Legal risks overseas investors may face:
Domestic Legal Compliance Regulation Risk
(1) Overseas Investment Project Approval Risk;
Some countries(that apply with foreign exchange control) generally require overseas investment filing in advance for abroad investments for domestic enterprises setting up.
(2) Foreign Exchange Regulation Risk(countries that apply with foreign exchange control);
Enterprises that implement overseas investment shall accept strict approval in financial entry-exit and overseas financing.
(3) Tax Risk
In terms of tax, overseas investment also faces double taxation risk, the risk caused by transfer pricing, anti-tax avoidance investigation risk, personal tax risk, etc.
Invested Host Countries Legal Compliance Risk
(1) Market Access, Foreign Capital Approval, and National Security Inspection.
Enterprises invested in host countries shall accept foreign capital regulations in host countries for foreign capital approval, In most nations, it's divided into a prohibited category, restricted categories, and encouraged categories by industries when market access. For the overall direction of overseas investment, the national security inspection related to abroad investment is getting tight.
(2) Environmental Protection Legal Risk
With the common regard of environmental protection in the global society and every nation, environmental pollution problems caused by overseas infrastructure investment, mineral products, industry investment are some of the significant legal issues that enterprises might face.
(3) Labor Relations
Due to the strong regional policy in the Labor Law, there are often significant differences between national and host country Labor legal systems. It’s essential to pay attention to handling well the relationship with local labor unions and beware of labor strikes. Also, in public relations, building up good relations with NGOs in related fields is necessary to reduce pressure from local society.
(4) Work Safety
Overseas infrastructure investment, minerals, and industrial investments often involve greater safety production risks. To invest overseas, enterprises shall know the required policies of local safety production, safety construction in advance.
Notice of Legal Compliance Risk Precaution
(1) General due diligence on target enterprises and overseas local partners
Before starting an investment project, it’s essential to fully know the basic situation of target enterprises and overseas partners, including its legal status, credit status, etc. In particular, the legal investigation shall be carried out for important business partners, and to promote the business partners’ compliance behavior by signing compliance agreements and requirements on compliance commitment.
(2) Select appropriate investment cooperation model, design reasonable investment structure
To achieve a safe and efficient overseas investment project, enterprises also need to know and evaluate local investment climate and situation in advance; select the most beneficial investment mode and structure designs to investors based on full evaluation on various investment cooperation modes and investment structure designs to evade other risks on basic compliance of legal relations and ROI.
(3) Build up a perfect internal approval/authorization system and thorough regulation management mechanisms for overseas investment
Enterprises shall establish an effective operating mechanism for approval and authorization, may include, but are not limited to the following: the approval authorization system for overseas project risk; overseas compliance risk identification, evaluation, and regulations; overseas compliance and risk report system; overseas authorization regulations(establish complete authorization rules; explicit its policy and procedure, including internal authorized permission division rules and rules for the identifying, screening and management of external franchisees); foreign project manager system; thorough foreign investment rules and regulations management mechanism, such as: establish thorough internal transaction policy; anti-corruption policy, public compliance policy, and SBC; privacy and data protection policy; personnel management policy; program policy; intellectual identity policy; daily routine work management policy, etc.
(4) Maintain Compliance Sensitivity
Investors must keep an eye on the changes in the international situation, maintain compliance sensitivity, identify compliance risk in key countries and regions timely and effectively, keep contact with related government authorities, industries, and partners, build a good external compliance image, strongly ensure the steady process of business.
(5) Reasonable contract design
In the process of overseas investment, attention should be paid to protect one's own interests through contract design and some special clauses, such as:
a. Exchange rate proviso clause, which avoids the decrease in income or the increase in cost due to the exchange rate changes.
b. Renegotiation/Renegotiation clause: both parties are obliged to renegotiate after a major situation occurs to achieve a balance of interests so that investors have the initiative to re-negotiate and the contract basis under these circumstances.
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