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SOVEREIGN MAN

Not as advertised

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.

About the author: Simon Black is an international investor, entrepreneur, permanent traveler, free man, and founder of Sovereign Man. His free daily e-letter and crash course is about using the experiences from his life and travels to help you achieve more freedom.

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Comments on this entry are closed.

  • Rad

    I used to like Uruguay too. Atlantida is one of the nicest little places in SA. Piriapolis and Punta Ballena are beautiful too, but PdE is snobbish and boring. However, once Mujica came to power it was obvious that the place is done.

    I have also one tip for you – a shortcut to a European passport! Hungarian parliament just adopted a new law that will make it possible to receive Hungarian citizenship to anyone that proves that his ancestors were Hungarian. That includes citizens of the hungarian part of Austro-Hungarian empire (pre-1918). The whole process takes only 3 months! AFAIK, this is the fastest way to an EU passport.
    However, the new law will come into effect in August and until then, the EU may force the Hungarian government to roll it back. Still worth examining…

    • Rad

      Update about the Hungarian citizenship – the EU announced that it will NOT take any steps against the new Hungarian law. So if you have Hungarian ancestors and are interested in acquiring an EU passport, this is the way to go.

  • Stainless Steel Rat

    What a timely post.

    Just last week I got in touch with a law firm in Uruguay to get the information about acquiring residency there. Fortunately, I’ve learned to always have a ‘Plan B’. So now it’s time to talk to the other lawyers in the other country…and to figure out what country to make my new ‘Plan B’.

    It’s always an adventure. :)

  • priehl

    Nothing is certain yet. From a highly regarded attorney in Uruguay, today:

    “Unfortunately, the article is more alarming than the reality.

    “There is a draft that is being discussed, not even sent to parliament yet, as key issues are not defined yet.

    “The aim of the law is to tax the money that Uruguayans have abroad, not foreigners who come to Uruguay.

    “As soon as a clear text is available (we are monitoring this), I´ll give you an exact explanation of:

    “- whether foreign residents in Uruguay (non Uruguayan citizens) will be taxed

    “- what things (if any) would those foreign residents be taxed on

    “- what the rate would be (the top rate is 12% for income on interest or dividends)”

    So, two questions – even if it passes, how are they going to enforce it, and what will they do to me as a foreign resident if I refuse to pay – deny my residency, which means I’m not obligated?

  • Bob

    Thank you Simon — saved me a trip. This was my next flag while Panama and Dominica are in the works. Hello Singapore!

  • Paul

    In the spirit of not as advertised. What is the general feeling about Costa Rica, Is this a viable state for second passport and is it practical for US citizens to retire there? I am being touted pretty hard but not sure what the real story is.

  • Samir

    Thank you Simon,

    I planned to acquire residency in Uruguay as my wife is Uruguayan. By now, I will just spend some time there and find another place to plan a flag. There are plenty of other countries happy to welcome us without tax… We have the choice of the country we reside not to compare with the country where we born….

    By the way, it is a pity, there are 3.5 millions inhabitants there, very few immigrants, and a lot of Uruguayans are leaving the country to live and work oversea. A lot of things brought by immigrants are not available there… UY will just go backward, I am very sad.

    @Priehl, the problem is the Government’s mindset. Even if the law is not yet settled, the trend is frightening. UY is acting like an EU country, they started with new personal income tax and now this step is just one further.

    @Rad, I like Atlantida too, I have been there every year for 3 years.

  • UR
  • lf

    Unless Simon will come up with an idea how to get Martian passport,
    I doubt that viable option really exists. If US is to collapse, so will the rest of the world. This will remain true as long as US has dominant economic and military positions and US dollar remains world reserve currency. Of course, it may change. But then one should probably look for Chinese or HK residency.

    • marquelle

      Perhaps you heard of “The bigger they are, the harder they fall “?

  • Ann

    Right now I am sitting in Atlantida and about 3 days ago I was thinking I had made the best decision literally in the world for our family for right now…now I am in shock and hoping this prospect does not become law. Truly Uy is a wonderful country with some of the nicest people I have met; both will suffer if this comes to fruition. 3 days ago I was considering what other investments we wanted to make in our new ‘homeland” and glad of the potential I was foreseeing in this exquisite little country. Now, we wait and see…and consider options. Unfortunately we may only get to know the great people of UY when they emigrate, as this law would make immigration of foreigners and their capital only a memory…

  • John

    Simon,
    Yesterday you mentioned Belgium as a possibility.
    Could you expand on that ?
    Thanks.
    John

  • Chris

    Hmm.

    I was under the impression that the political class in Uruguay realised that they benefited from providing a safe haven to wealthy Brazilians and Argentines, and they wouldn’t cook the golden goose. I guess the current president doesn’t see it that way.

    The real killer will be the inclusion of worldwide assets in assessing capital gains and wealth tax. Anyone fancy 1% a year tax on net worth over $60k, rising to 3% a year impost on assets over $800k? The wealth tax might have been defensible when it wasn’t applied to global assets, but the new law looks like it will be worse than living in France.

    I’d be suprised if there isn’t a dramatic reduction in the wealth tax rate to compensate for drawing in foreign assets. Otherwise, there will either be endemic tax avoidance or an exodus of the middle class.

    But even if they do back down, you have to be wary about any goverment that imposes a wealth tax.

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