their requests in dealing with business law assignments of every complexity,
magnitude and novelty.
Our areas of specialty include:
Banking: Non-recourse project financings, secured syndicated lendings, note Issuance facilities,
securities lending and repurchase transactions, acquisition and asset financings and Public sector
support scheme financings.
Corporate: Mergers, asset acquisi tions, shares acquisitions, divestitures, corporate
reorganizations and strategic investments.
Capital Markets: Initial public offerings, global depository receipts, bond programmes, mandatory
regulatory recapitalizations, securitizations and structured debt offerings and managed funds.
Commercial: Property acquisition and development agreements, turnkey construction
agreements, intellectual property registrations and assignments, oil block acquisition and
operation agreements, distribution agreements and gas and electric power sales agreements.
Contentious Work: Disputes relating to banking, capital markets, tax, shipping, petroleum,
employment, marketing, trademarks and intellectual property.
Contact details:
Address: NCR Building, 6 Broad Street, Lagos, Nigeria
Telephone: +234 1 2806970-1
Fax: +234 1 2806972
Email: gelias@gelias.com
Website: www.gelias.com
Contact Person: Fred Onuobia
nIGErIA
commencing investment into nigeria

by Fred Onuobia, Olajumoke arowolo and Oluwatoyin Odewole
G Elias & Co
he expansion of several sectors of the Nigerian economy

has seen more foreign investors in the market. Investors
are eager to participate and make profit, but they are also
aware of the importance of sound legal advice in the success of
such a venture. There are certain key considerations any foreign
investors should think about when investing in Nigeria.
operating in that industry to give first consideration to Nigerians

for employment in any project to be executed by a company in
the sector. In addition, oil and gas companies must apply to the
local content regulator, prior to applying for an expatriate quota.
Further, expatriates may hold no more than 5% of the management positions of an oil and gas company.
establishing an enterprise
Foreigners may fully own, invest and participate in Nigerian
companies, except enterprises relating to the items on the negative
list like production of arms and ammunition, narcotics and psychotropic substances, military, paramilitary, police, customs,
immigration and prison service uniforms and accoutrements.
A foreign company, however, cannot do business in Nigeria
directly. It must incorporate a local company in Nigeria. There
are certain exemptions though under the Companies and Allied
Matters Act of 2004 (CAMA). These exemptions include where
the foreign company is invited to Nigeria by the federal government to execute any specified individual or loan project,
or as an engineering expert engaged on an individual specialist project. The new company must then be registered with the
government approval for finance

If the company intends to import capital, it will also require a
Certificate of Capital Importation (CCI). If a transfer of technology is involved, the company has to obtain the approval of
the National Office for Technology Acquisition and Promotion
(NOTAP) for remittances of fees payable under the contract.
The income taxes, capital gains taxes and value-added tax (VAT)
chargeable on Nigerian-controlled companies are also chargeable
on foreign-controlled companies.
There are a number of fiscal incentives for foreign investors.
Some of these include, relief against double taxation, a waiver
of income tax on loan interest for loans with a moratorium of at
least two years and the rule that withholding tax is the final tax on
investment income for non-resident foreigners. Companies with
at least 25% imported equity capital are exempt
from the minimum tax requirement. Generally,
the taxes and other levies that apply to local
The Nigeria Investment promotion Commissions
investors and companies also apply to foreign
investors: income taxes (corporate and personal),
prevailing practice is to decline to register businesses
capital gains tax, VAT and stamp duties.
in which foreigners do not invest at least uS$300,000
Nigeria has bilateral investment treaties with
Algeria, Bulgaria, China, Egypt, Finland, France,
Germany, Jamaica, Korea, Democratic Peoples
Nigeria Investment Promotion Commission (NIPC), before Republic of Korea, Italy, Montenegro, the Nether- lands, Romania,
it commences operations. Where applicable, sector-specific Serbia, South Africa, Spain, Sweden, Switzerland, Taiwan, Turkey,
licences, like for petroleum and telecommunications should be Uganda and the United Kingdom. Nigeria also has double tax
applied for. A foreign-owned vessel for instance, cannot engage agreements with the United Kingdom, the Netherlands, Canada,
in business in Nigerias inland waters without prior consent of the Belgium, Romania, France, Pakistan, South Africa and the Philminister for transport. The Nigeria Investment Promotion Com- ippines. Nigeria is also a signatory to the International Centre
missions prevailing practice is to decline to register businesses in for Settlement of Investment Disputes (ICSID) Convention. The
guarantees against expropriation that are set out in these treaties
which foreigners do not invest at least US$300,000.
do not appear to add significantly to those granted in the 1999
Foreign employees and immigration requirements
Constitution of Nigeria.
Apart from money laundering restrictions (no more than
If the company intends to employ foreigners for its operations in Nigeria, the company must comply with immigration US$5,000 in cash) and disclosure requirements, both Nigerians
requirements under applicable law. Every foreign employee from and foreigners are free to bring foreign currency into Nigeria.
outside the West African economic community requires a visa. Both foreigners and Nigerians can buy or sell foreign currency
Companies that employ more than one expatriate will need an only from or to companies licensed by the Central Bank of
expatriate quota. In either case, evidence that a Nigerian cannot Nigeria (CBN) to deal in foreign currency.
Investors are free to bring foreign currency into Nigeria,
readily be found to do the work in question needs to be shown.
The new oil and gas local content legislation requires companies subject to applicable money-laundering regulations. As to
>>
49
nIGErIA
AuThOR BIOGRAphIES
FREd ONuOBIA
Managing partner
Fred is the managing partner of G Elias & co, a leading law firm in nigeria.
He has over 20 years of experience in corporate and financial work for
both private and public sector clients.
Some of his experience in project finance includes advising on the
syndicated financing of expansion and rehabilitation works on the Lekki
toll road concession (nigerias pioneering toll road concession), the
concession agreement for a monorail at tinapa (as lawyers to the financiers) and the
syndicate of lenders on the Lagos airport terminal development (nigerias pioneering
airport terminal concession). Fred onuobia acted as lenders advisor.
He holds a Master of Laws degree from university college London.
OLAjuMOkE AROwOLO
Associate
olajumoke holds a Master of Laws degree from the university of durham, England. She
has considerable experience in project finance work. She was actively involved in the legal
review of financing documentation in several of our project finance transactions. recently,
she advised on a lending for the operation and maintenance of several oil mining leases in
nigeria. She is now working on another lending, advising on financing for the acquisition
of an oil and gas acreage.
acreage or a mortgage of a telecommunications licence) will need to get approved as

the sector-specific provisions warrant. In
addition, documents that create security over
assets will need to be registered.
Project finance transactions almost always
involve the importation of project equipment.
Import duty may be payable at rates that
vary from goods to goods. If the equipment
is imported to form part of the equity in the
Nigerian business, a CCI will be needed for
it if future proceeds on it are to be repatriated. If the equipment requires registration in
Nigeria, it will have to be so registered.
Financing and security

Nigeria is a common law country with many
of the usual features that one would expect to
see in such a country. For high-budget project
financing, debt financing is always an option.
All property, including bank balances, future
property and intangible property like licence
OLuwATOyIN OdEwOLE
rights can be used as collateral. However,
Associate
securing the debt can be a challenge for a
oluwatoyin is an experienced member of the firms project finance and corporate
newly-incorporated company. The type of
commercial team. She holds a Master of Laws degree from the university college
collateral asset and the type of borrower
London. She is experienced in corporate finance and oil and gas transactions and has
(company, government or individual) deteradvised on a number of the firms oil and gas sector transactions. these include the
mines the appropriate perfection regime for
uS$850 million financing by a leading bank in the uK and the uS$158 million financing
by a leading nigerian bank to two different oil and gas companies in nigeria for the
security.
acquisition of certain oil and gas acreages.
When a mortgage is created over
immovable property, the security document
must be perfected at the government lands
registry
where
the
property is situated, if the security interest
controls, remittances can be made only if one has either a CBN
special authorisation to remit money or a routine Certificate of is to bind future bona fide purchasers of the land. Perfection of
Capital Importation (CCI) issued by a Nigerian bank when the security over land is a threefold process: stamping; obtaining the
capital in question first entered Nigeria. There are no fees or taxes consent of the governor of the state where the land is situated
payable on remitting money from Nigeria other than usual com- and; registration at the government lands registry.
Companies must register most charges created over their
mercial bank service charges.
Since 1995, both foreigners and Nigerians have been free to assets at the Corporate Affairs Commission in Abuja (CAC)
bring in capital in cash or in kind and to repatriate in foreign within 90 days of the creation of such charge. Charges attract ad
currency (to be purchased from CBN-regulated markets) capital valorem stamp duty and registration charges. Where such a charge
and income proceeds on such capital, as long as a Nigerian is registrable but unregistered, it will not be effective against
bank issues a CCI when the capital first entered
Nigeria. Usual commercial bank service charges
The guarantees against expropriation that
apply to issuances of CCIs. CCIs cost less than
US$5. The NOTAP application fee is fixed from are set out in these treaties do not appear to
time to time by NOTAP. The current fee payable add significantly to those granted in the 1999
is dependent on the value of the contract to be
Constitution of Nigeria
registered, but the minimum is US$667.
Non-resident investors are required to
register their investments with the NIPC for statistical purposes. the companys other creditors in the event of the companys
Any technology transfer contracts, for example, intellectual insolvency. Where a charge is created over land belonging to a
property licences and technical support contracts must be reg- company, in addition to perfection at the relevant lands registry,
istered with NOTAP. All project and finance documents must the charge must also be registered at the CAC.
Not all security interests are registrable. For example, charges
also be stamped. Those documents that need to be filed with or
approved, or both, by regulators under sector-specific statutes and mortgages over receivables (including book debts), goods
(for example, a document assigning an interest in petroleum and land are registrable while pledges of goods created by the
50
<<
nIGErIA
delivery of possession and charges or mortgages over shares are

not registrable. There are some other asset-specific registration
regimes. For instance, a mortgage over a ship must be registered
with the Registrar of Ships and a mortgage over trademarks must
be registered with the trademarks registry. There are bills of sale
registers for mortgages of goods in some states.
Priority is determined by factors like the asset type, the type
of interest created (legal or equitable), the time of creation of
the interest and time of registration of interest. Priority depends
primarily on the time of creation, with older security interests
ranking ahead of more recent ones. Where registration is
required, priority depends primarily on the time of registration:
the first security interest to be registered will have priority, except
that competing security interests created by companies and registered within 90 days of creation will have priority according to
their actual dates of creation.
There are two noteworthy exceptional rules: a floating charge
will rank after a fixed charge created prior to the crystallisation of
the floating charge and; a purchase money security interest will
have priority over other charges on the same asset.
Ways of minimising perfection tax include structuring the
security as security over an asset that attracts less tax, for example,
having a security over a company that holds land rather than over
the land itself, or perfecting the security for only a part of the sum
advanced. This second option has become popular. A corporate
trustee, but not a mere agent, may hold collateral on behalf of
the project lenders as the secured party. In the event of the bankruptcy of the trustee, the collateral will not form part of the assets
of the trustee.
Usually, prior to investing in a project, a lender assures itself
of the absence of any interest in the secured assets that will
rank prior to the interest of the lender. A legal due diligence
inquiry can be conducted on the borrower. Depending on the
type of borrower and the collateral, a search may have to be
conducted at both the lands registry, CAC and other relevant
registries. It is also advisable to procure that the borrower makes
a representation and warrants in the financing documentation to
the effect that there are no existing liens or encumbrances on its
assets.
However, a lender cannot completely eliminate the risk that
there may be prior security interests, because there are security
interests that are not required by law to be registered like charges
over shares and pledges of goods, and prior registered interests
may not be disclosed in the course of a search, owing to administrative lapses at the relevant registry.
enforcement of collateral
Project lenders main enforcement methods outside bankruptcy
proceedings are to exercise their step-in rights under a direct
agreement, sale, take possession, appoint a receiver and foreclosure. Self-help, as such, is not allowed.
To enforce a mortgage, a lender must have served a notice
requiring payment of the sum due. In practice, the document
creating the mortgage contains provisions stating the period of
time that must lapse before the power of sale would become exercisable. Where the security documents contain a power of sale,
the lender can exercise the power of sale without recourse to
court. A court order is required where there is no power of sale in

the registered security documents.
A sale may be by private treaty, by auction or by tender.
Project lenders may participate as buyers in a sale as long as the
sale is conducted at arms-length and in good faith. A sale by
secured creditors may be made in foreign currency.
A bankruptcy proceeding in respect of the project company
also affects the ability of a project lender to enforce its rights as
a secured party over the collateral. A lenders security interests
in the collateral will survive the borrowers bankruptcy, where
those interests are fully perfected against the borrowers creditors,
especially by registration at the CAC, in the case of a company
borrower.
The claims of foreign creditors rank pari passu with the
claims of local creditors. In bankruptcy proceedings, preferential creditors rights for tax debts, employees wages or claims
and deductions have priority over the claims of floating charge
holders in so far as assets of the company available for payment of
general creditors are insufficient to meet them.
If a company concludes a transaction and a winding-up order
is made in respect of such company within three months from
the conclusion of the transaction, the transaction, if challenged
by the insolvent companys liquidator, may be regarded as invalid
and reversed.
Accounts and repatriation of proceeds
Project companies may open and operate foreign currency
accounts with both Nigerian banks and foreign banks. However,
a project company exporting goods must open and maintain a
foreign currency domiciliary account with a Nigerian bank.
Export proceeds must be paid into such an account within 90
days from the date of shipment of the goods. Thereafter, the
proceeds may be freely repatriated. There is no requirement that
the foreign currency in such accounts must be converted to local
currency.
government authorities and regulatory agencies
The leading federal government agencies with authority over
projects in the typical project finance sectors are as follows:
Oil and gas: Ministry of Petroleum Resources, Department of

Petroleum Resources and the Nigeria Sao-Tome Joint Development Authority Zone
Power generation and transmission: The Ministry of Energy
and the Nigerian Electricity Regulatory Commission
Maritime: Ministry of Transport, Nigeria Maritime Administration and Safety Agency, Nigerian Ports Authority and
Nigerian Inland Waterways Authority
Rail: Ministry of Transport and Nigeria Railway Corporation
Road: Ministry of Works and the Federal Road Management
Agency
Telecommunications: Ministry of Information, Ministry
of Communications and the Nigerian Communications
Commission
Airports: Ministry of Aviation and Nigerian Civil Aviation
Authority
Water resources: Ministry of Water Resources
>>
51
nIGErIA
The agencies have rule-making, decision-making and enforcement powers in the relevant sectors and industries. They have the
power to issue and revoke licences and licences cannot be assigned
without their consent. Their supervising ministers make policy
and do not do regulatory work on a day-to-day basis. However,
the Ministry of Water Resources is itself the water regulator.
The Federal Infrastructure Regulatory Commission has the
power to take custody of concession agreements in all sectors and
ensure compliance with the provisions of the act that establishes
it. Until quite recently, the ownership in these sectors was entirely
held by the state. In recent times, many government-owned
enterprises have become privatised and commercialised with
concessions being granted to the private sector, particularly in the
transport sector. Water is still almost entirely owned by the state.
52
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There are some state-level agencies. For example, the Lagos

State Roads, Bridges and Highways Infrastructure Board is the
best-developed transport regulator in the country, but it has no
power outside Lagos State.
The preceding paragraphs briefly outline the key
considerations that should be of interest to foreigners who
intend to invest in Nigeria. Besides the incorporation of the
company locally, certain sector-specific registrations, usually
with the government regulatory agency, depending on the
sector in which the company intends to operate, may need
to be undertaken. Finally, it is advisable to seek professional
legal advice in all cases as the peculiarity or structure of a
transaction may make certain requirements mandatory and
others optional.
Fred onuobiaolajumoke Arowolo oluwatoyin odewole

G Elias & Co
2004
CAMA
NIPC
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CCI
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FREd ONuOBIA
FredG Elias & Co

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Fred
Lekki
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OLAjuMOkE AROwOLO
Olajumoke
CAC
CAC

CAC

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OLuwATOyIN OdEwOLE
Oluwatoyin
85
158
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270
WongPartnerships reputation as a leading provider of regional and

international legal services in the Asia Pacic is forged on the back
of our dynamic energy and ability to respond to clients' needs. We
have over 270 lawyers with ofces in Singapore, Abu Dhabi, Beijing,
Doha and Shanghai as well as an active South East Asia Practice.
The opening of our ofces in China showcases our commitment to
clients in China and Singapore. As specialists in nancial services,
corporate, litigation and dispute resolution, we are an established
leader in the Asia Pacic region. We have been involved in
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parties in arbitrations in Singapore.
wongpartnership.com
| |
163A
T08LL0003B)
SInGAPorE
Investing in singapore: Business vehicles

and m&A
by Joseph he Jun and Gerry Gan
wongpartnership
ingapore is an island city-state located near the equator but are not involved in its daily operations. Every company
at the southern tip of the Malay Peninsula. As a member must appoint an auditor within three months from the date of
of the Association of Southeast Asian Nations (ASEAN), its incorporation unless it is exempted from audit requirements.
it is arguably the most strategically important South-East Asian It must also appoint a locally resident company secretary, who
must not be the sole director of the company and who must meet
nexus for global trading, finance and services.
Despite its size, Singapore has consistently been ranked first various other prescribed requirements, within six months of
each year from 2009 to 2012 as the worlds easiest place to do incorporation.
There is generally no special approval required for most
business by the World Bank Group Report and it is extremely
successful in attracting foreign investment. According to statis- business activities in Singapore. However, certain types of
tics from the Foreign Equity Investment in Singapore 2010 issued business activities are controlled by government agencies and
by the Department of Statistics of Singapore, Singapores stock of will require the necessary approvals and licensing before comforeign equity investment increased to S$613.5 billion as at the mencing business. Banking and other finance-related businesses,
end of 2010. In addition to its strategic location, excellent repu- for example, require approval from the Monetary Authority of
tation, good network and infrastructure, sophisticated banking Singapore (MAS). Other activities like international air transport,
system and diversified population, the Singapore legal system also telecommunications, the production of cigarettes, beer, refrigeraplays an important role in attracting foreign investment. Foreign tors and air-conditioners, and the operation of restaurants, bars
investors need to consider the business vehicles Singapore has to and casinos require a licence from other government bodies.
offer and the general legal issues when acquiring
an existing company before investing in the citystate.
Foreign investors need to consider the business
vehicles Singapore has to offer and the general legal
Business vehicles
There are various business vehicles which may issues when acquiring an existing company before
be set up in Singapore by foreign investors. A investing in the city-state
company is the most commonly used one. All
companies must be registered with the AccountOther business vehicles available, although less popular for
ing and Corporate Regulatory Authority (ACRA) and may be
foreign investment, are:
private or public.
The most important difference between a private company
and a public company is that a public company may raise a branch of a foreign company
funds from general public while a private company may not. A This may be registered with the ACRA by the foreign company.
company is a legal entity separate and distinct from its share- As it is not a legal entity separate from the parent, any liabilities
holders and directors, with its members having limited liability. or obligations which arise against it in Singapore may be enforced
Under the Companies Act (CA), a company must have at least against all the assets of the parent company. A branch does not
one shareholder and at least one director who is an adult ordi- have its own shares nor board of directors. The parent company
narily resident in Singapore. To be ordinarily resident, the person must appoint two or more persons resident in Singapore to be its
must be a Singapore citizen, a Singapore permanent resident, agents and to accept on its behalf service of process and notices
or a foreigner holding an EntrePass or employment pass (both required to be served on the company. The parent company is
available by applying to the Ministry of Manpower) and residing also under an obligation to update the Companies Registrar of
in Singapore. There is no minimum paid-up capital requirement changes in its agents, registered address and certain other details.
and a company can be registered with a minimum of S$1.
It must also file its annual report and the audited accounts of its
The business operation and management of a company is Singapore branch within two months after its annual general
vested in its board of directors: executive directors take care of meeting or within seven months from the end of its financial
the daily operations of the company and non-executive directors year. Various other corporate records and filings must also be
oversee the affairs and corporate governance of the company maintained with the ACRA.
>>
57
SInGAPorE
AuThOR BIOGRAphIES
jOSEph hE juN
Partner
Joseph He Jun is the joint head of the china practice and is a partner
in both the corporate/mergers and acquisitions and the capital markets
practice.
His main practice areas are corporate finance, equity capital markets,
foreign investment in the Peoples republic of china (Prc), mergers and
acquisitions and property development in the Prc.
Joseph is recommended in the Legal 500 the clients Guide to the Asia Pacific
Legal Profession 2012, for real estate work in the Prc. He is also recommended as
a leading practitioner in Singapore and the Prc by chambers Global the Worlds
Leading Lawyers for Business 2012, in the area of corporate M&A. Joseph is also
recommended as a leading M&A practitioner in Expert Guides Guide to the Worlds
Leading Practitioners: china 2011.
Joseph graduated with a bachelor of arts from yunnan university (Prc) and obtained
a master of laws from both china university of Politics and Law in Beijing and McGeorge
School of Law, university of the Pacific (uS). He was also a visiting scholar at the School
of Law, columbia university (uS) from 1990 to 1991. Joseph is admitted to the bar of the
Peoples republic of china.
GERRy GAN
Partner
Gerry Gan is the joint head of the china practice and is a partner in the
corporate/mergers and acquisitions practice. His main practice areas
are mergers and acquisitions (involving public and private companies),
equity capital markets transactions (initial public offerings and private
placements) and general corporate law. He has been the chief
representative of the firms Shanghai representative office since 2004 and
was based in Shanghai between 2004 and 2009.
Gerry is recommended in the Legal 500 the clients Guide to the Asia Pacific Legal
Profession 2012 for real estate work in the Prc. He is also recommended as a leading
M&A practitioner in Expert Guides Guide to the Worlds Leading Practitioners: china
2011.
Gerry graduated from Kings college London. He is admitted as a barrister-at-law
(Middle temple) in the uK and to the Singapore bar. He served as the vice president of
the Shanghai Singapore Business Association from 2008 to 2009. Gerry has recently
contributed to the Singapore chapter of a textbook published by ccH entitled china
outbound Investments A Guide to Law and Practice.
sole proprietorship
This is an individual carrying on business either in its own name
or under a trading name. It is not a separate legal entity and
the owner has unlimited liability. If the owner is not resident in
Singapore, he must appoint a local manager who is ordinarily
resident in Singapore. Under the Business Registration Act, sole
proprietorships must be registered with the ACRA.
Partnership
This is an association of two or more persons carrying on business
in common with a view to profit. The number of partners is
generally capped at 20, except for professional partnerships.
It is not a separate legal entity and the partners have unlimited
liability for the partnerships debts and for losses incurred by the
other partners. Under the Partnership Act, all partnerships must
be registered with the ACRA.
58
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Limited partnership
This consists of two or more persons with
at least one general partner and one limited
partner. There is no limit on the number of
partners and any individual or corporate
body can be a general partner or a limited
partner. It is not a separate legal entity. The
general partner is personally liable for all
debts and losses of the limited partnership,
while the limited partners are only personally
liable for such debts or obligations up to their
agreed contribution, unless they take part in
its management. Limited partnerships are
governed by the Limited Partnership Act and
are commonly used by investment funds as
investment vehicles.
Limited liability partnership
A limited liability partnership (LLP) is a
partnership where each individual partners
own liability is limited. A partner is personally liable for debts and losses resulting from
its own wrongful actions and is not personally liable for debts and losses of the LLP
incurred by other partners. There must be at
least two partners, with no maximum limit
as to the number of partners. An LLP is a
separate legal entity from its partners and is
governed by the Limited Liability Partnership Act.
trust vehicles
Trust vehicles, like collective investment
schemes or business trusts, consist of a trust
over assets, which will be managed by a professional manager in accordance with the
terms and conditions of its mandate. Legal
title to the assets is in the name of a professional trustee, who under the trust deed,
safeguards the assets and ensures compliance
with laws, regulations and rules. The investors
hold units in the trust and are not personally liable for investment losses incurred by the professional manager on behalf of the
trust.
m&A
Instead of setting up a business vehicle, a foreign investor may
acquire an existing Singapore business. The most common
method is by acquiring shares in a private or public company.
acquiring a public company
The most important instrument an acquirer of a public company
must comply with is the Singapore Code on Takeovers and
Mergers (Code) issued by the MAS under the Securities and
Futures Act (SFA), together with various Practice Statements
issued by the Securities Industry Council (SIC). The Code applies
to takeovers of Singapore and foreign corporations with a primary
SInGAPorE
listing of their equity securities on the Singapore Exchange

Securities Trading Limited (SGX-ST). Where possible and appropriate, acquirers of Singapore unlisted public companies with 50
or more shareholders and with net tangible assets of S$5 million
or more should also comply.
Under the Code, a person acquiring shares in a public
company must make a general offer to purchase all the shares in
the company under the following circumstances:
dealings or procurement of others to deal in these securities. It is also an offence under the SFA for a person to make
a takeover offer if he has no intention to make an offer, or has
no reasonable or probable grounds for believing that he will
be able to perform his obligations in the offer.
acquiring a private company

The acquisition of shares in a private company generally starts
with a short document (which may be called a heads of agreement,
If they (and any parties acting in concert with them) acquires term sheet, letter of intent, or memorandum of understanding)
shares carrying 30% or more of the voting rights in the generally provided to be subject to contract or definitive agreecompany; or
ments and is not binding, except for clauses like confidentiality,
If they (and any parties acting in concert with them) holds governing law, dispute resolution, costs and fees, and exclusivity.
at least 30% but no more than 50% of the voting rights of a Parties may also build in additional binding clauses like no-shop,
company and acquires such additional shares that their per- lock-out, and break fee to mitigate the risks of a party pulling out
centage of the voting rights increases by more than 1% in any of the negotiations without good cause. Following a successful
six-month period.
negotiation, a private written share sale and purchase agreement
between the seller and the purchaser (where necessary, with a
covenator and guarantor) setting out the detailed
terms and conditions governing the pre-and
There is generally no special approval required for
post-completion obligations of the parties will
most business activities in Singapore
be signed. For share transfer purpose, a share
transfer form signed by the seller will be delivered
A person may also make a voluntary offer to purchase all the to the purchaser as a key completion deliverable.
shares of the company. Under the Code, such an offer must be
conditional on a minimum level of acceptance being achieved: Other methods
the acceptances must result in the bidder (and any parties acting An investor may also subscribe for newly issued voting shares
in concert with it) holding more than 50% of the voting rights in in a private company under a share subscription agreement
the target company.
signed with the target company and the existing shareholders.
In general, a person may not make an offer to acquire only The investor gains control over the target company if its resultant
part of the shares in a public company except with the prior shareholding in the target accounts for more than 50% of its
consent of the SIC. The SIC will not grant consent if the partial entire issued voting share capital, with the existing shareholders
offer would result in the bidder and the parties acting in concert being diluted.
with them holding between 30% and 50% of the voting rights of
Other less common methods of acquiring a company are:
the target company.
Other key legal instruments which the acquirer has to comply A scheme of arrangement: This is a statutory procedure under
with are:
the CA for restructuring a company. The arrangement must be
approved by a majority (in number) of shareholders holding
SGX-ST Listing Rules: Where the bidder is listed on the
at least 75% (in value) of the shareholders or class of shareSGX-ST, it must seek the approval of its shareholders for an
holders present and voting in a general meeting, and once
acquisition that exceeds certain thresholds or if it is offering
approved, sanctioned by the High Court. Once sanctioned,
its own shares as consideration for the offer. If it intends to
it binds all the shareholders (including dissenting shareholdseek a de-listing of the target, a reasonable exit alternative,
ers). Where the target is a public company, the Code will also
which should normally be in cash, should be offered to the
apply.
targets shareholders.
A statutory amalgamation: Under the CA, two or more
CA: Certain provisions apply to takeover offers, like those
companies may amalgamate and continue as one company.
The amalgamation must be approved by special resolutions of
relating to shareholding reporting requirements during
the shareholders of the amalgamating companies. An amalgastake-building. Please note that where a takeover offer is
mation proposal must be prepared and the directors of each
made for a Singapore company and acceptances are received
amalgamating company must make solvency statements in
in respect of 90% or more of the shares to which the offer
relation to the amalgamating and amalgamated companies. If
relates within four months of making the offer, the bidder
a public company is involved, the Code must also be complied
may compulsorily acquire the shares of the non-accepting
with.
shareholders.
SFA: Insider trading provisions in the SFA restrict the communication to a third party of material, price-sensitive Other regulatory requirements
information which is not generally available, where the third Section 54 of the Singapore Competition Act prohibits mergers
party is likely to deal in the securities. They also prohibit the and acquisitions which have resulted, or may be expected to result,
>>
59
SInGAPorE
in a substantial lessening of competition within any market in

Singapore for goods or services, unless excluded or exempted. The
Competition Commission of Singapore (CCS) determines whether
any particular M&A is caught under Section 54. The review is a
two-step process: the first step generally takes less than 30 working
days and is a quick review. Mergers which clearly do not have any
anti-competition concerns may complete without undue delay. If
the CCS forms no view after the first step, then a more extensive
review, which may take up to 120 working days, will be conducted.
While the prior approval of the CCS is not required for a merger, a
merger subsequently determined to be in breach of Section 54 may
subsequently be required to be unwound. It is therefore advisable
for the parties to voluntarily notify the CCS of the intended merger
in order to seek its prior approval.
Finally, it must be noted that although generally there are no
foreign shareholding restrictions for most business in Singapore,
the acquisition of interests beyond certain shareholding thresholds for certain companies in Singapore requires the prior
approval of the relevant authorities:
60
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5%, 12% and 20% of any bank or any financial holding

company;
5% of any finance company;
5% of any insurance company;
5% and 12% of any newspaper or television broadcast
company; and
12% and 30% of any designated telecommunication licensees.
With US$3 trillion in foreign exchange reserves, China has

been ramping up investments around the world. According to
CNBC, net outward-bound foreign direct investment by Chinese
companies grew from US$5.5 billion in 2004 to US$68.81 billion
in 2010 and Singapore is one of the top 10 investment destinations of China. It is widely expected that foreign direct investment
from China to Singapore will continue to increase in the future.
How to make a successful investment in Singapore is a
complex question and each investment is unique. We hope
this article provides you with an overview of business vehicles
available and M&A in Singapore.
(ASEAN)
20092012
2010
20106,135
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2013
>>
61
500 2012
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2011 ()
McGeorge 19901991
Joseph
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>>
63
Transactions,
Disputes, Advice
Homburger provides high quality legal advice and

representation both domestically and internationally
in significant transactions, disputes and complex
legal matters to businesses and entrepreneurs.
Corporate | M&A
Financial Services
Litigation | Arbitration
IP | IT
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Tax
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Insurance
Homburger AG
Prime Tower
Hardstrasse 201 | CH-8005 Zurich
P.O. Box 314 | CH-8037 Zurich
T +41 43 222 10 00
F +41 43 222 15 00
www.homburger.ch
lawyers@homburger.ch
SWItzErLAnd
reliability and neutrality: Investing in

switzerland
by dieter Gericke, Felix dasser, marcel dietrich, Gregor bhler and Reto heuberger
homburger
1) Why should chinese businesses be interested in
switzerland?
Switzerland was among the first non-communist countries to
recognise the Peoples Republic of China in early 1950. Swiss
companies have been among the first to invest in China. The
two countries just reached agreement on the content of a
bilateral Free Trade Agreement.
Internal stability, external neutrality and tradition of government non-interference.
Independence (not part of the European Union), open market
and own currency (Swiss Franc).
Tradition of successful companies and entrepreneurship
combined with innovation, top-notch technology and
developed financial services.
Business friendly and reliant civil law system with economic
freedom and freedom of contract. Chinese civil law has partly
been based on German and Swiss law.
Swiss law is often used as a neutral, predictable and flexible
law for international contracts with or without a Swiss angle.
It is the number one substantive law in ICC arbitrations.
Transparent legislation with no overregulation of business
and markets.
Cooperative authorities and no corruption.
Reasonable tax rates.
Excellent education and flexible labour market.
Highly-developed place of arbitration and litigation.
Numerous small and large companies from all over the world,
including China, the US, the EU, Japan, Russia, India, middle
East, Latin America and Africa invest or list in Switzerland,
acquire Swiss companies, use Swiss law for international
agreements or choose Switzerland as a hub for their international activities or for dispute resolution.
2) to what extent is foreign involvement in m&A transactions in switzerland regulated or restricted?
There are no general restrictions on capital transactions between
Switzerland and foreign investors that would allow governmental agencies to influence or restrict the completion of business
combinations or other M&A transactions. However, there are
industry-specific regulations and approval requirements (see
question 8).
Considering real estate, the Federal Act on the Acquisition
of Real Estate by Persons Abroad restricts the acquisition by a
foreign person or a foreign-controlled company of non-commercial real estate in Switzerland. The acquisition of shares in a
company whose statutory or factual business purpose is trading
in non-commercial real estate is also subject to approval, except

for listed companies.
3) What investment options are available to prospective foreign investors and acquirers of companies in
switzerland?
Chinese investors can invest in or through a Swiss or a foreign
company without any particular restrictions. In terms of Swiss
legal entities, the most common Swiss legal forms are the AG
(Aktiengesellschaft: stock corporation) and the GmbH (Gesellschaft mit beschrnkter Haftung: limited liability company). No
government approval is required for the formation of a Swiss
company.
The stock corporation is a legal entity with one or more shareholders (physical persons, partnerships or legal entities), and
a minimum share capital of CHF100,000, of which at least
CHF50,000 must be paid up. It must be registered in the
commercial register of its domicile, which does not list the
shareholders of the corporation or their respective holdings in
the corporation. Fundamental decisions require approval by
the shareholders meeting. Management is carried out by the
board of directors or management. There are no citizenship
requirements for shareholders or the board or management.
At least one person with residence in Switzerland must have
the power to bindingly represent the corporation.
The limited liability company is a legal entity with one or
more members (physical persons, partnerships or legal
entities), and a minimum nominal capital of CHF20,000. It
must be registered in the commercial register of its domicile,
which lists the members and their quota in the company.
The company acts through the members meeting, which can
delegate management to managers. At least one person with
residence in Switzerland must have the power to bindingly
represent the company.
Acquisitions: Prospective Chinese acquirers may acquire a Swiss

business or parts thereof by purchasing the shares of a company
(share deal), by purchasing all or specific assets (asset deal), by a
statutory merger, or in the case of listed companies, by a public
offer for the shares (public takeover).
Co-investments: In case of venture capital and other direct investment transactions, often, several investors may join forces for
the investment and to govern the company. For this purpose, the
articles of incorporation and a shareholders agreement provide for
>>
65
SWItzErLAnd
board representation, preference rights, veto rights, information

and other rights of the investors and regulate rights of first refusal
and co-sale rights and obligations in view of a potential exit.
Corporate reorganisation structures: The Federal Merger Act
provides for a variety of instruments to accomplish corporate
reorganisations. For example, merger, demerger, or transformation (change of corporate form).
4) What requirements are placed on foreign
investors?
There are no particular requirements with regard to investments
in private companies. For companies listed on a Swiss stock
exchange, the requirements that need to be observed both by any
investor, irrespective of nationality, include:
Notification to the target and the stock exchange if a bidder

(directly, indirectly or in concert with a third party) acquires
or sells shares or equity-linked securities and thereby
reaches, exceeds or falls below the thresholds of 3, 5, 10, 15,
20, 25, 331/3, 50 or 662/3% of all voting rights in the target
company.
Listed corporations need to disclose, in their annual business
report, the identity of shareholders or organised groups of
shareholders with a beneficial interest of more than 5% in the
corporations shares, to the extent that such interest is known
to the corporation.
In the context of a public offer for the shares of a listed
company, the bidder and all shareholders holding more
than 3% of the voting rights of the target must report all
acquisitions and sales of equity securities in the target and,
if applicable, in the company whose securities are offered in
exchange for the equity securities of the target.
5) Are there any specific regulations or regulatory

bodies governing public takeovers?
The Swiss Takeover Board (TOB) and the Swiss Financial Market
Supervisory Authority (FINMA) supervise public takeover offers.
The TOBs orders are binding and enforceable, unless appealed.
6) What are the methods by which a public takeover
can be achieved?
Stake building: Potential bidders often seek to acquire a significant stake in the target via acquisition of shares prior to the
launch of the public tender offer (see question 4). This can be
achieved through: (i) undertakings from the targets major shareholders to tender their shares; or (ii) an outright purchase before
the offer is announced. If undertakings or acquisition agreements
are entered into during the 12-month period before the public
tender offer is announced, the offer documentation must disclose
the relevant details of these transactions.
Transaction agreements: If an offer is recommended, the bidder
usually enters into a transaction agreement with the target.
The terms of such agreement are subject to review by the TOB
and must be disclosed in the offer prospectus. The transaction
agreement sets out: (i) the terms and conditions of the offer;
66
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(ii) the targets duty to support the bid and to recommend

its acceptance to its shareholders; and (iii) the targets future
management structure. No-shop undertakings by the target are
also frequent and, in principle, permissible under Swiss corporate
and takeover law.
Break fees: Usually, transaction agreements provide that the
target can withdraw against payment of a break fee if a competing
offer is superior. There is no specific restriction, like percentage
of transaction value, on break fees. However, they are restricted
as a result of directors fiduciary duties and the purpose of the
takeover rules to create a level playing field for offers and to
safeguard the freedom of choice of shareholders.
Mandatory offer: A person holding, directly or indirectly, or
acting in concert with another person, more than 331/3% of the
voting rights of a company with a primary listing on a Swiss
stock exchange is required to submit a public tender offer for
all listed equity securities of that company. A potential targets
articles of association may, however, provide for an opting-out
(no mandatory offer obligation) or an opting-up (increase of the
triggering threshold to up to 49% of the voting rights).
Minimum price rule: In case of a mandatory offer (including offers
that would result in the triggering threshold being exceeded), the
offer price may not be set below the minimum offer price, which
is the higher of the following:
The volume-weighted average price of the stock exchange

transactions in the 60 trading days prior to formal preannouncement or publication of the offer (or a valuation in
case of illiquid stock); and
The highest price paid by the bidder or persons acting in
concert with the bidder for shares in the company in the
preceding 12 months.
Conditions for a takeover: Voluntary public takeover offers may

be made subject to conditions precedent only if such conditions
are beyond the bidders control. Where the nature of the conditions precedent is such that the bidders cooperation is required
for their satisfaction, the bidder must take all reasonable steps to
ensure that the conditions are satisfied. With the approval of the
TOB, the offer may be made subject to subsequent conditions if
the advantages of the conditions for the bidder outweigh the disadvantages for the targets shareholders (e.g. obtaining regulatory
approvals). Typical conditions include the following:
Minimum acceptance threshold. The TOB requires that the

threshold not be unrealistically high also considering shares
already owned by the bidder. Typical thresholds are 67% in
solicited offers and 51% in unsolicited offers. In practice, most
offers reach acceptance levels of over 95%, thereby permitting
a squeeze-out of minority shareholders (starting at 90%).
Merger control, regulatory (including regarding listing or registration of shares offered in exchange for the targets shares)
or shareholder approval;
Material adverse effect (MAC) conditions. The typically
SWItzErLAnd
accepted thresholds are 10% of EBITDA, 5% of turnover or

10% of the targets net asset value.
A bidder required to submit a mandatory offer cannot make
that offer subject to conditions, other than conditions required to
comply with regulations, aiming at registration with voting rights
or protecting the economic substance (crown jewels) of the target.
Funding commitments: Funding must be in place before the offer
is announced. The bidder can make a formal pre-announcement
of the offer before it has committed funding. The actual offer
must contain details of the sources of financing and confirmation by the independent review body that financing is available.
The certain funds requirement imposes restrictions on permitted
conditions of the financing commitment.
7) to what extent have material adverse change (mAc)
clauses become more important in light of the current
economic climate?
The Swiss economy and Swiss companies have not been as
severely affected by the financial crisis as other Western jurisdictions. Rather, businesses headquartered in Switzerland do,
and did throughout the crisis, fairly well. Since Switzerland has,
with the Swiss Franc, its own, traditionally stable currency, the
Euro crisis had limited effects on the economic climate for Swiss
companies, except that exports are affected by weak foreign currencies. Companies typically hedge against exchange rate risks.
Nevertheless, the financial crisis has led to more carve-outs
from MAC conditions for adverse effects that are the result of
general market conditions and the financing environment. In
addition, commitment letters that secure the financing of an
acquisition have become common also in private acquisitions
and more often allow the seller to rely on such commitment.
8) Which regulated financial industries have maximum
foreign ownership thresholds?
There is no limitation on foreign ownership in the financial
industry. However, owners or acquirers of important stakes in
financial institutions are subject to scrutiny as to reputation,
compliance and sound business conduct, and financial institutions under foreign control may require a special licence.
Banks and securities dealers: All banks or securities dealers incorporated or having a place of business in Switzerland must have a
FINMA licence before starting operations. Qualifying shareholders, like persons or entities owning directly or indirectly 10% or
more of the banks or securities dealers capital or voting rights
or otherwise exerting a significant influence, are also subject to
scrutiny by FINMA. Shareholders who acquire or sell a qualifying shareholding, or who increase or decrease their shareholding
beyond 20, 33 or 50%, must notify FINMA before completing the
transaction. An additional licence is required for a Swiss bank or
securities dealer under foreign control or in case of changes in
the foreign control.
Insurance companies: If a person intends to, directly or indirectly,
acquire a participation in a (re-)insurance company domiciled in
Switzerland, it must notify FINMA if, as a result, it reaches or

exceeds the thresholds of 10, 20, 33 or 50% of the capital or voting
rights of the Swiss (re-)insurance company.
Investment fund managers: Qualifying shareholders, i.e. persons or
entities owning directly or indirectly 10% or more of the capital or
voting rights of the fund manager or otherwise exerting a significant
influence on the fund manager, are subject to scrutiny by FINMA.
9) What policies are in place for chinese companies
wishing to list on capital markets in switzerland?
Switzerlands regulated securities market consists mainly of the
SIX Swiss Exchange (SIX). SIX is a regulated securities exchange
market in Zurich and the reference market for more than 40,000
securities, connecting investors, issuers and participants from all
over the world. Within SIX, the Regulatory Board decides on the
admission to listing and ensures that issuers fulfil their obligations during listing.
Typically, admission is granted based on a prospectus in line
with international standards. Prospectus review by the listing
authorities is a formal one (mainly completeness) and does not
extend to verification of the content. However, wrong or misleading information in the prospectus may trigger prospectus liability
of those responsible for such misinformation.
For the primary listing, non-Swiss issuers have to comply
with the same listing requirements as domestic issuers. Requirements include that:
at least 25 % of the issuers shares will be free-floating;

the free-float has an expected market capitalisation of at least
CHF25 million;
the issuers reported equity capital must be at least CHF25
million.
Once listed, the issuer is subject to ongoing obligations for

maintaining the listing. Such continuing obligations include (in
case of equity securities):
periodic reporting in compliance with financial reporting

standards recognised by SIX;
disclosure of price-sensitive facts (ad hoc publicity);
disclosure of management transactions; and
disclosure of substantive shareholdings.
For secondary listed foreign issuers at SIX (issuers with a

primary listing elsewhere), regulatory and ongoing disclosure
requirements are relaxed and largely refer to the filings and rules
of the primary stock exchange.
10) What are the main features of swiss merger control?
Legal framework: Merger control in Switzerland is governed by
the Federal Act on Cartels and Other Restraints of Competition
(Cartel Act) and the Ordinance on the Control of Concentrations
of Undertakings (Merger Control Ordinance).
Notification duty: Planned concentrations of undertakings,
mergers as well as acquisitions of sole or joint control, must be
>>
67
SWItzErLAnd
notified to the Swiss Competition Commission (ComCo) prior

to their implementation if the statutory turnover thresholds are
met. This is the case if in the last business year preceding the
concentration:
the undertakings concerned achieved a combined turnover of

at least CHF2 billion worldwide or, alternatively, a combined
turnover of at least CHF500 million in Switzerland; and
cumulatively
each of at least two of the undertakings concerned achieved a
turnover of at least CHF100 million in Switzerland.
However, a notification duty exists irrespective of these

turnover thresholds if an undertaking participates in the concentration for which it has been established in a final and binding
decision under the Cartel Act that it has a dominant position in
a specific market in Switzerland and the concentration concerns
this market or an upstream or downstream or neighbouring
market. Special rules apply to insurance companies, banks and
other financial intermediaries.
creates or strengthens a dominant position in a market

by which effective competition can be eliminated; and
cumulatively
does not lead to any improvement of the competitive situation
in another market which outweighs the disadvantages of the
dominant position.
Procedure (with suspensive effect): The Cartel Act distinguishes

between the preliminary investigation, (phase I one-month
waiting period) and a possible in-depth investigation (phase II
four months).
11) What have been the major recent developments in
competition policy?
Amended notice on merger control issues: In May 2011, ComCo
published an amended version of its notice entitled New Practice
in Merger Control Proceedings. This document deals, inter alia,
with the following issues:
Creation of a joint venture outside Switzerland: The creation of a

joint venture is, in principle, subject to a notification duty in SwitSubstantive test: ComCo may prohibit a concentration or zerland if at least two of the undertakings concerned exceed the
authorise it subject to conditions and obligations if the statutory turnover thresholds. In its notice, ComCo clarifies that
no notification duty exists if the joint venture is neither active
concentration:
nor achieves any turnover in Switzerland
AuThOR BIOGRAphIES
(particularly does not make any supplies into
Switzerland) and such activities or turnover
dieter Gericke is a Partner in the corporate | M&A practice team and
in Switzerland are, even for the future, neither
Head of Homburgers china Group. His practice focuses on public and
planned nor to be expected.
private mergers & acquisitions, private equity, capital markets (including
IPos) and finance. He advises in matters of corporate law and securities
regulations.
Felix dasser heads the Litigation | Arbitration practice team. He advises

and represents companies in international commercial disputes in litigation
and arbitration proceedings, as well as on white collar crime and regulatory
compliance. He also sits as an arbitrator.
Marcel dietrich is a Partner in the competition and corporate | M&A

practice teams and in the White collar | Investigations working group. His
practice focuses on Swiss and European competition and antitrust law,
regulated markets and public procurement.
Gregor Bhler is the deputy Head of the IP | It practice team. He

focuses on intellectual property law, information technology and unfair
competition law (advisory work as well as representation in contentious
matters).
Reto heuberger is a Partner in the tax practice team. He focuses on

tax planning and the structuring of M&A transactions, reorganizations,
relocations, investment management structures, family offices and trusts.
68
<<
Geographical allocation of turnover: The

decisive criterion for the geographical allocation of turnover under Swiss merger
control law is, in principle, the location of the
customers, so the place to which a product is
supplied pursuant to the contract (place of
performance), respectively, where the competition with alternative suppliers for the
customer takes place. If the parties to the concentration make no sales to customers located
in Switzerland but merely the invoicing is
carried out via billing addresses in Switzerland for transactions taking place outside
Switzerland, the turnover is not considered
to be achieved in Switzerland. These explanations relate to products, different rules
may apply to services. Special rules apply
to insurance companies, banks and other
financial intermediaries.
12) What tax treaties has switzerland
signed that would benefit chinese
investors?
Switzerland has concluded over 90 double
taxation treaties, including treaties with
China, Hong Kong and Singapore. In
addition, it has concluded an agreement with
SWItzErLAnd
the EU that grants full relief from withholding tax on intra-group

payments of dividends, interest and royalties.
The current treaty with China provides for maximum withholding tax rates of 10% on dividends, 10% on interest and 10%
on royalties. China and Switzerland have paragraphed a revised
treaty. It is expected to enter into force in 2014 or 2015 and
provides for maximum withholding tax rates of 5% on intragroup dividends, 10% on interest and 9% on royalties.
The treaty with Hong Kong, which entered into force on
January 1 2013, provides for maximum withholding tax rates of
0% on intra-group dividends, 0% on interest and 3% on royalties.
The revised treaty with Singapore applied since January
1 2013, provides for maximum withholding tax rates of 5% on
intra-group dividends, 5% on interest and 5% on royalties.
With respect to Swiss taxes, these treaty rates apply to the
extent that the Swiss taxes are not lower. In particular, they do
not apply to royalties since Switzerland does not levy any withholding taxes on royalties. Further, Switzerland does not levy
any withholding taxes on certain types of interest, in particular,
interest on intra-group loans or on loans that do not qualify as
bonds or notes.
13) What tax advantages does switzerland offer for
chinese investors?
Switzerland offers in general relatively moderate corporate
income tax rates (depending on the region, i.e. state, between
12% and 24%) and value added tax rate (8%). Interest expenses
on loans from related parties are deductible provided that they
are in line with the thin capitalisation rules and the arms length
rules for related party loans.
Switzerland unilaterally, irrespective of the application of any
double taxation treaty, exempts all the profit attributed to foreign
permanent establishments and foreign real estate from the Swiss
tax base.
In addition, the Swiss participation exemption regime applies
at federal and regional level to all Swiss resident companies and
Swiss permanent establishments of foreign companies that own a
qualifying participation in a subsidiary. The participation exemption is granted irrespective of whether there is any taxation at
the level of the subsidiary or whether any double taxation treaty
applies. Switzerland has not introduced any Controlled Foreign
Corporation (CFC) rules. A qualifying participation has different
thresholds depending on whether the exemption is granted for
dividends or for capital gains from the disposal of shares. The
thresholds are:
for dividend income: an equity investment of at least 10% or

with a value of at least CHF1 million;
for capital gains from the disposal of shares: an equity investment of at least 10% that has been held for at least one year.
Several further special regimes and reliefs are beneficial for

investments:
Regional holding company regime: Not only the income from

participations but all the income is exempt from regional
and communal corporation tax, if a company qualifies as a
holding company. At the federal level, on the other hand, a

holding company is an ordinary taxpayer at standard rates
of 8.5% (7.8% before taxes), but the participation exemption
regime described above applies to income from participations. Holding company status is granted if the following
requirements are met: (a) the main purpose of the company
is the holding and management of long-term financial participations in the subsidiary companies; (b) at least two-thirds
of either the assets or the income is composed of or derived
from participations; and (c) the company is not engaged in
any commercial activity in Switzerland. There are certain differences in which activities are accepted by the regions. In
general, management and administration of the company
itself is tolerated.
Mixed companies (trading, IP, etc.): A Swiss company or a
branch of a foreign company qualifies for the tax privilege of a
mixed company at the regional and communal level if it does
not engage in any commercial activity within Switzerland or if
it engages in such activities to only a small extent. In general,
at least 80% of the income must be derived from abroad and at
least 80 % of the expenses have to be foreign expenses. Therefore,
mixed companies are often used for international trading,
licensing and franchising activities. Swiss source income is taxed
at standard rates, whereas foreign source income is only partially
included in the Swiss tax base. Thus, depending on the specific
regional requirements, the specific regional tax rates and the
amount of Swiss source income, the overall tax rates of mixed
companies in Switzerland for federal, regional and communal
tax purposes vary between 8% and 11%.
State aid: Since Switzerland is not a member of the EU, it is
in principle not limited by the European prohibition on state
aid. However, Switzerland has introduced unilateral rules that
limit the application of state aid to certain regions that are
economically not well developed. Depending on the size and
the function of the newly established business, an exemption
of up to 50% from regional or communal income taxes and,
in specified areas, also from federal income taxes for a period
of up to 10 years, may be granted. Depending on the area and
the structure, the exemptions may even be extended after the
10-year period has lapsed.
Principal structures: Swiss principal companies of international groups can benefit from a special tax treatment
for federal income tax purposes. A principal company is a
company with several high-level employees that assumes risks
and responsibilities for certain activities, such as purchasing, research and development, manufacturing, distribution,
marketing strategy and logistics. Provided that the sales are
made exclusively through commission agents or limited risk
distribution companies of the group, the principal company
can reach a reduced Swiss tax base that results, in combination with the regional tax regime of the mixed company, in
tax rates as low as approximately 5 to 7%, depending on the
set-up and location.
No withholding tax on royalty income and certain types of
interest payments: See question 12.
14) What exit mechanisms are in place in switzerland

>>
69
SWItzErLAnd
and how will these affect investors when they want to

get their money out?
There are no restriction on, or approval requirements for, capital
transfers from Switzerland abroad. Generally, exits can take the
form of a sale of shares or assets, dividend payments, capital
reductions, liquidation, initial public offering (IPO), cross-border
merger or redomiciliation. Flows of funds may, however, also take
the form of advisory or management fees, royalties, payments for
supply or manufacturing and other commercial activities.
Switzerland does not levy any withholding tax on capital
gains from the disposal of the shares of a Swiss company. Only
if the Swiss company is a real estate company, a regional capital
gains tax may be due in the case of the sale of the shares.
However, since Switzerland normally levies a 35% withholding tax on dividends, investments into Switzerland are usually
structured in such way that a double taxation treaty applies which
reduces this withholding tax. Many Swiss treaties, including the
one with Hong Kong, provide for 0% withholding taxes on intragroup dividends.
An exit by way of redomiciliation is deemed to be a liquidation for tax purposes and thus triggers corporate income tax and
withholding tax on dividends (liquidation proceeds). The general
principles apply including the participation exemption for equity
investments and the reduction of the withholding tax in cases of the
application of a double taxation treaty (see questions 12 and 13).
15) What protection is available for intellectual
property in switzerland?
Swiss law provides for the protection of registered intellectual
property rights (patents, trademarks and design rights) as well as
unregistered intellectual property rights (copyright, trade secrets
and confidential information). The main characteristics of these
rights are the following:
70
<<
Patents are registered protective rights granted for technological inventions. Protection is granted upon registration in the
patent register. An invention is only eligible for patentability,
if it is new, compared to state of the art, as of the application
or priority date and if it is non-obvious to the man skilled in
the relevant art. The patent is valid for a maximum duration
of 20 years from the application date.
Trademarks are registered protective rights that protect signs
(letters, words, numbers, designs, three dimensional forms,
colour combinations or sounds) or denominations in order to
distinguish goods or services from one another. Protection is
granted upon registration of the trademarks in the trademark
register for an initial period of 10 years. It may be extended
for an unlimited number of subsequent periods of 10 years
each.
Design rights are registered protective rights that grant protection for visible forms of two-dimensional (patterns, such
as fabric designs) or three-dimensional (such as furniture)
objects. Protection is granted upon registration of the design
in the design register. In order to be eligible for registration, the design has to be significantly new and distinctive
from prior forms. Further, it is required that the design is
not exclusively owed to the technical function of the relevant
object. Protection is granted for an initial period of five years

and may be extended for four subsequent periods of five years
each.
Copyright protection is granted for works of literature and
art, such as books, paintings, architecture, photography,
music and computer programs. In general, only creations of
the human mind which are of individual nature qualify as
protected works. Registration is neither required nor possible;
thus, protection is granted upon the creation of the work
without further steps required. The author has the right for
commercial exploitation and is further the holder of a number
of moral rights (for example, the right to be acknowledged as
the author). Copyright protection expires 70 years (general
rule) and 50 years (computer programs) after the death of the
author, respectively.
Trade secrets and confidential information are protected by
various provisions of Swiss law. Civil law protection of trade
secrets is most importantly addressed in the Swiss Act against
Unfair Competition (UCA). The UCA makes it civil tort to
entice workers, agents or ancillary persons to disclose or
uncover trade secrets of their employer or principal. Further,
anyone who exploits results of work entrusted to him (for
example, tenders, calculations and plans) without authorisation commits an act of unfair competition. Finally, the
exploitation or disclosure of manufacturing or trade secrets is
deemed to be an act of unfair competition and, thus, unlawful
if such secrets have been obtained in an unfair or otherwise
unlawful way. Apart from the legislation against unfair competition, other civil law provisions also address the protection
of trade secrets such as the statutory employment law, which
stipulates confidentiality obligations. From a criminal law
perspective, the violation of certain provisions of the UCA
related to trade secrets qualifies as a criminal offense. Besides,
the Swiss Penal Code (PC) penalises the betrayal of a trade
or manufacturing secret as well as the exploitation of such
betrayal. Furthermore, industrial espionage is penalised
under the PC.
Moving intellectual property to Switzerland may be beneficial

from various points of view. First, Swiss tax laws offer a number
of attractive opportunities, such as the holding company regime,
and special taxation of income generated by intellectual property
rights and no withholding tax on royalties (see question 12 and
13). Second, Swiss contract law allows the parties a maximum of
freedom to agree on tailor-made agreements, such as licensing
agreements. Third, the courts (including the Federal Patent
Court) provide for an efficient and impartial enforcement against
infringements of intellectual property rights of foreign intellectual property owners. Generally, Switzerland has a long tradition
of valuating and protecting innovations and intellectual property
and to create a stable and moderate tax environment for their
exploitation.
16) What dispute resolution procedures are available
and how popular are they with foreign investors?
Switzerland is one of the leading arbitration venues of the world.
Based on the latest statistics available, Switzerland takes second
SWItzErLAnd
place in the International Chamber of Commerces statistic of

venues, topped only by France as the host country and default
venue of the ICC. Over the years 2008 to 2010, Switzerland saw
288 new ICC cases, versus 204 for the UK, 114 for the US, 93
for Singapore and 35 for China and Hong Kong. Switzerland is
also the home of the Court of Arbitration for Sports and thus the
venue of most major sports disputes, including those in relation to
the Olympics Games and FIFA. The popularity of the use of Swiss
substantive law to govern international contracts is evidenced by
its number one position in ICC disputes (12% Swiss law, 10.7 %
UK law, 10.6 % US law, according to the latest statistics).
Arbitration in Switzerland may be based on any set of rules
that the parties may choose. Apart from ICC rules, the Swiss
Chambers Swiss Rules for International Arbitration that are
based on the UNCITRAL Arbitration Rules are very popular.
More than two thirds of the parties arbitrating under the Swiss
Rules are non-Swiss, in line with the average percentage of foreign
parties in all international proceedings in Switzerland.
Switzerland has a long tradition of solving international

disputes in an efficient, neutral and professional manner, catering
to the needs of international business people, governments and
athletes alike. The arbitration law is attuned to the needs of international arbitration. A unique feature of Swiss arbitration law is
the direct and only recourse to the Swiss Supreme Court for any
challenges against an arbitral award. This setting-aside procedure
typically takes less than six months, with less than 7% of all
awards being vacated.
What if arbitration is not possible? Unlike courts in other
jurisdictions, the Swiss commercial courts willingly assist the
parties in finding a reasonable solution to their dispute early on
in the proceedings and based on prima-facie assessment of the
strengths and weaknesses of the case by the court itself. Further,
the parties need not fear expensive and disruptive document
production proceedings that are known from common law
jurisdictions (no discovery).
>>
71
dieter GerickeFelix dasserMarcel dietrichGregor Bhler reto Heuberger

homburger
1)
1950
2)
3)
AGAktiengesellschaftGmbHGesellschaft
mit beschrnkter Haftung
4)
3%5%10%15%20%25%331/3%
50%662/3%
5%
3%
5)
TOBFINMATOB

105

72
<<
2013
6)
4
(i)
(ii)
12
TOB
(i)
(ii)
(iii)
33 1/3 %
49%
dieter Gericke Homburger/
Felix dasser/
Marcel dietrich //
Gregor Bhler/
Reto heuberger
60
12
TOB
TOB
67%51%
95%90%

10%5%
10%
7)
8)
10%
2013
>>
73
20%33%50%
(
)()10%
20%33%50%
ComCo
10%
9)
SIXSIX
SIX4
SIX
25%
2500
2500
SIX
SIX
10)
ComCo
20
5
11)
20115ComCo
ComCo
12)
90
10%2014
2015
5%10%
9%
201311
0%0%
5%
201311
5%
5%5%
74
<<
2013
13)
12%24%8%
Controlled Foreign Corporation
10%100
10%
1
8.5%7.8%
(a)
(b)
(c)
80%
80%
8%11%
50%
10
10
5%7%
12
14)
IPO
35%
0%
1213
15)
20
10
10
5
5
7050
UCA
UCA
UCA
PC
PC
2013
>>
75
1213
16)
20082010288
204114
9335
76
<<
2013
12%10.7%
10.6%
UNCITRAL
6
7%
Banking
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BEZEN &
PARTNERS
Excellent on all fronts, Bezen & Partners Clients are impressed with the groups
are very responsive, have business responsiveness, commerciality, intellectual
acumen, understand the issues and are resources and experience with international
good value for money. clients.
Services of the highest level with timely The response times and quality of advice
responses, great experience and given is excellent at Bezen & Partners, which
knowledge is praised for its intellectual power.
Exceptional value and quality City training, high standard English, good
consultancy in very complicated fields of response times and sound local knowledge.
law
Legal 500 EMEA Guide
Experience in Projects
Bezen & Partners advises a wide range of clients including lenders, investors, sponsors and
developers in transactional matters as well as regulatory matters for the financing and development of
energy and infrastructure projects. Bezen & Partners team of lawyers is headed by the former Head of
Legal of the Turkish Privatisation Administration Aykut Bakrc and projects partner Yeim Bezen and
concentrates on transactional, regulatory, administrative law, competition, tax and employment issues
and accompanies clients from the outset until the completion of the privatisation process.
Practice Areas
Privatisation and Infrastructure I Energy I Corporate & Commercial I Finance & Capital Markets I
Antitrust & Competition I Real Estate I Dispute Resolution
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The Lawyer European Awards 2011
www.bezenpartners.com I Eski Bykdere Caddesi, Park Plaza, No:14, Kat 12, Maslak, Istanbul, Turkey I +90 (0) 212 366 6868
turKEy
turkey: An economy centred on

foreign investment
By Aykut Bakrc, Serdar Bezen, Yeim Bezen and Nadia Cansun
Bezen & partners
he Turkish economy has experienced rapid growth over the energy investments
past decade and will continue to do so on the basis of its With an aim to decrease the countrys dependency on foreign
current plan to attract foreign investors. The shift from the energy resources, the Turkish energy market and the applicable
principle of equality between foreign and domestic investors to a legislation have undergone a heavy liberalisation process since
legislative arena which introduces unilateral benefits in tax advan- the late 2000s. The countrys ever-growing demand for electrictages, exemptions and incentives for foreign investors has greatly ity is expected to lead to an electricity shortfall by 2016, which
benefitted Turkey. Major projects that generate the most income indicates the need for new investments in the sector. Specifically,
include energy, infrastructure and finance. While
the main and final aim of the Turkish government is to strengthen the countrys economy, in The countrys ever-growing demand for electricity is
the short term, these advantages offer consider- expected to lead to an electricity shortfall by 2016,
able economic benefits to foreign investors. In which indicates the need for new investments in the
addition to legislative developments, Turkey has
been signing intergovernmental agreements over sector
reciprocal treatment of investments and approximately 80 agreements are currently in effect.
Turkey has a total installed capacity of approximately 53,035
MW. According to projections, the demand for electricity should
new incentive package
increase by 6.5% to 7.5% each year until 2020.
The Council of Ministers Decision numbered 2012/3305 and
As a result, a new Electricity Law has been enacted. The
dated June 19 2012 introduces a new incentive system and brings new law intends to address a number of issues troubling foreign
various advantages for both local and foreign investors. The new investors, lenders and market players. It will mean substantial
incentive system recognises four types of incentive implemen- changes to the electricity market, like the reorganisation of electations: general incentive implementation; regional incentive tricity market activities, the introduction of the pre-licensing
implementation; implementation for large-scale investments; and process (to differentiate between real investors and opportunistic
implementation for strategic investments. It also introduces nine licence traders), the redefinition of organised electricity markets
incentive items. These incentive items and their classification and the extension of deadlines for certain incentives. For example,
under the incentive implementation are outlined in figure 1.
holders of generation licences will be entitled to benefit from a
FIGuRE 1: INCENTIvES
Incentive
implementations
Incentive items
General
customs duty
exemption
VAt exemption Income tax

withholding1
SSP
Employer
Support2,3
Regional
customs duty
exemption
VAt exemption tax discount4
SSP
Employer
Support
Land allocation Interest

support5
Income tax
withholding6
Large-scale
investments
customs duty
exemption
VAt exemption tax discount
SSP
Employer
Support
Land allocation Income tax

withholding1
Strategic
investments
customs duty
exemption
VAt exemption tax discount
SSP
Employer
Support
Land allocation Interest

support
SSP
Employee
Support1
VAt refund
1
2
3
4
5
6
SSP
Employee
Support1,2
Income tax
withholding
SSP
Employee
Support
applicable only for investments in certain regions.

ssP employer support refers to the employers share support element of the social security premium.
ssP employer support within the scope of the general incentive implementation applies to shipyards ship building investments.
tax discount refers to the income tax or corporate tax discount.
interest support within the scope of the regional incentive implementation applies to investments in Regions 3, 4, 5 and 6.
applicable only for investments in Region 6.
>>
79
turKEy
AuThOR BIOGRAphIES
AykuT BAkIRCI
Partner
Aykut Bakrc started his career as a legal practitioner in 1990. From
1996 until 2006 he was employed as counsel in the legal department of
the turkish Privatisation Administration. From 2006 until 2010 he served
as the head of legal of the turkish Privatisation Administration, before
relocating to Istanbul and joining the firm. Aykut Bakrc has extensive
experience in dealing with administrative and regulatory issues as well as
real estate matters and privatisations.
SERdAR BEzEN
Partner
Serdar Bezen worked in the project finance department of a magic circle
law firm in London (mainly on turkish energy and infrastructure projects).
Having relocated to Istanbul he worked at a leading Istanbul law firm
on corporate transactions (mainly on turkish M&A transactions) before
establishing Bezen & Partners. He has extensive energy, infrastructure and
project finance work experience. He also advises on corporate, commercial
and arbitral matters.
yEIM BEzEN
Partner
yeim Bezen worked in the asset, structured and project finance
department of a magic circle law firm in London, advising on banking,
structured finance and project finance transactions until establishing
Bezen & Partners. She has extensive experience of banking and projects
work in both turkey and abroad. She advises finance institutions,
international organisations and sponsors in banking, energy and
infrastructure deals.
NAdIA CANSuN
Partner
nadia cansun worked in England and then at a magic circle law firm
in Moscow where she was part of the corporate team specialising in
mergers and acquisitions. She spent three years as General counsel to
news corps outdoor advertising division based in Moscow where she
was primarily responsible for acquisitions, before relocating to Istanbul
and joining the firm. She advises both international and turkish clients on
corporate, commercial and M&A matters.
50% discount on transmission system usage fees for the first five
years of commercial operation and an exemption from stamp duty
and charges for documents prepared during the investment period
of generation facilities provided that they commission their power
plants before December 31 2015.
In parallel with the above, Turkey has proven its interest in
eliminating the foreign energy supply through certain legislative
developments in the renewable and nuclear energy sectors. A
firm step in this direction came in the form of an intergovernmental agreement between the Russian Federation and Turkey
for the construction and development of the first nuclear power
plant in Turkey. Bezen & Partners advises the project company on
the uncharted territory of nuclear power plants, which requires
an amendment to the current (primary and secondary) electricity
market legislation.
ppp and infrastructure
The Turkish government has also enacted various legal frameworks in favour of the quasi-public private partnership (PPP)
80
<<
model in order to attract the private sector

to assist the public sector in meeting the
demand for renovating existing infrastructure
and realising additional infrastructure.
Aside from various other innovations in
this area, the Turkish government recently
introduced a new law on construction and
renovation of facilities and procurement of
services under the PPP model, which stipulates that the investments made thereunder
shall be exempt from stamp duty and charges
during their entire investment periods.
Due to various claims by third parties in
relation to the tender processes conducted
for the purposes of implementing the PPP
model, it is now envisaged that the Turkish
government will be willing to reflect all legislative changes necessary to provide a feasible
ground for potential investors and also prevent
political risk to the greatest extent possible.
privatisations
Turkeys privatisation history dates back to
the early 80s, picking up considerable speed
over the last decade. However, limited access
to liquidity in money markets took its toll
on Turkeys arguably aggressive privatisation
agenda.
It is expected that Turkey, taking stock on
various cancelled tenders, will sweeten future
tenders and approach the structuring also
from the investor bankability perspective,
which, it could be argued, was not a primary
concern for previous tenders.
It remains to be seen whether the
increased liquidity and State sweeteners will
spark up more interest in privatisations, but
investors seem hopeful that this will be the
case.
construction sector
The construction sector has benefited from developments
relating to the energy and infrastructure sectors and has become
the leading sector in Turkey. In addition to its ever-growing size
and scope, the construction sector has also been the target of
independent investors in power and energy projects due to legal
instruments introduced by the Turkish government.
Some of the most recent construction projects that Bezen &
Partners was involved in include the Marmaray Project, which is
one of the biggest transportation projects in Turkey that provides
for the connection of the two sides of the Bosphorus strait through
an underwater railway tunnel with an approximate investment
value of US$ 3 billion. There was also the Gebze zmir Highway
Project, a project that is to be implemented by way of a buildoperate-transfer method with an approximate investment value
of US$ 6 billion.
For public projects, the investors are usually required to
turKEy
establish special purpose vehicles as part of the procurement or

tender process.
Finance and pe investments
For over a decade, Turkey has been enjoying a fair share of the
emerging market pie in terms of foreign investments. Fitchs
recent credit note bump to BBB, marking the country investment
grade, can only mean that the best is yet to come.
The immediate effect Bezen & Partners observed is an
increased private equity activity to take over or partner-up with
Turkish operators in various sectors. The timing suggests a relation
between spiked PE interests with the relatively high returns of an
emerging economy coupled with the recently restated investment
grade status.
In terms of finance, strong Turkish sponsors have always been
attractive to foreign banks and it is safe to say that the feeling was
mutual as foreign banks are exempt from banking and insurance
transactions tax, allowing them to offer cheaper credit.
With the new wave of foreign investments already underway,
Bezen & Partners expects a new wave of financings and re-financings, with the majority of the senior debt coming from syndicates
composed of both foreign and domestic banks.
It does not take a specialist to spot the critical role of foreign
investments in Turkeys growth plans. The recent legislative
changes suggest that the Turkish governments pro-FDI approach
is working as intended to offer a reliable medium for foreign
investors with relatively low political risk.
Bezen & Partners keeps close contact with potential investors
in a variety of sectors and is of the view that the incentives are
well received and have sparked increased interest.
>>
81
Aykut BakrcSerdar BezenYeim Bezen Nadia Cansun
Bezen & partners
80
50%
Bezen & Partners
()
(PPP)
20126192012/3305
2016
1
21
2016
53,035 2020
6.5%7.5%
()
20151231
80
1
2
3
4
5
6
82
<<
2,3

1,2
-
-
3456
6
2013
Bezen & Partners

(Marmaray
Project)
(Bosphorus)
30 -
(Gebzezmir Highway Project)
- -
60
AykuT BAkIRCI
Aykut Bakrc1990
19962006 (Turkish Privatisation
Administration) 20062010
Bezen & Partners
Aykut Bakrc
SERdAR BEzEN
Serdar Bezen (
)
()
Bezen & Partners
yEIM BEzEN
yeim BezenBezen & Partners
NAdIA CANSuN
nadia cansun
(News Corp)
BBB
Bezen & Partners
Bezen & Partners

Bezen & Partners
Bezen & Partners

2013
>>
83
eD
Chinas most
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awards
it
da Davi O r
vid d t i A
.tr rin
ing g L e
@e +8 5 n Q
ur 2
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Beijing Septem Ber 12 2013
CLPs seventh awards ceremony

and annual flagship event
categories for 2013 include:
8 deal categories
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2 in-house categories
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