The Importance of Investment Protection Treaty
The renewing of relations between the United States and Cuba will present investment opportunities in the largest Caribbean island nation that were not available for over half a century. This developments reminds us that when planning to structure investments abroad anywhere in the world, it is important to realize that not only financial matters should be analyzed and considered but, in certain circumstances, the legal protection should be considered even more seriously.
From a financial perspective, the advisor would make an analysis of the various options available to finance the investment, such as a combination of equity, which is the clients own capital (funds) and debt, which are funds that can be borrowed from banks or other financial institutions. From the perspective of taxation, the advisor makes an analysis to determine how best to lower the client’s tax burden.
Less known, but perhaps the most important consideration in certain instances, is the application of the rules under a bilateral investment protection treaty. Such a treaty offers protection against issues such as unjust revocation of licenses, harmful unexpected changes of law, and disguised or outright expropriation of funds without proper compensation. A bilateral investment treaty’s function is to guarantee a fair and equitable treatment of the investors by the courts of the foreign country in which they are investing. Most of these treaties contain a standard clause that obliges the host country to fully comply with its obligations.
One of the countries that rank very high in terms of the number and quality of bilateral investment treaties is Curaçao. As part of the Kingdom of the Netherlands, Curaçao offers investors the possibility to tap and gain protection in over 100 countries around the world.
The two main factors that make the bilateral investment treaties network of Curaçao worth considering are:
1.The definition of the term “investments” is worded fairly broadly. In these treaties, the term investments covers almost all kinds of assets:
- Movable and immovable property and security rights in relation thereto;
- Rights derived from shares, bonds, and other interests in corporations and joint ventures;
- Monetary claims;
- Intellectual property rights; and
- Rights to explore, extract and win natural resources and other rights granted under public law.
2.The fact that, contrary to many others, their coverage is not only for the natural (persons) and legal citizens (corporations) of Curaçao but also for foreigners investing directly or indirectly through Curaçao. To illustrate this, US investors could benefit from the bilateral investment treaty with China by investing in China through a Curaçao-based (sub)-holding company.
When it comes to having bilateral investment treaties, the little country of Curaçao is big. In comparison, the United States has only about 40 bilateral investment treaties in place; most Caribbean off-shore jurisdictions, such as the Cayman Islands, Bermuda, and the British Virgin Islands, have none or only a handful of bilateral investment treaties in place.
In addition, in contrast to these other Caribbean off-shore islands, Curaçao is out of the hurricane belt and there is a much reduced risk that an investment portfolio through Curaçao could be interrupted or otherwise harmed through infrastructure damage. Access to bilateral investment treaties and all of the other above-mentioned considerations make Curaçao an ideal location to consider when structuring one’s investments.