Five Ways Moving Abroad Can Affect Your Finances

Is your company offering you a unique opportunity to work in the Tokyo office? Have you always wanted to spend a few years as a Berliner? Or does the frenzy of this year’s presidential election make one think about moving to Montreal?

This post was originally published on LearnVest .

There are many reasons why you might be interested in the idea of ​​becoming one of the 9 million US expats who live abroad. But before you pack your bags and travel to the other side of the world, you should think about how this will affect your finances.

After all, taking a dip in international waters takes a lot of planning. Between work visas and figuring out what to do with taxes, the amount of approvals and paperwork required can be enough to make you dizzy.

So before you start dreaming of an office overlooking the Eiffel Tower, start collecting your ducks in a row and take a look at our list of important financial things to know about this expat life.

1. Finding a company that will sponsor your work will greatly simplify the task.

The temptation to move first and then worry about getting a job? “Not so fast,” says Megan Fitzgerald, an experienced American expatriate and founder of the international consulting firm Career by Choice. “The problem of getting a work permit can be anything but impossible, depending on your situation,” says Fitzgerald, who works with expats around the world remotely from Singapore. “The situation is changing all the time, so I would never advise anyone to just go to the country, show up and think, ‘Oh, I can find a job.’

In many cases, foreign governments will not issue you a work visa unless you already have an agreed job offer, so give yourself time to look for a job and get a job with a company that can help you sort out the paperwork for you. We know what is easier said than done. But the main thing is to highlight talent that is difficult to find in the local market, says Fitzgerald. “What I do with my clients is to help them understand their unique value and how to communicate effectively and culturally,” she says. “[In this way] companies can clearly see the benefits of investing in their unique combination of qualifications and skills that others, especially local talent, simply cannot offer.” So, research the talent gaps in the countries you are targeting and see where your skillset might meet the need.

One note: if you are married, find out what the local laws are for granting spouses work visas. Typically, a foreign employee’s work visa does not apply to a spouse and he or she will have to obtain one separately. According to Fitzgerald, in some countries your spouse may not even be allowed to work. “So one of the biggest problems with families going abroad is often [they are part of] a dual-income family and then they get the opportunity to go abroad, but only one person is guaranteed a work permit,” adds she.

2. Even if you are simply moving to a new office at the same company, you may need to renegotiate your employment contract.

What if you work for an American company that sponsors and pays for your move abroad? Be sure to read your fine comb contract terms before signing the dotted line, ”says Jonathan Lachovitz, CFP®, founder of White Lighthouse Investment Management, which specializes in cross-border financial planning.

Make sure your contract has specific clauses, such as a clause that will return you home in the event of a job loss while abroad, safeguards to ensure repatriation costs after the expiration of your contract, and the provision of funds to an independent tax advisor as your taxes will be difficult. Plus, Lachowitz says, don’t assume that your employer’s HR department or the relocation professionals they hire will have all the answers you need.

“Some relocation professionals are fine, but a lot of them get paid for referrals, so [they might say] ‘Oh, go to this bank,’ or ‘Go to this insurance agent,’ he says. “Conduct your own independent investigation. And find a colleague who recently took a similar step. You can learn a lot from other people who have crossed the border before you, and they can tell you what they didn’t succeed immediately on their way. ”

3. You will need to be prepared to file two sets of tax returns.

Do you think that filing tax returns in the United States is a pain? Well, once you move abroad, your tax situation becomes much more difficult. “People don’t realize the complexity of their tax situation [when they become expats]. They tend to think, “Oh, I just have a simple situation,” says Lakhovitz. “And they believe that hundreds of people must have the same situation, so how do they deal with it? [But] the facts and circumstances of each individual situation are different. “

What makes your taxes especially challenging is that you will need to file local taxes in your new jurisdiction, which means learning the tax laws and regulations of your intended country of residence, Lachovitz says. But beyond that, you also have to file a U.S. tax return – which means you could end up with tax debts in the States as well.

The good news is that the US tax code offers some provisions that can help reduce or eliminate the possibility of double taxation for expats. For example, you may be eligible to claim overseas tax credits , or you may qualify for an earned foreign income exemption that allows expats to exempt taxes on a certain amount of their foreign income (for example, for the 2015 tax year, this amount was $ 100,800 ).

Of course, it will be helpful if you get advice from local tax and financial planners, “because it can definitely come as a shock to the system if you suddenly realize that your tax burden has actually increased due to an assignment abroad.” says Maryluise Serrato, executive director of the American Citizens Abroad Expat Advocacy Group.

4. You may need to change your financial service provider.

The internet and mobile apps have made remote banking easier than ever, but that doesn’t necessarily mean you can use the same bank, credit card providers, or brokerage houses you’ve used in the States.

This is in part due to foreign laws that may prohibit US banks and investment companies from selling their products overseas, Serrato says. “So when these institutions see that they have an American who no longer lives in the United States, they have fears that they may be violating foreign laws, and therefore they close those accounts of Americans who cannot prove that they have there is an address of residence, ”she said. adds.

On the other hand, the Foreign Account Tax Act ( FATCA ) of 2010 also makes foreign banks hesitate in hiring US clients. FATCA requires foreign financial institutions, including banks, insurance companies, stock brokers, and trusts, to disclose whether their clients are US citizens. The legislation was created to detect tax evasion by Americans living offshore, whether they reside in the United States or overseas. Due to reporting requirements, many foreign banks are now reluctant to work with US clients to avoid fines or a potential US Department of Justice investigation, Serrato said.

Therefore, before going overseas, research your local banking situation and your ability to open a foreign bank account there, or whether your current bank in the United States offers expatriate services. In addition, Lachovitz says, it would be nice to have at least two accounts in the United States – two bank accounts and two credit card accounts – in case you find yourself suddenly without access to a bank in another country.

5. Moving Abroad Can Affect Your Retirement Savings

What about your 401 (k) contributions? “In some cases, if you go abroad for a short period of time and work for a reasonable-sized company, they may leave you in a foreigners package that will allow you to continue to contribute to your 401 (k) plan,” explains Lachowitz. In other cases, you may be unlucky and eventually lose the ability to contribute 401 (k) contributions (as well as any employer contributions you previously received in the States).

Cerrato said some countries may also require you to contribute to a local retirement or retirement plan, but that can cause a number of problems. Namely, these contributions may be considered tax deductible in that jurisdiction, but cannot be used for US tax purposes.

“If you do not reside in the UK or Canada, most overseas retirement plans may be subject to double taxation,” adds Lachovitz. “Or, at the very least, be taxed at very different times — for example, the year the taxes are paid on the US tax return, [but] during distribution in another country. So this is an area of ​​great concern and a great mystery to the people. “

Tempting to move abroad? 5 things to know first | LearnVest

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