2014 Luxury & Fashion Industry Conference for Multinationals

Transcription

1 2014 Luxury & Fashion Industry Conference for Multinationals Trends and Nuances for Emerging Markets Michael Coleman Raymundo Enriquez Karyn Koiffman Suchint Majmudar Loke-Khoon Tan 2014 Baker & McKenzie

2 Investing in the Maghreb, Brazil, India and Mexico Michael L. Coleman Raymundo Enriquez Karyn Koiffman Suchint Majmudar (BMR Advisors)

3 Overview of International Trade Patterns

4 Algeria, Morocco and Tunisia Location: Northwest Africa Population: 1% of the global population 38.7 million Algerians the 4 th largest economy in Africa 33.2 million Moroccans the 5 th economic strength in Africa 10.8 million Tunisians among the top 15 destinations for Foreign Direct Investment (FDI) flows in Africa 2014 Baker & McKenzie 4

5 Foreign Direct Investments Algeria USD 2.7 billion in 2012 and 2.8 billion in 2013 Main investor: Kuwait (23%) U.S.: 13% in 2012 Morocco USD 2.8 billion in 2012 and 2.5 billion in 2013 Main investor: France (43%) U.S.: 2% in 2013 Tunisia USD 1.1 billion in 2011 and 1.9 billion in 2012 Main investors: Qatar (31%) and France (15%) 2014 Baker & McKenzie 5

6 Income Tax Treaties Algeria Morocco Tunisia Double taxation treaties entered into with more than 20 countries worldwide (but NOT with the U.S.) Withholding tax rates paid by resident taxpayers to non-resident companies applicable to: - Dividends: 15% => 15% (Treaty with France) - Interest: 10% => 10/12% (Treaty with France) - Royalties: 24% (4.8% for the use of computer software) => 5/10/12% (Treaty with France) Double taxation treaties entered into with more than 50 countries worldwide (including the U.S.) Withholding tax rates paid by resident taxpayers to non-resident companies applicable to: - Dividends: 15% => 15% (Treaty with France), 25/10% (Treaty with UK), 15/10% (Treaty with US) - Interest: 10% => 10/15% (Treaty with France), 10% (Treaty with UK), 15% (Treaty with US) - Royalties: 10% => 5/10% (Treaty with France), 10% (Treaty with UK), 10% (Treaty with US) Double taxation treaties entered into with more than 50 countries worldwide (including the U.S.) Withholding tax rates paid by resident taxpayers to non-resident companies applicable to: - Dividends: 5% => 20/12% (Treaty with UK), 20/14% (Treaty with US) - Interest: 20% => 12% (Treaty with France), 10/12% (Treaty with UK), 15% (Treaty with US) - Royalties: 15% => 5/10/15/20% (Treaty with France), 15% (Treaty with UK), 10/15% (Treaty with US) 2014 Baker & McKenzie 6

7 Customs Agreements Algeria E.U. Partnership Agreement + Member of the Greater Arab Free Trade Area (GAFTA) + Trade and Investment Framework Agreement with the U.S. Recently negotiated Association Agreement with EU which provide for removal of all Customs duties on imports into Algeria of goods manufactured in EU and vice versa by 2020 Morocco E.U. Association Agreement + Member of the GAFTA + Free Trade Agreement with the U.S. Tunisia E.U. Association Agreement + Member of the GAFTA + Trade and Investment Framework Agreement with the U.S. + Bilateral Agreement of Investments Promotion and Protection with the U.S Baker & McKenzie 7

8 Favorable Customs Regime As part of the Euro-Mediterranean Partnership (Euromed), Morocco and Tunisia have an Association Agreement with the EU, which grants duty-free access to the EU market for manufactured goods Accordingly, textile and footwear manufactured in either country can be imported duty free from Morocco/Tunisia. Similarly, Morocco/Tunisia may import goods manufactured in the EU free of Customs duties. Morocco and Tunisia are part of the Pan-Euro- Mediterranean system of cumulation of origin, which makes it simpler to import products from the EU that are manufactured in more than one country throughout the Mediterranean basin Baker & McKenzie 8

9 Brazil The largest and most populous country in South America (population of over 202 million - 6th largest population in the world) Growing middle class Despite recent years' slow down in economy, South America's leading economic power 2014 Baker & McKenzie 9

10 Brazil Customs Agreements MERCOSUR Free trade agreements between MERCOSUR and over 10 countries Duty preference agreements with 5 countries Preferential Regional Tariff Agreements (between certain countries in Latin America) Other agreements in negotiation No customs agreements with the U.S Baker & McKenzie 10

11 India 2014 Baker & McKenzie 11

12 Mexico 2014 Baker & McKenzie 12

13 Structuring Strategic Investments

14 Algeria, Morocco & Tunisia Structure of Investment Inbound Algeria 49/51 rule => requirement of at least 51% Algerian resident ownership of foreign investments for all activities Morocco Tunisia 1995 Investment Charter with foreign exchange provisions favoring foreign investors => foreign investment permitted in nearly every sector, with restrictions in specific industries (essentially agriculture and fisheries). The percentage of foreign ownership does not affect the status of the company. In principle, no limitation (up to 100% foreign equity) - Service activities other than totally exporting: foreign equity must be lower than 50%, an authorization of the Superior Commission of Investment being required beyond. Distribution (wholesale and retail) activities qualify as services for 51/49 requirement. - Agricultural sector: foreign equity up to 66% 2014 Baker & McKenzie 14

15 What needs to/could be done once investment is inbound? In regard to each of Algeria, Morocco and Tunisia, but particularly Morocco, the new local foreign-owned entity may redeploy its financial and human resources into other jurisdictions (such as sub-sahara or the Arab/Gulf region) with which the jurisdiction of the original investor does not have double taxation or trade/customs treaties. In most cases, redeployment of capital would be subject to foreign exchange controls on export of capital Baker & McKenzie 15

16 Repatriation Funds Outbound Algeria Morocco Tunisia In principle, foreign investors can repatriate dividends, profits, and real net income out of their assets through transfers or liquidation. In practice, due to the 51/49 % equity requirement, It may take longer to obtain official permission from the Central Bank to make transfers/payments or for the local bank to proceed with the transfer. Freedom of repatriation of funds (free transfer of foreign capital invested, dividends and capital gains) once all accrued taxes in force in Morocco have been paid or settled. Freedom of repatriation of funds without taxation and further restrictions, except for investments in non-export activities where an authorization of the Central Bank of Tunisia is required Baker & McKenzie 16

17 Brazil Structure of Investment Inbound Foreign investment restrictions in certain specific industries only Foreign investments are subject to control of Brazilian Central Bank, but NO prior approval required Foreign direct investment and investment in capital markets are subject to registration with Brazilian Central Bank and annual disclosure (if applicable thresholds are met) to enable remittance of dividends, repatriation of capital, etc. Attorney in fact needs to be appointed (and financial institution in case of investment in capital markets) Restrictions of flow of funds in foreign currency 2014 Baker & McKenzie 17

18 Brazil Repatriation Funds Outbound No authorization required accounting and corporate rules apply with regard to distribution of dividends and repatriation; distribution of interest on equity possible in Brazil 2014 Baker & McKenzie 18

19 India 2014 Baker & McKenzie 19

20 Mexico: Presence and Vehicles 2014 Baker & McKenzie 20

21 Tax Considerations and Repatriation of Profits

22 General Rules for Tax Algeria Corporate Income Tax Of 19% or 25% (trade and services) on profits from business carried on in Algeria (draft Finance law for 2015 provides for a uniform 23% rate). Reduced rate for investment capital companies and listed companies Dividends Capital Gains Royalties Exempt from withholding tax if received by other resident companies but subject to withholding tax (15%) when distributed to resident individuals or non-residents. Realized by resident companies subject to corporate income tax at the standard rate. Subject to corporate income tax if derived by residents. Royalties paid to nonresidents subject to a withholding tax (24%) in full satisfaction of the tax liability. VAT At a standard rate of 17% and reduced rate of 7%. Customs Duties Exemptions From 0% to 30% For qualifying new investments Baker & McKenzie 22

23 General Rules for Tax Morocco Corporate Tax Ordinary rate of 30% - discounted rate of 17.5% for exporting companies. Foreign contractors carrying out engineering, construction or assembly projects relating to industrial installations may opt for a 8% rate on gross revenues. Other favorable tax provisions apply to export zones (zones franches) and hydrocarbons. Capital Gains Tax 30% (subject to certain exceptions). VAT Standard rate of 20% - reduced rates of 7, 10 and 14% Royalties Favorable Tax Provisions Royalties derived by non-resident legal persons are subject to a final withholding tax at the rate of 10% on the gross amount, unless a lower treaty rate applies: e.g. 5% (for copyright royalties in respect of the production/reproduction of literary, artistic or dramatic work) or 10% (for other types of royalties) if the recipient IP licensor is located in France; the rate remaining 10% for the UK and the US. Export zones (zones franches), hydrocarbons 2014 Baker & McKenzie 23 Exemptions

24 General Rules for Tax Tunisia Classical Corporate Taxation System Corporate Tax Dividends Capital Gains Royalties Favorable Tax Provisions (25%) on income from activities carried on in Tunisia. Increased rate (35%) for banks, insurance, factoring, hydrocarbon services companies, telecommunication operators. Reduced rate (10%) for export companies. Not subject to tax. As from 01/01/15: withholding tax of 5% on the distribution of dividends to non-resident persons. Subject to corporate tax at the standard rate. Capital gains on shares realized by non-residents subject to tax in Tunisia. Exemptions may apply subject to certain conditions. Subject to corporate tax if derived by residents. Royalties paid to non-residents subject to a 15% withholding tax in full satisfaction of the tax liability if no treaty. US treaty rate: 10/15%; UK treaty rate: 15%; France treaty rate: 5/10/15/20%. Standard rate of 18%. Exemptions From 0% to 43% 2014 Baker & McKenzie 24

25 Algeria, Morocco & Tunisia Profit Repatriation Rules Algeria Morocco Tunisia Foreign investors can repatriate profits through transfers or liquidation. It may take longer to obtain official permission from the Central Bank to make transfers, or for the local bank to proceed with the transfer. Free repatriation of profits (only for foreign residents, nonresidents and Moroccans residing abroad) Freedom of repatriation of profits without taxation and restriction, except for investments in non-export activities where an authorization of the Central Bank of Tunisia is required 2014 Baker & McKenzie 25

26 Algeria, Morocco & Tunisia Investment Protection Rules Morocco and Tunisia have bilateral investment treaties with US No bilateral investment treaty between US and Algeria (although Trade and Investment Framework Agreement exists) 2014 Baker & McKenzie 26

27 Brazil General Rules for Tax Foreign direct investments in Brazilian companies Dividends Payment of Interest on equity Return of Capital Exempt from withholding income tax. IOF-Exchange currently at a zero rate. Withholding income tax at 15% rate (increased to 25% in case of beneficiaries located or domiciled in low tax jurisdictions) on the amount of interest paid, credited or capitalized. IOF-Exchange currently at a zero rate. In case the amount in foreign currency remitted proportionally exceeds the amount in foreign currency registered with the SISBACEN, this will be considered a capital gain subject to 15% tax rate. Capital reduction subject to waiting period (90 days for limited liability companies and 60 days for corporations) for opposition by third parties (creditors) Baker & McKenzie 27

28 Brazil General Rules for Tax Investments in capital market Withholding Income Tax IOF-Exchange In case of portfolio investments carried out by foreign investors investing in the stock exchange, commodities, future or similar markets, gains are exempt from withholding income tax provided that the investor is not domiciled in a low tax jurisdiction. However, this exemption does not apply to certain combined operations which give rise to predetermined revenues, which are subject to withholding income tax at a 15% rate (i.e. (i) options of purchase and sale at the stock exchange, commodities or future market, (ii) term transactions, at the stock exchange, commodities or future market, in case of covered sales and without daily adjustments, and (iii) operations at the over the counter market) According to Decree No. 6,306/07 (as amended), the remittance of gains resulting from investments in capital market is subject to the IOF-Exchange at a zero rate Baker & McKenzie 28

29 India 2014 Baker & McKenzie 29

30 Mexico 2014 Baker & McKenzie 30

31 Practical Tips

32 Risk/Benefit Assessment Chart Algeria Risks - Protectionist measures with restrictive foreign investment rules - Bureaucracy - Corruption; however, abatement programs are in progress - Weakness of financial/banking sector - Legal uncertainty regarding IP rights, particularly in regard to new technologies - Complex legislation - Instability Benefits - Strategic location - Low cost of energy inputs - Skilled and cheap labor force - Emerging/growing consumer market - growing demand for modern infrastructure and consumer products 2014 Baker & McKenzie 32

33 Risk/Benefit Assessment Chart Morocco Risks - Excessive dependence vis-à-vis agriculture and vulnerability to oil and gas prices - Bureaucracy Benefits - Strategic location - Stability - Favorable legal framework (Investment Charter; protection of IP rights; extensive tax and Customs network) - Tax advantages - Low wages - Young and well-educated population - Strong growth - Liberalization of Moroccan economy - Liberalization of external financing - Freedom of repatriation of funds/profits - Generally pro-business attitude of governmental decision makers 2014 Baker & McKenzie 33

34 Risk/Benefit Assessment Chart Tunisia Risks - Heavy bureaucracy - Corruption Benefits - Strategic location - Stability - Tax incentives and grants - Repatriation of capital and dividends - Coverage of social contributions - Coverage of vocational training - Coverage of infrastructure spendings - Benefits granted to investment support - Employment incentives - Qualified, productive workforce at competitive salary levels - Additional benefits when investments are of importance or interest to the national economy or education 2014 Baker & McKenzie 34

35 Algeria, Morocco & Tunisia Tips on Planning an Exit Strategy What is the most efficient strategy to get back investment in a foreign country? If JV is created, whether for resale or manufacturing, it is critical that the JV partner be reliable and cooperative. Exit rights should be clearly defined in JVA. Monitor continuously contractual performance of local contractual party (whether distributor/sales representative, IP licensee/jv partner). Investment may be structured so as to be held by country having favorable double taxation treaty provisions. Judicious transfer pricing combined, where possible, with IP royalties licensing. If pass-through of start-up and/or subsequent operating losses is important for U.S. tax planning purposes, select the limited liability type of entity (SARL) which is officially recognized in each of the 3 host jurisdictions Baker & McKenzie 35

36 Brazil Stringent consumer protection rules and e-commerce restrictions (Ecommerce Law enacted in 2013) Other tax considerations: High tax burden over imports of good Complex set of rules and numerous layers of taxes, which restrains the development of local industries ICMS tax war between various states which unilaterally grant tax incentives for purposes of attracting new companies and more investments Limitation for the tax deduction of payments relating to patents, knowhow and technical assistance of up to 5% of net sales and payments relating to trademarks of up to 1% of net sales. Limitation of remittance abroad for payment of royalties to foreign affiliated entity (5% for patents, know-how and technical assistance and 1% for trademarks) Thin capitalization, transfer pricing and NOLs 2014 Baker & McKenzie 36

37 India Structure: LLP vs Company Functions: Sourcing vs Manufacture Use of debt instruments ECBs Facilitates repatriation CCDs Certainty on TP and tax positions APA AAR Exit Planning Recapitalisation Debt-pussh down 2014 Baker & McKenzie 37

38 Mexico 2014 Baker & McKenzie 38

39 Trends in Hong Kong / China Loke-Khoon Tan

40 IP Trends

41 Asian Brands Going Global 2014 Baker & McKenzie 41

42 3D Printing 2014 Baker & McKenzie 42

43 Risks of Passing Off 2014 Baker & McKenzie 43

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45 Investment in Luxury Brands in Asia 2014 Baker & McKenzie 45

46 Supply Chain & Customs 2014 Baker & McKenzie 46

47 Anti-corruption Initiatives 2014 Baker & McKenzie 47

48 Accessible / Affordable Luxury 2014 Baker & McKenzie 48

49 Digital Branding 2014 Baker & McKenzie 49

50 Chinese Platforms 2014 Baker & McKenzie 50

51 2014 Luxury & Fashion Industry Conference for Multinationals 4 September 2014 The Harvard Club, New York, NY Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a partner means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an office means an office of any such law firm Baker & McKenzie All rights reserved.