While the prospect of working overseas is exciting and may seem like the ultimate adventure, there are several things to consider before grabbing your Indiana Jones leather jacket, whip, and laptop. As a CIO that has lived and work overseas for half his life, I thought I would share some of my lessons learned, provide you some questions to ask the recruiter, and hopefully some factors to consider in your decision making. Let’s start with the first and my favorite — taxes!
I always love hearing from recruiters offering overseas positions that offer a tax free income. (At this point, let me offer a disclaimer that I am not a tax expert and am not offering tax advice. I strongly suggest that you speak with an expert in overseas earned income prior to accepting any position). That is usually not correct. As a US citizen you must pay income tax on foreign earned income. It is just that there are huge deductions like a roughly $90,000 income deduction or living expense write-off’s. But don’t assume that the recruiter is being less than honest with you when making this statement, as often they are from another country like Canada or Britain where if you don’t have land or business assets in those countries, all your foreign earned income might be tax free.
Also, in terms of taxes, note that since your employer will likely not be taking tax out for the US Treasury, it is your responsibility and needs to be done in advance quarterly throughout the year. Failure to do so can result in penalties and interest which can be higher than the tax owed. One question to ask is if the employer is a US company that will be paying tax and reporting for you or is a foreign entity that will not. If not, you will need to get a statement from that employer as to how much you earned during the tax year in both the foreign and US currency.
If employed by a foreign entity, you may have tax taken out for that country’s income tax, employment tax, or other taxes. While those deductions may be a US income tax deduction, you may need a good tax advisor to ensure you are reporting everything in a legal and timely manner. That can be very expensive in and of itself, and some individuals I knew who worked overseas often had $10,000 or more in tax preparation and advice costs. Additionally, remember if anything the recruiter or company tells you sounds too good to be true, It likely is.
Let’s move on to 403b or other retirement funds. It is my understanding that to be tax deferred the fund or retirement account must be US based and meet IRS regulations. When I was in Bermuda my retirement accumulation was taxed and also could not be taken out of the account or country prior to my being 65. You may also be paying into a social security type of retirement account in that country and later (even if not a resident) be entitled to future retirement payouts. I would recommend fully exploring this with an attorney or licensed tax advisor from that country. Also since your employer may not be paying US Social Security or Medicare, that may fall to you to pay and can affect your retirement benefit payouts long term.
Since we discussed deductions a bit, let me comment on the $90,000 or so foreign income deduction or credit — note that it does come with some caveats. For instance, it is based on a sliding scale of how often you are in the US overnight for work or business (including conferences) during that tax year. If I remember correctly, you are allowed approximately 35 days a year (I believe the regulations read, “330 full days during a period of 12 consecutive months” – physical presence test). If you go over the 35 days, you may not qualify initially or may have to pay tax on a portion of that $90,000 deduction. Again see a tax specialist for more specific advice.
In terms of actual money, negotiate out in what currency you will be getting paid and factor in wire transfer fees. For instance, when in Bermuda, some companies offered payment in US dollars to a US dollar bank account, while others dealt only in Bermudian dollars. I did not fully understand this when first there and did not think to negotiate in terms of US (not Bermudian) dollars, since the exchange rate was basically 1 to 1. In the end, I had to pay .04% fees to exchange Bermudian dollars to US ones and additional percentages to both my Bermudian and US banks to wire transfer money out of Bermuda to the US. In some cases, the foreign company may offer to pay you direct to your US bank and that is something to consider, but you will then likely have to transfer living expenses back into the host country to pay for rent and other incidentals. These charges may seem small on the surface, but can add up over time. Also note that some countries have limitations on how much money can be withdrawn or transferred out of the country at one time. If you return to the US with cash exceeding $10,000, it must also be declared.
Since we are on the topic of money, let’s discuss cost of living. Often, foreign jobs pay no more than in the US but offer the chance to travel abroad and see other cultures, and other times they pay significantly more. If you are getting a lot of money to do the same thing as in the US, there is usually a reason; namely the cost of living is huge. I really suggest that you take time during the interview to talk with realtors (even on rentals), go to grocery stores, and speak with locals about utilities, gas, transportation, etc. You may find that when all factors are considered, you may actually have less flexible spending money that you had in the US. You may also find that you will get sticker shock at things you took for granted in the US, like going out for a meal or drinks. You will also likely have to adapt your eating habits a bit to what is readily available in those countries.
Don’t forget travel. You will need to travel back to the US or want to vacation (especially since, in many non-US countries, you are likely to get what seems like very robust vacation leave). Depending on where you are, that can be very expensive, or you may want to factor in business class due to long flight times. If living on an island, it is easy to get island fever, and you may wish to travel to the mainland regularly.
In terms of leaving the country or quitting your job, please note that you need to ask lots of questions around this — like what are your contractual obligations? Is there a penalty for leaving early? What immigration costs will you have, including on gifts, household goods, or even pets? In Bermuda, I once knew a man from Canada who brought a dog with him that was the family pet, a mutt from the pound. He was charged the same amount in import tax and fees (roughly 25%) as if the animal would have been a pure bred $1,000 dog. Also note that in some Mid-Eastern countries the work provider has to sign off on your leaving the country for vacation or even if you wish to quit. This equates to having to ask permission to quit and hope they tell you yes, or you could have to ask to leave the country for personal reasons.
I have also had friends who worked in some foreign countries that regularly had “items” confiscated that were not prohibited during the immigration process (which happens every time you come and go from that country). That can be intimidating, and often it is better to pay the “penalty or duty” than to argue and make an issue of things. Always remember that you do not have the same rights in foreign environments that you have in the US. It is also worthwhile noting that where you have traveled in the past or may be planning to travel can also be an issue. For instance, if you have visited Israel, you may not be allowed to enter some other Mid-Eastern countries without special permission.
There are a host of other factors to consider. If you have children, what schooling is available? While there may be an option for public schools, you may find that they are not the environment you would find acceptable. That can often mean having to pay for private schools which can easily exceed $25,000 a year per child. Additionally, some countries have limitations as to how many children a guest worker can have when arriving or while working in the country. I know of at least 2 that stipulate no more than 2 children.
If your spouse wants to work, that too may be a problem and need to be negotiated first. In most countries, you will need a work permit, and just because your employer gets you one does not mean your spouse will get one from either the government or another company. Fully explore her employment needs and options prior to committing. Also, work permits can take a very long time. In my case, I have had a couple of instances where 6 months was the norm and 3 months was fast tracked. I say this, as many people give notice from their current employer once they sign, and then are surprised if they end up being out of work for many months awaiting work permits or travel documents. I would also not necessarily rely on what the company or recruiter tells you will be the time period, since they are motivated to get you to sign and may try to put the “best face” on the issue. Do some independent research on the Internet or via immigration attorneys.
Also, think in terms of temporary living needs and costs. In most countries, it will take you many months to get any items you shipped from the US. You also need to consider carefully what you will bring and whether there will be any import duties on them. When I was in Bermuda, all shipped-in household goods where taxed at 25% of market value which, in some cases, was higher than their worth in the US. I knew a person who shipped in everything from their 3,600 square foot US home only to get a huge import fee and find they did not have room for everything in their smaller foreign dwelling. Additionally, they did not need most of it and ended up throwing a lot out.
The flip side is that, like me, you may decide on US storage. We put all our household goods in storage in the US and shipped very little. The problem was that all that “stuff” needed to be insured. Without a US residence, you can’t get US house or rental insurance and have to pay very expensive storage insurance through a mover or storage facility. That insurance can cost much more monthly than the storage cost and easily exceed the $1,000 a month range.
You may also have to leave your vehicle behind. That means either selling it or storage. If you sell it, what is the financial impact or possible loss? If you store it, insurance may again be an issue. I knew a guy who was a “car guy” and put 3 vehicles in storage in the US while working abroad. He ended up with weather damage that was not covered under the car policy and he did not have storage insurance and had a huge loss. If you decide to ship it to the country, what rebuild requirements might there be, and what will be required to register the vehicle? Will your employer cover the shipping cost and duties? If not, what options will you have?
In short, I have provided you a lot of financially based considerations. While not nearly all inclusive, they are at least a good starting point. In my next article, I will discuss the cultural implications you should consider, from both a work and life perspective, in a foreign environment.