Financial considerations

Before making a foreign investment, you ensure that your domestic finances are in order. The foreign investment, particularly in the early years, may require more funds than initially anticipated. The partner should therefore have a strong financial position also.

It is important for you and your partner to agree on the action plan for the early years of operating performance.

You must respect the foreign exchange policy and regulations of the host country and have them in mind when raising a portion of the equity in local currency. Using a portion of local currency reduces your foreign exchange risk. Canadian banks are valuable advisers on the matter of financing.

Attention also should be given to the host country tax laws and regulations. Advice should be sought on corporate tax rates, withholding taxes, sales taxes, the taxing of export income, tax incentives for new business and tax treaties between Canada and the host country so that your return on investment does not suffer from double taxation.

Legal and other fees

The host country rules on the treatment of legal and other professional fees should be understood. In general, reasonable remittance of special service fees is permitted though some countries are reluctant to allow the remittance or such fees as those for computer programs.

Some countries resist or delay approval of royalty agreements. Thus a Canadian Company can supply 100 per cent of the technology but can share only the income from the investment portion. Some countries have shown a reluctance to allow the remittance of director's fees.

The dividend policy of the government should be clearly understood. Some countries limit the amount of dividends that may be declared. In other cases, a declared dividend has to be converted into, or initiated as, a stock dividend that in fact locks the funds into local currency. Some countries take one or two years to register a conversion of dividends to stock. This delays subsequent remittance of dividends to Canada of the increased stock holdings. Remittance can be made only from the date of approval or registration.

Operations

You must determine the host country laws on industrial relations and minimum ages and should allow for low rates of productivity during the early stages of development.

During the planning stages, attention must be given to the cost of building the manufacturing or resource development facility in the host country, the government policy on the machinery, and on die entry of specialists both to install the machinery and to train the local staff in the operation of the machinery. Many countries have strict rules on these matters, not all of them realistic.

The partnership must ensure that local skills are available to maintain and repair machinery.

The foreign investor, in general, is bringing technology to the partnership and must be prepared to commit human resources to the design of the plant and equipment and long-term technical support to the venture.