Expat and Offshore Travel, Lifestyle and Culture – A little Culture and a lot of Nightlife

Where can I travel without a passport?
Christian Reeves

Where can I travel without a passport?

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The US IRS will begin certifying tax debts on January 22, 2018. If you have a “seriously delinquent” tax debt, your passport can be revoked. Likewise, the government can refuse to renew your passport if you owe more than $50,000. Here’s where you can travel without a passport after it’s been revoked by the IRS.

I’ve been writing about this since December 2015, and it’s finally come to pass. The IRS will begin targeting American expats who haven’t paid their taxes in the next few days. Once your passport is gone, your travel options will be greatly reduced.

Before I get to where you can travel without a passport, let’s consider the situation for a minute.

I suggest that this bill targets Americans living abroad because, unless you have a second passport in hand, the loss of your US passport will force you back to the United States to deal with the IRS. For most Americans living in the US, the loss of their “travel privileges” is of little concern.  The ones who will be hit the hardest will be Americans living, working, and doing business abroad.

This is especially true for expats who don’t have permanent residency in a foreign country. If you’re traveling as a tourist, you’ll be forced back to the United States in a few days or months. If you’re a temporary resident, you’ll be required to return and account to the IRS when your temporary status expires. You won’t be able to apply for permanent residency status if your US passport has been revoked.

If you have a permanent residency visa, you should be able to remain in your country of residency. You won’t be able to travel or leave your country of residence without a valid passport. However, the IRS can’t easily force you home unless you lose your permanent visa status.

If you think you’ll have a tax issue in the future, or can keep the IRS at bay with an Offer in Compromise, you might apply for residency in a country like Panama. All you need to qualify is an investment of in this country’s friendly nations reforestation visa program. While there are many countries where you can get residency, Panama is the lowest cost quality jurisdiction for those from a friendly nation.

Of course, the question of where you can travel without a passport becomes mute if you purchase a second passport. So long as you have a valid travel document from a country like St. Lucia, the IRS can’t force you back by revoking your US passport.

But, once your US passport has been revoked, and you’re back in the United States, where you can travel without a passport? The following is based on a decade of experience. This article is not a statement of the law, but rather how things work at the border.

First, you won’t be able to fly to any country without a passport. No airline will risk allowing you to fly if you don’t have a passport. Remember that the airline is responsible for returning you to your home country if you’re denied entry.

So, that means you have only two options of where to travel without a passport. You can drive to Canada or Mexico. Because Canada can be quite picky about whom they let in, the safest port of entry is Mexico.

If you travel within the Border Zone (usually up to 20 kilometers south of the US – Mexico Border) or the Free Trade Zone (including the Baja California Peninsula and the Sonora Free Trade Zone) no passport will be required by Mexico. However, if you wish to pass these zones, you’ll need a passport and, if you’re driving a US car, your auto will need a permit.

The maximum period of time you’re supposed to stay in Mexico without a formal visa is six months. However, when you arrive by land, there’s no entry stamp and no way for the government to know how long you’ve been in the country. In my experience, so long as you don’t cause any trouble, the Mexican government won’t bother you.

In order to return to the United States, you’ll need a valid US ID and your birth certificate. While many websites say you need a US passport, including official government sites, I’ve asked immigration officers and they say you can pass with a birth certificate and photo ID. The last time I inquired was 2 days ago, so this is recent information.

By the way, I’m assuming that the US IRS will revoke all travel documents if you owe more than $50,000. This means the loss of your US passport, your US passport card, and your SENTRI card. US passport cards and SENTRI cards are only valid at land crossings (Mexico and Canada).

I haven’t seen any statements by the IRS or immigration on passport and SENTRI cards. It’s possible they would remain in effect if you lost your passport.

With that said, I don’t see any practical reason a US person couldn’t drive from San Diego to Tijuana and live in Baja indefinitely without a passport. Your chances of having a problem with Mexican authorities is low and you should be able to return to the US occasionally without a passport.

Where you’ll have issues is opening a local bank account and getting an apartment lease. It would be best if you can get these done before losing your US passport.

With all of that said, the best place you can travel without a passport is Northern Mexico. Again, this is 20 kilometers south of the US – Mexico Border and Baja California. All of my experience has been in Baja, from Mexicali to Tijuana and Playas to Ensenada. In 10 years of travel in Northern Mexico, I’ve never once been asked for a passport.

I hope you’ve found this article on where you can travel without a passport to be helpful. For information on setting up an offshore structure while you still have your passport, or with Panama residency or purchasing a second passport, please contact us at info@premieroffshore.com or call us at (619) 483-1708.

Which Countries Tax Worldwide Income?
Christian Reeves

Which Countries Tax Worldwide Income?

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When you’re planning a move abroad, you need to consider the tax laws of your country of citizenship and your country of residence. The key to a solid expat move is to determine which countries tax worldwide income and avoid them whenever possible.

There are four basic tax groupings of countries. I won’t consider the 22 countries that don’t tax citizens or residents. You can find that list here.

Here’s the 4 tax categories:  

  1. Countries that tax citizens and legal residents on their worldwide income no matter where they live. These countries also tax residents on their worldwide income.
  2. Countries that tax residents on their worldwide income. This is called a residential or physical presence tax system.
  3. Countries that tax citizen residents on their worldwide income but not foreign residents.
  4. Countries that tax residents on their local source income but not foreign source income. This is called a territorial tax system.

The only major nation that taxes its citizens (and green card holders) regardless of where they live is the United States. So long as you hold a U.S. passport or green card, the Internal Revenue Service wants its cut of your profits and capital gains.

  • Some lists of countries that tax citizens and legal residents on their worldwide income include Libya, North Korea, Eritrea and the Philippines. The tax systems of these countries are not well developed and data is limited.

The United States taxes all U.S. persons on their worldwide income. A U.S. person is a citizen, green card holder (who is a legal resident but not necessarily present in the United States), and residents. A resident is anyone who spends more than 183 days a year in the United States.

If you’re living and working outside the United States, and qualify for the Foreign Earned Income Exclusion, you can earn up to $102,100 in salary during 2017 free of Federal income tax. If your salary is more than the FEIE, you will pay US tax on the excess.  

Also, the FEIE only applies to your salary. You will pay US tax on capital gains, dividends, rents, royalties, and passive income no matter where you live.

Category two includes countries that tax residents on their worldwide income. In most cases, a resident is anyone who spends more than 183 days a year in the country. If you’re not living within their borders, you won’t pay tax to these nations, even if you’re a citizen.

I should point out that the “183 days” test is the standard definition of a resident. Some have more complex tests to determine who is and who is not a tax resident. For example, Colombia uses your presence in the country and the following:

1. Staying continuously or non-continuously in Colombian jurisdiction for more than 183 calendar days during a 365 day period (1 year);  
2. 50% or more of your income comes from Colombian sources;
3. 50% or more of your assets are held in Colombian Territory;
4. 50% or more of your assets are managed from Colombian Territory;
5. Having a tax residence in a jurisdiction declared as “tax haven” by the Colombian government.

The best known category two residential taxation countries are Australia, Austria, Brazil, China, Colombia, Japan and Mexico. The residency tax system is the most common and a complete list can be found here.

Category three, countries that tax foreign residents differently than citizen residents, technically includes only Saudi Arabia, Cuba and Philippines. However, some countries impose worldwide taxation on residents only after they have been in the country for several years. So, this category can vary by your situation.

When you’re moving abroad and looking to reduce or eliminate income taxes, you want to move to a category 4 country. These nations are on a territorial tax system and tax only your local source income.


If you live in a category 4 country, operate an online business from a territorial tax country, and don’t sell to locals, you won’t pay income tax to your country of residence. If you move to a territorial tax country and open a restaurant, you will have local source income and thus pay tax on your profits.

The most “business friendly” territorial tax system is in Panama. Other options include Belize, Costa Rica, Hong Kong, Malaysia, and Singapore. For a complete list, click here.

Those are the four tax systems available, with territorial and residency based taxation being the most common. Your objective should be to become a resident of a category 4 country and be a tourist or visitor in countries who would want to tax your business income.

There’s a fifth option you if you plan to spend a lot of time on the road.

You can elect to become a perpetual traveler, as so many internet marketers and entrepreneurs with portable businesses do. If you keep moving, never spending 183 days a year in any one country, you never become a tax resident and are not subject to their income tax reporting or paying requirements.

A perpetual traveler might split her time between Europe, Canada and Asia, or between the United States, Mexico, and South or Central America, never becoming subject to any of these countries tax laws. This option has become popular with nomad internet professionals.

I have two important notes for perpetual travelers:

The first is for Americans. Remember that the U.S. taxes its citizens on their worldwide income, including perpetual travelers. If you go this route, you need to qualify for the FEIE using the 330 day test and not the residency test. Here’s a detailed article on the FEIE for US citizen perpetual travelers. It’s much easier to qualify for the FEIE if you’re a resident of a foreign country for U.S. purposes, even if you spend less than 183 days in that nation.

The second is for everyone else. Several countries will attempt to tax you based on citizenship if you’re a perpetual traveler with no tax home. While their legal standing to require a tax home is unclear, I have seen many nomad clients go to battle with their home country on this issue.

Therefore, I suggest all perpetual travelers become residents of a country with a territorial tax system for the purpose of reporting (or defending your status) to your country of citizenship. Becoming a resident of Panama, while spending only a few days a year there, can simplify your worldwide tax picture.

Panama has one of the lowest cost residency programs. If you’re from a top 50 country, you can become a resident with an investment of only $20,000.

I hope you’ve found this article on which countries tax worldwide income to be helpful. For more on how to setup an offshore company or plan an international trust, please contact me at info@premieroffshore.com or call us at (619) 483-1708. 

IRS can take your passport
Christian Reeves

Expats, the IRS is Coming for your Passports

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Back in December I told you the IRS has the power to revoke your United States passport for past due debts. Now I’m telling you that the IRS has begun its attack on American expats… that the battle for your passport on… that the IRS has set the field and the first shots are about to be fired.

Here’s my original article: Warning: The IRS Can Now Revoke Your Passport (posted December 9, 2015)

To read the bill that takes away your freedom of movement, see: H.R. 22 – Fixing America’s Surface Transportation Act, the “FAST Act (signed by Obama on December 5, 2015)

As you read my comments below, remember that a United States passport is a privilege, not a right. Your government can take it away from you for any reason it sees fit.

The IRS has begun working with US Embassies and Consulates around the world to deny and revoke passports of Americans abroad who have not filed or owe the IRS.  If you are living outside of the United States, the IRS is coming for your passport.

Per this post from the The United States Embassy in Brazil, as of October 1, 2016, anyone attempting to renew their passport through the Embassy will be required to provide a Social Security number. That number will be used to review your IRS records before approving a passport renewal.

This means that, anyone who owes more than $50,000 to the IRS will be denied a passport. If you’re caught by local authorities without a passport, or overstaying your visa, you will be removed from the country and returned to the United States to face the collector.

It also means that anyone who has not filed their tax returns will likely have their passport renewal denied. Here’s how they will take your passport for not filing:

The law says your passport can be revoked or denied if you owe more than $50,000. When the IRS finds out that you are abroad and have not filed, they will prepare a Substitute for Return for you. They’ll estimate your income and assets and all manner of penalties, such as FBAR and offshore financial statement, and generally guesstimate a tax bill for you.

The resulting “substitute” balance due will certainly exceed $50,000. Thus, the Service will withhold or revoke your US passport for failure to file after inventing that phantom tax bill. You will be left with one option – return to the United States and negotiate a settlement.

It should be clear to everyone that the US IRS is waging a war on expats. The government wants to limit your freedom of movement and your right to live, work, invest, and hold money where you see fit.

Assuming you’re not the type to bow down, bend over, and be herded back to the United States like a lamb, what can you do to protect your right of self determination? What can you do if your United States Passport is revoked by the IRS?

You must have a passport to travel from place to place and live in any country outside of the United States. Also, a valid passport is often the only acceptable form of identification. Without it, you won’t be allowed to open bank accounts, transact business or execute wire transfers.

The best way to protect yourself from your own government is to buy a second passport. Many small nations sell citizenship and second passports. If you have a second passport, you have a safety net regardless of what happens with your US passport.

Here are a few of the best second passport options for Americans. For a more complete list, see: 10 Best Second Passports and Citizenship by Investment Programs For 2016

As you can see, a second passport is expensive. The next best option is to become a permanent resident of your country of residence. For example, if you’re living in Panama, you can become a permanent resident by investing $20,000 or setting up a business in the country.

Becoming a permanent resident will allow you to remain in the country no matter what happens with your US passport. But, a few words of warning:

  • You won’t be able to travel outside of your country of residence without a passport.
  • You won’t be able to renew your residency (if applicable) without a valid passport.
  • You must complete the residency process before your US passport is revoked or expires.

Buying a second passport can be completed in about 90 days once your documents are submitted. Becoming a permanent resident is usually completed in stages, often requiring a 2 year period as a temporary resident.

I also note that both of these processes will require a clean report from the FBI. Click here for more on how to request this report. Typical processing time is 60 days.   

Considering how aggressive the IRS has become in the last year, and the time it takes to process residency or a second passport, I suggest anyone concerned with the IRS, or the state of our government, should take action immediately. Once your US passport is gone, it’s too late to protect yourself or your family.

I hope you’ve found this article on the IRS coming for your passport to be helpful. For more on how to buy a second passport, or obtain residency in Panama or Mexico, please contact me at info@premieroffshore.com. All consultations are confidential and free.

Cayman Islands Internet Business
Christian Reeves

Move Your Internet Business to Cayman Islands Tax Free

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Are you looking for a high quality of life, no taxes, and a cool offshore jurisdiction from which to operate your internet business? Ready to move you and your team to paradise for a few years to rake in the cash tax free? Then consider moving your internet business to Cayman Islands.

Cayman Islands had a tax deal you can’t refuse. Move to this business-friendly group of islands with its first-world infrastructure and amazing climate, and pay no taxes. You will also get a 5 year renewable work / residency visa for you, your staff, and their families. There are no restrictions on the number of workers you can bring with you and no requirement to hire locals.

Historically, visas and work permits were extremely difficult to obtain in Cayman. Securing residency previously required you to buy real estate of $500,000 to $1 million dollars and navigate  river of red tape.

Because a residency permit and work visa are essential for the American to qualify for the Foreign Earned Income Exclusion, very few small businesses set up in Cayman.

Suffice it to say, those days are gone and now Cayman Islands is open for business. Today, you can relocate your internet business to Cayman Islands efficiently and without (most) of the impediments.  

Moving a business to Cayman also gets you access to their world-class banks and credit card processing facilities that have been shut to Americans for several years now. Only US persons with a licensed business or a home on Cayman may open a account on the Island.

For example, to further reduce your contacts with the US, you might process credit cards through First Atlantic Commerce, a leading global online payment solutions provider. This enables you to accept payments in up to 145 world currencies in real-time on a 100% PCI-compliant platform. Merchant services include:

  • Multi-currency, multi jurisdictional settlement
  • Real-time processing
  • Virtual Terminal
  • Repeat and Subscription Billing
  • Card Number Tokenization
  • 3-D Secure™ (bank dependent)
  • CVV2/CVC2/CID and AVS checks
  • PCI Compliant gateway

We also highly recommend banking and credit card processing services from Royal Bank of Canada.

Now on to US Taxes.

Here’s how to move your business to Cayman Islands tax free. Do it right and you and your staff can earn up to $101,300 tax free in salary. That’s right, everyone who moves to Cayman with you gets $101,300 tax free. That equates to about a 35% pay increase on your first $100,000 in salary… certainly worth hanging out on a beautiful Caribbean island for a year to earn.

  • You will pay US taxes on salary over $101,300. You might create defined benefit or other retirement structures to further defer tax. A small business might simply hold retained earnings tax deferred.

Even better, you and your team won’t be required to pay self employment tax or any of the US social taxes. No FICA, Medicare, or Obama taxes. That’s a savings of about 15% (7.5% to the employer and 7.5% to the employee).

Of course, you’re in business to make a profit, not just pay your employees. Any income generated by the Cayman Islands corporation can be held offshore tax deferred. If you accrue $5 million in net profits over 3 years on the island, so long as you hold them in your Cayman corporation, you won’t be required to pay US taxes.

The devil is in the details of the US tax code and I’ll get to that.

First, let me point out that I am talking about moving you and your business out of the United States and to the Cayman Islands. This is not some tax dodge using shell companies or hiding from the IRS. This is committing to the business, making the move, and earning the tax benefits.

Shell companies and offshore structures with no substance behind them are so 2000. These days, if you want to cut your US taxes, you must have employees and operations outside of the US. For most businesses, this means moving you and your workers out of the United States for a time.

Then and only then will some of the income generated by this division qualify to be held in the Cayman Islands corporation tax deferred. More on this soon….

In support of this fact, the Cayman Islands Government has granted a number of globally competitive tax holidays / tax free zones throughout the Island. They allow your businesses to establish a physical presence plus offer fast-track business licensing and visa processing. These programs attempt to eliminate the red-tape, excessive costs, and uncertainty that one would normally experience when trying to set up a business in Cayman Islands.

These tax free zones provide the following benefits:

  • No corporate, income, sales or capital gains tax in Cayman Islands – tax payable in the USA is a complex matter summarized below.
  • 100% foreign company ownership permitted
  • A 3-4 week fast-track business licensing regime
  • Renewable 5-year work/residency visas granted in 5 days
  • Cutting-edge IT and business infrastructure
  • Offshore hosting & payment gateway
  • Minimal Government regulation
  • No Government reporting or filing requirements
  • A tech cluster with massive cross-marketing opportunities
  • ’One-stop-shop’ Administration services
  • Work visas for your staff and residency permits for your spouse and children at no additional cost.

Note that you must operate your business in one of the Island’s tax free zones to get these benefits. Also, your business must be in one of the industries to which a tax holiday is available. Qualified businesses include:

  • Internet & Technology
  • Media, Marketing or Film
  • Biotechnology & Life Sciences
  • Commodities & Derivatives
  • Maritime Services

How to Maximize the US Tax Benefits of Moving Your Business to Cayman Islands

Let’s get back to the devil (the IRS) and those details.

The key to the offer in Cayman is the fact that you and your employees will receive work and residency permits on the island. In the past, these have been extremely difficult to get and required that you hire a proportional number of Cayman citizens.

As of 2016, Cayman understands that the days of the shell company are coming to an end. The government is moving to a service based offering that allows you to establish a real business with substance and employees who qualify for the Foreign Earned Income Exclusion. One that will pass muster with the IRS and allow you to minimize your US taxes.

Of course, you need to do your part to make Uncle Sam happy as well. You need to move your business, your workers, and yourself to Cayman Islands. You must reside on the island as a legal resident with a work permit (we have that covered for you), qualify for the Foreign Earned Income Exclusion, and obtain a license from one of their tax free zones.

To qualify for the Foreign Earned Income Exclusion, you need to move to Cayman for the foreseeable future, make the Island your home base, and stay out of the US approximately 8 months of the year.

  • Cayman Islands should be your home base and the jurisdiction from which you operate your business. You don’t need to spend a certain amount of time on Cayman, but you do need to be out of the United States for about 8 months a year.

This allows you to earn up $101,300 in salary from your Cayman corporation tax free in the United States, avoid US social taxes, and retain net profits from your active business in the Cayman corporation tax deferred. The fact that you are structured and licensed in one of the Cayman tax free zones means you operate tax free in Cayman also.

Note that I said net profits / retained earnings in your Cayman Islands corporation will be tax deferred – not tax free – in the United States. When you will decide to take out these retained earnings from your corporation, they will be taxed in the United States. You can decide when that occurs, but you must pay Uncle Sam some day.

The Foreign Earned Income Exclusion is a complex topic, and I have merely skimmed the surface here. For more details, see:

  1. Foreign Earned Income Exclusion 2016
  2. Foreign Earned Income Exclusion Basics
  3. Benefits of an Offshore Company
  4. Eliminate U.S. Tax in 5 Steps with an Offshore Corporation
  5. How to Prorate the FEIE

As you read through these thrilling posts, keep in mind that we are talking about moving you and your business to Cayman. You will qualify for the Foreign Earned Income Exclusion using the residency test and not the physical presence test.

Costs of Setting Up in Cayman Islands

I’ve been working offshore since 2000 and I can tell you that Cayman Islands is without a doubt the most beautiful tax paradise. Add to this  their world class services, IT infrastructure, and top legal and business talent, and it’s an amazing place from which to operate an internet business. Cayman Islands is NOT a low cost option Cayman is the Hyatt or Nieman Marcus of the offshore world, not Wal Mart or Best Western.

Cayman is one of the more expensive jurisdictions from which to run your business. You will need to pay your employees the same as you do in a major US city like Los Angeles or New York to cover the cost of living. Everything you do, from equipment to meals to lodging, will cost about the same as the United States. And everyone will want to travel back and forth to the US to escape that Island Fever.

If you are looking for one of the most beautiful and professional spots on the planet from which to operate your business, Cayman Islands is it.

If you are looking for a place that offers low cost labor and a 4% tax rate, and you have at least 5 employees, consider Puerto Rico.

If you want to maximize the value of the Foreign Earned Income Exclusion in a lower cost city, consider Panama. Yes, Panama regardless of the BS you read about the Panama Papers.

Here is a summary of the costs of setting up your business in Cayman Islands. Note that the minimum number of employees in Cayman is one. The tax benefits described here assume you (the business owner) are the first employee. You might be the only employee or you can bring with you as many support staff as you like. 

The tax free zones have created turn-key offerings that include your residency visa, work permit, and office. The total cost for all of this in a shared / group space is about $1,550 per month. The minimum term of the lease is 3 years and the first year of $18,500 is due at signing. 

  • You can have up to two people working in the group space. If you have 3 or more employees, you will need a private office. See below.

The cost for a private office for one person with 90 to 100 sq ft., again including all permits, is about $3,000 per month on a three year contract. This includes furniture, phone system, etc. Payments are made quarterly at $9,237.50.

A three person office is $53,450 per year and a 2 person office can be either $41,250 or $49,250 per year depending on if a chooses the standard or large 2 person office. Payments are made quarterly and  the minimum term is 3 years.

In addition, each resident will need to have health insurance, which starts at about $200 per person per month. Family plans are available.

And, speaking of families, there is no additional cost to bring your spouse and dependent children under 18 years of age to Cayman in this program. Their residency permits are basically processed for free and included in your office rent.

However, you might consider setting up an office and work permit for your spouse. That will allow him or her to also earn $101,300 per year tax free under the FEIE working in your family business In this way, you can double the value of the Foreign Earned Income Exclusion.

Also, your kids must be enrolled in private school in Cayman. They are not allowed to roam the streets unchecked. Private school costs about $1,300 per month and a wide range of options and price points are available.

Finally, employees are required to have some type of retirement account on Cayman after 9 months of employment. This may provide additional tax planning options.

As I said above, the cost of living in Cayman Islands will be the same or higher than a major US city. Rent in a residential neighborhood for a two bedroom will run you $2,000 to $3,000 per month. The commute would be about 20 minutes to the office. .

If you want to go big, the rent for a two bedroom on Seven Mile Beach will run you $5,000 to $6,000 per month. If you would like to scope out the area, I suggest you stay at one of the many hotels on Seven Mile.

We can have you setup and operating from Cayman Islands in about 40 days. For more information, and a quote on forming your Cayman corporation and US / Cayman tax planning, please contact me at info@premieroffshore.com or call us at (619) 483-1708.

Cayman Islands vs Puerto Rico

Allow me to close by comparing Cayman Islands to the US territory of Puerto Rico. Puerto Rico offers a tax holiday at 4%, a tax rate which is guaranteed for 20 years. The catch is that your business must move to Puerto Rico and have at least 5 employees on the island.

  • If you have fewer than 5 employees, Puerto Rico is not an option. Focus on Cayman Islands or Panama.

The tax deal in Puerto Rico is very different from that of Cayman Islands. In fact, it’s the reverse of the Foreign Earned Income Exclusion described above.

In Cayman, you earn $101,300 tax free and leave the balance of the profits in the offshore corporation tax deferred.

In Puerto Rico, you draw a reasonable salary and pay tax at ordinary income rates on that money. The remaining net profits of the business are then taxed in the corporation at 4%. If you are living in Puerto Rico, you can pull these profits (less the 4%) as tax free dividends.

So, if your salary is $100,000, and your remaining profit is $2 million, you will pay about $110,000 in Puerto Rico tax (($100,000 x 30%) + ($2 million x 4%) = $110,000). This is all of the tax you will ever pay on this income.

In Cayman, the $100,000 salary is tax free. At some point, you will pay US tax at 35% on the $2 million, or $700,000.  This might be years or decades in the future, but the bill will come due.

For more on this topic, take a read through Puerto Rico’s Tax Deal vs the Foreign Earned Income Exclusion.

I also note that you, as a US citizen or resident, do not need an visas or special permission to move to Puerto Rico. It’s a domestic flight and you can relocate as easily as you would from New York to Miami.

Next, your cost of labor in Puerto Rico will be 30% to 40% lower than in Cayman Islands. The same goes for your cost of living and operating the business.

Finally, Puerto Rico allows you to spend more time in the US. You should be on the island for 183 days a year, not 240 as you should with the Foreign Earned Income Exclusion using the residency test.

Conclusion

Whether you want to operate your business from an island paradise like Cayman Islands or a fiscal paradise like Puerto Rico, all tax deals these days require substance. This means a business with employees abroad adding value and working in the business.

You need to move you and your business outside of the US to maximize the benefits of the Foreign Earned Income Exclusion or of the US territorial tax offerings of Puerto Rico.

I hope you’ve found this article helpful. For more information on moving your business to Cayman Islands or Puerto Rico, please contact me at info@premieroffshore.com or (619) 483-1708 for a confidential consultation.

Panama Foundation Scam
Christian Reeves

Is Panama the Next Singapore?

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Panama vs. Singapore by By Christian Reeves and Lief Simon (www.offshorelivingletter.com)

“Panama is the next Singapore,” declared a friend over lunch the other day. He wasn’t the first I’ve heard make the prediction.

Since finding its legs after the U.S. military handed over the canal, Panama’s economy has been on an uninterrupted upward trend. Even throughout the global recession of the past several years, Panama has racked up positive, albeit slower, growth.

Like Singapore, Panama is a shipping, banking, and corporate headquarter hub. Both countries are also tax havens. Where they diverge is gross domestic product (GDP) per capita and cost of real estate. Singapore’s GDP is about four times that of Panama, depending on the statistics you look at. The population of Singapore is about 50% greater than that of Panama, making this GDP figure even more stunning.

The average price per square meter for apartments in Singapore is eight times the current average cost in Panama City. (And we’ve been complaining about property values in Panama City!)

The point is that both of these statistics are being used as predictors for Panama’s potential. The consensus is that Panama is looking at at least another decade of continued tremendous growth rates.

I agree.

Panama has 100 times more land area than Singapore. As a result, there are different markets at work in this country. While real estate prices will continue to increase in Panama City as the country continues to mature and will, sooner or later, I believe, reach levels to qualify as “expensive” in a global context, prices in the interior of this country and in most of the beach areas will remain more affordable than those in comparable options in the United States. That will allow Panama to continue to attract retirees from North America and Europe.

Banking, shipping, business, tax benefits, and retirees: That is a dynamic combination for the Panamanian economy, which has grown at a rate of at least 7.2% per year every year since 2004, with the exception of 2009 (the “slow year”), when it grew at a rate of 3.9%. Unemployment is low, at 4.2%. In fact, the country is growing so quickly that it can’t educate and train its own citizens fast enough to keep up with the ever-expanding job market. The new “Specific Countries” residency visa, which comes with the possibility of a work permit for citizens of 47 countries, is one attempt to ease the strain the country is experiencing trying to find qualified workers for all the international companies relocating here, not to mention the local businesses and banks.

Global Banking Haven?

Historically, Panama has been generally acknowledged as a “banking haven.” No question, this is an international banking center; there are currently 78 banks licensed in this country. However, there is no longer any pretext of banking privacy or secrecy; not since November 2011 when Panama signed an exchange-of-information agreement with the United States.

Still, there are a lot of banks here and a lot of banking options. Like most offshore banking destinations, Panama offers two kinds of banking—local and international. Of the 78 banks licensed in Panama, 2 are state owned, 28 are international banks, and 48 are general licensed banks. International banks can only take clients from outside Panama, while general licensed banks can have both local clients and clients outside the country. The main difference from a practical point of view is that international banks don’t offer day-to-day banking services such as checking accounts or mortgage lending. These are places to keep investment, not operating, accounts.

You can see the full list of banks in Panama here. LINK TO http://www.superbancos.gob.pa/en/igee-general-information

The problem with most of the 48 general licensed banks in Panama is that, while they can take foreign (that is, non-resident) clients, in the current climate, they tend to not want to. That said, a colleague walked into Balboa Bank and was able to open an account as a non-resident foreigner with remarkably little hassle. He had his bank reference letter and his passport, which is all you need in theory. However, when it comes to banking overseas, the theory can be one thing, while the reality is something else.

While I’ve given up on identifying a local bank in Panama that will consistently open accounts for foreigners, ones to try in addition to Balboa Bank (which recently merged with Banco Trasatlantico and seems to be interested in growing its client base)include Banco General (one of the biggest banks in Panama in terms of number of branches), and Global Bank (where some I know have recently reported having good luck opening accounts).

All banks in Panama offer some level of internet banking, but check the details of this before investing the time in getting an account open to make sure you can initiate wire transfers online if that’s something you’ll need to do. Balboa Bank offers that service online, as well as an English-language version of their interface. This is notable, as many banks in this country don’t have English versions of their websites.

Many of the general licensed banks offer consumer as well as private or investment banking. If you’re a private banking client (meaning you’ve deposited US$250,000 or more), then you’ll generally have an easier time opening an operating or consumer account with one of those banks.

Again, the international banks operating in Panama deal only with foreign clients. Further, the minimum account balance required to open an account with one of these banks is US$1 million or more.

One exception is Banca Privada d’Andorra (BPA), which has a branch with an international license in Panama. BPA will open an account for you with a minimum account balance of US$100,000 (although they prefer US$250,000). Their online banking interface is in Spanish, French, Catalan, and English. You can contact Yariela Montenegro at y.montenegro@bpa.ad for more information about BPA’s services.

With the growing cost of the compliance required of any bank with American clients, many of the world’s international licensed banks are simply opting out of dealing with U.S. citizens, even those with the funds to open an account with US$1 million. Meantime, with everything going on in the global banking industry, banks are changing their policies and rules regularly. One bank that will open an account for a foreigner today may not next week and vice versa. We’ve watched this in Panama. Last year, for example, the executive committee of Unibank, a bank we’ve been recommending to readers since it opened in December 2010, decided that they would no longer take non-resident foreigners as clients except in their private banking division (US$250,000 minimum deposit). In December, they reversed that decision, but implemented a US$300 application fee for any foreigner wishing to open an account. Probably the back and forth and the new application fee are a reaction to the escalating cost of compliance when dealing with foreign clients.

Panama banks are generally solid, as the country’s Superintendent of Banking strictly monitors all bank activity. Currently, one bank is in “forced liquidation.” I’m not sure what that means, but banks don’t fail in Panama. When a problem does arise, the Superintendent takes action.

One specific occurrence a few years ago had to do with Stanford Bank in Antigua (the island, not the town in Guatemala). Stanford went bust because of malfeasance of the founder, and all related banks in different countries were affected. The Panama subsidiary of Stanford was closed, its assets frozen. The U.S. entities handling the case against Allen Stanford tried to seize the Panama assets, but the Panama Banking Superintendent wouldn’t allow that. After about 18 months, Stanford in Panama was sold to a group that reopened as Balboa Bank (still in operation today). All the Stanford Panama clients received the return of their funds.

It’s difficult to try to make a direct comparison of banking in Panama with that in Singapore. There are more banks and financial institutions in Singapore, which also offers more types of licenses. The number of banks in Panama has been relatively stable over the last 10 years, with new banks opening as other banks merge. Meantime, the volume of banking in Panama has increased, and I expect the number of banks to continue to increase as more international banks decide to open branches in this country.

Business And Taxation

One of the biggest advantages to Panama as a jurisdiction right now is that it is the best place in the world to run a business. Not a local business. I’d say that running a local business here in Panama would come with all the same challenges of running a local retail business anywhere in the world. In addition, though, the important thing to note about local trade in Panama is that much of it is restricted to foreigners. Most professions – doctors, lawyers, accountants, etc. – are restricted to Panamanian citizens, as are retail businesses. Most foreigners who want to be in business in the country focus on tourism-related opportunities or other service-related businesses…or restaurants.

If you’re looking for a place to launch or relocate an international business, however, you won’t find a better locale…

Except, perhaps, Singapore. I’d say these two countries are the top choices worldwide for where to base an Internet, consulting, or other laptop-based business. And, given the choice between Panama and Singapore, I’d choose Panama (as I did five years ago when my wife and I decided to relocate from Paris to Panama City to launch the Live and Invest Overseas business). Singapore is a far more expensive place to live and to do business. It’s also halfway around the world and many time zones away from your customer base if your customer base is based in North America.

One important reason Panama is as appealing as a doing-business choice as it is, is because it is a jurisdictional-based tax regime. That means any person or entity is taxed in Panama only if his, her, or its income is earned in Panama. Further, Panama doesn’t impose tax on interest income from deposits in Panamanian banks. Therefore, it’s possible, if you organize your life appropriately, for an individual to live in Panama free of any Panama income tax liability. Don’t earn any money in Panama, and you owe no tax in Panama. It’s as simple as that.

The easiest strategy for setting yourself up to be in Panama and in business without earning any income in Panama is to start a consulting or internet business based outside Panama. Create a non-Panamanian entity to house your non-Panamanian business, earn your income outside Panama (by consulting for a client in Costa Rica, for example), and have your clients pay your non-Panamanian company.

What you can’t do is set up a physical business in Panama with a non-Panamanian business providing the goods, and then have the non-Panamanian entity charge enough to the Panama company to keep it from showing any profit in Panama.

Panama has two rules that void that practice. One is simply an implied income tax on the gross revenue of a company if the company continually shows no profit. It’s essentially a minimum income tax charged at 1.168% of gross income for companies with gross revenue of US$1.5 million or more if the calculated tax on net income is less.

The other rule has to do with transfer pricing between affiliated companies. Panama passed a law last year specifically addressing this. A company with a Panama operation and a foreign subsidiary that provides products or services for local sales cannot charge above market prices for those products and services to the Panama entity in order to reduce the taxable income in Panama.

If you want to start a business in Panama for local trade, the tax rate is a flat 25% tax on net income. However, again, Panama places many restrictions on foreigners doing business locally.

To avoid this 25% tax on local business profits, you could consider basing your local business in either the free-trade zone in Colon or the Panama Pacifico “city” being developed at the former Howard Air Base outside Panama City. The free-trade zone in Colon is essentially a place to warehouse and modify goods to be shipped out of Panama. You can import and export goods to and from this zone with no tax implications, including no income tax. Any goods brought into Panama from this zone, however, are subject to import duties.

Panama Pacifico has been designated a tax-free zone for companies that qualify. The 13 categories of businesses that can operate here tax-exempt are:

 Distribution centers of multinational companies
 Back office operations
 Call centers
 Multimodal and logistics services
 High-tech product and process manufacturing
 Maintenance, repair, and overhauling of aircraft
 Sale of goods and services to the aviation industry
 Offshore services
 Film industry
 Data transmission, radio, TV, audio, and video
 Stock transfer between on-site companies
 Sale of goods and services to ships and their passengers
 Corporate headquarters

Another benefit of basing your business in Panama Pacifico is the opportunity that creates for you, as the business-owner/employer to be able to obtain work permits for foreign employees beyond the usual 90/10 rule. The 90/10 rule, which applies to all businesses operating in Panama outside Panama Pacifico, means that the business must employ nine Panamanians for every one non-Panamanian.

In recent history, again, the exception to this requirement that 90% of the employees for any business be Panamanian, has been to base yourself in Panama Pacifico. However, the new “Specific Country” residency permit means that this Panama Pacifico benefit isn’t as big a deal as it used to be. Now, any foreigner from any of the 47 countries included on the Specific Country visa list can obtain residency and a work permit, creating a chance for businesses to hire non-Panamanian labor without restriction. I believe this window of opportunity will continue only until President Martinelli is out of office. Martinelli created the new visa program through special Executive Order. The guy who follows him in office likely will repeal the order.

Unless the guy who follows Martinelli in office isn’t a guy at all but Mrs. Martinelli, as is lately being discussed.

Structures

Another important benefit of Panama as a jurisdiction includes the offshore services available here. In this way, too, Panama is very similar to Singapore. While Singapore has taken the offshore structures game to a next level, as it has been at this for much longer, Panama is working hard to catch up.

Panama offers corporations, trusts, and foundations. Again, Panama corporations pay no income tax in Panama if they don’t earn any money in Panama, making a Panama corporation a very appealing option for structuring business operations in other locations.

You can also use a Panama corporation to hold real estate in Panama or outside the country. Historically, this strategy provided important benefits to do with property and capital gains taxes. However, the rules for these things have changed recently, making this less of a no-brainer option. It can still make sense to hold Panama real estate in a Panama corporation, but not always.

Here’s how this used to work:

Once the Panama property was put into a Panama corporation, the “value” was locked into the public property registry. When the owner decided to sell, he sold not the property but the corporation holding the property. Ownership of the property didn’t change, and, therefore, the public registry value of the property didn’t change. As a result, the amount of property tax charged for the property didn’t change either. In other words, property values could increase, but property taxes (which are figured on property values) could be held constant this way.

Additionally, it used to be that, while Panama did charge capital gains tax on the transfer of property, it did not charge capital gains tax on the transfer of company shares, saving the seller 10% of the appreciation.

This changed in 2006. Now, sellers pay capital gains tax on both the transfer of property and the transfer of company shares.

Finally, Panama charges a 2% transfer fee on real estate. Selling the corporation rather than the property avoided that tax, as well.

Bottom line, today, with capital gains tax charged on the sale of shares and property values being reevaluated for the purposes of property tax, as I said, holding Panama real estate in a Panama corporation isn’t the no-brainer decision it was years ago. The cost of setting up a corporation runs from about US$1,000 to US$1,500, depending on the attorney. Maintaining the corporation runs US$530 a year without nominee directors, which should cost around another US$250.

On the other hand, using a Panama corporation to hold non-Panama real estate can be an excellent strategy, with estate planning and asset protection benefits. American readers should note, though, that a Panama corporation cannot be treated as a disregarded entity for tax purposes; they are treated like corporations. An American considering options for holding real estate in different countries should consider an LLC, a trust, or a foundation, which can be better choices depending on your circumstances overall.

Few people think of Panama as a trust jurisdiction; most look to the Cook Islands or perhaps Belize for this kind of structure. However, Panama does offer trusts (an odd thing for a civil law country).

Panama also offers foundations which is the civil law equivalent.

Foundations work very much like trusts and can be a good alternative to a trust depending on your needs. On the U.S. side, for tax purposes, a foundation can be treated like either a corporation or a trust. You want to make sure you set everything up so your foundation is treated like a trust. If you’re an American, have your Panama attorney work with a U.S. attorney who knows something about Panamanian foundations to be sure that the wording of the foundation documents is such that the entity will be treated as a trust by the IRS. Otherwise, you risk negative U.S. tax implications.

One other thing to keep in mind with a Panamanian foundation is that, while the name may suggest that it is a charitable organization, it is not. A Panamanian foundation is a tax-paying entity and can be liable for tax, both in Panama (if the foundation has any Panama based income) and in the United States (if the foundation has any income at all).

Pushing For First World Status

Panama’s President Martinelli has set an ambitious agenda. He has declared that he’s pushing Panama toward First World status. To that end, he’s taking all the revenues being thrown off by the Panama Canal (and then some) and investing them in infrastructure improvement projects across the country. You can’t drive more than a few blocks in any direction in Panama City without encountering some kind of construction—road expansion or repaving, digging for the new city metro, new building construction or old building renovation, electric and phone cables being moved underground, tunnels, bypasses, etc. Every main thoroughfare in the city is being improved in some way. The latest extension of the Cinta Costera, the new highway and pedestrian area that runs along the Bay of Panama, will take motorists around Casco Viejo and to the Bridge of the Americas, allowing drivers to avoid the current log jam trying to exit the city.

Around the country, roads are likewise being improved, expanded, and dug anew. Plus, new airports, new hospitals (including a big one in Santiago), new schools, and new shopping malls. The landscape of this country is being remade before our eyes.

The investment opportunities that all of this translates into are tremendous. Someday, people could be saying that Singapore is like Panama City.

 

Christian Reeves

US Leads the World in Only 3 Categories…

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What Makes America the Greatest Country in the World?

With record numbers of people leaving the United States, I wanted to write an article in defense of my country of birth. I spent hours researching the benefits of retaining my U.S. passport, and tried to come up with examples of where we lead the world in some important economic or beneficial category. Well, I came up with nothing…other than it is time to launch the lifeboat!

Since I spent all this time in hopes of authoring a defense, the least I can do is tell you what I found. Here goes:

The Expatriation Phenomenon

First, we need to define abandoning ship, more formally referred to as expatriation. Some sources refer to an expatriate (in abbreviated form, Expat) as someone, who moves away from his or her home country, either temporarily or permanently, to live and/or work in a foreign nation. This is the more common usage and includes approximately 5.2 million Americans.

The lawyerly definition of Expat is someone who gives up citizenship in their home country, effectively severing all ties with that country. As the United States is the only industrialized country to tax its citizens on income earned while living and working abroad, even when taxed by their countries of residence, it makes sense that the U.S. leads the world in people giving up their citizenship…in fact, legal expatriation is almost unheard of in other nations (Ok, so I found one area where the U.S. leads the world).

According to the WSJ, 1,800 U.S. citizens gave up their passports in 2011, a six fold increase from 2008. While 1,800 is a relatively small number, it is the increase which is eye-catching. When you consider the number of applications in the pipeline, and balance that against the very steep obstacles the U.S. IRS has put in place to prevent flight (such as an enormous exit tax), the growth of expatriation is staggering.

So, why are so many people shredding their U.S. passports? Let’s look at a few factors you and I might use to decide where to live.

Quality of Life

Based on television shows and hype, I would expect the U.S. to lead the world in quality of life, but this is far from true. America is 13th in the quality of life index published by the Economist Intelligence Unit. This survey quantifies healthiness, family life, community life, material wellbeing, political stability and security, climate and geography, job security, political freedom, and gender equality. It is the generally accepted standard for measuring quality of life around the world.

However, as someone who writes and works in the international arena, I do not believe this index is highly correlated to expatriation. I do not believe average citizens are moving from the U.S. to countries with higher quality of life scores for a simple reason: the higher a country ranks in the index, the higher the cost of living.

Countries with higher costs of living and a higher “quality of life” include: Switzerland, Sweden, Italy, Spain, Singapore, etc. But, in my experience, average Americans move to countries with lower costs of living, where their dollar, savings, and retirement, go farther. For example, countries such as Panama, Chile, Costa Rica, Philippines, Thailand, and Nicaragua, are all ranked significantly lower than the United States, but someone bringing dollars in to these economies can create an exceptional life for themselves on a budget.

While the quality of life index might accurately measure the experiences of a large population, it has little to do with an individual’s life choice.

At Least We’re Healthy

We all know that healthcare in the United States leads the world in cost. I won’t even bother to document this fact, as it has been beaten to death in the Obamanation healthcare debates. This must equate to high rankings in areas such as life expectancy and infant mortality…right? Sorry, wrong again. The United States ranks 49th in life expectancy and an outrageous 178th in infant mortality.

The United States currently ranks 49th in the world in overall life expectancy, according to a study published in the academic journal Health Affairs, slipping dramatically during the last decade. This study was published in 2010, and compares to 1999, where the U.S. ranked 24th in the same category.

The report found the prime culprit of the plunge to be America’s deteriorating health care system, marred by ever-rising costs and growing numbers of uninsured and under-insured individuals.

Noting that the United States spends over twice as much per capita on health care than other industrialized nations, the report states: “The observation that Americans are spending relatively more on health care but living relatively shorter, less healthy lives has led some critics to allege that the U.S. health care system is ‘uniquely inefficient.’”

The most shocking statistic I uncovered was the infant mortality rate. How can the U.S. rank 139th in this most basic health statistic? I did not believe my eyes, and thought it was internet junk science, until I saw this fact reported in a number of respected publications.

Infant mortality is extremely high in States such as Mississippi and Alabama, at about 10 deaths per 1,000, and lowest in States like Washington and Massachusetts, at about 5 deaths per 1,000. There is a strong racial component as well, with black woman about 2 ½ times more likely to lose their babies compared to white women.

Preventing infant mortality is not just about prenatal care. There are four key periods in the lives of women and their children, each vital in determining whether an infant lives or dies: before pregnancy, during pregnancy, at birth and during the first year of life…and the United States is very far behind in all of these areas.

Educating Our Kids

For many young Americans, the number one factor in deciding where to put down roots is the quality of education. If you want your child to succeed in life, give them the best start possible, at the best school.

With all the money spent on education, one might expect the U.S. to rank #1 in the world…and you would be severely disappointed. In fact, the United States ranks a dismal 25th in education. Adding insult to injury, we manage to achieve inauspicious ranking while spending more on education than the total GDPs of many countries that outperform us. For example, the 2012 education budget of the State of California is $108 billion dollars, which exceeds the GDPs of 5 of the countries which offer superior quality of education.

Ok, you want to see the countries that outclass us, so here they are. Statistics come from The Program for International Student Assessment, which is released every three years and tests 15-year-old students in reading, math and sciences. Basically, America earned an Average grade, tying the OECD average rating.

Note: The list above was published in the WSJ. It is generally accepted that China “cheated” by testing only a small sample size of its best students, thus it is not included in the rankings above.

If we delve in to the numbers, it just gets more depressing. The United States is 7th in literacy, 27th in math, and 22nd in science. Taking in to account both medical and education factors, The United States is 25th among 43 developed countries for the best place to be a mother, according to Save the Children.

Maybe we should look at the question of where we educate our children more carefully. How about, which country, not community, has the best schools for my child?

The U.S. is the Greatest Country on Earth – NOT (Viva Borat)

In my quest to prove the dominance of my Nation, I looked at many different statistics and rankings. Here are a few of my findings.

According to the Doing Business rankings compiled by The World Bank, America ranks 13th in starting a business. As a small business owner myself, this is shocking. I always believed that economic freedom and capitalism meant that the U.S. led the world in small business. By god, it is the foundation of our economy and we must be the best! I do take some solace in the fact that the U.S. ranks 4th in the ease of doing business. For more information, see: http://www.doingbusiness.org/rankings/

The U.S. ranks 47th in press freedom, according to Reporters without Boarders. So much for freedom of the press. Isn’t this covered in the Constitution or some such thing? Maybe I missed this class in law school.

America is ranked 10th in economic freedom, according to The Heritage Foundation and The Wall Street Journal. Like starting a business, I expected my country to lead the world…or at least make the top 5. To quote Heritage: “The United States’ economic freedom score of 76.3 drops it to 10th place in the 2012 Index. Its score is 1.5 points lower than last year, reflecting deteriorating scores for government spending, freedom from corruption, and investment freedom. The U.S. is ranked 2nd out of three countries in the North America region…” For additional information, see: http://www.heritage.org/index/country/unitedstates

The U.S. is only the 11th happiest country in the world, according to Columbia University’s Earth Institute. I guess this is why Disney, The Happiest Place on Earth, has expanded in to Hong Kong, Paris, Tokyo, and started an international cruise line.

There are 21 countries better than America in freedom from corruption, according to Heritage.org and the U.S. was ranked 24th in perceived honesty, according to Transparency.org.

Viva U.S. healthcare. America is ranked 89th in percentage of children who have been vaccinated according to the World Health Organization.

How well is our economy growing? The U.S. GDP growth rate is ranked 169th out of 216 countries, according to the CIA World Factbook. Our GDP per capita is only 12th in the world, behind Qatar and Liechtenstein.

Our unemployment rate is worse than 102 of the 200 countries listed in the CIA Factbook and we are 142nd out of 150 countries in infrastructure investment.

The U.S. is ranked 192nd, dead last, in the net trade of goods and services, and our budget deficit is ranked 192nd in debt relative to GDP, both of these per the CIA Factbook again.

At lease the U.S. has the money to back up its promises. Well, our reserve of foreign exchange and gold is ranked 19th, right behind Indonesia.

Enough is Enough

Ok, enough bashing of the United States. There must be a few areas where we lead the world. First the good news: We are third in median household income, number four in labor force and number four in exports.

Now for the ridiculous news, the United States leads the world in only three categories.

  1. Number of incarcerated citizens per capita,
  2. Number of adults who believe angels are real, and
  3. Defense spending.

I will leave the angels to the blogosphere, but let’s look at incarceration and defense spending.

According to a study by the King’s College London International Centre for Prison Studies, “The United States has the highest prison population rate in the world, 756 per 100,000 of the national population, followed by Russia (629), Rwanda (604), St Kitts & Nevis (588), Cuba (531), U.S. Virgin Is. (512), British Virgin Is. (488), Palau (478), Belarus (468), Belize (455), Bahamas (422), Georgia (415), American Samoa (410), Grenada (408) and Anguilla (401).”

And some of our States have even higher per capita rates. For example, Texas prisons incarcerated more than 1,000 prisoners per every 100,000 residents. About one out of every 22 adult Texans is in prison, in jail, on probation or on parole compared to one out of 31 nationally.

Considering all of the hype the U.S. puts out on freedom and liberty, it seems inconsistent with the fact that we lead the world in prisons. For me, this demonstrates the great divide between reality (prisons filled to capacity) with hype and marketing (we are the most free and happy country on earth).

Now on to military spending. The global military expenditure states at over $1.7 trillion for 2012, with the U.S. taking up an astounding 2/5ths, or 41% of the world total. America is followed by China at 8.2% of world share, Russia at 4.1%, UK and France both at 3.6%.

Even more amazing: Military spending did not decrease during the recent economic crisis. In fact, it increased. The U.S. led the rise in military spending during the crisis, but was not alone. 65% of the countries for which data is available increased spending. Of the G20 countries, 16 saw an increase in military spending.

 

In light of the many shortcomings of the United States, how can we lead the world in military spending? I believe it brings in to clear focus the priorities of my country. How does a country that trumpets itself as a world leader of freedoms have the world’s largest per capital prison population? How does the wealthiest nation rank first in medical spending but 49th in life expectancy and place a staggering 178th in infant mortality?

In speaking with friends, clients, and at various conferences around the world, I believe that it is these injustices and inequities that are causing so many Americans to jump ship. Many belive there is nothing they can do to fix, or even patch the boat, so it is time to launch the liferaft. Some choose to retire abroad, some elect to live and work abroad, possibly hoping the boat will make shore and be repaired and refitted, and some have given up all hope and have decided to ditch their citizenship all together.

Try as I might, I can not devise a suitable defense of my coutry, and I am left with one simple question: Where is the best place for me to relocate and plant my new flag as a free citizen of the world?

 

Christian Reeves

Murder and Mayhem in Latin America

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A list of the most dangerous cities in the world is out and the results are surprising. A number of U.S. cities made the hit parade and 40 of the top 50 are in Latin America. My favorite town in which to run a business, Panama City, Panama beat out Baltimore to take the 46th spot, while my favorite city to visit, Medellin, Colombia, shot its way to number 14. Honorable mention in Colombia goes to the metropolis with the prettiest women (in my humble experience), Barranquilla at number 42.

According to a study by a Mexican research group, the Citizens’ Council for Public Security and Criminal Justice, the top 20 most violent cities in the world are all in Latin America.

Mosul, Iraq comes in at #44, so there are 43 more hazardous places to live than the most hazardous city in war-torn Iraq. Of course, the study includes murders that government agencies categorize as crimes, and does not take account the 100,000+ civilian deaths over the years by U.S. forces and drone attacks, or the 244 civilians killed in November of 2012 (source: http://www.iraqbodycount.org/).

Soapboxing aside, what can we, as experienced international travelers and entrepreneurs, learn from this study? I say, not much. If you did not already know you needed to be cautious and understand your surroundings while abroad, you have no business wandering outside of your comfort zone. Stay in Podunk Iowa and drink moonshine with your buddies out of the back of your 1983 Ford pickup and leave the adventures to those with sense.

For the rest of us, here is what you need to know. I will limit my comments to Panama and Colombia as I’ve had many years’ experience in each. Parts of Mexico are a different animal because the drug war often spills over in to the more respected areas…though; it is surprising that a major tourist destination like Acapulco is at number 4 on the list.

First, a high murder rate does not correlate directly to a high risk of danger to travelers or residents. The vast majority of killings are gang related, in high risk areas you have no business visiting, and done by persons targeting a rival or someone else known to them. Collateral damage outside of these high risk zones, or random killings in tourist areas, is extraordinarily rare.

For example, no visitor to Panama City should be in the part of town known as El Chorrillo after dark, just like no gringo better be caught alone in Comuna 13, Medellin, Colombia.

The same is true of just about any good sized U.S. city. Even in my hometown, San Diego, CA, voted the 7th safest medium sized city in the U.S., there are plenty of areas in the County a white dude should not be hanging out late at night or caught acting the fool.

However, countries like Panama and Colombia take great care to protect their tourists above all else. Why? The answer is simple, bad publicity is bad for business! Therefore, an American in the controlled areas of Panama City and Medellin is safer than in almost any region of the U.S. Take the district known as Casco Viejo in Panama City as an example. In the tourist area, there are military, police, and Federal agents on every corner, ready to take care of any issue which may arise. Locals know they will be dealt with most harshly and give travelers a wide birth.

Of course, if you’re a lost and drunk idiot who decides to wonder around looking for trouble, you can find it by staggering 8 to 10 blocks west of Casco Viejo and ending up in El Chorrillo. I would estimate your chances of making it through that mistake at night unscathed to be about nil. If you keep your wits about you and respect your surroundings, you are just as safe in Panama City and Casco Viejo as you would be in any city in the good ole U.S. of A.

Second, you can purchase or rent safety in Panama and Medellin on the cheap, which is not possible in the United States. In my experience, the monthly cost of an apartment in a good area, with an armed security guard, is $1,000 to $1,500 in both of these cities, and you can add a trusted driver for $800 or less. Try doing that in New York, Chicago, Baltimore, or Los Angeles…it’s impossible.

When you assess your risks, ways to mitigate those risks, and quality of life, remember that your money goes much farther in Panama and Colombia, and thus the options available to you are greater. Plus, having a knowledgeable driver will open up the entire city to you. I learned a heck of a lot from my driver in Panama.

So, what I’m trying to say is this: claiming that some cities are more dangerous than others, and then using that opinion as an excuse to stay home is uninformed. It is based on a number of fallacies, such as a belief that all people are created equal (a common American misconception), that we all face the same risks, that violent crimes occur at random and for no reason, and that there is nothing we can do to mitigate risks while abroad.

In fact, I would argue that Panama and Medellin are safer for the traveler because of their higher murder rates, not more dangerous. It is because the risk exists that the government spends its resources to create designated safe zones. In these areas, the tourist is king and will always be protected.

Here’s the complete list:

City Country Homicides Inhabitants Murder Rate
50 Johannesburg South Africa 1,186 3,888,180 30.50
49 Durban South Africa 1,186 3,888,180 30.54
48 Baltimore United States 195 620,961 31.40
47 Cuernavaca Mexico 198 630,174 31.42
46 Panama Panama 543 1,713,070 31.70
45 Belo Horizonte Brazil 1,680 4,883,721 34.40
44 Mosul Iraq 636 1,800,000 35.33
43 St. Louis United States 113 319,294 35.39
42 Barranquilla Colombia 424 1,182,493 35.86
41 Port Elizabeth South Africa 381 1,050,930 36.25
40 Goiania Brazil 484 1,302,001 37.17
39 Curitiba Brazil 720 1,890,272 38.09
38 Monterrey Mexico 1,680 4,160,339 40.38
37 Fortaleza Brazil 1,514 3,529,138 42.90
36 Macapa Brazil 225 499,116 45.08
35 Pereira Colombia 177 383,623 46.14
34 Cape Town South Africa 1,614 3,497,097 46.15
33 Kingston Jamaica 550 1,169,808 47.02
32 Recife Brazil 1,793 3,717,640 48.23
31 Cuiaba Brazil 1,793 3,717,640 48.32
30 Detroit United States 346 713,777 48.47
29 Joao Pessoa Brazil 583 1,198,675 48.64
28 Nuevo Laredo Mexico 191 389,674 49.02
27 Sao Luis Brazil 516 1,014,837 50.85
26 Manaus Brazil 1,079 2,106,866 51.21
25 San Juan United States 225 427,789 52.60
24 Barquisimeto Venezuela 621 1,120,718 55.41
23 Cucuta Colombia 335 597,385 56.08
22 Salvador Brazil 2,037 3,574,804 56.98
21 New Orleans United States 199 343,829 57.88
20 San Salvador El Salvador 1,343 2,290,790 58.63
19 Ciudad Guayana Venezuela 554 940,477 58.91
18 Veracruz Mexico 418 697,414 59.94
17 Vitoria Brazil 1,143 1,685,384 67.82
16 Tepic Mexico 299 439,362 68.05
15 Mazatlan Mexico 307 445,343 68.94
14 Medellin Colombia 1,624 2,309,446 70.32
13 Culiacan Mexico 649 871,620 74.46
12 Guatemala Guatemala 2,248 3,014,060 74.58
11 Cali Colombia 1,720 2,207,994 77.90
10 Belem Brazil 1,639 2,100,319 78.04
9 Durango Mexico 474 593,389 79.88
8 Chihuahua Mexico 690 831,693 82.96
7 Torreon Mexico 990 1,128,152 87.75
6 Caracas Venezuela 3,164 3,205,463 98.71
5 Distrito Central Honduras 1,123 1,126,534 99.69
4 Acapulco Mexico 1,029 804,412 127.92
3 Maceio Brazil 1,564 1,156,278 135.26
2 Juarez Mexico 1,974 1,335,890 147.77
1 San Pedro Sula Honduras 1,143 719,447 158.87