Sweden, Belgium and India offer attractive landscapes for US investment

Sweden

Weakened Swedish currency: an advantageous M&A landscape

In the wake of global financial instability, Sweden has emerged as a promising destination for international investors seeking M&A opportunities. A key factor contributing to the attractiveness of the Swedish market is the weakened Swedish currency, which presents significant advantages for US investors.

The Swedish krona has experienced a depreciation against major currencies, including the US dollar. This currency weakness presents a favorable environment for US investors looking to acquire Swedish companies. A weakened currency reduces the acquisition costs for foreign buyers, making Swedish assets more affordable and enhancing the potential for higher returns on investment.

For US investors, this translates into increased bargaining power during negotiations. Lower valuations of Swedish companies, coupled with favorable exchange rates, provide an opportunity to strike lucrative deals at more advantageous terms. The ability to negotiate favorable prices allows investors to maximize the potential for future profitability and growth.

Diversification and market expansion and thriving sectors for investment

Investing in Swedish companies provides US investors with an opportunity to diversify their portfolios and expand their presence into the European market. Sweden boasts a stable economy, robust infrastructure and a skilled workforce, making it an attractive base for operations within the European Union . Thriving sectors that present investment opportunities are, mainly technology and innovation and renewable energy.

Sweden's technology and innovation has long been recognized as a hub for unicorns. Industries such as fintech, cleantech and life sciences offer abundant investment opportunities. Acquiring Swedish tech companies can provide US investors with access to cutting-edge technologies, intellectual property, and a highly skilled talent pool.

Sweden is committed to sustainable development and has made significant strides in renewable energy production. The country offers favorable conditions for investments in wind, solar, and hydroelectric power. Investors can leverage the weakened currency to acquire Swedish renewable energy firms, gaining a foothold in the growing green energy market.

Attractive landscape for US investors

Sweden presents an attractive landscape for US investors seeking M&A opportunities, primarily due to the weakened Swedish currency. The depreciation of the Swedish krona enhances bargaining power and lowers acquisition costs, making Swedish companies more affordable for foreign buyers. Investing in Sweden allows US investors to diversify their portfolios, expand into the European market, and gain access to sectors such as technology, renewable energy, healthcare, and e-commerce.

Belgium

Belgium's new screening mechanism for foreign direct investments

At the end of 2022, Belgian authorities signed a cooperation agreement introducing an ex ante screening mechanism for foreign investors from non-EU countries, including the United States. The newly adopted Belgian mechanism is expected to enter into force on 1 July 2023 and will cover a wide scope of foreign direct investments (FDI) in Belgium.

The cooperation agreement will apply to investors from non-EU countries seeking to make any kind of investment (including acquisitions of shares, subscription to a capital increase, and public takeover offers) in a Belgian entity operating in several strategic areas, such as critical infrastructure, essential technologies, access to or control of sensitive information, energy, digital infrastructure, etc. The intended in-scope investments will have to be notified by the investor to the Inter-federal Screening Commission (ISC), provided that it exceeds specific turnover or voting power thresholds. Notification is mandatory and investors cannot proceed with the transaction without the approval of the ISC, at risk of incurring hefty fines. This new screening mechanism will impact the timeline of future FDI transactions, as the ISC preliminary review, assessment phase and formal screening mechanism can lapse serval months.

New rules on advertisements of virtual currencies in Belgium

The commercialization of virtual currencies remains an area of high vigilance for national regulators, also in Belgium. In May 2023, the Belgian regulator, the FSMA, issued rules to limit and strictly regulate the advertising of virtual currencies targeting Belgian consumers. The rules were adopted to fill a gap in regulation prior to the entry into force of the European Markets in Crypto-Assets Regulation (MiCAR), which is expected for 2024.

The new Belgian rules have a wide scope of application: they apply to all advertisements with customers for the commercialization of virtual currencies in Belgium. Any person who receives a remuneration or other benefit in exchange for the advertisement falls within the scope, irrespectively whether the advertising is made on a regular professional basis or occasionally. This can also capture publicity by trade platforms or posts on social media by influencers. The new rules impose mandatory contents for advertisements (such as risk warnings) and potentially the obligation of prior notification to the FSMA.

India 

‘Angel tax’ exemptions in India: the devil is in the details

The Central Board of Direct Taxes (CBDT) amended the income tax laws in India, exempting investments by certain classes of foreign investors from a list of 21 countries from the payment of what is commonly referred to as ‘angel tax’. Angel tax was introduced in 2013 to penalize round tripping and money laundering structures and was originally levied on domestic sourced investments but from 1 April 2023 onwards has also become applicable to foreign investments in India. Angel tax is levied on the differential between the fair market value of a company’s shares and the consideration actually received by the company for those shares.

Limitations

Although this exemption provides some relief to the notified classes of investment vehicles from certain countries, a majority of the issues pertaining to the introduction of the applicability of the angel tax to investments by non-resident investors still appear to remain. Firstly, it is not clear why some of the key jurisdictions from which foreign investment is made into India, such as Singapore, Mauritius, UAE and the Netherlands, have been left out. There is also no specific exemption for corporate structures, creating hurdles for foreign corporate bodies making capital infusions in their Indian subsidiaries. Structuring of joint ventures, where the share price is commercially negotiated beyond fair value considerations may also no longer be viable.

Way forward

In an attempt to remove some of the difficulties caused to genuine business transactions, the CBDT has proposed certain new changes. For example, additional methods of valuation (currently only discounted cash flow and net asset value methods are permitted) have been proposed  to ease the difficulties faced in reflecting the actual valuations of new-age companies and small businesses. Further, a safe harbor of 10% variation in value has been proposed to account for forex fluctuations, bidding processes, variations in other economic indicators, and other factors which may affect the valuation of unquoted equity shares over multiple rounds of investment. These proposals are currently available for public comment. Apart from the above, venture capital funds are preparing a white paper capturing their concerns and suggestions on the framework surrounding the angel tax.

Prepared with the support of Aanchal Merchant (Senior Associate, BTG Legal)