A few things to consider before becoming an expatriate

This post is from Justin Boyle. Justin is an experienced English tutor and writing coach who works as a designer in the tech industry. He lives in Austin, Texas, and finds a lot of things interesting, especially food, finance, education, gadgetry, software, art and travel. He never stops thinking about food. He is probably eating right now.

There are plenty of possible reasons you could want to leave the U.S. Perhaps you’ve always dreamed about making the sand and surf your front yard or longed to master a foreign tongue. Maybe you’ve been offered a job abroad. Maybe you feel your taxes are too high. I’m not here to question your motives, traveler. I’m just here to pass along what I know and help you get to your new home with your personal finances in order.

Settling Your Accounts

You’re going to need a bank account when you first land on that once-foreign soil. Common expat advice is to set up an online savings account before leaving. Start out by keeping your money with a well-established and nationally available bank — at least until you get a good sense of the banking landscape in your new home.

Be aware, though: If you’re still a U.S. citizen while living abroad and ever wind up with more than $10,000 in your new accounts, you’ll need to file a Report of Foreign Bank and Financial Accounts with the stateside IRS. You can be hit with serious penalties for neglecting to do this, so do the paperwork or renounce citizenship before you start making any serious money.

Speaking of that, renunciation of citizenship is a big decision. So don’t be too hasty to close all of your stateside savings, checking or credit accounts. Should the U.S. ever beckon you back, a history of moderate financial activity may make it easier to re-establish yourself back home.

But if you really want nothing to do with the U.S., for now and for always, then you probably don’t need to worry much about your stateside fiscal agility. In that case, just do what paperwork you have to while you establish residency and take the citizenship plunge only when you’re ready.

Getting Your House in Order

A friend of mine who split for other hemispheres had no property in her name when she left, so she had little to worry about in this respect. But it’s important that you pay special attention to the rules of your tax domicile if you intend to keep any real estate in the U.S.

If you plan to rent out a house you own, for instance, you’re likely to stay on the tax rolls even if you never set foot on U.S. soil. Laws and codes can differ widely from state to state, so make sure to take full measure of your obligations if you’re going to retain a home or property in the U.S.

Note: Please remember that nothing said in this article constitutes professional tax advice. The official position of this author is that you should speak with at least two experts on the tax code before making any decisions, ever.

Currency, Taxes and Investments

If you sell a house, stocks, bonds or even a car, you may take a substantial amount of currency with you when you move abroad. My expat friend did this in the form of a fat roll of cold, hard American cash, which is not the most highly recommended method of wealth transfer.

Besides being incredibly vulnerable to loss and theft, the wad-of-bills method subjects you to the rude whims of whatever local currency exchange you happen to encounter. Electronic currency transfer services like Canada’s XE can often help you get a favorable conversion rate on your money, and tend to be more secure (and more comfortable) than strapping a full wallet to your upper leg.

You’ll have to earn money after you settle in, of course, and there’s a chance that stateside tax collectors might want a piece of that if you’re still a citizen here. Become familiar with the Foreign-Earned Income Exclusion (FEIE) rules while you’re still a U.S. citizen. As of 2012, it can qualify expatriates for a tax exemption on up to $95,100 of income earned overseas.

In terms of investment funds, you may find it easiest to leave them back home. Most investments can be monitored and managed from anywhere with a connection to the Internet. Moreover, you might be hit with fees on each end of the deal if you move your investment money to an offshore broker.

Ultimately, if your taxes in the U.S. are already complicated by investment gains and other holdings, you probably already have some tax law pros on speed dial. Check with them about what relocating abroad could mean for your taxes before you make any decisions.

All the Other Things

If you haven’t already worked out your plan for obtaining legal residence or gainful employment in your new home, there are plenty of other resources available. Questions about work permits, resident papers and citizenship details (should you choose to abandon the U.S. all together) are questions best directed toward emigration experts or expats themselves.

Though she’s spent eight years abroad and has no domicile here in the States, my expat friend does maintain citizenship here, as she says it makes travel easier. She doesn’t invest, though, and her translator’s income is far from the FEIE cap, so your perspective on retaining U.S. citizenship may vary.

However you choose to handle your wanderlust/political ire/employment/retirement, think carefully before you make any drastic decisions to relocate. Becoming an expat might require more legwork than you think, so make sure you’re really ready for a change before you pull up your stakes.

Would you ever consider becoming an expatriate? What would be your motive for moving? Where would you go? Are you already an expat? If so, what was your experience getting settled abroad?

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There are 23 comments to "A few things to consider before becoming an expatriate".

  1. Bob Pipckles says 23 December 2012 at 05:17

    Forwarding to Ted Nugent…

  2. NoTrustFund says 23 December 2012 at 05:21

    I was an expat for two and a half year several years ago. I made the move with a company but I was shocked at how hard it was to get settled financially. I needed my company to help me get a bank account, even though I had plenty of money to deposit. My company had to rent my apartment for me, I could not get one in my name. And when I got a credit card my limit was the equivalent of about $1,250. This was in the early 2000s so maybe things have gotten easier.

    I did not have a house in the US when I moved so that was not an issue. I knew this was not a permanent move so I kept all of my financial life in the US with the exception of the foreign bank account and credit card. I kept my US bank and credit card accounts as well as my Vanguard account.

    Living abroad for a few years was an amazing experience. I traveled all of Europe and gained some great perspective. However, if you are contemplating a move I would move as little of your financial life as possible unless you know it is a permanent move.

  3. Anne says 23 December 2012 at 07:51

    I’d caution anyone who is moving abroad to look very, very, VERY carefully at US tax law. You ARE required to pay US income taxes on your income, regardless of where in the world you are. There are some reasonably generous set-asides, but you’ll still need to file a return every year and you will likely have to file a return in the country you’re living in as well.

    You can, technically, renounce your citizenship and not be subject to US Taxes. However, it’s a complicated process that involves paying substantial fees and visiting a US Consulate.

    After you have renounced, unless you can show that your renunciation is 100% not for the reasons of avoiding income tax, you become ineligible for a visa to visit, do business or study in the United States permanently.

    It’s worth having a look at the State Department’s Travel Pages on Renunciation and on Taxation Abroad at State and the IRS before going too far with fantasies of moving abroad and renouncing citizenship in order to escape the tax man.

  4. E says 23 December 2012 at 09:39

    Being an ex-pat is entirely separate from giving up your citizenship. I was surprised to see how casually that was treated. After all, once revoked, you can’t get it back.

  5. Elaine says 23 December 2012 at 11:03

    This article missed a few points…

    It’s very hard to set up a US investment account while living abroad, most major brokers wont do it. Best idea is to set it up before you go and manage it online.

    Also, you might be exempt from local taxes depending on the country (for example, I didn’t pay US or Japanese income taxes).

    If you do go the cold-hard-cash method, as I did without issue, you will find better rates abroad than in the US. The greenback is still valuable internationally and rates are much fairer locally than trying to get foreign currency while in the states, though sometimes older bills will be refused.

  6. Kurt @ Money Counselor says 23 December 2012 at 11:04

    My wife and I moved to Canada in 2009. I always prepared our tax returns up until our move, but now it’s over my head. In fact, it’s over the head to two “professional” preparers we’ve tried so far, one in Canada and one in the US. So now we’ve resigned ourselves to paying big bucks for a super-professional to make sure it gets done right. Part of the cost of being an expat. Of course it takes about 30-60 days of difference in health insurance costs to make it up! 🙂

  7. Pauline says 23 December 2012 at 15:10

    I am an expat now and currently have to fill tax returns in three different countries. Getting advice before you register with the local tax office is important, as it may be cheaper to pay your taxes locally, but closing your tax account when you leave can be complicated.

  8. stellamarina says 23 December 2012 at 16:30

    Having lived in a few countries over the years, may I add some very important advice I have learned over the years of listening to peoples problems as expats.

    1. Never buy property in the new country until you have lived there for a couple of years at least and know you really like the place and understand the new countries ways of doing business and ownership.

    2. Check into the local and home country laws regarding citizenship changes before marrying somebody from another country. Some laws are so convoluted that divorce is the only way to solve them.

  9. Barb says 23 December 2012 at 16:31

    I was an expat for seven years in western europe. YOu dont need an online savings account, you just need checking and savings with a bank that both has an online presence and does not dunn you for European use. In western Europe, you will want a bank in the EU. All transactions in most countries are done via bank to bank transfers rather than checkpaying or online bill pay. AS for the tent thousand, my experience is that you dont have nto notify the irs imediately, but simply aknowledge it in your tax return.

    Its kind of silly to discuss expat and rouncing citizenship..while there are some of those people, most become expats for job or cultural opportunities, and iun many cases lifestyle. There is a huge expat community in central germany for example, and many of those people are either in banking or in cultural jobs (there are many more jobs for opera and conert performers and singers in a country where every town has its own opera).

    I refer tax questions to the professionals.

    Realize that most countries allow you to be a “tourist” for six months. After than, one most apply for residency, and eithe rhave proof of employment or some kind of fnancial responsiblity (there are many federal amd military retirees who live as expats in Germany.

    I could write a book on the logistics, but in reality a tiny bit of legwork goes along way.

  10. diane says 23 December 2012 at 16:39

    Wow great article, I never knew it could be so complicated. Although I haven’t ever considered moving out of the US, it is interesting to read about this. I might decide someday during my retirement years to move.

    Thanks.

  11. Brian says 23 December 2012 at 16:40

    One thing to consider is changing your US-residency to state that does not collect income tax. Even though foreign earned income is eligible for tax write-offs through the 2555, depending on your state and income level, you may still owe state taxes. I currently live in Maryland, but I have no love for the state. If I move to Europe, as is my eventual plan, I will be “relocating” to Florida, Washington, or another state.

  12. Cherleen @ My Personal Finance Journey says 23 December 2012 at 16:58

    I do not have any plans of working outside US on the next five years or so, but I find this post interesting and I believe this will be helpful to others who are planning to move out of the country for some career or business opportunity that they cannot resist.

    • fantasma says 23 December 2012 at 21:37

      I am the exact opposite: I think, live and dream about moving and living outside of the USA every waking single day of my life.

      • BillyBob says 23 December 2012 at 22:59

        Then you should go. It’s easier than you think, and the rewards are waiting.
        I never thought I’d be in the position I am in. I moved overseas and gave up ever having any real money. However, you just never know how things are going to work out. I kept my eyes and ears open and things just came to me gradually and I went from there.
        I hated my computer-related job in the US and the first one I landed here, when I used to have to work for others, paid about 25% of that one.
        I cannot say I regret leaving but now I am worried about moving back with money. I think I will be a target. I am exploring every option… Good luck to you.

  13. ExpatEngineer says 23 December 2012 at 17:32

    No offense, but this kind of article “does my head in” as they would say in Britain. There are many, many, many things to consider about your finances when moving overseas and this article barely covers a few of them. I lived in the UK for four years and am friends with expats from all over the world. That said, here is a small sample of what I think is missing from this article:

    1) It is mandatory that all Americans file a tax return in the USA every year regardless of where they live. If you don’t and you come back to the USA you will likely owe back taxes on everything you earned.

    2) Renouncing your citizenship does not immediately relieve you of your tax burden in the USA. If the immigration authorities believe you are doing it for tax reasons they have a right to continue claiming a portion of your overseas earnings for YEARS. This is to prevent bazillionaires from changing their citizenship to evade taxes, but it could bite you too.

    3) The Foreign Earned Income Exclusion referred to in this article only applies to countries that the USA has tax agreements with (i.e. the USA and the other country have agreed that it is not fair to tax you twice on WAGES up to a certain income level). This does NOT APPLY TO ALL COUNTRIES. It also doesn’t apply to unearned income like investment gains, capital gains, etc.

    4) Therefore, if you sell a house overseas and have capital gains on it you may very well owe tax to the USA on that income.

    5) Even if you are excluding your income from tax to the USA, you still owe tax to the country that you are living in. Live in Nigeria? Awesome, your taxes probably aren’t that high. Live in Western Europe? Forget about having any “tax benefits” or undertaking “tax arbitrage”. You’ll likely be earning less and paying more in tax.

    6) Plan to stay in your country for a long time? Except in very specific circumstances you cannot transfer overseas retirement accounts to the USA. If you do, you are likely to pay a) early withdrawal fees, b) foreign exchange fees and c) transfer fees. Ouch.

    7) I don’t know the details about Social Security because I am too young, but I would consider whether your time working overseas actually counts as “paying into the system” for that year. If you’re withdrawing funds, you should investigate whether there are special rules if you don’t live in the USA. I bet there are.

    8) If you close your American bank accounts, credit cards and loans before you leave you will have no credit record to return to. That may not have been a big deal 10 years ago, but in today’s credit market it is a VERY big deal.

    9) Opening a new bank account, getting an apartment lease or even getting a cell phone overseas can be very difficult if you don’t have a company or university to help you. As a previous commenter noted, the limits will be very low on foreign credit cards because you have no credit. I had >$20k open credit in the USA and couldn’t even buy a plane ticket home with the card I was given in England. And you can forget about rewards points.

    10) Using American credit cards in Europe, where the “chip and pin” system is required for unmanned transactions over about $50 can be very limiting. Also, you will probably have to pay foreign transaction fees every time you use this account unless you have a credit card that specifically excludes them.

    11) Wiring money is risky unless you have a lot of it. $1000? Take it in cash. $100,000? Lots of banks will help you. Anything in between and you are pretty much on your own. When you sign the wire instructions you are agreeing that if the transfer agency loses your money you have no recourse. This is true even when you use the SAME BANK. I had an HSBC account in the USA and one in the UK and I still had to sign the papers. I have two friends who lost significant amounts of money this way because the banks go through intermediary currency exchanges and then lose track of the funds… yikes.

    12) Thinking about marrying a foreigner and bringing them back to the USA…? Don’t even get me started. I did it. It worked out in the end. But OMG the financial and immigration paperwork was out of this world. Know what you are getting into and have a long time horizon (and money saved up to pay for it) if you plan to do this. Also remember that once your partner is an American they will forever be subject to all the rules stated above even if you don’t live in the USA. Just sayin’…

    I’m sure there are a million other things I’m forgetting. And I know I sound bitter… which I’m not. But I am the voice of experience and my experience says a) get a tax professional and b) know before you go. There are awesome things about living overseas and I do not regret doing it. But the process would have been much smoother if I had known all of these things in advance.

    • Marcella says 24 December 2012 at 14:49

      Expat, fabulous tips. I agree, this article was next to useless. Lots of “this might be an issue, but I don’t know the facts, so go find out yourself”.

      You should offer to write a guest post instead so people have some more accurate information.

  14. Lauren {Adventures in Flip Flops} says 23 December 2012 at 18:02

    I’m currently an expat in China, and I am definitely not planning on buying any property here, nor do I have anything in the states other than my car (which is being looked after by family members and I’m still paying the note on).

    One thing I know I’m having trouble with is transferring money back home. It’s important to me to keep money in my US accounts (loans, bills, etc.) and it’s definitely a process here. At home you just take some account numbers to the bank and you’re done!

    Here? I need a folder of documentation, and a co-worker to help me fill out the forms. And a lot of time (lines are more of a suggestion here than anything else and who knows if the bank people even know how to make the transfer). I knew that going in and made sure to have a cushion in my accounts at home until I figured out the process, but that is definitely a “know before you go” situation.

    Also, even though I am nowhere near the foreign income exclusion I’m having a professional do my taxes this year. Mine aren’t super complicated, but the rules around the FEIE are (you have to be out of the country for so many days, etc. etc.) so I want to make sure to get it right.

    That being said, this is an awesome experience and if you’re up for an adventure, I definitely recommend working overseas!

  15. Debbie says 24 December 2012 at 02:00

    I have been an expat for over 25 years.
    Note: while the Foreign Earned Income Exclusion is nice and simplifies your tax return, there is another way to file – using the Foreign Tax Credit.
    Since I live in a country with higher income taxes than in the US, I get credits for the taxes I pay here and don’t owe the IRS a dime. What it enables me to do is have earned income. Why is that so important? Because I contribute to a Roth IRA every year.
    By using the FEIE you don’t have earned income and cannot contribute to a Roth. This way I have income and am allowed to contribute.
    I hope this helps someone.

    Debbie

  16. Brenda says 24 December 2012 at 07:40

    My husband is from Panama. We are considering moving there so that we can more easily live off of his retirement. I’m most concerned about my medical insurance since I have a couple of chronic illnesses. He has dual citizenship so he doesn’t think we’ll have too many other problems. Does anyone know?

    • E says 30 December 2012 at 12:00

      If you’re retirement age, be aware that Medicare will not cover you outside the U.S.

  17. Minal says 24 December 2012 at 09:02

    Thanks for this article.

    Can I request a follow-up article for people with dual (or close to dual) citizenship?

    I’m a US citizen, but also an “Overseas Citizen of India” (not dual citizenship, but close — all the same privileges financially, but I can’t vote). I’m thinking of opening up a savings account in India because their interest rate is much higher than anything you can get here — around 8%. But I’m not sure what the implications will be for taxes (most importantly, if the taxes and fees will negate the 8% interest accrued).

    I’d love some help with figuring out how I can best optimize my finances over two countries.
    Thanks,
    Minal

  18. karla says 24 December 2012 at 13:32

    Let me just add, having lived outside the U.S. for most of my adult life–keep your stateside driver’s license. If/when you come back and try to insure a car you have no proof of having driven (which I found ironic when this happened to me, considering I had been driving in Germany for 10 years) No driving record means you’ll be paying a higher rate. Sometimes a letter from your overseas insurer works, but as often as not local agents don’t want to deal with it.

    Homeland security has made it nearly impossible in a lot of locations, but it can be done.

    It’s also good for registering to vote and proving a specific state residency. (handy for when the college-age children need in-state tuition–another huge potential savings)

  19. Theresa W. says 26 December 2012 at 18:42

    Frankly, I think this post is yet another example of typical American scaremongering. It’s VERY easy to live abroad!

    How to open a foreign bank account:
    1.) Study abroad. Your study abroad program will open one for you.
    2.) Go through a working holiday program like BUNAC/IEP. They will arrange to open one for you.
    3.) Ask your bank to help you open an account in another country. I did this when I moved from New Zealand to Australia — the account was open before I even got into the country, with money in it.
    4.) Walk into a bank and ask to have an account opened. Hundreds of thousands of working holiday makers do this every single year. Every. Single. Year. It is NOT hard.

    Taxes:
    Also, let’s face it: most people are NOT going to be making over the $95,000 tax threshold when they’re living abroad. So don’t worry about being doubly taxed! And the best part is, in almost any country you’re working, if you’re a temporary resident you can claim your tax money back. The same with superannuation (retirement) funds; if you leave the country you can get the money back. Yes, of course they tax you on it, but as it’s your money you WILL get it back if you ask.

    Transferring money:
    Ever heard of PayPal? Durrr…just open a different eBay account in each country in which you have a bank account. It’s a super simple way to transfer money to yourself. I have three PayPal accounts. Simple.

    So don’t lock yourself into this fear of not being able to live abroad because it’s too hard. You know what’s too hard? Filing American taxes. It takes 20 minutes to fill out an online form in Australia (the fifth country I’ve lived in, by the way, and I’m American). Plus, every other first-world country besides the ol’ U.S. of A. does this magical thing called ‘electronic banking’, so your tax refund gets deposited into your bank account in a matter of weeks.

    Please, look into doing a working holiday for a year or two, or getting a Skilled Migrant visa. It’s an eye-opening experience to move outside of the American bubble. Don’t let posts like this complicate things. It will be the best decision you’ve ever made!

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