x Abu Dhabi, UAEMonday 24 July 2017

A focus on offshore investment pays off for expatriates

Despite the risks, the mobility of money today makes a compelling argument for thinking globally. But taxes can pose a huge pitfall.

While living abroad, choose a bank that is a global brand - one that is likely to have ATMs in your home country. Pawan Singh / The National
While living abroad, choose a bank that is a global brand - one that is likely to have ATMs in your home country. Pawan Singh / The National

Offshore investments have typically been the realm of shady gentlemen whose business interests involve associates named Pablo. This need not be the case.

Expatriates are, by definition, offshore investors. Most will have a bank account, at the very least, in the country where they find themselves, if only to manage salary payments and daily expenses. This could, however, become part of your long-term strategy to build wealth.

The reasons to do so are compelling, but not without risk. To begin with the good bits, though: first, a foreign bank account can provide a hedge against home currency fluctuations. For those of us unhappy souls dependent on the dollar, for example, a high fixed interest rate account in euro, pound or Australian dollar would lessen the pain of the greenback's slide.

In the past week or so, the euro has raced to a 16-month high against Uncle Sam's coin, above US$1.45 (Dh5.32). The Japanese yen and Australian dollar have also advanced significantly. Australia especially is on a roll. Interest rates are at 4.75 per cent and its position as a leading supplier of raw materials to the ever-hungry Asian tiger makes it a leading investment destination. This makes it a compelling place to put your money.

A fixed deposit is one way to take advantage of your offshore status. Excess capital can be placed in a medium-term vehicle at above-inflation interest rates. It also provides some tax advantage because most countries make allowances for their citizens' earnings during their time abroad.

For peace of mind, ensure that you choose a bank that is an established global brand - one that is likely to have ATMs in your home country and easy internet access.

A warning, though. Dealing with banks across borders can be a stressful event. To replace a lost card, for example, can be a trying experience. Recently, I made an international transfer from HSBC Abu Dhabi to a bank in Hanoi, Vietnam. I mistakenly transposed a couple of digits. When I realised my error, I called HSBC and was told the only recourse I had was to visit the Airport Road branch. As I was sitting at the other side of the globe, this was not possible.

It took several days and many frustrating conversations with call-centre people to get the problem fixed. So always limit the amount of funds you keep offshore, because if something goes wrong - and with banks, the chances are it will - you still have access to funds and a functioning account.

A second option for offshore investing is to do so directly into equities. This can be through exchange-traded funds, mutual funds or even the direct purchase of shares. Many brokerages now provide online share trading accounts. Although there is a proliferation of forex trading, contract for difference and other money-destroying ways to trade online, the better brokerages will also allow the direct purchase of shares.

Before opening an account, however, do some research. Make sure the online brokerage you choose has the backing of a large institution such as a global bank. Small trading houses run a high risk of going to the wall, especially as they often deal in highly leveraged products. If they go down, they take your money with them and your chances of getting it back are zero.

Despite the risks, the mobility of money today makes a compelling argument for thinking globally. International transfers are easy and relatively cheap to execute. Internet banking, in particular, has made it possible for individuals to move their cash from continent to continent with ease.

But, and it's a big but, tax is a huge pitfall for offshore investors. Countries such as the US take a dim view of citizens holding investments out of the watchful eye of the Internal Revenue Service (IRS). The Hollywood actor Wesley Snipes will now spend the next three years learning interesting new skills after being jailed this month for hiding US$15 million offshore from the IRS.

And from July last year, Australians working overseas were no longer exempt from Australian income tax. Governments are constantly thinking up new ways to part you from your hard-earned money. They have the resources to find you, and the accommodations to house you should you get caught. Therefore, speak to a consultant who knows your home country tax status.

So although it makes sense to take advantage of tax benefits that come from being an expatriate investor, using your status to dodge rendering unto Caesar is not advisable.

For most of us, a sojourn abroad is a temporary opportunity. It pays to make the most of it.

Gavin du Vengage is a business writer and entrepreneur based in South Africa

pf@thenational.ae