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Expat Focus Financial Update June 2017

British expats facing potential tax penalties

As part of a worldwide drive to bring about financial transparency, HM Revenue and Customs is to receive financial data about British expats living overseas.

This means that thousands of British expats could now be at risk of financial penalties for having undeclared savings accounts.The data about British expats is part of a tranche that also reveals the financial activities of expats living in the UK which will be handed to their own countries.

The move is aimed at flushing out tax evaders but will also ensnare those expats who have not intentionally evaded their tax obligations, say advisers.

Among those at risk are British expats who believe wrongly that if they comply with the UK’s tax rules then they do not have to declare income in countries where they have lived.

Most countries, however, tax people on worldwide income, wealth and capital gains.

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The director of financial planning firm Blevin Francks, Jason Porter, told the Financial Times that one big issue could be for those British expats who have Individual Savings Accounts (ISAs) which may be tax exempt in the UK but which might be taxable when living overseas.

He said: “Many expats will see their ISA account as being tax efficient when they leave the UK.”

Other financial experts are warning that some expats may be using a complicated structure for their wealth and while they may not be hiding their money, the structures may not be tax compliant.

Now expats are being urged to seek financial advice with a view to stepping forward voluntarily to reveal their assets in a bid to claim reduced tax penalties.

However, Mr Porter says that expats should be wary in some countries, particularly in Spain, where they risk a heavy fine for non-declaration which might exceed the value of their assets.

American expats are not subject to the new data exchange initiative, known as the Common Reporting Standard (CRS), as they are subject to the Foreign Account Tax Compliance Act (FATCA) which forces a foreign financial institution to reveal details of its US citizens’ bank accounts.

Under CRS, the first wave of 50 jurisdictions will be exchanging data by September, including Malta, Luxembourg and Cyprus and another 50 will be doing so by September next year including Monaco, Switzerland and Singapore.

Huge number of US expats ready to renounce citizenship

A survey of more than 2,000 US expats has revealed the level of disenchantment with the country’s tax laws which compels them to pay tax in the US regardless of where they live and work.

The findings from Greenback, a tax advice service, asked expats if they are planning to hand in their US citizenship because of the country’s Foreign Account Tax Compliance Act (FATCA).

The survey reveals that 5% of them are planning to do so – and with 8 million US expats living overseas this could equate to an astounding 400,000 expats renouncing their US citizenship – because of the tax rules.

In addition, 19% say they have not decided what they are going to do and 43% say they have not ruled out the possibility.

The findings show that 57% of expats would welcome the repealing of FATCA and around 10% are currently trying to find a bank in their new country since their current provider is refusing to deal with US citizens.

The co-founder of Greenback, David McKeegan, said: “Since the last quarter of last year, nearly twice the number of people renounced their US citizenship when compared to the last quarter in 2015.

“Our survey reveals more evidence that expats are not enamoured with Donald Trump and most expats do not feel that their interests are being fairly represented by the government and they are frustrated by the obligations of their citizenship and burdensome tax filing process.”

Meanwhile, the UK-based firm Bambridge Accountants says that US expats living in the country may be due a tax bill reduction worth between $500 and $1,000 every year.

With 225,000 US expats living in the UK, they say up to 15% of them should enjoy the plan by Donald Trump to scrap the Medicare tax, also known as the net investment income tax.

Brexit pensioner expats could cost NHS 'millions'

A leading think tank is warning that tens of thousands of British expat pensioners may return to the country to access the NHS after Brexit unless a deal can be resolved to enable them to receive their care overseas.

The Nuffield Trust says that the cost of treating expat pensioners could double to £1 billion if they all returned to the UK.

Currently, the UK spends around £500 million every year on paying for expat pensioners’ treatment in the European Union.

That’s for those British pensioners who utilise the ‘S1’ reciprocal scheme and enjoy the same healthcare rights as local people do in any other EU member country.

Now the think tank says that if all the pensioners return, they could fill 900 hospital beds every year and need 1,600 more nurses and doctors to care for them.

A spokesman for Nuffield said: “Extra funds could be possibly found for the NHS from the cancellation of the UK’s European Union membership fees but it is unknown whether the extra NHS money would outweigh the huge staffing and financial needs that a stretched NHS would be faced with.”

Expats put off by economic uncertainty

One job site says that expats around the world are now avoiding a move to the UK or US because of political and economic uncertainty.

The jobs portal Indeed says that Australia, Asia and Canada are growing in popularity instead.

They say that fewer expats are now looking for work in the UK because of the Brexit process and the lack of knowledge of what an expat’s rights will be afterwards.

In addition, expats are becoming increasingly wary about the immigration policies being introduced by President Donald Trump, though expats looking for work in Australia may also struggle with the tightening of the country’s short-term visa criteria.

However, Indeed says the demand for jobs by expats is still strong, particularly for highly skilled professions including those who are working in engineering, nursing, medicine and finance.

Meanwhile, the Office for National Statistics reveals that there are fewer expats moving to the UK, with numbers down 33,000 over the past 12 months.

Of the 275,000 people who did move in 2016, 180,000 of them had a job while the numbers who came to the UK looking for work fell 35,000 to 95,000 people.

It also appears that growing numbers of European Union citizens are opting to leave the UK since many of them are worried about what their status after Brexit will be.

The best pay for expat middle managers revealed

A survey has revealed that the country offering expat middle managers the best pay and package, before tax and expenses, is the UK.

The findings from ECA International are based on typical costs including schools, tax, accommodation and utilities.

In recent years, it’s become cheaper for employers paying in US dollars to send expats to the UK because of the declining value of the pound.

Employers will need to fund a typical expat package for middle managers of around £262,900 or $384,400. It’s the highest cost of 40 countries analysed.

A spokesman for ECA said: “The UK, however, has some of the world’s highest personal tax rates and the second highest cost per typical expat benefit package.

“Once taxes are removed, the UK drops from the world’s top five most expensive expat locations in the world.”

The expat package for a middle manager in Germany is the lowest of all European countries that have been ranked and will cost around €177,800 or $202,800. The cost has dropped by 15% in the last two years, again down to the depreciation of the euro against the dollar.

The cost for sending expat managers to the US has risen with the average cost now being $257,400.

The ECA spokesman explained: “The costliest part of the US package is the benefits provision and ranks the fifth highest in our rankings.

“To help incentivise an expat employee to accept an overseas assignment some employers will often grant extra allowances on top of a base salary that are not necessary when it comes to sending staff to the US.

“For example, in Hong Kong the dangerous levels of air pollution, along with high accommodation and international school costs, mean that employers traditionally offer generous expat packages to attract talent.”

After the UK, the next most expensive location for expat packages is Japan, followed by Hong Kong and then China.

In other financial news…

The UK government has signalled that it intends to crack down on all immigration visa streams in a bid to reduce total numbers – and not just those from EU countries. The announcement led to employer organisations stating that businesses still need qualified expats to work in the UK to help boost the economy. Employers will, for some employees, see their immigration skills charge double to £2,000 by 2022 to help pay for training British people.

Around 20% of the expat workforce in the UAE consist of domestic workers and a new law will now give greater legal protection enabling them to have one day off every week, 30 days of annual paid leave and shifts of no longer than 12 hours. However, one MP told colleagues he did not want domestic workers to have greater rights because there is a risk they would undertake ‘unlawful sexual relations and become pregnant’.

There is confusion in Kuwait after it announced a ban on the renewal of family visas for relatives, including siblings and parents, for expats working in the country except for their spouses and children. The new rules are now in effect but news outlets expect the ban to be lifted.

Experts say the lack of expats working in Libya’s oil industry means the country will soon reach its maximum production limit. Employers are increasingly looking for expats with oil maintenance skills and they are also looking for more outside investment.

Oman has announced that 80 senior expat doctors in the country will be replaced by qualified citizens later this year. The move follows the replacement of 500 expat nurses. The new doctors are recently qualified and are awaiting placement and the country has also announced that 120 dentists are also awaiting employment – and one MP is calling for all expat teachers in the country to be replaced too.

A court in Kenya has ruled that expats who work for local charities but who draw their salaries from their head office based outside of the country will need to pay their income tax to Kenya. The move follows a legal action from HelpAge International, a UK-based charity, that wanted its expat staff to be exempt from the country’s PAYE system since they pay tax in the UK. The court ruled there was no legal basis for non-payment of income tax by expats in Kenya.

Saudi Arabia has announced that 345,000 illegal expats have left the country under the latest amnesty in the last two months. The kingdom has also announced it will no longer employ expat dentists under new regulations and will only recruit Saudis to empty posts. Around 3,000 Saudi dental graduates enter the kingdom’s labour market every year.

Japanese banks are increasingly offering more services in English to help meet growing demand from expats moving to the country. There are now more bilingual bank employees to help their non-Japanese speaking clients set up accounts and deal with day-to-day activities. The banks are also offering English language websites to help with transactions.

Kuwait says it has collected around KD 1 billion (£2.55 bn/$3.3 bn) in unpaid power bills from citizens and expats after launching a campaign to collect the overdue money. The country collected KD 33 million (£84m/$108m) in May alone.

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