Home » Expat Focus Financial Update December 2018

Expat Focus Financial Update December 2018

UK expats face EU pensions freeze post-Brexit

Around 500,000 British expats who live in the European Union are facing the prospect of their state pensions being frozen should there be a ‘no deal’ Brexit. The Brexit secretary, Stephen Barclay, has published a policy paper saying that the government is currently planning to preserve a UK national’s state pension rights when they live in the European Union.However, if a deal cannot be agreed it could jeopardise the government’s commitment to the expat’s state pensions increasing every year by a minimum of 2.5% or higher than the increase in inflation or average earnings – also known as the ‘triple lock’. This could see Brits having their pension frozen until reciprocal deals with each EU member state can be organised and agreed.

In the policy paper, the Brexit Department states: “The UK will continue to preserve the rights of UK nationals by paying an uprated state pension that is eligible to those UK nationals who live in the EU.”

Campaign to end frozen pensions

Meanwhile, a group of British MPs has thrown its backing behind a campaign to bring an end to the frozen pensions that affect another 500,000 expats around the world. Essentially, they receive a lower state pension because of the country they live in not having a reciprocal pensions agreement with the UK.

This means that some pensioners receive less the £4,000 a year because that was the rate that was paid when they moved to their new country.

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Other countries, including the European Union, New Zealand, Australia and Canada increase pensions to match those that the expat pensioners would receive in the UK. The MPs say they are now working on a law which would benefit expat state pension holders from spring next year but this could cost the government £200 million every year.

India still tops for remittances

The world’s top recipient of expat remittances in 2018 is India with its expats sending $2 billion (£1.58 bn) home, according to the World Bank. In their latest Migration and Development Brief, they say India has over the last three years seen expat remittances rise to $65.3 billion in 2017 from 2016’s figure of $62.7 billion. The expat payments account for 2.7% of India’s GDP.

Next on the list is China, with $67 billion, followed by Mexico and the Philippines with $34 billion each. The World Bank says that remittances will grow over the coming years to $689 billion – a rise of just over 10%. This is partly down to strong economic conditions in most advanced countries, including the US.

A World Bank spokesman said:

"Remittance fees remain too high, even with technological advances and lower fees could promote the use of technology and help remove the burden on poorer customers and help to open up the market."

President Trump attacks FATCA

US news outlets are reporting that President Donald Trump is preparing an executive order that would help American expats living overseas from paying income tax to the Internal Revenue Service. Under the Foreign Account Tax Compliance Act, US expats have to comply with a tax system that demands they pay capital gains and income taxes based on their worldwide income. The American tax system is not based on residence but on citizenship.

However, for those citizens who were born in the US but have not lived there, also known as ‘accidental Americans’, they too must pay US taxes and President Trump’s move may help them.

While negotiations are still in the early stages, it appears that some elements of FATCA could be relaxed for US expats – including the possibility of not undergoing the time and expense of having to file their tax forms every year.

The introduction of FATCA has seen 95% of foreign banks refusing to have US citizens as customers, which makes finding an offshore bank account as an American extremely difficult. One issue is that FATCA will penalise those financial institutions that do not reveal details of their US customers.

Bigger penalties for US offshore account holders

The IRS has announced that it will impose bigger penalties for any US citizen holding a secret offshore account. The organisation has issued advice on its voluntary disclosure regime that is currently in force after its offshore predecessor ended in September.

The potential penalties to be incurred have increased significantly with the biggest change being that taxpayers need to request ‘pre-clearance’, which previously was optional, to force their compliance with tax laws. Any underpayment of tax will rise from an ‘accuracy-related penalty’ of 20% to a fraud penalty of 75%.

The new rules apply to all voluntary disclosures to the IRS, including offshore accounts.

'Yellow vests' put off expat employers

Recent protests in Paris have apparently put off investors, including international finance leaders, from relocating to the city, the French government warns. A spate of violent street protests by the ‘gilets jaunes’ – or yellow vests – have made those firms considering Paris, and the rest of France, as a post-Brexit destination to rethink the move.

In addition, investors and businesses are wary of President Macron’s pro-business reforms being watered down which could lead to negative economic growth next year.

Meanwhile, the German city of Frankfurt is predicting that there will be 10,000 new jobs created there because of Brexit. Lobby group Frankfurt Main Finance says that there are up to 37 financial institutions applying for new European Central Bank licences who are using Frankfurt for their European headquarters. The group says that assets worth €800 billion (£712bn/$898bn) could be transferred after Brexit.

Jersey approves international savings plan

The government of Jersey in the Channel Islands has approved a move to introduce a new international savings plan which will enable international firms to create savings plans for their expat employees.

The government says the products will be particularly appealing for expats in the Gulf region where there is strong demand for these savings schemes. An international savings plan will help an employer to tailor their offering to meet expat needs and pay-out when their employment comes to an end or if they are made redundant or struggle with other financial issues including divorce or ill-health leaving them unable to work.

Lords bid to curtail HMRC's time limit

The UK’s House of Lords has requested that HM Revenue & Customs’ (HMRC) current 12-year investigation time limit when looking into offshore tax issues of British taxpayers should be scrapped from the Finance Bill 2018. The Lords say that the current rule will extend beyond those High Net Worth individuals (HNWIs) that HMRC says the time limit is aimed at.

The Lords say the rule could affect elderly people on low incomes and if the time limit for investigations is not replaced then it should be something that is ‘targeted but proportional’ to an individual’s circumstances. Currently, HMRC can only investigate an offshore tax case with a time limit of up to four years.

Malaysia mulls expat pay deduction

Expats in Malaysia are facing the prospect of having a 20% deduction being made from their wages under proposals from the country’s Human Resources Ministry. The aim is to discourage workers fleeing their employers and the deducted money will be safeguarded in a special fund and returned to the expat when they leave Malaysia after their work permit expires. Most employers in the country have welcomed the proposal, though there’s no timeframe for its implementation.

Expats in UK send home £8bn

Expat workers in the UK are sending home £8 billion a year to support families, UNESCO reports. The money is often used for helping their relations remain in school. However, they say that the transfer charges imposed by finance companies are eating up ‘too much of this hard earned money’.

Expats wiring money should only pay 3% in charges but the worldwide average for doing so is 7% – with some big variations and some costs for sending cash to African countries could be 20% of the amount involved. The Association of UK Payment Institutions says these charges could be lowered if the competition was increased in the marketplace.

The report reveals that the UK is in the top 10 of countries for expats remitting money, with the three biggest recipients being Nigeria, India and Pakistan. Hundreds of millions of pounds are also being sent every year to Poland and China. The report also highlights that expats in the US are also sending large sums to Central and South American countries.

In other financial news

In a bid to avoid being blacklisted by the European Union, the Isle of Man has approved a law for any company registered there to demonstrate they meet relevant tax and legal requirements. The sectors covered include insurance and banking as well as finance, holding companies and service centres.

The UK has been applauded by the Independent Financial Action Task Force for the efforts the country makes in combating money laundering. The UK has received the highest rating and is now considered to be a standard bearer when it comes to clamping down on illegal money transactions and laundering. The country has also been praised for disrupting terrorist financing, confiscating funds and also imposing financial sanctions on those who break rules.

Seychelles’ National Assembly has approved plans for the owners and directors of any offshore company registered there to have their details remain confidential. The president told news outlets that the move has been made to help these companies remain in the country, rather than losing millions in income should they leave. However, questions are being asked about how the government’s decision will stand with the activities of the Global Transparency Forum which aims to highlight those countries with questionable laws protecting money laundering and they could add Seychelles to other grey-listed jurisdictions.

Expats in Spain have received a boost if they want to buy property in the country after a new tax rule change was brought in by the government. Now, expat buyers who had previously paid a mortgage tax will now see this tax being paid by the bank that is providing the Spanish mortgage finance. The rule change takes effect immediately and could have a big impact on expat property buyer’s charges.

Egypt is the latest country to announce that it will offer residency permits to any foreign investor buying a property worth more than $100,000 (£126,181). The residency permit will run for one year, while for those investors spending more than $200,000 and $400,000, then they may be entitled to a three- or five-year residency permit respectively.

Finnish research firm Rewheel says that expats heading to the US need to appreciate that the costs for mobile broadband on their smartphone will be among the highest in the world. The firm says that the US has the fifth highest prices which are around four times higher than those being paid in Europe. The firm says that the country’s mobile broadband prices are excessive and more competition is needed.

Expats heading overseas may like to know which are the most expensive countries to be caught speeding in and a survey from insurance comparison firm Gocompare reveals that Norway will impose a fine of £584 ($737) for speeding. In second place is Iceland with £426, Estonia is third with £356, the UK is fourth on £338 and Australia is in fifth position with a fine of £322.

A newly-elected Parliamentary committee in Kuwait has re-opened the prospect of taxing expat remittances from the country despite the Legal and Legislative Committee rejecting similar proposals earlier this year, saying they are ‘unconstitutional’. The new committee says it will also put together a working plan for implementing a payroll alternative for employers and look at ways of reducing the number of expats who are working and living in the country.

A shortage of driving instructors in Saudi Arabia has seen a surge in the numbers of expat women offering their services to help Saudi women in most cities learn how to drive, news sources report. One of the issues is that some driving schools are not offering Saudi women dates for their training and they are responding instead to expat women advertising their driving tutoring skills.

The most expensive countries for expats to fill their car with petrol are Hong Kong, Norway and the Netherlands, according to the 2018 Fuel Price Index. The cheapest country to fill up is Iran, followed by Nigeria and Egypt.

According to the latest Wealth Report from private Swiss bank Julius Baer, the most expensive city for expats in Asia is Shanghai, followed by Singapore and Hong Kong. The cheapest city for expats in terms of services and luxury goods, including property, is Kuala Lumpur.