Because of its tax and business environment, Nicaragua has become a great country for an offshore business in 2017. If you have a portable business, one that doesn’t require many employees, consider Nicaragua as your home base.
Those of you who follow my blog, know that I’m always going on about the great tax deals available from Panama for expats. Well, Nicaragua has exactly the same offer!
The key to setting up a efficient offshore business is to find a country that won’t tax your foreign sourced income. Most countries will tax local source profits, and many also try to tax your worldwide income. You need a country that will only tax local profits… a country with a territorial tax system.
Local profits are those you earn selling to locals. If you open a restaurant, bar, or retail shop in Nicaragua or Panama, you’ll pay tax on your profits.
Foreign sourced profits are those earned by selling to people outside of your country of residence. If you’re living in Nicaragua and selling online to people in America, all of your income is foreign sourced to Nicaragua.
Countries that don’t tax foreign sourced profits have a territorial tax system. They include Belize, Costa Rica, Hong Kong, Malaysia, Nicaragua, Panama, Singapore, and a bunch of others you probably don’t care about.
So, Nicaragua ticks the first and most important box – a territorial tax system.
Next, you want a country that has an easy residency program, preferably one that doesn’t have a physical presence requirement. Nicaragua hit’s both of these as well.
The top two Nica residency programs are retiree and investor. Residency as a retiree required you prove combined monthly income from a pension, Social Security, and/or IRA of $600 per month. The minimum age for a “retiree” is 45.
For many, the best residency program in Nicaragua is the investment option. Even if you qualify as a retiree, you might do better as in investor… about 75% of our retired expats chose the investment option.
If you invest $35,000 to $60,000 in Nicaragua teak, you can get residency through the reforestation program.
Many go with teak because they can kill two or three birds with one stone: gain residency in a business friendly nation with a territorial tax system, protect their assets by diversifying out of the dollar, and make a nice profit along the way.
Ever since the financial crisis, timber has been the darling of the 1%. According to CNN Money, the ultra rich have been moving into hardwoods.
The rush to wood began in 2013 and continues into 2017. “In the rarefied world of the wealthy, timber is the hot new commodity.” CNN Money
For my purposes here, suffice it to say that hardwoods are a solid (no pun intended) investment that generates stable returns over time. It’s not correlated to the dollar or the stock market, which means it’s a decent hedge against country risk.
And you can make the investment using your US retirement account. You can invest in teak in Nicaragua from your IRA and get personal residency to boot.
Let’s return to the tax issues for a minute to tie this together with why you need residency…
Remember that U.S. citizens are taxed on their worldwide income. If you qualify for the Foreign Earned Income Exclusion, you can earn $102,100 in salary tax free in 2017. If a husband and wife are both working in the business, you can earn over $200,000 tax free.
So, to maximize the benefits of living in a territorial tax country like Nicaragua, you need to manage your U.S. taxes by qualifying for the FEIE.
To qualify for the FEIE, you need to be out of the US for 330 out of 365 days or be a resident of a foreign country. That will allow you to spend 3 or 4 months a year in America. So, residency is an important part of tax planning for those operating an offshore business.
I also note that Nicaragua has no immigration visa or work permit requirements for Americans. Once you have residency, you’ll be permitted to work in the country. While most countries require work permits, and guard those permits fiercely, Nicaragua has removed as many regulations and impediments to new business as possible.
Also, Nica offers a lower cost of living and a higher quality of life than the United States or Panama. While prices and the cost of living in Panama have exploded over the last few years, Nicaragua has remained steady. You’ll find it about 60% less expensive than America, and significantly lower than Panama City.
And then there’s the climate. As someone who lived in Panama City for 3 years, I know all about their two seasons – rainy and more rainy. Combine this with the humidity and insane traffic, and Panama is a tough place to live.
If you want to be in a metropolis, and don’t mind hot and humid, then Panama is for you. If you want a laid back country with a tropical climate (where the temp rarely gets above 68 degrees), give Nicaragua a shot.
I hope you’ve found this article on setting up in Nicaragua to be helpful. For more information on incorporating offshore and gaining residency in Nica, please contact me at firstname.lastname@example.org or call us at (619) 550-2743.