Investing as an Expat – What You Need to Know

Daniel Penzing
Written by
Last update:

FATCA and Brokerage Accounts

The Foreign Account Tax Compliance Act (FATCA) is a law passed by the U.S. government requiring all U.S. taxpayers to report income from foreign accounts. It took effect in 2014 and made things difficult for Americans with overseas investment accounts. Some countries did not believe that FATCA was fair and negotiated a work-around so that citizens of their countries would not have to deal with the new law.

In 2016, President Obama negotiated an agreement with Caribbean countries to exempt its citizens from FATCA. This exemption, called “Regulation XXX,” came into effect in 2017. Many countries in the Caribbean have already enacted this exemption and will no longer require U.S. citizens to abide by FATCA.

If you’re living abroad and have a brokerage, or investment, account, you should contact your brokerage company and find out if they have chosen to implement the Regulation XXX exemption.

If you are interested in diversifying your investment portfolio, it is important to know which countries require U.S. citizens to abide by FATCA and which have enacted the Regulation XXX exemption.

Brokerage Accounts for U.S. Expats

As an expat, or U.S. citizen living abroad, you can have a U.S. brokerage account, open a brokerage account at a foreign bank overseas, or roll over your old U.S. brokerage account into a foreign brokerage. –Each choice has advantages and disadvantages.

When you first move overseas, you may feel like you want to keep things simple, so you decide to open a brokerage account at a U.S based bank. Because the bank is based in the U.S., it has a physical presence, which gives the bank advantages. When you want to make a deposit, you can go to the bank and put money in the teller window. If you want to buy stocks, you can buy them online at the bank. If you need to cash a check, you can cash your checks at the same bank. The bank can do everything you need to do without having you switch banks. It is easy.

Look at Local Investment Opportunities

When starting an investment portfolio, the most important thing to keep in mind is that you need to have some control over the process. It’s okay to outsource some of the analysis to one of the investment management firms like International Asset Managers, but ultimately, you need to have some level of control.

This is because different companies have different investment strategies and different styles of managing portfolios. That said, you can’t completely control the process and blindly buy into anything. Your responsibility as a client is to make sure that you are provided the right amount of information to make the right decision.

With that responsibility in mind, you need to do some research on your own. Look at the investment opportunities available in your local area. See what they provide and what their investment strategy is. In other words, be your own manager.

Once you get the information you need then you can use a consultant to help you with the decision-making process and oversee the execution and implementation of the investment. Ideally, the manager of your portfolio should be an expert in the local investment environment and should have a proven track record. Someone with a few years of experience, who has been successful in managing portfolios, is highly preferable.

Stay Mindful of Tax Implications

The U.S. tax code can be a bit tricky and, depending on how long you’ll be living abroad, you may need to pay taxes in both countries. Consider your plans for the future particularly if you plan on returning to the U.S. Lower tax rates may prevail there; however, keep in mind that you may not benefit as much from the tax breaks you’re getting now.

Another option to consider is filing your taxes in the country you’re living in. While this may not be strictly necessary if you’re only living abroad for a short period of time, filing in the U.S could be counter-productive to your long-term goals.

Don't Let Exchange Rates Ruin Your Finances

We have all seen the numbers, or at least heard about them. The value of the U.S. dollar has been dwindling for several years, and it only looks like things are going to get worse. While this devaluation means that the dollar is more valuable to non-Americans, it is a mixed blessing. For Americans living abroad, fine wine and expensive watches may be cheaper, but the cost of living is not.

For one thing, most Americans living abroad are probably not earning their salaries in the currency of the country they live in. They are probably getting paid in U.S. dollars, and therefore they are hoping that things like travel and medical care won't cost them more. Furthermore, there is a chance that some Americans living abroad will have to begin pulling their money out of the local stock market and investing it back home in the U.S. This is especially true for those who are planning to retire soon.

If you're an expat who is depending on investments for your future, you're going to need to find ways to make this unpredictable economic environment work for you. Fortunately, there are plenty of things you can do.

Take Advantage of Exchange Rate Opportunities

Remember how we just talked about how the value of the U.S. dollar is dropping? Well, that means you can buy more with your dollars than you used to.

Conclusion

Expats have many networks to navigate, and the one at work can be a particularly rich vein of potential contacts, resources, and collaborators. A business alliance or a new project might not come about on the first try, or even the third. However, because the investment and financial sectors are globalized, it doesn’t mean you have to work with someone in your home country to make things happen.

A savvy expat entrepreneur can work with anyone from anywhere to match a project with a skilled professional with experience in these areas. As an expat, you will also add tremendous value to any project you get involved in.

Sharing your expertise or injecting creativity into the project are great ways to show you have value. Even taking risks and pushing the individual or company you’re working with to think differently about something is essential for any type of venture to succeed. When you’re working for a company or organization whose business is serving entrepreneurs, then you have even greater opportunities to help them create new opportunities.

If you’re looking for an alternative or a change from your current situation, an expat career might be a great move to help you launch a new, exciting part of your career.