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What Freedom Indexes Mean To The Expat Living And Investing Overseas

07 Jul
Economically Free countries and business offshore - Freedom Indexes

How Much Should You Care If A Country Is “Economically Free?”

About a month ago, a reader wrote in to say that he would only move to a country with more economic freedom than the United States and therefore wouldn’t be considering any of the countries I write about that aren’t ranked higher than the United States on the Heritage Foundation’s 2013 Index of Economic Freedom.

I responded to say that I thought this a narrow-sighted and severely and unnecessarily limiting approach. The only affordable options that rank better than the United States on this list are Canada, Chile, and Mauritius (the reader also wasn’t interested in Mauritius as he didn’t know where it is).

Another reader wrote in recently with links to both the Heritage index and another economic freedom index. The rankings for both are similar. The top quarter or so is mostly European countries plus Hong Kong, Singapore, Australia, New Zealand, Chile, Peru, and several Middle Eastern countries.

What are you, the global citizen and investor, to take away from all this? Beats me.

Should You Care For These Indexes At All?

If you’re looking to go abroad to start a business, certainly “economic freedom” isn’t to be ignored. But I don’t know that I’d base any conclusions on the appeal or lack of appeal of any particular destination as a place to indulge entrepreneurial inclinations on the rankings of a formal survey. I’d want to be sure that I could conduct my business, make my profits, and repatriate my money when and as I chose, but I’d want to confirm those things for myself, with the help of counsel I trust and other expats who are already in business in the jurisdiction.

Argentina and Ecuador are both at the bottoms of the surveys I reference above. Argentina is one of my favorite countries. I wouldn’t try to start a business there, but I’d jump at a chance to live here for a while and would invest in real estate in this country for personal use without hesitation.

Ecuador is one of the top retirement options for North Americans because it’s one of the least expensive places to live comfortably in this hemisphere. I also know several entrepreneurs who have done very well for themselves in Ecuador, so, again, I wouldn’t cross it off your doing-business list on the basis of these surveys alone. It, like Argentina, has a great deal to offer for living and even for investing, depending on your perspective, your agendas, and your risk tolerance.

The sweet spot in these economic indexes, I’d say, is among the middle 50% of the rankings. That’s where you’ll find much of Latin America and Eastern Europe and some Asian hot spots like the Philippines, Malaysia, and Thailand. If you’re an entrepreneur looking for opportunity, focus on this section of the list. Despite being “less” economically free than the United States and other more developed countries, many of these places have expanding middle classes and/or growing foreign retiree markets to tap into.

Certainly, you don’t want to set up shop in a country where the government (or organized crime, as is the case in Russia, for example) is not opposed to swooping in and taking your business away once you’ve made it successful. So do your due diligence on the country and in the country that has your attention and organize your affairs accordingly to protect yourself. That said, I’d opt for operating in a country that is “less” economically free but that offers real economic opportunity over starting a business in an “economically free” country where the entrepreneur must spend a fortune on attorneys and permits just to get his new business off the ground every time.

As for the reader who refuses to move to a country that isn’t as economically free as the United States, his options are expanding. The United States has fallen in these charts over the last few years and likely will continue to do so.

Lief Simon

Mailbag

“It may be true that holding a piece of real estate overseas is not generally reportable by an American (to date); however, in some countries the general manner of transacting real estate business is through an S.A., in which case the S.A. and its holdings are reportable. It’s simply not as cut and dried a situation as your letter today seems to make it.”

–T.N.

Yes, the corporation is reportable. However, real estate held in your own name is not…and you don’t have to hold property in an S.A. anywhere that I know of. Yes, it’s typical in Panama, but that was mostly to get around a loophole that existed where shares of a corporation had no capital gains taxes. Now shares of corporations do have capital gains taxes, so it’s no longer much of a benefit to hold property in a corporation in Panama…