Moving abroad brings a whole new world of adventures, and with it, a whole new world of rules and regulations. Failure to adhere to these regulations can cost you thousands of dollars, and in some cases, jail time. To prevent this from happening to you, we’ve compiled 5 of the biggest financial mistakes that we see expats make and how to avoid them.
1. Not Filing Tax Disclosures
One of the most common mistakes that expats make is neglecting to file their tax return after moving to another country, which can result in tax return obligations increasing every year. Filing a U.S tax return, however, may allow you to deduct some of the income earned abroad under the terms of the foreign earned income exclusion. Expats from the United States are also required to submit a Report of Foreign Bank and Financial Accounts (FBAR) to the Treasury Department if your cumulative account balance in foreign bank accounts ever exceeds $10,000. Failing to do so can result in fines of greater than $100,000.
Getting ready for your move? Don’t miss our moving abroad checklist
2. Failing to Account for Double Taxation
Taxation can be a nightmare for expatriates. After learning the new tax laws of their host country, expats must also ensure that they are paying the appropriate amount of taxes to their home country.
Expats originally from the United States can claim a tax credit on their U.S tax return for some of the taxes that they pay in their host country. However, these tax credits can only be applied if you pay the same kind of tax in both countries. For example, if your income tax in Singapore was $5,000, and the U.S income tax was $10,000, you would pay $5,000 to Singapore, and an additional $5,000 to the United States. However, this offsetting tax only applies to countries that have a tax treaty with the U.S, and when the tax systems are the same.
Also see: Using Credit and Debit Cards Abroad
3. Forgetting to Research Inheritance Laws
It is essential that you research inheritance laws of your host country as early as possible, especially for those living in the Middle East. Many Middle Eastern countries operate under Sharia Law, which often overrules the terms dictated in a will.
Most couples choose to pass their inheritance on to their spouse, but Sharia Law dictates that inheritance is passed on to the closest living male relative. For those who find themselves living under Sharia law, there are various ways to protect your assets by keeping them outside of your host country, such as setting up offshore bank accounts.
A more frequent issue faced by expats is the threat of double taxation on inheritance. Many host countries will impose an inheritance tax on the benefactor in addition to any U.S inheritance taxes. However, U.S tax law often allows for credit towards death taxes imposed by the host country.
4. Failing to Set Up an Offshore Bank Account
For expats dealing with unfavorable tax laws, abnormal inheritance laws, or an unstable currency, an offshore bank account is an option worth exploring. Offshore bank accounts are a great way to keep your savings secure, while also limiting taxes paid on bringing large amounts of money into a country. For those who elect to open an offshore bank account, don’t forget to submit your FBAR report to the U.S Treasury Department if your cumulative account balances are greater than $10,000.
5. Neglecting Insurance
The biggest mistake that expats can make is moving abroad without health insurance. A minor uninsured injury could cost you thousands, while a major uninsured injury could cost you tens of thousands of dollars.
Those who spend more than 30 days in the U.S in a 12 month period are required to meet ACA compliance, which mandates that you have a healthcare plan that meets minimum essential coverage (MEC) fort hat 12 month period. Those who fail to meet ACA compliance will face a tax penalty. Learn more about expatriate health insurance, and be sure to select a plan as soon as possible.
If you avoid these 5 financial pitfalls, you’ll be fully prepared for expat life without constant financial stress! Interested in additional expatriate advice? Follow us on Facebook and Twitter for the latest expatriate news.