Episode Summary
In this episode of The Expat Files, Johnny Mueller dives into the impact of FATCA on expats in Latin America, particularly in Mexico, where banks are closing personal accounts due to compliance costs. He contrasts this with less touristy countries like Honduras, Guatemala, and Bolivia, where FATCA compliance is not a significant burden. Johnny advises expats to consider setting up an SA corporation, obtaining residency, and eventually citizenship to avoid these issues. He also critiques the idea of America being 'God's chosen country' by referencing a t-shirt worn by a recently deported Latino individual.
Johnny then discusses the benefits of obtaining residency and a second passport in a foreign country, particularly in Latin America, to legally avoid U.S. taxation. He highlights the U.S. tax system's uniqueness in taxing citizens on all foreign income and emphasizes the importance of becoming a tax resident in another country to access tax exclusions and exemptions. He also mentions the potential for significantly lower tax rates in certain Latin American countries and the cultural context of check bouncing in these regions, which can be a challenge for expats.
The podcast segment also discusses the challenges expats face with financial transactions in Latin America, particularly with checks and Social Security systems. Johnny highlights the common practice of double parking by VIPs, the risks of accepting checks, and the inefficiencies of local banking systems. He critiques the broken Social Security systems in Latin American countries, using Guatemala's IGSS as an example of corruption and mismanagement. Johnny emphasizes the personal freedom expats enjoy in the region due to its chaotic and corrupt governments, and contrasts this with the welfare culture in the United States.
Johnny then discusses the accessibility of over-the-counter medications and the lack of prescription requirements in Latin America. He highlights how people can purchase single pills or remedies without a prescription, often at a low cost. He also touches on the cultural preference for midwives over hospitals, especially among lower-income individuals, and the common practice of not completing full prescriptions, which he suggests does not lead to a superbug epidemic due to low antibiotic usage. Johnny contrasts this with the United States, where prescription practices are more regulated and medical insurance is more common.
Finally, Johnny discusses the differences in prescription practices and regulatory oversight between the United States and Latin America. He highlights the necessity of a doctor's prescription for reimbursement in the U.S., while noting that Latin America lacks equivalent regulatory agencies. He also mentions the 24/7 availability of pharmacies in Latin America and the chaotic regulatory environment there.
Topics
FATCA and its impact on expats in Latin America, Banking regulations and compliance for expats, Residency and citizenship for expats in Latin America, Patriotism and its role in debates, U.S. taxation of foreign income, Tax residency in foreign countries, Tax exclusions and exemptions, Cultural differences in financial practices, Expatriate experiences in Latin America, Financial transactions and risks with checks, Social Security systems in Latin America, Personal freedom and government corruption
Chapters
00:00:00 Opening 00:01:00 Why FATCA is Closing Bank Accounts in Mexico 00:01:52 FATCA Compliance in Off-the-Tourist-Trail Countries 00:02:50 How to Avoid FATCA Compliance Issues 00:06:49 The Importance of Tax Residency in a Foreign Country 00:09:09 Tax Advantages of Living in Latin America 00:11:01 Cultural Context of Check Bouncing in Latin America 00:12:44 VIP Behavior and Double Parking in Latin America 00:13:35 The Risks of Accepting Checks and Banking Practices 00:15:32 Corruption in Latin American Social Security Systems 00:18:41 Affordability of Basic Goods in Latin America 00:19:38 Low Doctor Visits Among Young Latin Americans 00:20:28 Midwives and Cesarean Rates 00:22:04 Antibiotic Use and Superbugs 00:24:32 The Necessity of a Doctor's Prescription in the U.S. 00:25:05 Lack of Regulatory Oversight in Latin America 00:26:58 24/7 Pharmacy Availability in Latin America
Transcript
Automatically transcribed from the original recording; names and wording may contain errors.
[00:14] 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. Now last time if you remember I was talking about bank accounts in Latin America and the FATCA law that's screwing everything up for people who've got accounts down here, especially now starting in Mexico where there are over a million expats and expat property owners retirees and sunbirds and such. Many of whom have got that 30 day notice letter from Banamex saying their personal accounts are going to be closed out on July 1st.
[01:00] In the letter they don't tell you why but the real reason is it's way too much expense and hassle to obey the FATCA reporting requirements for US citizens with personal bank accounts abroad. Now in the last show I left off by saying that down here it's not happening everywhere that's for sure. In fact, if you have a personal bank account meaning a bank account in your name in a Latin American country that's well off the tourist trail that means excluding Mexico, Costa Rica and Panama, chances are that bank is not going to cut you off. It turns out based on what a few bankers down here have told me it just so happens there are so few gringos that hold bank accounts in off the tourist trail Latin countries like for example Honduras, Salvador, Guatemala, Bolivia, Paraguay etc that even those idiotic
[01:52] cumbersome FATCA regulations won't cause much of a paperwork headache. As it turns out in banks off the gringo tourist trail for the foreseeable future anyway things won't change much not when less than a fraction of a percent of a bank's account holders are gringos. Like one banker told me banks can not only live with that but they look at gringos and gringo businesses as future growth centers for the bank. But where the tables are turned like in Costa Rica and Panama like for example where a bank's gringo account holders percentage is 5, 10, 15% or even more well that's another story and the paperwork and the extra filings and reportings and the extra staff they'll
[02:39] have to hire are real time wasting headaches so we can expect those account closing letters to start arriving in Panama and Costa Rica real soon too. So how to get around all that? My advice has always been to come down here hook up with a lawyer and get yourself an SA corporation even if it does cost you 500 to 1500 a year to maintain it. That would be the first step and you do that as soon as you get down though the best option of all is to get your temporary residency which will lead to permanent residency in a year or so then after about five more years you'll get your passport and citizenship that's generally how it works though there's some variation between countries if you follow that procedure you won't have to
[03:27] worry about any of that intrusive first-world big brother fat cut crap you just open your bank account anywhere you are in Latin America with your Latin American passport so then are you being unpatriotic and I mentioned that because I get emails every once in a while from people saying that leaving the states and becoming an expat is somewhat unpatriotic what'd you say unpatriotic unpatriotic to whom to a country whose politicians continuously lie to you and take your rights away a country whose politicians have jacked your income tax up to 50% while giving themselves and their friends exclusions and perks a country whose politicians live VIP lives of sultans and princes on your dime well
[04:17] you know as the famous English author Samuel Johnson said in 1775 patriotism is the last refuge of scoundrels so what's that supposed to mean well to me it means if for example you're in a debate with a person who's got an incomplete education and a lack of facts patriotism will often be that person's final defense you see it all the time especially in sports people root for the national team in the Olympics in the World Cup etc in the name of nationalism and patriotism of course totally irrational it's like saying a prayer in the locker room before the big game I mean every team does that don't they not to mention every platoon does that before they go into battle right it's
[05:04] like saying who's got is tougher the God of the Bible or the God of the Quran the come on how about the army with the smartest generals in the most fire power wins who would you want defending you a platoon with tremendous patriotism led by a thick-headed commander with crappy firepower or would you rather be defended by a bunch of professional paid mercenaries with a 21st century arsenal so what does that have to do with living in Latin America well there is a connection I'm sure you've heard someone or other say America is God's chosen country I mean you hear military guys and presidents spewing that line all the time well just recently I saw that very saying on a t-shirt worn by a
[05:49] Latino guy a recently deported Latino no less yep a formerly illegal Latin alien is down here wearing his favorite t-shirt that says America is God's chosen country now I suspect he doesn't know enough English to know what those words even mean and I believe expat Eddie had it right when he said somebody ought to sue that t-shirt company for false advertising again only in America because down here frivolous lawsuits like that just are not on the but that's another subject anyway back to this Latin banking business and the state of gringo accounts so bottom line to avoid all that fat crap and those restrictive banking regs it's a very good idea to get residency in another country and then a second passport as soon as you can or I should say while
[06:38] you're still able to more and more a US passport is becoming like the scarlet letter but the real key to breaking away from the US is to somehow free yourself from the US tax system legally of course and to do that you have to become a resident in a foreign country like here in Latin America a resident for tax purposes and that way you get that slick $100,000 a year foreign earned income tax exclusion and by the way it's double that 200,000 if you're a hundred thousand bucks you earn outside of the US is completely tax-free now do remember that the United States is the only country in the world that taxes its
[07:24] citizens on all foreign income a revolt terrible unjust situation I know but we're stuck with it however the way to bypass that is to get the hell out of the states and become a resident in a foreign country for tax purposes and if you plan it right you can completely avoid paying FICA too again totally legal of course and yes we do talk about all that stuff and more at the expat wisdom seminar and there's one coming up in July there are still some places available so just go to expat wisdom.com click on the seminar link and get all the details that was my shameless plug and back to the thoughts at hand so anyway after you've established yourself in a foreign country preferably Latin
[08:11] America as a resident down here for tax purposes any amount you earn down here up to $100,000 is US federal and state tax exempt of course you do have to follow certain procedures and guidelines to qualify and satisfy the Treasury and the IRS but we talked about all of that at the expat wisdom seminar and by the way every year the IRS raises that exemption amount by about 2% so next year it'll be an exemption of about a hundred and two thousand dollars for every single American living in a foreign country who qualifies as a resident there for tax purposes now do remember that the money you make in the foreign country where you're a resident will be taxed at that foreign countries tax rate but for
[08:59] example let's take the countries of Guatemala Honduras Salvador or Nicaragua well in those countries it's always possible to work it out with your lawyer and accountant so that you're only in about the 5% personal tax bracket or less you heard me 5% tax bracket or less not 40 or 50% you get raped for when you're up in the States how do you like that that means if you're in the 40 or 50% tax bracket and you are whether you know it or not and I can prove it well then imagine having all that extra money that you earned in your pocket to spend instead of handing it over to large-ass politicians who enrich themselves and their friends so anyway once you're out of the States and you're
[09:45] a resident in a foreign country for tax purposes that means April 15th is a special day that's when so many long-term expats put their umbrella drinks down pull themselves out of their beach hammocks with both hands they face north and give a mighty high-five with a predominant middle finger while mouthing the politician or alphabet agency of their choice usually the IRS and does it feel good well come on down and try it for yourself some expats say it's better than sex but don't quote me on that now if you remember on last week's show I was talking about how Latin America is still pretty much a cash based society you got to love it right well obviously it's a cash society
[10:34] because depending which country you're in anywhere from 20 to 40% of the population is working off the books completely got to love that too right then there's a matter of that trust thing that people here in Latin America just haven't caught onto yet I'm talking about trust when writing a check the fact is there isn't a Latin person I know that hasn't bounced a few or has there been a Latin person trying to pay you with a check who hasn't said can you do us both a favor by waiting a few days or even a week before you cash this one please which is always a bad sign right now I'm not saying that doesn't happen up in the States but up there in the first world that sort of thing comes with a good measure of embarrassment and a red face like when
[11:20] your credit card gets refused or blocked whereas down here it's so common to bounce a check that there really doesn't seem to be any shame attached to it at all so you can understand why perhaps three quarters of retail businesses don't take checks and even that's being generous now like expat Eddie said eventually every single gringo gets burned with a bad check or two or three or more by some Latin deadbeat and remember he's a guy who's been down here a long time and he owns a lot of restaurants throughout Central America anyway he came down and started a few businesses trusting gringo that he was and of course at first he accepted checks as if they represented real money and like he said with his first restaurant he started posting bad
[12:09] checks on the counter and on the wall and eventually he was sure he said he could have wallpapered his whole restaurant in about a year just with which you know in a way could be a kind of a trendy new twist you know bad check wallpaper how about that for a gringo bar or restaurant gimmick I'd like to see that somewhere wouldn't you and by the way back then eight or ten years ago when Eddie and his first few restaurants started taking off I remember Eddie showing me a handful of what he called special checks these were checks written at his restaurant that bounced that were from so-called Latin VIPs translation very insolent pricks Eddie's words not mine we're talking generals and colonels and high-level politicians you know the ones that pull
[12:55] up right in front of your place in their bulletproof limos and their dumpy body guards jump out and try to look official in menacing as they hang out in front while the fat-ass liquor breath pot-bellied VIP they're in charge of makes his grand strutting entrance into the restaurant like a peacock hoping to turn everyone's head and he does because Latins are forever sucking up to jerks like that which might sound familiar to all you guys and gals up in DC oh and like Eddie says they don't use the parking lot they double park right in front because after all they are VIPs and you know what that stands for in fact Eddie once even showed me a bounce check from the son of the president of
[13:40] the country at that time now I ask you who's gonna turn those checks over to a collection agency no one of course so again let me warn all you expat gonna bees and wannabes whether you have a business or not don't take checks and even if you completely trust a person writing a check to you in fact that person might be a very trustworthy gringo note that if the checks drawn on a US bank it'll take at least a month to clear and if the checks drawn on a local bank it'll take a week to two weeks to clear and that's why it's basic routine common procedure down here for employees who do receive payroll checks to run down to the bank the bank it was issued at meaning as soon as that
[14:27] checks in their hand they sprint down to the bank and try to cash it right away because so many of them have learned by experience that if they don't go down to the bank chop chop I'm talking about the bank the check was drawn on where their employer has the account then there is a chance they just might be the last in line and get stuck holding the check a few more days or longer because of insufficient funds in other words what I'm saying is that an employer might have ten employees and issue ten payroll checks and he's only got enough funds to cover nine so if you're the last in line you're screwed temporarily anyway and if you think that's a little nutty here's a little story that'll blow your mind some senior citizens in Latin America ones that
[15:14] worked for a company or the government for example that is people working legitimately on the books can and do collect a form of Social Security believe it or not most Latin American countries do have a Social Security system which is crap and bankrupt and always being looted and in fact infinitely worse off than the broken Social Security system up in the states anyway no they have Social Security systems here and by the way here's something that's been in the papers down here lately did you know that in Guatemala the Social Security system called EECS IGSS is so corrupt and has been so looted that the last five directors of the Social Security system which by the way is a presidential cabinet post are either in jail on the
[16:02] run or under indictment for stealing or diverting millions in Social Security funds for them their friends and their family and do they get caught almost never unless of course they're stupid enough to come back and flaunt their wealth which some idiots do but that's another story and you know as far as gringos are concerned we don't really give a damn with Latin American governments so corrupt and chaotic and the fact that 20 to 40 percent of the working people work for cash off the books that means to implement even a vestige of a big brother state would be impossible in other words expats down here have more personal freedom than any other place in the world and believe me if you want to be somewhat under the radar or even anonymous man you can be
[16:50] anonymous but that's not a topic for this show we'll get to that later and by the way the average old-age pension payout for government Social Security systems in Latin America is slightly under a hundred bucks a month and you thought your Social Security payout sucked now if you read any of the big Latin newspapers you'll occasionally run into an article that has a photo or two of a bunch of senior citizens protesting in front of the presidential palace or Social Security administration because as you might have guessed the monthly check bounced didn't arrive or just didn't get issued as a matter of fact that kind of thing happens all the time down here in every Latin country now just imagine if if that happened in the states and it will if you've been
[17:36] following the downward spiral of what's happening up there you know it's bound to happen and very very soon anyway I hope you live far far away from the nearest ghetto or Latin slum because up in the states when those Social Security and disability checks bounce or come late so will the welfare checks all I can say to that is man I'm glad I'm down here because you see down here the common folks are already used to the government screwing up and bouncing checks and remember in Latin America there is no welfare culture therefore there is no talk about what will happen when the checks bounce or quit coming there are no welfare checks anyway back to this mostly cash society down here which you gotta love now here's something to keep in if you go into a drugstore which is called a fire Masiya here spelled almost
[18:26] like pharmacy in English so you can't miss him anyway believe it or not and I know you're gonna think I'm crazy you can walk in there and buy one band-aid no I'm not talking about one box of band-aids I'm talking about one single band-aid which will set you back about three to five cents us and in a lot of these places especially in mom-and-pop convenience stores you can buy cigarettes yep I mean just one cigarette if you like and another thing in the pharmacy of course you can buy a box of medicine or pills but you can also buy one single pill at a time now because you can buy practically everything without a prescription down here if you just exhibit your symptoms to the pharmacist then he'll come up with some kind of remedy and whatever he
[19:14] gives you will usually work prescription or not that's why for example if you walk into the pharmacy and you ask the druggist what would be good for a certain ailment let's say Montezuma's revenge or whatever and you explain your symptoms there's a good chance he'll have grabbed two or three remedies off the shelf before you even finish talking and you know the fact is over the years I've spoken to many middle-class Latin people and I can't tell you how many times a 20 year old Latin person has told me he's never been to the doctor in his life in fact a high percentage of 20 year old Latins didn't even have a doctor in attendance when they were born they're still quite a bit into the midwife thing here because well it's a lot cheaper and you know what that means don't you very very few Latin folks are born by cesarean hmm isn't that funny
[20:02] when you have a midwife there's almost no complications and no cesareans yet when you go to the hospital about 10 to 20% are cesareans those are Latin American hospital statistics and for hospital births up in the States and practically all our hospital births the numbers are twice that about 35% of births in the US in 2012 were by cesarean in fact one midwife told me that she's done over a thousand births and not one was referred to a hospital for a cesarean and of course I'm talking about a midwife working down here in America is there something wrong with that picture sound familiar now of course the wealthy in the upper middle classes will always go to the doctor in
[20:47] the hospital but as for the average Latin American the ones that make three or four hundred bucks a month you don't go to the hospital unless you're half dead though I'm sure they'd all get on board if they had medical insurance but less than two percent of average Latin Americans have it anyway I can't tell you how many times I've been in a pharmacy where an average Latin guy will walk in exhibit his symptoms and the pharmacist would say for example you need to buy 20 500 milligram tetracycline tabs with the instructions to take one every 12 hours until finished okay so far so good except many many times I notice that the guy at the counter buying the drugs does not have enough money to buy the whole prescription so he'll just buy 10 pills
[21:33] or even five and then he's gone even though the whole prescription costs maybe three or four bucks and chances are like most pharmacists will tell you people go home with a half a prescription and they do get better so they never come back for the other half the other 10 pills they were supposed to take so what does that tell you well you might think that the whole society is loaded with superbugs then right because without the full treatment the infection or the microbes that survive are the tough ones the superbugs but you just don't see that here even though up in the first world we're all told to take and finish our prescriptions or else your disease or sickness will come back later with a vengeance I'm sure you've heard that a hundred times of course like in
[22:18] the first world people do pick up secondary infections in hospitals that's a huge problem worldwide but it's no worse here than it is up in the first world and that as you know is what they talk about so much in the first world now superbugs and they need new stronger drugs because the old ones aren't working anywhere right so with that premise you might think with a huge portion of Latin people not downing the allotted quantity of pills then that should spell trouble yet there is no epidemic of superbugs well here's a reasonable hypothesis for that you just asked one of the common Latin Americans on the street the average Latin American was the last time he took a prescription medicine or an antibiotic and most of them will say never or it's been years unlike your average American who's on three or four
[23:04] medications all the time oh and by the way not to confuse you I did say prescription right and then earlier I said you don't need a prescription well it sounds like I'm contradicting myself but it's true you can go into a pharmacy and exhibit your symptoms and he'll give you something that's a prescription drug normally up in the States that is or you could go to the doctor and he'll write you a prescription like they do up in the States and that's what they call a reset the down here and it sounds a bit like the word recipe and looks like the word receipt when written on paper easy enough it's one of those Spanish words you'll get right away in fact a reset that is not only a pharmacy prescription it's also the same word they use for recipe like for cooking something and I guess in a way a prescription is a recipe that's
[23:52] logical but the vast majority of Latins don't do things that way they just skip the doctor and the 10 bucks for the visit and ask the pharmacist and you know that system seems to work because people are mighty healthy down here and they take few drugs now gringles and expats have posed a question why would a doctor even have to write a prescription why doesn't he just tell the patient what he should take or phoned it into the pharmacy why not skip all the rigmarole of having prescription pads printed out and all that well it's because for that scant 2% of people who actually have medical insurance as it turns out like up in the States the only way they can get reimbursed for their prescriptions on their plan is to have an actual doctor write the prescription as kind of an accounting step so they can keep their records
[24:41] straight and gringles and expats have also asked the question will there ever come a time when everyone will finally need to have a prescription to get scheduled medication at the drugstore because like I said you can get all that stuff over the counter now without one well first of all do note that it's the first world that puts restrictive schedules on drugs like schedule one two three and four and as it turns out down here in Latin America there is no equivalent to the FDA or any equivalent to a monitoring agency that actually goes into doctors offices or pharmacies to check on the use delivery or prescribing of scheduled drugs and that would of course be scheduled drugs as we know them up in the States because down here they don't have schedules for
[25:29] example up in the States codeine oxycodone Valium and Xanax and the diazepines are scheduled drugs so are 10,000 others so the fact is if there are such monitoring agencies down here in Latin America they exist in name only in fact in asking around I know of no doctor pharmacist or patient that's ever come in contact with such an agency in fact the closest thing that might come to an FDA type regulatory agency in Latin America is what's loosely translated as the Department of Sanitation it's basically what you might call the health department which I know sounds like it could be the garbage department though it literally translates to the Department of Sanitation and for example if you want to open a bar or a restaurant or any
[26:17] place that serves food you have to pay 10 20 or 50 bucks to get a permit from that department and you'll have to leave it in plain view on the wall for all to see now of course they'll probably never come and inspect your joint no matter what you serve unless perhaps there's an epidemic of food poisoning in your restaurant and some people die anyway Latin American countries do try to copy all manner of first world regulatory agencies and thankfully they do a real chaotic half-assed crappy job of it that way when us gringos and expats come down we could do a proper first world job of it our way without any government interference you know it's all part of that gringo advantage right oh and just one more thing about pharmacies down here nearly all of them
[27:02] are open 24 7 now I don't mean they keep their doors open 24 7 usually by 9 o'clock at night there's only a nightlight in the place at a tiny drive-up window slot so it'll look like the lights are off and it's dead to the world but there'll be a worker or a pseudo pharmacist in a white coat sleeping in a cot behind the counter just ring the buzzer and wake him up and by the way they have 24 7 home delivery to a guy on a motorcycle no extra charge 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
[27:51] reports on Latin America see you next time nos vemos