Legal Framework for Investments between The UK and Colombia05/05/2017
Colombian economy is the third most stable in south and Central America. The World Bank has described Colombia as a top country in Latin America and sixth in the world for investor protection and it has the second most flexible labor market in Latin America (Banco de la Republica).
Colombia is recognized as being highly diverse, due to the abundance in natural resources. The signature of the peace treaty promises to correct historically large problems such as drug trafficking and terrorism. Additionally, with the country’s new adjustments, large areas of land have been introduced into the market, mostly for agriculture, renewable energy and mineral extraction.
English companies have been present in Colombia since the 1920s and with the modernization of the Colombian economy in the first years of the 21st century, new opportunities were opened in the service sector with British companies, mostly insurance, consulting, auditing and risk management firms.
Since 2002 the UK has become the second largest investor in Colombia after the United States. During this period, fifty-five companies have provided 9,000 employment positions in different regions of Colombia. The main areas of British investment are:
- In the pharmaceutical sector, large companies like Astra Zeneca and Glaxo Smithkline operate.
- In consumer goods, multinationals in the market of soft drinks, sweets and confections, companies such as Cadbury.
- In services and consultancy, companies like Compass, baker Tilly, Price Waterhouse Coopers and Steer Davies Gleave. It is also important to mention that Ernst & young has developed in Colombia one of its best markets in South America.
Colombia and the UK have a fair and transparent legal framework for the promotion of investment that includes minimum standards recognized by international law. Colombia and UK have signed two treaties:
- A bilateral investment treaty (BIT) intended to create and maintain favorable conditions for the investments of investors of one Contracting Party in the territory of the other Contracting Party.
- An agreement to avoid double taxation.
The BIT is an article that compensates British investors in case their investment is lost to acts related to war, which means that one of the biggest fears in the investing process with Colombia is covered by an international agreement.
The treaty’s article specifies that in case of loss occurred, due to war or armed conflicts, investors shall receive from the host country, as regards restitution, compensation or other arrangement, no less favorable than that which that Contracting Party grants to its own nationals or companies or to nationals or companies of any third State. The resulting payments shall be freely transferable and payable in a freely convertible currency.
One of the fundamental points of the treaty is the resolution of disputes clause. If there is a disagreement between the investor and the host state, the investor is in every right to call for an arbitration panel where investor and state will resolve their dispute in equal footing, that is, where the state is divested from its sovereign immunity.
According to article 6 of the BIT, expropriation is prohibited without fair compensation. Expropriation is only permitted if the investment affects public or social interest, but there is a fundamental requirement of fair compensation. To grant the genuine value of the investment, the judge who grants the compensation must see the value of the investment immediately before the expropriation measures are taken or publicly communicated. The affected company shall have the right to prompt review by the judicial authority.
It is of great value for investors to understand that the BIT and the Colombian judicial system, guarantee national treatment for them. The foreign investor shall not be treated less favorably than a national investor. Colombia reserves the right to create or maintain restrictions regarding the granting of national treatment in the sectors of public services, supply of goods and services of the public sector, automotive assembly and a few others. Lastly, investors should know that they can receive payments in pesos (Colombian currency) but are free to transfer it into pounds without any interference or restriction.
The second treaty, fundamental for investment relations, is the agreement to avoid double taxation between Colombia and UK. The instrument aims to avoid double taxation on Dividends, capital gaining, royalties and labor income. Further information of this treaty will be developed in a future article.
Jose A. Abusaid