Financial Advisors for Expats: What You Need to Know

Expats Need an Advisor Who Understands Their Situation

If you’re a U.S. citizen living outside the United States-- or even a former U.S. citizen, you need a financial advisor who understands your specific needs, including tax considerations, legal considerations, and overall financial planning. In this article, we’ll review what expats should look for in a financial advisor, tax considerations for expats, and everything else you need to know about achieving financial peace of mind as an expat.

What to Look for in a Financial Advisor for Expats

When it comes to looking for a financial advisor as an expat, here are a few things that you should take into consideration: 

• Knowledge and Experience: Generally, you should look for an advisor with experience working with expats in similar situations. Any advisor for expats should have a good basic understanding of tax laws for expats, tax treaties, double taxation laws, and how to establish permanent residency in various countries.  

• Certifications: While certifications aren’t necessary, they can show that an advisor has completed a certain degree of professional training, potentially making them more qualified. Common certifications for financial advisors include the CFP (Certified Financial Planner) or CFA (Chartered Financial Analyst) certifications. 

• Licenses: You’ll always want to ensure that your financial advisor is fully licensed, in good standing, and doesn’t have complaints or violations against them. This can quickly be done by checking out them and their firm through FINRA BrokerCheck.

• Fee Structure: Understanding a financial advisor’s fee structure is critical, as high fees can eat into your investment returns. A 1% fee on assets under management is the most common, so if an advisor charges more than this, you should be highly confident that they can achieve above-average investment returns. 

• Fiduciary Duty: Generally, you’ll want to use a financial advisor who is also a fiduciary. Fiduciaries are legally obligated to act in your best interest, so they’ll need to choose the investments that are best for your individual situation. For example, advisors who hold a Series 65 license are legally required to be fiduciaries. In contrast, non-fiduciary advisors are only required to recommend investments that are “suitable” for the investor, which is a much lower legal standard and can lead to significant conflicts of interest. 

Double Taxation for Expats 

Unlike for citizens of some countries, if you’re an expat living overseas, you’ll generally need to pay income taxes to both the U.S. government and the government of the country where you now reside. In addition, in most cases, you will also need to pay capital gains taxes when you sell your investments or real estate, but this isn’t always the case. However, expat tax situations can be complex, and various considerations must be considered. 

In many cases, individuals who live in another country but aren’t permanent residents and don’t receive income from a job or business there won’t have to pay income taxes. In some cases, this involves either leaving the country every six months or only spending less than six months in that country per year, though this varies from country to country. 

However, there are sometimes ways to avoid paying double taxes, or at least avoiding paying total taxes in each country. 

For instance, the Foreign Earned Income Exclusion may allow you to deduct all the income you’ve earned in a foreign country from your U.S. tax burden. This usually only applies when: 

• You’re a U.S. citizen who resided in a foreign country or countries for the entire taxable year (the bona fide residence test). 

• You are a U.S. citizen or a U.S. resident alien who was physically present in a foreign country or countries for at least 330 complete days during 12 consecutive months (the physical presence test). 

• You’re a U.S. resident alien who is a citizen or national of a foreign country with which the U.S. has an income tax treaty and who resided in that country for the entire taxable year.

As mentioned, some countries have tax treaties with the United States that allow U.S. citizens to avoid paying double taxes (or at least not total double taxes). Each treaty is slightly different, so expats should work with a financial advisor and a CPA experienced in these matters to avoid paying as little taxes as possible. 

Countries Without Double Taxation

If you’re looking to move overseas but you’re not sure where to go, you may want to research specifically countries that don’t have double taxation. This means that if you pay your taxes to the U.S. government, you won’t need to pay taxes to your new country of residence. 

A few countries without double taxation include:

• Panama 

• Costa Rica 

• Nicaragua 

• Singapore

In addition, very few countries, such as the United Arab Emirates (UAE) have no personal income tax, so you won’t have to worry about double taxation there. 

Finally, some countries have special low-tax programs for certain expats who want to move there. For instance, Greece has a unique legal provision that allows qualified American citizens to pay only 7% taxes on income and capital gains for 15 years. However, once this period is over, you’ll need to pay taxes in Greece as if you were a citizen, which is around 40% for most people-- so you’ll need to be very careful when deciding which country you wish to move to and how long you want to stay. 

Other countries, like Portugal, used to have special low-tax programs for foreign residents, but in Portugal's case, this program was recently canceled due to local political considerations, so you’ll also want to make sure you and your advisor understand if a program is likely permanent or if it could be quickly canceled due to changes in local laws or the local political environment. 

Giving Up Your U.S. Citizenship and Exit Taxes

Some high-net-worth expats give up their U.S. citizenship to avoid paying taxes to the U.S. government. This is a tough decision and can be difficult or impossible to reverse, so this shouldn’t be taken lightly. In general, this should only be done if you already have citizenship in your new country, plan to move to the country in question permanently, and don’t have significant financial ties (such as a business or significant investments) in the United States. 

Despite the potential tax benefits of giving up U.S. citizenship, in some cases, U.S. citizens who renounce their taxes must pay an exit tax. 

This tax usually applies when an individual has a net worth of over $2 million or an income of $190,000 or above for the last five years (as of 2023). Unfortunately, this applies to unrealized capital gains in taxable and tax-deferred brokerage accounts, such as IRAs and 401(k)s. Unrealized capital gains are those you’ve gained through investments that have not been sold. For example, if you had an IRA with $1 million of unrealized capital gains and your capital gains tax rate was 20%, you might need to pay $200,000 in taxes-- even if you haven’t sold a dollar of investments in your IRA account. 

This law also generally applies to real estate investments, though the legal requirements involving real estate can be somewhat more complex. 

There are certain exemptions and limits, however, which can help you minimize these tax burdens. For example, individuals can generally allowed an exclusion of $767,000 in realized gains. You may also be eligible for additional capital gains exclusion on the sale of your primary residence, up to $250,000 for single filers or $500,000 for married couples filing jointly.

You can use progressive gifting (i.e., gifting assets over time) to a non-expatriate spouse (i.e., a spouse who will stay a U.S. citizen or green card holder) to reduce your taxable assets. Additionally, you can provide gifts to an irrevocable trust to avoid a certain degree of taxation. However, this typically must be done at least six years before you renounce your U.S. citizenship due to the IRS’s 5-year rule. 

There are sometimes ways to reduce your exit tax obligations through establishing a foreign trust in a domicile such as the Cayman Islands, though this can also be tricky. You’ll want to make sure you follow all relevant laws in both the U.S. and the country in which the trust has been established-- as you don’t want to become a “tax outlaw”-- i.e., as this could involve significant legal issues, especially if you ever plan to return to the United States for any reason. 

U.S. vs. Foreign Bank and Brokerage Accounts 

If you’re a U.S. citizen who maintains your citizenship, you’ll want to keep your brokerage accounts and most of your bank accounts in the United States. The U.S. has some of the most transparent and strictest regulations involving bank and brokerage accounts, so, in most cases, your money will be safer if held in U.S. institutions. For example, in the U.S., cash, stocks, and bonds held in brokerage accounts are typically insured by the SIPC (Securities Investor Protection Corporation), so even if your brokerage goes belly up, you’ll generally be reimbursed. 

Likewise, cash and CDs held in U.S. bank accounts are insured up to $250,000 per account by the FDIC (Federal Deposit Insurance Corporation). If you have more than $250,000 in a bank account, you can use multiple banks or multiple accounts (though certain restrictions apply). You can also use a network such as IntraFi, which divides large deposits into demand deposit accounts to ensure all is FDIC insured. Alternately, while (very) slightly more risky, you could hold less cash and instead use money market funds or invest in short-term Treasury Bonds, each of which can help you earn interest. 

This process can be more complex for expats who give up their U.S. citizenship; however, there are options such as Swiss bank accounts and brokerage accounts in countries with a well-established and safe regulatory framework that may be more suitable for these individuals. 

Achieving Permanent Residence in a Foreign Country 

While most of this article has discussed how to avoid tax burdens as an expat, you’ll also need to make sure you can establish permanent residency in the country or countries you wish to move to. Some countries make this relatively straightforward and inexpensive (such as Costa Rica and Panama), while the process can be somewhat complex (and potentially much more expensive) in other countries. For instance, Panama and Costa Rica allow you to achieve permanent residency if you can demonstrate a certain amount of guaranteed monthly income (such as through a pension or social security). 

In other countries, you may need to purchase a “golden visa” by investing in a project or business in that country. Depending on the country, this may be as little as $60,000 or as much as $250,000 or more. Due to the risk of investing in certain countries, you may or may not get much of your money back, but a good financial advisor can help you select an investment with the lowest probability of loss. 

Expats Need a Financial Advisor Who Understands Their Situation

Individuals decide to move outside the United States for various reasons. Many move outside the United States due to lower living expenses. For example, while retiring on $500,000 may be a challenge in the United States, many people can live well for the rest of their lives on this sum due to the lower cost of living in certain countries. In contrast, high-net-worth individuals may wish to move out of the U.S. to avoid paying high taxes for the rest of their lives. Either way, expats need a financial advisor who can help them maximize their investments, reduce their tax burden, and help them achieve financial peace of mind-- wherever they choose to live.