Cross-Border Investing

Transcription

1 Cross-Border Investing Family Office Trends Forum Ivy Family Office Network March 10, 2017 Presented by: Arcie Jordan, Partner Gardere Wynne Sewell LLP 2017, Arcie Jordan GARDERE WYNNE SEWELL LLP AUSTIN DALLAS DENVER HOUSTON MEXICO CITY gardere.com

2 Though the jury is still out on whether it will continue in this post-2016 election cycle, the trend toward investing abroad has been gaining popularity since the 1990s. 2

3 Some reasons Advancement of technology has spurred innovation, & investors eager to invest with innovative companies around the world. Diversification goals Growth opportunities Higher returns on some investments Source: 3

4 So what should you consider if you want to invest abroad? Conducting due diligence on host country joint venture / target Challenges: Limited public sources of financial condition Challenges to confirming private information provided Identifying reliable local sources Private services US consular offices Chambers of commerce 4

5 Additional considerations Understanding the Target Market Cultural issues Legal framework Local partner requirements Foreign investment restrictions &/or prior permits required Registrations or permits Business structuring options Domestic entity formation requirement Requisite levels of participation by host country nationals 5

6 Business structuring options Foreign subsidiary Branch office Representative office Joint Venture Partnership Exit Strategies Ability to terminate Penalty or Severance Payments Buy-out & dissolution provisions 6

7 Tax considerations (may be affected by choice of business structure) Host country taxes Tax treatment of Host country investment entity Permanent Establishment creation for US investor US taxes (flow-through treatment issues) Repatriation of funds Bilateral & Multilateral treaty provisions 7

8 Sector-specific restrictions Real estate ownership restrictions special taxation structures 8

9 Real estate in Mexico Mex. Constitution Art. 27, Sec. 1 grants right to acquire ownership of land to Mexican individuals companies. Also grants discretionary power to grant the same right foreigners, subject to the condition that foreigners agree to consider themselves as Mexican nationals and not to invoke the protection of their home governments. (Calvo Clause) If this covenant is breached, all rights to the real property will revert to the Mexican nation. 9

10 Real estate in Mexico Mex. Constitution Art. 27, Sec. 1 prohibits foreigners from acquiring direct ownership of land and water located within Restricted Zones : 100 kilometers of the national borders & 50 kilometers of the national shorelines Foreign Investment Law of 1993 modified restriction: Allows foreigners to acquire ownership of land within Restricted Zones, provided acquired for nonresidential purposes and through ownership of a duly formed Mexican company Ownership of land for residential purposes still available if set up trust administered by a Mexican institution, usually a bank 10

11 Real estate in South Korea Foreign individuals & foreign companies may acquire real estate -- except for farmland & other exceptions Foreign corporation = Corp established under foreign laws Corp established under Korean laws in which more than ½ of employees, members or staff (e.g., directors, executives) are foreign nationals Corp established under Korean laws in which more than ½ of shares owned by foreign nationals 11

12 Real estate in South Korea Under Foreigner s Land Acquisition Act, intent to purchase land -must be reported in advance In some cases triggered by location, designation of purpose of land, or size of parcel acquired prior permission required Acquisition of buildings not subject to prior report or permission requirement, but land & buildings not sold separately, so if land purchased with building, report or permission will be required 12

13 Real estate in Brazil Foreign individuals & foreign companies may acquire real estate Non-residents must enroll with the Corporate Taxpayer Registry prior to acquisition Special conditions / restrictions apply to land located near coasts, borders and certain specific areas designated of national security importance 13

14 Real estate Host countries domestic laws may limit business structure options when real estate investment is involved Ex: Some countries require entity establishment before allowing purchase of real estate by foreign investors Ex: Other countries may require establishment of host country Foreign Direct Investment Company or registration of Branch Office when real estate is acquired for profit-making activities 14

15 Take Aways Conduct due diligence Invest the time to understand Governing Law, requirements & restrictions Payment Issues Agreement terms Enforceability Don t rely on just any translation of key documents 15

16 Take Aways Complicated area, but it can be navigated with competent counsel experienced in international transactions and having a solid international network of attorneys in other countries like Gardere!! 16

17 Questions? Arcie I. Jordan Partner t f m One American Center 600 Congress Avenue, Austin, Texas A U S T I N D A L L A S D E N V E R H O U S T O N M E X I C O C I T Y 17