Maybe you've noticed that there are no foreign franchises, including no fast-food franchises, operating here in Belize City. That's a remarkable thing in today's world...until you remember that historically Belize City just hasn't been home to enough population to support a lot of trade. I understand that McDonald's is finally planning to open its first restaurant here. I wish them luck. Some countries restrict foreign investment in retail activities. A non-Panamanian can't open a shop in Panama, for example, where retail is "protected." Professions such as doctors and lawyers are also restricted to Panamanian citizens. One way to choose where to locate your business would be based on incentives. Many countries have free trade zones, for example, where you can bring stuff in, process it, and then export it tax-free. Panama has the Colon Free Trade Zone. Belize has several established zones but also allows you to set up your own free trade zone if you want. If you wanted to start some business that needed to be in a particular part of Belize (because of localized supply of materials or labor, for example), you could apply to establish your own free trade zone in that spot. Same in Nicaragua. In fact, if your interest is export—that is, an operation where you're not selling locally but would be creating jobs—you'll find that most countries offer benefits to help. Another business incentive to consider is residency. Many countries offer residency visas to anyone interested in starting a business, thereby creating jobs, in the country. Colombia, for example, has an attractive and affordable start-a-business, get-a-visa program. The minimum investment requirement is only US$33,300. Panama has a business investor visa, too, but it, by comparison, requires you to invest at least US$160,000 and to employ at least three Panamanians. Tourism-based businesses are often incentivized, and many countries have government agencies that are specifically focused on developing foreign investment in tourist-related activities—hotels, dive shops, whatever. In Nicaragua, for example, the group is ProNicaragua. The incentives are typically to do with taxes—a ten-year tax exemption, say, giving you a nice window during which you can reinvest proceeds in growing your business without having to skim anything off the top to pay your tax bill. Kathleen and I left the States years ago to start a business in Waterford, Ireland. Why Waterford? Because that was one of three markets the Irish Development Agency (IDA) was focused on developing. By agreeing to base our business in Waterford, we qualified for both a reduced rate of corporate tax and cash incentives for every Irish employee we hired up to 15. Those were nice perks, and definitely they were the reasons we chose Waterford. However, we had targeted Ireland based on bigger-picture agendas. We wanted to be in Europe, for personal reasons, and we identified Ireland as a low-cost place to operate the kind of business we intended to operate. Our first years running our publishing business in Ireland, our labor cost was less than half what it would have been in the States. The easiest kind of business to operate offshore is a one-man (or -woman) virtual show. A consultant or a writer, for example, can run his business from the beach in Panama, the mountains of Argentina, or a country village in France. If you intend a virtual business that requires staff, then, as with a bricks-and-mortar operation, some places make more sense than others and some places don't make sense at all. We don't recommend starting or basing a business in France, period, unless you just really want to live in France. As a doing-business choice, this country belongs at the bottom of any list (thanks to the cost of doing business, the labor laws, the bureaucracy, and the taxes). Panama is perhaps the best place in the world to base a virtual business that requires staff. That's why we're in Panama City right now. When we decided to launch the Live and Invest Overseas business seven years ago, we knew we'd have to move from France. We chose to relocate to Panama because of its affordable English-speaking labor force, its business infrastructure (banking, Internet, etc.), and its jurisdictional approach to taxation. Organize your operation correctly, and you can run a business in Panama tax-free. Once you've decided where to base your offshore business, your next challenge is to develop the infrastructure it will require. Where will you bank? How will you move money around to where it needs to be? How will you process orders? How will you and your staff get paid? The answers to these questions differ depending on what kind of business you want to operate and in what country you decide to base it. Again, we chose Panama in part because we knew it provides the kind of infrastructure we'd need. Open up a Panama corporation, and you'll be able to open a Panama bank account to support without much trouble. One key piece of the infrastructure we require for our business in Panama is a merchant account. When we launched the business, we weren't able to get one; however, after a couple of years and a track record, we were finally approved. What did we do in the meantime? We used PayPal. We worried initially that this might limit our ability to sell. Would our customers find it odd that the only way they could purchase from us was through PayPal? Maybe it reduced our trade some; we'll never know. But it meant we were able to be in business and to build the track record, again, that we needed to be approved eventually for a merchant account. The other big-picture item you need to address is employees. If I had to name just one reason why we chose to build our business in Panama rather than Europe, it'd be employees. Labor laws around the world favor the employee over the employer much more so than they do in the United States, and nowhere is this truer than in France. In the United States, you can operate on a hire-at-will, fire-at-will basis. As one U.S. attorney we used to work with put it, "You can fire someone because you don't like the color of his tie." Try that in France. You can't fire a guy in France even if you've got video footage of him stealing from you. Things are a little better for the employer in Panama. We've had to fire several people over the past six years, and, in each case, we were able to do it with minimal wear and tear. Bottom line, you pay them off. The other thing to know about employees in some countries is that you pay them for 13 months of work every year. In Panama, for example, everybody gets one month of vacation each year...and a "13th-month" bonus equal to one month's pay. You just factor it into your cost of doing business... Lief Simon P.S. Today's essay is excerpted from Lief Simon's "Doing Business Offshore" presentation at last week's Global Asset Protection and Wealth Summit, in Belize City. The complete audio recording of this talk, as well as every other presentation from the two-and-a-half days of this special event, are being edited and bundled to create our new Wealth Building and Diversification Kit. You can reserve your copy of this everything-you-need-to-know-to-go-offshore bundle here now pre-release for 50% off the regular price. This discount remains in effect through Sunday, Nov. 2 only.
Continue reading: How To Qualify For Residency In Belize
Renting Overseas Rule #1: Think twice before renting new construction or just-completed renovation. You don't want to be the first person living in a place. It makes you a guinea pig, forced to work out the kinks. This was our very frustrating experience in our second rented home here in Panama City, in Casco Viejo. The owner hadn't done a punch list after the extensive renovation he'd undertaken just prior to our moving in. We were left, therefore, to discover a long list of things that didn't work and that hadn't been properly addressed (including a roof that leaked in nine places, no hot water in the guest bathroom, and bedroom doors that couldn't be closed because they bumped into the ceiling fans). We discovered too late that the long-distance owner didn't seem to care whether anything worked or not, leaving us to deal with his incompetent and unresponsive property manager. Thus our third rental... Renting Overseas Rule #2: Investigate the reputation of the management company responsible for the property. Ask around. If the feedback is all negative, consider finding another place to rent. This also applies to building management in the case of a high-rise apartment building. In Panama City, most new buildings come with loads of amenities (swimming pools, grill areas, children's playrooms, basketball courts, tennis courts, even putt-putt golf). However, if the building administration isn't maintaining the amenities, and you therefore can't use them, what's the point of paying for them (as you will, through your monthly building fees)? Renting Overseas Rule #3: Understand what documents you will need to rent. Depending on where you're moving, the answer could be none. On the other hand, in some markets (France, for example), you're going to have to prepare a complete dossier of paperwork (including, for example, recent bank statements, pay stubs, reference letters, and letters of guaranty) to submit for approval before you'll be able to sign a lease. In Panama, you generally don't need any documentation to rent. You find a place, sign a lease, pay your deposit, and move in. In Paris, on the other hand, again, you'll need a folder full of paperwork—unless you rent on the black market. Renting long term on the black market can be more expensive, but it overcomes the dossier hurdle, which, depending on your situation, you may not be able to meet. Renting Overseas Rule #4: Understand what deposit you will be required to make. The general rule is that you'll have to pay the first month's rent plus a deposit equal to one month's rent. Sometimes, the deposit can be one-and-a-half or two months' rent. Whatever the deposit, don't expect to see it again. Friends in Paris joke that the best way to think about any security deposit you make in that market is to amortize it over the lifetime of your rental. In other words, consider it part of the rent. (I'm speaking about long-term rentals, not short-term tourist stays.) In Panama, if your landlord is following the law, your deposit will be posted with MIVI (Panama's department of housing). MIVI holds the funds and then releases them at the end of the rental term. If something is to be deducted for damages, the landlord informs MIVI, and the renter (you) are given a chance to sign off on the amount to be withheld for repairs. Unfortunately, not all landlords do this (many foreign landlords aren't even aware that they're supposed to do this). This means your deposit is at risk. In the case of our first rental in this country, an apartment in a high-rise, the landlord returned our deposit within a couple of weeks of our moving out. He made no deductions, and we got our deposit back in full. In the case of the house we rented in Casco Viejo, the property manager refused to return our deposit, citing "damages." However, he refused to tell us what the so-called damages were or to itemize the costs for repairs. He kept the full amount. As he hadn't posted the amount with MIVI but kept it himself, we were out of luck. Renting Overseas Rule #5: Use an attorney. You know to use an attorney when you buy property overseas, but you should also use one when signing a rental agreement in another country. Unless you are very familiar with tenants' rights and the particulars of rental contracts in the country where you're renting, it pays to have someone who is reviewing the documents before you sign. A good attorney will also inform you of any negotiable clauses—that is, any opportunities for you to adjust the terms of the agreement to your benefit. Lief Simon
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In the six years we've been living and running our Live and Invest Overseas office in Panama, we've moved house four times and office three. This is a small city offering a great diversity of lifestyle experiences, and, to be honest, we've had trouble finding our ideal fit here, both personally and professionally. Finally, though, we think we've hit on the combination that suits us best. We're living in a high-rise tower on Avenida Balboa, enjoying views all around of the Bay of Panama, the Pacific Ocean, and the entrance to the Panama Canal...and we're working from a big old house in El Cangrejo that we've reconfigured to provide pleasant office space with loads of personality. It's a 10-minute commute (on good days) from our apartment building to our office. We have parking out front and all around. Within a five-minute walk of the office are dozens of lunch and Happy Hour options, plus pharmacies, dry cleaners, banks, gift shops, and hotels where we put up guests and visitors. Definitely, this is a great place to base yourself as a small business owner, be your business bricks and mortar or virtual like ours. If you're younger than we, you'd probably also find it a great place to live, as do a half-dozen of our 20-something staff. One of those 20-somethings, Staff Editor Matt Chilliak, shares his perspective on why he's chosen to live and work in El Cangrejo, Panama City's liveliest sector, in the feature report in this month's Panama Letter issue, in subscribers' inboxes yesterday. If you're not yet a Panama Letter reader, you can become one here now in time to read all about our favorite Panama City neighborhood. Kathleen Peddicord
Continue Reading: The Rising Cost Of Living In Panama City
The plantation's manager is a fourth-generation farmer in Panama with experience not only growing mangos but also selling them. He has long-standing relationships in place with juice companies in Panama, which are standing by to purchase as many mangos as he can produce. Right now, the majority of juice companies in this country are forced to import their mangos, which is far more costly than buying locally. In addition, the developer is in contact with groups in the United States, from dried fruit wholesalers to grocery stores, lining up contracts for selling the plantation's mangos directly into the U.S. marketplace, where they would be worth much more than the local Panama juice companies are paying. (Note that current projections for return for this investment are based on the price the mangos are currently being sold for in Panama, meaning that, again, the projections are conservative.) Phase one of the plantation has been sold out. Phase two is selling at a rapid rate, and implementation is well under way. Thus, again, the planned price increase. I have asked the developer, however, if Live and Invest Overseas readers could have one final chance to get in on this opportunity at the original phase one launch price of US$33,500. He has agreed and will honor that price for LIOS readers for the next two weeks. Thereafter, the price permanently increases to US$36,500. You can request more information here.
"Kathleen, if I rent an apartment in a foreign country, specifically in Central America, do I have to get preapproved and a credit check?" --Joseph B., United States If you're renting short-term, you leave a deposit and pay the rent up front. No credit check or other documentation is required in most cases, as the presumption is that you are a tourist and will leave the country without hassle (that is, the owner doesn't have to worry that you might refuse to vacate the property when the time comes). If you're renting long-term, it depends on where in the world you're renting. The requirements are generally more lax in Latin America than in Europe. In France, even for a grey-market apartment rental (meaning a rental that doesn't go through a rental agency…those rentals require a stack of documents thicker than your combined tax returns for the last 10 years, everything notarized), you'll have to provide proof of income and/or assets and probably a local guarantor (this for sure if you're not a legal resident of the country). To that end, you may be asked to show tax returns from back home, pay stubs, and/or bank statements. In Latin America, the formal requirements for a long-term rental are less onerous; still, as a foreigner who is not a legal resident, you might have trouble finding a landlord comfortable renting to you, depending on where, specifically, you're looking. Landlords don't like renting to people who can just up and leave the country overnight. This has happened often here in Panama City, for example, and landlords in this town are gun shy these days. Credit checks are typically only used and/or useful in the context of a mortgage application…meaning they're relevant only in markets where it's possible for a foreigner to borrow locally for the purchase of real estate. Banks in Panama, for example, will ask for a U.S. credit report from Americans and whatever is available in the UK for Brits when considering a mortgage application.
In one case, the land is collateral for eight investors. If you've ever tried to get eight people from different countries and backgrounds to agree on a single path forward and been successful, please get in touch. You have skills I lack and could benefit from. In another case, my collateral is an apartment. This is even more complicated. The short story is that the contractor walked off the job after having been paid a substantial amount of money for the construction but before finishing the work. Somewhere between the developer signing the agreement with the contractor and the contractor bailing, the contractor stopped paying on his insurance bond that guaranteed completion. The condo development is unfinished, and we who invested along with the developer are left holding the bag. In addition to the direct-developer investment, the lady who wrote in to me last week has lost in other ways, too, though the other investments she told me about aren't write-offs, at least not yet. One is a lot in a development where the developers haven't fulfilled all the amenities. The lot has value but no real market right now. The woman also invested in a renovation project in a colonial city. That didn't work out because the architect she chose (on the recommendation of an attorney I recommended) turned out to be a scoundrel. She managed in this case, though, to come out a little to the good after all was said and done. The nice thing about real estate is that, unless you're leveraged, it's difficult to lose all your investment. Still, holding property that you want to sell but can't can seem the same as losing your investment. I've been investing in real estate for more than 20 years and have bought in more than 20 countries at this point, more than 40 purchases and counting. Most have been positive and profitable experiences. Some are still playing out, and, for these open investments, the current values of the properties are greater than what I paid for them in every case except one. The key is to manage risk. To that end, I follow a few mantras. I break them regularly but do so knowing that I'm breaking them. When I do, I carry out more due diligence and I'm prepared to lose my money. Mantra #1: I don't buy property in a place where I haven't been. The corollary to this rule is to visit any property before investing in it. That's not always feasible. Further, visiting a place and seeing the piece of real estate you intend to invest in before you invest is no guarantee the investment will play out in your favor. I've visited properties and decided, as a result of my on-the-ground research, to invest only to have things fall apart. That said, probably my best and my worst investments to date both have been in properties that I didn't visit before buying. The one that didn't work out was a pre-construction project in the UK. Everything looked good on paper. The location was central in the town where the building was going up. A colleague had a friend involved in the project. Both assured me I couldn't lose. So I acted without making the trip to see the place myself. Unfortunately, thanks to overbuilding in the town, which I would have recognized had I gotten on a plane, the rental projections were optimistic, to put it politely. Worse, I bought with leverage. In the end, this was a total loss. On the other hand, I also acted on an opportunity in Panama City without seeing the project for myself. Again, this was on the recommendation of a colleague. This investment, though, has been, you could say, the most successful of my career. I've made far greater returns in whole numbers from loads of other buys, but, on paper, by the percentages, this one is near-perfect. The property has appreciated nicely in value, year on year, and has generated a double-digit net yield every one of the seven years I've owned it. It has been occupied by renters better than 90% of the time. Lief Simon
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Kathleen Peddicord is the founder of the Live and Invest Overseas publishing group. With more than 25 years experience covering this beat, Kathleen reports daily on current opportunities for living, retiring, and investing overseas in her free e-letter.
Her book, How To Retire Overseas—Everything You Need To Know To Live Well Abroad For Less, was recently released by Penguin Books.
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