Avoid These Key Financial Risks When Living Overseas
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 five common financial mistakes expats make and how to avoid them.
1. Not Filing Tax Disclosures
One of the most common mistakes expats make is neglecting to file their tax returns after moving to another country, which can result in their tax obligations increasing each 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 () to the Treasury Department if their cumulative account balance in foreign bank accounts ever exceeds $10,000. Failing to do so can result in fines exceeding $100,000.
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 only apply if you pay the same kind of tax in both countries.
For example, if your income tax in Singapore was $5,000 and your 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 applies only to countries that have a and whose tax systems are the same.
3. Forgetting to Research Inheritance Laws
It is essential that you research the inheritance laws of your host country as early as possible, especially if you are living in the Middle East. Many Middle Eastern countries operate under Sharia Law, which often overrides the terms of a will.
Most couples choose to pass their inheritance to their spouse, but Sharia Law dictates that it passes to the closest living male relative. For those living under Sharia law, there are various ways to protect their assets by keeping them outside their host country, such as opening offshore bank accounts.
A more frequent issue for expats is the risk 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 a credit for death taxes imposed by the host country.
4. Failing to Set Up an Offshore Bank Account
For expats dealing with unfavorable tax laws, complex inheritance laws, or an unstable currency, an offshore bank account is worth exploring.
Offshore bank accounts are a great way to keep your savings secure while also limiting the taxes you pay when 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. Failing to Secure Health Insurance
The biggest mistake that expats can make is moving abroad without international 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) for that 12-month period.
Those who fail to comply with the ACA will face a tax penalty. Learn more about expatriate health insurance and select a plan as soon as possible.
If you avoid these five common financial mistakes, you can fully enjoy expat life without constant stress.
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