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How Much Offshore Diversification Do You Really Need?

30 May
How much diversification is much diversification is much

How Much Diversification Is Enough?

Once you get started planting your flags around the world, you’ll eventually reach the point where you’ll ask yourself how much diversification is enough.

My real estate portfolio has included investments in more than two dozen countries over the years and currently holds 24 properties in 11 countries. For some, that might qualify as over-diversification. On the other hand, I invest when and where an opportunity I like presents itself.

If you’re focused on this diversify offshore strategy, you’ll likely make more than one investment, real estate or other. Your non-investment flag-planting endeavors likely will be fewer, but you still should have multiples. Any experience navigating the world of global-diversification opportunities will teach you that you want more than one bank account offshore. However, few people consider multiple residencies.

I did know someone a few years ago who had established residency in three countries at the same time with the goal of attaining citizenship in at least one of the jurisdictions. His premise was that everything in the offshore world doesn’t work out as you plan, so he was planting as many residency flags as he could in an effort to guarantee at least one second citizenship flag.

At the time, the idea seemed like overkill. Today, it seems like a prudent plan that I embrace and endorse. In fact, more and more people I meet at conferences and while traveling are already pursuing this strategy and setting up residency in more than one other country beyond the one where they were born.

Pensionado Residency

Many pensionado residency permits aside, legal residency often eventually leads to citizenship. One of the current best of these types of programs is available from Portugal. This country’s real-estate-for-residency (its Golden Visa program) offers many options I find interesting from a property investment perspective, all with the eventual upside of a second passport. As Portugal is an EU member, its passport is like a passport to the whole of the EU.

I feature a complete report on the Golden Visa program options and opportunities in this month’s issue of my Simon Letter, in subscribers’ inboxes this week.

Just because you’re eligible for naturalization doesn’t mean you have to apply. However, having the option should translate to peace of mind.

Multiple Residency

Maintaining multiple residencies at the same time can come with complications. Some countries have no minimum requirement for how much time you must spend physically present in their country if you have residency. Portugal and the Dominican Republic are two good examples here.

Other countries impose minimal stay requirements—one day every two years if you hold a permanent residency card, for example, as is the case for Panama and Colombia.

Then you have complicated countries like Ecuador, which doesn’t allow you to be out of the country for more than 90 days a year during the first couple of years of residency.

Those potential complications notwithstanding, I suggest that a second citizenship along with two alternative residencies makes for about as bulletproof a strategy as you could need. This means four countries—the country of your original citizenship, the country of your second citizenship, and each of your two backup residency countries—where you would be able to reside indefinitely and legally should you find the need.

Pick up an EU passport, and the number of countries where you could hang out indefinitely should you get the notion jumps to 30. Pick up a CARICOM passport, and you have many living options in the Caribbean.

Taking my own advice, I set up residency in the Dominican Republic for my family and myself a few weeks ago. I may never spend more than a long weekend in the country, but the option to stay permanently if ever I should want or need to is there.

Lief Simon

MAILBAG

“Lief, I have a simple question that I am hoping has a simple answer that you are willing to provide. I am about to launch a commercial website that provides information to individuals (not companies) based on a profile that they complete online, which we then pass through our algorithms to provide reports back to the member. The member will pay modest annual dues.

“I am currently registered to do this business in the state of New York, but I could set it up anywhere, literally. Is there a type of legal structure and location that I could select that would minimize my tax bill? That’s all I care about. Not trying to hide assets or insulate myself from creditors. I just want to be smart about taxes. Maybe you have written about this before and could forward the article to me.”

R.B.

It would be possible to mitigate your associate tax liability only if the business is operated overseas and the work for the business is done overseas. Any income paid from the company to you as the owner would be taxed as regular income unless you are living and working overseas.

You should speak with an offshore tax advisor for specific advice. I recommend Vincenzo Villamena.