What do I do before I go?
Moving abroad for work
Berkeley, California – September 26, 2017
Pop the Champagne! Celebrate! You’ve just been promoted and asked to lead your company’s office abroad. It is an exciting time, something you have been working toward. What a great adventure!
BUT, after the excitement, the reality of your impending move sets in. What now? How do you prepare, as a US citizen, to live abroad? How do you safeguard your assets in the US while abroad? Does it matter how long you will be out of the country? How often can you come visit the US? What about taxes and health care? What do you need to do to prepare for such a big move?
The first things you will need to clarify:
Will you be employed as an ex-pat with a full tax and housing equalization package or will you be employed as a local? If you are offered a tax and housing equalization package, your employer will provide you with a housing adjustment for the additional housing expense you may incur in your new location, as well as an education allowance if you have children. Your employer will also handle all the tax complexity of your overseas assignment, ensuring that you will be taxed at the same tax rate as you would have been back in the USA.
As the attitudes about international work assignments have changed, it is now considered more of an opportunity than a hardship and full tax equalization packages are expensive for employers. The trend is to pay employees as locals, but your employer may also offer a housing equalization benefit if you are going into a location where housing prices exceed where you currently live, for example: moving from Portland, OR to Hong Kong.
Assuming that you will be paid as a local, you will pay the prevailing tax rate in your local country and then take a credit against your US taxes. This usually means you will pay no US taxes, unless you are assigned to a country with lower taxes than the US. There are tax rules in place, which offer tax relief to ex-pats so they are not double taxed on their income:
- Foreign Income Exclusion, which allows US citizens to exclude a certain portion of foreign earned income for US tax purposes.
- Foreign Housing Exclusion, which allows US Citizens to reduce their US taxable income by deducting a portion of their foreign housing expense (rent and utilities).
- Foreign Tax Credits, which allows US taxpayers to claim a credit against their US tax obligation for taxes paid in their foreign county.
Will your company provide a CPA in-country, in the US, or give you a stipend to choose your own CPA? You will be filing taxes in both your host country and the US regardless of what ex-pat package you are offered. This is not something you want to do yourself. You will want to engage a specialist in the field who understands the complex tax treaties with each country. In general, you will not be filing a state tax return; however, if you have lived part-time in a state or have business or rental income from a state, it is very important to follow that state’s tax rules terminating residency as some states are quite aggressive about collecting taxes they deem owed.
Make sure your estate plan is updated:
If you have not established or reviewed an estate plan, before you go this is the time to update your wills, medical directives and trusts, making sure all assets are registered appropriately. You will more than likely keep your checking, savings, investment and IRA/ROTH IRA accounts open while you are away. Make sure the beneficiaries and contingent beneficiaries are up to date in all of your retirement accounts. Re-register your checking and savings accounts to “Transfer on Death” status and name a beneficiary. Make sure any life insurance is paid up and a means to auto-pay future premiums is established. If you plan to keep your home and rent it while you are away, or own rental property, speak to an attorney as to the best way to protect you and your home from liability and review your insurance with an independent broker to make sure you have adequately insurance coverage.
You will be able to continue to contribute and invest savings into your investment account and contribute after tax dollars to your IRA. Once you arrive in your host country, you will no longer be able to contribute to your 401(k). I encourage you to continue making maximum contributions to your IRA/Roth IRA and continue to save in your investment account. As foreign exchange rates fluctuate, timing and finding an inexpensive way to transfer money (there are a number of inexpensive services available on-line – check with your advisor) will help preserve your cash in the exchange to dollars.
If you own a home, you will need to decide whether to sell it, rent it out or keep it vacant. This is a very personal decision. Many people sell the house, especially if they do not know how long their international assignment will keep them out of the country. It’s clean and simple. When you sell your home, you are allowed a gain of $250,000 individual / $500,000 per couple. Any gains over that are taxed as long-term gains.
House prices in some markets have increased so much in the last decade that the gain may cause you to pause. In that case you may consider renting or letting it sit vacant. The choice here will depend on weather you can find a good rental property manager. Alternatively, if you allow the property to sit vacant, you will want to make arrangements for someone to stop by the house regularly to pick up any junk mail and make sure everything is in working order. If your house in located where the temperature can dip below freezing, it is important shut off the water before you go.
If you have investment property, make sure you have a trusted property manager and backup.
In many countries, you will receive health care through the local national healthcare system. Depending on the country, you may also be able to purchase private health care. Each country is a little different so you will need to assess what you will need when you are on the ground. Your employer may also provide international health insurance which will give you access to the private system in your local country and provide evacuation services and health care back in the US if deemed necessary. When travelling back to the US, make sure you or your employer has purchased temporary health insurance for the period you are planning to be in the US. Getting sick while you are traveling in the US without health insurance is not pretty.
This is an exciting time and can be overwhelming. Don’t try to do it all on your own! Engage good advisors to help you through the transition and be partners in the US while you are abroad.