The Finance

Expatriate tax and finances

Financial Fraud

It’s not only email scamsters that you have to look out for as an expatriate. We are all woefully familiar with various letters from deposed African Generals seeking to move their vast fortunes around the world but what some are not so aware of are the Western companies that offer similar get rich quick schemes, but in a slightly different package, 419’s come in all shapes and sizes.

We often come across clients that have been affected by these, seduced by empty promises of “guaranteed returns” and “no charges or risk”, many have handed over their hard earned income to see, at worst all their money dissapear, at best the “guaranteed return” materialize, but the original capital disappear. This is known as a “Ponzi” scam, and is tragically still common. If there is an offer that appears to be to good to be true, the chances are, it is and expatriates are the perfect targets as they often have little or no legal protection.

As an expatriate there is a whole world of new investment opportunities available to you, making tax free returns and real capital growth very tangible. However you should always ask the following questions when considering any one of these investments:

How safe is my money?

Many different offshore jurisdictions have different legislation offering you varying degrees of protection, choosing a more reputable one such as the channel islands, offer more security for your funds and legal recourse should the investment go wrong. Further to this, depending on your country location, your choice of genuine investment companies can become more limited as some firms will not accept income generated in high risk and politically unstable areas, meaning that those that truly live in unique circumstances, are more vulnerable to these scams.

Choosing the right company is essential and complete checks of the investment company by yourself and your financial adviser, are vital.

What is the term of my investment?

Any financial plan with an element of investment for capital growth needs to have a minimum of a five year time frame. Companies or policies that offer guaranteed returns every year from year one onwards, are not to be looked at with skepticism. Ultimately it is the time frame of the investment that will affect the impact of compound interest, so you should not look for “get rich quick” high risk investments over short time frames, unless you are truly prepared to place your capital at risk. The intended use of the capital will also affect your policy choice, do you want to use it to draw an income, pay school fees, establish a fund to pay off any inheritance tax liabilities? Each scenario will have different implications and you should seek professional advice before making any firm decisions.

How soon can I access my money?

Due to the nature of investments, you need to be aware that different policies and bonds carry different stipulations, and checking these is central to designing your portfolio. It is fair and reasonable to expect some attached to any investment policy as there are costs and time frames involved in establishing funds, but the gradual reduction of these and the partial encashment clauses must all be looked at when considering which investment vehicle to use. Some fraudulent policies though will have very high encashment percentages attached to them, negating any capital growth that they could have produced. Again seeking the advice of a financial professional is key to avoiding this.

How much does it cost?

The crucial question, essentially you should expect to pay a reasonable proportion of the initial capital to cover dealing costs and administration. Some funds will have a flat fee and then take a percentage of the profit from the fund, some will charges a percentage of the original capital, and then a trail commission on the performance of your capital.

All policies vary massively and you will need to approach your financial adviser to assess the impact of each costing structure on the overall profitability of your funds. The fraudulent policies will most likely offer you zero fees, or extremely low trading costs, to lure you with ridiculously over-inflated growth projections for your money.

What tax liabilities are there?

As an expatriate, depending on your individual circumstances, you can be ideally positioned to enjoy what is almost an entirely tax free rate of compound interest. However you do need to be aware that many funds are located onshore, taxing you at source and diminishing your returns and producing further tax complications depending on your country of residence. This is a complicated area and should be discussed with a financial professional.

Every investor needs to take an active interest and role in their investment decision as ultimately, it is their responsibility to understand the full implications, and risks in their portfolio.

Any fund that offers “guaranteed” growth needs to be thoroughly checked, such financial instruments are not unusual and are used by professionals every day, but come with many clauses and rarely deliver much above single digit growth.

Being an expatriate is a golden opportunity to put in place the plan to ensure a comfortable and secure financial future, but at a parallel level it is also where you are most at risk, with limited access to information and, depending on your contract location (Nigeria is included on the “black list” of many investment funds) increased exposure to fraudulent funds due to your isolation.

Make the most of your time overseas with your higher levels of disposable income and create a nest egg that would take your onshore counterparts the best part of their professional lives to collect, but do it in manageable amounts and never over stretch your budget.

Always ask as many questions as you can, thoroughly check the targeted investment company and, where possible, seek professional financial advice for a comprehensive plan. There are many financial authorities around the world that can give you a full briefing on a public listed company, make full use of such resources. Our rule of thumb is to never put forward investments in any company with less than an AAB credit rating.

There are few solid guarantees in the world of investments, but if it looks too good to be true, it is!

In Conclusion

Always be realistic with your approach to risk, we’d all like to see 20% returns every year on our capital, and you can, but only if you are equally comfortable with seeing a 20% loss.

The world of offshore investments is vast and can be overwhelming, where possible, seek the advice of an independent financial professional and mitigate risk as much as possible through a wide and diversified portfolio.

I have come across a few OOL readers who have already been stung for these schemes, if anyone needs clarification on an issue, please get in touch.

All future correspondance with be handled directly by the author. We will have no involvement in your financial matters or queries.