In July 2022, a leading European renewable energy company specializing in solar and wind power projects approached us to assist with the acquisition of a Chinese energy company. The client was seeking to expand its presence in Asia by acquiring an established local firm that had significant expertise in China’s renewable energy sector, including solar panel production and wind farm management.

The cross-border acquisition presented several challenges:

Regulatory Approvals: Navigating the complex approval process from both Chinese and European authorities for cross-border acquisitions, particularly in the sensitive energy sector.

Due Diligence: Conducting thorough legal, financial, and operational due diligence to identify any potential risks, including environmental liabilities and compliance with local regulations.

Compliance with Foreign Investment Laws: Ensuring compliance with China’s laws governing foreign investment in strategic sectors, including renewable energy, which requires approval from several government bodies.

Cultural and Language Barriers: Overcoming differences in business practices, negotiation styles, and language barriers between the European client and the Chinese target company.

Tax Structuring and Repatriation: Structuring the deal in a tax-efficient manner while ensuring that profits could be repatriated to the client’s home country without facing excessive tax burdens or regulatory challenges.

The acquisition involved approval from multiple Chinese regulatory bodies, including the Ministry of Commerce (MOFCOM) and the National Development and Reform Commission (NDRC). In August 2022, we submitted the necessary paperwork and liaised with both the national and provincial authorities to expedite the approval process. Given the sensitivity of the renewable energy sector, we worked closely with the State-owned Assets Supervision and Administration Commission (SASAC), ensuring the acquisition complied with all local and national regulations governing foreign ownership in energy production. Simultaneously, we worked with the client’s European legal team to secure approvals from their home country’s regulators under foreign direct investment (FDI) laws.

From August to October 2022, we conducted a thorough due diligence process, analyzing the financial health, legal standing, and operational capacity of the target company. Our team reviewed environmental compliance records to ensure the company adhered to China’s Environmental Protection Law, which regulates emissions and environmental impact in renewable energy projects. We also uncovered legacy liabilities tied to certain manufacturing operations and advised the client on mitigating these risks through appropriate indemnities and warranty clauses in the acquisition agreement.

In October 2022, we facilitated negotiations between the European client and the Chinese company, ensuring that both parties were aligned on deal terms, including the purchase price, profit-sharing, and management control. Our team drafted a bilingual acquisition agreement, addressing key issues such as governance, integration of staff, intellectual property, and transfer of licenses and permits. We structured the deal to allow the client to retain significant control over decision-making, while the Chinese company would remain involved in day-to-day operations, leveraging their local market knowledge.

The renewable energy sector in China is subject to specific foreign investment restrictions. In November 2022, we ensured the deal complied with the Catalogue for the Guidance of Foreign Investment Industries, which lists sectors where foreign ownership is restricted or encouraged. We secured a green light from the NDRC and MOFCOM for 100% ownership of the target company, which allowed the European client to integrate the business fully without the need for a local joint venture partner.

In December 2022, we provided tax planning advice to structure the acquisition in a way that minimized the client’s tax exposure in China. This included advice on withholding tax for cross-border dividend payments and maximizing deductions for local operational costs. We developed a profit repatriation strategy that allowed the client to transfer profits back to Europe while complying with China’s foreign exchange regulations and avoiding double taxation under the relevant tax treaties.

After the deal closed in January 2023, our team continued to advise the client on the integration of the Chinese company into their broader business operations, particularly in terms of aligning compliance with European environmental and labor standards. We ensured the proper transfer of all licenses and permits required for energy production in China and assisted with the transition of management control to ensure minimal disruption to ongoing operations.

Successful Acquisition: The acquisition was completed in January 2023, with all regulatory approvals secured from both Chinese and European authorities. The client gained 100% ownership of the Chinese company, allowing for full integration into its global renewable energy portfolio.

Thorough Due Diligence: Our comprehensive due diligence process uncovered key risks, allowing the client to negotiate better terms and avoid potential legal and financial liabilities.

Tax-Efficient Structure: The deal was structured in a tax-efficient manner, ensuring the client could repatriate profits while minimizing tax liabilities, and setting up ongoing tax compliance mechanisms.

Market Expansion: The acquisition allowed the client to enter China’s rapidly expanding renewable energy market and leverage the local company’s experience in managing solar and wind power projects.

Environmental Compliance: The acquisition ensured that both companies remained in full compliance with local and international environmental laws, a crucial factor in the success of the client’s global sustainability goals.