Category: Expat Planning

There’s something very exotic sounding about offshore banking. It conjures up visions of men in white suits checking into Caribbean hotels with suitcases full of cash. Since the release of the Panama papers, there is heightened suspicion about anything “offshore”.

However, for most expats an offshore bank account is just a simple, and perfectly legal tool to help manage their finances across different countries. As this post on the Common Reporting Standard discusses, the days of hiding money offshore are gone, and pretty much any institution where you open a financial account will require your tax ID number in order to report to your country of residence.

So do you really need an offshore bank account? Perhaps not. Most likely you have at least one account in your home country, and one in your current country of residence. People who have moved around a lot may also have accounts left over in other countries. There’s certainly no need to complicate things with unnecessary accounts.

For some people though, an offshore account may be helpful. Banks these days are coming under more and more pressure to track what people are doing with their money in order to comply with anti-money laundering regulations. In some cases the compliance burden is becoming so heavy that they simply refuse to make certain transactions. Typically these are “third party payments”. If you are trying to send larger sums of money to an account that is not in your own name, you will probably need to provide some kind supporting documentation explaining why you are making the transfer. Even then you may not be able to complete the transaction. I have come across several cases recently where banks in Japan refused to allow account holders to send money to a company overseas that they hold an investment account with. If it gets to the stage where local banks are preventing you from sending your own money to your own investment accounts, then an offshore account may be the right solution. That way you can send your money to your own account overseas, and from there transfer it on to your chosen destination.

Offshore accounts can also be useful when withdrawing money from overseas investments or receiving other payments from overseas. You may not want to bring the money back to Japan and have it converted to JPY for example. An offshore account allows you to keep it overseas, in the currency of your choice, until you need to use it.

Offshore accounts typically also offer online banking and credit / debit cards which allow you to shop and use ATM’s worldwide. This can come in handy when you travel, whether for business or pleasure. The application process typically involves completing an application form, including information on your personal financial situation, and submitting a copy of your ID and proof of residential address.

Although Caribbean islands do sound exotic, the best regulated locations for offshore accounts are the Isle of Man and Jersey. If you are looking to get started you could first check if your bank at home also offers an offshore account. HSBC and Lloyds are examples of big banks with an offshore presence. You could also talk to a financial adviser and find out if they have any recommendations.

I hope this helps you to get control of the current assets part of your balance sheet. Let me know if you have any questions.

Disclaimer: This should go without saying, but the information contained in this blog is not investment advice, or an incentive to invest, and should not be considered as such. This is for information only.

So you’re a lifer? Congratulations! For some people expat life is so good, they never intend to go home. Also of course, many people make their lives in their country of choice: they have a home, family, kids in school, perhaps a business, things that they never plan to leave behind to “return home”.

So, sticking with Japan as our example, how should you adjust your planning if you are staying here for life? Many of the basics do not change, but everything will have more of a Japan focus. We will look at each of these in more detail later but here is a summary of things to consider for now:

• Protection – this is of course the first place to start. See the protection review here for the basics. This probably means taking care of some of your insurance needs with a Japanese insurance policy, which of course means policy documents and explanations in Japanese. It’s worth looking around for a local insurance agent you can communicate well with, and exploring hospitalisation insurance, income protection, and life insurance if you need it. You will find that Japanese policies come with all kinds of add ons, fixed rate guarantees, and other bells and whistles. Start by looking for the simplest policies that cover your particular requirements, and beware of over-paying for things you don’t need.
• Buying a home – owning versus renting becomes a bit of a no-brainer if you are going to be in Japan forever. You will likely find that you end up with more space for a lower monthly cost if you own your own home. Ultra low mortgage rates are, of course, an attractive factor. Whether you buy a house or an apartment is down to your own preference, but we will look at the pros and cons of each later.
• Retirement planning – if you work in Japan you will already be paying into the Japan national pension. Once a year it is worth reviewing how this is going and what your pension is likely to be. If you are paying into the national pension scheme, you are also eligible to start a Japanese 401k, which is a self managed pension. This offers significant tax savings over time and is worth considering.
• Savings – another tax efficient way to save is NISA, which is based on the UK ISA. NISA is relatively new and, although it does have its drawbacks, dividends and capital gains are tax free. Once you have exhausted ways to save that carry a tax benefit, you should look at opening a local brokerage account. This is a great way to invest in stocks and low cost ETFs.
• Investment property – from one room apartments to whole buildings, there are excellent opportunities for property investment in Japan.
• Lastly, consider if you have other base currencies? Keep in mind that if you are planning to send your kids to university overseas, for example, you should save for that need in the currency you will be spending in. Also, for general investment purposes, remember that Japan only accounts for around 8% of world stock market capitalisation. Investing too narrowly in Japan concentrates your risk in one area, and you also miss out on the opportunity to diversify into world markets.

Last time out we looked at the opportunity for short term expats. Today we move on to the long-termers. This is quite a loosely defined group, and will cover a broad section of the expat community. What we really mean by long term is:

• You are not here on a short term expat posting – or you are but it is likely to renew many times before you move on.
• You plan to leave the country you reside in at some point in the future, whether to go home, work somewhere else, or retire somewhere else.

This means you will spend a significant part of your life in your current country of residence. Let’s assume it’s Japan for clarity, but it could just as easily be Hong Kong, Singapore or elsewhere.

Once again, your number one financial planning issue is going to be base currency, and it’s quite possible you will have more than one. So you need to ask yourself what are the things you need to save for in the future, and what country are you planning on them taking place in? So if you are saving for retirement in Europe, you may have Euro as your base currency for that need. If you are planning on sending your child to college in the United States, you may have USD as your base currency for that. If you may actually end up staying in Japan forever you may need to keep some assets in JPY just in case.

My main point here is that currency risk can be a killer. I just found this interesting site that monitors national debt, and here is Japan’s debt clock. Now Japan may manage this well over the next 20 years, or it may not. What do you think will happen to the value of JPY if it doesn’t? If you are retiring in Europe, do you really want to be saving your money in JPY with a view to converting it later, when you move back?

Other than base currency, here are a few other things to consider:

1. Protection – we have covered this in the protection review earlier. You should also have a plan for repatriation to your home country in case something goes wrong with your current employment and you have to leave in a hurry.
2. Property – if you are going to be here for a long time then have you considered buying a property in Japan? Thanks to the developed world’s lowest interest rates, it can be very cost-effective when compared to renting. If you have the means, buying a property back home can also give you some extra income while you are away and a place to either go back to or sell to generate capital.
3. Structuring – deciding where and how to hold particular investments is going to be important. You may have limited options for investing in Euros in Japan for example. It may be more tax effective to use an offshore structure or a structure back home. US citizens cannot escape worldwide taxation and need to think carefully about how to report assets. If you were to die, you probably want your assets be passed smoothly to your designated family members. Skilled advisers can add significant value here, just choose them carefully. (more on structuring in future posts)

There are many different types of expats: some are posted overseas by their employer and do 2-3 year stints in a couple of countries and then return home. Some come as travelers, students or teachers and end up living and working overseas for a longer period. And some, like me, come for an adventure for a couple of years and never end up leaving! Whether you are a short term contractor, a long termer, or a lifer, the need to plan for your financial future is a constant. However, the method will vary depending on your circumstances. Over the next few posts we will consider each of these expat types and the opportunities available to them.

Today we will start with the shorter term expat contractors. If you belong to this group then I’m sure you are aware that you have an incredible opportunity to secure your financial future. You will probably never have as much disposable income as you have as an expat, and what you do with that income can really impact the rest of your life.

I recently spoke to someone who spent several years as an expat in Asia before returning to his home country and he told me: “I realise now that the investing I did in those years as an expat really set me up for a life of wealth.”

So what are some things you should be doing if you are here in Asia and enjoying the benefits of an “expat package”? Here are a few ideas:

1. Make sure you understand what your base currency is. If you are unsure then this post will help you define it.
2. Max out contributions to anything that gives you tax free growth first. This is most likely going to be pension type assets, such as a 401K or IRAs in the US, or ISAs in the UK.
3. If you are paid in your base currency and receive a housing allowance in the country you are posted to, then you have a significant opportunity to invest back home or offshore. You may want to consider talking to an adviser both in your home country and a qualified expat adviser based in the country you are living in.
4. Consider buying property in your home country, if you haven’t already. You have the option of renting it out while you are away, and you may achieve considerable capital growth over time too.
5. Have a plan for how you are going to repatriate yourself and your family in case your employment comes to an unexpected end – you will need to plan for plane tickets, shipping belongings / furniture, and a place to live when you get home.

Most of all,  be sure to set aside some time for financial planning while you are away. The expat lifestyle can not only be fun and rewarding, but also incredibly busy. Make sure you don’t forget to make the most of the saving and investing opportunity of a lifetime.