Demand for Residency Permits in Central America

Spending longer time in Central America will at one point require a residency permit as tourist visas require to be renewed after 90 days. The following points summarize the main reasons to obtain residency in Central America:

1) Retirement – Relocating to an exotic country in Central America is a dream followed by many retiring baby boomers from the US and Europe.

2) Starting a new business – Central America is home of several developing countries and offers many exciting business opportunities for entrepreneurs. Work permits as employees are hardly available and in most cases are reserved for high-skilled workers from multinational companies. Thus in practice an investor visa or a pension income is required to start legal activities

3) Tax optimization – countries in Latin America tax income mostly on domestic sources only, thus income earned from sources outside the country remain tax free

4) Obtain a second passport – the residency permit is a first step to obtain a second passport

In the US alone, 76 million children were born between 1945 – 1964. This large population group is called the Baby Boomers. Today they control over 80% of all personal financial assets (Source: Wikipedia). This generation of baby boomers is reaching retirement age and many of them will evaluate international living options such as relocating to Central America due to lower costs of living and the warm tropical climate.

In Latin America itself, some countries await economic and political difficulties. Thus many citizens of such countries try to secure a safe place abroad for their families to prepare for any eventual emergencies. Especially citizens of Venezuela have recently been seen looking to obtain residency permits in Panama while historically many Colombians brought considerable financial assets to Panama. Due to political stability and a history of being a safe haven, Costa Rica and Panama qualify very well as a place to relocate in case the situation at home becomes too difficult.

Teak and Tropical Tree Plantations

Tropical tree species such as teak are limited to grow in climate zones near the equator. Therefore only a few select countries in the world can supply teak wood demanded by the world market. Some countries are difficult to do business with being a foreigner but countries such as Costa Rica or Panama offer an investor friendly environment and succeeded in attracting considerable foreign direct investment. Tropical timber plantations in teak and other tropical trees are supported by their governments through tax incentives and require lower minimum investments to obtain a legal residency permit as small investor.

Tropical forestry plantations allow the growth of sustainable planted trees under government control which reduces the pressure to extract wood from unsustainable (and in most countries illegal) logging activities in primary rain forest. Plantation wood also can be easier certified by e.g. the Forest Stewardship Council (FSC) allowing more transparency for the consumers to understand the production methods of such woods. Tropical tree plantations thus indirectly aid to protect the environment, flora and fauna of the remaining natural forests.

In case of Panama, the country suffered heavily from deforestation during the last centuries removing primary rain forest nearly completely from the landscape in certain regions. This explains the country’s need to promote reforestation and facilitate forestry plantations where the wood can be derived from sustainable forest sources under strict governmental control. Bigger forestry plantations also often contain spaces, which cannot be used to grow commercial plantation wood due to the soil quality or humidity of the area. Therefore, such areas offer an ideal use as so-called eco-pockets by letting the area re-grow into natural forest and offer space for indigenous animals. Plantation owners might even extend the size of those areas over time as a show-case to demonstrate that ecology can go hand in hand with economics, thus offering investors additional arguments to invest and providing peace of mind to aid the environment as otherwise the area might be used for pasture land.

Tropical timber investments are mostly long-term in nature (teak investments take e.g. 20 – 25 years till final harvest) and can be financially highly attractive. Volume growth is driven naturally through the growth of biomass, thus the investment grows in value over time. Concrete forestry investment opportunities show a range of returns between 8% – 18% estimated Internal Rate of Return (IRR) according to Investing Alternatively. Forestry investments are known to have the capability to beat the stockmarket in the long-term and also show low correlations to other asset classes which make them an ideal investment complement from a portfolio point of view (Source: Forest Investment Associates, NCREIF vs. Financial Assets, Forest Research Group 2007).

The View of Retirees towards Teak and Tropical Timber Investments

Foreigners retiring in Central America normally can look back to successful professional careers, thus having less a need to create wealth for themselves but are interested to pass wealth over to their children and grandchildren.

A teak or tropical tree investment can be attractive to transfer long-term wealth by optimizing tax and return aspects. As the wood will be harvested in the future it can e.g. be used for foreseeable expenses in the future which will require larger amounts of capital such as e.g. building a house or finance the education of the grand-children. Thus the retiree can leave a legacy behind in form of planted trees which are steadily growing in volume and thus in value. This makes more sense than depositing money in the bank where current interest rates are low and might not even be enough to offset inflation. Also an investment in teak or other tropical trees can ideally complement stock market and real estate investments as the fundamental value drivers are different and thus aid to diversify the investor’s portfolio.

Residency Permit through a Teak Investment

Facilitating forestry projects is part of the strategic plan of the government in countries such as Costa Rica and Panama. Thus forestry residency visa’s are one of the cheapest options to become legal resident. For other countries where investment requirements are low (e.g. Ecuador USD 25,000 or Nicaragua USD 30,000 but subject to change) an investment in a tropical tree plantation can be a great way to obtain a residency permit without the necessity to start business activities in unknown territory. Most common form of a tropical timber investment is teak as there exists a well established market for teak wood and the prices are quite attractive compared to other tropical timbers.

When looking at the minimal investment requirements to obtain a residency visa in Central America, it is evident that tropical timber investments can be a great way to obtain legal residency as a foreigner:

Costa Rica: USD 100,000 investment in an approved reforestation project (otherwise USD 150,000 minimal bank deposit required)

Panama: USD 80,000 to obtain control over 5 hectares of reforested lands in an Autoridad Nacional del Ambiente (ANAM) approved reforestation project (otherwise minimal USD 150,000 investment required to start a business).

Conclusion

Combining a residency visa with a teak investment can be an attractive alternative to other residency visa programs,. A teak investment in a plantation aids to satisfy demand for tropical timber without touching primary rain forest, offers attractive long term returns and can be an ideal instrument to transfer wealth to the next generation. Compared to other residency visa programs in Central America, the government supported forestry investor visas appear as one of the cheapest option to obtain legal residency.