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If you’re a new or potential expat, you probably have a lot of questions about the tax implications of your current living and income situation. You may also know that your predicament has been made just that much more complicated by some recent IRS initiatives that affect your reporting requirements.

Understanding your tax burden while you’re living abroad does create an additional perplexing step come tax season. But don’t let it scare you. Just like all the other hurdles you have to overcome when you break free and thrive in the Latin Tropics, this one is manageable.

But, wait, before I proceed…here’s a disclaimer. I’m a fellow expat who has done some research and has personal experience with this topic. I am not, however, an authority on any financial or legal matters. It’s always a good idea to hire an accountant with experience in assisting U.S. citizens living abroad if you have questions about what’s required.

expat income tax

The Long Arm of the Tax Man

Being in the know about income reporting requirements has become even more important with the implementation of two major IRS mandates: FATCA (Foreign Account Tax Compliance Act) and FBAR (Foreign Bank Account Report). Although passed by Congress in 2010, these two reporting requirements did not go into effect until July 1, 2014, and are the source of both confusion and concern for expats and the foreign financial institutions that they may be dealing with.

While the stated intent of these mandates was to identify and limit tax evaders who sought to conceal assets outside of the country, their impact has been far more profound for the average expat seeking to build a new life a foreign land. Here’s a little bit more about these two requirements.

FBAR

If you have accounts in foreign bank accounts with balances that total $10,000 or more at any time during the previous year (emphasis added), then you must file an FBAR. It’s submitted to the U.S. Treasury Department annually via FinCEN Form 114.

With the requirements for residency in many Latin Tropic countries including maintaining a minimum amount in a local bank, it is important to keep track of your bank balances throughout the year to avoid potential penalties. The fine is $10,000 for each non-willful violation. If considered willful, penalties can be as high as the greater of $100,000 or 50 percent of the amount in the account for every year for every account you fail to report.

At this point in time, however, the IRS reserves the right to merely issue a warning. The goal is to compel compliance, not to levy punitive actions.

expat income tax

FATCA

The FATCA (Foreign Account Tax Compliance Act) requires expats to report all foreign assets to the IRS on Form 8938 as part of their annual 1040 filing. The scope of FATCA is significantly larger than FBAR, as it includes such things as foreign pensions, foreign bank accounts, partnerships, and stock holdings.

These last two items are important as some countries require that a corporation/partnership be established in order to purchase real estate. Consequently such assets would have to be included on the Form 8398.

There are income thresholds that would trigger the FATCA requirements. Single taxpayers who have assets in excess of $300,000 at any point during the year or in excess of $200,000 by year’s end have to file; for married taxpayers, the limits are increased to $600,000 during the year or $400,000 at year’s end.

All sources of foreign income are included under FATCA. Since many foreign companies and financial institutions do not issue tax forms, such as w-2s and 1099s, it is important that you maintain good records of your finances to minimize potential issues when filing with the IRS.

Failure to file Form 8398 will result in a $10,000 penalty. After IRS notification, this amount can increase to $50,000. It’s also important to note that, while FATCA does include bank accounts, filing a Form 8938 does not relieve you of your need to file a FinCEN Form 114. Both forms are required, and the penalties are separate for each violation.

You Can Run But You Can’t Hide from the IRS

With over 50 countries now participating in FATCA, expats can expect increased scrutiny from the IRS on any foreign investments, employment, or property ownership. Although there has been continued criticism of these programs, more countries can be expected to sign on as participants.

Being prepared before making your move to the tropics is the best way to ensure that you will not run afoul of these tax situations. Doing your research, understanding your financial profile, and keeping solid records are important steps to take before setting foot in your new country.

Benjamin Franklin said it best when he pointed out that taxes were one of only two things of which we could be certain. You may not be able to avoid taxes, but with adequate preparation you can certainly limit the severity of the headache they cause. Don’t let your uncertainties prevent you from realizing your dream of living abroad.

Modern technology has made the prospect of moving overseas much less daunting than in the not-so-distant past. The growing popularity of smart devices places a wide variety of applications at a user’s fingertips that can make the transition from casual traveler to seasoned expat much easier.

No matter what type of platform you have, these applications can make navigating the nuances of your new home both accessible and portable. In a real sense, these programs have transformed the way expats become integrated into their life abroad.

moving overseas

Sam Azgor

Essential Smartphone Applications for Moving Overseas

Perhaps the best way to prepare your smartphone or tablet for moving overseas is to first make a list of the kind of applications that you might need on a daily basis. Once you’ve identified your needs, group similar apps into those categories for easy access when you need them.

To demonstrate how this method can work for you, below are several major topics that expats frequently have questions or concerns about. Under each topic you will find some of the most popular apps that can help you with that issue.

Communicating With Others

Being able to communicate with your neighbors, especially in a new language, can be one of the most challenging aspects of moving overseas. The cost of making calls back to the U.S. (or elsewhere) can also be prohibitive.  Below are some of the best apps to stay connected and to make sure you’re clearly understood.

Skype

Skype has become the “go-to”  application for international travelers who want to be able to connect with friends and family, no matter where on Earth they may be. Having the ability to see who you are speaking to, as well as hear them, is one of the key features of this tool.

Once downloaded on your desktop or laptop, it is an easy matter to install the free app on any smartphone, sign in, and start up a conversation. Skype also has a number of fee-based options, such as unlimited calling and creating a personalized number, that can further enhance its usage.

Google Translate

This is a user-friendly, free app that allows you to type in or speak a word or phrase and have it translated instantaneously. You can have someone speak a phrase into your smartphone, and the app will immediately recognize the phrase and provide an English translation.

Likewise, you can also use the app to speak a phrase or question in English and have it played back in the desired language. It’s like having your very own translator right in your pocket.

Duolingo

Duolingo is a newer and very popular application for those who want to learn a second language, for free, while traveling. The wide variety of languages offered makes this a useful addition to any expat’s electronic toolkit. Although the learning level of the languages is basic at this time, being able to make yourself understood for most daily tasks, like shopping, will make the transition to expat life much easier.

WiFi Finder

Worried about getting stuck somewhere with no access to the Internet? WiFi Finder is another free app that can help you find Wi-Fi “hotspots” where internet access is available. Being able to reduce or avoid high phone bills or roaming charges makes this an essential app for new expats and experienced travelers alike.

moving overseas

myfuture.com

Banking and Money

Before moving overseas, doing some online research on bank fees for international transactions can save both time and money. Checking with your current financial institution is a good place to start in the process.

Nerdwallet.com and Wallethub.com

These are two great applications that let you compare the pluses and minuses of banks and credit cards in terms of international transaction fees and other benefits. Naturally, each of the financial institutions listed have their own websites that can be reached online.

XE Currency

XE Currency is widely regarded as the premier free application for currency conversion rates. Knowing how much (or how little) a dollar is worth, in terms of local currency, can help new expats better plan out their monthly finances. Comparisons can also be done on multiple currencies at the same time.

moving overseas

Matthias Ripp

Social Life

Perhaps one of the hardest parts about moving overseas is trying to build up a social life. Between the language barrier and not knowing where to go, the expat life can be a bit isolated in the beginning. Fortunately, there are a number of apps that can help.

Facebook

This app, which you may already be using, is probably the most popular and best known smartphone app in terms of social interaction. Being able to look up groups or individuals, seek out topics, and put your own information online can all help to build your social circle in your new home.

Meetup

Meetup is a newer, free application that is rapidly gaining in popularity. By filtering by location and interests, you can find like-minded people and events that can help you interact and expand your connections beyond your immediate home area.

Nearify

This is another newcomer to the expat-focused app world. Covering more than 200 cities worldwide (and growing), with this tool you can discover more than 20 million events that can help you get out and mingle.

21st Century Technology Makes Moving Overseas Easier

The number of applications available for smartphones and tablets will continue to grow as user demand increases. Having access to the information available in these apps, while on the go, has transformed the expat experience in ways that were unthinkable just a short while ago.

Combined with increasing Wi-Fi connectivity and advances in the quality and capacity of mobile devices, more people are considering the benefits and promise of the expat lifestyle. Grab your phone and explore the possibilities!

Growing up abroad can be one of the most beneficial gifts a child can receive. It’s amazing how much children thrive when they realize their horizons are wider than a TV or game console screen.

Entering a new culture, learning a new language, and living a different lifestyle provide boundless opportunities for growth. The Latin Tropics offer many locations where families with youngsters can truly partake of the potential such a move can provide.

expat kids

Point Break Surf Costa Rica

13 Reasons Why Expat Children Thrive

When speaking about expats, the first image that often comes to mind is that of retirees or investors looking to find paradise beyond the boundaries of the U.S. However, with the growth of global markets, many young families with offspring are moving beyond borders to explore new vistas and opportunities.

One of the surprises of such a move is that these expat children not only adapt, but thrive, in their new surroundings. Below are 13 reasons why a move to paradise may be the most potent positive force in a child’s upbringing.

13. More Educational Choices

Expat children have a number of different schooling choices that can compete with (or surpass) a traditional U.S. upbringing. In this sense, education goes far beyond mere book learning.

Homeschooling is one option that also can strengthen family unity while providing learning. In areas with growing expat populations, local schools often will teach classes in English or provide opportunities to non-native speakers.

In many locations, international schools exist that instruct pupils in their first (or native) language. These institutions, while somewhat more expensive, offer wider curriculum choices and the chance to interact with other expat children both socially and during the learning process.

expat kids

Roderick Eime

12. Learning Adaptability 

Older expat children quickly discover that life in their new country is not the same as back in the States.  Learning how to adapt and take advantage of the opportunities their new country provides is an important life skill that will make the transition to adulthood less stressful.

11. Self-Reliance 

Being the “new kid” is a challenging task, whether in the U.S. or abroad. By learning to establish themselves in their new home, expat children build a sense of self-reliance that they can fit in anywhere in the world.

10. Growing Social Skills 

Children enjoy interactions and mastering new skills. Getting involved in local sports (Hint: Football is actually soccer!), attending local festivals and going on play dates with other expat children will all contribute to the growth of social skills that are so necessary in the modern day world.

9. Checking Their Materialism at the Door 

Being exposed to cultures that do not emphasize materialism can have a profound impact on expat children. Learning to appreciate what they have, and realizing that material goods are not the measure of happiness, can be a powerful lesson as they grow into adulthood.

expat kids

AFS USA

8. Learning a New Language 

Expat children have the advantage of being able to learn and use a second language on a daily basis. In the tropics, this second language is, most often, Spanish.

Communicating with locals in their own language makes immersing in local culture that much easier. With the number of Spanish speakers increasing in the U.S., this is a skill that will be in increasing demand in years to come.

7. Gaining an International Awareness 

One of the most important lessons that expat children learn, and which helps them thrive in the future, is that there is a world beyond the U.S. borders. It can be far too easy for those who never travel abroad to ignore the uniqueness of other parts of the globe.

Living in a foreign country adds an awareness of just how diverse societies are. For youngsters growing up in a foreign country, they become “world citizens” whose view of life is not limited by a single national identity. 

6. Stronger Family Ties 

As everyone adapts to their new life abroad, reliance on the family and appreciation of mutual support tends to strengthen the bonds between parents and children. This, after all, is a shared adventure, and knowing that they are not alone can make the transition to an expat child that much easier.

expat kids

AFS USA

5. Immersing in a New Culture

Instead of just reading about a new culture, expat children can actually become part of it firsthand. Participating in local events, celebrating local holidays, and sampling local foods are just some of the ways that young expats can immerse themselves in their new world.

Being part of a different culture is a profound experience that can provide a broader perspective on life in general that can carry on through adulthood. 

4. Seeing “Home” Through a Different Lens

One of the most important lessons that expat children can receive is the ability to see their native country from a different point of view. Being able to see “home” as others see it can offer a unique understanding of how we are viewed and, more importantly, how our actions can influence the perception that the rest of the world may have of expats.

nosara costa rica

Viva Tropical

3. Living in a Special Place

Expat children quickly learn that their new country is truly special in its own way. The overall essence of their location can captivate their imaginations and bring them to an awareness of how unique this opportunity is and how fortunate they are to have it as a life lesson.

2. New Hobbies

Expat children living in the tropics have a whole range of new hobbies that they can experience. Surfing, snorkeling, and boating, are just some of the activities that are more readily available in the Latin Tropics than in most of the U.S.

Importantly, children will have the opportunity to get up off the couch and enjoy the beauty and the wonder of the natural world that is now part of their day-to-day life. 

1. And the Number One Reason Expat Children Thrive Is…Becoming an Expat Is an Adventure!

Children are naturally curious and enjoy exploring and experiencing new and exciting places and things. This sense of adventure, with the security of sharing it with the whole family, makes the move abroad something to be embraced and treasured.

Doing your “homework” as a parent (and potential expat) can provide the kind of insight needed to ensure that your children’s expat experience is a positive one. The potential for learning life skills and self-awareness that expat children have can open many doors for them in the future.

Finding work abroad is an idea that has gained increasing popularity in recent years. With the growing interest in expat living, there are a number of options that exist today that weren’t even thinkable a few short years ago.

The potential for earning a living in a foreign location can be dependent on a number of important variables. Whether you are seeking a career change, looking to fund your retirement in paradise, or wondering how to take your skill set abroad, there are some important first steps that you need to take.

expats jobs

Sylvia Overkamp

Pick the Destination Where You Want to Work Abroad

Before packing up and moving, you need to have a clear idea of exactly where you want to live. The best way to do this is to visit your prospective destination, more than once, to see if it resonates with you.

Remember, in addition to working there, this new location is also going to be your home. If you aren’t comfortable as an expat, even in paradise, you won’t be successful trying to work abroad.

Where to Begin the Search

One of the best search tools you can use is the Internet. There are a number of job boards that offer opportunities for positions–both paid and volunteer–in foreign lands.

Other sources are expat groups and social media sites. Learning about others’ experiences can be a valuable tool in helping you fine-tune your search.

Learn the Rules and Regulations

Since you will be living there full-time, it is important to learn what the residency requirements are and whether you can qualify. In many Central and South American countries, establishing a type of residency is a prerequisite to working within that country’s borders.

Some countries are more expat-friendly than others when it comes to finding work abroad. Others have fairly stringent requirements that mandate that foreigners cannot be hired if a local could fill the position.

By knowing what the rules and regulations are beforehand, prospective expat workers can better plan how to make their transition to their tropical paradise.

Make a Budget That You Can Live On

It is important to realize that there is going to be a lag between your move and when your work abroad starts to generate income. Planning a budget that can sustain you for a minimum of three months can reduce your stress as you become acclimated to your new home and your new employment.

expat jobs

Andy McDowall

Working for an Employer Vs. Working for Yourself

Working abroad will involve either working for yourself or finding an employer. As mentioned above, many Latin Tropic countries have stringent rules for local companies hiring non-natives as employees.

Depending on your chosen location, and your experience, becoming an employee for a local business may not be a viable option. However, there are other alternatives that you can pursue.

Freelancing

A popular option for many expats considering working abroad is to become a freelancer. Being able to make your own schedule, live where you want to, and have the freedom of being your own boss is an attractive proposition.

Before beginning life as a freelancer abroad, there are several important factors to consider. First and foremost is whether your skill set can translate into a freelance career.

Writing, photography, and technical support are three of the most popular freelance careers. Increased Internet access in many tropical locations has broadened the horizons for individuals with skills in these areas.

However, it is also important to recognize that freelancers do not have a guarantee of a regular income. There can be (and often are) “dry spells” that would need to be navigated while waiting for the next assignment.

Having a plan B is an important part of any freelance career. Even in a tropical paradise, having a realistic economic plan is essential to a successful freelancing enterprise.

Translating Your Stateside Career to a Tropical Destination

If you are fortunate enough to work for an employer who has locations in the Latin Tropics, it may be worth your while to see if your job location could migrate to a foreign destination. Telecommuting, staffing offshore locations, and similar options may provide you the opportunity to work abroad in paradise.

Importantly, many countries that have strict limitations on foreigners working within their borders DO make allowances if you are filling a position for your current employer. While these types of positions are limited, being able to stay with your current employer while enjoying life in the tropics is certainly the best of both worlds.

Chris Goldberg

Chris Goldberg

Starting Your Own Business

Starting your own business is a unique way to find a working niche in a tropical paradise. Launching your own enterprise is a great way to carve out your own “brand.”

Teaching yoga, becoming a diving instructor, tutoring English and even acting as a travel guide for other expats are some of the most popular self-run businesses by expats. But before you get too far into your business plan, make certain that you know any local restrictions that may impact opening up a business.

Is Working Abroad the Right Choice for You?

Working and living abroad, even in the Latin Tropics, is not necessarily the best option for everyone. Preparation, research, and actually experiencing the destination can go a long way to answering the question of whether this life choice is the right choice.

Ultimately, the decision comes down to a leap of faith and belief in your dreams. When those two elements work in harmony, paradise can be achieved.

viva-tropical-radio-podcast

New York Times best selling author Patrick Vlaskovits joins Josh for a Spunky Conversation. Their discussion touches on subjects from what you should really be thinking before you start a business to a broken board leash and a harrowing at-sea rescue. The latter occurred the last time they stand-up paddled in a secret location in Panama. Enjoy!

In this episode, we discuss:

  • How to start a reliable business in an expat town.
  • How to avoid dumb mistakes most people make.
  • Why you should use Lean Business philosophy to make your next venture profitable.
  • How the biggest obstacles to your success can be dealt with before you even start.

And much more.

Listen to the show

You can listen to the show using the player above or grab it and listen on the go via one of the following options:

React to the Show

We appreciate your reaction to episodes of Viva Radio and feedback about how we’re doing.

Send us your thoughts any time in an email or comment below.

The Show Notes

 

viva-tropical-radio-podcast

Phil and his wife Meg came to Panama to meet Josh and Park on their island (Boca Chica Island) about a year ago. At that time Phil and Meg had never been to Central America. Meeting the guys was his first stop on a multi-stop tour of the region.

Since then he has traveled all over Central America from Panama to Mexico, at which point Josh caught up with him to discuss what has happened since their island meeting.

In this episode Phil and Josh discuss why he left the NFL and what led him to consider the Latin Tropics for living. After he traveled all over the region to find the perfect place to reside, Phil talks about why he wanted to leave the U.S. and look for greener pastures.

In this episode, we discuss:

  • Why Phil and his wife traveled all over Central America by bus.
  • What places they liked and why.
  • Why he isn’t very excited about the current direction of the U.S. and why you might need to protect yourself in the future.

And much more.

Listen to the show

You can listen to the show using the player above or grab it and listen on the go via one of the following options:

React to the Show

We appreciate your reaction to episodes of Viva Radio and feedback about how we’re doing.

Send us your thoughts any time in an email or comment below.

The Show Notes

 

photo by Jeff McNeill

Jeff McNeill

Opening an offshore bank account is a relatively simple process for those who plan to work or simply live abroad.  It’s also a great idea even for U.S. residents who wish to diversify their portfolios and reduce their exposure to litigation or political risks.

However, as a U.S. citizen or expat with an offshore bank account, it’s important that you realize the tax and reporting implications of foreign account ownership.  It’s also important to note that many of these requirements aren’t tied to income. Merely having a financial interest in the account is enough to get you on the hook.

Who Is Required to Report?

Well, for starters, foreign financial institutions are required to enter into an agreement with the IRS and report on all their clients who are U.S. persons, or else face a 30% withholding tax on all U.S. transactions.  (Furthermore, if you as their client do not comply with federal reporting requirements, they’re required to impose the same withholding on any payments to you.)

The IRS can then cross-check this information with the individual filings they have (or haven’t) received. So, if you were wondering whether the IRS could or would ever find your piddly little account and actually do anything about your failure to report it, the answer is yes.  And, if that happens, then a 30% withholding tax will be the least of your worries.  More on that later.

Bottom line: If you’re a U.S. resident or citizen (no matter where you currently reside) and you have interest in a foreign financial account (no matter whether it’s generating income) that meets the minimum reporting threshold, then you need to keep reading.  

What Forms Do I Have to File?

This is probably as good a time as any to mention that we are by no means tax or legal advisers.  The United States’ tax and reporting laws are complicated and can change on a whim.  They also vary from one individual to the next, based on your specific situation.

Our best advice?  Use this outline as a guide to help you know where to start. Consult the IRS website for more specific information or, if your situation warrants, a tax or legal professional with experience in foreign account reporting.

To give you a general idea of the requirements at the time of this post, here are the 3 main forms you’ll deal with:

Form 1040 – U.S. Individual Income Tax Return

If you’re a U.S. citizen or green card holder you’re required to file a U.S. tax return, no matter where you live now.  That is, as long as your total income (domestic and foreign) is over $9,350.  That’s because U.S. citizens are taxed on their worldwide income.    

The U.S. has treaties with a number of foreign countries that may allow you to reduce or even eliminate any U.S. tax liability (if you’ve already paid taxes on the income overseas). However, you still have to file in order to take advantage of these credits.  You’ll do this by attaching Forms 2555 and 1116.

Whether or not you’ll need to file a state return depends on where you lived before you moved away, as it varies from state to state.  New Mexico, Virginia, California, and South Carolina are among those that will still require you to file.

Form 8938 – Statement of Foreign Financial Assets

In 2010, the U.S. Congress enacted the Foreign Account Tax Compliance Act (FATCA), a statute designed to help recoup federal tax revenues by making it more difficult for U.S. persons to hide assets in offshore accounts.  As a result, U.S. citizens are now required to report any financial interests they have in foreign financial accounts or foreign financial assets, provided they meet the minimum threshold.    

For those living in the U.S., that’s assets totaling at least $50,000 on the last day of the tax year, or at least $75,000 on any day during that year.  This threshold is raised to $100,000 and $150,000 for married couples filing jointly.

For taxpayers who don’t live in the U.S., those minimum limits are raised to $200,000 on the last day and $300,000 during the year for individuals.  For married couples outside the U.S., it’s $400,000 and $600,000 respectively.

These thresholds are aggregate, so multiple assets that collectively add up to these amounts also put you on the hook.  Amounts are based on fair market value in U.S. dollars as of the end-of-the-year exchange rate.

The Form 8939 is filed with your federal income tax return and is due when your taxes are filed.  In one piece of good news, U.S. citizens living overseas are given an automatic two-month extension (to June 15th) on any filing and payment requirements.  Additional filing extensions can be requested.  However any due payments made after June 15th will be subject to interest and penalties.

Form TD F 90-22.1 – Report of Foreign Bank and Financial Accounts (a.k.a. “FBAR”)

The FBAR is a product of the erroneously-named Bank Secrecy Act, and it’s required of anyone owning (or controlling) foreign financial assets totaling $10,000 or more at any point during the year.  The value is determined by reviewing periodic account statements to determine its maximum value for the year and is reported in U.S. dollars based on the end-of-year exchange rate.

While the FBAR is filed with the IRS, it’s done completely separate from your tax return.  Due on June 30th (meaning actually received, not just postmarked), it should be submitted electronically through the Financial Crime Enforcement Network (FinCEN) e-filing system.

photo by Image Money

Image Money

What Happens If I Fail to File the Required Forms?

Well, that depends.  Penalties vary based on whether you failed to file one or multiple forms, whether your omission was committed in conjunction with any other illegal activity, and whether or not your failure to file is determined to have been a willful one.

Since the above forms are filed independently of each other, they’re also penalized as such.  

Let’s start with the Form 8938.  Failure to report any foreign financial assets when you file your tax return can earn you an initial fine of up to $10,000, plus an additional $10,000 for each month thereafter, up to a total of up to $60,000.  Depending on the circumstances, criminal penalties may also apply.

With the FBAR, the punishment is even steeper.  Even a non-willful violation can be earn you a $10,000 fine.  However the penalty for a willful violation starts at the greater of $100,000 or 50% of the total balance of the applicable accounts. This offense can also be criminally prosecuted with additional fines up to $100,000 and/or up to five years in prison.

The limit on that penalty increases to $500,000 and/or ten years in prison (per offense) if you’ve also violated another law (e.g. the Internal Revenue Code) or been involved in criminal activity involving more than $100,000. In other words, there’s a special place in penal hell for those who use offshore accounts to hide their involvement in illegal activity.  Don’t do it.  

The IRS claims that their goal in enforcing these penalties is compliance with the law, not revenue.  We’ll take their word for it on that one, but the bottom line is that everyday unsuspecting citizens can and are being charged these fines for simply failing to do their due diligence on what’s required.

What Determines Whether a Violation is Willful?

An act is considered to be willful when it’s done with the knowledge that it violates the law. Ignorance of the law is a defense.  However, it’s a difficult one to prove.  

Obviously, if you’re the one who opened the account, you’ve got a weak case.  You’re similarly screwed if you intentionally responded incorrectly to question 7a on your Schedule B, Interest and Ordinary Dividends, which asks if you had “financial interest in or signature authority over a financial account (such as a bank account, securities account, or brokerage account) located in a foreign country.”

Oh @$#%! I’m in Big Trouble!

There’s good news for those who’ve either newly become aware of their delinquency or who’ve decided to come clean about their intentional evasion.  Under the Offshore Voluntary Disclosure Initiative (OVDI), U.S. persons are given one last opportunity to comply with the law.

In exchange for their honesty, their maximum penalty is reduced to only 27.5% of the highest value of their accounts during the period of which they failed to report.  In addition to paying the fines, they must also amend their federal income tax returns for the previous 8 years.

Note, the OVDI program is a voluntary one and is not an option for taxpayers who have already been contacted or are being investigated by the IRS.  The process should only be attempted with the assistance of experienced legal counsel and should begin with a phone call to make sure no investigation is underway.

While this amnesty program could be a bit of a relief for some individuals, it’s no substitute for forthright and timely compliance with U.S. tax laws.  Owning an offshore account can be of tremendous benefit to expats and investors.  But it carries with it some hefty responsibilities.

Don’t find yourself on the wrong end of an IRS investigation. If you choose to take advantage of the opportunities associated with banking and investing overseas, make sure you dot your i’s and cross your t’s.

At VivaTropical, we’ve talked a lot about the benefits of owning an offshore bank account. Moving at least a portion of your portfolio overseas can help protect your assets from threats of litigation and the whims of the U.S. government.

Diversifying into international markets can also open wide the doors for a whole host of non-traditional investments that might not otherwise be available to you with a domestic bank or brokerage firm.

But with a whole world of options out there (literally), how do you choose which bank, or even which jurisdiction, to trust with your savings?  And by what criteria should you judge the candidates you’re considering?

Well, that depends largely on your particular needs and investment goals.  To some (even those doing business honestly), privacy is of the utmost necessity.  To others who might be looking for income-earning opportunities overseas, favorable tax laws may be the most important factor.

Below, in no particular order, are what are considered to be some of the best overall offshore banking jurisdictions. We can’t say which characteristics might be most beneficial to you and your financial situation, but this list should give you a good idea of where to start your search.

photo by Soman

Soman

Panama

Panama has long been a key player in the international banking industry, and the country’s recent economic growth has further solidified its place as a financial leader.  With over 80 international banks, it has one of the world’s largest banking sectors.

The country has a good balance of stringent privacy guidelines combined with adequate controls to prevent money laundering.  As a result, the industry is highly competitive, yet better monitored than many more peripheral jurisdictions.

Panama enjoys favorable tax laws, such as exemptions for foreign income, so you won’t be double-taxed.  It’s also a great place to do business, invest in the growing tourism industry, or take advantage of great deals on Panama real estate.  Many tax advantages exist for each of these types of investment.

Additional benefits to opening an offshore bank account in Panama are its close proximity to the U.S. if travel is needed to set up or maintain the account.  English is widely spoken there.  Plus, the dollarized economy eliminates any foreign exchange risks.

Seychelles

A rising star on the international scene, Seychelles scores big points for its high level of bank secrecy.  Its long-standing privacy policy protects the identity of the beneficial owners of companies and corporations.  As a result, it’s one of the world’s best places to set up a closely-held offshore corporation.

The nation is a bit lax about reporting interest income to foreign tax authorities, although it does maintain tax treaties with 46 countries, in compliance with the Organisation for Economic Co-operation and Development.

Interestingly, much of the local population of Seychelles has no access to banking services, and most of its businesses have virtually no way of borrowing capital.  However, the country has been rapidly building its banking sector and has one of the fastest improving economies in the world.

best places offshore banking

Hong Kong

A number of key factors are working together to make Hong Kong one of the fastest growing offshore havens in the world today.  It’s located near a rapidly-growing China, not to mention the rest of Asia.  It’s also become the chosen destination of those who’ve moved their European and North American accounts due to the privacy crackdowns in those jurisdictions of late.

A perk to banking in Hong Kong is the ability to hold funds in a wide range of currencies and even change currency with the flip of a switch. Savings accounts can even be held in gold.

Interest rates are impressive, and tax laws are favorable for foreigners.  There are no taxes on capital gains, inheritances, dividends, or deposit interest.  Only local income is taxable. Even profits from overseas trades that pay to Hong Kong-managed accounts are usually exempt.

Singapore

Although Singapore regrettably earned its place as a top financial center by turning a blind eye to illegal foreign activity, it certainly hasn’t hurt this offshore haven.  It’s currently one of the world’s fastest growing wealth management industries, expected to rival Switzerland by 2020.

It benefits greatly from its location as a hub for southeast Asia, and has a major advantage over rival Hong Kong whom many view as being too heavily influenced by China. Singapore’s tax rates are among, if not the lowest in Asia.  A wide range of currencies, including gold, are available to account holders.  

Today Singapore’s banking sector is much more compliant with banking regulations. However, due to the industry’s size, it exerts a high level of influence over the government, resulting in very little political opposition to its privacy practices.

photo by twicepix

twicepix

Switzerland

It’s hard to think of offshore banking without Switzerland coming immediately to mind. While it’s far from the picture most people have of James Bond making a withdrawal from an anonymous numbered bank account, Switzerland still offers some of the world’s strictest confidentiality.

The country is stable and politically neutral.  The financial services industry is also protected by a strong consensus against any political changes that might affect the all-important offshore sector. As a result, Swiss banks offer a reliable, secure offshore banking environment.

Because of these benefits, Switzerland holds banking assets estimated to be roughly 820 percent of the country’s GDP.  Switzerland has also been a leader in technology, with secure encryption, internet banking, electronic funds transfers, and electronic signatures.

United Arab Emirates

The UAE city of Dubai first emerged as an important financial center when it found itself lacking in some of the oil and gas reserves that some of its neighbors possessed.  As a result, it shifted its focus to the flow of massive amounts of money circulating among its oil-rich neighbors and beyond.

It serves as a politically and financially stable banking option, amid a region plagued with turmoil.  It’s also situated strategically along an all-important East to West trade route.

Benefits to banking in the UAE include low taxes, a number of tax-free zones, and a level of privacy that rivals that of Swiss banks.  Due to its ask-no-questions philosophy, it’s home to considerable illegal activity.  Much of the industry’s incoming funds are in the form of cash or gold.

offshore bankign

H. Michael Miley

Cayman Islands

The offshore choice of political candidate Mitt Romney, the Cayman Islands benefit from the added support of being a territory of the United Kingdom.  So, while still essentially autonomous politically and economically, it has a safer feel for those who are skeptical of international markets.

Like many of its competitors, the Caymans offer a number of tax-free incentives and little financial regulation and oversight.  The nation has long held the opinion that savvy investors are perfectly capable of taking responsibility for their own compliance and that the markets always know best.

Today the country is the world’s fifth largest financial services center, taking on business from the world’s biggest banks and corporations.  It plays host to over 10,000 mutual funds (only Luxembourg has more), over 200 banks, over 90,000 companies, and 140 trust companies.  It’s the world’s top home for hedge funds and captive health insurance companies.

photo by 401k

401k

Lebanon

Lebanon is often hailed as the “Switzerland of the Middle East” for its tight bank secrecy laws.  Banking privacy in Lebanon is “absolute” and guaranteed by law, with violations being subject to criminal prosecution.

It’s also a tax haven, much like most of its competitors.  Foreigners pay no local income tax on interest and revenues earned in Lebanese banks.  Likewise there are no inheritance taxes, stamp duties on contracts, corporate income taxes, or taxes on dividend distributions or capital gains.

The country has a stable banking system, as well as measures in place to prevent money laundering.

Luxembourg

With over 12 percent of the world’s market for offshore banking, Luxembourg is a major player in the global financial sector.  Like other banking secrecy jurisdictions, it’s full of tax loopholes and loose financial regulations.

It’s also extremely stable due to it political neutrality and the strong influence its financial sector holds over the nation’s political leanings.  It’s central (both politically and geographically) to the heart of Europe and was a founding member of the European Union, giving it better access to European and international markets.

Its tight banking secrecy policies are based more on the principle behind professional lawyer-client relationships, with even more privacy laws in the works.  The country is also reportedly setting up a high-security storage facility where clients can keep assets like paintings and gold with no fear of having these possessions reported to tax authorities in their home countries.

Whether you’re looking for a place to stow a Picasso or simply wanting to transfer your self-directed IRA where you’ll have a better variety of investment options, offshore bank accounts can open up a whole new world of possibilities.

Belize

Although only in its 3rd decade of international banking, Belize has been steadily growing its financial services industry since it first emerged on the scene in the early 1990s.  Today it offers a myriad of products and services to international investors from all over the world.

It’s a popular choice among North Americans, due largely in part to its proximity and the fact that it’s an English-speaking nation.  It’s also modeled after British (rather than Spanish) law, making a lot of legal processes much more familiar.

Belize is in close runnings with its international competitors in terms of the variety of its offerings.  Clients can easily set up a corporation, trust, or limited liability partnership.

Before you choose a jurisdiction, do some additional research to determine the requirements for opening an account and to make sure the particular country or bank offers the best incentives to help you achieve your financial goals.

And, whatever you do, don’t forget to follow through with all of the latest forms the U.S. requires for offshore account holders.  It doesn’t matter if your jurisdiction doesn’t report you.  The IRS can and will find you.

photo by S. Shumad

S. Shumad

Like many U.S. citizens, you may consider offshore bank accounts to be tools best reserved for those who have something to hide.  From the Internal Revenue Service, from the Drug Enforcement Administration, from their unsuspecting soon-to-be ex-spouse.

And, unfortunately, there are a few folks out there stashing cash overseas for some of those very reasons.  But they’re far from the majority.

The people who make up the largest segment of offshore account holders are wealthy individuals who recognize the value and security of diversifying their portfolios to include overseas investments.

Also making an appearance are regular guys like you and me who have seen the light and realized that maybe–just maybe–all of these billionaires, their accountants, and their financial and legal advisors could actually be onto something.  

Here are a few of the legitimate, if not compelling, reasons to get some of your money offshore sooner rather than later.

You could be the next defendant in a case that tops the “Stella” awards.

Named for the 79-year-old New Mexico woman who sued McDonald’s over a hot cup of coffee, the Stella awards list the most frivolous lawsuits filed in a given year.  And they’re not all against multi-billion dollar corporations.

Average Joes get dragged into court every day over the most ridiculous of circumstances.  Take the Massachusetts woman who was rescued from a near-drowning after her son-in-law crashed their car into the Connecticut River.  She suffered some brain damage and sued the driver for damages.  Also named in the suit? The rescue divers who risked their lives to save her.

And don’t forget the Alabama woman who accidentally got locked in the storage unit she had rented to store her belongings following the foreclosure of her home.  She was inside late one night “looking for some papers” when the facility’s manager discovered her unit ajar–and locked it for her.

Despite being found 100% responsible for her own predicament, the jury awarded her $100,000 of the $10 million she sought for her distress, which included a total of 63 days locked inside and a grand total weight loss of almost 70 pounds.  (Conveniently, she had some food stored inside the unit she claimed NOT to be living in.)

Then there was the D.C. man–an administrative law judge, mind you–who sued a mom-and-pop dry cleaners for $65,462,500 for losing a beloved pair of pants.  While his case was thrown out (he’s appealing), there are many Americans each year who are forced to pay similarly ridiculous settlements that make tort reform look like a grass roots effort.  

What does this have to do with offshore banking?

U.S. courts have no jurisdiction outside of the country.  So, while you can’t protect yourself from being sued by your mailman when he trips over the package he just left on your doorstep, you can at least protect some of your assets by holding them overseas and away from the whims of the U.S. court system.

Bocas del Toro  via Celine

Bocas del Toro via Celine

Offshore funds are much more difficult to redistribute.

In addition to the litigation exposure, another common reason people seek places to house their money overseas is the perceived political risk.  Common fears include the current administration’s socialistic undertones, increasing capital controls, threats of the redistribution of wealth, and other government rhetoric.

As a result, many U.S. citizens have never felt less confident in the intentions of their government or less secure within the confines of their country’s financial system.  They have legitimate concerns about where the U.S. is headed.

What’s the solution for minimizing a non-systematic risk in your portfolio?

The answer is simple.  Diversification.  In this case it’s not only a matter of balancing out underperforming investments with more successful ones (although there are certainly many high-performing investment options overseas).

Here it’s more about jurisdictional diversification.  Moving funds away from the reckless, unstable banking systems of the U.S. and securing them in a safer global environment.  

Couldn’t the government just as well come after my funds in an offshore bank account in Panama or Belize, you ask?  Well, sure.  They could.  And who’s to say they won’t? But it won’t likely be their first stop.  Hopefully by the time they get around to going after money in the offshore accounts of its residents you’ll have time to apply for citizenship and meet up with your savings somewhere in a much more favorable climate.

The U.S. is having a hard time keeping pace with its competitors in an increasingly global marketplace.

In many cases, individuals’ decisions to hold capital in offshore accounts has less to do with any legal or political agendas and more to do with the fact that it just makes good financial sense.  Our world is becoming increasingly flatter, and your options are no longer limited to only the financial instruments and institutions in your home country.  

Similar to how large multi-national companies search the globe for the best places to house their communications centers or manufacturing operations, many individuals are now following suit when it comes to their own personal finances.  And, not surprisingly, all of the popular offshore financial centers are outperforming U.S. banks in a number of ways.

One of the most obvious differences between domestic vs. global financial institutions is in the privacy they offer. The U.S. banking system is plagued with level after level of bureaucracy and government regulation, thus increasing banks’ cost of operation.

Some argue that this high overhead is in itself a sort of tax levied on domestic banking operations, resulting in higher fees, lower interest rates on deposits, and other unfavorable effects on customers’ bottom lines.  

Speaking of taxes, that’s another benefit of owning an offshore bank account.  Not in the sense that you’re exempt from paying taxes entirely, as U.S. citizens are taxed on their worldwide income.  However, offshore accounts do afford you the ability to do business through an offshore corporation, trust, or other entity which may offer some specific tax advantages.

photo by VivaTropical

VivaTropical

So what’s the bottom line?

If you were about to buy a new luxury automobile, I doubt you’d just drive to the closest dealership to your house, choose the model you want from a list of options, agree without hesitation to the price and all the terms, sign on the dotted line, and call it a day.

Of course not.  You’d probably research the different models and their features, take a few out for a test drive, call or visit a few dealerships to see where you could get the best deal, and drive away knowing you made the best possible decision in buying your new vehicle.

And that’s just a car.  Why make such un-researched, limited, one-size-fits-all decisions when it comes to your entire life’s savings?  

There are more and better options out there.  Don’t you at least owe yourself a little time to look into them?

There are a lot of misconceptions surrounding offshore banking.  And if you think owning an offshore bank account is a maneuver only reserved for the likes of Al Capone, James Bond, and Mitt Romney (i.e. tax evaders, international spies, the super wealthy), then think again.

offshore bank account

EPSos

The truth is that there are a number of important benefits to diversifying your assets into foreign accounts.  Even for normal folks like you and me.

Ignore the Bad Rap Associated with an Offshore Bank Account

Even though Hollywood & the press like to associate them with crooks, mobsters, and otherwise shady characters, offshore accounts are actually quite common.  In and of themselves, they aren’t illegal or immoral or whatever else the media tried to convince you of during the last presidential election.

The name itself came from the fact of the Channel Islands being “offshore” for account holders in the U.K.  The term stuck, and today it refers to banks in any place other than the account owner’s home country, whether an island nation or a landlocked country like Switzerland or Luxembourg.

Despite their questionable reputation, an offshore bank account can be an excellent tool for the savvy investor.  They’re of particular importance in a time when U.S. regulations and controls are becoming more stringent and restricting, all in the name of preventing terrorism.  

Here are a few of the benefits they provide:

Increased Privacy

In the U.S., the walls protecting your personal financial activities are becoming more and more transparent.  Any number of governmental agencies can easily gain information on your accounts, a trend that’s becoming even more common thanks to bills like the Patriot Act.

Not so with international banks.  While foreign financial institutions are required to report to the IRS on their U.S. account holders, your information is generally much more private.  Particularly if you own the account under the name of a foreign corporation or partnership.

Why Does This Matter?

Say, for instance, you’re wanting to buy up stock in a company you plan to take over.  In the U.S., large trades like this are public record, and such activity could attract the attention of other investors who could then follow suit, driving up prices.  Buying through an offshore bank account could help protect your identity.

Asset Protection

Another benefit of the privacy associated with offshore banking is the ability to protect the funds you have deposited in offshore accounts.  In the incredibly litigious environment in the U.S., lawyers don’t think twice before suing you for all you’ve got.

But since U.S. courts don’t have jurisdiction overseas, your foreign accounts could be safe from the whims of the court.  The same is true for any inexplicable government seizure of your assets.

Who Benefits from This Advantage?

This kind of protection could be beneficial to those whose occupations or activities put them at high risk for lawsuits, such as physicians who could be sued for malpractice.

Lower Taxes and Fees

Foreign banks generally have lower operating costs and overhead than their domestic counterparts, and that savings is generally passed on to you, the customer, in the form of lower fees.

An offshore bank account also offer some tax advantages, although not to the extent that you might be thinking.  Americans are required to report and pay taxes on income earned anywhere in the world, and the punishments for failing to do so are severe.  So evading (or fudging on) tax liabilities is not the goal I’m talking about here.

So What Are the Tax Savings?

The tax benefits are realized more so in the sense of avoiding or deferring taxes associated with conducting business from a foreign account.  If you have an account in the country where you’re investing, interest can be paid gross without the withholding tax that might be imposed on a U.S. account.

offshore bank account

Public Stock

Better Rates

This one’s pretty self-explanatory.  Due to the aforementioned lower operating costs, foreign banks can often offer much better interest rates on savings and money market accounts than those in the U.S.  And, no, I’m not surprised your domestic bank has failed to mention that recommendation.

What’s more, you can also often find lower rates on personal and business loans as well.

Who Could This Help?

Well, anyone really.  From someone who’s looking for a better alternative to low-risk low-interest U.S. savings accounts to someone who wants to move to the tropics and open up a small business.

Less Political Risk

Many U.S. citizens have concerns about America’s financial situation and where the country’s headed. As a result, many are embracing the opportunity for “jurisdictional diversification.”

Ambiguous privacy laws leave U.S. citizens subject to search and seizure with little justification.  The national debt is growing at alarming rates, and Americans’ retirement money has become the government’s latest target. It’s easy to understand why many would be in a hurry to get their funds offshore.

Who Does This Motivate?

Anyone who doesn’t want their assets frozen, seized, or redistributed.  Or at least those who want to have some money set aside to hire an attorney if they do wake up to find all of their domestic accounts frozen.

Greater Investment Opportunities

Having an international account often makes it much easier for individuals to enter the global market and access a variety of investments.  While the U.S. places legal restrictions on a number of transactions, those regulations won’t be a problem offshore.

What’s more, you’ll absolutely need an account in any country where you intend to invest, live, work, or even visit frequently.

How Does This Help You?

The U.S. has a special way of making transactions, even those that aren’t illegal, so much of a hassle that they might as well be.

Take IRAs, for example.  While real estate is an ideal investment vehicle for long-term retirement accounts, the overwhelming amount of bureaucracy associated with most U.S. custodians and brokerage firms makes it next to impossible to purchase land with IRA money.

By changing to a Self-Directed IRA, you can have the freedom to transfer those funds offshore and invest in whatever you choose.  You can find out more about our experience with raw land investment and why it’s such a great option by downloading our free ebook, Pay Dirt.

Explore these and other opportunities for getting the best return on your investments by broadening your horizons to include offshore options.

 

use your ira

Carolin Azuarq

So, how has your IRA been performing over the past few years?  If you’re like most, you’ve probably seen minimal growth or even stagnant returns at best.  At worst, your retirement account may have lost money and/or been eaten alive by broker fees.

These difficult economic times have not been kind to what was once our most promising option for saving for retirement and reducing our taxable income.  Surely, Americans are telling themselves, there must be a better way.

Well, here’s good news. There’s another option.  Although it requires a bit more involvement and initiative on your part.

How To Take Control of Your Own Financial Future

Rather than relying on the standard options that have failed them in recent years, many Americans are taking control of their own retirement savings.  And with the subpar performance of traditional domestic investments, many are also looking overseas at emerging real estate markets, such as the many opportunities available in Central America.

Bonus: Take your future into your own hands. Learn how to invest abroad. Click here to get access to the free, 55 page report.

Investing in offshore real estate is a far cry from the boring Option A, B, or C type investment choices most custodians offer.  It’s exciting.  It’s outside the box.  It gives you complete freedom over your funds and your future.  And it offers incredible investment potential that no traditional option could ever rival.

Better yet, it’s all perfectly legal.

Where Traditional IRAs Went Wrong

Individual Retirement Accounts (IRAs) were first introduced in 1974.  Through these accounts, retirement funds were handed over to a custodian, a broker who would manage the account and invest the funds in various stocks, bonds, and mutual funds in hopes of increasing the value of the IRA.

The account would grow either tax-deferred or tax-free (depending on the type of IRA) until the individual reached retirement age, at which point he or she could begin taking distributions without facing a penalty.

Having Someone Else Manage Your Funds Isn’t Safe Anymore

While not the most exciting investment concept, there was at least an element of safety involved.  The account owner was protected from the responsibility of any decision-making, IRS reporting, or other administrative duties associated with the account, tasks that may be outside the comfort level of many Americans earning a middle class income in a field other than the financial industry.

But where there’s little risk, there’s often little reward. Many of these accounts have suffered at the hands of high fees, limited investment options, flat returns, and custodians who often based their decisions more on what brought in the highest commissions, not what was truly best for their clients.

Meet the Self-Directed IRA

Like you, many Americans have grown tired of seeing their hard-earned money underperform, particularly as retirement looms ever closer.  As a result, many are turning to non-traditional methods for saving for retirement.  And, thanks to the Self-Directed IRA (which now accounts for roughly 2% of all retirement accounts), they can still do so on a tax-deferred or tax-free basis.

The main difference between a traditional and a self-directed IRA lies within the duties of the custodian.  Rather than one who makes the decisions concerning the investment of the funds in the account, the custodian or trustee of a self-directed IRA is merely responsible for holding and distributing the assets, filing the required documents with the IRS, and little else.

The person responsible for the investment decisions in a self-directed IRA account is…well, um…YOU.  As the owner of a self-directed IRA, you hold the checkbook.  You write the checks.  You have the freedom and flexibility to invest your funds as you see fit, with no one looking over your shoulder.

Don’t Let the Self-Directed Option Scare You

To quote Voltaire, with great power comes great responsibility.  So, if you’re thinking the self-directed IRA option sounds a bit intimidating, well then you’re quite right. But it really is a manageable risk.  I’ll explain more later about how you can minimize the risks associated with controlling your own retirement account, particularly when it comes to the variety of investment options available to you.

Side 78

Side 78

Freedom: The Biggest Benefit to Self-Directed IRAs

That variety is perhaps an even bigger benefit to the self-directed IRA.  With traditional IRAs, investment option are generally limited to stocks, bonds, and mutual funds.  Account owners generally aren’t permitted to invest in things like real estate, business enterprises, or–heaven forbid–foreign CD’s or other offshore investments.

Note: I should clarify here that all of the above are perfectly legal and permitted by the IRS.  What prevents these investments from being allowed or recommended are the custodians themselves, not any government regulation. Keep reading to understand why that’s the case.

Why Brokers Can’t Offer Non-Traditional Options

With a traditional IRA, your funds are managed by an SEC-licensed investment advisor who has to answer as to what happened if your investments tank.  He’s not going to recommend or permit an investment into a non-traditional option where he’s not capable of performing the necessary due diligence, lest he risk losing his livelihood.

That’s not to say non-traditional options are too risky in general.  It’s just that the fees your broker is getting from your account aren’t enough to justify him spending the time necessary to research that type of investment, nor would his management approve such a recommendation if he were willing to propose it.

That’s why it’s up to you.  As the decision-maker for your account, you can invest in almost anything you desire: mobile homes, storage units, gold bullion, small businesses, land, homes, and more.

There are a few things that aren’t allowed, such as life insurance and collectibles (e.g. stamps, coins, and artwork).  But for the most part, your options are virtually unlimited.

Why Real Estate Is a Great Option for Self-Directed IRAs

While many investors are still a bit leery of investing in real estate, due to the devastating demise of the housing market in recent years, the fact remains that real estate is still a great long-term investment.

It’s totally permissible as a holding for IRAs, and it isn’t limited only to domestic properties.  It can also include raw land, farm land, commercial properties, property renovations, and rental properties, both in country and abroad.

The reason many investors are turning to the latter option is due to the incredible values available overseas.  With lower costs for land and houses, international real estate is an excellent option for those who want to maximize their investment return.  Foreign properties also have far fewer restrictions and regulations on everything from zoning issues to paint colors.

Think Long-Term

And, while you can’t live in the home until you reach the appropriate age to begin receiving distributions from your account, many Americans are choosing to purchase rental properties overseas that will one day become their very own retirement homes.

Then, upon reaching retirement age they can take advantage of their own tropical dream home, purchased tax-deferred or even tax-free, where they can also enjoy other benefits like an ideal climate and lower cost of living.

Invest in Something You Can Really Feel a Part Of

If freedom is the biggest benefit of owning a self-directed IRA, then involvement would have to be one of my favorite perks of being an international real estate investor.

When purchasing land overseas, you can buy raw land in some remote location and just sit on it for a few decades hoping it’ll appreciate.  But that’s not what I recommend.  It’s incredibly difficult as a foreigner, for one thing.  For another, it’s just too risky a move.

Partner with a Trusted Professional

By investing in projects headed by skilled developers, you gain several important benefits.  For one, you can benefit from their knowledge of the area and the market.

Secondly, you can actually build relationships with both the developers and the locals, as you work together towards a common vision.  You also have the ability to influence the community or the development that you’ve invested in and sit back and watch its continued growth and success.

A Different Kind of Proposal Meeting

Take for example, Boca Chica Island, the latest Adventure Colony that my business partner and I have developed.  Those who invest with us in this project aren’t just buying a piece of land in a place they’ll never see.

We encourage our prospective buyers to spend a few days experiencing the island–our treat.  We want them to get to know us and understand our vision for the project.

We won’t pass around a prospectus.  But we can tell you all about the years of research that we’ve poured into analyzing the market and carefully selecting the areas we choose for our developments.  

Or you can download our free investment ebook, Pay Dirt, if you want to learn more about our strategy for investing in land in Central America.

Even more importantly, our prospective clients have each of our cell phone numbers. When they call, we answer.  How many of your mutual fund managers can say that?  When you have control of your IRA, you can choose where you invest and go with people you trust.

Viva Tropical

Viva Tropical

So How Does All This Work?

There are understandably a few extra steps involved when choosing the self-directed IRA option and using those funds to purchase real estate.  Here’s the process in a nutshell.

  1. Thoroughly research your options before making any decision.  Talk to an accountant, an attorney, and a real estate agent to get a good handle on the whole picture.  Make sure you understand the tax ramifications, as well as the rules for the type of IRA you have (e.g. Simple, Roth, Traditional, SEP, etc.).  Take into consideration any applicable contribution limits or penalties that may apply.

  2. Choose an administrator who has experience handling self-directed IRAs.  These won’t be the typical brokerage firms you’re used to hearing about, as there are relatively few who offer this service.  Pensco and Equity Trust are two examples.  Do your homework.  Gauge their experience with IRA-related real estate transactions, and ask for references.

  3. Once you’ve selected a custodian, move your account from your current institution to your new self-directed IRA.  This will be handled as a roll-over and can take up to a few weeks to process.

  4. Solicit the services of a local attorney in the country where you plan to purchase property.  Again, we recommend doing thorough research before selecting this individual.  Make sure he or she has experience with these types of transactions.

  5. Select the property you wish to purchase.  This is the fun part!  Keep in mind your goals for the property, whether you plan to use it solely for growing your retirement account or whether you one day hope to enjoy it for personal use, and tailor your search accordingly. A qualified local real estate professional can help to simplify this process and work with you and your attorney to keep the hassles to a minimum.

  6. Sign a contract for purchase and send it to the custodian for review. Once approved, the custodian can release the funds to the title company who’s handling the transaction.

  7. Transfer ownership of the property.  The details of this step could vary greatly depending on the details of your particular situation.  If purchasing the property entirely with funds from your IRA, the property would be titled in the name of the account. You could also purchase it partially with personal assets and the remainder with funds from the account.  However, keep in mind that the ownership percentages would also need to be reflected in the reinvesting of any income as well as the paying of any expenditures such as repairs.

  8. Hire a property manager to handle the day-to-day dealings associated with the property, particularly if it’s a rental.  Since there are so many restrictions on how involved the account owner himself can be with the property, it’s best to involve a third party as a buffer.

Some Important Considerations for IRA Real Estate Transactions

Just as there are a number of extra steps involved with investing in real estate using a self-directed IRA, there are also a lot of concerns that are unique to these types of transactions.

  • IRAs are individual accounts.  As a result, involving your spouse or other family member would require a joint ownership between your individual retirement account and the other entity(ies) of your choice.  The good news is you can literally own the property with as many other entities as you want.

  • You can’t always convert an IRA through your current employer into a self-directed IRA.  While it’s always possible with a prior employer, check with your HR department to see what your options are at your present company.

  • Traditional mortgages aren’t available for real estate in an IRA.  If you don’t have the money to buy the property outright you’ll need to consider a partnership or other joint arrangement.  If you must borrow money, it will be a non-recourse loan using the property itself as collateral.  These are often difficult to find and have higher interest rates.  In addition, any income earned on the debt-financed percentage of the property is subject to Unrelated Business Income Tax (UBIT), though there are perfectly legal techniques (UBIT Blocker Corporations) for mitigating these taxes.

  • You will not be able to deduct the depreciation on real estate in an IRA.  While this is typically a write-off for rental properties, the deduction does not apply in this case.  However, any rent being collected is also not taxed until distributions begin, so the two may offset.

  • All repairs, taxes, and other fees must be paid from the IRA.  This includes everything from property taxes to homeowners’ dues.  As a result, you’ll need enough liquid funds in the account to cover any costs.  While most IRAs allow a maximum annual contribution (generally $5,000), it might not always be enough to cover any expenses.  You also can’t do your own repairs, as your “sweat equity” is considered a contribution.

  • Likewise, all income generated by the property must also remain in the account. This includes rental income, as well as capital gains from the sale of a property.  This money, along with any additional contributions, stays there, tax-deferred (or tax-free if it’s a Roth), until you reach retirement age. This is especially beneficial if you anticipate being in a lower tax bracket at retirement.

  • Neither you nor your family can benefit in any way from the property owned by the IRA.  For example if you let your daughter live o’in the property or if you get rental income from it directly, you could invalidate the status of your IRA account and become subject to penalties. Likewise you yourself can’t live in the property, lest the entire value be deemed as a distribution.  Upon reaching age 59 ½ (or earlier with a 72T election), you may begin taking annual distributions. The property could subsequently be retitled each year to reflect the new ownership percentage.

  • You alone are responsible for maintaining adequate records to document your use of funds and investment returns.  Your custodian will complete an account valuation and report the necessary information to the IRS.  However, as the one who holds the checkbook, you carry the burden of proving where any money went.

  • Beware of scammers.  Many people grow desperate as they approach retirement age and start to panic because they don’t have enough money saved. This makes them more likely to invest in schemes they know little about. This, combined with the fact that there’s little oversight of self-directed IRAs with alternative investments, makes them ideal vehicles for con artists selling bogus investments.  Investigate all potential deals carefully, especially if they sound too good to be true.

You’re One Step Closer to Controlling Your Future

As you can see, using a self-directed IRA to purchase real estate abroad requires a great deal more know-how than simply reading over a quarterly account statement from your current custodian.  The risks are much greater.  But the rewards can be as well.

Just think of the possibilities.  You could buy a bungalow in a popular tourist destination that could generate rental income until you’re able to retire to it permanently.  Or how about a secluded lot on a private island where you’ll one day build your dream home?

Your options are limited only by your imagination, and the red tape at your brokerage firm.  What are you waiting for?  Free your IRA from the bondage of traditional thinking, and take financial control of your own future.

reforestation visa panama

The Future Is Turning Green

Our budding future is evident in all stages of policy making, in the classroom, and in public opinion. Some of the top degree programs securing a rewarding future are for MBA students specializing in resource economics, sustainable agriculture, and environmentally compatible architectural design.

Public interests continue their shift toward renewable energy resources and organic foods. Developing countries are favoring infrastructure that uses natural resources wisely for sustained growth and healthy populations.

Panama is no exception. Its law-making body has crafted policies that allow for modest investments by international interests for the purposes of owning and developing real estate for private or business use. The opportunities for retirees and for entrepreneurs have been tempting. For half the capital needed, they can place their savings in an enterprise, take up residency in Panama, and become citizens within five years.

The Law 24 Reforestation Investment

The pensioner plan is advantageous primarily to retirees and business owners. An alternative course for international investors is participation in the teak reforestation program. Enacted as Law 24 of the year 1992, the design includes an incentive for foreign investors who would like to obtain a permanent visa residency in Panama.

The package deal comes with two options: A minimum small reforestation investment of $60,000 or a minimal large business reforestation investment of $80,000.

There are also legal fees delivered in three phases. These are the Provisional Residency fees and costs (US $2,000), the second renewal (US $1,000) and the Permanent Visa (US $2,000).

The reforestation of teak is critical for Panama’s environmental plan and sustained resource use. Soil erosion from large-scale farming, clear cutting, and ranching projects resulted in a nearly 70% loss of its forests. Because teak grows quickly and easily in tropical areas, and can be harvested through rotation, this seed producing tree provides a sound environmental background for the restoration of renewable resources.

Documentation Requirements

You must pass a police clearance report before you can apply for immigrant status into Panama. All necessary documents are to be issued no more than four months before submitting the visa application.

You must have at least three months remaining on your passport before its expiration date. You must appear in person to the Department of Immigration for the initial visit and all renewals.

All legal requisites are to be handled by a Panamanian lawyer. Your investment must be through a certified teak reforestation program.

panama-teak-forestation

Teak Reforestation Is a Long-Term Investment

Teak is one of the most commodious of the hardwood trees. Favored not only for its constructive qualities, its handsome texture and grain make it desirable for cabinetry, framing, and furnishing. Teak resin is typically water-resistant, which contributes to the beauty of the wood and helps protect it from decay, bacteria, fungus, and insects.

Be cautious of companies that offer quick and easy returns. Quality teak requires 20 to 25 years for maturity. Profit margins can be low, particularly in the beginning years of your investment.

However, as one of the world’s leading hardwoods, the demand for teak is high. An investment of $80,000 into five hectares of land will yield approximately $125,000 per hectare by its 25th year.

Tax Benefits

Some of the benefits are immediate.

  • Teak reforestation is a tax-deductible investment.
  • The equipment needed for the development of a teak reforestation project can be imported free of tax.
  • Exports to the U.S. are tax-exempt within the United States.
  • Investments in reforestation projects provide tax exempt interest payments, exemption on dividend payments, and on capital gains.

Investment Alerts

There are many companies that offer investment into the teak reforestation program. Most of them study all the requirements and obtain the certification necessary for visa applicants to fulfill their residency credentials.

You will find that the average Panamanian company invested in teak demonstrates responsible management and yield roughly the same amount of teak per hectare. The differences are in the packages offered.

Management charges can vary greatly. Commonly, land is measured in hectare in Panama. A hectare consists of 2.5 acres. Without knowing the difference in measurement, you could buy into a package that requires more in management fees per acre than you would be charged per hectare.

Read the fine print. Some companies will sell you the trees but not the land. Your ownership ends with the completion of the final harvest. Make sure you know exactly what you’re buying. Figure the cost of your investment over time, and how much land you’ll be receiving.

Panama teak investment

Sustainable Teak Production

The key word to modern investment is sustainability. Teak production originated in Asia, primarily in Indonesia, Burma, India, and Thailand. About 28 million hectare of this area is covered by natural teak. Additionally, about 90% of teak plantations worldwide are in Asia.

However, all production of natural teak, except in Burma, has been restrained. Illegal timber poaching is high and there is a constant battle between teak production and land for cattle grazing. In its native soil, teak is plagued by pests that inhibit both growth and quality. Throughout Asia, teak forests are shrinking, with no solid reforestation plans in effect for nurturing renewed growth.

Panama’s Future in Teak

Although teak is able to grow under a variety of soil conditions, its habitat is limited to tropical regions. Typically, it prefers areas with a heavy rain season and accompanying 3-5 month dry season.

Panama’s climate is favorable to teak, and is relatively free from insects that harm teak production. As teak production in Asia wanes, the attention of investors shifts to Central America and its own teak-producing countries.

The uses for teak are numerous. Its natural oils help to keep it from warping, and eliminates the need for protective coating. This unique trait also gives it a great deal of desirability for boat decks and for outdoor furniture.

The demand for the strong, durable wood is expected to reach 135 million cubic meters by 2050. Without vigorous teak cultivation, there will be a deficit.

Responsible Harvesting

Teak plantations are the responsible use of renewable resource management. Teak is one of the only plantation species that is resistant to termites and fungi. Trees are grown and harvested according to rotation. In this manner, they are allowed to reach full maturity, delivering a quality product while maintaining a healthy environment.

Invested Residency

Law 24 was designed to allow a smooth transition into Panama citizenship while partaking in a program with positive future impact. The world cannot afford the continued dwindling away of forests that provide us with an oxygen rich atmosphere, shelters wildlife, prevents erosion, and generously gives us the products we use in our daily lives.

By investing in teak, you are investing in a quality wood with uses ranging from decorative to practical purposes, such as ship decks, door frames, and furniture. You are investing in a product that analysts predict will not be able to meet the demands of supply by 2050 if Asian production continues its downward trend. You are investing in the greatest favor you can do for your community; you are contributing to the greening of Earth.

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