All Countries are Developing Countries
See a Country as It Really Is
Whether you are doing business internationally or looking to move abroad, the idea that all countries are developing countries challenges the traditional binary classification of “developed” and “developing” nations. Your mindset when looking at a country as developing (including the US) will help you see it more clearly and make better decisions about any engagement with that country. Development is a relative concept. It depends on the context, the reference point you use, and your personal perspective and preferences.
Coming from the perspective of five decades of entrepreneurship in the US, our perspective on process and efficiency changed as we looked to relocate abroad. In the US time management and efficiency were a focus. We sought out the newest, streamlined, and most efficient services. As we looked at moving abroad, we looked for systems in banking, obtaining visas, and day-to-day living that were sound and consistent. Expedience was not highly prioritized. In practice, the sometimes awkward and process-heavy transactions in our home in Panama have forced us to slow down a bit and be patient. Everything gets done, but in its own time, we have found less stress and anxiety.
The Static Misconception
The misconception that any country is static is a fallacy. It's crucial to recognize and comprehend the dynamic characteristics that shape a country's demographic, cultural, and economic landscape. This understanding is not just informative, but it's also key to adapting and thriving in a changing environment, be it for business or personal reasons.
For decades, trend analysis has been a reliable way to understand these dynamics. AI, nascent changes in the world order, political upheavals, rapidly increasing national debt, low birth rates, and migration trends are rapidly changing. Trends change quickly, so looking at both historic trends and current dynamics provides a full perspective.
Here are some key points to consider:
Imagine a hill slope: at the top are the wealthiest, most technologically advanced countries (often labeled “developed” or “first world”), and at the bottom are the least developed nations. All countries fall somewhere on this continuum, with varying degrees of development.
The United Nations uses the HDI to measure development considering factors like life expectancy, education, and per capita income. This index provides a sound snapshot of a country at any given time and can be found here- Home | Human Development Reports (undp.org).
Taxation As a Cost of Living
Benefits of A Territorial Tax system
When considering relocating abroad motivated to reduce your cost of living (without sacrificing quality of life), expenses for housing, groceries, healthcare, utilities, and other daily life necessities are top of mind. However, the issue of taxation is arguably equally important. This article focuses on Americans and their tax obligations when living abroad. There are two laws regarding income, gift, and estate taxes that combined can reduce or eliminate these taxes for Americans living abroad.
Suppose you are a U.S. citizen or resident alien living abroad. In that case, the rules for filing income, estate, and gift tax returns and paying estimated tax are generally the same whether you are in the United States or abroad. U.S. citizens are subject to tax on worldwide income from all sources. This means that even if you live outside the U.S., you must report all taxable income and pay taxes according to the Internal Revenue Code. There is one notable exception, the Foreign Earned Income Exemption (FEIE).
The FEIE offers a significant respite to Americans residing abroad, allowing them to exclude all or a sizable portion of their foreign earnings from U.S. taxation. This exemption not only fosters international mobility and supports expatriates but also simplifies tax compliance for those navigating the intricacies of cross-border living and working. It's a beneficial provision that can potentially reduce or eliminate your tax obligations. However, it's crucial to note that it does not exempt one from the obligation to file a US tax return. Filing a US tax return remains a key responsibility for all Americans, regardless of their place of residence. For tax year 2024, the maximum foreign earned income exclusion (FEIE) is $126,500 per taxpayer or twice that for a couple filing jointly.
The FEIE does not apply to Social Security benefits for Americans living abroad. Social Security payments are derived from a U.S. source, and they cannot be excluded from taxation using the FEIE. About 40% of people who receive Social Security benefits must pay federal income taxes on their benefits. Whether you must pay taxes on your Social Security benefits depends on your income level.
The second exemption that can benefit Americans living abroad is found in the tax laws of several countries around the world. These countries have adopted a territorial tax system. In a territorial tax system, only income earned within the country’s borders is subject to taxation. Income earned abroad—that is, income earned outside the country with a territorial tax system—is generally not taxed by your new home country.
Moving to a country with a territorial system can open new opportunities for Americans. However, it's important to note that establishing tax residency in a country with a territorial system is a requirement. The IRS has guidelines for this status that require establishing genuine ties to the country. You qualify under the IRS bona fide residence test if you are a resident of a foreign country for an uninterrupted period that includes an entire tax year or if you meet a physical presence test.
Digital nomads, freelancers, contract consultants, and others who establish tax residency in countries with territorial systems can legally earn income tax-free. This benefit can indeed lower your cost of living, giving you more control over your financial situation and possibly reducing your income needed to achieve the quality of life you desire.
Malaysia, Thailand, Panama, Nicaragua, and Costa Rica are examples of countries with territorial tax systems.
As you look to lower your cost of living and maintain your quality of life—to live your best life—keep territorial taxation in mind. If you are looking to redefine your retirement as a process and not an event, lowering or eliminating your tax burden can reduce your income needs and provide greater flexibility in your life.
Tax laws and their interpretations change frequently. The information in this article is believed to be accurate at the time of writing but is not tax or legal advice. Consult professionals regarding your circumstances.
The Shiny Side Up: Why Happiness Reports Don't Tell the Whole Story
The World Happiness Report paints a rosy picture, ranking countries based on self-reported well-being. Yet, this seemingly objective measure can be misleading for capturing the complexities of individual happiness. While the report offers valuable insights into national trends, it overlooks several crucial aspects that influence how a single person experiences happiness.
One limitation lies in the metrics themselves. The report focuses on factors like GDP, social support, and freedom. These undoubtedly contribute to happiness, but they don't encompass the full picture. Personal relationships, purpose in life, and even a sense of accomplishment unrelated to material wealth can deeply influence individual happiness. A person in a high-ranking country might struggle with a chronic illness, facing a broken relationship, or lacking a fulfilling career path–factors the report wouldn't capture.
Cultural variations in interpreting the concept of happiness itself can skew the results. Some cultures might prioritize stoicism and resilience over outward displays of joy. Someone raised in such a culture might report a neutral level of happiness, even if they feel a deep sense of contentment and inner peace. The report's metrics might misinterpret this neutrality as a lack of overall happiness.
The report also relies on self-reported data, which can be subjective and prone to bias. People's responses might be influenced by social desirability – the tendency to answer in a way that is seen as favorable. Someone living in a country ranked lower on the happiness index might downplay their struggles to avoid reinforcing negative stereotypes. People's perception of happiness can be influenced by temporary circumstances. Someone experiencing a recent setback might report lower happiness, even if their overall life situation is good.
In conclusion, the World Happiness Report offers a valuable starting point for understanding national trends in well-being. However, focusing solely on these metrics neglects the rich tapestry of factors that contribute to individual happiness. True happiness is a personal experience, shaped by a unique blend of circumstances, cultural contexts, and individual perspectives. While reports like the World Happiness Report can be a tool for policymakers, they should not be the sole measure of a person's inner joy.
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