CashLamp

Personal Finance for Expats

Some Reasons to Invest Offshore

Posted on Written by

When discussing the topic of investing offshore with friends, family, colleagues, and acquaintances, the question of “why invest offshore?” invariably comes up.

In my mind, there are a myriad of reasons to invest offshore, but here are some of my favorite ones:

Increased privacy – Protect yourself from the increasing loss of privacy, and prevent domestic credit reporting bureaus from collecting information on you and your assets. Many offshore financial centers have strict banking and confidentiality laws. As long as one is not engaging in arms trafficking, money laundering, or other illegal activities, investing offshore will better enable you to protect your privacy.

Earn higher returns – Offshore funds may have more freedom in terms of what they can invest in, whether they go long or short, as well as more freedom to take advantage of market fluctuations and cyclical movements. As a result, you have the potential to earn higher returns than you could in your country of residence, where there is probably more regulation and red-tape, and where fund managers might be restricted as to the investments they are allowed to make.

Avoid high taxes – Depending on your citizenship and where you reside, many low-tax districts can offer you products that have little or no tax at source. In addition to this, by forming an offshore corporation or trust, you can potentially lower your tax burden.

Protect your assets from being forfeited – Many offshore financial centers are not required to accept the laws or civil judgments of a foreign government. By creating a foreign corporation and/or trust, you can prevent your assets from being seized by our government and/or lenders who want to collect on outstanding debts. As societies are becoming more and more litigious, it is a good idea to invest offshore so you can protect yourself against any potential lawsuits that may occur in your country of residence.

Avoid having to depend on a state pension – Even if you live in a country that offers a state pension, it is doubtful that a state pension alone will provide you with the money to have a quality retirement. With an aging workforce, diminishing returns, and fewer workers to contribute into state pensions, depending entirely on such a vehicle to provide you with a quality retirement is not the best idea.

While there are risks associated with investing offshore, and there may be increased complexity when managing an offshore portfolio (not to mention tax implications), I believe the benefits are too tantalizing to ignore. Also, there are risks even when one invests in familiar investment vehicles in their home country. There’s no way to completely eliminate risk, but with the right strategy and right knowledge, in addition to the correct team of advisors (financial and tax), one can reap huge benefits investing offshore.

The Need for an Expat Personal Finance Blog

Posted on Written by

Despite what many people may think of us and the seemingly lavish lifestyles we are supposed to be living, we expats are a neglected lot, especially when it comes to obtaining good, relevant, and free (or cheap) advice on personal finance.

Performing a search for “personal finance for expats” online provides precious little that we can use. There is certainly not, at least that I have found, a knowledge base in a blog format where expatriates can go to read up on personal finance as it relates specifically to them.

Finally, advice such as “invest in an index fund” seems insulting to our intelligence, given that we probably could have figured that out by ourselves, and more importantly, because it ignores the array of investment options around the world. Indeed, there are numerous investments out there that many people have never heard of of, and we would be doing ourselves a disservice by not exploring and investigating what those options are. Because just as life as an expat requires flexibility, an open mind, courage, and an inquisitive mindset, investing as an expat requires those same qualities if one intends to be successful at developing a solid financial future.

Perhaps you work at an overseas office of your company, and are looking for ways to save for your retirement, as you are not very happy with the state pension plan of the country you live in.

Or perhaps you have started your own business and are now living overseas. You are excited but also apprehensive about this change in your life, and are worried about how you can invest money, now that you are living overseas.

Or maybe you are a perpetual traveler, sailing the seas of the world, climbing the tallest peaks known to humankind, or hopping from one island to another, taking in all that life has to offer.

Whatever your situation is as an expat, if you are interested in saving and investing, then this blog will be useful and applicable to you and your situation.

Many personal finance bloggers and experts seem to be writing from a position where they cannot truly understand the situation facing us expatriates. While I am not a financial planner and don’t claim to know everything, I am writing to you as a humble expat who has lived and worked on three different continents, and someone who has first-hand experience of the challenges faced by expats. Additionally, being a tax advisor specifically serving the expat market, I believe I am positioned to offer advice to other expatriates, especially as it relates to foreign taxation and its various implications.

Throughout my life and travels, I have found that many expatriates have little or no idea how or where they can save and invest money overseas. This blog is intended for them.

The Difference Between Tax Evasion and Tax Avoidance

Posted on Written by

To build upon the previous article (on myths about investing offshore), I wanted to briefly explain the difference between tax evasion and tax avoidance, in particular because there is so much confusion around this topic.

Institutions such as banks, investment firms, and insurance companies might not be required to report their clients’ assets or income to foreign governments or foreign tax authorities. However, depending on where you are resident and what passport you hold, not reporting your foreign assets or income may be considered a crime in your home country or country of residence.

For example, for Americans, purchasing foreign funds and not reporting the capital gains to the Internal Revenue Service (IRS) would be considered tax evasion. Additionally, opening an offshore bank account and not reporting it to the Department of the Treasury (either through the IRS and/or the Financial Crimes Enforcement Network), might constitute tax evasion, depending on whether the balances of the accounts exceed the threshold for filing.

However, deciding to hold on to a foreign investment for longer than one year before selling it in order to pay the lower long-term capital gains tax is an example of tax avoidance and is perfectly legal. Also, taking advantage of various tax credits that are available in order to directly reduce your tax liability is an example of tax avoidance.

Therefore, tax avoidance is the act of minimizing your tax burden through legal means, and tax evasion is the illegal act of not claiming your assets, under-reporting income, or overstating deductions in order to reduce your tax burden.

It goes without saying that one should never resort to tax evasion, as the penalties are harsh and include heavy fines and possibly even a prison sentence.

Before investing offshore, it is wise to enlist the services of a tax advisor experienced with foreign taxation, just to ensure that you are fully compliant with the tax laws in your country of citizenship/residence.

Myths About Investing Offshore, Part 1

Posted on Written by

Despite the fact that many people have little or no idea about the benefits of investing offshore, almost all of them have heard horror stories and are swept up by a constant stream of negativity around this topic.

There are various reasons for that, and what I shall do now is discuss a few myths regarding offshore investments. One thing to understand is, most of what you have probably heard about investing offshore is just plain false.

So let’s tackle this topic with an open mind and see what is really going on.

MYTH: People who invest offshore are looking to evade taxes.

FACT: The vast majority of individuals who invest offshore include expatriates who already live in high-tax areas such as the European Union and North America, and pay their taxes responsibly. When they invest offshore, they are seeking higher returns, without any intention of evading taxes.

Some people who invest offshore already live in low-tax areas, or are non-resident for work-related reasons, and are just looking to earn higher returns. A desire to improve one’s life through investing responsibly and successfully is the main reason people invest offshore, and not because they want to evade taxes.

MYTH: Only criminals, drug lords, and terrorists put their money offshore.

FACT: Again, the vast majority of people investing offshore are people like you and I. They only wish for higher returns, more privacy, and a reasonable alternative to the high taxation that may exist in their country of residence, by investing in a legal and responsible manner.

I believe one of the reasons such myths are spread is because domestic banks and financial institutions want you to keep your money with them, for their own financial gain. Banks want you to keep your money domestically, since it helps eliminate competition.

MYTH: If I already have money invested in my country of residence, there’s no need to go offshore.

FACT: Practicing financial diversity is crucial. Having access to top offshore funds, superb asset protection, potentially high returns, tax efficiency, and flexibility are a few of the reasons why it makes sense to invest offshore.

MYTH: Offshore banks and financial companies cannot be trusted.

FACT: Most of the largest banks and financial institutions in the world are located offshore, and many have received the highest ratings from independent rating agencies such as Standard & Poor’s and Moody’s.

MYTH: Americans can never enjoy the benefits of investing offshore.

FACT: While it is true that Americans are taxed on worldwide income, and that major low-tax districts are being pressured into sharing information with the U.S. authorities, the fact remains that investing offshore can still be a beneficial option for Americans.

Depending on where you live, as an American, you too can have access to offshore investments. The higher returns, flexibility, diversification of investment options, and privacy make investing offshore appealing even to Americans, despite the fact that there are additional reporting requirements in the U.S.

One thing for Americans to be wary of, however, is that certain offshore investments may be considered a passive foreign investment company (PFIC). If that is the case, the are stringent compliance and reporting requirements around this, not to mention tax implications. In such scenarios, it’s best to engage the services of a tax advisor, particularly one that is knowledgeable about foreign taxation.

MYTH: Investing offshore is only for the extremely wealthy.

FACT: While it is true that many offshore investments do require high initial amounts, the opposite is also true. There are investments out there that let you start saving for as little as $150 per month. This is an amount that nearly anyone living in a modern, developed country can comfortably put away, so it makes no sense to put off saving.

There are other myths out there, perpetuated by the media and even family and friends, but the main point to consider is this: people just like you are investing offshore and reaping the benefits of their decision. Why shouldn’t you also?

Copyright © 2019 Quantage, LLC