4 Financial Things American Expatriates Need to Know
By Beacon Financial Education

American expatriates live life to the fullest. They push boundaries and borders. But while they’re living life, they need to keep up with the rules that come with the status. Here are 4 things American Expatriates need to know to stay up-to-date on their finances.

1.  U.S. tax Laws are Different

Most countries employ a resident based tax system. Meaning residents of the country (the definition of resident varying nation to nation) are subject to all of applicable tax laws. However, three countries employ a worldwide tax system. One of them? The United States. This system taxes residents and nonresidents on their local and foreign income.

As an American living abroad, you need to understand your tax system varies wildly from other countries. In fact, the only two other countries which use a worldwide tax system are: Guam and the Northern Mariana Islands. Understanding the rule and applications of a worldwide tax system is only the first step to staying up-to-date on U.S. tax laws. Speak with your financial advisor on how to keep your finances pat with the system.

2. Uncle Sam has Your Back

You work hard for your money. And paying taxes has an effect on your bottom line. You absolutely do not want to get double taxed. Expatriates are subject to double taxation because they may have to pay taxes on income in their resident country and again on their home country. However, Uncle Sam is looking out.

The United States has “totalization agreements” with several countries. These agreements are pacts the IRS has with foreign countries’ tax bureaus. They are in place to prevent wealth-killing double taxation. And if you’re an American living in Europe, there’s a good chance your country of residence has a totalization agreement with the United States. Your financial advisor can set you up for success, making sure you take full advantage of these pacts.

Here is a list of countries which have totalization agreements with the U.S.: Australia, Austria, Belgium, Canada, Chile, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Japan, Luxembourg, Netherlands, Norway, Poland, Portugal, Slovak Republic, South Korea, Spain, Sweden, Switzerland, and the United Kingdom.

3.  Uncle Sam Continues to Have Your Back

Totalization agreements prevent double taxation and also ensure hardworking Americans can claim their social security benefits when they may not qualify because of expatriate status. In the U.S., workers qualify for social security if they contribute to social security for 40 quarters. Social security could be a vital part of your retirement plan, so you won’t want to miss out.

Expatriates though, can face a situation where they contribute partially to the social security requirement in the U.S. and a similar portion in another country (i.e. 30 quarters at home and 10 quarters abroad). In this situation, the expatriate wouldn’t receive benefits in either program.

With totalization agreements, an expatriate having spent 30 quarters in the one country and 10 in another is good to go; so long as he or she contributes 40 cumulative quarters to social security in the U.S. and a country with a totalization agreement with the United States. The U.S. will contribute a proportionate amount. In this example, our expatriate gets 75% benefits (30 quarters contributed in the U.S. divided by 40 quarter requirement). A totalization agreement could save you a lot of money when it comes to pension, so speak with a financial advisor on how to take advantage.

4. FBAR is not a trendy club in London

Uncle Sam has your back. And for that, he wants to keep track of your foreign finances. FBAR is the process by which the U.S. does this. FBAR, which stands for Foreign Bank Account Report, requires all American expatriates to inform the IRS of bank accounts which exceed $10,000 at any point in the year. Failure to do so could lead to hefty fines. FBAR can be reported through the BSA online e-filing system. For help on filing and other tax rules, speak with your financial advisor.

Thursday 30 November Beacon Financial Education will host another seminar for American Expats and Internationals with a U.S. nexus and discuss the implications of US FATCA (Foreign Account Tax Compliance Act). This free – no obligation – seminar will be held at CCT-Venue Barbican in London, starting 6:30PM. You are welcome to join. Beacon Financial Education appreciates your pre-registration. Please sign up here.

Beacon Financial Education does not provide financial, tax or legal advice. None of the information on this site should be considered financial, tax or legal advice. You should consult your financial, tax or legal advisers for information concerning your own specific tax/legal situation.