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July 2005 It certainly takes a special person to be interested in international ventures.  Many, Americans in particular, have been institutionalized since birth through uninformed societal influence and bombastic, self-aggrandizing arrogance to believe that everything outside the borders of the United States is tragically uncivilized, as if the rest of the world exists in the background of a Feed the Children commercial. Armed with inept geographical ignorance, they pass woeful judgment on what 98% of the rest of the world calls ‘home.’ These are precisely the people who are satisfied with a 2% return of their US savings accounts (and losing a third of it to the tax man). For the rest of us, there’s literally a whole world of opportunity out there. Last month we briefly discussed some general off-shore investment concepts, including deposit accounts, foreign exchange, and real estate.  Given the amount of responses I received, I thought it beneficial to spend a few lines reiterating a few key points: 1) It’s never easy…. nothing worthwhile in life is easy. Anyone trying to sell you their ‘system’ that teaches you how to do nothing and make money is more than likely out for themselves. In this case, the hardest thing to do is get yourself over the preconceived notions of putting your money overseas. Once you’re comfortable on a conceptual level, you still have to deal with details. Often, this will involve you getting on a plane and dealing with bankers / bureaucracies in a foreign language that you may not know. But it can be done, and there are knowledgeable people who can help.

Fort San Lorenzo, Panama

3) Pick a country first, investment vehicle second. If a country is growing quickly and effectively - electing a proactive government, creating a business-friendly legal structure, embracing foreign capital, etc. - all markets will generally appreciate. Simply put, if a country is on the way up, its stock market, real estate, commodities, etc. will also be on the way up. If you think geopolitical analysis is complicated and technical, again, there are knowledgeable people who can help.

4) I’ll say it again - if you haven’t read Adventure Capitalist by Jim Rogers, buy it and read it. It helps assuage any necessary attitude adjustment.

5) Sending $10,000 to some guy in Africa who sent you an unsolicited email is not an offshore investment.

International Business Companies (IBC)

A lot of people have heard about these but aren’t quite sure about the advantages. If you’re a business owner in the United States, you’ve probably heard some advice from your accountant or attorney to incorporate - to create a bona fide legal structure for your business, e.g. Your Company, Inc. or Your Biz, LLC. These business structures distinguish and separate all assets, liabilities, and operations from the individual owner - suddenly any real estate is owned by the corporation, not the owner; bank accounts are in the name of the corporation, not the owner; business loans and lines of credit are applied for in the name of the corporation, not the owner.  Specific legal ramifications and tax consequences vary by jurisdiction. You may have noticed, for example, that a tremendous proportion of publicly traded companies are headquartered in the U.S. state of Delaware because that particular state has laws that favor and protect businesses. Nevada is also a popular place to incorporate because of its low franchise fees and relative privacy.

An IBC is simply an overseas corporation that you create, and it can have a variety of forms depending on the jurisdiction. Panama, Bahamas, British Virgin Islands (BVI), Seychelles, Samoa, etc. are all popular place to form an IBC because of local laws that favor business. Forming an IBC has tremendous advantages - the first of which is creating a legal entity within that particular country. For example, a Canadian who invests in Panama is subject to certain limitations and restriction as a foreigner, but if he/she creates an IBC, the new company will be Panamanian and treated as such, regardless if it is 100% owned by a foreigner.

Requirements will vary from jurisdiction to jurisdiction; depending on what your needs are, some locations may prove more advantageous than others. Since Panamanian IBCs are so popular lately, I’ve outlined some key points below:
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Agua de Salud, Panama

Coiba Island, Panama

In brief contrast, British Virgin Islands does not keep names and addresses of officers and directors with its government registry and only requires a single director to incorporate. 

An IBC is a tremendous asset for anyone conducting overseas business operations. It can be used to hold bank and deposit accounts, investment plans, real estate, leaseholds, and other financial vehicles. 

Foundations

Panama has excellent legalization of another structure called a Private Foundation, which is a combination of a corporation and trust. A private foundation allows a natural person to contribute donations (financial or otherwise) to the foundation for the future benefit of one or more named beneficiaries. Foundations have become popular because Panamanian law does not require the names of the real founders, beneficiaries, or protectors to be revealed publicly, and they have effective use for asset protection. 

Benefits To Investing Offshore

1) Diversification. If you think owning shares of Google and Southwest Airlines means that your investment portfolio is diversified, think again.  Putting all of your eggs in one basket, namely US equity markets, is a surefire way to financial meltdown - just ask anyone who was set to retire in September 2001.  Offshore investments - be they real estate, equities, debt, currency, commodities, etc. - complement your existing holdings and spread your risk across a greater geoeconomic environment.

2) Potential Return. Developing countries in particular are experiencing a growth rate far exceeding that of the US and Western Europe; many have been posting real GDP gains in the double digits. As their economies grow, so do their financial and asset markets. Compared to the US, exchange rates, real estate, and equity instruments are bound to appreciate at a comparable differential to their GDP growth.

3) Regulation. Have you ever tried to start a business in the United States or Western Europe? It can literally take years to secure the proper permitting, tax structure, licenses, etc. with the government before you can even begin to compete for customers. I constantly remind myself of the old story in which a man, approaching retirement, visits a coastal paradise in a developing country. Enjoying his time in a beachfront tiki bar, he is suddenly struck by the beauty and simplicity of this life, and decides that he wants to open a similar establishment in his golden years. Making mental notes to plan for the onslaught of government regulations, he asks the bartender ‘What does it take to open a bar down here?’… to which the barkeep incredulously replies, “Liquor.” Developing countries on the right track often lack barriers to entry and welcome foreign capital with open arms.

4) Anonymity and asset protection. Holding assets overseas can often be done so anonymously, offering the opportunity to maintain control while minimizing liability.

As always, feel free to contact me with any questions at james@blackknightgroup.com; I answer every email and do my absolute best to provide a reasonable amount of guidance to those of you who are interested. Please do not send me a generic email asking for ‘more information’. Be specific, and remember, I’m an investor, not a realtor, tour guide, travel agent, used car salesman, etc. I put my money where my mouth is. In my next article, I’ll be discussing some specific countries I believe to be good (or not-so-good) investments.

The following are James's previous articles for the magazine:

Thoughts On Off-shore Investing ~ Part 1
Panama ~Real Estate And Prices
Travels In Turkey - A Visual Feast
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