Why Panama is a no-brainer Plan B residency option

Transcription

1 Why Panama is a no-brainer Plan B residency option A few weeks ago after our Total Access event in Medellín, Colombia, I flew to Panama at the invitation of an old friend of mine who has recently become the country s Minister of Commerce. Panama s skyline at dusk Looking out the window at the city below, I almost forgot where I was for a moment. The sprawling skyline of Panama City is more reminiscent of New York than of Central America. I ve been coming to Panama since long years. I even lived in Panama for a while. Each time I come back to the country, it becomes more and more obvious that it s a country on the move. And notwithstanding the recent negative press, it s definitely a place worth having on your radar for a lot of reasons. At the time of publication, our research is current. However, sometimes updates are inevitable. If you saved this report on your computer long ago, you may be reading an outdated version This link will take you to the latest report available.

2 Map of Panama Panama is Thriving! Before telling you the rest of my story, let s go back in time to the beginning of the 20 th century. Back then, the Unites States was planning to build (and control) a canal across Central America to allow ships to travel from the Pacific to the Atlantic without the need of going all the way south to the tip of South America. The French tried to build a canal in the 19 th century, but failed spectacularly. Panama was still an integral part of the Republic of Colombia, and the Colombian government resisted the construction of the canal. So in 1903 J.P. Morgan engineered for Panama to break away from Colombia and declare independence. The obstructive government was removed, and canal construction started in full swing. Over the next century, US involvement had a tremendous impact on Panama and its economy: The Panama Canal (the country s biggest source of income) was 100% constructed and administered by Uncle Sam. Panama became a dollarized economy. Panama s banking infrastructure was effectively established like the US banking system in the likeness of the same J.P. Morgan. While technically an independent republic, Panama essentially became another US colony, similar to Puerto Rico, but without the official status. On December 31, 1999, after almost 100 years of heavy involvement in Panama, the United States handed over the control of the Canal to the Panamanian government. 2

3 S U RV I V E A N D T H R I V E I N T H E AG E O F T U R M O I L Panama Canal The US military pulled out of the country after a century of dominant presence (and economic influence). US aid to Panama was halted. Many people were very skeptical about Panama at that point, wondering if Panamanians could survive without America s heavy presence in the country. Could a banana republic administer such a complex thing as a canal? Times were uncertain and volatile, and by 2003 (the first time I landed in Panama), the country was going through a serious recession. I remember the 2003 Panama very well. Tocumen International Airport was not much bigger than some municipal airports I ve seen in rural India. The arrival hall and immigration process were a total chaos. The first night I landed, I met a Peace Corps volunteer from Nebraska who was living in the country; we shared a taxi into town, and it was a dark and lonely ride. There were no lights, no traffic, no signs of life. Once we made it into the downtown area, the city itself was quaint at best. Back then, the only two positive things you could say about Panama were: 1) it was a US dollar economy (so no exchange rate hassles), and 2) you could safely drink tap water. But despite all the gloom, I could still feel that the place had huge potential. It was in the air. Panama was more stable that most other countries in Central America. It was very close to North America. English was widely spoken. 3

4 And it was CHEAP. I started my investment career in real estate, so property was (and still is) the first thing I normally look at in any country. An oceanfront condo in downtown Panama City could be bought for $50,000 back in Everything else was also MUCH cheaper than in neighboring Costa Rica yet Panama was just as nice. In 2003, it was obvious to me that Panama was a newborn baby in the world of investment opportunities. I moved there full time for a while in 2007, and over the years I visited the country at least a dozen more times. Today, each time I visit it s noticeably different. And better. On this past trip I was VERY impressed. Again, Panama s skyline today looks similar to Miami or New York City. There are highways and toll roads. There are excellent hospitals and hotels. There are modern shopping malls. There is a proper Internet infrastructure. When I was there, a good friend of mine invited me to a speakeasy that he co-founded. We went into one of the downtown skyscrapers, went up the elevator and entered a place that looked like an average office. It was nothing out of the ordinary just a few hundred square feet of generic looking office space. There was a door in the back of the office marked Private, and behind the door was a nightclub so tastefully appointed it might as well have been in London or New York. Panama City yachts 4

5 A Michelin-rated chef prepared us a meal that was easily one of the top five meals I have had in my entire life, topped off by one of the best wines I ve ever had. I couldn t believe this was all happening in a country that 13 short years ago was in such a pitiful state. And it s amazing that a city of just 1.5 million people has a place like this. Or why a city of this size even has a subway system. Panama has it all now. And what is even more important, Panama has a middle class. And it s not an India type of middle class with $600 in monthly income, but rather a middle class that can afford a comfortable house, a car, and send their kids to school. They can even take a proper vacation and travel in the region. This kind of lifestyle is now available to an average person in Panama. Panama City at night Panama is the Singapore of Latin America Moreover, Panama now has a very robust and highly competitive financial sector, and the dollarized economy became a huge advantage for the country while the US dollar has been overvalued over the past two years. And the Panama Canal proved to be a real boon for the economy and literally became an infinite source of income. 5

6 Additionally, between the Canal and the banking sector, Panama has become an important financial and transportation hub. And while I really do not like metaphors such as Uruguay is the Switzerland of South America, I find Panama strikingly similar to Singapore in many ways: Both Panama and Singapore are relatively low tax jurisdictions. Both countries tax their residents based on territorial principle, meaning they do NOT tax income generated outside of their respective borders. The service sector is very developed in both countries, with many multinational companies operating out of Panama today. English is widely spoken in both places (though Singapore is definitely ahead). Panama is business friendly. I would go even further and say that in the not so distant future Panama City will displace Miami as the business capital of Latin America. (Miami s location on US soil is still viewed as an asset, but this perception will likely be changing in future) Put this country on your radar That s why I think it is important for everyone to pay close attention to Panama. Panama is one of the few bright spots in this world and probably the only place in the Western Hemisphere that is growing at similar rates to South East Asia. Beach in Panama 6

7 Be it investing in property, stock market, or participating in private investments, fast growing economies always present many opportunities to investors. But this is not only about the economic prospects. Panama presents excellent lifestyle opportunities, and has lately become a very popular destination for North Americans and European retirees, rivaled only by Costa Rica in the region. In Panama, you can find a variety of environments to live in from modern and bustling Panama City to quaint beach towns on Pacific and Atlantic sides. And if you do not like tropical heat and humidity, you should check out highland towns of Boquete and Volcan with year-around pleasant temperatures (next to Costa Rican border). Boquete particularly is a home to ever-growing number of foreigners today. Artisanal shops and fancy restaurants, bilingual schools and organic shops you can find all of those things in town. If you re not yet at your retirement age, the fast growing economy should also present numerous employment and business opportunities (primarily in Panama City). And if you are not yet ready to spend significant time in Panama (you absolutely don t have to), you should consider obtaining legal residency in Panama anyway. Obtaining residency in Panama Fortunately, Panamanian government makes it VERY easy for foreigners to obtain residency. There are 53 different residency options in Panama to choose from. But there is one visa category that stands out. Back in 2012 they rolled out a Friendly Nations Visa something that I had never seen anywhere in the world before, and an excellent example for other countries to follow. If you re a citizen of one of the 40+ countries with significant economic and cultural ties to Panama, you can obtain residency in Panama by setting up a corporation and depositing a modest amount of money to the local bank account. The list of eligible countries includes the US, Canada, UK, Australia, most of Europe, Israel, Japan, Hong Kong, Korea, Singapore, South Africa, and several Latin American countries. Here is what you need to know about the Friendly Nations Visa program: You need to set up a Panamanian corporation (or buy one off the shelf). That s what s needed to prove your economic activity in the country, even though the corporation is not required to show any actual activity. Yes, I know what you re thinking Panama corporations are in the news right now, and it ain t pretty. Caribbean side of Panama. Colon Island, Bocas del Torro 7

8 Remember, though, it is completely legal to have a Panamanian company; all you need to do is file a few forms to disclose it to the US government. Since the company won t have any operations, filling out the forms won t be complicated at all; and we can help you with an inexpensive CPA referral if you need more professional help. You ll need to open a bank account for your Panamanian company and deposit around $5,000 there to prove your financial independence. We recommend adding $2,000 per each dependent. As you can see, the financial threshold for this residency option is very low. And the best thing about it-- you can withdraw the money as soon as your residency is approved. Our lawyer will assist you in opening a Panamanian bank account. To apply for residency, you will need to fly to Panama and spend around 10 days there initially. According to the law, residency has to be renewed in-person every year, meaning you ll need to spend one full day in Panama per year to do that. In practice, however, we know dozens of people who have gone through the process in Panama, and their residency permits were issued for at least two years at a time. So the requirement to spend time in the country may, in practice, be even less than one day per year. After 5 years of legal residency, you will be eligible to apply for naturalization in Panama and obtain a Panamanian passport. While Panamanian banking sector is very robust with high levels of liquidity and solvency, it is not immune to external factors such as money-laundering scandals. And even temporary blacklisting of any Panamanian bank by the U.S. will lead to bank s trashed reputation and closure (as we have seen it happen twice within the last year alone). Panamanian bankruptcy law protects smaller depositors (deposits under $10,000 are compensated first), so theoretically you should be protected. However, if the bank in trouble is not being liquidated, but rather sold to a different bank, that bankruptcy law does would not apply anymore. That s why it is important to pick your Panamanian bank wisely when you apply for residency. But here is the problem: Most respectable Panamanian banks are not willing to open accounts to non-residents who want to deposit just a few thousand dollars. So, the choice of banks is severely limited to the smaller ones (which may not have a stellar reputation.) Fortunately, you do NOT have to keep your bank account open AFTER you obtain your residency in Panama (which takes approximately 4-6 months). You may also dissolve your Panamanian company at this time. Here are your options: a) Do nothing after opening your original bank account in a smaller Panamanian bank. Just beware that in the unlikely (but possible) worst case scenario, you may lose at least a portion of your deposit. 8

9 b) Start with the smaller Panamanian bank, and after you obtain your legal residency, open an account in a bigger and reputable bank (Scotiabank, Multibank ), or one of the government banks (National Bank of Panama, Caja de Ahorros). Then, transfer your money there. Panamanian residents should not have problems opening accounts with small initial deposits at larger banks. c) Start with a larger initial deposit right away. If you are willing to deposit more than US$20,000 from the beginning, you may choose to work with Multibank, for example. Multibank has partnered with a prominent German bank and is not likely to engage in any questionable activity. You can learn more about Multibank in this alert. In my view, this is a real no-brainer Plan B option for most people. It requires a very low investment amount, and the money isn t tied up for long at all. And yet it gives you an alternative residency option that you can use anytime you want. If you haven t taken action on this yet, I suggest you get in touch with Quijano & Associates at quijano@quijano.com. Their approximate cost for the entire process is $7,300, which includes the establishment of a corporation, plus all government and legal fees for the main visa applicant. Each additional dependent costs $2,100. (It should go without saying that no one at Sovereign Man, nor any of our companies, receives any sort of compensation should you choose to work with Quijano & Associates.) Julio and his firm have taken hundreds of people through the residency process already and will make sure that you have the smoothest experience possible. And remember, this program is likely not going to be around forever. Residency is an important part of your Plan B Right now Panama is one of the easiest places in the world to obtain residency. And having a second residency just makes sense. With legal residency in a foreign country, you and your family will always have another option a place where you can go to live, work, invest, retire, or even get out of dodge if conditions in your home country deteriorate rapidly. With Panamanian residency, you will have an excellent option a great, safe country where you might actually want to spend time in, and one that is full of unique opportunities and economic growth. In addition, five years later, you will become eligible to apply for naturalization and obtain a Panamanian passport as well. That brings additional benefits. Panamanian passport is a high quality passport, allowing visa-free travel to Europe, much of Asia, and Latin America. I expect it will soon be on the US and Canada s visa-waiver lists as well. Not to mention, once you obtain citizenship, your children, grandchildren, and all future descendants will be entitled to Panamanian nationality as well. 9

10 A little bit of effort today can literally provide generational benefit for progeny that won t even be born for decades. It s a wonderful gift. Given Panama s generous territorial tax system in particular, there really is no downside to having this second residency (and eventually citizenship). Having a Plan B is all about having a peace of mind and ensuring that, no matter what happens next, you ll be in a position of strength. I would encourage you to seriously consider this option before the window of opportunity closes. Do you need to renounce your previous citizenship to become Panamanian? It is true that during your naturalization process the Panamanian government requires you to take an oath of renunciation of your former citizenship. That s the official rule. But don t fret - it has zero legal power back in your home country. We have discussed this issue with Julio Quijano from Quijano & Associates, and he confirmed that not a single client of his had to actually renounce his/her original citizenship. To relinquish your previous citizenship, you must comply with specific renunciation protocols established by your home country. An oath you give to some other government is never one of them. (Here are the US renunciation requirements, for example.) And since Panamanian authorities do not demand any evidence that you indeed renounced your previous citizenship, this act is merely symbolic. It is an outdated rule that lost any significance. If this issue still makes you uncomfortable, we recommend you talk to Quijano & Associates they are subject-matter experts. 10