Why You Need a Second Residency (and How to Get One)

Why You Need a Second Residency (and How to Get One)

By Mark Nestmann • September 4, 2018

In my consulting practice, clients often ask me the best ways to “internationalize” themselves. My top recommendation for most of them is to first move some of their assets outside the country they live in (this is the US in most cases).

My second recommendation, though, surprises some clients. I usually recommend acquiring legal residency in another country. This strategy provides numerous benefits and can be surprisingly inexpensive.

Benefits of a second residency can include:

  • The ability to live abroad if social, political, or economic conditions in your own country become intolerable. Obtaining a second residency is, in effect, an insurance policy you can cash in if circumstances dictate.

  • Increased access to the legal and financial system in your adopted country. Once you acquire legal residency in another country, you’ll generally find it much easier to open bank accounts, acquire real estate, etc.

  • Privacy and asset protection. Funds you move to your adopted country will effectively disappear from your home country’s radar. For instance, while US citizens must disclose most of their non-US holdings to the IRS, those funds will be much less visible to US asset tracking services.

  • Tax advantages. Most countries impose tax on the worldwide income of anyone who lives there more than six months per year. However, a few countries tax only local income, exempting income from other countries. Panama and Costa Rica are two examples of nations with such “territorial” tax systems. This advantage is less significant for US citizens than other nationalities, since Uncle Sam taxes their worldwide income, wherever they live. Still, US citizens living in a country with a territorial tax system can often arrange their affairs so that they qualify for the foreign earned income exclusion (FEIE), eliminating or significantly reducing the US tax liability.

  • Access to lower-cost health care. The US has the highest health care costs in the world. Legal residency in a country like Mexico, for instance, allows you to enroll in Instituto Mexicano de Seguro Social (IMSS), the country’s national health care system. Your premium will depend on several factors, but the top rate is only about $360 annually. Even without insurance, you’ll find medical care in Mexico (and many other countries) to be one-third to one-half the cost in the US.

  • Increased mobility. Legal residency in another country may also give you improved access to other countries. For instance, a residence visa from a European country that’s part of the Schengen zone allows you to travel visa-free to any other Schengen zone country. That’s a valuable benefit for citizens of countries that lack visa-free access to the European Union. US citizens, however, already have visa-free access to this region.

In choosing where to acquire a second residency, here are some criteria you’ll want to consider:

  • What are the requirements to qualify? You may have to demonstrate only a minimal level of income to obtain a residence visa for some countries. Ecuador, for instance, offers several visas that require an income of only $800/month. Other countries require a guaranteed pension or a one-time investment. Some countries, such as Panama, give you the choice of qualifying for residency based on income or making an investment.

  • Is there a minimum stay requirement? Many countries require legal residents to spend a specific amount of time there. For instance, to maintain your status as a permanent resident of Canada, you must live there for at least two years within a five-year period. Belize requires individuals who hold a “Qualified Retired Persons" (QRP) visa to be in the country for at least 30 days annually. Ecuador requires holders of most of its residency permits to spend 90 days or more in the country each year. Some countries, though, such as Mexico and Panama, have much more lenient requirements.

  • Can you come and go as you please? Many residence visas allow you to leave and re-enter the country that issued the visa without any formalities. But some countries require that you get an exit visa or re-entry permit before you leave. Most visas from Thailand, for instance, have this requirement.

  • Can you work or start a business? Most countries don’t make it easy for new residents to work for a local employer. Often there is a separate process to obtain a work permit in addition to a residence permit. Some classifications of residents, such as the pensionado schemes in many Spanish-speaking countries, don’t allow you to work at all. However, in virtually every country, you’ll be able to operate a business over the internet from home, so long as you’re not competing with local residents.

  • What is the cost of living? In many countries, you can live very inexpensively if you’re willing to live as the locals do. But if you expect the same amenities in your adopted country as you have back home, you may pay dearly for them.

  • How secure is the country? In some respects, you’ll have the greatest freedom if the police force in your adopted country is ineffective – or if you can simply buy your way out of a traffic ticket or other interaction with the authorities. But the lack of effective policing will embolden would-be criminals. What’s more, if you can bribe your way out of a problem, so can anyone else. And in many countries, a foreigner will probably lose in any grudge match against a local.

  • How efficient is the infrastructure?  You should look at everything from health care, transportation, utilities, and broadband internet access to the availability of ATMs. For instance, many residents of Saint Kitts & Nevis own generators so they can produce their own electricity to deal with service interruptions.

  • Is English widely understood? If you can shop, order food, ask for directions, and carry on a simple conversation in the local language, you’ll find it much easier to live in your adopted country. If you choose a second residence in a country where you don’t speak the official language, you’ll have to rely on other expats and anyone who can speak English.

  • Will you eventually qualify for citizenship and a passport? In most countries, you’ll qualify after living there for an extended period – generally five years or more. However, some categories of visas may not qualify for citizenship at all. For instance, individuals holding a QRP visa from Belize will never qualify for citizenship. Instead, they must apply for ordinary residence and live in the country for five years on that visa (less in some circumstances) before they can apply.

After I’ve gone through these criteria, clients often ask me what country I chose for my own second residency. The answer is Panama. It ticks off many of the boxes that suit me, including territorial taxation and no minimum stay requirement. I wrote more about my decision to acquire Panamanian residency in this post.

To conclude, getting a second residency is a wise move. If the country you live in descends into chaos, you’ll have a Plan B, not to mention numerous other benefits.

Protecting your assets (and yourself) against any threat - from the government, the IRS or a frivolous lawsuit - is something The Nestmann Group has helped more than 15,000 Americans do over the last 30 years.

Feel free to get in touch at service@nestmann.com or call +1 (602) 688-7552 to learn how we can help you.

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About The Author

Since 1990, Mark Nestmann has helped thousands of clients seeking wealth preservation and international tax planning solutions. He is the author of highly acclaimed Lifeboat Strategy and other books & reports dealing with these subjects.

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