If you asked me whether the expat life is worth pursuing, I would say a hundred times, yes. But I’d quickly add a proviso that moving to a new country is huge step. The complexity of migration, culture shock, and the loss of family and friends, can hit hard.
It’s essential to understand the challenges of becoming an expat, and to seek support. You stand a far better chance of success if you get advice that you can trust on every aspect. This includes visas, immigration, property, insurance, banking and tax.
As a tax adviser to global expatriates and businesses for over 25 years, I know that expat tax is a dense subject. Failure to understand how tax systems work can be very costly. There’s no substitute for individualized advice, but here are some vital rules…
7 Key Rules of Expat Tax Planning
1. Start planning, ideally six months before you move
Like other financial aspects of moving overseas, expat tax needs detailed consideration. You need to spend time researching the tax systems of the country you are leaving and the one you are joining.
Some countries have very complicated tax rules. For instance, the United States imposes tax based on citizenship, not residency. One question to ask is whether your new country taxes worldwide income, or only the income you earn there.
2. Choose an advisor with care
Make sure that you use a company that has specialist experience. It’s essential that it focuses on your personal interests, not those of your employer. Often, there will be a need to consider personal tax issues in both your home city and your arrival city. You may need two sets of tax advisors to help you get the best outcome.
3. Consider tax from home-and-away perspectives
To plan liability, your advisor must consider the tax system you are leaving and the one you are joining. Do the two countries have an agreement to avoid double taxation? International tax agreements can affect your actual income in one, or both, countries.
4. Be aware of exit tax regimes
Find out if your home country, or any other country you are living in for a period, has an exit tax regime. This means they impose some type of tax charge on you when you leave the country. Exit tax is generally calculated based on the increase in the value of your assets since you bought them.
5. Research social security systems
Find out about your new country’s social security system. Some countries ask for expats to contribute. If so, make sure you know what’s expected, and what benefit you will receive (such as healthcare).
6. Understand what take home pay to expect
When accepting a job overseas, be sure to learn about the tax treatment of income in your new country. It could be very different than what you’re used to. Some expats take assignments overseas on a ‘tax equalization’ basis. In this instance, the tax you pay overseas is equal to the tax you paid while at home.
7. Beware of the tax issues of selling your family home
When you sell-up to move to a new country, is the sale of your property subject to tax? In some countries (for instance Australia), the sale of the family home is exempt from income tax. Other countries (like the USA) consider this to be a taxable gain.
Broadening horizons
I will always sing the praises of joining the vast, dynamic, global expat community. Aged 14, I became an expat for the first time, moving from Sydney to London with my family. I can honestly say that it’s the best thing I ever did.
Sure, I occasionally felt pangs of homesickness and frustration at being an outsider. Like the time I asked for ‘chips’ instead of crisps in a supermarket, and the shop assistant wore a puzzled expression. But, for me, the benefits by far outweighed the negatives.
Being able to say that you have lived overseas gives you the edge. Friends and colleagues appreciate it when you share what you have learned. Whether that is a language, or a different perspective in business. Now I am an expat again, in Singapore, and the learning curve continues. It’s great to be part of the exchange of skill, creativity and culture between expats and natives.
Steep cost of bad planning
Sadly, one in ten expat assignees return home for personal reasons. Common issues are family concerns (54%), ill health (42%) and difficulty adapting to life in a new country (28%)[i].
The cost of a failed international relocation can be steep. Without proper planning, even more so. Poor tax management, for instance, can result in hits in your home country and host country. There may be further costs to face on repatriation.
Whether your life overseas is temporary, or forever, success is all in the preparation. Effective financial management gives you the security you need to explore new opportunities. You may even be bold enough to enjoy serial expat adventures.
So, my golden rule is plan, plan, plan. Get the support you need. Then, have fun and enjoy the journey…
[1] Global People Movements, a report published by the Legatum Institute Foundation in partnership with Oxford Analytica by Philippa Stroud, Rhiannon Jones and Stephen Brien, June 2018
Expatland Global Network provides a community of E-Teams in popular city destinations to help with every aspect of the expat journey. There are now E-Teams in Singapore, London, Sydney, Melbourne, Auckland and LA, with many more planned. These teams bring together vetted professionals across a range of sectors, including visas, tax, relocation, insurance, real-estate and much more. Giving clients access to many expat services through one point of contact, Expatland’s mission is to make life easier for expats on the move.
