International Tax Planning Strategies: What You Need to Know When Working Abroad

Working overseas for your company presents opportunities for career growth and exciting new life experiences for you and even your family. Chances are you have previously traveled abroad to visit the foreign office or plant, maybe even on multiple occasions. In your case, international travel may be nothing new. However, knowing how to properly manage your assets and taxes beyond payroll income can easily become a challenge, especially if you are living abroad permanently with your family, as a longer stay comes with more complex financial considerations.

You may have gone through orientation with HR, where seemingly every detail was handled for you, from direct deposit, foreign banks and, of course, living arrangements. If you have children, companies will often assist with applications, enrollment, and tuition in American schools as part of your relocation compensation package. What HR cannot guide you on is international tax planning strategies and investing while you live overseas, and these things can sneak up on you as it gets closer to tax time. Here’s what you need to know.

International tax strategies for foreign investments as a US Citizen

While living abroad and working for a US company, you will pay taxes to the US government. However, if you make investments in foreign assets such as property, you will most likely be responsible for paying taxes to the country of residence. Even though the assets are held on foreign soil, as a US citizen, you will need to report to the IRS what you possess and submit records that you paid taxes on them.

Purchasing securities in foreign companies has been made very simple because publicly traded companies contract with banks to act as brokerages for shareholder accounts. These are called American Depositary Receipts or ADRs. So, whether you live in the US and want to invest in foreign entities or live abroad as a US citizen, you can invest in many companies around the globe without a hassle. Since the banks are also acting custodians, they calculate what’s called foreign tax withholding. Taxes on capital gains are deducted from your account and periodically paid. The IRS has a step-by-step interactive guide on how to pay taxes for US citizens living abroad that you should also consult as you are getting your finances in order.

Hiring a wealth professional for ongoing guidance

If you want to invest in multiple asset types in a foreign country, it’s best to seek the assistance of a finance professional on how to best manage them. A great wealth advisor stateside will help you to connect with a financial services firm in your country to act as a qualified intermediary (QI). Purchasing assets in a foreign country must meet the appropriate reporting requirements to record the assets you hold on your US tax returns. The administrator or custodian for your foreign assets are familiar with US reporting requirements and typically prepare reports which meet US accounting standards. However, it’s best to find advisors who willingly work together in tandem concerning your foreign assets to put an investment vehicle in place which will protect them.

Navigating international tax planning

Recently, the EU has introduced anti-avoidance directives which are specifically aimed at investors who do not want to pay taxes on investments. You will need a skilled advisor who is knowledgeable about current US income tax treaties with the EU and other countries and can help to make sure that what you do pay in taxes doesn’t become a penalty for investing while living abroad. They can also help you avoid the pitfalls of capital losses from repatriating cash if you need to liquidate foreign assets when you return to the States.

If you are overseas working diligently, growing your earnings, and exploring new investment opportunities, you need to also dedicate time to developing your international tax planning strategies so that you don’t encounter any complications down the line. Seek the advice of a wealth manager who can help you to develop a plan for managing all of your assets.

The professionals at SD Mayer are eager to help you streamline your tax planning and to help you identify any resources you may need if you are working internationally.  Contact us today for more information or to set up an initial consultation.

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