When I was offered a job in Thailand in 2010, I only had 24 hours to consider the offer – which was pretty much all I needed, because I was in my early 20s and this seemed like the best. idea. ever.
The many implications of this decision – emotionally, financially, and beyond – were totally lost on me. It took me a number of years, and a painful amount of trial and error, to figure out things like “Oh do I need to be filing a tax return while living overseas?”
So here are five things about my finances I wish I had known more about when I first moved abroad:
1 ) Your residency status matters (like a lot)
This mostly applies to Canadians, and will involve some contact with the Canada Revenue Agency – sorry. For Americans, it’s more cut and dry because you typically pay tax on income earned anywhere in the world, regardless of whether or not you are residing in the United States (fear not, Americans, there are some fun things for you like the foreign earned income exclusion [FEIE], which exempts your first 91,500USD of foreign income from tax while abroad).
The main issue for Canadians moving abroad is that your residency status determines whether you will have to pay taxes on your foreign income. So this is a pretty big deal. For tax purposes, you will either continue to be a Canadian resident or become a non-resident when you move abroad. A couple things to know:
- You can only be a non-resident if you are out of the country for more than half of the year (183 days, to be exact) and do not have significant residential ties to Canada. This sounds complicated but it basically means: Do you own a vehicle in Canada? Do you own property in Canada? Is your spouse in Canada? And so on. Quite literally, do you have things that tie you to Canada
- The government determines your residency status on a case-by-case basis, so you will need to fill out a “Determination of Residency Status” form before you leave! (http://www.cra-arc.gc.ca/E/pbg/tf/nr73/README.html). Basically you answer a bunch of questions and if you have “too many ties” to Canada, you will probably maintain your residency status despite living abroad.
If the CRA determines you to be a non-resident, you only have to pay taxes on your income inside Canada (i.e. from a rental property, Canadian dividends) – whatever you earn in your new country of residence will not be touched by the Canadian government (yusss). You will usually still have to pay some kind of income tax to your new country of residence, however.
Remaining a Canadian resident means that you may be liable to pay taxes on your foreign income. Rest assured, all is not lost – you need to check if your home country and new country of residence have a tax treaty. If they do, this most likely means you would be considered a deemed non-resident (woot you get the benefits of being a non-resident even though you have residential ties) and this keeps you from getting double-dinged on taxes. The US has tax treaties with many countries as well for this exact purpose.
Also, side note: a bunch of countries DO NOT HAVE income tax at all. Um so get exempt from taxes in your home country and just move to one of those: http://nomadcapitalist.com/2015/09/07/tax-free-countries-second-residency/.
2) You might not have to pay for flights or moving costs or insurance or rent!
Now for the fun part! Going overseas for a new job often means you get a killer employment package. Here are some of the amerzing perks I have either personally had in my overseas posts or that friends and colleagues have had:
- Round-trip airfare. This is usually from your point of origin/hometown to your new kickass city. This could be just at the beginning and end of your contract, but many places will fly you home once a year.
- A moving allowance. These vary enormously – I have seen them range anywhere from 500 to 5000 USD. Use it to ship things in advance or for unaccompanied/extra baggage during your move.
- A settling-in allowance. Oh the magical settling-in allowance. I got a hefty sum when I moved to Istanbul and newbies use it for everything from IKEA trips to pub nights.
- Housing allowance. You will often have your accommodation mostly or entirely covered. Let that sink in for a minute – you do not have to pay rent. In my most recent overseas gig, I received 1100 USD/month for my housing allowance.
- Medical insurance. I am not kidding when I say that private medical care in other parts of the world is state of the art. Your employer will usually hook you up with a pretty impressive medical and extended health insurance package.
- Pension. Much like moving allowances, retirement plans vary on the international scene but many potential employers offer something in the way of a retirement fund. There are often eligibility requirements, such as fulfilling a two-year contract before you become eligible, but there is usually something. And many employers will match.
- Free tuition for your little humans. International gigs will usually include tuition at an international school for your kiddos. If you are teaching at said international school, you will typically have tuition for one or two dependent(s) per teacher. Other jobs may cover tuition for all dependents.
- Cars, cell phones, language lessons, and more! Depending on how crazy you are willing to go with location, the packages become more and more enticing.
With all these perks, your monthly expenses could be anywhere from significantly reduced to almost non-existent. Hello, savings potential. And that brings me to my next point…
3) Savings potential, not salary, is what matters
I cannot emphasize this point enough – the actual salary of a job posting overseas can mean so very little. There are many international job postings with salary ranges between 20-25,000USD. Chump change, right? Not so much if you’re working in Nicaragua.
European jobs will often post salaries well into the 70-90,000 Euro range…and those employers may tell you not to expect to save a dime of it.
Ultimately what does matter is the savings potential of your particular salary in your new country. Colin over at Rebel with a Plan does an awesome job in one of his latest posts breaking down how he lives well on $1200 per month in Bangkok, Thailand (check it out here: http://www.rebelwithaplan.com/how-i-live-well-on-1200-a-month/)
I know couples that have been able to live on one salary and entirely bank the other – while living an extravagant lifestyle. They found the right country with the right savings potential.
4) You might not be able to contribute to your RRSP, or 401K, or TFSA…
[Insert familiar financial acronym here] – you might not be able to contribute to it while you’re away. You can leave the money already in your RRSP and TFSA alone and let it grow while you’re abroad. But for Canadians who are considered non-residents, you do not accumulate new contribution room in your TFSA and RRSP. For Americans, whether you can contribute to your IRA or 401K depends on a number of factors, namely whether you have earned income on your US tax return. Please please do a little homework to make sure you are still eligible to contribute before dumping money into your tax-sheltered and/or registered accounts while you’re away – you may need to find new investment alternatives while you are living overseas.
5) Staying on top of your finances at home is super important
One of my biggest financial missteps took place the first year I was living abroad. It was this super fun time where I missed my Canadian cell phone bill….by more than 90 days. Just for a little perspective, this is as bad for your credit as filing for bankruptcy. And my credit score is still paying the price about six years later.
The worst part? Nothing about missing that bill had to do with the fact that I didn’t have the money to pay the bill. I was making great money at the time. I just had different bank accounts and credit cards and bill payments in different countries…and I lost track. When you leave your home country, get systems in place to keep your financial life at home running smoothly. Ensure that you have an automated stream of money into your home accounts and automate your bill payments from there. You might be overseas, but your financial obligations back home do not disappear.
Living abroad can be an incredible (and lucrative!) experience, but definitely takes some unique know-how when it comes to your finances. This list is by no means exhaustive, but I hope it offers a starting point for five things you really need to consider if you’re thinking about (or already!) living overseas. Hit me up in the comments if you have any more questions about your finances when abroad!