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Investments into Africa The BeNeLux – Gateway to the rising continent
September 2013
Content
I. Investing in Africa
II. Some tax considerations
III. Some other investment considerations
IV. About Loyens & Loeff
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Investing in Africa
The Economist
May 2000 December 2011
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Some existing positive signals…
GDP + 5.8% BRICS – Next 11 USD 55b FDI (up to USD 150b in 2015) Structural and political reforms
40% 1.1b people of working age by 2040 (demographic dividend)
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… and promising growth
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2013
1 billion inhabitants
USD 1,6 trillion Africa’s collective GDP
USD 900 billion consumer spending
40% of Africans living in cities
By 2020 / 30
1,3 billion inhabitants by 2020
USD 2,6 trillion Africa’s collective GDP by 2020
USD 1,4 trillion consumer spending by
2020
50% of Africans living in cities by 2030
*Data from Ernst & Young, World Bank and McKinsey
Booming sectors
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Investors looking at Africa…
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Entrepreneurs Direct & indirect investors
Multinationals
Listed companies
In mature economies with low or no growth opportunities
Industrials
… and making large investments
a. Inbound investments (mainly)
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Rapid-growth markets: BRIC, UAE, Saudi Arabia and Turkey
Developed markets: UK, US and Germany
… and making large investments
b. Outbound investments (less common)
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…and making large investments
c. Intra-Africa: some regional powerhouses
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Some tax considerations
International tax planning – minimizing overseas tax
• In a large number of cases, the overall foreign taxes are high.
• High foreign taxes reduce IRR.
• Solution: international tax planning
• The aim of international tax planning is to reduce overall foreign taxes by making use of tax treaties with holding company jurisdictions in order to reduce withholding taxes.
• In this presentation: focus is on using the Netherlands for international tax planning
• International tax planning can also be done by using other countries (e.g. Mauritius). It should be determined on a case-by-case basis which countries are most suitable, based on location target company, treaty network, status investors etc.
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• A holding company jurisdiction should avail of: - Reputation of large high quality BIT network (will discuss later) - Reputation of large high quality tax treaty network - Preferably part of the EU - Have an attractive and stable local tax climate - Advance rulings which provide up-front certainty
• Traditionally: the Netherlands, Belgium and Luxembourg (and also others except for tax haven
countries)
Brief introduction – Holding company advantages
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The Benelux tax treaty network
• The Benelux countries have the largest and most attractive tax treaty networks of the world. In the vast majority of cases, the use of the such treaties is very beneficial for international tax planning purposes.
• Presently, the Netherlands has concluded tax treaties with 95 countries, Luxembourg 64 and Belgium 93. - Withholding tax rates on both in- and outgoing dividends, royalties and interest are
substantially reduced under these treaties.
- Capital gains are well protected under these treaties.
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Tax treaty network – a comparison
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Benelux Mauritius
Tax treaty network – some examples
DTT with Netherlands Luxembourg Belgium Mauritius
Egypt V V
Ethiopia Signed, not in force yet
Ghana V V
Morocco V V V
Nigeria V V
South Africa V V V V
Tunisia V V V V
Uganda V V
Zambia V
Zimbabwe V V
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Local tax regimes of the Netherlands
For dividends and capital gains: •Participation exemption
- All benefits derived from a qualifying participation are exempt. - This in general includes: dividends, capital gains, capital losses (currency exchange losses
inclusive).
•No DWHT - No tax on dividend distributions from the Netherlands, Belgium and Luxembourg (if
structured properly)
•No tax upon capital gains realized - No tax if NL/Lux shares are sold by an overseas investor (if structured properly)
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Local tax regimes of the Netherlands
• For royalties: - Netherlands (25%): 0% - 3% for Back to Back Licensing Activities - Withholding Tax: No withholding tax on royalties
• For interest:
- Netherlands (25%): Less than 1% for Finance Activities (back to back) - Withholding Tax: No withholding tax on interest
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25 % capital voting power
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CIT 25% 30% 25% 30% 30% 28% 30% 30% 35% 25.75%
Div 0% 5%** 5% 10% 10% 5% 0% 0% 5% 10%
CGT on shares
no no** no no no no no no no 5%
CGT on shares in R.E. Co
no no** no no
no no no no no 5%
SA Tunisia Egypt Morocco Nigeria Ethiopia
Example of Efficient Tax Structuring in selected African countries
Zambia Uganda Zimbabwe Ghana
Netherlands 0%*
* Participation exemption is applicable ** not in force
Alternative solution: benefits from Mauritius tax treaties
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Source of income
Mauritius –
Egypt
Mauritius –
Ethiopia
Mauritius –
Ghana
Mauritius –
Morocco
Mauritius –
Nigeria
Mauritius –
South Africa
Mauritius –
Tunisia
Mauritius –
Uganda
Mauritius –
Zambia
Mauritius –
Zimbabwe
Dividend (lowest)
NA NA NA NA NA 5% 0% 10% 5% 10%
Interest NA NA NA NA NA 0% 2.5% 10% 10% 10%
Royalties NA NA NA NA NA 0% 2.5% 10% 5% 15%
Capital gains on shares
NA NA NA NA NA Shareholder state
Shareholder state
Shareholder state
Shareholder state
Shareholder state
Gains on shares in
real estate company
NA NA NA NA NA Shareholder state
Shareholder state
Shareholder state
Shareholder state
Source state
Local tax regime of Mauritius (GBC 1)
• Corporate income tax - General tax rate: 15% - Dividends, interest and royalties from overseas are taxable but tax credit available up to 80% - Effective tax rate: 3% - No tax on capital gains
• Final withholding tax - Dividends: exempt - Interest: 15% / 0% to specified non-residents - Royalties: 15% / 0% to specified non-residents
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25 % capital voting power
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CIT 25% 30% 25% 30% 30% 28% 30% 30% 35% 25.75%
Div 0%* 10%* 8%* 15%* 10%* 5% 0% 10% 5% 10%
CGT on shares
no* 30%* 15%* 30%* no* no no no no no
CGT on shares in r. e. Co
no* 30%* 15%* 30%* no* no no no no 5%
SA Tunisia Egypt Morocco Nigeria Ethiopia
Example of tax structuring via Mauritius in selected African countries …less advantageous
Zambia Uganda Zimbabwe Ghana
Mauritius Effective 3%**
* No tax treaty in place. ** Due to tax credit.
25 % capital voting power
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CIT 22% 25% 20% 32% 34% 30% 30% 30%
Div 5% 10% 0% 8% 5% 0% 0% 7.5%
CGT on shares
no no no no no no no no
CGT on shares in R. E. Co
no 25% no no no no no no
Rwanda Senegal Botswana Mozambique Namibia Lesotho
However…
Swaziland Madagascar
Mauritius 3%*
* Due to tax credit.
Further tax structuring is recommended
Reduce local CIT in countries by, e.g.
• IP planning (royalties)
• Group financing (interest)
• Service companies (service fees)
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Some investments considerations
Availability of Bilateral Investment Protection • Bilateral investment treaties (BITs) are an increasingly important instrument to protect investment
abroad - Specific standards of treatment - Right to compensation - Direct right of action of investor against host-state by means of international arbitration
• The Netherlands, Belgium and Luxembourg have a large and high quality BIT network: − The Netherlands: 98 BITs, 92 of which are in force − Belgium-Luxembourg: 94 BITs, 69 of which are in force
• Providing protection to investors for their investments in overseas countries through the BITs network of the Netherlands, Belgium and Luxembourg.
• Holding companies generally give access to the protection under the relevant BITs
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• Fair and equitable treatment
• Full protection and security
• No arbitrary and discriminatory measures
- Most-favoured-nation treatment - National treatment - Including in case of war / disturbances of public order
• Free transfer of returns and funds related to investment
• Expropriation only possible under strict conditions
BITs
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BITs
• No prohibition of expropriation, subject to strict requirements
• In the public interest
• Under due process of law
• Non-discrimination
• Not contrary to specific host State commitments
• Only against prompt, adequate and effective compensation
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BITs • Modern investment protection effectuated through arbitration
- Contractual basis - BIT (most common)/MIT - National investment legislation
• BITs preselect a set of applicable arbitration rules or provide a choice:
- International Convention for the Settlement of Investment Disputes (1965) (ICSID Convention);
- United Nations Commission on International Trade Law (UNCITRAL) - International Chamber of Commerce (ICC) - Stockholm Arbitration Institute
• BIT dispute settlement clause is the keystone of modern investment protection
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Protection of Cross-border Investments by BITs • Private investors may enforce treaty obligations against host-States (through international
arbitration)!
• Investors and their investments entitled to:
→Fair and equitable treatment: TECMED v. Mexico (2003); Azurix v. Argentina (2006); ADC & ADMC v. Hungary (2006).
→Most-favoured-nation treatment: Siemens v. Argentina (2004); Suez v. Argentina II (2006).
→Prompt, adequate and effective compensation in case of expropriation: Wena Hotels v. Egypt (2000); AIG v. Kazakhstan (2003); Vivendi v. Argentina II (2007).
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BITs very Effective – Established Track Record
• More than 300 investment disputes submitted to arbitration over the last decade.*
• Substantial settlements: Eni (Dacion) v. Venezuela (2008) reportedly USD 700 million; Williams & Exterran v. Venezuela (2012) USD 420 million.
• And massive awards in favour of investors: CSOB v. Slovakia (2004) USD 877 million; Exxon v. Venezuela (2012) USD 908 million; Occidental v. Equador (October 2012) USD 1.7 billion.
• General trend of compliance by host-States!
*More than 20 ICSID Awards (International Centre for Settlement of Investment Disputes) per year now!
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Major Corporates involved in Recent Investment Disputes
• Vodafone – dispute over billion dollar Indian tax bill
• Glencore – dispute over mining rights in Bolivia
• Repsol – nationalisation of YPF by Argentina
• Weather – multi billion dollar claim over Algerian telecom investment
• Ping An – USD 2.3 billion claim against Belgium regarding investment in Fortis
• Lone Star Funds – first claim against South Korea; tax dispute
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BITs (in force) network– a comparison
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Benelux Mauritius
BITs network – a comparison
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BIT with Netherlands Luxembourg Belgium Mauritius
Egypt V V V
Ethiopia V not in force not in force
Ghana V
Morocco V V V
Nigeria V
South Africa V V V V
Tunisia V V V
Uganda V not in force not in force
Zambia not in force not in force
Zimbabwe V not in force not in force
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About Loyens & Loeff
Sharing Strengths
• Top tier integrated legal and international tax advice
• Headquartered in the Netherlands, Belgium and Luxembourg
• Full-service practice
• Specific sector experience
• International office network complemented by country desks
• Innovative solutions and pragmatic approach
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Our Organisation
Offices
Facts
Full-service law firm
Investment Management
Private Equity /
M&A Tax Capital
Markets Real Estate
Restructuring &
Insolvency
Corporate / M&A
Litigation & Arbitration
Competition &
Procurement
North America Asia
Advisers by Profession: Attorneys 400 Tax lawyers 400 Civil Law Notaries 100 Total 900
Banking & Finance
Europe
Total Turnover 2012 of EUR 291m
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North America Middle East Europe Asia
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Offices covering different time zones
What others say about us
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Chambers Europe We hold on to our position as leading Benelux law firm. Clients appreciate the combination of legal and tax advice.
World Tax Loyens & Loeff achieved the highest score for tax advice in the Netherlands in International Tax Review’s World Tax.
Legal 500 We again scored highly in the latest edition. Legal 500 said "great expertise and industry knowledge” and “a very high standard of service”.
PropertyNL No. 1 in PropertyNL’s list of real estate lawyers. The number of transactions and the acknowledgement of our quality shows that we belong to the top.
Legal Alliance Loyens & Loeff has been named the ‘Best Benelux Law firm’ of 2011 by the jury of the International Legal Alliance Summit Awards (ILASA).
What others say about us
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Mergermarket Ranked no. 2, based on the number of transactions, in the Mergermarket Benelux M&A League Table for 2012. Consistent top ranking since 2006.
Chambers Global Excellent results. Internationally we are confirming a strong reputation with a rising number of rankings of ‘Experts Based Abroad’.
American Lawyer Loyens & Loeff is once again the only Benelux-based firm listed in the American Lawyer Global 100.
IFLR Recommended law firm in the most recent edition of the IFLR Guide. A peer about Loyens & Loeff’s M&A practice : “The strongest of the local firms”.
Who’s Who Legal Corporate Tax Law Firm of the Year, with 27 experts mentioned in the Corporate Tax chapter of Who’s Who Legal.
• Multi-disciplinary - Legal and Tax - Multi-jurisdiction - Benelux
• Multi-lingual
• Know how of legal and tax frameworks (of some African countries)
• Cultural and historical links with and connections in Africa (e.g., local network)
• Track records
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Loyens & Loeff’s Africa Desk
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Africa Desk contacts
Peter Callens Attorney at law / Corporate T +32 2 743 43 95 E [email protected]
Nicolas Bertrand Tax adviser T +32 2 773 23 46 E [email protected]
Juliette Marsé Tax adviser T +31 20 578 56 49 E [email protected]
Waldo Kapoen Tax adviser T +31 20 578 51 14 E [email protected]
Bastiaan Cornelisse Candidate civil law notary T +31 10 224 65 28 E [email protected]
Brussels office Amsterdam / Rotterdam office
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Africa Desk contacts
Johan Terblanche Attorney at law / Investment management T +352 46 623 02 45 E [email protected]
Michael Scott
Attorney at law / Corporate T +352 46 623 02 94 E [email protected]
Maurits van den Berg Tax adviser T +33 1 495 394 27 E [email protected]
Michael Meylan Attorney at law / Corporate T +33 1 495 394 21 E [email protected]
Deman Smit
Tax adviser T +352 46 623 02 95 E [email protected]
Luxembourg office Paris office
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Africa Desk contacts
Carola van den Bruinhorst Tax adviser T +852 3763 9393 E [email protected]
Thierry Lohest Attorney at law / Corporate T +852 3763 9363 E [email protected]
Valerie Mantot Attorney at law / Investment management T +971 4 437 27 09 E [email protected]
Jan Bart Schober Tax adviser T +971 4 437 27 00 E [email protected]
Dubai office Hong Kong office
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