Having a Foreign Affair – Part III

If you’re considering re-locating overseas for the adventure or for the financial benefits, the odds are good that if you have children enrolling in an international school, they’re probably going to enjoy the experience. Read their comments .

But ensuring that they do, you’ll probably want to stay for more than a couple of years.  Children adapt well, but they also like to establish rooted friendships. 

To benefit financially, you’ll probably want to stay more than just a couple of years as well.

Canadians Overseas

Canadians who make an effort to cut their residential ties don’t have to worry about Revenue Canada knocking on their door at tax time.  Doing this isn’t for everyone because you’ll essentially be saying, “OK, I’m moving overseas, and I probably won’t be coming back”

Officially, it has to be a permanent move.  It doesn’t mean that you’ll never move back to Canada, but you’ll be making some significant long term changes to cut ties:  closing bank accounts, selling your investments, canceling medical coverage, canceling your driver’s license and probably selling your home.

Americans might look to expatriate Canadians with pity…until it’s tax time.

A couple I’ll call Jim and Betty live in a 12,000 person expatriate community in Saudi Arabia.  Betty goes for 20 kilometer runs within the compound, and Jim joins a group of cyclists who ride up to 80km within the boundaries of the gate.  There are no taxes to pay.  As non residents of Canada, they save well over $120,000 a year—as school teachers at Saudi Aramco. And they probably spend more money on “non-essentials” than you and three of your neighbors put together.

Given the magnitude of the facility, the company hires professionals from a variety of vocations.  And despite the eye-popping teacher salaries, teachers tend to be closer to the bottom of the pay pyramid, rather than the top.

During breaks, employees venture off into Europe, Africa, and cruise the Mediterranean.  It’s not an exaggeration to suggest that most of them are swimming in cash.

But it’s not without risks

Saudi Arabia doesn’t generally find itself in direct, violent altercations with its neighbors, but that’s what many people thought about Kuwait, before the first Gulf War.  A friend of mine was one of the last to leave “occupied” Kuwait.  At a sentry stop, a young Iraqi guard with a machine gun questioned him with a foam-caked, dehydrated look.  Passing the soldier a Pepsi from a 6 pack he had on the front seat of his car may have saved him from more than just a long wait.  My friend was leaving his post as the Kuwaiti National Team Swim Coach, and after news of his “Pepsi Escape” got out, he was a guest on Larry King Live.

On the overseas work circuit, you’ll hear your fair share of adrenaline-filled stories.

Expatriate disconnection

Of course, there are multiple overseas options for adventurous people—beyond just corralling yourself in the Middle East.  And many of them pay extraordinarily well.  Overseas Canadians generally pay much lower taxes, they enjoy higher standards of living, and can usually invest their money in accounts that rival RSP efficiency.  My investment accounts in Singapore, for example, are free from capital gains taxes.

But there are strange disconnections with many of the “business world” types.   It’s not uncommon for companies to pay for schooling, country club memberships, business class tickets home for holidays, housing allowances…and even car allowances.

Reality can get blurred for many.  One of my friends working for a company in Korea, making and distributing sunglasses, was going to give his 18 year old son $120,000 U.S. because his son earned a full university scholarship.

“He earned the scholarship,” he said.  “And I was going to spend that money on his education anyway.”

“It’s only $120,000,” he stated, with honesty that nearly knocked me off my chair.

Can working overseas be that intoxicating?

Or is it a level of drunkenness you’d welcome.

What about you?  Do you think my friend is delusional?  And has an overseas life ever enticed you?





Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School (2nd Ed. Wiley 2017) and The Global Expatriate’s Guide To Investing: From Millionaire Teacher to Millionaire Expat (Wiley 2015). My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I’m happy to comment on your questions. However, please read the Terms of Use, Privacy Policy and the Comments Policy.

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25 Responses

  1. I'd be curious to know what he's doing that pays him a level of salary such that he can look at $120,000 and say "oh, it's only $120,000".

    You've enticed us, Andrew, but the fruit is still out of reach 😉

  2. Hey Kevin,

    He does something with sunglasses. Some kind of product manager. He spoke as if $120K was nothing. And I tried saying, "Look, there are professionals in Canada who work their tails off for 15 years and save like crazy, but still don't have that kind of money. You might not be doing your son any favours" He's a super guy, but honestly, I don't think he believed me.

    In 2004, I ran an annual race up SE Asia's highest mountain: Mt. Kinabalu. I flew there with an Aussie I had just met (to the island of Borneo). He was a headhunter for the local banks—and got paid a percentage of first year salaries for these young guys (often about 24 years old) who earned $400,000 a year as a starting salary. Anyway, what interested me is that many of them, on that salary, end up living month to month—NEEDING that next paycheck every month.

    I bring that up to strengthen my idea that….with money (or high salaries) comes some kind of dellusion as well (at times)

  3. Aah stories of riches! I like those.

    From the expats I met who were in the ME (KW, SA…), it appears that just by having a Canadian passport + a Canadian diploma (or American) your salary will be several times higher than someone from a 3rd world country for example even if that someone has more experience/knowledge than you.

    The ME are champions when it comes to racism…

  4. DIY Investor says:

    It interested me that you cited Saudi Aramco. FYI: they have the top rated retirement plan as rated by Brightscope. Their benefits are amazing. See

    http://www.brightscope.com/401k-rating/437686/Sau

    especially the comments.

  5. I think the tax breaks are part of the appeal for living overseas along with the chance to immerse yourself in different cultures. $120K isn't chump change in my book.

  6. @Mich@BeatingTheIndex

    Hey Mich,

    You're probably right about that. But I've also heard from many qualified overseas people who emigrate to Canada that Canada is equally, professionally "racist". And Canada isn't the only first world country we might question.

    A friend of mine (a registered nurse) moved to England, but her Canadian RN certification wasn't recognized in the UK. We have loads of professionals who move to Canada from overseas, and are not given accreditation for credentials they've received in other first world countries.

    I met an Italian doctor working as a nurse in Canada (and having to take a nurse's training) because his MD certification from Italy (which is as stringent as Canada's) wasn't recognized.

    I can see reasons for this, but at the same time….

    The world can be a funny place.

  7. @DIY Investor

    Hey Robert,

    Thanks for that link! Very interesting.

    I've heard money stories out of that place that make my toes curl. I can't say it's for me, but I don't think I've met anyone who didn't love Saudi Aramco.

  8. @The Biz of Life

    Hey Biz,

    I'm with you! That's an enormous amount of dough to think of giving to an 18 year old, and calling it "only $120,000"

    The tax issues are definitely beneficial. Americans pay local tax rates up to about $90,000 U.S. After that, they pay American taxes on each dollar earned after that, at the marginal U.S. rate. The Americans I know do complain about that, but they still end up paying far lower taxes than they would if they were in the U.S.

    My average tax rate is 7% (average, not marginal) as a Canadian in Singapore

  9. Jan says:

    It is $70,000 tax free for US citizens. The international school system is something to rival some of the best private schools in the US. The companies and embassies pay a high price for student attendance. I worked in both Hong Kong and Saudi Arabia.

    BUTTTT- don't let the "it is great there" fool you. I lived in Riyadh. My husband's building was "taken out" with him in it. He survived- but others did not. The teacher's compound was attacked. The ME is not a safe place to play and believe you are totally safe as a westerner (even though they would like you to believe it is). Women are not allowed to drive off the compound- or go out without escort. I had to be fully covered when I went out.

    That being said- our times overseas were the best years of our professional lives. We traveled to more places than one could imagine and met people we could have never encountered another way.

    And yes, ex pats tend to be in la la land of money. Most do not survive their entry back to their home country because they have to pick up a broom for the first time in their lives.

    My children are doing everything they can to get back to the lifestyle now that they are adults. Forget Europe- they say- I want to be back where the housekeeper does the cooking and cleaning for $300. a month!

  10. Jean says:

    First, to clarify the "tax free" amount, if I understand Jan's statement correctly. When filing US income taxes, the foreign income exclusion was about the equivalent of US$91,400 for 2009 and will be about $91,500 for 2010. For many of us Americans, that's a significant benefit when you're only paying between 7-10% in local taxes on that income earned. I'm in Singapore, as well, but I used to work in New Delhi, India (and paid in US$ there). It may seem to some like we're completely escaping taxes, but many of us still own houses and pay local county taxes or states taxes. And, some do pay a degree of US federal tax, as Andrew mentioned, or US Social Security taxes, if earning in US$$ (hopefully, those come back to us if and when we return to the US).

    All the previously stated benefits are some of what have kept me overseas and working for a longer period than I've ever worked back in the US. I've been overseas for 13 years now. Growing up abroad as a "military brat" in elementary school and then spending a year of college ("uni") in Europe definitely lit a fire in me that was impossible to extinguish. As a full-time educator, my earning/savings/spending power is much great here, and I am able to spend on, or invest in, 'experiences'. This seems to be what so many other expatriates are looking for – not to buy things, but rather to invest in experiences that one could never (or would ever) afford otherwise. In my husband's and my case, those experiences are about traveling and doing what we can to create experiences with each other and with our respective families. For a bit more savings power, we don't have the full-time maid, nor do we own a car. Having said that, we still enjoy a higher standard of living.

    Above all, I absolutely love the type of people that I've met overseas. In terms of expatriates, there seems to be a like-mindedness of sorts: they/we are folks who seek experiences a bit out of our comfort zone, enjoying exploring what's new and, in general, see life from multiple perspectives (think Andrew Hallam!). I'm sure I could find some similar folks back at 'home', but I cannot imagine it to be as easy to find such a concentrated group so present around me as I do here.

    Now . . . geez, what I would do with $120,000 . . . probably put it in my investment account of indexed funds (especially at today's prices)!

  11. @Jan

    Hey Jan,

    Thanks for the sobering comment. Wow–you've had some amazing (and CRAZY!) experiences. I'm really glad that your husband got out unscathed when his building was attacked.

    Personally, I've mentioned that the ME wouldn't be my cup of tea, regardless of the pay. I never thought as much about the safety aspect (although you've enlightened me on what should have been obvious). I thought more about how uninspiring the Las Vegas-esque, immediately artificial surroundings of the community would be.

    My sanctuary in Singapore is the jungle, where I spend a lot of time where I see wild boars, monkey and monitor lizards daily–and I love it. It's real.

    As for your comment about the la la land of money for so many expats. You coined it beautifully.

  12. @Jean

    Jean,

    Thanks for clarifying with the U.S. tax exemption ceiling. I'm glad to hear that I wasn't too far off.

    There was also a question I wanted to ask Jan about Hong Kong. Jan, if you're reading this, how long did you stay, and what was it like? I've heard that it's an outdoor playground once you get out of the city. I don't think I could handle the pollution in Hong Kong itself though. What do you think?

  13. ronika says:

    Having lived in Bermuda for many years, I can attest to the tax savings and exorbitant salaries. On the other hand, costs of living were very high (everything had to be imported) and was impossible to spend more than 3 months at a time on the island (44 Square miles) without getting "rock fever"

  14. @ronika

    Ronika,

    I've heard some very interesting things about Bermuda. Is it true that cars cannot have rust on them, but it's OK for them to belch smoke? And is it true that the speed limit for cars is 30 km/h?

    I'd love to hear more about your experience. What did you do while you were there?

  15. Hi Andrew,

    Great post, as usual. I agree that living abroad can be a great way to built up savings. I have been living and working in Japan for the past eight years, and while some things (fruits and vegetables, for example) are far more expensive that they would be in Canada, I pay 7% or 10% in taxes (depending on the numbers used) which far outweighs $1.00 per apple.

    One thing to clarify about cutting residential ties: it doesn't always have to be so permanant. Depending on the country you live in, and the tax treaty with Canada, you can enjoy the pleasures of both tax systems.

    When I came to Japan I had Revenue Canada recognise me as a Factual Resident of Canada. This allows me to be a Canadian resident for tax purposes, meaning I submit a tax form each year and declare my World Income. The tax treaty between Canada and Japan states that there shall be no double taxation, so my income from Japanese sources is then written off 100%. (I insert a letter with my form each year pointing to the article number in the tax treay that allows this, as well as income tax receipts issued here).

    The benefit? RRSP contribution room is calculated on my initial income, meaning I can continue to bank space. And since 2009, Factual Residency allows me hold and gain the room offered by a TFSA.

    Of course, I have to declare any investment income from Canadian sources, but my portfolio is not large enough to generate dividends and interest over the basic personal allowance. So for now, that is also growing tax free.

  16. @Myke@InSearchOfSalt

    That sounds like it works pretty well Myke.

    I'm guessing that once your portfolio grows in size, you'll be more interested in cutting residential ties, right?

    The benefit of Singapore, for me, is that there aren't capital gains taxes to pay. So my money compounds, just like it would in a RSP. But unlike a RSP, when I withdraw the money, I don't pay taxes.

    It does sound, however, like each of us has something going that suits our situations.

    How long do you plan on staying there?

  17. Thanks for the reply, Andrew.

    Theoretically it is something I would consider, but my portfolio would probably have to balloon 10-fold or so for it to make economic sense. The basic personal amount for 2009 was somewhere around $10,000, and even if I was generating interest and dividends above that, I would be starting at the lowest income bracket in Canada.

    Time frame is also an issue, as we are planning to move back to Canada within the next 2 – 5 years, so I think I'll just keep banking my RRSP space and hit the ground running once back in Canada. I probably won't pay any tax in Canada for the first few years back since I still have so many unused credits from tuition, dividends and RRSP room.

    Agreed that we both seemed to have found something beneficial for our own situations. I think being aware of our full surroundings (not just spacial, but financial also) is quite important. It frustrates me when I meet other Canadians here that aren't doing all they can for their own financial well being (though I am not as generous as you and giving out books) 😉

    On that note, does that mean you hold all your assets withing Singapore? If so, did you have tax issues when you first transferred assets from Canada?

  18. Hey Myke,

    I sold my RSPs after being here for slightly more than a year. That ensured that I'd only pay a 25% withholding tax on the money. Considering that I had received a 42% tax rebate on the money when I initially deposited it, I came out 17% ahead, courtesy of Revenue Canada.

    All of my assets are based at DBS Vickers here in Singapore. I can buy anything here that I could have bought with a Canadian brokerage back home (and more, if I want to buy Singaporean stocks, ETFs, or Japanese stocks) Incidentally, I haven't bought anything off the Sing or the Tokyo exchanges. I get my international diversification from international ETFs.

    You might want to try putting on money-related seminars to spread what you've learned. I've been doing that for a number of years, and it's especially rewarding to see how many Americans I've turned on to Vanguard who were formerly with Raymond James (buying actively managed mutual funds AND being charged a further 1.75% annual wrap fee on top of everything)

    Cheers,

    Andrew

  19. That's interesting, Andrew.

    I'd love to see a post sometime in the future about the steps you had to take to deal with your RSPs. I'm guessing the nuance is that selling before you had been out of the country for a year would have resulted in higher taxes?

    I have given short talks on money as part of larger teaching workshops, but it would be interesting to set up something more devoted. Mostly my talks have been based around getting money back to your home country for the cheapest possible fees.

    I have done a lot of coffee shop chats with friends, and my biggest success there was getting one of my best friends out of Investor's group, and into TD e-series funds for his RRSP.

  20. @Myke@InSearchOfSalt

    Hey Myke,

    You're right about the reasons I waited to sell my RSPs. If I sold while living in Canada, Revenue Canada would have wanted 42% of the money. As a non resident, I was able to sell the RSPs, have the bank mail me a cheque, and I paid a withholding tax of 25% that was taken at the source. No paperwork. No special requests. It was totally simple and automatic.

    I was just thinking about your friend who was with IG. Over his lifetime, you probably saved him well over $100,000. I think he owes you a hearty meal!

  21. Thanks for that tax info, Andrew. It's interesting to know. Though I don't see myself doing it myself, you never know what the future will bring.

    As for my friend, if he stayed with I.G., then yes, I would agree with a number similar to that.

    In his defense, though, he was already disappointed with I.G., he just didn't know what to do with the money.

    He was originally talked into investing with them when he was about 20, and held the account for about 10 years. They should be hung out to dry for sapping a student like that.

    He had a terrible advisor, too. Every time my friend would email about holdings and returns, the advisor would email back something to the effect of "Let's meet and I can go over it with you," or "Let me give you a call."

    Once he moved back to Canada, TD was one of his first orders of business.

  22. Paula @ AffordAnythi says:

    Wow, "only" $120K … that's amazing.

    I've traveled pretty extensively overseas, but I've never worked internationally. The people I know who have done it were in low-paying jobs (I know teachers in Ecuador and Colombia who earn less than $1000 US dollars per month — sufficient money for those countries, but a pittance by USD standards). This post is making me think I should be exploring more options for high-paying jobs elsewhere ….

  23. Hey Paula,

    There are higher paying jobs in some international locales. But I think that most international expatriates don't come ahead financially—even with significantly higher salaries. They enjoy a lifestyle that they wouldn't ordinarily be able to afford. There's a trick to this, of course, because you can get trapped into "living large" forever, while inadequately saving for the future. The trick is finding the balance.

  24. woodes34 says:

    Have you confirmed your numbers for the Aramco couple Andrew? I only ask because we are interviewing there now, and I have not had any solid information on yearly savings. This would be a nice addition for our monthly indexing!

    Thanks again for such fantastic posts!

    • Hey Woodes 34

      At Amamco, you should be able to save about $100,000 U.S.+ a year as a teaching couple with two kids. From my understanding, there's no school in the world where teachers can make (and save) as much as they do at Saudi Aramco.

      Having said that, most of the teachers there don't save as much as that (although some save more). You know how it is. The more you make….the more you spend.

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