Everyone craves certainty in the answers to our questions. And expatriates have lots and lots of questions! However, in an international context it often seems that one, apparently, simple question results in different answers, often contradictory. Tell me, how are we supposed to make the best decision under those circumstances? Below you will find a quick review of why you may come across different answers to a single query. If you can recognize some of the issues, you can more successfully separate the wheat from the chaff. At the end of the blog you will also find a few suggestions to try as part of your methodology.
Folks often assume – and that includes some professionals – that a foreign country has the same rules and regulations we have in the United States. What is taxable, formulas, rates, deadlines, credits, just to name a few things, can be, and often are, very different.
And when we do accept that a country is different from our home country, we sometimes assume that it is uniformly different, ignoring the possibility that there may be significant differences among in-country jurisdictions, just like there are in the U.S. Mexico, for example, is a republic comprised of 32 sovereign states, each with its own constitution, laws, regulations, and local idiosyncrasies.
Laws change all the time, here and abroad. The information you receive may have been applicable in the past but has been superseded by a change in current legislation. To give you an example, I wrote a Mexican tax article over ten years ago called “Taxes Here, Taxes There, Taxes Everywhere” that you can still find as a top result when searching Mexico taxes on Google. Maybe you have read it. It is very outdated. I will soon post an updated version.
Not all advice applies to all people. You may have researched data, or have been told by a person, information that seems plausible. However, those recommendations and that advice might be applicable only to a very particular set of facts or conditions. That is why, when professionals give presentations, we tell the audience that the content is not specific to them and they need to talk with a CPA or attorney about their unique situation.
“Ignorance” is a loaded word and I use it here in the lightest way possible. Well-meaning professionals may provide answers that are 100% correct in a U.S. centric context but are not correct in an international context. What is more certain is that the assumptions we use in a domestic setting probably are not appropriate in an international setting. Worse, we might not even know what questions to ask! The fact is, we do not know what we do not know. Professionals need to be humble enough to recognize when they are over their head.
There is no point in denying it – many problems around the world are solved in practice by engaging in activities that are illegal, and even corrupt. Sometimes these practices are so ingrained in a particular area and so culturally accepted, that clients, and even professionals, will answer, when questioned as to whether engaging is such activity is appropriate: “That is the way it is done here”. Often that strategy is a local practice limited to a specific country or a geographic area within a country. For example, the habit of using artificially low declared values in real property deeds in some areas of Mexico is tax evasion, which is illegal. Some answers you receive to questions might represent the legal steps needed to achieve a goal, and others can be the more expeditious, but possibly illegal, strategy.
There are different ways to skin a gato. Professionals are always coming up with new strategies to deal with ever changing laws. As in the U.S., there may be different tactics to address one problem or achieve one goal. Some represent more conservative and proven approaches. Other strategies are more aggressive, possibly taking advantage of gray areas, but legal.
The Well is Dry
And sometimes, the answer is that there is no known answer. If you are an engineer you probably hate to hear that, but it’s true.
When moving abroad question absolutely ALL of your assumptions. So much will be different in your new paradigm. This applies to inflation, expected rates of return, expenses, taxability of retirement accounts, consumer protection laws, and so many others.
Work with professionals with international experience. An answer of “I don’t know” is probably evidence of professionalism. Seek advice that is particular to your case.
Recognize that a “simple question” is not always so simple. Many personal and technical factors will influence possible answers. What is good for a goose might not be good for the gander after all.
Seek a second opinion. Ask more questions.
If encouraged to make a decision that seems legally or ethically questionable because that is “that way it is done,” think twice about taking the advice. Often your interests are better protected by taking the more difficult fork in the road. Alternative solutions exist and should be considered.
There is a saying in Spanish: Lo barato sale caro. The English equivalent would be: Don’t be penny wise and pound foolish. Do not be afraid to spend more money for good advice. Fixing a problem that could have been prevented is always more expensive. My grandmother would say “a stich in time saves nine”. Sorry, I don’t have a Spanish equivalent.
What is tax advantaged in the U.S. (such as your 401(k)) may not be tax advantaged in your new tax home. What is tax advantaged in your new home may be subject to U.S. tax.
Given the volume of inquiries I have received in the past, and the inability to provide proper advice without gathering a significant amount of information, I will generally not be available to answer personal questions unless we sign an engagement letter. Pinnacle Advisory Group is a U.S. registered investment advisor (RIA) providing comprehensive financial planning since 1993. We get paid in two ways: preparation of comprehensive financial plans and by managing the investment portfolios according to one of our unique models. Our minimum required investment for international clients is $1 million (USD), but exceptions can be made case by case.
If you are interested in our valuable services, please explore our website, and feel free to make an appointment with me by accessing my personal calendar here, or click on the calendar icon below. I would be happy to explore how we can work together!