Growth Leads to Profitable Investments

Some time back our offshore investment advice was that one consider investing in middle class growth in Latin America. Strong economies commonly develop strong middle classes and the purchasing power of the middle class further drives the economy. Latin America has been growing and so has its middle class. The middle class has grown by a forth in the last ten years. Per capita income south in Latin America has gone up from $7,000 a year range to just under $12,000 a year. Things have slowed since the 2008 market crash and recession but the middle class has not lost ground. Investing in growing foreign economies is not limited to Latin America. Economic growth is slowing in China and around Asia but there are still lots of opportunities.

Taking Cues from the American Experience

Great stocks to invest in during the early twentieth century in the USA included the likes of General Electric, AT&T, Coca Cola, and virtually any public utility. As infrastructure was developed, those doing the work were rewarded. As people earned money they spent it and companies like Coca Cola learned to cater to the American taste for soft beverages. Our basic offshore investment advice is to take a look at developing economies in Asia and Latin America and find out who is likely to profit as infrastructure is improved and made more widely available.

They Do Not Make Any More Land

One of the basic tenets of investing in property is that there is a limited supply. Good farmland in northern Iowa used to sell for one hundred dollars an acre, and then a thousand, and now commonly $10,000 an acre. Land in downtown Tokyo is exorbitantly expensive but was not always so. Land used to be cheap in the banking district of Panama City, Panama and now goes for thousands of dollars a square meter. Good offshore investment advice is to look where the action is and is likely to be and buy property before the prices go into the stratosphere. But, what do you do when the price goes up? Do you sell?

Offshore Investment Advice about Taxes

US tax on foreign source investment income can be significant but as a rule income must be realized in order to be taxed. If you are lucky enough to buy downtown property in a place like Panama City, Panama, Rio de Janeiro, Brazil or even Manizales, Colombia before prices go up you do not need to cash in and take your profits. A reasonable way to benefit from your good fortune is to set up a long term lease with a local business, collect and pay taxes on the rent checks, and let the property increase in value over the years.

More Resources

• Diversification of an investment portfolio
• Taking advantage of growth in evolving offshore economies
• Foreign government sponsored investment opportunities
  • For example a developing nation may wish to develop a given industry and will provide land at a low price, extended freedom from local taxation and other significant benefits to a specific type of foreign investment
• Low cost labor
• Proximity to attractive markets
• Likelihood of appreciation of the currency in which the investment will be made
• Legal means of reducing a tax burden
• Taking advantage of cheap investment opportunities with the likelihood of substantial growth

Some time back we wrote about Foreign Real Estate Investments. In the Panama section of the article we noted that

one can buy commercial real estate in growing market like Panama and collect rent checks as property values go up. Even in good markets there are business failures. Buying repossessed properties in a country like Panama can be lucrative if one has the services of a local firm that will scout out investment opportunities.

We also noted that

the rent checks from commercial property in Bogotá, or Buenos Aires can be banked in Colombia pesos or Brazilian reals.

Bank the proceeds from your property offshore, make good interest from the local bank, and watch your assets, denominated in a healthy foreign currency, growth as US debt eats into the value of the US dollar.

US Tax on Foreign Investment Income

The key part of all this is that income is taxed when it is realized. Here are a few key features of current US tax law regarding US tax on foreign source income.

What Counts as a Foreign Financial Asset

• Bank accounts, investment accounts and mutual funds maintained at financial institutions outside the USA
• Stocks, bonds or other securities issued an entity not of the USA and not an ADR or other asset held in an US investment account
• Any interest in a foreign corporation, partnership trust or other legal entity
• Any financial instrument or contract issued by an entity from outside of the USA

How much do you have to invest or make in order to worry about US tax on foreign source income? This ranges from $50,000 on the last day of the year or $75,000 on any day of the year for a single person living in the USA with assets abroad to $400,000 at the end of the year or $600,000 at any time of the year for a married couple living abroad. As always there are tests to pass in order to qualify according to IRS rules.

Our point of mentioning realized income is that real property in an offshore location does not appear to be in the list of offshore assets considered taxable by the US government. If you would like to consider any of our Three Good Offshore Investment Ideas, think of offshore property either to buy and hold, or for eventual sale and profit or for rental income. Think of investing where the currency is weak and likely to strengthen over time, making your investment more valuable as well. In the end it is not so important to reduce your tax burden as to find solid investments.

AND, as always consult a tax attorney for the details before investing as laws change as do investment opportunities.

More Resources