July 30, 2010
Budapest, Hungary

This weekend I’ll be in a forgotten corner of eastern Hungary, just south of the Polish Slovak (thanks Jana/Rad) border and just west of the Ukrainian border; it’s a beautiful area, adorned with splendid castles and palaces that were commonplace during the Hungary’s days as a powerful kingdom.

One of the interesting things about the area is the abundance of natural hot springs. There’s an interesting mountain cave in place called Miskolctapolca where the water is a balmy 31C (88F) and contains a variety of aromatic minerals.

Many ancient cultures believe in the healing powers of these natural hot springs, especially to reduce bone and joint stress, ease respiratory infections, and relax the muscles.

On that note of health, this week’s first question is from G. Mitchell Sr.:

“Simon, I’m finding much useful information in the e-letters, but here’s a question I’ve not seen addressed– I’m just home after six weeks away. I now find that I’ve put on about five pounds/2.7 kilos. How the bloody do you keep fit whilst travelling full time?”

Nothing is more important than our health… and it’s true that traveling can take a toll.  Eating out every night can lead to weight gain, and it’s easy to skip out on the gym. Fundamentally, though, staying healthy is a question of priorities and lifestyle.

For me, eating well and working out is something that I plan into the travel. For instance, I always seek out a gym wherever I go. Constantly paying day rates can be a bit annoying, though– I estimate that my monthly gym dues in various cities/countries probably run about $300/month in total.

For those who’d rather sweat it out in their hotel rooms, my friend and fellow Atlas 400 member Craig Ballantyne has designed a fantastic series of hotel-based workout programs that take as little as 15-minutes; you can check them out on Youtube.

Eating well can be a bit harder. I avoid chemicals and try to eat natural foods as much as possible; when I go out to eat in a new city, I do a bit of research first to find the restaurants that serve organic food. I also subscribe to a few services that do this work for me, like HealthyEatsHere.com

The bottom line is, there really is no great mystery to keeping fit and healthy– eating well and getting exercise is the tried and true formula that will work for every human being alive. Ultimately, though, it’s up to each of us to make it a priority in our own lives.

Next, Jerry asks, “Simon, I applied for Irish citizenship several months ago via genealogy. Once I become Irish I will renounce my US citizenship and live in Panama. In this case, will I have to pay Irish or US taxes on income that I earn from a portfolio of US mortgage loans?”

The United States government has its hand out for a piece of all US-source income, regardless of who earned it. An Irishman living in Panama who generates US income will owe a certain percentage of that income to the IRS, plain and simple.

The Irish government, however, does not tax non-residents on income that is not sourced in Ireland. Furthermore, if you sell your portfolio to someone else for a gain, Ireland does not tax capital gains that do not arise in Ireland and are not remitted to Ireland.

Next, Kate asks, “I had twin boys at a US military hospital in Germany. My husband and I are both American. Are my boys eligible to acquire German citizenship?”

No. German nationality is based on the principle of Jus sanguinis, or right of blood. Children born in Germany must either be stateless, or have at least one parent who is German (or living in Germany with a permanent residency permit).

Lastly, John asks, “Simon, I’m clicking around the Internet and see that Poland is very bureaucratic, does not recognize dual citizenship, can require a person to pay income tax on money earned abroad, serve in the Military, and other possible disadvantages. Given all this, is it worth pursuing Polish citizenship?”

This is why I consider Google to be the “Black Hole of Accurate Information.” A lot of what you are reading on those sites is just plain wrong, or taken out of context.  Do what I do– ignore the armchair expats and go straight to the source.

In this case, you should consult with a Polish immigration attorney. You can find you own, or use the one that I already pre-screened for you while I was on the ground in Poland. Either way, get your information from credible sources so you can separate fact from fiction.

Have a great weekend.

July 28, 2010
Vienna, Austria

Austria has significant opportunity for anyone who wants to plant multiple flags.

As one of the world’s 12 richest countries, Austria’s 8.3 million people enjoy a very high standard of living with relatively low unemployment. I find the country to be as nice as Switzerland, but without the Swiss prices, and as efficient as Germany, but without the German socialism.

As a place to live, Austria gets very high marks from me. The country is exceedingly beautiful with some of the best mountains and skiing you could ever hope for. Vienna is great because it’s a major city, yet literally within a 20 minute drive you can be out in the country in the middle of nowhere.

It’s also a great place to base yourself as a PT; you can fly to just about anywhere in the world from Vienna on Austrian Airlines. If you travel frequently on the continent, Vienna is also THE hub for travel to all the smaller capitals and towns of Eastern Europe.

As for cost of living, Austria is quite reasonable. Property prices in Vienna and Salzburg are very moderate, often less than $3,500 per square meter (about $325 per square foot); a comfortable 2-bedroom apartment rents for less than $1,200/month.

As a place to plant a banking flag, Austria also gets very high marks.  Austrian banks are based on the Swiss system of personalized, private banking. Until recently, the country had some of the world’s strictest banking privacy laws, perhaps even more black box than Switzerland was.

Today is a different story unfortunately. There is very little legitimate banking privacy left in the world… but this isn’t the reason that you want to bank overseas. Offshore banking isn’t about hiding money or keeping it a secret, it’s about diversifying your sovereign risk.

If you live in North or South America, for example, and you bank in Austria, your funds are safe from your government’s and court system’s interference. No three letter agency in your home country will be able to punch a few keys on a computer and lock you out of your account.

In this respect, I think Austria’s banking system will continue to maintain a high degree of procedural independence from foreign governments, therefore it is quite useful as a banking jurisdiction.

Recently, some of Austria’s largest financial institutions have come under fire for having too much exposure to the rocky debt situation in Eastern Europe– specifically in Hungary and Ukraine.

This is probably true for Austria’s largest banks. Many of the smaller boutique banks, however, have very little exposure to Eastern Europe, and their balance sheets are quite strong.

As a place to store gold, Austria also receives high marks. One of my favorite offshore gold storage locations, Das Safe, is located in Vienna. You don’t need to worry about transporting gold here, either; you can buy gold coins at just about any bank in town.

Planting a tax residency flag in Austria, however, is probably not a good idea. Residents are taxed on their worldwide income at a headline rate of up to 50%. Capital gains are taxed as ordinary income.

Austria does have double tax treaties with the United States, Canada, UK, Australia, and New Zealand; this means that, more than likely, if you paid income tax in Austria, you would not have to pay any additional income tax in your home country.

Fortunately, the Austrian government defines tax resident as any individual who spends more than six months per year in the country. This allows PTs or seasonal travelers the opportunity to spend half the year in Austria, then move somewhere else for six months without getting caught up in the tax net.

As a place to plant a citizenship flag, Austria may have some opportunity for you. The passport is among the best in the world, and the Austrian government has an economic citizenship program available for very high net worth investors who are willing to invest several million dollars in the country.

In some cases, it is also possible to declare residency and be naturalized in a total of six years; in this case, though, I would recommend Belgium over Austria because the duration is much shorter.

** Today’s article is only being distributed to subscribers of our free e-letter. **

July 26, 2010
Krakow, Poland

By the late summer of 1939, Hitler’s forces had absorbed Austria and Czechoslovakia into his growing empire, and Germany’s military was massed at the Polish border clearly preparing for invasion.

In an astonishing display of perhaps the greatest complacency in the history of the modern world, however, Polish people sat lazing about their lakes, beaches, and riverbanks worrying about more pressing matters– like how to beat the summer heat.

In September of that year, German troops easily vanquished the Polish army, and Krakow became the colonial seat of the occupying forces. Almost immediately, under the direction of the German SS, anyone who posed a threat was rounded up and imprisoned. This included over 180 Polish university professors and many businessmen.

Krakow, of course, is also very close to two of the main concentration camps used during the German occupation, nearby Oswiecim (Auschwitz) and Plaszow.

The worst part is that, even after the war was over, Poland merely swapped fascism for Stalinism. Overall, the country was shrouded in brutal totalitarian control for half a century; undoubtedly, the Nazi invasion of Poland set off a chain of events that would forever affect the lives of all Poles.

It’s true that no one had a crystal ball back then… but it would certainly stand to reason that with Hitler knocking at your door, you would probably want to have an escape plan. Even more prudently, perhaps to have already executed it.

Many Poles did just that; they spent the preceding seasons liquidating assets, stocking up on gold, and getting their travel documents in order.  By the time Hitler came to town, many of the smart ones were already gone.

My guess is that the ones who left were probably ridiculed by their peers as “crazy”, or “fringe”, or “out of touch”, or my personal favorite, “unpatriotic.” It’s as if they had a solemn national duty to stay, get roped up and waste away in a concentration camp for the ‘greater good’ of Poland.

For those who escaped before the war, many of them went on to build new lives in places like the United States, Brazil, and Argentina.  They prioritized freedom and opportunity, and they went to the best places that were safest for themselves and their families.

I’ve met a businessman here (I’ll call him “Jarek”) who I think has the best story to sum this up; when Jarek’s father was just a boy in Krakow, the family saw the warning signs and decided to leave town. This was 1938.

Jarek’s grandfather owned a successful bakery at the time, yet he felt that he would rather start over somewhere else than risk the safety of his family by living in a police state. They sold everything– the house, livestock, and business… and everyone else thought they were crazy.

Within six months, the family was in Curitiba, Brazil; Jarek’s grandfather soon established a new bakery that eventually became a thriving business. Jarek’s father grew up in Curitiba and integrated into the local culture, yet he maintained his roots since there were many other Poles who followed them there.

30-years later, the face of Brazil started to change. By the mid-1960s, the whole of Latin America was becoming a military dictatorship.  Once again, the family decided to get out while they could and head towards better opportunity; they sold the business, liquidated their assets, and this time headed towards the United States.

Jarek was just a baby when the family made this move. He grew up in a Polish neighborhood of Chicago, spoke Polish at home, and married a Polish girl from his neighborhood.

He was working as a young real estate professional in the Chicago suburbs when the Berlin Wall fell, at which point he began making more frequent trips to Poland to visit his family’s homeland.

In his subsequent trips throughout the following years, Jarek began feeling like there was more and more opportunity in Poland; in 2003, fearful of what would happen in Chicago because of the “War on Terror,” Jarek moved his family full-circle back to Poland because he felt like it was the safest, most opportunity-rich place for him to be.

He may have been right; his business is booming, and the family really enjoys the life they have built for themselves here. To listen to him talk, though, they would happily leave and go somewhere else if the right circumstances were presented.

“My most important obligation is to my family,” he told me. “I will go wherever I can provide the best life for them, whether that is Poland, America, Brazil, or anywhere else. Nothing lasts forever, you have to expect that these things will change from time to time. People have to learn to change as well, to not get rooted in ideology.”

I think Jarek has an interesting point; I’d really like to hear from you, though, what do you think?

July 23, 2010
Krakow, Poland

Krakow is always beautiful in the summertime. It has one of the most vibrant city-centers in Europe… and as the economy is fairly healthy here in Poland, there are always a lot of people out in the streets enjoying themselves.

I’ll tell you more about Krakow next week; for now, on to this week’s questions.

First, Heather asks, “Simon, the article your wrote about currencies racing to the bottom is dead on.  I am trying to protect my retirement savings against depreciating major currencies, and I’ve been looking at using a Swiss annuity in my IRA. Have you heard much about this approach?”

Sure; a Swiss annuity is a fixed-income instrument that provides a low, fixed rate of interest, plus profit-sharing dividends. It is not subject to Swiss withholding tax, income tax, or capital gains tax, and in your IRA it would not necessarily be subject to US income tax either.

While a Swiss annuity may accomplish your goal of currency diversification, though, there are disadvantages; the rate of return can be fairly low, and there are often stiff penalties if you want to exit the annuity and redeploy your capital elsewhere.

For most people, a Swiss annuity makes a lot of sense if they’re looking to receive guaranteed income, or if they need to protect significant assets within the Swiss system through a legitimate, accepted tax shelter.

If your primary goal is currency diversification, you may want to consider an Open Opportunity IRA structure. This allows you to maintain 100% control over your retirement funds; in this case, you could keep your retirement funds in cash, diversifying across any currency of your choosing.

One approach would be to open an account at Everbank on behalf of the LLC owned by your Open Opportunity IRA; Everbank can denominate deposits in 20-different currencies, including the Swiss franc, Australian dollar, Brazilian real, Chinese renminbi, and Indian rupee.

With this approach, you can achieve currency diversification while maintaining liquidity of your retirement funds. If, in the future, you decide to plant a flag with your retirement funds by buying foreign property, you will have the liquidity and purchasing power to do so.

I really think that taking control of your retirement funds and planting this flag is a financial no-brainer. If you haven’t yet seen Terry Coxon’s book on the subject, Unleash Your IRA, I’d encourage you to check it out to learn exactly how to do this.

Next, Tim asks, “Simon, I’m an Australian citizen currently looking at Vanuatu as both a place to live and for planting tax flags; is this a good place for me to consider? Thanks for the great letter.”

Australians and Kiwis should definitely consider Vanuatu. As a small island nation fairly close to Australia’s eastern coast, you’ll have close proximity to home without having to deal with 45%+ Aussie tax rates.  In Vanuatu, there are no taxes on corporate profits, wage income, capital gains, or dividend income.

Planting a tax residency flag there makes a lot of sense, assuming you don’t have Australian-sourced income. Just be careful how much time you spend in Australia going forward; more than six months out of the year will pull you back into their tax net regardless of where you earn your income.

Next, Craig asks, “Simon, can retired members of the US military who renounce their citizenship still receive their retirement pension, or is it forfeited?”

In the US military, retirement is just one kind of personnel status, just like being active duty or reserve. Though no longer on active duty, retirees can technically be called up to serve again should the Defense Department deem this necessary.

As such, retirement pay is the compensation given to retirees for still being carried on the military’s personnel roster. This pay is contingent upon their eligibility to be recalled to active duty, as unlikely as that may be.

Upon renouncing US citizenship, a retiree forfeits his/her eligibility to serve in the US military, therefore the individual would no longer be entitled to receive retirement pay.  Note, renunciation would not affect disability pay.

For more information, read DoD Financial Management Regulation Volume 7B, Chapter 6.

Lastly, in response to a recent note I wrote about German citizenship, Marie was kind enough to provide some of her own experience about how she obtained citizenship:

“Simon, I was granted German citizenship from ancestry (my grandfather). There are major restrictions– the gender of the last two generations must be the same.  In my case, it was a German male, his daughter (my mother), and then me (female). If I had a brother he would not be entitled. Plus I had to be single, born after 1975, and never served in another nation’s military.”

Strange indeed; ancestry programs can be excellent, cost-effective ways of obtaining a tier-1 second passport. Unfortunately, it can be very challenging because the rules are rarely clear or logical. The same thing goes for ancestry citizenship here in Poland, which I shall tell you about at a later date.

Have a great weekend

July 21, 2010
Krakow, Poland

I was on the phone with a major bank last night. As usual, I had to navigate their automated phone system hitting ‘zero’ until my finger turned blue… I was finally forwarded to an offshore call center where the representative was more keen to follow the script than to actually help me.

We’ve all been there. Sometimes it’s perfectly fine, and other times the communication barrier is just frustrating. When done right, though, it can be a seamless step for the customer while adding significantly to the bottom line.

Outsourcing is something that large corporations have been doing for decades– usually farming out work to international markets in an effort to minimize expenses. It’s still a debated practice, but I believe that it’s an important flag that any entrepreneur should consider planting abroad.

While you can outsource plenty of work to service providers in your home country, going offshore lets you take advantage of lower wage demand abroad. This can be a much more efficient use of your capital.

So where are the best places to establish an outsourcing flag?

Depending on your budget and workload, first you have to know what you’re outsourcing. For example, requirements and quality for a one-time project vs. a part-time assistant vs. a full time worker will all vary from country to country.

India is still a top destination for task-based work. There are a number of popular firms that offer on-demand help, charging by-the-hour or per-task. The advantage with hiring an outsourcing company is that you typically get access to a team of outsourcers, and the firm will outsource each of your requests to the most skilled person for the job.

Hundreds of thousands of information technology students graduate from Indian universities every year, and communications infrastructure is reliable within the country’s special IT parks. But India is now struggling to meet demand, and its currency appreciation has reduced price competitiveness.

Eastern Europe is rising to the challenge, marketing its legacy reputation as the center of Soviet technology and scientific research.

Ukraine stands out with the region’s fastest-growing software development and IT industry. Labor and infrastructure costs are still mostly buffered from the Eurozone, and Western venture capital funds have made large investments into offshore development centers there.

Eastern European contractors can deliver anything from a $500 web design to scientific equipment and microchip design. For skilled programming, information security, engineering, research & development, and sophisticated product and software development, look to Ukraine and other developing economies like Romania, Hungary, and the Czech Republic.

There are some well-rated outsourcing firms that you can find with a simple Google search, but I recommend seeking out independent contractors with oDesk, where you can easily search providers by country. oDesk gives you useful tools to manage your assistants and ensure they stay on-task, and you only pay for the time they work.

The advantage to hiring full-time outsourcers, on the other hand, is that you buy their downtime without having to worry about taxes, insurance, retirement, and other benefits.

I’ve worked with many outsourcers around the world, and in my experience if you want extremely loyal, articulate, punctual workers, especially full-time staff, you simply won’t find more value for your money than in the Philippines.

The country has a massive base of talented, college-educated professionals, and because of long ties to Spain and the U.S., the majority of young Filipinos speak English very fluently and are well-versed in Western business standards.

The Philippines is becoming the go-to destination for call center operations, as well as business process outsourcing (BPO) services. This includes things like accounting, human resources, and data analysis.

The best source of resumes is the country’s top job listing site, JobStreet, if you can get access. They typically require a business license in the Philippines, so you’ll either need to jump through their hoops or get creative and find someone who can help you. Otherwise, as above, search the oDesk marketplace for providers in the Philippines.

You can find full-time staff who can help you with finance, marketing, medical & legal transcription, web development, graphic design, and more. Rates range from $250-650 per month.

Wherever you do your hiring, enlisting others is instrumental to scaling your business. Planting one or more outsourcing flags overseas is a wise step that will likely generate a significant return for your business.

Do you have your own experiences? Let me know what you think.

July 20, 2010
Krakow, Poland

Apparently, all of us little people just need to sit down and keep quiet… so sayeth Kartik Athreya, senior economist for the Federal Reserve Bank of Richmond.

In a recent paper entitled “Economics is Hard. Don’t Let Bloggers Tell You Otherwise,” Mr. Athreya chastised the world of bloggers, talking heads, and anyone else who isn’t named Kartik Athreya for speaking their minds about economic policy.  Clearly, everyone else is too stupid to have an opinion.

“Writers who have not taken a year of PhD coursework in a decent economics department (and passed their PhD qualifying exams), cannot meaningfully advance the discussion on economic policy,” wrote Athreya. “[I]t is exceedingly unlikely that these authors have anything interesting to say about economic policy.”

Yeah, OK, there are a lot of dimwits out there… but this sort of “shut up and do as you’re told” mentality is precisely what is so flawed about the system to begin with.

Let’s be honest, though, this isn’t indigenous just to the United States. The powers that be have been doing this for centuries. Even the Greeks, arguably among the more enlightened of early civilizations, sentenced Socrates to death for asking too many annoying questions.

Over the years, intellectual discourse has bee squashed through fear and coercion,  giving rise to such illustrious events as the Dark Ages and Inquisition. These days, if anyone gets out of hand, they send the cops out in their blackest, most intimidating paramilitary gear… just to send a message.

It should be encouraged to question, to argue… the decisions that these people are making behind the curtain are far too important to be left to faith, especially when they have such a dismal track record.

At some point in the future, perhaps decades from now, I think people will look back with astonishment at this period in history.

They’ll wonder how such a small group of people could become empowered to conjure up trillions of dollars, blow trillions more, bail out their banker buddies, erode the value of people’s savings, wage senseless wars, wreck entire economies through misallocation of resources, and yet ridicule public discourse as ignorant and irrelevant…

In any different context, this would all seem completely insane.

Mr. Athreya could have spared himself and the taxpayers a couple of hours by simply penning his own resignation, rather than criticize those who dare to question the intellectual righteousness of his bosses.

July 19, 2010
Copenhagen, Denmark

The Kingdom of Denmark is one of those places like Ghana or Guatemala… everyone’s heard of it, but no one really knows anything about it aside from what they read in Hamlet. I’m here to tell you that the country definitely has some merit, and it may be worthy of you planting some flags, with caution.

For starters, Denmark ranks very highly as a place to plant a PT or part-time residency flag. One of the biggest reasons for this is because there is no language barrier; sure, Danish is the official language, but North American English is spoken with a near native fluency.

This is quite common in Scandinavia; despite sharing certain core traditions and characteristics, each country in the region has its own language. They’re not even necessarily related, either. Swedish, for example, is Germanic in origin, while neighboring Finnish is actually closer to Hungarian.

To cope with this disparity, English has become the de facto pan-Scandinavian language… it’s simply assumed that everyone speaks English.

Aside from being an easy place to communicate, the standard of living is high in Denmark. It’s a very clean country, and crime is low. Copenhagen has seen an increase in certain drug-related turf battles in the seedier areas of town, but this hardly affects the vast majority of the populace.

As such, families with children should have little concern about planting a flag in Denmark.

For single people, Denmark can be a veritable paradise; the locals are very attractive (both men and women), and they tend to react favorably to foreigners… especially those with darker features.

On the downside, living costs are significantly higher than North America and most of Europe. Danish import duties and taxes are among the highest in the world, and this is what contributes so much to the excessive pricing.

To give you an example, dining out can easily set you back $50 per person at an average restaurant. Things like rent which aren’t subject to VAT, however, are much more reasonable. A 2-bedroom apartment in the city center rents for about 1,000 euro/month.

As a place to plant a tax residency flag, Denmark fails miserably. Residents of Denmark are taxed on their worldwide income, and capital gains are treated as income. In total, Danes can pay up to 59% of their income in taxes.

Most of whatever money is left over that is spent on goods and services is subject to a 25% VAT. Painful. Tax residency in Denmark simply isn’t worth it.

One of the nice things about their VAT regime, though, is that you may be entitled to a VAT refund if you are not a resident. Provided you keep your receipts and do a bit of paperwork, you can collect a refund on your way out of Denmark… this is one of the advantages to being a PT.

As a place to plant a business flag, Denmark is not worthy of your consideration; employees are incredibly expensive, both due to their high salaries as well as the payroll tax liabilities.

Furthermore, Danish employees simply aren’t very ambitious. A recent survey indicated that only 4% of Danish employees are actively seeking to move up in their organization, while 68% said that they specifically do not want to be promoted.

Employees with this sort of attitude are not the type who will bust their butts in order to make themselves and the company more successful.

As a place to explore new markets for your business, though, Denmark is definitely worthy of your consideration. The average Danish bank balance is just shy of $30,000; they have money, and they will spend on value-added products and services.

As a place to plant a banking flag, skip over Denmark. There are better jurisdictions in nearby Switzerland, Austria, and you normally have to be a resident to open a Danish bank account.

If you’re looking for an online brokerage, Denmark may be useful to you. Saxo Bank has a great online trading platform that gives you access to a variety of international stock exchanges and FOREX. I can tell you from experience, though, that they’re a bit weak on customer service.

It’s also important to note that Saxo Bank no longer accepts new applications from US citizens. This is a recent change, and another example of how the window is closing on many offshore opportunities for some nationalities.

Lastly, as a place to acquire second citizenship, Denmark is unfortunately not a viable option; the Danish nationality law requires 9-years of permanent residence, and you must agree to renounce your previous citizenship. If you’re seeking an EU passport, Belgium is a much better option.

Children born in Denmark are also not entitled to Danish citizenship, unless at least one of the parents is a Danish national.

July 16, 2010
Copenhagen, Denmark

I’m back in Copenhagen today in the middle of a heat wave! This city definitely has a lot to offer potential expats, and I’m going to publish a short article about it on Monday assuming I don’t dismember myself during tomorrow’s parkour training.

On to this week’s questions:

First, Chris asks, “Simon, the new Going Global report sounds very interesting, but can you comment on to what extent the report is targeted at US citizens vs citizens of other countries? I very much enjoy your newsletter– keep up the great work!”

Thank you! Going Global is a new multiple flags overview that has just recently been published by Casey Research. I had a very strong hand in writing and shaping this report, and I can tell you that I wrote my sections for a global audience.

My understanding is that their final, edited product is addressed and marketed towards US citizens, but I believe that anyone in the world, regardless of nationality, will get a lot of value from the information presented in this text.

We covered things like how to find and assess foreign banks, who to contact for certain foreign trust and corporate structures, what to consider when buying foreign property, details of various citizenship programs, and more.

As I was writing, my goal was to provide a fundamental overview of offshore topics so that the reader would finish the text, have a clear understanding of his/her options, and know exactly what the next steps are to start planting multiple flags.

Casey Research is selling it for $99 and they’re including some complimentary bonus material along with your purchase; you can pick up your electronic copy here.

Next, Jessica asks, “Simon, what are the rules for transporting gold overseas?”

There’s been a lot of talk lately in the blogosphere on the subject of transporting gold. This is something that I have quite a bit of experience with as I take a bit of gold with me everywhere I go on my permanent travels, and I’ve moved large quantities of gold on several occasions.

Most countries have regulations for how much money and merchandise can be moved across their borders without declaration. These rules change all the time, and they vary from country to country.

Regarding gold, some governments only consider the face value of gold. For example, a one ounce American Eagle coin has a $50 face value, so you’d have to move 200 ounces in order to hit the threshold in the United States.

Other countries consider the gold’s market value; earlier this year in Singapore, for example, a Swiss national was fined for failing to declare 58 gold coins valued at $15,000, even though their face value was substantially less.

As another example, reader Don checked with the customs authorities in Panama and found that they follow the same scheme– valuing gold based on its merchandise/market price, not face value.

If you do decide to transport gold on your own, there’s one basic rule of thumb that you should follow: when in doubt, declare it. This includes the exit from your originating country, entry to your final destination, as well as through any transit country.

Next, “El” asks, “Simon, are body scanner machines being used in all major airports in the world now?”

No… at least not yet. Just in the last 30-days, I’ve gone through at least a dozen major international airport security checkpoints on three continents. I didn’t see a body scanner at any of them.

I know of at least 10 airports in North America that have body scanners, including DFW, LAX, BWI, and that hotbed of terrorist activity, Tulsa, Oklahoma.

They’ve been introducing them slowly in Europe as well– Amsterdam was the first and most vocal about it. Not to be outdone by the Dutch in curtailing civil liberties, though, the British government has promised to install these $125,000 machines across the UK “as soon as is practical.”

I suppose that’s Newspeak for “as soon as the foreign bondholders loan us the money.”

Lastly, an anonymous reader asks, “Simon, I am always amazed at your schedule. How do you handle laundry? (lol)”

It’s actually a fair question! When I travel and I’m staying anywhere for more than just a few days, I always try to rent a short-term apartment. These are usually equipped with a washer/dryer, as well as a full kitchen, etc.

Just recently in Bath, for example, I stayed in a very nice 2-bedroom flat in the city center for about 500 pounds ($750) / week. I’m moving on to Krakow early next week where I’ll spend about 10-days in another centrally located, luxurious apartment that runs only about $100/night.

July 15, 2010
Bath, England

I’m presently writing this missive on the UK’s Great Western Railway somewhere between Bath and London’s Paddington station. I’m flying back to Copenhagen in a bit to meet up with my business partner, but I wanted to take a few minutes and tell you about an interesting woman that I’ve met.

“Emma” is a 70-year old British widow who originally hails from Bath. Perhaps it’s true what they say about Bath’s mineral-rich waters, because Emma looks absolutely spectacular for her age, and her energy level would make a 40-year old envious.

For the last several decades, though, Emma has been living an expat lifestyle all over the world– in Dubai, Scotland, Switzerland, and now finally in Malta.

Here’s what’s most intriguing about her, though… she’s always worked. Even as a 70-year old widow in Malta, she still has a job. In her own words Emma says, “I’m a war baby. My generation doesn’t think that anyone owes us anything, doesn’t think that it’s other people’s responsibility to take care of us.”

I recognize that a lot of people are scared to expatriate simply out of financial anxiety; they don’t know how they could find a job, make money, and pay the bills. Even with three children to take care of, though, Emma never let that uncertainty stop her.

You see, Emma always had supreme confidence in her own abilities to add value everywhere she went; she’s hard working, intelligent, and resourceful, and she knew that she would always be able to put those qualities to work for someone everywhere she went.

She was right. Even in male-dominant cultures like Dubai in the 1970s and 1980s, Emma was able to find work and thrive. Moreover, she religiously saved her wages, believing in the old adage “waste not, want not.”

For this reason, she says, she has been able to accumulate substantial retirement savings, even though she never held an extremely high paying job.

She also made the decision to denominate her savings in the Swiss franc many years ago; she set up a bank account in Switzerland when she was living there in the 1970s, and this is still the bank that she uses today. Even back then, she felt that the franc would be a better store of value than the dollar or pound.

Today, she enjoys a bountiful life on Malta’s pristine coast. Between the beautiful weather, the friendly people, the reasonable cost of living, and the work opportunities, she’s extremely happy there and is able to live well on her retirement savings and part time wage income.

Overall, I think Emma has a really interesting story of someone who has planted multiple flags (banking, employment, residence) and sought out unique opportunities around the world.

Mostly, though, I really like her strong, positive attitude. Many people in her position would probably wilt at the challenges and adversity of being a widowed mother of three. Emma has thrived. And the main reason is because she had the self-confidence to overcome excuses and limitations, and the courage to not be afraid of living free.

July 14, 2010
Bath, England

For beginners, planting multiple flags can seem like a complex topic. How does one even begin selecting jurisdictions? How do you actually go about selecting the right offshore bank, or foreign real estate agent? What are the best passport opportunities available?

Until now, there hasn’t been a ‘quick start’ guide to explain all of these concepts and get people headed in the right direction. I try to cover each of these topics in our daily conversations, but frankly there’s just way too much information to convey… and this public e-letter isn’t always a suitable forum to discuss sensitive topics.

A few months ago, though, I was asked by my friends at Casey Research to co-author a new comprehensive report to address these issues.

We spent months working on what I believe is now the best multiple flags overview in the industry– it covers all the core topics like banking, passports, gold storage, retirement accounts, foreign property, offshore structures, currency diversification, renunciation, and more.

I can tell you that I had a very significant role in putting together this product, and as I sat down to write my sections, I kept the needs of the Sovereign Man community in mind.

This report is written especially for you. And my goal is that, by the time you finish, you’ll know exactly what you need to do next, and how.

As such, if you find yourself just getting started with your multiple flags action plan, or if you’re not sure how to get started, this special report is definitely the most useful tool out there for you.

I’d love for you to take a look and send me your feedback. You can get your copy here.

July 13, 2010
Bath, England

It’s no secret that the government– any government– has nearly unlimited authority to do whatever they want, whenever they want. They can bend the rules, spin reality, and use their national constitutions like a roll of cheap, single-ply toilet paper.

Lately, governments have been unafraid to increase the size and scope of their powers, making drastic changes often with near immediate effect.

For example, UK Chancellor George Osborne shocked British investors several weeks ago when he announced that capital gains tax rates would increase for many Brits effective midnight that same evening.

Not to be outdone by Chancellor Osborne, the United States Congress has actually gone back in time and made retroactive changes to tax and reporting regulations. There are some recent instances of this in 2010’s controversial HIRE Act.

Even better, Canada’s Legislature amended the Retail Sales Tax Act earlier this year to be retroactive effective May 1997. The amendment specifically affected certain companies which had to come out of pocket for 12-years worth of tax that they had previously been exempt from. Ouch.

Today marks another example of the government showing us how quickly it is willing and able to make changes. Effective today, the United States Department of State is increasing fees for consular services across the board– things like visas, passports, and notary services.

The state department made this announcement just two weeks ago; the thing that caught my eye and sparked this letter today is their new $450 fee for renunciation of US citizenship.

This is a brand new fee that has never been imposed before. Apparently the number of Americans queuing up at embassies around the world to renounce their citizenship is exploding so rapidly that the State Department had to formalize the process and tack on a fee… this, of course, on top of the 30% exit tax.

With all of these examples, there’s really one single point that I want to drive home today: you can only kick the can down the road for so long…

By that I mean, these examples show that governments are constantly finding creative new ways to increase their domain and grow their tax revenue. We cannot count on any level of stability– what’s accepted and allowed today can change tomorrow.

The only thing we can really count on is the pace of change– how quickly and how drastically governments will reshape the system to suite their own needs at our expense.

All of these changes have an effect. Some are large (retroactive tax code changes, an overnight revaluation of a currency) and some are small (higher fees for a passport). As we go forward, though, you can expect these changes to be more surprising, more swift, and more painful.

It’s easy to kick the can down the road and say, “well I’ll take action later when things start to get really bad.” This approach might work for a while, but the logic will abruptly run out only once it’s too late.

Protecting yourself and your assets– moving some money to a foreign jurisdiction, scouting out locations for a new home overseas, exploring second citizenship opportunities, etc.– can be accomplished by investing some time and energy right now and making it a priority.

I really want to encourage you to make every effort to start this process as quickly as possible. Put it on the calendar, call it a midsummer resolution… whatever works. I don’t want you to be one of the people who wakes up one day and is completely enslaved by capital controls or a military police state.

Also bear in mind that whenever you step outside of your home country, wherever that may be, there is literally a world of opportunity waiting for you.

In the coming days and weeks, I plan on releasing some new information, including a free, short video series about steps you can take right now, as well as a comprehensive “going global” overview that I co-wrote with my friends over at Casey Research.

More to follow, stay tuned.

July 12, 2010
Bath, England

The most expensive city in the world is not in the North America, or Europe, or even the Middle East… it’s in Africa.

According to an annual cost of living survey that is sponsored by international HR consulting firm Mercer, the most expensive city in the world is Luanda, Angola.

In case you’re scrambling for an atlas right now, Angola is an oil rich country on southern Africa’s Atlantic coast. It was a Portuguese territory from the 1500s until independence in 1975, at which point it plunged into a decades-long civil war between communist and anti-communist factions.

Needless to say, Angola was one of those unfortunate countries where the United States and Soviet Union duked it out, supplying their respective sides with money and munitions despite a UN prohibition against arms deals in the country.

When the war finally ended in 2002, the Angolan economy went bananas. Large multinationals had already been drilling and producing in Angola’s rich offshore blocks… but once peace was finally brokered, the economy really blossomed.

Today, Angola is a nation of significant economic contrast– though the government is growing rich from oil revenue, the majority of locals live in poverty on less than $1/day. For expats, though, costs are astronomical:

Three-star hotel rooms start at $750/night, apartments run $7,000/month, a silly cheeseburger can cost $30 or more, a haircut will set you back $150. This is why Luanda tops the Mercer ratings.

Also making an appearance in the Mercer survey’s top 10 are fellow African cities of N’Djamena, Chad and Libreville, Gabon, each of which is a costlier place for expats to live than London, Zurich, Vancouver, or New York.

This sort of price disparity is not unusual in Africa. Key cities are often severely limited in supply of expat-quality products and services… there might be only one hotel in the city with four walls and a ceiling, running water, and a mattress devoid of insects.

When the economy starts booming, demand outstrips the limited supply and prices soar. Meanwhile, expats stay focused on whatever big project they’re working on instead of developing more services, and the locals generally lack capital to start a business… so it takes years for more supply to enter the market and for prices to adjust lower.

I think these sorts of places can spell extraordinary opportunity for hungry entrepreneurs who don’t mind relocating and overseeing the development of new expat-quality products and services, particularly food and lodging. This is the equivalent of selling shovels to gold miners.

I also think that even greater fortunes can be made in places that haven’t quite boomed yet, but are likely primed for a boom based on a key event.

Burma, for example, will experience an enormous investment boom once the junta finally disintegrates. North Korea will be an entrepreneur’s paradise once Kim Jong-Il passes and his sons kill each other fighting for control of the government.

Incidentally, the other cities in the Mercer top-10 survey are Tokyo (2), Moscow (4), Geneva (5), Osaka (6), Zurich and Hong Kong (tied for 8), and Copenhagen (10).

Other notable cities include Singapore (11), London and Paris (17), Shanghai (25), New York (27), Rio de Janeiro (29), Havana (45), Madrid (52), Dubai and Los Angeles (55), Vancouver (75), Bangkok (121), and Auckland (149). The least expensive places in the world included La Paz, Bolivia; Managua, Nicaragua; and Asuncion, Paraguay.

The survey covers 214 cities based on US dollar costs in housing, food, transportation, household goods, and entertainment. Multinationals use the survey to determine compensation and benefits for expat employees. I find it to be reasonably accurate with some slight discrepancies that I will address in future letters.

July 9, 2010
London, England

Today’s letter is a bit early– I’m running out soon to meet up with several subscribers at the Clarendon lounge in Notting Hill. Feel free to drop by if you’re in the area tonight between 6pm and 7pm.

On to this week’s questions, which are ironically all about citizenship:

Reader Antagau comments, “Simon, I am a South Korean citizen living in the U.S. as a permanent resident (green card). I am qualified to become a US Citizen and was considering doing so. After discovering your website and others, now I am not so sure. What are the pluses and minuses of my options?”

A US passport used to be the holy grail of citizenship and envy of the world. Now, this is not the case. I believe the most valuable passport in the world now is Singapore, but there are dozens of others that are also great options.

The most important question to answer when looking for a second passport is, “will I be better off with this document?” As a South Korean citizen, you already enjoy excellent visa-free travel around the world… South Korea is even on the US visa waiver program.

As such, I don’t think that obtaining a US passport will be of much benefit for you, travel-wise.

In terms of rights and privileges, as a permanent resident you already have nearly the same liberties as a US citizen. Aside from voting and a few other exceptions, you’re nearly one and the same.

The major difference is that you can always walk away from US residency, and hence the US tax net. Raising your right hand and taking the oath of citizenship signs you up for painful worldwide taxation, and undoing this can be costly.

Consider these issues when making your final decision– as a South Korean resident in the US, will you be better off with a US passport? I don’t think so.

Next, Larry asks, “Simon, by giving up US citizenship, do I lose the right to enter the country?”

No. This is a common misconception about renunciation; if you give up your US citizenship, you’re treated just like any other foreigner. If you already have a passport from a country like New Zealand or Germany, you’ll be on the visa waiver program and can enter/exit the US without applying for a visa.

If you have a passport from another country (Ecuador, Dominica, etc.), then you’ll have to apply for a visa at the nearest US consulate. This is much less problematic than you would imagine; US consulate officials are trying to keep foreigners out who will try to stay and reside in the United States illegally.

Clearly, as a former American who has renounced citizenship, you would not be someone wanting to stay in the US for the long-term… so unless you’re on a terrorist watch list or have a bad criminal record, you wouldn’t have any problems obtaining a visa.

Lastly, Todd asks, “Simon, I’m an American living in Spain. My Brazilian wife is on track to get Spanish citizenship within one year. I am beginning to wonder if the extreme hassles we are enduring here to acquire citizenship in the end will be worth it– where do you see Spain in 5, 10, 20 years?”

First, if your wife is Brazilian, you should already be standing in line at the consulate to obtain your own Brazilian passport… that will soon be one of the world’s more valuable travel documents.

Second, Spanish citizenship takes a long time to acquire… so if you have already invested the time and effort into residency, you might as well go ahead and finish the process. Spain will definitely drop out of the eurozone within a few years, but I’m sure that the EU and borderless schengen area within Europe will likely persist in the long-term.

As such, it’s probably worthwhile to continue with your Spanish citizenship track as long as you have the Brazilian passport as well to fall back on.

Incidentally, for anyone who is looking for an EU passport but doesn’t want to spend a decade treading water in Spain, Italy, or France, I would suggest looking into Belgium. More on that in future letters.

Have a great weekend.

July 6, 2010
London, England

It appears that Wachovia Bank has been a bad little boy and not following the rules.

Recent reports from a US Justice Department investigation suggest that the bank didn’t follow anti-money laundering requirements from 2004 to 2007. During that time, over $378.4 billion of Mexican drug money passed through its offices.

Wachovia was formerly one of the largest banks in the United States; they went bust in 2008 under the weight of their subprime losses. I used to be a customer of theirs, long ago… it’s funny that my $10,000 foreign wires used to be  scrutinized by the bankers, but $378.4 billion worth of cash deposits was not.

US banks are required to abide by a litany of anti money laundering (AML) regulations, including the Bank Secrecy Act, FINCen requirements, and the USA PATRIOT Act.  Each of these rules effectively requires bankers to be unpaid government spies and report customer activities to a variety of agencies.

These government agencies have ever-expanding authority to control and confiscate private funds on suspicion of drug involvement, or money laundering, thanks to America’s pointless and endless ‘war on drugs’. If they deem something to be suspicious, they have the power to seize everything.

Given Wachovia’s failure to follow the rules, I suspect two things are going to happen.

First, the CEO of Wells Fargo (which bought Wachovia in 2008’s financial meltdown) will be called to the carpet and be forced to tap dance in front of Congress, BP-style.

As it is so popular for politicians to lambast the bankers, Barney Frank and the gang will take turns pummeling the CEO and jostling each other for the best evening news sound byte.

Wells Fargo, of course, will be forced to pay a hefty fine.  Given that they have been raking in huge profits by borrowing from the Federal Reserve at 0% and investing in US Treasury Securities yielding 3%+, they’ll be able to afford it.

The second thing that will happen is that Congress will use this as an excuse to call for stricter, tougher measures.   Wachovia failed to follow the rules, therefore the rules must clearly be too lax.

The end result will be harsher rules and more scrutiny.  For US residents who bank in the US, this means giving the government tighter control over your money.

In the long run, I expect bureaucratic, third-world type processes (lots of stamps and signatures) for carrying out any transaction considered ‘exotic’. This would include anything involving large amounts of cash, multiple parties, and foreign accounts.

Politicians can pass these laws overnight with the stroke of a pen.  They can bury nasty regulatory requirements deep inside the text of otherwise innocuous legislation– like this year’s HIRE Act which was signed into law 2 months ago.

The HIRE Act was designed to provide incentives for businesses to hire employees, yet a small portion of the text imposed new penalties and requirements for Americans with offshore holdings.

(you can read more about those requirements HERE, and I encourage you to do so…)

Consequently, we should all be taking action now before they enact any of these overnight changes… this means opening a foreign bank account, and parking some long-term savings in foreign property.

Remember, regardless of your home tax jurisdiction, diversifying your sovereign risk and planting financial flags overseas is always a smart move.  If your home tax jurisdiction is becoming increasingly authoritarian, it’s a no-brainer.

July 7, 2010
Berlin, Germany

As I’m in Berlin for some quick business, I wanted to take a few minutes to talk about planting flags in Germany; perhaps today is an appropriate day to do so as the Deutschland national football team is taking on Spain in tonight’s World Cup semi-final… and there are German flags flying everywhere.

As a place to visit or plant a residency flag, Germany is a personal call. You might love it– the history is really unique, the people are nice enough, and the nightlife is really interesting (often adult-oriented).  I like it fine, but there are more exciting places in Europe for my taste.

As a place to establish tax residency, Germany should definitely not be considered. Individual income tax rates can be as high as 67%, and the government taxes its official residents, both foreign and citizen, on their worldwide income.

As a place to establish a citizenship flag, Germany is a valuable passport. Germans have visa free travel to more countries than the US and Canada, and they’re not ill favored in the world.

Unfortunately, it’s not one of the countries whose nationality laws provide ancestral citizenship… so if your grandparents were German, it won’t make much of a difference to you.

Germany does provide for naturalization after 8 long years of permanent residency… but Belgium is a much easier option at only 3-4 years, and it’s an equally valuable passport.

I do know of people who have gained German citizenship by going through the process of being married or adopted, but this is not a good forum to discuss that.

As a place to plant an emergency flag, where you would go in the event of a global meltdown, I would give Germany mediocre marks (no pun intended). The country has enough food, water, and arable land to sustain itself, but I worry about its energy security.

For now, Germany has too much reliance on foreign nations to import critical oil and gas supplies.  The government has been pushing for renewable sources, and while these have been growing, Germans would probably freeze to death if they were shut out by Russia.

In my assessment, Germany does score rather well when it comes to investing and business opportunities.

The German economy is one of the largest and most powerful in the world; I think it serves as a reasonable model of how a modern, developed, industrialized nation can simultaneously be among the wealthiest in the world but still have a solid manufacturing and export base.

Yes, there are problems, starting with their bloated welfare programs and high tax rates. The government appears to be taking positive steps with unpopular austerity measures, but I really doubt these will stick in the long run.

Regardless, though, the overall German savings rate is quite high at 12.8% of their disposable income.  Germans have money, and they save quite a bit of it. For entrepreneurs, this makes the country a solid consumer market, as well as a great place to source investment capital.

For workers and professionals, there are reasonable employment opportunities in the country for would-be expats; the German labor market has been steadily strengthening, and multinationals are hiring once again.

In terms of an investment flag, there are some opportunities in Germany.  Thanks to decades of gross economic mismanagement by the Spanish, Greek, and Italian governments, quality German assets are selling at a discount for non-euro investors.

The entire eurozone has suffered, and will continue to suffer, because of the most rotten apples in the bunch… so in a way, investing in Germany gets you Deutschmark assets at a Greek drachma discount.

I’m rather averse to most European equity markets right now (with the exception of Cyprus and a few others).  I do think, however, that German real estate may be a reasonable speculation.

The country never experienced a massive real estate boom, so prices never got out of control. At $3,500 per square meter of residential space, an apartment in Berlin is not much more expensive than top-end property in Panama! And it’s a hell of a lot cheaper than what I’ve seen recently in Spain and Italy.

The rental yield is not spectacular at 5%, but I think that property prices could rise significantly on a currency-adjusted basis. When (not if) the eurozone finally breaks apart, the new German (or modified eurozone) currency will be much stronger, resulting in fantastic profits

July 6, 2010
Berlin, Germany

Last Friday, I read about how the US workforce shrank by over 650,000 in June, one of the sharpest contractions ever. Private sector hiring was also less than expected, suggesting that joblessness in the US will remain sluggish.

Always ready to spin a bad story, US politicians immediately began heralding the jobs data as clear evidence that the tide was turning, that the US economy is headed in the right direction, and that their lavish stimulus plans are working.

This gorilla math is truly amazing; it’s the doublethink from 1984 that makes 2+2=5.  So… I decided to do a little number crunching of my own, and the results are pretty incredible.

The ‘recession’ officially began in late 2007, coinciding with the government’s fiscal year 2008 budget.  At this point, politicians became nervous and started dumping money into the economy, which has continued to this day.

What I wanted to do is find out how much money they’ve really poured into the economy, and what the overall impact has been.

I started by looking at the US budget in 2007, which ended September 30th of that year. This was pre-crisis, before the bubble really burst and things got bad. That year, the US budget deficit was ‘only’ $160.7 billion… this is the amount that the government required to function that year– conducting a two-front war, providing social security, etc.

Realistically, if the government hadn’t started its anti-recession stimulus programs, the fiscal year 2008, 2009, 2010, etc. budget deficits should have been $160.7 billion or better; essentially, the government should have spent as much in 2008 as it did in 2007, barring the recession.

Next I added up all the additional deficit spending above and beyond the 2007 level… and then subtracted the hundreds of billions that went to bail out the banks, unions, and big businesses.

The remainder reflects the amount of money that the US federal government has spent since October 2007 to fight the recession, stave off foreclosures, and boost the labor market.  The total amount? About $1.7 trillion in just under 3-years.

I then wanted to find out what kind of impact that spending has had on the economy, so I compared GDP from 2007 through the first quarter of this year.  You would expect that if the government invested $1.7 trillion in the economy, that there would be at least $1.7 trillion in additional economic growth.

Needless to say, this wasn’t the case. Since the end of 2007, the economy has only grown by $476 billion, if you actually trust the government’s inflated numbers to begin with. Even taken at face value, this means that the government has generated a return of $476 billion on an investment of $1.7 trillion.

Let me put this another way– the US government effectively lost 72 cents out of every dollar that it spent on ‘economic stimulus’ since the recession began.

And as for the 8 million jobs that have been lost in the meantime?

With $1.7 trillion in additional deficit spending, they could have paid every single unemployed person in the United States an annual salary of $75,000 for the last three years to sit around and play tiddlywinks all day.

Adding insult to injury, despite racking up a $1.7 trillion bill to fight the recession, politicians remain awfully proud that they increased unemployment benefits by a whopping $25/week, or about $1,300/year.  I’m really wondering what happened to the other $74,000….

Most politicians believe in Keynesian economics, that government spending is a righteous corrective mechanism to economic decline.  As a free market guy, I find this entire philosophy offensive. Individuals and businesses know how to spend their own money better than the government does.

Even if we momentarily suspend disbelief, though, and agree with the philosophy of massive government spending, just look at the results– they lose 72% of the stimulus money, yet they want to keep doing it over and over again.

This is not a Democrat or Republican issue, this isn’t about Obama or Bush, and it’s not even a US issue.  This is simply a structural failure in the system itself: government cannot be trusted under any circumstances.

At the end of the day, regardless of the guarantees and welfare programs that governments promise, we are all fundamentally responsible for ourselves.  No one should trust in the government to be there when it comes time to retire, look for work, or pay for the hospital bill.

Believe it or not, this is a good thing, and I’m optimistic in their serial failures. In my opinion, the sooner people realize that they’re ultimately in charge of their own destiny, the sooner they’ll find an entire world out there full of incredible opportunities.

Planting multiple flags is a great way to protect assets and safeguard against sovereign risk… but keep in mind, it’s also the best way to maximize the opportunities available to you, both personal and professional.

The world is not full of doom and gloom. Yes, our political leaders are a bunch of idiots, but we can rise above that easily and find new possibilities everywhere to secure and improve our lives and the lives of our families. This is one of the most important points that I hope you get out of these conversations.

July 2, 2010
Copenhagen, Denmark

I’m in a bit of a rush this morning as I have to catch a plane to Copenhagen; it’s a great, clean city with lots of English speaking people and a reasonable banking system– I’ll tell you more about it next week.

Before moving on to this week’s questions, I want to mention that I’ve recently put the finishing touches on my share of a new ‘offshore strategies’ guide that is going to be published soon by my friends at Casey Research.

We worked very hard to put this together, and I believe our combined efforts have resulted in the best multiple flags overview that exists; I’m very proud of the final product, and I’ll be sure to let you know where you can pick up your copy, hopefully over the next few days.

On to this weeks question…

First, Jes asks, “Simon, I’ve enjoyed reading your letters, and I’ve also just finished reading a book called ‘Emergency‘ by Neil Strauss. It includes the author’s account of obtaining a second passport. I am curious if you recommend that book.

I do recommend the book. Neil is a great writer, and I’d encourage anyone to pick it up and give it a read. Neil tells an important story that we are all completely dependent on a functioning system of complex infrastructure.

We don’t think about, for example, whether or not the lights will turn when we flip the switch. We don’t think about whether or not water will come out of the faucet, if the toilet will flush, if the grocery store down the road has food in stock, or if the gas station will be pumping fuel tomorrow.

We take these things for granted… Emergency tells Neil’s story about making this realization, and the actions he took to do something about it, including obtaining a second passport from St. Kitts.

Neil realized that with only one passport, he was simply a slave to his government… and the second passport gave him new options and new freedom that he never had before.

If you’ve ever thought about obtaining a second passport, definitely read his book. Just don’t call the lawyer he used in St. Kitts– the guy skipped town with clients’ money… I can get you someone more reliable who I trust implicitly.

Next, Norman asks, “Simon- Thanks for your emails. As a gay man in my 50’s I am looking at alternative residency/citizenship opportunities. You may not know a lot of gay people, but where do you find the most gay friendly/tolerant places out of the countries you recommend?”

I’m going to go out on a limb here… it’s not exactly my scene, but I can say that, from a social/political standpoint, your best bet is in Europe. Specifically, Denmark, the Netherlands, Belgium, Iceland, and Spain. Most of these countries grant same-sex marriage rights.

Elsewhere, you might consider Thailand and the Philippines in Asia. In Latin America, consider Uruguay, Argentina, Chile, and Brazil. They’re all pretty GLBT-friendly places

Next, Libero asks, “Simon- How do you pack for your trips? Don’t you have some comfort items that help to make you feel “at home”? Do you pack Backpacking style, as a tourist, or pack everything you need so as to live long term in a place?”

Believe it or not, I go all over the world with just a carry-on and my briefcase. I’ve never been one for material possessions, or to accumulate junk… and I definitely don’t derive comfort from ’stuff’.

Sure, I have all the essentials– clothes for most occasions including some formalwear, workout gear, toiletries, etc. Other than that, I travel pretty light.

Henry David Thoreau had it right when he said, “A man is rich in proportion to the number of things he can afford to let alone.” You’d be amazed what you can do without.

Understandably, this probably wouldn’t suit most people, but it’s the way I get around. Give it a try, though, just once… on your next trip, pack as light as possible– if something’s not absolutely essential, leave it at home. I think you’ll be pleasantly surprised at how you fare.

July 1, 2010
Oxford, England
– Happy Canada Day –

One aspect of multiple flags that I don’t address too much is using corporations to your advantage. This is an important strategy that I think you should consider, and there are several reasons for doing so.

Most importantly, governments generally respect businesses a hell of a lot more than individuals. To politicians, people are just slaves to be controlled… as my friend Doug Casey says, “tits on cow” that can be milked over and over again.

Businesses, on the other hand, are an important means of creating jobs and generating revenue– a successful business can create hundreds, and even thousands of jobs. This is beneficial both for the economy, as well as a sitting government’s popular standing.

Politicians understand this quite well, and as such they often go out of their way to court businesses through a variety of tax schemes and incentive programs. It’s commonplace to hear about politicians going overseas to attract foreign investment– many nations rely on this as a source of economic growth.

Once such example is right here in the UK. Last week, the government unveiled its ‘emergency budget’ which implements the most severe austerity the country has seen since World War II. Absolutely EVERYONE is going to have to contribute more, including the Queen herself.

While most individual income tax rates are going up, corporate income tax rates are actually headed in the opposite direction, from 28% to 24% over 4-years.

This may seem strange at a time when Britain is desperate to fill its coffers with more tax revenue. Those in power, however, understand that low corporate tax rates attract businesses, and with businesses come jobs and economic growth.

In his address to the nation in which he unveiled Britain’s emergency budget, Chancellor George Osborne underscored this point when he said:

“I want a sign to go up, over the British economy, that says Open for Business… Corporation tax rates are compared around the world, and low rates act as adverts for the countries that introduce them.”

Osborne realizes that businesses have a choice. They can literally pick up in the middle of the night and move to a lower tax jurisdiction. Haliburton famously comes to mind; the Houston-based oil services firm moved to Dubai several years ago, drawn by the Emirate’s 0% corporate tax rate.

(quite honestly, individuals have a choice too; they can pick up and move to another jurisdiction, or plant multiple flags just as easily– most people simply don’t realize that they have this choice… but I’ll save that for another time.)

Russian President Dmitry Medvedev is taking similar action in his nation, cutting taxes, strengthening the rule of law, privatizing state-run dinosaurs, and making it easier to obtain visas.

Russia’s one trick pony economy is starving for foreign investment to diversify away from reliance on oil and gas, and Medvedev understands that the best way to do that is to roll out the red carpet for businesses and investors.

So how do we benefit from this?

First, for entrepreneurs and self-employed professionals, I would suggest looking overseas for opportunities, both to structure your company, as well as for your customer base.

For example, Brazil and Chile are in serious need of people and businesses with experience in mining and finance. China needs anyone who can help manage growth. Qatar and Abu Dhabi are excellent markets for IT, retail, and finance; Taiwan, South Korea, and Israel for defense. Russia for retail and entertainment. Etc.

To structure your company, it makes sense to look in low-tax (Hong Kong, Singapore, Bulgaria) and even no-tax jurisdictions (Panama, BVI, Labuan).

I am particularly fond of structuring in Singapore simply because there is so much transparency there; and even with its low flat corporate tax of 17.5%, it is still possible to avoid taxes entirely by banking in another jurisdiction (like Hong Kong) and not repatriating the funds to Singapore.

If you’re not an entrepreneur, investor, or professional, you may still be able to benefit from this strategy as an employee. Depending on your home country’s tax code, you may be able to change your employer/employee relationship to a client/contractor agreement using a new company that you set up.

For US taxpayers, the IRS has some simple guidelines to determine if being an independent contractor is permissible. I think it also makes a lot of sense to use an Open Opportunity IRA structure instead of a foreign corporation.

June 30, 2010
Oxford, UK

I’m impressed by many insightful responses we received from yesterday’s letter. I’d really encourage you to browse the comments section and see how everyone weighed in on the topic of politicians protecting their interests at the expense of our civil liberties.

It’s important to explore these issues from time to time– they serve as a reminder to take action while we still can. But rather than dwell on the political negativity that seems so pervasive these days, I really want to get us refocused on solutions.

After all, there are a multitude of options and opportunities out there that lead to increased wealth, asset protection, and a fuller, more independent lifestyle. Each of us has the power to exploit these.

Before discussing solutions, though, I first want to give you a much better understanding about the philosophy of where I’m coming from. I think it’s probably obvious at this point– you realize that I’m no fan of government, but I want to explain why.

Sure, I’m dismayed when I see signs of increased authoritarianism, such as what happened at the G8/G20 summits in Canada. The greater concern I have, though, is that these rapidly expanding governments routinely destroy value and make things more difficult for productive individuals.

One of the comments that I read yesterday from reader ‘Chengdu Express’ summed it up quite clearly. To paraphrase the comment, there are essentially two types of people– those that benefit from the system (government jobs, free health care, generous pensions), and those that provide the benefit (taxes).

Certainly, while everyone pays a share of taxes and receives a share of services, at the end of the day there are clearly net beneficiaries and net providers… and this system is facilitated by the government.

As governments continue to expand, the number of net beneficiaries will rise, all at the expense of the few remaining productive citizens. Naturally, the bigger the beast becomes, the more people will find their livelihood directly tied to it.

This is what they’re facing right here in the UK, where public sector employment already comprises the preponderance of the economy. Yet a recent report published by the center-right think tank Policy Exchange demonstrated that public sector workers enjoy better pensions, earlier retirement, shorter hours, and as much as 30% more pay than their private sector counterparts.

What do all of these public sector workers actually do? According to some accounts, absolutely nothing. For those UK public employees who actually show up to the office, there are a variety of insane laws and regulations to enforce.

For example, the government has mandated, by law, that a shot of alcohol in a bar must be exactly 25 mL in volume… not 24, not 26. The owner of a private establishment has no flexibility to pour his own drink without violating the law.

Needless to say, there are entire offices of bureaucrats who get paid to inspect and enforce the 25 mL alcohol rule… just one example of the transfer of wealth to the net beneficiaries at the expense of the productive.

Here’s an even more insane example. Over the weekend, the Daily Mail reported that under a new law, British shopkeepers will no longer be able to sell eggs by the dozen, but must rather relabel their packages by weight (“I’d like 322 grams of eggs, please…”)

Clearly this is the most important priority facing a nation in crisis. And you can bet that there will be yet another office of egg carton inspectors to enforce this new regulation as well, if it passes.

None of these laws makes a bit of difference or provides the slightest benefit to anyone, yet they provide jobs to public sector employees at the expense of everyone else… and I mean everyone, from the business owner to the investor to the bartenders and janitors that have to pay more in taxes.

To be clear, I’m not trying to demonize public sector workers. I know that the majority probably work hard and take their jobs very seriously; the problem is that the regulations they are tasked to administer and perform are incredibly costly and destructive to the value-creation process.

This is the fundamental structural failure in our system– politicians are richly rewarded for increasing the number of net beneficiaries at the expense of a shrinking pool of net providers. And as we saw with the G20 protests, they can hide behind their police forces and do it at the point of a gun.

Conclusively, governments exist to support themselves first and keep the party going. They do so by sprinkling a few dollars here and there to the net beneficiaries, and then truckloads of dollars to their crony friends and insiders.

The value equation is highly skewed, though. If the government collects $1,000 from the net providers, the beneficiaries might end up with $100, and the other $900 is wasted or given away in corrupt schemes.

I hold these truths to be self-evident, and my goal is to exist outside of this system as much as possible by pitting competing governments against each other to my advantage– this is what planting multiple flags is all about, and what we’ll be discussing in the coming days.

June 29, 2010
Oxford, England

My apologies for not writing to you yesterday… I was angry (a rare occurrence for me), and I hate writing to my friends when I’m angry. You see, the G8/G20 summits took place over the weekend in Toronto, and everything about these events simply boils my blood.

To me, there’s nothing more utterly worthless than a bunch of corrupt, irrelevant, incompetent bureaucrats who generate enormous pomp and circumstance to gather together at taxpayer expense in order to accomplish absolutely nothing.

Yet this is what happens at these ’summits’ year in, year out.  They’re not exactly staying at the Holiday Inn Express, either. The events are always in some posh resort where legions of underlings can enjoy champagne and filet mignon, courtesy of Joe Public, all the while their bosses strut and glad hand in front of the cameras.

This year, the focus of the summits was on the state of the world economy. They spent the weekend arguing, debating, and deal making… yet by Sunday evening, the only real accord reported by the group was an insipid statement about halving budget deficits by 2013.

The truth is, these summits carry absolutely no weight whatsoever; the G8/G20 are not sovereign bodies with any authority to enforce any of the resolutions. At the end of the day, each of the member countries is going to march to the beat of its own drum, no matter what it may have signed up for at the summit.

Regardless, the media ate it up.  Newspaper headlines around the world heralded the governments’ progress to reduce their budget deficits… apparently failing to realize that half of a budget deficit is still a budget deficit, generating yet another uptick to the national debt.

I’m sure that years ago these summits probably mattered. Back when the United States was the undisputed world economic power thanks to devastated post-war economies in Europe and Asia, the annual summits were a great way for the US to bend the rest of the world to its own agenda.

Decades later, the results from this summit paint a very clear picture about waning US influence. American priorities going in to the summits– sustaining government stimulus programs, cooperation in Afghanistan, currency flexibility in China, etc. remain unresolved and conspicuously absent from the groups’ final reports.

It’s obvious that other countries, particularly the ‘emerging’ G20 nations, have achieved significant political power on the international stage, and this is the surest sign of a major shift in the global balance of power.

One day, I expect that, if these summits still exist, it will be a platform for China to dictate the rules, and for the rest of the world to follow. In the meantime, they will continue to be worthless and wasteful, furthering governments’ record of unsustainable largess.

Needless to say, voters are understandably unhappy about this– the ‘leaders’ who gathered in Canada this weekend are the same people who have been effectively stealing from their voters and squandering every penny on wasteful programs designed to get them re-elected.

Despite nearly 2-years and trillions of dollars spent, little has improved. Politicians can smile in front of the camera and talk about how wonderful the global economy is, but the people standing in the streets have an entirely different perspective. Protesting at the summits is one small way for them to express their views.

This is the thing that made me so angry: Canada spent over a billion dollars of taxpayer money to turn itself into a police state and send a very clear message– that the government is the boss and in complete control, and all the little people singing in the streets will be stamped out like bugs.

All weekend long, riot police viciously assaulted unarmed, nonthreatening protestors in the streets of Toronto, as well as designated ‘free speech zones.’ Sure, there were a handful of people who shattered windows and even lit a police cruiser ablaze, but the vast majority of protests were entirely peaceful.

After the weekend, politicians (including the Mayor of Toronto) stepped up to defend the police actions and sell the public on the idea that assaulting peaceful protesters is a reasonable way to maintain order.

I find myself disgusted by the idea that serially, criminally incompetent politicians can pillage their countries, then hide behind armies and police forces, protecting themselves against the public that they’re supposed to be representing.

The big question I have is, why does the government even bother holding these events in a city like Toronto?  They could have gathered anywhere in the world, such as a remote province in northern Canada.  Yet they chose a major population center instead.

I think they made this decision on purpose, hoping that protesters would show up en masse so that they could send the message loud and clear: If you question the government’s authority, you will be crushed.

It reminds me of that quote from the very prescient book, 1984, “[i]f you want a picture of the future, imagine a boot stamping on a human face—forever.”  I think it serves as yet another reason to get busy planting flags and diversifying away from all of this ugliness.

Tell me what you think about it– I’d like to know.

June 25, 2010
Barcelona, Spain

It’s early in the morning here in Barcelona– the part of day they refer to as ‘madrugada’ in Spanish… near dawn.  I’m just wrapping a few things up here before heading out on a long drive.

My weekend plans entail meeting up with a rather eclectic group of bankers, investors, and diplomats in a remote location high up in the mountains. We’re gathering at an old monastery that’s been converted into a luxury boutique hotel… one of those places that you’ll only find in Europe.

Before I get going, I want to take a minute to thank you for taking the time to fill out yesterday’s survey.  People from over 60 countries provided their valuable feedback, ranging from the Tanzania to Croatia to Afghanistan to Bolivia. It’s amazing how diverse our group is.

I’m still going through all the responses, but so far I’m really encouraged by what I’m reading, and I hope to be able to make our publications more beneficial for everyone.

Regarding this week’s questions, I want to spend a few minutes making some clarifications. On Wednesday, I wrote what was probably among the most important letters that I’ve published about the British government’s overnight tax code changes.

This is really important because it provides a clear example for the rest of us to start taking action now… politicians have the power to make changes, literally overnight, so that we all wake up in the morning to a completely different reality.

Planting multiple flags is a great way to take action.  Every country has some merit, something good that it offers. One country may have a great banking system but terrible courts (Panama). Another may be great for citizenship but bad for tax residency (Italy).

The idea is to pick and choose the best parts about each jurisdiction and apply those benefits to your life.

Protecting yourself from tax code changes, such as what happened in the UK, could mean a variety of different strategies. For many nationalities, it may mean holding assets in a foreign structure, and never repatriating those profits.

For other, less fortunate taxpayers (specifically from the US), offshore tax shelters cannot be employed without serious penalty. In this case, one of the best solutions that I outlined in Wednesday’s letter is the self-directed, tax-deferred structure known as an Open Opportunity IRA.

Through this structure, you have the flexibility to invest in alternative assets (physical gold, foreign property, etc.), plant multiple flags, and be in complete control of your own money.

This is a completely legitimate strategy, just as much as a 401(k) or traditional IRA– you can read about it yourself in the tax code. There are some basic rules, however, and you need to follow them in order to maintain the integrity of the structure.

Regardless of which strategy you pursue, the time to take action is now… as I outlined in Wednesday’s article, these massive changes can occur overnight. I encourage you to re-read Wednesday’s article to learn more.

Moving on, Keith asks “Simon- My grandmother was born in Switzerland in the late 1890s and lived there until she was 95 years old. I know some countries allow you to acquire a second passport from grandparents, is Switzerland one of those countries?”

No. If she were Italian, Lithuanian, Polish, or a few others, you would be in luck. Unfortunately, Switzerland’s nationality law does not pass on generational blood lines for individuals who do not have significant ties to Switzerland.

To make matters worse, being naturalized in Switzerland as a permanent resident is also an extremely long and difficult process. I know people who have been living there for nearly 20-years and have not become citizens yet.

The bottom line on Switzerland– there are a lot of great aspects about the country, but you shouldn’t consider planting a citizenship flag there.  Look at better options like Belgium in Western Europe, Brazil or Paraguay in South America, or Singapore in Asia.

Lastly, Dirk asks, “Simon– I have been following your letter with growing fascination over the past weeks; can you recommend a certain threshold over which you should start looking to plant multiple flags– is there a minimum net worth?”

There is no net worth requirement for planting multiple flags. You can be flat broke and still plant an electronic flag with a foreign email provider to safeguard your privacy. Furthermore, many people may find that planting business flags overseas could be a path to creating wealth.

The truth is that it might be easier to make your fortune outside of your home country, in a place where economies are moving forward rapidly and your skills can be of great value. After all, everyone has something that he or she excels at, and there are several places in the world where those skills are in demand.

As for planting certain financial flags, it really depends on the situation. A young entrepreneur, for example, may benefit from creating a foundation of offshore bank accounts and structures, even though s/he does not have much money or income at present.

Others who might not have significant assets but steady income from a job may also benefit from establishing a foreign bank account to safeguard their growing savings.

The important thing is to have a firm idea about specifically what you need, and why. Don’t haphazardly plant flags that make no sense in your life, i.e. there’s no need to establish a foreign company if you don’t expect to operate a business or understand the tax implications. Don’t open a foreign brokerage account if you have no investment capital or prospects of building investment capital.

When planting flags, think about your own situation and what makes sense. Once you do I’m sure you’ll see planting flags as I do… not just a way to hedge your bets or protect your assets but as a way to really live your life through deep, rewarding experiences and unimaginable opportunities.

June 24, 2010
Barcelona, Spain

At the spur of the moment, I decided to fly to Barcelona yesterday to attend the ‘Fiesta de San Juan’.  It’s common in many parts of Europe and Latin America to celebrate the official, astrological first day of summer, which also happens to be the longest day (and shortest night) of the year.

In Barcelona, it’s an all night party that includes beach bonfires and a hell of a lot of pyrotechnics.  Thing is, summer solstice was actually on June 21st! The celebration was a couple of days late, just like everything else in Spain I suppose… mañana, mañana.

As is common in my travels, I met a few interesting people during the evening’s festivities. One gentleman was key executive and technical architect at a small biotech firm.

He was attending a conference in Barcelona, and we spoke for over an hour about his company and its major pipeline drug that has recently received FDA approval. Much to my amazement, they’ve managed to synthesize a vaccine that has proven to be incredibly effective in treating certain types of cancer.

In the course of our discussion, he told me about several other companies in the same industry which were deeply undervalued by the market.

“The interesting thing about this industry,” he said, “is that all the science is already public information, published in the medical journals. Our stock prices don’t move, though, for months until the IR department issues a press release. Smart investors have an interim window to scoop up the next breakthrough drug company for pennies.”

He cited a few examples, including one company that had over 9-months between its medical journal publication and press release. The stock barely budged during that time period, but within weeks of the press release it was a 10-bagger.

Not only was I amazed at his company’s biotech breakthroughs, I was even more amazed at the financial implications of his earth-shattering investment revelation.

This is one of the things that I appreciate so much about being an expat and permanent traveler– the exposure to so many compelling opportunities, industry secrets, uncommon wisdom, and interesting people.

These sorts of encounters happen all the time when you step outside out of the daily grind, expose yourself to new surroundings, and maintain an open attitude.

To give you another example, when I was in Brazil last week I met a local businessman who was literally making his living selling shovels to gold miners. His company specializes in importing mining equipment from China and selling it off to Brazilian firms that are mining for gold in the rural provinces.

Based on the volume and type of equipment that the miners are ordering from him, he can tell how close the companies are to striking it rich, or whether they’re just turning big rocks into little rocks. He uses this information, which he kindly shared with me, to reduce his risk in the Brazilian stock market when he speculates on these companies.

His track record is impressive, and his investment gains are far outpacing what he earns from operating the business.  It’s an intriguing model– one that I would not have been exposed to if I had been closed to the opportunity or stuck in a routine.

I’m telling you all of this because I hope to encourage you to shake up your routine a bit in order to increase your exposure to more opportunities, and also cultivate the right mindset for planting multiple flags.

I think travel is a great way to go about doing this… after all, nothing shakes up routine like heading overseas, even if only for a short time.

I’ve been fortunate to meet many subscribers in my travels who are out there doing this– learning, exploring, and benefitting from their unique experiences overseas.  I hope to meet many more in the future as we continue these discussions… perhaps overseas at an upcoming Sovereign Man conference that we plan on organizing.

On that note, I’d like to mention one last thing before I sign off for today; summer solstice was not only a celebration here in Barcelona, but it also coincided with the one year anniversary of launching this letter.

I wanted to take a moment and thank you for your continued subscription. Given all the professional demands I have in my life and the various ventures that I’m involved in, writing this daily letter remains one of my great pleasures simply for the fantastic interaction it affords me with so many interesting people.

Thanks again for being a subscriber, and I look forward to our continued discussions.

June 22, 2010
Oxford, England

In our daily conversations, we talk a lot about planting multiple flags– this is the practice of diversifying sovereign risk in order to protect or asses and our assets.

After all, sovereign risk is the greatest risk we face today as investors, entrepreneurs, professionals, and free individuals. Governments have absolute authority to seize, commandeer, or otherwise control any asset of their choosing, including ourselves, and they can back it up at the point of a gun.

If you have all of your eggs in one basket– i.e. you live, work, invest, own property, run a business, bank, etc. in the country of your citizenship, then you’re risking everything. If you want to do something about it, then you only really have two options:

First, you could go dark… and I mean completely black. There is some merit in this approach, but it’s incredibly tricky to pull off in the long-term.  Going off the grid in 2010, at least in a developed country, requires intense discipline and adaptive creativity.

The second option (my favored approach) is to use the system to your advantage. Play governments against each other by diversifying different aspects of your life across different geographies– plant multiple flags.

As an example, this means structuring your business in one country, banking in another, having official residency in another, having citizenship in another, and investing in another. It might sound complicated on paper, but I assure you in practice, once you get the hang of it, it’s quite simple.

When I write this daily letter, I normally stick to the major areas of planting flags– banking, brokerages, citizenship, residency, property, etc., but when you really sit down and think about it, there are literally innumerable ways of diversifying yourself geographically.

Some people may choose certain jurisdictions for shopping, for example (a country with no VAT, or a state with no sales tax). Others may choose certain countries for dental care (due to the value for price), others for hiring outsourced labor (due to high skills and cheap wages), and others for acquiring pharmaceuticals (due to price and legal differences).

The possibilities are nearly endless, and just about every country has something it can offer.  As I find myself in the UK this week, I thought I would raise this point again by taking you through my own analysis of the country:

Would I establish tax residency here? No. I wouldn’t want to get involved in this country’s slippery slope of a tax net.

Would I store gold here? No. Scotland Yard has already established a trend of raiding private vault facilities and confiscating the contents.

Would I establish electronic assets here? No. The UK has little regard for privacy, and this is one of the most critical elements for electronic assets like an email or web server.  Digital property should be located in a country that respects privacy and won’t bow to a foreign court to lift this veil.

Would I intentionally seek medical or dental treatment here? No. Public hospitals in the UK are substandard, and the private facilities are too expensive compared to Asia and Latin America.

Would I invest here? Yes. But with my eyes wide open and protective measures in place. There are significant risks to investing here, including rising taxes and a depreciating pound. Foreign exchange losses can be mitigated with options and forward contracts.

I’ll have a deeper analysis about British investments in a future letter because it’s an important topic.

Would I spend time here? Yes, definitely. To me, the greatest value of the UK is for planting a flag that I seldom talk about– countries that you go to just because you like to have fun there.  After all, what’s the point of life if it’s all about business, investing, asset protection, and sovereign diversification?

I, for one, derive great pleasure in experiencing the finer things in life, particularly in the course of travel… and there are certain places that I simply just like to be.

For all of its faults, southern England is one of these places for me– specifically London and Oxford.  And right now, it’s on sale. Given all the deep retail discounts, and with the Queen’s pound sterling under $1.50, England is cheap for US tourists and “ridiculously cheap” for Canadians and Aussies.

Call this a ‘fun flag’ or a ‘pleasure flag’ or ‘vacation flag’ or whatever floats your boat… but think about these places where you can get away and do nothing but enjoy life for a little bit.

Lastly– would I bank here? No. There are too many quasi-state owned zombie banks in this country. There is, however, an interesting alternative that I’ve investigated a bit in my time here.

The UK’s famed Lloyds Banking Group has a subsidiary in the Channel Islands called Lloyds TSB Offshore, Ltd.  Lloyds wouldn’t be my first choice– there are better banks out there… but if you’re really looking to open a foreign bank account and are constrained by travel limitations, consider Lloyds TSB Offshore.

I say this because you can apply to open an account online and denominate funds in either US dollars, euro, or British pounds. They’ll even send you a Visa debit card that can be used worldwide to access funds… no need to show up in person.

June 21, 2010
London, UK

While I have been traveling around Latin America and Europe for the last few weeks, there has been one constant in my travels: World Cup football.

I’m not a huge fan of the sport, but as an amateur athlete I appreciate the excitement and spectacle of international competition, particularly one that draws billions of eyeballs. Watching Brazil’s victory in Rio was definitely an amazing experience, as was watching the UK’s draw in London over the weekend.

In case you haven’t seen the games, one of the things that has been so interesting about this particular World Cup is how most of the European teams which usually dominate the FIFA world rankings– Italy, Spain, Portugal, France, UK, Greece, etc.– have really been struggling on the field.

Ironically, these are also the same countries struggling with disastrous balance sheets and bloated entitlement programs.

At the same time, young upstart teams like Paraguay, South Korea, New Zealand, and Uruguay have proven themselves to be extremely effective against these legendary, once-dominant opponents of Old Europe.

I feel like this sports metaphor, which is being consistently played out on the field during the World Cup tournament, represents the changing of the guard that is taking place in global economics and geopolitics– the rise of the developing nation, and the decline of the developed.

If you’d indulge me a bit more leeway with the sports metaphor, one could argue that this tournament’s lackluster teams of old Europe are well-endowed with enormous assets– great players, goodwill, training programs.

Just like governments which rely on the same tax and spend playbook year after year, Europe’s great football teams are being rendered ineffective by sticking to the same old tired tactics of the past.

The more effective teams from developing nations, however, are experimenting with innovative approaches, such as extreme conditioning regimens, or Chile’s unique 3-3-1-3 formation, and even North Korea’s massed defense approach.

Overall, the results are clear, both on and off the field.

Here in London, where the national team has been suffering from anemic performance thus far, the population is simultaneous gripped with a severe economic crisis. With a new political party at the helm, England’s leadership is now tasked with the mission of doing *something* to stem the crisis.

Needless to say, this will unfortunately rely on the old, ineffective playbook of drastically higher taxes. The government has already announced increasing capital gains tax from 18% to 40%, and yet another VAT increase from 17.5% to 20% is also expected.

By comparison, South Korea charges a 0.3% tax on capital gains for small investors, and 11% in other instances.  In Paraguay, the rate is 10%, as is the income tax rate. (in Singapore, UAE, Labuan, and Hong Kong, there is no capital gains tax at all)

Tomorrow, the UK’s new Chancellor of Exchequer, George Osborne, will unveil the kingdom’s “emergency budget,” which should provide more details on the tax increases. The government has been vocal about its intention to curb spending, though most cuts are paltry line items like a $6 million swim program for kids.

How about taking a look at the millions upon millions of government workers who add no value to vital production in the economy? With their bright reflective vests, they’re ubiquitous in England, yet they have less authority, responsibility, and productive value than your average high school hall monitor.

It’s difficult (but possible) to fathom a greater waste of taxpayer money.

I would suggest that for countries like the UK, both their politicians and football coaches should take a few pages from the playbooks smaller, developing countries.

For us, I think this rather interesting sports metaphor highlights the importance of selecting the right jurisdictions to plant multiple flags– focus on cities and countries that have a bright future of strong economic growth, a stable balance sheet, and politicians who don’t belong in prison.

If you do happen to be drawn to a country with less than stellar fundamentals, be very careful about which flags you intend to plant, and ensure that you have properly protected yourself with the right structures if you do decide to invest time and money there.

I’ll talk more about these steps later this week when I examine the UK in more detail.

June 18, 2010
Madrid, Spain

Long haul flights from South America generally tend to leave in the evening, usually between 7pm and 1am. The airlines do this so that you arrive first thing in the morning and can catch any connecting flight you may need… which is nice for travelers.

The flight schedule does make things a bit inconvenient prior to departure, though.  Even with a late hotel check-out, you’ll have about 5 hours to kill before heading to the airport.

This happened to me yesterday in Rio, so I took the opportunity to work on my tan a little bit on Ipanema beach. Even though it was just a normal winter weekday afternoon yesterday, you would think they were having a supermodel convention at the beach given the abundance of bronzed beauties.

It’s no wonder why Brazilians are so carefree about life… how can you feel despondent when you’re immersed in warm weather, sunshine, mountains, the ocean, and gorgeous, friendly people?

After the 11-hour Iberia flight (average business class, in my opinion), I now find myself in Madrid, where I’ll spend the day before heading to London to meet up with some friends and Atlas 400 colleagues.

I’ll have more to follow on my plans next week; you may be interested in what I have in store regarding passports later this month. For now, let’s move on to this week’s questions.

Starting off, I got a chuckle from a comment by Garth this week when he said “the rose colored classes are on,” in response to an article about Rio. I thought I should take a moment and explain something about myself.

Here’s my confession: I am an unabashed optimist. I tend to see the good in everything– people, situations, and countries.  Even in the midst of chaos, my natural instinct is to see opportunities. There’s too much negativity in the world, and I’m weary of cynics who dwell on it.

You can always count on me to be candid about my thoughts, but don’t expect me to obsess over the negative aspects about a country. I will acknowledge them, and then move on… if a country’s issues are so serious that I don’t think you should consider planting a flag there, then I won’t even bother writing about it.

I recognize that people potentially base major life decisions on the information provided in this letter; this is a responsibility that I take very seriously, and I have a few simple rules that I follow which guide me as I write.

First, I won’t ever suggest a country that I wouldn’t recommend to my own mother. Second, I only discuss multiple flag tactics (banks, passport programs, corporations, etc.) that I have first-hand experience with and can vouch for.

Third, I won’t negatively bias someone’s opinion about a country simply because I don’t personally like it… I realize that not everyone shares my taste. As such, I tend to focus on the good points. If there’s not enough good points to consider, then it won’t be on my list. Simple.

Moving on, JT writes, “Simon, what are your thoughts on renouncing US citizenship?”

Renunciation is a decision that more and more people are making each year. The movement is still embryonic, but I expect the coming years that there will be great waves of Americans taking this step.

For most people, the chief reasons are generally financial– they no longer feel comfortable making Uncle Sam a 40% partner in everything they do around the world.

One thing’s for sure– no one should make this decision for emotional reasons because they hated Bush or hate Obama. These guys are as ephemeral as last night’s meat loaf. The decision should be made pratically with a well-reasoned financial analysis.

It is absolutely possible to mitigate or defer tax liability by properly planting multiple flags (i.e. business structured in one location, consumers in another, banking in another), but the ultimate tax break will come only when you renounce.

If you take this step, you have to pay a one-time tax to Uncle Sam as if you had liquidated all of your assets and taken the capital gains. Sammy gives you a $600,000 tax-free allowance and taxes you on the rest.  I’ll have more on this in a future letter; it’s definitely a topic worth discussing.

Next, Deiter asks, “If one were to disclose the existence of a foreign bank account, wouldn’t that make it accessible to frivolous lawsuits?”

Great question. One of main benefits of planting multiple flags is diversifying your sovereign risk so that your assets are no longer exposed to government agencies, tax authorities, and the court system.

Just because you disclose your assets, either due to government regulation or in a court-ordered discovery process, doesn’t mean that your assets are exposed. Let’s say you own property, for example, and you lose a court case… the judge decides that your property should be awarded to the Plaintiff.

Well, if that property is located within the court’s jurisdiction, then the judge can simply have the title conveyed to the other party. If the property is located overseas, far away from the court’s jurisdiction, then they have no power or authority to forcibly convey the title.

The same thing goes for bank accounts, gold stored overseas, etc. When you move assets overseas, you are effectively removing those assets from the jurisdictional authority of your home country.  Disclosing those assets as required by law does not eliminate that benefit.

Lastly, Dave asks, “Simon I’m curious. As a PT, what do you do for postal mail?”

Does anyone still use postal mail? My banking/credit card statements are all email, and if I need a parcel sent to me, I usually just give the hotel address where I expect to be staying by the time it arrives.

If you get a lot of postal mail, you could try the Swiss Post Box service. They’ll receive your mail, scan the envelope, then forward/shred/scan the contents upon your instructions.

That’s all for this week, have a great weekend.

June 17, 2010
Rio de Janeiro, Brazil

I’m dashing off to the airport this afternoon to catch my flight to Europe… but I wanted to leave you with a few final notes about Brazil.

First, to properly set your expectations, Brazil is not poor– it’s not some third world country where everyone is grateful that foreigners have arrived to sprinkle their pocket change. A typical university graduate in Brazil, for instance, can expect to make $1,500 to $2,000 per month starting off, net of taxes.

Second, along the same lines, Brazil is not as cheap as one might expect. In fact, in many respects (retail sales, restaurants) it can be damn expensive.  I expect that there may be a downward correction in the currency (real) to offset this, but it will be short-lived as Brazil’s vast resources will always be in demand.

Third, to give you an idea of exactly how much incredible resource wealth Brazil controls, take a look this interview with Eike Batista. Batista is a Rio native whose vast oil holdings will undoubtedly make him the world’s richest man by the end of the decade by an enormous margin.

In the interview, Batista is thoughtful and well-spoken about the massive transition that Brazil has undergone since its days as a fledgling banana republic.

It’s worth watching because I think it gives a strong sense of the country’s mentality: Brazil is culturally self-contained. There is no obsession with the US economy, American movies, French fashion, German bonds, Saudi oil, or US/European politics.

With a nation of over 200 million, they have their own culture, music, movies, brands, wealth, and resources; as such, there is no deference given to the old economies of western dominance… and this level of confidence is highly unusual, even in China.

Check out the interview so that you understand what I mean… and with that, I have to run. We’ll talk again tomorrow when I’m on the other side of the Atlantic.

June 16, 2010
Rio de Janeiro, Brazil

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June 15, 2010
Rio de Janeiro, Brazil

Here’s the best way that I can describe Rio de Janeiro– it’s what you get when you mix the gorgeous vistas of Vancouver with the beach culture of Miami, the chaos and squalor of Mexico City, and the carefree attitude of the Caribbean.

Rio is one of those places that everyone has an opinion about… and the opinion is completely binary. Book a trip to Rio and tell your friends– I guarantee you’ll get one of two responses:

“Wow. I’m jealous, I’ve always wanted to go…” or
“Are you crazy?!? You could get killed there.”

The city has that reputation– free loving, sun drenched beautiful people with a passion for life and partying, as well as the low life criminal thuggery that plagues the city streets.

Like most rumors, both of these contain elements of truth.

Yes, Brazilians are gorgeous and fun loving, but there’s more to their lives than sexual hedonism. And yes, there is crime in Rio, but you’re not going to get stabbed on the street for the 15 cents in your pocket.

The truth about Rio is that it’s a major work in progress… and it probably always will be. They’re trying hard to eradicate poverty, mostly by redistributing income from the wealthiest Brazilians and increasing police presence in the legendary poor ‘favelas.’

This is why it makes sense to either bank in Brazil, but not live there… or to live in Brazil, but not bank there. You don’t want to get caught up in the country’s tax net.

As an aside, Brazil is one of the easiest places in the world to meet people.  Brazilians are extraordinarily friendly and welcoming people. This is different than, say, the folks in New Zealand… who are quite nice, but not especially inclusive.

Brazilians will literally take you by the hand and bring you into their group… and unless you have a major personality disorder, you’ll have at least 30 new best friends within your first 24-hours on the ground, even though neither of you will understand each other’s language.

One of the people I’ve met on the ground here is a special forces police officer named Fabio. We were talking about crime in Rio, and what an awful reputation it has internationally.

Rather than tell me about it, Fabio and I spent an entire evening driving around in the worst favelas to get a boots on the ground taste.  (* he was off duty and we were in my rental car, so it’s not like I had an official police escort which biased the observations)

From what I saw, the poorest, ‘most dangerous’ favelas seemed quite similar to the worst neighborhoods I’ve seen in Detroit, South Dallas, Los Angeles, London, and Hong Kong… but without the luxury of electricity or four walls and a roof.

The people who live in these areas are unquestionably poor… in sharp contrast to the high life condos on Copacabana and Ipanema beaches. But being poor does not make them murdering rapists, which seems to be the reputation that these favelas have in the press.

As I mentioned, the government’s solution to address the poverty has been to tax the income of other Brazilians and dump those funds into grants and public works projects around the favelas.

This simply doesn’t work. It’s like the trailer park tenant who wins the lottery– give that guy a million dollars and he’ll be right back in the trailer park within 3 years.

Lifting people out of poverty requires much more consideration than simply throwing money at the problem. Poverty is often something that people are born into… but they stay that way because they lack opportunities to develop the vision and skills required to deal with the outside world.

Ironically, the private sector has started addressing the issue in its own way. Fabio took me to a couple of nightclubs that are located in the worst favelas. As it turns out, they’re quite popular with the locals… rent is low so the drinks are cheap.

All the workers I saw, from the parking attendants to the bartenders to the bouncers, were all from the favelas… earning a decent wage and developing real world skills.

It seems, in my opinion, to be a much better solution than forking over a bunch of money to the tax collector.

Now… if you’ll excuse me, I have to get going… I was a complete bonehead and managed to lose one of my passports, so I have to dash off to the consulate to get it replaced. And Brazil plays its World Cup opener today, which basically means the entire country is on holiday this afternoon.

More to follow tomorrow on passports.

June 14, 2010
Rio de Janeiro, Brazil

It’s nice to be back in Brazil again… if you haven’t been to this country, I highly recommend that you check it out.

Brazil is one of the largest countries on earth in terms of both land mass and population (over 200 million); consequently, there is tremendous diversity. The capital city of Brasilia is completely different than the tourism hub of Rio de Janeiro, which is completely different than the commercial center of Sao Paulo.

As a nation, though, it has an incredibly bright future, mostly due to its substantial economic prospects. This is what I want to talk to you about today because it’s one of the reasons that I think Brazil should be on your radar for planting multiple flags.

Remember, when you’re considering foreign jurisdictions, it always makes sense to plant flags in countries that have strong economies– they will be the least likely to change their policies and deteriorate.

Below I outline the reasons why I expect Brazil to maintain its economic power in the future, which is why it is should be on your radar for multiple flags, especially residency, citizenship, banking, property, or investment:

1) Industrial capacity. Long-term economic power is derived from the ability to turn savings and resources into productive goods and services.  A nation’s industrial capacity is its means to accomplish this task, and includes things like the quality of its work force, magnitude of entrepreneurship, availability of factories and heavy equipment, etc.

Brazil has all of these elements in spades; it can manufacture the full range of products, from raw materials to finished goods, in a variety of sectors including agriculture, biotechnology, automotive, and even airplanes.

2) Technological  capabilities.  In the long-run, real economic growth requires two key ingredients– a substantial pool of savings which can be invested in production, and technology which boosts productivity.

In many ways, technology is the more important of the two because the right technology can obviate the need for capital.

In Brazil’s case, the country has been able to effectively develop and deploy alternative fuel technology that has eliminated its import need for retail gasoline. It’s amazing that the Brazilians have been able to do this, but other countries haven’t.

3) Resource independence. Being reliant on foreign countries for vital resources is a death blow to an economy. Real power is rooted in independence, creating a position of strength at the bargaining table.

In this respect, Brazil is one of the most fortunate countries on earth. It requires absolutely nothing from the outside world to sustain itself and is blessed with massive reserves of just about every resource a country could ever want, including the three most important: energy, food, and fresh water.

Given the vast amounts of oil that continue to be discovered off the coast of Brazil, the country will likely end up as #3 or #4 in the world in terms of proven oil reserves. Additionally, Brazil is home to more fresh water than just about every nation on earth, and its agricultural capacity could easily feed the entire hemisphere.

As such, Brazil is in a fortunate position in global trade– other nations are in desperate need of Brazil’s resources, and that directly translates into wealth and economic power.

4) Consumer market strength.  The stronger a nation’s consumer market, the more powerful its economy becomes to the rest of the world.  The US is in that position now– companies around the world want to sell their products to US consumers, and they’re willing to make necessary concessions to achieve that end.

If you’ve ever run a business, you know that your biggest customer frequently has more clout than your biggest shareholder. The customer is always right, and the same rule applies in macroeconomics.

By nature, Brazilians tend to be spenders, not savers. If you think that the average American is a shopaholic, hop a plane for the nearest Brazilian shopping mall and marvel at all the useless trinkets and knick-knacks that they waste their money on.

As the US consumer market runs out of steam, I’m convinced that the Brazilian market (numbering well over 200 million) will pick up the slack. They have the right consumer psychology, and they’re getting richer by the day from their immense resource wealth.

5) Balanced macroeconomic fundamentals.  Economic power starts with a healthy balance sheet. Debt to GDP ratios and government spending must inspire confidence in global financial markets, not horror.

Brazil’s economy is fairly sound. It has experienced crisis in the past, and the trend is towards more stability, more discipline.  The government and society seem determined to not repeat the fiscal mistakes of the past.

6) Political and military reputation. It’s no good having economic power if you can’t back it up with military power; how are other countries going to take you seriously if they know that they can just waltz in and steal your resources at gunpoint?

Brazil doesn’t exactly have the most active military forces on the planet– you don’t hear about the Brazilians deploying soldiers to 30 different countries at a time. Yet, its military remains strong enough that no one would be stupid enough to start a fight unnecessarily.

This stability generates investor comfort and helps promote growth in domestic financial markets.

Overall, each of these factors bodes very well for the Brazilian economy, which means that as a multiple flag jurisdiction, it will likely improve rather than deteriorate.

I would also suggest parking some of your long-term savings in the Brazilian currency (the real), which you can do through an Everbank foreign currency account, or the Wisdomtree Trust ETF (NYSE: BZF).

Over the next few days I’ll talk a bit more about Brazil, as well as what I think is the best part about the country– its passport.

More to follow.

June 11, 2010
Santiago, Chile

As I mentioned in yesterday’s subscribers-only letter, I’ve been to Chile numerous times, and I like it more each time I’m here. For this trip, which is unfortunately short, I wanted to survey the countryside to see the extent of the earthquake damage.

It’s easy to have already forgotten February’s 8.8 earthquake in Chile, roughly 500x stronger than Haiti’s.  That’s because there was scant media coverage, limited outpouring of international support, and no celebrity telethon.

While most of the world was fixated on Haiti, Chile got down to the business of picking itself up, dusting itself off, and putting itself back together… mostly by itself.

As I discussed yesterday, I think the manner in which Chileans got back to work and started functioning normally again is a real testament to how advanced and civilized this place is.  I’m absolutely convinced that the country has a very bright future.

I’ll be in Brazil later this weekend, taking in the World Cup games with some local friends and sorting out some immigration issues that I hope to be able to tell you about soon.

For now, let’s move on to this week’s questions.

First, Pat asks, “Simon, I am very interested in using a law firm outside US to start the process of internationalizing myself. I’ve run across several firms online that provide such services, but I’m curious to know whether they are legitimate.”

I’ve worked with a lot of these firms over the years, mostly because I wanted to test their integrity and competency. Some are certainly legitimate, while others are crooks. But here’s the honest truth about the whole thing-

Generally, when dealing with offshore service providers, whether they be lawyers, real estate agents, etc., the firms which come up in the top listings in Google are competent at search engine optimization, but little else.

They specialize in factory-style solutions, churning out cookie-cutter products and services that only scratch the surface of your situation.

The best offshore service providers out there keep a low profile and don’t really advertise, especially in mainstream venues. To get in the door, you have to know someone, and do a lot of homework on the ground. I’ve personally burned through dozens of offshore lawyers alone, just to be able to find the gems.

The last thing you should understand is that most of the law firms you’ll work with can’t provide the comprehensive services that you’re looking for. An attorney may be able to build a trust, but doesn’t know anything about foreign property.

Similarly, a foreign real estate agent may be able to find you a great property, but doesn’t know anything about second citizenship… and a passport facilitator doesn’t know anything about where to store your gold overseas.  And none of them understands the tax implications in your home country.

I’m currently working on a solution to this problem by pulling together several of my global contacts to provide comprehensive advisory services. This would be a single group that can give actionable advice across all areas of internationalization– property, banking, citizenship, etc. More to follow.

Next, Richard asks, “What do you think of Nevis versus Panama for incorporation?”

The most popular corporate entities of both jurisdictions offer similar benefits– neither jurisdiction taxes domestic corporations on foreign income, neither requires annual reporting, and both offer bearer share entities.

There are, however, substantial differences that you should be aware of– Nevis is a British common law jurisdiction. For most foreigners, this is much more comforting than Panama’s civil law system should you ever get dragged into court.

Also, US taxpayers should know that Panama is on the IRS ‘per se’ corporation list; Nevis is not. This means that a Panamanian SA will always be considered a corporation for US tax purposes.

Consequently, if you operate a Panamanian company that has US tax liability, the IRS will tax both the corporation and shareholders on profits. A Nevis company can elect to be taxed as a partnership, eliminating the double taxation.

If the company has no US tax liability, however, then this difference is of little significance.

Next, Barry writes, “Simon- regarding the social housing program you discussed in Panama, I’m concerned that the government will create artificial demand for housing and spur a bubble, similar to what happened in the US. Thoughts?”

You make an excellent point about governments’ ability to create bubbles. But the hard numbers in Panama make a very compelling case for supply and demand– quite simply, there are roughly 50,000 housing units needed for lower/middle class Panamanians.

Most banks and local developers are happy to ignore this market and focus on overpriced gringo projects. As such, the government is providing incentives to help close the gap.

Several years from now, there may be a bubble in this segment… but for now, I think Panama social housing is one of the strongest real estate opportunities in the western hemisphere.

To learn more, the best person to speak to about it is Ulrich Schwark, a German real estate professional in Panama who develops these properties. You can contact him here.

Lastly, I need to update you about the proposed tax changes in Uruguay. A few weeks ago, the Uruguayan government began discussing new legislation that would tax residents on their foreign assets and income– clearly a negative for anyone thinking about establishing Uruguayan residency.

The government has since clarified that it only intends to tax citizens, not residents. This still seems like a negative, in my opinion, since many expats want to move to Uruguay in order to obtain a second passport.

For now, the changes are just propositions and have not been ratified… so we can bring up the topic again once the new tax code is finalized.

June 9, 2010
Panama City, Panama

Panamanians are generally a carefree lot… but there are a few things that they curiously take very, very seriously. Mother’s Day is one example– it’s held in December, and the entire country shuts down for the day, including banks and government offices.

Voting is another example– it’s actually compulsory in Panama to go to the polls, and the government ensures that you don’t have any excuses by wrapping the event into yet another holiday.

The 10-year census is another… the government requires locals to stay home and wait for the census teams to show up. These teams go house to house interviewing residents in a single day, and afterward provide a small receipt indicating that the individual has already completed the census.

If a local is caught in the streets without this card on Census day, s/he can be taken to jail. While this requirement doesn’t apply to foreigners, the seriousness of this whole charade seems rather silly.

A few weeks ago, the government executed its latest census, and the results were quite interesting.

The preliminary data show that, since 2000, Panama’s population has grown by 17%, while the number of dwellings in the country has increased by 33%. In gross figures, there are now 3.3 million Panamanians living in 1.05 million homes.

Over the last 10-years, there has clearly been a dizzying housing boom in this country and an explosion of new housing units, particularly in Panama City. These numbers illustrate a few interesting points about the market.

First, as the population of full time residents has grown half as much the number of homes, it stands to reason that a substantial portion of the dwellings has been sold to nonresident foreigners.

You can see this on the ground quite easily by surveying the cityscape in the evening. Most of the freshly minted condo tower units, in fact, are sitting empty. The lights are off, and nobody’s home.

Given the straits that many people are finding themselves in these days, the oversupply of condos could be a great opportunity for the right entrepreneur. Each one of these units needs services, such as caretaking, bill pay, and short-term rental management. Most owners would jump at the chance to generate some revenue with rental income.

Problem is, there are few professional property management firms in Panama. I could name one, maybe two, and they are maxed out in their capacity. The other property managers in the city are one-man bands who work part time from their mobile phones.

I think someone who could provide well-marketed, comprehensive professional services would do quite well here.

The other key opportunity that I glean from the census data is the strong potential in ’social housing’ projects. The government has an active commitment to increasing home ownership in Panama among the poor, yet the figures still show significant housing shortages in the key commuter towns outside of Panama City.

One of these commuter towns is called La Chorrera, roughly 20 minutes from the city. Its population has grown from 20,000 just a few years ago to over 100,000 today, and more people are moving there every day to take advantage of the strong job market in Panama City.

The people who move there often come from the interior of the country where they lived in dirt floor shanties with 7 other family members. The government provides incentives for banks and developers to build housing communities specifically for this market of first time buyers who have never had four solid walls and a ceiling.

As you could imagine, the homes are cheap to build and the demand is incredibly strong. Government data show the current housing shortage north of 50,000 units in this market, indicating that while the gringo segment has been vastly overbuilt, the local segment has a lot of opportunity.

Fortunately, most of the local Panamanian developers have largely ignored the opportunity. They couldn’t possibly sully their brands by building homes for commoners, which is why the housing shortage has been growing each year. This leaves huge opportunity for foreigners who can provide quality, cost effective units.

A few months ago I conducted an interview with a real estate professional here in Panama who I have known for several years. He’s German, and aside from running one of the top brokerages in the country with his partner, he also develops social housing projects.

In the interview, he explains the very compelling economics behind these projects, and you can listen to that interview here.

It’s not sexy or glamorous, but I think Panamanian social housing may be one of the strongest real estate opportunities in the western hemisphere at the moment. I would also put certain locations of raw land in Ecuador and Paraguay, as well as high yield Colombian properties in this category.

June 8, 2010
Panama City, Panama

I’ve been pleasantly surprised this week by some recent changes in Panama that continue to demonstrate this country’s positive momentum.

Yes, there is still corruption, squalor, pollution, and traffic amidst the soaring condominium towers and luxury car dealerships. But the larger point to capture is that Panama is clearly on an upward trend– month by month, it becomes better, nicer, more modern.

In contrast, the dying behemoths of western civilization are on an accelerating downward trend. Sure, Spain may be a nicer place than Panama at the moment, but given Panama’s steep rate of growth and Spain’s steep rate of collapse, it won’t be too many years before the two cross.

So how is Panama able to maintain its steady growth? By adhering to some core principles:

First, it continually improves and reinvests in its staple industries. For example, Panama’s major cash cow is its revenue from the Canal. Rather than suck out all the revenue and let the Canal go to waste, however, the country is currently undergoing an ambitious expansion project to modernize the waterway and keep up with industry demand.

Furthermore, the Canal authority is making constant investments in its efficiency in order to reduce transit times through the Canal. This provides substantial value to shippers worldwide.

Contrast this with a country like Mexico, which has substantial oil wealth but has failed year after year to make adequate investments in new exploration and extraction technology. Consequently, Mexico’s oil production is on a major slide, and it won’t be too long before the country becomes a net importer.

The second component of Panama’s success is its friendliness to foreigners– the government makes it easy for foreign businesses and individuals to relocate and invest in the country.

For individuals, there are a variety of simple programs whereby a foreigner can establish residency, ranging from the Italian bilateral treaty to the $1,000/month retirement program to the $80,000 reforestation investment to the $200,000 economic solvency visa.

Many of these residency programs lead to Panamanian citizenship after a five-year period. Furthermore, since the Panamanian government does not tax income earned outside of the country, it is an excellent place to plant a ‘tax residency’ flag for permanent travelers.

It’s also possible to live in the country without having to ever declare official residency. Panamanian immigration authorities grant extendable 90-day tourist visas to nationals of North America, Europe, and Oceania among others, which means you could stay indefinitely in the country on a tourist visa.

Once the 90-days is up, you could either extend the visa or leave the country for a short trip. The government recently made this practice even easier by dropping the requirement to purchase a $5 ‘tourist card’ at the border.

Lastly, one of the big keys to Panama’s success is its friendliness to business. In Panama, a business can be created almost instantly, and one can even purchase a shelf corporation with an existing bank account. In many other countries, this registration process can take weeks.

The government even has an English-language website to simplify the registration process of new corporate entities. (note: consult with a qualified tax advisor before undergoing a step like this)

For registered companies without income from Panamanian sources, there are no local taxes due and no reporting requirements. For Panamanian sourced income, the corporate tax rate was just reduced from 30% to 27.5%, and will be further reduced to 25% in 2011.

While there are some loopholes available, labor laws can be cumbersome for employers in Panama… regardless, though, there are still a few businesses that I would be interested in owning down here, and I will be discussing one of them tomorrow.

Lastly, I should mention that foreigners are given full consideration for government contracts in Panama, including for the Canal expansion project. The government recently introduced a new Spanish-language procurement website which includes bid solicitations for upcoming projects. Some of these may be of interest to you.

June 7, 2010
Panama City, Panama

My weekend in New York City with fellow Atlas 400 members was really spectacular and first class all the way. There were about 50 of us in total, all with varied and interesting backgrounds from all over the world– a renowned heart surgeon, a music business mogul, a couple of best-selling authors, successful entrepreneurs, etc.

I want to tell you a lot more about the event because I think it underscores how important it is to develop diverse personal relationships bound by common philosophical beliefs… but today I want to spend a few moments talking about something else– Panama.

I stupidly booked myself on a rather unfortunate 6am flight from New York to Panama on Sunday morning. I’m not a morning person, so I don’t quite know what I was thinking, but it ended up being rather serendipitous.

Prior to takeoff as I was resting in my seat trying to ward off the prior evening’s wine selection, a man sat down in the seat next to me and immediately began striking up some idle banter… I’m sure you’ve been there– chatted up by an early morning type A personality who apparently receives caffeine intravenously?

In most cases I’d be polite enough to explain that I need to snooze… but for this gentleman, one quick glance out of my half-opened eyes sent the alarm bells blazing… his entire appearance screamed ‘US government agent.’ It might as well have been tattooed on his forehead.

I perked up and look around a bit more, noticing 5 or 6 more of the usual suspects– all of whom were with me in the first class cabin, mind you… that’s US federal tax [debt] dollars at work.

Given my past experiences with these types, I’ve found that a lot of them take pride in what they do, and they want you to know it. For ’security’ reasons, they can’t tell you exactly what they do, but they’ll dance around the issue until you’re convinced that they’re either Jack Bauer or James Bond, even though it’s not true.

As a rule of thumb, the guy who tells the loudest war stories is the one who was the furthest away from combat. Needless to say, my seatmate regaled me with ‘hypothetical’ stories about drug busts, asset seizures, and money laundering operations, with the standard caveat of “well I can’t give you any specifics, but…”

Here’s the big takeaway that I want you to understand: Panama has a small army of US government representatives crawling around, including military and drug enforcement in particular.

It’s also been reported that the IRS is even setting up an office in Panama, though my sources on the ground here have indicated that this has not happened… at least, not yet.

A few years ago, Germany shocked the world when it announced that one of its intelligence agencies had infiltrated Liechtenstein’s LGT bank by paying a 5 million euro bribe to a bank employee for information on 750 foreign account holders.

It seemed rather strange to me that Germany publicly acknowledged that it had covertly invaded another sovereign nation, and induced a local of that sovereign nation to violate the law.

Most people didn’t seem to take notice of the legality of Germany’s actions… instead, the global community cheered Germany’s efforts to crack down on financial privacy.

Frankly, I wouldn’t be surprised if the US government were engaged in similar activities. I don’t know of too many bank employees in Panama (or Belize, Cayman, etc.) who would turn down a few hundred thousand dollars to provide a list of foreign account holders.

Here’s the bottom line: governments are waging a dirty, no holds barred fight against financial privacy, and the penalties are severe. If you don’t disclose a foreign account as a US taxpayer, the IRS thinks that it’s entitled to 50% of the account value. In Australia it’s even more Draconian.

Consequently, you shouldn’t open a foreign financial account in the hopes of hiding money… that’ll just land you in court next to Wesley Snipes.

You should, however, open a foreign financial account in order to protect your savings from exchange controls, confiscation without due process, frivolous lawsuits, currency depreciation, and more. It is probably the single most important flag you could plant for your money.

Afterwards, don’t make a secret of it. Ensure you follow the proper disclosure protocols for your home country… in the United States, that could mean IRS 1040 schedule B and Treasury form TDF 90-22.1.

Despite the presence of so many government agents, I still think Panama is a reasonable place to bank, especially for smaller account sizes. The institutions are solid and well capitalized, and many of them still work with North American citizens.

Belize is another jurisdiction to consider for smaller account sizes, between $10,000 and $250,000. Beyond that, I would strongly suggest more developed jurisdictions like Switzerland, Hong Kong, and Singapore.

Meanwhile, if you’re really looking to go ‘off the grid’ with your money, your best bet will be nonreportable items like precious metals and real estate… but we’ll save that for another time.

June 4, 2010
New York City

Today, my friends and colleagues from the Atlas 400 group are gathering in New York City for another weekend adventure. It’s something I’ve been looking forward to since our last event in Panama.

As you’ve heard me describe before, the Atlas 400 is a private group of successful, like-minded individuals who meet at world-class locations to discuss their ideas, socialize, and forge lasting personal and business relationships.

I go out of my way to attend the events, and I’m pleased that a handful of Sovereign Man subscribers have joined the club. If you’re interested in learning more about the club, you can read more here.

Afterwards, I’m hopping on a plane for Panama where I have a short, 3-day trip planned before heading on to Chile, Brazil, and then Europe.

More on that next week; for now, let’s move on to this week’s questions.

James asks, “Simon– Can you tell me if precious metals held in an offshore depository such as Brinks or Viamat are required to be reported on TDF 90-22.1? No one else seems to be able to tell me for certain, and I have even offered to pay for the advice.”

No payment necessary. TDF 90-22.1 is the Department of Treasury form that US taxpayers must file by June 30th of every year if they have a financial interest or signature authority in a foreign financial account.

Under current law, the term ‘financial account’ refers to banks and brokerages, not physical bullion stored overseas. Thus, if you hold precious metals in an overseas vault, you do not need include that information on this form.

If you have a financial interest or signature authority over at least one bank or brokerage account, and the total value of those accounts exceeded $10,000 at any time during the calendar year, you would need to file the form by June 30th of the following year.

Additionally, if you have a foreign bank account, you will also need to check box 7a on Schedule B form 1040 when you file your taxes.

Next, Robert asks, “Simon– does Singapore tax companies on income they earn outside of Singapore, and then bring into Singapore? I am a Canadian who owns and operates a business that can be done entirely online, and I’ve been considering Singapore as a jurisdiction.”

Good choice. Singapore is a great place to structure an online business. In general, profits that are generated outside of Singapore are not taxable there as long as the funds are not repatriated to the country.

In practice, many Singapore companies earn money outside of the country, and they bank in a place like Hong Kong to ensure that none of the profits ever enter Singapore. Through this approach, the company has effectively eliminated its Singapore income tax liability.

This is a very clear example of how a business can benefit by planting multiple flags– structuring the company in one location and banking in another.

Durabo asks, “Simon, have you heard of Anglo Far East Bullion Company? They are a precious metal storage facilitator, and I’m wondering if you have any experience with them.”

Yes, I do have experience with them; I have met with the principals at their headquarters in Panama, and I generally find their service to be very expensive. There are cost effective alternatives for bullion purchase and storage, such as Best Safety Boxes in Panama, or Das Safe in Vienna.

Last, Kevin asks, “Simon, is there any chance of becoming a Colombian citizen and obtaining a second passport?”

Yes, but it’s not a country where you would really want to pursue citizenship.

First of all, it takes several years, and the process is very bureaucratic. During some of that time period, you cannot leave the country for more than 6-months at a time.

Eventually, if you are finally able to obtain citizenship, you may be signing yourself or your children up for military service in the country.

The biggest reason, though, is that Colombians have some of the worst visa restrictions on the planet; it is a poor travel document, and there are much better/easier options out there.

Instead, I’d suggest considering Ecuador, Brazil, Paraguay, and Singapore. These countries are much stronger travel documents, and you’ll have a much easier time acquiring them.

Subsequently, you could still spend a great deal of time in Colombia, either as a tourist, or applying for residency. This is another multiple flags example– citizenship in one country, residency in another.

That’s all for this week, have a great weekend.

June 3, 2010
Washington, DC

As a permanent traveler with no fixed home, I’m fortunate to be largely insulated from the incompetence and negative consequences of most governments. Through the proper use of internationalization techniques, I’m able to reduce my tax burdens, increase my privacy, protect my assets, take advantage of more opportunities, and substantially reduce my exposure to thieving bureaucrats.

Consequently, I generally try to avoid complaining too much about governments in this letter (though I don’t always succeed). I’d say it’s a given that just about every government is perversely inefficient… we all know it, so there’s need to waste time speaking out about it. Internationalization is a much more powerful statement.

Today, though, I thought I’d take a different approach and highlight a government that is doing a lot of things right.

Switzerland is one example, and it should come as no surprise. At a time when other governments are keen to pillage and plunder their citizens and private industries through increased taxes, Switzerland is actually cutting taxes in order to attract businesses.

They’re able to do this because of the way the system in Switzerland is designed– flat, simple, and as efficient as possible. Real political power and decision making in Switzerland occurs at the local level because each of the 26 cantons (like provinces or states) is effectively sovereign and autonomous.

To put it more clearly, an individual canton like Schaffhausen (population 76,000) has the constitutional authority to negotiate its own trade relations, set tax rates, and anything else that is not specifically reserved for the Swiss federal government.

Sound familiar?

With this authority, Swiss cantons are competing with each other, cutting their tax rates in order to attract companies and wealthy individuals. The end result is more jobs in Switzerland, more capital deployed within the country, and greater economic prosperity for everyone.

Meanwhile, western European governments are busy cannibalizing their domestic industries with high tax rates (like the Portuguese ‘crisis tax’) and unpopular austerity packages. Even Australia has quite disappointingly passed a special tax on resource companies, singling out its most profitable industry for income redistribution.

It appears that they could all take a page from Switzerland’s book.

You might think I’m crazy for lauding the Swiss government at a time when their banking privacy is in critical condition. It’s true, the federal parliament is backing a deal to disclose the names and transaction details of 4,450 UBS clients to US tax authorities.

They originally agreed to the deal in August 2009, though a Swiss court blocked the entire process in January 2010 on the grounds that it would violate Swiss law. Now it appears that the deal is once again going forward… except for one hitch.

Built into the Swiss system is a direct democracy platform that provides a mechanism for both cantons and private citizens to reverse parliamentary decisions.

If a group of citizens can gather 50,000 signatures against a law, a national vote must be scheduled whereby a simple majority determines if the law in dispute will stand or be overturned.

Thus, while the Swiss parliament will likely vote to approve the transfer of banking information to US authorities, it is even more likely that the vote will be called to referendum. The Swiss Bankers Association alone has over 1/3 of the necessary signatures to call for a referendum.

As Churchill once said, ‘democracy is the worst form of government, except for all the others…’ Yet as democracies go, one could argue that Switzerland is one of the best.

Power is concentrated at the lowest, least bureaucratic level possible, and responsible citizens have multiple mechanisms to countermand any idiotic decisions made by their politicians. Even for a self-avowed anarchist like me, I can live with that.

It is precisely this flatness and efficiency that makes the free market work so well in Switzerland, and why the economic downturn has mostly bypassed the country.

Going forward, I’m convinced that it will be these small governments that thrive while the old, established, mammoth governments collapse under their own weight. That puts places like Switzerland high up on the list of places to consider for residency and eventual citizenship.

More to follow on this topic.

June 2, 2010
Washington, DC

A few days ago, Colombian voters went to the polls for the first round of their quadrennial presidential elections. For many, it will be the most important decision of the new century thus far.

The current President, Alvaro Uribe, leaves office later this summer after two consecutive terms in office. He is legally barred from serving a third term. Uribe is regarded as the nation’s savior by many Colombians, and as the devil incarnate by others.

While his administration was salted with multiple accomplishments and scandals, Uribe’s lasting legacy will be the tough war that he waged on the FARC and paramilitary groups… and by many accounts, it is a war that the government has won.

I need to pause for a moment and explain a bit about the differences in the various groups in Colombia, which are often used interchangeably by mistake.

The FARC (Revolutionary Armed Forces of Colombia) is a Marxist guerrilla group numbering anywhere between 10,000 to 20,000 strong. The FARC’s aims are political, and they fund their operations primarily through ransom kidnappings.

Conversely, the paramilitary groups in Colombia consist of loose factions that are largely driven by economic prospects rather than political change. They are not Marxists, they are drug traffickers and extortionists.

While in office, Uribe stood up to both the FARC and paramilitaries, waging a tough war of attrition that turned his nation into a police state, albeit a much safer one than before.

According to Uribe’s numbers, over 16,000 ’subversives’ have been killed since he took office in 2002, while kidnappings and other violent crime have fallen precipitously. I’m not sure the body stack is an accomplishment, but Colombians generally feel much safer than 5-10 years ago. The credit has gone largely to Uribe.

His hand-picked successor is Juan Manuel Santos, a former defense minister who was an active architect of Uribe’s war on the guerrillas. Santos was credited with engineering multiple blows against the FARC, including the 2008 rescue of Ingrid Betancourt.

Santos is viewed as the Presidential candidate who would most seamlessly carry on Uribe’s policies and maintain the stability that the current government has been able to achieve. As such, Santos was the undisputed victor in the first round of the Presidential elections, and he will advance to the June 20th runoff.

Some Colombians, though, are ready for a change. They are weary of the super-security culture in their country and would rather focus on things like education, regulatory reform, and economic growth rather than continuing to wage war on fractured guerrilla organizations.

The second candidate who will join Santos in the upcoming runoff is former Bogota mayor Antanas Mockus– an eccentric mathematician and university professor who is as close to Santos’ polar opposite as it gets among political candidates.

Mockus is a self-proclaimed pacifist whose focus on education and tolerance propelled him to second place in the first round of the elections with 21.47% of the vote. He is the change candidate and represents the desire of at least a minority of Colombians who want to move on from terrorism and security.

Santos garnered 46.57% of the votes in the first round though, so it is widely expected that he will handily win the June 20th runoff election to become Colombia’s next president.

The Colombian peso, local stock market, and government bonds have all rallied on the expectation of a new pro-business, pro-security Santos administration. Santos himself has stated that he would like to raise tax revenue, not by increasing tax rates, but by encouraging investment to boost production instead.

I’ve stated before that I think Colombia is largely undervalued. Real estate prices, for instance, are incredibly cheap in many parts of the country, frequently selling for less than the cost of construction. This is due mainly to the ‘Colombia stigma’ that has long plagued the country… it keeps foreigners out and prices low.

In the not-so-distant-future, though, I expect this stigma to fade… possibly under a Santos administration. When that happens, you can be sure that Colombian assets will experience significant growth.

Overall, I think the country has one of the brightest futures in Latin America.

June 1, 2010
Undisclosed Location

I had a really great long weekend in Chicago (hence the day off yesterday) and was fortunate enough to meet up with a couple of very interesting subscribers. President Obama was even in town, and the entire city was in a heightened state of security.

Regardless of the President’s presence, though, there were 30 shootings in the city over the weekend… which is enough to make anyone scratch his head and wonder about safety.

You hear about similar crime statistics from time to time, whether in places like Chicago, Mexico, Africa, etc. People automatically assume that those places are inherently dangerous. Sometimes that’s true… but usually not.

The reality is that most crime around the world, in North America, Asia, or Latin America, generally takes place in localized areas. Even in your own home town, chances are that you know the places to avoid.

In Chicago, for instance, I was been running all over town having a great time, completely unaffected by the criminal shootings going on in other parts of the city… simply because I have situational awareness and didn’t bother venturing to the areas that I know to avoid.

It’s rarely different anywhere else. In Medellin, Colombia for example, the sprawling and wealthy el Poblado district is a beautiful, safe area that I would feel comfortable recommending to my own mother. The shanty neighborhoods built into the hillside, though, are where you want to avoid.

These are common-sense choices that any individual should make, expat or not, traveler or not. Safety, fundamentally, is an individual responsibility… too many people place their livelihood into the hands of the government, expecting safety and protection in return for their tax dollars.

Unfortunately, this simply isn’t the case.

In 1981, after a series of events which led to the brutal abuse and robbery of two Washington DC women, the US Court of Appeals ruled that “a government and its agents are under no general duty to provide public services, such as police protection, to any individual citizen.”

This sort of puts “to serve and protect” in a new light… so much for your tax dollars at work. This is why, fundamentally, we are all on our own in this world, whether we realize it or not. The government is not there to save us.

People always ask me about safe places vs. unsafe places, and I have a pretty good sense of the issue from having traveled so much. I don’t recommend countries that I find to be unsafe, and to be clear, I define this as having an elevated chance of criminal encounters outside of the ‘unsafe’ parts of town.

Buenos Aires is an excellent example. It’s a beautiful city, sort of, but the crime situation has really deteriorated to the point that you can easily be robbed and/or assaulted in broad daylight on the most popular tourist streets in town.

It happens every single day, and I know numerous people who have fallen victim.

I wouldn’t rule it out as a place to live, but people should have much more situational awareness in that city than in, say, Medellin.

In an upcoming report about expatriation that I have co-written with the folks at Casey Research, I provide crime and safety details on dozens of cities around the world where people might want to plant an overseas flag.

Below I list a few that are covered in much more detail in the upcoming report:

Tier 1 (incredibly safe): Singapore, Dubai, Havana, Beijing
Tier 2 (“normal”, reasonable crime levels): Panama, Budapest, Kuala Lumpur
Tier 3 (requires elevated awareness): Buenos Aires, Cape Town, Tangiers

May 28, 2010
Chicago, IL, USA

Chicago is a really beautiful city– one of my favorites in the United States, actually, along with Austin, TX and Sheridan, WY. But while I enjoy being back in the US as a tourist from time to time, I’m itching to get out of here.

The travel I’ve just scheduled is a bit insane. Next week, I’m traveling to New York for an Atlas 400 event. Immediately after, I head to Panama… then Chile, Brazil, Madrid, London, Norway, Lithuania, Lebanon, South Africa, Zimbabwe, Kenya, India, Pakistan… and more.

I’m looking forward to the travel and meeting up with old friends on the road. Most of all, I’m looking forward to bringing you even more boots on the ground insights, especially as we gear up for our new premium service.

More to follow on this upcoming trip soon. For now, let’s jump into this week’s questions.

First, Gene asks, “Simon, I do alright, but the majority of my money is tied up in retirement savings. I’m afraid of what’s happening in the stock market right now, and I’m thinking about buying gold instead. Do you think that gold is a good buy at this price, and can I do this with my IRA?”

Great question. I mentioned a few weeks ago that it’s really difficult to ‘value’ gold as an investment speculation. Unlike a company whose balance sheet and management can be probed, or real estate that generates income and agricultural yield, it’s impossible to determine the fair price for gold.

As a speculation, I have a tough time chasing anything that has enjoyed a huge run-up, though I do believe that gold is seeing some breakaway fundamental changes right now in the way that investors are perceiving risk.

That being said, as a means to hold and protect your savings, gold probably makes a lot more sense, regardless of the price level. I hold physical gold, and I don’t really care what the spot price is. Why? Because it holds its value in relation to ’stuff’ irrespective of the changes in paper currency.

This, after all, is the true nature of savings.

With your retirement savings, you can buy gold (and silver) through what my friend Terry Coxon calls an “Open Opportunity IRA”. This is a self-directed structure that puts you back in control of your own money and allows you to invest in just about anything, including most classes of bullion.

For US taxpayers, this Open Opportunity IRA is really a no-brainer for anyone with more than a few bucks in his retirement account… and if you haven’t already, I’d encourage you to give Terry Coxon’s book a try. It’s called Unleash your IRA, and he tells you exactly how to do it yourself.

For Canadians, the tax code now allows RRSP-ownership of certain gold coins. They must be of at least 995 purity and produced by the Royal Canadian Mint.

For Brits, the ISA retirement structure leaves few options for holding bullion.

Next, in response to my article about Uruguay no longer being a tax-free residency jurisdiction, ‘lf’ commented, “Unless Simon will come up with an idea how to get Martian passports, I doubt that a viable option really exists.”

I find this perspective troubling.

Countries change from time to time. It’s happened in the US, it’s happening now in China, it’s happened in Europe. Uruguay is no exception– they went from being a tax haven to jumping in bed with the OECD.

But to say that there are no viable options out there is simply an erroneous, defeatist attitude. Singapore is a great example– there are plenty of jobs and entrepreneurial opportunities available, the residency process is cheap and transparent, and you can become a citizen after 2 years.

I could cite several of other examples… but the larger point is that nothing is going to stay the same forever. You, your country, the environment, the society around you– all evolve and change over time.

The nice thing is that we can generally see major political changes coming years in advance. That gives us time to make preparations. Right now, you probably have a strong sense of the negative changes coming to the Western world, and that’s why we keep having these conversations.

Bob asks, “Simon, I was a bit confused about your article concerning Canadian citizenship. It seems more attractive to be a non-resident Canadian citizen. Is it possible to apply for this status directly without ever being a resident?”

No. You have to actually be physically present in Canada for 3 years out of a 4 year period. Then, and only then, can you apply for naturalization. If you take advantage of the offshore trust investor program, though, you can at least squeak by with a minimal tax burden.

Lastly, Jennifer asks, “Hi Simon. You haven’t mentioned anything about your sustainable community project in a while. Any update?”

Here’s the bottom line: I absolutely will develop a cost-effective, sustainable, offshore community where the amenities focus more on organic agriculture and livestock instead of golf courses and water parks.

Considering that I’m heavily involved in 3 operating businesses, multiple other investments, and I still write this letter each day, I simply don’t have the bandwidth to give a real estate development my 100% effort at this time… and I refuse to attempt something that I can’t give 100% to.

Given the upcoming offshore conference that we’re planning, as well as the pending launch of a premium service, I suspect it will be at least another 9-12 months before I’m ready to make that sort of commitment.

I appreciate all the emails expressing interest in the project, and I want to be clear that once I can allocate the time, it will be a top priority.

May 27, 2010
Chicago, IL, USA

Uruguay is one of the countries that generally receives a lot of praise and positive commentary in the expatriate blogosphere. It’s often referred to as the “Switzerland of South America,” or compared directly to Paris… probably by people who have been to neither Switzerland nor Paris.

The truth is that Uruguay is a very pleasant country in many respects. It’s relatively clean, quiet, safe, and not very corrupt. Punta del Este, more specifically, is a great town with a hip and sometimes chaotic nightlife for a few months out of the year.

Other parts of the country can leave a bit to be desired… the poverty, blight, and disrepair are more noticeable, and a ridiculous array of taxes and high import duties ensures that only the wealthiest residents have access non-basic goods.

More importantly, though, Uruguay’s reputation as a tax haven and offshore financial center is completely undeserved. I’ve been saying this for a while, most recently on February 26th of this year. It appears that the government is now trying to put an end to the argument altogether.

It started in 2007 when the government imposed a personal income tax. Over the last few years, the country has laid down for the OECD, reducing its attractiveness as an offshore banking center.

Now, Uruguay’s left-leaning government, led by President Jose Mujica, recently unveiled draft legislation to tax all residents on their worldwide income, as well as a wealth tax on the $8 billion worth of assets that Uruguayan residents hold outside of the country.

As the vast majority of Uruguayans have no income or assets outside of the country, the new tax code changes only affect wealthy locals and foreign residents… a small minority in this country of 3 million people.

While the Uruguayan culture is typically not one of blood-sucking socialism at all costs, the enormous demographic gap between those with assets overseas (a small minority) and those without (the majority) suggests that the bill will likely become law.

In my book, this knocks Uruguay off the list of countries where someone should live as a declared resident. It may still be a great place to spend a lot of time, though it would be much more advantageous to do this as a perpetual tourist.

Specifically, one could establish permanent residence in a place like Panama or the Bahamas, then live in Uruguay as a tourist. US, Canadian, and EU citizens are allowed to stay in the country for 90-days at a time; once the 90-days are up, you can hop a 1-hour flight to Buenos Aires, spend the weekend, and fly back to Uruguay.

It’s unclear right now whether Uruguay’s new measures create a tax liability on the worldwide income of non-resident Uruguayan citizens; if not, an Uruguayan passport may still be a reasonable document to acquire… as long as the applicant doesn’t plan on living in the country.

For example, one could travel to Uruguay, establish permanent residence, pay the taxes for 3-years, acquire Uruguayan citizenship, then leave the country for good.

Overall though, I think there are much better options– Paraguay, Brazil, Chile, and even Belgium.

More to follow.

May 26, 2010
Chicago, IL, USA

If you’re shopping around for a tier 1, first world second citizenship, you might find a solution in Canada (unless of course you’re a native Canadian).

In my view, Canada offers two key advantages. First, a Canadian passport is an incredibly valuable travel document– Canadians are generally greeted around the world without stigma or significant visa requirements.

Second, Canada has a very reasonable tax scheme for non-resident citizens who sever their resident ties to the country… usually by selling their home and moving to another country with all family and dependents. In this case, a non-resident Canadian is only subject to taxes on income sourced from within Canada.

As a Canadian citizen, you could live in a place like Panama or the Bahamas and never pay taxes ever again… but still have visa-free travel around the world, including to the European Union and the United States.

Similar to our discussion earlier this week about an Israeli passport, though, there are drawbacks to being Canadian.

First of all, taxes for resident Canadians are a real bear. You can easily pay north of 40% of your income to the government. If you harmonize the wages and cost of living, Canadian marginal tax rates rank much worse than the United States, and slightly more than rates in the UK and Australia.

Second, US citizens should be cognizant that Canada will absolutely be the first country to hop in bed with Uncle Sam. So if you end up on some three letter agency’s list in the US, you can be sure that you’ll eventually hear about it from the Canadian authorities.

Third, once residence is approved, an applicant must keep both feet planted squarely on Canadian soil for 3 out of 4 years in order to qualify for citizenship. Canadian immigration authorities will literally count the days in your passport. If you travel frequently, or hate cold winters, you’ll be out of luck.

For me, it’s these last two reasons that I have long rejected the idea of becoming Canadian, but I recognize that it might appeal to others.

So how do you go about doing it?

First you need to establish permanent residency. Assuming that you’re not a refugee (which Canada absorbs en masse), there are a few different ways. One approach is for entrepreneurs– if you’re looking to start a business, you may be able to get approved for residency in Canada.

Canadian immigration requires entrepreneurs who can demonstrate successful business experience for at least two years to have a minimum net worth of C$300,000 in order to qualify. Additionally, you must submit a plan demonstrating the viability of a new business that will hire at least one Canadian full time equivalent.

This process is transparent and well-documented, but it’s highly bureaucratic and can take more than a year. Plus, upon approval, you actually have to move to Canada, live in Canada, operate your business in Canada, and pay resident taxes in Canada.

Given the requirements, I think Singapore is a much more attractive option for entrepreneurs who are willing to move.

Self-employed individuals, including artists, performers, writers, and athletes, can also be accepted for residency if they meet basic financial qualifications.

The main problem with this approach is that applicants are scored based on pre-defined selection criteria: education, experience, age, etc. These criteria can change frequently, as well as the minimum score required to pass, so fundamentally an applicant’s approval is subject to the immigration officer’s opinion.

Furthermore, this approach generally only applies to individuals that can make a significant contribution to cultural activities, not self-employed professionals.

To me, the most attractive way to become a Canadian is as an investor. The government presently has a scheme detailed in section 94 of the Income Tax Act that provides a 5-year tax holiday to new residents.

Through this program, an approved applicant must move assets to an offshore trust prior to moving to Canada. Passive income and capital gains from assets within the trust are not subject to Canadian taxation for a 60-month window. During this period, the applicant can also qualify for citizenship.

At the high-end, an individual qualifies by investing C$400,000 with the government. This amount is returned after 5-years with 0% interest paid. As an alternative, some Canadian banks will invest the C$400,000 on your behalf as long as you pay them a substantial fee of C$120,000.

Overall, Canada may be a good option if you:

1) Have substantial assets that you can move into an offshore trust, don’t mind paying C$120,000 for residency, and don’t mind staying put in Canada for 3 straight years.

2) You’re desperate to leave your home country and want to relocate to an English-speaking, Americanized country; you are willing to live in Canada full time and don’t mind paying the high taxes and high cost of living.

Otherwise, I think there are better options out there for you, Singapore, Brazil, Uruguay, and potential ancestry options.

May 25, 2010
Chicago, IL, USA

I woke up this morning to a rather interesting newspaper headline:

“Private Wages Fall in Historic Pay Shift”

The article went on to explain how wages from the private sector, as a percentage of total US personal income, have shrunk to their lowest level in history. In other words, it’s clear evidence that government jobs and entitlement programs are slowly taking over the economy.

I’ve been visiting the United States for less than a month, criss-crossing around 7 states between conferences, a few doctors’ appointments, and seeing friends/family. Yet, my own observations underscore this point.

I’ve met numerous people who are on the jobless roll that have actually turned down employment because they’d rather get paid to do nothing. They make $300/week to surf the Internet all day in their pajamas– where is the motivation to produce?

A recent article from the Detroit News provides some pretty clear numbers on the issue: even in the nation’s hardest hit area, a laid-off landscape worker who makes $12/hour when employed receives nearly as much in after-tax benefits for doing nothing.

Some businesses in the private sector have tried to hire new workers and found that their incentives to work (wages) cannot compete with the government’s incentives to not work (unemployment benefits).

It’s interesting how the social consensus seems to have shifted; in many respects, the stigma of being unemployed is gone (just like the stigma of foreclosure), and the attitude is now “I’m going to milk the system for as long as I can.”

This is troubling. In the United States, many unemployed seem to be totally ignorant of how their benefits are actually funded: the government confiscates wages from the remaining productive workers.

It is as if many unemployed think that President Obama is charging their unemployment benefits to his AMEX card instead… or pulling the money out of his “stash” (thanks to David Galland at Casey Research for providing the audio link).

Don’t get me wrong, I recognize that many people lose their jobs through no fault of their own, and this can be an unfortunate and gut-wrenching turn of events in their lives. But I have little respect for the “milking the system” attitude with total and complete ignorance for where the money actually comes from.

It’s not like anyone on unemployment would go door-to-door demanding of their neighbors and friends to pay benefits so that they can be idle.

But with the government as an intermediary to do the confiscation, many people are more than happy to remain unemployed and woefully ignorant of the source of the funds.

Aside from providing incentives for people to not work, it’s also clear that the government provides incentives for businesses to not hire.

The new healthcare bill, while a clear victory for many people who demand socialized benefits, represents another debilitating tax on small businesses that reduces their incentives to hire.

I also saw an interesting interview recently with Cisco CEO John Chambers; his company has $30 billion of cash on its balance sheet, much of it overseas. Due to IRS tax rules on repatriation of overseas profits, however, Chambers has a strong disincentive to invest that enormous amount of cash in the United States.

As such, his smartest business decision is to invest the money and create jobs overseas rather than bring the money home and create jobs in the United States.

Bank bailouts have also been detrimental for economic growth in the US; the Federal Reserve has loaned major banks hundreds of billions of dollars, effectively at zero interest. The banks can then turn around and buy US Treasury securities, re-loaning the proceeds back to Uncle Sam, at a healthy profit.

Not only does this constitute US debt monetization, but it also provides a strong disincentive for banks to make job-creating loans in the economy.

If the banks had been left alone with their balance sheets in shambles, they would have been forced to roll up their sleeves and start making smarter loans with whatever capital they had left in order to turn a profit.

In that case, the market would dictate interest rates; if a bank only had $100,000 remaining to loan out, for example, businesses might bid the rate up to 20%… but at least private capital would be flowing in the economy at the correct price set by the market.

What we have instead is a strong incentive for banks to generate free profits, courtesy of the government, and not bother taking the risk on business loans which create jobs.

Overall, while politicians talk a good game about creating jobs, their actions only provide strong impediments to a healthy labor market.

With a sticky unemployment rate around 10% (more like 17%), the government’s ultimate solution is to simply bring the unemployed on to the government’s payroll performing unnecessary functions that detract from productivity… this includes all the thugs at TSA and registered sex offenders going door to door for the US Census Bureau.

Unfortunately, as the prevailing trend seems to be increased government control over the economy, the only direction, at least for now, is down. This is a rigged game, and I think it won’t be long now before productive citizens finally realize it… and stop participating.

For many, this may mean leaving the game altogether and heading overseas where they can exist outside of this corrupt system.

It’s true that no place is perfect, but I’m convinced that a well-prepared expatriate can find far greater personal and economic opportunity with minimal disruption and interference overseas… and that is the whole nature of our ongoing conversations.

If you have a personal story that you’d like to share, let me know.

May 24, 2010
Chicago, IL, USA

Are you Jewish? Do you want to be? If so, you’re entitled to an Israeli passport.

In Israel, the “Law of Return” provides means for all Jews, and individuals of Jewish ancestry, to acquire Israeli residency and citizenship. Israeli law defines Jewish ancestry as having at least one Jewish parent or grandparent.

In the event that you don’t fit the ancestry definition, the law also provides the ‘right of return’ to all converted Jews of all denominations, and the conversion need not take place in Israel in order for it to qualify.

In either case, the onus is on the applicant to provide adequate documentation proving either Jewish ancestry or conversion to Judaism… the Israeli authorities won’t just take your word for it, they will check.

Additionally, the Israeli government will conduct a brief background investigation to determine if the applicant is a fugitive, convicted violent criminal, or known associate of any enemy of the state.

Once accepted, the applicant is entitled to immediate citizenship. For the first year, a temporary travel document is issued in lieu of a passport. After the first year, the government issues a standard passport.

Israeli citizenship carries many advantages including visa free travel to the European Union and extended visa quotas for the United States. Moreover, Israeli citizens who obtain residency in certain EU countries have reduced requirements to eventually obtain EU citizenship.

Additionally, in 2008, the Israeli government passed several new tax incentives that apply specifically for new immigrants under the Law of Return. The new tax rules include a 10-year holiday on foreign source income and tax exemptions for foreign-based companies owned by new immigrants.

As you can imagine, though, the disadvantages of Israeli citizenship are significant. All males must serve in the Israeli Defense Force for three years after age 18, and remain as a reservist until his mid-40s. There are exemptions made, however, on grounds of religious or philosophical objection.

Furthermore, Israeli citizens find themselves a target, perhaps even more often than US citizens. The State of Israel is still not recognized in some parts of the world– if you have ever been to Saudi Arabia and looked at a map of the Middle East, the boundaries of Israel do not even exist on the map!

All in all, while I’m not advocating that anyone change his/her religion specifically to obtain a passport, I think that Israeli citizenship may be among the fastest, most cost effective citizenships to acquire if you have no other means available.

If you’re interested in getting started, the best place to get answers is your nearest Israeli consulate; they’re accustomed to fielding these questions all day long.

May 21, 2010
Quad Cities, IA, USA

It’s been a lovely few days here in America’s heartland… I’ve been able to catch up with some of my friends, but to be honest with you, I’m aching to get back on a plane and get out here.

I’ve decided to wait it out for another 2-weeks; there is an Atlas 400 gathering in New York City on June 4th, and a lot of my friends have committed to attending. One member is traveling from as far as the Philippines to attend, so I’d really like to be there.

Immediately after the Atlas event, though, I’m going to hop on a plane with my business partner and a few other members for Panama, then Brazil, then Europe.

I’ll tell you more about what I have planned for that trip later. For now, let’s move on to this week’s questions.

Leading off, Kyle writes, “Simon- I would first like to thank you for your letter; it is a very good way to start my day. Question: I am a 20 year old male who is soon joining the US military. Given my small budget, what do you recommend I do to protect my assets?”

I get this question a lot, and it’s great that you’re thinking in the right direction. However, with limited assets, you really don’t have any assets to protect. Instead, if I were in your soon to be well-polished boots, I would focus on four things:

First, the military has a way of taking young people at an impressionable age and teaching them how to excel within a bureaucracy… not to mention the military can also inculcate groupthink. I’m speaking from experience.

This may be good for unit discipline, but it’s terrible for the mind of a free man. I would strongly encourage you, during your service, to focus on keeping your mind free and creative– read as much as possible, ask questions, and understand that the military microcosm is not the real world.

Second, as you will not have much time or availability to build financial assets during your time in service, you should focus on building up your most important asset– yourself.

This means developing skills. Learn as much as possible– a foreign language or two, a technical trade, medical training, etc. These are subjects which are easy to pursue in the military. On the side, I would also be reading about sales and marketing– generating revenue is always a valuable skill.

Third, I would focus on cultivating an international mindset. Try to get stationed overseas, and immerse yourself in the culture. If you unfortunately end up deployed to the Middle East, make the most of it by interacting with the locals as much as allowed and learning the language.

Fourth, be smart with your money. The military makes it easy to save– they provide a roof over your head and food on the table, so save as much of your salary as you can so that you have a sizeable pool of capital by the time you are finished.

Next, Rick asks, “Simon, I get your Notes from the Field every day. Do you have any premium services available that I can subscribe to?”

I enjoy writing a free, daily publication… but I recognize that there is a lot more information that I can provide that goes beyond the scope of this short blog.

Not to mention, there is a lot of information that I would like to provide that I am simply unwilling to publish in this forum. My trusted contacts around the world don’t want their contact info posted online, and I don’t want the most sensitive information to be indexed and archived by Google.

Matt and I have come to the conclusion that the best way to provide the most comprehensive and sensitive information to subscribers is to launch an additional premium service. I’ll give you more details at a later date when I can dedicate more space to the topic. I need to move on for now.

Peter writes, “Hi Simon, earlier this week you said that you are closing out almost all of your speculative positions. Does that mean you are holding on to your non-speculative positions? What type of investments are those?”

For me, my nonspeculative positions are anything where I simply don’t care about the investment return. Physical gold is one such example– it doesn’t matter to me whether the price of gold rises or falls, the value of my coins remains the same to me.

Another example is private stakes in non-public companies, of which I own a few; I made these investments to generate long term profits and enterprise value, not to speculate on the immediate appreciation of share price.

Real property that I hold for its yield, or because it has personal benefit (an escape pad) is also a nonspeculative position.

When I say ’speculative position,’ I’m referring to instruments in the public markets (stocks, currency, etc.) that I purchase or sell short because I’m speculating on a rise or fall in the asset price.

These are the positions that I’ve closed– there is way too much government intervention in the marketplace right now, and whenever that happens, there are always gross misallocations of private capital that wreck havoc on asset prices.

To be clear, this includes the long gold/short euro position that we closed on Tuesday at 1,003 euro, booking a 35% gain.

May 20, 2010
Quad Cities, IA, USA

The New Zealand government just announced something that I find rather surprising… but a step in the right direction. Concerned about debt levels, both public and private, they’ve announced changes to the tax code which encourage savings and investment, and discourage consumption.

Specifically, the government is planning measures which cut and simplify income tax rates, ranging from 10.5% to 33% (down from as high as 38%). The corporate income tax rate will be cut from 30% to 28%.

Meanwhile, the changes also include an increase to the national sales tax from 12.5% to 15%. In the long run, this should be favorable for New Zealand economy because the new scheme encourages the replenishment of a large pool of savings… this is critical to long term economic growth.

Overall, I’m bullish on New Zealand and would recommend it as a place for you to consider as an expat destination.

Over the last few months, I’ve occasionally published some letters from my friend Mark who has been living there and exploring the country for his own expatriation. Mark quickly became an expert in NZ residency, immigration, and real estate, and I think his letters served our group quite well.

Mark recently returned to the United States after almost a year on the road, and he’s written a very comprehensive e-book about New Zealand that covers all aspects of living, working, and investing there.

Below is his latest letter since he returned from down under:

Since I last wrote about New Zealand lifestyle and immigration, serious macro-economic changes have begun to unfold. Simon speaks at length about these in his daily missives, so I don’t need to elaborate. What is important to us is predicting how these changes might affect New Zealand, and therefore impact a decision to relocate there, either full or part-time.

But before making the decision to uproot and take the plunge into this new lifestyle, culture (yes, it’s a bit different than where you live now) and system of law and taxation, let’s review the reasons why New Zealand is so desirable.

As a reader of Sovereign Man, our guess is that you believe the world is currently on an unsustainable path, financially and perhaps socially. We are squarely within that camp, and therefore wanted to find a place where we could ride out the storm.

In our first post herein we listed 10 reasons New Zealand was a good choice:

1. Geo-politically and physically ‘Remote’
2. Abundant and reasonably priced lifestyle type properties
3. Plenty of water. Ocean, lakes, rivers…
4. Reasonable annual sunshine hours
5. Clean environment
6. Educated, English speaking population
7. Safe, clean and readily available organic food
8. Physical safety and the rule of law
9. Fair taxation
10. Accessible, high-quality health care

These are factors we evaluated when choosing New Zealand. We said that it didn’t tick all the boxes, as taxation is as predatory here as it is elsewhere. But, now that situation seems to be improving.

As for the other criteria, NZ has those in spades. So now let’s review why it’s a good choice if the world falls apart, even temporarily.

First, you will want to live as far away from the angry masses as possible. And, make no mistake; they ARE getting angrier by the day.

New Zealand is about as geographically remote as you can get while still remaining a part of modern civilization. If Doomsday is your prediction then stay away from the cities. Thankfully you’ll have lots and lots of empty space and small towns to choose from.

Secondly, New Zealand is basically resource independent. They do import fossil fuels, but their electricity generation relies heavily on renewables like hydropower and geothermal.

In fact almost 70% of the power is generated from renewable resources. Auckland is power hungry, and grid interruptions can occur there, but the South Island, with its small population and immense hydropower resources is adequately supplied.

Third, New Zealand has ample food production to sustain its small population. Remember, without food and water nothing else matters. Think about how you would provide food for your family if the supply lines shut down in the urban centers of the U.S. and Europe..?

Fourth, the people, Kiwis are by nature, good-natured! They aren’t the most gregarious, the funniest or even the most polite at times, but they ARE kind at heart and peace-loving.

We would much rather be facing tough times surrounded by strangers in New Zealand than in almost anywhere in the U.S. Your average Kiwi is a survivor; they either live on a farm or are likely only one generation removed from that lifestyle.

Finally, we believe New Zealand is relatively safe from geo-political events. Yes, it is an ally of the Empire; however it’s more like Switzerland in this respect. Their anti-nuclear stance, in our opinion, just increases its rating as a ’safe place’.

Moreover, New Zealand is likely not a terrorist target, or a military target. And, we believe if the global situation rapidly deteriorated, we’d fare better there, than elsewhere in the world.

So, in summary, New Zealand may in fact be an ideal place to ride out a serious economic, social, or geo-political disturbance. You can learn more about how to make it your primary or secondary residence by getting a copy of our New Zealand Retirement, Immigration and Lifestyle Guidebook.

In the e-book, I discuss the reasons why you should consider residency, and even citizenship in this beautiful country. I review the legal steps, introduce you to competent professionals, provide precious metals purchase and storage options, and even show you current examples of real estate opportunities you can capitalize on right now.

Simon again. I’ve read Mark’s book and find it to be the best source of information about New Zealand out there in the marketplace right now, so if you’re possibly interested in migrating to NZ, I’d encourage you to give it a read.

May 18, 2010
Undisclosed location

You know by now that I generally don’t spend very much time in the US.

I think there are more desirable places out there… and to me, the US is just like any other country in decline like Italy or Spain– I really enjoy it as a tourist, I just don’t care enough for the politics or media to stay for long periods of time.

That’s one of the benefits of being a permanent traveler with no fixed home: I have the luxury of not being constantly force-fed propaganda that spreads fear and ignorance.

When I come back to the states, though, I feel like there’s a political agenda being thrown in my face everywhere I look. One of the most pervasive, from my outlook, is this notion that the economy is rosy, and that the government has everything under control.

I think this is absolutely ludicrous. The government doesn’t have anything under control, including themselves. Instead of putting the country on sound financial footing, they’re doing the exact opposite– spending without limit, borrowing without regard, and furthering a culture of entitlement.

Congressman Ron Paul was on CNBC yesterday talking about these same issues. He criticized the administration and Congress for their reckless spending, and he railed against the Federal Reserve for inflating away the currency and bailing out select banks.

For whatever reason, his ideas don’t seem to resonate with the public. Becky Quick even chided the Congressman for his bullishness on gold as a more effective store of value than paper dollars.

In fact, a bit of basic math shows us that, since the dollar became a worthless piece of paper in 1971 when Nixon left the gold standard, gold has generated a 9.2% annualized return in dollar terms, while stocks have only returned an annualized 6.6% and bonds about 8%.

Now, I’m not a gold bug, but I’d rather take my chances on this ‘barbarous relic’ than on a worthless piece of paper controlled by bureaucrats.

(Actually I prefer ammunition as a store of value, but I’ll save that for another time…)

Think about it– the entire modern financial system is based on a very small group of people having the power to create money out of thin air. It’s obvious that this is corrupt and unsustainable.

So is borrowing trillions of dollars each year.

They (the government) think that we can simply grow our way out of debt… that if the economy has a big boost, the size of its debt won’t matter very much in relation to the size of our economy and consequent tax revenue.

This is also completely ludicrous. If every single person in the US were to pay 100% of his/her salary for the next year to the federal government in taxes, it still wouldn’t be enough to pay off the debt– the US would still be a few trillion in the hole.

That’s just a pipe dream anyhow. The government is going to give the largest voting blocs even more tax cuts and entitlement programs, then stick the bill to (1) future generations; (2) those who are unprepared to deal with inflation; (3) productive citizens who generate wealth and create jobs.

We can see this already happening around the world.

In Portugal, their government has even gone so far as to introduce a special ‘crisis tax’ to bring down that country’s deficit… punishing the entire population for decades of politicians’ mismanagement.

In Australia, that government is singling out the resource industry and charging them with a special tax to redistribute mining profits across the rest of the economy.

Sure, that sounds like a great idea, mate. Penalize your most profitable industry that provides ample jobs and wealth, then choke off the profits that they need to reinvest in exploration and extraction technology. That ought to be good for long-term growth.

Unfortunately, this is only the beginning. You can expect even more Draconian measures in the countries with the most desperate balance sheets– that’s the PIIGS, the US, and Japan.

Here’s the good news: As an expat, all of these measures are largely meaningless. When you’re a ‘permanent tourist’, governments compete for you rather than try to bleed you dry. They want you to spend your time and money in their country, and they’ll do whatever it takes to attract you.

I think there’s going to be a massive wave of expatriation over the next few years, and it’s already begun. Everyone has a breaking point, and a lot of people are going to be reaching theirs very soon.

The solutions are already out there– offshore bank accounts, foreign property, tax residency, second citizenship, etc. It’s simply a question of will and mental attitude.

Are you seriously considering expatriating or at least planting flags internationally? What’s your single biggest question about it? If not, what’s holding you back?

May 17, 2010
Undisclosed location

You’ve probably seen some clips on the news about the political current unrest in Thailand, and some headlines like “CHAOS IN THAILAND!”

These headlines are inaccurate. Thailand, the country, is not in chaos. The political unrest is taking place in a small section of Bangkok, and this is where the chaos is… actually, it’s more like a war zone.

In the rest of the country, though, it’s business as usual.

I’ve been talking to a lot of my friends and business partners fairly regularly who live in Thailand. Most of them have noticed no changes at all– they’re still sitting on the beach in Koh Samui or drinking beer with the bar girls in Pattaya.

Even some friends who live in Bangkok are going on about their normal lives.

One close friend of mine, though, is living quite literally in the middle of the kill zone. He tells me about how he can hear gunfire and explosions from his living room window… and as a young, brand new father, he’s nervous.

Rightfully so, I’d say.

He went on to describe the ‘business as usual’ attitude in Thailand– “hey look, this is the Land of Smiles. They treat conflict with passivity… just ignore it with a smile and hope that it goes away. That may be beneficial for small conflicts, but in this case, it’s gotten out of hand.”

To be clear, political tension is normal for Thailand– coups are frequent, corruption is pervasive, and demonstrations are commonplace. You can see this in the market as investors have shrugged off the turmoil; the Thai baht and stock exchange are both largely unchanged over the last 3 months.

This latest conflict, however, seems to be something entirely different. Local Thais are now starting to take notice and say “this is unlike anything we’ve seen before,” and their anxity level is starting to rise.

The seeds of revolution were planted in September 2006 when “democratically elected” Prime Minister Thaksin Shinawatra was ousted, in absentia, by a military coup. It appears now that a civil war has been brewing ever since.

Thai protestors are demanding that the current, ‘illegitimate’ government step down and hold new elections. They don’t seem to be going anywhere until they get their way.

The government has rolled out the military to contain the protests… but as it turns out, the protesters are well armed and equally willing to shoot, and kill.

Jean-Jacques Rousseau once wrote in his treatise The Social Contract, “as long as a people is compelled to obey and does so, it does so well; as soon as it is able to throw off its yoke and does so, it does so even better…”

True believers are skilled at insurrection, and for this reason, the conflict could go either way. The protestors could be overpowered by government forces, or the government could finally be compelled (with support from the international community) to hold new elections.

Here’s what really scares me, though…

The King of Thailand is old. He’ll be 83 this year and has reigned for nearly 64 years. This longevity has created an overwhelming sense of respect and adoration for him among all Thais– the monks, the military, and the people.

In this conflict, he wields power over both sides… and while he has a history of staying out of political maneuvering in Thailand, the few times he has used his authority to step in has immediately ended the conflict.

If things truly get out of hand in Thailand in the coming weeks and months, the King could put a stop to it all by wagging his little finger.

But if something should happen to the king during this conflict, I’m concerned that the country could descend into major turmoil. At best, Thailand would have another military governorship. At worst, the present quagmire could persist for years.

In the long run, Thailand will pull through just fine, as it always does. It will remain an international hedonist’s and retiree’s paradise, full of cheap living, wild nightlife, and accommodating locals.

But Thailand could be in for a rough couple of months… especially if something does happen to the king.

In that case, I would expect that the price of rice (of which Thailand is a major supplier) would go through the roof, and both the Thai baht and stock exchange would take a major beating.

You can invest in rice futures (either going long in expectation of conflict, or shorting at the peak) with any commodities broker, or an Interactive Brokers account. You can take a position in the Thai baht and stock market through a brokerage like Boom Securities, based in Hong Kong.

May 14, 2010
Undisclosed location

I want to start off today by once again thanking you for all the well-wishing emails after my operation this week. I read through a large backlog of email last night, and I was truly humbled by all the positive energy and goodwill out there. Thank you.

With that, I’d like to jump in to this week’s questions:

Phil says, “Simon, I sincerely appreciate the info contained in your letter. I’d like to take your advice: get second citizenship, buy property overseas, store assets outside the US, etc. I’m wondering if you can recommend a ‘how to’ guide with specific instructions for these issues?”

At the moment, there really isn’t one out there that covers the specific ‘how to’ details of getting started with multiple flags. I try to cover these issues on a daily basis, but as our conversations cover so many different topics an abbreviated space, I know we could go much deeper.

Right now, I’m working with a very capable partner to draft a multiple flags instructional overview. I suspect it will be exactly what you’re looking for. We should be finished in a few weeks, so stay tuned for more information.

Maldek asks, “Simon, how do you think the Euro/dollar exchange rate will change if Germany leaves the eurozone and introduces its Deutschmark (DM) again?”

Rumors are already flying that both France and Germany have separately threatened to bail out of the eurozone. It will happen eventually– the single currency is absolutely doomed, just as I believe the integrity of the United States are doomed in the long run.

A German factory worker would no sooner pay for a Greek hairdresser’s early retirement than an overtaxed California entrepreneur would pay for a Rhode Island school teacher’s pension.

Yet these are the kinds of mandates that politicians are forcing on people. Voters may act like sheep when their civil liberties come under attack… but put your hand in their wallets and they get militant.

The real irony is that breaking apart the eurozone is a popular idea in Europe, so you can be sure that the dissolution is inevitable.

If the relatively healthier economies in Europe actually did break away– Germany, Luxembourg, Slovakia (yes I’m serious), Netherlands, Austria, Belgium– the resulting economic union would certainly be among the healthiest, most balanced in the western world.

In other words, today’s euro would become worthless, but the future euro would be quite valuable and respected by investors. The major issue is whether the new currency would be large enough to challenge the dollar’s dominance. We won’t know the answer until they piece the deal together.

William writes, “Simon, I bought Terry Coxon’s book “Unleash your IRA,” and it’s probably the best thing I’ve bought this year. I’m amazed at everything I can do with my retirement funds, including buying gold bullion and foreign property, tax free. Is this a good way to plant another flag offshore?”

Absolutely. Terry is one of the most knowledgeable people I have ever known about all matters related to money, and the Open Opportunity IRA structure he talks about in his book is one of the biggest no-brainers I see out there right now.

Why? A couple of reasons.

First, the US government has its targets set very squarely on retirement funds. There are trillions of dollars of savings that politicians could easily regulate.

For example, do-gooders in the Congress could whip up a new law tomorrow requiring that a percentage of managed retirement funds be invested in US Treasuries… you know, because they’re so secure.

Through Open Opportunity IRA structure that Terry describes in his book, you ensure that no one can confiscate your hard earned savings.

More importantly, though, you can take ordinary returns and make them extraordinary by planting a retirement savings flag overseas.

Imagine that you buy an undervalued property in Colombia. The property is selling for $100,000 and yields about $1,500 per month in net rental income.

Over the years, as Colombia’s economy continues to perform strongly, the property appreciates substantially in value. The Colombian peso outperforms the US dollar. And the rental income rings the register month after month with the reliability of a Swiss train. Not a bad deal, right?

Now let’s assume that you bought the property with your retirement funds through an Open Opportunity IRA. Not only do you receive the rental income, the property appreciation, and the currency appreciation, but you get to take it all tax-free because your IRA owns the property.

I could cite you a million more examples, but frankly Terry’s book does a better job. Bottom line, this is one of the best ways to plant and overseas return and make lot more money at the same time.

Finally, Libero asks, “Simon- you mentioned that Italy has a reciprocity agreement with Panama. I just spent about 2 hours searching and can’t find anything. Can you provide more information?”

Sure. I’m not surprised. Google is the Black Hole of accurate information, and most of the people who write about this sort of thing are just armchair expats who parrot others’ work without putting boots on the ground.

I can tell you with 100% certainty that Panama has a bilateral agreement signed with Italy that provides instant residency for nationals of either country to live in the other. In other words, Panamanians can acquire Italian residency, and Italians can acquire Panamanian residency.

How do you do this? If you’re an Italian citizen, head to Panama and talk to a local **reliable** immigration lawyer. If you need a referral, drop us a line and my assistant will get you in touch with someone. I don’t like to publish these things for Google to index.

May 10, 2010
Undisclosed location

I’m going under the knife tomorrow… it’s a little unexpected, but apparently I need a rather urgent surgical procedure performed, and the doctors here have fit me in at their first available time.

To be honest with you, I’m pretty disappointed– no, not because of the operation. These things happen from time to time, and I’m pretty fearless. I’m mostly disappointed because I’m not in much condition at the moment to get on a plane and fly to another country where I would actually prefer to be operated on.

This is all rather ironic, because a couple of my friends had commented, “wow, I bet you’re happy that you just happened to be in the US for this!” Actually, no, I’m dismayed.

First of all, my US insurance company won’t cover the procedure… at least at the moment. If I wait a bit longer until the condition becomes life threatening, then they would cover it. But because I’m not presently terminal, I’m left to cover the costs on my own with cold, hard cash.

I figured this out ahead of time with the friendly folks at my insurance company, so when I went in to see the doctor here, I made him an offer.

“Look,” I said, “I’m paying cash. No insurance companies will be involved. Let’s make a deal.” Happily, he settled with me on a reasonable price, knowing that he would be paid immediately without having to deal with the usual bureaucratic runaround.

The price that we negotiated is just a fraction of the normal price that they bill to the insurance companies; it’s truly unbelievable how much excess doctors are forced to build into their prices simply because they know that they will only be paid a percentage of their invoices.

What’s even more unbelievable, though, is that the ‘reasonable’ price we agreed upon is still multiples more expensive than what I would pay for comparable, if not even higher quality care in the Orient.

This is the second chief reason I’m disappointed– aside from cost, I truly believe that I would receive better care in Asia. As for the operation itself, I’d say the odds are evenly stacked. It’s a simple procedure, and I’d trust a qualified surgeon of any nationality to carry it out without any significant errors.

What I’m more concerned about is the treatment I’ll receive before and after the surgery– the incessant forms they’ll have me fill out, the wasting away in a waiting room, the needless drugs they’ll pump me full of, the ridiculous OSHA and FDA regulations, the speed with which they’ll kick me out to make room for the next patient, etc.

These sorts of things seldom happen to foreigners in overseas hospitals. Overseas, foreigners are in control of their own treatment; they’re actually treated like a vested partner in the doctor/patient relationship instead of like a child, and this is certainly a nice change.

Frankly, this is what being a ‘permanent tourist’ is all about– maintaining that status as a valued customer who should be courted, instead of a regular citizen who will be milked and slowly bled to death… but I digress.

House calls are commonplace overseas… perhaps even more commonplace than they were in America back in the 1950s. It’s nothing for a doctor to swing by the house to check up on you, or even hire a few nurses out for the week to take care of you.

I was dumb enough to mention this to the attending physician; needless to say, he started arguing with me that the quality of treatment in Asia is substandard.

“Oh,” I told him, “so you or one of your colleagues has actually been to the hospitals in Hong Kong, Thailand, and Singapore to judge first hand?”

Silence.

It always puzzles me how rumor and stigma are perpetuated by the uninformed.

Lastly, having any medical procedure performed in the US has me a bit nervous these days. Nobody really quite knows what the Obama health system will look like (least of all the government), but I’m still concerned about ending up on a list in some government database as a guy ‘who has health insurance but doesn’t use it.’

Yes, I actually think the dastardly practice of negotiating directly with the physician instead of using a government-approved plan is going to land me in hot water with the IRS one of these days…. because, naturally, it falls to the Department of the Treasury to enforce healthcare legislation.

This is one of the other advantages to having medical procedures performed overseas; the records are actually private, and if you want, no one else will ever find out. It’s as close as you can get to dropping off the grid for your medical care without having to sacrifice quality.

To me, medical care is just another overseas flag that we can plant, especially if planned properly. In my case, I just got caught in the wrong place at the wrong time… which is ironic considering that I’m in the US at the moment undergoing treatment.

Look, I’m sure that things will be just fine tomorrow. I have no illusions that the surgeon is somehow unqualified or anything like that… but we all know that medical care is a package deal. And while the medical quality of US treatment may still be among the world’s best, many other countries are quickly closing the gap, and they’re already offering more attractive packages.

I could expand on this more, but if you’re interested, I would consider Dusit Bangkok and Bumrungrad in Thailand, and Raffles in Singapore.

May 6, 2010
Undisclosed Location

If you’ll kindly indulge me, I will jump right into this week’s questions.

First, Jeff writes, “Simon- you really called the gold/euro short (XAUEUR), I’m up 25% since you mentioned it. Where do you see it going now?”

The European-induced panic is causing a rush to ‘quality’ once again. The dollar has surged, Treasuries rallied, and just about everything else fallen, including oil, silver, and that third-world peso we call the euro.

One of the lone standouts, though, has been gold. Once again, I find the market’s rush into Treasuries coupled with the simultaneous rise in gold prices to be an incredibly bullish sign for gold.

I’m far from a gold bug, but I cannot ignore facts and simple analysis. In good times, investors frequently use the bond market to park large swaths of cash. These days, though, institutions are increasingly skeptical about lending money to corrupt, fiscally irresponsible politicians, especially at low interest rates.

One of the most obvious alternatives for institutional investors is gold… so instead of gold falling during the panicked sell-off, many investors are rushing into gold faster than US Treasuries.

Not only has this been excellent for our gold/euro trade, it suggests that investors are now starting to view gold as a ‘less risky’ asset than government securities. In the longer-term, this will be tremendously bullish for gold as more investors shun sovereign debt for the metal.

In the medium-term, I think the next move will be a rise in the gold/silver ratio; it tends to rise during times of tension and high risk perception. I also think that the Swiss National Bank is finally going to intervene in the euro/franc cross, but I’ll save that for another time.

Next, Dieter writes, “Simon- you mentioned that in the event of a dollar crash, Panama would be OK in the long run. I disagree; Panama does not produce anything, and the income from the Canal is not enough to sustain itself. Comments?”

Correct. Panama does not produce anything to speak of. Neither does Hong Kong.

Yet, the two are able to attract significant foreign investment because of relatively business-friendly environments, as well as large pools of capital from neighboring countries that fund robust financial sectors.

(Chinese money goes to Hong Kong, Colombian/Venezuelan money to Panama)

The pools of capital and foreign investment have built diversified economies in both locations, including strong domestic consumption markets. Coupled with Panama’s Canal revenue, I believe that the country will be much better positioned than most of its neighbors in the event of a dollar crisis. I’ll discuss this more next week.

Next, Don from Thailand cautions us all: “Simon, I brought my gold to Thailand with me and it was forcibly confiscated upon entry. They said that I should have declared it at Customs and paid a VAT fee of several thousand dollars.”

Ouch. I’m not sure how much gold Don had on him, but these days, it’s just not a good idea to be carrying more money in your briefcase than the annual salary of the guy inspecting it.

In most countries, gold is not considered money, at least officially. All across Asia, though, gold has significant cultural importance. In many poor countries, if officials spot your gold and can take advantage of you, then they absolutely will. After all, they’re the ones wearing the guns.

The thing is, no one should be thinking about storing gold in poor, underdeveloped countries anyhow– stick to Austria, Switzerland, Hong Kong, etc. These are countries of negligible corruption risk and a well-defined rule of law. And make sure you check customs rules before you go.

For large amounts, use a secure transportation service like Viamat; they’ll ensure the integrity of your shipment from door-to-door, and even store it for you if necessary.

Next, Paul writes, “Simon, great article about Greece. Although the US is not dealing with a 900% debt to GDP ratio, we are heading down a road that sure feels the same. Increased taxes, VAT, and massive entitlements will surely bring us to a critical tipping point soon. Ecuador keeps looking better all the time.”

Agreed. Look, these problems aren’t going away. There is no chance that Greece can possibly be bailed out, and there is no chance that Spain, Portugal, and Italy won’t follow. Then Japan. Then the UK. Then finally the United States.

These countries absolutely have to implode. As Bill Bonner astutely remarked last weekend in Las Vegas, “when things get out of whack, they tend to get back into whack.”

Well… 900% of GDP worth of government debt and obligations is out of whack. Trillions upon trillions of dollars in unfunded and growing entitlement programs is out of whack. Borrowing and spending your way out of debt is out of whack.

Getting back into whack requires a system reset.

Here’s the good news: this is nothing to be afraid of. We can all see this coming from miles away despite the governments’ lies and the blinders on the mainstream media.

We can prepare, today, by planting multiple flags to safeguard ourselves, our families, and our assets… and then focus on thriving from all the opportunity being created.

Remember– the sky is not falling. Now is the time to be calm, confident, and measured. Panic is for the unprepared, and fear is for the uninformed.