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.

April 19, 2010
Quito, Ecuador

I don’t have to tell you that world governments are collectively pushing hard against people who abusively hide money overseas.

Governments’ primary motivation at the moment is to make sure that no one is evading their tax obligations; for now, they don’t care much if you pay taxes on your income, and then transfer after-tax earnings overseas.

In a way, though, their offshore crackdowns have become a self-fulfilling prophecy that is creating its own demand.

People who understand what’s going on are now more motivated than ever to take action using legitimate and available tools– proper use of international business structures, offshore bank accounts, foreign real estate, second passports, etc.

Why? Because they don’t want to get caught with their pants down when the window of opportunity closes.

Someday, and likely soon, cash-starved governments will implement whatever measures are necessary to trap capital within an economy, enslaving people to taxation, regulation, and inflation.

These are called capital controls, and I think that they’re an absolutely certain part of our future… though ‘future’ is the operative word. There has been a lot of insidious legislation passed around the world recently, but none so far has been capital controls, at least in developed countries.

A few weeks ago, blogger after blogger set off a wave of panic across the Internet by announcing that capital controls had, in fact, been implemented in the US. They were erroneously interpreting a new law called the HIRE Act, claiming that certain provisions were tantamount to capital controls.

This interpretation was simply wrong.

Frankly, I’m pleased that so many websites are now paying close attention to expatriation issues. It seems like every time I turn around, someone is sending me an article from a new website that is doling out advice on internationalization.

I think this is fantastic, and indicative of a growing concern around the world. The problem is that most of them are armchair expats handing out monkey see, monkey do information from Google or Wikipedia that is totally inaccurate.

Misinformation can cause panic and even direct financial loss… this is why you want to be careful about your advisers and go straight to the source.

For example, if you want information about international taxation, talk to an international tax attorney, not Wikipedia. If you want to know about expatriation, talk to people who have successfully done it, not the armchair expat who watches CNN International.

This is one of the chief reasons why we are in the process of redesigning our website; it will allow subscribers to connect with each other in order to swap stories and advice based on their own personal experiences. More on that later.

Today, though, I really wanted to set the record straight about the HIRE Act. On March 30th I initially responded to the misinformation about capital controls; in that missive, I promised that I would soon conduct an interview with an international tax law expert to shed more light on the subject.

Today is that day… and if you’re interested in objective truth about capital controls without all the ‘Chicken Little’ sensationalism, I highly encourage you to check out this interview with Mark Nestmann.

In the interview, we’ll discuss:

- What are capital controls and why the HIRE Act doesn’t qualify
- What capital controls will look like when they’re implemented
- Warning signs to watch out for in the future
- What you can do today to protect your savings
- Options for opening a foreign bank account

Mark Nestmann is an uncontested expatriation expert. As a trained international tax lawyer, Mark has been in the industry for two decades and authored many books on the subject.

One of them, the Lifeboat Strategy, is a really comprehensive, actionable guide to expatriation.  If you’re wondering how to develop a legitimate strategy for going offshore, you should absolutely start with his book.

(as an aside, Mark is putting the finishing touches on a new update to the book which he will list at a much higher price. Anyone who purchases the Lifeboat Strategy today at the lower price will be automatically sent the updated version at no charge.)

I hope you enjoy the interview.

April 7, 2010
Darien, Panama

My Panamanian boat captain looked at me like I was crazy.

“Amigo, you shouldn’t jump in over here… the waves are very dangerous.” I agreed. But we had been trolling for sailfish for a couple of hours with absolutely no success, and I really felt like livening up my day a bit.

At the time, our fishing boat was passing an area where particularly violent waves were pulverizing a rocky patch of coastline, and I thought it would be fun to challenge nature… so I dove in.

The waves immediately took me over, hurtling me around in the same way that a dog wrestles for his chew toy. After a few minutes of fighting the waves, I decided that I’d had enough danger, and I swam back to the boat to join my companions.

And that, my friend, is about the only sporting highlight of my fishing trip; to put it more plainly, I spent 5 days at the most famous luxury fishing resort in the world… and I came away empty handed.

Fortunately, though, the other benefits of the trip were far more exciting.

This past Saturday morning, a group of 30 members of the Atlas 400 club took a charter plane into Panama’s Darien jungle. Darien is just north of the Colombian border in the middle of nowhere, and the resort is literally carved out of the jungle on the Pacific Ocean.

(As an aside, I should tell you that there’s still gold nuggets in Darien’s hill; the native Indians pan for gold and walk down to the resort to trade for other goods. Even in this harsh, remote environment, they still know the right price of gold within $1 or $2 of spot!)

The concept of our fishing trip was to pull members away from the normal distractions of their daily lives to build lasting relationships through unique and memorable experiences. Deep-sea fishing in the remote Pacific jungles of Panama definitely qualified.

The cast of characters who attended this trip was incredibly unique– there was my good friend the salsa-dancing ninja master, a best-selling fiction author, an oil tycoon, the world’s foremost collectables expert, and several successful entrepreneurs, investors, and professionals.

Again, while the goal of the trip was mostly social, some interesting things happen when you put this many successful people together on a remote resort for 5-days…

As for me, aside from establishing and growing some really rewarding relationships, I was presented with a few actionable investment opportunities, as well as some fantastic business advice from one of the smartest people I’ve ever met.

In fact, I expect to make an extra $1.2 million over the next 18-months because of the ideas that he gave me.

The reason I’m telling you this is to stress one important point– great ideas are really the most valuable commodities in business, and they are few and far between.

Most ideas out there are generic and mediocre– businesses generally tend to copycat each other, blindly following an established formula for success without working to improve or innovate.

In the long run, this is a death sentence.

On the other hand, a creative new idea is a spark that can ignite the fuel of properly-resourced execution. This is what creates long-term successful businesses, and it all starts with a great idea.

Successful entrepreneurs understand and harness this powerful concept.

To give you an example, my friend Porter Stansberry, who is a fantastic entrepreneur, holds an invitation-only conference each spring that usually takes place in a very luxurious setting.

He invites smart and successful people that he knows, puts them up in a luxury resort, and asks them to discuss their best ideas; the point is to get everyone away from their daily distractions and put smart people in a room together to brainstorm and collaborate.

Each time they’ve done this, Porter’s team comes away with some really brilliant ideas that, when executed, generate a lot of money for his company. Hosting the conference is expensive… but the ideas that come out of it are worth 10 times as much.

Frankly, anybody can do the same thing… you don’t have to go to the middle of the jungle or to an expensive resort to get great ideas; you just need to surround yourself with the right people in the right setting.

The best way to do this is to get away from the daily grind: home, office, traffic, email, etc. are all creative impediments. Put some space between you and your to-do list, and invite some smart people along whose opinions you respect.

Ideally, they should not be part of your normal routine… and this is critical.

Put all the issues on the table in total candor– what problems are you experiencing, and how can you solve them? Where do you want to take your business or career? What do you really want to be doing with your life, and how can you accomplish your goals?

I would really encourage you to consider this approach if you’re looking to jumpstart your business or personal life… a single great idea can be a game changer, potentially setting your life or business on a completely different, more rewarding path.

March 24, 2010
Hong Kong, SAR

One of the worst things that can happen to a country is to experience a brain-drain.  The loss of productive people who create new technologies and companies means the loss of the jobs and wealth that they create.

The long-term aggregate effects of this can be truly devastating, and history provides no shortage of examples.

By nature, though, people are generally creatures of habit– inert beings. They must be acted upon by a tremendous force to uproot them and get them moving… but everyone has a breaking point.

In aging superpowers, governments seem to be doing all they can to exert enough force to push people beyond their breaking points.

I have seen, from my own vantage point, a flood of new, fed up expats arriving to places like Hong Kong where the jobs and opportunities are plentiful, and they have strong incentives to be productive.

In fact, though it doesn’t have the same songs and bombastic statement as other countries who think they have the lock on ‘freedom,’ Hong Kong is one of the most economically free places in the entire world.  The level playing field ensures that everyone has a chance to succeed.

Do you remember how the world thought that Hong Kong was going to turn into yet another communist graveyard when it reverted to Chinese authority in 1997?

The exact opposite happened. Rather than force Hong Kong under its totalitarian authority, mainland China learned from the island’s success and adopted increasingly free market policies.

Hong Kong shows how far free market policies can go in transforming an entire society; 100-years ago, it was just a rock, devoid of any natural resources, and populated by largely illiterate fishermen.  Only decades later, the island had risen to prominence as a global financial center.

How did this happen? By allowing businesses to freely compete with each other for consumer dollars, and by attracting the best and brightest minds across the entire world to come and become wealthy from their hard work and ingenuity.

Essentially, this is the concept of “America” that has worked so many times in the past.

Today, Hong Kong has matured, along with the rest of Asia.   It is no longer the only free-wheeling boomtown of the “wild, wild east,” and the island now finds itself competing for financial primacy with the likes of Singapore, Tokyo, Shanghai, and even Labuan.

This competition is good, though, and I think it’s a sign of things to come.

Smaller jurisdictions, particularly those which lack cash cow natural resources, will continue to compete with each other to attract the most productive people through ultra-low taxes, residency/citizenship incentives, and top quality standard of living.

The theme is simple– “If you are bright and motivated, we want you to live here; and, because your ideas and hard work will make this a better place for everyone, we’ll let you keep most of what you earn and enjoy the fruits of your success.”

In aging superpowers, it goes something like this– “If you are bright and motivated, we expect you to provide for everyone else. You should be happy to do this because it is your patriotic duty, in our sole opinion. There will be consequences if you fail to comply.”

Large, debt-ridden nations will likely continue down their path of self-destruction.  I fully expect smaller countries, however, to choose a different direction and join the competition to attract the intellectual and financial capital of productive people.

This is good news for the productive who will find that they have increasing options for residence, better lifestyle, and the accumulation of wealth.

I’m seeing the signs of this already– for example, there is a very interesting new business and employment incentive program in Chile that I’ll be discussing soon, and a variety of new measures to boost entrepreneurship in countries as diverse as Guatemala, Cambodia, and Lithuania.

In the meantime, if you find yourself in the ‘fed up’ category, I’d strongly encourage you to look in places like Hong Kong for new beginnings… obtaining residency is a straightforward process, and within the island’s strong economy is a multitude of jobs and business opportunities

March 19, 2010
Pattaya, Thailand

My time here in Thailand is finally coming to an end, at least for now. On Monday morning, after I stop by the US embassy to pick up my renewed passport, I’ll be headed to Hong Kong.

I should briefly mention something about passports. Starting in 2007, the US government began manufacturing all new passports with RFID chips– small devices which record and transmit data.

Malaysia was actually the first country to issue RFID passports back in 1998; since then, most of the developed word has adopted them. The data which is collected/transmitted varies by country but generally includes some personal information as well as some travel data.

The RFID chips have a range of up to 10 meters, and many countries do not have encryption devices.

I’ve spent the last year searching around the world for an embassy in some remote country that hasn’t moved to RFID yet. Unfortunately, I was unsuccessful, so from now on I’ll be walking around with a passport that transmits my personal information.

My understanding is that there are passport ‘shields’ available which absorb most of the transmissions, and I will definitely be looking into this more closely.

On to this week’s questions…

William says, “Simon, thank you for the IRA information this week. I know that Congress has changed the law– do you think that now is a good time to consider the new IRA structure? Can I use it to move my retirement funds overseas?”

Great question. First of all, I must apologize because this only applies to US citizens.

32 million Americans will need to make a decision this year; it’s a unique situation because, this year alone, there are several things coming together: first, the IRS has changed the rules, making it a smooth process to switch from a traditional to Roth IRA.

If you combine that with the devaluing rules, and the concept of an Open Opportunity IRA, you’re looking at a potentially enormous tax savings… but only for a limited time while the IRS keeps this window of opportunity open.

Also, once the structure is established, it’s really a fantastic vehicle for moving cash overseas, or even buying foreign property in many instances.

If you want to plant a flag overseas with your retirement savings, this is really the best way to do it, and the time to do it is now while you can still save on the taxes.

Sarah asks, “Simon- you stated that you would report on Malaysia. I’m more interested in establishing a non-US flag there than in Singapore.”

Malaysia is really a wonderful place… it’s Singapore without the costs, and Thailand without the chaos. I’ll dedicate a whole missive to it, but briefly here’s what you should know:

Malaysia is an easy place to plant a residency flag. You can stay in the country for 90-days without a visa, easily renewable for another 90-days. If you want to stay longer, the “My Second Home (MM2H)” program is one of the best economic residency programs in the world.

MM2H provides a 10-year visa for foreigners who meet basic qualifications– people under 50 have to deposit roughly $90,000 in a local bank, half of which can be withdrawn after 1-year for the purchase of a home. People over 50 need to deposit about $45,000 or prove a $3,000 monthly pension.

Like the Panama pensionado program, the MM2H visa entitles you to a variety of discounts and benefits with things like vehicle purchase and education.

The program is also very streamlined. Like Singapore, you can begin the application process online and check the status of your application on the government’s website, www.mm2h.gov.my

Ralph asks, “Dear Simon, Could you give us your opinion on the best country/countries to incorporate a business in? Thanks for your informative E-letters. Looking forward to the next.”

This is a tough one because it really depends on many factors– your home tax country, what do plan on doing with the new business, where you plan on living, etc.

In fact, the most important thing you should understand about offshore planning is that there is no “one size fits all” solution.

For example, a manufacturing company owned by a US citizen may want to look into Ireland because of the comprehensive tax treaty with the United States.

An IP holding company owned by an expat Australian, Brit or Canadian, on the other hand, may want to strongly consider Labuan, Malaysia. Malaysia has a tax treaty with Australia, Canada and the UK, but not the US.

In the Western hemisphere, a lot of people tend to look into Panamanian structures. For a passive holding company, this might make sense… but for an operating business, I would stay away from Panama because it’s not a common law country.

The bottom line is– always seek the right advice from a tax professional in your home country who understands proper overseas structures. I have contacts in the US and UK if you need.

Lastly, Libero asks, “Simon, you mentioned not so long ago about a special clause for Italian citizens somehow being able to obtain Panamanian citizenship. Can you provide more details?”

The governments of Italy and Panama signed a bilateral treaty several years ago that entitles citizens of one country to obtain RESIDENCE in the other… so an Italian citizen can obtain Panamanian residency, and vice versa.

This treaty only grants residency, not citizenship. To be clear, there is no fast track Panamanian citizenship program, at least not a legitimate one.

Panamanian naturalization is a long, difficult, and muddy process… I know some people who have been living in Panama and married to a local for 20-years, and they have been denied citizenship.

If you’re looking for second citizenship, I would suggest somewhere other than Panama. Try the southern cone countries that I wrote about a few weeks ago.

Have a great weekend.

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.

One possibility is a professional property management company. There are thousands of new condo units in the city whose owners might only visit a few times a year. During the vacant periods, there are bills to be paid, maintenance to be performed, and in many cases, tenants to be found and managed.

Only a few companies in Panama focus on this business model, and they’re completely slammed. The market could use some competition, especially considering all the new construction coming online in the next 12-months.

Another consumer demand that needs to be addressed is high-end storage.  Panama’s heat and humidity can be disastrous for sensitive belongings like wine, paintings, and antiques; thus, a high-end self-storage facility would likely do quite well here, and it would be fairly inexpensive to start up.

One idea that I have been considering myself is providing services for companies involved in Panama’s two major construction engines right now– the Canal expansion 34project, and the Panama Pacifico redevelopment project.

(Panama Pacifico is a $1 billion mixed use commercial/residential development on the former Howard Air Force base just outside of the city near the Canal.)

These two projects are attracting a myriad of foreign companies, and right now there are limited options available for corporate services, especially lodging for business travelers.

Nearly every reasonable hotel in Panama province is tucked inside the city, making for an unreasonable commute, and the first business class hotels outside of the city aren’t due to be rolled out until 2016. A well-located existing structure could be renovated, marketed, and profitable as a business-class hotel within 12-months.

The second consumer market worthy of an entrepreneur’s attention in Panama is its emerging middle class, and this is another group that is growing by the day thanks to the income effect of Panama’s growing economy.

The wealth of most developing countries is concentrated in the hands of the few, leaving the remainder of the population living on scraps; these types of markets should generally be avoided by smaller enterprises.

The mark of any well-developed country is a solid middle class– roughly 60 to 80 percent of the population that earns enough to provide a comfortable standard of living, savings, and discretionary spending.

Panama is clearly moving in this direction; middle class households earn between $800 and $1,500 per month, which is enough for them to buy a house and car while having plenty of money left over for savings and mindless consumption.

One clear opportunity is the current shortage of housing units for middle class Panamanians, which fall in the range of $60,000 to $80,000. The government projects that roughly 70,000 units are needed just in the area around Panama City; existing approvals show only around 8,000 in various stages of planning or development.

Retail opportunities also exist; by nature, Panamanians are a consumptive group– as a culture, if they have money, they’ll spend it. It seems like everyone has a new car these days, and given how poorly everyone drives here, there’s opportunity for maintenance and body shops.

Assisted living facilities and elderly care is also a fantastic opportunity, particularly when targeting the Panamanian middle class; for the first time ever, this group now has the income to outsource the care for their elders, and they’re starting to do it.  The few facilities that offer this service in Panama are booked solid.

These are just a few small business ideas in Panama that I’ve noticed recently; if you spend much time on the ground here you will probably come up with several more on your own.

One thing I would caution you about is running any employee-intensive business; Panamanian labor laws, while relatively relaxed in comparison to the rest of Latin America, clearly favor the employee.

Between the mandatory “13th month” annual bonus, 40+ days off, increasing minimum wage, and Byzantine termination rules, it’s in your best interest to keep the workforce slim and/or temporary.

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.

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.

First, a bit of background is required– it’s important to know where a person is coming from to get a better understanding of his decisions.

In Baldwin’s case, he is an engineer by training and had originally come to Venezuela in the late 80s to help design and build a new manufacturing facility for a large European company. He spent a few years on the ground, and when an opportunity came up to start his own firm, he jumped all over it.

For the past two decades, Baldwin has built up a Latin America focused construction and design firm that specializes in working with western firms who have unique design challenges– clean manufacturing rooms, hazardous material, etc.

His business, based in Caracas, has been successful. He still lives in the city with his beautiful Venezuelan wife, and they have several children and grandchildren.

The family, he quipped, is his anchor… his reason for staying in Caracas despite Hugo Chavez’s daily plundering.

By Baldwin’s description, Chavez seems bent on turning Venezuela into Cuba– absolutely everything larger than a bicycle and more profitable than a lemonade stand owned or controlled by the government.

Before Chavez, Baldwin described Caracas as near paradise, even despite the occasional political uprising or economic instability.

“In the early 90s,” he said, “the instability was at least predictable… you could plan for it. Today, nobody knows what this guy [Chavez] is going to do next… least of all him. A few years ago I became afraid for my business.”

So what does a successful British-born entrepreneur living in rapidly decline socialist empire do?

The first thing he did the second that Chavez came to power was move his money out of the country… and it was a great move, because a short time later the government imposed severe exchange controls.

Today, Baldwin maintains a small emergency cash hoard of dollars and gold coins, plus enough money in the local banks to pay the bills each month.

Because he is an expatriate Brit and doesn’t need to worry about paying taxes to the Queen, he planted a few banking flags in Switzerland and Chile, and generally denominates his accounts in US dollars.

Yes, he realizes that the dollar has been on a terrible slide, but it’s the hard currency of choice in Venezuela.

In the early 2000s, after the failed CIA-instigated coup against Chavez, Baldwin began aggressively expanding his business and opened a satellite office in Chile. This office serves as his business’s escape hatch, so that if the worst should occur in Caracas, he will seamlessly be able to move to Chile.

Structurally, his business is registered in Venezuela… this is less than ideal for him– he would prefer to have a Panamanian company conducting business in Venezuela, but Chavez makes it very difficult for foreign companies to do business there without a local enterprise.

Personally, he maintains his postal and email addresses in Switzerland. For any physical mail, the company will scan and email, or forward upon request, every item that he receives.

He and his wife also own a personal escape hatch on the Spanish coast where they intend to go, and bring the family, if things become much worse in Caracas.

“What’s your breaking point?” I said, “What would make you hit the eject button?”

Without hesitation he replied, “With a physical invasion of my home by the government, we’d be on the next flight. I know, we should probably leave before that even happens, but like I said, my extended family is my anchor… so I’m putting up with it all for now.”

Baldwin was certainly an interesting person, and I think his example illustrates two important points– timing is critical, as is preparedness.

He moved his money out of the country at the first sign of trouble, and thus he was able to safeguard his wealth. And with escape hatches for both his business and family, he is secure knowing that his life and livelihood are not under the control of a socialist dictator.

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.

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. Since this article was posted me and my business partners have signed a deal for a large property in Chile, complete with a running farm operation.

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.

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.

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.

I recently spent about 3-months in Asia, and I am penning this essay having just left Monaco, traveling across Southern France on my way to Spain.  There are clearly certain elements of economic slowdown around the world, but I can say with certainty that both businesses and consumers are still out in force.

Fundamentally, business is about offering a valuable product or service that solves a problem or meets the needs of customers. In the west, the economic slowdown has affected discretionary spending to a degree– consumers are spending less. More importantly, though, what they are spending their money on has changed.

Consumers will always have problems that need to be solved and these problems change over time. Years ago, western consumers were concerned with which expensive car to buy. Today, the problem has shifted to preservation of wealth. In the East, consumers used to be concerned with putting food on the table. Now they need to know which car to buy.

A good entrepreneur can adapt quickly to changing market conditions in order to meet the needs of customers. As long there are consumers, there will always been needs to fulfill, problems to solve.

As I travel, I see many places that are extraordinarily compelling for talented entrepreneurs because of a combination of business opportunities, tax advantage corporate structures, and low cost of doing business. I outline some below:

Singapore– As one of Asia’s financial capitals, Singapore has developed a reputation for stability and opportunity. As an English-speaking jurisdiction with a strong financial infrastructure, it seems as if Singapore was literally created for entrepreneurs.

By submitting a valid business plan to the government through an online, streamlined process, foreign entrepreneurs can acquire residency (and eventually citizenship) as well as a host of government incentives and funding guarantees.  It also makes a great base to take advantage of the growing Asian consumer market.

Panama– With a large English-speaking population and close proximity to the United States and South America, Panama is a great place to structure a business. Its corporate entities and zero-tax environment are very favorable for entrepreneurs, and with a spate of capital-intensive projects in the region, the country is ripe with opportunity.

Many foreign companies, for example, are profiting from the Panama Canal expansion project, as well as several highway infrastructure projects. Labor costs are incredibly low, and like Singapore, there are residency-through-investment programs that are great for entrepreneurs.

Cyprus– As a small English-speaking island nation in the European Union, Cyprus-based businesses have access to the nearly half-billion European consumers across the continent. Starting a company there is quite simple, and with a transparent 10% flat tax on income, it is easily one of Europe’s best business jurisdictions.

UAE– Dubai has received a lot of bad press lately, but frankly, it’s still a good place to do business. In the years to come, Abu Dhabi will be even better.  The two emirates are English speaking, have absolutely no tax whatsoever, and an incredible store of consumer wealth.

It is possible for foreigners to start a business in one of the many free zones with very little paperwork or hassle, and there is a vast pool of talented employees in the region. Fortunately for entrepreneurs, there are few cumbersome labor laws to deal with in the emirates, so hiring and firing employees is incredibly simple, based solely on contracts.

Malaysia– How do you spell cheap? Labor costs nothing in Malaysia, and as home to one of the region’s emerging offshore centers, entrepreneurs will find a low-cost, low-tax domicile with access to over one billion consumers in the region.

There are certainly other places that I would strongly consider as a great place to do business; these are only a few, and I rate them on the viability of their corporate structures, cost of doing business, and local opportunities available. I firmly believe, though, that opportunity is everywhere, even in places where the economy is failing.

In business, an entrepreneur just needs to be able to spot the opportunity, and the more one travels, the more opportunities become apparent. I do my best to discuss the opportunities that I see on the ground in this letter, and I welcome your feedback and ideas based on what you are seeing.

I spend a great deal of my time on the road, traveling around the world in search of opportunity. I put boots on the ground while I’m on the hunt and end up screening a tremendous amount of both business and investment ideas.

Some of these ideas make the cut, and we take the concept further. Others don’t.

Regardless, the time that I spend on the ground getting to know the cityscape and the local players becomes quite valuable to me personally… and over time, I have assembled a list of what I consider to be the finest places in the world to reside based on what I have seen with my own eyes.

I’ll be sharing that list with you soon, but in the meantime, I thought I would focus my attention briefly on China.  Having spent the majority of the last two months here, I can honestly say that it is worthy of everyone’s consideration.

Sure everyone knows the mainstream story– full of opportunity, the fastest growing number of millionaires, and a varied, beautiful landscape… but you can find beauty and opportunity in a lot of places. There are five key reasons that set China apart:

1) It’s cheap– for now. The Chinese government keeps the value of its currency, the renminbi, artificially low… so China is very cheap to dollar and non-dollar spenders alike.

World class hotels (I’m talking about the Shangri-La) are $125/night, hiring a car **with driver** runs as little as $500/month, and going out on the town is a fraction of what you would pay in the west.

In terms of the world’s nice ‘cheap’ countries, China is definitely one of the nicest… and the best part about it is that nearly everything is brand new, from the hotels to the airports to the gyms to the restaurants, right down to the park benches.

This ‘newness’ is a result of China only recently having become wealthy. The country is now on a feverish spending spree, investing heavily in its domestic economy– and that means a lot of construction, a lot of development, and a lot of shiny new stuff.

The low prices in China will NOT last forever. You can be sure that the Chinese will eventually let the renminbi appreciate. I wouldn’t be surprised if the currency rose from 6.8/$ to 6.2/$ by the end of 2010. Needless to say, this will make everything in China much more expensive.

If you’re interested in speculating on the currency appreciation, you can even come to China and open a renminbi bank account; any foreigner can open an account here… it takes about five minutes and only about $50 to start.

2) In China, you can cut in line without having to ‘put your time in.’ For example, rather than spend the first several years of their careers getting someone coffee, many recent college graduates took a leap and moved to China seeking fortune and adventure.

They found out very quickly that there are several areas of critical need, including finance, marketing, management, and customer service, and that anyone with competency in these areas can rise quickly.

As a local official from China’s southern city of Kunming recently said in an interview with the Straits Times, “we lack experts in many top positions who can take our industries and companies to the next level, to go international.”

The financial industry here has even more telling statistics– a recent survey of fund managers in China showed that, of the 376 respondents, 22% had less than one year of work experience, and only three have worked in the industry for over 10-years.

3) Yes, the economy in China is booming. I don’t necessarily buy the government’s official statistics, but things here are definitely buzzing. If you are looking for a job, chances are you will find something in China.

More importantly, though, if you are not looking for a job and just want to get away from the doom and gloom of negative news on mainstream media (war, unemployment, deficits, etc.), China will feel like a beacon of optimism.

Frankly, it’s much less depressing to be here than in a lot of places in the west.

4) ANYTHING you want can happen in China.  Chinese people are an industrious lot, and they respond very favorably to money.

There is no order that is too tall or too complex– do you want someone to deliver your groceries? build you a rocket ship? customize a special casing for your laptop? reproduce an out-of-print book? design official-looking novelty documents?

It can all happen in China; the only limitation is creativity.

5) Living in China is a differentiator… it sets you apart from others. For years, people will gather around to hear you tell stories about the curious things you saw in China, from the Shaolin Temple in Henan Province to the bustling business in Shanghai’s Pudong financial district.

This distinction that you draw between yourself and others can be critical to expanding your personal network. As we discussed in our free Network Infiltration report, differentiation is a core element to getting noticed and being accepted into powerful, exclusive networks.

Spending a lot of time overseas in a place like China certainly qualifies.

Overall, I firmly believe that China should be on everybody’s radar, even if just for a brief visit. To be clear, the country is far from perfect.  But in my opinion, for a foreigner, the advantages far outweigh the inconveniences.

I spent the better part of my day today at a small conference attended by many of Shanghai’s wealthy, plus their lawyers and accountants.  Considering the subject material is highly frowned upon by the government, I was surprised that so many were in attendance.

So what was the topic of discussion at today’s event? Second citizenship.  Specifically, the St. Kitts second citizenship program.

Throughout the afternoon, local Chinese listened intently as speaker after speaker extolled the virtues of St. Kitts and its economic citizenship program. 

In case you haven’t heard of the program, it’s one of the oldest economic citizenship models still in existence.  An interested applicant must invest $350,000 (plus government and legal fees) in a government-approved real estate project, as well as undergo a background and medical examination.

If accepted, the applicant will be awarded with citizenship of the Federation of St. Kitts and Nevis.  Since the island-nation is a Commonwealth country as a former British colony, St. Kitts citizens enjoy visa-free travel to the UK and European Union.

There were several developers at today’s conference with lots and homes for sale.  From what I could tell, the average price point was around $700,000.  The locals stared eagerly at the sales brochures, full of Caribbean Sea views and vibrant green tropics, which made for a stark contrast against today’s gray skies in Shanghai.

The St. Kittsians in attendance today were in demand because they can solve multiple problems for wealthy Chinese.

First, wealthy Chinese want to be able to travel internationally with ease, and this is something that is simply not possible with a Chinese passport– there are far too many visa requirements, and staying somewhere for more than a couple of weeks is problematic.  The St. Kitts economic citizenship program would provide an excellent passport for them and their family members.

Second, purchasing foreign property is an effective way to get money out of China because it cannot be forcibly repatriated.  Chinese are normally subject to extreme exchange controls with transfer limits of about $50,000, and moving money requires a litany of stamps and approvals.

Property purchases are slightly less cumbersome, and most buyers are able to more easily execute this by first sending the money to an account in Hong Kong, which has no exchange controls at all.

Third, and most importantly, Chinese want to be able to establish residency somewhere else, preferably in a place where they can send their children to school.  For Chinese families, this is the ultimate priority– to have a western educated child and a place for the family to live outside of China. They start planning these things from the day the child is born.

Overall, I am convinced that today’s event is indicative of an enormous trend.  Chinese clearly want additional travel freedoms and the ability to reside, even if temporarily, overseas. They have the money to pay for it.

Ironically, Chinese are not able to find the answers themselves… many websites that discuss second citizenship programs are blocked, so they need these live meetings to get a better understanding of the opportunity.

Meanwhile, foreign developers and lawyers really want access to the Chinese market.  Their traditional markets from the past several years– wealthy North Americans and Europeans– have dried up.  China represents the next growth market of people who have both the necessary appetite and available capital to acquire foreign property and/or second citizenship.

In my opinion, there is a fortune to be made for an entrepreneur who can match the buyers and sellers together. I think this is a very real opportunity, and I’d like to hear what you think… especially if someone is interested.

Apparently I’ve been traveling too much, because I was recently caught out of the loop.

On Wednesday I published an article about Panama’s Resolution 52; the law effectively makes it illegal for landlords to rent property in Panama for less than 1-year.

I predicted in the letter that, based on the past track record of Panama’s National Assembly, the law would be repealed shortly due to significant pressure from the real estate industry and expat community in Panama.

Well, it turns out that I was simultaneously entirely right, and entirely wrong.  By the time my letter was published, Resolution 52 had already been repealed.  Crisis averted.

I found out about it thanks to Augusto, my very dedicated Panamanian attorney.  Even though he was somewhere shy of the 14th green at the time, Augusto somehow managed to read my letter and instantly correct my mistake with the following email:

“Your article is completely wrong. Resolution 52 was already revoked by Resolution 79.”

Did I mention he’s blunt too?

Frankly I couldn’t ask for a better attorney; I have burned through dozens of lawyers in Panama over the years, and Augusto is truly among the best in the business. He has literally saved me tens of thousands of dollars by steering me away from the wrong deals and connecting me with the right people to profit with.

Augusto’s example underscores and incredibly important point: a key element to success in many ventures lies in who you know.  The ability to leverage contacts to make things happen often makes the difference between a home run and a strike out.

I believe in this principle so much that I try to make it a core theme of this letter.

Last month, for example, I published my Panama Black Paper.  It was essentially my personal rolodex of high-level contacts in Panama– lawyers, bankers, real estate agents, gold dealers, etc. whom I trust and have dealt with in the past.

The idea behind the Black Paper was to provide people who are serious about living, investing, or doing business in Panama with a well-connected network of influential individuals who are trustworthy and highly competent.

All of my most profitable deals, most important relationships, and the best experiences have all come to me because of who I knew– my network.  I know it’s cliché, but it’s the truth.  “It’s not what you know, it’s who you know”.

It’s also true that you can dramatically expand your opportunities and experiences if you know how to grow your network; there’s an art to doing it, and it’s something that I’ve been successful with in the past.

For example, when I was working in the intelligence business, infiltrating networks was part of the job description.  Now I use the same tactics to walk in to a foreign country and make a big splash with the upper ranks in a short period of time.

There’s no mystery to doing this, it’s a question of process and persistence… and sometimes even paying to be in the room.

Do you want better investment returns? Become friends with the people who have it mastered. Do you want to make a lot of money? Get networked with talented entrepreneurs and deal makers.  Do you want to meet beautiful models? Get close to photographers and fashion designers.

Once you understand the strategy and tactics involved in building a new network, you’ll be able to immediately change the scope of opportunities in your life, solve problems, and create deep, rich relationships with the kind of people you want to associate with.

I’m thinking of writing a free report about how to generate goodwill, build contacts, and penetrate any network.   This isn’t for everyone, but if you’re looking to take your available opportunities and experiences to the next level, “who you know” can make all the difference.

If you’re interested in this information let me know in the comments below.   The more requests I receive, the higher priority this free report will be.

UPDATE: The report is done. If you are interested in receiving it, sign up for our free daily e-letter, Notes from the Field, and you’ll receive a copy.  (Scroll back to the top of the page and enter your info in the box.)

“Dear Simon- Jeff Clark from Growth Stock Wire recently wrote that ‘China is a fraud’ and that ‘If Americans aren’t buying big-screen TVs or $100 sneakers, Chinese stocks are ultimately headed for trouble.’  I would like your opinion on his view.”

Great question. I like Jeff Clark and generally agree with his analysis… but like I said in Monday’s essay, I am puzzled that a few notable figures in the financial community are bearish on China.

Jeff’s analysis underscores the fact that the American consumer has dropped off the face of the earth. This is absolutely true, and it was a foregone conclusion that had to happen sooner or later. A society cannot persist on a negative savings rate without serious consequences.

That being said, China (and Asia in general) is now developing a robust domestic consumer economy that is picking up the slack.

I cannot emphasize this point enough.  In the 1950s, Asia’s economies were undeveloped, squalid backwaters whose only aspiration was to sell products to ‘rich’ America, the world’s beacon of freedom and prosperity.

That was the past. Today is a different story.

After years of working hard, producing far more than they consumed, and accumulating a substantial pool of savings, Asia is now entering the same position that the United States was in following World War II.

During the war, the US economy was in a state of full production.  Women entered the work force for the first time ever while the men were overseas fighting the war.  As a result, the average American family effectively had two salaries, and because nearly all manufactured goods went towards the war effort, there was nothing to spend money on.

Families built up substantial savings during this period, and by the end of the war, Americans had built up a large pool of capital that financed economic growth for the next several decades.

Asia is in this position now.  China, Singapore, South Korea, etc. are not frauds, but rather emerging consumers sitting on a huge pile of savings.  The growth is real, the macroeconomic fundamentals are solid.

On the other hand, would I invest in the Chinese stock market? No chance– I’d rather play craps in Macau… and Jeff correctly raises this point.

Last week when I was staying in Shanghai, I walked across the street from my hotel and saw what looks like an off-track betting operation: hundreds of Chinese people crammed into a small room staring at a giant data screen. Every few minutes when something would flash across the screen they would rush to the other side of the room to ‘place their bets.

My friend Christine Verone told me later that this is where Chinese daytraders gather, betting on momentum as blindly as lemmings following each other off a cliff.  This is not the market for me.  To be clear, I have little confidence in Chinese accounting standards, market transparency, or accuracy in official economic indicators…

… but I have every confidence that a bright, talented, hard-working entrepreneur can still make a fortune in Asia, and especially in China. The market is wide open in most cases, and the growth fundamentals are completely legitimate.

So if I’m not buying Chinese stocks, what am I investing in these days? Let me caveat this answer by saying that my risk tolerance is quite low. I generate income through various worldwide entrepreneurial ventures, and I multiply that income with what I consider to be ‘no brainer’ investment opportunities.

In my opinion, the best things to invest in these days are strong companies that are anomalously trading for less than their cash value– for example, a profitable company with $50 million in the bank whose market capitalization is only $40 million.

You get the company’s profits for free, plus $10 million in cash– the risk is incredibly low and the upside is huge.

It sounds unreasonable that such anomalies would ever exist… and you’re right, it is unreasonable. But it happens from time to time. Why? Because despite the drivel that they teach at most business schools, markets are NOT EFFICIENT– they are comprised of highly emotional participants, manipulative players, and authoritarian governments.

Consequently, great BUY opportunities emerge from time to time when the market becomes scared or otherwise irrational.

My friend Dr. George Huang has made a career out of finding these opportunities, mostly in the biotech sector.  I invest in his recommendations because he frequently brings me profitable companies that are trading for less than their cash value.

The last few picks have generated returns of roughly 50%, 100%, and 100% in less than 3-months each. Why? Because the market eventually realizes that a solid company trading for less than its cash is… completely absurd. And eventually, usually within a short period of time, the market bids the stock price back up to a reasonable level.

I mention Dr. Huang’s letter from time to time because I think it’s some of the most valuable investment insight out there.  If you haven’t listened to this interview we conducted with him a few weeks ago, it’s definitely a great use of your time.

Otherwise if you want more information about his letter and money-back guarantee, click here for more info.

If you’re an entrepreneur and want to make an absolute fortune, you need to head to Asia.

The last several weeks on the ground here have only reinforced my long-held premise that Asia’s economies represent vast, wide open potential.  These economies are growing, and shall continue to grow thanks to solid macroeconomic fundamentals like a large pool of savings, lack of reliance on credit, and dual trade/budget surpluses.

Nowhere is this more clear than in China.  Despite its dizzying growth rates in recent years, the middle kingdom is still developing, albeit rapidly.

What does this mean?

In the US or Europe, true innovation is uncommon– anything that could possibly happen has pretty much already happened. If an entrepreneur wants to start a business in New York or London, s/he will be competing in shark infested waters against dozens if not hundreds of other businesses.

Not so in China.

In most cases, the market is wide open simply because there is a critical shortage of qualified talent… this is readily apparent in Shanghai’s financial community where everything from gold traders, CFA analysts, accountants, fund managers, and experienced executives are in short supply.

The latest statistics show that of 376 listed funds in China, nearly 22% of the fund managers have less than 1 year of experience, and only 3 have been in the business for more than a decade.  Pudong, Shanghai’s financial district, should be a haven for Wall Street refugees… if anyone has the insight to be looking east.

In China, as in most countries, the ‘stiffest’ competition is in the Tier-1 cities, which means Shanghai, Hong Kong, Beijing, Guangzhou. And while I am convinced that hard-working entrepreneurs can make a killing in these cities, the virgin territory is in China’s Tier 2 / Tier 3 cities… you know, the ‘small’ cities with fewer than 10 million people.

For example:

Kunming, Yunnan province: This is a major logistics hub of southwest China that is known by its pleasant sobriquet “city of eternal spring” because of its fantastic weather.  Despite having a population greater than Miami, Houston, and San Francisco, few people have ever heard of it.

Kunming has been experiencing double digit growth rates due to its direct trade routes with key partners in Asia; it is strategically located to do business with Vietnam, Myanmar, India, Thailand, Malaysia, Cambodia, and Singapore… in fact, foreign investment from Singapore in particular has been surging.

Right now the city is raw, cheap, and full of opportunity– the government has problems that need solving and has the money to throw at sharp entrepreneurs who can provide solutions.

Qingdao, Shandong province: I pen this missive tonight from a city of ‘only’ 7.5 million; originally settled by Germans in 1903, the city is most famous for its “Tsingtao” brand beer (pronounced ‘CHIN-dao’).  What’s more though, this coastal city is a major eastern seaport and manufacturing hub with strong ties to Korea (both of them).

Qingdao is also a strong agricultural and fishing center, and the government is desperately trying to figure out how to meet the growing demand for organics.  These are all problems that need solving… and this is the key theme of entrepreneurship.

A brief anecdote– several years ago, a British man who was an expert in the beer and wine industry stumbled upon Qingdao and determined that it was ideal for a wine vineyard.  He also realized that wine consumption would grow with affluence rates.  He was right– wine consumption is now growing at a 15% annual rate.

With just a $700,000 initial investment, his brand is now considered to be the best white wine in China, and the vineyard makes a metric truckload each year.

I could cite you examples all night of other successful entrepreneurs who came to China, spotted a trend, solved a problem, and made a fortune.  Christine, my friend and colleague who has given me a personal tour over much of this trip, is one of them.  More on her story tomorrow.

The formula is not complex; the best entrepreneurs are the ones who solve the biggest problems in the most efficient way. Because it is developing so rapidly, China is experiencing significant problems and simply does not have the expertise to solve them organically.

Let me know if you are interested and we can have a discussion about specific examples.

Earlier today, amid much pomp and fanfare, the Panama Canal Authority (ACP) opened the sealed bids for the canal expansion project. Audience members looked on eagerly like it was the Academy Award for best picture…  The lowest bidder? A consortium led by Italy’s Impregilo, ringing in for a cool $3.12 billion.

Wait, wait, not so fast.  The contract has yet to be awarded and the ACP has a point system that factors both price and technical analysis in determining the ultimate winner.  This is Panama-speak for ‘whoever leaves the most money on the table.’  Naturally, they are capitalists.

Frankly, it doesn’t really matter who ultimately wins the bid– Spain’s ACS, Italy’s Impreglio, or the Bechtel/Mitsubishi joint venture. The important fact is that the project will undoubtedly be
bloated and over budget, and the amount of work involved is far more than the initial survey results suggested.

Entire armies of labor and supervisors will be needed, as well as expat executives, managers, and engineers who will relocate to Panama for the duration of the project. Coupled with the other mega-projects in the area, as well as the number of multinationals setting up a
large presence in the country, I expect there to be a steady inflow of expatriates business people into the country over the next several years.

This is a major opportunity, and in my opinion, low hanging fruit.

Panama already has its fair share of retiree and wanderlust expats, and I certainly expect these segments to grow in the coming years… but the business expat is a different animal altogether.

Unlike retirees and young adventurers, businessmen relocate with their families.  They are in their prime earning years, and as consumers, they spend orders of magnitude more than other demographics.

Expat businessmen are on generous relocation packages, so they have more money than most.  They need schools. Daycare. Parks with silly waterslides. Home healthcare. A greater sense of security.  Right now, these services are generally lacking in Panama, and this spells opportunity for entrepreneurs.

I have personally seen some multinational companies overpaying by thousands of dollars each month for their managers’ accommodations, and I expect this trend to continue because there is presently tight supply of quality, well-located expat housing… and well-located is key.

Panama City is full of empty condominiums.  Developers simply overbuilt their market… and while some of the condos are very luxurious, most are simply unsuitable for expats who relocate with families, and too far from the job sites.

Developers made the mistake of overlooking the professional, family expat. The best way to capitalize on this for an investor, in my opinion, is to look at land and housing located near the Canal and major job sites; prices have fallen since last year and I see demand surging soon.

For entrepreneurs, there are small business opportunities for anything that caters to the family in the aforementioned locations, especially childcare.

On another note, I mentioned about a week ago that I was working on a way to share some of my contacts.  I’ve decided to put together a series of white papers, and the first one will be Panama… except I’m not going to call it a white paper because it won’t contain any of the usual inaccurate drivel and gibberish you find in google.

No, this will be a Black Paper… concise and intelligence-rich, designed for the investor and entrepreneur.  I’ve spent years and tens of thousands of dollars accumulating the right contacts, and I will not only tell you who to work with, but I will spell out specifically who NOT to work with.

There will be a charge for this… I’m not sure how much yet because I don’t know how many I want to sell; I’m planning on keeping it fairly scarce so that I do not overwhelm my contacts.  If you’re interested, I’d like to hear from you specifically what information you would like to see in a Black Paper– I know that bankers, brokers, lawyers are at the top of the list, but what else? Let me know by commenting below.  I’m working on it right now and your feedback will help shape the content.

I’m back in Panama today… I’ve never been so happy to see Panamanian soil before; the trip to Cuba, which I reported on yesterday, was fantastic– but the lack of reliable phone and internet connectivity was problematic now that I have a daily deadline to meet.

I spend a lot of time in Panama, and yet every time I fly in, I am continually amazed at how quickly it seems to be changing. I mentioned in the May edition of Without Borders that supermarket magnate Ricardo Martinelli has won the presidential election in Panama and will be innagurated to a five year term in just a few days.

Politics in Panama is taken quite seriously. The government declares a long holiday weekend and goes so far as to put a moratorium on liquor sales prior to the polls.  Panamanians, being natural rule-breakers, simply stock up on beer the day before and enjoy a drunken holiday prior to choosing their leader for the next five years.

Fortunately they chose wisely.

Martinelli’s opponent was a bona fide socialist, former housing minister Balbina Herrera– a lifelong bureaucrat  who lost the trust and confidence of voters when she disclosed a multimillion dollar net worth.  I have met her a few times and had a drink with her shortly before the election one of her chief advisors is a former business associate of mine. She is absolutely dim-witted in the clinical sense and has zero financial acumen, other than a talent for accepting bribes.

Panama will be much better off with Martinelli.  Namely, I am closely following a couple of issues:

First, proper management of the Canal expansion project is critical to Panama’s future growth.  Canal revenues dominate the fiscal landscape and provide extraordinary political leverage for such a small country.  Because of the Canal, developed nations tend to stay out of Panama’s internal business, as evidenced by Panama’s conspicuous absence from the OECD “black list” several months ago.

An efficiently executed Canal expansion project will generate increased toll revenues in the future and create new, sustainable industries in the country.  If the government or contractors manage to screw it up, the Panama Canal will become an economic sink hole, and the country will lose tremendous credibility. A lot is riding on this.

The main contract worth several billion dollars will be awarded within the next 60-days to either Bechtel or Italy’s Impreglio.  Work on the Canal will start shortly thereafter, creating a surge in demand for local labor.

Panama is already operating at high levels of employment, so much of the labor will have to be imported, spurring demand for new low and middle income housing units in key areas near the Canal.  I think that land in these areas will be a favorable long-term investment, particularly since prices pulled back from their highs nine months ago.

Second, all eyes are on Martinelli to see if he maintains a pro-business climate. Being a businessman himself, this is highly likely, so I expect little change to Panama’s banking laws. In a few days I will be receiving some information from the banking regulator here, and I plan on sharing my analysis of the local banks and the liquidity situation. More to follow.

Lastly, I wanted to mention a private deal that I’ve recently been offered here in Panama. I’m thinking of backing a couple of pharmaceutical entrepreneurs who are setting up a manufacturing facility here; it’s not much money, less than $100,000, and the potential payout is enormous. I’m talking to their future customers and believe the sustained monthly cashflow will be close to my initial investment.

I’ve always been drawn to the economics of the pharma industry. Pharma companies are a lot like junior miners; entrepreneurs rally seed capital around talent and (intellectual) property, and there’s a lot of government involvement along the path to profitability.  Like the juniors, good pharma stocks have explosive potential… or they could go to zero.

Unlike the juniors, however, small pharma stocks often keep to a predictable pattern due to their regulatory nature. A good analyst can eliminate the bad apples with pitiful balance sheets and achieve average returns of 40% or more. I like this. I recently met a very sharp analyst with a distinguished track record in medicine and finance who has a letter specifically dedicated to scouting the best deals.  Click here for more…