Financial planning for American expats in Asia
Unlike most expats, American expats can’t necessarily escape their liability to taxes in their home country just by flying off into the sunset. But being a US citizen does not necessarily mean that you are born into a tax prison.
More freedom than you think
Working American expats enjoy a modest exemption of around USD 80,000 for income earned abroad, which can protect many overseas American expat employees from most of their liability to US taxes and allow them to sleep soundly at night!
Working American expats
By investing offshore in a recognised International Financial Centre, working American expats can safely invest unlimited amounts as part of their retirement planning. You can also take your retirement money when you choose rather than at an age set by your Government.
These retirement savings plans permit a far wider range of assets than would typically be available in the US, including the opportunity to diversify your investments away from US dollars.
For working American expats, the relatively low cost of living overseas and often generous remuneration packages, provide disposable incomes far greater than would normally be achievable back home. With proper financial planning this means that you could be in a much better position to retire comfortably wherever you choose to live.
Retired American expats
Retired American expats might very well be financially much better off simply by investing offshore (outside of America) in currencies other than US dollars, EVEN if they are still fully liable to US taxes!
For those American expats living in Asia, on income from cash and investments held in America, the facts are quite plain and painful. At the time of writing in the last week of January 2007, over the last 5 years the value of the US Dollar has fallen from around 45 Baht to 33.5 Baht or 26%. Over the past 12 months alone this devaluation has accelerated with the value of the US Dollar dropping from around 39 Baht to 33.5 Baht or 14% and remember this is a ‘tax’ on savings NOT on income. The impact against other currencies in the Far East is similar.
We usually recommend that all expats hold most of their bank balances outside of both their country of residence and their home country, in one of the OECD Group 1, International Financial Centres. This keeps American expats firmly in control of their cash and gives them access to their money at any time, wherever they happen to be. Another reason to hold both your cash and investments offshore is probate avoidance.
We usually recommend that surplus cash which expats may have is held in a currency other than US Dollars, regardless of your citizenship.
Real estate planning
Many American expats who choose to include real estate as part of their financial planning investment strategy do so indirectly through offshore real estate property funds. This strategy provides the benefit of liquidity as well as tax free growth.
For those who choose direct investment in real estate property, other considerations apply. One of these factors is Estate Tax which is triggered by the death of an individual. One of the key considerations with real estate financial planning is to structure the ownership so that real estate property is NOT owned by an individual, therefore avoiding situations that trigger Estate Tax. There are several options available for structuring real estate in this way (see our articles on Estate Planning, trusts, foundations and offshore companies).
The right advice
Professional financial planning can help American expats to achieve their long term financial goals. This may include restructuring your real estate and other assets to mitigate your liability to tax, investment management and succession planning.
Your financial planning should be built around your circumstances in a way that simplifies your personal finances and is flexible enough to change with you.
In most English speaking countries and the EU countries of Western Europe, professional exam tested qualifications are a legal requirement for giving financial advice
A professionally exam qualified financial adviser who has completed advanced professional financial planning exams will have detailed knowledge of estate taxes and estate planning, pension planning, succession planning, ownerships structures for holding real estate and of course investment management; All key financial planning areas for American expats.
Financial security is ultimately about protecting and growing your money.
What value do you place on your financial security?
It’s your money and your peace of mind.
Richard Colburn is a UK qualified financial planner.
Questions to the author can be directed to: email us