Recently I had the pleasure of speaking with Albert Lu of The Power & Market Report.
We talked about the importance of differentiating between lifestyle residency and legal residency, as well as the best countries to consider for both.
Much more detail is in our discussion is below. I think you’ll not only enjoy it, but you’ll also learn something too.
Until next time,
Albert: I’m coming to you today from the Salta province of Argentina, and I’m joined by Senior Editor of Doug Casey’s International Man, Nick Giambruno. Nick, thanks for joining me today.
Nick Giambruno: Great; thanks for having me, Albert.
Albert: It’s great to catch up with you this time in person. And I thought this would be a great opportunity because we’re both here to talk about offshore living. We are here checking out Doug Casey’s La Estancia de Cafayate. So first, why would someone want to live offshore?
Nick: I think it’s important to always start with defining our terms so we know what we’re talking about. So a lot of people hear the word “offshore,” and they don’t know what it specifically means. It sounds like a mysterious term. Well, it’s not really. It just means outside of your home country or country of residence. It’s not anything other than that. So when we’re talking about living offshore or offshore banking, we’re simply talking about living or banking outside of your home country.
With regard to residency, it’s important to distinguish between your legal residency and your lifestyle residency. When you spend enough time in a country to trigger legal residency—usually six months or longer—you get sucked into that country’s tax system, and that is almost always suboptimal. This may obligate you to pay tax on your worldwide income, such as is the case with Argentina. Other countries, like Panama, don’t levy worldwide taxes on their residents and only tax income from local sources. If you’re going to get legal residency in a country, it’s almost always better to do it in a place like Panama that doesn’t tax global income. Panama also happens to be one of the easiest places in the world for a foreigner (particularly Europeans and North Americans) to obtain legal residency.
So unless you are planning on really living in a country permanently for a long time—perhaps as a requirement to obtain a coveted second passport—it’s much better to be considered a tourist. That way, you aren’t sucked into the country’s tax system and are treated as a valued guest, rather than a cow to be milked.
However, if you can live the PT lifestyle (perpetual traveler, permanent tourist, prior taxpayer) whereby you live in a country for, say, only three months and then move on—that’s the optimal solution, but certainly not the only one.
Lifestyle residency is for places that you enjoy spending time in, but don’t stay long enough to trigger legal residency. Think of it like your playground. Ideally it’s a country that has low or no consumption taxes, a low cost of living, and for me no cold weather. Argentina fits the bill for a lot of people.
So now that we have our terms defined, let me get back to your original question of why people would want to do this, to live outside of their home country.
There’s a lot of reasons, and exactly where you end up comes down to individual preferences. But generally speaking, people consider living abroad because they seek adventure and experiencing new cultures. Going offshore also opens up a whole world of opportunities for your business and investment portfolio. It protects you from an out-of-control government. It gives you tax advantages. It gives you more options, and more options mean more freedom.
People who haven’t traveled abroad and never left their home country sort of see the world in black and white. But when you travel, you start to see the world differently. Instead of seeing it black and white, now you see it in color. I think that is an apt analogy.
Albert: Those are all excellent points, and I like that analogy. Now, some people will be interested in minimizing their taxes. Is taxation on worldwide income common, as opposed to more of a territorial view of taxes?
Nick: Many countries tax you on your worldwide income—and sometimes assets—when you become a legal resident. As we discussed, this is precisely why you would want to avoid this outcome, which is generally triggered if you spend more than six months per year in a country. However there are some exceptions that only tax income generated within their borders, like Panama, Singapore, and Hong Kong, for example. These countries don’t tax your income generated abroad even if you’re a legal resident. Then there are countries that don’t have an income tax, like the Cayman Islands or United Arab Emirates.
Americans however, have a unique burden because the US is the only country in the world that effectively taxes its nonresident citizens on their global income. So what that means is that unlike any other country in the world, Americans have to pay taxes to the US government for the rest of their lives even if they leave and never set foot again in the US. No other country in the world places such a burden on their citizens. This is in part why so many Americans are renouncing their US citizenship, which—besides becoming a resident of Puerto Rico—is the only way you can relieve yourself and your posterity of this suffocating burden.
Albert: I suspect that all governments have a desire and an interest in milking their citizens no matter where they are, like the US government does. Do you see other countries going to the same system and having the wherewithal to enforce it?
Nick: Unfortunately, it appears that that is the case. Notably, there has been chatter among the welfare states in Europe—like France—about emulating the US system, which is called citizenship-based taxation, as opposed to residency-based taxation, which is what the rest of the world practices.
The reason that the US is a little more successful at imposing this system is because of its economic, military, and diplomatic clout. And especially being able to print the world’s reserve currency, which is almost a godlike power. All this means the US is able to boss other countries around to enforce this system.
Other countries see what the US has done with FATCA, which is the Foreign Account Tax Compliance Act, and are unfortunately emboldened to emulate it. What FATCA basically does is to force every financial institution in the world to give Uncle Sam information. Don’t like it, and you can effectively get kicked out of the dollar based financial system, which is like the economic kiss of death for most banks. So the US government wields a big stick, and unfortunately there is nobody willing to stand up to this insanity. The battle for FATCA is over. It was lost the day that Vladimir Putin signed on to FATCA in summer of 2014, shortly after China signed up too. That meant there would be no meaningful opposition. Effectively what FATCA has done is that it has destroyed financial privacy for Americans. But that’s not the end of it.
The global bureaucrats at the OECD and the UN have seen what’s happened with FATCA, and they’ve been emboldened to copy it. So what they are trying to do is to take FATCA to a global level; this is nicknamed GATCA, so it’s like FATCA on steroids. If FATCA destroyed financial privacy for Americans, GATCA will destroy financial privacy for everyone else. But don’t expect GATCA to be the endgame either—more on that here.
Albert: Do you hear the sound of my heart sinking? It’s quite a discouraging piece of news. How far away do you think we are from something like that?
Nick: GATCA is supposed to go into force in 2018.
So let’s move on from the ugly topic of taxes. I just want to talk to you a little bit about this place, La Estancia. This is my first time here. It’s your first time here. What are your initial impressions?
Nick: Argentina is not like the rest of South America. It’s a country of immigrants, and notably immigrants from Spain and Italy. There are a lot of Italians. The culture is very European, and it will be more familiar for North Americans than other South American countries that have a more native flavor. Argentina is also extremely cheap. To me, it’s like going to Italy, but at a small fraction of the cost. So you have a very agreeable culture and a very low cost of living.
Argentina is in the Southern Hemisphere, so they have opposite seasons from the Northern Hemisphere. It’s summer here when it’s winter in the US. Skipping out on cold weather is really important for me. I grew up in Minnesota, and I have no use for winter. If I never saw another snowflake again, it wouldn’t bother me one bit.
With regard to La Estancia de Cafayate, I’ve been reading about it from David Galland and Doug for years, and naturally had high expectations. And to be honest, they were exceeded, because it really is as good or better as how they describe it. If anything, they’re being too humble in their description of it, because it is really a success. You come here, and you can see that La Estancia de Cafayate is an established fact on the ground. There are something like 50 houses fully built and a similar number under construction. All the onsite facilities—like the hotel, golf course, and so forth—are really world class. The athletic club and spa in particular impressed me. So La Estancia has passed the hurdle and is real. I think it has a very bright future. So this is definitely not some embryonic concept that hasn’t been financed, zoned, and just exists on the Internet. If you’re looking to plant your lifestyle-residency flag, La Estancia deserves a serious look. So I’d say come check it out and have a glass of wine with Doug sometime.
Albert: My expectations were also pretty high after having spoken with Doug about the place; and I have to concur with everything you just said. And the one thing that Doug told me when I first talked to him about this place—he said, “You know, some of the people here are going to pay for their houses with the opportunities they come across just by being around likeminded entrepreneurs.” I thought that was an exaggeration, but actually I think he was shooting straight on that. I could actually see people coming here and discovering great opportunities. I have met so many people already that are highly successful entrepreneurs and are still active and doing things, so it’s great to be on the ground here.
So Nick, have you got any parting shots for us before we sign off today?
Nick: You hit the nail right on the head on that. Here in La Estancia, you’re surrounded by likeminded and successful people, and the networking opportunities here are really terrific. So that’s one aspect that certainly should not be overlooked.
Albert: Nick, thank you for your time.
Nick: My pleasure.
Editor’s Note: In addition to Argentina, there are many other attractive jurisdictions for your internationalization game plan. The world is truly your oyster. Naturally, however, things can change quickly. New options emerge, while others disappear. This is why it’s so important to have the most up-to-date and accurate information possible. That’s where International Man comes in. Be sure to get the free IM Communiqué to keep up with the latest on the best international diversification options.