Simple LLCs have long been popular asset protection tools in the US, but their effectiveness has been curtailed by recent court decisions such as the Olmstead case – see below. Peter Macfarlane looks at how an Offshore Asset Protection Trust can increase security of ownership on US domestic assets in an LLC.

From an asset protection specialist’s point of view, protecting US-based assets is becoming more and more difficult, with judges showing less and less respect for the nominal protection offered by entities such as domestic LLCs. Both the court system and the government there show worrying tendencies to override the inviolability of private property rights, on which the country was founded.

When asked by clients how to protect assets, the only sure answer is – to use the words of the late W.G. Hill – to “get your money out of the country, before your country gets your money out of you!” That means, taken to its logical extreme, obtaining a second passport, departing US shores and renouncing US citizenship.

I’m the first to admit, however, that this is not always practical. There are still compelling reasons why someone might want to own US based assets. This article is about how to protect them.

A caveat here: if assets are physically in the US, they can be controlled by a US court. What we can do is make it more difficult, and much more expensive, for any plaintiff to claim those assets – hopefully to the point where they won’t bother trying. In my view, if you have any substantial US assets, the cost of the structure I will recommend in this article is minimal and it’s a good insurance policy to buy anyway.

LLCs have been a very popular asset protection tool over the years. LLCs are an excellent invention – simple, flexible and offering the legal protection of limited liability, even for individuals who can create single member LLCs.

An LLC on its own, however, no longer offers sufficient protection. For example, in September last year the United States Court of Appeals affirmed a lower court decision in Olmstead, et al v. Federal Trade Commission that the district court may enter an order “compelling the defendants to surrender all right, title and interest in their single member LLCs.”

Effectively, the single member can be forced to give up the ‘asset’ vested in this right, title and interest – so the judgment creditor becomes the new owner of the LLC and can therefore choose to wind it up, continue it or sell of part of its assets.

Anyone who has been relying on the limited liability offered by such LLCs is now on notice – they need to restructure their affairs urgently, with the help of a good asset protection attorney. I say urgently, because if a claim arises in the future, the court will look back a number of years in order to determine whether the restructuring was detrimental to the creditors. The longer the structure has been in place, the safer it is.

Possible Solution: Using an Offshore Member LLC and Offshore Asset Protection Trust

The ownership from offshore of such an LLC is a viable alternative in many cases. Utilizing a second member (ideally with a substantial part of the ownership) in the domestic LLC will limit the ability of a creditor to take control of the domestic LLC. In this case, the creditor will be restricted to a charging order against the ‘transferable interest’ of the judgement debtor. The transferable interest is the right to receive distributions, but not the right to become involved in management.

Where this second member is an offshore LLC, the second member will be beyond the jurisdiction of the US courts in the event of litigation affecting membership interests. This is where the ‘offshore deterrent factor’ comes in. Nevis and the Cook Islands are recognized as the best offshore asset protection jurisdictions in the world. My preference is for Nevis, with its laws specifically written by and for US lawyers and business people.

Let’s say a Nevis LLC with a Nevis manager is a member of the domestic LLC – in this case, the creditor would need to proceed with legal action in the Nevis courts. Nevis courts are, of course, notoriously friendly for asset protection purposes. There are no contingent fee lawyers in Nevis – anyone seeking to take action there would have to post a substantial bond with the court, and it is frankly unlikely that such an action would succeed. Hence, the deterrent effect. (Further details, advantages and explanations of Nevis LLCs can be found in my free report, Untouchable Wealth.)

Setting up an Offshore Asset Protection Trust (OAPT) is feasible for Americans, since the compliance requirements are relatively simple. Such a trust is not a tax avoidance device – it is typically structured as a grantor trust. The person setting up the trust must report all the trust’s income on his or her US federal tax return, and comply with certain reporting requirements. (These reporting requirements are beyond the scope of this article, but any good US tax preparer should be able to help.)

The OAPT must be a discretionary trust, so that the trustee has the legal freedom to ignore instructions given by the client. This point is very important, as it removes the possibility that the US court can instruct the grantor to give instructions to the trustee to pay over assets to a judgement creditor.  There is, however, the possibility to use a Private Trust Company as a trustee. This is a special company, based offshore, that has no assets, bank accounts or income of its own. Its only role is to serve as trustee of the OAPT. This way, the client can maintain greater control of the OAPT without compromising its offshore asset protection features, and there is no need to retain the services of an offshore trust company.

The OAPT’s trust deed should also include some important provisions like a “duress clause” and a “flee clause”.  The duress clause specifically prohibits the trustee from acting under duress (ie, forcibly based on orders from a US court). The flee clause require the trustee to redomicile the OAPT to another jurisdiction and automatically replace the trustee in the event of an attempted action by a judgement creditor. The trustee is also forbidden to disclose to any creditor the details of the flee provisions, or the fact that they have been implemented. The creditor is therefore left with no idea where in the world the OAPT and its new trustee may now be located.

By having the OAPT own the offshore LLC that in turn is a member of the domestic LLC, you achieve a strong degree of asset protection for a relatively low cost. The membership interest in the offshore LLC is beyond the reach of the US courts and is in a holding structure that is not controlled by the ultimate beneficial owner.

If the US having entered into a new war this weekend is not enough to push Americans into action to protect their financial future, I don’t know what is.

Are You Prepared?

So much is going on. There was so much to write about in this weekend’s free Q Bytes newsletter that we decided to post some of it on the blog is well. It’s important that this information gets as widely circulated as possible. First we covered some very important new practical guidelines on Foreign Bank Account Reporting requirements (FBAR) for Americans – US reporting requirements just became a bit clearer. The FBAR requirements are also a wake-up call for non-Americans who have been using the USA as a tax haven – urgent action is required there.

Talking of wake-up calls…  following a major and horrific natural disaster, a nuclear disaster closely averted, and a new attack by Allied Forces in Libya, definitely the worst seen since the invasion of Iraq, wake-up calls are very much at the forefront of our minds. According to the New York Times, Qaddafi has pledged a long war, saying: “We will not leave our land and we will liberate it … Those who are on the land will win the battle,” he declared, warning that “oil will not be left to the United States, France and Britain.”

It seems like yesterday that we saw TV footage of Tony Blair in Libya, proudly welcoming Libya back to the international community, as British troops started training their Libyan counterparts.

But if that’s not an indication of how things can change overnight, consider the case of Japan. A highly developed and prosperous nation, issuer of the world’s third reserve currency after the dollar and the euro, brought to its knees, just like that. Our thoughts, of course, go out to the millions of people affected.

Could the same happen in the US? In Europe? I don’t know, but Irwin Redlener, director of the National Center for Disaster Preparedness at Columbia University says that Americans are grossly unprepared for the next disaster. He says horrific events such as 9/11 and Hurricane Katrina have served less as wake-up calls than snooze alarms—before Americans are pulled back into complacency. Meanwhile, renewed attacks in the Arab world raise the ugly prospect of more terrorist attacks in the US, Britain, France and the rest of Europe.

Amazingly, during this time, the Japanese currency has been appreciating on the markets and the G-7 have intervened to keep it lower. Exciting times for short term currency speculators, but yet more intervention in the free market that I think has a much deeper long-term significance. Once things calm down I will try to address this topic in a future article in Q Wealth, and without doubt it will be on the agenda for our Q Wealth Symposium in Hong Kong later this year (please use our contact form if you are not yet on the list to receive advance details of this event but you would like to be.)

My intention with this letter is certainly not to spoil your weekend, however. I don’t know about you, but I sleep sounder being well prepared. As Simon Black says, there are two ways to sleep well at night: be ignorant or be prepared.

I don’t necessarily mean you should run out and buy flashlights and iodine tablets, prepper style. Though it may not be a bad idea. France, where the public are generally very happy with nuclear power, distributes free iodine tablets regularly to those who live near its many nuclear power plants.

Disaster preparedness, in my view, involves being prepared for anything – even the most unpredictable. If and when disaster strikes, it’s not very likely to be in the form of the obvious threat you have already prepared for. What I am thinking more about is just having a general ‘Plan B’ in place – perhaps a second home in a far way country, assets secured offshore, a second life that you and your family could step into… a second passport?

Remember, disasters also don’t have to be of enormous magnitude to have a disastrous effect on you. Just something like being sued or accused wrongly of something could turn into your private disaster.

The catastrophe I would concentrate most on preparing for, though, is a financial crisis… because I’m convinced that this will not only happen, it actually is happening now. If you look beyond the mainstream headlines, you can see it happening all around. So it’s really important to secure your financial future and independence. How? For example by holding physical precious metals, foreign assets, or by internationalizing your retirement account. These are all things that we at Q Wealth Report can help you achieve and you’ll find further information browsing this site. Where, for example are the best offshore banking countries? The best places to obtain a second passport, either through residence or economic citizenship? What should you know about tax havens like Panama? What is the best way to buy physical precious metals offshore? What is the best asset protection jurisdiction?

So, don’t panic, but don’t hit the snooze button on recent wake-up calls either. If the US having entered into a new war this weekend is not enough to push Americans into action to protect their financial future, I don’t know what is. Commit to action. If you are looking for the practical nuts-and-bolts information, you’ll find it in the Q Wealth Report and at our events. But you are the only one who can make the first move. It’s in your hands. Nobody else is going to do it for you.

You can start here, with our free five part course on offshore wealth creation: Secrets of the Super Rich

Are we on the verge of another global food crisis? asks Peter Macfarlane. And if so, how can we protect ourselves and profit from this crisis? This could have a huge impact on your offshore investments and assets, and – more importantly still – your safety and security. How to protect your assets and yourself? Read on for more…

Editor’s note: If you are not yet a subscriber to our free asst protection and offshore investing newsletter, Q Bytes, we thought you might be interested in the following article by Peter Macfarlane from last weekend’s edition. Sign up now to Q Bytes to receive Peter’s insight in your e-mail each weekend.

Are we on the verge of another global food crisis? Some people think so. This could have a huge impact on your investments, and – more importantly still – your safety and security.  There are even ways to combine secure investments in this area with second passport opportunities. That’s why we’ve decided to focus this weekend’s Q Bytes on this important theme.

Last month was marked by large-scale anti-government protests in Tunisia and Egypt. It’s fair to say that the Tunisian revolt inspired the Egyptian one. The Tunisian riots were sparked by a simple dispute about the right to sell food. Last year we also saw food riots in other African countries, such as Algeria, Mauritania and Mozambique.

Wheat prices have surged 50% since early June, the biggest jump in 30 years, according to HSBC. Droughts in Russia, Ukraine and Kazakhstan, which together account for 26% of world wheat exports, are leading to fears of tight supply and super-charging prices.

Today’s scares are just the latest sign of what could be one of the biggest challenges facing the global economy over the next 20 years – the fight to feed the world. Investors and speculators should definitely be paying close attention.

Food, of course, isn’t like other commodities traded on world markets. No country wants to run out of food or watch sky-high prices dump people into poverty and malnourishment. So both exporting and importing countries often take extreme, knee-jerk populist measures if they think a shortage is coming or prices will keep rising. These measures include things like hoarding and export restrictions. For example, Russia slapped a ban on wheat exports from mid-August last year, while Argentina has severely restricted beef and soybean exports.

Severe structural problems in the world of agriculture have made the balance between supply and demand very precarious. On the production side, there is a severe lack of investment in the rural infrastructure and agricultural research that we need to keep yields increasing. On the consumption side, all those newly wealthy Chinese, Indians and Brazilians are now buying more food than previously… more meat, for example, which means more grain gets turned into livestock feed instead of people-feed. Also don’t forget to add the new diamond for bio-fuels into the equation.

According to the OECD and the UN’s Food and Agricultural Organization (FAO), world population is expected to grow by 2.3 billion people between 2009 and 2050 with nearly all this growth from developing countries. They estimate that feeding a population of 9 billion will require a 70% increase in global food production by 2050.

World Bank Chief Robert Zoellick writing in the Financial Times, in an article that already caused controversy by suggesting that major economies look at a partial return to the gold standard, warned that “with food accounting for a large and volatile share of tight family budgets in the poorest countries, rising prices are re-emerging as a threat to global growth and social stability.”

Another problem many people have not taken into consideration is the falling value of the dollar.  Ben Bernanke’s quantitative easing will continue to cause a greater demand for dollar-denominated commodities, from people like us who are seeking to exchange fiat money for tangible assets.

Where are we going with all this? It’s well known that the Chinese are buying up large swathes of Africa, mainly for natural resources, while Latin America is seen as the new breadbasket – or perhaps the meat producer. Argentina’s government is certified nuts as far as we are concerned, so even wealthy Argentines are investing their capital in production in neighboring countries, particularly Uruguay and Paraguay. Brazil, meanwhile, is speeding ahead in agricultural production.

As some of you may know I recently attended a closed doors briefing in Paraguay with a small group of Q Wealth readers, during which we heard presentations from agricultural and forestry experts (Paraguay’s former consul in Hamburg to be precise, who has now returned to his home country and is heavily involved in forestry.)

I’ve invested quite a substantial part of the assets of my personal investment vehicle in Latin America’s southern cone area recently (including Paraguay and Uruguay) as I believe this area definitely represents future growth opportunities. Another very positive thing about this region is that it’s eminently liveable. That is, you can easily enjoy a safe, clean and reasonably priced first world lifestyle in the area. Africa has lots of potential too for the more adventurous amongst us, but I’m not about to move my family there. However, my family have spent time in Uruguay and got on great.

Last but not least, both Uruguay and Paraguay are quite liberal when it comes to naturalizations – that is, second passports.

At Q Wealth we are not a share-tipping newsletter, but there are certain plays on agriculture in the southern cone region you can buy on international markets. Do your research and due diligence. More generally, you can also expect further significant gains on stock market investments in the ag sector.

Most important, however, is that you understand the big picture, that governments with their short term mentalities are not telling you. This is a region you should watch. With the largest fresh water reserves in the world, plenty of land that is ideal for food production, and relatively hands-off governments, it is probably the world’s best hope to solve the future food problems, and your best hope if you are looking for a safe place to hide out where you’ll never want for food or water.

More to follow in Q Wealth Report.

It’s not often that major developments occur in Southern Europe in the month of August. Montenegro’s announcement of its new instant second passport by investment program this past week is an exception.

Perhaps the Montenegrin government hoped to avoid the inevitable backlash from certain nationalist and socialist politicians in the European Union, while attracting the attention of wealthy Americans, Russians and Chinese at whom the program is aimed.

Montenegro has just become only the third state in the world to offer an economic citizenship program, along with the Caribbean island nations of St Kitts and Nevis and the Commonwealth of Dominica. Austria has a similar program with a few more strings attached, while Paraguay, Uruguay and the Dominican Republic are known for their relatively liberal grants of second citizenship after a period of residence. (More information on citizenship by naturalization programs.)

Montenegro is the youngest country in modern Europe, having voted for independence and achieved international recognition in 2006. However its history dates back to Byzantine times. (See Wikipedia entry on Montenegro)

Since independence, Montenegro has boomed, fuelled by a surge of foreign offshore investment… to date mainly from wealthy Russians who have felt comfortable with its Slavic culture, stunning coastline, visa-free travel to the European Union, and confidential offshore banking regime that has been substantially cleaned up following some scandals in the 1990s.

By launching an official economic citizenship program, however, the government of Montenegro hopes to attract investors from further afield, by co-operating with international law firms, trust companies and offshore service providers. We don’t doubt they are taking aim at the huge Chinese market, as well as the increasing flow of Americans who – spurred on by policies like Obamacare and the HIRE Act – are looing to renounce US citizenship for tax, privacy and asset protection reasons.

The new Montenegro economic citizenship program will require an investment of at least EUR 500,000, some of which goes direct to the Montenegrin Treasury and the rest of which must be used to generate business and employment in Montenegro.

Although the announcement is new, insiders have been suspecting for some time that Montenegro passports were available to prominent wealthy investors. One of the most infamous to date is former Thai prime minister Thaksin Shinawatra, who now travels on a Montenegro passport. Mr Shinawatra was convicted in absentia in his homeland on corruption charges, but denies all the charges against him and has announced plans to invest in Montenegro, possibly in some of the luxury hotels along the coast where he has reportedly been staying.

Details of this new second passport program are not yet entirely clear, except that it will be substantially more expensive than established competitors such as the St Kitts and Nevis program that also offers its passport holders visa-free travel to the European Union.

Rest assured however that we at Q Wealth will be monitoring the situation closely and we are already in contact with the government of Montenegro with regard to an interview and citizenship FAQ for the autumn Q Wealth Report. If you are not yet on our free e-mail list, sign up now to receive updates.

Peter Macfarlane is just back from a Caribbean trip taking in St Kitts and Nevis and Dominica, the only two countries in the world that still offer Economic Citizenship programs. Things have changed a lot down there in the last few years. Here’s what he found out…

More and more people are looking for second passports. And most of those people these days are US citizens looking to renounce their citizenship. There are only two economic citizenship programs left in the world today, both in small Caribbean nations. I wanted to see what was really going on with these programs and to get some on-the-ground intel that you can’t always gather from the internet. So, I booked a flight into Antigua and got some connections on LIAT, the Caribbean airline.

Although (unlike many others) this publication was launched in England, has a worldwide readership and was never originally aimed at Americans, it’s easy to see that the USA accounts for most of our new subscriptions these days. I believe these are people who value our international outlook.

An increasing number of Americans, it is clear, have simply had enough of taxation, attacks on their civil liberties, Obamacare and most recently the dastardly HIRE Act – perhaps the biggest attack ever on those who have worked hard to build up assets and savings. And who can blame them?

I had imagined that the HIRE Act would have some deterrent effect, making Americans more scared to go offshore. In fact, I am seeing people scrambling to set up offshore structures before the deadline next year and place assets in the best offshore banks that are not likely to co-operate in what is a back door currency control system.

Many Americans are looking for second citizenships these days. A decade ago we saw Russians looking for second passports, then came the Chinese… since Obama’s election, the offshore banking countries catering to those seeking economic citizenship (St Kitts and Nevis, and Dominica) are seeing a wave of Americans.

Americans are a patriotic people, but more and more are realizing that their government has been conning them for a long time – trying to confuse patriotism with support for the government. In fact, it’s the American government that is unpatriotic… constantly fighting to undermine the American ideals of freedom, liberty and prosperity. The USA is the only country in the world that expects its citizens to pay taxes even if they don’t live there.

You might already know this, but to expatriate from the USA and renounce American citizenship – thereby breaking free of your US tax obligations provided you don’t intend to live there any longer – you must first have another citizenship. There are basically three ways you can do this:

• Through birth: for example if you are lucky enough to have close family from Europe, you may be able to obtain a European passport
• Through naturalization: this requires a period of residence, sometimes as short as three years (Paraguay and Dominican Republic) but typically five to ten years.
• If you don’t have family connections and you don’t want to wait years, you can basically buy a new citizenship by developing a connection with a foreign country by making a substantial investment: this is what is called Economic Citizenship.

On this recent trip I visited both the Federation of St Kitts (St Christopher) and Nevis; and the Commonwealth of Dominica, both small Caribbean countries that offer you the chance to acquire a new citizenship for you and your family within a few short months, by making an investment. By the way, don’t confuse the Commonwealth of Dominica, a small English speaking island nation, with the much larger Dominican Republic which is hundreds of miles away. (Editor’s note: Dominican Republic citizenship might also be an attractive option, but is outside the scope of this article as it is not an economic citizenship program. You can read more about that here: Joe Gonzalez article on Dominican Republic citizenship)

I had visited both of these nations some years ago, but things have changed – drastically. While you can do a certain amount of research on the internet, there’s no substitute for spending a few days on the ground talking to government officials and well-connected local lawyers who know the score. Most of what you read on the internet is written by foreign promoters of citizenship programs, who will naturally have a certain bias and may never even have visited the islands. In the case of St Kitts, most of the promoters also have a vested interest in selling over-priced real estate.

These two economic citizenship programs are the remnants of what used to be quite a little industry in the region. Countries like Belize, Grenada, Guyana and Suriname have offered economic citizenship programs in the past, but they are long gone. That doesn’t stop unscrupulous promoters from still offering them.

I’ll be writing up a more detailed report on this in a forthcoming issue of Q Wealth Report (available only to members) but I can give you the bottom line now. Dominica is in my view a beautiful country, full of opportunity for tourism development and the like, but that might have to wait for the economic upswing that will be a long time coming. Dominica’s citizenship program is definitely going downhill since I last visited in 2006. I would not be surprised to see it coming to an end soon. While St Kitts and Nevis is doing well, attracting quality, heading further upscale. Here is a little of my reasoning:

• St Kitts and Nevis recently signed an agreement with the European Union allowing visa-free travel for all their passport holders, including economic citizens. This is an important coup that shows major western governments have confidence in the St Kitts program. Dominica does not have this benefit.
• Very importantly in my view, St Kitts and Nevis has refocused its program in recent years away from the idea that it is selling passports. This shows political savvy that seems to be working to their benefit. Naturalization implies a connection with the new country that is not merely financial. That is exactly what they are promoting, by strongly encouraging investors to purchase property in the country. St Kitts and Nevis are both pleasant places to stay, with great golfing and yachting, serious investments by groups like Marriott and Four Seasons, and more and more direct flight connections coming in. And the political savvy has extended to getting the twin island federation not just off the OECD’s blacklist but on to the whitelist… without changing much.
• St Kitts and Nevis enshrined economic citizenship in its constitution back in 1984. It is a well established program. They have maintained the price high and kept out the riff-raff which has negatively impacted other, less well regulated economic citizenship programs. Applications are processed efficiently and according to deadlines.
• Dominica, on the other hand, seems to have lost its direction with regard to economic citizenship, and is caving in to demands from the OECD and wealthier countries. There is greater domestic opposition to economic citizenship, and politicians are arguing over how to spend the money while keeping applications languishing for months without approval. The government seems to be heading more in the direction of accepting aid from Hugo Chavez in Venezuela, which is admittedly probably easier money in the short term and less controversial than selling passports. While I was there, in fact, the Dominican government signed a new Memorandum of Understanding whereby Chavez will give them a new coffee processing plant.

So at this time, although the options for economic citizenship in St Kitts and Nevis are definitely much more expensive that those in Dominica in terms of cash you have to put down on the table, I would consider the difference in cash outlay money well spent. Another good thing is that with the St Kitts investment option, you can buy attractive Caribbean real estate which you can enjoy in the meantime and will be free to sell after five years.

We’ll shortly be releasing a more detailed report on St Kitts and Nevis. If you would like to receive it, please go here: Free Nevis Offshore Report

Otherwise be sure to check out my upcoming article in Q Wealth Report, and you can be sure that this will be a hot topic for discussion at our next Q Wealth event in Cork, Ireland this September. See you there!

Last week I started the case study of the young American, looking to have his exit strategy or ‘Plan B’ in place, who was looking for a second passport. He was focusing in on options in South America, preferring that to the economic citizenship programs of St Kitts and Nevis and Dominica in the Caribbean. And we looked at  Uruguay as a residence and citizenship option. If you haven’t yet read, part one, I suggest you do so here.

I finished up last week by touching on the wild-card option, Paraguay. I said that for young-at-heart individuals with a sense of adventure and a slightly higher tolerance for risk (or perhaps an appetite for profit?) there is Paraguay. And I pointed out that somebody might choose Paraguay over Uruguay because:

• you can apply after three years for citizenship, with no need to worry about family units
• no need to buy real estate: $5000 deposit in a local Paraguay bank is enough
• costs in Paraguay are much lower
• it’s a country full of business opportunities
• it’s more anarchic than Uruguay, meaning less control and more freedom… for example, nobody is really going to count how many days you are there. Having residence on paper is enough.

You might feel freer in Paraguay because government is less developed and less intrusive. Paraguay has always been somewhat cut off from the world, a landlocked frontier state in the middle of South America, that was very hard to reach until maybe 20 years ago. It is known, unfortunately, as a place where Nazis went after the second world war… but it’s less well known that many Jews went there too.

Basically Paraguay’s immigration policy, enshrined in its constitution, is that everybody is welcome provided they come to live in peace and obey society’s norms there. There is plenty of room for everybody, with a low population density, and smart individuals with money and business experience are particularly welcomed. Other people who think outside the box, particularly the hard-working Mennonites, have also found safe haven in Paraguay over the years. Paraguay is very much a secular state… the current President is a former Catholic archbishop who was ex-communicated!

This liberal immigration policy continues into the granting of Paraguayan citizenship, as little as two years after taking up residence. Paraguay’s constitution specifically allows dual or multiple citizenship, though the government sometimes insists that those applying for naturaliation renounce their previous citizenship. This is not enforced however and there are legal ways around it.

Paraguay’s passport, issued to citizens, is an excellent travel document. Since Paraguay has a small population and most of its higher class citizens (the ones who have money to travel) are of European extraction, it has visa-free travel agreements with the European Union and many other countries around the world.

Even before you qualify for the Paraguayan passport, you will receive a cedula – the national ID card that is recognized as a travel document in other members of Mercosur such as Argentina, Chile and Brazil. This card is issued automatically to residents.

Obtaining residence is a relatively simple matter. We have access to good, experienced immigration lawyers in Asuncion, the Paraguayan capital, who can help you and have a track record of helping Q Wealth members before you. Referrals are free of charge to Q Wealth members – just contact the office.

Obtaining citizenship, that is necessary to obtain a Paraguayan passport, is a little more complicated. You will need to learn some basic Spanish in order to carry out the necessary civics test – a multiple choice paper with questions about history, geography and the like. You will need to know things like the major rivers, the names of important historical personages, and the system of government. You will also need to demonstrate some connection with the country, but the lawyers can assist you with that.

All in all, Paraguay is not for those who want a comfortable life in an apartment overlooking a beach. For those people, Uruguay is the better option. However if you are looking for a country where land is cheap, and most businesses are virgin and unregulated, look at Paraguay.

One final note: Paraguayan residence is a very attractive base for world travellers, particularly Brits and Europeans, Canadians and Aussies, seeking to travel the world in search of income while leaving behind their home country taxes. The passport is really only important for Americans who are taxed on their worldwide income unless they renounce citizenship, or for those from countries like China or Russia who have problems travelling anywhere on their existing passports.

More information, as always, can be found in Q Wealth Report. The back issues available online in our Members Area include information on Paraguayan residence.

“I’m a young, single US Citizen who is very concerned with the way things are going. I hope the government works things out fine. But in the meantime, prudence dictates that I have an exit strategy in place.”

That question came in recently for a reader asking about second passports and economic citizenship programs. The client was willing to do the following things:

1. Marry a Local Citizen (with an enforceable pre-nup).
2. Purchase a small property at Fair Market Value and pay property taxes.
3. Start a small business and pay local taxes.
4. Spend time to learn the local language.
5. Live in my new country for about 4-6 months per year for 3 years.

However, he also had a clear list of things he wanted to avoid:

1. I’m not willing to spend much more than 4-6 months per year.
2. I’m not willing to wait much more than 3 years.
3. I don’t think a Dominican Republic passport, St Kitts and Nevis Passport or Dominica passport is taken seriously so I want to avoid those countries.
4. I want to Avoid Canada because their taxes are too high.
5. I want to avoid renouncing my USA passport (but I might if needed)

The client’s research has already had him zeroing in on South America. Both Uruguay and Paraguay are attractive options, though they both have their clear advantages and disadvantages.

Although I don’t necessarily agree that Dominica and St Kitts and Nevis passports are not taken seriously, people in the know will certainly be aware that you’ve bought them. They are respectable programs, but still, I can understand this chap’s sentiments. If you can take the time to acquire a second passport by residence, including learning some of the local lingo, the advantages are huge. Both Uruguay and Paraguay have great visa-free travel. Feeling comfortable with your travel document is very important, so, in this case, I would definitely recommend the client goes with something from the zone he has been looking into.

“I’ve never been to Uruguay but I did the most research on Uruguay and it seems like a good country to gain citizenship. I must marry a local to get my citizenship in 3 years.  I’m told a great advantage of Uruguay is that you only need to be in  the country 3 months per year for 3 years if married and 5 years if single. I don’t know if this is true?”

Not exactly. A great thing about Uruguay is that although the normal waiting time for a passport for a single person is five years, anyone who is part of a “family unit” living in Uruguay can apply for naturalization and passport after three years. This does not necessarily mean you have to marry a local. It just means that if you have family in the country, it shows a greater committment, and therefore the waiting time is reduced to three years.

Marrying a citizen of any country is fine as long as the married couple live in Uruguay. Gay marriages are acceptable too. A family unit could also consist of brothers, a father and son, an uncle and nephew etc. The point is just that you should have a significant other in Uruguay.

The time you have to spend there is not set in stone but I guess 4-6 months is about the minimum. The connection you have with the country is more important than the number of days you physically spend there. Buying real estate, for example, demonstrates a connection, as does having a local corporation, paying taxes and social security etc. These are the kind of things you can expect the Uruguayan government to check up on when it comes to applying for citizenship.

Living in Uruguay is easy. More details of expat life in Uruguay, for example, can be found at Ola Uruguay. In the areas where expats typically live, services are of first world standard and there is little corruption.

All this comes at a cost, however. Compared to the rest of Latin America, both real estate and the cost of living in Uruguay is high. In the jet-set hideout of Jose Ignacio, a trendy village half an hour east of Punta del Este, I thought I was in London or Paris when I saw the restaurant bill!

So that’s living and obtaining a second passport in Uruguay, but what about taxes? For more details of Uruguay residence and citizenship, I am currently working on a free report that should be available during the summer to Q Wealth members. The report will take into consideration the new tax situation in Uruguay announced in May 2010, where for the first time Uruguayan residents (both citizens and foreign residents) will be subject for the first time to taxation on their worldwide income. If you would like to get this report as soon as it comes out, and without having to remember to check back here from time-to-time, let us know here: Uruguay Residence and Citizenship.

Now, for young-at-heart individuals with a sense of adventure and a slightly higher tolerance for risk (or perhaps an appetite for profit?) there is a wildcard choice: Paraguay. One might choose Paraguay over Uruguay because:

• you can apply after three years for citizenship, with no need to worry about family units
• no need to buy real estate: $5000 deposit in a local bank is enough
• costs in Paraguay are much lower
• it’s a country full of business opportunities
• it’s more anarchic than Uruguay, meaning less control and more freedom… for example, nobody is really going to count how many days you are there. Having residence on paper is enough.

I’ll be writing more about second citizenship opportunities in Paraguay in the second part of this article, which will be published in a week’s time. In the meantime, we have another article here: Paraguay Second Citizenship

More Americans than ever before are renouncing US citizenship. That’s the conclusion of a recent article in the New York Times. The steady stream of US citizens expatriating is turning into a flood – to the extent that many US consulates now have a waiting list for appointments to renounce citizenship.

Taxation, offshore investment and banking issues are, unsurprisingly, the main reasons given for renunciation by former Americans. The most productive Americans no longer want to be American… because they don’t feel they are being treated fairly or reasonably by their government.

American expatriates are furious at US attempts to tax their worldwide income… but the straw that broke the camel’s back in this case is the fact that due to the HIRE Act and money laundering legislation, both US banks and offshore banks are beginning to treat American passport holders as personas non grata, denying banking services and unilaterally closing bank accounts.

There’s an interesting change of mindset going on too, according to the NYT article. I quote:

“What we have seen is a substantial change in mentality among the overseas community in the past two years,” said Jackie Bugnion, director of American Citizens Abroad, an advocacy group based in Geneva. “Before, no one would dare mention to other Americans that they were even thinking of renouncing their U.S. nationality. Now, it is an openly discussed issue.”

…

“It is a sad outcome,” Ms. Bugnion said, “but I personally feel that we are now seeing only the tip of the iceberg.”

Renouncing American citizenship certainly doesn’t have the stigma attached to it that it might have had in the past. It seems to many like a smart business decision. Of course what the Times didn’t mention is the fact that in order to renounce American citizenship, the person renouncing must first have a second citizenship.

Many Americans are entitled to European Union or other countries’ citizenships based on ancestry – having a parent or even a grandparent born in other countries can open up a door to obtaining a quick and cheap second passport.

Those who are not so lucky may look instead to economic citizenship programs such as those of the twin island federation of St Kitts and Nevis, or the nature-island nation the Commonwealth of Dominica, the only two countries where one can still ‘buy’ citizenship. (Dominica and Dominican Republic are two different countries, often confused) The cost of such programs is usually in the six figure range, but it still makes good business sense to those who might be paying hundreds of thousands or millions a year in taxes. With the St Kitts and Nevis program, at least, one can invest in real estate and hopefully resell the property at some point in the future.

Fortunately, there’s a third route for those who are not millionaires, but still cherish their freedom: obtain a second citizenship through naturalization. This can typically be achieved for under $10,000, though of course it takes time… typically 3 – 7 years, depending on the country chosen and the category they are applying under. Some of the best countries for those wishing to follow this route are Uruguay, Paraguay, Dominican Republic and Ecuador.

More information on second passports and citizenships appears regularly in The Q Wealth Report. If you’re not yet a member, you may choose to subscribe to the full privately-published newsletter, or sign up for the ‘lite’ free offshore asset protection and second citizenship news in Q Bytes.

Ignorance is bliss – until problems occur…

The first reports of shooting came just before midnight. Within minutes, heavy explosions, muffled by the distance, echoed through the steel and glass canyons of the capital. Then the noise died down.

At the second-floor window of a room in the Marriott Hotel, this reporter and two others were listening for more sounds of fighting when they saw a man wearing a black ski mask and camouflage pants and carrying an automatic assault rifle running across a patio area outside.

The reporters crouched to the floor, but the gunman spotted them. ‘Out! Out!’ He Shouted

”Out! Out!” he shouted, aiming his AK-47 assault rifle.

Which Marriott Hotel is the New York Times talking about here? Kabul? Baghdad? No, Panama, just a little over twenty years ago. You can read the full article here.

In the gilded lobby of the luxury hotel, Panama City’s finest, seven other gunmen had herded together about 80 guests and staff members. They were forced to lie face down with their arms outstretched.

”Who’s American?” several of the gunmen shouted at once. ”Americans over there.” The gunmen pushed a group of 11 into an adjacent section of the lobby.

You know we at Q Wealth are pretty positive on Panama. Many times I’ve been in that lobby for meetings with clients. But the point is, you have to be prepared. Recent geopolitical events over relatively insignificant territories have highlighted the risk and instability of the world we live in.

Who would have thought just a month or two ago of territorial disputes involving the Netherlands, the United Kingdom and Argentina having a major effect on the global economy and politics? Surely, these are relatively stable countries, not be compared with Afghanistan or Iraq?

Yet our memories are short. Back in 1982 nearly 1000 lives were lost in the Falklands War. And, seemingly all of a sudden, tensions are heating up again in the region. Unsurprisingly, it has something to do with oil.

Venezuela, meanwhile, has had territorial ambitions over the Netherlands Antilles off its coast for years. And, as money launderer turned bank compliance officer Kenneth Rijock points out in this article, Hugo Chavez has just recently directly threatened the status of the Dutch Caribbean possessions of Aruba, Bonaire and Curacao, as well as the United States Commonwealth of Puerto Rico. The Netherlands is in no position to defend these islands and there is the added potential flashpoint that comes from the fact that US military aircraft are based in these islands.

The Libyan government, meanwhile, has recently banned entry into their country of all nationals of Schengen countries (most of the European Union, excluding UK and Ireland). Just like that. I didn’t even see it on the mainstream news. It’s something Canada does from time to time as well. Most recently with just 48 hours’ notice they suddenly started demanding visas from Mexicans and Czechs. Those who already had flights booked were left to solve the problem themselves.

The fact is that disputes like these, that can only really be described as silly, can pop up almost anywhere at any time. They could turn out to be just what politicians on all sides need to rally popular support and distract the slumbering masses from the real serious problems.

The most important lesson is the need for geographic diversification. This kind of thing happens all the time and it could affect you or your assets. You shouldn’t keep all your assets in one place. You should get a second passport. You also need to keep your finger on the pulse and follow serious news sources that cover geopolitical matters. Stratfor is good, or for quick reading check out Sovereign Man.

Lots of Americans are buying land in Argentina at the moment. Now I’m not saying the following is likely, but neither is it so far-fetched…. What if a new Falklands War breaks out and the US steps in on the British side? How will the US and Britain being at war with Argentina affect investments, freedom to travel, and most importantly security of those expats?

“What if” is something people need to be asking themselves a lot these days. We live in a very unstable world. There is no 100% security. Little, insignificant disputes between politicians can spill over into making life hell for ordinary people. And then there are the relationships between China, the USA, and Russia…

In real estate, people talk about the three factors: location, location, and location. In offshore and asset protection planning, I talk about the same three factors. Diversification, diversification and diversification. Never keep all your assets in the same place, the same currencies or the same asset form.

Things change fast. Back in 1989, Miami was a safe place for Latin Americans to keep money. Now it isn’t. Panama has taken over that role and is stable.

Once again, the lesson is: be prepared. There is no 100% security anywhere. If you and your assets are mobile and ready with flags of convenience like offshore IBCs/corporations, foreign multi currency bank accounts, and second passports, you will be safer if severe crisis hits. And be sure to subscribe to Q Wealth Report where we write about such matters and – even more importantly – solutions, detailed plans and strategies. If you are not yet a subscriber and want to see the package of benefits you are missing out on, click here.

by Peter Macfarlane

In response to some feedback received from readers over the last few weeks, I wanted to clarify what I mean when I talk about taxation on worldwide income.

I’ve often written that the United States is the only country that taxes its citizens on their worldwide income, by virtue of their citizenship. Then people write to me saying “Canada does too” or “New Zealand now taxes citizens on their worldwide income too” to quote a couple of examples.

The fact is that most developed countries tax residents on their worldwide income. That means that for example a Canadian living in Canada, or a New Zealander living in New Zealand, is indeed subject to taxation on worldwide income.

The big difference is that a Canadian living outside Canada (a Canadian expat)  is no longer subject to Canadian taxes on income from other parts of the world. To give you a practical example, a Canadian who escapes the frozen north to live in tropical Belize under the Belize Qualified Retired persons program and invests his money through a Panama Foundation, brokerage and bank accounts in Panama, will not be subject to Canadian taxes any more. The same applies even if he runs an active business somewhere outside Belize – he could be in consulting, e-commerce or a host of other businesses that don’t require his physical presence.

In this example, our Canadian will be in the enviable position of having avoided almost all taxes completely legally at a stroke. As a non-resident of Canada, he is no longer subject to the claws of Revenue Canada. Belize only taxes local income, while Panama does not tax non-resident investments. As such, our Canadian doesn’t have to pay any taxes. He doesn’t even have to go to the hassle of filing tax returns.

The same applies to Brits and other Europeans, to Aussies, to Kiwis… in fact to absolutely anyone who is not a US citizen or green card holder. These people do not have to pay tax on their worldwide income to the countries from which they hold passports, provided they don’t live there. To avoid tax legally, all they have to do is move to one of the many countries in the world that either has no taxes (like Andorra or Monaco) or that does not tax even residents on worldwide income (for example Belize, Panama, Dominican Republic, Singapore, certain cantons of Switzerland…)

This situation is only fair I think. If you don’t live in a country, why should you be expected to pay for it? The US government, however, doesn’t share my opinion. They think that if you hold a US passport, you should pay up no matter what.

So if in our example above, the retiree was American rather than Canadian, he would still be taxable on his worldwide income. Poor American.

There is of course one legal way that Americans can, again at a stroke, avoid this worldwide tax obligation. That is by giving up US citizenship. Although this may seem like a drastic action to some, it’s a course of action that more and more wealthy Americans are taking each year. And in fact it’s a relatively straightforward procedure. It used to be free, but US consultates have recently introduced a $450 charge for handling the paperwork.

US citizens who do decide the renounce citizenship have two other important considerations:

• Before you can give up US citizenship, you must acquire a foreign citizenship, otherwise you would be left stateless, like a refugee who is unable to travel. Acquiring a second foreign passport, however, is relatively simple. For details click here:  How to Acquire a Second Passport Legally
• You must also take into consideration the so-called ‘departure tax’ instituted by Congress in 2008. In our view, this exit tax is more bark than bite. However it’s definitely an indication of things to come.

In my view, therefore, any US citizens who have a reasonable amount of disposable assets – or those who believe they can acquire wealth faster by working in an offshore, tax-free environment – should seriously consider expatriation. The grass often is greener on the other side. And even this loophole is likely to be tightened sooner, rather than later. Acquiring a second passport in a hurry via en economic citizenship program is many, many times more expensive than acquiring one over a few years via a residence program.

If you would like to know more about this topic, sign up now for our free five-part ‘Secrets of the Super Rich’ course now. Say no to unjust taxation on worldwide income!