It is common wisdom that doing business and investments involves risk and prudent investors and business owners analyze the level of risk before deciding on an investment. But more often than not, we see that both investors and advisers limit their risk analysis to economic and financial risk. But the fact is businesses are also impacted by political decisions.
There are a variety of decisions governments make that can affect individual businesses, industries, and the overall economy. These decisions involve taxation, spending, regulation, currency valuation, trade tariffs, labor laws such as the minimum wage, and environmental regulations. Therefore, political risk is the type of risk which affects companies and investors from specific political decisions, events, or conditions, that are beyond the control of the company or investor and which could significantly affect the profitability of a business or investment.
A limited list of political decisions, which might adversely affect a company or the outcome of an investment, could include the following:
• unjust revocation of licenses,
• harmful unexpected changes in the laws, and
• disguised or outright expropriation of assets.
When political risk is recognized to be a threat, the most commonly used method of protection is insurance. Companies that operate internationally, known as multinational businesses, can purchase political risk insurance to remove or mitigate certain political risks. This allows management and investors to concentrate on the business fundamentals while knowing losses from political risks will be either avoided or at least mitigated.
Less well-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 political risk. 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.
The importance of bilateral investment protection treaties is great, as these treaties provide protection against the political risks mentioned above:
• unjust revocation of licenses,
• harmful unexpected changes in the laws, and
• disguised or outright expropriation of assets, and in addition
• provide a guarantee of fair and equitable treatment in court.
Curaçao has an impressive list of more than 100 bilateral investment protection treaties.
The term “investment” is broadly defined in these Curaçao investment protection treaties and covers among other things:
• movable and immovable properties and the security rights in relation to these assets
• rights derived from shares, bonds, and other investments
• intellectual properties rights
• rights to explore, extract, and win natural resources
Another important consideration is the fact, that the Curaçao investment protection treaties do not contain limitation of benefits clauses. Limitation of benefits is a common inclusion in modern treaties to deny the benefits of a bilateral treaty to non-residents of the contacting state and investments using the investment protection treaties that we have here on Curaçao means the benefits of your investments are not limited!
The selection of the jurisdiction in which to set up the entities is increasing challenge, but when it comes to investment protection, Curaçao Offers More!
