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business opportunities

We’re hiring… any takers?

By Simon Black · 9 comments

February 15, 2010
Pattaya, Thailand

I’m going to be candid with you– I’ve got too much on my plate. Sometimes one of the consequences of being a global opportunist is taking on too many deals… and getting swamped.

To give you an idea of the deals I’m talking about, there’s a real estate deal in Thailand, an Asia-based entertainment venture, a North American financial services company, a new software company, a retail products manufacturer, potentially a sustainable project in Panama, and of course, this daily letter.

Right now our team consists only of myself, my business partner Matt (who is frankly one of the best entrepreneurs I’ve ever come across), and a small support staff. We don’t like big, unwieldy offices and layers of bureaucracy… We keep things lean and lethal by surrounding ourselves with a small number of incredibly talented and driven individuals.

Because the workload is starting to overwhelm us, though, we’ve decided to expand a bit.  We have a rule, though, when it comes to working with others: we only do business with people we like.

As such, instead of looking externally for the right people we’re starting our search within the SovereignMan community where we know we’ll find the kinds of people we’d like to be around.

I’m going to start with the easy ones first:
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Business opportunities in Panama

By Simon Black · 31 comments

February 2, 2010

Panama City, Panama

I see a lot of opportunity in Panama right now for entrepreneurs and small businesses; in fact, I see more opportunity here than in just about every other country in the western hemisphere with few exceptions.

Why?

Panama has two strong emerging consumer markets.

The first is the obvious low hanging fruit: foreigners. Their ranks in Panama are growing by the day, swelling the country with their capital and their consumer demands. Simply put, they are accustomed to certain products and services, not all of which are available in Panama. That spells opportunity.

Sure, there are droves of foreigners here already posing as real estate agents trying to sell the next expat on an overpriced, generic condo in Panama City… but that business model is dead for now. There are better options.
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Why you don’t want to go at it alone

By Simon Black · 7 comments

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.

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Case Study: Multiple Flags in Venezuela

By Simon Black · 1 comment

January 19, 2010
Mexico City (DF), Mexico

For such a pale skinned gringo, his Spanish was impeccable. We were both sitting in the business class lounge at the airport, and the fluidity with which he was prattling away in Spanish on his mobile phone caught my attention.

Ordinarily, given his very light complexion and European fashion sense, I would have guessed that he was Argentine; his accent, however, was devoid of the traditional telltale Argentine indicators– the “sh” and “zh” sounds, use of the ‘vos’ for the second person, etc.

I was a bit puzzled and had plenty of time to kill thanks to an incomprehensible flight delay, so when he finished his conversation, I asked him (in Spanish) where he was from.

“I’m originally from Britain, ‘mate.” He must have noticed my surprise at hearing the Queen’s English, so he followed that up with “but I’ve been living in Caracas for over 20-years.”

Needless to say, this sparked a lengthy conversation between us about the politics of Hugo, the real situation on the ground in Venezuela, and what he’s doing to protect himself. I’ll call him Baldwin.
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How to make an extra $12,422,575.54

By Simon Black · 8 comments

January 12, 2010
Estepona, Spain

There is really a great deal of information out there about offshore corporate structures… frankly it’s mind numbing. Do a search for “offshore corporation” and you will undoubtedly return over a million websites promising you fast incorporation in Panama or the BVI, as well as a host of ‘benefits’ for that particular jurisdiction.

Are these benefits real? Does it make sense to structure a business overseas?

Yes. Planting a flag overseas provides asset protection benefits, and in many cases, significant tax benefits… even if you are a US citizen. It is possible, for example, to generate corporate profits free of tax liability, and to defer personal income tax liability indefinitely.

Let me first back up for a moment and explain some of the lovely US regulations that govern foreign corporations for US taxpayers. (as an aside, you should realize that I am not a tax attorney, nor does this constitute tax advice)

The first is section 957 of the Internal Revenue Code pertaining to “Controlled Foreign Corporations (CFC)”. A CFC is any foreign registered company with more than 50% direct or indirect ownership by a US person.

If a company is deemed to be a CFC, the IRS essentially views it as a domestic US company and expects the foreign company to file a tax return every year.

That’s where places like Panama come in. Some people try to get slick and form a Panamanian company, hiding behind their lawyers as nominee directors. If their name is withheld from a public registry, the US government will never know about their ownership interest… right?

Guess again. Basing your tax strategy around another human being keeping your secrets in just plain absurd. Your lawyer may be a good guy, but when push comes to shove and the US government comes knocking, he’ll sing like a canary.

Let me underscore this point again even more clearly– do NOT expect to hide profits through an offshore company without the government finding out. They will find out. Privacy and secrecy are gone, at least for now.

Fortunately, there’s a big fat silver lining. Most people do not realize that there are perfectly legitimate ways to structure your business interests overseas and realize significant benefit.

Big businesses do this all the time; large multinationals have subsidiaries and affiliate offices all over the world. Consider Boston Scientific, which manufactures products in Ireland and then ’sells’ them around the world. The company only pays a 12.5% tax to Ireland on its profits from those sales, rather than 30% to the IRS.

You might be thinking to yourself right now– “Great… except I don’t plan on opening a multi-million dollar medical device manufacturing facility in Ireland.” Believe it or not, in many ways it’s even easier for some small businesses to capitalize on this concept, especially if you have an online presence. Here’s why:

A foreign corporation is subject to US income tax, depending on the situation, if any of the following are true–

First, if the foreign company has a permanent establishment in the United States; ‘permanent establishment’ is ordinarily defined by specific tax treaties, but usually includes things like an office, factory, or workshop.

Second, if the foreign company is engaged in a “US trade or business” or has US-source income; income source rules are defined by Internal Revenue Code section 862.

For example, if a business produces inventory, the source of income is where the inventory is produced; if a business performs personal service, the source is where the services were performed. For businesses that sell inventory, the source of income is where the products are sold.

As you can see, these rules clearly favor many types of enterprises, including e-commerce businesses, some service providers, overseas manufacturers, and businesses owned by expatriates.

Foreign corporations that fit these circumstances are not subject to paying US taxes. The company may be subject to tax in its own jurisdiction, but many (BVI, Cayman Islands, Labuan, Singapore, etc.) do not tax corporations on income earned outside of their borders.

In this manner, the corporate entity is free of tax liability. However, when the corporation makes dividend distributions to its owners (US taxpayers), the US citizen will pay tax on those distributions.

Presently, the dividend tax rate is quite low, but you can be sure that the Obama administration will raise the dividend tax in the future. If the corporation does not distribute profits to the owners, however, the individual has no immediate tax payment due and effectively defers his tax liability indefinitely.

Here’s an example– you are a US citizen and own an e-commerce company based in BVI. You have no permanent establishment in the US and have no US-source income by the IRS rules. The company does not pay tax to the US, nor does it pay tax to BVI.

Assume your company nets $1 million annually. You do NOT distribute this income, and rather invest all of your profits with a 20% annual return. At the end of 10-years, your business has accumulated $25.958 million.

Now assume the same business is structured in the US paying 30% to the government. At the end of 10-years, the business will have accumulated $13.536 million.

The compounding power of tax-deferred profits is extraordinary– you make an extra $12,422,575.54 with a properly structured foreign company.

This week I’m going to be interviewing one of the country’s premier international tax attorneys who specializes in offshore business structures. As a personal favor to me, he has agreed to walk you through the regulations and explain how you might be able to realize these benefits.

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How to avoid living in a police state

By Simon Black · 155 comments

If I have been too subtle in the past, let me be absolutely clear this afternoon: the time to do something, the time to take action to safeguard your future and your families livelihood, is NOW.

I’m more impassioned than usual this morning… and with reason.  Reluctantly, I tuned in to Team Obama’s press briefing last night about the ongoing saga of the Nigerian underwear bomber.  Obama’s is clearly trying to cultivate a fear of al-qaeda while simultaneously building blind trust in his government.

After the President’s remarks, his Homeland Security Secretary and Deputy National Security Advisor took the stage to unveil a series of proposals to ‘improve security.’

I’ll spare you the details as you have probably already heard them, but the bottom line is simply more government– a bureaucrat’s ultimate and only solution. This means more TSA, more air marshals, more undercover agents, more gun-toting soldiers, more pat-downs, more scanners, more searches, more scrutiny, more suspicion, etc.

How do you spell police state?

I’m ordinarily laid back about this sort of thing. I can afford to be since I’m a safe distance from all of that stupidity… but in this case I looked down to find that my knuckles were turning white, clenched around my glass of 2005 priorato.

I set my wine down and remarked to my friends who were watching with me, “What is it going to take for people to wake up and get the hell out of town? Do they need legions of storm troopers marching down the street before they realize it’s time to go??”

I was positively exacerbated.  The US is turning into a police state, and I’m not even saying this specifically to Americans living there. Many countries around the world are following close order behind Uncle Sam.

Once again, the time to act is now.  So what should you do?

First, make sure you have access to funds outside of your home country. This is one of the most important flags that you can plant.  You should open a foreign bank account (like I discussed in the Panama Black Paper), and/or consider storing precious metals in a private storage facility overseas.

Later this quarter, I plan on releasing a new Black Paper that contains actionable information to open an account at safe foreign banks that still take US customers.  You haven’t heard of most of them, and would probably never hear about them because it’s actually illegal for foreign bank to advertise in the United States in most cases.

Stay tuned for that.

Second, you should really be thinking hard about foreign property. Why? Because it can be a great investment; it’s an easy, non-reportable way to move money overseas; and it can be your escape hatch when you’re finally ready to hit the eject button.

Remember, I’m not talking about a 50 million euro villa in Monaco; you can pick up cheap land in Latin America for less than $50 per acre, and I’m pretty sure that everyone reading this letter has at least 50 bucks to spare.

Also, as I’ve discussed in the past, you can buy foreign property using your tax-deferred retirement savings, and I plan on revisiting this topic in short order because it is an absolute no-brainer.

Additionally, if there’s interest, I may also explore the idea of building a small, cost-effective, subscribers-only development.  It would likely be on the outskirts of Panama City and include self-sustaining fresh water and agricultural resources.

Third, if you have the means, you should really consider obtaining second (or third, fourth, etc.) citizenship. Second citizenship can be the ultimate emergency exit if things get really bad, and it effectively serves as the most comprehensive insurance policy you could even have.

I have a lot of contacts in this field, and my colleagues and I are currently experimenting with a few options that I plan on bringing to you soon.  I won’t bring you a passport program unless one of us has gone through the process ourselves, so give me some time while we play guinea pig.

Fourth, give serious consideration to your finances; unless you are already independently wealthy or have sustainable income streams, think about what you would do to earn money if you lost your job today.

Think about what skills you have– what problems can you solve that other people are willing to pay you for? What opportunities to you see around you that can be quickly and profitably exploited?

I guarantee you that there is opportunity everywhere around you. For example, a friend of mine is an intelligent, 22-year old girl who lives in Minsk, Belarus– the last bastion of the Iron Curtain.  While Belarus is not the totalitarian state it once was under the Soviet Empire, it’s pretty close.

And yet, despite living under a tyrannical yolk, my friend has become quite a successful entrepreneur, launching a successful brick-and-mortar company and several profitable web sites just within the last few months.

I raise this simply to point out that if an inexperienced but intelligent and energetic young girl can find opportunity in a place like Belarus, then I would wager that there is a plethora of opportunity out there in places like Panama, Abu Dhabi, Chile, China, Angola, Thailand, Bulgaria, and even the US/Europe.

In fact, I know this to be true because I see so much of this opportunity when I travel.

So those are the top four things I would recommend you do in making your own personal preparations. I clearly have a lot of work to do between the real estate, the citizenship programs, and the banking Black Paper… but after seeing the writing on the wall so plainly last night, I will be refocusing my efforts to get these moving quickly for you.

In the meantime, let me know your thoughts– I’m frankly curious to know what you would like to see in a real estate development, and at what, if anything, it would take for you to hit the eject button.

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Subscriber Questions

By Simon Black · 0 comments

I receive a lot of subscriber questions, and while I cannot answer them all, I wanted to specifically address three of them that key in on recurring themes in this community– second citizenship, investing, international opportunities, corporate structures, banking, and gold/silver storage.

1) Paul asks– “I was wondering what your 1st choice would be in setting up an online business offshore.  Which country would be best for business structure, hosting, and merchant accounts?”

There are a lot of great reasons to have an online business– portability, scalability, maneuverability. You can go from zero to profit very quickly, and the Internet allows people to live and work anywhere on the globe.

Most importantly, though, online enterprises provide a great opportunity to easily plant multiple flags in a cost efficient way; you can live in one country, have citizenship in another, have your business structured in another, process credit cards in another, and have your servers based in another.

This prevents significant influence from any single government over your business. As to the right jurisdiction? This is a tough call because it really depends on your country of citizenship and your country of residence.

The United States, for example, is one of a handful of countries that tax its residents on their worldwide income. Some people with online businesses think they are smart because they structure their business in some Panamanian IBC and/or process credit card transactions offshore.

Then they don’t report the income and hold everything offshore.

Not only is this a completely bonehead move, it’s largely illegal. The IRS has clear rules for what it calls ‘check the box’ entities, as well as how to determine the source of income.

I’m going to be talking about this much more in the future, but for now, the bottom line is simple: with a well-structured plan, it is possible to set up an online business to maximize your personal tax advantage while minimizing sovereign risk.

There is great danger, however, in establishing an overseas structure without performing substantial research into the tax implications of your home country.

I’m going to help you solve this problem in a few weeks– early next year, I will bring you some really valuable information from some top North American tax advisers who specialize in offshore structures; they’ll teach you what you need to watch out for.

For instance, you may want to consider structuring your business in a country that has a comprehensive tax treaty with your home country. Switzerland is a great example that has treaties with both the US and Canada. Zero-tax jurisdictions like Panama or BVI do not have tax treaties.

More to follow on this in a few weeks, it’s an incredibly important topic that merits more than a short-answer.

2) Peter asks: “What do you think about Israel? In spite of all the political unrest in the news, Israel has a growing GDP and has a decreasing trade deficit.”

This is a great question.  My take on Israel is that it’s a great place for second (fairly valuable) citizenship.  If you’re willing to convert to Judaism and live in Israel for a bit, you can obtain an Israeli passport fairly easily.

Other than that, I’m not keen on investing in the country; it’s too closely tied with the United States, and there is no ‘blood in the streets’ discount that you would expect of a nation perpetually at war.

If you compare Israel to a place like Sri Lanka, there is no contest when it comes to value.

3) Stefan asks: “I have an account at DBS (Singapore) but they do not give any information about bankruptcy protection. Do you know anything about this? Do you prefer other Singapore banks? Any idea for a safe deposit box in Singapore?”

I can’t comment specifically on DBS, but you should always, ALWAYS, feel comfortable with the balance sheet of your financial institution. Banks in the US are backed by the FDIC, and this gives some people confidence in their account value.

I am not one of them. I bank overseas because I trust in the financial solvency of overseas institutions, but it means I have to do my homework.

Even the most cursory analysis can say a lot about a bank– what is their ratio of liquid assets to deposits? Does the loan portfolio consist of ticking time bombs? How well are they provisioned against loss?

This is why I wrote about Islamic banking a few weeks ago; based on requirements of their religious law, Islamic banks tend to have higher capital adequacy ratios, providing a greater cushion against insolvency in the event of a financial cataclysm.

There are several Islamic banking institutions in Singapore, though overall I’m quite confident in the country’s financial infrastructure. I rely on it myself.

As for gold storage in Singapore, look at Cisco-Certis. Their facilities have fantastic security, and the boxes are reasonably priced.

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The best places in the world to start a business

By Simon Black · 24 comments

I hold it as a guiding principle that there is quite literally a world of opportunity out there… and this goes especially for business. Years ago, there were limited consumer markets available where entrepreneurs could sell their products and services. Today, the playing field has truly leveled.

Emerging Asian economies have a burgeoning middle class that numbers in excess of 1 billion people with discretionary spending power.  The Persian Gulf region is home to millions of tremendously wealthy individuals with a strong propensity to consume. Former communist states like Russia have developed significant wealth and consumptive behavior.

Moreover, groups of countries have formed large trading blocks to facilitate commerce in the region, opening up enormous markets to entrepreneurs.  The European Union and South America’s Mercosur are two such examples.

The Internet and global logistics solutions have brought all of these consumers together with entrepreneurs. Mainstream media in the west has routinely run stories about doom and gloom in the global economy, but as I put boots on the ground around the world, I can see with my own eyes that the economy is not dead.

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