To Do & Not to Do when Investing in Southeast Europe Violetta Kunze Partner Djingov, Gouginski, Kyutchukov & Velichkov Business and Investment Opportunities in Southeast Europe Chicago April 14, 2010

Djingov, Gouginski, Kyutchukov & Velichkov “To Do” List A.Do Invest in Southeast Europe Yes B.Expand in the Region, think of the Particularities of each specific Country C. C.Check the Legal Nature of the Assets to be Acquired D. D.Draft Locally-driven Documentation E. Observe the Regulatory Requirements F.Consider Tax Implications

Djingov, Gouginski, Kyutchukov & Velichkov DJINGOV, GOUGINSKI, KYUTCHUKOV & VELICHKOV LAW FIRM Foundation and Growth The law firm was established to meet the unique needs of the new free market environment in Bulgaria. It provides a full range of business related legal services to domestic and international corporate clients.  1994: Founded by the four named partners Assen Djingov, Georgi Gouginski, Stephan Kyutchukov and Marius Velichkov who gained their education and training in UK and US.  2004: Opening of the first office outside Bulgaria in Frankfurt am Main, Germany.  Today: 14 Partner and 52 fully qualified lawyers covering the whole spectrum of Bulgarian business law.  Today: A vast majority of the clientele of Djingov, Gouginski, Kyutchukov & Velichkov consists of international financial institutions and international corporations, which have been serviced on investment projects in Bulgaria and/or running of their Bulgarian business operations.

Djingov, Gouginski, Kyutchukov & Velichkov A.Do Invest in Southeast Europe  Incentives  Clear and demonstrated willingness to join the European Union (“EU”). Bulgaria and Romania are members of the EU since 1 January  Progress in democratic reforms and market liberalization.  Public agencies and private sector networks facilitating business, trade and investment.  Low cost and skilled labor.  Regional market and export potential to established and emerging markets in Europe.

Djingov, Gouginski, Kyutchukov & Velichkov A.Do Invest in Southeast Europe ( continued )  Investment Opportunities: mainly in energy, agribusiness, logistics and infrastructure  Bulgaria: Energy, Food & Beverages, Banking, Telecoms & IT, Chemicals, Infrastructure. Energy, Food & Beverages, Banking, Telecoms & IT, Chemicals, Infrastructure.  Republic of Macedonia: Energy, Telecoms & IT, Food & Beverages, Banking, Construction Material. Energy, Telecoms & IT, Food & Beverages, Banking, Construction Material.  Romania: Food & Beverages, Retail Trade, Energy, Banking, Telecoms & IT, Mining, Infrastructure. Food & Beverages, Retail Trade, Energy, Banking, Telecoms & IT, Mining, Infrastructure.  Serbia: Chemicals, Construction Material, Food & Beverages, Banking. Chemicals, Construction Material, Food & Beverages, Banking.

Djingov, Gouginski, Kyutchukov & Velichkov B.Expand in the Region, think of the Particularities of each specific Country  Separate countries  Different languages  Various legal systems  Different mentalities

Djingov, Gouginski, Kyutchukov & Velichkov C.Check the Legal Nature of the Assets to be acquired  Equity  Acquisition of shares in local companies.  Limitation of liability of the shareholders.  Foreign ownership restrictions.  The most common types of business organizations in the Region: Limited liability company. Limited liability company. Joint-stock company. Joint-stock company. Branch. Branch.  Real Estate Assets  Commercial Enterprise - a pool of assets and obligations  Public-Private Partnerships (PPPs), Concessions

Djingov, Gouginski, Kyutchukov & Velichkov D.Draft Locally-driven Documentation  Standard International Form of Documentation Generally acceptable but local businesses would often opt for more simplified contractual provisions. Foreign language as the language of negotiations but local language for validity of the transaction documents.  Reps & Warranties/Indemnification Generally accepted but often not yet tested in litigation. In order to achieve actual effect, the consequences of their breach should be set out explicitly and in fairly extensive detail.

Djingov, Gouginski, Kyutchukov & Velichkov D.Draft Locally-driven Documentation ( continued )  Mode of Payment and Securitization  “Cash Economy”.  Pledge, mortgage, bank guaranty.  Dispute Resolution Options, General Enforcement  Preferred choice of law and jurisdiction.  Often inefficient and overloaded court system.  Arbitration. Bosnia and Herzegovina, Bulgaria, Croatia, Romania, Serbia and Turkey are parties to the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards.

Djingov, Gouginski, Kyutchukov & Velichkov F. Observe the Regulatory Requirements  Licenses & Permits  Generally applicable trade activities licensing requirements.  Special licensing/registration regimes for regulated areas (such as financial institutions, utility companies, telecoms or broadcasting companies) or activities related to higher risks (e.g. permit requirements for handling hazardous wastes).  Foreign Currency Control  In most of the countries there is a fairly liberal foreign currency control regime.  Filing and registration requirements with respect to inflow of investments and repatriation of proceeds.

Djingov, Gouginski, Kyutchukov & Velichkov F. Observe the Regulatory Requirements ( continued )  Foreign Investment Protection  Countries in the Region are parties to numerous bilateral treaties on mutual protection and promotion of foreign investments.  All discussed countries are parties to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention).

Djingov, Gouginski, Kyutchukov & Velichkov F. Observe the Regulatory Requirements ( continued )  Formal Requirements with respect to Documents  Notarization.  Apostille and Legalization. Bosnia and Herzegovina, Bulgaria, Croatia, Republic of Macedonia, Romania, Serbia and Turkey, as well as the United States are all parties to the Hague Convention of 5 October 1961: Bosnia and Herzegovina, Bulgaria, Croatia, Republic of Macedonia, Romania, Serbia and Turkey, as well as the United States are all parties to the Hague Convention of 5 October 1961: Abolishing the Requirement for Legalisation of Foreign Public Documents under the aegis of Hague Conference on Private International Law. Abolishing the Requirement for Legalisation of Foreign Public Documents under the aegis of Hague Conference on Private International Law. Useful Web-sites: The site of the Apostille Section of the Hague Conference on Private International Law: ( )The site of the Apostille Section of the Hague Conference on Private International Law: ( ) The official site of the US Department of State provides some details on the authentication requirements: ( official site of the US Department of State provides some details on the authentication requirements: (

Djingov, Gouginski, Kyutchukov & Velichkov G. Consider Tax Implications  Corporate income tax  Capital gains withholding tax  Withholding tax on dividends and liquidation quotas  Personal Income Tax  Social Security and Health Security Contributions

Djingov, Gouginski, Kyutchukov & Velichkov G. Consider Tax Implications ( continued )  Tax Relief The United States has treaties for avoidance of double taxation with Bulgaria, Romania and Turkey. In general, under these treaties, US residents (not necessarily citizens) are taxed at a reduced rate, or are exempt from taxes in those countries on certain items of income they receive from sources within those countries and vice versa.  Detailed tax analysis before pursuing the investment in the particular country in the Region is recommendable

Djingov, Gouginski, Kyutchukov & Velichkov Thank you for your attention!

Djingov, Gouginski, Kyutchukov & Velichkov Main Office: 10 Tzar Osvoboditel Blvd. Sofia 1000 Bulgaria Tel.: (2) Fax: (2) Representative Office: 71 Untermainkai Frankfurt am Main Germany Tel: +49 (69) Fax: +49 (69) Djingov, Gouginski, Kyutchukov & Velichkov ©