Colombia

Your Money

There were two early attempts at establishing a central bank in Columbia. The first opened in 1880 and closed in 1894 and the second opened in 1905 and closed in 1909. The reasons for the closures were the same, excess in the issuance of currency. The present central bank, Banco de la República, was established in 1923. The 1991 constitution introduced reforms to the operation of the bank by replacing the Monetary Board by the Board of Directors. Also the bank was made an independent organization. It does not form part of the executive, legislative or judicial branches of the government. However the Minister of Finance is the presiding director of the Bank’s board. The Bank is required not to compromise the Government’s financial priorities. In the limit the Bank may refuse to comply with government demands in respect of fiscal matters.

There have been problems for Colombian financial institutions to align their policies with respect to privacy with the requirements of F.A.T.C.A. (the Foreign Account Tax Compliance Act) of the U. S.A. There was an agreement between Colombia and the United States of America for the exchange of information established in 1993 but it was never implemented. From the point of view of those with retained interests in and citizenship of the U.S.A. it would probably be best to assume that banks in Colombia are “F.A.T.C.A. Compliant”. This means that under the conditions set by the I.R.S. (Inland Revenue Service) banks will report to the I.R.S. details required without reference to the account holder other than that a charge (fee) may levied to cover the cost of F.A.T.C.A. compliance.

Colombia has signed Double Taxation Agreements with Canada, Chile, Spain and Switzerland and the countries of the Andean Community. There is a treaty with Portugal that is not yet in effect.

There are regulations for businesses so far as capital and investments are concerned but there are generally no exchange controls on the movement of foreign funds or Colombian Pesos. This fact is also comforting for intending residents. Income tax is charged on world-wide income so far as residents after five years residency (permanent residents) and citizens are concerned.

No confirmation of the security of the banking system or general financial arrangements and the demonstrated willingness of the government to maintain confidence in the country should deter prospective immigrants from making their own arrangements to secure their own financial arrangements both within their new place of residence and outside it. Risk should always be spread as a safeguard against unforeseen circumstances.

Opening a bank account in Colombia is not difficult. There is a pedantic adherence to detail so far as the banks are concerned. In addition to the need to make an appointment with the bank many documents will be required.There are many guides offering advice on how to open a bank account and it is wise to read a few of them. Transferring money to Colombia is also relatively simple although immediate results are not likely to occur. It is important to be personally aware of all details required by the overseas transmitting bank because it is unlikely the local bank will know what is needed. It is useful to know what banks operate in Columbia. There are many lists of banks and descriptions of them and their relative size. Most banks have ATMs, although often inside the branch, and there are likely to be charges for their use. Credit cards are usually accepted at most establishments needed by tourists, such as restaurants, hotels and shops in the main cities although some form of identification may be requested.

Any retiree should also maintain an offshore bank account in whatever country is likely to be most useful. The author of Passport to International Profit has little confidence in the Ecuadorian banking system since losing money in 1999. His “Six Point Command Posture” for financial safety and security is applicable to any country. This reinforces the point that flexibility is vital and that all eggs should never be in one basket.

Obviously the financial aspect of Colombian life should be fully investigated both before leaving for and while on a “Golden Rule” trip to the country. It will still always be useful to have an offshore account at a bank with which business has been satisfactorily done previously, preferably over a long period. No more than the required minimum should be moved to the new country. At all times the risk, changing values and exchange rates should be spread over a number of countries. This minimizes possible losses owing to changing political and economic conditions. Details of the cost of living should determine the amount of funds which should be transferred both initially and subsequently on a periodic basis. Obviously a check can be continuously kept on changes in expenses whilst living in the country.

Pensions

It is likely that a pension or pensions will form the basis of the income requirements for retired persons. Proof that such income is assured or that arrangements to have it paid to a Colombian bank will depend upon the organizations or countries that are the source(s) of the pension(s). This will be either a government paying the pension provided by the social security system or your employer paying a private pension or both. Your freedom of action with respect to moving your funds to your country of retirement may be quite different for each income source. You should first establish which banks offer retail or branch services in the country to which you intend to retire. It must then be established which banks are their correspondents in the country(ies) of your income source(s). If your pension is sourced from the British government then it can be paid virtually anywhere in the World and this is the case also with pensions paid by most British Commonwealth countries. Not all private pensions can be transferred in this way and there can be tax implications in the country of origin when lump sums and annuities are involved.

One vital point that has to be mentioned with regard to the British old age pension so far as Colombia is concerned is that it will be frozen if you retire to Colombia. It will be frozen at the rate being paid on the date of the move to Colombia. A number of countries are in the same situation. British pensions are frozen at the rate at which they are first granted or at which they are being paid on migration to the affected countries. If this matter can be corrected then all British pensioners would receive the increases that accrue from time to time for British residents, those living in the thirty countries of the European Union and Switzerland and fourteen countries with which the United Kingdom has reciprocal agreements.

An additional problem for those moving from Australia is that there will have to be references to or contacts with CentreLink. This is a very diffuse organization with offices all over the country which deals with all matters of social security payments including the payment of age pensions. It is present in even very small towns and has multiple offices in the capital cities of Australia. Many of the rural or outback offices find it difficult to deal with the more complex matters.

The larger administrative hubs of CentreLink are also spread across the capital cities. There is a problem of co-ordination among this widely spread concern because certain offices "specialize" in particular aspects of its responsibilities. It is very easy for one person to be dealing with multiple offices none of which is always fully aware of the pensioner's overall situation.

The Hobart, Tasmania office deals with "international" matters and one can learn from there that an Australian age pension can be paid almost anywhere in the world. What is not always volunteered is the fact that international payments are made on a four week cycle rather than the two week period that is normal in Australia. Also not commonly offered is that a pension will not be paid to an overseas bank unless the recipient states clearly and in writing that the intention is to reside overseas for at least a year. This can easily result in a pensioner, having moved abroad, finding that even though, apparently, all necessary forms and formalities have been completed no payments are forthcoming. Given also that the department's toll free overseas telephone numbers do not always work it easy to see that a person can become frustrated, angry and financially embarrassed. Co-ordinated Australian Government and CentreLink internet sites are improving and this is probably the best way to keep in touch with matters relevant to Australia pensions.

The British Pension Service, part of the Department for Works and Pensions, is, compared with the Australian CentreLink, easy to deal with by telephone or by letter. There is a reluctance to deal with or comment upon anything of a confidential nature over the telephone and this even more the case when e-mail communication is used. The Department's web site is not easy to follow but in writing, by letter, communication is concise and accurate. There is no hesitation in providing information, all forms that may need to be completed and any explanatory publications, booklets or pamphlets that may be available

An important point to consider is whether or not to have your pension paid directly to the country in which you have chosen to retire. As has been mentioned earlier countries can change. It would not be a good outcome to have to exit your "paradise" and leave your money in it. There are ways to mitigate this potential problem although, for the moment, this is not a difficulty that arises in Colombia because of the lack of exchange controls on personal capital movements but caution is necessary with respect to inter-bank communications and fees. Recent events in Greece and especially in Cyprus are indicative of what can happen. In the case of Cyprus the British government was quick to stop payments of British pensions to Cypriot banks thus limiting recipients’ losses.

For those with pension arrangements to which contributions are still being paid or which have partly matured there are ways to move benefits to Colombia and many other countries. There are many firms which deal with such transfers which are known as "Qualifying Recognized Overseas Pensions Schemes” (QROPS) and “Qualifying Non-British Overseas Pensions Schemes” (QNOPS). The latter is also known as a “Qualifying Non-U.K. Pensions Scheme” (QNUPS). A QROPS Pension Designer site explains such plans but there are others such as Horizon QROPS which offer a range of plans. Details of QNOPS and QNUPS arrangements are also available.

The links at the "Resources" tab on this site and information in the book "How to Retire in Colombia" by Les Johns will be good initial research points for intending retirees. The book is available from this site.

Other Income

As a retiree it is unlikely that local income will be derived by you but this is permissible in Colombia. Once an application for permanent residency has been made and a cedula de identidad obtained it is legal to seek employment. This subject would seem to be a point to be investigated during a “Golden Rule” visit to Colombia.

The simplest "one size fits most" solution to the problems of moving about the world and having access to your funds is accomplished by opening an offshore bank account. This is true so far as Colombia is concerned and advisable because of the possible lack of privacy available in Colombia. It not unlawful to open an offshore bank account. Many very respectable banks offer offshore facilities to their customers and most now have signed disclosure agreements with the taxation authorities in many countries. Unless clients agree to abide by the disclosure rules the banks are required to withhold a percentage of funds deposited with them to cover any possible tax liability. Banks have agreed to such arrangements in order to avoid draconian restrictions on their own activities.

There is a myriad of organizations, such as this one, offering to open an offshore bank account for you. They will charge anything from $400 or $500 to perform a simple operation that you can do equally well yourself. If a company structure or trust is more suited to your needs then you can look at firms such as Ocra World Wide. They may be useful but they will not be cheap. You can deal with a couple of very well known banks in London to open an account in the Isle of Man, Jersey or Guernsey. Also there are the traditional homes of offshore banking in Switzerland, Austria, Luxembourg, and Andorra. It is now also possible to consider Gibraltar and Malta although the whole of the European Union area should be viewed with caution since the recent events in Greece and Cyprus. The Cayman Islands, Belize, St Kitts and Nevis and the Cook Islands are well established as financial centres for both offshore bank accounts and companies. Citizens and residents of the United States of America may encounter difficulties in an increasing number of countries because of the Foreign Account Tax Compliance Act which the I.R.S. is now enforcing. At least a few of these possibilities are on favourite tourist tracks and it is possible to select a place where the normal business language is one that suits you best. Of course it is also the case that some of these places may be on your list as possible retirement spots. There are advantages to having your offshore account in the same jurisdiction as the source of the majority of your income or an adjacent one. Whereas organizations such as DeltaQuest should be avoided for the simple task of opening an offshore bank account such sites can provide good information about the purpose and advantages of these accounts. Succinctly it should be easy to pay into these bank accounts for organizations in the same jurisdiction so that pensions can be conveniently received at a low, if any, cost. Interest is, usually, paid without any withholding for tax purposes and payments can be made from them to most parts of the world in most currencies. Many banks offer debit cards (and some credit cards) which makes access to funds easy in most countries.

It is essential to keep abreast of changes in regulations regarding banking, exchange control and financial matters in general. The rules governing the movement of money between countries can change in an instant with devastating results if adverse effects cannot be at least mitigated. Having just a “nodding acquaintance” with political matters in all countries which may have a bearing on the safe keeping and transmission of your funds can allow the anticipation of changes and the quick adjustment of arrangements.

An new development in dealing internationally with funds is the currently expanding use of digital currency. Details of this system which eliminates banks and governments from the transfer of funds can be found at http://bitcoin.org or for a graphic demonstration of this monetary phenomenon go to this you tube video. Although interesting the use of Bitcoin may not yet be a practical solution to financial difficulties likely to be encountered by retirees. Bitcoin is a subject also discussed in this report.

The links at the "Resources" tab on this site will allow further investigation of the above points as will study of the book "How to Retire in Colombia" by Les Johns. This book can be purchased directly from this site.