Every summer around this time I rent a palatial wine and olive estate here in central Italy for a few weeks of relaxation with friends, business colleagues, and Sovereign Man: Total Access members.
We’ve been coming to the same place for six years in a row, and it’s gorgeous.
At the center of the estate is an 18-bedroom mansion that has been in the same family since it was built four centuries ago.
Back then, Italy was still a major center of wealth and power. London was still a developing backwater and New York didn’t even exist yet.
But cities like Florence and Bologna were among the most prominent and prosperous in the world.
This magnificent estate was originally built as a wedding present by one of the region’s leading families. It even has its own chapel on the grounds where the ceremony was performed.
While the estate has miraculously remained in the same family over the centuries, Italy’s wealth and status in the world has diminished.
Today, this country is sadly in dire straits.
Italy has one of the worst public debt burdens in the world, exceeding 130% of GDP.
The banking system here is crumbling, and many of Italy’s leading banks — like Unicredit and Monte dei Paschi — are in desperate need of a bailout.
Unemployment persists around 12%. Youth unemployment exceeds 37%.
Economic growth has flatlined… Italy barely registers 1% annual GDP growth.
Adjusted for population growth, the country has basically been in recession for years.
The signs are obvious. Italians feel the economic pain. It eats into their standard of living.
Naturally the government is a total disaster– corrupt, incompetent bureaucrats whose attempts to ‘fix’ everything have only made the situation worse.
Over the last ten years, in fact, the Italian government has engineered widespread poverty across the country, with the number of people living below the poverty line almost tripling since 2006.
We’ve become close with the current owner of the estate. She’s the great-great-etc. granddaughter of the original nobleman who built this place.
And each year we have what I call the ‘annual airing of the grievances.’
Basically she talks in that highly animated way that only Italians are capable of doing, venting and griping about all the ways the Italian government has been screwing her.
Every year it’s more of the same. Capital controls. Wage and price controls. Debilitating regulations.
A few years ago in an effort to ‘protect’ workers, they imposed a minimum wage so steep that she could no longer afford to harvest her olives.
She had workers who were perfectly willing to accept the normal, lower wage. But the government wouldn’t allow it.
Paying the higher wage, though, meant that she was 100% guaranteed to lose money.
End result? There was no harvest… so nobody made any money.
Genius.
Now they’ve invented all sorts of new taxes and jacked up existing rates to astronomical levels, in addition to burying her in paperwork.
Year after year I hear these stories, and year after year the situation becomes worse.
But the worst part in my mind is that she isn’t doing anything about it.
I’ve tried to explain to her how many solutions exist. There are ALWAYS completely legitimate ways to solve these problems.
For example, she could set up an overseas booking agency in a tax-favorable jurisdiction like Singapore, UAE, or Hong Kong (which all just happen to have comprehensive tax treaties with Italy).
Let’s say she chooses Hong Kong.
Similar to Booking.com or Hotels.com, her Hong Kong booking agency would market the property to prospective customers, book the reservation, collect all the money up front, and charge a 25% commission for this service.
A 25% commission is pretty standard for in the industry. That’s what she’d pay if she booked reservations through Hotels.com.
So if a customer pays 40,000 euros for the week, the Hong Kong-based booking agency would take a 10,000 euro commission. Then it would pay the remaining 30,000 euros to the villa’s account in Italy.
That 30,000 euros would be just enough to pay the villa’s expenses. So the Italian operation would barely break even (and hence pay very little tax in Italy).
But the booking agency’s 10,000 euro fee is nearly pure profit.
And since that company is based in Hong Kong, it is not subject to Italian taxation.
Depending on how the booking agency is structured, it’s even possible the profits could be tax-free under Hong Kong’s generous territorial tax system.
The idea is that instead of drowning in paperwork, steep taxes, and insolvent banks, she can legally set aside profits that will remain in a stable, low-tax jurisdiction with a well-capitalized banking system.
This is just a quick, back-of-the-envelope example.
There would be a number of intricacies and professional advice involved in establishing a final structure, so please don’t take this as a ‘how-to’ guide. It’s not.
The point I’m trying to make is that there are always solutions.
It really breaks my heart, though, because she never implements them. It’s always the same reaction– “Yes, I really need to do that.”
But it never happens. And each year her inaction costs her more money, more stress, more dignity.
Nothing beats action. The greatest plan in the world is worthless without the will to act.
And that starts with cultivating the right action-based mindset: No politician is going to ride in on a white horse to engineer prosperity for all.
WE are responsible for solving our own problems and improving our own lives.
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