#562 – The Expat Files: Informal Economies, Off-the-Books Businesses, and Gated Communities 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 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 Okay. Now here's an email I know it's gonna be of great interest to many of you Gringo's and expats already living down here and you expat Gonna bees and wannabes this one comes from one of our regular and frequent listeners PT Marcos and he entitles it

[00:46] Gringo's working off the books in Latin America, which means of course Gringo's and expats under the radar paying no taxes No receipts or interactions with the government tax authorities at all now before I get into this I have to mention that according to Latin media and government studies between 30 to 40 percent of all the business done in Latin America is done off the books meaning cash and carry Basically rudimentary Adam Smith capitalism in its pure unadulterated form Which is so unlike today's international version of capitalism Which is poisoned and tainted by governmental favoritism and monopolies So in the third world you've got 30 to 40 percent of all business off the books But in the first world you've only got about 5 to 10 percent of business done off the books

[01:33] Even so first world governments want to squeeze every bit of tax out of that segment, too And the only way to do that is to eliminate cash, which is why there's big talk along those lines right now And I really believe soon enough it will happen up by you but down here Well, it's so very doubtful. It would just be political suicide There'd be so much pushback and even if they did an experimental trial run people who are off the books now still won't pay tax They'll find a way they'll butter chickens for avocados for dental services for eyeglasses and spare tires and boob jobs, etc But I digress man. Did I digress? Anyway, let's get to this email from PT Marcos He says Johnny if you don't mind here's a quick update on the fast

[02:19] Deteriorating Canadian homefront a few days after the Panama Papers were released Canada grabbed the baton and announced new legislation and a historic infusion of cash to crack down on our own tax evaders And why not? Canada's already one of the most heavily taxed countries in the world even more so than the US Then he says with disgust Johnny what a government we have here in Canada that would take such immediate action only days after the release of the Panama Papers The article says the Canadian government is paying 444 million for new staff to collect an estimated two point six billion over five years So over five years we come out ahead by only seventy six million a year

[03:05] Which will reduce the annual deficit by get this less than two percent Great, huh now only 98% to go and now the government can watch us more closely than ever just in case we somehow become a little less Canadian and Decide to perhaps vote with our feet now Johnny on the same topic You know just like in the US your Canadian listeners should also remember that if they wire any amount over ten grand to a destination Outside Canada, they should add a note in the comment field of the wire Transferred to say hello to and thank the friendly government weasel will be dutifully scrutinizing and recording that transaction But beyond this quick update for your Canadian listeners This is what I really would like to talk about you've advised your listeners to set up essay

[03:54] Corporations in Latin America, which is a great recommendation But it seems something that we would want to implement once our businesses are more established down there Am I right about this? And if so, how about those folks who are starting up businesses from scratch with few assets and a fledgling income? I'm asking this question because someone I know Outside of Canada has had a business off the books altogether This person was living on the tourist trail in one of your own less recommended countries in Latin America However over time he started providing the service and attracted a number of gringle clients through word-of-mouth Recommendations he didn't feel he was taking work from the locals as he was the only one providing this service in that particular way With only working at that job one hour a day

[04:41] He was able to pay all his expenses except rent which he paid from his savings He said that fellow gringos advised him that as long as he didn't advertise with classified ads or posters or anything that Government officials could track he would stay off the radar However, the most interesting part was that this guy said he had never felt so free as when working for himself in this small way But before long he returned up north to go back to his regular job and keep paying into his pension So after all that on the treadmill again, of course, you might never recommend working like this Johnny But from an observer's point of view Have you come across many gringos who start up small businesses off the books and perhaps later get the paperwork done

[05:26] To make it legal. I guess people do what they need to do to survive Just curious and wondering about all that PT Marcos. Well PT. I'm glad you brought up those points and questions I do personally know a lot of gringos and expats down here who are Completely off the books and almost all of them with internet businesses or what you might call one off Mobile businesses without repeat customers. So what do I mean by that? Well, here's an example I know one gringle who was a custom tile contractor up in the States and he's found that same niche down here within the high roller Latin community his one-off clients are Latins with money to burn They have three or four houses one at the beach one on the mountains one in the Ulti Plano one near their business and one

[06:12] Well, maybe even in my jammy and it is a word-of-mouth business He's done pools and bathrooms and beach houses and some really excellent custom kitchen and bar Countertops a complete fanatic about the details which is what Latin Americans are woefully short on details So this expat a German countertop tile and marble worker fills that little niche nicely Yes, he came over from Germany 10 or 12 years ago And now he's kicking ass down here kicking ass off the books and funny enough He tells me some of his best clients are scumbag politicians who know he's working off the books and pay cash Anyway, he tells me he only works about four or five months a year makes about 40 or 50 grand

[06:58] And you know on that kind of money you can live the life of a prince So he's kind of an odd case in that he has no repeat customers So people don't care that he doesn't give out a real receipt However, just about every gringo and expat I know down here who has a brick and mortar business Obviously with repeat customers is on the books and paying taxes but Taxes down here versus that 50% or more you pay up in the States Well, it's a completely different world and when you hear that for example Country like Nicaragua Ecuador Honduras or Guatemala has a 10 15 20 or 25 percent personal tax rate That may sound scary, but it's not really the case In fact is almost no one especially people with their own businesses ever pay the maximum rate not even close

[07:43] Admittedly, that's confusing because they get emails from people telling me they looked up for example Ecuador and they see that the tax rate is what? 25 to 30 percent maximum and they say that's like jumping from the tax frying pan into the fire Well, that's because they looked it up on the net and took it for gospel They don't live there or have boots on the ground to see what it's really like In fact, let me throw this example at you just this weekend The famous john gault and I and some others were invited to stay at a gringo friends Oceanside beach house for a couple of days that friend a gringo was talking about his particular Brick and mortar business that he's had 10 or 12 years down here He mentioned it's harder and harder to do banking internationally now And that he had been given notice that some of his international bank accounts have been closed simply because he's a gringo

[08:32] And they no longer want gringo customers then during that discussion. He made the offhand comment about taxes here in latin america He said someday he's probably going to have to show a profit on his business because down at the tax office Some government slug just might think how could someone continuously run hundreds of thousands of dollars through a business for? Years and years and not show a profit now note this guy's got a number of buildings and at least 30 employees Yet according to him he's never shown a profit and what is it 10 or 15 years now? And that's not unusual at all for latin america most business owners expense their entire lifestyle that way Now don't get me wrong. He wasn't fretting over it He just made an offhand comment didn't seem too worried about it

[09:19] That does give you a good idea of what goes on down here Even when you're 100 on the books and legit But remember i'm talking specifically about my favorite places in the world that are off the gringo tourist trail That's what happens when there's very few gringos and expats You'll probably just end up falling in line and doing what the local latin business owners do and remember down here Tax evasion is a national sport and you know latin lawyers and accountants are quite skilled in that art However, if you have a brick and mortar business on the gringo tourist trail, let's say in costa rica You'll find out that for the vast majority of business owners things are not going well In fact, you might remember in a previous show. I mentioned that 250 or was it 350 transnational companies have left

[10:06] Costa Rica in the last two years. How come first world media sources aren't reporting that, huh? They'll only report when intel expands down there. And why is that? Well, that's because the government gives big transnationals like intel a 10-year tax holiday And of course small mom and pop businesses will never get that These days gringo businesses on the tourist trail like in costa rica are under the microscope The government milks them like cows until they go broke or just leave Sound familiar and on top of that you've got labor unions to deal with now Yep, they were at their peak back in the 60s and 70s up in states And of course now they're pretty much the walking dead But down here in latin america with that lag time There are certain latin american countries on the gringo tourist trail where labor unions are coming into their own

[10:54] Down here the strongest and most powerful unions by far the government employee unions Wow, I can imagine you're all shocked and surprised about that, huh? And believe me They'd love to go on strike and pick it and block traffic for things like more days off and higher wages Even though they get about twice as much as your average private sector worker I know i'm repeating myself when I say does that sound familiar? But does that sound familiar? So then what about gringos and expats working off the books? Now remember I said that most if not all of gringos working off the books have internet businesses and they get paid by a credit card Bank wire transfer bitcoin or paypal of course There's always the odd gringo craftsmen who carve little boxes or owls out of things like petrified iguana turds and such

[11:42] Or they'll make and sell cheap jewelry or retro hippie bongs and hashpipes Yes, occasionally you do run into a gringo gone native who sells junk on the street like that strictly cash Of course, but they don't make enough to live any better than an upscale backpacker I hope none of you listeners up there fall into that category But who knows now the thing is if you have an internet business off the books Most of your clients if not all will be out of country, too They could give a damn about the official government factura or receipt. They don't care They've got their wire transfer or credit card or paypal receipt as proof of purchase whereas if you had in-country clients They'd be demanding that government factura to get their business expense tax write-offs Which means your business will have to be registered on the books to get the proper receipts called facturas

[12:33] So it's kind of the rule of thumb If you have local clients and a lot of them you'll have to be on the books have a business Give out those receipts called facturas But if you have an internet business with mostly out-of-country clients, you can be completely off the books. Am I advocating that? Well, let's put it this way One of the nice things about being in latin america as opposed to the us is down here You can decide for yourself how much you're going to let the government pick your pocket Okay, that said p t marcos in his email stated that perhaps you don't need an essay corporation If you're starting a really small in business and haven't got rolling yet, which is absolutely true The fact is if you plan on investing in a big brick and mortar business here in latin america Then an essay corp just might be the right thing for you

[13:20] Now if you have a business in the name of an essay corporation, for example exterminatoras de plagas de Jesus Translation jesus pest extermination service. Hey, don't laugh. That's a real company believe it or not There's even one called exterminatoras de maricanos, which translates to american pest extermination service So are you an american pest? Well, you get the idea But apparently the guy who thought of that name doesn't latins just love to stick the word american or usa in their advertisements Because well, it's part of that gringo advantage So clueless latins think it's trendy or cool. Meanwhile, we get a big kick out of it In fact go to my youtube channel and you'll see the photos So you might ask how does it help you that your business is registered as an essay corporation?

[14:09] Well, let's say one of your employees ran over a pedestrian with the company car They can't sue you personally for your assets, but they could sue the company Even if you're 100 owner of that essay corporation now, like I mentioned in the past show It's very difficult to be off the books completely if you're on the gringo trail or in a gringoized area like costa rica Because you see where there are a lot of gringos the government knows they can pretty much nickel and dime us to death As a matter of fact, I know I mentioned this there's a number you can dial toll free in costa rica to report employer abuses as well as the names and locations etc of people working off the books And not surprisingly over the years It's become a sort of revenge hotline against bosses and employers and funny enough

[14:56] It seems that's about the only phone call you can make to government in costa rica in panama and other places That actually gets through on the first try. Oh, and by the way that toll free number was initially set up some 20 years ago To trap undocumented nika ragwens who were flooding into the country and taking jobs for cash They'd work a lot cheaper than the native costa rikens In fact way back then I had a nika ragwan worker myself And he told me that the nicas would work the crap jobs that costa rikens were too proud to take Hey, where have you heard that one before? So at first you'd dial that hotline to report an illegal nika Then the government would deport him and fine or close down the business initially It wasn't a move made against gringo employers at all But costa rikin employers who'd much rather hire a nika who'd work for cash and bust his butt too

[15:45] Because he was so glad to have the job However over the years that toll-free number has morphed into a kind of a gringo employer revenge hotline So if a costa rikin doesn't like his boss or he doesn't like the way he's being treated Or he thinks he's going to get fired in the near future He can beat him to the punch by calling that hotline And even if you're playing completely by the rules when the immigration slugs drop and that'll ruin your whole day By the way, I can't tell you how many gringos. I know living in costa rika who much prefer nika ragwan workers nicas because these days with a huge gringo effect the costa rikens are Which means lazy ass but literally translates to Tree sloth and why not sloths are indigenous to latin america. I've seen a few myself

[16:34] Both human and the hairy kind. Yep. There's a lot of them down here. Most of them working for you guessed it government That would be reason 2476 not to move to costa rika, which is 100 on the gringo tourist trail Now note you could have a very excellent lifestyle if you're slightly off the gringo tourist trail, too I'm talking about 10 or 20 kilometers away from a gringo tourist site Yes, every latin country even the ones way off the gringo tourist trail do have their little tourist zones For example roatan and copan are the two main gringo tourist sites in honduras A country that's in general way off the gringo tourist trail even el solvador has a small little tourist area

[17:21] It's on the pacific beach side called la libertad And the country of guadamala has three touristy areas and tigua guadamala panache and the mayan ruins of tikal But we're talking about eco tourism here. Not your typical gringo costa riken cancun tourism You won't find testy parents in shorts and budweiser t-shirts hauling their kids around looking for the nearest mcdonald's or burger king Instead you'll find the vast majority are eco tourists or do-gooders on a mission Out to learn about the culture or build out houses for jesus And some are here to explore the jungles and climb volcanoes and many come down to learn their spanish They're not hauling whiny spoiled brats around with them. So they're tolerable in small numbers. Anyway

[18:10] So for example, if you're thinking about san juan del sur Nicaragua or granada. Nicaragua those would be the two touristy places in that country If you were in the center of things you will pay higher prices because everything is becoming gringoized However, if you live maybe five or ten kilometers outside of those places You could have a really great inexpensive style of life and still be very close to the action And by action, I don't mean your typical costa rica style tourism action Thank god, but we were talking about essay corporations And like pt marco says you probably don't need one unless you have a thriving business brick and mortar business that is however Since most countries in the world won't let gringo's open up bank accounts anymore

[18:55] That's an end run around that problem You get yourself an essay corporation through your local latin lawyer and let the essay corporation open that bank account They don't care if the gringo is an owner or not That's one easy way to transfer money down because believe me You don't want any substantial cash in a bank up in the states Not with those new bail-in laws, but you knew that already, right? Do have that as one of your top bullet points in your plan b Which I assume by now if you're listening to this program and others like it You're seriously considering voting with your feet. Yeah, I know you're thinking here comes the plug for the seminar, right? Well gotta slip it in somewhere Just go to www.thenewxpat.com click on johnny's 2016 seminar link

[19:41] And my promise to you a two to five year head start on becoming a well integrated expat gringo here in latin america In other words The goal is to knock some of that clueless gringo sense out of you before you come down here permanently Because I can tell you this if you're gonna try to come here and tough it out on your own The first couple of years you're gonna make a lot of mistakes costly mistakes Almost every gringo and expat does I did but you don't have to and you don't have to reinvent the wheel either That's what the seminar is all about And if you're coming down, don't forget about those amazing pre and post seminar trips being held by the famous john gult He'll show you an amazing side of latin america You'll just never get to see if you book a trip on your own or you go through a travel agency

[20:26] And we're not talking about running jumping or breaking a sweat either. Just believe me an adventure You'll never forget. So click on his link at the top of the new expat.com website. Enough said about that Oh, here's something I promised I'd mention I've been getting a lot of emails from people asking me about these works in gray Those are obras and greece Those unfinished projects you see all over latin america some of them nice big projects on great tracks of land However, the owner ran out of dough or something happened or maybe his remissas quit coming in who knows and often weeks months Even years go by and the place looks absolutely overgrown and abandoned Often you see these places in very good upscale neighborhoods guarded gated communities and of course, you know already there's a big real estate bubble here

[21:11] So imagine this you go into a nice guarded gated community houses start at 200 grand or more It would be a great place to live if the houses were half again as cheap Meanwhile, if you could get in past the guard at that gated guarded community you'd find let's say a hundred lots Maybe 60 to 70 percent of those lots have houses on them Now because we're in the bubble the newer gated communities might only have houses built on 20 percent of the lots Now some of the older gated communities 10 years old or so might be 90 percent built up That said whether you're driving through old established colonies or not. You're gonna find some of those unfinished obras in greece By the way, forgive me for saying colony. I don't like that word either in spanish. It's colonias colonies

[21:59] Reminds me of beehives. They don't call them subdivisions or housing developments or neighborhoods They're colonies or colonias In some of the emails from people wanting to check these distressed properties out Well, don't think you're gonna find a listing of these things anywhere And don't think if you get online with remax or century 21, they're gonna tell you about these either The only way you're gonna find these things is if you come down and spend a week or two and travel around Sure, you can come down rent a car. Try it on your own if your spanish is perfect But still there's no guarantee you're gonna find these things in the places you want to live You'd be so much better off hooking up with a bilingual person who has a car and who lives in the general area This isn't a plug by the way. I'm just mentioning it from all the emails i'm getting people are saying

[22:44] How do I find these things? Well, you'll have to do some drive-throughs in some of these upper middle class gated guarded communities And you'll always find some of those unfinished obras in greece when you do So you're looking at colonies or communities where the houses start at let's say 150 000 and up and believe me in the same neighborhoods the same guarded gated communities you can often find 150 000 houses all the way on up to multi-million dollar gigantic colonial estates So it is possible you could pick up a cheap obra in greece and your next door neighbor could be a president or anarco Which is pretty much the same thing But you won't find those trashy concrete and laminate roof houses in these neighborhoods The zoning rules in your gated community won't allow that They'll have rules like minimum square foot size maximum number of floors and setbacks from the road, etc

[23:35] Which gives some exclusivity to each project However, that doesn't mean your next door neighbor with the million dollar house has any class He might just paint that house swimming pool turquoise or octopus purple and have weeping jesus Mary and joseph murals all over the place. So do expect a bit of that kind of stuff This is latin america and out of your control At least when you get into one of these upscale gated guarded communities people will have nice cars No, 1972 buick lowriders on cinder blocks out in the driveway. We're talking about upper class latins in these neighborhoods They buy new cars. I know you'll have to see it to believe it. But some of these properties are amazing They've got unbelievable landscaping and fountains and statues and waterfalls and infinity pools Then a block away is one of these abandoned obras and greys

[24:22] Go figure, huh? So bottom line you'll find them in practically every subdivision So when you come down here You're going to have to hook up with someone that can get you in past the guards to have a drive around and spot These things out which will be almost impossible for you to do on your own How are you going to get past the guard? You'll have to do it with someone who's done it before who knows their way in You can't just drive up to a guard station without an invitation and say hey Can I have a drive through? I want to look at some property. That's not gonna work Well, I take that back. This is a macho society So if you have a pretty girl driving often that will be enough to get you past the gate They're all suckers for a pretty face and you got the gringo advantage going for you, too In fact, i've gotten into a few gated guarded communities over the years by pulling those tricks myself

[25:09] Now note that not all of these desperate sellers with obras in greece are in gated guarded communities You'll see them everywhere. So if you're looking to homestead and pick up one of these out in the boonies There are some great opportunities there, too But you have to know where to look you want to be in a good safe laid back area with nice neighbors So again, you'll need a bilingual local what we call an expat concierge lady to take you around By the way, john gault has such a service. So if you're interested do check out his website Now here's a boots on the ground story that ties right into this topic Now I mentioned before that just a few days ago john gault and I and a few others Went to visit a friend of ours at his pacific coast beach house And he has one of those little four wheel drive atvs and he took us on a half an hour drive

[25:55] Up and down the beach and showed us maybe 50 beautiful beach houses right on the ocean And mixed in with those were maybe 10 obras in greece incomplete beach houses that have gone to seed And as we were riding along john gault and I kept looking at each other saying How is this possible so many obras in greece? And at the same time we were thinking man beachfront living just ain't for us Too hot too humid and we just end up drinking a case of beer a day and going to seed ourselves However, that said there are just countless gonna bees and wannabes up there in cleveland in new york Who'd love nothing more than to have a beach house on the ocean. That would be their idea of retirement heaven But then you have to wonder why all those half-finished projects go in the seed there right on the ocean

[26:43] Now because these aren't gated guarded communities. There's really no zoning So there's 50 000 houses right next to million dollar houses In fact, there was a million dollar plus compound that we passed complete with a giant infinity pool painted god-awful octopus purple But he did have a purple helicopter too So everything did match which only goes to show that money can buy just about everything except class Hey, we're getting towards the end now So don't forget to go to my youtube channel and check out the slides and photos that go along with the audio Just go to youtube type in the expat files and click on the very first thumbnail That would be santa claus having a mai tai in a hammock Then you'll get the whole youtube expat file show rundown from top to bottom and do subscribe is free

[27:32] South of the border 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 if you want me to help you sort out your own latin american plans schedule a one-on-one consult with me Just send an email and let me know at the expat files at gmail.com. No es vemos