The economic tumult across the region in recent years also means that many jurisdictions are vying to attract investment, particularly from Asia. This is also reflected in figures from PwC that showed Chinese M&As in Europe overtaking European M&As in China for the first time in 2012-Q3. hinese investors feel that the lingering uncertainty in the eurozone increases their chances of securing favorable deals with debt-laden European companies that were until now inaccessible," Helene Rives, head of China Business Group for (PwC), said in the report.
Here we take a brief overview of some of the less-considered European options for Chinese capital, weighing the pros and cons of each. Some of them, such as the Channel Islands and Cyprus, are well-known while others, such as Andorra and Lichtenstein, are less obvious choices that still could be attractive in the right circumstances.
Andorra.
Situated in the Pyrenees between Spain and France, the tiny principality of Andorra is home to around 90,000 people, with Catalan the official language. It is somewhat isolated from the rest of Europe by virtue of its mountain location, and is not an EU member, although it does use the euro as its official currency. While it has traditionally relied on financial services and low taxation to attract investment, things are changing. Last year, Andorra introduced taxation for the first time. A corporate income tax was brought in that applies to the worldwide income of resident legal entities at a general rate of 10%, although an 80% reduction is available for international operations involving intangible assets, the international trading of goods and intragroup financial management and investment.
Also, company formation rules are rather stringent, and the deed of incorporation must be specific with regards to the activity of the company being formed. Companies must also be approved by the Ministry of Commerce. These rules are part of efforts to discourage the formation of cheap offshore structures.
All in all, Andorra is likely to be low on the list for Chinese investors, due to its introduction of tax, isolated geography and relative inflexibility.
Cyprus.
The third-largest island in the Mediterranean, Cyprus can be quite literally your gateway to EU citizenship thanks to its offer of a residency permit to those buying a house valued over 300,000 euros. If resident for six months per year for a six-year period, this can confer eligibility to apply for an EU passport.
There's plenty more to make Cyprus an attractive target for Chinese capital: it has the lowest corporate tax rate in the EU at 10%; has a DTA with China; and has liberal company formation rules. It is also an international shipping center, and there is an agreement on maritime transport between the two countries that can ease logistic headaches, which could be of benefit to investors who are active in import-export. The legal system is transparent and easily navigated, as it is largely the same as the UK, from which it became independent in 1960.
Gibraltar.
Another Mediterranean-based jurisdiction, however unlike Cyprus it is still administrated by the UK, and is the only British offshore center that is part of the EU. Although it has come under increased scrutiny with regards to its tax regime over the past decade, it is still good for more than just the monkey business of its native macaques. However, the pressure meant that in 2010 it brought in its new income tax act, introducing a corporate tax of 10% to bring it in line with the rest of the EU. There is still no capital gains tax, VAT, inheritance tax or wealth or gift taxes.
It is a major draw for property investors, who can register in Gibraltar as a company and then use this company to purchase property, which allows them to avoid paying tax on income generated.
It is also home to a large number of experts in investment portfolio management.
Guernsey.
This island, a British Crown Dependency in the English Channel, is known for its financial management services, and particularly its offerings for high net-worth individuals. It is also consistently ranked highly in industry surveys of offshore jurisdictions. One of its biggest selling points is the depth of knowledge and expertise that come from over 50 years of providing international financial services and dealing with complex financial instruments.
There is no withholding tax for dividends, nor capital gains tax or inheritance tax; while the standard rate of corporate income tax is 0%. It is also actively seeking to encourage Chinese custom, and setting up stronger links with Chinese financial institutions as well as the government. For Chinese clients looking for peace of mind in managing their wealth, plus ease of access to the rest of Europe, Guernsey is a sound choice.
