Generating Revenue Globally: Tapping into Markets Abroad Generating Revenue Globally: Opportunities in Latin America Presenter: David Frazee K&L Gates Palo Alto GENERATING REVENUE: TAPPING INTO LATIN AMERICAN MARKETS : Overview and Intro Palo Alto November 1, 2011 David Frazee K&L Gates LLP 630 Hansen Way Palo Alto, CA 650.619.1631 [email protected] Copyright © 2010 by K&L Gates LLP. All rights reserved. Panelists 1. Alejandro Fiuza, K&L Gates 2. Ricardo Berrios, AeroScout 3. Fernando Silis Reyna, Deloitte 3 Setting Up and Doing Business Investing in the region Getting money in, getting money out Syndicates with local investors Exits Partnering with local companies JVs and partners Contracts Doing business directly Subsidiaries, regulatory, labor, and other issues Business model optimization Raising capital locally 5 Taxes Optimization of global structure When to go direct, when not to Treaty networks: the good and the ugly Tax issues in financing subsidiaries Coming into the U.S. from outside Optimization of local taxes Tax credits and incentives Tax reform 6 Other Concerns Intellectual property Employment Trade issues Exits (IPOs and M&A issues) Political changes Cultural differences Differences among countries 7 Generating Revenue Globally: Generating Revenue in Latin America Presenter: Alejandro Fiuza K&L Gates New York GENERATING REVENUE: TAPPING INTO LATIN AMERICAN MARKETS SAN FRANCISCO November 1, 2011 Alejandro D. Fiuza K&L Gates LLP One Lincoln Street Boston, MA 617.261.3100 [email protected] BO #3215727v2 Copyright © 2010 by K&L Gates LLP. All rights reserved. FIRST - LET’S GET PAST TWO ISSUES: Tapping into LATIN AMERICA? Why? For the same reason many of you are looking at China: Because there are opportunities. Where did he say this guy was from? 10 Tapping into Latin America 1. Opportunities in Latin America 2. Overview of Private Equity and Venture Capital industries in LATAM 3. Most usual challenges 11 1. Opportunities Commodities and natural resources (agribusiness, mining, energy related, renewable energy, oil, shale gas) Information technology and biotechnology Raise of middle class: retail, transport and infrastructure, media and entertainment Private equity and VC funds 12 2. Overview of Private Equity and VC industry Players: Global private equity and VC funds Local private equity and VC funds Seed investors and entrepreneurs (Endeavor, Nest) Family offices Multilaterals (Multilateral Investment Fund, CAF) Local Development Institutions (Argentina, Brazil, Mexico etc. Chilean Economic Development Agency, CORFO, Start up Chile.org) 13 2. Overview of Private Equity and VC industry (con’t) Players: Trade Associations: LAVCA, ABVCAP, AMEXCAP, ARCAP – promote investment, regulatory change and transparency LPs: Sovereign funds, institutional investors, local pension funds (Chile, Brazil, Peru, Colombia, Argentina: ANSESS, more active role), wealthy individuals and families. Strategic investors (LATAM – based and China) 14 Usual Challenges – Comparable Benchmark? © ALIZA OLMERT, TIKKUN, DANIEL MAMAN FINE ART 15 MOST USUAL CHALLENGES 1. Cultural differences: One size does not fit all. 2. Less information available for investors and asymmetry of information. Fund level transparency and governance Portfolio company level transparency and governance (know your partner, industry, competitors) 3. Due diligence : Early identify and understand rules for making the investment (approvals and licenses), during the investment and for exiting the investment Rules and how they are enforced Usual suspects: Exchange control rules, labor and union matters, social security, taxes, real estate. Some countries: environmental Others: UK Anti bribery Act and FCPA, US Sanctions and Export Controls, Antitrust, International Trade remedies, customs 16 4. Structuring Your Investment. Adequate tax planning is of the essence (local, US and international treaties). Double taxation treaties and bilateral investment treaties may lead to the use of European based structures (e.g., Spain, the Netherlands) Selecting the appropriate corporate entity , minority rights, # shareholders, local directors etc. Exchange control rules Inflow and outflow of investments, and antitrust analysis. Typical structures vary per country . Sometimes Spain is used as gateway (due to the ETVE regime and the BITs) Greenfield /Acquisition vs. Strategic Alliances. First ones were most common in 90s and this first decade, second decade may be strategic alliance age. 17 “A journey of one thousand miles begins with a single step” Lao Tzu 18 FIRST RIGHT STEP : SELECT ADVISORS WITH EXPERIENCE IN THE REGION 19 Generating Revenue Globally: Generating Revenue in Latin America Presenter: Ricardo Berrios AeroScout Generating Revenue Globally: Generating Revenue in Latin America Presenter: Fernando Silis Reyna Deloitte, Mexico Desk Generating Revenue Globally: Opportunities in Europe Questions & Answers Generating Revenue Globally: Opportunities in the Middle East Presenter: Rem Kinne K&L Gates San Francisco Generating Revenue Globally: Opportunities in the Middle East Presenter: Greg Hartker K&L Gates Orange County Generating Revenue Globally: Tapping into Markets Abroad-Middle East Greg Hartker November 1, 2011 Copyright © 2011 by K&L Gates LLP. All rights reserved. Taxation in the Middle East Constantly changing environment especially in Egypt/North Africa Need to consider both US and non-US regimes Rigid structures may hinder taxpayers down the road 26 Taxation in the Middle East Key Issues to Consider Corporate Tax Rate Withholding Rates Interest Dividends Transfer Pricing Regime Treaty Network 27 Taxation in the Middle East- Dubai/UAE Corporate Tax Rate- None (except for Oil/Banking) Withholding Rates- None Transfer Pricing Regime- None Treaty Network- Extensive Other The UAE has been studying the possible introduction of VAT for some time. However, the GCC member states (UAE, Saudi Arabia, Kuwait, Bahrain, Qatar and Oman) want to roll out VAT simultaneously to replace revenues derived from trade taxes, which are due to be phased out as a number of free trade agreements signed by the GCC, including one with the EU, become effective. It is thought that this won't happen until 2012 at the earliest (and probably later than that). 28 Taxation in the Middle East- Egypt Corporate Tax Rate- 20% flat rate Withholding Rates– None on dividends (although proposal to add) and 20% on interest payments Transfer Pricing Regime- Yes, most sophisticated in the region Tax Treaties- Numerous Other There was some speculation that Egypt might adopt a progressive tax rate scheme. Fundamental changes in the corporate tax scheme occurred in 2005 and given recent activities, the state of the tax system could change dramatically. Has a VAT. 29 Taxation in the Middle East - Qatar Corporate Tax Rate-10% flat rate Withholding- Withholding for certain payments to persons without a PE (or tax card). No withholding for dividends. Withholding on interest is under a moratorium. Transfer Pricing Regime- No Treaty Network - Growing Other New tax law effective January 1, 2010. Certain aspects remain unclear (see e.g., interest withholding). The Ministry is expected to issue regulations to clarify some of the uncertainty. 30 Taxation in the Middle East – Saudi Arabia Corporate Tax Rate- 20% Non Saudi share (Zakat for Saudi shareholders). Withholding Rates – 5% rate on dividends and interest. Transfer Pricing Regime- None although authorities may make adjustments for non arm’s- length payments. Treaty Network- Growing. Other Becoming more aggressive on PE issues. 31 Taxation in the Middle East – Treaty Example UAE has treaties with at least 47 countries (not including the GCC states) including the following MENA countries: Algeria Egypt Lebanon Morocco Syria Tunisia Turkey 32 Taxation in the Middle East – Treaty Example Assume US company plans on doing business in Morocco through a Moroccan subsidiary. Morocco normally imposes withholding taxes on dividend and interest payments made to non-residents at a 10% rate. US-Morocco Treaty limits dividend withholding taxes to 15%. Thus, no benefit under such Treaty. Under the Moroccan-UAE Tax Treaty, Moroccan withholding taxes on dividends distributed by a Morocco corporation to a Dubai corporation holding at least 10% of its capital stock is reduced from the normal rate of 10% to 5% and interest (also normally subject to a 10% withholding tax) "flows free" of any Moroccan withholding tax. 33 Taxation in the Middle East – Treaty Example Establish FTZ Dubai intermediary company* US 0% Dubai/UAE Dividend 5% Morocco * Need to ensure enough presence in Dubai to qualify for benefits under Morocco Treaty yet not taint FTZ qualification. 34 Generating Revenue Globally: Opportunities in the Middle East Presenter: Eric Chan Embee Mobile Company Presentation 1 Embee Mobile Reward users For brand engagement With free mobile airtime and content Embee Mobile: How It Works Users Mobile Operator Mobile Phone Facebook Rewards Brand Engagement 3 Company Snapshot Service Launched Social Media Current Users: 1.5M April 2009 Application (web) 90 Countries, 300 Mobile Operators Focus on the Middle East Traditional Middle East Greater Middle East Bahrain Oman Afghanistan Mauritania Cyprus Palestine* Algeria Morocco Egypt Qatar Armenia Pakistan Iran Saudi Arabia Azerbaijan Somalia Iraq Syria Comoros Sudan Israel Turkey Djibouti Tajikistan Jordan United Arab Emirates Eritrea