The United States Government Does Not Want You to Move to Panama
Panama Investor Blog’s Sam Taliaferro comments: Paul McBride wrote this piece earlier this week. Paul and I have been watching things pretty closely over the years and it has become clear to us both that the window of opportunity is closing for those who want to get their assets and their asses out of the U.S.. We don’t believe the government will stop you from leaving, but they will make it very much more difficult and expensive to do so. I believe Paul’s scenario below is very close to the truth.
The United States Government Does Not Want You to Move to Panama
Actually, the U.S. government doesn’t care whether you decide to move to Panama or not, they just don’t want you to take your money.
Most of the people I meet who are looking for a home or property in Panama just want to live comfortably in a beautiful environment at a reasonable cost. For many, Boquete is the perfect choice. Mild weather, magnificent scenery, great community and most, if not everything, they need to live a cozy day to day existence. I can safely say that the average couple living in Boquete spends less than $2,000 a month in total living expenses. That’s everything – car, health and home insurance, food, gas, entertainment (we go out a lot!), utilities, cable TV, Internet. You name it, the whole enchilada. Did I mention very low or no property taxes?
This simple formula, low living costs and quality lifestyle, was the reason that Boquete became one of the most desirable retirement destinations in Latin America.
But what if I told you that the price of real estate in Boquete was likely to increase as much as 30% in the next two years or so? A home that costs $250,000 today could be as much as $350,000 in that short period of time. A $150,000 condo could cost $215,000 or more. In today’s market that sounds absurd. But this is a real possibility…… if you happen to be a U.S. citizen.
You see, the United States Treasury is concerned about money leaving the country. Money that they’re going to need to pay their bills. The Federal government is running an operating budget deficit of over a trillion dollars this year and, by their own admission, this level of deficit spending is projected to continue for several years in the future. In order to service this unfathomable debt they’re going to need to do one of two things – drastically cut spending on defense and entitlement programs or significantly raise taxes. Which way do you think they’ll go?
My bet is that they will raise taxes and it’s not unthinkable to believe that the total tax burden for high income workers (the definition of which keeps changing all the time) will reach a combined total of 60% to 70% when you include state, local and federal taxes. Think about that – 60 to 70 cents of every dollar you earn will go to the government, with much of it being spent to cover the debt. And the state and local governments are in even worse shape. I project that will see increases in income taxes, capital gains taxes, payroll taxes, Medicare withholding, property taxes, sales taxes, death taxes, increased fees for services, all types of licenses and taxes we haven’t even heard of yet. If a state, local or the federal government can squeeze a nickel out of you, they most certainly will.
In an environment like this, more than a few people will stop voting at the ballot box and start voting with their feet. They will begin leaving the country with as many assets as they can and go somewhere where they can live their lives in comfort without watching everything they’ve worked for, everything they sacrificed for, get taken away in taxes or eaten up by inflation.
The federal government is aware of this real possibility. So aware, in fact, that they’ve been methodically preparing for this potential exodus of money for the past two years.
On June 17th, 2008 the Heroes Earnings Assistance and Relief Tax Act of 2008 (H.R. 6081), also known as the Heart Act, was unanimously passed by Congress and signed into law by the President (a Republican no less). This piece of legislation was very well intended. It provided much needed tax relief for the men and woman of our military who are sacrificing their time and their lives for our country. But this bill also contained some language that targeted a very different group – expats who, for whatever reason, decided to give up their U.S. citizenship. The bill provides for withholding taxes of up to 30% on certain assets held by the expat as well as assessing the value of the property of the expat 24 hours prior to the renouncing of their citizenship. Keep in mind; only around 600 Americans renounce their citizenship each year, so the expected revenue from this small group is relatively limited. More important are the procedures and policies established by this bill that can be modeled for future legislation.
Okay, so this bill is not a big deal. Few people actually give up their U.S. citizenship and it’s not likely to directly affect you. What’s more, if someone decides to give up their citizenship, who really cares how much they’re taxed? But it does establish some policies, procedures and tax rates for individuals who decide to live offshore. Policies, procedures and tax rates that very well could affect you in the future.
As a follow up to the Heart Act of 2008 we have the Hiring Incentives to Restore Employment Act (H.R. 2487) commonly known as the HIRE Act (don’t you just love these names?). This is the jobs incentive bill that was signed by the President on March 18th amid little fanfare. In a congressional bill of 47 pages, presumably written to address the unemployment situation in the U.S., 21 pages are devoted to the treatment of foreign bank accounts and other offshore investment vehicles held or controlled by U.S. citizens. But I thought U.S. citizens were already required by law to disclose their overseas account to the IRS, so why do we need this legislation? Well, yes they are. But this law goes a bit farther in that it requires foreign financial and non-financial firms to report accounts held by American citizens to the U.S. Treasury. So, in effect, the United States Congress has passed a law that requires a foreign firm, located in a foreign country, to disclose account information held by a U.S. citizen (including name, address, tax ID number, account number, account balance, and flows of funds into and out of the account) to the United States Treasury on their demand. Now, that takes some nerve. What if the country where the financial firm is located has laws against disclosing this information? In that case, the law requires the financial firm to obtain a signed waiver from the account holder authorizing the firm to disclose the information. If they don’t sign the waiver, the financial firm is required to close the account. I spoke to an attorney friend of mine who told me that his firm is no longer accepting U.S. clients because they don’t want to be harassed by the IRS. Because of this law, foreign banks are likely to close accounts held by Americans due to the bookkeeping hassle or the potential liability posed by the U.S. account holder. The fact that banks and law firms will no longer want to work with U.S. citizens is an unintended consequence of this legislation. Or was that the real intended purpose?
Despite these two laws, the U.S. Treasury knows that a determined citizen, driven by the fear of increasing taxes and confiscation, will find ways to keep their privacy and their assets away from the long reach of the U.S. government. In fact, the Hire Act even has a name for these non compliant citizens – recalcitrant tax payers. And this is where I think a third piece of legislation will fill the gap.
It’s my belief, based on the actions already taken by the U.S. government, that an exit tax will be instituted to capture money at the source (your U.S. bank), before it leaves the country. I believe that this exit tax will apply only to certain specified transaction (since senators, congressmen and their wealthy patrons will still need to get their money out of the country). Further, I think this tax rate will be in the 30% range (remember the Heart Act and the withholding requirements of the Hire Act?) and will be withheld by your bank and remitted to the U.S. Treasury at the time you make a transfer to a foreign entity. Like the provisions inserted into the Heart Act and the Hire Act, this exit tax will likely make its way into some well meaning piece of legislation, inconspicuously inserted in the arcane language of the bill and will become the law of the land. Most Americans will not even know the law exists and many of those that do understand won’t object because it will not have any impact on their lives.
And this, my friends, is how the $250,000 house in Panama suddenly costs $357,000 and the $150,000 condo will take $215,000 of your hard earned cash to buy.
If you are thinking about moving to Panama (or any foreign country) or investing overseas, the window of opportunity is getter smaller and smaller. Although I don’t believe the U.S. government will ever prohibit you from leaving the country, I’m convinced that they will make it increasingly difficult to get your money out without a punitive tax.
Perhaps I’m wrong. Maybe I’m misreading the situation and the U.S. government isn’t concerned about the flows of funds overseas for the average citizen. And maybe this current financial crisis is just a bump in the road and the economy of the United States will start growing enough to cover the debts that are piling up without huge tax increases. Maybe.
But try this mental exercise – Let’s say you believe the scenario I’ve described is a real possibility and you decide to act by moving some of all of your assets overseas, buying a house and creating a “Plan B” lifestyle for you and your family. And then, none of the currency restrictions predicted happen, the U.S. economy springs back to life, the government institutes favorable tax policies to encourage investment and growth and money making opportunities abound. What’s the worse thing that can happen? You can always move your assets back to the U.S. since you’ll never see restrictions on money moving into the country.
But what if I’m right? What if the economy continues to sputter? What if unfunded liabilities like Medicare, Social Security or the new health care plan continue to expand the federal debt causing the economy to stagnate, forcing increases in tax rates and placing restrictions on the flow of capital overseas? If you’ve chosen not to take action, what options are left for you and your family and at what cost?
Freedom means having the ability to make choices. I believe there’s still time to make choices but the clock is winding down.
Good luck and God bless.
Sam Taliaferro, the owner Valle Escondido, Panama’s original resort community posted an important interview with an American retiree couple who were invited to converse with Panama’s new President Ricardo Martinelli when they ran into his group at the Marriott Hotel in downtown Panama City. President Martinelli told this couple ” he wants to make it very easy for Americans to move here and to invest. He said he was planning on having meetings with ex-pats to see what their concerns are. He told us it was going to be easier to get residency, drivers license and he was going to make it safer.”
See the whole interview here:
We are also are hearing that Pres. Martinelli is moving quickly on a number of fronts so that foreigners who invest and live in Panama will have less bureaucratic hassles with government in immigration and setting up businesses etc. He will also improve security which is already excellent compared to other countries in the region. The police have been instructed to help foreigners in any way they can and not hassle them as has happened in the past.
In fact, in his inaugural address President Martinelli declared his goal to make “Panama the best place in the world to do business”. This man does not think small. And he is proving as good as his word on his campaign promises.
Inaugural address July 1st, 2009
by President Ricardo Martinelli
Today, before God who protects us and my country, I stand here,
honored by the confidence that the people have given us.
I am enthusiastic about the work that awaits us.
This transfer of command is something that we all value. What we
celebrate today is proof that in Panama the voice of every citizen is
heard, and that the democratic principles that unite us are more
powerful than any difference.
Although they are not here, I want to thank President Torrijos and the
former first lady Vivian de Torrijos for their service to our country.
I also thank them for their so generous support in this transition.
Together we have demonstrated that this people respects the political
dignity of every human being.
I also want to take advantage of this opportunity to sent President
Endara our wishes for a prompt recovery.
Here in Panama we have a democratic tradition, which is as solid as a
rock. I am honored that the international community is here to
celebrate with us this great moment. We have never had so many
visitors, from so many parts of the world. All are welcome and we
thank them for participating today, in our first steps toward a new
Panama, which we see on the horizon.
Our country is unique in many things:
It is the biggest inhabited island on the Pacific littoral.
Panama is the only place in the Caribean that has indigenous peoples.
This city was the first to be built by the Spaniards here on the Pacific.
Here Vasco Núñez de Balboa discovered the South Sea.
But we have something more that distinguishes us. We have grown to
become the pass key to the world’s economy. If Marco Polo had lived in
our epoch, he would have used Panama as his modern spice route.
We Panamanians have always played an important role for our neighbors
and the world. And now were are tapped to do it again. In these five
years, we are called to demonstrate how our economic and governance
model can be an example for all who aspire to prosperity and progress.
Juan Carlos Varela and I are two businessmen who have become involved
in politics, to change the way of doing things. We are going to take
hold of our experiences in the private sector and put them to work
where they have never been seen: in the government.
We are going to debureaucratize the state. “Debureaucratize” is a word
that’s a little difficult to say, but he who’s going to work with me
in this government had better learn it.
In the world of business I walked the aisles, asked questions, opened
drawers. I learned to face problems. As my great friend and political
mentor Samuel Lewis Galindo noted, the government of Ricardo
Martinelli will act with firmness and education, but without favors. I
believe that time is gold and very short.
Neither Juan Carlos nor I accept this job to remain seated behind a
desk. I am a simple, plain and direct man. If I fail somewhat in
protocol, I beg your pardon. But we were not elected to add more pages
to the protocol book.
This people gave us a clear mandate to bring change to this
government, from top to bottom, and that is what we are are going to
do. The custom that the politicians put their personal interests above
those of the people is over. The game of having a fat government and a
thin people has come to its end. The era of politicians entering broke
and leaving as millionaires is finished.
In my government, you can put your foot in your mouth, but you can’t
put your hand in the till.
Thus today, we inaugurate a government that’s going to put the
people’s interests first. We know that difficult times are coming. Now
is when the government has to be more agile, more transparent and more
efficient. it is no secret that we are at the beginning of a world
it is a crisis that we didn’t cause, but all of us are going to
suffer. it is the worst crisis since the Great Depression of the 30s.
In this storm we are all in the same boat, and in the same boat we are
going to face it. The truth is that our government is not going to
have the resources that the previous government had.
But this gives us more reason to act with urgency. The Panamanian
worker sees the storm gathering above. The changes that we have
proposed can not wait any longer. The promises that we made in the
campaign are good ideas. They are the mandate that this people demands
But more than this, they are an integral part of a stimulus plan that
we need to get our economy afloat. Tomorrow we will have our first
Cabinet Council. We are going to be where we were always walking
towards. We are going to be where the change has to happen.
we are going to be the las Garzas de Pacora, not in the Palacio de las Garzas.
That’s where they need jobs.
That’s where they need the subway.
That’s where they lack public safety.
Las Garzas de Pacora is the point of departure for what we are going
to accomplish in the next five years.
I ask you to prepare with me. we will roll up the sleeves and get to work.
We start with this: we are going to raise the salaries of all law
enforcement, because they’re very badly paid. we are going to give
life to one of Juan Carlos’s proposals: we will give $100 a month to
the old people who have not retirement pension.
And for the students who see us on television or listen on the radio,
you can count on scholarships and free books and school supplies. This
we will do for all the poor families in Panama.
We will begin a massive land titling program, so what I can tell
everyone who’s listening who has possessory rights, prepare these
rights because you’re going to have your piece of land titled.
And we are also going to start the biggest jobs program in the history
of Panama after the canal expansion. we are going to start the bidding
for the construction of a new subway that will give the Panamanian
people a better quality of life. But this is just a start.
We have many more things to do. Nothing is more important than to
lower the cost of food. Thus we will augment the sales point for the
Compita program, and with no more “married” products.
we are going to give more credit to the agricultural sector and
support the self-sustaining farms. In this way we will augment
national production and help our farmers produce more food and cheaper
Two years ago, we built a house for a forgotten Panamanian named
Newton Rodney. Newton taught us a lesson: that like him, there exist
more than 165,000 forgotten Panamanian families that suffer the
tragedy of not having a safe roof over their heads. we are going to
start on a massive plan to build houses for the people. This program
will not only go to those families in need of dignified shelter, but
it is going to create jobs for construction workers and reactivate the
Everyone who lives in Panama, and those who visit us, deserve a safer
country. we are going to turn our jails into rehabilitation centers
and not universities of crime.
Minors who commit crimes like adults, we are going to try as adults.
And we are going to give more resources and more intelligence support
to our police.
To protect the right of citizens to walk along safe streets is one of
the primary obligations of any government. we are going to meet this
And for those who want to come and invest in Panama, I’m letting them
know that our doors are open. I want to leave our mission very clear:
we are going to make Panama the best place in Latin America to do
This is the best way to generate jobs and have a better quality of
life for all Panamanians. And we are going to complement the free
trade agreements, with the United States of America and all the other
countries of the world, including Europe and our Latin American
we are proud of our history and our heritage, of our freedom of
expression, of our freedom of thought, and our freedom to decide the
course that the motherland takes. Panama has to maintain itself as a
leader in freedom and justice, not only here in our house, but in our
region and our continent.
As president, I will do everything within my reach to advance the
ideals of a free economy, challenging the different ideological
pendulum that Latin America has.
We are going to be an active partner with Mexico and Colombia in the
battle against the narco-terrorists, who have invaded our country,
bringing crime, mourning and desperation to our innocent population.
We start this government with an unprecedented mandate: a mandate for
change. But this mandate does not go alone. It comes moored to a great
responsibility, the responsibility to work together, shoulder to
shoulder, leaving behind the political egotisms that have divided us.
We were elected for this: not only for our proposals, but also to
change the way of governing. we are going to change the system in
which one political party only to looks for what it can take from the
other, in which the people look for what they can take from the
government, in which the government looks for what it can take from
the people. it is a vicious circle in which we all believe that we
will win like this — and believe me that it is not so. The truth is
that in this game, we are divided one against the others and we all
end up losing.
The government does not have to be partisan. we are going to govern
with the best, no matter from where the come or their political
We are united for something more important than a political party. We
are united for our country, and in this way, putting the people’s
interest first, we are going to govern.
Some say that the challenges that await us are a lot for just one
person. But they are not much for a united people. This government is
going to keep all the promises that I made. This is my commitment.
The only promise that I probably will not keep is to lose weight, but
believe me that I am going to do everything possible.
Until now we have accepted that the destiny of our country is only in
the hand of the government. But I believe that our hopes depend on
something more powerful than any government. They depend on the sweat
and determination of three million Panamanians.
This is the true formula for our success. In five years, another
president will be standing here to celebrate a transfer of mandates,
put what we begin here will not change, not in five nor in 100 years.
From now on, this government and those who follow it are going to walk
in the shoes of the people.
From now on, our governments will not enrich themselves on the people,
but will only serve the people.
This is a time of great challenges and opportunities. The world
economy is put to the test, and that of Panama as well.
I can tell you: I am not perfect. Perfection is something God reserves
for human beings in another life, and I know that we are going to
encounter obstacles along the road.
But the difficulties are not going to stop us. On the contrary: they
are going to demonstrate our determination. We are going to rise above
this economic storm. We are going to come out of it prepared to
compete, prepared to win.
This is the moment to be a citizen of this country, because the
opportunities the await us are enormous.
I see a Panama with more men and women working.
I see a middle class that’s growing and making more money.
I see new technologies producing an unprecedented economic growth.
I see a Panama with better health, better education and more families
united and content.
We can do anything that we dream. Then, why not make our future the one we want?
We dream big. Our best days are to come. We are Panamanians, united
for a change.
And united, nothing is impossible. United, nothing can defeat us!
I thank all of you, and God bless, and long live Panama.
As the Chair of the Tourism Committee of the American Chamber of Commerce, if you have an interest in tourism in Panama, I recommend you come to this excellent, informative forum.
American Chamber of Commerce 8th Annual Tourism Forum
Wednesday Sept 10th
Shertaton Hotel and Convention Center
Price: Amcham members: $25
Reservations: Call Amcham 301.3881
Ruben Blades, Minister of Tourism : IPAT’s Recent Accomplishments and Future Plans
Dr. Ed Sanders, President, Ecotourism International
Why Ecotourism is the Most Profitable Tourism for Panama and How To Do Make It Happen
Lic. Melissa Vallarino, Director INDESA
Chiriqui Shows the Way: Boquete’s Tourism Master Plan
Vittoria Ghini: Best Practices: Cala Mia Boutique Hotel, Boca Chica
John Miller, Founder, Boquete Outdoor Adventures, The Case for Developing Panama’s National Parks: Profit and Preservation
Fidel Reyes, General Manager, Playa Bonita Intercontinental Resort: Todays Tourism Industry in Facts and Figures
Retreatslive is presenting Raw Panama Adventure Retreats, starting April 20th and going on till May 18th.
The Retreat will be taking place in Costa Esmeralda, next to Coronado and only an hour from Panama City. It will be featuring three gourmet raw food meals daily, personal growth classes and workshops, raw food preparation classes, daily yoga and guided meditation, optional spa and massage treatments, and accommodations.
Each week there will be three Adventure Trips to various locations in Panama including hiking to nearby waterfalls in the jungle, visiting the mudbaths and hotsprings formed by an ancient volcano in El Valle, touring local craft markets and private local beaches, private tours of local organic farms and nurseries, touring of the Panama Canal and Archeological Museum in Panama City.
You can sign up at their website for anywhere from a weekend to all four weeks. Visit Retreatslive.com. Click here to complete the registration form. Spaces are filling up fast so it is advisable to book early. (more…)