Going offshore in Eastern Europe — Part 1: the battle for foreign capital

Going offshore in Eastern Europe — Part 1: the battle for foreign capital

Porto Montenegro
Porto Montenegro

The offshore business, investment and banking world, at times, carries a pretty bad rap in Eastern Europe. Often when people think of going offshore, what comes to mind is corrupt officials siphoning off public funds, then moving their assets to international tax havens and secret bank accounts.


But Eastern European states themselves are havens for business and capital, as well as immigrant investors. With relatively low taxes across the region and low costs of living and labor, Eastern Europe already attracts entrepreneurs, investors and expatriates looking to relocate their businesses, capital and/or themselves to greener pastures.


The lure of Eastern Europe for the nomad capitalist


“I think Eastern Europe is a great place,” global citizenship expert Andrew Henderson said in an interview with Bulgaria Analytica on the shore of Montenegro’s Bay of Kotor. “Eastern Europe is the combination of price and culture.”


Andrew Henderson
Andrew Henderson


Henderson, the founder of the tax and immigration consultancy Nomad Capitalist, has chosen to locate much of his operations in the Balkans. Nomad Capitalist has an office in Belgrade and is opening an office in Skopje. Also, Henderson’s summer home is located in the Tivat area of Montenegro.


In explaining his personal strategy, Henderson lauded Eastern Europeans, particularly Balkan nationals, for the their skillsets and the value they bring to employers. Henderson says the Balkans is one of the best places in the world for western employers to hire remote workers or build a team.


People in Eastern Europe are much closer culturally to Americans than Asians are, Henderson said. Eastern European workers do not need to be given exact instructions and are used to operating with more autonomy than Asian workers, he said. Plus, Eastern Europeans are typically educated people who have seen adversity over the course of their lifetimes, something that even gives them an edge over most westerners, Henderson said.


Additionally, he says it is much more economical to hire Serbians, for instance, than Filipinos. A high level of English is spoken in the Philippines, but the country offers overpriced labor compared to what is available in Eastern Europe, Henderson said.


Also with regard to culture, Henderson notes Eastern Europe lacks the rampant political correctness that exists in major English-speaking countries and in Western Europe. Delving into a personal matter, he said the region was a much more optimal place than the United States, his former home, to date and find a partner.


But Henderson says Eastern European states can do a lot more to attract capital, particularly from micro-investors, such as immigrant entrepreneurs who could arrive and hire 10 people. Henderson says micro-investors, rather than megaprojects like oil pipelines, represent the future for some economies in the region.


Numerous countries in the region already have programs for attracting businesses and immigrant investors, but they do very little to market those programs and to stand out from the crowd, Henderson argues. Some states in the region are also hampered by their existing or prospective European Union membership since Brussels pressures them to maintain the status quo, he says. Additionally, some states’ attitudes toward immigration makes attracting micro-investors more difficult.


Henderson, for instance, raises a hypothetical of whether countries would offer citizenship to 100 businessmen from India who could arrive and immediately create jobs. National pride often trumps foreign investment in Eastern Europe, he says.


The Georgian model and the next Georgias


Henderson hails Georgia as an example of a country in the region that enacted successful reforms. Following the Rose Revolution that brought then-President Mikheil Saakashvili to power, Georgia slashed taxes and regulations, spearheading economic growth. A decade and a half later, Henderson says the reform process is unfinished, but Georgia still serves as a model for other countries in the region, particularly via the simplicity of its tax system and its government transparency.


Presently, Henderson lauds Georgia as a place to bank and buy real estate, the latter of which could lead to a residence permit for some investors. While obtaining residence in the country is becoming more difficult, Georgia is one of the easiest places for foreigners to open a bank account, and high interest accounts are common. Henderson says real estate in Georgia has great potential for yield and appreciation, unlike property in most other countries in the region.


Additionally, due to a recent reform of its visa policy, the country presents opportunity for nomads and expatriates. Citizens of much of the world are now allowed to spend up to a year in Georgia visa-free, something Henderson describes as rolling out the red carpet.


“Georgia has always been the crossroads,” the global citizenship expert said.


The Caucasus country’s status as a meeting ground and neutral space in a conflict-prone region bolsters its ability to attract foreign capital, Henderson added.


At the present time, with President Salome Zourabichvili, who formerly served as a French diplomat and talks about raising the work ethic in Georgia, the country has an opportunity to embark upon a new set of reforms, Henderson said.


Elsewhere in the former Soviet space, Henderson says a couple of other countries currently have major opportunities to enact Georgia-like reforms. Neighboring Armenia is coming off a revolution of its own. Armenia’s 2018 Velvet Revolution ousted its Soviet hangover government and brought reformist Prime Minister Nikol Pashinyan to power.


Henderson already hails Armenia as a model country, along with Georgia, for banking. He also praises Armenians for their work ethic, toughness and intelligence and says the country offers some of the best service in the region, though it is quite resistant to immigration.


In Ukraine, the recent election of upstart President Volodymyr Zelensky, who now has the backing of a parliamentary majority, offers a major opportunity for reform. Henderson said Ukraine can benefit from having its political system shaken up.


He says Ukraine has a bad reputation, but benefits from scale, unlike the smaller countries that make up most of the region. Among many other possibilities, Ukraine could expand its existing residence program to attract immigrant investors.


“If you have 40 million people, there is a lot more room for a thousand Indians to blend in,” Henderson said.


But Henderson says it is the Balkans where the biggest opportunity for economic growth exists in the region, and specifically, North Macedonia is the country that could be the next Georgia.


“What Georgia did is they just slashed everything to the bone,” Henderson said. “I think Macedonia has somewhat followed in that pattern.”


The Estonian model and the limitations of EU membership


What makes North Macedonia stand out to Henderson is that the country is “hungrier for businesses to come” than other states in the region. Henderson also sees potential in North Macedonia’s position just on the outside of, rather than inside, the European Union.


“It’s right at the doorstep of the EU without being in the EU,” Henderson said.


That is what makes North Macedonia more interesting than Bulgaria to investors and entrepreneurs like Henderson, unless they specifically want to be located in the EU. While discussing Bulgaria, Henderson shared an anecdote from a time in which he was exploring investment opportunities in the country. Henderson recalls being told a line that has since stuck with him.


“We’re trying to be more Catholic than the pope,” he was told in Bulgaria.


Henderson says Bulgaria is still a “new kid on the block in the EU,” and as Sofia tries to gain membership in clubs like the Schengen and euro zones, Bulgarian officials are scared of making moves that would make the country friendlier to entrepreneurs and investors, but might upset Brussels.


Elsewhere within the EU, there is an Eastern European state that has gained notoriety for its pro-business reforms. Henderson references the Baltic state Estonia as a model country, yet one that is hamstrung by the EU and currently undeserving of some of the accolades it receives.


“What an amazing culture,” Henderson said while describing Estonia. “Ultra transparent, ultra easy, everything’s online.”


Henderson noted the same can be said about Georgia, though Estonia is well known for its efficient e-governance while Georgia is not.


In addition to being a place where one can pay taxes almost instantly, Estonia has a corporate taxation system that has served as a model for other countries, such as Macedonia and Georgia. In the Estonian system, corporate profits do not become tax liable until they are distributed. In other words, it is a pay when you take it out system.


But Henderson says Estonia’s success really amounts to having mastered what North Macedonia and most other countries in the region struggle to do: marketing.


“The challenge with Estonia is they have been so good at marketing that now everyone thinks Estonia is the place to go, and it’s really not,” Henderson said. “They went out and pounded EU residence and 0 percent tax until you take it out. They pounded that into the ground. And they put up this idyllic image of their country. It’s a very pretty country.”


Among other concerns, banking in Estonia has become very difficult, Henderson said. He added that “EU residence is a cute trinket.”


“If someone did Estonia without the EU breathing down your neck, it would be tremendous,” Henderson said.


He said that opportunity does exist for other countries in the region, particularly in the Western Balkans. But the global citizenship authority said he expects a bunch of “singles,” as opposed to “home runs” from Balkan and Eastern European states.


“It keeps coming back to these tiny countries that decided to innovate,” Henderson said, summing up how offshore opportunities arise in the region.


For a glimpse at how countries in the region are innovating with immigrant investor programs, stay tuned for Part 2.


By Josh Friedman

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