Home » Expat Focus Financial Update 13 Apr 2016

Expat Focus Financial Update 13 Apr 2016

Expats face scrutiny after offshore data leak

The world’s biggest ever data leak has spurred financial investigators into action to find out who has been hiding money in tax havens to avoid taxes and hide their wealth, with expats set to face closer scrutiny over their offshore assets.

The action follows the leaking of 11 million documents from Mossack Fonseca, a Panamanian law firm, which has been accused of helping clients launder their money, avoid taxes and dodge sanctions.However, the firm says it has operated for 40 years beyond reproach and has never been charged with any criminal wrongdoing.

The documents which record activity for the law firm were handed to the International Consortium of Investigative Journalists. Director Gerard Ryall said: “The leak will probably prove to be the biggest blow the offshore world has ever seen.”

Among the tax authorities investigating is the UK’s HM Revenue and Customs which says it has received ‘a lot of information on offshore companies.’

Other countries which have announced moves to look into the world of offshore holdings include France, Austria and Australia – other countries are set to unveil their own investigations as they work through the information contained in the document leak.

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In a statement, Mossack Fonseca denied they had created a structure for people to hide their resources and had not deceived banks.

The fallout from the data leak will continue for months to come; there are said to be 12 former or current heads of state listed and details of around 60 people who are linked to former or current world leaders have also been revealed.

Investors head for the dollar

Investors around the world are piling into the dollar in a trend that is likely to continue until the UK holds its EU referendum – a rising dollar will affect all expats paid in US currency.

In addition, investors have also been encouraged by dovish remarks from the Fed’s chair Janet Yellen to restrict interest rate hikes to twice this year and these will be dependent on strong economic data.

British expats in Europe see incomes fall

The average income for British pensioner expats in the Euro has fallen by 11% in 10 years with uncertainty over June’s EU referendum causing further anxiety, according to one financial services provider.

Equiniti Group says pensions have fallen in value since 2006 and the Euro has dropped by 2% since the UK government announced its plan for a referendum, which has led to the biggest part of the recent decline.

The news follows a report in The Times – also reported on Expat Focus – concerning the growing numbers of British expat retirees heading home, with 72,000 in Spain and 7,000 in Italy returning in the past two years alone.

However, according to the firm’s figures, it is not just EU pensions that are struggling – British expats in Switzerland saw incomes fall by 37% and those in the US saw incomes drop by 24%. Both of these are down to weak currencies.

The managing director of Equiniti International Payments, Andy Brown, said: “After a period of a strengthening pound, retirement income that pensioners receive has, for most, dipped again.

“Our advice to those thinking of retiring overseas is to appreciate the implications of currency exchange rate movements and look at how to receive international payments since the ‘headline’ exchange rate is not always an indication of the transaction’s total cost.”

British expat retirees have also seen their pension incomes fall in Canada, Australia and New Zealand over the past decade. Only expats living in Jamaica and South Africa have seen their incomes rise.

Declining oil prices hit Indian expats

Falling oil prices have hit expats across the Middle East, but now Indian expats are finding that the Gulf no longer offers lucrative opportunities and are returning home. Of the nine million expats in the UAE, around 2.6 million of those are Indians.

Now however, opportunities are few. And it’s not just oil but also the construction, banking and car sectors which traditionally employ large numbers of Indian expats that are beginning to shed workers. In addition, firms in Saudi Arabia, Kuwait, Oman, Qatar and Bahrain are also reducing the number of people they hire, and firms have cut back on bonuses and wage increases.

Some, according to the Times of India, are given as little as two weeks to pack up and leave the country when employers decide to shed staff numbers.

In addition, engineers in Oman are finding entry-level salaries have dropped substantially and the cost of living is increasing.

The ‘real’ costs for expats investing in real estate

Expats around the world wanting to invest in property should consider currency exchange rates and the shifting financial environment as well as having to pay real estate taxes, according to a report.

Real estate consultancy Knight Frank says it has analysed the costs for expats buying property in 15 cities around the world as well as the holding and selling costs of the property.

The firm’s head of research in Asia, Nicholas Holt, said: “When investing across borders, investors should be considering the currency, the market, liquidity costs, risks and management but also the tax implications of the investment over its lifetime.”

He pointed to expats wanting to buy UK property facing changes to capital gains tax rates and stamp duty charges as having a ‘significant impact’ on the investor’s returns. Other countries are also introducing tax measures to slow down their booming property markets in a bid to boost affordability for citizens.

When the 15 cities are analysed for tax and property costs on properties worth more than $1 million, Paris is number one with 15.3% of the property’s value, followed by Berlin with 13.3% and Geneva is third on 12.6%.

However, when the property costs for homes worth more than $10 million is analysed, Geneva becomes the number one most expensive location for investors with costs running at 13.2%. Berlin is second at 11.3% and Monaco is third with 10.8%.

The situation changes again for property investors when the tax costs for the same 15 cities are analysed with Sao Paulo costing investors 31.5% over a five-year period, followed by Hong Kong with 22.4%.

Knight Frank’s senior manager of international projects in Malaysia, Dominic Heaton-Watson, said: “It’s important to understand the true property costs as more investors become global citizens.”

Why expats move overseas

A survey has revealed why expats move overseas, and it’s not all about money.

According to AXA PPP International, around half of those who leave their home countries are looking for adventure, but around 75% of those find their expectations have been dampened with culture shock. And this can occur just a few weeks after moving to a new country.

One of the major issues highlighted is that expats are struggling to communicate in their new workplace and to deal with different cultures along with a pressure of feeling the need to prove themselves to colleagues.

Niels Barends is a psychologist who told one national newspaper that the research proves that expats need to work at their life abroad to make it succeed and overcome initial setbacks.

He points out too that after the initial ‘honeymoon period’ expats are then subjected to minor niggles in the workplace – usually based on misunderstandings of different cultures and work practices – that become more serious.

Among the issues that expats struggle with, he says, is the lack of people being direct and not meaning what they say, while in other countries it is the opposite problem as people are so direct that the expat feels offended. He says that for an overseas working spell to succeed, the expat should stop comparing their current situation with one they grew up with and learn to live with their new country’s culture and practices.

The survey also found that among the reasons that expats found life abroad to be tough were difficulties in learning the local language and developing the skills needed to succeed in dealing with different workplace and management cultures. However, nearly 24% of expats said making the transition to a new country ‘was not difficult’.

One of the biggest hurdles to working overseas for expats is having to learn a new language, but which one is the hardest to learn?

A survey by relocation firm Cartus has revealed that Mandarin Chinese is the toughest language to pick up, with 40% of expats saying it was difficult in a survey they conducted.

The survey questioned expats from Europe, the USA, Africa, Asia and the Middle East and they all agreed that Chinese was the most difficult of it all.
However, the second place for most difficult language was a tie, with both Japanese and Arabic proving difficult for 18% of expats.

A spokesman for Cartus said it was crucial that expats learned the language in the country where they worked as it would make life easier for their colleagues and for themselves.

He added: “For most Westerners, Mandarin Chinese is hard to learn because it has thousands of subtle inflections, tones and characters which affect the word’s meaning which would be unfamiliar to someone from North America or Europe.”

The spokesman also pointed out that expats need to have more than conversational skills in another language to succeed in their jobs and they should strive to sound like a ‘natural speaker’. When expats were questioned about the easiest language they found to learn, Spanish topped the list.

The findings have been backed up by a Unesco study which revealed its top 10 of the most difficult languages to learn.

Again, Chinese topped the list, followed by French, Danish, Norwegian and German. They are followed by Finnish, Japanese, Icelandic, Arabic and the Greek.

Warning over ‘end of service benefit’ liabilities issued

Financial advisers in the Middle East have been told they must ‘upskill’ in learning how to deal with employers and their end of service benefit (EOSB) liabilities, says Zurich Global Life.

That’s because most employers of expats in the Middle East do not set aside assets for covering their EOSB liabilities, according to 83% of chief financial officers in the region.

The survey also found that 85% of respondents said it would be ‘a good idea’ if employers did meet their liabilities fully.

Zurich’s head of international pension plans, Peter Cox, said the issue for end of service benefit liabilities was becoming a big problem. He pointed out that not enough financial advisers in the Middle East have been engaging with the problem on behalf of their clients and they need to learn the skills to do so.

Mr Cox estimates that the amount that workers receive when they leave their employer has risen over the last six years by 140% and that the length of service has also risen from five years to 7 years. He explained: “Companies struggle to see the prudence for the risk in what is an ever-growing financial issue.”

Another problem is that firms are not reporting their liabilities correctly to international accounting standards and they are not taking into account future salary increases and other variables, Mr Cox added.

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