If you have moved internationally in the near past, you may have noticed that it is difficult getting straight forward answers about what to do with your cross-border finances.
You may have gone to financial advisers in your resident country. As soon as they hear you are moving, they don’t want anything to do with you and tell you to find someone to work with at your new destination. When you get to your new resident country, the advisers there say they can’t do anything with what happened outside this country. So you have a lot of trailing pieces around the world, even though you didn’t want your finances to be so complicated.
The fact is, globally mobile people like us are falling through the cracks of increasingly tightened regulatory web of each country. We are often treated like criminals who are trying to escape financial scrutiny. However, all we are doing is living our lives. The global financial world somehow was not designed to meet our needs.
It’s not my intention to deter those who are thinking about moving abroad for the first time. Life is more than money. We shouldn’t give up opportunity to live differently simply because of potential financial complications.
The good news is that, there is a way forward, if you know where to look for all the traps in advance.
On this blog I’ve shared a lot of different planning ideas in pieces – how to deal with your taxes, investments, or government benefits when you move internationally. Now is the time to share with you how to plan for all of your globally woven finances in a comprehensive way.
Three questions to ask regarding your cross-border finance
Note that I’m not trying to tell you what to do in your specific case. What I’m trying to present is a framework of how personal finance works on a global scale. I use the same framework to approach new clients’ financial life when they come to me and help them decide how to manage their global financial lives.
This framework can be broken down into three questions:
Q1: How many financial bases do you intend to keep?
Let’s first define what I mean by a financial base. A financial base is a country you receive income or maintain assets in. (US, and a few other countries, are exceptions to this definition, where as long as you maintain citizenship, you have tax liability and reporting obligations.)
Moving around the world doesn’t mean that you need to create financial bases outside of your home country. A classic example is a diplomat. Diplomats may be working in foreign countries but are not expected to form ties in those countries.
Another example is digital nomads. They don’t truly create ties in any given country other than where their revenue or income comes from. Their physical location has nothing to do with how they manage their money.
The fewer financial base you have, the less complication you will face in managing your finances.
Of course, keeping only one financial base doesn’t mean you don’t also encounter some scenarios involving cross-border finance, such as doing international transactions, or getting insured while being overseas. However, these scenarios occur exactly because you are trying to keep one financial base. There is a cost to live internationally, but hopefully the reward is worth it.
The other side of the spectrum is those who willingly establish multiple financial bases. Some maybe multi-citizens with family ties in several countries. Others may be entrepreneurs with global operations. In order for you to want to establish bases in more than one country, there has to be some greater reward. Otherwise, the cost of administering your finances in multiple jurisdiction is generally not worth it.
If you have more than one financial base, it generally means that you need to have more than one adviser. Financial professionals operate within one jurisdiction. In rare occasion, you’ll find advisers registered in two countries with close ties, such as US and Canada. These advisers only specialize in dealing with the planning complications between those two jurisdictions. Whenever you choose to move from those two countries, even your existing cross-border adviser cannot cover all of your finances.
Q2: Who takes the lead?
If you need to have more than one adviser, who is the main one that can coordinate all the pieces?
In my experience, most globally mobile professionals end up playing this role themselves, albeit reluctantly. However, it requires them to see a comprehensive picture and know how all the moving pieces work together. Very few non-finance professionals actually think that way.
For example, you may be Ireland citizen working in the US on H-1B visa, but also runs your own consulting company with income from Ireland and France. You know you probably need to file tax returns in three countries, but each country employs different tax year. Even if you hire three local tax accountants to work for you, which one should you file for first? How does that change your overall tax liability?
Eventually you need one person who is able to think at a higher level and coordinate the three. This is why in the tax world, there is advantage in employing multinational accounting firms when it involves filing in multiple jurisdictions.
Tax is just one piece of the puzzle for our personal finance. In the end, someone needs to be able to see all the moving pieces in all the countries and coordinate them. This is the role I normally play for my clients with multiple financial bases where US is the major component. However, that also means that the clients still need to engage in other advisers in other countries. This leads us to question #3.
Q3: Can you afford to have multiple advisers?
What I’m seeing more and more is that people decided there is a need to keep more than one financial base. Nevertheless, they either could not afford to hire multiple advisers, or could not get over the sticker shock. With limited “budget” to get their finances in order across the world, they do it in a piecemeal fashion. They are constantly chasing after the next “problem” that stemmed from maintaining multiple financial bases.
Eventually, the only way to fix it is going back to Question #1. If you simply don’t have the time, energy, or budget to deal with multiple financial bases, perhaps it’s time to go back to the drawing board and decide whether it’s worth it.
This is a particularly important step for those who are considering applying for permanent resident status outside of their home country. I’ve heard a lot of people applying simply so that they can stay in the country without renewing visas, but it likely makes the financial ties to their new home country more difficult to sever.
On the other hand, it is difficult for US citizens to sever financial ties with the US even when they permanently immigrate to another country. The only true way to migrate from the US financial base to a foreign one without keeping both is to renounce US citizenship. Very few first-generation immigrants to another country is willing to do that.
My preferred system
As mentioned, I have come to play the role of the primary adviser who not only understand the system in the US, but also coordinate with advisers in other countries. My preferred system, for those who have complicated cross-border financial life, looks like this:
There is no one right answer to how you should manage your finances through your global journey. One of the most important things you can do is find the right adviser who understand how all the moving pieces work together and willing to coordinate with other advisers. But if you choose this route, be prepared to pay more for advice, just because you need to pay more people! Only you can decide whether your global living is worth the cost.