finance

4 Ideas on How to Internationalize Your Money

June 4, 2013

Be Prepared

It’d be nice to think that going Barefoot is simply about floating around the globe wherever your desires take you but it’s not that simple. To do the floating part, you first need solid foundations to play otherwise you leave yourself exposed to the winds of circumstances that can blow you off course anytime.

If you are prepared, the winds of change can’t wipe you out. Being prepared gives you a better base to play from. It costs you little now but it protects you from the idiocy of governments and artefacts of control.

Too many “digital nomads” want the lifestyle but fail to build in these foundations. It’s a bit like wanting to play for the team but not wanting to do all that hard training repetitive training because it’s boring. Well, believe me there’s nothing more boring than being broke. I know that from experience.

What if I don’t have money?

If you don’t have money you probably have a pension/401k that’s sitting in the hands of a life/mutual/pension fund and you know how safe those guys are these days. There’s nothing stopping you internationalizing your fund.

If you don’t have money or a pension fund, you are at least reading this which means you have an interest. If you have an interest you can start planning. Even without money, you can set up a bank account overseas and start planning, you can open a gold bullion account and get $1 of free gold (okay, it’s not much but you’re in the game!)

Beware the Grubby Little Hands

Looking after your money is one thing, protecting it from the greedy hands of politicians is another.
* Why should you work 6 months in a year to fund corrupt bankers and wars?
* Why should you work 6 months in a year to fund those who don’t?
* Why should you pay for the recklessness of others?

That’s why we need to internationalize, live beyond the ideologically and financially bankrupt nation state politics.

OK, the advice I’m offering is not qualified beyond my own experimentation and experience. I am not a financial adviser. You need to go and research these things yourself before you commit to anything.

Firstly, why should you internationalize?

1) Avoid having all your eggs in one basket come the impending dollar meltdown
2) Take advantage of more liberal business and tax environments around the world
3) The fragility of the American and European economic system. In particular, the banks, the threat of future bail-ins like Cyprus and capital controls should any future banks go under.

So, here’s 4 ideas on you can do it:

1) set up a bank account overseas

This is relatively easy, requiring a bit of form signing and presentation of ID.

Most banks will facilitate overseas branches often for a fee unless you hold premier status. When setting up overseas you need to bear 2 factors in mind:
a) TIEAs – tax exchange agreements between your country and the foreign jurisdiction
b) The legitimacy of the jurisdiction. It’s not a great idea to set up a bank account in the Seychelles as transferring any money to/from here is going to set of major alarm bells. There are, however, robust jurisdictions like Hong Kong and Singapore whose banks aren’t ridiculuously exposed like those in EU and America.

It may cost you nothing and you’ll always have it as a backup. If the sh*t hits the fan you have an exit route before any capital controls are implemented to prevent you getting your money out. If you look at the Cyprus debacle, it was the Russians lining up at Laiki bank in Moscow withdrawing their money while British expats in Nicosia were locked down. You have to have an exit route.

Note that if you are a US citizen, most overseas banks will refuse to open an account for you. Unfortunately, this is the byproduct of the US government aggressively pursuing foreign banks for information on their citizens.

2) set up a business overseas

Hong Kong, Chile, Singapore, Malta are all good options for business that don’t carry the stigma of being graylisted by most jurisdictions. HK has 0% corporation tax on overseas profits and Chile aims to be one of the most red-tape free business environments in the world. Pay attention to CFC rulings as your opening a company overseas will probably still make you liable to tax at home.

Be careful: do not make the mistake thinking that you can set up a business to avoid paying tax. Just because tax in country A is 0% and tax in country B is 50%, doesn’t mean you won’t be paying 50% on your tax in country A. Most countries now tax income globally (although there are certain exceptions in the CFC rulings you need to explore). It’s far better to pay some tax in one country that has an agreement with your home country than none at all.

There are many countries where setting up and maintaining a business is a bureaucratic headache e.g. Spain and, believe it or not, the US. I’d strongly advise against setting up a business in the US. The bureaucratic environment is a nightmare and you’ll expose yourself to all kinds of taxes. I have the utmost respect for US entrepreneurs being able to bear all that nonsense – the land of the free needs to reestablish those great values it was built on, not red tape and taxation.

3) buy gold and hold overseas

There are many services available to the casual investor that enable you to purchase gold or silver bullion to hedge against currency meltdown or inflation. Why hold gold? Because central banks can’t print it. You may think, as of midway in 2013, the economy is due a recovery but don’t be fooled. The only recovery we’re seeing is a faux-recovery manufactured by the central banks who are pumping billions (trillions) into the economy to create an illusion of liquidity. It’s all going to end in tears.

Many analysts are advising against holding paper precious metals (i.e. ETFs/funds) and going for the real deal, so here are two of the best options. Peter Schiff’s EuroPac bank has a gold backed account which is an interesting option and Bullion Vault is one of the most straightforward online trading options requiring only hassle free verification.

Be careful: Some analysts warn of a potential scenario where governments can legally seize gold. It seems an unlikely scenario but given the recent clampdown on Bitcoin and the events in Cyprus, we know for a fact that governments don’t like competition. The last time it happened in the US was under the Hoover administration in 1933, under the pretense of “patriotism”. On that basis, you should consider holding gold in Zurich or Singapore not London or New York. EuroPac holds gold in the Perth Mint, Australia.

4) hold deposits in non US$ currencies (e.g. Chinese RMB)

Listen to any free thinking financial analyst on the squawk box (e.g.Peter Schiff, Marc Faber or Jim Rogers) and they’ll tell you one thing – the age of the US dollar is coming to an end. Now is the time to accumulate foreign currencies to hedge a potential meltdown.

Sure, it may be a generation before the dollars is phased out as a reserve currency but one thing is for sure – the constant printing of dollars is only going to wipe out its long term value. Prepare now.

Until recently, the commodity backed currencies like the Australian and Kiwi dollar were favorable but have lost a little shine recently. Some experts say the Hong Kong Dollar (pegged to the US) is a reasonable hedge.

You can open an RMB or HK$ account through Bank of China and HSBC in Hong Kong.

Be careful: the RMB is not fully convertible by design. The Chinese government doesn’t want to fully float the Yuan for fear of loss of control. That means you’ll be hard pressed to pay people in Yuan or convert it at your local high street bureau. For now and for the purposes of this discussion, consider it a limited currency for the purposes of storage. Of course, if the Yuan does become convertible, we should see a significant increase in demand (hence price).

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Where to Live? (More Visa Options for Entrepeneurs)

November 28, 2012

This post isn’t about why you should live somewhere new in the world, it’s about how. If you’re not convinced on the why, the contents of what I’m going to share from my own experience will be merely academic.

Instead, this post is for entrepeneurs who have the burning desire to taste the world but don’t know where to start.

I’m going to talk about visas – the single biggest hurdle you’ll face in relocating.

Sure, if you are an EU citizen and want to move within the EU or a Kiwi moving to Australia, you don’t have the issue so this post is academic. But this advice is aimed at those who don’t have that luxury.

No matter what your lawyer says, it ain't easy getting a visa if you're an entrepreneur

No matter what your lawyer says, it ain’t easy getting a visa if you’re an entrepreneur

Overview of Entrepreneur Visas

If you are a skilled worker, things are a lot easier (e.g. a nurse, diesel mechanic or radiologist). But I’m none of these. I tend to fail skilled visa tests because I have no skills of transferable worth. For entrepreneurs like me you have to think out the box. But that’s what we’re good at doing, so getting a visa is merely another challenge in this game called life.

Most countries have visas available for entrepreneurs but they require a degree of investment. Some are low, unspecified even. Others require $100,000s all the way up to $millions.

I secured an investment visa to New Zealand on the basis of establishing a business there. Let me tell you, it’s not easy. You not only have to deliver a business plan (which entrepreneur actually enjoys writing these things – ugh?!) you have to take medical and background checks. It takes time and money. In all you’re looking at a minimum admin cost of $12,000 to get the visa. Then you have to invest your money etc. etc. Bear in mind, these costs are on top of your moving costs.

How does Immigration Assess Your Case?

Generally speaking, entrepreneur visas consider the efficacy of the business plan on the following criteria:

  • Your experience – have you run businesses before?
  • The benefit of the business to the local economy – an IT consultancy is much more attractive than a B&B or taxi firm
  • How many local people you will employ in future years
  • The amount of capital you are going to invest

Generally speaking (again), immigration will fail your case for the following reason

  • It’s a fish’n'chips restaurant
  • You have never run a business before
  • You’re too old
  • It doesn’t look legit (i.e. it’s obvious you’re doing it just for the visa)
  • You don’t have enough capital to invest
  • You aren’t going to employ enough people
  • Something sketchy in your background
  • An unknown reason (only really applies to the USA)

Entrepreneur Visas: The Catch

The real catch with entrepreneur visas is the follow up. It’s often easier to get the visa than it is to renew them. Horror stories abound of entrepreneurs who set up their businesses only to be refused a renewal in subsequent years. You’ve ploughed all that money into the business, set up your life in a new country and are then given 90 days to get out. It happens.

The other catch is the employment issue. Many entrepreneur visas carry a requirement that you must employ X number of locals. Now this can be a real showstopper. Those locals can’t be family nor can they be ringers on contract. You have to submit to the dreaded payroll and that means local employment laws which will inevitably trap business owners into lengthy and unwanted terms that can drag you down.

Visa Lawyers

Every visa applications contains an unnecessary amount of paperwork. The game isn’t about submitting a great proposal but a proposal that isn’t bad. You see, the powers that be aren’t looking for excellent business ideas they’re simply looking for ideas that check all the boxes. That’s why you need to employ visa lawyers.

The USA, for example, has horrendous visa laws following the implementation of the Patriot Act. As usual, those that could make a difference to the economy are penalized whereas illegal immigrants seem to arrive by the truckload. Hiring a lawyer will cost you around $10,000 and up and that’s without any guarantee of success. If your visa application is denied (and they increasingly are here in the US), you need to employ a lawyer to appeal. That’s another $5,000 off the bat.

You see, visa lawyers make money if they win you the visa but they make more money if they don’t. Think about it.

Entrepreneurs Visas by Country

Here is very basic overview of a selection of countries and their entrepreneur visa programs:

Australia
Perhaps the toughest of all. You’re looking at a minimum investment of $750K US and the nightmare of employing multiple locals. This is a real showstopper on all accounts because the money invested has to be spent as opposed to simply available for investment.

New Zealand & Canada
Similar to above but the figures are lower, varying from $200K to $300K US. Unlike Australia, there are lower employment requisites and the money only has to be transferred to the business account opposed to invested. Needless to say, for entrepreneurs this offers flexibility.

Dubai
Dubai was historically obscure to the entrepreneur. You could only establish a company if you had a local partner which meant the obvious open door to exploitation and corruption. Most entrepreneurs won’t have a partner locally so would have had to turn to an accountant or lawyer offering his services as a hired gun. Today, however, there are options. Dubai has set up numerous free trade zones that allow entrepreneurs to set up a company and employ themselves. The requirements vary according to which zone they set up in (e.g. an internet company has a much lower entry level than a media one).

Chile
Chile is an interesting player and appears to be proactively sourcing entrepreneurs to come and startup in their country. Not only are they being proactive about it they are offering to reimburse a % of your startup costs. If you are looking to live in South America, this is a very exciting option. The administration process appears, on paper at least, refreshing – involving features such as a video pitch, which perhaps demonstrates it’s being run by entrepreneurs as opposed to bean counters.

Singapore
Singapore has 2 routes for the entrepreneur. The Entrepass which has relatively low levels of capital spending but high levels of local employment requisite of the Employment Pass. You can set up your own company and employ yourself as a senior manager under the Employment Pass but this appears to be a loophole immigration are tightening. Even though many Singapore visa lawyers are offering the Incorporation + Employment Pass option as a package, see my point about visa lawyers above.

Hong Kong
Reflecting the entrepreneurial nature of the country, Hong Kong appears to be welcoming. This is reflected in the fact that they consider applications on a case by case basis and do not stipulate capital and employment requirements that will hobble an entrepreneur. The flipside of this is, of course, a lack of clarity. The process of incorporation followed by employment through own company appears possible as in Singapore. I suspect that HK is a lot easier, cheaper and clearer to deal with than, say, the US, New Zealand or Australia but that conjecture is based purely on speculation as opposed to first hand experience.

USA
While USA immigration requirements for entrepreneurs are relatively low, they are unfeasibly subjective. There are no guidelines and immigration are becoming renowned for rejecting applications on a whim. This basically means you could spend $10k and a few months of time & hassle applying for a visa only to find it rejected for reasons beyond your control. The issue isn’t as much as the obscurity of the immigration selection process but the distinct lack of clarity in which option suits the entrepreneur best. In my discussions with immigration lawyers I’ve found that none agree on the best visa route (I’ve been recommended the E-1, E-2 and L-1 visas.) Very few lawyers appear to want to commit to a particular course until you’ve paid an upfront consultation fee of around $200. Even when you’ve paid up, you’ll still find that lawyers themselves don’t know because they are offered very little guidance from immigration authorities.

Malaysia
Malaysia has an interesting option – the MM2H (Malaysia My 2nd Home) which caters for expats who want to live in Malaysia but don’t necessarily want to start a business. Rather than start a business you are granted a visa on the basis of transferring a capital sum into the country. The catch is that you have to keep a minimum balance in the bank in order to retain your visa.

Notes on other countries. I haven’t included the EU as well as a bunch of other countries. The above is based on our own line of enquiry. We’ve engaged immigration lawyers, paid the fees and had needles stuck in our arms to do the medicals. It’s an intensive process so it’s unlikely I can offer generic advice to countries I have little experience of. I’m sure others can and to some extent, the questions below regarding considerations would apply.

Visa Considerations

If you are serious about application here are a few questions to consider:

  • Does my visa apply to my dependents? In many cases it will but in some it won’t. If you take the Entrepass visa in Singapore, you’ll only cover your dependentsifyour business employs a specific number of people and spends the required amount. That means it’s quite possible you can renew your visa but your dependents aren’t covered if, for example, your sales fall or things don’t work out so well. You may be confident of your current situation but it’s an awkward rod for your own back that perhaps clouds your future security with a high degree of uncertainty.
  • What are the conditions for renewal? Few business visas offer residence. Many require assessment every year or two years. Again, for the reasons above, this is an awkward scenario. Rules change. Businesses change. Entrepreneurs can and do get deported when their business doesn’t work out.
  • Does the visa offer residence? The downside of any entrepreneur’s life is uncertainty. It’s the price we pay. What you don’t want, however, is the constant specter of never being able to call your host country your home. In many cases, visas offer a pathway to residence (if you’ve lived 5 years for example). But, in some they don’t. The E-1 and E-2 visas in the USA, for example, allow you to live in the country but you’ll never get a green card. That means your business needs to keep performing indefinitely else you will be deported. There are cases where the children of successful E visa business owners have to leave their adoptive countries when they reach 21 as the visa runs out when they reach this age.
  • What are the tax considerations? You can see my thoughts on tax and why it’s important to get this right. In most cases, you will pay tax as the locals. However, this is a thorny issue. To qualify for a visa you may have to be seen to be taking a salary as opposed to dividends which itself unpacks a whole set of tax implications that entrepreneurs don’t like. That means the financial advantages of running your own business may be negated by the need to be salaried, and therefore taxed heavily.
  • Will my visa lawyer offer a no-win no-fee? They exist and I’d advise taking them where possible. A lawyer must be pretty confident of his or her own skills to offer this to a prospective client. Not only that, your lawyers must be confident in your own proposition. If the lawyer still gets paid even if they take on a lousy case it offers you no honesty. A no-win-no-fee lawyer is going to be honest with you and turn your case down before you fill out any forms because it’s a loss to them. The other type of lawyer will happily take you on because success rates aren’t accounted for anywhere and, as I’ve discussed already, lousy cases mean appeals, re-application and so on.
  • What happens if I change my mind? This is particularly relevant to us and a lesson learned the hard way. The lower the entry cost in time and money to any country, the easier it is to make the right decision if you want to change your mind down the line. But, what happens if you’ve invested $20,000 in lawyer fees and you, for whatever reason, decide that this place isn’t for you? Not easy. Of course, you’re not going to change your mind at time of application but you always need to factor this in to your reckoning. Things happen. Life changes. If you have plenty sunk into the move, you end up making the wrong decision. I know of 2 expats who moved out to Australia and wanted to change their mind but it was too late, they had sunk too much money into the move setting up the business. That means they were damned if they stayed and damned if they returned. It’s a lose-lose for them. Fortunately for us we hadn’t made any capital investments yet, we simply lost the upfront fees (not that was in any way a cakewalk.) But we lost a lot less than we would have done if we had paid for an office, hired employees, bought equipment etc. If I had known this up front, it would have influenced our decision process. Countries that have tough requirements for entrepreneurs (namely US, Australia, New Zealand) should not be dealt with lightly.

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Why Income Tax is Morally Wrong

November 26, 2012

Here’s some data to chew over:

  • US personal income tax receipts for FY 2013: $1.36 trillion a year (source).
  • US repayment on debt interest: $1.3 trillion a year (source).

Think about that for a second.

The next time someone reprimands you for being morally repugnant in being tax efficient consider this fact:

Virtually no money raised on income tax goes back into society. When I mean “back into society” I mean what the defenders of social responsibility call the benefits of levying a tax – health care, defense, education and so on. Read that again – none of your income tax dollars pay for that.

In fact, you work 5-6 months of a year simply to repay interest on government debt to the federal reserves of this world.

The next time you hand over that tax check thinking you’re building a hospital, paying for little Johnny’s education or the pensions of those veterans, consider the reality: you are doing none of these.

The issue isn’t one of raising or lowering taxes, it’s one of tax itself.

Debt interest draws on income tax and income tax from the masses, therefore we continue to fund debt interest because income tax is easy. Conversely, corporation tax isn’t easy. Raise it and watch companies flee in search of lower tax jurisdictions. Citizens can’t do that.

If our national debt was funded by corporation tax, it would be a different matter. Just watch what happens when you start doubling tax bills of banks to fund the national debt.

The last 4 years have seen possibly the largest wealth transfer in history – a succession of loans and bailouts to the wealthiest in our society, all funded by our income tax payments. If we restrict this source easy money, we’d also restrict this cyclical behavior.

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Defining Self-Worth: 4 Lifestyle Options

November 20, 2012

My Barefoot office from the grahamdbrown instagram feed

My Barefoot office from the grahamdbrown instagram feed

“Worth” we are led to believe is a function of our career.

Our initial altruistic notions of “doing good” and being recognized as a “person of worth” are given but one track to run on. The anxiety of not “getting ahead” or the feeling of “emptiness” that goes hand-in-hand with the corporate sovereign also comes with its own remedy – consumerism and the “holiday in the sun”. You’re happiness is but one purchase away and one more purchase puts you ever more into debt, the bonded slavery that forces you onto the misery express and divorces you from your family.

What they don’t teach you at school are the lifestyle options. Our only option is the one that equates our worth to salary. The highly trained, those who sacrifice the most for study, work the longest hours – the professionals – are the pinnacle of acheivement and security. Yet, no wonder they are the unhappiest. These hedgehogs have little in the way of “scope” or variety and my years as a financial adviser remind me that the highest paid or often the most in debt. It’s no surprise to find an unemployed taxi-driver or a highly qualified doctor to be 100k in debt – I’ve seen them both. Both lack any sense of financial intelligence and as a result both are slaves to the system, forever needing the next paycheck to stay afloat.

So here are the alternatives.

First is to do what the hell you like, spend money and worry about the consequences later. Money after all is but a “mind forgd manacle” so if you truly treat it with this contempt, the weapons of the system can be ignored. Or so the theory goes. Up against a disorganized consumer, the system always wins. It ruins your credit rating, strips you of freedoms and ability to make your own living. The pleasures of abandonment are short lived and unfortunately the ramifications aren’t.

Secondly you can “drop out”. Go live in a commune and become self-sufficient. A great idea if you enjoy the fraternity of communal living. Espoused by Tom Hodgkinson in “how to be free” these idyllic anarchies encourage the positive aspects of mankind the social animal without the tyranny of bureaucracy. Unfortunately too many of said communities are a magnet for society’s rejected masses, those who live on the fringe and the downright crazy.

Thirdly, you can start using the system for your own gain. Rather than the servant of the professional dream, you build your own destiny in the vein of Kiyosaki‘s “Rich Dad Poor Dad“. By employing leverage you are able to escaple the manacles of debt and enjoy financial freedom.

The fourth alternative really takes the momentum of the 3rd to it’s rightful conclusion. What Kiyosaki cannot teach you is happiness. By chasing success you chase both an untenable dream and unhappiness. “I’ll work like crazy until the business can stand on its own two feet then kick back a little”. We all say it, no one ever reaches it. The irony is that by chasing “entrepreneurial success” over the “professional career” you merely replace one jailor with another. The fourth option then is letting go of the concept of success but at the same time being highly organized such that you also let go of the tyranny of the system and its botherers and using leverage to free yourself from the mundane. The fourth option is Barefoot Living. It is the option that attaches no happiness to any system, community or goal but the availability of time for yourself to focus on what’s important.

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5 Things I learned about running a business from a tropical island

November 5, 2012

Sunset in Fiji

Catching the Sunset on the Coral Coast in Fiji

If anything is going to test one’s ability to run a business from anywhere it’s going to be doing it from a remote tropical island like Fiji. In fact, I’ve always aspired to own a business that you could run from a tropical island not because I want to live on a tropical island but because a business that can be run from anywhere is a business freed of many of the issues facing the entrepreneur.

It’s a good a test as any. Even if you have no plans to live in Fiji or some tropical island, ask yourself how could I run this business if I lived there.

Years ago, I grew an events business, hired many people, set up offices in UK and India. You end up growing a monster that needs constant feeding. Most of your revenues (and therefore work) goes into keeping the monster alive. You don’t want a business where the tail wags the dog.

The problem is that the popular alternative to running an all consuming business appears to be living as a lightfooted digital nomad, gigging here and there and scratching together an existence from multiple revenue streams. While this may suit the low spending entrepreneur happy with a trickle of income from AdSense, ebooks and freelance work it never provides a sustainable asset business. What happens when your freelance work dries up? What happens when you are sick on your travels? What happens when you don’t have internet connection?

The road I’ve chosen is something of a hybrid – a Barefoot business – a super-streamlined business. Grow a business and enjoy the fruits of tropical island living. This means avoiding the risk of being self employed (when I mean self-employed I mean working as an individual consultant or working for a company of one). As long as you are self-employed you are vulnerable to the winds of circumstance.

So, I’ve compiled a list of 5 things I’ve learned about my recent tropical island test in running your own Barefoot business.

Hanging out on Waikiki beach Hawaii

Hanging out on Waikiki beach Hawaii

1. The Internet really is everywhere

I was initially cautious about working out of Fiji. For starters, we weren’t based in the capital Nadi, but an hour south on the Coral Coast. The lady in the Vodafone store at the airport said I’d be lucky to get GPRS connection on my MiFi device. Fortunately I chose a hotel that had unlimited Wifi access (about $10 US for 5 days – which is a pretty good deal by comparison). Ok it wasn’t breakneck speed but for Skype it was very reliable. In fact, it’s faster than the shared connection I’m using currently from our apartment in Hawaii.

The reviews suggested our hotel had patchy Wifi which is more frustrating than none at all. I emailed ahead of time and asked for a room with good signal. In fact, during the week we had very little issues at all with the network or the Wifi signal. Result.

So, if you have doubts about travel to remote places your doubts may be unfounded. I was worried about moving to New Zealand because the internet was relatively slow compared to Europe and the US there but I managed to pick up a mobile Mifi device on 2 Degrees with 13GB of data transfer (for about $60 US) at speeds of 3-4 MBPs. Working from a Mifi meant that I wasn’t now tied down to finding a hotel with good broadband, I could literally work anywhere. OK, it’s expensive if your on a tight budget but then this is a business expense – and second to people, internet is the most important factor in our business.

In summary, I’ve travelled every continent in the last 2 years and I’ve found that, if you do your research ahead of time, internet connection doesn’t vary greatly between countries. My hotel in Fiji was faster than my hotel in Stockholm ironically. And as long as your main business use is accessing docs, web surfing and audio Skype you actually don’t need a connection >1 MBPs. Okay, it’s not ideal but it means you open up the map to possibility.

2. One week is not enough

It takes about 3-5 days for me to settle into a routine. As I’m regularly Skyping with my team around the world, the challenge is working around time zones. In Fiji and New Zealand, I was working late hours fitting into the London 8am team call but once over to Hawaii it was an hour difference that made all the difference – I could shift to a 6am start here. However you play it, getting set up, getting used to routine and sorting out your workspace takes time. You have to find good reliable places to eat, your local grocery store etc. Only when you get this sorted out do you have enough brain space freed up to focus on the task at hand.

Fortunately, I have 6 weeks in Orange County California to work things out. I expect the first 3 or 4 days to be concerned with all those small tasks before I get really productive.

The alternative is to travel flashpack – one day, one city. This certainly won’t work if your family is in tow. However, if you’re traveling on your own and only with one carry on case it’s completely do-able. This is how I’m going to do things in Spring 2012 for the book tour.

3. Stick to your routine

Because it takes 3-5 days to get adjusted, sticking to a regular routine is crucial. You don’t have the regular familiarity of your home surroundings – food, people, places etc – so you need to create your own familiarity. For me, it helps greatly to have our team call at 6am in the mornings. This gets me showered and ready for the day. I use a Google Doc to keep a regular track of my schedule setting out what I’ll do by the hour. Sure, there’s a temptation to go and play on the beach or go mountain biking all day but you have to remind yourself you’re not on vacation – you’re working as you would back home. If you’re used to an environment where everything is planned for you (such as in a large corporate) you’re going to struggle with the self-discipline but if this comes naturally to you then look at how you can support your day by structuring it. Bookend it with a call to your team or partners. Write your daily schedule down the day before either on paper or as I do with docs.

4. You need leverage

Why I find much of the digital nomad literature flawed is because it doesn’t teach people how to create leverage. It’s all very well hustling your way round the world searching for your next gig but you’ll only get as far as you can keep yourself in the game. There will come a time when your energy will run low, you’ll run out of ideas and motivation. That’s why you need a team, you need to work with others to make this happen. When you’re selling your services you often get stuck at the 1:1 input:output ratio. That means you’ll only make as much money as hours you have in the day which is problematic because there are only 24, and most of them are unproductive. You’ll go through the “how can I sleep less?” phase before realizing it’s futile. I sleep 8 hours a day and run a successful business at the same time. My challenge is making money while I sleep and this can only be done through leverage. Here’s a quick overview of what leverage could be:

  • Working with a team in different time zones
  • Selling online through an automate store
  • Writing books sold through Amazon etc
  • Creating videos and presentations that help project your voice
  • Outsourcing tasks to services like Odesk
  • Use managing agents to look after your assets (like real estate)

Okay you’ll make less money on each sale as a result of employing others but your time is the most valuable asset here. I’d rather sell a product at $100 online than one for $10,000 that requires meeting a client. $10,000 may sound more attractive but the question is how many of these can you sell in a month?

5. Keep receipts

An admin point but an important one. Every hotel you stay at will try and overcharge you. I stayed at 5 star hotels in Auckland and no-star hotels in Fiji and the result was the same – all made “innocent” mistakes that put an extra 10-20% onto your bill. I’ve yet to stay at a hotel that undercharged me. When you’re running a business on the road you’re going to generate a lot of receipts and it’s good practise to keep these so you’re prepared for checkout. If you’re charging to your room, ask to see a breakdown of your expenses the day before you leave. If you leave it to checkout you could be stuck with a taxi waiting for the airport and an unhelpful service manager. Where possible pay everything cash as that reduces the audit trace on your credit card. Vaguaries in exchange rates compounded by unscrupulous operators mean that you could end up paying a lot more because you forgot how much you paid in the first place months ago. 

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Financial Education

October 16, 2012

At school, we are penalized for sharing ideas at test time. The school bell rings signalling the start of the factory production line and we begin work. Go to school, get a good education, get a job, work hard, save, retire, enjoy the few years you have left. You get paid for how hard you work rather than the value you create. Yet one form of education you are never taught is financial – the role of money, how to make it and what exactly it is.

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Tax – let’s talk

September 9, 2012

Panama Banks

Years ago a friend returned to the UK from exile in Monaco after selling his business. Following years of avoiding UK tax on the disposal of assets he was finally confronted with the prospect of having to pay up.
“If I’d have done it again differently, I would have bitten the bullet and paid the tax up front,” he confessed in a resigned tone over lunch.

So, let’s talk about tax because it’s a very obscure world where, for those mere mortals who don’t have an army of tax accountants and lawyers on hand, little decent advice exists. A few caveats for this article:

  • You are not a multi-millionaire (if you are you can retain a well versed tax accountant and lawyer who can bury your wealth.)
  • You own a company (if you are simply a waged employee, your options are very limited unless you set up as self-employed)
  • You are not an American citizen. Unfortunately, the US is one of the few countries out there that taxes its citizens regardless of their residence or domicility. You could hold a US passport but have lived all your live in Australia. In this case you’d still be liable to some degree for US tax. It’s the subject of much internet debate and unless you’re willing to trade in your passport and never return (and some have already), you’re stuck to either paying up or making enough $$$ to technically evade tax as above. Both aren’t easy options.

You could Google the subject and find plenty of “advice” on setting up offshore but so much of these vehicles for tax avoidance are either a) technically flawed or b) in the murky twilight zone of legality that will eventually set you up for closer inspection by the Revenue department. And nobody wants that.

So, how do you pay less tax?

You have 2 options:

  1. Explore the twilight world of pseudo tax shelters and trusts. You will find plenty of suppliers – some genuine, some snake-oil salesmen. The problem is you have no authority to refer to when it comes to their legality. The last word will be had by the courts and the Revenue and by the time you’re there you’ve already shortened your life expectancy by about 5 years. The chances are you will save money, you will avoid tax and you will come out better off but at what cost mentally? You will always be wary of changes in litigation and test cases in your country regarding the feasibility of these schemes. You will have to take certain measures that will restrict your lifestyle. You won’t sleep easy at night.
  2. The second option is the Barefoot option and that is taking advantage of well established, above-the-board tax systems – such as low tax regimes or government tax breaks. Being sanctioned by government helps (although it doesn’t necessarily mean being sanctioned by another country’s government.) I will talk about a few of these later.

Before we start, let’s consider a few basic concepts (and myths) about tax:

1) The difference between “evasion” and “avoidance“.

In past, the difference was a key point of law. Now, however they are becoming blurred. If you earned $10k and owed $1k tax to your government but refused (i.e. “forgot”) to pay – this is tax evasion. If you sell a real estate property and fail to declare the tax owing, this too is tax evasion. Tax evasion is illegal and will end you up in jail. Tax avoidance, however, is supposedly just. For example, one could argue a 401k/pension scheme is tax avoidance of sorts – it’s an efficient way to save for the future. Each country will have its own sanctioned tax avoidance schemes such as the ISA in the UK where you can save a small amount of money each year without paying tax on the gain/interest. Note the word “small” because if you’re serious about tax efficiency, these schemes are limited.

And this is where it becomes murky because the financial services industry has developed a wealth of products that encourage avoidance. 10 years ago, most would have been acceptable but the rules have changed:

  • Many Revenue departments now consider what they call “intention” as indication of legality. For example, if you set up a company abroad (in, say, one of the Caribbean islands) in order to pay less tax your Revenue department could rightfully claim (in court) that you did this simply to pay less tax and, in doing so, this is tax evasion. Years ago, this would have been simply good housekeeping for the tax efficient Barefooter. Now, however, it’s not watertight. That is, unless, you have an army of lawyers and tax accountants like many public companies who can afford to set up their business “HQs” offshore in the Caymans.

2) There are very few options on the table left to Barefoot Entrepreneurs.

The options you do have must come with genuine intention. Sure, you can find plenty of articles online about setting up trusts or offshore BVIs or establishing your shell company in a low tax jurisdiction like Belize or Hong Kong but don’t be fooled by the ease of it all. Many of these options will end up costing you money in the long term.

Consider for example the recent CFC rulings implemented by many countries. You need to understand how these works. I’m no tax accountant so I’ll summarize best I can in layman’s terms:

  • Controlled Foreign Company rulings have been introduced by Revenue departments to level the tax playing field. For example, if you pay 30% corporation tax in the UK and only 15% in Ireland so establish your company in Ireland but live/manage it from the UK, the UK Revenue will say your company is liable to UK tax as it would if based in the UK. Most countries have these rulings, so they are unavoidable. There are considerations in these rulings worth investigating, however. In some countries you can earn up to a certain level of taxable company income before these rulings are applied (the “de minimus” clauses). Of course, you pay tax as you would locally (at the lower rate) but you would avoid paying tax in the “managed” country at the higher rate. There are more complicated workarounds involving multiple directors, local directors and the organization of board meetings to give the impression that your company is managed locally and not a puppet company but, unless you already have a company owned by multiple individuals in different countries, these measures seem a lot of work and worry for the Barefooter.
  • You Revenue department will operate a “white” and a “gray” list of companies. If your CFC is based in a gray list company (e.g. Bahamas, Caymans, Hong Kong), expect a lot of fingering by their investigation guys. If it’s a white lister, you are lower priority. Needless to say, while list countries are mostly those with higher corporation tax rates, so the gains again are wiped out.

3) The Offshore Banking thing

Offshore Banking and not paying tax have long gone hand-in-hand. Some countries forbid their citizens to set up in certain jurisdictions – e.g. in Jersey (UK) and banks operating their offshore departments (they all have them) will block your application on this basis. But, many banks will take your business – especially if you are trying to hide billions of dollars of stolen aid money from your corrupt 3rd world regime. That’s why the US IRD have spent so much time and effort strangleholding the governments of Switzerland, Lichtenstein etc into freeing up their bank account data to identify the most hardened and pernicious of tax evaders. In many cases, Revenue have done this under the premise of hunting down criminals (which to some extent is true) but many naive individuals have been caught up in these actions.

If you operate an offshore bank you will need to declare it to your Revenue department. If you don’t they may never find out but this isn’t what Barefooting is all about – sleep well at night. Just because you store money offshore, doesn’t mean you don’t pay tax on it back home. In many cases, Revenue will want a slice of the action, thus annulling the benefits of setting up offshore.

If you want an offshore bank account, do it because it makes sense to your business not because of tax benefits. E.g. you travel frequently to the country and, therefore, need access to funds there. Even if you did do it for the tax benefits of sheltering your money from the Revenue department you need to consider how the repatriate the money home. Wiring the money to your domestic bank and not declaring the income is tax evasion. If you have enough, you could acquire property in your domestic market using the offshore account as a cash buyer. You could sink it into your “restaurant business”. Sound like Mafia much? Of course, these methods are dubious and best avoided unless you have bulletproof advice from a tax accountant. That leaves you with the suitcase of cash option. You have been warned.

4) Some considerations

There are a few legal, above-board options but they will require a change of circumstance. For example:

  • Some countries offer tax breaks to new migrants to encourage investment and business. If, however, your source of income is still in your originating country, you will still pay tax at source on some of your income.
  • Some countries don’t tax overseas income at all (Hong Kong and, to some degree, Cyprus). This means you could leave your company in the originating country and receive income from it. Again, you will pay tax at source so the gains may be marginal. Consider though the potential problems you may encounter if your clients are large established multinationals and you start asking them to pay money into accounts in Cyprus or Belize. Their internal fraud checks will trip.
  • The most viable option is living in a low-tax country – e.g. Ireland, Singapore, Hong Kong. Hong Kong for example has a relatively low corporation and income tax rate (but you’d have to live there to take advantage of it). Interestingly, profits on business conducted overseas while in HK are not taxed at all so if you had a consultancy based in HK with foreign clients you could end up paying very little tax. If you lived overseas, however, and set up in HK you’d still be liable to domestic tax rates (see CFC above).

In Summary

You can save tax but probably not as much as you’d like.

You can reduce your tax burden but, unless you’re prepared to exist in the twilight zone you won’t be able to eliminate it. If you think yourself clever having found upon a tax scheme or vehicle suggested by a colleague or acquaintance don’t think Revenue aren’t probing it as we speak. Just because it’s legit today doesn’t mean it will remain so tomorrow. There are very few loopholes left to mere mortals except officially sanctioned breaks (e.g. migrant breaks, living in low tax regimes and de minimus clauses) and these require specific circumstances to effect properly (e.g. migration, international trading or small/medium size company).

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