7 Financial Mistakes to avoid as Expats
October 12, 2021
7 Financial Mistakes to avoid as Expats

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You are already settled and ready to go, but now the “fine print” regarding financial actions has arrived and this might be the hardest part. Or at least the part where a lot of small mistakes can be made and the aftermath acts on your money. These are the 7 financial mistakes to avoid as expats(also the most common mistakes!):

Mistake #1 Budget

Probably you have already done one, but we cannot start any financial post without the “Budget” advice. Moving abroad brings a lot of pressure to your wallet and before doing it, you should definitely take into consideration all expenses that are coming your way. In case you need to get funding, go to loans in your country with a maximum time of 2 years and keep in mind that you will have to pay extra to send the money from your new destination to your hometown.

 

Mistake #2 Insurance

Without international insurance, any uninsured injury can cost you tens of thousands of dollars. Each country is very specific about their insurance policies and some don’t even let you stay in their country without insurance.

Nowadays it is easy to get international insurance or even specialized expat insurance. Take a look at apps like Clark or Lemonade, they might help you or go traditional with Alianza or similar but get insurance. And remember to go to your Embassy and register your information once you arrive. In case of an emergency, the Embassy can be a great ally.

 

Mistake #3 Tax Disclosures

One of the most common mistakes that expats make is neglecting to file their tax returns 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.

 

Mistake #4 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.

 

Mistake #5 Inheritance Laws

It is essential that you research the 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.

 

Mistake #6 Insurance

Without international insurance any uninsured injury can cost you tens of thousands of dollars. Each country is very specific about their insurance policies and some don’t even let you stay in their country without insurance.

Nowadays it is easy to get international insurance or even specialized expat insurance. Take a look at apps like Clark or Lemonade, they might help you or go traditional with Alianza or similar but get insurance. And remember to go to your Embassy and register your information once you arrive. In case of an emergency, the Embassy can be a great ally.

 

Mistake #7 Set Up an Off-shore 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.

There is still so much more about being an expat, and we know it. So, if you want to get specialist legal advice on visa, taxes and account opening, as well as access to an expat community like you, please join us, share your experience and we will be more than pleased to contact you and set a one to one meeting to help you with your challenges along your whole expat journey.

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