Question for the expats

[Surewhitey]

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Originally Posted by kevink Can only speak to Mexico where we kept a few thousand dollars in the Mexican equivalent of treasuries called cetes and otherwise did the ATM thing like Keith. Peso exchange rate during the past couple of years has ranged from just under 11 to over 15 to the $. Mexico IMO is a special case because its economy is more than 70% tied to the U.S. and I don't see than changing anytime soon. With any other expat destination I'd be seriously worried about potential severe loss of purchasing power w. dollar denominated assets, but like many other expat there don't see much likelihood of a peso much under 11 to the $ for any length of time as long as foreign remittances, U.S. tourism and U.S. purchases of the lucrative products of the drug cartels keep them afloat down there.

Kevin,
What has been your best source of info on living in Mexico.
Thanks,
s

[Alan]

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Originally Posted by nun I'll probably have more than $10k in the UK as I want enough cash in UK pounds to cover a few years of expenses so I'll just send in the FBAR, but no other investments as they make life too complicated!

The FBAR form is simple enough to complete. I'll be filing another one for tax year 2011.

[MichaelB]

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Originally Posted by NYEXPAT i live in a dual currency economy and most people have a Dollar account and Sole account. The same with CD's although higher interest is paid in the local currency. Real estate is the same although in the city most transactions are in Dollars. Rent is the major expense in most retiree budgets and until recently was (on higher end rentals) paid in Dollars as it was common for Peruvians to transfer this money to the states for safety. This provided the opportunity for renters to offer to pay a year in advance (in Dollars) and negotiate a discount while avoiding the debasement of the USD.

I imagine the inflation rate for dollar based services, like rent, must be pretty high.

[nun]

I'm most interested in how people deal with their taxes as becoming an expat makes things complicated. Tax planning is one of the trickiest aspects of becoming a US expat. Obviously everyone has to file a 1040 etc, but your country of residence will also want you to comply with their laws. Do most people file on their own or employ accountants?

[kevink]

Quote:

Originally Posted by Surewhitey Kevin, What has been your best source of info on living in Mexico. Thanks, s

Lots of good info out there. I'd start with the Kaderli's web site and ebook (at Retire Early Lifestyle. Then there are web boards for specific areas: check out the forums at chapala.com and if interested in San Miguel do a search for "Falling in Love with San Miguel" where there's a great forum (and an eponymous book well worth reading).

[MichaelB]

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Originally Posted by nun I'm most interested in how people deal with their taxes as becoming an expat makes things complicated. Tax planning is one of the trickiest aspects of becoming a US expat. Obviously everyone has to file a 1040 etc, but your country of residence will also want you to comply with their laws. Do most people file on their own or employ accountants?

Local taxes (Venezuela) were a breeze. Couple of hours including the beers. Filling out the forms took less time than waiting in line at the bank to pay.

I tried to do my US taxes there but could not. Too complicated. Tax SW makes it a little easier (like a shady spot in hades is a bit cooler) but the software is limited and you need to know the forms well. TurboTax and I can do my son's US taxes (he's in Japan) but once his income gets into AMT land it gets messy. Good record keeping is critical.

There were two types of US tax preparers. One worked for the people assigned abroad by their companies, paid in US$, making big bucks, tax equalized. Typically a large global accounting firm, such as PwC or EY. Price was >$1000. The other tax preparer was him/herself an expat and worked with "regular people", folks living overseas that had gone native and were earning like locals (my case and most of the expats in this forum). They were much cheaper, advertised in the local press, and were just as good.

[traineeinvestor]

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Originally Posted by MichaelB Those folks now in Asia and Latin America right now, are you keeping your assets in local currency or some $$/Euro combination?

Most of my/our assets are in HKD - which is pegged to the USD. The great fear/expectation is that at some stage the peg will either be removed or adjusted and the HKD. If that happened today,the HKD would most likely appreciate quite a bit as a result meaning I would take a hit on my non-HKD investments (and the HKD value of my local investments would probably also decline as well). I would probably end up paying higher interest rates on my mortgages as well (all floating rate).

People have been speculating on the demise of the HKD/USD peg since it was first introduced so this is a long standing issue.

[traineeinvestor]

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Originally Posted by MichaelB You've already been there 20 years but you anticipate being there long term? I'd say you've been there long term and plan to make it a lifetime

True, but during the first six or seven years I kept saying "just one more year .... " so there was never a feeling of permanance and even after nearly 20 years, that's less than half the time I hope my retirement will last.

[nun]

Quote:

Originally Posted by MichaelB Local taxes (Venezuela) were a breeze. Couple of hours including the beers. Filling out the forms took less time than waiting in line at the bank to pay. I tried to do my US taxes there but could not. Too complicated. Tax SW makes it a little easier (like a shady spot in hades is a bit cooler) but the software is limited and you need to know the forms well. TurboTax and I can do my son's US taxes (he's in Japan) but once his income gets into AMT land it gets messy. Good record keeping is critical. There were two types of US tax preparers. One worked for the people assigned abroad by their companies, paid in US$, making big bucks, tax equalized. Typically a large global accounting firm, such as PwC or EY. Price was >$1000. The other tax preparer was him/herself an expat and worked with "regular people", folks living overseas that had gone native and were earning like locals (my case and most of the expats in this forum). They were much cheaper, advertised in the local press, and were just as good.

If you're a retired US expat I can see things being a bit easier as most of the investments might be in the US and it's just a case of moving cash offshore. However, if you are a US citizen working overseas and live there for an extended period how do you invest your money without falling foul of nasty US tax laws. How do you deal with foreign pensions and employer contributions.

As a UK citizen having lived in the US for 25 years I never had to deal with UK taxes. That would not be the case for a US citizen moving abroad.

[Alan]

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Originally Posted by nun If you're a retired US expat I can see things being a bit easier as most of the investments might be in the US and it's just a case of moving cash offshore. However, if you are a US citizen working overseas and live there for an extended period how do you invest your money without falling foul of nasty US tax laws. How do you deal with foreign pensions and employer contributions. As a UK citizen having lived in the US for 25 years I never had to deal with UK taxes. That would not be the case for a US citizen moving abroad.

If it were me I would employ an accountant for the first year or two to understand the ins and outs with the aim of eventually going solo.

Googling throws up a number of firms. Unfortunately I don't know anyone in the UK to ask for recommendations.

[MichaelB]

Quote:

Originally Posted by nun If you're a retired US expat I can see things being a bit easier as most of the investments might be in the US and it's just a case of moving cash offshore. However, if you are a US citizen working overseas and live there for an extended period how do you invest your money without falling foul of nasty US tax laws. How do you deal with foreign pensions and employer contributions. As a UK citizen having lived in the US for 25 years I never had to deal with UK taxes. That would not be the case for a US citizen moving abroad.

The US tax laws aren’t so much nasty as all encompassing. US citizen expats can move their cash abroad but they will always be subject to tax on income and gains from investments, no different than if they were investing in a foreign market from the US via an ETF.

Pensions and employer contributions can be complicated but would not be the difference between self-prep and tax accountant. Most foreign based pension contribution does not qualify for deferral under US tax laws unless there is a tax treaty. Like Alan suggested, one year of tax prep with a pro should be enough to understand how it works.

[nun]

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Originally Posted by MichaelB The US tax laws aren’t so much nasty as all encompassing. US citizen expats can move their cash abroad but they will always be subject to tax on income and gains from investments, no different than if they were investing in a foreign market from the US via an ETF.

Just to clarify (and I may be misinterpreting your comment), but owning investments like mutual funds base outside of the US will greatly complicate your US taxes. From a tax perspective holding non-US based mutual funds is very different from holding a US based EFT that invests in foreign markets.

[MichaelB]

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Originally Posted by nun Just to clarify (and I may be misinterpreting your comment), but owning investments like mutual funds base outside of the US will greatly complicate your US taxes. From a tax perspective holding non-US based mutual funds is very different from holding a US based EFT that invests in foreign markets.

AFAIK the tax liability is no different for a US taxpayer if the foreign investment is domiciled in the US or elsewhere. If domiciled in the US the documentation is automatic, while abroad the documentation and reporting is incumbent entirely on the taxpayer.

Owning or having signatory power over financial accounts outside the US requires filing an FBAR but that is not complicated.

[nun]

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Originally Posted by MichaelB AFAIK the tax liability is no different for a US taxpayer if the foreign investment is domiciled in the US or elsewhere. If domiciled in the US the documentation is automatic, while abroad the documentation and reporting is incumbent entirely on the taxpayer. Owning or having signatory power over financial accounts outside the US requires filing an FBAR but that is not complicated.

The difficulty comes in getting the right documentation and the way some foreign funds distribute capital gains vs income. To comply with PFIC rules holding foreign funds gets complicated and heavy tax penalties are applied if you get it wrong.

[MichaelB]

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Originally Posted by nun What about the PFIC rules.

They are the same for a US investor regardless of domicile.

I never meant to imply the tax rules were not complicated. They are the most complex in the world. My point was that the liability is the same for the taxpayer no matter where he/she lives. It is in fact more complicated for US taxpayer abroad because they must determine how every source of income is classified according to IRS rules, something done on their behalf in the US for the most part.

[Alan]

There is a tax treaty between the US and UK but I don't know if they treat each other pensions the same way.

I am a US resident and tax payer and have been receiving a private pension in the UK based on my before-tax contributions before I emmigrated to the USA.

When I first started receiving the pension tax witholdings were made until I had applied for a certificate from the US IRS and filed it with the appropriate form to the UK IRS. This showed that I am a US tax payer and the UK IRS then informed my pension provider to stop all witholdings and refund what they had already taken. I pay US taxes on those UK pension payments which means that I never have paid UK taxes on those contributions.

I don't know if the reverse is true. i.e. Does a UK taxpayer have to pay US taxes on any US pensions he receives, UK taxes, or both?

[nun]

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Originally Posted by MichaelB They are the same for a US investor regardless of domicile.

The US tax laws are the same for a US citizen regardless of domicile, but the IRS treats non-US domiciled mutual funds very differently from US based mutual funds so it's generally a bad idea for a US citizen to invest in PFICs. This obviously limits the local investments that a US expat can make. For practical purposes they are limited to interest bearing accounts, individual stocks, shares and bonds and various pensions.

[nun]

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Originally Posted by Alan I am a US resident and tax payer and have been receiving a private pension in the UK based on my before-tax contributions before I emmigrated to the USA. When I first started receiving the pension tax witholdings were made until I had applied for a certificate from the US IRS and filed it with the appropriate form to the UK IRS. This showed that I am a US tax payer and the UK IRS then informed my pension provider to stop all witholdings and refund what they had already taken. I pay US taxes on those UK pension payments which means that I never have paid UK taxes on those contributions. I don't know if the reverse is true. i.e. Does a UK taxpayer have to pay US taxes on any US pensions he receives, UK taxes, or both?

I think it depends on citizenship. Article 17 of the tax treaty provides for the country of residence to be the only one to tax pension income, however, if you are a US citizen the savings clause comes into effect. So a UK taxpayer who is not a US citizen would not pay US tax on pension income irrespective of where the pension was held, just UK tax. A UK tax payer who is a US citizen would have to pay US tax on pension income and also UK tax, although there would be a credit for tax paid in one country in the other country.

[Alan]

Thanks nun. I appreciate you sharing your research.

[MichaelB]

Quote:

Originally Posted by nun The US tax laws are the same for a US citizen regardless of domicile, but the IRS treats non-US domiciled mutual funds very differently from US based mutual funds so it's generally a bad idea for a US citizen to invest in PFICs. This obviously limits the local investments that a US expat can make. For practical purposes they are limited to interest bearing accounts, individual stocks, shares and bonds and various pensions.

I agree and appreciate your taking to time for this exchange.