#310 – The Expat Files: Taxes, Debt, and Dating in Latin America

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 as 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, I always seem to get a lot of emails about business in Latin America and love in Latin America We'll get to the love thing in a second, but let's talk about business Now anyone who's paying attention knows that taxes are extremely low in Latin America compared to first-world taxes

[00:47] First of all, as you probably know unlike the United States. You don't get taxed on income made from foreign sources That's number one and better yet. Some countries don't even have a corporate tax at all but as you well might ask and a lot of people do if Latin American countries are so dead set on trying to become First-world as can be seen by the way that certain Latin American countries like Costa Rica Panama Chile and Argentina Have been steadily year over year raising their taxes in an attempt to provide a higher level of social services and such Anyway, that's what the government press releases always say which is pure crap Government officials use that extra revenue for bigger and better perks like helicopters bodyguards and international junkets in four and five-star hotels We all know that and latins know that too, but they just keep voting for these megalomaniac crap heads

[01:36] No, not crack heads crap heads. I take that back. I'm sure some of them are crack heads But don't get me started on that yet. You shouldn't be shocked when you hear things like that I'm sure some of you my age are old enough to remember good old mayor Marion Barry from Washington DC He got busted on a hotel room video doing crack. So if politicians down here are doing it, they're only following our lead Remember the US is the trendsetter and Latin Americans follow with a little lag time Anyway, people ask me all the time about personal business and corporate taxes and they ask expat Eddie too Since he owns small businesses in a couple of Latin countries and pays taxes accordingly People want to know especially in the country's off the tourist trail Our taxes gonna remain low or are they continuously gonna creep up like they've done in Costa Rica Panama Argentina and so forth

[02:26] Well, I think we all know the answer to that taxes never go down, right? So now let's talk about just how hungry Latin governments can get for your tax dollar and how successful they might be But first let's talk about a country's need for raising taxes by talking about their debt Countries always say it's necessary to raise taxes to pay down the national debt now a citizen's share of his country's national debt The per capita debt figures along with a few other economic measures are directly related to a country's bond rating You know the Moody's and Standard and Poor's figures and thus the ability to borrow on world markets But since the US dollar is the world's reserve currency The US itself is a special case Since the Federal Reserve can create money endlessly and even though the world is just now wising up to the fact that the Emperor

[03:15] Has no clothes almost every country still wants dollars, but the day of reckoning is coming Anyway right now in the US the average person's portion of the national debt is about $55,000 highly dangerous uncharted territory, but you knew that well Let's compare that with the debt levels per capita in Latin countries off the tourist trail so that means we'll exclude Costa Rica Panama Uruguay Brazil and Argentina and I'm excluding those tourist trail countries for now because their tax levels are about twice that of the dozen or so other Latin countries that are off the tourist trail now people throw a lot of numbers around here But to simplify things I always like to look at a country's average debt share per person and like I said up in the states

[04:02] It's 55,000 bucks for every debt slave like you now if you look at a latin country off the tourist trail like Peru or Paraguay Nicaragua Honduras Guatemala or Bolivia their country's national debt burden per person runs anywhere from about $2,500 to about 6,000 bucks, which means in most cases It's much less than 10% of your share of your national debt up in the states Which begs the question? How long has it been since the average Americans share of the national debt was at similar rock-bottom levels? Alright for laughs. Let's pick the higher end $5,000 per capita per person. When do you think US citizens carried that proportion of national debt adjusted for inflation?

[04:48] Of course, would you believe? 1943 So what that points to is that in most of Latin America in countries off the tourist trail? There's at least a 70 year lag time in their accumulation of first world style federal debt levels Now, of course the actual debt to GDP ratios in Latin America are all over the place not to be confused with debt per capita here You might remember that a year or so ago Belize was technically bankrupt when its government couldn't pay their bills So they just went to the IMF and the World Bank and borrowed again And now their debt levels are at 60% or more of GDP Which of course they'll never be able to pay back which means every so often They'll have to go begging hat in hand to the IMF and World Bank for more

[05:34] So you'd think little Belize being in those dire straits would have a great solid case for raising taxes, wouldn't you? Well, guess what? They're not even though they've got no capital gains tax They're leaving it alone not messing with it at all And if you make $10,000 or less you pay no income tax there either So are they gonna hit that harder knowing how close the country came to default? They'd have a good case for it, right? Well, guess what? The government's not gonna try to gouge that either And by the way about 95% of Belize's population makes under 10 grand a year So nearly the entire population pays not a dime in income tax, but they're not touching that either The government said right after that last insolvency crisis

[06:19] They're just gonna increase enforcement on existing tax laws because they know on average every year 60% of all taxes never get collected and there's no real enforcement at the street level So everyone tries to get away with it And by the way, even though taxes in Latin America are so very low by our standards Tax evasion is a national sport and when you get caught you'll never go to jail for it Unless you're a really big fish and you've managed to evade to the tune of millions of dollars And even then unless you've made a lot of high-placed enemies You could drag the case on for 10 years in court pay off judges or just leave the country For example, the other day there was big news in Honduras that a longtime car dealer who shipped hundreds of cars in and out of the

[07:05] Honduran ports every year for 20 years. He got caught for tax evasion to the tune of about 12 million dollars Actually, it was his estranged wife that turned him in after she found out he was keeping a mistress in a four-star hotel Anyway, the case went to court and he was given a $50,000 fine and 10 years in prison However, like I mentioned in the past show unless you kill or kidnap someone down here Nearly every time you get a prison sentence the judge will give you a payout option They call it a commutable sentence and it's not about commuting it for good behavior either It's about the money very small amounts of money, too It's kind of like in the old Western movies where you'll see a guy that's drunk and disorderly get 10 days or $10 from the judge

[07:50] So if he's got the 10 bucks he walks now in this particular Honduran case the guy got a $50,000 fine and 10 years Commutable at get this $2 a day, which works out to 7,300 bucks So here's a guy who got caught evading 12 million dollars in taxes and his total fine Fifty seven thousand three hundred bucks. Yep. That's Latin justice for you down here It's absolutely true that crime pays It's like expat Eddie says the more money you have the more justice you get now You might wonder why the public isn't up in arms about cases like that I mean, you're talking millions of dollars in tax evasion. The thing is tax evaders are kind of unsung heroes down here I mean after all for the locals tax evasion cheating on your wife drinking and soccer are the national sports here

[08:41] So tax cases make absolutely zero impact on the public down here When someone rips off the government like that the public never looks at it like it's they who are getting screwed The public is just basically unconcerned about that kind of stuff Okay, I got a little sidetracked there now. Where was I? Oh, yeah I was mentioning that little police has a crushing debt to GDP ratio of 65% yet They still refuse to raise taxes. You gotta love them, right? And why should they they can always go to the World Bank or the IMF window and keep borrowing everybody else does and What about the good old USA? well their debt to GDP ratio is over a hundred percent now a third worse than beliefs, which is basically

[09:26] Bankrupt and insolvent now note that a debt to GDP ratio over a hundred percent is in totally uncharted waters But since the US has no IMF or World Bank window to go borrow from they've got just three options They can raise taxes which are already at the breaking point or the Fed can just create money Which they do all the time via those QE mechanisms or they can sell government T bonds, which no one seems to want anymore So when the Treasury Department floats a bond issue and a good percentage of them don't sell The US Treasury buys them right back which one economist told me is like eating your own young Since no other country can do that and get away with it without disastrous consequences So what the US has is a Titanic like situation

[10:14] So what about our countries here in Latin America who can't create money out of thin air or buy back their own bonds if they Don't sell now some people say that to GDP ratio is what it's all about That tells the true picture of what's happening in a country's economy So if all big first world countries that are teetering like the US, Ireland, Japan, Belgium, etc Are in the same uncharted waters as the US with debt over a hundred percent of GDP What about the Latin countries? Where do they stand? Well, even though salaries are very low in Latin America the average guy making anywhere from three hundred to six hundred bucks a month Even so nearly every Latin American country has its GDP to debt ratio hovering between 10 and 40 percent For example a high tax big government big spending country like Argentina

[11:04] That's trying everything in its power to be an oppressive first world style government has a debt to GDP ratio of about 42 Then there's Colombia a country to that's trying very hard to be first world They have a 32 percent debt to GDP ratio Then there's totally corrupt Mexico, which has a 42 percent debt to GDP ratio Just like Argentina and Brazil now first world expensive has an out of whack 65% debt to GDP ratio which puts it in the same fundamental basket as bankrupt police. Yep They're both basket cases and the big saving grace for Brazil that police doesn't have is that Brazil has Manufacturing and production so about 80% of what they produce they consume whereas police is the reverse it imports about 80% of its

[11:51] consumer and manufactured goods Then there's Venezuela, which should be out of debt completely Technically, it should have a surplus due to their status as an OPEC nation and massive oil reserves But since they're totally corrupt fiscally and otherwise their debt to GDP ratio is about 45 percent Even though they're the fifth biggest oil exporter in the world And then there's Chile considered a very high-tech industrially advanced country And it's the one country in Latin America that's considered on the fast track to becoming first world that said you'd think like first world countries They'd be heavily in debt, but they've managed to remain very fiscally conservative with only a 12 percent debt to GDP ratio So you might ask how can they pull that off when everything in that country is nearly first world expensive, too

[12:39] By the way, it's got some of the highest taxes in Latin America and the property taxes in Chile are especially high and there's tax Discrimination, too. You'll see that with your property tax bill locals get a big break, but they stick it to foreigners So the government's got a lot of tax money flowing in but that's not the real reason why the GDP to debt ratio is so low well, that's easy to answer they're the world's number one supplier of copper and they've held that spot for a half a century and that meant of course that all the big first world mining companies that have been in and out of Chile have paid big taxes and Massive amounts of dollars to the government for mineral rights Chile's always been very flush and has never had to go on the open market and borrow big money

[13:25] But remember if you're going to be an expat in Chile You'll be paying first world prices along with high taxes compared to other Latin countries and because it's so far south of the equator You'll have the four seasons You won't have tropical weather or eternal spring weather it like in the altiplinal regions So you will have high heating and air conditioning bills And as you probably know electricity is more expensive than up in the states now for many people the two saving graces for becoming An expat in Chile number one. It's the least corrupt country in Latin America that means for example, it's not so easy to bribe the cops and Number two many consider it to be by far the cleanest and least polluted country in Latin America Except of course if you live near one of those mining sites, then all bets are off

[14:12] But the rest of the country is considered a model of cleanliness by Latin standards Anyway, meaning the locals not just the educated ones actually put their garbage in the garbage cans and not out the windows of the buses And the parks and the streets are nicely landscaped and miracle of miracles Occasionally you see people picking up their dog poo not to mention if you run your raw sewage into a lake or a river You'll actually get a fine and you'll have to pay it and here's a real shocker Sometimes you could drive or walk around a big city in Chile for a whole day and not see a single guy whip it out And start watering the grass Which means Chilean mothers as opposed to the rest of Latin American mothers had at one point a nice long talk with their Sons about manners that you've got to love. Oh

[15:00] And the thing about not being able to bribe most cops in Chile Well, a lot of us long-term expats know that bribes to cops kind of grease the machinery Since everything official down here takes so damn long Meaning often a quick bribe or a mortita cuts through red tape like a hot knife through butter So cops not taking bribes is not quite the advantage you might think now when you first get down here and find out you Can bribe the cops actually it won't be you bribing them It'll be them asking you for a bribe or giving heavy hints to that effect Anyway in time you learn that things work much smoother with the cops when you can slip my 10 once in a while at least That's the conclusion a lot of expats finally come to Rather than screwing around for an hour on the side of the road while they pick through your car looking for drugs or guns

[15:48] Which they're never gonna find anyway 10 or 20 bucks can cut through all that in a flash I remember a long time ago when I first got down here I got pulled over and when the cops saw that I was a gringo for about an hour He talked my ear off talking to me about all his relatives that were up in chicago and minneapolis Because you know when you're off the tourist trail the local latins you run into that speak halfway decent english are often deported Illegals who miss the us tremendously and have a real hankering they go back to the barrio up in new york And when they pull over a gringo pigeon like me they like nothing more than to talk your ear off They think they're somehow bonded with you because you're from the states and they once lived there So what I became was the target for this guy's happy memories and no way did this guy want to give me a ticket

[16:34] He just wanted to be my friend. Meanwhile, i'm bored out of my skull and an hour late for an appointment Sometimes it's a hell of a lot easier to hand him a 10 or buy him a couple of gallons of gas And I know for some of you that'll sound a bit distasteful But after you've been down here a while you might just decide it's better to go with the flow But I was talking about taxes now, wasn't I so bottom line in the end Do we have to worry about taxes going up here in latin america? Yes, they'll go up. No doubt Can you ever remember taxes going down? Well, all right. They did during ragan's time, but only for about a week Uh-oh, i'm showing my age now Anyway, when you talk about any latin government, they're like any government in the world greedy self-serving and ever expanding like a cancer

[17:21] However, us expats living down here have in our favor that latin governments are so chaotic inefficient and lazy That even their present taxation methods don't work with a dam In fact in most latin countries, they've got a gray market. That's comprised of about 40 percent of all workers And these little street entrepreneurs not only pay zero income tax They pay zero vat tax called eva here Iva and that eva tax is a tax on every single transaction by law It's supposed to be anyway, and it's how latin and european governments make most of their money Basically, it's a sales tax of about 10 to 20 depending what country you're in So the way it breaks down the vat tax provides anywhere from 80 to 90 percent of government revenues

[18:07] And another 10 or 20 percent is income tax and corporate tax and taxes on imports And know this everyone I mean everybody cheats on their income taxes in latin america Even though in many latin countries the maximum rate is get this 5% So are latin governments going to take us gringo expats and try to milk us to death? Like they do you guys up in the first world Are they going to put the squeeze on us so badly that we throw in the towel? And move somewhere else to maybe a fourth world country like africa where we can live like kings on a thousand bucks a month Pay no taxes and start up the simple life all over again. I mean that is an option, you know Well as luck and human nature would have it us average gringos and expats down here in latin america Will never pay a quarter of the taxes we paid up in the first world

[18:55] And usually a lot less than that and you know, you get what you pay for except when you're dealing with government So you have to accept the fact that when you pay taxes down here you get just about nothing which is Totally fine with us expats which begs the question What do you get for your tax dollar up in the states? I know I know there's a million answers to that question and all of them stink Let's just say if you live up in the states You're looking at one big lethal case of terminal cancer and it's called the us government and latin governments Oh, they're cancerous too, but they're not terminal. They're more like a scab You pick it off. It stings and that's the end of it until you get bruised and another scab pops up et cetera, et cetera irritating but not fatal Now changing gears a bit. Here's a little email. I think you'll find interesting says dear johnny

[19:45] I'm one of those expat gonna bees. I am moving to latin america But i'm not leaving for any the usual reasons like for example latin america's got a much lower cost of living Great weather no big brother to speak of much more favorable business conditions and a more easygoing less stressful relaxed kind of life Sure, all that stuff is great and it's a huge plus but my reasons for coming down are emotional I'm looking to cash in on that gringle advantage you talk about as it pertains to love romance and dating and mating Because you see johnny i'm one of those guys that you might think based on the congeniality of this email That i'm a pretty awesomely sociable guy Well, honestly, it's not true at all. I'm a poster boy for the average nerd and i've always had terrible luck with women

[20:34] So what's my definition of terrible luck? I'm 37 years old and haven't had an actual date with a woman since I was in my late 20s because johnny you see I'm one of those guys who just cannot talk to women. I just don't know what to say. I get tongue tied I freeze up and sweat like a pig and well, I really don't want to get into details here But suffice it to say that if you saw me you'd see why I can't get any girls half the time I can't even get a taxi. But anyway in one department being a nerd has paid off I've got a nice nest egg. So i'm coming down. I've got an internet-based business so I can work anywhere So latin america here I come And as per your advice, it won't be panama costa rica argentina chile or brazil

[21:19] And i'm gonna take your advice on that immersion course too I think maybe a month or two who knows and hopefully like you said in a past show Family will casually introduce me to some of the single girls in the neighborhood. That would be fine with me I'm not looking for a beauty queen and I know if she's a neighborhood girl, she won't be high maintenance So that said if you have any pointers for me i'm all ears and he signs it not ugly fat or perverted just nerdy So he's asking for some pointers well I could probably give him three hours worth of pointers, but i'll try to throw out a few basics Okay, so for what it's worth being that I went to engineering school myself I have an excruciatingly intimate knowledge of nerds and their habits since engineering schools are havens for socially awkward nerds

[22:07] Secondly, I guess to university physics chemistry and mathematics majors So believe me I know nerds and I know they have a hard time with women though That often does change when you appear at your 10-year high school reunion a millionaire While the captain of the football team who knocked up the pretty young cheerleader is now a divorced used car salesman Now that can be justice in a karmic kind of way But that won't help you if you freeze up and turn into a sweat ball in the presence of the opposite sex Even worse if the person you meet speaks a completely different language And it's true all you nerds out there who want a second lease on that love life If and when you do come down to latin america You're no doubt you're going to get shocked at the female attention that you get But you will have to respond to it somehow and not clam up and shrink into a corner In any case one of my strong suggestions is stay completely away from places like costa rica or any of the high volume tourist areas

[23:00] At least for that dating and mating option and I know mr Nerd, you said you're going to do that already But that's great information for anyone coming down and looking for true love and romance And not that you won't find it in places like panama and costa rica But chances there are much slimmer finding an unjaded ungringo dollar tainted lady And if you don't decide to take that advice do leave your wallet and your high limit credit cards at home Because in places like that the gold diggers are out in force They're everywhere and take it from me a nerd looking for love in costa rica Might as well have a bullseye painted on his back Now since you said you were going to take an immersion course Do that way off the tourist trail too and believe me you'll never regret it Now remember you're going to be thrown into a completely different social scene here

[23:45] And one of the big mistakes I do see a lot of love-lorn gringos make Is when they do get down here and their world does change and they suddenly do start getting attention from girls here and there It seems that so many of them are just so unused to that and let's face it Desperate that they end up connecting with the first lady that comes along which can be okay and might work out just fine But you'd really be better off biding your time and not rushing into anything right away And I know that's good advice that your mom would probably give you but i've seen it happen way too often Just remember the lyrics to that famous schmaltzy 70s classic rock song by england dan and john ford coley Yes, it's sad to belong to someone else when the right one comes along Now i'm not going to sing it because my voice sucks

[24:32] But you remember that one and sad to say it's kind of been a theme song for a lot of over eager expats that i've known And that goes double for some of the guys i've known who've fallen in love with their cleaning ladies And that's no joke for a lot of introverted expat guys Your cleaning lady might just be your first long-term female contact And by the way, don't ever get the idea that all cleaning ladies are 50 or 60 something married with four or five kids The fact is there are a lot of single 18 to 25 year old cleaning ladies I'm talking about pretty attractive young ladies out there in the workforce, too But do remember a lot of these young cleaning ladies come from lower class Tinshack towns way out in the boonies who have found their way to the big city looking for work So if you do set your sights on your cleaning lady

[25:19] Just remember a great majority of them are unsophisticated farm girls whose family back on the farm Cooks with wood and doesn't have hot running water meaning you'll have almost nothing in common with her Even armed with that information some new expats never learn Anyway, here's a few more pointers for you nerdy love-lorn types Now you can take them or leave them But if you're truly a dyed in the wool nerd who could sit with your computer in a room for 12 hours a day and like it This could help first of all basic hygiene take twice as many showers Then you think are really necessary stay in there twice as long and use twice as much deodorant Then you think you need to now your mother may have told you this stuff, but you were probably deep into writing linex code

[26:06] Brush your teeth twice as much as you think you need to floss and trim those ear and nose hairs now that said You're not going to be rejected by a latin woman because you're not doing those things. However, it's a good start Believe me, but the fact is a good percentage of young latin men have to put it bluntly Holitosis chronic bad breath. It's the women who have to put up with bad breath in their men In fact, i've been told as much by quite a few latin women myself No, they didn't say I had bad breath, but they tell me many many latin guys do they don't like it But that's life for macho guys who don't brush their teeth much and think flossing is gay And I know just what they're talking about Just beware when you're in close quarters like riding in an elevator or squeezed into a sofa with a few guys at a party

[26:56] And note it's almost always the men who are afflicted rarely the women In fact, they have two terms for it down here in spanish mal alliento and a pesta A pesta now the word mal as in mal alliento The mal part means bad alliento means breath All you nerds out there should know the word mal from malware the mal in malware meaning bad Anyway, because down here basic hygiene is lacking in so many guys All you love lorne nerds and expat gonna bees you'll be way ahead of the game if you just clean up a little You've been listening to the expat files living in latin america coming to you twice a week from somewhere south of the border

[27:43] Email me the expat files at gmail.com And don't forget to check out expatwisdom.com to sign up for your free reports on latin america See you next time. Nos vemos He was a picture