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Why you don’t want to go at it alone

Blair is in her early 40s from Southern California.  She’s intelligent, fairly aggressive, and an experienced financial executive at a mid-sized manufacturing company. In total, she has about $250,000 in savings, some of which she used to buy property in Panama.

She is single with no children and has been traveling to Panama to plant flags since 2006. She plans on (semi) retiring there in another 5-years and has unfortunately learned a lot of hard and costly lessons.

At the height of the global property boom, Blair bought a unit in an ocean-view condominium tower in the San Francisco barrio of Panama City. I like San Francisco– it is well located and presents a nice mix of local Panamanians and foreign expats.

At the time, however, San Francisco was put under a building moratorium because the neighborhood was severely overcapacity with its infrastructure.  Waste treatment facilities were overburdened to the point that raw sewage was washing away construction sites, water utilities couldn’t get pressure to higher floors.

Of course, Blair’s real estate agent didn’t mention any of this to her. He cheered her on to make the purchase, encouraging her wise decision-making and investment acumen at every step along the way.  He looked good, sounded good, and had even lived in Miami for a while… sounds like a trustworthy fellow worth his salt, right?

Wrong. Blair was terribly misinformed. Aside from the sewage and the lack of water pressure, even her beloved ocean view was gone before the building was even complete– another building was erected between her bedroom window and the sea, built by (you guessed it) the exact same developers.

Like many gringos, Blair found her real estate agent on Google and was initially impressed by his English skills and claims of knowing important people in the country. She admits to being taken as a fool and quite literally is paying the price for it.

(It is exactly for this reason that I put together my Panama Black Paper, released in September and December, which names names of people in Panama to do business with, and people to avoid like the plague.)

Because Blair has such a long-term view, though, she has taken everything in stride.  She feels that, by the time she semi-retires in five years, she will be able to recoup what she invested in the condo.  Meanwhile, as Panama City’s infrastructure improves, she has been able to generate positive rental cashflow on the unit.

She has since wised up to the city life, and these days she is actively searching for a new property outside of Panama City where it is cleaner, quieter, but still accessible.

By the time she is ready to move there, she expects several new multinationals to have relocated to the nearby Panama Pacifica commercial park located just outside of the city.  This commercial park, she believes, will present a lot of opportunity to entrepreneurial-minded people who can provide essential business services.

Because she expects to be generating business income in Panama, she plans on registering a Belize company to conduct the business, thus planting her business flag outside her country of (future) residence.

She told me that she already made this mistake once– two years ago she searched for “Panama companies” on the internet and purchased a corporation from one of the service providers who popped up.

As it turns out, a Panamanian corporation was the exact opposite of what she needed, and the Panamanian lawyer she spoke with had no earthly idea what her US tax implications would be as a result.

Blair has since straightened out her tax situation once she finally found a competent US tax attorney who had expert knowledge of international business structures and was willing to help her out without breaking the bank.

Aside from planting a residency and business flag, Blair has moved some money to a European bank; she feels comfortable in Austria because she does not live there or do business there, so the government has little cause to milk her.

Lastly, she is planning on eventually acquiring second citizenship, possibly through a South American program that I will be discussing next month.

Her ideal vision for the future will be living outside of Panama City as a citizen of a South American country, with her business based in Belize, generating revenue in Panama from multinational firms, and banking her capital in Austria.

Because her foreign business will neither be engaged in US trade nor generating US-source income, her company will not be subject to US corporate income tax. Additionally, as an expatriate, she will be able to pay herself a salary of roughly $90,000/year tax free.

I think one of the key lessons here is that planting multiple flags is not always a do-it-yourself process. As Blair’s story demonstrates, there are potential landmines along the way, though expert advice is available to ensure a smooth journey.

Knowing how critical this expert advice is, in the last few months we provided you with key contacts in the Panama Black Paper, and introduced you to a top international tax attorney.  Next month, we will be discussing South American residency and citizenship programs, so stay tuned for that.

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.

  • Kevin Rocks

    I can sympathize with Blair’s experience. Thales Securities was also shall we say, less than forthcoming on Panamanian IBC’s, the rules, regs and particularly the legal fees, not to mention their complete inability to carry out trades in a timely manner

  • “Mateo”

    Wow Simon,
    I am in real estate and this sounds all too familiar and I must say that I lucked out on my foray into international real estate to some slight degree, and agree with your multiple flags approach, however the quality and amount of material out there is staggering to any would be beginner. My apologies but being a recent subscriber could you (or fellow readers) refresh me on what the Panama Black Paper consists of, it looks like something I would like to check out as I am considering some business ventures in Panama for the long term.
    Simon I would also be quite interested in a post walking us through your screening process on what you look for in a potential business partner.
    Hoping to be your neighbor in the Panamanian Complex…

  • Marquelle

    South America, eh…Uruguay I presume?

  • Jai

    Good thing Blair has time & money to reduce the impact of her mistakes – that’s an enviable position to be in. But some people have to pretty much “go it alone” since too many “experts” just plain charge too much money for not that much work. And then of course, there are those who are cussedly independent and would rather DIY, and save the money for something more important to them than the paperwork.

    There are often standard forms for incorporation, LLC, etc, and all some of us really need is that standard form. Having been a paralegal, I can assure most of you that that is all you got when you paid the attorney for incorporation – of course, he/she did put the printouts into a fancy 3-ring binder for you. I’d rather key it in, print it out, and I don’t need any binder at all – file folder will do! “Resource management,” please. “Cost effectiveness,” please.

    • John

      Simon, your daily mails are one of the best things of the day. Many thanks for it. I hope you will soon tell us about your ideas for new passport and citizenship. In those days more then welcome!

  • Thomas

    Simon, third to last para…am I to assume Blair will be keeping her US citizenship? That would be the reason to use the “roughly $90,000 tax-free ” IRS provision.
    Is it possible in this case to have a Belize corp that generates $1 million for example owned under your other citizenship and pay you a salary of $90K to you the “American” and the other $900K is not subject to IRS taxation?

  • Ron

    Thomas, I am a US tax professional. What you described is a blatant, simplistic attempt at tax evasion and would not work.

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