Relocating to another country raises a large number of issues in the financial affairs of the expat:
- Credit – Credit status in one country does not travel with you and this can cause difficulties in obtaining a credit card, leasing a car and in a wide range of other ways.
- Money Transmission - Where you retain assets and liabilities in your home country and all of your income is coming from your job or business in the new country you need to be sure that you can make international payments at a reasonable cost and that you can manage the exchange rate risk.
- Pensions – State or private provision for pensions needs to be considered. Can you continue to qualify while living in another country under 401k in the USA, for National Insurance contributions in the UK and the equivalent in other countries? Also when you retire overseas will the state pension be payable in your new home country? Can you continue to contribute to a home-based private pension scheme (including any existing work pension schme) and continue to benefit from the tax advantages available at home if you are resident in another country,?
- Investments – Offshore investment options are available to many expats to avoid or defer tax liabilities, since US citizens remain liable to tax on their worldwide income this option is not available.
With all of the issues that can impact the financial success of your time abroad it is very important to consider the banking options prior to leaving your home country. You should also take the opportunity of any orientation visits to enquire into the services available from local banks and any special arrangements for expats or foreign nationals.
It is natural to try to stay with your existing bank when you move, but you need to be sure that they have the network in the new country that you will need to meet your requirements. Remember also that online banking arrangements are generally country specific and therefore only allow you to make payments in your home country. Payments in your new country will be treated as foreign payments if the service allows you to make such payments online. Many banks have specialist expat arrangements, but you should ensure that these will provide you with the services that you will require and that they match or surpass available services from regional banks.
It is possible to use your debit and credit accounts from your home country, but you need to check on any restrictions. Many credit cards will have a daily limit and many debit cards will have limits on what you can spend in shops as well as cash withdrawal limits. This can be a problem if you have significant costs to meet in setting yourself up in your new home. You should also remember the exchange rate risk that you run and the charges made for overseas transactions. These generally mean you should only use these on a short term basis before setting up local arrangements whether with your home bank or with a new local bank.
One frustration you will have in many countries is the fact that most banks in most countries do not transfer your credit status from your home country. Even if you have been using a credit card from an international provider they will not generally be willing to provide you with a credit card when you move to a new country. You will need to either use your employer to help you get around the problem. Many international banks have schemes for expats where the credit is supported in some way by your employer. You simply need to obtain a credit card and use it once and your initial credit status is established. Once established there are generally no shortage of providers willing to offer a credit card.
If you want to make a more substantial use of credit, such as leasing a car or buying a house, you will need to find one of the specialist providers who deal with expats or find a bank with special deals for expats. For international assignees they will often find that their employers have arrangements with a bank that can help to secure the necessary credit. You should, however, make sure that the services offered meet your needs and that there are not more suitable deals available elsewhere.
Whatever banking arrangements you establish in your new country you should always consider retaining your banking arrangements in your home country as you never know when you may need to make a payment at home or when you may unexpectedly be forced to repatriate earlier than expected. This is clearly required if you have property income at home or if you have left family members behind. It can be difficult to quickly establish suitable banking arrangements in such circumstances (and you may also find yourself treated like a new arrival in your home country initially for credit purposes). If you are going to be overseas for a prolonged period you should ensure that you use your home credit cards occasionally to maintain your credit status at home (and make sure you settle the bill on time).
Offshore bank accounts can give potential tax advantages in some countries where you are no longer resident in your home country. In the UK, for instance, some taxes are due only on a remittance basis if you are not resident. Thus you can defer tax liabilities by holding the funds offshore until you return home and need the funds. They can also provide you with a secure environment for your funds if you are working somewhere with a less secure banking environment. Offshore accounts can also be convenient by having an account in a location that does not have to change every time you move from one expat location to another.
US citizens gain less advantage as they remain liable on their worldwide income and have to report annually on all international accounts held.
The best way to ensure that you do not have exchange rate issues is to ensure that your income and expenditure are in the same currency. This will be the case if you are earning and living in the same country, but for many expats exchange rate risk can be a significant factor. If you continue to have expenses, such as the running costs for your house retained in your home country you will have a long term issue to address. If you are purchasing a home in the new country partially financed with funds from your home country you will be exposed to exchange rate risk, which could fundamentally change the attractiveness or even viability of the purchase if there is a major shift in exchange rates before the deal is finalized.
Where you have such major costs subject to exchange rate risk you should ensure that you have cover. This can be achieved by making sure you leave some funds at home to cover these costs or by arranging for a deal with your employer that either splits your salary between the two currencies or fixes the exchange rate (which, of course, creates its own risk). For larger transactions and where this is not viable, you should take advice from your bank or specialist foreign exchange services to hedge the risk (that is to take out a deal that protects you against movements in the exchange rate). There are many such foreign exchange specialists.
On a day to day basis if you are using your home country accounts you are best using your debit or ATM card as you receive the internal bank-to-bank rate.
There are many factors to consider when investing your funds while overseas:
- How long will you be overseas and do you plan to return to your home country? If you are returning at a pre-determined date or if you have to leave unexpectedly this may not be the best time to cash in your investment depending on market conditions at the time and the nature of the investment.
- What is the regulatory environment like in the country where you plan to invest? You cannot always assume the same level of regulation as you may be used to at home.
- What currency is your investment in and when you cash it in will you be converting to a different currency? You may face an exchange rate risk on top of any investment risk, which could mean that even a good investment in local currency terms proves costly (or, of course, it can work to your advantage).
- What is the tax environment in the country where you are investing and what implications are there if you repatriate the funds? Are you subject to any tax in your home country on any interest or gains?
- Are there any tax advantaged schemes in your home country for those living overseas? These schemes may be a better option if you plan to return to your home country, but you may again face exchange rate risk between your home country currency and that where you are earning your income.
These are just a small indication of the factors that may play a part in your decisions on how to best invest any surplus funds earned whilst an expat. It highlights the need for proper financial advice from suitably qualified advisors. When selecting an advisor you need to be sure that they have experience and knowledge of all of the main factors that you will face as an expat. You should not assume that your regular advisor is well placed to understand all of the issues you will face as an expat nor can you assume that an advisor in your new country who specializes in advising local inhabitants will give the best advice to you as an expat.
World of Expats will be attracting articles from specialists to ensure that you have advice on many of the points you should consider when deciding how and where to invest.