Did you know that you can make a lot more by working overseas and save a significant amount in taxes at the same time?
The US tax system is not the most lenient by any means. American tax payers shell out effectively almost 50% of their incomes to the Government year after year.
When a US Citizen goes to work abroad, the first $90k of income is shielded from income tax by the IRS. Married couples get twice the exclusion at approximately $180,000. And since a couple can live relatively well-off on just one US salary in most countries, many couples and families find themselves not paying US income taxes at all when working abroad.
Foreign companies have always desired hiring Western expatriates because of the vision and experience expats bring to the table. Think about it, most economies around the world are developing and emerging today, whereas the West has been there for years now.
As a professional working in the West, you are perceived as having already seen the future of companies in these emerging countries. You know what works and what doesn’t. You can anticipate potential problems that can prove costly for these companies.
When a company in an emerging economy hires a Western expat, the company brings in someone from the future back into the past. Can you think of a more favorable advantage than having seen the future already? Can you see why it makes sense to pay 30 to 40% premium for such experience?
Let’s see. Perhaps a better view of the world? More awareness? Memorable life experiences? Something new and different from the routine? Or perhaps 30 to 40% more in salary? A lesser or no tax burden at all and therefore a lot more savings and possibly expedited retirement? Or maybe several semi retirements?
Maybe these are too dull of advantages to be taking about. Let’s talk lifestyle. What about the opportunity to travel to different countries on a routine basis? The USA is geographically placed in a spot from which it is rather difficult to visit most countries due to the length of travel, not to mention super expensive.
Vacation time is scarce in the US, and when people get vacation time, traveling to Asia or Australia is often not at the forefront of their minds, considering that it takes almost 2 days just to get there, not to mention recovery time from jet lag. Heck, even Europe can become an eternal trip from the West Coast, just ask Sam.
Or what about easier day to day lifestyle demands? Maids and drivers available 24/7, at a meager salary of less than $250 a month combined. Door delivery of produce, dairy, groceries, or whatever else you want. I call it life on demand. In the US, the most you have is TV on demand. Air conditioned transportation, malls just like back home and in many cases even bigger and better. The list goes on.
There are always exceptions to the norm, and I know you are thinking that not all of what I said can be true for all countries. Sure, there are countries that don’t fit the bill, but let me clarify by saying that the scope of this discussion is meant more for emerging markets and those with more favorable employment laws and regulations compared to the USA.
Let’s take these three countries for example: India, Singapore and the United Arab Emirates.
In Singapore, taxes are capped off at a certain ceiling, therefore you have all the incentive to make more money. The lifestyle is amazing, and the country is as developed and advanced as any other that you can think of.
In India, you have all the luxuries one can dream off in a lifetime. True, India has a progressive tax system just like the USA, but it has several legal means to avoid taxes as well. By investing your earnings in certain government sponsored securities, not only do you benefit from interest income and capital growth, but you also get to offset your wage income and shield it from taxes. Very unique and favorable tax planning scheme that I have not heard of anywhere else.
In the UAE, such as Dubai or Abu Dhabi, there is no tax system at all. The Arabs don’t believe in tax (free money). This is considered unjust, or “haram” in Sharia Law (Muslim). This is where the US tax exclusion comes into more meaningful play. If offered a salary above the US tax exclusion for married couples, a couple could shield the first $180,000 of income, and only pay tax on the earnings exceeding the exclusion cap. If a US Citizen couple makes under $180,000, they pay zero tax.
Working in the UAE is particularly favorable for someone who is not a US Citizen. US is one of just a handful of countries that taxes on a global income basis (meaning income earned from anywhere in the world). Let’s say you are a citizen of the Philippines and go to Dubai to work. Because the Philippines doesn’t tax on a global basis, you are only liable for taxes in Dubai, where you work. And because Dubai has no tax system, you keep every bit of your earnings.
The grass can always appear greener on the other side, doesn’t matter which side you are on. There are some challenges involved in just packing up and moving seven seas across for work. Let’s discuss a few of these.
Fear of uncertainty is likely the biggest factor. Most people don’t like uncertainty. Just think about what happens to the stock market here in the US when there is just a little bit of uncertainty in the air. Can you imagine what must be going through people’s heads when making a decision as big as living and working overseas?
Another reason is lack of awareness. One cannot pursue what they don’t know. I hope this article touches on at least some of the points that spurs some curiosity in you to look further into similar opportunities.
Many also don’t want to quite give up their civil liberties just yet. It is highly unlikely that one goes to work in a country that is not pro-USA. But even then, as a US Citizen, you are after all a foreigner in another country. And despite the reasonableness of laws and regulations in most countries (such as India which is very much pro-USA and the largest democracy known to mankind today), there are countries like the UAE where the laws are skewed to favor the local Nationals (or citizens) whenever a dispute rises.
Finally, getting such jobs abroad is not easy. Because there are fewer companies and therefore opportunities, companies are looking for the best of the best, the cream of the crop. The positions are simply limited. So even if you want to, it doesn’t necessarily mean you can. The landscape is more competitive than getting into a high level position at say a Google or a Microsoft.
Whenever this topic comes up in my circle, I see that there is a lot of interest, but also a lot of questions due to uncertainty. What I always say is that most decisions in life are reversible. One can try working abroad for a bit, and if it doesn’t work out, one can always come back. That is the beauty of possessing a US Citizenship, at least for now.
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Updated for 2021 and beyond.