Financial Knowledge for Potential Expats

Last week we reported that the dollar had risen to the point that buying real estate in Chile with the U.S. Dollar is equivalent to a 30% price discount.

This week the Argentina “Blue” dollar (really the black market currency exchange rate of Argentina) went to a high of 15.35 pesos to the dollar while the “official” rate that you would get at the bank was 9.265 pesos, However, as we prepare to publish this newsletter the “blue” dollar has backed off to around 14. The rate does tend to fluctuate.

We are closely observing real estate prices in Buenos Aires. They are still very high. A retiree could find more economical places to live in Florida than Buenos Aires right  now.

Unlike Chile, which prices their real estate in the local currency, Argentina prices real estate in the dollar, and so changes in the exchange rate don’t affect this market that much. However, as we have reported in the past, Argentina seems to have an economic crisis  about once a decade. When the last one arrived in 2001 the real estate buys were still incredible in 2004 when we arrived here. Our Argentina attorney advises that in Argentina we should always wait to buy real estate in the crises.

Of course the dollar is not rising so much as that the purchase power of the peso is falling as a result of inflation of the peso. Our real estate agent tells us that prices for real estate have not begun to come down, but nothing is moving. She thinks that there will be buying opportunity ahead. For those of you interested in Buenos Airea, we will keep you informed. Many things are more expensive in Buenos Aires than in the countryside. That includes just about everything from real estate to watermelon. While we consider food prices reasonable in Buenos Aires, a small watermelon can cost you the equivalent of $10.00 whereas in Viedma, an interesting little town to the far south, a friend tells us they are for sale for 50 cents.

I can’t resist this little detour. Viedma is, as stated, an interesting place. It is well on the way to the ultra south of Argentina and yet we have picked limes off a small tree in a hotel courtyard there for our tea. How citrus can grow that far south we don’t know because it does get cold there. We have also stood under almond trees planted on the pubic right of way and ate fresh almonds for lunch! You laugh? If you have fresh almonds right off the tree, who needs anything else?

There is a small town just outside of Viedma, on the Atlantic Ocean. It is a vacation area. Lots of houses are closed up in the winter, but the fishing there, just offshore, is amazing. But . . . we digress. There are many interesting little towns in our part of the world.Viedma is one of them.

We are hearing of a few real estate bargains in Mendoza..Mendoza is almost on the western border with Chile, in the foothills of the Andes mountains. Mendoza is a part of Argentina’s wine country. You will see many vineyards there.. For those of you from the western United States, Mendoza will remind you of the mountain states. The climate is arid and the terrain much like Montana, Wyoming, or Colorado, but without the harsh winters.

We don’t recommend anyone come into an area and buy real estate right away. But for those who have been here and already know what they like, this might be a good time to be in South America.

However, Uruguay immigrants have informed us that they came and bought immediately and everything worked out just fine so  . . to each his own. Many real estate parcels in Uruguay have nearly doubled in price since six years ago so newcomers who bought then are very happy.

IRA’s and 401k’s.

We want to be sure that all of our U.S. subscribers are aware that, if you have an IRA in the United States, you can bring it with you. You are not limited to holding stocks and bonds in your IRA. You can hold precious metals, rental real estate and other assets. You must jump through some legal  hoops but once you comply. you’re fine. Of course it is always wise to talk to your financial adviser about the wisdom of doing that. We are not financial advisers here and this is only for everyone’s education. Rather than write all the rules here (not everyone needs them) we found a Forbes Magazine article that we thought does a good job of explaining what you have to do if you are interested.. You can read all about it here Forbes Magazine Article.

As you know, Four Flags Journal is all about planting flags in different jurisdictions. We get a little uneasy every time we hear that taking over the IRAs and 401ks and putting a portion in government bonds is being discussed in Washington D.C. Of course, as they say, it’s all for our own good to protect us. For our part, we think a little diversification is in order.

Foreign Earned Income Exclusion

As all of our subscribers know by now, U.S. citizens are subject to U.S. tax no matter where they are in the world. However, if you work in a foreign country and receive wages, you are allowed to make $100,800 outside of the United States without paying taxes to the IRS. Again you have to comply with certain rules. You also still have to file a return and claim the exclusion. Your spouse can also earn that amount tax free as far as the U.S. is concerned. The tax term is called the Foreign Earned Income Exclusion.

Now, here’s a little twist to that. If you have a business that earns outside the country of your residence, and you choose a country that does not tax foreign earned income, it is possible to live income tax free. There are quite a few countries that do not tax income that is earned outside their borders  and so, handled properly, it is possible to move offshore to a non tax jurisdiction and live income tax-free.

In the case that you are self-employed, you must establish a corporation, income from the business is then paid to you as a wage from the corporation. thus qualifying you for the exclusion. You will need an adviser for this who is familiar with the tax laws of different countries and can set up a corporation or L.L.C for you. Here is the IRS link explaining the exclusion and how to qualify for it. Foreign Earned Income Exclusion web site.

It may seem complicated but once you understand it,  it isn’t. For us it is not the taxes but the forms and the stress and the threats. If all else fails, you can always give up your citizenship like our fellow expat, Glen Roberts and never have to file a form again. We admit it can sound tempting, particularly around April 15, but we are not at that point yet. If you’re interested, you can read about Glen here.

With warm regards, until next time . . .