Loopholes Like Golden Visas Make it Easier to Become an Expat
There are roughly 9 million U.S. citizens living abroad, according to the most recent data from the U.S. Department of State. What’s more, a record number of Americans are giving up their citizenship. This is all to say that if you’re considering a move abroad, you probably aren’t alone. Becoming an expatriate (or expat for short) has a lot of moving parts.
Figuring out your residency situation is perhaps the most important piece. It can be complicated, but there are potential shortcuts to gaining citizenship abroad. Countries that offer “golden visas,” as they’re called, allow American expats to stay for extended periods if they buy property there. That could be a win-win if it’s an investment that aligns with your finances and lifestyle. You’ll also need to think about your taxes, health care and other nitty-gritty financial details before moving overseas.
Looking to make a permanent move abroad? Here’s a rundown of what you can expect and how it could impact your finances.
Understand Your Residency Options
Before you pick up and move, it’s wise to understand how the residency rules work in that country. Most will require a visa of some kind to stay there for more than a few months. Visas come in a few shapes and sizes, and some may be easier than others to secure. Be sure to consult an official government website for your destination country to see what the path to residency looks like. With that said, your options may include:
Buying property abroad: Some countries provide a pathway to residency for folks who buy property there—a loophole known as “the golden visa.” In Greece, for example, Americans who make a minimum property investment of €250,000 have the right to reside in the country indefinitely if they meet certain requirements. Portugal has a similar program.
Some golden visa programs cast a wider net. In the UAE, investors aren’t limited to property. Wealthy Americans who make public investments worth at least AED 10 million (roughly $2 million USD) can apply for a 10-year visa. Long-term visas are also available to people with specialized talents and entrepreneurs.
Tourist visas: Some countries allow U.S. citizens to enter with a valid passport and stay for a certain amount of time. Others require a tourist visa. If headed to Australia, for example, U.S. citizens must secure a visa first. One option is a tourist visa, which allows you to stay for up to 12 months.
Work visas: This type of visa can enable you to stay in another country for a long stretch. Spain, for example, offers several different types of work visas. One type is reserved for highly skilled employees. These folks are non-EU citizens working in a job that’s listed as a shortage occupation. An employer would have to sponsor you in this case, but there are also visas for self-employed folks and freelance workers. These are good for one year but can be renewed if you continue to meet the requirements.
Student visas: If you’re looking to study abroad, you’ll likely need a student visa to legally stay in the country. Just keep in mind that some countries don’t technically call it a “student visa.” If a U.S. citizen is hoping to stay in Germany beyond 90 days, they’ll have to apply for a residence permit. This allows you to study, work or visit within the country for an extended period.
Undergoing a formal immigration process: The specific rules here will depend on the country. For instance, Americans who’ve been living continuously and legally in the United Kingdom for at least five years can apply for British citizenship. They can also do so if their spouse is a British national and they’ve been living in the U.K. for three years or more.
Get Clear on Your Taxes
Moving abroad won’t necessarily absolve you of your tax liability here in the United States. If you’re a U.S. citizen earning income in another country, the IRS still expects you to file a U.S. tax return—worldwide income is subject to U.S. income tax. That being said, you may be eligible for the foreign earned income exclusion or foreign tax credit. Both are designed to offer tax breaks to Americans living abroad. They can come in especially handy if you’re also on the hook for paying taxes in the foreign country where you reside.
Speaking of which, it’s probably smart to familiarize yourself with how your income might be taxed in your destination country. Double taxation isn’t a guarantee as every country is different. Some tax individuals on income earned inside its borders; some tax local residents on all income, regardless of where it’s earned; others only tax non-residents on locally earned income.
Figure Out Health Care
Every country has its own health care system. Check out what that looks like and if you’ll be able to access it after moving (and at what cost). Italy, for example, offers a national health plan that’s available to all—including Americans who are legal residents. (U.S. citizens who stay in Italy legally for more than three months are considered residents.) After researching the health care situation in your soon-to-be new country, you may find it expensive or inaccessible. Investing in international health insurance may be your best bet.
Consider Your Long-Term Financial Plan
If you’ve got a 401(k) stateside, you have a couple options in terms of what to do with it. Keeping it parked with your former employer is one way to go. You won’t be making contributions, and administrative fees could cut into your balance, but it will be there waiting for you when you’re ready to retire. It could also make more financial sense than transferring it to an international retirement fund. There’s a good chance that the transfer itself will be considered a taxable distribution. If you’re younger than 59½, it’ll also trigger a 10% penalty. You might choose to leave an old 401(k) with your past employer and then open a foreign retirement account in your new country. Just be sure you understand their rules and eligibility requirements.
Alternatively, you might consider rolling your old 401(k) into a traditional IRA. You won’t be taxed or penalized for the rollover, but whether or not you can make contributions while living abroad depends largely on your taxable income. Remember that foreign earned income exclusion and foreign tax credit we mentioned earlier? You can’t kick into an IRA if you don’t have any taxable income left over after utilizing them. If you do, then you’re good to go.
Moving abroad is a huge decision that’s directly tied to your financial health. We’ve only scratched the surface of all the things you’ll want to consider beforehand. In that spirit, we’re always here if you want to run some financial scenarios by a pro to see if an international move makes sense for you.