#485 – The Expat Files: Colombia’s Economic Challenges, Tourism Shifts, and Cultural Insights

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 up to play and now I wonder Hello there all you expat 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 You know these days people ask me an awful lot about Columbia It seems to be on everybody's expat radar since International Living AARP and all the retirement and expat rags have been pumping it up lately Which has of course pumped up the prices and the real estate bubble there, too

[00:49] But we've mentioned that many times before anyway Here's something for all you listeners out there who are thinking of going down to Columbia To try out some of your own business ideas And I mean brick-and-mortar businesses now because you know if you have an internet business you can be completely off the radar Create one of those famous essay corporations either in or out of Columbia and not pay any taxes at all How nice would that be huh now of course in some jurisdictions that might be legal, but in others maybe not so as usual I'm not telling you or advising you to do anything illegal. I'm just telling you what a lot of expats do That's what you want to hear right how do other expats do with things well now I'm gonna paraphrase from a little article written by a well-known Colombian economist It's a piece that came out a month or so ago in June written by Colombian professor Javier Guere

[01:37] He's a professor at Externado University in Colombia He's written two books on economics and international issues in regards to Colombia His focus and teachings are on development in Colombia specifically Anyway for all you listeners who may be toying with the idea of doing brick-and-mortar business in Colombia listen to this His most recent article is titled why businesses are fleeing Colombia not leaving fleeing now I wonder if any of you gonna be sir wannabes even knew that was a consideration or a problem that you didn't Well now you do and listen up the article starts by saying over the last few months a growing number of Multinational firms have decided to close their factories in Colombia The majority are moving their production facilities to more competitive areas and jurisdictions like Mexico and the Far East

[02:26] Forcing other firms to start importing products from overseas to meet the Colombian demand Also forcing a public debate about the flight of companies overseas from Colombia Furthermore evidence suggests that those companies uprooting their operations in Colombia were not motivated by the market But rather pushed by government intervention then he goes on to say it's precisely with regard to the tax burden That companies are leaving every company incorporated in Colombia must pay 75.4 percent of their annual earnings to the government Whereas in the rest of Latin America corporate taxes are half or much less than that yet Colombians who don't know those figures and do know real investigation into the causes themselves

[03:13] They wonder why the country is fast becoming completely de-industrialized so a business owner or entrepreneur working the whole year in Colombia keeps only 25% of his net profits the remainder is siphoned off to feed the ferocious appetite of Colombian politicians and bureaucrats But this is not the only obstacle for Colombian wealth creators as it turns out a World Bank Business Index for 2015 puts Colombia at 93 out of a hundred eighty-nine countries in terms of ease of International trade in other words the difficulty of importing and exporting So as such is another reason presented for the exodus of corporations

[04:00] Companies are leaving Colombia to avoid exorbitant import export fees and charges Far worse is the fact that the president has launched a new economic program Which he has no shame in calling Keynesian as in John Maynard Keynes Who as you may know is the economist who gave first-world governments the disastrous idea that more and more government spending is away out of a depression or recession and now believe it or not the Colombian state has complete control over businesses as Fantastic as this might sound companies are required now to get government and union Authorization to close their doors and leave So if your operation is losing money, you can't close

[04:47] You just must keep losing money until you get permission from the unions and the government to close in Colombia You might say it's the world turned upside down So there you have it and the fact is you see the Colombian government knows good and well They're losing their medium and large-sized industry rapidly and what's the government plan? Well, believe it or not. If you talk to any of the senators or congressmen They're thinking of taking a page directly from the playbook of O vomit They're talking about the possibility of business and banking bailouts. Yeah, that'll work, right? In other words, don't lower the tax rate Just wait till these big companies and banks are faltering and ready to crash and burn or leave then

[05:33] Stick it to the taxpayers to bail them out. Come on Is that the best these governments can do? Unfortunately, it's part of that third world mantra that everything that comes from the u.s In the first world must be good and proper and the way to go Well, that could be when it comes to creativity and brain power in the private sector But never ever assume anything of the sort when it comes to government There's an old t-shirt. I used to wear probably stuck somewhere in the attic of my mom's house back in chicago You might remember the saying it said if you can't do Teach if you can't teach get a government job Now I must say my mom never liked it when I wore that t-shirt because well She was a teacher actually a professor too close to home. I guess. Sorry about that, ma

[06:18] But facts are facts So anyway, the columbian government is well aware that these companies are leaving and so behind the scenes They're going to copy the us and offer bailouts and if that doesn't work Well, guess what in a recent interview one columbian congressman said well They'll just crank up their tourism budget So as the companies leave and the tax base drops the government will meet their tax shortfalls by focusing in on the tourism sector Yeah, that's predictably sustainable. Guess what other countries have that very same idea? Costa Rica, of course because they've lost virtually all their medium and large size manufacturing, too Why because the minimum wage is about twice what they pay in other latin countries then you've got panama

[07:04] Also planning on a mega gear up of their tourism industry because their government expenditures are growing twice as fast as their tax revenues Then you've got police whose number one source of income is guess what? Tourism then you've got Ecuador and Nicaragua who are also betting the farm on increased tourism So you tell me if you think the first world economic picture is so bright Vast new throngs of Europeans and gringos will be rushing down to what is it seven countries? I just mentioned just for tourism's sake and that's going to fill the government troughs Or are you thinking maybe like everyone else does who reads and dissects the alternative media? That the first world's about to fall into another economic dumpster

[07:49] In fact, that would be a good thing because at least a dumpster has a bottom Since as you know some are predicting the economy is going to fall into a black hole So an economic belly flop into a dumpster god if it were only true So no matter how well government economic polyanas think the first world's going to perform Even if that were true and the impossible did happen Think of how ridiculous it sounds for seven of the 20 latin countries to count on a big spike in tourism to save them From uncontrolled government spending the fact is independent analysts agree That it never was for example, Costa Rica's government pushing tourism that brought in the tourists It was the private tourism industry and word of mouth The tourist boom there never did have anything to do with government promotion

[08:35] In fact private tourism analysts say if anything when governments get involved in tourism at best They totally misread the market and at worst they actually impede the tourist trade again as it turns out Government tourist boards are nothing but full employment agencies for friends and families of local politicians And you know as it turns out even the huge international tourists agencies like cooks of the uk They know that tourism is basically a zero-sum game based on economics word of mouth And what's particularly hip and fashionable at the moment for example these days cruise travel is all the rage And as far as international country destinations, for example If things are suddenly less expensive in europe because the dollar gets stronger

[09:23] There's a subsequent increase in tourism and when the world cup finals are in brazil or tokyo There's a temporary boom there too with an equal slowing of tourism in other parts of the world And for example when Costa Rica throws a 22 percent hotel and restaurant tourism tax On anything remotely related to tourism for sure that'll increase government coffers for six months or so Until tourists return home and talk about how they got stiffed with hidden charges That damaging word of mouth can never be offset by some stupid government tourism campaign Oh, and by the way talking about vat and tourism taxes, etc If you travel through latin america, you'll know about three quarters of latin countries The ones that are considered off the gringle tourist trail. They have no tourism tax

[10:09] They all have a vat tax anywhere from 10 to maybe 18 percent Even so as you pay your bill You don't even know it's there because it's a law in most latin countries that the vat or iba must be included in the price So if you pay 10 bucks, for example at a restaurant The actual bill was only nine bucks and the other dollar the vat Now to me that seems to be one of the smartest things these latin governments have ever done And I have to assume it wasn't really planned that way. It was just a lucky fluke or coincidence Why well restating the obvious governments are generally overflowing with incompetent Pusbrained uncreative lard-ass losers and I do mean that in the kindest way Anyway, it's a lucky coincidence that in latin america the iba is included with the bill

[10:56] So you don't even know it's there and when you don't see it You don't realize you're getting taxed So do note that when you're off the gringle tourist trail The actual sticker price will be the price you pay at the register in contrast think of costa rica The poster child for a country that's smack dab on the gringo tourist trail Imagine how many tens of thousands of people are disappointed daily or at least have a bad taste in their mouth When they rent a room go to a restaurant or buy something at the hardware store for 10 bucks And when they're checking out or they get to the register There's a 22 percent tourist tax added if you think that's not going to wear on you as time goes by Just talk to any backpacker traveling through latin america Now those guys and gals are very sensitive to little sewer charges like that. Believe me

[11:42] I mean, come on That's why they're backpacking to squeeze out as much vacation time as they possibly can on the smallest amount of dough So here's how it generally plays out when you're off the gringo tourist trail That is when you buy something from a store or restaurant, whatever that's on the books In other words, you get a real receipt from them if you're buying an item Let's say at a hardware store You'll pick exactly what's on the tag included in that price is the vat called iva down here and you'll never know it And when you're at a hotel or restaurant off the gringo tourist trail same thing However at most restaurants they'll add a 10 or 12 percent tip depending on what country you're in So if you order something for five bucks on your receipt, it'll say five bucks Then there will be a line under that that says propena, which means tip generally speaking. It's around 10 percent

[12:29] Now most gringos when first confronted with a restaurant bill like that if they're with me or a gringo who speaks spanish They'll say is that enough or should I tip more because you know gringos and expats are notorious over tippers Especially on their first few trips down. It's a kind of a rule that the greener the gringo the more he tips The exception of course being backpackers and german nationals who are notoriously bad tippers Anyway, like I said the greener the gringo The more he or she tips or in fact over tips in many cases And that's just one of the factors why places like costa rica and panama on the tourist trail are so overpriced After 10 or 20 years of fresh gringos constantly over tipping that's caused a steady wage and price inflation creep

[13:18] So in simple terms it all starts with the fact that a very high percentage of green gringos Don't know that in most cases the tip is included in the bill For one thing most green gringos don't speak spanish enough to figure out all the details of the bill and to them It's so much cheaper than the restaurants back home. Anyway, they never argue they just pay it Now note if for example a restaurant is off the books. That means they don't give a real receipt Those will generally be the rare times where the tip is not included Do note that gringos and expats who've been down in latin america for quite a while Soon enough they catch on to the fact that the tips are already included and they've learned not to tip anymore Unless the service is truly exceptional which brings us to the eventuality when the service really does suck

[14:05] So then what happens if you just refuse to pay the 10% that's already included on your final bill? Well, it's pretty much the same as if you'd pull that up in the states Let's say you're at the olive garden and you get crap service and you just do not tip Well, you can certainly expect some pushback from the waiter waitress or the management now naturally since i've been down here so long I've been in a few situations where I have refused to pay the tip and what usually happens is either the waiter will grudgingly accept that Or the manager will stop on by and ask why and generally like in any restaurant No one wants to make a scene least of all the management lest the other patrons be disturbed by the ruckus Generally, there's no big discussion and you can skip the tip and leave Now if you happen to be the non-confrontational sort

[14:51] Or if your spanish truly sucks and you can't register your complaint correctly more often than not You just keep your mouth shut pay off and don't come back However, expat eddie who owns a lot of restaurants He says no matter how badly your spanish sucks if all else fails just yell kookaracha, you know from the song Now note eddie says in most cases saying that when the waiter comes with the bill Will usually exempt you from not only the tip but the bill as well only eddie says don't do it in his restaurant Unless you can produce a live one then and there Oh, and by the way, he says that only works well when you're on the gringo tourist trail That's because on the gringo tourist trail So many gringos have freaked out so many times about kookaraches restaurant owners actually make an effort at pest control

[15:38] On the tourist trail instead of a good dose of kookaraches in your soup. You get a good dose of pesticides Pick your poison. Anyway, when you're off the trail kookaraches are an integral part of the latin dining experience You'll find that out soon enough So regarding restaurant bills on the gringo tourist trail as in panama and costa rica You'll be one paying for the food two paying for the eva, which is vat Three paying for the tourist tax and four quite possibly if you're a green gringo double tipping on top of that So how do you get around that? Well, just learn a little bit of kitchen spanish so you can figure out the bill That said i've noticed that many green gringos and expats have a kind of a tipping complex

[16:24] Seems like we always think we're under tipping never over tipping And we don't like the idea of walking out of a place with the manager and the help thinking that we're cheap skates So then you might ask why do most latin american restaurants, for example add the tip to the bill anyway Why do that in the first place? Well, that's because latin's like backpackers and german tourists are notoriously bad tippers So if that 10 or 12 percent weren't automatically added to the bill restaurant workers would be in a constant state of revolt So as for the case of green gringo tippers dilemma, whether it's a dilemma discomfort remorse guilt shame regret Whatever the fact is I can't tell you how many times i've been in a restaurant with a fresh green gringo And they've whispered johnny. How much should I tip? How much is enough?

[17:13] First of all, I don't know why they're whispering because 98 of the time the help in the restaurants don't speak english Anyway, I always tell them you already tipped them. It's included then they always say are you sure johnny? Like i'm playing with them or something And so as not to be labeled cheap and not to offend they often just double tip to compensate So is that all right? Is that okay? Well, it could be but remember this in almost every bar and restaurant down here employees pool their tips For example, if there's six waitresses and seven kitchen people in the place if your waitress happens to be spectacular And for that gesture you tipped her a hefty five bucks. What you effectively tipped her was 38 cents and that's what you gave the other 12 workers too

[17:59] Oh and speaking of excessive latin government intervention Here's some news from ecuador another place that's been highlighted by international living and all those retirement rags as one of the great retirement destination locations Now the fact is it used to be But once a latin country is in the sights of those first world retirement rags The party's over if you get my drift So what's new out of ecuador? Well, here's an article out of an ecuadorian news service called tax me I'm ecuadorian. Let me paraphrase this one in english. It says for ecuadorian president rafael, korea Inherited property is now considered a fundamental factor in inequality End of quote as a result the socialistic president thinks it's necessary to modify the tax inheritance laws

[18:52] So that ecuadorians worth more than a hundred basic salary units. That is over 35 400 will now be taxed upon death at a hefty rate The reasoning is that the accumulation of capital he says distorts the foundations of society based on meritocracy And that people with inheritances in ecuador bestow an advantage on an individual compared to the rest of society Without the receiver of the inheritance having made any effort to acquire that wealth This news as expected generated a strong Reaction from people in ecuador who saw the measure as yet another state intervention in private property To satisfy the expenditure of a voracious state apparatus that has been growing exponentially

[19:43] From the wealth of the private and working segments as it turns out on the website of ecuador's internal revenue service called the sri The population can see the new proposed inheritance tax scheme So with the new proposed tax hikes president korea says he hopes to reduce inequality Through a corrective measure on property transferred by a donor or deceased person to the beneficiary or heir This would apply to cash bank accounts shares bonds property businesses technology and machine equipment automobiles life insurance works of art and personal objects as Dictated by ecuadorian law then the article ends with a question it asks does the new inheritance and donation tax really have a

[20:30] redistribution end in mind as Socialistic principles would apply or is it really a measure to satisfy the current fiscal needs Of president korea's ever expanding administration So then what's this all about? Well, it's all about the fact that oil has taken a big hit over the past year Countries that depend on a certain amount of oil production like bolivia ecuador venezuel etc find their income from exports Suddenly they find they can't afford that bloated government that expanded when there were good times when oil was a hundred plus dollars a barrel Now don't get me wrong. I'm not saying ecuador isn't a great place to live work play and or retire I'm just saying look out for those hefty inheritance taxes coming down the pipeline

[21:17] So for those of you listeners planning on living in ecuador or for those of you who are there already The easier way around those inheritance taxes, you know it already, right? Get yourself an essay corporation or two that way when you and yours kick the bucket You just pass on the shares of that company to your heirs or whoever you want Because you know a corporation is treated as a person and when you die you're dead But your corporation lives on it doesn't kick the bucket. So let that be a lesson to you your properties land boats cars businesses, etc Should be held in essay corporations or llc's and your heirs will pay no inheritance tax But you knew that already, right? Or did you oh and by the way, that's how upper middle class and wealthy latins do things

[22:04] They put everything in essay corporations So they can avoid all those gift and inheritance tax problems when somebody dies Not to mention a lot of deals and swaps are made with essay corporations, too For example, one of the time-tested means down here in latin america for avoiding paying that vat or eva as well as avoiding Inheritance taxes is for example to make a deal with someone to sell a business or a house by just trading The corporate shares for cash or trade it for another property or combination of property and cash The permutations are limitless and all the while the government does not get involved It's just an agreement between two parties You hand over or receive essay corporation shares and or cash or a combination thereof Can't you see how that totally eliminates legally?

[22:52] I might add the government from getting any piece of it at all And you know the funny thing it's the lower middle classes and middle class latins that just don't get it And though they make up maybe 80 to 90 percent of latin americans And they too might have profited by using an essay because some of them have land and property handed down through the family The problem is usually they've never had enough cash on hand to invest in an essay and they really don't know what they are Anyway, so in the end the essay corporation is a tool of the wealthy and the upper classes and note Even though essay corporations are relatively cheap by first world terms That would be a thousand to two thousand dollars to open one and then an accounting cost of maybe fifty to a hundred dollars a month To keep the corporation in good standing

[23:39] And though it doesn't sound that expensive to us for what it can do and what it can protect But it's well beyond the reach of 80 to 90 percent of latin americans who make only about three to five hundred dollars a month And that's the reason why when middle class latins dig up enough money to buy a motorcycle or a beater car They always put it in their name and never in an essay corporation As upper class and wealthy latins will do with the upper classes It's essay corporations that seem to own everything Enough said about that now on the lighter side You know that on the expat wisdom website you can sign up for a phone consultation or skype or mumble consultation with me People do that to discuss their personal situation and their own exit plan b

[24:26] Sometimes these consults happen while i'm on the road and when on the road if i'm skyping I have to find an internet hot spot because I often use one of these internet wireless modems that are so common Down here in latin america. Anyway last saturday morning. I was on the road and had one of these skype consults So while driving I planned to hit a small town where I knew i'd get a good signal So I pulled into the parking lot next to a bakery and it was a usual small strip mall maybe 15 stores a bank a bakery 99 cent store ice cream shop, you know Gated with a couple of armed guards walking around that's usual here in latin america So don't let that worry you most of these guys are virtual scarecrows and have never fired a gun in their lives

[25:11] Anyway, I parked on the opposite side of the actual strip mall close to the fence I turned the car off and started in with a half an hour skype consult Now remember the guards are walking around the cars are coming in and out of the lot Now I know I mentioned this before but virtually every car in latin america has dead black tinted windows Everybody does it down here. You can make them as dark as you want. Now. It might not be legal But there's zero enforcement if there is such a law So anyway, i'm on this half hour phone consult and within the first five minutes A little guy walks up to the front of my car Whips his little thing out and commences to water the lawn Now remember i'm having a serious conversation with someone up in Milwaukee or was it cleveland? Anyway, not five minutes later another little guy walks up and decides to relieve himself a couple of feet from my car highly

[26:02] Distracting to say the least soon enough. I figured that place must be famous for that sort of thing In total during that half hour five different guys took a whiz in front of my car Now if you think i'm exaggerating I had an eyewitness in the car to verify everything i'm saying Anyway, when you come down here be prepared for that kind of thing expect the unexpected In fact, I have a sign from one such paid parking lot that I show at my expense with some seminars Roughly, it says you are prohibited from peeing in the parking lot And if you do you will be charged an extra hour on your parking time Now, let me ask you this What would you do if you were in a coals or a walmart parking lot up in the states and you saw a sign like that Would you or wouldn't you?

[26:49] As the bard might have said if he lived in this numbed down dumbed down era to pee or not to pee That is the question And here's another question. Might you be planning to attend richard martin's seminar in panang southeast asia? If your plan b is to eventually live in an english speaking very safe Very inexpensive environment do check out richard martin's seminar, which will be held on august 23rd to the 28th Give him a call at 702-609-9962 Or shoot him an email at r w l martin at gmail.com. That's r Wl Ma rtin at gmail.com. Do check it out. You won't regret it south of the border

[27:35] Down mexico you've been listening to the expat files living in latin america coming to you twice a week from somewhere south of the border Email me the expat files at gmail.com And don't forget to check out expat wisdom.com to sign up for your free reports on latin america See you next time nos vemos Ah