June 4, 2010
New York City

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

May 10, 2010
Undisclosed location

I’m going under the knife tomorrow… it’s a little unexpected, but apparently I need a rather urgent surgical procedure performed, and the doctors here have fit me in at their first available time.

To be honest with you, I’m pretty disappointed– no, not because of the operation. These things happen from time to time, and I’m pretty fearless. I’m mostly disappointed because I’m not in much condition at the moment to get on a plane and fly to another country where I would actually prefer to be operated on.

This is all rather ironic, because a couple of my friends had commented, “wow, I bet you’re happy that you just happened to be in the US for this!” Actually, no, I’m dismayed.

First of all, my US insurance company won’t cover the procedure… at least at the moment. If I wait a bit longer until the condition becomes life threatening, then they would cover it. But because I’m not presently terminal, I’m left to cover the costs on my own with cold, hard cash.

I figured this out ahead of time with the friendly folks at my insurance company, so when I went in to see the doctor here, I made him an offer.

“Look,” I said, “I’m paying cash. No insurance companies will be involved. Let’s make a deal.” Happily, he settled with me on a reasonable price, knowing that he would be paid immediately without having to deal with the usual bureaucratic runaround.

The price that we negotiated is just a fraction of the normal price that they bill to the insurance companies; it’s truly unbelievable how much excess doctors are forced to build into their prices simply because they know that they will only be paid a percentage of their invoices.

What’s even more unbelievable, though, is that the ‘reasonable’ price we agreed upon is still multiples more expensive than what I would pay for comparable, if not even higher quality care in the Orient.

This is the second chief reason I’m disappointed– aside from cost, I truly believe that I would receive better care in Asia. As for the operation itself, I’d say the odds are evenly stacked. It’s a simple procedure, and I’d trust a qualified surgeon of any nationality to carry it out without any significant errors.

What I’m more concerned about is the treatment I’ll receive before and after the surgery– the incessant forms they’ll have me fill out, the wasting away in a waiting room, the needless drugs they’ll pump me full of, the ridiculous OSHA and FDA regulations, the speed with which they’ll kick me out to make room for the next patient, etc.

These sorts of things seldom happen to foreigners in overseas hospitals. Overseas, foreigners are in control of their own treatment; they’re actually treated like a vested partner in the doctor/patient relationship instead of like a child, and this is certainly a nice change.

Frankly, this is what being a ‘permanent tourist’ is all about– maintaining that status as a valued customer who should be courted, instead of a regular citizen who will be milked and slowly bled to death… but I digress.

House calls are commonplace overseas… perhaps even more commonplace than they were in America back in the 1950s. It’s nothing for a doctor to swing by the house to check up on you, or even hire a few nurses out for the week to take care of you.

I was dumb enough to mention this to the attending physician; needless to say, he started arguing with me that the quality of treatment in Asia is substandard.

“Oh,” I told him, “so you or one of your colleagues has actually been to the hospitals in Hong Kong, Thailand, and Singapore to judge first hand?”

Silence.

It always puzzles me how rumor and stigma are perpetuated by the uninformed.

Lastly, having any medical procedure performed in the US has me a bit nervous these days. Nobody really quite knows what the Obama health system will look like (least of all the government), but I’m still concerned about ending up on a list in some government database as a guy ‘who has health insurance but doesn’t use it.’

Yes, I actually think the dastardly practice of negotiating directly with the physician instead of using a government-approved plan is going to land me in hot water with the IRS one of these days…. because, naturally, it falls to the Department of the Treasury to enforce healthcare legislation.

This is one of the other advantages to having medical procedures performed overseas; the records are actually private, and if you want, no one else will ever find out. It’s as close as you can get to dropping off the grid for your medical care without having to sacrifice quality.

To me, medical care is just another overseas flag that we can plant, especially if planned properly. In my case, I just got caught in the wrong place at the wrong time… which is ironic considering that I’m in the US at the moment undergoing treatment.

Look, I’m sure that things will be just fine tomorrow. I have no illusions that the surgeon is somehow unqualified or anything like that… but we all know that medical care is a package deal. And while the medical quality of US treatment may still be among the world’s best, many other countries are quickly closing the gap, and they’re already offering more attractive packages.

I could expand on this more, but if you’re interested, I would consider Dusit Bangkok and Bumrungrad in Thailand, and Raffles in Singapore.

April 30, 2010
Las Vegas, NV

It’s chilly in Las Vegas, but I’m having a great time meeting so many subscribers here at the Casey conference; I’m pleased at how many have turned up for the event, and I’m always humbled by the exceptional people we have in our community.

My only regret is that the conference organizers could not allocate more space for Sovereign Man readers, and I will personally ensure this doesn’t happen next time.

As I need to get going shortly to mingle with all the incoming attendees, let’s jump right in to this week’s questions:

First, a question that I have been asked hundreds of times over the last two months– “Simon, several weeks ago you posted two job openings on your website for people who were interested in working with you. What is the status of those positions?”

We recently filled both of the positions. It was one of the more difficult business decisions that I’ve had to make given the quality and number of applications that we received. We may be hiring again soon, and I will post that to the website as well if/when the time comes.

Second, Dana asks, “Dear Simon, if I trade US/Canadian financial markets from my home in Ecuador, would the government of Ecuador expect me to pay taxes on that income?”

No, especially as a non-resident foreigner. It’s the same in several countries, like Panama. This is one of the reasons for taking a multiple flags approach– having citizenship of one country, tax residence in another, and spending time/owning property in another.

Next, Neil writes, “Simon- I’m an investor and US citizen with residency in Uruguay. I want to hold gold coins in Hong Kong or Singapore, but I have a question– will I be able to open a bank account in Asia so that I will be able to wire money to my account in Uruguay once I sell my gold?”

Even as a US citizen, you should not have any problems opening a personal bank account at any number of multinational banks in Asia… try HSBC or Standard Chartered Bank, both of which have US branches and are accustomed to dealing with the Treasury Department’s arcane regulations.

Once you have the account open, you shouldn’t have any problems wiring the proceeds to your Uruguayan account once you sell your gold. Just remember a couple of things-

1) Singapore charges GST (VAT) on gold sales;

2) Don’t forget to fill out TDF 90-22.1, report of foreign financial account, each year after you open the new bank account;

3) You will have to report the proceeds of your gold sales on your tax return if you turn a profit.

Next, Dave asks, “Simon- I am currently living in Treviso, Italy, and I’m considering moving to Switzerland. However, I haven’t seen any posts about living in or considering Switzerland. What’s your take on the country?”

I like Switzerland. For me, it’s as close to a perfect civilization as it gets in this world. The government is [relatively] hands off, the people are [relatively] intelligent and freedom loving, and the country is quite clean and modern.

On the downside, the weather is too cold for my taste, it’s unconscionably expensive, and the people are boring.

Despite what has happened with Switzerland’s banking privacy, I still think the country is worthy of a number of flags, including banking, residency, citizenship, and tax home. I’ll be spending time there this summer and will report more at that time.

Lastly, Ken asks, “Simon, you wrote about Joel Nagel’s upcoming asset protection conference in Belize yesterday. It sounds worthwhile… but aren’t you negative about Belize?”

To be clear, I have no issues with Belize as a banking jurisdiction. True, I personally do not like Belize as a place to spend much time, but I don’t expect everyone to share my tastes.

I know that there are many subscribers who are very interested in Belize, and Joel Nagel’s asset protection conference is probably the perfect opportunity to go check it out.

Why? Because Joel is one of the best international tax attorneys in the business, so you’ll learn everything you need to know about protecting your assets. Plus, you’ll be able to open a Belize bank account through his personal connections, and you’ll have plenty of time to spend exploring the country to see if you like it.

March 26, 2010
Vancouver, BC

I’m headed to Panama shortly where I look forward to meeting up with my friends and colleagues in the Atlas 400 group. We’re going to an exclusive deep-sea fishing resort for a few days, and afterwards I plan on taking up some unfinished business in Panama.

One of the things on my agenda is to revisit the sustainable community concept that I began discussing a few months ago. This is something that I really want to do, for personal reasons… I’ve always wanted a place that doesn’t rely on ‘the system’ for food, water, power, and security.

In my travels around the world, though, I’ve not yet found a community that provides this, at least up to my own standards… it’s possible that one exists, I just haven’t seen it yet.

I have a detailed plan in mind that will start small and allow the community to grow as the market dictates; my biggest challenge is time. At the moment, I have several other business and investment obligations on my plate, and I’m hesitant to commit to another major undertaking.

As I said, though, for personal reasons I would really like to develop this community, and I’ll be making a final decision once I meet with my team of architects and engineers in Panama over the next 2-weeks. Stay tuned.

On to this week’s questions:

First of all, Tom asks– “I’m exploring Hong Kong at the moment and am wondering if there are any subscribers in HK who would be willing to talk with me about the residency process. I’ll be here until April 3, then off to Singapore where I will be conducting similar due diligence.”

If anyone is in the area and willing to meet with Tom, please drop us a line and my assistant will forward your contact information to him.

William asks– “I live in the US and so does my business partner. We have a start up internet business hosted in the Netherlands. We have been trying to find a way to incorporate and get a bank account offshore. I have had many problems while researching this. Any suggestions?”

First of all, it’s a fantastic idea to plant a flag overseas when you incorporate a business, particularly one that’s internet-based. A properly-structured foreign corporation provides a way to legally defer tax payments (similar to an IRA) plus you have substantially reduced liability.

There is no “one size fits all” solution though. The most important thing you can do is talk to a qualified tax attorney in your home country– that means someone who understands international tax law, as well as the benefits of individual offshore tax jurisdictions. (this is a rare species)

It’s absolutely critical that you do this because no one in an offshore jurisdiction really understands the tax and structural implications that affect you.

Get the right advice and it will pay huge dividends in the future. If you need a referral, drop us a line. I have tax attorney contacts in the US and the UK.

Jack asks, “Simon, do you have any suggestions for an American who would like to open a bank account in Thailand?”

Yes. Don’t open a bank account in Thailand. It’s a beautiful country, but not a place with a trustworthy financial system. Thailand is highly corrupt and immature as a banking center… and there are too many solid options in the region– Hong Kong, Singapore, and Labuan are great alternatives.

If you want to have a bank account in denominated in Thai Baht, you can easily do this at a number of other banks in Asia, such as HSBC in Hong Kong.

Finally, Mark asks, “Simon, you said the price of housing in Malaysia is $1400 per square meter– if I did my math right, this works out to $128 per sq ft. This is the low end of new housing in the States. So, from that perspective it doesn’t seem that inexpensive. Your thoughts?”

First of all, just to clear things up, when I said the price of housing in Malaysia is $1400 per square meter, I’m referring to the average cost of high quality, expat-level housing (not raw land) in tier-1 neighborhoods.

With few exceptions, this is lower than comparable costs in the US, Canada, and Europe. To be honest, Detroit is probably one of the cheapest places on earth to buy property right now… probably cheaper than Malaysia. A speculator may be able to make a fortune in Detroit– but with tremendous risk.

“Low prices” don’t always mean “great value.” And despite the low prices, there are a few things that really scare me about US real estate.

First, continued government intervention makes me want to run away like a scalded dog. The government is unable to ‘fix’ anything other than elections, and their continued intervention in the housing and mortgage markets will only lengthen the pain in the sector.

Second, state and local governments are broke, and as a source of revenue, I’m convinced they’ll be looking to increase property taxes. In the hardest hit areas, I expect tax rates to more than triple.

Third, in the medium-term, I also expect prices to keep falling… stagnate at best. If you consider the supply/demand fundamentals, there is still way too much supply on the market, and not enough households or available credit to fill the void. In my assessment, this is not the bottom.

To me, while there are some bubbles forming on the continent, parts of Asia demonstrate significant value as long-term property investments, currency diversification, and residency flags. I don’t see those benefits in the US at the moment, particularly given the risks.

That’s it for this week; have a great weekend and we’ll talk again on Monday.

March 25, 2010
Tokyo, Japan

About 20-years ago, many of the world’s sovereign nations started down an interesting path.  Region by region, governments formed supranational free trade blocs in order to facilitate economic growth.

Supranational organizations were nothing new… from the failed League of Nations after the Great War to the UN and NATO, large multi-country blocs had been formed in the past, but usually for political purposes or military alliances.

Conceived in 1989, the Asia-Pacific Economic Cooperation (APEC) was among the first international forums specifically designed to boost trade and enhance economic growth in the region, politics be damned.  After APEC came MERCOSUR in South America, NAFTA in North America, the EU, and finally the African Union.

A few years into the new millenium, most of the world was covered in trade blocs that were supposed to throw politics out the window… today, though, only APEC remains as a pure financial body, and the rest of the world could learn some valuable lessons from that region.

Aside from reduced trade restrictions that are standard for these organizations, APEC has come up with a few really brilliant ideas. Their goal is to make it easy for businesses to engage in commerce with each other– and by facilitating business at the individual level, more deals get done, and more wealth is created.

One of the ways that they’ve done this is by creating a program called the APEC Business Traveler Card (ABTC).  It’s literally a small plastic card that entitles cardholders to visa free travel for at least 59 days throughout the APEC sphere, as well as expedited immigration clearance at airports and other ports of entry.

At major airports in the region, for example, you’ll see signs all over the place for “ABTC FAST TRACK” which gives priority clearance at customs, immigration, check-in, and security to ABTC card holders.

Actually, in many cases, the ABTC is as powerful and useful as a diplomatic passport, but without the cost… and since APEC includes several countries like China and Vietnam that normally have a stringent visa process, the additional travel freedom is substantial.

This is a great tool for PTs and anyone who does a lot of business in Asia.

So how do you obtain one?  You need to be a passport holder from one of the participating countries– so if you’re from Australia or New Zealand, for example, I highly recommend going through the application process; check your respective country’s immigration website.

If you’re not already from the APEC sphere, you need to obtain another passport… which you should be thinking about already.  Of the participating APEC countries, the most straightforward ones to obtain are Chile, New Zealand, and Singapore, as well as Hong Kong permanent residence.

With each of these countries, the residence and naturalization process takes anywhere from 2-7 years, and in each case, the process is unmistakenly clear and leaves very little to subjective interpretation.

For example, obtaining a Hong Kong permanent residence card (which qualifies for the ABTC program) requires 7-years under one of the various residency schemes, such as the investor visa or professional worker visa.

In Singapore, citizenship can be obtained in as little as 2-years; it’s 5-years in New Zealand, and 5-years in Chile.

Frankly,I will need to write entire letters specifically on the subject of second passports from these countries; for now, though, you should definitely be thinking in that direction– and if you’re interesting in eventually planting a residency flag in Asia, those are the countries you should consider for second passports.

Stay tuned.

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.

March 5, 2010
Kuala Lumpur, Malaysia

Greetings from Malaysia, where I’m spending an extended weekend before heading briefly to Singapore on business.  I’ll tell you more about the country next week… but if you’re interested in Asia, it should definitely be on your radar.

Before turning to this week’s questions, I wanted to give you a quick update on the job posting from a few weeks ago.  Ordinarily, Matt and I would have made a decision by now, but the applications keep rolling in… I lost count after a few hundred.

To expedite our decision, we’re going close the posting at 11:59pm EST, Monday night March 8. No other applicants will be considered after that time.

Please remember, since there have been so many applications, my staff and I will not be able to respond in order to confirm receipt. Rest assured, if you sent us an email, we received it.

On to this week’s questions:

Tom writes, rather emphatically “Simon, I left the US over a year ago. I now need a 2nd passport as I am almost out of pages on my current one. Problem is, I can’t go to the embassy due to some legal problems back home, and I don’t have $50k to spend on a new passport. What can you recommend?”

Tom has an interesting and unfortunately all-too-common case. I don’t know what he’s done or if he’s guilty of any wrongdoing, but a last-minute second passport is no panacea for criminal troubles.

(to be clear, I don’t equate ‘law’ with morality, but this is a different subject altogether)

Why? Because even if you’re completely innocent of some trumped-up charge, any new country that would consider accepting you for citizenship would first do a background check, and if you’re in hot water, they probably won’t take you.

Conversely, if you actually have done something immoral, you should probably just face the music. After all, the cosmic forces of the universe have a way of working these things out.

Regardless, I think this underscores the importance of taking action. If you have the means, going through a second citizenship process NOW, before it becomes a critical need, is a smart thing to do.

I discussed a few cost effective second passport options last week, and I will continue to do so in future letters.

Speaking of second passports, I made a mistake when I mentioned something about Polish citizenship last week– my thanks to “anonymous” for sending along this correction:

“Simon, you said that a Polish citizen could establish permanent residence in another European country like France or Italy and  become eligible for citizenship there after 7-10 years.  The EU rule is that local citizenship can be applied for after 4 yrs residence, though it’s much faster with marriage.”

She is absolutely correct, my apologies for the oversight.

Stephanie in New York writes, “Simon, thanks for the great information on opening a foreign bank account this week. As a US citizen I understand that I need to file a form to the Treasury Department each year– what are the details on that?”

First- standard disclaimer: check with your tax advisor for any updates. But the current rule is that US taxpayers must report foreign bank and financial accounts on form TDF 90-22.1 each year by June 30.

According to the IRS, A “financial account” includes any bank, securities, securities derivatives or other financial instruments accounts, including any savings, demand, checking, deposit, or any other account maintained with a financial institution.

As of now, you do not have to file the form if the aggregate value of all of your foreign accounts was less than $10,000 for an entire calendar year. If the aggregate value of foreign accounts exceeded $10,000 at any time during the year, you are obliged to file the form by the following June 30th.

James asks- “Simon- you’ve been in Thailand for a month but you haven’t said anything about the nightlife or social scene!”

That’s because you can read about Thai nightlife anywhere. I figured you’d be more interested in the hydroponics plantations where I buy organic vegetables than a review of the Go-Go bars…

… but to put it briefly, you can find whatever you want in Thailand. Sex, drugs, and rock n’ roll are as pervasive as Buddhist monks and the works of Shakespeare. If there’s interest, I’ll write a dedicated post about this, just let me know.

Lastly, Pat asks: “OK Simon- I owe $136k on a house that I bought 4 years ago; it’s now “worth” about $70k, tops.  I make plenty of money, but the payment is slowing me down.  Would it be immoral to jump ship and go rent somewhere else?”

Personally, I have an immensely open mind to not judge people for the way that they live. I only broadly repudiate things based on very few moral absolutes– for example, genocide and pedophilia are clearly ‘wrong’ in my book.

Walking away from your mortgage does not make my list.

If you do decide to walk away (and I’m not encouraging you either way), just bear in mind the single universal law of causality… there will be consequences from your actions, and you must be prepared to accept them.

That’s all for this week; enjoy your weekend, and we’ll talk again on Monday.

March 4, 2010
Pattaya, Thailand

It wasn’t too long ago that there was a concrete dividing line down the center of Europe with large scale nukes pointed at both ends. It wasn’t long before that when two sides were battling it out in Normandy, or in the trenches before that.

Throughout the last thousand or so years, in fact, there are few and short-lived periods of peace among European countries. Just in the last 200 years, over 60 wars and armed conflicts were fought between at least two European powers.

This is why the whole idea of Europeans patching up their differences and playing nice under the auspices of a central bank-controlled fiat currency makes absolutely no sense at all.

I’m not trying to predict another armed conflict here… but these are sovereign nations who have a rich cultural history of going to war against each other to expand their sovereignty. For the past 10-years they’ve given up their sovereignty to the European Central Bank… and for what?

It worked for the better part of a decade because times were good. Now times are tough, and the alliance is frayed once again.

My friend Porter Stansberry (whom I believe to have one of the best common-sense investment approaches in the business) recently wrote, “next to corn-based ethanol, the euro might be the worst large-scale political/economic experiment I can think of…”

Agreed. Now, I discussed this all last week and don’t want to belabor the issue… but I would like to raise two important points:

1) As a rule of thumb, never base your economic analysis on anything that any government tells you.  Yes, Greece is sounding the ‘all clear’ bell because it’s raising taxes to plug the budget gaps. But anyone who understands basic economics should be running away, despite the ECB’s encouragement.

2) Don’t be a contrarian for contrarian’s sake. Some people are constantly looking for an angle, and that angle is to do the exact opposite of what everyone else is doing.

That line of reasoning works if the fundamentals make sense. But occasionally, even the irrational market knows what it’s doing… just ask the people who bought Lehman stock as it was collapsing, thinking that the market had it all wrong.

There’s being a contrarian, and there’s bringing a toaster with you into the bathtub.

I’m telling you this because I recently read a contrarian blogger’s essay on the coming financial tsunami… originating not from European economic challenges, but from an imminent -Singapore- debt crisis.

Singapore?

The blogger described how the debt problems in Greece are nothing compared to the debt problems in Singapore, indicating that Singapore’s debt to GDP ratio is a ‘whopping 99.2 per cent.’

Let me pause for a moment and explain something about this number.

Debt to GDP ratio is one important measure of a country’s economic health– in a way, it’s sort of like a nation’s body fat percentage.  You could be a skinny-mini with a really high body fat percentage (Seychelles), or you could be a 250 pound pro-athlete with a really low body fat percentage (China).

Decreasing a nation’s body fat percentage and thus promoting economic health requires going on a diet (paying down debt by cutting spending) and/or adding muscle mass (real GDP growth).

Greece is having its current problems because its body fat is too high, it doesn’t have the discipline to go on a diet, and it’s too old and broken to hit the gym anymore.

In fact, Greece has hit the tipping point where it has to borrow money just to pay the interest on the money that it’s already borrowed… these are nearly irreversible challenges despite any cheerleading you hear from the government (see point #1 above).

Regarding Singapore, the debt-to-GDP ratio of 99% is completely and totally overstated. Singapore’s actual debt is a small fraction of that– the government routinely runs a budget surplus and doesn’t have the terminal debt addiction that other developed nations are afflicted with.

The reason Singapore’s debt ratio is so overstated is because of the way that the IMF conducts its accounting:

With just a thousand dollars or a million dollars, people with spare cash simply hold it in a bank account. Large institutions with hundreds of billions of dollars, however, need safe, highly liquid debt markets to hold cash for the short-term.

Thus, in order to attract institutional capital flows, Singapore runs a high volume, robust sovereign debt market. It has to, otherwise institutional investors wouldn’t take it seriously as a global financial center.

Unlike US treasuries which are consumed and reissued in a dangerous and unsustainable ponzi scheme, Singapore’s bonds are investment securities that facilitate liquidity in the secondary market.

Because of IMF accounting rules, however, these bonds count ‘against’ Singapore and are included in the country’s debt.

The global economic crisis has certainly hit Singapore squarely on the chin, but to say that the next financial Tsunami will result from a Singapore debt crisis is just being a [misinformed] contrarian for contrarian’s sake.

March 3, 2010
Pattaya, Thailand

One of reasons that a lot of people are hesitant about making a move overseas is because they’re concerned about being isolated. The world can be a cruel place, especially to newbies.

Sure there are the nomads out there who want to be left alone with their little slice of paradise in the middle of nowhere… but most people crave some human interaction from time to time, especially from like-minded souls.

I’m one of those people. I enjoy the company of interesting, like-minded, and well-rounded individuals.  This is the chief reason that I’ve encouraged kindred readers to join us in the private Atlas 400 group, whose next gathering is coming up next month in Panama. I’ll be there.

On the subject of social interaction, I think Panama is one of the easier places in the world to meet people, both foreign and local. Despite Panama being a Spanish speaking country, the English language is absolutely pervasive, particularly in Panama City and Boquete.

It’s easy to meet anyone, and with the exception of a handful of elitist gringos who think too highly of themselves for having lived in the country for so long, most people are actually quite friendly and welcoming.

As a rule of thumb, the more ‘international’ a city is on a per-capita basis, the easier it will be to meet like-minded, English-speaking expats who are at your level.  Panama City has about 50,000 expats and roughly 1 million locals.  Boquete has a population of about 20,000 with at least 5,000 expats.

By contrast, as city like Shanghai has 300,000 expats and 17 million Chinese people, most of whom do not speak English.  You get the idea.

I’ve honestly found both Phuket and Pattaya, Thailand, which are fairly small cities of about 100,000 each, to be among the most international cities in the world on a per-capita basis.

Here in Pattaya, for example, I have gotten to know people from 6-continents– a Russian movie producer, a French investment banker, a Norwegian surgeon, Canadian entrepreneurs, a retired Australian footballer, an Indonesian factory owner, Yemeni medical tourists, Sudanese vagabonds, and a lovely topless sunbather from Peru.

In fact, Pattaya is the only place in the world that I have been to where on a single block you can see a dry cleaner’s sign in Arabic, a restaurant shingle in German, a real estate billboard in Russian, a newspaper kiosk in Thai, a travel agency in Mandarin Chinese, and a Go-Go bar promotion in English. It’s really amazing.

Just recently I was having lunch in an Arabic restaurant owned and operated by former Iraqi soldiers of the elite Republican Guard. When I looked around and saw Russians, Europeans, Africans, Arabs, and a handful of Jewish tourists eating large meze plates, I thought that I must have stumbled upon the center of the universe… or some strange version of MLK’s dream.

In these sorts of ultra-international locales, breaking the ice is as simple as asking the question, “where are you from?” Be prepared for long answers.

Other places that you may want to consider are Singapore, Hong Kong, Qatar, Capetown, Dubai (though it’s a bit pretentious), Georgetown (Malaysia), Punta del Este (Uruguay), Hanoi (Vietnam), Colima (Mexico), Medellin (Colombia), Cuenca (Ecuador), and just about any mid-sized city in Brazil (Natal, Florianópolis).

March 2, 2010
Pattaya, Thailand

Thanks to completely draconian US-led regulation, opening a bank account anywhere is about as fun as a barium enema.  Opening a foreign bank account can be an even greater nightmare.

Most of the time, a foreign bank will want you standing there, in person, to open an account, as well as to provide a seemingly endless array of notarized documents, stamped papers, and letters of reference.

Trust me, it’s not their preference either… in order to keep from being blacklisted by the OECD, though, banks have to resort to this level of bureaucracy.  They’re called “Know Your Customer (KYC)” rules, and the idea is to over-collect personal and financial information in order to determine that a bank customer is not a terrorist.

Anyone with half a brain can see that this is one of the stupidest notions in the world.  It’s like locks on a door– if someone wants to break in, a pithy little lock is not going to stop him.  Similarly, if a “terrorist” (I hate even using that word) wants to open a bank account, an avalanche of paperwork is not going to stop him.

As an example, I would point to accused arms dealer Victor Bout who currently sits in prison right here in Thailand; Bout was placed under US and UN sanctions back in July 2004, and yet he was still able to register numerous Delaware companies with bank accounts.

All the KYC regulations do is make it much more difficult for everyone else.

In our regular conversations, we’ve talked about the importance of having a foreign bank account… it is an essential flag to plant overseas, and you want to really consider low-tax jurisdictions with a strong, stable financial sector that have a history of not plundering the banks.

This includes places like Switzerland, Hong Kong, Singapore, Panama, UAE, Qatar, and a few others.

Many people understand the need to move some money out of their home country but are simply unable to take a far away trip just to open a bank account.  If you’re one of these people, here’s an easy back door. It’s less than ideal, but it works.

The first thing you need to do is pick your banking jurisdiction, i.e. Hong Kong, Singapore, etc. and then find a large multinational bank in that jurisdiction that has a branch near you.

As an example, I will use Hong Kong and HSBC… though there are other jurisdictions and banks that you could use as well (Standard Chartered, etc.)  HSBC is a good example because it has a presence in more than 60 countries, and you’d be hard pressed to find a civilized place that does not have a branch.

Among HSBC’s many branches are offices in Los Angeles, Miami, Vancouver, etc. So first you call HSBC in Hong Kong, explain that you are a foreigner, want to open a bank account, and would like to certify all the paperwork through your local HSBC branch.

The HSBC rep in Hong Kong will fax you all the appropriate paperwork, and when you have completed the documentation requirements, you should get in touch with the nearest HSBC branch in your home country and make sure they have “international banking services” available.

Let’s say you live in Orlando… that means you should head down to Miami, and the Miami branch will validate all the documents on behalf of the Hong Kong office.

Afterwards, the Hong Kong office will receive the documents and finalize the account opening.

This is the fastest and easiest way to open a foreign bank account without actually having to fly to a foreign country and go through the process on the ground.

The obvious disadvantage is that many people do not want to deal with a large, multinational foreign bank like HSBC, Standard Chartered, etc. I agree; it’s better to deal with a solvent local bank that does not have a large international presence.

However, unless/until you are able to get on a plane and fly to Asia, Europe, or the Middle East, this is one of the best and most cost effective interim solutions.

To be clear, even though you are opening it through a local branch in your home country, the bank account will be considered foreign and based in the offshore jurisdiction that you chose. If you are a US citizen, this obliges you to file US Treasury form TDF-90-22.1 by June 30 of each year.

February 19, 2010
Bangkok, Thailand

I really need to start out today’s letter by expressing how truly humbled I am to be part of such a fantastic community.

Matt and I have spent much of the last few days combing through resumes (200+ so far) for the job openings that I posted on Monday, and the caliber of talent and energy is really impressive.

Applicants vary in age from 17 to 70. They come from all stations of life– corporate executive, successful entrepreneur, student, homemaker; and they  hail from at least 18 different countries, from Guyana to China to the Netherlands to South Africa.

I’ve read every email with great interest and have made difficult choices to narrow down the pool of candidates. If you submitted an email, you might just be hearing from me in the next week or two.

Now… on to this week’s questions.

Karl asks: “Simon, we own a condo in Pattaya, Thailand and a home in Boquete, Panama so your comments have real meaning for us.  I am having trouble trying to decide how the decline in the US dollar will affect Panama which uses the US dollar for everyday commerce.  Can you comment on this?”

This is a great question. There are a couple of important factors that you should understand about the US dollar–

First, it’s like what Churchill said about democracy: the dollar is the worst of all major fiat currencies… except for all the others. Only three currencies can handle the massive capital flows of the global financial system without a major impact, and the other two (euro, yen) are in even worse shape.

Second, in the event of a critical dollar collapse, the currency of a country will be less relevant than its net exposure to the United States.

Panama has independent means of supporting itself thanks to the Canal, a robust financial system, global tourism, etc. So in the event of a dollar collapse, asset prices in Panama will definitely rise relative to the decline of the US dollar.

Sure, you might be paying $20 for a loaf of bread in nominal prices, but the inflation-adjusted standard of living should remain fairly stable because the Panamanian economy will still have independent income to support itself.

This is a similar fate as a country like Saudi Arabia whose ‘riyal’ currency is pegged to the dollar. Like Panama, Saudi has an independent source of income. If the dollar collapses, oil prices will spike, and the long-term inflation-adjusted effect for Saudi will not be too severe.

Contrast this with El Salvador which has no independent means of income and relies heavily on the United States for both remittance income and roughly half of its exports… Thus, El Salvador is much more vulnerable to fluctuations in the dollar.

The last thing you need to understand about a dollar collapse is that no country will be totally immune. The greenback defines the global financial system right now, and its collapse will cause panic and shockwaves around the world, at least in the short-term.

While yes, it would be preferable for Panama to have its own independent currency backed by gold, I would not let Panama’s dollarized economy scare you away.

Roger asks: “Simon, you’ve provided useful information on which countries are the safest to store gold.  Unless I missed it, however, I did not see any suggestions on places to buy gold coins in Singapore or Austria.”

In both countries, you can buy gold at nearly every bank you walk into. Austrian banks sell coins called the ‘Philharmonic’, which is the Austrian equivalent of the Eagle and Maple Leaf. Singapore banks have a wide inventory.

In Singapore, though, precious metals purchases are subject to the GST tax at 7%… which is a bummer. So one of the best things you can do there is open a precious metals bank account (try United Overseas Bank) where the value is denominated in grams instead of dollars.

You can withdraw gold in this way and the transactions are not subject to the tax.

Maria asks: “Dear Simon, It’s easy to forget sometimes that you put valuable information out every day for free on your own dime… so, thank you for all that you do. I’m wondering if you could shed some light on your sustainable community idea in Panama?”

Thanks, that’s a really nice thing to say.

Matt and I are leaning towards doing the sustainable development in Panama. I will circulate an initial concept paper in the next few weeks and put together a special list of prospective residents.

Based on my back-of-the-envelope calculations, I’m thinking that we could offer reasonably sized lots in the range of $25,000 to $50,000 in a secluded community that has its own satellite internet, clean water system, a bit of renewable energy, and a lot of low-maintenance agriculture.

Each lot would have a share of the crop yields, which I envision selling on the open market to generate a dividend for residents in the first few years, at least unless/until things really start to go south.

Also, for the planning and development, I would like to put together a steering committee comprised of experts in areas like security, construction management, organic agriculture, energy independence, etc. to help make it the best community possible.

More to follow on this in the future. Have a fantastic weekend, and get ready for second citizenship and residency discussions next week.

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.

So much for BMW’s run-flat tires. Believe it or not, I’m actually sitting on the side of the A3 motorway in central Germany, about halfway between Frankfurt and Munich, waiting for the tow-truck to arrive. 

Apparently you’re supposed to be able to drive on these tires even when they’re flat… and with such confidence in their country’s manufacturing capabilities, the German rental car company didn’t bother providing me with a spare.  Call me old-fashioned, but I’ll take a spare and a jack over run-flat tires any day.

Given what we put this car through, though, it has performed admirably– about 2,500 miles of hard driving in just 4 days at speeds usually exceeding 200 km/h.  You see a lot of interesting things when you spend that kind of time on the road, and one of my observations leads me to believe that we are in for a major shift world finance.

For starters, customs agents across Western Europe are visibly out in force, patrolling the highways and major travel hubs.  Their mission? Generate revenue, coercively if necessary.

In just a single 12-hour period, we were stopped twice in France by government thugs.  Similar to my treatment that I described last week at Helsinki airport, the encounter felt more like an inquisition– where were we driving from, what were we doing there, what do we do for a living, and most importantly, how much money were we carrying…?

They seemed disappointed and skeptical when we said “uh, about 250 euro…” as if two well-dressed gentlemen in a nice sports car were cosmically obliged to be carrying more than 10,000 euro.

They didn’t take our word for it and continued the snooping and inquisition.  If this had happened only one time, I would have written it off as an anomaly. But multiple times within a short period of time is suggestive of a broader agenda.

My business partner Matt had a similar experience before his flight from Chicago to Frankfurt just last week; as he was strolling down the jet bridge to board the plane from the business class entrance, he ran into a squad of customs agents waiting to randomly inspect passengers.

Once again, their chief concern was monetary instruments– How much cash was he carrying?

Customs officials are like feudal lords; they wield supreme power in their little border fiefdoms and have the authority to confiscate whatever they like, for any reason, and then stick you with the onus of proving your innocence.

This is exactly why the government has its people patrolling the airports and highways… low on ‘hope’ and short on ‘real change’, the government has tasked its border enforcement with grabbing as much cash as possible.  It’s sort of like setting up a speed trap in a small town with no economic prospects.

If customs officials believe the amount of money that you are carrying is for suspicious purposes, they have the authority to relieve you of your cash, Constitution be damned. The same standards apply in Europe. In a very literal sense, this amounts to highway robbery.

The standard generally applied is “presumed guilty until proven innocent,” and I think it’s safe to assume that these types of searches and seizures specific to monetary instruments will increase.  More importantly, though, these measures are likely an overture to the eventual implementation of capital controls.

Governments rely on capital controls to regulate the flow of capital through their borders.  In times of crisis begotten by political stupidity, they have an even greater need to keep money on shore to ensure that you’re paying your fair share of somebody else’s mortgage.

The first step in capital controls is to go after cash; it raises money through confiscation and makes people rely more on the banking system out of fear.  The next step is to re-regulate the banking system to make cash transactions more cumbersome and dealing with foreign financial institutions more controlled.

This is already in the works with the recently passed US House of Representatives bill H.R. 4213.

I discussed this trend towards capital controls three-months ago, but frankly I am surprised at how fast things are moving. The time to plant a financial flag overseas is now, and there are a couple of ways to do that.

First, foreign bank and brokerage accounts are a reasonable solution. I’ve mentioned this numerous times in the past, most recently with a discussion about Islamic Banking. I think that Panama, Singapore, Hong Kong, UAE, Malaysia, and Canada are all reasonable places to bank.  There are many more that I will be discussing in the future.

While there are some annual disclosures to file in some countries (like the US), it is completely legal to have a foreign bank account, and I doubt governments will ever change that… they’ll just make it next to impossible to move money.

That’s why the window of opportunity is now.

Second, buying foreign property makes a lot of sense. At present, there are no reporting requirements for foreign real estate, and as we have discussed in the past, you can even move individual retirement savings into foreign land.

More to follow on all of this. Stay tuned.

Long ago, physical commodities were used as a mediums of exchange… gold and silver were quite popular because they were scarce, divisible, durable, and hard to replicate.

If you had a few extra ounces laying around and wanted to store it securely, you would seek out the people who dealt with precious metals all the time and had the right equipment and staff to keep it safe.  At the time, those were goldsmiths.

In exchange for keeping your wealth safe, goldsmiths would charge a fee… and for that fee, you could drop by any time and withdraw some of your gold on demand.

In other cases, if you wouldn’t be needing your gold for a while, you could leave it with him for a fixed period, say 1-year. In this case, the goldsmith would pay you interest on the deposit, knowing that he could loan out the gold to someone in need of capital at a higher rate for the same duration.

It was a simple, admirable system. When you wanted your money, it was there; if you didn’t need it, you could earn a return.

Over time, the system changed. Goldsmiths (turned bankers) began issuing paper notes which were redeemable for the gold that was secured in their vaults. The paper notes circulating around town were ‘as good as gold,’ depending on the bank’s reputation.

Occasionally, a greedy banker would circulate too many notes around town– $100,000 worth of gold in the vault, $110,000 worth of notes circulating around town. The banker got rich, and no one really noticed… until $110,000 became $150,000 became $200,000.

Then suddenly, noticing the spike in money supply, the townspeople would lose confidence in the note and descend on the bank to demand their gold. The banks collapsed and depositors took it on the chin.

Naturally, governments eventually became involved.  They standardized a single paper currency for the country and took charge of securing the nation’s gold reserves.  In the United States, perhaps the greatest change took place in 1913.

After intense Congressional deliberation, Woodrow Wilson signed the Federal Reserve Act into law in December of that year. Aside from creating the United States Federal Reserve, the Act created a regulatory structure for a nationwide fractional reserve banking system.  And from that day forward, every bank in the country became effectively insolvent.

Fractional reserve banking is the practice of loaning out more money than is on deposit. Someone deposits $10 in a bank; the banker keeps $1 in the vault and loans out the other $9. That $9 makes its way through the economy and is eventually deposited in the bank. The banker keeps $0.90 and loans out the other $8.10.

This scheme is repeated over and over again until there is $100 floating around the economy based on a single deposit of $10.  An additional $90 was conjured out of thin air by the bank.

Suppose you went to a storage facility and paid them to secure your furniture… if the facility owners went behind your back and loaned out your kitchen table, this would constitute fraud.  Yet in banking, this is standard practice thanks to the Federal Reserve Act.

The Fed governs the ‘reserve ratio,’ which is the amount of deposits that banks actually have to keep on hand. Depending on the type of deposit, it ranges from 0% to 10%.

The system works when everyone has confidence. When they don’t, banks go under– and that is exactly what is happening right now.  Between balance sheet deterioration and loss of depositor confidence, banks are dropping like flies… but hey, don’t worry, the taxpayers have you covered.

Personally, I want to put my money in a place where the bank will actually hang on to it and no one has to rely on a taxpayer bailout.

One solution that you won’t hear too many people talk about is Islamic Banking.  Based on the ‘Shariah’ principles of Islamic law, Islamic banks in theory must hold 100% of their demand deposits in reserve.

In practice, thanks to creative deals and a bit of leniency from Muslim scholars, the reserve ratio is a bit less than 100% for Islamic banks… but as a whole, their reserves and financial strength are extraordinarily higher than western banks that are on the fractional reserve system.

If you are concerned about what another financial meltdown will do to your bank account, consider opening an account at an Islamic bank. Abu Dhabi Islamic Bank in the UAE is one example– they work with US citizens and even have safety deposit boxes for rent.  ADIB has branches across the country, including in Dubai.

Outside of the Gulf region, Singapore and Malaysia are two up-and-coming Islamic Banking centers that have interesting tax advantages. Malaysia is particularly interesting because of its tax-free Labuan region.  I’ll be discussing this in future letters.

As a final note this afternoon– I know Turkey day is tomorrow in the United States even though it will just be Thursday here in Asia, but I will likely refrain from email for the next two days and talk with you again on Monday.

And don’t forget that next Tuesday will be the 2nd release of the Panama Black Paper– only 25 copies will be sold, so if you want a copy, make sure you sign up to be on our pre-notification list. 12/1/2009 update: We received a lot of feedback from subscribers around the world in ‘inconvenient’ time zones that would be unavailable for the pre-notification launch… I understand this more than most people– 12pm on the east coast is the middle of the night in Sydney. Consequently, we are sending out a public notification on December 1st will keep it open for 24-hours.

The air smelled of sweat and blood, and I could barely hear my friends talking to me over the screaming crowd.  With each blow, bookmakers were shifting odds and taking bets with such a frenzy that the arena may as well have been the New York Stock Exchange on Black Monday.

This was the scene tonight at a local Muay Thai match here in Pattaya… and aside from being a much needed break for me to soak in some raw carnage, it was also a compelling episode of quintessential Thailand.

To give you a bit of background, Muay Thai is the country’s national sport and famous martial art– it is a cross between a Buddhist ritual and a fantasy death match. Referred to as the ‘art of eight limbs,’ Muay Thai is essentially a clash of knees, shins, elbows, and chins, all without protection, in front of howling spectators and bookmakers. 

Tonight’s event was a bit unusual because the local fight promoters imported a rival gang of fighters from Europe.  The gimmick worked; European tourists packed the house to see their countrymen duke it out with the locals, even though the $36 ticket price is considered quite expensive for Thai entertainment.

I saw boys as young as 8-years old fighting it out in the ring.  One of the kids was knocked out cold, much to the delight of the cheering locals who were in attendance. The Europeans in the crowd were rather shocked to see such a young boy being pummeled comatose, though to be honest, there’s far more violent sports out there.

In Afghanistan, for example, the locals play a version of polo/rugby/suicide/bestiality called Buzkashi (pronounced “BOOZE-ka-shee”)… you might be familiar with it– it’s the one where the Afghan horseman wrestle each other at top speed for a dead animal carcass.  Buzkashi has to be one of the most violent sports on the face of the earth, and people die regularly from participating (and watching).

And even the very-civilized French have a rather strange ritual called Toro Piscine , which means “bull, swimming pool.”  As the name suggests, the event involves a small ring, an inflatable swimming pool, and an angry bull who attempts to impale spectators.  Occasionally children get caught in the line of fire, which is usually a big crowd pleaser. 

Given other countries’ penchant for ritualistic violence, tonight’s Muay Thai event seemed right on the money, notwithstanding the concussions, broken arms, and shattered ribs.  What was so uniquely Thai about the event, however wasn’t the violence, or even the fact that pre-pubescent boys were pitted against each other.

It was the chaos… the commotion. Bleachers lined with prostitutes scouting for old men, frenzied spectators throwing money at the bookies, ritualistic fight music being played continually by the band, the free flowing booze, the smoke, the stench, the homeless kids, the nasty seats and floors, the angry lunatics fighting outside of the ring, etc.

It’s a little something like you would imagine Deadwood City in the Old West.  If this event were in Singapore, for example, it would take place in a spotless venue next to a 12-story shopping mall and have a legion of security guards and ushers to ensure that everyone was enjoying themselves in the most orderly way possible.

Thailand is chaos. It’s fun and has a lot of great potential, but it’s chaos. I hope you enjoy the videos.

I’m flipping through channels at 1am here in Seoul, and do you know what I see? Math problems– nutty professors, Korean-style, working out complex partial differential equations and geometric progressions with the intensity and flair of a concert pianist.

In fact, it’s not just one channel… it’s five, roughly 20% of the entire late night channel line-up.

When you think about it, this makes perfect sense. South Korea, once dismissed as an Asian backwater where American GIs defended the frontiers of freedom, has developed itself into a formidable economy on the back of an incredibly hard-working, educated, entrepreneurial culture.

GDP per-capita is now about $28,000 per person, making South Korea’s economy roughly equivalent to Italy, Israel, and New Zealand.

It shows. The landscape is well-developed with wide, clean highways, soaring skyscrapers (at very high occupancy), extensive port facilities, and a highly advanced digital infrastructure.

The great unspoken fear of South Korea is that all of this beautiful infrastructure would be wiped off the face of the earth on the day that North Korea’s Kim Jong-Il threw a nuclear temper tantrum.

It won’t happen. South Koreans do not live in fear of North Korea– it simply doesn’t register on their radar. The North Korea invasion fear, which have kept a US military presence in the south for roughly 60-years, is one of the biggest scams in geopolitical history.

Today, the North Koreans are as much of a military threat to South Korea as the Russians are to Germany (which begs the question– why are US troops still in Europe preparing to defend the Fulda Gap against Soviet Hordes?)

If US troops pulled out of South Korea, the economy would take a short-term hit and present a major buying opportunity. But within 3-years, the private sector will have reallocated the economic resources formerly tied to US military bases– it happened in Panama between 2000 and 2003 after US troops left, and I would venture to say that Panamanians are not half as good businessmen as the South Koreans.

The export-centric Korean economy took quite a hit at the start of the crisis because of the slowdown in global trade. Korea’s large conglomerates like Samsung, LG, Hyundai, POSCO, etc. all suffered in the early days as demand cratered and economists pontificated about whether Asia’s economies could decouple from the west.

Exploring this ‘decoupling’ issue was one of my primary missions in going to Asia… I wanted to put boots on the ground and see for my own eyes whether or not these economies are still dependent on the west.

My conclusion? The slowdown in U.S. consumers activity will continue to be a weight on the shoulders of the Asian exporters. But, while western consumers are dying, Asia’s massive pool of consumers are just beginning to bloom.

I saw it in China, where the level of Chinese consumer activity can only be described as ‘overwhelming.’ I saw it in the Philippines where remittances from overseas workers support domestic spending. I saw it in Singapore where the slowdown seems to have had minimal impact; and I can see it here in South Korea.

Asia is exporting to itself, building up vibrant domestic economies while governments spend their increasingly worthless dollar reserves on stimulus projects. To me, this is a clear indication that Asian currencies will continue their rise against the dollar (as well as the euro) since ‘cheap’ currencies relative to the west are no longer a priority.

But which ones to buy?

The Japanese yen is not a good option in my opinion– Japan is an aging economy that still depends heavily on the United States, and my expectations is that the government will not allow the yen to appreciate much beyond 85 yen to the dollar.

The Chinese renminbi is also not a good option for now– China plays too many games with its currency, and exchange controls are a capitalist’s nightmare.

I do like the Thai baht and think that Thailand has a great future in general, though I would definitely wait to invest until its 81-year old King passes away, leaving the country in temporary turmoil.

The Taiwanese dollar (TWD) and South Korean won (KRW) are good bets for now as proxies on thriving Asian tiger economies; I also really like the Australian dollar (AUD), which has great fundamentals, as an extension of Asia’s growth.

“Simon – Are you ever available for a consult? I have several business related questions I would like to review.”

Each day, without fail, people ask if they can hire me to help them with their problems… these are usually unique in nature ranging from “I want to liquidate and move somewhere” to “can you help raise money for my business” to “do you know anyone in the woodchip industry in Burma…”

I think that most people ask me for help because they can’t find answers through any conventional outlet… I suppose we’re a bit of the A-Team over here at Sovereign Man.

Honestly, I like to help people, especially like-minded people. But time is my most valuable asset and I guard it closely.   At any given time I have at least half a dozen irons in the fire.  I’m not a ‘newsletter guy,’ but rather a busy investor and entrepreneur that is constantly traveling, making new connections, and firming up deals.

In the past, I have met an occasional subscriber on my travels and ended up talking through their challenges. I generally found the consultations to be a worthwhile endeavor and I have even funded the occasional startup as a result, including one this week that I am very excited about.

At this point, though, as our community grows, the demand for my time is spiking.  Because of my other commitments, I can only set aside a very limited amount of time to help advise subscribers, so I’ve decided to set up a more formal structure to provide consultation on an extremely limited basis.

If this might interest you, click here for more information.

SINGAPORE and LABUAN

There are a lot of offshore financial centers in the world, but what makes Labuan and Singapore particularly exciting is the ability to raise capital– Singapore bends over backwards to support its registered businesses, and Labuan provides a direct line to Islamic financing, which is awash with cash looking for a good home.

I received some specific questions about rental costs in Singapore; in short, rentals are reasonable, but not cheap. The government’s statistics show that the median rental price is roughly $1,500 (USD) for a 2 bedroom flat. This is the median price, so nicer neighborhoods will command a 20%+ premium.  Add another 10% for furnishings.

Also, I should be clear about my recommendation for Singapore– for an Internationalist, particularly a working professional with family, I am hard pressed to think of a place with a better mix of opportunity and amenities.

For other expat categories– the pioneer, retiree, etc., Singapore is not a good choice.  The city is fairly boring, organized to a fault, and yes, the weather is absolutely terrible. You can have a lot more adventure at a fraction of the cost in Manila, Malaysia, and Indonesia.

Regarding Labuan, I intend on exploring this jurisdiction much further.  Christine is very-well plugged in to the Labuan International Business and Financial Center (www.labuanIBFC.my), and we spent most of the day yesterday meeting with trust company presidents and bankers.

If you’re looking for Labuan service providers, you will be able to find many on the IBFC directory. I will be working directly with Christine’s contacts to vet them more closely before passing those along to you.

In full disclosure, I am heavily biased.  Hong Kong is one of my favorite cities in the world.

Remember those ‘7 expat categories?‘ well, I am definitely a mix of several… maybe all. But Hong Kong ticks all the boxes for me, and always has– I’ve been coming here for years and love it more every time.

To give you an example, I like having access to modern conveniences and the availability of goods and services. I like quality infrastructure, beautiful architecture, and a thriving nightlife.

But I also like a little bit of anarchy… a seedy underbelly that makes my spidey-senses tingle… a heavy international flavor where there are people from all over the world dogging it out with each other to come up on top.

To me, Hong Kong has exactly the right blend of the Yin and Yang– order vs. chaos, Wild West vs. City of London.  This stands in stark contrast to the very orderly and somewhat sterile environment of Singapore.

A lot of people fretted when the British gave up control in 1997… 12-years on, however, so far so good. In fact, Hong Kong has vastly improved in many ways. The expatriate community has grown, as has its importance as a financial center.

As an example, my very plugged-in colleague Christine Verone gave me the inside scoop on the gold scene: the local government just recently announced that they were moving gold reserves out of London and into their new high tech vault (located at the Hong Kong International Airport).

According to Christine, this has significant implications for not only Hong Kong, but the entire region: for starters, there is now going to be same-day settlement of precious metal trades in Asian time zones. It also means that Asia will have its own gold ETFs.

The gold facility will clearly support Hong Kong’s rise as a global trading center for bullion, reducing London’s role in storage and settlement.  Similarly, as the CFTC in the United States continues down its over-regulatory warpath, there will be a flood of new business and capital heading east.

Christine’s analysis is spot-on (as it should be given her extensive background in wealth management).  If you look you can see signs everywhere that capital flows and financial infrastructure are migrating to Asia with Singapore, Hong Kong, and Shanghai as the crown jewels.

So why should you be interested in Hong Kong?

1) There are still jobs in Hong Kong (and Singapore). If you’re looking for work and are on top of your game, these are the cities where you need to be looking… and for an internationalist, there is the right mix of opportunity for you and stability for the family to make it a great place.

2) For the pioneer, Hong Kong is definitely one of Asia’s capital cities– and you can bet that the explosive growth of places like Burma, rural China, Cambodia, and Vietnam is going to be ruled from Hong Kong. The city will be a great place to base a business that focuses on these markets.

3) The banking industry hasn’t rolled over and probably isn’t going to with mainland China standing by its side. The West can kick and scream all it wants, but Hong Kong, Shanghai, Singapore, and Abu Dhabi are all standing shoulder to shoulder; this is why the OECD keeps picking on countries like Costa Rica.

Any downside? Of course.

Like Singapore, cost of living can be quite high in Hong Kong– this is not the place to retire on $500/month.

Hong Kong’s currency is still pegged to the US dollar.  Lately the HK dollar appears to be busting at the seams, clutching desperately at the peak-end of it’s allowed trading band with the greenback.  I don’t see any way that Hong Kong can maintain this currency peg, though I regard this more as an investment opportunity than an inconvenience.

The weather is not spectacular (unless you love humidity) and air quality is certainly not the cleanest in the world… though probably not excessively worse than most other major cities.

Tomorrow I am off to Shanghai and will be attending a wealth management conference showcasing the up-and-coming jurisdiction of Labuan. As always, it should be interesting.

I’ve explored Singapore in the past, but on this particular trip I really wanted to broaden my understanding of the country’s legal framework and financial infrastructure. With only 72-hours on the ground, I would have to work fast… so the trip was a whirlwind tour of bankers, lawyers, gold dealers, corporate secretaries, and international tax planners.

Here’s the good news: Mission Accomplished. I learned far more than I expected, caught up with old connections, made new ones… and yes, found groups who are happy to work with US citizens.

There is far too much information to jam into a single missive… and much of what I have to say is highly sensitive– most of these people don’t want their names broadcast all over the internet. I may do a Singapore Black Paper if there’s interest, but first let me make a few summary points:

1) Gold and silver are part of the culture here– you can buy a variety of bars and bullion at just about any bank.  At $991/ounce, a 1-ounce bar was selling for $1107.97 at UOB, one of Singapore’s largest banks. This price includes a 7% gross sales tax (which I’m convinced will eventually be levied in the United States as well).

As for storage options, not only did most banks have zero safety deposit boxes available, but they had a waiting list that runs for several years.  For such an entrepreneurial place, private industry has come up with a solution.

Certis Cisco logistics manages a private secure storage facility with three branches in Singapore. I personally inspected the Jalan Afifi location, which is open 16-hours a day, every day. The security is top-notch, and box rentals start at $99/year.  Click here for more information.

2) Singapore has total banking privacy, and in some situations the banks will not even require beneficial owner information for corporate accounts.

Procedures to open a bank account vary greatly from bank to bank. For example, when I told the account manager my situation, Bank of China basically laughed at me. Other banks I met with were much more welcoming.

It is possible for a foreigner with no presence in Singapore to open a bank account, but only at select institutions. The most effective method by far, though, is to apply for residency through either the EntrePass or EmployeePass program; in this case, opening a bank account is quite painless.

3) Singapore is a common law jurisdiction with trusts and private limited companies set up in the style of Hong Kong, which is obviously based on English rule. To structure a company, only one director is required, though s/he must be a Singapore resident.

Setting up a company is very easy– it can be done online and takes as little as 24-hours to complete. In my opinion, there is tremendous benefit to structuring business activities through a Singapore company, but that will have to wait for another day.

4) Last time I checked, 17% corporate tax did not qualify as a tax haven… the tax is low, but not zero. Singapore tax code is, however, quite friendly to entrepreneurs and especially startups. The first $100,000 of profit is tax-free… and for a start-up, this can be tremendously beneficial.

Singapore also does not tax its companies on income earned outside of Singapore, so long as the funds are not repatriated to Singapore. As such, many Singapore companies have subsidiaries or bank accounts in Hong Kong for their overseas income.

I will be discussing Singapore much more in the future but wanted to provide you with this initial overview today; in short, for a globally-minded entrepreneur or professional looking for work, Singapore should be on a short-list as a place to do business.

Two years ago, Jim Rogers sold his New York home, packed his bags, and left for Singapore.  If you spend no more than three minutes on the ground here, you will see why.

For the internationalist, Singapore is as close to ‘perfect’ as could possibly be imagined:

1) It’s clean. And I mean eat-off-the-streets clean.  Most big cities (Buenos Aires, New York, even Paris) feel like they need a good pressure wash… not Singapore. The air quality is clear, the bay water is blue, and the buildings almost glisten in the sunlight.

2) Everything just works. One of the problems you frequently encounter when you move overseas is that normal, everyday things aren’t up to the same standards that you are used to… internet service goes down, the hot water heater breaks frequently, the gas stations arbitrarily shut down, etc.

In Singapore, you can expect exactly the same standard of service and excellence as you would in London or San Francisco.

3) What crime? It doesn’t exist. Singapore is one of the safest countries in the world, right up there with Dubai and Vatican City.  Ironically, visible police presence is minimal, contrary to western opinion that cops are walking around caning people for spitting on the street.

4) Great amenities. Healthcare in Singapore is second-to-none; in fact, it is promoting itself heavily as a medical tourism destination. Check out the Parkway Health center for more information.

The nightlife in Singapore is also pretty good… it’s not as wild as, say, Manila or Bangkok (darts, anyone?), but I would say it’s just as nice as London– plenty of restaurant choices, nightclubs, go-go bars, shopping, etc.

5) Last but not least, Singapore is open for business.  It seems as if a bunch of really sharp entrepreneurs sat together in a back room somewhere several decades ago and devised plans for their own version of Galt’s Gulch.

Everything in Singapore is designed for business, and entrepreneurs in particular– from the residency program to investment incentives, I’m hard-pressed to think of a government that is more supportive of commerce than Singapore.

They are doing everything they can to attract the brightest minds and the best business people, all of whom make the city-state a better place.

I’m most impressed with the financial infrastructure, which I will be discussing in more detail tomorrow. Banking and corporate structures in Singapore are so clean and transparent, I would be shocked if it weren’t THE dominant world financial center in 20-years, and likely 10-years.

So is there any downside? Sure.

For starters, the cost of living can be ridiculous– Housing is by far the biggest expense, with average sales price for residential property in the neighborhood of 1,000 Singapore dollars per square foot, roughly $700 (US)… so a little 2-bedroom apartment will set you back about a half-million. Not cheap.

Fortunately, other things aren’t too bad.  Food at the grocery store is actually quite reasonable, and the quality is excellent… so if you are into organic living, you won’t have any problems in Singapore.

Gas prices are also reasonable– diesel fuel runs about $3.30 / gallon, and a taxi ride just about anywhere in town will only set you back a couple of bucks.

And as for that dinner out on the town? Expect to pay Chicago prices, plates ranging from $15 to $50 depending on the quality of the restaurant. A Big Mac will set you back about $2.90 (US).

Now… considering that I spent all day meeting with bankers and lawyers, you can expect to hear great things tomorrow about the financial structures of Singapore. Stay tuned.

In the meantime, if you have any specific questions about Singapore or your own stories, please comment.