The Risks Involved With Using Workarounds Overseas

Throughout the years, I’ve had people tell me I’ve been wrong when I’ve suggested to them that certain things couldn’t be done. They’ve insisted I was wrong because, they’ve assured me, they had been able to do whatever it was I was saying couldn’t be done. They’d done it themselves, no problem.

Recently, for example, someone wrote in to tell me I was wrong to say that foreigners can’t own land in the Philippines. As the reader explained to me, he had been able to buy land in the Philippines himself…no problem.

As I continued to read his letter, I realized the problem. Yes, indeed, he’d bought land in the Philippines…by using a workaround that some local attorney had told him would be fine. And it will be fine right up until the point when it isn’t.

I’ve known foreign buyers who’ve used similar workarounds to buy land in Thailand. They’ve bought land in that country in the name of Thai corporations they’ve set up. While Thai corporations can own land in Thailand, foreigners can’t own the majority of shares in a Thai corporation. No problem, some local attorneys will tell you, we can work around that…

One workaround can be to issue 49% of the shares of the Thai corporation in the foreigner’s name and the other 51% in a Thai person’s name…then have that Thai person sign over the shares in blank. The attorney holds onto the share certificates. Many Thai attorneys have become wealthy landowners thanks to this handy workaround.

Another workaround involves some convoluted structuring that has the foreigner owning 49% of company A and company B owning 51% of company A. The buyer then also owns 49% of company B, with company A owning the other 51%. Again, this works until it doesn’t.

Eventually, the Thai government began cracking down on the various workarounds foreigners were using to own land. The same will happen in the Philippines at some point.

In the offshore world, workarounds are common, not only when it comes to property ownership. You’ll encounter workaround options to do with establishing residency…acquiring a second passport…paying taxes on income from your rental property… Whenever you find yourself presented with and considering the idea of a workaround to help you achieve some objective, ask yourself if the risk (as in the case of buying land in Thailand) or the liability (as in the case, say, of ignoring filing a local tax return to report your rental income) is worth it.

A friend used a workaround to get his oversized dog to Costa Rica. He told the airline that it was a Seeing Eye dog. My friend isn’t blind, and I have no idea how he convinced the airline that the dog was a service dog, but it worked. His risk was low, as, had his sham been exposed, he simply would have missed his flight and taken his dog back home with him. Missing a flight isn’t as big a risk as losing the property you thought you owned in Thailand.

Another common workaround for expats in many countries is the border run. This is a way of staying beyond the length of time allowed by a tourist visa without investing in establishing longer-term residency formally. You just leave the country (run across the border) and then return, in a day or two, say, to renew your tourist visa. Historically, some countries have ignored the multitudes of tourist stamps in some passports and allowed this workaround to continue. Meaning that, again, this can be a fine strategy…until it’s not. Eventually, countries often get more serious about formal residency requirements.

Border running was so common in Thailand that service industries sprouted up. Locals would charge a fee to take your passport to the border for you and get you a new stamp. They used part of your fee to bribe the immigration officers at the border and kept the rest of it for the service. Expats were happy to use these services because they saved them money. The risk to the expat ranged from overstaying his tourist visa if the courier wasn’t able to get a new stamp for him in time…to having his passport stolen.

I used this workaround myself when I lived in Argentina for five months. I was working in the north of the country for a drilling company that hadn’t decided how long I would be staying and therefore did nothing to get me legal residency. I was only 30 minutes from the Bolivian border, so I drove to the border to exit Argentina before my tourist visa expired and then re-entered to get a new tourist stamp and another 90-day visa.

Unfortunately, the Bolivian immigration worker said I had to spend the night in Bolivia for him to stamp me into that country. Without the stamp from Bolivia, I wouldn’t be able to get the new entry stamp in Argentina that I needed. I had no intention of wasting a night in Bolivia so I had my Argentine assistant tip the Bolivian immigration guy. We were then allowed to turn around and go back across the river back into Argentina…where I got a new stamp.

That worked once, more than 20 years ago, and could work today once or twice, but it’s not a strategy for remaining resident long term in Argentina…or anywhere else. The risks if you’re caught include being banned from the country where you’re trying to be able to remain for as long as a decade. That would be a problem if you had a business or property investments in the country.

Workarounds can be common in the world of offshore banking, too. As I’ve reported, it’s not easy to open a bank account in Colombia as a nonresident foreigner. Banks in this country are going to want to see your Colombian cedula (national ID) before opening an account for you. One practical reason for this is that, to open a new account, Colombian banks’ computer systems require an ID number with the same number of digits as a cedula number. Otherwise, the system won’t accept the new account application.

Nevertheless, I was able to open a bank account in Colombia without a cedula. However, it was only because I had a personal introduction to the branch manager by my attorney…and because that branch manager was clever and open-minded enough to make up an ID number for me that included my passport number so it would fit in the cedula field.

Did I then go around telling everyone that it’s possible for a nonresident foreigner to open a local bank account in Colombia, no problem? Nope. Because it’s not…my workaround experience notwithstanding.

Lief Simon

“Lief, in regards to offshore accounts, I was wondering about Guatemala or Honduras or Mexico as a possible offshore account? I currently have an account in Belize, but I plan to move there, so I want to move that flag somewhere else. I prefer moving the flag over the Internet/mail, but I know I would be right next-door to Guatemala and Mexico.

“Thanks in advance for your help.”

M.P.

I wouldn’t bank in Guatemala or Honduras. Mexico has some options for offshore-type accounts. Lloyds, for example, is one bank in Mexico that might work for planting a flag. I don’t remember if they require a personal interview or not.

Panama would be the other choice in the region, but all the banks in this country definitely require a personal interview, which means a trip to Panama. You could also look at First Caribbean bank, which will open an account remotely.