#974 – Setting Up a Legal Business in Latin America: Anonymity, Taxes, and Expat Strategies

Automatically transcribed from the original recording; names and wording may contain errors.

[00:00] South of the border down Mexico way That's where I fell in love when the stars above came out to play and now I wonder Hello there all you ex-pat wannabes. I'm Johnny Mueller and you're listening to the expat files living in Latin America The show that tells you just what it's like to live work play and or retire down here in Latin America It's a mix of the good the bad the ugly and the great and it's all right here. So let's get started Let's start today with an email coming long distance from miss s. She says hi Johnny First of all love the show. I started listening about four and a half years ago and never missed an episode since then I don't know how many listeners you have in Israel, but I personally introduced your show to at least five people here

[00:50] Since the virus outbreak here in the middle of March. We see a surge of Anti-privacy laws like never before surprise surprise, huh Then she says the government is openly spying on our locations all the time with the lame Excused after trying to warn you if you've been in the vicinity of an infected person Anyway, Johnny, I'm looking for advice and tips on what's the best way to open a legal company in Latin America Guatemala in particular in this case a hundred percent of this particular corporations activity will be over the net with Indian employees So then there's a need for a Latin American legal entity with a VAT number and some local director Without our names mentioned as the owners of the company The question is is it possible to do such a thing and entirely online?

[01:40] Hope so keep spreading the good word Johnny Signed miss s in Israel. All right. Thanks for that miss s and I don't think you'd be surprised to know that I believe looking back at every single one of my expat insider seminars I've had Jewish attendees at every one and with boots on the ground We visit businesses owned by friends of mine who are also Jewish and why not as a class of people have the highest IQs in the world, you know people talk about the Chinese and the Japanese having high IQs as a culture Well, you know who beats them out, right the Jewish people I know some people don't like to hear that but ain't it a bitch when the truth doesn't line up with people's prejudices, huh? Hey, if you don't believe it look at the list of Nobel Prize winners The Jewish people have far and away taken home more Nobel Prizes per capita than any other culture or ethnic group

[02:31] Even though Nobel Prizes ain't what they used to be since Obama got his well as expat Eddie said there goes the neighborhood Hey, can I get in trouble for that? Well, you know That's what the Swiss ambassador to Costa Rica said about me when I moved into a residential tower right next door to him His words to the rent a cop in the lobby. I can't believe it a gringo moved in right next door to me Yeah, yeah, there goes the neighborhood, but you know, I continuously stick up for Nobel Prizes in science Science, no bells are still very valid It's those Nobel Peace and economics prizes that have stained the prestige of the rest of the Nobles Let's face it when Obama got the Nobel Peace Prize That was the moment when real Nobel winners took their awards off the shelf stuck them in a shoe box and put them in the

[03:19] Right next to the Chia pet the veg-o-matic and the ab cruncher But I digress as usual. All right, so in her email miss s wonders if it's possible to open up an SA corporation Completely online without going to Guatemala and for that matter It's pretty much the same for all Latin countries that offer SA corporations The answer is yes, though I'm not sure how far most Latin countries including Guatemala have progressed with online virtual Signatures because you know, you'll have to sign some documents So on the off chance, they're not accepting virtual signatures. You'll have to check with your Latin lawyer on that one There is a possibility that you'll actually have to sign on a real piece of paper In that case the problem solved by simply using the courier service to ship the documents like UPS or FedEx

[04:07] The best way of course to iron out all those details is to work with a trusted Latin lawyer Someone who routinely creates SA corporations as part of his job and that of course is one of the benefits to coming down to my expat insider Seminar our famous seminar lawyer Jose who's been at every single seminar for the past 10 years Not only does he do a presentation on Latin law he hangs with us the whole time and is available for questions the entire week and Sometimes he'll even demonstrate his Latin daredevil driving skills. What I'm saying is will you get a load out Latinos drive? Anyway, again, the key is to have a trusted Latin lawyer work with you in setting up your SA corporation So miss s when you're ready to get started. Let me know and I'll send you his details

[04:54] Then you could set up a phone Skype or what's up chat iron out the details Oh, and by the way, he will not charge you for the info or the advice Unlike American and first world lawyers Latino lawyers called avogados Quick memory aid here. It sounds like avocado They give away tons of their time and advice. No charge. That's just the way it is here Now the cool thing about Latin American SA corporations, including if you set up one in Guatemala Is that they're truly anonymous if you want them to be your choice? And though of course, they're legally registered with the government in the municipality that they're created in the only names that show up There are the names of the people on the board of directors Including the director and many gringos and expats select their Latino lawyer to be the director

[05:43] Giving him full partial or very limited power of attorney depending on how you want to set it up and the true owner of the corporation Well, he or she is the person that holds the shares of that corporation and those shares Which are physical pieces of paper are physically held by that person or sometimes lacked away in the lawyers office Again your choice now if you have ever seen SA corporation shares They look a lot like corporate shares stock shares and there is a space for signatures on those shares Some people sign them some people don't your choice again The point being the person that holds the shares is the owner of the corporation But you have the choice of whether you want to be on the board of directors or not If you are then you're going to show up in the municipality and in the government records

[06:30] So as you can see there's lots of angles to this In other words, you could be completely in the limelight halfway in the limelight or completely anonymous Your lawyer, of course can explain it in much more detail than I just did. Oh, and by the way That's why first world governments dislike the fact that SA corporations exist. Just the two letters SA say it all society dot an animal anonymous society because you see first world governments want to know everything they want to keep track of all your monetary movements and SA corporations skirt that issue. Of course anonymous corporations don't exist up in the States That would be illegal that means up by you if you own a corporation your name's gonna show up in a lot of government files Not so here in Latin America down here. There's nothing illegal about a corporation being totally anonymous

[07:19] now in her email miss s talks about obtaining a vat number and you know in Europe vat stands for valued added tax Well in Guatemala and many other Latin countries. They call it a knit number and IT number knit It's their equivalent of a social security number or tax number now as a foreigner You automatically get one when you apply for residency and every SA corporation will have its own vat or knit number Soon as it comes into existence Just like in the US your social security number follows you around everywhere the rest of your life Same thing in Latin America with your knit number It'll appear on your residency card your driver's license your phone bill your utility bills your car title Yep, it follows you around everywhere now just because you have a vat or knit number

[08:09] It doesn't mean you pay or file taxes not unless you actually have a job and work on the books or you have business Just like in the States a ten-year-old kid could have a social security number But in no way does that require him to pay or file taxes not till he actually gets a job or starts a business anyway Oh and another thing about those knit numbers one of the other great things about living in Latin America is you can write off Most of your personal living expenses here in Latin America The tax authorities are much more liberal about write-offs than they are in the States and as mentioned in previous shows They don't have any ball busting SWAT teams working for their version of the IRS No one I mean no one's ever gonna knock on your door much less bust it down What I mean is no government agents ever gonna accuse you of tax evasion or even request an audit

[08:57] That's just not how it works here Unless you're a really big fish or a corporation who's been cheating with impunity and in that case the judge usually gets paid off No joke, that's the way it is. So anyway suppose you go into a Walmart or a Costco or even a McDonald's When you're checking out the cashier will always say sue numero the knit Your knit number that is if you're a local anyway If you're a gringo They may not ask because they figure you're just here for a limited amount of time and you're on vacation And if you are a tourist and hear that you won't know what the hell they're talking about However, when a cashier says that to a local he'll spit it out like a robot Just like Americans do with their social security numbers. It's a number that's burned into every Latinos memory Now the reason why they give it up so easily is because when the receipt is printed out

[09:45] It'll then have the knit number on it And then at the end of the year a quarter whenever taxes are filed you can use that as a write-off against your income And that's why I always say when someone says what's the tax rate in a particular country? Let's pick Guatemala again I'll immediately say for a normal middle-class person, maybe five percent or less Now the thing is if you look it up on the net It'll say something like 20 to 30 percent income tax and some gringles and expats will check it out And they'll say you're wrong Johnny. I looked it up on the net and my answer. Well, I'll say technically that's true But that 26 or whatever percent is what you pay after you've deducted Certain living expenses and that's why if you do the numbers, you'll see that most people pay five percent or less

[10:33] Now the thing is if you don't give your knit number to the checkout lady at Starbucks That is if the cashier says sue knit por favor and you say Consumador final meaning final customer then you'll get a receipt without a knit number on it Then it can't be written off against your taxes And that's why almost all gringles and expats especially tourists will say consumer door fee now Then they don't have to go through the rigmarole of spitting out a number. They probably don't have they just skip it Say consumer door fee not Translation final consumer clear as mud, huh? Well, don't worry your Latin lawyer explain all that to you Once you get down and apply for residency or start a business, whatever. Oh and here's something I'm sure you didn't know if you say consumer door fee now final customer when you get the receipt

[11:18] There will be a knit number on there. Well, it ain't yours because you don't have one or you didn't give them one So how'd that happen? And what's it all about? Well, guess what? It'll have someone else's knit number someone working in the store Maybe the cashier herself. She's not gonna let that receipt go to waste She'll get the write-off or someone else in the store or a family member or someone she knows will because remember She's got an extra copy in the register. But once again, remember I always recommend to try to do an internet business if you can't Why well because a dirty little secret is that most gringles and expats who do have internet businesses They never register it with the government or put it under an SA corporation or even have a VAT or knit number for it That is of course, unless the major source of their customers and clients is the local country that they're in turns out

[12:05] You see if most all of your clients are from outside the country Meaning most all your payments will be through PayPal or credit cards or crypto Then it's very easy to stay off the government radar and not even register the company at all That's another angle your trusted Latin lawyer will explain to you if you happen to be in that situation So then you might say Johnny, but that's illegal. Well, technically it's not except in a very few Latin countries What I mean by that is remember that the US is one of a small handful of countries that taxes worldwide income whereas places like Guatemala El Salvador Honduras Nicaragua and various others do not tax on outside income and If you're running a business and most all your clients are from outside the country

[12:51] In other words an internet business. None of those payments profits or proceeds are taxable So if you decide to remain off the books don't register your company, etc, etc Technically, it wouldn't matter because all your income would be non taxable Anyway, again, your Latin lawyer will run all that past you if you happen to be in that situation Oh and another Latin American tax issue. I want to run by ya Let's talk about the taxes you pay when you buy a property or land and those yearly property tax bills You know, we've mentioned over and over again that property tax bills are ridiculously cheap compared to US property taxes In fact any gringo or expat who owns a house or property here in Latin America will tell you that for example It's just talking to a guy who owns a house in Guatemala He says it's worth 250 to 300,000 his yearly property tax bill something like 300 bucks

[13:41] That's because most everything listed in municipal property registries is way below its real appraised value And you know, the crazy thing is everyone in government knows it too So why don't they do anything about it because the politicians have big spreads very big spreads, too You think they're gonna enforce fair value property taxes and ante up big taxes themselves. No way. Oh And another thing if you're buying a property, let's say house from a private individual It's completely normal here in Latin America to make a side deal through your lawyer Where you list a sale price at less than half of what you really paid for it In other words, you cut the guy two checks and you get two receipts one registered with the government that shows less than half the real values And that's what your property taxes are based on. However, there are some instances where you can't get away with that

[14:27] For example, if you're going through a franchised real estate broker like sentry 21 or remax Then as you might imagine everything's on the up-and-up because franchises have to remain strictly legit And since that's how salespeople get their commission based on the total price The whole deal will be on the up-and-up by the way real estate commissions here are from three to five percent Anyway, as for franchise brokers, they're not gonna go for wanting to screw around with the sales price Just to save you some money on your tax bill The broker doesn't have the power to do that not to mention there would be way too many people involved But note it's a pretty common practice done all the time when you're buying from a single individual owner The fact is they don't care if it comes in two checks or not as long as they get their money Oh and the other way your property gets listed at full value in the municipality

[15:14] So you pay taxes on the whole thing is if you buy into a new housing development or subdivision Where the builder arranges the financing for you and or if you buy a brand new unit in a residential tower because you see Contractors and developers of high-rises advertise the prices of their units well before they're even completed So it's on record what they're charging Then let's say you're gonna buy a penthouse for 200,000 bucks Well, you can't very well register it in the municipality for half that but it's been touted for 200k and all the glossy real estate magazines That's why you know if you talk to certain gringos and expats who own nice new apartments in high-rises They'll tell you they're paying a thousand bucks or so a year for property taxes And you wonder how could that be when you got mansions that look like they're worth a million bucks

[16:01] With property taxes only a couple hundred bucks a year Well that again is because if you're the first one into a residential tower in a brand new unit The correct sales price and the comparables in the complex are listed down at the municipality Whereas the guy in the big old mansion either built that thing from scratch himself Then listed an extremely low property value when he got the building permit or he bought the thing from a private order Without a realtor and made a side deal to cut two checks Now as far as paying property taxes on something you own here in Latin America One of the very strange things you'll find out if you happen to own property is that although you'll get a property tax bill every year If you don't pay it nothing happens It just accumulates and accumulates with some fines and penalties and eventually if you ever sell the property you or someone will have to pay up

[16:50] But still there have been countless cases where clueless gringos have bought a place got titled to it and everything Then some months later the property tax bill comes and they see they owe from 10 or 12 years back That's why you always have to get your own personal Latin lawyer in on the deal when you're buying property Because there's no title insurance or title companies You'll have to have your lawyer check all that stuff And of course if you buy through a realtor they'll do the check-in for you too But personally I have little use for realtors myself now about yearly property taxes Here's the thing in some Latin countries You just pay a certain percentage of the value of the house as it's registered in the municipality And as mentioned if you built the property or you bought it from a private seller that number the value in the municipality Will not reflect the real price and that's an ideal situation when it comes to property taxes because that's the number the municipality will use

[17:41] Now some Latin countries and I can think of a few right now one being the Dominican Republic They do the yearly property tax thing a bit differently what politicians have done Ostensibly to help the poor with a subsidy is that they have a cut-off price where you pay no property taxes at all In fact, I think of the DR right now if you buy a house that's worth $120,000 or less you're completely exempt from yearly property tax So anything above that number let's say about a place for 200,000 that means you'd pay property taxes on 80 grand only The first 120 grand being exempt sounds simple enough, right? But as you might imagine there's a hell of a lot of hanky-panky going on Because naturally everyone wants their property to be worth 120 grand or less

[18:29] Yep, everyone's trying to beat the system And that's why in a country with rules like that as far as property taxes are concerned You're much better off buying a place from an individual owner Because then you and your lawyer can massage the deal if you know what I mean now of course I'd never recommend anyone break the law But this show is called the expat files living in Latin America That means many of the things you're hearing here for the first time you won't find in glossy magazines YouTube's and blogs I'm trying to give you the whole picture and various examples as to what gringles of expats Actually do when they're down here not necessarily what they're supposed to do That's why when I mentioned things that could sound illegal I'm not advising you to follow that line of thinking I only bring it up to point out that it's what many gringles and expats do

[19:17] Oh and always remember this not everything that's illegal up in the states is illegal down here in Latin America Take for example insider trading or giving away gifts like houses and boats to politicians In the states if they catch it you'll be fitted for an orange jumpsuit while down here in Latin America Not an issue now I've said about that by the way, how's that plan be coming? Well, I'll tell you what since this covid thing in the lockdowns I'm getting bombarded with emails from people asking about my upcoming January 2021 expat insider seminar You could find the sign up details at expat plan b.com Besides that i'm getting an unprecedented amount of email from people wanting to do a one-on-one phone call with me, too Seems like everyone with a half a brain wants to get the hell out of dodge

[20:03] Speaking of getting the hell out of dodge, you know, i've got a lot of new york city listeners I keep hearing about how new york city is one of the worst places to be locked down What with no freedom of movement ridiculous rents for tiny apartments that people are basically stuck in And now new york city says it won't allow big events till at least october Of course that ban won't apply to blm protesters and rioters Because you know their righteous cause trumps everything else including the virus and social distancing, right? Oh and get this according to that ass wipe rag the new york times the richest neighborhoods in new york city Saw an exodus of about 40 of their residents since the shutdown That compared to lower and middle income neighborhoods where around 10 of residents have left

[20:49] Overall about 5 of the new york city population about 400 000 people have left since the lockdown Almost all of them high income earners and manhattan housing vacancies are at a 14 year high and new leases are down 62 from this time last year and that's not just in new york city The trend is in all big cities in the us people are getting the hell out of dodge It's also reported that there are record numbers of people searching for real estate outside of the current metro areas out in the boonies In fact, there's an 87 increase in people searching for vacancies in towns and villages with a population of less than 50 000 With thousands of families looking to escape to a sunny state like florida or texas where they've got no state income tax

[21:35] So again, it's the wealthy people that are moving out of the big cities as for new york Five percent of the population the wealthy pay 60 percent of the income taxes and most of them want out of dodge So the prospect of big city living up in the states Anyway is not looking good to say the least so as far as getting out of dodge millionaires can do it They're doing it now with many many of them already having their plan be in motion Sure, they might have a second home out in the berbs or in florida or arizona But many of them also have an escape route to latin america. They've set themselves up already They've got land a house a high-rise condo and a nice helpful network of expats to lean on Though the real question might be does the average american have the wherewithal to get the hell out of dodge

[22:22] Or more precisely can the average american move to latin america without being totally stressed out Can you move and be completely happy about it? Obviously if people were happy with their present destination They wouldn't want to get out of dodge Now obviously in all kinds of studies people say that if they were millionaires, they'd be happy But we all know the old cliche money doesn't buy happiness But somehow everyone would like to win the lottery and give it a try However, there is a minimum amount of money you need to earn for optimal well-being In middle america that number varies a bit, but they're saying it's around 70 000 bucks In other words if an american family of four is bringing in something like 70k They're not well off, but they've got no real monetary pressures At least that's what the polls say

[23:09] Now in the uk that monetary well-being number came in at around 45 000 bucks Quite a difference from the 70k us number But money isn't everything and that's why they have those so-called happiness factor surveys Though to me those surveys are sort of flawed. For example, you know, I don't have any kids But when you talk to parents, they tell me that kids can be an endless source of happiness or an endless source of anguish and pain How do you compensate or figure that into a happiness survey? If you've got a rotten kid you're predisposed to be slightly less than happy probably most of the time Which reminds me of the conversations my parents had with me when I was just starting kindergarten They gave me a set of rules before they gave permission for me to walk to school every day

[23:54] Whereas these days, of course if I had to walk six blocks alone to school That would be negligent parenting and I'd end up in a foster home for sure The point is I do remember those conversations mostly with my mother First off she said always say yes, sir and no, sir when talking to a teacher authority figure or the police Number two, she said don't interrupt adults when they're talking She said you'll get your chance one day when you're older to interrupt people Number three, she said keep your eyes open pay attention and don't fidget and always remember your phone number and address Don't get pregnant or get anyone pregnant until you're married. Don't drop out of school finish what you started stick up for yourself But don't get arrested or do anything to bring shame on your parents or family

[24:39] And finally she said help people who deserve it Those were the simple rules for us kids according to my parents notice. There was no mention of money Because we all know money doesn't buy happiness, but we also know that poverty buys misery Now we mentioned the minimum amount of dough it takes in the us and the uk to achieve a sort of financial well-being What about latin america? Well, you know, I ask latinos and latinas all the time And you know the monetary amount always seems to be around ten thousand bucks a year That seems to be the magic roundabout figure for your average latino When in reality most of those people are making about half of that though when I ask upper middle-class latinos who are making maybe 30 grand a year People who've made a few trips to my jammy or to a resort or have kids in helicopter schools

[25:29] Their expectations are much higher They say something like 40 or 50 grand a year is what they would consider The key to a nice comfortable stress-free life Funny thing is seems like everyone I ask always picks a figure. That's more than what he's making And really most people have it all wrong with money. You're not buying happiness or anything else You're buying other people's time. In other words, if you have dough, you can farm out the things You don't want to do like in my case washing the car yard work house cleaning laundry In fact, you could take it so far as to say you even bought the time of the artist Whose picture you have on the wall because you see you bought the artist time for something you couldn't or wouldn't do So if you don't have talent for art or don't have the skills of a plumber You use your dough to buy their time because you couldn't or wouldn't do it

[26:14] And if you don't have dough, then maybe you're stuck with blank walls or a velvet Elvis painting and leaky plumbing Where unhappiness comes in for people with money is that they have all this free time on their hands because they can buy everyone else's time But they don't have anything worthwhile to do with their own free time Or they make a lot of dough but hate their jobs though They keep plugging away because they have to maintain a certain lifestyle the stats really prove this out You know before the lockdown kids of wealthier upper middle class parents up in the states are four times more likely to commit suicide And 15 times more likely to attempt suicide than middle and lower class kids by the way How many people do you know family friends, whatever who have telltale scars on their wrists? You know what? I mean, I can think of a few myself

[27:01] But not one has ever been a latino or latina and you know before this covid lockdown thing is over We'll find out soon how being shut in and restricted will affect the suicide and body mutilation stats Man, i'll tell you if I could bet on a growth industry I'd definitely put my money on child psychology. I mean really whose family isn't dysfunctional these days Hey dysfunctional is the new norm, right? In fact expat eddie says if your family's not dysfunctional. There's definitely something wrong You've been listening to the expat files living in latin america If you need some help with your own plan b we can schedule a one-on-one phone or skype consult Just send me an email the expat files at gmail.com And if you want to get on the waiting list for my next week long expat insider seminar in central america

[27:50] Where you're guaranteed to get a two to five year head start on your plan b? Send me an email the expat files at gmail.com