International law affects a multitude of countries, in a variety of ways. When deciding on where to invest and what to invest in, it is important to see which international laws and treaties are upheld by the country where the investments will be made. Here are a few specific things that should be kept in mind.
Information Sharing
As the recent case in Cyprus emphasized not all countries have the same laws or priorities. In Cyprus, although initially targeting everyone with a bank account for “revenue enhancement” (aka. outright theft), the government ended up specifically targeting large depositors from Russia (who have no vote) in an effort to raise revenue. The implication was that these large depositors were avoiding local taxes and hiding their money outside their home country. However, Russia has exchange controls (see next section) and therefore if the income was earned outside the country a logical business person would not lock it into a bank in Russia if he might need it again to buy supplies outside Russia.
The U.S. has claimed tax avoidance as the reason for the draconian Foreign Account Tax Compliance Act (FATCA) which requires all foreign financial institutions to report the activities of their American clients to the Internal Revenue Service. So basically the IRS is trying to throw its weight around and legislate what banks around the world can and can’t do.
But according to a recent article in American Banker many Asian banks following the lead of China and Hong Kong are refusing to participate in FATCA due to the extreme cost of compliance compared to the relatively small benefit of accepting American deposits. Many are simply refusing to open accounts for Americans (and are closing accounts that are already open). This can have extremely negative consequences to any American trying to live or conduct business in that part of the world. Thus it could have a dampening effect on American businesses trying to collect funds from Asia.
Real Estate and Exchange Controls
There are minimal international laws in place that govern real estate investments. Some countries do not allow non-citizens to purchase property, although most do. Some countries charge a high property tax or limit foreign ownership in strategic areas such as near borders or with ocean frontage. However, there are international laws in place that prevent governments and/or individuals from seizing a property that belongs to an investor without just cause (however, that has not stopped countries from doing it anyway). Naturally, anyone who is considering investing in foreign real estate should make sure the country in question does not contravene international laws in this regard. In addition, some countries have “exchange controls” affecting how (or even if) money can be taken out of the country. Some countries like Brazil require that you file annual tax forms if you invested any money in their country, which in theory should allow you to get your money back out again.
- Argentina
- Armenia
- Bahamas
- Barbados
- Belize
- Brazil
- China
- Cuba
- Egypt
- Fiji
- Georgia
- Iceland
- India
- Sri Lanka
- Libya
- Malaysia
- Mauritius — Theoretically, exchange controls were abolished in 1994, but the rules still state that repatriation of foreign investment and the profits from it is subject to proof of the origin of the money, and subject to payment of any outstanding Mauritian taxes.
- Morocco
- Myanmar
- Namibia
- Nepal
- Nigeria
- North Korea
- Pakistan
- Papua New Guinea
- Samoa
- Russia
- Seychelles
- South Africa
- Sudan
- Tunisia
- Ukraine
- Uzbekistan
- Venezuela
- Zimbabwe
International Laws Regarding Currencies Used for Certain Types of Investments
International laws also govern which currency must be used to buy or sell certain investments in certain countries. These laws, unlike other international laws, are not universal in nature but they do affect a number of countries and certain types of investments. For instance in an effort to mitigate the consequences of going off the gold standard U.S. president Nixon negotiated an agreement with Saudi Arabia that all petroleum would be sold denominated in U.S. dollars only. Up until recently the international standard has been to denominate oil prices in dollars but recently countries like China have been negotiating with countries other than Saudi Arabia (like Iran, Venezuela, Brazil and Argentina) in an effort to trade directly without having to use U.S. dollars. Once that type of agreement is more widespread the U.S. will suffer from a lack of demand for dollars outside the U.S. which up until now has allowed the U.S. to export its inflation without suffering the consequences at home. Once those dollars are no longer needed abroad and they return to the U.S. we could see massive inflation.
Embargoes
Embargoes can be imposed at a national or international level. Both types of embargoes have a big bearing on investments made in the country that is being blockaded. Nations that are not upholding the international embargo may pose certain risks to the investor by doing certain types of business with these countries.
Even national embargoes can affect certain types of investments. The United States, for instance, has an embargo against Cuba and Cuban products. This embargo not only affects American investors but also non-U.S. nationals who invest in Cuba and want to travel to or invest in certain types of American investments.
It is very important to be aware of international law regarding investments in general. Even an international law that does not seem to have a bearing on a certain type of investment could affect it greatly.
It is a wise idea to hire a lawyer before making international investments. A good lawyer should be familiar not only with international law but also the investment type in question. Getting legal help from the onset can spare an investor from the pain of losing a lot of money or even facing charges related to financial misconduct. However, even legal help does not ensure that one’s foreign investments are completely safe, especially if one is investing in a country that is not known for upholding or recognizing international laws; therefore, caution is always in order and a person should have a backup plan for how to handle foreign investment problems and issues.
See Also:
- So Long, US Dollar As World’s Reserve Currency
- Bank Runs Can’t Happen- Right?
- Germany Will Exit Euro
- How the Golden Reset Button Could Drive the Price of Gold to $20,000.
- The 100th Anniversary of the Federal Income Tax
- Intentional Living Communities Seeking Freedom
Recommended by Amazon:
- The future of international law
- The Future of Hedge Funds: Trends in the global industry
- The Complete US Expat Tax Book
- International Tax Preparation Guide: The only guide you will need for preparing your tax return for Americans living overseas
- Leaving America: The New Expatriate Generation
Joshua Turner is a writer who creates informative articles in relation to business. In this article, he explains a few affects of international law on investments and aims to encourage further study with a master degree in law.
Image courtesy of Khuna’s Pix/ FreeDigitalPhotos.net
