The Expat Guide to Investment and Saving
How to invest and save using your expat financial advantage
Use your expat financial advantage to the fullest and make your money work harder by accessing better saving and investment products available to expats.
If you are one of more than 200 million expats who have left their home country to seek better fortunes abroad, there is a big chance that at some point you will be asking a question how to make the most of your hard-earned money.
The temptation to stick to the devil you know and keep on investing in your home country might be big, but at this point, because your are not UK resident any longer, you have lost some of the opportunities that used to be available to you. For instance, you can’t take advantage of any of the tax-free offerings in the UK such as ISAs or pensions.
However, just by becoming an expat you have opened up a wider world of financial opportunities and it’s worth having a look at what’s available out there.
Being an expats gives you a brilliant opportunity to invest internationally, access broader range of products and save on the tax bill.
The choice in terms of how and where to invest is really broad, and the matters can be quite complex. On the other hands, with the right approach and careful planning the rewards can be very satisfying, indeed.
If you are not sure how exactly you can benefit by investing internationally, our guide will clarify this for you.
In this guide you will find:
• Why expat investors consider international investment;
• The potential advantages open to expat investors if they go global;
• Answers to the most frequently asked questions about international investment;
The purpose of the guide is to enable you to make informed decisions about whether investing internationally is the right thing to do for your personal circumstances.
Reasons to Invest Internationally
International investment is another name for investing offshore. Basically, it means that you invest your money outside of your country of residence.
While some individuals might use offshore investments for tax evasion purposes, stashing their cash in a fund somewhere in the Caribbean with zero income tax, the assumption that offshore activities are purely criminal and immoral is simply not right. The majority of people investing offshore do it for quite different reasons and in a perfectly legal way.
The main motivation behind international investments is that it may offer you many advantages. Well-regulated international financial centres allow investors to legally benefit from higher rates of return or/and lower rates of tax on that return imposed by those centres.
How exactly can you do better by investing internationally? Here are the most important points:
1. Diversify Your Investment Portfolio
Quite a few countries in the world, the UK included, have regulations in place that restrict investment opportunities of their residents when it comes to international investments. Some investors feel that such restrictions considerably hinder their investment potential.
If you are one of those investors, now, that you are a UK non-resident, you have an opportunity to rectify the situation.
When you become a UK non-resident, some more traditional UK based investment options (such as ISAs) are not available for you any longer. However, as an expat you have access to offshore investments that are much more flexible, giving you unlimited access to international markets.
You also get access to wider investment opportunities including the growing fund sector, for example. There are specialist funds that are often not available ‘onshore’, such as certain collective investment schemes and fixed term deposits.
By choosing to invest internationally you are opting for an opportunity to diversify your portfolio. You can diversify across nations, markets, sectors, assets, currencies…when you think internationally the opportunities for diversification are vast.
2. Optimise Your Tax
When you are a UK resident for tax purposes, you are obliged to pay taxes on your world-wide income.
However, when you become an expat and acquire a UK non-resident status, your tax obligations change. From now on you are subject to the tax rules of your new country of residence.
A lot of countries popular with expats whether for job opportunities or retirement, have a softer taxation regime compared to the UK.
Some don’t tax your income at all, some tax only the income you bring into the country.
There are countries that don’t tax capital gains and dividends.
Depending on your country of residence and personal tax status, it can be possible to structure your offshore investments in a tax efficient manner by using the right offshore jurisdictions and products.
There is also an opportunity for expats to invest internationally through corporations.
Some countries offer tax incentives to foreign investors in the attempt to attract more outside capital and increase economic activity within the country. Usually such incentives are offered to corporations.
The corporations act as a shell for the investors’ accounts. Since they aren’t involved in local operations, there is little or no tax levied on their profits.
It’s not just little countries that give tax incentives to foreign corporations. Some foreign companies, for example, enjoy tax-exempt status when they invest in U.S. markets. As such, making investments through foreign corporations can hold a distinct advantage over making investments as an individual.
There are other ways you can reduce your tax burden when you invest internationally. However, it cannot be achieved all the time. Detailed research and understanding of your tax position is needed for the tax efficient investment of your money.
3. Enjoy Greater Confidentiality and Asset Protection
You might not think you need confidentiality when it comes to your invested assets, but as an additional advantage often achievable through international investment products and jurisdictions it can prove to be of benefit to many.
Many offshore centres have laws and rules in place to establishing strict corporate and banking confidentiality. A breach of confidentiality can lead to serious consequences for the offending party.
Hence, international banks in such jurisdictions will not divulge customer identities, and offshore corporations won’t disclose shareholders.
However, it only works for legitimate law-abiding investors. If it comes to crime such as money laundering, drug trafficking or other illegal activities, well-regulated and reputable offshore centres have laws in place to allow identity disclosure.
In most cases when it comes to legitimate investors, the government of their home country cannot assert jurisdiction over any assets that are located in an offshore centre. Moreover, the information about your assets or your identity won’t be disclosed.
In these increasingly litigious times it certainly can’t hurt to put a legitimate layer of confidentiality between your investments and your personal details.
4. Manage Your Risk
Anything that has the potential of generating a loss on an investment can be considered a risk. Naturally, you would want to protect your investments from loss. One of the ways to do it is through diversification.
As explained above, international investment by its very nature opens you up to extensive opportunities for diversification. It gives you the chance to combine various investments to make sure that whatever the circumstances, if one of your investments goes down, there is another one that would go up, thus compensating the loss.
Also, offshore investments can help safeguard against currency devaluation. If your local currency isn’t quite trustworthy and you would like to protect yourself against its decline, it makes a lot of sense to invest your money in a stable offshore jurisdiction.
Additionally, it may be the case that it is safer for you personally to keep your money out of your current country of tax residence. If the political environment isn’t as stable as you wish it to be, or there are some clear economic risks in your new nation, it is much safer to manage those risks by keeping your money offshore.
Are International Investments Costly?
As we have already mentioned above, diversification, tax optimisation, asset protection and confidentiality, and risk offsetting opportunities are main reasons for expats to invest internationally if they want better ways to grow their wealth.
However, there are possible downsides to offshore investments and one needs to be aware what is at stake when taking a decision whether investing internationally is the right thing to do.
One of the disadvantages is that potential investors are required to put down significantly higher minimum investments than their onshore equivalents.
Offshore accounts are not cheap to set up. Depending on your investment goals and the jurisdiction of choice, it might be necessary to set up an offshore corporation which may involve legal fees, corporate or account registration fees, etc.
In some cases, investors may be required to own property in the country in which they have an offshore account or operate a holding company.
However, you can’t plan for the expenses before you know what your expenses are. So, the first step to understand whether you personally can afford investing internationally is to research suitable jurisdictions and see what your options are.
It is worth noting that the cost associated with international investment has dropped over the years, however, it is still more expensive to set up an offshore investment scheme. This is often to compensate for the additional complexity of this type of business.
Is Investing Internationally a Safer Option for Me?
Every investment, no matter whether it is located onshore or offshore, carries a risk. Risk is an intrinsic feature of an investment: however great your confidence is in the product you are investing in, there is always a chance that something can go wrong.
Therefore, no international investment is entirely safe, but neither is any domestic investment. In many ways, however, investing internationally can offer the same level of safety as domestic options, and in some cases investing offshore will actually be the safer, more stable choice.
The biggest part of defining what investment options are safer and better for you is understanding your personal goals, circumstances, your appetite for risk and your prospects.
In addition, your current country of residence, your tax status and your future plans as to where to live in 5 or 10 years or where you want to retire, can also have a big influence on the investment solutions.
Can I Invest Internationally if I Am Planning to Repatriate?
If you are planning on repatriation, you can still invest internationally if you wish to. Depending on your circumstances, it might still be appropriate for you to retain currently invested assets offshore.
When you repatriate, your tax position will change too. Depending on your personal circumstances, taxation may only apply on growth made after the date you repatriate, unless you are from a country that taxes you on your worldwide income. Tax liability may only arise when you cash in your investment.
Ultimately when it comes to complex tax matters, the safest course of action is to consult a tax specialist.
How Do I Choose Where to Invest?
Investing internationally involves choosing a jurisdiction where you wish to keep your money.
Offshore jurisdictions are usually small, low-tax countries specialising in providing corporate and commercial services to non-resident offshore companies, and for the investment of offshore funds.
When it comes to protecting your international investments, location is important, so while choosing the best location for offshore investments, make sure you consider the following:
- Firstly, it’s important to understand whether being non-resident in your chosen jurisdiction brings its own financial benefits;
- Secondly, it is worth looking closely at the tax and legal system for the jurisdiction to ensure that your investment will be protected and that the financial firm is properly regulated.
Besides being tax friendly, each nation to choose from has its own unique legal system, reporting requirements, regulations and investor protection policies.
For example, an insurance company issuing a bond outside the UK is unlikely to benefit from the UK policyholder protection. However, some jurisdictions have their own schemes to protect you. Therefore, it is important to ensure the jurisdiction that is chosen has sufficient layers of protection.
You should check to see whether there are any investor protection schemes in place, and whether you as a non-resident are eligible for their benefits.
Which International Investment Products Should I Choose?
As we said before, for expats the choice of investment products is truly broad. Examples of international investment solutions include investment funds, portfolio bonds, QROPS and QNUPS, etc.
Many elements such as your financial goals, risk profile, tax status, age and wealth status will guide an advisor’s recommendations about the products you might like to consider for your own money’s investment.
You could choose to invest via funds or bonds or pension schemes, you may choose to bundle your investments within a tax-efficient wrapper, or invest through a company or trust structure.
Is International Investment Right for Me?
When planning your financial affairs abroad, it is crucial to think everything through thoroughly before committing to big decisions.
Do you have the essential insurances in place – health, life, critical illness etc.? If not, these might be a better place to start, rather than rushing in and committing everything you have to investment solutions.
Do you clearly understand your own appetite for risk? Are you comfortable committing the majority of your funds to an investment that is not guaranteed? Are you prepared to expose only a small or a significant part of your wealth to such a scheme?
How much do you need to have close at hand in an emergency fund to cover outgoings in the event of illness or loss of employment?
You might wish to consider your short, medium and long-term plans and goals including your retirement.
In short, the better you understand what your financial situation, targets and goals are, the easier it will be for you to map your offshore investment path.
Saving and investment options for expats are broad, and making a choice as to where to invest internationally might be daunting, indeed. If after reading this guide you are convinced that international investment and savings is a right way for you to go, but you don’t feel confident enough to do it on your own, a good place to start is to request your own copy of Expat Investor Options created personally for you by expat wealth experts Abbey Wealth.
Your Expat Investor Options will be expertly tailored to your goals and circumstances, including your country of residence and domicile. The Options will show you how to structure your investment portfolio to take best advantage of your expat status.