Embarking on the journey to a new era of opening-up 2018 Deloitte Outbound Investment Guide for Chinese Businesses Global Chinese Services Group | June 2018 2018 Deloitte Outbound Investment Guide for Chinese Businesses 2018 Deloitte Outbound Investment Guide for Chinese Businesses

Foreword 1 Part I – Overview 4 Retrospect and Prospect of Chinese Economy 4 Retrospect and Prospect of Chinese Outbound Investment 5 Greater China Outbound M&A Review 9 The Belt and Road Initiative to Drive a New Chapter of Globalization 15 Considerations and Preparations before Chinese Outbound Investment 17 Part II– Go Global with Chinese Companies 20 Challenges and Solutions for Chinese Outbound Investment 20 Deloitte Provide One-stop Solutions for Chinese Outbound Investment 25 Contact us 34

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2018 Deloitte Outbound Investment Guide for Chinese Businesses 2018 Deloitte Outbound Investment Guide for Chinese Businesses

Foreword

Deloitte opened its first China office in Shanghai as early as 1917, becoming one of the first foreign accounting organizations to establish a presence in China. Last year, Deloitte China celebrated its 100th anniversary. Over the past 100 years, Deloitte China is committed to making an impact that matters to clients, people and society, and has grown into a leading professional services organization with more than 13,000 people in 22 offices across Chinese Mainland, Hong Kong, Macau and Mongolia. Deloitte's journey in China is an epitome of China's social and economic development. Today, China is the world's second largest economy with a net capital outflow. With Chinese investors' footprints expanding all around the globe, the number of Chinese companies listed on 2017 Fortune Global 500 surged to 115 from 11 in year 2000.

In addition to providing quality services to high-growth domestic market, Deloitte is committed to helping Chinese companies penetrate and lead the global markets. Based on this concept, Deloitte Global Chinese Services Group (GCSG) was established in 2003 to support Chinese companies to expand globally and move up the value chain. The guide was jointly compiled by Deloitte China and Deloitte Global Chinese Services Group professionals with local expertise. We hope that the guide could help Chinese companies engage in and make a greater impact in the global market, and become world-class multi-national companies.

Patrick Tsang Deloitte China CEO

Over the past decade, "Going Global" has been the compelling force for China's economic transformation and the steering guidance for Chinese enterprises' expansion overseas. An increasing number of Chinese enterprises investing heavily overseas, establishing globalized industrial chain and value chain. Meanwhile diversified challenges set in during the globalization. Now is the time to not only go global, but to go well enough and steady enough so as to materialize the verily internationalized operations and become the truly world- class enterprises with global competencies.

In pursuit of service excellency during the process of Chinese enterprises going global, Deloitte deploys Chinese-speaking professionals across its global network to provide professional advisory and assistance anywhere, anytime. This Guide earmarks our efforts and sincerity to go global with you, and may you find it helpful for your globalization road map!

Vivian Jiang Deloitte China Deputy CEO Deloitte China Markets & Global Network Leader

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China is making strides in transforming its economy - quality of growth has been the mantra this year. Meanwhile, synchronized recovery in developed countries has shown a positive prospect for global growth. In the New Era, China will play a more active role in updating the international economic and trade order – not only learning from others' strong points but also embracing open innovation in the process of going out. The perspectives on Chinese economy and outbound investment in this guide are based on Deloitte's long-term study on the macro and industry trends, as well as deep communication with clients from all walks of life.

Sitao Xu Chief Economist at Deloitte China

An increasing number of countries and organizations are actively involved in the Belt and Road (B&R) Initiative to promote its deep development across the globe. Now, the Initiative looks beyond the infrastructure projects, expanded to other diverse industries and sectors in destination countries. While Chinese State-owned Enterprises took lead in the Initiative at the early stage, more private and foreign-funded enterprises are taking parts. It is suggested that the B&R Initiative has driven a new chapter of Chinese outbound investments, during which the overseas investment will witness a continuous growth in value and, more importantly, quality and structure improvement. To move up the value chain, Chinese companies shall strengthen their global competitiveness and resources allocation, and enhance risk management control. This guide offered investment overviews of countries and regions alongside the B&R, as well as key concerns of Chinese outbound investments. Hopefully this guide can be of assistance to companies considering entering or expanding their businesses in the overseas markets.

Norman Sze Deloitte Belt and Road Services China Leader Deloitte Northern Region Managing Partner

2 2018 Deloitte Outbound Investment Guide for Chinese Businesses 2018 Deloitte Outbound Investment Guide for Chinese Businesses

As a trusted business advisor, Deloitte is fully committed to understanding and addressing the business needs and concerns of Chinese outbound investors. Our professionals possess the hands-on outbound experience, in-depth sector knowledge as well as on-the-ground understanding of local market practice advising them throughout the process of the transaction or project. Leveraging the global network of Deloitte, we are devoted to providing one-stop and high- quality multidisciplinary services in connection with their outbound investments regardless of their destination countries from sourcing to execution, from negotiation to integration.

This guide provides advice and solutions for Chinese outbound investors to address their complex business challenges, shares Deloitte's distinctive Belt and Road Initiative services and our dedicated outbound investment team. This guide is hopefully to assist Chinese companies in identifying right strategies to guide their over-all investment journey.

Derek Lai Vice Chair of Deloitte China Deloitte Global FA Belt & Road Leader

Deloitte deployed dedicated teams of professionals possessing Chinese speaking capabilities and knowledge about China and Chinese companies to provide professional advice and comprehensive solutions to Chinese companies globalization. We are committed to expanding our footprints as our clients expand theirs. To stay ahead of the curve in putting the needs of clients as our priority, we continue our efforts in evolving and adapting to the changing dynamics of the marketplaces, and provides advice and solutions to clients to address their complex business challenges.

2018 Deloitte Outbound Investment Guide for Chinese Businesses, released in the joint efforts of Deloitte Global Chinese Services Group and Deloitte professionals across the globe, aims to provide insights on Chinese economy and outbound investment overview and outlook, solutions to outbound related business challenges, and highlights of selected countries as hot destinations. We hope this guide will be of great help to you and please feel free to contact us if professional advice on Chinese outbound investments are needed.

Rosa Yang Deloitte Global Chinese Services Group Chairman Deloitte Global Network Affairs Managing Partner

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Part I – Overview

1.Retrospect and Prospect of a comparable performance in 2018. unsustainable in the medium term. Chinese Economy Therefore, it makes good sense for China will be tested when the cyclical Embracing a lower growth target China to embrace a slower GDP momentum starts losing steam. The closely-watched 19th Party growth target. In short, GDP growth shall slow down Congress has resulted in some clarity in 2018. Considering the tightening on economic policy. As expected, Economic growth certainly comes of labour market, China should lower certain landmark years (e.g. 2020, with costs (e.g. exploding credit its expectation on GDP growth (to 2035, and 2050) were given additional growth). Indeed, the new mantra, 6.0% or even lower). Deleveraging weight with regard to economic coined by President Xi regarding will become more urgent given the and social welfare targets. However, the ‘mismatch between uneven Federal Reserve's tightening policies the GDP growth target has been development and people's desire and the decision made during Trump's deemphasized. This is a welcome for a better life’, suggests that visit to China, which would limit the development given that de-leverage policymakers had become to realize domestic credit growth and lead to and SOE reforms can only proceed that economic development was not further opening of financial industry against a backdrop of slower growth. panacea for everything. We believe (the foreign investment proportion Looking at the contributions from that China's economic resilience is in securities companies, fund the property sector and exports in extremely undervalued; however, the management companies and future 2017, it would be too much to expect current growth rate (around 6.5%) is companies will increase to 51%).

Figure 1 Growth pressure of exports and real estate investment under high base

China's exports: YoY Investment of property development: OECD composite leading indicator (right) cumulative YoY Commercial housing sales area: cumulative (% ) (%) YoY (right) (%) 60.00 100.60 12.00 40.00

100.40 30.00 40.00 100.20 9.00 20.00 20.00 100.00 99.80 6.00 10.00

0.00 99.60 0.00 99.40 3.00 -20.00 -10.00 99.20

-40.00 99.00 0.00 -20.00 2015-01 2015-04 2015-07 2015-10 2016-01 2016-04 2016-07 2016-10 2017-01 2017-04 2017-07 2017-10 2018-01 2015-02 2015-05 2015-08 2015-11 2016-02 2016-05 2016-08 2016-11 2017-02 2017-05 2017-08 2017-11

Source: Wind, Deloitte Research

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2.Retrospect and Prospect of Under the guidance of the B&R Chinese Outbound Investment Initiative, Chinese enterprises are Despite the global slowdown of capital accelerating their globalization. flow, China’s overseas investment In 2017, MOFCOM and the major kept a strong growth momentum provincial commerce administrative with the boost of B&R Initiative and departments recorded and International Capacity Cooperation. approved 6,172 overseas investment According to World Investment Report enterprises, and staffs deployed 2017 published by UNCTAD, in 2016, overseas reached 1 million, indicating global foreign direct investment flow China’s significantly improved fell by 8.9% to US$1.45 trillion. In spite internationalization. of this, China still stood out as the second largest investing country in The Belt and Road Initiative drives the world. Total investment outflow a new chapter to deepen all-round of China increased by 34.7% in 2016 cooperation as well as investment to US$196.15billion, accounting for and trade development 13.5% of global outbound investment, In 2017, total value of non-financial exceeding 10% for the first time. direct investment from Chinese Since ODI outnumbered FDI for the companies to 59 countries along the first time in 2015, China has become Belt and Road reached US$14.36 a net capital exporter in terms of billion, accounting for 12% of total two-way direct investment. In 2016, non-financial direct investment of the the gap between ODI and FDI further period, up by 3.5%. Main investment widened, with net capital outflow hotspots include Singapore, Malaysia, achieving US$62.45 billion. Indonesia, Pakistan, Vietnam, Russia, UAE and Cambodia etc. There were

Figure 2 Proportion of China’s ODI flow to global ODI flow grew rapidly

16.0%

14.0% 13.5%

12.0% 9.9% 10.0% 9.1% 7.6% 8.0% 6.7%

6.0% 4.8% 4.0%

2.0%

0.0% 2011 2012 2013 2014 2015 2016

Source: MOFCOM, "2017 World Investment Report" by UNCTAD, Deloitte Research

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in total 62 M&A transactions along Outbound investment plummeted year growth of 8.7%, among which the the B&R totaling at $8.8billion, with due to supervision, no new number of projects with value over year-on-year growth of 32.5%. Among projects in sensitive industries US$50 million reached 782, adding up them, the largest deal is China In 2017, irrational outbound to US$197.74 billion, taking up 74.5% National Petroleum Corporation investment was curbed by the of the total value of the newly signed (CNPC) and China Energy Company government as non-financial direct contracts. The value of export driven Limited (CEFC)’s joint acquisition of investment in 174 countries and by foreign contract projects was a 12% stake in Abu Dhabi National regions, 6,236 overseas companies US$15.39 billion. Oil Company (ADNOC) for US$2.8 amounted to US$120.08 billion, a year- billion. The turnover of the overseas on-year decrease of 29.4%. In terms Outlook of China Outbound contracted projects along the B&R of the composition, investment in Investment amounted to US$85.53 billion, up equity and debt instruments reached In November 2017, Premier Li Keqiang, by 12.6% year-on-year, taking up US$102.08 billion, a year-on-year pointed out that “It is estimated that 50.7% of the turnover of all overseas decrease of 32.9%, accounting for 85% in the coming five years, China will contracted projects during the same of all investment. Reinvested income import US$8 trillion worth of goods, period. The total value of the newly achieved US$18 billion, equalling receive US$600 billion of foreign signed contracts along the B&R the investment last year, accounting investment, and make US$750 billion reached US$144.32 billion, up by for 15% of all investment. Foreign of outbound investment. And there 14.5% year-on-year, occupying 54.4% investment mainly flows into leasing will be 700 million visits by Chinese of the total value of all newly signed and business services, wholesale and tourists to overseas destinations” contracts in the same period. retail, manufacturing and information at the 20th ASEAN Plus China, Japan transmission, and software and IT and ROK Summit. By "Going Global", Economic and trade cooperation services, accounting for 29.1%, 20.8%, Chinese companies could realize their along B&R was competitively effective. 15.9%, and 8.6% of all investment shortcomings in local operations, In 2017, China’s trade with the Belt respectively. There were no new learn from others strengths and close and Road countries reached up to projects in real estate, sport and the gap in between. Complement 7.4 trillion yuan with year-on-year entertainment due to government resources with capabilities is growth of 17.8%. Construction of restristion. the top demand for outbound major projects has also progressed. investment. Considering global The Mombasa Port - Nairobi Railway, Cross-border M&A activity remained economic situations, B&R Initiative, initial segment of East Africa railway active in 2017. Chinese business had regulatory policies and the influence network, opened to traffic. The first a total of 341 M&A projects overseas, of innovative technologies, Deloitte tunnel along China – Laos Railway with an actual transaction value of comes up with the following opinions has been bored through successfully. US$96.2 billion, involving 18 industries on outbound investment trend in First-stage of China – Thailand over 49 countries and regions. Among 2018: railway started construction. And them, domestic direct investment ••One could assume that in 2018 the the Hungary – Serbia railway project projects and overseas financing synchronized recovery of OECD and Karachi expressway project projects totaled at US$21.2 billion countries will continue and major are pushing through smoothly. and US$75 billion, taking up 22% and central banks' tightening of the Great breakthroughs were made 78%, respectively. Total turnover of money supply will be gradual (both as for Free Trade Zone. Free Trade foreign contracted projects reached assumptions are sensible). It is also agreements were signed with Georgia US$168.59 billion with a year-on-year quite probable that the renewed and Maldives and negotiations have growth of 5.8%. Newly signed foreign strength of the dollar and event risk started with Moldova and Mauritius, contracted projects increased, totaling (e.g. a hard Brexit) could well keep and RCEP negotiation has made at US$265.28 billion with a year-on- a lid on any rally of the Euro, thus positive progress. allowing the Fed to increase short- term interest rates in a measured fashion. The above scenario, which is entirely plausible, would be positive for China. However, since

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already in 2017 the vastly improved increase its presence along the B&R fortunes of the developed countries out of concerns of geopolitics and resulted in a favourable backdrop financial risks. for China's external sector, can ••Opportunities and risks coexist Chinese exporters really repeat their along the B&R. Investors must sterling performance in 2018, on a look at projects from long-term relatively strong base of 2017? It is perspective. Risks should not be challenging. In addition, the Trump underestimated, or overestimated. Admiration's pressure on China B&R Initiative therefore will in terms of bilateral trade deficit undoubtedly continue to prevail. reductions will not go away. In May 2015, NDRC estimated that ••B&R Initiative is of increasing Chinese outbound investment significance. Instead of limiting would reach a total volume of B&R Initiative to a strategy serving US$600–800 billion in the next five Chinese companies only, China is years, with many of which flew into intentionally blurring the concept countries along the B&R. In October to encourage more involvement 2017, B&R Initiative was included from related countries and regions into the CPC Constitution, which around the globe. Reforms are showed B&R Initiative’s deep policy taking place too in terms of target implications and encouraged more industries. At the beginning, B&R companies to participate. Initiative was featured by long-term ••Capital control will continue. The infrastructure investment projects, new Administrative Measures for profiting mainly SOEs in China. Enterprise Outbound Investment Now, investments are expanding st would come into effect on March 1 , into trade, manufacturing, IT and 2018. Under the new regulations, tourism, enabling companies to investments in sensitive sectors benefit from B&R Initiative in the near future. Besides, China must

Figure 3 China’s non-financial ODI dropped by more than 30%

US$ 100 million Growth rate

2,000 60.0% 1,800 49.3% 50.0% 1,600 40.0% 1,400 30.0%

1,200 15.6% 1812 20.0% 1,000 13.3% 10.0% 800 0.0% 600 -10.0% 1180 1201 400 1028 -20.0% 200 -30.0% -33.7% 0 -40.0% 2014 2015 2016 2017

Growth rate

Source: MOFCOM, Deloitte Research

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must be checked by NRDC and equity investment funds will ••Projects that focus on the future those in non-sensitive sectors continue to be restricted. and technological innovation are should file records according to favoured. Chinese investors of the ••Internet companies like Baidu, the value (no record-filing required new generation are determined Alibaba and Tencent (BAT) would for investment below US$300 to promote social progress and play significant roles in outbound million). However, capital control improve living standards through investment. Emerging Internet as a whole is still a temporary technological products. Therefore, companies represented by BAT measure, as all forms of control they invest heavily in frontier science is expanding their investment to are bad for state owned economy and technology fields, such as Silicon Valley in search of high- and private economy. China’s artificial intelligence, biotechnology, quality start-ups. They will initiate economic transformation should etc. Chinese investors are also a third wave of investment boom, focus on further deleveraging and willing to transform traditional following the ones started by SOEs encouraging outbound investment industries, such as real estate, and private enterprises. Internet rather than addressing GDP growth. energy, and manufacturing which companies lay great emphasis on Otherwise, exchange rate of RMB have already faced a capital surplus, strategic blueprint of investment need further adjustment. through advanced technologies and (Baidu’s acquisition of mobile new ideas. The trend in the next ••Investments in sensitive sectors will security company TrustGo, Tencent's five to ten years is to invest in high- continue to be strictly controlled. investment in Online design value projects overseas and open The new list of sensitive sectors retailer Fab, Alibaba's investment in up global markets through venture for outbound investment would Mobile App Search Engine Quixey, investment funds, industrial funds, come into effect on 1st March, 2018. Messaging App Tango and Smart and M&A funds. Irrational investment overseas Remote App Peel etc.), representing in properties, hotels, cinemas, a change of "Made in China" from entertainment, sports clubs and cheap commodities to innovative products.

Figure 4 Greater China Outbound M&A Overview: 2005 – 2017

US$ billion Number of Deals

250 480 500 436

200 375 400

293 150 300 237

100 190 186 200 148 110 92 88 50 64 70 100

0 - 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Q1 Q2 Q3 Q4 Deal Value(LHS) Deal Value(RHS)

Source: Mergermarket Note: 1) Greater China refers to Mainland China, Hong Kong, Macau and Taiwan. 2) Deal volume includes the number of announced/completed deals with disclosed and undisclosed values during the period stated. 3) Deal value includes the value of announced/completed deals with disclosed values during the period stated. 8 2018 Deloitte Outbound Investment Guide for Chinese Businesses 2018 Deloitte Outbound Investment Guide for Chinese Businesses

After record-breaking year in terms of outbound M&A transaction value and deal volume, China witnessed a relative slowdown in 2017 with only US$140.7 billion worth (dropped 32.6% from 2016) of 436 (dropped 9.2% from 2016) announced Chinese outbound M&A deals. The tightened regulatory oversight governing capital outflows has cooled off some Chinese investors' spending sprees in investing abroad.

3.Greater China Outbound M&A The announced outbound M&A deal Review value contracted from US$208.7 The landscape in China, however, billion in 2016 to US$140.7 billion remains conducive to Chinese in 2017, attributable to the decline companies in making overseas of mega deals (over US$1 billion) acquisitions or investments, from 39 in 2016 to 29 in 2017. The particularly with a range of supportive notable ChemChina-Syngenta deal, incentives and policies (such as Belt the country's largest outbound deal in & Road Initiative) rolled out by the history, fueled the overall deal value in government. 2016 with US$43 billion.

Looking ahead, despite the drop in Overseas targets in Consumer & 2017, we expect the China outbound Industrial Products (C&IP) remained M&A momentum will rebound and attractive to Chinese investors. In remain strong and may reach a new 2017, the largest two announced high in 2018. outbound M&A deals were in Transportation sector: 1) the US$13.8 billion acquisition of UK-based LogiCor Europe Limited by China Investment Corporation (CIC), the Chinese sovereign wealth fund, from Blackstone Group; and 2) the US$11.6 billion acquisition of Singapore-listed Global Logistic Properties (GLP) by a consortium led by China Vanke.

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Figure 5 Greater China Outbound M&A by Target Region: 2016 vs 2017

Europe deal value (US$ billion) North & Central America 100 deal value (US$ billion)

80 80 60 60 40 40 20 80 20 0 60 2016 2017 United Kingdom 2016 2017 40 United States America Germany Canada France 20 Rest of North Central America Central & East Europe South America Rest of Europe 0 deal value (US$ billion) 2016 2017 15 Middle East & Africa deal value (US$ billion) Australia 16 10 South East Asia(SEA) 12 Japan 5 8

0 4 2016 2017 Brazil 0 Rest of South America 2016 2017 Africa Israel Rest of Middle East

Source: Mergermarket Notes: 1) Greater China refers to Mainland China, Hong Kong, Macau and Taiwan. 2) Deal value includes the value of announced/ completed deals with disclosed values during the period stated.

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Boosted by the largest Chinese Aggregated Chinese outbound deal outbound deal in 2017 (China Vanke- value in United States of America GLP deal), Southeast Asia was the dropped significantly from US$59.5 most favorite destination region billion in 2016 to US$11.8 billion in in terms of deal value with over 2017, attributable to fewer mega US$33 billion worth of Chinese deals deals announced in 2017. In 2016, announced. two notable deals included Avolon Holdings' US$10 billion takeover of Australia, with aggregated US$18.8 CIT Commercial Air Unit and HNA's billion of Chinese outbound deals US$6.5 billion acquisition of 25% stake announced, ranked as the second in Hilton Worldwide. most active destination in terms of deal value in 2017, partly attributable Brazil has been one of the to the US$5.6 billion takeover of destinations for Chinese acquirers power provider Duet Group by seeking for Energy & Resources Hong Kong-based Cheung Kong targets. State Grid acquired CPFL Infrastructure (CKI) as well as the Energia S.A. in 2 phases: 54.64% US$3.1 billion acquisition of Alinta stake in 2016 for US$9 billion and the Energy by Hong Kong conglomerate remaining 45.36% in 2017 for US$4 Chow Tai Fook (CTF). billion.

In 2017, United Kingdom attracted Chinese investors have their eyes a total of US$18.3 billion worth of in Israel for companies mainly in Chinese M&A investments, largely innovative technology and consumer attributable to the sale of UK-based products sectors. While a number LogiCor Europe Limited to CIC for over of small deals were announced in US$13 billion. 2017, two notable deals aggregated to over US$8 billion were announced in 2016: 1) US$4.5 billion acquisition of Israeli social game developer Playtika by a Chinese consortium led by Giant Network Group; and 2) the US$3.9 billion acquisition of ADAM Agricultural Solutions by Hubei Sanoda.

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Figure 6 Greater China Outbound M&A by Target Industry: 2015 – 2017

US$ million

$85,272 $17,814 21 53 375 deals $32,645 6 $208,659 2015 $18,425 64 206

$28,675 29 $20,299 49 25 480 deals 12 $3,816 $430 $7,022 2016 $104,346 $10,268 260 98

32 $44,737

$140,674 $6,740 $5,454

26 $36,715 47 436 deals 7 $67,035 2017 75 231

$2,079 50

$19,036

$9,069

Consumer & Industrial Products Life Sciences & Health Care Technology, Media & Telecommunications

Real Estate Energy & Resources Financial Services

Source: Mergermarket Notes: 1) Greater China refers to Mainland China, Hong Kong, Macau and Taiwan. 2) Deal volume includes the number of announced/completed deals with disclosed and undisclosed values during the period stated. 3) Deal value includes the value of announced/completed deals with disclosed values during the period stated.

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Volumes of Chinese outbound particularly in developed countries, 51% stake in UK-based Global Switch Consumer & Industrial Products as evidenced by the increased deal Holdings for US$4 billion. Two mega (C&IP) announced deals remained volume in 2017. Representative deals in 2017 were the 3.1 billion strong and consistently accounted announced deal in 2017 included acquisition of Sharp Corporation by for over 50% of respective year's total the acquisition of 93.37% stake in Taiwan-based ES Platform and the outbound deal volume during 2015 Singapore-based medical device US$2.5 billion investment Singapore's – 2017. Significant total announced maker Biosensors International by ride-hailing company Grab by Didi outbound C&IP value of US$104.3 Shenzhen-listed Blue Sail Medical for Chuxing-led consortium. billion in 2016 was primarily due to the US$1.2 billion. striking of US$43 billion ChemChina- Despite volume declined, the value Syngenta deal in 2016. After Only US$19.0 billion worth of outbound Energy & Resources normalizing the impact of such mega of Technology, Media & (E&R) deals increased from US$28.7 deal, the total outbound C&IP value Telecommunications (TMT) deals billion in 2016 to US$36.7 billion in in 2017 would have increased by 0.9% announced in 2017, a sharp decline 2017. Key deals announced in 2017 from 2016. of 57% from 2016 (US$44.7 billion). included: US$9.1 billion acquisition of In 2016, Chinese TMT players made 14.16% stake in Russia-based Rosneft With keen intention to uplift bold moves: Tencent acquired 84.3% Oil by CEFC China Energy and the technological knowhow at home, stake in Supercell Oy in Finland for acquisition of 70% stake in Myanmar's Chinese acquirers exhibited growing US$8.6 billion, Giant Networks agreed Kyauk Pyu Port by a consortium led by interests in overseas Life Sciences to acquire Israeli Playtika US$4.5 CITIC for US$7.3 billion. & Health Care (LSHC) targets, billion, and Elegant Jubilee acquired

Figure 7 Greater China Outbound M&A by Target Sector: 2016 vs. 2017

No. of Deals C&IP LSHC TMT RE E&R FSI

90 81 80 75 69 70 67 60 58 48 49 47 50 44 46 40 29 30 27 26 23 24 21 23 17 18 18 20 16 14 11 10 9 11 12 10 8 8 7

- ConsumerAutomotive Chemicals &Travel, HospitalityTransportation Retail, WholesaleIndustrial and ProductsLife Sciences & Health CareTechnology Media TelecommunicationsReal Estate Energy & Financial Products Specialty Materials& Services DistributionServices Resources Services

2016 Deal Volume 2017 Deal Volume Source: Mergermarket Notes: 1) Greater China refers to Mainland China, Hong Kong, Macau and Taiwan. 2) Deal volume includes the number of announced/completed deals with disclosed and undisclosed values duringthe period stated.

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Figure 8 Greater China Outbound M&A by Target Region and Target Industry: 2017

C&IP LSHC TMT RE E&R FSI

Southeast Asia 26 3 10 1 8 11 59 13.5%

Asia Australia 23 3 1 - 9 2 38 8.7% Pacific Japan 8 4 3 2 - - 17 3.9%

Rest of Asia Pacific 19 - 12 - 4 1 36 8.3%

Germany 31 3 - - 1 - 35 8.0% United Kingdom 15 2 9 - 3 1 30 6.9% France 9 1 2 1 - - 13 3.0% Europe Central & East 9 1 1 - -- 11 2.5% Europe Rest of Europe 33 8 6 2 3 8 60 13.8% Africa 2 - - - 5 - 7 1.6% Middle East & Israel 2 2 2 - 1 - 7 1.6% Africa Rest of Middle East 3 - 1 - 3 - 7 1.6% United States of 37 22 22 - 3 2 86 19.7% America North & Central Canada 4 1 5 1 1 - 12 2.8% America Rest of North & 2 - 1 - - 1 4 0.9% Central America

Brazil 4 - - - 3 - 7 1.6% South Rest of South America 4 - - - 3 - 7 1.6% America

Total 231 50 75 7 47 26 436 100.0%

% 52.9% 11.5% 17.2% 1.6% 10.8% 6.0% 100.0%

Source: Mergermarket Notes: 1) Greater China refers to Mainland China, Hong Kong, Macau and Taiwan. 2) Deal volume includes the number of announced/completed deals with disclosed and undisclosed values during the period stated.

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Despite measures imposed in the Looking ahead, we expect Chinese "bringing in" and "going global," follow second half of 2017 which pulled acquirers continue to seek for overseas the principle of achieving shared a brake on the heated outbound targets in developed countries in the growth through discussion and activities, the Chinese government following sectors: collaboration, and increase openness is still very supportive for Chinese and cooperation in building innovation ••Consumer products acquirers in carrying out overseas capacity. "It is indicated that under the investments actively but prudently. The ••Life sciences guidance of the Initiative, China does overarching theme of the guidelines ••Health care not only focus on the exploration promotes Chinese companies to of overseas markets and the idea expand abroad, transform through ••Technology of "going global" is proposed for collaboration, and uplift capabilities ••Automotive attracting more foreign investments and quality by bringing the advanced and for more efficient allocation ••Energy technologies and knowhow back home: of global resources. Besides, the Nevertheless, outbound investments Initiative serves as a new platform ••Extend economic influence through in "unrelated" sectors and "prohibited" of cooperation for win-win results infrastructure investments and sectors (such as casino, entertainment, through discussion and collaboration, projects along the One Belt One real estate, etc.) are not encouraged. rather than a program/mechanism Road regions and countries imposed on other countries. The ••Expand and export China's 4.The Belt and Road Initiative initiative should be an effective production capacity, equipment and to Drive a New Chapter of approach to building a community of technical standards Globalization shared future. 2018 marks five years since Chinese ••Transform and uplift capabilities President Xi Jinping put forward through collaboration with overseas Deloitte observed that B&R Initiative the Belt and Road Initiative (B&R companies with advanced and welcomes the participation of all Initiative). During the past years, the innovative technologies countries but it attaches more Initiative has been put into practice, importance to the construction ••Explore natural resources abroad to making an increasing impact in the of key areas and major projects. help boosting economic growth in world. Now China has entered a new Taking capacity cooperation projects domestic market era where it looks to move from for example, key construction areas high-speed to high-quality growth. ••Expand foreign cooperation in covers 46 countries. Among them Chinese outbound investment also agriculture and food chain sector for the 15 countries nearby China, drives a new chapter of globalization enhancing the safety and quality of including Kazakhstan, serve as the along with the expansion and further food and ensuring sufficient supply Main Axis, with 24 African, Middle development of the Initiative. domestically East and Central European countries, At the 19th CPC National Congress including Ethiopia, Zimbabwe, Iran convened in October last year, and Romania, as the West Wing, and President Xi stressed that "We should 6 Latin American countries, including pursue the Belt and Road Initiative Brazil and Chile, as the East Wing. as a priority, give equal emphasis to

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The B&R Initiative looks beyond throughout the industry chain and market, making it become the infrastructure projects and will bring concrete economic benefits most-favored market entry mode expand its development to other and job opportunities to local for multinationals and investors. industries and sectors. In the past few communities. The goal of "the new M&A also enable investors to years when the Initiative was at the chapter of globalization" powered acquire the core competencies and early stage, most B&R countries had by the Initiative is to seek mutual other intangible assets of the target an urgent demand for infrastructure benefits and common development companies, including research construction and thus achieved the rather the establishment of an and development capabilities, most outstanding performance in exclusive trade-protected zone. trademark, reputation, technologies, the infrastructure industry. Deloitte management and distribution •• Bring on board diversified noticed that, however, the growth in channels, as well as to improve their shareholders and partners other industries and sectors, such business portfolios through cross- While Chinese state-owned as trade, finance, Internet, culture, industrial cooperation. Enterprises took the lead in the education and tourism, increased development and investment of ••Stricter supervision leading to gradually. In terms of the international the B&R Initiative projects at the quality overseas investments production capacity cooperation early stage, more and more private with higher returns projects, both traditional and new and foreign-funded enterprises are The supervision department have emerging industries will see new now engaged in the Initiative. Plus, taken measures to curb ''irrational'' opportunities in the foreseeable for risk mitigation and sustainable overseas investment and improve future. It can be predicted that as development in the destination the alignment of investments with the priorities of China's and other countries, enterprises are likely to the overall B&R strategy. Most countries' development may vary from form joint ventures or other kinds of Chinese companies, in response, year to year, both sides will strengthen cooperative relationship with local have improved their awareness of their cooperation in more and more partners. risk management and capabilities of diversified industries and sectors. transnational operations. From long- •• Cross-border M&A to replace the term perspective, China will continue In the course of in-depth development green field investment as the to expand its global investment of the B&R Initiative, four key trends in major market entry mode scope and upgrade its investment globalization and China outbound Compared with other investment structure, leading to higher quality investment are summarized as modes, cross-border M&A can and returns of Chinese outbound follows: offer most investors, who want to investments and improved strategy accelerate their global journeys, •• Improvement of bilateral of resource allocation. a quick access to the destination and multilateral cooperation mechanisms to drive "a new chapter of globalization" Under the cooperation model proposed by the B&R Initiative, globalization is no longer only about the relocation of production bases from high-cost to low-cost areas, which gives rise to the job opportunities transfer. Enterprises should align themselves with the development strategy of the region they invest in and create synergies between upstream and downstream enterprises by transferring a major portion of their procurement, production, and sales to the region, so as to build an ecosystem

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5.Considerations and Preparations 3). Overseas engineering before Chinese Outbound contracting is an integrated Investment international economic cooperation Chinese companies may face various method, which refers to risks in every phase of an overseas engineering projects delegated investment, including challenges in by foreign government, company project research, bidding, negotiation, or project owner to a project signing, closing and operation, as contractor and the contractor shall well as obstacles due to the foreign conduct the engineering according culture, legal system and political to the rules applicable. risks. In light of the above, it is necessary for Chinese companies to Process for Chinese outbound conduct risk evaluation based on their investment - approval and individual situation before conducting recordation overseas investment. 1). National Development and Reform Commission (NRDC) Before conducting overseas Overseas investment projects investment, every company should subject to approval are sensitive ask itself three questions, based on its projects carried out by investors individual situation. either directly or through overseas enterprises controlled thereby. The ••What is our development strategy? approval authority is NDRC. Sensitive ••What can we get from investing or projects refer to projects involving acquiring the target company? sensitive countries and regions; and projects involving sensitive ••Why is the target company an industries. eligible investing/acquiring target for

us? Projects subject to filing are non- sensitive projects directly carried Major forms of cross-border out by an investor, namely the investment for Chinese businesses non-sensitive projects involving 1). Under Greenfield investment, the direct investment of assets and company shall set up new entities, equities or the provision of financing including sole proprietorship and or guarantees. For a project requiring joint venture, according to local filing, the authority in charge of laws. If allowed, investment entity filing is (i) NDRC, if the investor is a can be set up by way of contract. centrally administered enterprise 2). Merges & Acquisitions (M&A) (a centrally administered financial is the primary form for Chinese enterprise or an enterprise directly outbound investment. The subordinate to the administration by prerequisite for M&A is sourcing the State Council or its subordinate the eligible overseas target. M&A of organ, the same below); (ii) NDRC, if an overseas company is conducted the investor is a local enterprise and by acquiring the local enterprise by the amount of Chinese investment obtaining the ownership or control is $0.3 billion or above; and (iii) the of the target company, mainly in the provincial development and reform form of equity M&A or asset M&A. authority at the place where the investor is registered, if the investor is a local enterprise and the amount of Chinese investment is less than $0.3 billion.

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2). The Ministry of Commerce of 4). State-owned Assets Supervision 6). Other related departments the People's Republic of China and Administration Commission In addition to procedures mentioned (MOFCOM) of the State Council (SASAC) above, overseas investment projects The Ministry of Commerce and the Overseas investment conducted may also need approvals and provincial commerce authorities by solely state-funded enterprises, supports from Ministry of Land and shall implement filing or approval solely state-funded companies or Resources, Ministry of Finance, State respectively based on different state-holding/state-participating Administration of Taxation, General circumstances of overseas companies (SOEs in general) shall be Administration of Customs and investments of enterprises. approved, examined and approved Ministry of Foreign Affairs. or recorded by SASAC as the case •• Overseas investment involving may be. sensitive country/region or Legal risks for Chinese outbound investment sensitive industry shall be subject ••Central state-owned enterprises is a type of risk that is to approval. should file annual outbound 1). Political risk due to the changes of the political investment plan to SASAC and get •• Overseas investment under other circumstances, unstable political approval. circumstances shall be subject to status, changes of legislations and filing. ••Investment projects excluded in policies in the country where the annual investment plan of the •• Countries where overseas investor locates and where the target central state-owned enterprises investment shall be subject to locates, an investment company may shall be recorded and approved by approval are countries without suffer economic losses. SASAC. a diplomatic relation with China and countries sanctioned by the ••Confirmation process of outbound Types of political risks: expropriation, UN. When necessary, the Ministry investment from local state-owned breach of contract by target country, of Commerce may announce enterprises shall comply with foreign exchange restrictions, strikes, separately a list of countries and regulations of local SASACs. wars, political riots, insurance claim regions where overseas investment 5). Anti-monopoly Bureau of settlement etc. shall be subject to approval. MOFCOM 2). Business risk is the intrinsic risk Chinese companies may trigger when conducting business overseas. •• Industries in which overseas the concentration of undertakings investment shall be subject to declaration obligation, when Types of business risks: ambiguous approval are industries involving acquiring all or part of equities or contract arrangements, credit flaw the export of products and assets of foreign companies. of the other contracting party, technologies restricted by the independence of first demand China from export and industries A concentration of undertakings guarantee etc. which affect the interests of more means any of the following: than one country (region). 3). State Administration of Foreign •• Merger of undertakings; Exchange (SAFE): •• Obtaining control over other According to the Circular on Further undertaking(s) by an undertaking by Simplifying and Improving Policies for acquiring equities or assets; Foreign Exchange Administration for Direct Investment, a relevant market •• Obtaining control over, or the entity can choose a bank at the place possibility of exercising decisive of its incorporation for registration influence on other undertaking(s) of foreign exchange for direct by virtue of contract or by any other investment. After the registration, the means. entity is allowed to open accounts, In practice, however, whether a and remit funds (including outward M&A constitutes concentration of or inward remittance of profits or undertakings shall be determined dividends), which are related to direct based on different circumstances. investment.

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3). Tax risk/foreign exchange risk Preventive measures: are the risk that the acquiring •• Have a comprehensive company of an overseas target understanding of local laws and may have unforeseen adverse tax regulations in relation to labor consequences due to the unfulfilled relations and dispute resolution tax related obligations by the procedures. target company and the risk of an investment's value changing due to •• Gain deep insights about cultural the changes of currency exchange background regarding labor rates and interest rate. relations; conduct comprehensive assessment and forecast of Preventive measures: conduct tax related labor risks involved in an due diligence, consider taxation M&A transaction, based on a full regulations and depreciation grasp on background and laws regulations of acquired assets, use mentioned above. financial tools to prevent losses •• In the post-merger integration related to fluctuation of exchange stage, Chinese investors shall rate and interest rate, use RMB as the disentangle original labor relations currency of settlement during M&A if in accordance with local laws and possible. culture, and settle labor dispute 4). Labor law risk is the risk that an according to effective laws and investor shall pay attention to when dispute settlement mechanism it conducting overseas operation after dispute. and employ local workforce. 5). Intellectual Property Rights The main risks include: wages/ (IPR) risk refers to the intellectual compensations/transfers/discharges, property rights disputes involved in etc. and different approaches an overseas M&A transaction. to handle labor relations due to different employment regulations Preventive measures: conduct IPR (e.g. minimum wages, collective due diligence, analyze the risk of agreement etc.). infringing a third party's IPR, IPR protection provisions in share/assets purchase agreement, and manage IPR effectively after closing.

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Part II– Go Global with Chinese Companies

1.Challenges and Solutions for companies, it is advised that the Chinese Outbound Investment enterprises should align their In pursuit of understanding current restructuring plan with their overall situation, challenges and prospect of global strategy, and clarify the Chinese overseas investment, Deloitte rights and responsibilities of the China surveyed 166 companies (51% units (departments) for higher SOEs, 26% foreign-funded companies, management efficiency. 21% private sectors and 2% public 2). Overseas investment institutions) from various industries, destinations: State-owned and found out challenges faced enterprises (SOEs) take lead in by Chinese outbound investors as B&R Initiative while the private follows, and foreign-funded sectors 1). Organization structure: nearly focus more on developed 80% of the Chinese enterprises markets have set up centralized or Southeast Asian, West Asian and decentralized organization African, South Asian countries structures for their are the most-favored investment international business while destinations of SOEs participating 20% of them still not ready in the survey. The result of the The statistics shows that 78 survey is consistent with that of percent of the enterprises 2015, which well suggests that participating in the survey have SOEs, guided by the national restructured for global success, initiative, are and will continue to among which 38 percent have serve as the role of "group head" in established international business the development of the Initiative. unit in different functions, 28 Unlike SOEs, however, private and percent have set up independent foreign-funded enterprises pour departments for international more investments into developed business management and the regions such as the US and other 12 percent have formed European countries owing to the overseas subsidiaries (branches). relatively low risks, mature market As there exists no single perfect economies as well as the sound organizational structure for all legal systems in these countries.

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3). Future overseas investment 4). Top 3 challenges faced by Regulation comes after risk as scale: over 50% of the Chinese overseas investors are the second largest challenge enterprises will continue to "risk, regulation and talent" facing outbound investors. Due expand their global business A large number of cases have to the growing law enforcement while around 30% remain proved that no preparation for risk efforts and increasingly strict unclear about their business management, improper measures regulation on the investments at strategy to future overseas to risk mitigation and no reflection home and abroad, enterprises investments on risk coping are three major become gradually aware that it is The statistics indicates that 60 reasons leading to the failure crucial to obtain prior knowledge percent of the SOEs and 41 percent of overseas investments. In the of regulatory environment and of private enterprises will continue context of the B&R Initiative, the compliance operations in the target to expand their global business, overseas investors shall consider destinations. whereas nearly a half of the private how to manage the risks from an 5). Pre-investment stage is the most enterprises remain unclear about innovative perspective. It is far from challenging in the full lifecycle of the business strategy towards its enough for the investors to conduct outbound investment future overseas investments. When risk analysis on one-by-one basis With Chinese companies' in-depth going global, without the guidance as the situations of countries along development of global business, of clear and long-term business the Belt and Road are complicated the information asymmetry strategy, the companies are and vary from country to country. becomes one of the biggest prone to carry out impulsive and Thus, following the comprehensive barriers hindering enterprises short-term investments, ultimately risk assessment, enterprises shall from building a proper outbound resulting in economic loss.。 build a risk management system investment strategy. When involving risk identifying, warning conducting due diligence, the and coping, tailored to their business plans.

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enterprises can leverage the 6). Business risk allocation and global network and channels of sharing are key considerations international professional services in project financing organizations to collect necessary More enterprises attach and detailed information on emphasis on the risk sharing and investment destinations and improving project bankability. the predicted returns on the When enterprises invest in the investment targets. infrastructure and energy projects in particular, they shall build a well- The challenges occurred in structured business architecture the "investment" and "post- and more importantly, ensure the investment" stage also shall not minimum guarantee and limited be underestimated. During the recourse debt by any means. investment, although most of the 7). Global talent management: it is companies have already actively crucial to make best endeavors carried out the “localization to develop global talent through operations", the headquarters various approaches and shall to some extent strengthen programs their management capabilities for International talent pooling and specific projects and subsidiaries development requires long-term (branches). With regard to the efforts. To stand out in the fierce "post-investment" phase, improving competition for global talent the abilities of integration, business resources, more endeavors should continuity management, as well be made to attract and develop as evaluation and supervision international talent through serve as the priorities for overseas improved talent incentive and investors. retention mechanism.

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To help Chinese companies address projects and make adjustments, the infrastructure and energy the major challenges, Deloitte pro- as well as improve and manage the projects in the countries along vides the following solutions and global portfolios based on the post- the Belt and Road. On the basis advice: investment summary. 1). Carry out a thorough and of local investment environment 3). Adopt inclusive and diversified comprehensive due diligence and regulations, along with the business models for local to identify various risks, key characteristics of the projects, management and develop understand regulatory Chinese companies shall propose overseas operational planning compliance requirements and a plan on investment structure and long-term expansion set up a coping plan before and operation model, and leverage strategy simultaneously kicking off the investment the overseas financing channel for Chinese enterprises will projects tax savings and risk transferring. strengthen their management Enterprises can deal with most Plus, establishing a finance center on the subsidiaries (branches) challenges of "risk management" and in Hong Kong can greatly facilitate and investment projects across "domestic and foreign regulatory the financing and global portfolio the globe, and meanwhile the compliance" if they engage qualified management. management model and the role professional organizations to carry 5). Build new strategies for global of headquarters will definitely out a full and comprehensive due talent pooling and development undergo a period of transformation diligence before investing overseas. to map with the development to optimize the companies' Leveraging the global network the companies' global business allocation of global resources, and professional expertise in With Chinese companies' in-depth through improved management the investment destinations, the development of international and mutual promotion between the organizations manage to assist business, the current number overseas subsidiaries (branches) the companies with their pre- quality as well as the structure of and investment projects. To investment preparation. talent can no longer meet the ends secure operational success in the 2). Build an investment of the companies' requirements. destination markets, enterprises optimization model to improve Besides, the recruitment and shall consider their level of their global business portfolios management of international international business involvement based on analysis of their overall personnel have become the new and then build clear outbound global business strategies challenges for most Chinese business strategies, select the During the "pre-investment" companies. More new approaches proper investment targets and phase, enterprises shall evaluate shall be explored, as it is evidently design overall operation plan from whether the investment projects not feasible to copy the talent product portfolio to value chain, are aligned with their long-term management and distribution on the grounds of thorough due business strategy. Apart from model of the investment target diligence, complete corporate before mentioned risk management companies. In consequence, the strategy and knowledge about and regulatory, other factors update of human resources system overseas markets. such as the role of projects in the and setup of new strategies to guide 4). Enhance cooperation with local whole portfolio and the layout international talent pooling and governments and partners for of international business shall development can make an impact financing risk sharing and tax also be taken into consideration. on the companies' global journey in savings Facing a multitude of investment the long run. When investing abroad, enterprises opportunities, enterprises can take should innovate new financing advantage of the new technology— approaches, instead of relying big data to build a dynamic on the corporate guarantees. investment optimization model, Enterprises shall attach more by which enterprises can assess emphasis on the risk sharing and and select the proper projects, improving project bankability, analyze the returns on investment especially when carrying out

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6). Pay due attention to the post- 7). Take advantage of the new merger integration, beforehand opportunities arising from resources consolidation and overseas industrial parks with potential challenge prediction focus on planning industrial During the post-merger integration, and investment promotion and Chinese enterprises always seeking tax and other incentives face challenges as the lengthy Great market potentials always process, complex situations and come along with complex business regulatory requirements, etc. Taking challenges when Chinese companies account of the tough integration set up industrial parks abroad. To challenges, Chinese companies encourage more companies to shall raise an awareness that goes expand their business in industrial into managing the conflicts of parks, various challenges in market, Interest that inevitably arise when financing, compliance and regulation two organizations from different should be settled at the first step. countries come together. The Tax planning tailored to overseas cross-border M&A cases that industrial parks is also critical to the we have served in the past have successful expansion. As investors, demonstrated that the successful Chinese companies shall obtain a integration is laid on the following clear understanding of the tax and conditions: clearly defining the other incentives available for the scope of integration and achieving invested parks. On the other hand, agreements with the stakeholders; as developers, Chinese companies building an effective integration shall seek incentives for investment, strategy to ensure the smooth finance, tax, land, employees, etc., process; strict management from the local governments to including regular report and cross- attract more enterprises to the functional meetings; trial operations industrial parks. for complex process (if necessary); identifying the opportunities for synergy and achieving the expected goals to boost the morale of employees; and the most essentially, designing a global solution while with the flexibility to succeed in a unique market such as China.

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2.Deloitte Provide One-stop Solutions for Chinese Outbound Investment Over the past decade, the "Going Global" strategy has been pivotal in propelling the economic transformation of China. It is also driving the overseas expansion of many Chinese companies, which are able to tap the international markets and acquire new technologies and best practices. Opportunities always come along with pitfalls and it is our mission to provide guidance and one-stop services to Chinese companies through what can be something of a minefield during their globalization journey.

Figure 9

International M&A Advisor Award

Awarded with the title of "Best M&A Integration Service Provider" in 2017 Outbound services Lead Advisor on provider for more than half of the Over 1/3 outbound deals with Fortune Global 500® value exceeding USD10 billion each Chinese companies Global Network

Deployed professionals who speak Chinese and/or understand Chinese business culture in 90+ countries and regions

largest overseas M&A transactions

Participated in the largest overseas M&A transactions

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Figure10 Business partner throughout the investment lifecycle

Audit & FAS

M&A Advisory Tax & Business

Going global

with Deloitte

Capital Human

Risk Strategic control Solution Planning Maximize Synergy Legal

Optimize Operation Solution Excellence

M&A project Target Selection Due Diligence Financing Integration & Strategic & Risk Management & Execution Planning

Greenfield project Planning Financing Execution & Operation & Preparation Implementation & Handover

Infrastructure project Bidding Negotiation Execution & Delivery & Contract signing Implementation & Handover

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Figure11 M&A Project Services

Stage I Stage II Stage III Stage IV

Due Diligence & Risk Planning & Preparation Financing & Execution Integration Management

•• M&A Strategic Planning •• Tax, Financial, Operational & •• Purchase Quotation •• Financial Statement •• Developing Target Conditions Legal Due Diligence •• Setting Negotiation Objectives Preparation (During Inspection & Delivery Process) •• Proper Target Selection •• Financial Modelling & & Strategies & Principles Evaluation & Equity Premium •• Financial Restructuring •• Feasibility Studies •• Negotiation & Signing Support Analysis of Share Purchase Agreement, •• M&A Integration •• Formulating a Tentative M&A •• Formulating a Detailed M&A Joint Venture Agreement, etc. Plan •• Business Process Plan •• Contract/Document Review Improvement •• Preliminary Design of •• Transaction Structure (Tax-related) Transaction Structure •• Financial Audit Optimization； Reducing Tax •• Bankable Feasibility Study; Stemming from Transaction •• Human Resources Strategy development for Optimization •• Investment & Financing Credit Guarantee Schemes; Structure Tax Planning Formulating a Financing Plan •• Operations Optimization & Supply Chain Management •• Risk Analysis and Mitigation •• Financial Due Diligence & Strategies Audit •• Post-acquisition Tax Compliance Declaration; •• Negotiation Support; Connected Transactions Financing Agreement Signing Management; Employee Individual Tax Management

Figure 12 Greenfield Project Services

Stage I Stage II Stage III Stage IV

Preparation Financing Execution Delivery & Operation

•• Target Selection & Strategic •• Developing Financing •• Carrying out Business •• Delivery Audit Planning Strategies; Obtaining a Bank Structure & Risk Allocation Guarantee •• Report/Statements Review •• Business Model & Structuring Model for the Transitional Period •• Financing Roadshows; •• Analyzing the Influence of •• Risk Analysis & management Modification/Revision of •• Switching to International Updated Business Structure Accounting Standards •• Tax Policy Analysis; Tax Financing Plan (Based on on Project Bankability Planning; Applying for Tax Reflections and Feedbacks) •• Audit & Advisory Services Incentives •• Setting up Organization of for listSetting up Internal •• Loan Review & Due Diligence Executive Branch •• Investment Structuring financial Management •• Financing Negotiation •• Bid Requirements Analysis; System; Designing •• Business Arrangements Support Bid Proposal Drafting Management Report Review •• Hedging Instructions(Costs; •• Contract Negotiation •• Tax Inspection •• Financial Modeling; Financial Conditions; Strategies) Support Analysis; IRR Calculation •• Addressing Tax Issues •• Insurance Instructions (Plan; •• Dynamic Risk Management Conditions; Costs) •• Project Performance •• Tax Compliance Declaration Evaluation •• Developing a Financing Plan with Lower Tax Rate •• Designing Salary System & Employee Appraisal System

Figure13 EPC Project Services

Stage I Stage II Stage III Stage IV

Evaluation & Selection of Negotiation & Contract Construction & Completion & Preferred Bidder Award Operation Delivery

•• Business, TAX & Financial •• Organizational Structure •• Setting up a Regulatory •• Project Completion Settlement System; Roles & Responsibility Feasibility studies Optimization of Executive •• Tax Settlement Branch Charting •• Background Knowledge •• Dealing with Tax Inspection of Laws & Regulations on •• EPC Contract Signing •• Dynamic Risk Management (During Construction Process) •• Applying for Tax Incentives Business, TAX & Social •• Business Contract Structuring Security •• Quantitative Operational Risk •• Risk Analysis (During •• Tax Planning Analysis •• Tax Cost Calculation Operation Process) •• Standards Manual Drafting •• Risk Management in EPC •• Post-project Evaluation •• Financial Modelling; Project Contract; Financial & Tax Risk for Follow-up Management Cost Calculation Management •• Developing a High-level Performance Management •• Risk Assessment (During •• Contract Review & Project Approval Process) Cycle; Controlling Project Negotiation Support Schedule & Performance •• Supplier Due Diligence •• Operations Optimization & Supply Chain Management •• Risk Analysis and Mitigation Strategies •• Tax Compliance Declaration •• Connected Transactions Management 27 2018 Deloitte Outbound Investment Guide for Chinese Businesses 2018 Deloitte Outbound Investment Guide for Chinese Businesses

Fueled by a range of government policies and incentives, Chinese companies are encouraged to carry out strategic outbound investments actively and prudently. Among which, the Belt and Road Initiative is one of the key programs endorsed by the Chinese government. The current landscape in China is not only conducive to Chinese companies in making overseas acquisitions or investments, but also presents huge service opportunities to professional services providers.

Our Services for Belt & Road infrastructure investments regardless We aim at delivering end-to-end Initiative of their destination countries services and bringing tailored To make overseas acquisitions or from sourcing to execution, from practical solutions to our Chinese investments successful and impactful, negotiation to integration. clients from their point of view - Chinese investors require trusted from pre-transaction (e.g., sourcing business advisors who understand Secured by the support and and identification of acquisition their business needs and concerns commitment from Deloitte China targets, etc.) to execution (e.g., due and also possess the hands-on and our overseas member firms, diligence, structuring, valuation, outbound experience (on M&A and we have set up M&A Corridors and modelling, project financing, etc.) to infrastructure investments), in-depth Infrastructure Corridors between post-transaction (e.g., post-merger sector knowledge as well as on-the- China and countries/regions integration, tax advisory, consulting, ground understanding of local market where Chinese companies are etc.). practice advising them throughout the most interested to invest in. These process of the transaction/project. Corridors, led by country corridor We believe that, with our leads at both ends, aim at delivering comprehensive and cohesive Catering to the needs of our seamless, high-quality professional collaboration program, our Chinese Chinese clients doing cross-border cross-border services to our Chinese clients would get the utmost benefits transactions/investments, we, at clients consistently across the globe from Deloitte Network in connection Deloitte, have pulled together a in connection with their outbound with their outbound acquisitions or globally-connected, multidisciplinary transactions/investments. investments. collaboration program - Global Financial Advisory (FA) Belt & Road Drawn from the deep resources of Initiative. our Deloitte Network, dedicated client service teams with designated lead We, leveraging FA as a forerunner, partners, competent sector experts, are committed to assisting our and experienced professionals across Chinese clients and delivering high- all disciplines have been composed quality multidisciplinary services locally in China as well as in overseas in connection with their outbound destinations, as we are committed M&A transactions or overseas to bringing the best services to our clients

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Figure 14 Well-Rounded Deloitte Services to Assist Chinese Investors across the Globe

Financial Advisory

Tax & Legal

Consulting

Risk Advisory

Audit

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Our Infrastructure & Capital Hong Kong, Beijing and Shanghai, I&CP's all-round services in the Project (I&CP) Financial Advisory conducting cross-functional work B&R projects Services with 22 offices in Deloitte China and Three focuses on the B&R projects are Deloitte is the only accounting the Global Deloitte teams, dedicated capital, talent and risk management. firm within the ''Big Four'' to have to providing all-round support to the a professional financial advisory ''Belt and Road'' (B&R) infrastructure In view of the analysis on the services group specifically for and capital projects to achieve cross- prospects and future of the Energy and Infrastructure projects. regional and one-stop service. infrastructure industry, clients’ Serving as a member of the Global understanding and grasp of project Deloitte Infrastructure and Capital Under the leadership of the national financing are significant in their short- Project Financial Advisory Services B&R Initiative, I&CP heeded the call term and long-term development team, Deloitte China Infrastructure and participated in multiple key in the infrastructure industry. & Capital Project (I&CP) financial infrastructure projects that are on I&CP possesses abundant hands- advisory services was established in the B&R list, including coal- and on experience in capital projects 2012, specialized in assisting Chinese gas-fired power plants, renewable with foreign banks, focuses on the corporations and businesses in energy power plants, as well as development trend of future project Mergers and Acquisition as well as highway and railway projects. With financing, actively promotes domestic PPP projects (e.g. BOO, BOT and their customized financial advisory project financing, and leverages BOOT etc.) in both domestic and solutions to clients, I&CP team is existing sound relationship with overseas markets. fully committed to meet customers’ domestic banks, foreign banks and requests, from project initiation export credit agencies. We provide Over the last five years, I&CP has and bidding process, to financing financial advisory supports to our engaged in investing and financing implementation and closing. I&CP clients in project financing, including of infrastructure projects in over team provides one-stop financial financing planning, risk analysis 60 countries, with expertise in services to clients, from before the and mitigation, financial terms project financial advisory in power, bidding (project documentation negotiation, financial model support, transportation (highway and railway) review, project economic analysis bank consortium strategy and one- infrastructure, refuse disposal, based on financial models and stop implementation management water utilities and treatment, mining, tender documentation preparation) throughout the process of financing. petroleum and gas industries. to after winning the bid (assisting We also have extensive experiences Our team possesses professionals in laying down financing solutions, on Chinese project financing. with over 20 years of hands-on building Chinese and local bank financial advisory experience, and consortium and negotiation support Under the B&R Initiative, choosing the majority of the team members with the government and tenderer). have work experiences in domestic With our expertise in financial and/or foreign banks. Relying on advisory and abundant experiences their abundant experiences in the in infrastructure projects, we hope successfully closing of cross-border to help Chinese businesses to go investing and financing projects, I&CP smoothly and far in their investments team has built a standing and sound under the B&R Initiative by delivering relationship with major domestic high-quality financial advisory banks, foreign banks and export services. credit agencies. Now, Deloitte China I&CP team possesses 25 experts in

30 2018 Deloitte Outbound Investment Guide for Chinese Businesses 2018 Deloitte Outbound Investment Guide for Chinese Businesses

and applying the right talents in the Project risk management is building of an infrastructure project in established on the advisory team’s different countries is critical. Currently, understandings of specific project Deloitte is the only accounting firm type and real-world experience in the “Big Four” to have specialized in local markets. I&CP team has financial advisory services in the participated in various infrastructure Energy and Infrastructure industry. projects in over 60 countries, Different from other financial possessing deep understanding of advisory teams, I&CP team, with the preferential policies of different years of service experience and projects under the B&R Initiative. sound professional knowledge of the We spare no efforts to meet clients’ infrastructure industry, offers one- requests and serve their best stop and all-round financial advisory interests by assisting them in macro services throughout the entire project economy, political and business risk life rather than targeting certain management, specifically in revenue phases of the project. Precisely structure risk, payment risk, product because of this, service efficiency is demand risk and shareholders return improved, inefficient communication risk, by conducting comprehensive and information asymmetry caused project risk analysis and control by service team mobility are avoided. solutions. Moreover, I&CP team focuses their research and studies on the launching mechanisms of infrastructure projects in different countries and owns in- depth understandings of regulations, modeling and project preferences of the infrastructure projects in different markets.

31 2018 Deloitte Outbound Investment Guide for Chinese Businesses

Our Audit and Assurance Services Owning to our global auditing for Chinese Outbound Investment operations over the past years, In process of Chinese companies Deloitte China Audit and Assurance expanding globally, Deloitte Audit team has established a long-standing and Assurance team aims to relationship with global Deloitte assist Chinese businesses in their auditing teams and M&A services globalization, providing audit and intermediaries. assurance services like audit/review of the target's financial statements, attestation report on target's GAAP difference reconciliation, audit of pro forma financial statements for the acquirer, annual audit for consolidated financial statements post acquisition and CSOX audit etc..

For years, Deloitte China has accumulated a wealth of experience by carrying out multiple overseas auditing operations for Chinese companies with multiple forms of ownership from various industries.

Figure15 Deloitte China Audit and Assurance team has established a long-standing relationship with global Deloitte auditing teams and M&A services intermediaries

32 2018 Deloitte Outbound Investment Guide for Chinese Businesses

Figure16

Time management Accounting treatment Uncooperativeness from the Difference of accounting target standard Overcapacity Difference of balance sheet Tight timeline required by date regulation institutions Acquisition accounting …… Pension actuarial Tax ……

System support Difference in chart of Team building accounts Finance team of the target company Difference in ERP system Finance team of the acquirer …… company ……

In addition to traditional audit and assurance services, Deloitte China Audit and Assurance team can also provide tailor- made" post-acquisition advisory services " to the companies with various maturities, which can help the companies in different areas of financial management, assisting them to understand the investment risk in the target company, improving financial management performance and implementation of investment plan.

Figure17

Standards transfer Post-Merger Integration(PMI) Provide support to be in compliance Identify future position of finance and assist in with different GAAP's requirements, integration plan development by conducting including accounting support, review and diagnoses on financial organization, process attestation as well as financial statement and system, to ensure a successful financial audit etc. reporting system integration of the new entity. Integrate with public-listed company Consolidate in public-listed company’s Cross-border supervision performance Evaluate financial management of the Meet disclosure requirement of public- acquirer company and the target company listed company to cope with regulation needs of different Overseas Acquisition regions, and bring up improvement Financial Integration Meet internal control requirements of suggestions. public-listed company Performance commitment verification Compliance supervision Assist the acquirer company in building Third party supervision up compliance system and avoid financial Evaluate third party’s performance; apply incompliance risk. to huge and complicate projects Monitoring key assets and operation Accounting policy unify indicters Assist acquiring company in unifying accounting policies of the target Monitoring related-party transactions company, including accounting diagnoses, Pro Forma financial statements Monitoring utilisation and management improvement, unifying, training and Analyse and issue pro formal financial of funds counselling. statements, which are prepared based on Third party assurance specific accounting policies and special assumptions.

33 Contact us

Rosa Yang Norman Sze Deloitte Global Chinese Services Deloitte Belt and Road Services China Group Chairman Leader Deloitte China Global Network Tel: +86 10 8512 5888 Affairs Managing Partner Email: [email protected] Tel: +86 21 6141 1578 Email: [email protected]

Jimmy Chan Derek Lai Deloitte China M&A Corridor Leader Deloitte Global Financial Advisory Tel: +86 10 85125618 Belt & Road Leader Email: [email protected] Tel: +852 28521647 Email: [email protected]

Edmund Yeung Johnny Zhang Deloitte China National Financial Deloitte Global Chinese Services Advisory Leader Group Partner Tel: +852 2852 1685 Deloitte China M&A Corridor Email: [email protected] Contact Tel: +86 10 8520 7061 Email: [email protected]

Danny Tong Patrick Fung Deloitte China Deputy National Deloitte China Financial Advisory Financial Advisory Leader Infrastructure & Capital Program Tel: +86 21 6141 1618 Leader Email: [email protected] Tel: +852 2238 7400 Email: [email protected]

Stanley Lah Yu Dong Yuan Deloitte China M&A Transaction Deloitte China Outbound Services Leader Investment Financial Advisory Tel: +852 2852 6385 Partner Email: [email protected] Tel: +86 21 6141 1668 Email: [email protected]

Michael Yu Ivan Wong Deloitte China Valuation & Deloitte China Corporate Finance Modelling Leader Advisory Leader Tel: +86 21 6141 1613 Tel: +852 2852 1219 Email: [email protected] Email: [email protected]

34 Bill Yang Lawrence Jin Deloitte China Financial Advisory Deloitte China Outbound Partner Investment Audit Partner Tel: +86 10 8520 7909 Tel: +86 21 6141 2019 Email: [email protected] Email: [email protected]

Keat Lee Michelle Wu Deloitte China Outbound Deloitte China Outbound Investment Consulting Partner Investment Consulting Partner Tel: +86 21 2316 6324 Tel: +86 21 6335 1118 Email: [email protected] Email: [email protected]

Elena Yu Andrew Zhu Deloitte China Outbound Deloitte China Outbound Investment Risk Advisory Partner Investment Tax Partner Tel: +86 20 2831 1023 Tel: +86 10 8520 7508 Email: [email protected] Email: [email protected]

Vicky Wang Simon Tan Deloitte China Outbound Deloitte China Outbound Investment Tax Partner Investment Tax Partner Tel: +86 21 6141 1035 Tel: +86 21 6141 1033 Email: [email protected] Email: [email protected]

Sam Li Jolin Song Deloitte Global Infrastructure Deloitte Legal Services Center Managing Partner Shanghai Qin Li Law Firm Partner Tel: +852 2238 7881 Tel: +86 10 8512 5497 Email: [email protected] Email: [email protected]

Acknowledgments

The following are recognized for their strong contributions to this guide including Sitao Xu, Lydia Chen, Annie Zhou, Claire Rao, Derek Lai, Jimmy Chan, Patrick Fung, Elsie Fok, Li Meng, Sandy Hui, Gabrielle Luk, Lawrence Jin, Tracy Mu, Jolin Song, Andrew Zhu, Simon Tan, Yang Xue, Norman Sze, Flora Wu, Norah Peng, Pam Pang, Yvonne Xue, Jason Zhao, Vanya Yu, Rosa Yang, Johnny Zhang, Chenney Chen and Jessie Peng with Deloitte China; Vera Ou-Young and Mike Song with Deloitte Australia; Tan Ong and Loretta Yuen with Deloitte Canada; Jean-Francois Viat with Deloitte France; Dirk Hällmayr, Claus Schuermann and Tobias Brembt with Deloitte German; Domenico Russo with Deloitte Italy; Enwright Desales, Parin Shah, Liu Lin and Ishita Mukherjee with Deloitte India; Satoshi Miura and Lingen Zheng with Deloitte Japan; Sung Hoon Oh with Deloitte South Korea; Han Kalfsbeek with Deloitte Netherlands; Ernest Kan, David Hao and Tao Wang with Deloitte Singapore; Angus Knowles-Cutler and Toby Tao with Deloitte UK; George Warnock, Claire Gao and John McHale with Deloitte US.

35

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About Deloitte Global Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. Please see www.deloitte.com/about to learn more about our global network of member firms.

Deloitte provides audit & assurance, consulting, financial advisory, risk advisory, tax and related services to public and private clients spanning multiple industries. Deloitte serves nearly 80 percent of the Fortune Global 500® companies through a globally connected network of member firms in more than 150 countries and territories bringing world-class capabilities, insights, and high-quality service to address clients’ most complex business challenges. To learn more about how Deloitte’s approximately 263,900 professionals make an impact that matters, please connect with us on Facebook, LinkedIn, or Twitter.

About Deloitte China The Deloitte brand first came to China in 1917 when a Deloitte office was opened in Shanghai. Now the Deloitte China network of firms, backed by the global Deloitte network, deliver a full range of audit & assurance, consulting, financial advisory, risk advisory and tax services to local, multinational and growth enterprise clients in China. We have considerable experience in China and have been a significant contributor to the development of China's accounting standards, taxation system and local professional accountants. To learn more about how Deloitte makes an impact that matters in the China marketplace, please connect with our Deloitte China social media platforms via www2.deloitte.com/cn/en/social-media.

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©2018. For information, contact Deloitte China CQ - 026 S C-18 Australia

“Australia is well-positioned as a driving force within the APAC region and is an attractive destination that offers multiple investment opportunities. It has sustained strong economic and social fundamentals over the years, particularly during periods of global uncertainty. In addition, Australia is trusted as the best place for corporate headquarters, according to the 2018 Edelman Trust Barometer. Deloitte Australia’s Chinese Services Group is key to developing the right Australian strategy to ensure successful outcomes for those looking to expand overseas.”

Vera Ou-Young Deloitte Australia CSG National Leader

Political environment Regulation environment Treasurer has the authority to reject a foreign investment Australia is a federal parliamentary constitutional monarchy The Australian Department of Foreign Affairs and Trade (DFAT) proposal if it is not in the national interest. with Queen Elizabeth II as its head of state. The Queen is rep- is the lead agency charged with the responsibility of developing resented in Australia by the Governor-General who in practice and implementing trade policies, providing trade advice to the Industry environment usually acts on the advice of the Prime Minister of Australia. Government and negotiating international agreements. One of Australia’s leading industries in terms of economic output Australia is a federation of six states and two major mainland the department’s purposes is to promote Australian interests include business services, finance and insurance, retail territories (the Northern Territory and the Australian Capital internationally and expand Australia’s overseas presence. and wholesale, construction, and health. Australia’s leading Territory), headed by the Premiers (for the States) and Chief Australia is a country renowned for its tough customs and industries in terms of employment include health, retail Ministers (for the Territories). The Government of Australia is quarantine laws. The Government applies strict quarantine and wholesale, recreational services, business services, and divided into the executive branch, composed of the Federal standards on plants and animals. Regulations are set on construction. Executive Council presided by the Governor-General, which specific imports and exports and violators are subject to hefty delegates powers to the Cabinet of Australia, the legislative penalties. branch composed of the Parliament of Australia, the Senate According to Australian Bureau of Statistics data from 2016, the leading Australian industries to attract foreign direct and the House of Representatives. Federal policy in practice is The Australian Department of the Treasury is the competent determined by the Cabinet comprising 22 ministers. The Prime investment include mining, manufacturing, real estate, finance department responsible for approving the foreign investment and insurance, and retail and wholesale. Minister, the head of the majority party in Parliament, leads the proposals. All proposals by foreign government entities must Cabinet and appoints all ministers of departments. The term be submitted to the Foreign Investment Review Board for of members of the House of Representatives is a maximum approval. Australia welcomes overseas investment, but the of three years from the date of the first sitting of the House. Senators normally serve six-year terms. Chinese M&A (left) and Greenfield Investment (right) to Australia Investment climate Australia offers multiple investment opportunities to foreign investors for further expanding their overseas footprints. The 20 50 3 25 investment-friendly climate is distinctively attractive, in terms of its strong economic base, rich mineral resources, geographical 40 20 20 advantages, quality farms, top wineries, high-standard food 15 39 processing, well-educated and skilled workforce, low unem- 2 17

US$B 30 US$B ployment rate, stable labor relationship, sound financial and 15 28 14 regulatory system, sophisticated economic policies, excellent 26 10 24 12 infrastructure and desirable lifestyle. 21 20 10 10 1 5 10 5

0 0 0 0 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017

Deal value Deal count Capital invested Project count

Source: Mergermarket Notes: 1.China refers to Mainland China, Hong Kong, Macau and Taiwan; 2.M&A deal volume includes the number of announced deals with disclosed and undisclosed values during the period stated; 3.M&A deal value includes the value of announced deals with disclosed values during the period stated; 4.M&A deals exclude deals lapsed or withdrawn during the period stated; 5.Greenfield data includes announced or planned greenfield investments.

List of selected Chinese companies operating/investing in Australia

Bank of China COSCO

CITIC Group Sinosteel Corporation

CNOOC Gas & Power Group China Minmetals Corporation

Chinatex Corporation Yanzhou Coal Mining Company Limited

State Grid Corporation of China Greenland Group

Wanda Group Chow Tai Fook Enterprises Limited

China Overseas Holdings Limited China Power Investment Corporation

Landbridge Group Cheung Kong Property

Health and Happiness (H&H) International Holdings Limited Luye Pharma Group Ltd. Currency Tax incentives Australian Dollar (AUD) The Australian Government provides investors with Major Project Facilitation (MPF) Foreign exchange control services, involving offering information, advice and support needed to run a big project, assistance with government approvals processes and funds to conduct feasibility study. In No addition, major projects of special significance may apply for investment incentives from Accounting principles/financial statements the federal government, such as financial aid, tax exemptions and infrastructure services. Australian equivalent of IFRS (A-IFRS). Financial statements must be filed annually. Measures to encourage companies to establish regional headquarters (RHQs) or support Principal business entities services include tax deductions on certain relocation costs. The costs must be incurred Entities include public company (“Limited” or Ltd), private company (“Proprietary Limited” within 12 months before or after the date when the RHQ first derives assessable income. or Pty Ltd), partnership, corporate limited partnership, trust, superannuation fund and Under the R&D tax incentive program, companies that conduct eligible R&D activities may branch of a foreign corporation. be able to claim a refundable tax offset of 43.5% where group turnover is less than $20M, Labor law or a non-refundable 38.5% tax offset for all other eligible activities. A cap of $100M applies on the amount of R&D expenditure claimable at accelerated rates. Over $100M, the offset About 90% of the employment in Australia is secured by binding agreements. In is reduced to the corporate tax rate. accordance with the Fair Work Act 2009, employers must give employees a notice period before dismissal which should be clarified in the employment contracts. The combination Residents and employers in remote areas can access certain tax exemptions in respect of of a modern award and enterprise agreement addresses various workplace issues, fringe benefits tax and individual zone rebates on income taxes. Concessional financing including minimum wages, overtime pay, redundancy benefits and pensions. Moreover, assistance is also possible under the Northern Australia Infrastructure Facility. employers should pay the SG contribution into employees’ accounts on their behalf, at a Tax system minimum rate of 9.5% of their ordinary time earnings. The Department of the Treasury is responsible for developing the Australian taxation system. Under the federal law, individuals and companies in Australia may be required to pay taxes or charges to all levels of government: local, state and federal. The principal taxes levied by the federal government are individual and corporate income taxes, goods and services tax, fringe benefits tax, compulsory superannuation surcharge, customs duties, excise duties, etc.; The principal taxes levied by the state government are payroll taxes, stamp duties, land taxes and specific business transaction taxes. The main taxes in Australia are direct taxes.

China outbound deals to Australia by industry

2016 US$M 2017

$312 $1,181 $314 $3,035 $132 2 $13 2 Consumer&Industrial Products 2 2 1 Energy&Resources $291 $386 $1,320 3 10 Financial Services 4 24 deals 39 deals $3,282 Life Sciences&Health Care $19,015 21 Real Estate 10 Technology,Media&Telecommunications 6 Transporation

$1,132 $14,181

Source: Mergermarket Notes: 1.China refers to Mainland China, Hong Kong, Macau and Taiwan; 2.M&A deal volume includes the number of announced deals with disclosed and undisclosed values during the period stated; 3. M&A deal value includes the value of announced deals with disclosed values during the period stated.

Australia Quick Tax Facts for Corporations Company income tax rate 30%/27.5% Branch tax rate 30%/27.5% Capital gains tax rate 30%/27.5% Participation exemption Yes on outbound investment Basis Loss relief • Resident Worldwide • Carryforward Indefinite (subject to utilization test) • Nonresident Australian-source • Carryback No

Double taxation relief Yes Tax consolidation Yes Transfer pricing rules Yes Thin capitalization rules Yes Controlled foreign company Yes Tax year 1 July to 30 June, although a substituted year of rules income may be adopted in certain circumstances, with approval from the ATO Advanced payment of tax Monthly for large entities; quarterly otherwise Return due date 15 January (taxable large/medium entities) / 28 February (non-taxable large/medium entities as per the latest year lodged) for standard 30 June tax years, although return due dates may vary where a substituted year of income has been adopted Superannuation contribution 9.5% of (capped) employee earnings Payroll tax 2.5% - 6.85% Domestic withholding tax Fringe benefits tax 47% •• Dividends 30% Capital tax No •• Interest 10% •• Royalties 30% Real estate tax Varies, up to 3.7% (plus a surcharge in some cases) •• Branch remittance tax No Stamp duty Varies, up to 7% (plus a surcharge in some cases) •• Distributions from certain 15% for fund payments where address or place for payment of withholding MITs and AMITs the recipient is in approved Exchange of Information country. Petroleum resource rent 40% of taxable profits Otherwise 30% for fund payments where address or place for tax payment of the recipient is in a jurisdiction that does not have Goods and services (GST) 10% an approved Exchange of Information. *Above tax policies and rates are based on information current as of January 2018. Canada

“Canada is internationally recognized as a stable globally integrated economy with pro-business federal and provincial governments. The nation is also a welcoming immigrant friendly country which attracts many of the best and the brightest academics, professionals, and other talents from all over the globe. As such, Canada has become the home to one of the largest Overseas Chinese communities outside of Mainland China, Taiwan and Hong Kong SAR. With an ever increasing Chinese/English bilingual workforce available in Canada, Chinese companies are readily able to source local talent to build and expand their Canadian operations. A number of our clients have expanded their Canadian operations to take advantage of this widely available talent – not to mention the close proximity to the United States marketplace. This includes our client, Huawei, who recently continued the expansion of its Research and Development and sales teams in Canada.”

Tan Ong Deloitte Canada CSG Leader

Political environment Regulation environment Industry environment Canada is a democratic federal confederation consist- Foreign investment into Canada is jointly managed Canada’s pillar industries are resources, ing of 10 provinces, each with substantial power, and by Global Affairs Canada, Industry Canada and the manufacturing, agriculture and service industries. three territories. The head of state, Queen Elizabeth, Department of Canadian Heritage. Global Affairs Canada is rich in natural resources, including mineral, is represented in Canada by a governor-general. At Canada is responsible for investment facilitation energy, forest and aquatic resources. In addition, the federal level, Canada is a parliamentary democ- and promotion. Industry Canada is responsible for Canada, with advanced technology and equipment, racy with a bicameral parliament. The prime minister reviewing and approving investment projects. The is highly-developed in certain high-tech industries, and a cabinet of ministers heading the government Department of Canadian Heritage must approve taking the lead in nuclear energy, hydropower, are selected from the political party with the largest investments in the cultural sector (e.g., filmmaking and communications, aerospace, environmental number of elected parliamentary seats. In addition, distribution, book publishing, audio or video music protection, transportation, petrochemical, geophysical each province has its own legislative assembly. An recording production and distribution). exploration, bioengineering, medicine, papermaking, understanding of Canadian’s business environment Foreign investment in Canada—direct or via portfolio passenger vehicles and small passenger aircraft requires the knowledge of both federal and provincial holdings—is limited in several key sectors, including manufacturing industries. policies. The federal and provincial governments offer financial services, media and communications, cultural a range of incentives to encourage companies to businesses (book publishing and selling, filmmaking invest in capital equipment, hire and train employees and distribution), uranium mining and air and rail and to be more competitive in the export and domes- transport. tic markets. Support programs available in Canada include loan guarantees, funding and tax incentives. Chinese M&A (left) and Greenfield Investment (right) to Canada

Investment climate Canada offers a strong investment climate, due to its political stability, sound legal system, policy trans- 8 20 1.0 15 parency, free market economy, increasing economic US$B 17 US$B 0.8 12 growth, well-educated labour, rich natural resources, 6 16 15 10 10 excellent infrastructure and geographic advantages. 12 0.6 4 10 8 8 10 10 7 0.4 Canada’s economy is diversified, with the services 5 sector accounting for considerable output. The 2 5 0.2 natural resources sector plays an important role in the economy and is responsible for more than 50% 0 0 0.0 0 of the nation’s total exports and is the main source of 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 income in several provinces. Canada also has a large Deal value Deal count Capital invested Project count industrial base.

The Canadian economy is highly dependent on trade, Source: Mergermarket especially with the United States. China also has Notes: 1.China refers to Mainland China, Hong Kong, Macau and Taiwan; 2.M&A deal volume includes the number of become a very important trading partner. announced deals with disclosed and undisclosed values during the period stated; 3.M&A deal value includes the value of announced deals with disclosed values during the period stated; 4.M&A deals exclude deals lapsed or withdrawn during the period stated; 5.Greenfield data includes announced or planned greenfield investments.

List of the selected Chinese companies operating/investing in Canada

Sinopec International Petroleum Exploration and Production Corporation China Construction Bank Corporation, Toronto Branch (CCBTO) (Canada)

Petrochina International Co.,LTD (Canada)w Yanzhou Coal Mining Company Limited (Canada)

WISCO Canada Resources Investment Limited China WindPower Group Limited (Canada)

Bank of China（Canada） Huawei Technologies Canada

CNOOC Canada Inc. Sinotrans Canada Inc.

China COSCO Shipping Corporation Limited (Canada) China Telecom Americas Currency Tax incentives Canadian Dollar (CAD) To encourage corporation development, the government may provide Foreign exchange control incentives that effectively reduce corporate income tax. The government also provides a “small business rate”, lowering the tax rate levied on Canada’s No direct controls hinder the movement of capital or other payments in or out of medium and small businesses. Canada. Cash transactions of CAD 10,000 or more and international electronic funds transfers of CAD 10,000 or more, among others, must be reported. A refundable investment tax credit (ITC) of 35% of qualified expenditures on scientific research and experimental development (SR&ED) up to the Accounting Principles/Financial Statements annual expenditure limit is available for eligible Canadian-controlled private Canadian GAAP requires a Publically Accountable Enterprise to use IFRS. A corporations (CCPCs). A nonrefundable ITC of up to 15% is available for a non-Publically Accountable Enterprise may use IFRS or Accounting Standards CCPC that is not eligible for the refundable ITC, and for a non-CCPC. Provincial for Private Enterprises. Financial statements must be prepared annually. incentives for SR&ED also are available. A wide range of federal and provincial Principal business entities tax incentives relating to various forms of media and environmental improvements are available. Canada has a variety of other tax incentives for These are the corporation, unlimited liability company, sole proprietorship, corporations. Manufacturing and processing companies may be eligible for partnership, joint venture, trust and branch of a foreign corporation. provincial/territorial tax reductions, depending on the province/territory Labor law where they operate. Certain incentives may be available to CCPCs that are The Canadian labor force is flexible, well-trained and high quality. Labor not available to a wholly owned subsidiary of a nonresident. law is governed at both the federal and provincial levels, depending on the Tax system industry and the employer. In the federal sphere, the Canada Labour Code Companies and individuals in Canada pay taxes to three levels of sets the terms and conditions of employment concerning wages, working government: federal, provincial and municipal. While the federal and hours, holidays, etc. to protect the employees’ basic rights and interests. provincial governments have the independent legislative power of local Every province has labor laws that cover the same issues for that jurisdiction. tax, the power of municipal government is given by the provincial level. As a According to these employment laws, the prescribed general minimum salary decentralized taxation system, the tax policies may differ from province to ranges from CAD 10.50 – 13.00 /hour; Employees are entitled to work no more province and each province has certain authority to determine the types, than 8 hours per day or 40 hours per week and have 9 days of public holidays forms of taxation and how to balance the tax burden. However, the policies (additional statutory holidays may apply under certain provincial statutes). should not be contrary to the federal ones. Taxes in Canada may include Overtime is paid at least 1 – 1.5 times the normal wage. Reasonable severance individual income and surtax, corporate income and surtax, social security pay is required for dismissal without cause. tax, commodity and service tax, consumer tax, customs duty, resource tax, land and property tax and capital tax.

China outbound M&A deals to Canada by industry

2016 US$M 2017

$90 $253 $1,186

2 Consumer&Industrial Products $1,107 Energy&Resources 4 5 1 deals Financial Services 12 deals 3,362 6,623 5 Life Sciences&Health Care 10 $290 Real Estate $163 1 Technology,Media&Telecommunications 11 $4,894 $2,002 Transporation

Source: Mergermarket Notes: 1.China refers to Mainland China, Hong Kong, Macau and Taiwan; 2.M&A deal volume includes the number of announced deals with disclosed and undisclosed values during the period stated; 3. M&A deal value includes the value of announced deals with disclosed values during the period stated.

Canada Quick Tax Facts for Corporations Federal general corporate Provincial/territorial general 15% 11%-16% income tax rate income tax Branch tax rate 15%（plus applicable provincial rate） Capital gains tax rate 50% taxable at the normal corporate rate Basis Worldwide basis Participation exemption Certain dividends on outbound investment are tax-free Double taxation relief Relief often is available Tax consolidation No Transfer pricing rules Yes Thin capitalization rules Yes Controlled foreign company Yes Tax year Fiscal year rules Advanced payment of tax Monthly Return due date Within 6 months of fiscal year end No, other than on financial Capital Tax Social security contributions Yes (federal/Quebec) institutions Real estate tax Municipal level Transfer tax Provincial and municipal level Withholding tax Loss relief •• Dividends 25% •• Carryforward 20 years for noncapital losses/indefinite for capital losses •• Interest 25% •• Carryback 3 years •• Royalties 25% 5% federal rate; rate varies for HST for provinces Goods and services tax •• Branch remittance tax 25% that are harmonized Rates may be reduced by treaties and certain exemptions apply Retail sales tax Yes（in certain provinces） *Above tax policies and rates are based on information current as of January 2017. France

“Beyond its history and predominance in arts and luxury, France is a very attractive country for investors; highly educated and skilled work forces, stable legal environment, strong infrastructure network, favorable R&D tax credits systems, corporate income tax rate being reduced are only a few illustrative items of such attractiveness. Various French groups are global leaders in their industry.

France is also on the cutting edge of innovation as is demonstrated by the high number of start-ups business in bio tech or fin tech for example, sought-after by large international investors. Lastly France welcomes the 2nd largest Chinese community in Europe.”

Jean-Francois Viat Deloitte France CSG Leader

Political environment regulations. France has strict standards and effective marine, image and network, industrial chemistry, According to the French Constitution, the president measures to inspect and quarantine the quality and multimedia, neuroscience, food production, cancer shall be the head of state and the command- security of imports and exports. The Customs duty is treatment, renewable energy, construction, textile, er-in-chief of the armed forces. The president, who is based on the common customs tariff applicable in all logistics, plastic molding and cosmetics industries. elected by popular vote for a term of five years, shall EU member states. Generally, foreign investment in France is appoint the Prime Minister and approve or disap- Business France is the national agency supporting the unrestricted. However, prior authorization is required prove the appointment of ministers on the proposal international development of the French economy, for investing in gambling, private security services, of the Prime Minister. The president of the Republic responsible for facilitating international investment illicit use of biological or toxic agents, eavesdropping shall preside over the Council of Ministers, the higher and promoting the employment in France. equipment, the evaluation and certification of national defense councils and committees and he/ information technology systems, information system she may also declare the National Assembly dissolved, Industry environment security related products and services, dual-use while the National Assembly is not allowed to be France’s key industries include agriculture and agro- products and technologies and encryption and dissolved twice within one year. The president could processing, nuclear power and energy, aeronautics decryption systems for digital applications; businesses submit laws to the people in a referendum without and space technologies, chemical, pharmaceutical, certified for national defense; business in weapons, advice and consent of the cabinet. Under exceptional fashion and quality textile manufacturing, tourism, munitions and explosives for military applications or circumstances, the president can take the measures automobile, materials processing and other basic equipment used in warfare and businesses under required by these circumstances. Upon the death, industry, telecommunications and information contract to supply research or equipment to the removal, or resignation of the President, the Head of exchange technology and scientific R&D. French Ministry of Defense or its subcontractors. the Senate takes over as acting president. The government encourages development Special permits and licenses are required for the of technology innovation industries, including foreign investment in insurance sector. For foreign The French Parliament is the bicameral legislature automobile, aeronautics and space technologies, investors from non EU countries, special licensing of the French Republic, consisting of the Senate and computer system, nanotechnology, biology, laws and French banks should be available to support the National Assembly, exercising the powers of microelectronics, environment-friendly materials, the investment in banking sector. legislation, supervision on the government opera- tions, approval of the national budget, declaration of Chinese M&A (left) and Greenfield Investment (right) to France war, etc.

Investment climate France, as part of the European single market, offers a 7 25 4 20 19 strong investment climate, in views of its open market 22 18 18 18 6 4 economy, sound legal and infrastructure system, qual- 20 16 16 3 ity labor and high labor productivity. With state-of–the 5 14 14 US$B art technology, France is highly-developed in certain US$B 15 3 12 high-tech industries, taking the lead in nuclear energy, 4 2 10 rail express, aeronautics and space technologies , 12 3 11 10 8 precision instruments, medicine, energy develop- 10 2 6 ment, agriculture, food processing, military, electronic 2 1 technology, biochemistry, environmental protection 5 4 1 4 1 and other industries. 2 0 0 0 0 2013 2014 2015 2016 2017 Regulation environment 2013 2014 2015 2016 2017 The Ministry of Foreign Affairs and International Deal value Deal count Capital invested Project count Development is the department responsible for the trade and commerce in France, following EU trade Source: Mergermarket Notes: 1.China refers to Mainland China, Hong Kong, Macau and Taiwan; 2.M&A deal volume includes the number of announced deals with disclosed and undisclosed values during the period stated; 3.M&A deal value includes the value of announced deals with disclosed values during the period stated; 4.M&A deals exclude deals lapsed or withdrawn during the period stated; 5.Greenfield data includes announced or planned greenfield investments.

List of the selected Chinese companies operating/investing in France

Bank of China Paris Branch Huawei France

ZTE France Air China offices in Paris Français

ICBC Paris Branch COSCO France

CSG Europe Energy EIBC Paris Office

Avic International (Europe) Mindray Medical International France Branch

CASC Europe Office Tsingtao Brewery Europe Trade Co.

NORINCO France Office Adisseo Group Currency Tax incentives Euro (EUR) The French government offers generous tax credit schemes to attract Exchange Controls investment. No The main tax incentive in France is the R&D tax credit (CIR). Besides, the government also provides other tax incentives, such as tax credit for family, Accounting Principles/ Financial Statements film and multimedia industry and video game industry, high-growth SMEs, French GAAP. Financial statements must be filed annually. new companies, and other tax incentives to encourage technology innovation Principal Business Entities and promote sustainable and environmental-friendly economic growth. Corresponding measures have been taken in support of these incentives. These are the joint stock company (SA/SAS), limited liability company (SARL), commercial partnership (SNC) and branch of a foreign company. Tax system Labor law With the commitment to promoting investment and developing regional The Employment Law in France dedicated to protect the rights of employees and international market, the tax system in France is characterized by its and safeguard the benefits of businesses. Non-termly labor contract is the complexity and fairness. For example, different taxation rates are levied on most common. The legal working time in France is 35 hours/week. Social companies with different revenues. France has signed tax treaties with more security system comprises of medical insurance, endowment insurance, family than 100 countries, preventing the foreign investors from double taxation. allowance and work injury insurance. The tax system in France, a sound and typical one in western countries, was transformed from the territorial taxation system to comprehensive income taxation system through the tax reform in 1959. The government has regulated that the tax system should be established, operated and reformed by the state under the rule of law, publicity and fairness, which requires the rich to pay more tax and the poor pay less. The main taxes in France are income tax, sales tax, capital tax and local tax etc.

China outbound M&A deals to France by industry

2016 US$M 2017

$143 $96 $446

2 Consumer&Industrial Products 1 1 Energy&Resources 1 2 Financial Services 22 deals 12 deals $1,061 2,286 Life Sciences&Health Care 2,235 1 7 Real Estate $484 1 18 Technology,Media&Telecommunications Transporation $2,047 $171 $73

Source: Mergermarket

Notes: 1.China refers to Mainland China, Hong Kong, Macau and Taiwan; 2.M&A deal volume includes the number of announced deals with disclosed and undisclosed values during the period stated; 3. M&A deal value includes the value of announced deals with disclosed values during the period stated.

France Quick Tax Facts for Corporations 33.33% (plus a 10.7% exceptional surtax, and 33.33% (plus a 10.7% exceptional surtax, Corporate income tax rate 3.3% social surcharge in certain circumstances), Branch tax rate and 3.3% social surcharge in certain will be decreased progressively to 28% circumstances) Distribution tax 3%（on certain actual and deemed distributions） Basis Territorial 4.56%/19%/331⁄3% (plus a 10.7% exceptional Loss relief Capital gains tax rate surtax, and 3.3% social surcharge in certain •• Carryforward Indefinite (but limit on amount offset) circumstances) •• Carryback One year (but limited to EUR 1 million) No (but most tax treaties provide for a tax Participation exemption Yes Double taxation relief credit mechanism) Thin capitalization/interest Transfer pricing rules Yes Yes restriction rules Controlled foreign company Yes Tax year Calendar year or other fiscal year rules Advance payment of tax Yes Tax consolidation Yes Before 3 May of the year following the calendar Return due date year or within three months of the year end of a Financial transactions tax Varies non-calendar financial year Bank levy 0.275% on minimum equity Apprenticeship tax 0.68% Transfer tax (sale of shares) 0.1%/3%/5%/5.09%-5.80% Real estate tax 3% Withholding tax Payroll tax 4.25%/8.5%/13.6%/20% •• dividends 0%/30% Territorial economic Varies •• Interest 0% contribution •• Royalties 33.33% 20%（standard rate） •• Branch remittance tax 30%（for branches of non-EU entities） VAT 2.1%/5.5%/10%（reduced rates） *Above tax policies and rates are based on information current as of January 2018. Germany

“With regard to foreign investment, there are sometimes concerns about job losses and whether the acquired companies will be dissolved with its technology being taken away. In fact, foreign investments create jobs and promote growth and that is why they are economically important to Germany. For instance, many Chinese investors have taken over some financial distressed automotive suppliers in Germany, which have subsequently undergone successful restructurings and regained their competiveness.”

Dirk Hällmayr Deloitte Germany CSG Leader

Political environment Regulation environment Industry environment Germany is a federal parliamentary republic country. Legal framework for license agreements– Govern- Manufacturing and related services are at the heart The exclusive legislative jurisdiction of the federal ment approval is not required to enter into licensing of the German economy. The leading industries are government extends among others to defense, agreements or to pay royalties to foreigners. Licensing automotive and chemical. However, biotechnology, foreign affairs, transportation and communications. and technical assistance agreements need not to be telecommunications and digital industry have also The president is the head of state. Germany has a registered with the German Patent and Trademark become very important. The heavy industry sector bicameral parliament. The two chambers are the Office. As a rule, compensation under licensing has declined, as has the significance of agriculture. Bundestag and the Bundesrat. The most important agreements is based on sales. The main limitations on But the remainders of these industries are still noted organizational structures within the Bundestag are licensing in Germany arise from antitrust law. for their high quality and sophisticated production parliamentary groups, which are formed by each po- techniques. Recent development in the energy market litical party represented in the chamber. The Bunde- Mergers and Acquisitions – The Law against the is characterized by a shift from traditional energy stag, the members of which are elected through the Restraint of Competition stipulates the criteria of production using coal, gas and nuclear power towards Mixed Member Proportional system every four years, mergers that require notification of the German renewable energy, referred to as "green energy". On is the legislative and constitutional body in Germany, Federal Cartel Office. the other hand, traditional energy production is facing responsible for selecting the federal chancellor, par- stricter regulation, which brought some companies ticipating in the presidential election, supervising the Cartel ban – Under the cartel ban, agreements in this sector into financial turmoil. In addition to law enforcement, scrutinizing the government actions, between undertakings which have as their object or green energy, there are leading companies in the etc. The political party or the coalition winning in the effect the restraint on competition are prohibited. area of environmental technology with many years of Bundestag election has the right to form the govern- experience in their industry. In recent years, the real ment. The German political and legal system operates Monopolies and restraint of competition- Market estate industry was positively affected by the relatively under a framework laid out in the 1949 constitutional dominance in itself is not illegal in Germany, but the low interest rates. document known as the Grundgesetz (Basic Law). abuse of a dominant position is.

Investment climate Chinese M&A (left) and Greenfield Investment (right) to Germany The German government welcomes foreign invest- ment that provides new jobs. There are no strict limitations on new projects, except for prior govern- 15 40 2.0 100 ment permission for the sale of defense companies 38 to foreign investors. Under the foreign trade law, the US$B 12 33 US$B 84 80 government can prohibit or apply restrictions to the 30 1.5 69 acquisition (directly or indirectly) by a non-EU party of 27 9 61 60 a domestic entity if this measure is required to main- 21 21 20 1.0 tain public law and order. No permanent currency or 6 40 31 23 administrative controls on foreign investments apply. 10 0.5 3 Foreign investors are subject to the same conditions 20 as their German counterparts in obtaining operating 0 0 0.0 0 licenses, securing building permits and obtaining 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 approval for investment incentives. Deal value Deal count Capital invested Project count

Source: Mergermarket Notes: 1.China refers to Mainland China, Hong Kong, Macau and Taiwan; 2.M&A deal volume includes the number of announced deals with disclosed and undisclosed values during the period stated; 3.M&A deal value includes the value of announced deals with disclosed values during the period stated; 4.M&A deals exclude deals lapsed or withdrawn during the period stated; 5.Greenfield data includes announced or planned greenfield investments.

List of the selected Chinese companies operating/investing in Germany

Minmetal Germany GmbH) Chinasilk (Germany) GmbH

Representatives of CMEC in Germany Genertec Europe Temax GmbH

Huawei Technologies Deutschland GmbH China State Shipbuilding (Europe) GmbH

Bank of China Frankfurt Branch China Petroleum & Chemical Corp. R-Office in Europe

WELZ Gas Zylinder GmbH Air China Berlin Office

Baosteel Trading Europe GmbH COSCO Europe GmbH

SAIC Europe GmbH FAW IEC-KFZ Handel GmbH

EurasSpace GmbH ZTE Deutschland

Shanghai Electric Group Chem China

Sany Germany GmbH Midea Group Currency Tax system Euro (EUR) A common way to invest in Germany is the interposing of a holding company Foreign Exchange control which would possibly reduce withholding taxes. A typical location would be somewhere in the EU in order to utilise the EU Parent-Subsidiary Directive No restrictions are imposed on the import or export of capital; however, a and reduce the dividend withholding tax to zero. However, this requires two declaration must be filed with customs for cash transfers of more than EUR things: the interposed holding company has a commercial purpose on its own 10,000 into or out of the EU. and some operational substance in order to meet the preconditions under Accounting Principles/ Financial Statements German law. Additionally, the interposed location should not add tax cost to the German commercial GAAP/IFRS. Financial statements must be prepared annually. dividend flow. If no operational substance can be set up in another favorable Taxpayers are required to maintain their books in Germany, although electronic location, a straightforward investment might be considered in the legal form of bookkeeping many be transferred abroad if prior approval is obtained from the a partnership (GmbH & Co KG). This is a very common legal form in the German tax authorities. middle market sector ("Mittel- stand"). A partnership is generally subject to a comparable tax burden in Germany to an operating corporation (GmbH). Principal Business Entities However, the repatriation of funds is not a dividend and is thus not subject to These are the joint stock company(AG), limited liability company(GmbH), general dividend withholding tax. The repatriated funds are generally not taxable in Hong and limited partnership, sole proprietorship and branch of a foreign corporation. Kong. However, once a repatriation to China takes place, consideration needs to Labor law be given to the availability of foreign tax credits in China which are only accepted There is no single law governing the individual and collective aspects of up to three tiers, so a flat structure would be preferable from the perspective of employment in Germany. Labor-management relations are primarily the result of an ultimate Chinese shareholder. collective bargaining between trade unions and employers. Another means of reducing the effective tax rate would be to finance the German The German Civil Code regulates employment contracts. The Commercial Code investment with debt. In this regard, the German interest limitation rules have to partly covers the employer-employee relationship and contains regulations on be observed. Since generally no withholding tax applies to interest payments and commercial agents. the tax arbitrage is considerable between Germany and Hong Kong (but not with China), the debt-financing capacity should be utilised. Tax incentives When acquiring (or setting up) more than one legal entity, the creation of a tax Various incentive programs are available , e.g. for the purchase or production group (Organschaft) to permit the consolidation of the tax result across all entities of movable assets in Eastern Germany and for the founders of new businesses. should be considered. Furthermore, various programs exist for the promotion of modern energy generation and efficiency (referred to as green energy), e.g. solar and wind energy, as well as programs for the promotion of domestic buildings, environment protection, R&D, healthcare, infrastructure and agriculture. Regional and federal programs are available. Promotion can be granted either as a tax benefit, allowance, guarantee, loan or participation.

China outbound M&A deals to Germany by industry

2016 US$M 2017

$3,720 $16 3 1 4 Consumer&Industrial Products 1 $2,263 $10 3 Energy&Resources $1,453 3

1 $269 deals Financial Services deals 1,49 1 , $90 Life Sciences&Health Care 28 Real Estate

26 Technology,Media&Telecommunications

Transporation $8,400 $54

Source: Mergermarket Notes: 1.China refers to Mainland China, Hong Kong, Macau and Taiwan; 2.M&A deal volume includes the number of announced deals with disclosed and undisclosed values during the period stated; 3. M&A deal value includes the value of announced deals with disclosed values during the period stated.

Germany Quick Tax Facts for Corporations Corporate income tax rate 15% Capital Tax No Real estate transfer tax Branch tax rate 15% 3.5%-6.5% (RETT) Capital gains tax rate 95% exemption Municipal real estate tax 1.5%-3% of assessed value Solidarity surcharge 5.5% of corporate income tax VAT 19% (standard rate)/7% (reduced rate) Trade tax 14%-19% (typical rate in main cities) Basis Worldwide basis Participation exemption Yes (95% exempt) Double taxation relief Yes Tax consolidation Yes Transfer pricing rules Yes Return due date 31 May (extension possible) Tax year Financial year or calendar year Thin capitalization rules No, but there are interest deduction limits Withholding tax 25% (26.375%, including the solidarity surcharge) Controlled foreign •• Dividends Yes 0%/25% (26.375%, including the solidarity company rules •• Interest surcharge) •• Royalties Advance payment of tax Yes 15% (15.825%, including the solidarity surcharge) •• Branch remittance tax Carryforward-Indefinite; No Loss relief Carryback-1 year *Above tax policies and rates are based on information current as of January 2018. India

“Over the last 12 months, trade between China and India has reached a record level of USD 84 Billion. For the first time, Indian exports to China have increased significantly. There has been an increase in M&A investments from China particularly into the Tech sector by large Chinese e-commerce companies like Alibaba, Tencent and Fosun to name a few. The Indian consumer growth story and Government driven measures to favour domestic manufacturing versus imports (like increase in Customs duty) is resulting in increased Chinese FDI particularly in manufacturing for domestic consumption in sectors like Electronics, Automobiles and Auto components, Renewable Energy, etc. India recently signed a Double tax avoidance treaty with HKSAR which would also help investment flows as many Chinese Groups use HK SAR companies for their overseas investments. ”

Tarun Arora Deloitte India CSG Leader

Political environment Food and Public Distribution, responsible for quality control of industries play predominant roles. Specialized in bio-medicine, India, the world's most populous democracy is a federal imported goods. India is the world's second largest pharmaceutical producer. republic that operates a multi-party parliamentary democracy Besides, automotive, banking, capital market, health and system. The President, the Constitutional head of India and The departments in charge of the domestic and foreign science industries are key industries in India. India promotes Vice President of India are elected indirectly by a national elec- investments in India include Department of Industrial Policy the trade and encourages the development industries as toral college for a five-year term. The head of the Government and Promotion, which is responsible for formulation and electricity, oil refining and chemical products, mining, financial is the Prime Minister who with his Union Council of Ministers— implementation of promotional and developmental measures intermediary services, agricultural products, electronic the cabinet, exercises the executive power. The Prime Minister for investment growth; the Ministry of Corporate Affairs, which products, computer hardware and software, wholesale and is nominated by the party which has a parliamentary majority administrates company registration; the Ministry of Finance, food processing. and appointed by the President. Legislative power is constitu- concerned with corporation taxation and approval of foreign tionally vested by the Parliament of India which comprises the investment in restricted industries; the Reserve Bank of India, Foreign Direct Investment in certain limited sectors is Upper House called the Rajya Sabha ("Council of States") and which manages the foreign exchange and establishment of prohibited, such as those involving nuclear power, lotteries, the Lower House called the Lok Sabha ("House of the People"). representative offices. In addition, government approvals are gambling, venture capital, cigars and cigarettes. 100% Foreign The Supreme Court is the highest constitutional court with required if the investments exceed the prescribed limit or Direct investment is permitted on an automatic basis in most the power of constitutional review and original jurisdiction investments in small business. industries, although sector-specific caps have been set for over cases involving fundamental rights and disputes between certain industries. The government has introduced various States and the Centre. Industry environment programs to make India an attractive hub for manufacturing India has a three-tier economy, comprising agricultural, and attract global investments and is taking measures to Investment climate manufacturing and services sector. Slightly less than half of the simplify the processes to set up or exit from business in India India has solid economic foundation and strong macroe- work force is in agriculture, which accounts for 15.2% of the through its flagship ‘Make in India’ Program. conomic fundamentals, GDP growth is expected to further economy while the manufacturing sector contributes almost increase and current account deficit to remain "comfortable". 18.1% (with industry as a whole at 31.2%) to the economy. List of preferred sectors by Chinese companies investing in The narrative across the world is changing fast with uncertainty However, services are the major source of economic growth, India: Consumer Electronics and Mobile Phones, Real Estate, rising on the back of protectionist rhetoric gaining ground accounting for 53.7% of India's output but employing less Industrial Parks and Metro, Manufacturing, Telecommunication, but India stands out as a bright spot in the world economic than one-third of its labor force. India has capitalized on its Clean Energy, Power & Infrastructure, Steel and Machinery landscape. large educated English-speaking population to become a (Construction), Automotive and auto components, Information major exporter of information technology services, business Technology, Medical devices. To attract and promote foreign investment, a flexible monetary outsourcing services, and software workers. policy and investor–friendly foreign direct investment (FDI) India is one of the largest food production countries. India has policy have been put in place. India is one of the fastest grow- a sound industrial structure, in which the services and textile ing major economies and has recently emerged as a favored investment destination in view of its political stability, increasing economic growth, large market potentials with a population of Chinese M&A (left) and Greenfield Investment (right) to India over 1.2 billion and geographical location connected with Mid- dle East, East Africa, South Asia and Southeast Asia markets. Further reforms are expected in various laws and processes which will make it easier to do business in India. 20 80 US$B 3 15 US$B 14 14 74 72 List of preferred locations by Chinese companies investing in 13 15 60 India: National Capital Region, Gujarat, Maharashtra, Karnataka, Tamil Nadu, Haryana, Andhra Pradesh, Telangana. 2 10 10 40 30 31 Regulation environment 1 5 5 5 20 The Ministry of Commerce and Industry administers is the 3 16 competent department responsible for regulation, devel- opment and promotion of India’s international trade and 0 0 0 0 commerce. The Reserve Bank of India is India's central bank, 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 acting as the regulator and supervisor of the financial system, manager of the foreign exchange and issuer of currency. Deal value Deal count Capital invested Project count Central Board of Excise and Customs, a part of the Department of Revenue under the Ministry of Finance, deals with the pre- vention of smuggling, tasks of formulation of policy concerning Source: Mergermarket levy and collection of and administration of matters relating Notes: 1.China refers to Mainland China, Hong Kong, Macau and Taiwan; 2.M&A deal volume includes the number of announced to Customs and Central Excise duties and Service Tax. The deals with disclosed and undisclosed values during the period stated; 3.M&A deal value includes the value of announced deals with Bureau of Indian Standards is the national Standards Body of disclosed values during the period stated; 4.M&A deals exclude deals lapsed or withdrawn during the period stated; 5.Greenfield India working under the aegis of Ministry of Consumer Affairs, data includes announced or planned greenfield investments.

List of selected Chinese companies operating/investing in India

China Development Bank India Office Kingfa Science & Technology (India) Limited

Vivo Oppo

China Fortune Land Development Huawei

ZTE Corporation (India) Miniso

Zhongtian Technology (India) Fosun

Xiaomi Country Garden (India)

SAIC Motor Baosteel (India)

China State Construction (India) Alibaba (investments)

Tencent (investments) ICBC Currency Tax incentives Indian Rupee (INR) India’s investment incentives are designed to channel investments to specific industries, Foreign Exchange control promote the development of economically lagging regions and encourage export of goods and services. There are a number of benefits, including tax and non-tax incentives for specific There is a simplified regulatory regime for foreign exchange transactions and liberalized capital industries such as power, ports, highways, electronic and software. account transactions. Current account transactions are permitted unless specifically prohibited and are monitored by the central bank. The RBI has delegated its certain powers to a specified Incentives include tax holidays depending on the industry and region; accelerated depreciation list of banks (authorized dealer banks) to carry out transactions such as dealing in foreign for certain categories of assets; additional deduction for new investment made in plant and exchange currency, verify various applications under automatic/ approval route, carry out machinery. Many of the tax incentives are expected to be phased out in the coming years with remittances of royalties, interest, etc. the introduction of a lower corporate tax rate and GST. Accounting Principles/ Financial Statements The central and state government’s industrial development banks extend medium to long-term loans, and sometimes equity in new projects. There some additional state specific incentives India has so far followed accounting standards issued by the Institute of Chartered Accountants too like waiver of stamp duty, etc. of India, which largely are based on IAS. India has initiated steps toward the convergence of its accounting standards with IFRS (subject to a few carve-outs); these standards are called Benefits in the form of reimbursement/exemption of duties under Customs & GST law is also Indian Accounting Standards (Ind AS). For accounting periods commencing on or after 1 April available to manufacturers or service provider for export of goods or services respectively 2016, the Ind-AS are mandatory for listed and unlisted companies meeting certain net worth from India. thresholds, in various phases. Financial statement must be filed annually. Tax system Principal Business Entities Based on the Constitution of India, India has a complicated tax structure but with clearly These include the public/private limited liability company, one-person company (owned by a demarcated authority between Central and State Governments and local bodies. No tax shall resident individual), partnership firm, limited liability partnership, sole proprietorship, branch be levied or collected except by the authority of law. Therefore, each tax levied or collected has office, liaison office, project office or site office of a foreign corporation. to be backed by an accompanying law, passed either by the Parliament or the State Legislature. Every year, the Finance Minister presents a Union Budget for the forthcoming year which Labor law contains the proposals to amend the existing direct and indirect taxes laws. India’s labor laws are complicated, with numerous pieces of relevant legislations, including Further, India has also signed bilateral economic agreements with various countries, including the Industrial Disputes Act, the Maternity Benefit Act, the Payment of Bonus Act, the Payment China, to avoid double taxation of the same income. The taxpayer can chose to claim benefits of Gratuity Act, Workmen‘s Compensation Act, Industrial Employment Act, Minimum Wages of an applicable tax treaty or the domestic tax law, whichever is more beneficial. To claim Act, the Payment of Wages Act, Employees Provident Fund and Miscellaneous Provisions the tax treaty benefits, a tax residency certificate of such country along with certain other Act, Miscellaneous Provisions Act, the Factories Act and Employees State Insurance Scheme. information is required to be furnished. India recently signed a Double tax avoidance treaty The Ministry of Labour & Employment, Govt. of India has taken steps for simplification, with HKSAR and this is yet to be ratified by both sides. amalgamations and rationalization of Central Labour Laws and replacing them with 4 Labour codes viz. (Code on Social Security & Welfare, Code on Industrial Relations, Code on Wages and Corporation and individual income tax, capital gains tax, gift tax, Goods and Services Tax, Code on Occupational Safety, Health & Working Conditions) Customs duty, social security contributions, registration tax, land revenue, stamp duty are levied by the Central and State Governments. Additionally, the State governments are empowered to levy tax land, agriculture and occupation and state bodies to levy tax on properties, land value, advertisement and property transfer. China outbound M&A deals to India by industry India has implemented GST from 1 July 2017 onwards which is one of the biggest tax reforms in the history of India and replaces several indirect taxes some of which are Excise, VAT/sales tax, Entry tax/Octroi, service tax etc. 2016 US$M 2017

$208 $198 $25 $11 $272

2 Consumer&Industrial Products

4 Energy&Resources 4

Financial Services 14 deals 13 deals 3 2,512 Life Sciences&Health Care 2,235 8 1 Real Estate $1,121 1 1 Technology,Media&Telecommunications$967 2 1 Source: Mergermarket Transporation Notes: 1.China refers to Mainland China, Hong Kong, Macau and Taiwan; 2.M&A deal volume $1,938 $7 includes the number of announced deals with disclosed and undisclosed values during the period stated; 3. M&A deal value includes the value of announced deals with disclosed values during the period stated.

India Quick Tax Facts for Corporations

Corporate income tax rate Surcharge •• Resident companies 25%/29%30%, plus the surcharge and cess •• Resident companies 7%/12%； •• Nonresident companies 40%, plus the surcharge and cess (subject to Tax treaty benefits) •• Nonresident companies 2%/5% Cess 3% Branch tax rate 40%, plus the surcharge and cess, applicable to companies

Minimum alternate tax (MAT) MAT credit entitlement carry 18.5%, plus the surcharge and cess, applicable to companies 10 years rate forward 10%-40%, plus the surcharge and cess, exemptions Capital gains tax rates Tax year 1 April – 31 March available in certain cases

Tax on distribution of income Dividend distribution tax 15%, plus the surcharge and cess 20%, plus the surcharge and cess through buy-back of shares

Loss relief Participation exemption No, except for DTT in some cases •• Carryforward Eight years •• Carryback No

Double taxation relief Yes Tax consolidation No Transfer pricing rules Yes Thin capitalization rules No

Controlled foreign company rules No Basis Advanced payment of tax Yes (quarterly) •• Residents Worldwide Return due date for 30 September/30 November (depending on applicability •• Non-residents Income accruing, arising or received or deemed corporations of transfer pricing provisions) thereof in India

Customs duty 28.85% (actual rate depends on a number of factors) Capital tax No

Social security contributions 2% Withholding tax 0.01% •• Dividends No Commodities transaction tax •• Interest 10%(resident);5%/20%/30%/40%, plus the surcharge and Service tax 15% •• Royalties and fees for technical cess (nonresident). services 10% Central excise duty 12.36% •• Branch remittance tax No VAT 1%/5%/12.5%-15% •• Foreign contractors tax 30%/40% •• Purchase of immovable property 1%, plus the surcharge and cess 12% of wages (to be contributed both by employer Social security contributions and employee) *Above tax policies and rates are based on information current as of January 2018. Italy

“Italian market and Italian expertise have been and continue to be of strong interest for Chinese investors: from luxury to fashion, from food and wine to mechanical and robotic, from football and leisure to infrastructure and financial sector we registered continuous interest of Chinese corporates and financial institutions for Italian targets, bringing total Chinese investment to the “Sunny Boot” to more than Euro 16bn. Political and economic reforms which are underway will definitely generate and higher appeal for Italy in foreign investors and Chinese particularly.”

Domenico Russo Deloitte Italy CSG Leader

Political environment Regulation environment if the Italian enterprises suffer injustices in other Italy is a unitary parliamentary republic in Europe. It The Ministry of Economic Development is the countries. has a parliamentary government based on a majority competent department responsible for foreign trade voting system. The President of Italy is Italy's head in Italy. As an EU member state, Italy is required to Industry environment of state. The President is elected for a single seven comply with all EU directives and regulations and The key industries in Italy are aeronautics and years mandate by the Parliament of Italy in joint it follows EU regulations on trade treaties, single space technology, high-speed rail, urban rail transit, session. The parliament is perfectly bicameral: the external tariff and customs duties. professional mechanical equipment, , machine tool two houses, the Chamber of Deputies (that meets in and robot, biomedicine, automobile manufacturing, Palazzo Montecitorio) and the Senate of the Republic The Ministry involved in the areas where there design and auto parts manufacturing, textiles and (that meets in Palazzo Madama), have the same are outbound and inbound investments, is also in clothes, food and tourism industries. powers. The Prime Minister, officially President of the charge of implementing the policies and launching Council of Ministers is Italy's head of government. The the projects to stimulate foreign investment. Under the specific laws and regulations, foreign Prime Minister and the cabinet are appointed by the Generally speaking, Italy welcomes the overseas investors in the defense, aircraft manufacturing, oil President of the Republic, but must pass a vote of investors. However, the government, under EU and and gas exploration and shipping sectors are likely confidence in Parliament to come into office. national anti-trust laws, can block mergers involving to encounter resistance. Italy also has investment foreign enterprises if giving priority to the “domestic restrictions on non-EU-based airlines operating Investment climate economic interests and strategic development" or domestic routes. Located at a strategic geographical position in Europe and the Mediterranean Sea, and center of three Chinese M&A (left) and Greenfield Investment (right) to Italy key markets of about 800 million consumers, Italy is boasted of its strong economy, wide infrastructure network and numerous opportunities for enter- prises. Because of innovative value system, Italy has well-educated human resources and high-quality

US$B 10 20 US$B 0.20 5 lifestyles. To further attract the foreign investment, the 19 18 government is committed to providing full services 4 4 4 4 15 and support for the overseas investors. 14 3 3 5 11 10 0.10 2 4 5 1 0 0 0.00 0 0 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017

Deal value Deal count Capital invested Project count

Source: Mergermarket Notes: 1.China refers to Mainland China, Hong Kong, Macau and Taiwan; 2.M&A deal volume includes the number of announced deals with disclosed and undisclosed values during the period stated; 3.M&A deal value includes the value of announced deals with disclosed values during the period stated; 4.M&A deals exclude deals lapsed or withdrawn during the period stated; 5.Greenfield data includes announced or planned greenfield investments.

List of selected Chinese companies operating/investing in Italy

Bank of China Milan Branch Bank of China Rome Branch

ICBC Rome Branch CCB Milan Branch

COSCO (Italy) Huawei Technologies Italy

China General Technology Group (Italy) Baosteel Italy Collecting and Distributing Center

HQCEC Italy Representative Office Air China Rome Office

China Eastern Airlines Rome Office State Grid CDP Rete

Zoomlion CIFA Weichai Group Ferretti Yachts Corporation Currency Incentive Schemes Euro (EUR) The government has provided a wide range of incentives, targeting main needs of Exchange Controls business activities and assisting to achieve specific goals. There are no foreign exchange controls or restrictions on repatriating funds. Feed in tariff and electricity price subsidiaries are introduced to Italy’s energy Residents and nonresidents may hold foreign currency within and outside the dependence on foreign countries as well as promote the development of country, and direct and indirect investments may be made in any currency. renewable energies. Special incentives are available to companies which intend Funds held outside Italy or repatriated to Italy without a bank intermediary must, to work in the particular territories and sectors (specified in the EU regulation). however, be declared for tax purposes. Other incentives include national interest deduction (ACE), incentives to support business activities, encourage research and development and benefit the small Accounting Principles/ Financial Statements and medium-sized enterprises. Italian GAAP and IFRS/IAS. Financial statements must be prepared annually. In addition, special incentives are provided to encourage regeneration and Consolidated accounts must be prepared if certain thresholds are exceeded. local economic growth in certain deprived areas in Southern Italy. Foreign Principal Business Entities merchandise enjoys zero-tariff treatment in bonded areas for further processing These are the joint stock company (SpA), limited liability company (SrL) and and re-exporting. branch of a foreign company. Labor law Tax system The main types of employment contracts are casual, solidarity, apprenticeship, Individuals and companies in Italy are subject to direct taxes including individual part-time, internship, fixed-term contracts and consultancy agreements. There income tax, corporate income tax and regional tax on productive activities, is no prescribed minimum salary for workers in Italy and every employee is and indirect taxes including VAT, registration tax, IMU tax and cadastral tax. entitled to obtain a fair income. The increases of salary are subject to negotiations Tax system in Italy is residence-based tax system. In other words, nonresident between both parties every two years, taking inflation into consideration. Average taxpayers are taxed only on income from Italy. The joint stock companies (SpA), working hours is 8 hours/day and no more than 48 hours/week on a 4-month limited liability companies (SrL) and (Sapa) are recognized as Italian enterprises. basis. Italy also has a sound pension insurance system, providing accident, The prerequisite for a company to have income is having a standing body in Italy. illness, disability, aging and unemployment insurance.

China outbound M&A deals to Italy by industry

2016 US$M 2017

$6 $550 1 1 2 $5 1 2 Consumer&Industrial Products 2 $27 Energy&Resources 3 1 $66 $1,130 19 deals Financial Services 18 deals $1,846 $2,452 $8 Life Sciences&Health Care $1,734 1 12 Real Estate

11 Technology,Media&Telecommunications $772 Transporation

Source: Mergermarket Notes: 1.China refers to Mainland China, Hong Kong, Macau and Taiwan; 2.M&A deal volume includes the number of announced deals with disclosed and undisclosed values during the period stated; 3. M&A deal value includes the value of announced deals with disclosed values during the period stated.

Italy Quick Tax Facts for Corporations Corporate income tax (CIT) 24% Branch (CIT) tax rate 24% rate Regional tax on productive CIT rate for non-operating 3.9% 38% activities (IRAP) companies Loss relief Capital gains tax rate 27.5%; 95% exempt under certain conditions •• Carryforward Indefinite •• Carryback No Participation exemption Yes Double taxation relief Yes Tax consolidation Yes Transfer pricing rules Yes Thin capitalization rules No, but restrictions apply on interest deductibility Stamp duty Rate varies Tax year Calendar year or financial year Advance payment of tax Yes Within nine months following the end of the Return due date Basis Worldwide financial year Capital tax No, but a registration duty applies Controlled foreign company Yes Social security contributions Rate varies rules

Withholding tax Property tax Levied by the municipalities •• Dividend 0%/1.375%/26% Transfer tax Rate varies •• Interest 0%/12.5%/26% •• Royalties 0%/30%（on 75% of the gross royalty） Payroll tax No •• Branch remittance tax 0% 22%(Standard rate) /4%,5%, VAT 10%(reduced rates) *Above tax policies and rates are based on information current as of January 2018. Japan

“As of the end of 2015, China's FDI into Japan's non-financial sectors amounted to 2.7 billion USD, Comparing with it’s trade volume, the volume and proportion of China's investments into Japan remain low, which serves as a significant implication that there still exists tremendous opportunities and development potentials.”

Satoshi Miura Deloitte Japan CSG Leader

Political System Regulatory Environment Investment Climate Japan is a constitutional monarchy whereby The Ministry of Economy, Trade and Industry is the Japanese consumers demand high quality products the power of the Emperor is very limited. As competent department of the Government of Japan, and services. As a leader in the home appliances a ceremonial figurehead, he is defined by the responsible for the management of all economic-re- and fashion sectors, Japan is usually considered Constitution as "the symbol of the State and of lated departments and formulation of policy con- as the major market in Asia for many multinational the unity of the people." There are three branches cerning trade and commerce, especially tax laws. corporations. Besides, Japan provides investor- of the parliamentary government: the executive, friendly environment in terms of its social and legislative and judicial. The National Diet is Japan’s Japan is a country renowned for its tough quality political stability, low credit risk, stable provision, legislative body, which consists of two houses and standards and quarantine of imported food. How- good security condition, sound medical system and is considered by the Constitution to be the highest ever, the Government of Japan has removed or strict laws for protection of intellectual property. organ of state power. Judicial power is invested in liberalized legal restrictions on imported poultry Investing in Japan, foreign enterprises can not only the courts while executive power rests with the and fruits from China, thanks to China government’s develop businesses with conglomerate companies cabinet, local public entities and the ministries. The long-term negotiation with Japan, and good perfor- of Japan, such as Toyota, Panasonic and Canon, but Cabinet is collectively responsible to the Diet. The mance of Chinese enterprises in the export market. also establish relationship networks with the SMEs Emperor of Japan is the symbol of the State, but Moreover, some agricultural products produced in which offer cutting-edge technologies to support shall not have powers related to government. The specified regions have obtained the permission to the conglomerates. Moreover, Japan is a hub of Prime Minister of Japan is the head of the Cabinet enter the Japanese market. multinational R&D centers and own large numbers and the head of government of Japan. of professional researchers. In addition to the Ministry of Economy, Trade and Industry Overview Industry, many other departments are engaged in As Japan’s aging population is increasing, medical the policy development of investment. care, nursing and health sectors have been paid more attention. Japan as other countries across the Chinese M&A (left) and Greenfield Investment (right) to Japan globe focuses the investment in environment and energy industries for the stimulation of economic growth. Renewable resources, efficient thermal power generation, rechargeable battery, new ener- 5 20 2 30 gy vehicle, energy management system, energy effi- 25 16 cient appliances, smart house and other industries 4 16 25 14 are listed as the industries of strategic importance. 20 11 17 In addition, Japan intends to maintain the aging ba- US$B 3 12 US$B sic infrastructure in a economic way, thus continuing 9 1 15 10 15 11 to provide a well-developed social infrastructure. 2 8 10 As a consequence, infrastructure management and 10 driving safety support system have become the key 1 4 industries for development. At the same time, the 5 Government is concerned about the establishment 0 0 0 0 and promotion of regional identities, such as the 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 local specialties and tourism resources.

The government imposes few formal restrictions Deal value Deal count Capital invested Project count on inbound foreign direct investment in specified industries which may not be fully liberalized or may Source: Mergermarket threaten the national safety. Notes: 1.China refers to Mainland China, Hong Kong, Macau and Taiwan; 2.M&A deal volume includes the number of announced deals with disclosed and undisclosed values during the period stated; 3.M&A deal value includes the value of announced deals with disclosed values during the period stated; 4.M&A deals exclude deals lapsed or withdrawn during the period stated; 5.Greenfield data includes announced or planned greenfield investments.

List of selected Chinese companies operating/investing in Japan

China Machine-Building International Corporation (Japan) PetroChina International (Japan) Co., Ltd

Shanghai International Holding Co. Ltd Minmetals Japan Corporation

Bank of China Tokyo Branch Bank of Communication Tokyo Branch

COSCO Shipping Lines Japan Air China (Japan)

China Southern Airlines (Japan) Spring Airlines Japan

Shanghai Electric Power Japan Co. Ltd Founder

Huawei Technologies Japan China Unicom (Japan)

Sinochem Oil Co.,Ltd. Japan Representative Office Currency Labor Law Japanese Yen (JPY) In consideration of skilled but insufficient labor force in Japan, the government Foreign exchange control has held a policy for encouraging foreign professionals and specialists as workers, to enhance the efficiency of many labor-intensive industries. The There are no controls, but some reporting requirements apply. minimum wage in Japan is 780 JPY/h. The traditional system of employment in Accounting Principles/ Financial Statements Japan is based on the concept of lifetime employment, while the employment Japanese GAAP. Financial statements must be prepared annually. patterns are becoming more and more diversified. Through direct recruitment or head-hunting companies, enterprises can hire fresh graduates from high Principal Business Entities school or college or experienced employees on fixed-term contracts or There are the joint stock company, limited liability company, partnership and temporary contracts or secondment agreements. Under Japanese labor law, branch of a foreign corporation. employers are required to provide wages (above the minimum standard), Incentive Schemes remit payroll withholding tax and participate in the labor and social insurance The Government of Japan is dedicated to promoting the foreign direct system. investment into Japan. The Ministry of Economy, Trade and Industry has Tax System introduced the Policy Package for Promoting Foreign Direct Investment The tax system in Japan is a worldwide one (also known as residence-based into Japan to Make Japan a Global Hub, including 0.5 billion JPY subsidy for tax system). Namely, corporations engaged in economic activities in Japan are the specified projects. JETRO, an independent administrative institution, is subject to taxes in Japan on the profits generated by those economic activities. authorized to provide support, involving review and investigation of the target Regarding Japanese branches of foreign corporations, several measures have companies, subsidy for specified regions and financial aid for visits of foreign been implemented to avoid international double taxation in Japan. For in- companies’ executives to Japan and experts of Japanese companies abroad, for stance, foreign tax credits are available whereby taxes paid in a foreign country attracting investment and expanding businesses. To further promote the FDI may be credited within certain bounds against Japanese taxes. Multinational in Japan, the Ministry are developing and formulating the incentive schemes corporations engaged in activities in Japan that earn income subject to taxa- for foreign enterprises, which includes exemption from corporation tax and tion in Japan calculate and pay the taxes owed through withholding procedures income tax within a certain period (varies by investment volume, company or self-assessed income tax procedures according to their form of corporation and number of employees), simplified regulations and entry procedures for and type of income. professionals and the establishment of one-stop business center to provide Corporations and individuals are subject to nine types of taxes, containing six consultation on investment and related incentive schemes. national and three local ones. Transactions are also subject to two types of Besides, other policies favorable for FDI into Japan are provided by the national taxes and local taxes respectively. In addition, the Government levy Government as follows: establishing consulting center to provide services 19 different taxes on consumption and possession or transfer of properties. concerning FDI into Japan, developing a mechanism for complaint settlement and problem solution and encouraging the local governments’ incentive provision for foreign enterprises

China outbound M&A deals to Japan by industry

2016 US$M 2017

$915 Consumer&Industrial Products 1 $361 2 1 $410 Financial Services 1 2 14 deals 16 deals 3,816 Life Sciences&Health Care 1,211 8 $346 Real Estate $2,542 11 4 Technology,Media&Telecommunications $13 $165

$275

Source: Mergermarket Notes: 1.China refers to Mainland China, Hong Kong, Macau and Taiwan; 2.M&A deal volume includes the number of announced deals with disclosed and undisclosed values during the period stated; 3.M&A deal value includes the value of announced deals with disclosed values during the period stated.

Japan Quick Tax Facts for Corporations Corporation income tax 23.4% Branch tax rate 23.4% rate (national tax) Capital gains tax rate 23.4% Enterprise tax rate (local tax) Varies Inhabitants tax rate (local Varies Basis Worldwide basis (attribution basis for branches) tax) Loss relief 9 years Participation exemption 95% foreign dividend exemption • Carryforward Generally suspended, but 1 year for SME and in the case • Carryback of dissolution, etc. Double taxation relief Yes Tax consolidation Yes, but national tax only Transfer pricing rules Yes Thin capitalization rules Yes Controlled foreign Yes Tax year Fiscal year company rules Within 2 months of end of fiscal year, in the case of Advance payment of tax Generally required Return due date income tax returns (extension generally is allowed) 1.4% of adjusted official appraisal value (exact rate may vary JPY 600 per square meter of premises used in business Fixed asset tax Business premises tax slightly by municipality) and 0.25% of gross payroll Up to approximately 16.248%, assuming general Capital tax Include in inhabitants tax and enterprise tax Social security contribution business rates for labor insurance apply

Withholding tax Real estate acquisitions tax 3% or 4% (temporarily, 1.5% - 2%) 20%/15%, plus 2.1% surtax •• Dividends Real estate registration tax Up to 2% •• Interest 20%/15%, plus 2.1% surtax •• Royalties 20%, plus 2.1% surtax Stamp duty JPY 200 to JPY 600,000 •• Branch remittance tax No Consumption tax 8% *Above tax policies and rates are based on information current as of January 2018. Netherlands

"The Netherlands is generally considered as the gateway to Europe. With its large harbor, excellent infrastructure and a highly qualified labor force, it’s the best country for Chinese companies to establish and incorporate companies that aim to sell into the rest of Europe. The Dutch government is open for discussion on green field investments and the transparent legislation makes it relatively easy to make use of the various incentives. The procedure of incorporating a company is easy and the setup and running cost are relatively cheap. Finally next to the well know industries the Netherlands is also becoming more and more interesting for companies in the high tech and gaming industry."

Han Kalfsbeek Deloitte Netherlands CSG Leader

Political System Industry Overview Investment Climate The Netherlands is a constitutional monarchy The key sectors in the Netherlands are manufacture, Considered as a traditional “gateway to Europe”, governed by members of the House of Orange- construction, agriculture and services. There are no the Netherlands is boasted of many attractive Nassau. Amsterdam is the country's capital, while regulatory restrictions on foreign investment with the advantages for foreign investment, such as its The Hague holds the Dutch seat of government and exception of the investment in military production, strong economy, dominant geographic location, parliament. Executive power lies with the Council railways and electric transportation. Foreign investors developed logistics network, rich business experience, of Ministers, the deliberative council of the Dutch can make investment in any sectors in the Nether- investment friendly environment, advanced industrial cabinet, led by the Prime Minister who is the head lands and are subject to the same legal restrictions as technology, superior higher education and stable of government and responsible for managing the domestic companies, while foreign exchange reports labor relationship. In addition, the Netherlands, as national departments. The States General is the must be provided beforehand. a leading country in commerce and trade and a hub bicameral legislature of the Netherlands, consisting of well-renowned multinational enterprises, is also of the Senate and the House of Representatives. The Agriculture and food, chemicals, energy, life science characterized by the well-educated labor resources, members of both houses are elected every four years, and healthcare, water resources management indus- political and financial stability, open investment but the two elections cannot be held within the same tries are key industries to attract the foreign invest- policies and sound tax system. year. ment. In addition to its renowned logistics sector, the Netherlands has an outstanding creative sector. Regulatory Environment The Directorate-General for International Cooperation Chinese M&A (left) and Greenfield Investment (right) to Netherlands of the Ministry of Foreign Affairs is responsible for foreign trade policy development and management of the trade affairs. The Dutch government set no 4 12 0.4 20 regulations on most imports and exports. As an EU 11 17 member state, imports from non-EU countries includ- 9 ing sugar, clothes and textiles, steel products, arms 3 9 0.3 15 and ammunition and agricultural products are subject 13 7 11 to restrictions. On the other hand, exports restrictions US$B 6 US$B 9 are applied to products and services in the strategic 2 6 0.2 9 10 sectors, specified cutting-edge technology, chemicals, products and agricultural products. The Netherlands 1 2 3 0.1 5 has a sophisticated system to inspect and quarantine the imports and exports. The Customs regulations are based on the common customs regulations applica- 0 0 0 0 ble in all EU member states. 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017

The Ministry of Economic Affairs and the Directo- Deal value Deal count Capital invested Project count rate-General for Foreign Economic Relations of the Ministry of Foreign Affairs are responsible for foreign investment policy development. Netherlands Foreign Source: Mergermarket Investment Agency (NFIA), an operational unit of the Notes: 1.China refers to Mainland China, Hong Kong, Macau and Taiwan; 2.M&A deal volume includes the number of Ministry of Economic Affairs, assists to coordinate announced deals with disclosed and undisclosed values during the period stated; 3.M&A deal value includes the value of the national affairs of foreign investment. In addition, announced deals with disclosed values during the period stated; 4.M&A deals exclude deals lapsed or withdrawn during the the agencies are also established at the provincial period stated; 5.Greenfield data includes announced or planned greenfield investments. and municipal level to manage the local investment matters.

List of the selected Chinese corporations operating/investing in the Netherlands

COSCO SHIPPING Lines (Netherlands) B.V. China Southern Airlines Amsterdam office

CSCO Netherlands Agency Co.,Ltd CCIC Europe B.V.

Huawei Technologies (Netherlands) B.V. Bank of China (Luxembourg) S.A. Rotterdam Branch

ICBC (Europe) SA. Amsterdam Branch LiuGong Machinery Europe B.V.

China Taiping Insurance (UK) Co. Ltd The Netherlands Branch CIMC

Anbang Insurance Haier Group Currency Incentives Schemes Euro(EUR). Many incentive programs are available for the qualified foreign businesses, to Foreign exchange control encourage new companies to set up, promote the enterprise innovation and support the development of environmental protection sector. The Netherlands does not impose foreign exchange control restrictions on companies or individuals. Various types of supporting policies for new businesses and small and medium-sized enterprises(SMEs) include tax support, such as the Research Accounting Principles/ Financial Statements and Development Allowance(RDA), VAT deductions and small-scale investment IAS/IFRS/Dutch GAAP. Financial statements must be filed annually. deduction. The enterprises can also enjoy credits and guarantees support, like Principal Business Entities credit loans, guarantees for venture capitals or business loans. These are the public company (naamloze vennootschap or NV), private limited According to the Action Plan, the government would provide full support to liability company (besloten vennootschap or BV), partnership (commanditaire startups and SMEs in the respect of financing, research and development, vennootschap or CV, vennootschap onder firma or VOF, etc.), cooperative and taxation and expanding business. At the same time, many other incentive branch of a foreign company. programs are available, for instance, financial support for businesses emphasizing export promotion and outbound investment, energy and Tax System environment incentives, research and innovation incentives. Corporations and individuals pay taxes to two levels of government, both Labor Law the central and local governments, in the Netherlands, where multiple tax system mainly consisting of income taxes and turnover taxes is adopted. The In the Netherlands, employment contracts，whether fixed-term contracts Dutch tax system is formed by individual and corporate income tax, VAT and or open-ended contracts should be signed. Under the Working Hours Act, consumption tax, as important components in the system, and other direct a maximum work day of 9 hours and a maximum work week of 45 hours is and indirect taxes. Generally, tax system adopted in the Netherlands is a allowed. However, the average work week should not exceed 40 hours on a worldwide one (also known as residence-based tax system), which imposes 13-week basis. The statutory minimum wage is subject to changes based on taxes on any income regardless of its physical origin(source), both domestic the price index in the country. On the principle of equality, the labor law also and foreign. Namely, resident taxpayers are liable to tax on their worldwide specifies the regulations against discrimination on the grounds of gender, age income; nonresident taxpayers are taxed only on Netherlands-source income. and disability. However, tax treaties determine whether income can be actually taxed.

China M&A outbound deals to the Netherlands by industry

2016 US$M 2017

3 Consumer&Industrial Products

1 $143 $13 11 deals 2 deals $2,79 2,950 1 1,091 1 Transporation 4

7 Technology,Media&Telecommunications

$1,091

Source: Mergermarket Notes: 1.China refers to Mainland China, Hong Kong, Macau and Taiwan; 2.M&A deal volume includes the number of announced deals with disclosed and undisclosed values during the period stated; 3.M&A deal value includes the value of announced deals with disclosed values during the period stated.

The Netherlands Quick Tax Facts for Corporations

Corporate income tax rate 20%/25% Branch tax rate 20%/25%

Loss relief Capital gains tax rate 0%/25% • Carryforward 9 years • Carryback 1 year

Tax consolidation Yes Real estate transfer tax 2%/6%

Participation exemption Yes Double taxation relief Yes

Transfer pricing rules Yes Thin capitalization rules No

Controlled foreign No Tax year Calendar year(in general) company rules Within 5 months of the end of the tax year, Advance payment of tax Yes Return due date with the possibility of an 11-month extension

Withholding tax Basis Worldwide •• Dividends 0%/15% •• Interest 0% Capital tax No •• Royalties 0% •• Branch remittance tax No VAT 21%(Standard rate)/6%(Reduced rate) *Above tax policies and rates are based on information current as of January 2017. Singapore

“Singapore is in the middle of a vibrant and fast-growing Southeast Asia region. Well function & efficient legal system, political stability, high standards of governance & transparency, attractive tax & incentive frameworks together with excellent infrastructure, have contributed in making Singapore an important location for regional/ international corporate headquarter as well as a market with strong investment yields and growth prospects.”

Soo Earn Keoy Deloitte Singapore CSG Leader

Political System Investment Climate It is relatively easy to set up a business in Singapore. Singapore is a republic with a parliament system of Singapore has a highly developed market economy. Foreign investors generally are not restricted from government. The President is the nation’s head of Benefiting from the economic globalization, investing in any industries, with the exception of state, directly elected to office for a six-year term by Singapore has made remarkable achievements in the national defense and other special industries. a national popular vote. The President appoints the the economic growth with the improved national Various incentive programs including Approved leader of the governing party as the Prime Minister competitiveness and increased dependence on International Trader Scheme, the Regional and exercises powers over the government budgets, foreign trade. Singapore is a favored investment Headquarter Incentive (RHI), the International the appointment of public officers and investigations destination in view of its geographical location, Headquarters Award (IHQ) and Finance & into cases of corruption. The President also has the excellent infrastructure, political stability, large Treasury Centre Tax Incentive (FTC) are provided right to examine the government’s exercise of its business scope, various financing channels, sound by the government to attract foreign investment; powers under the Internal Security Act and religious legal system, honest and efficient government. In meanwhile, the Singapore Economic Development harmony laws. The Council of Presidential Advisers addition, Singapore features a strong economic Board (EDB) has a comprehensive list of incentives advises the President in the exercise of his custodial adaptability, supported by its open and diversified and development schemes to assist enterprises in and discretionary powers and the President is economy, government strategic planning, horizontal expanding their business, such as Pioneer Incentive obliged to consult the Council in the exercise of development ability and abundant labor force. and Development and Expansion Incentive (DEI), the his discretionary veto powers in matters such as Research Incentive Scheme for Companies (RISC) the key appointments. The unicameral parliament Industry Overview and INTECH. In addition, electronics, petrochemical, is the legislature in Singapore with the President The key industries and sectors in Singapore life sciences, engineering, logistics and other four as its head. Members of Parliament are elected to are petrochemical, electronics, precision industries are highlighted as the investment fields office for a five-year term and the political party that engineering, marine engineering, bio-medicine, supported by the incentive packages. secures the majority of seats in Parliament forms wholesale and retail, business services, finance the government. The People’s Action Party has and insurance, transportation and warehousing, been the dominant political party in Singapore since telecommunications and tourism. 1959. The legal system in Singapore has received numerous international accolades for its efficiency Chinese M&A (left) and Greenfield Investment (right) to Singapore and integrity.

Regulation Environment 1.0 40 International Enterprise Singapore is a statutory 30 27 30 board under the Ministry of Trade and Industry 24 30 of the Singapore Government, responsible for 21 30 enhancing Singapore's position as a global business 20 20 22 center and facilitating the overseas growth of Singa- US$B 15 15 US$B 11 21 pore-based companies. 0.5 18 20

10 10 Singapore also has strict inspection and quarantine 10 standards and procedures of imports and exports. The Agri-Food and Veterinary Authority of Singapore (AVA) is the national authority entrusted with the 0 0 0 0 mission to ensure the safety of imported food and 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 safeguard the health of animals and plants, while the Health Sciences Authority (HSA) regulates the Deal value Deal count Capital invested Project count imported medicines, cosmetics etc.

The Customs Act is the law related to Singapore’s Source: Mergermarket customs and excise duties. Notes: 1.China refers to Mainland China, Hong Kong, Macau and Taiwan; 2.M&A deal volume includes the number of announced deals with disclosed and undisclosed values during the period stated; 3.M&A deal value includes the value of announced deals with disclosed values during the period stated; 4.M&A deals exclude deals lapsed or withdrawn during the period stated; 5.Greenfield data includes announced or planned greenfield investments.

List of selected Chinese corporations operating/investing in Singapore

COSCO Corporation (Singapore) Limited Singa China Travel Service Pte Ltd

China Construction (South Pacific) Development Co. Pte. Ltd. Bank of China Limited Singapore Branch

Zhen Hua (Singapore) Engineering Pte Ltd Air China Limited (Singapore Branch)

China Aviation Oil (Singapore) Corporation Ltd COFCO (Singapore)

Minmetals South-East Asia Pte Ltd STEC (South Pacific)Holdings Limited

Huaqi Information Technology (Singapore) Pte Ltd China Communications Import & Export Co., Ltd

CNQC International (South Pacific) Holdings Limited Shougang Group (Singapore) Limited Currency Tax Incentives/Incentive Packages The currency of Singapore is the Singapore dollar (SGD). Singapore offers a wide range of incentives, including tax reliefs and Foreign exchange control exemptions or financial support for special industries such as high-tech and high value-added sectors, large multinational enterprises, headquarter There are no significant restrictions on foreign exchange transactions and activities, global maritime activities and international trading and R&D, to capital movements. Funds may flow freely into and out of Singapore. The attract investment, increase exports and create employment opportunities. In government imposes certain restrictions on the lending of SGD to non- addition, the R&D and manufacture of high-tech products and development resident financial institutions for speculation in the SGD currency market, of other business activities which would give impetus to the economic growth but these restrictions do not apply to the lending of SGD to individuals and are also highly appreciated by the Singapore Government. All the Government nonfinancial institutions, including corporate treasury centers. incentives, namely Industry Specific Tax Incentives, Global Trader Scheme, the Accounting principles/financial statements funding support for SMEs and Productivity and Innovation Credit Scheme, are Singapore Financial Reporting Standards. Financial statements must be applicable to both the overseas and domestic enterprises. prepared annually. Labor Environment Principal Business Entities Singapore maintains a relatively high employment rate. According to the These are the public and private limited liability company, partnership, sole Employment Act, there is no prescribed minimum salary for workers in proprietorship and branch of a foreign corporation. Singapore and the salary is subject to negotiation between the employer and the employee, or by the company and the labor union. Employees that are Taxation System covered under the Employment Act are entitled to work no more than 8 hours As a city-state, Singapore adopts one-tier tax system. Singapore taxes on a daily and 44 hours per week. The exact amount of salary and OT bonus is territorial basis. Tax is imposed on all income (of corporations and individuals) specified in the employment contract. The Central Provident Fund (CPF) is a accrued in or derived from Singapore and all foreign income remitted or key pillar of Singapore's comprehensive social security system. deemed remitted to Singapore, subject to certain exceptions. The Singapore Economic Development Board (EDB), the investment promotion agency, is a statutory board under the Ministry of Trade and Industry of the Singapore Government, responsible for attracting the foreign companies or institutions to invest in Singapore, through the promotion and implementation of incentive policies and the provision of highly-efficient administrative service.

China outbound M&A deals to Singapore by industry

2016 US$M 2017

$4,185

1 $1,573 $1,635 Consumer&Industrial Products 8 3 $197 5 $1,364 8 Energy&Resources $260 24 deals Financial Services 27 deals $5,320 $24,422 5 Life Sciences&Health Care 2 3 $414 Real Estate 3 $398 1 3 $523 Technology,Media&Telecommunications 5 3 1 $18,002 $161 Transporation

$1,030

Source: Mergermarket Notes: 1.China refers to Mainland China, Hong Kong, Macau and Taiwan; 2.M&A deal volume includes the number of announced deals with disclosed and undisclosed values during the period stated; 3.M&A deal value includes the value of announced deals with disclosed values during the period stated.

Singapore Quick Tax Facts for Corporations

17%, with a partial exemption (first $10,000 Corporate income tax rate enjoys 75% exemption, next $290,000 enjoys Capital gains tax rate Not taxable 50% exemption) on the chargeable income. 17%, with a partial exemption on the first SGD Branch tax rate Basis Worldwide Basis 290,000 of chargeable income

Participation exemption Yes Double taxation relief Yes

Tax consolidation No Transfer pricing rules Yes

Controlled foreign thin capitalization rules No No company rules Social security Tax basis period Preceding accounting/financial year 7.5%-17% (employer portion) contributions Progressive up to 20% for non-owner By 30 November of the assessment year(can be Return due date Real estate tax occupied residential property; 10% flat for extended to 15 December for filing) other properties

Stamp duties Varies GST 7%

Withholding tax Capital Tax No •• Dividends 0% •• Interest 0%/15% Loss relief •• Royalties 0%/10% •• Carryforward Indefinite •• Technical services fees 17% •• Carryback 1year •• Branch remittance tax 0% *Above tax policies and rates are based on information current as of January 2018. South Korea

“With its advanced technology and stable business environment, Korea has attracted Chinese investors and ranked 3rd in deal volume by China outbound M&A in 2015. Geographical proximity and cultural similarities are another drivers for China, and transactions have been active in sectors such as financial services, technology, media & entertainment, and consumer business. M&A activities of Chinese investors went slow in Korea due to geopolitical tension surrounding the Korean peninsula, but we do believe the economic ties between China and Korea will continue to grow stronger in the long term. As Chinese outbound approaches have begun to focus on securing quality growth, the competitive advantages and value chains built by Korean companies in various sectors will provide attractive M&A opportunities for Chinese investors.”

Sung Hoon Oh Deloitte South Korea CSG Leader

Political System Regulatory Environment technology and other industries play significant South Korea, officially the Republic of Korea, is a The Ministry of Trade, Industry and Energy (MOTIE) roles in the global market. With high cost and low country with rule of law and has a government is the competent department in South Korea competence, agriculture, forestry and fisheries are divided into three branches: executive, judicial, and responsible for trade and commercial negotiations, listed as key industries supported by the government. legislative. The President of the Republic of Korea, the formulation and promotion of government In addition, the dominance of chaebol, large according to the Constitution, is the head of the policies concerning industries, energies and conglomerates like Samsung, Hyundai and SK, in the state, the commander-in-chief of the armed forces, resources, trade and investment. Foreign Trade Act domestic economy is another feature of South Korea. representing the state in the government system and is the basic law followed by the Government of South foreign affairs. The term of Office of President shall be Korea to manage and stimulate the foreign trade. Foreign investment is restricted in the finance-related five years, and shall not be reelected. The President sectors, including post, central bank, private equity is responsible for formulating government policies MOTIE is also in charge of domestic and foreign fund, pension fund, financial markets and other and may submit bills to the National Assembly for investment affairs, including enactment of related financial services. Currently, foreign ownership is deliberation. The President is also the leader of the policies and regulations, release of new statistics limited for government-controlled utilities, such as executive branch of government, in charge of the and management of foreign investment. The the legislative, judicial and executive organs, foreign implementation of laws and regulations. Presided by Foreign investment Promotion Act (FIPA) is the missions in Korea and other international or foreign the President, the State Council shall be composed most comprehensive legislation governing foreign organizations. Besides, financial aids by foreign 15-30 members and vested with the executive power. investment in South Korea. investors are not allowed to enter educational The Prime Minister, the assistant of the President, institutions like kindergartens, primary schools, high shall be appointed by the President with the consent Industry Overview schools, graduate schools and special schools, and of the National Assembly and shall deliberate on The economy of South Korea is based on heavy also forbidden to support groups engaged in art and state affairs. In case the President have violated the and chemical industries. Shipbuilding, automobile, religious activities, political and labor campaigns. Constitution or other Acts in the performance of the semiconductor, petrochemical, information official duties, the National Assembly, the unicameral national legislature of South Korea, may pass motions Chinese M&A (left) and Greenfield Investment (right) to South Korea for their impeachment, while President has no power to dissolve the National Assembly. The term of office of members of the National Assembly shall 2.5 20 4 15 be four years and that of the Speaker is restricted to two years. Under the Constitution, the National 17 Assembly has the right to consent to declaration of 2.0 16 11 war and propose a motion for the impeachment of 14 3 10 the President and shall introduce bills, deliberate and 9 9 10 decide upon the national budget bills and foreign US$B 1.5 11 12 US$B 10 policies. 2 6 1.0 8 Investment Climate 5 5 Due to the limited land area, poor natural resources 1 and tiny domestic market, South Korea’s economy 0.5 4 is highly dependent on the overseas market and resources. 0 0 0 0 In the 1960s and 70s, South Korea adopted an out- 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 ward-looking strategy of economy, namely a policy of export expansion, leading to a larger economic scope, Deal value Deal count Capital invested Project count increasing social wealth, improving infrastructure and living standards in Korea. In addition, Korea has a superior geographical location, convenient transpor- Source: Mergermarket tation, and world-class communication equipment. Notes: 1.China refers to Mainland China, Hong Kong, Macau and Taiwan; 2.M&A deal volume includes the number of announced deals with disclosed and undisclosed values during the period stated; 3.M&A deal value includes the value of announced deals with disclosed values during the period stated; 4.M&A deals exclude deals lapsed or withdrawn during the period stated; 5.Greenfield data includes announced or planned greenfield investments.

List of selected Chinese companies operating/investing in South Korea

Bank of China Seoul Branch ICBC Seoul Branch

China Telecom Korea China Eastern Airlines Korea

COSCO Korea Ansteel Korea

China Certification and Inspection Group Korea Ctrip Korea

Minmetals Korea Huawei Technologies (Korea)

China Machinery Engineering & Construction Corporation Korea Jiangsu Yueda Group Seoul Representative office

Sinochem International Seoul Representative Office Haier Korea

Lenovo Korea ZTE Korea Currency Foreign investment incentives South Korean Won(KRW). The Korean government provide foreign investment incentives including Foreign exchange control compensation for foreign companies that brought great economic benefits and expense relief for less favored (compared to local business) companies, Controls exist, but gradually have been liberalized. Foreign loans in excess of a specifically demonstrated in tax concession including national tax, such as specified amount must be reported in advance to the Ministry of Strategy and corporate tax and income tax, and local tax like purchase tax, registration tax, Finance. Loans granted to foreign borrowers also must be reported. property tax and comprehensive land tax etc., for qualified foreign companies. Accounting principles/financial statements Other incentives include state and public owned land tenancy fee deduction, Korean GAAP and IFRS. IFRS is mandatory for listed companies and financial financial support, employment support, services support and regional institutions and optional for unlisted companies. supporting policies for foreign investment zones and free economic zones etc. Principal business entities In addition, foreign employees would apply for the exemptions from income taxes which generate from the their wages (only for executives), services These are the stock corporation, limited liability company and branch of a provided in South Korea, research and development on high technologies for foreign corporation. the foreign companies which benefit from income taxes exemption. Labor law Tax system The Labor laws of South Korea are enacted and enforced with the aim to Korea has a sound tax system with high transparency and strict standards. secure the living standards of workers, the business activities of companies Korea levies 14 national and 11 local taxes and the national taxes contribute a and to achieve a well-balanced development of the national economy. large proportion of the tax revenue. Korea values for education, contributive to a high quality workforce. The National taxes divided into internal taxes and customs taxes are levied by the minimum wage is 6,470 won (5.4 US dollars) per hour and the working hours National Tax Service and Korea Customs Service to supply the revenue base of per day shall not exceed eight hours excluding recess hours. Employers may the central government. National taxes include direct and indirect taxes. not dismiss, suspend, transfer, reduce wages or take other punitive measures without reasons “justifiable” by criminal or disorderly behavior, or other misconduct on the part of the worker. Moreover, employers must pay premium covering employment insurance, national annuity, health insurance and work injury compensation.

China outbound M&A deals to South Korea by industry

2016 US$M 2017

$226

Consumer&Industrial Products $384

$520 3 5 Financial Services 10 deals 14 deals 1,248 7 1,340 Life Sciences&Health Care

7 1 1 Technology,Media&Telecommunications $900 $551 $43

Source: Mergermarket Notes: 1.China refers to Mainland China, Hong Kong, Macau and Taiwan; 2.M&A deal volume includes the number of announced deals with disclosed and undisclosed values during the period stated; 3.M&A deal value includes the value of announced deals with disclosed values during the period stated.

Korea Quick Tax Facts for Corporations Corporate income tax rate 10%-22% Local income surtax tax 1%-2.2% 10% tax on 30%/80% of adjusted taxable income, Agricultural/ Accumulated earnings tax 20% (where applicable) reduced by certain items fisheries surtax Minimum tax Progressive from 10% to 17%(7% for SMEs) Branch tax rate Progressive from 10% to 22%

Capital gains tax rate Loss relief Progressive from 10% to 22% •• Resident companies • Carryforward 10 years Lesser of 11% of proceeds received or 22% of •• Nonresident companies • Carryback No, except for SMEs (1-year) gain realized (including 10% local income surtax) Participation exemption No Basis Worldwide for resident companies Double taxation relief Yes Tax consolidation Yes Transfer pricing rules Yes Thin capitalization rules Yes Controlled foreign Yes Tax year Accounting period company rules Advanced payment of tax Yes Return due date Within 3 months of the end of the fiscal year Social security Varies contributions Withholding tax Real property tax 0.24% to 0.6% (including surtax) •• Dividends 20% (plus surtax) Capital registration tax 0.48% or 1.44% •• Interest 14%/20% (plus surtax) •• Royalties 20% (plus surtax) Security transaction tax 0.3% for listed shares;0.5% otherwise •• Technical service fees 20% (plus surtax) Acquisition tax Varies •• Branch remittance tax Generally no, but 5%-15% branch tax may apply, Registration tax 0.02% to 5% (plus surtax) based on tax treaty and reciprocity principle. Local inhabitants tax Varies VAT 10% *Above tax policies and rates are based on information current as of January 2018. The United Kingdom

“As the UK looks to forge its future outside the EU, the trading relationship with China is gathering lots of attention, where the focus is opening markets to each other, Fintech, green finance and the ever present "Belt and Road" initiative. Liberal and open to foreign trade and investment, Britain is seen as a leading western country for Chinese M&A, investment and opportunities for infrastructure projects. Chinese businesses tell us that the U.K. looks like a more stable and politically friendly bet than many other advanced economies and that is certainly reflected in the inbound investment volume since Brexit vote, which we believe is mutually beneficial and a win-win for both countries.”

Angus Knowles-Cutler Deloitte Northwest Europe Co-Leader/UK

Political environment first destination for foreign enterprises seeking to •• A Trade Bill, to set the legislative framework for the The United Kingdom is a constitutional monarchy with expand their footprints in Europe. UK’s future independent trade policy a parliamentary system of governance. The prime •• An Immigration Bill on UK’s immigration policy, minister is the head of the UK government. Queen As the best country in the world in which to do including with respect to EU nationals Elizabeth II is the head of state of the UK as well as business, the UK has a distinct advantage in economic •• A Fisheries Bill on the UK’s new fisheries policy monarch of fifteen other independent Commonwealth development, embodied in its tremendous domestic •• An Agriculture Bill on the UK’s new agricultural policy countries, the head of the judiciary, commander- consumption potential and market scale, highly stable •• A Nuclear Safeguards Bill in-chief of the military and supreme leader of the political and social environment, competitively lower •• An International Sanctions Bill Anglican Church. Formally, The monarch has the right tax rate, flexible labor market, leading technology, to appoint and dismiss the prime minister, ministers, communication and education system as well as Regulation environment senior judges, officers of the forces, governors of unique transportation, logistics and infrastructure The Department for Business, Energy and Industry territories, representatives abroad, the bishop and system. The UK also owns its particular strengths Strategy (BEIS) is one of the primary economic patriarch of the Anglican Church, as well as the right to in technology, innovation, infrastructure and power management departments in the UK, in charge of summon, prorogue and dissolve parliament, however, fields. Beyond that, high level of living quality, trade policy making, trade promoting, productivity the cabinet has the real power. diversified culture and universal language also promoting, business relationship, energy, competition become distinctive attractions for talents. and consumer policy making, company law making As the top judicial and legislative body, the Parliament and employment management. Department for is the core of power and the symbol of the nation, Legislation to support the Brexit process International Trade is responsible for providing overall consisting of the House of Commons, the House of •• The EU Withdrawal Bill, which is currently being professional services for companies newly established Lords and the sovereign. debated in Parliament or expanded business in the UK. Her Majesty's •• A Customs Bill, on the UK’s independent customs Revenue and Customs (HMRC) is in charge of tax Industrial environment framework collection and import control etc. Under "Zero barrier" policy in the United Kingdom, Chinese enterprises can basically assess every Chinese M&A (left) and Greenfield Investment (right) to UK industry link of the UK market. In several industries, such as automotive, telecommunication and financial services, Chinese companies have formed clusters in 30 60 15 60 local markets. 54 53

The UK has huge investment potential and demand in infrastructure, high-end manufacturing, R&D design, 20 38 40 10 36 40 precision and advanced industrial products, financial US$B 31 30 US$B 29 30 services and real estate fields. As the global leader in chemical, pharmaceutical, bio-technology, food and 10 17 20 5 20 beverage and electronics industries, the UK creates 13 historical opportunities for investors. Overall, key investment fields in the UK are infrastructure, energy, R&D design, precision and advanced industrial prod- 0 0 0 0 ucts, communication and information technology, 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 modern services and creative industries etc. For both domestic and foreign investors who want to Deal value Deal count Capital invested Project count operate or expand their business in limited industries, such as energy, banking, media and financial services, certain approvals are required. Source: Mergermarket Notes: 1.China refers to Mainland China, Hong Kong, Macau and Taiwan; 2.M&A deal volume includes the number of Investment climate announced deals with disclosed and undisclosed values during the period stated; 3.M&A deal value includes the value of The United Kingdom is one of the most attractive announced deals with disclosed values during the period stated; 4.M&A deals exclude deals lapsed or withdrawn during the investment destinations in the world, selected as the period stated; 5.Greenfield data includes announced or planned greenfield investments.

List of selected Chinese companies operating/investing in the United Kingdom

Bank of China (UK) Limited Sinochem Europe Holding Plc.

China Telecom (Europe) Limited China Taiping Insurance Co.(UK) Co Limited

ICBC (London) Ltd. Minmentals (UK) Ltd.

China Unicom (Europe) Operations Limited Huawei Technologies (UK) Co., Ltd

PetroChina International (London) Co., Ltd Air China (UK)

CGNPC Kalahari Minerals MG Motor UK Ltd (MGUK)

Haier Europe UK Limited CCSEU

Wanda One (UK) Ltd. Greenland (UK) Investment Ltd.

Genertec UK Ltd. China Shipping (UK) Agency Co., Ltd

Sinopec UK Office China Oil & Foodstuffs Corporation (UK) Ltd Currency Labor law Pound Sterling (GBP) Labor law in the United Kingdom value legally authorized personal agreement Foreign exchange control between employer and employee. National Living Wage and the National Minimum Wage change every April. Currently, the minimum hourly rates are No 7.50 for employees aged 25 and above, £7.05 for age 21-24, £5.60 for age Accounting principles/financial statements 18-20, £4.05 for age under 18, and £3.50 for apprentice. The UK have a unified UK GAAP/IAS. Financial statements must be filed annually. pension plan, in which the government provides insurance benefits for work injury compensation, medical treatment, unemployment and seniors. Principal business entities Brexit – latest factual situation as of 7th March 2018 These are the public and private limited liability company, limited liability partnership, limited partnership, partnership, real estate investment trust On 8 December 2017, the UK and the EU negotiators published a joint report (REIT) and branch of a foreign corporation. on the progress of Phase 1 of negotiations on UK’s withdrawal from the EU. This reflects both parties’ agreement in principle on the three areas under Taxation system consideration for Phase 1 of negotiations: protecting the rights of EU citizens The government in the UK is dedicated to maintain a low tax rate system, in in the UK, and UK citizens in the EU; the framework for addressing the unique order to reinforce attractiveness to foreign investors. circumstances of Northern Ireland; and the financial settlement between the Incentives schemes UK and the EU. The United Kingdom offers a number of incentives for UK business: Enhanced On 28 February 2018, the EU published a draft text of the Withdrawal tax deductions for R&D expenditure and R&D Expenditure Credits are Agreement, putting the principles agreed in the joint report into legal text. available; A patent box regime which allows companies to elect to apply an The specific text will now need to be negotiated, agreed and ratified between effective 10% rate of corporation tax to all profits attributable to qualifying the UK and the EU. patents and certain other innovations, whether paid separately as royalties The UK and the EU have also separately agreed that there should be a or embedded in the sales price of products; A series of tax incentives for transitional / implementation period following the UK’s exit from the EU innovation industry; enterprise zones have been set up to encourage new in March 2019, to allow for an orderly transition to the future relationship business activity in economically declining areas of England; Expenditure on between the UK and the EU. However, both parties still need to agree certain energy efficient assets qualifies for a 100% tax deduction in the year on the specific terms, including: length of this period; the scope of the of acquisition; The Annual Investment Allowance (AIA) provides for a full tax transition; the role of the Court of Justice of the European Union; and the deduction for the first GBP 200,000 of expenditure per business or group of UK’s role in EU institutions. It is expected that a joint report on transitionary companies each year. matters – intended to be a statement of principles rather than legally binding – will be published soon. As with the joint report on withdrawal China Outbound M&A deals to the United Kingdom by industry terms, the transitionary principles will also need to be transcribed into a legal agreement. Once the UK and the EU have an agreement in principle on the transition period, it is likely that there may not be any significant changes to the operation 2016 US$M 2017 of EU rules and regulations until an agreed future date, possibly December

$7,131 2020. However, this is still contingent on the UK and the EU agreeing on the $13,765 3 3 3 1 specific text of the Withdrawal Agreement and transitionary terms. The most Consumer&Industrial Products 1 7 2 significant point of debate may be on the operation of the border between the Energy&Resources Republic of Ireland and Northern Ireland, which raises questions of how the UK 38 deals 1 $26 Financial Services 30 deals 10,813 14 18,261 Life Sciences&Health Care and the EU will manage divergence in rules and regulations. 9 $1,723 $1,326 Real Estate Concurrently, Phase II negotiations on the framework for the future relation- Technology,Media&Telecommunications 23 1 $262 $824 ship between the UK and the EU can begin, as confirmed by the guidelines Transporation $645 $140 $1,809 adopted by the European Council on 15 December 2017. $1,423 On 2 March 2018, the UK Prime Minister, Theresa May, set out “five tests” for the agreement on the future relationship between the UK and the EU and Source: Mergermarket principles of the new trade agreement. Notes: 1.China refers to Mainland China, Hong Kong, Macau and Taiwan; 2. M&A deal volume includes the number of announced deals with disclosed and undisclosed values during the period stated; 3.M&A deal value includes the value of announced deals with disclosed values during the period stated.

UK Quick Tax Facts for Corporations Corporate income tax rate 19% Petroleum revenue tax 0% Branch tax rate 19% Capital gains tax rate 0%/19% Worldwide, subject to election for branch Basis Participation exemption Yes exemption

Loss relief No, but loss relief is available and assets • Carryforward Indefinite Tax consolidation can be transferred intragroup without • Carryback One year crystalizing a gain or loss

Double taxation relief Yes Transfer pricing rules Yes Thin capitalization/interest Controlled foreign Yes Yes restriction rules company rules Shorter of 12 months or period for which Tax year Advance payment of tax Yes accounts are prepared Return due date 12 months from end of accounting period Capital tax No Real estate tax Varies Payroll tax No National Insurance 13.8% VAT 20%/5%/0% Contributions (NIC) Stamp duty 0.5% Withholding tax •• Dividends 0% Stamp duty reserve tax 0.5% •• Interest 0%/20% Stamp duty land tax Up to 15% •• Royalties 0%/20% Land and buildings •• Branch remittance tax 0% Up to 12% transaction tax (Scotland) *Above tax policies and rates are based on information current as of January 2018. USA

”The United States is a leading destination for FDI from around the world, and the footprint of Chinese investment to the US in particular continues to expand and diversify. The US consistently attracts high interest from foreign investors due to its fundamental strengths such as a robust consumer economy, leadership in technology and innovation, available workforce talent, and access to sophisticated capital markets. Despite these advantages there are always risks, and the most experienced management teams understand the benefits of leveraging on-the-ground expertise from professional advisors when planning or undertaking any cross-border transaction.”

George Warnock Deloitte Americas CSG Leader/US

Political system exporter and top supplier to many global markets. At the federal level, investors may have to The United States is a constitutional republic and For reasons of national security, foreign investment win approval from the Committee on Foreign representative democracy. The federal government is banned explicitly in domestic air transportation, Investment in the United States (CFIUS) and the is composed of three branches, namely, legislative, production and use of certain nuclear materials, Department of Defense. In banking, the Federal executive and judicial branches. The bicameral coastal or freshwater shipping; strictly limited for- Reserve must weigh in. Investors may have to Congress, made up of the Senate and the House of eign investment in broadcasting and telecommuni- satisfy environmental, labor, securities, anti- Representatives, makes federal law, declares war, cations; oil and gas pipelines, railways construction money laundering, or export control regulations. approves treaties, has the power of the purse and and mineral mining are permitted on condition that Depending upon their entity structures, they may has the power of impeachment, by which it can home country of investors offer equal rights; Only also be subject to the Foreign Corrupt Practices remove civil officials guilty of crimes or misconduct. certain legal forms of foreign companies are permit- Act. State and local governments may impose The President is the commander-in-chief of the ted to access hydropower power and aquaculture in other rules that influence decisions such as land military, can veto legislative bills before they certain areas. use, workforce diversity, regulatory reporting and become law (subject to Congressional override), and environmental behavior. The laws that govern labor appoints the members of the Cabinet (subject to Regulation environment unionization vary from state to state as well. Senate approval) and other officers, who administer The United States is an open market economy and enforce federal laws and policies. The Supreme with a complex, multilayered government system. This complex system of overlapping laws and Court and lower federal courts, whose judges are The country welcomes foreign investment, but jurisdictions can be a new experience for investors appointed by the President with Senate approval, potential investors should be prepared for a range whose home countries are governed more centrally. interpret laws and overturn those they find of regulatory processes at the federal, state and Each of the regulatory hurdles can be managed unconstitutional. local levels. with proper diligence – and managing them all simultaneously can take diligence to a new level. Investment climate As the most developed economy and the most Chinese M&A (left) and Greenfield Investment (right) to US attractive country for investment, the United States has many strengths including favorable business environment, tremendous domestic consumer market, world leading R&D technology and inno- 100 150 20 150 vation. In addition, superior education, continually improving labor productivity, sound infrastructure 102 99 100 US$B 85 86 100 US$B 89 86 100 and diversity of immigration countries of origin 69 50 10 67 made the US top-ranking as the most competitive 38 economy in the world. 50 50

Industrial overview 0 0 0 0 The United States has a diversified economic 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 structure. The services sector accounts for over three-quarters of GDP, including real estate, distri- Deal value Deal count Capital invested Project count bution and trade, transportation, finance, insurance, medical care, and business services. The US is the world's second-largest manufacturer, with key Source: Mergermarket industrial concentrations in automotive, aviation, Notes: 1.China refers to Mainland China, Hong Kong, Macau and Taiwan; 2.M&A deal volume includes the number of chemicals, defense, electronics and computer, announced deals with disclosed and undisclosed values during the period stated; 3.M&A deal value includes the value of energy, and telecommunications. While agriculture announced deals with disclosed values during the period stated; 4.M&A deals exclude deals lapsed or withdrawn during occupies only about 1% of GDP, the US is a net foods the period stated; 5.Greenfield data includes announced or planned greenfield investments (e.g. Foxconn announcing its planned to invest US$10B in building a plant in Wisconsin in 2017).

List of selected Chinese companies operating/investing in USA

Agricultural Bank of China (New York) Haier Group

Alibaba Group HNA Group North America

AVIC America Corporation Industrial and Commercial Bank of China

Baidu USA Lenovo Group

Bank of China (USA) Midea Group

Bank of Communications (New York) SAIC USA

Baosteel Americas Sinopec America

China Construction America Tencent America

China Construction Bank Wanda Group

China National Petroleum (Americas) Wanxiang America Corporation Currency Foreign investment incentives US Dollar (USD) The foreign investment policy is "neutrality with encouragement". There are no Foreign exchange control general federal laws that govern new investments or expansions by domestic or foreign enterprises. Federal incentives include tax incentives, financial While there are no general restrictions on remittances of profits, dividends, support, information services and technical support, mainly concerning clean interest, royalties or fees to nonresidents, sanctions and embargoes apply energy and related industries. In recent years, state and local government play to listed countries and entities, with restrictions on foreign payments, increasingly important roles in the foreign investment policy making, becoming remittances and other types of contracts and trade transactions. Regulations the key factors for foreign investors to consider when investing in the US. Main are prescribed by the US Treasury and the Treasury’s Office of Foreign Assets incentives including numerous credits for special types of activities, various Control maintains related lists. Extensive currency transaction reporting and temporary “expensing” provisions to accelerate the benefits of depreciation recordkeeping requirements also apply. deductions, industrial bonds issuance, infrastructure quality improvement and Accounting principles/financial statements other special services. The US Securities and Exchange Commission requires publicly traded Taxation companies to file their financial statements according to US GAAP, which is set The United States has one of most complex tax systems in the world. Tax by the Financial Accounting Standards Board (a nongovernmental entity) for basis is worldwide. Taxes in the US are levied by all three levels of government: public and private companies and nonprofits. federal, state and local. Many states and local governments also impose Principal business entities income tax on business entities. Therefore, real Effective Tax Rate (ETR) and Legal entity forms include the corporation, limited liability company, business its cash tax rate can vary greatly depending upon circumstances, jurisdictions trust, partnership and limited partnership, usually created under the laws and important tax structure choices made at the outset of the investment. The of one of the 50 states or the District of Columbia. US business also may be tax liability of a US investment may also vary depending on its legal structure. carried on directly by an individual (sole proprietorship) or a US branch of a In addition, operating in the US can also involve other taxes like sales and use foreign business entity. taxes, local property taxes and personal income taxes. like sales and use taxes, local property taxes and personal income taxes. Labor market The United States has abundant and high quality labor force. The minimum wage set by the federal government is $7.25/hour, but may be set higher by the state or local jurisdiction. The National Labor Relations Act of 1935 provides basic rights to private sector employees to organize into unions, engage in collective bargaining and actions including strikes, etc.

China outbound M&A deals to USA by industry

2016 US$M 2017 $17 $176 $237 $23,159 $4,054

3 2 41 Consumer&Industrial Products 21 2 Energy&Resources

Financial Services 102 deals 86 deals $14,083 $59,546 $35 Life Sciences&Health Care $11,846 1 37 6 Real Estate 38 $4,473 Technology,Media&Telecommunications 23 12 2 Transporation $3,065 $13,882 $6,500 $1,711

Source: Mergermarket Notes: 1.China refers to Mainland China, Hong Kong, Macau and Taiwan; 2.M&A deal volume includes the number of announced deals with disclosed and undisclosed values during the period stated; 3.M&A deal value includes the value of announced deals with disclosed values during the period stated.

USA Quick Tax Facts for Corporations

Corporation income tax rate 21%, many states levy income taxes additionally Branch tax rate 21% , many states levy income taxes additionally

Capital gains tax rate 21% Branch profit tax 30%

Base erosion and anti-abuse 10% Losses relief: tax • Carryback Not allowed Participation exemption Yes • Carryforward Indefinite; limited deduction

Real property tax Varies Basis Worldwide

Transfer tax Varies Tax year Fiscal year /Calendar year

Stamp duty Varies 12.4% combined social security tax for employee and Withholding tax employer (each pays 6.2%); Social security •• dividends 30% 2.9%/2.9%+0.9% combined social security tax for tax •• interest 30% employee and employer (each pays 1.45%, with 0.9% •• Royalties 30% being the Additional Medicare Tax for individual •• Branch remittance tax 30% taxpayers with income over a certain threshold) •• Other 30%

*Note: The above USA Quick Tax Facts are effective as of January 2018.