It has always been our direction for our owners to hold their condos in a Costa Rican corporation (Sociadad Anonima S.A.). Although this is not a very common practice in the north country, it has long been the practice here by both Nationals and foreigners alike as it provides the owner with a tool for easy management of transfer taxes as well as estate concerns that make it easy for heirs to take over where the benefactor left off. Due to recent events and behind the scenes goings on that have come to my attention, I find it necessary and prudent to reassess this structure and make some serious changes in order to protect all owners future incomes. This memo is going to be somewhat detailed in both the concepts and current events that have made these changes necessary, so please bear with me as this is a critical foundation for your future well being. This is most definitely not a deviation but a clear extension of our desire to have our owners as friends, and with that attitude in mind, we feel obligated to bring the correct information to you, regardless of how any of us like the message, the issue is to be prepared and forewarned by utilizing our experiences to think way ahead of you. We are talking about significant investments and income sources here that deserve our full attention at all times. This is part of exactly why most of our owners/investors came to us in the first place, to benefit from our experiences.

I have long been a fan of corporate ownership due to its greater security, lower taxation and superior estate planning features. To best understand where I come from here, my view has long been that personal ownership is a disaster looking for a place to happen.
It is not a question of if this strategy is going to be a problem, it is only a matter of when, unless of course you happen to be immortal. The wealthy NEVER hold significant assets in their own name. E.g. when the steel magnate Andrew Carnegie died, he left a personal estate of a pickup truck. This approach is generally taken to lower taxes and to ward off predators that will come attempting to take from you what you own. This method is also used to compartmentalize assets so that if something goes wrong with one asset it cannot bleed off to affect others. E.g. when the Kopecknies sued the Kennedies after their daughter drowned, they found that Teddy had no assets other than the car at the bottom of the river. This fact of life has only become more critical over the years as Canada and the States have ever increasingly become litigious societies with the all to common attitude being the only REAL reason you need to sue someone is that they have more money than you do, hence you deserve some of it. E.g. like suing and winning against McDonalds when they have the audacity to actually serve you hot coffee instead of cold.

Along with this attitude has come ever increasingly large governments, with never ending voracious appetites to feed, that also view the tax payer as the open cheque book just for the asking, albeit with a gun held to your head. We have seen many very negative changes over the last couple of years disguised in the Patriot Act or by OECD that have absolutely nothing to do with what their name implies but have everything to do with invading privacy and demanding to know exactly what you are doing and why, for the real simple purpose of trying to tax every dollar that moves through the system for any reason what so ever. The attacks upon tax havens in the name of money laundering have been quite relentless, yet the reality is that by far the largest laundry operations are run through London and New York, most certainly not Cayman Islands etc. etc. Also, not surprisingly, the first conviction under the Patriot Act was for tax evasion, which as far as I can tell has little to nothing to do with terrorism, last I checked. This over bearing attitude by big brother has recently raised its ugly head in Costa Rica, hence the reason for this memo and the modified and fortified structuring.

For your information, to get you up to speed, the current government of Costa Rica has been attempting to get a new Tax Plan approved for the past three years. I was of course aware of this new plan. However, I had not seen the whole grasp of what has turned out to be an incredibly bad idea. Those that are following national politics here will of course jump all over this and say “what is important about this, as it was turfed by the supreme court two weeks ago, hence it is not important. Oh contraire, this plan still has great significance as it demonstrates the mindset of politicians here and big brother from elsewhere as well. Yes this plan was turfed, but mark my words, it will be back just like this year’s dandelions will be back from their winters rest. Two things caught my attention in particular for their foreboding message and ramifications. The first thing was that basic corporate income tax was to go from 15% for our type of income up to around 30%. The current tax level I found reasonable but the new rate that they had passed into law, prior to the court punting the procedure of passing the act, not the content, is absolutely unacceptable. Another little treat in this act of stupidity was much more disturbing in its between the lines message and intent, more than anything I have ever seen. What they had also passed was that for any money transfers into Costa Rica you were going to have to prove you had paid the taxes on it where it came from, otherwise they were going to assess a10% withholding tax.

First off, this would become a banking nightmare with our investors' funds being held up by brain-dead bureaucrats and bankers. It absolutely amazes me in the level of stupidity exercised in coming up with this gem of an idea. Secondly, I am aware of no jurisdiction in the world that has such a requirement. Heavens forbid it most certainly is not in the United States, considering it is the largest tax haven in the world, providing of course you aren't a citizen there. If this insane idea were exercised in the U.S., you would see the largest and fastest exodus of billions of dollars ever witnessed on this planet, which would in turn trigger a major meltdown of a magnitude never before seen. Yet whom do you think really came up with this gem of an idea??? Well a little hint is in order that would escape a casual foreign observer to this soap opera! There are two black suited characters on a long term posting to the U.S. Embassy here with the sole job description of coaching the Costa Rican government on taxation issues, or in other words, learn from the best on how to abuse your citizens and get away with it. It is soooo transparent as to where this gem of an idea came from; it is not even remotely amusing. This really disturbs me that a foreign government is interfering in internal politics and subtlety pushing its ideas onto others. It is a classic example of do as we say not as we do!!! Considering the mass exodus of U.S. Citizens into Costa Rica, who better to clip money off of the ex-pats than the local misguided government. It removes all the blame from the real culprits.

As previously stated, this law did not make it past constitutional review due to procedure, not content. However, what has all the alarms going off for me is the fact that they had the nerve to pass this horrible idea in the first place. Hence, with this mentality at play, I cannot recommend to anyone to make any kind of investment with this kind of back room deals going on without taking serious precautionary measures well in advance of a rerun of this extremely bad idea and policy.

Now just hold on pushing any panic button and writing investment in Costa Rica off, although this at first sounds like a really bad news memo. Such is not really the case as all of this is quite avoidable by simply performing a structural change just like any wealthy person would when government throws a curve ball at them they do not like. Think of what the Carnegies, Kennedies, Buffets, or Martins would do in this situation. FIND A WAY AROUND THE WALL RATHER THAN TRYING TO SCALE IT!!!!

What we are now doing is setting up a Panamanian structure whereby a Panamanian company will own the shares of the Costa Rican company. By doing this we can legitimately move income, tax free, out of Costa Rica into Panama, where there is no tax on such earnings what so ever. Most importantly, this further adds into the owners’ anonymity, as the company in Panama will have bearer shares. Hence no one can find out who the rightful owners are, only those that actually hold the shares have this information. This is a major trump card in asset protection in that it is most difficult for someone to steal something from you if they do not know you have it in the first place. Indeed a very simple concept and posture! These shares would be kept in a safe deposit box in either Panama or Costa Rica where your heirs know where to find them. In this way, upon your demise, there will be no court fees, no estate or income taxes, and no lawyers involved feeding off of the culmination of your life's work built up in your estate. Your business would not miss a day, as the only change is who is receiving the profits, nothing else. No assets or earnings are tied up in court for months or years either, your business just continues to purr along with no interruptions what so ever. Another major issue is that this completely avoids any kind of jurisdictional battles between different governments and systems that can tie up an estate for years during which time only the lawyers and trustees make all the money, none of the heirs would under that circumstance, that you most certainly can take to the bank.

The cost of this entire structure to protect you forever from creditors, litigates, or the taxman, has a one-time cost of $2,400 as compared to $500, which is what the single Costa Rican corporation would have cost. This structure can also hold any other assets that you want to protect as well. Yes, it is much different than how you have operated in the past, but please keep in mind my advice, that I have always shared with others considering purchasing property here. When you are starting out fresh and clean in a new country and system it is soooooo easy to do it right the first time and so expensive to change it at a later date. The one good piece of news I have here is that this all came to light one week prior to me having the original structure set up to run and receive buyers reserve deposits. Hence, the timing could not have been more fortuitous, as we had not gone too far down that road and had not sunk a bunch of money into setting something up that was only going to need a major overhaul in the near future.

To also put this in perspective, when this tax plan does get approved by the next government it will mean an increase in the tax bill of our owners up to as much as $4,000 per year. Thus I suggest the charge for this type of structure is most reasonable as I have fully investigated such structures in the past and this fee is quite reasonable in comparison to many others that push Panamanian S.A.'s. We also have a trump card in that our consultant, that is doing this structuring for us, is an ex-banker who learned all his tricks from The Royal Bank of Canada private banking branch and how they found ways for themselves as well as wealthy clients on how to get around the walls internationally rather than trying to scale them. My endeavour as always is to ensure that our owners get a good value for their money, not only in what they buy, but most importantly, how they manage it and structure it in the first place. I personally can see no other intelligent alternative to take other than this one, keeping in mind to always be proactive when it comes to taxation, never reactive. When you wait to react, it will cost you much more when you get blind sided rather than preparing for the worst and hoping for the best.

The deposits to reserve our units will be sent directly to the Panamanian Bank where they will go into the Foundation's segregated bank account and sit there until the date that you are advised that the construction on your unit is ready for start. At that time you must release to us the total of a 25% advance to begin construction (10% of which comes from the deposit) on your unit. All future payments will be made in the same fashion exactly. Should you not proceed at that time you will lose your reserve position to the next person in line that has done so. At that point you will either request your funds be returned to you and provide coordinates as to where to send them or you can reserve another unit later into the construction, but this would be done at the then current sales price not the one that was reserved with the original deposit commitment. All in all this will not be a cumbersome structure and will work very efficiently with us assisting you in protecting your interests to the fullest now and in the future. Often when a Plan "B" comes along it is much better than "A", that I believe to be the case here. Upon completion of this whole structure late this month I will advise you via newsletter as to all the final details.

As always, please feel free to send me your questions regarding the above issues for any clarification needed.

Regards,

Trevor Chilton