Retire or invest in Latin America? Don’t miss out on these great fringe benefits

When considering investments of any type, the bottom line is of course the most important. But one of the very attractive benefits of alternative investments and retirement abroad is that they are not just numbers on a screen. They often also entail significant fringe benefits which, while not directly contributing to the bottom line, play an important role in the investment itself and in the investor’s longer-term strategic planning.

These fringe benefits could be pure pleasure, or perhaps social status, such as inviting friends over to taste the latest vintage from your own winery. But as the traditional financial system remains far from predictable and the outlook for the rest of 2010 remains bleak, you might be surprised to learn that savvy investors are flocking to alternative Latin American investments as a conservative ‘safe haven’ for serious investors. international asset protection purposes.

Doug Casey, an experienced international speculator, who authored The International Man in 1976, recently wrote that “a wise man … is not bound by an accident of birth.” Casey predicts that we are “heading for a currency crisis for the record books, and I think you can plan your life around some form of exchange controls. If you don’t get significant assets from your home country now, soon you may find it expensive and very difficult to do that.”

Whether you agree with that prediction or not (I do, by the way!), there are several very good reasons to diversify into hard international assets – things like real estate or physical gold.

First of all, there are the tax advantages. If you’re managing an investment portfolio today, chances are your geographic location isn’t that important. The daily management of your portfolio can be done from anywhere with a laptop and broadband. So more and more investors and managers have realized that they simply don’t need to be based in a country with high taxes and high costs.

Most Latin American countries have territorial tax systems, meaning that if you officially reside there, you are only liable to tax on your local source income. Anything you do outside the country of residence is tax free as far as they are concerned, so you don’t even have to declare it. This is in stark contrast to North America and Europe, where the rule of thumb is that your home country taxes you on your worldwide income.

By living in one country – even part-time – while overseeing investments in another, you can legally reduce your tax bill in one fell swoop. Some countries, such as Uruguay and Panama, are particularly attractive in this regard because they have adopted business-friendly legislation specifically designed to attract this type of international asset manager. They recognize that while it does not directly generate tax revenue, it stimulates the local economy and provides employment for local professionals, banks and businesses.

Other countries, such as Costa Rica and Belize, offer “retirement” or “qualified retiree” programs that grant specific tax exemptions to retired foreigners who come to live there. If you don’t feel ready to retire yet, keep in mind that some of these “retirees” are much younger than you might expect – they simply qualify for the programs by proving they have enough regular income from having abroad to maintain a quality lifestyle. For them, “retirement” can mean waking up to the sound of the ocean in their beautiful beachfront homes, logging in to check how much money they’ve made overnight, working on the internet for a few hours a day and a few days a month travel to personally monitor their investments.

Ah, I hear you say, but there’s one big problem with this strategy – if you happen to be a US citizen. The US is the only country in the world that taxes its non-resident citizens. A British or Canadian who moves his official residence to Belize or Uruguay no longer has to worry about taxes in his home country, but his American cousin does.

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But it’s not as bad as it sounds. There are still substantial benefits for Americans living abroad that a competent international tax attorney can help you with. Ultimately, however, Americans can only legally disengage from the IRS by renouncing U.S. citizenship.

Many do just that. But before you take the drastic step of giving up a US passport, another citizenship is required. Millions of US citizens are actually entitled to European or other passports based on origin, although the bureaucracy involved can be quite lengthy. That is why the Caribbean states of Saint Kitts and Nevis and the Commonwealth of Dominica both offer “economic citizenship” programs, essentially “selling” citizenship and passports for hundreds of thousands of dollars. Years ago, most buyers were Russians, then Chinese, but today most buyers are Americans who renounce their citizenship to become taxpayers.

All this brings me to another great side benefit of investing in Latin America: most Latin American countries are relatively liberal when it comes to naturalization – granting citizenship based on a period of residence or other “affiliation” with the country. 2-5 years is the norm. This already short period can often be accelerated on the basis of, for example, a marriage or the birth of a child in the country. Often the processing time on top of the officially designated period of residence can be a year or more – but it should be borne in mind that citizenship through this method is almost free.

Proving some connection to the land is a necessity, but this requirement can easily be met by owning real estate or investing in a local business. So savvy second-citizen seekers should look for compelling business opportunities in Latin America rather than investing hundreds of thousands in small, hurricane-prone islands in the Caribbean.

However, the biggest benefit of going global is elusive for me. If I had to sum it up in one word, it would have to be ‘freedom’. In tough economic times, governments generally resort to patriotic calls to “unite” and “pull together”—something that usually ends with “do as I say, not as I do.” The “strong leadership” demanded by the majority today is bad news for entrepreneurs, libertarians, classical liberals and all those who love freedom.

Doug Casey suggests that you should at least consider the possibility of transplanting yourself, or at least start transplanting some assets. “Don’t take it as a negative thing,” he says. “The world is at your feet. Make the most of it.”

While the bureaucracy in Latin America can be overwhelming at times, it is relatively easy to get through. There is less regulation than in the US in particular and there is more reliance on common sense and individual responsibility. People don’t sue each other for the slightest thing.

Doug is currently involved in developing a community for like-minded individuals in Northern Argentina, not far from Bolivia and Paraguay. The idea is that, with the world in constant turmoil, it’s good to have a ‘Plan B’ – a place away from the crowds that is completely self-sufficient in terms of food, water and energy – and even wine !

The buyers in such communities, many of whom I have had the pleasure of meeting, are not crazy doomsayers. Most of them are patriotic Americans, serious investors and hard-working entrepreneurs, who hope things never get that bad – but they sleep sounder at night knowing they’ve prepared a gunshot hole and have assets in place in case the worst-case scenario happens. And, let’s not forget, they hope to make a healthy profit on their Latin American real estate investment in the medium to long term.

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As with any investment, due diligence in this area is extremely important. But the next time you’re looking at an investment, don’t forget to look around for the hidden fringe benefits and the cold, hard numbers. Don’t just think of it as a way to increase the number of dollars in your bank account, but a way to diversify, learn about, and protect your family’s assets by investing in something with a built-in “insurance policy.”