June 30, 2015
Dear Overseas Property Alert Reader,
When you buy a property overseas, it will sometimes come with an important bonus: It can open the door to foreign residency. When it does, you not only have a second home in the traditional sense, but you’ve got a second home in the broad sense as well—a place that, when you go there, they have to take you in (to steal a phrase from Robert Frost).
And this overseas residency will also provide you a gateway into the host country’s banking system and financial services sector, along with a potential path to citizenship.
Obtaining residency can be a hassle, requiring you to provide extensive financial records and check stubs to show you qualify. But when you qualify as a property owner, you’ll often shortcut a lot of red tape.
Here are five of my favorite places where you can obtain residency by buying a property.
1. Colombia: The Easiest Process For Property Owners
I gathered the required paperwork specified on their website and walked over to the Ministry of Exterior Relations in Bogotá. There was a line outside when I got there, but they let us into the building at 7 a.m. I took a number, waited my turn, and left the building at 7:55 a.m. with a permanent residency visa.
Less than one hour… no lawyer… that’s about as easy as you can get.
Colombia offers the property buyer two paths to residency. By simply buying a property valued at more than US$89,000, you will qualify for a temporary residency visa (TP7). This is renewable yearly, and, after five years, you can switch to permanent residency.
But, if you spend US$165,300 on a property, you can obtain permanent residency right off the bat, as a resident investor. (“Permanent” residency today is actually renewed every five years.) Both quotes are at an exchange rate of 2,534 pesos per U.S. dollar.
One caveat: Make sure that the municipal value on your property deed reflects at least the investment threshold that you need and that you have records of that same amount coming into Colombia. I’ve been audited, and they’re serious about all the numbers matching up.
2. Ecuador: One Of The World’s Lowest Thresholds
As one of the world’s most popular retirement destinations, Ecuador offers one of the easiest residencies for the property-buyer, at just US$25,000. This will qualify you for the investment visa.
As with Colombia, the municipal value on your property title must reflect the minimum investment level of US$25,000 or more. This is normally not a problem nowadays. But old deeds may have low municipal values on them, and you’ll need an attorney’s help to bring them up to US$25,000 without having the seller pay a large capital gains tax.
Ecuador uses the U.S. dollar as its official currency, so these values do not fluctuate with any exchange rate.
One special requirement: Your US$25,000 investment gets you permanent residency in Ecuador. But you may only be out of Ecuador for a total of 90 days per year during each of your first two years as a resident.
3. Panama: Friendly Nations Visa Makes Residency Easy
In May 2012, President Ricardo Martinelli issued a presidential decree that allowed the citizens of certain “friendly nations” to become permanent residents of Panama using a fast-track process. Originally, there were 22 “friendly nations,” and the list has now grown to 48, almost certainly including everyone who’s reading this newsletter.
The visa requires that you have an economic link to Panama, and your real estate purchase can do that for you. And it doesn’t need to be a personal residence, either. A lot of readers are using our current teak investment offer and the popular mango investment to qualify.
Like Ecuador, Panama also uses the U.S. dollar as its official currency, so you’ll be shielded from currency exchange rate fluctuations.
4. Malaysia: The Most Popular Choice In Asia
Editor’s note: I’m removing the Malaysia section on August 16, 2015. As it turns out, the residency requirements that I used from the Daily Telegraph were incorrect.
In fact, according to our Malaysia experts, buying a property in Malaysia does nothing to help you qualify for a residency visa under the Malaysia My Second Home program. Property ownership will only (potentially) reduce the amount of the fixed deposit that you must purchase to obtain residency.
5. Malta: The Best Deal I’ve Found In The Eurozone
A British colony up until the 1960s, Malta could be your gateway to visa-free travel in Europe. With English as the official language, Malta offers one of the easiest transitions abroad.
Under new rules initiated in 2013, the minimum investment in the southern Maltese islands (including Gozo) is 220,000 euros; that’s about US$250,000 at an exchange rate of 0.88 euros per U.S. dollar. In the more affluent northern sectors of Malta, the minimum is 275,000 euros (US$310,000).
Compare Malta’s minimums to Portugal, which requires 500,000 euros, and Spain’s Golden Visa program, which also comes in at 500,000 euros. Malta is a super deal at half the price, especially considering its good weather and relatively low cost of living.
Even when you own a property, residency can be hard to obtain. These five countries are not only great places to live overseas, but they also make it easy for the property buyer to stay on indefinitely.
Editor, Overseas Property Alert
What is the current tax law regarding Colombian residency? I read recently that Colombian residents are required to pay taxes on their worldwide income. Is that correct?
And most importantly, is it a law on the books that’s not enforced? ;
It would be a large burden on U.S. persons if it is the case, as U.S. citizens are already taxed on their worldwide income.
You are considered to be tax-resident in Colombia if you are in Colombia more than 183 days in any 365-day period. If that period straddles a calendar year, then your tax residency begins in the second year. If you are not tax-resident, then you pay tax on your Colombian income only.
If you are tax-resident, you are liable to pay on your worldwide income. But, as Neil suspects, there’s more to that story.
Pensions below US$4,241 per month are not taxed in Colombia. Above that amount, they are taxed at a rate of 5%. This monthly sum is for 2015, using an exchange rate of 2,534 pesos per U.S. dollar.
But, in the real world, even as a tax-resident, unless you’re earning significant Colombian-source income or have relatively high bank account balances, it’s likely you won’t even need to file a Colombian return, as you’ll likely be below the triggering threshold.
Also, if you did pay any income tax to Colombia, it can be taken as a credit on your U.S. return.
Editor’s note: We get a lot of interesting correspondence from readers about the Nicaragua Canal, which was first proposed during the reign of Napoleon III but is now under construction. The following is a good question, with a good answer provided by Lief Simon.
You say the canal is the main driver of the economy in Panama and that it’s a reason to feel safe investing there. What is your prediction on how Panama will fare after Nicaragua’s canal is operating?
Estimates say it will take away about 70% of the Panama Canal’s traffic and revenue. I would like to know how you feel about this and why.
I like Panama a lot, and I am already a resident… but now I am concerned.
I’m not sure where you’re getting the figure of a 70% reduction in revenue for the Panama Canal. That sounds like a made-up number by some blogger trying to raise a bogus alarm.
First of all, if they finish a Nicaragua Canal—and that’s still a big if in my mind—it will take at least a decade, likely longer, for them to complete it for full operations.
Even the expansion work currently being done on the Panama Canal—where they are only adding new, bigger locks—has taken nine years so far. The expanded Panama Canal was supposed to have opened in 2015, but is now delayed until April 2016, at least.
Any potential impact a Nicaragua Canal may have will take a generation to come into play. By that time, global shipping will have increased substantially. It’s expected that once the Panama Canal expansion opens, it will reach capacity very quickly.
Remember, right now the ships that are too big for the Panama Canal either travel around South America or unload on one side of the canal and transport the containers via rail to the other side. Many of those larger ships will start going through the canal as soon as it opens to them. So a large, pent-up demand is already there.
Meanwhile, Panama’s economy continues to diversify. Tourism surpassed the canal in 2013 with its contribution to GDP. Banking continues to expand, as does agriculture, which should be the next big boom for Panama as companies put together large production farms and plantations.
So, by the time a Nicaragua Canal comes online, I don’t believe Panama will be impacted substantially.
Have a question? You can write to Lee here.