Expat Patriot games
Richard Colburn
The New Year is often a time for general personal review. Over the next few months we will be looking at the financial planning needs of expats from particular countries. This month we will introduce the key considerations in financial planning, tax planning and estate planning applicable to all expats.
The great escape
Some countries seek to tax their citizens regardless of where they live while citizens of other countries can free themselves of most or all of their home country tax burdens by simply getting on an airplane.
Expats fortunate enough to be able to escape the lifetime taxes of their home country by ‘leaving home’, should ensure that their financial planning really does allow them to legitimately avoid the taxes that they are entitled to avoid as expats.
In particular, you need to know that most countries, including probably your own, will tax any and all income that arises within their borders, whether or not you are an expat. This will include rental income from property, dividends from company shares and mutual funds, interest on bonds and of course bank interest. Most countries will also tax any retirement income, also known as pension income, paid from within its borders. In most cases, the tax is taken out well before expats receive their payment.
Therefore for those expats legitimately entitled to avoid taxation, financial planning may still be necessary to relocate and restructure your financial markets assets outside your home country, usually described as offshore.
The matrix
Some expats come from countries that seek to tax its citizens wherever they live, even on the proposed new permanent moon base now being discussed!
Tax raising authorities spend a lot of time and money communicating what cannot be done. A professional financial adviser is in the business of helping you to do what can be done.
Some countries that levy taxes based on citizenship permit a modest exemption for earned income. This exemption was intended as a ‘tax break’ for citizens working overseas or expats. Retired expats from these countries sometimes believe that they cannot benefit from this type of exemption because they are not ‘working’ and so none of their income is ‘earned income’.With a little careful financial planning, a retired expat may be able to structure their estate in such a way that their income really is earned income.
Think and act like the wealthy
It is a well known fact that the richest people in the world pay far less tax as a percentage of their wealth than the less well off. Many of the world’s wealthiest people have little or no legal personal wealth. Instead their financial planning arranges for their wealth to be held in corporations, often offshore as well as other asset holding structures such as trusts. As well as saving and legitimately avoiding tax, these financial planning structures provide protection from challenges by creditors, litigation and other claims. The good news is that you don’t have to have great wealth to benefit in this way. Expats can structure their assets like the wealthy too.
Death and taxes
While no one likes to pay tax, death taxes are almost universally despised. Death taxes are triggered by the death of an individual, which causes a transfer of ownership of assets to the beneficiaries. Just as lifetime income can be structured so as to avoid or reduce taxation, an expats’s estate or assets can be arranged to mitigate or eliminate liability to death taxes. A popular saying a few years ago was ‘die broke’. It probably wouldn’t be good financial advice to recommend dying broke but it is good advice to make changes to a person’s estate that legitimately results in little or no tax being due when expats die.
The same financial planning and asset structures that legitimately avoid lifetime taxes can also be used to legitimately avoid death taxes. The ownership of assets held in corporations and other estate planning structures, is unaffected by the death of an individual, expat or otherwise. Death taxes are levied on humans but not on legal entities like corporations and other legitimate estate planning structures.
Financial freedom
Financial planning that comprehensively mitigates or eliminates the tax liability of expats is a highly personalised task. Citizenship is a key consideration which will be the subject of articles over the coming months. We would always recommend using the services of professionally exam qualified financial advisers in any estate planning restructuring. Estate planning is a highly specialised area of financial planning and financial advice. Developing the knowledge, skills and experience necessary to provide this level of financial advice takes a considerable investment in time and effort. The advanced financial planning examinations set by professional bodies in the home countries of expats are the only objective means of ensuring that the person advising you is equal to the task.
The options available and solutions necessary to properly structure an expat’s assets in a way that legitimately avoids tax as well as ensuring that the money passes to the intended beneficiaries, requires careful consideration.
Make sure that you include a review of your tax planning arrangements when you carry out your annual financial planning review (see our February 2006 article). Even if you have existing tax planning and financial planning arrangements in place, it is always worth taking a fresh look to ensure that your financial planning is still appropriate to you current circumstances and future plans.
It is the task of tax collecting authorities to extract all of the tax to which they are legally entitled. It is your right to part with no more money than you are legally obliged to pay, which for some expats is nothing.
We would like to wish all of our readers, expats or otherwise, a very prosperous, healthy and happy new year.
It’s your money and your peace of mind.
Richard Colburn is a UK exam qualified financial adviser with Sterling Assets.
Questions to the author can be directed to 053 839 463 or email us
