Oct. 23, 2008
Panama City, Panama

PLUS:

• First Rule Of International Tax Planning: Don't Pay By The Hour...
• Six Things I Wish Someone Had Told Me Before I Bought My First Piece Of Real Estate Overseas...
• Our Own Vivian Lewis Takes Issue With The Oracle Of Omaha's Current Market Strategy...
• I Say Again: This Is The Best Beachfront Buy In The Americas Right Now...
• Is That A Coatimundi I See Outside My Window?...

AND:

• "I'm Afraid Your Newsletter Is For People Who Are Extremely Rich And Don't Know What To Do With Their Money"...

Dear Overseas Opportunity Letter Reader,

"A partner and I built an Internet business, then sold it about a year ago. Suddenly, I had some real money, and I thought I should get serious about what to do with it...where to put it."

The young man went on to explain that he attended an international money conference, where he met an attorney specialized in offshore structures for tax management and asset protection.

"Great, I thought. This is just what I need.

"Only, I've now spent US$80,000 with the guy. I guess I have what I need. I'm not sure. And, at this point, I'm reluctant to ask more questions, because every question leads to a response written by an 'associate' and then forwarded to the attorney for his review. I pay for the associate's time...and then for the attorney's time!"

Years ago, a friend--a smart guy...a guy who'd been around the block...done business all over the world--engaged an attorney to help him structure his holdings to mitigate his global tax liability.

Similar story. My friend spent more than US$100,000...didn't understand the structure he ended up with...didn't want to ask more questions, because they led to more answers he didn't understand and more billable hours...and, then, a few years later, found he was in violation of some French tax code he'd never heard of. Certainly, he didn't mean to run afoul of the French tax authorities. And, even when presented with the facts, he didn't understand exactly what he'd done that he shouldn't have done.

In the end, he had no choice but to pay the resulting US$50,000 fine...and, then, to hope no further surprises awaited him down the line.

I joke now and then in these dispatches about how mind-numbingly complicated, as I like to say, this international tax and structure stuff can be.

It is. And it doesn't have to be.

At first, when you're starting out, making your first foreign real estate purchase or setting up your first offshore corporation, it's intimidating. You don't know what you don't know. You fear you'll end up like my friend, breaking some tax law you didn't know existed.

I've been lucky on this front, twice. First, I married an accountant, who, since we've been living outside the States, has made it his business to understand the ins and outs of U.S. tax code as it relates to the non-resident American. Lief can quote IRS rules, regs, form numbers, and exemptions by heart.

And he's taken the time to research and to understand the relevant tax issues in every jurisdiction where we've invested money, done business, or held an asset.

I'm not sure he enjoys the side-line, but, when we left the States, Lief felt he had no choice. It was either figure it out himself or pay some "expert" tens of thousands of dollars to figure it out for us.

Lief's investment of time and energy has paid off, not only because it has saved us considerable money over the past decade...but also because it means we understand (well, at least he does) how we're structured. He's made all the decisions and choices himself. And we've erred on the side of disclosing and reporting even when we're not certain it's required...and paying the tax even when we're not sure it's due.

This way, we sleep better.

And, even within the context of our ultra-conservative approach, Lief has been able to control our overall tax burden. Using the foreign-earned income exemption and other straightforward exclusions, exemptions, and deductions, our overall net effective rate of tax is considerably less than it would be if we were full-time U.S. residents.

None of this does you any good, I realize, for Lief's ambitions lie not with international tax planning but with land development. Lief's busy with his current project out in Azuero and, unfortunately, doesn't have time for tax consulting.

That's why you may be more interested to know about my second stroke of good fortune on the international tax-planning front.

His name is Chris Rusch. He's the next best thing to an international tax-savvy husband.

First, Chris doesn't over-complicate. He simplifies. He takes the most straightforward approach, issue by issue.

Second, Chris doesn't bill by the hour or the page. You explain to him what you want to do. He lets you know if, in fact, what you think you want to do makes any sense. Maybe you don't need to do anything...

But, if you do, Chris quotes you a flat fee for the project. You can send him as many e-mails as you like, ask him as many questions as you want. You'll at least have a shot at understanding what, exactly, you're doing, first, because you won't be paying by the hour for the effort and, second, because Chris won't be over-complicating the effort in the first place.

In nearly 25 years covering this beat...and more than a decade of filing tax returns as an American abroad...I've met no other tax advisor who compares.

I have, though, learned a few things. Here you go: Six things I wish someone had told me before I bought my first piece of foreign property or opened my first offshore company:

1. Maybe you don't need to do anything. Asset protection isn't an issue until you've got assets enough to warrant the investment of time and money to figure out how to protect them. In some jurisdictions, yes, you're wise to hold property in a local or an offshore corporation...but not all. Before you do anything, make sure you understand why you're doing it and the real benefit.
2. Whatever you do, it shouldn't cost you tens of thousands of dollars. OK, maybe if you're Bill Gates or Warren Buffet, a big investment in managing your tax and asset issues is warranted. For you and me, it's not.
3. The foreign-earned income exclusion may be the beginning and the end of the tax planning you require. My young marketing manager Harry, for example, is sitting pretty from a tax point of view...and he got to this point without spending a single dollar on tax advice. As a non-resident American, his first US$87,600 in earned income is tax-free in the States, which means that, for the foreseeable future, Harry's annual tax bill to Uncle Sam will be exactly zero.
4. When it comes to purchasing and holding real estate overseas, remember these two things: First, the jurisdiction is the key; second, as a result, no attorney in your home country is going to be able to help you figure out what to do. You need a local attorney, experienced at working with foreign buyers, to help you determine how to purchase and how to hold (in a local corporation, in a foreign corporation, in your own name, in a trust, etc.).
5. When it comes to dealing with the tax issues in any new jurisdiction where you take up residence, the key is to research, plan, and take action before taking up residence. Certain options for mitigating your local tax bill can be taken off the table once you've taken a local address. Again, you need local legal advice.
6. You can avoid any local tax issues by being only part-time resident. The particulars differ jurisdiction to jurisdiction, but, generally, spend fewer than six months in a place, and you can't be considered full-time resident for tax purposes. There are exceptions, so, again, get advice.

That's where Chris Rusch comes in.

Kathleen Peddicord

----- Discover Italy -----
Own in the most overlooked and undervalued region in Italy...for as little as 7,000 euro.

----------

TODAY:

"Last Friday," writes friend and Global Investing (support@rightsideinvestors.com) Editor Vivian Lewis, "my daily New York Times op-ed page contained an article by Warren Buffett, the so-called Oracle of Omaha. I think he is more Omaha than Oracle. He wrote:

"'I've been buying American stocks. This is my personal account I'm talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100% in United States equities. Why?

"'A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation's many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10, and 20 years from now.'

"Mr. Buffett seems to ignore something regularly written about on the Times' op-ed page: the world is flat (to quote Tom Friedman, who wrote the book.) Global economies are interrelated. Troubles spread across borders unchecked. So why can't recovery from troubles spread across borders also?

"If most major companies achieve record profits in the next 5 to 20 years, this will not be confined to companies incorporated in the U.S.A. Business does not stop at the water's edge.

"As governments around the globe attempt to counter the crisis, it's clear that 'if we don't hang together we will all hang separately.' That is a quote, not from Buffett's guru Ben Graham, but from Ben Franklin.

"A purely single-country nationalist focus to resolving the crisis will fail.

"And it will open the door to the very populist protectionism that extended and deepened the post-1929 economic recession. Job creation in America does not depend on U.S. companies, nor should it.

"The main reason foreign stocks appear to have performed worse than U.S. shares is the impact of the rush into dollars. This is a technical result of the shortage of liquidity as foreign banks and other players lose credibility (from which they get credit).

"This is a more temporary trend than the low prices of U.S. stocks. It is not resulting in huge and scary increases in volatility such as we have seen with the Dow. Currency trends are just taking their time to get better.

"The dollar's rise also reflects concerns about the continuation of demand for raw materials; countries producing commodities have had the biggest currency haircuts. I think this is mistaken. Even growing only 8% a year, China and India are not going to stop importing raw materials they cannot produce at home."

***

"Look, out the window," Lief just called out to everyone here in the office in Panama City. "I think that's a coatimundi...walking around downtown like he owns the place."

Now that's something we never saw out our window in Paris...

FROM THE MAILBAG:

"Kathleen, I subscribed to your newsletter because I am planning to move overseas, permanently or temporarily, and wanted to learn more about places in the world to consider and people who are planning to do it, too, or who have already done it.

"I also wanted to learn about investments overseas. To my surprise, what I am learning is that the newsletter is designed for individuals who are extremely rich and do not know what to do with their cash.

"How come you can offer as a great deal a piece of land in the middle of nowhere in Nicaragua at US$200,000? Is this another fraud? Right now in the U.S., in great oceanfront places with infrastructure, you can find properties for such a price!"

-- Alicia V., United States

I don't know anywhere in the United States where you could buy a piece of land that is truly oceanfront, in a full-amenity development, for less than US$200,000.

Furthermore, in fact, in Nicaragua, we've been telling you about true oceanfront lots, nearly a half-acre in size, in a full-amenity development, currently on offer for US$125,000.

Again, if you can show me where, in the States, you can buy a half-acre on the ocean for less, I'd appreciate hearing about it.

Furthermore, remember, beyond the purchase price, you have to consider the holding costs. Property taxes in Nicaragua are 1% of the assessed value (effectively, the sales price), and annual HOA fees amount to less than that.

Also, for the record, Santa Rosa, the beachfront development we've been telling you about in Nicaragua, isn't in the middle of nowhere. It's about an hour outside Managua and the international airport.

When considering real estate prices in one country versus those in another, you've got to be sure you're comparing apples to apples. Consider:

1. Whether the piece of property is, in fact, on the ocean...or ocean view...or some number of rows back from the water...
2. The size of the lot...
3. If the property is within a full-amenity development...or a lone lot off on its own with no services...
4. The carrying costs (property taxes, HOA fees, maintenance, etc.)...

I say again, all things considered, apples to apples, Santa Rosa, on the Pacific coast of Nicaragua, offers one of the best beachfront property buys you'll find anywhere in the Americas right now.