Living overseas is likely to be one of the most memorable, exciting adventure of a person’s life – but if considering doing investments while living as an expatriate, one needs to do some thinking and research before going ahead with the same.
The following needs to be taken care of while staying abroad :
Consider the plan of Repatriation
One needs to decide long-term living plans before choosing an investment strategy. If planning to live and work in a foreign country for a few years before returning home the investment strategy will be quite different from the one if planning to retire overseas.
The key consideration here is to manage currency risk. Currency risk is essentially the risk of losing money in an investment due to the rate of currency exchange.The best plan of action is to invest primarily in the currency against the one, a person eventually plan to use the funds. For example, if planning to retire in the U.S., investing in stocks, bonds, and mutual funds based on the U.S. dollar should be the strategy.
Choosing an Expat-Friendly Broker
Even if one plans to retire in a different country and want to make most of the investments in a different currency, housing them with an investment firm based in their native country makes it easier to comply with confusing tax laws.
Here Double Tax Treaty should also be considered. For example, the United States has income tax treaties with a number of foreign countries. Under these treaties, residents (not necessarily citizens) of foreign countries are taxed at a reduced rate, or are exempt from U.S. income taxes on certain items of income they receive from sources within the United States. These reduced rates and exemptions vary among countries and specific items of income.
Here one needs to understand what “housed” means. For example a person originally from USA can invest in European stocks and bonds by purchasing them through a U.S. brokerage or purchasing them through a brokerage based in Europe. The investments themselves might be identical, but those housed in the U.S. through a U.S. brokerage would be subject to the lower tax rate, while those housed outside the U.S. might be subject to the higher tax rate, depending on the sum total of all the foreign investments.
A Globally-Diversified Portfolio
Given the globalized economy, everyone should develop a globally-diversified portfolio of investments, but this is particularly true of expats. If not sure where one plans to eventually use the investment funds, it is advisable to work with a broker towards developing a portfolio based on multiple currencies. This reduces overall risk when it is time to encash the investments.
Real estate is a great long-term investment strategy.
If a person plans to live overseas indefinitely, he/she can invest in foreign property without the same tax penalties associated with investing in foreign stocks. And depending on where the person is living, the returns can be significant when it comes time to sell. One should be aware of the laws and customs surrounding property purchases in foreign countries and take the help of a reputable real estate agent and enlist a lawyer.
Six elements to starting a Business Overseas
Starting a business in a foreign country will be easier if one keeps in mind six things when planning the start-up.
1.Political Climate and Property Rights
Finding a jurisdiction with minimal political risk is crucial.
Countries with low debt-to-GDP ratios, low or declining unemployment, and strong consumer spending normally make for good prospects.
3.Personal Knowledge of the Industry
Finding situations where one have some skills to bring to the table (other than just start-up capital) are usually best and economic too.
It is always better to set up a trial run or conducting surveys before investing the capital.
Hiring a bilingual individual who can be employed on a weekly or monthly basis, someone who can help with the language when necessary but who will also be useful for general tasks relating to the business will be a good thing to do, if the person is not conversant with the foreign language.
6.The Incorporation Process
The International Finance Corporation and the World Bank have agreat page that comparesthe costs, amount of time, and number of procedures involved with forming a business in 183 countries around the world. The page is specifically for businesses with between 10 and 50 employees, but can be a helpful tool for those looking into both smaller and larger operations.The link is http://www.doingbusiness.org/data/exploretopics/starting-a-business.
Many more people are buying foreign stocks and itis becoming easier and cheaper to do so. This can be done in the following ways, listed in the order investors usually try them:
- buying locally listed international companies
- switching to a local broker who can buy some foreign shares
- opening an account abroad to buy more unusual foreign stocks
Carnival of Financial Planning – Travel Abroad issue
A few questions which would come up in this regard and needs serious thinking are
- Would you ever permanently move to another country?
- What would be some of the things that might stop you from making that move?
- For those who moved to a different country, why did you move and how difficult was the transition?
- Offshore accounts are savings accounts located outside the holder’s country of residence .
- Offshore accounts are not for everyone, but they are useful if a person works or lives abroad, regularly travel overseas or hope to retire to another country.
- The ability to save in the currency in which one is paid or expect to fund retirement, for example, removes the risk of losing out on exchange rate fluctuations
- Offshore accounts come with both variable and fixed interest rates.
- Variable-rate accounts often come with introductory bonuses and offer relatively easy access to money,
- Fixed rates generally require a person to lock away the savings for between one and five years – just the same as standard savings accounts.
- Before opening an account, one should check with the provider to see whether themoney will be protected by a different compensation scheme, what are the laws, taxation and management of the schemes
Debalina Roy Chowdhury