To believe the surveys, half the world is either already an expat, or planning to become one. Tens of millions of people work abroad, or have retired there, or have property in a foreign country.

Once upon a time, perhaps in the days of the British Raj, expatriates had a financially golden life style in recompense for the perceived horrors of a foreign posting involving endless travel, unpleasant insects and unpronounceable but deadly diseases. Once you had shaken the dust of London or Paris or Philadelphia from your feet, you could forget all about tax inspectors and set about hiring an extensive staff of punkah-wallahs and major-domos to run your immense colonial villa while you drank gin and tonic on the verandah (against malaria, of course).

After your 30 years in the sunshine, with wrinkled skin and full pockets, you could retire to a small country house in the Home Counties, New England or Normandy, to swap travellers' tales with your neighbours.

The reality nowadays is both more mundane and more challenging. Over-crowded airports, intrusive tax inspectors, the Internet and hyper-active investment advisers are just some of the features that are combining to form a new and very different landscape for expats.

But at least today's expat is not short of advice from the banks which offer international financial services.

In 2008, HSBC Bank International carried out an ambitious project to examine the integration challenges faced by expats relocating to a new country by looking at the cultural and social differences experienced. The report shows that Germany, Canada and Spain are perceived to be the easiest countries to settle in.

Martin Spurling, Chief Executive Officer for HSBC Bank International and Head of HSBC Global Offshore, said: “We commissioned this independent survey to take a look into the lives and experiences of our customers who live across the globe and the transitional challenges they encounter from country to country.”

He said that the report "focuses on something that is incredibly important to all expats – their ability to fit in to their new home. This is often the aspect that is most daunting, with many concerned about whether or not they will be able to make friends or feel like they belong in their adopted country. Through this survey we have been provided with a fascinating insight into our customers’ lives which will help us also to best adapt to their offshore finance needs.”

Expats were asked to rate their host country in four areas: whether they made friends with people from the local population; if they joined a local community group, such as a religious or sports group; whether or not they learned the local language; and if they bought property in their host country.

Among the most difficult countries in which to integrate were Australia, the United Arab Emirates and China. Australia ranked poorly on the number of expats who joined community groups; expats in the UAE found it difficult to make friends; and China scored relatively low for the number of expats who bought property.

According to the survey, Canada is the most welcoming country to expats, with almost all (95%) of respondents claiming that they found it easy to make friends with the locals. This was followed by Germany (92%) and Australia (91%).

The United Arab Emirates was revealed to be the hardest country in which to make friends with the local population, with only half of expats living there (54% - the lowest score in the survey) advising that they found it easy to make local friends. Singapore also ranked lower, with 68% of respondents indicating that they found it possible to make local friends.

HSBC's survey found that almost half (45%) of all respondents said that they had joined a local community group as expatriates. Expats living in Germany were most likely to join a community group (65% of respondents), followed by around half of expats living in Hong Kong (53%), Singapore (50%), Canada (50%) and the US (50%).

Australia, despite scoring highly for making friends with local people, came last in the category, with just 38% of expats saying that they had joined one of these groups.

Expats living in Europe were most likely to learn the local language, the survey revealed. Germany came top in this category with three-quarters of expats learning the German language, followed by expats in Spain (70%) and Belgium (70%) who were also likely to adopt the language of their country of residence. Conversely, only one-fifth of expats in Singapore and Hong Kong (20%) learned the language of their new homeland.

France came out as a property hotspot, ranking highest in the category of expats buying property, with almost two-thirds (64%) of respondents stating that they had purchased a property in the country. Expats in Asia are the least likely to buy a home with India (6%), China (12%) and Singapore (24%) ranking lowest for purchasing a property.

There are multiple reasons why a person may choose to expatriate, but for the British at least, better weather is the top reason, according to the latest poll conducted by Alliance & Leicester International (ALIL), an offshore savings bank.

Well over half (57%) of the respondents to ALIL's survey cited the UK's bad weather as the main reason why they prefer to remain abroad, while 56% considered that their adopted home offered a better quality of life than Britain, and 53% of expats said that they have a higher standard of living.

Completing the top ten reasons why expats rate their new home over the UK are: safer/lower crime rate (49%); slower pace of life (36%); higher income (30%); better food (28%); the expat lifestyle (27%); mixing with the local people (26%); and a more social society (19%).

However, there are some downsides to moving abroad. Over half (51%) of expats miss their family and one in five (21%) struggle with language barriers. Almost one in ten (9%) admit to missing British food. Unsurprisingly, only 4% claim to miss the UK’s weather.

Expats who have moved abroad to run a business, as well as those who emigrated for family reasons also rated weather as their number one ‘pull’ for living abroad (70% and 60% respectively). 50% of those who moved overseas for business purposes rated standard of living and safety as joint second favourites, and 45% placed the slower pace of life in their new country at third.

After weather, people who emigrated for family reasons felt that the better quality of life and feeling safer in their new country were important - rating them in second and third place (45% and 40% respectively).

Simon Ripton, Joint Managing Director of Alliance and Leicester International comments: “The survey findings show that many Brits have moved abroad in an attempt to escape the UK’s dismal weather. Other factors that have emerged as being important to expats are improved quality of life and a better standard of living. However, although countries like Australia can offer good weather in abundance, the poll revealed that many Brits claim the worst thing about living abroad is missing friends and family – which just goes to show that there are some home comforts that can’t be found abroad."

Perhaps it's the Internet which has made the biggest difference to the lives of expats in recent times. According to another recent study by ALIL, 83% of expats regularly shop online, 63% use the Internet daily to keep in touch with friends and family, 47% check their bank balance online at least once a week, and almost two thirds (63%) using the internet daily to email loved ones.

Indeed the worldwide web has revolutionised expats' everyday lives with 70% now logging on daily and over one in four switching on every hour. The vast majority of expats now have broadband access with almost half of those surveyed owning webcams and one in three opting for cheaper international calls via VOIP (Voice Over Internet Protocol) technology.

Simon Hull, Managing Director of Alliance & Leicester International comments: "Our research shows that the internet has revolutionised the lives of expats, enabling them to go about their daily lives at the click of a button, any time of the day - helping them to stay in touch, do their shopping and manage their finances. Whether it's making purchases, or transferring money from accounts it's even more important that expats take the same precautions with their safety online as they do offline.

Optimizing Tax

Expatriates - whether working or retired - may still regard their status as an escape from over-crowded, cold, northern cities, but no longer does the tax inspector forget about them when they leave. Americans have it worse than anyone else, because they continue to be taxed as if they are resident, with a few minor concessions; but everyone else has to think about their residential situation and taxation of current income both while they are overseas and afterwards. Then there is inheritance tax to worry about; and the major problem of how to amass retirement savings that will not be pounced on by one tax authority or another.

Still, it is not all bad news. There are many countries in which expatriates receive complete or partial exemption from local taxation (some of them even with nice climates); and for most nationals it is possible to find sophisticated investment structures which do a good job of preserving wealth during and after expatriation.

If you are expecting to become or remain an expatriate in 2010, the time to consider your financial and tax situation is now. Don't leave it until you have made the move!

For most expats, offshore banking and investment offers opportunities for greater tax efficiency, confidentiality, and the ability to take advantage of an international investing perspective, free of the petty restrictions that often apply in high-tax countries. Continuing globalisation, and the increased use of electronic banking mean that for you as an expatriate, a multitude of opportunities have opened up which would not have been available a few years ago.

These freedoms do of course depend on your residential status and the tax rules in your home country. For many expats a period of non-residence can be just what the bank manager ordered; but for some nationalities, US citizens for instance, mere expatriation isn't enough to escape home taxes.

In this special feature, we will be looking at the different types of offshore investment suitable for expatriates and the business of choosing a place to live - for those that have a choice! But first, a warning: many high-tax countries have been tightening up on residence rules and most definitely have taken a far closer interest in offshore investment structures during the last few years.

The UK Cracks Down On Residence Rules . . . .

For Brits, for instance, a decision in 2007 by a tax disputes panel has sent an ominous signal of the UK authorities' intent to crack down on Britons who are resident abroad for tax purposes. The ruling by the Special Commissioners caught many tax experts by surprise, by upholding an interpretation of tax residency rules by HM Revenue & Customs which runs counter to the tax department's own guidelines.

The case in question involved businessman Robert Gaines-Cooper, a British-born multi-millionaire businessman based in the Seychelles, who has claimed not to be resident in the UK for tax purposes. Under UK tax law, a person is treated as non-resident for tax purposes provided that they spend no more than 90 days in the country. This allows wealthy business owners to live in low-tax jurisdictions such as Monaco and Switzerland but jet into the UK for one day per week to do business. But the Special Commissioners ruled that days of arrival and departure were to be counted towards the 90-day allowance. The Court of Appeal upheld the Panel's decision inn October, 2008, leaving Gaines-Cooper to face a multimillion-pound tax bill. The judge dismissed the appeal as “nothing more than an illegitimate attempt to reargue the facts”.

Partly in response to the Gaines-Cooper case, the UK's Chancellor of the Exchequer has tightened the rules for maintaining non-residence: from 6th April 2008 onwards days of arrival and departure are counted in applying the 90-day test. The only exception is in relation to transit passengers who remain in the part of an airport inaccessible to members of the public.

The Treasury is also tightening up on many aspects of the 'non-dom' status which has been enjoyed for many years by residents of the UK who are not domiciled there, and is attempting to drag non-doms' offshore assets into the UK taxation net if they spend more than six years in residence. Although there has been a storm of complaint about the new rules, there is no sign that the Treasury is going to back down.
According to a KPMG study, one in four resident but non-domiciled taxpayers in the UK who responded to a 2009 poll regarding changes to the tax regime last year have made the decision to leave the country as a result of the new rules.

Carolyn Steppler, Associate Partner in KPMG’s private client advisory team, said: “We knew that the non-doms were unhappy about the tax changes but we had not appreciated the extent to which they seem to be prepared to vote with their feet on this issue.”

Non-doms represent a relatively small section of the UK tax-paying population. But KPMG's survey suggests that if the 24% of respondents in the survey sample do quit the UK in the next two years do actually leave, the UK could lose out on accessing up to GBP90m in net assets. And if the additional 24% in the sample who have said they will see if the rules are reversed in the medium term were to follow suit in due course, this figure could triple.

Traditionally, those resident but not domiciled in the UK pay full tax on their UK earnings, but only pay tax on their foreign income if it is remitted back to the UK (the so-called 'remittance basis' of taxation). But changes introduced in last year's Finance Act have brought in a GBP30,000 (USD42,000) additional annual charge for the privilege of retaining non-dom status. Taxpayers have to pay this charge along with any other tax resulting from income declared on their annual tax return, but only if they have been resident in the UK for seven out of the last ten tax years. Non-doms can forgo this charge if their overseas income amounts to less than GBP1,000 per year, or if they opt out of the residence basis of taxation and allow their worldwide income to become taxable in the UK.

. . . . And The US Isn't Any Kinder

US expats also took a blow last year because of the Tax Increase Prevention and Reconciliation Act (TIPRA), signed by President Bush in May 2006. Although this Act increased the amount that can be earned by non-residents free from US taxes to $82,400 from the previous level of $80,000, income earned by expats above this threshold is now typically subject to higher tax rates. Furthermore, high housing costs, much of which previously could be excluded from the computation of US tax, are now treated as a taxable benefit and taxed often at 30% to 35%, making many individuals worse off, or leaving the employer to pick up the extra bill. The legislation was retroactive to January 1, 2006.

According to a survey conducted by the American Chamber of Commerce in Singapore, a substantial number of US expats living in Singapore considered returning home as a result of these changes. The survey polled 585 members, and received 144 responses. It found that almost 40% were thinking about returning home to avoid being hit by increased tax. Half of the sample also believed that the tax changes would prompt employers to hire less US workers abroad.

“These tax changes are disastrous for Americans abroad and for American business. No other developed country imposes such onerous taxation on the earnings of its workers abroad and our members are seriously concerned about the financial impact on them and whether it is worth remaining overseas selling American goods and services," stated AmCham Executive Director, Nicholas de Boursac.

AmCham says that the financial impact will be felt most by those American expatriates who are not tax-equalized and whose employers do not absorb the additional tax impost. 66% of those surveyed are not tax-equalized, and of this group, 30% expect a tax increase of between US$5,000-15,000, while a third expect increases of more than US$15,000.

AmCham warned that even those US expats who are not directly financially impacted by the changes will still be affected because companies will hire less expensive employees.

“Basically, employers will hire Australians, Canadians or Europeans who do not cost as much as Americans,” noted de Boursac.

"As well as being inequitable to Americans abroad, these tax changes are just bad policy. By making Americans more expensive to hire, it will mean fewer Americans working abroad. This will be bad for US exports and US businesses, ultimately reducing US global competitiveness," he warned.

Where Are The Best Expat Locations?

According to a survey of expatriate hot spots by Mercer, the global consulting firm, the United Arab Emirates (UAE), Russia and Hong Kong are amongst the world's most benign personal tax environments while Belgium, Denmark and Hungary are the least attractive, The data also shows that, in general, married employees are better off than single employees, while married employees with two children fare the best.

Mercer's Worldwide Individual Tax Comparator Report analyses the tax and benefits systems across 32 countries, focusing on personal tax structures, average salaries and marital status. This data is used by multinational companies to structure pay packages for their expatriate and local market employees.

For single managers, the UAE is the most attractive tax environment according to percentage of net income available. The UAE ranks highly, as it does not assess any income tax, and the country's social security contributions amount to only 5% of an employee’s gross salary. Russia, ranked number 2, applies a flat tax of 13% across all income levels, while Hong Kong was placed 3rd, with taxes and social security contributions at 14.2% of gross base salary.

Excluding Russia, in general, European countries have less attractive tax environments and dominate the bottom of the rankings. The UK ranks joint 14th, followed by Ireland (18), Spain (19), and Switzerland (21). France and Germany are ranked 22 and 29 respectively.

At the bottom of the rankings, single managers in Hungary (30), Denmark (31) and Belgium (32) pay, respectively, 48.5%, 48.6% and 50.5% of their gross income in taxes and social security contributions.

Brian Waite, a senior consultant specialising in international issues, commented: "Local taxation is one of several factors that multinationals take account of when deploying staff across the globe. It has an obvious impact on take-home pay, and in some countries with low or zero tax rates it is an important incentive for employees to work abroad. In other high-tax destinations, multinationals need to create compensation packages that at least match their expatriates' purchasing power in the home country."

"Other important considerations for expatriate allowances are housing, private schooling and local cost of living adjustments, and there are additional complications around contributions to the home country pension plan. These factors can all contribute to the high cost of a global expatriate workforce."

Markus Wiesner, Mercer's head of operations in Dubai, added: "We often find that the UAE's zero taxation is a strong draw for expatriates on short-term assignments. For three to five years, young professionals can fast-track their savings to afford a mortgage when they return home, while senior executives can maximise their savings potential ahead of retirement. It's in these particular groups that we get a really good mix of expatriate talent in Dubai."

Asian markets dominate the top end of the rankings with Hong Kong, Taiwan, Singapore, South Korea and China (Beijing) ranked 3, 4, 5, 6 and 7. The lowest ranked Asian market is India at 14 (sharing this position with the UK, Australia, and the United States). In the Americas, Mexico (8), Brazil (9) and Argentina (10) outrank the United States (14) and Canada (20).

According to Niklaus Kobel, researcher at Mercer's Geneva office: "Marital status is still a major factor in determining local tax rates. The data highlights the fluctuation in tax rates applied according to an employee's income level and marital status. It is important to note that high tax rates do not necessarily mean less affluence."

Not all taxation systems vary according to marital status, however. Married employees in Brazil, India and Turkey have similar tax rates to single employees.

Offshore Banking

In most offshore jurisdictions, interest earned on bank deposits is free of tax for non-residents. Also of great importance from an expat point of view is the convenience factor associated with offshore, for example the ability to receive and deposit funds remitted from your home country, or income earned from working overseas (for example fees, salary and expenses), in sterling, US dollars, or any one of a number of hard currencies.

Many offshore banks offer a range of services and options, including:

• Instant access accounts with credit card facilities;
  
• Fixed term deposit accounts, with the interest rates tiered according to the length of the term, and the size of the deposit, although usually levelling off at around the USD100,000 mark;
  
• Conventional variable-interest deposit accounts, which may offer higher rates than fixed-term accounts.

Setting up an offshore bank account or investment portfolio should prove to be no problem once you have decided on the location and type of account. There is generally a minimum amount for offshore deposit accounts, and due to recent legislation designed to prevent money laundering, identification is usually required, despite the claims of some shady service providers to offer 'fully anonymous' offshore banking. Once the account has been established, and if you are depositing a significant sum, a relationship manager will usually be assigned to advise and assist you in the management of your assets.

You will almost certainly need to open a bank account in your country of residence for day to day transactions. If you are spending most of your time there, you will probably have to pay taxes on income paid locally, so it will often be best to have as much as possible of your income paid directly into your offshore account in hard currency. This incidentally protects you against any large fluctuations in the value of the local currency.

However, a recent fly to have taken up residence in the offshore banking ointment is the EU's Savings Tax Directive.

The European Union Savings Tax Directive (STD), which went into effect on 1st July, 2005, in fact forms merely one part of a major tax reform package launched by the European Commission in 1997. As originally drafted, the STD aimed at a uniform 'information exchange' regime to apply across the Union, with all countries agreeing to report interest on savings paid to the citizens of other Member States to those States' tax authorities.

Because of resistance from EU Member States with strong traditions of banking secrecy, the Commission had to allow Austria, Luxembourg and Belgium to apply a withholding tax (at 15%) until 2009, since when they have been applying the information-sharing model. Many of the UK's offshore financial centres have been forced to join the STD, along with the Netherlands Antilles, Aruba and some European centres (Andorra, Monaco, Liechtenstein and San Marino). Most of these places took the withholding tax route, as did Switzerland, which was the hardest nut for the EU to crack; those countries which apply the withholding tax raised it to 20% in 2008, and it will rise to 35% in 2011.

The STD applies to many types of return on savings instruments, all loosely described as interest, when received by individuals, but does not affect interest paid to companies. Under the information exchange system, the identity of recipients will be known to their home tax authorities; when tax is withheld, the identity of the recipient will not be reported, thus preserving confidentiality.

Returns from the STD regime, which has now been in place for nearly six years, are way below what had been hoped for in Brussels, reflecting no doubt evasive action taken by savers to remove their deposits from banks in countries which are applying the regime. Other low-tax countries outside the scope of the STD have seen quite large inflows of cash, for the same reason. It is essential to consider the effects of the Directive if you have or are planning to have assets in the countries affected.

Although the Commission's attempts to broaden the scope of the tax to include jurisdictions like Hong Kong have been firmly rejected so far, it certainly hasn't given up. In the case of Hong Kong, signing up to the savings tax directive could mean altering the Basic Law which safeguards the future of its financial centre under Chinese rule. Singapore on the other hand, is known to be staunchly opposed to the idea of sharing bank account information with the EU, and has rejected European overtures to include information exchange provisions within a broader economic agreement.

In 2008, a Commission Review Group which had been working away for three years recommended a major extension of the Directive in the EU itself to close loopholes which have permitted many investors to escape the tax until now, for example by moving assets from bank accounts to vehicles such as companies and trusts - which weren't included in the legislation - or by shifting money to accounts based in territories out of the reach of the directive's information sharing provisions.

The European Parliament Economic and Monetary Affairs Committee is currently considering the Commission's report. Rapporteur Benoit Hamon, a member of the Party of European Socialists from France, makes proposals for some significant changes to plans already outlined by the European Commission. His report proposes to end the transitional period with a finite date, rather than by reference to the behaviour of third countries. Under this proposal, the transition period would end three years from the levying of the withholding tax at a rate of 35%, i.e. in 2014.

The Rapporteur proposes to replace the definitions proposed by the Commission, which typically name a country and then set out the type of entity and legal arrangements which would be brought within the Directive, with a list of legal structures and then a list of the countries concerned.

"This could very dramatically expand the number of legal entities caught by the Directive," observed Graham Mather President of the European Policy Forum. He continued:

"In Switzerland’s case, for example, the Commission proposal mentioned two categories of legal entity, the Trust and the Foundation. Under the new proposal this would be replaced by a list of twenty-four bodies ranging from limited liability companies through international banks, insurance and reinsurance companies, joint-ventures, settlements, funds of all forms etc etc."

"The Parliament Rapporteur says that the legal entities can be brought back out of the Directive if the country of jurisdiction makes an application to the Commission to have them removed on the grounds that they could not have their place of effective management located in the jurisdiction concerned or on the ground that 'appropriate taxation of interest income paid to these legal persons or arrangements is in fact ensured.'"

"The Rapporteur says his proposal is designed to reduce the possible loopholes in the Directive but what it would do if carried into law would be to expand the scope of the Directive enormously and create a massive traffic of applications by third countries to seek exemption from the Commission."

"Other changes would expand the categories of paying agents caught by the Directive and provide for its review from time to time to focus in particular on “the appropriateness of extending the scope to all sources of financial income, including dividends and capital gains, as well as to payments made to all legal persons. This, the Rapporteur says, is in order to 'deal with any potential large scale circumvention of the Directive in the future.'"

However Mather points out that the amendments proposed in this draft report have to pass several hurdles. First, they will have to go through the Economic and Monetary Affairs Committee itself and a plenary vote in the Parliament. Mather says that it is too early to anticipate the Committee’s likely response and the amendments to the draft report which can be tabled by members of the Committee.

Secondly, the amendments will have to go through negotiation with the Commission, which will be aware that a number of member states especially Austria, Belgium and Luxembourg will be uncomfortable with the dramatic expansion proposed at this stage.

The final decision will be made by the Council of Ministers.

"If one were forced to attempt a prediction at today’s date it would be that the European Parliament will pass something broadly along these lines; that the Commission will be uneasy about these but not in a strong position to resist against Franco-German support for them; and that the outcome in the Council will depend to a significant degree on the degree of opposition mobilised in Austria, Belgium and Luxembourg and by third countries," concludes Mather. The outcome should become known sometime in 2010.

Offshore Investment

Offshore banking is, of course, not the only option available to you; depending on your situation, financial status, and degree of openness to risk, there are a variety of offshore investment options open to you as well. Funds are the most straightforward and readily available option. These range in risk from low yielding bond funds to highly-geared hedge funds, so there is something for everyone.

Fund investment is especially suitable for the busy expat, because you can choose to invest in a certain class of assets without having to examine the characteristics of individual assets in detail. The tax efficiency of offshore funds often means that they have higher yields than equivalent onshore funds, so it may pay you to transfer existing onshore assets into offshore funds, although you have to be careful about the costs of transfer, and especially capital gains tax. You also have to consider what may happen when, and if, you go back.

As is the case onshore, there are two different types of investment fund available:

• Private funds. Suitable for those expats with a longer term investment horizon, and more capital (usually not less than USD1,000,000, although individual investments may be as little as USD50,000). These are usually closed-end funds, involving up to 50 investors, and often generate greater returns than public funds. Quite often they would use a structure known as a Limited Partnership which allows residents of higher-taxed countries (eg the US) to repatriate profits to offset against losses or expenses at home. This might be a suitable structure depending on your long-term plans.
  
• Public funds. These are usually open-ended, i.e. you can sell out at any time, which gives investors more flexibility. More and more public funds are based in offshore jurisdictions even though their investment targets may be in high-tax areas. If they have invested in capital assets (eg capital growth funds or real estate) then gains will be tax-free. As is the case onshore, there is a wide range of portfolio management tools available from offshore fund management groups.

Offshore equity investment is another rapidly developing investment sector, which may also be of interest to you as an expatriate. Equity investment used to mean investing in securities listed on your local stock exchange to the exclusion of foreign stocks, but of recent years, all this has changed. There is a growing number of stocks that are listed offshore - dividends and capital gains will of course be tax-free and they can be bought through local brokerages. As long as you have a satisfactory non-resident tax situation, you can also buy onshore equities without risking capital gains tax, but you will find that dividends have usually been subject to withholding tax, which you may not be able to reclaim.

This is an area in which the Internet has opened up new possibilities for investors, as online brokerages and some investment sites and exchanges allow you to manage your portfolio quickly and easily wherever you are in the world. The physical barriers to international investing of a few years ago simply do not exist for today's expatriate investors. Expatriate investment is therefore not limited to funds and equities, but can also include other types of onshore investment activity such as derivatives trading (futures and options), and their cousins spread-betting and contracts for differences. But it must be said that risk doesn't diminish with distance: arguably, if you are away from a particular market-place, with even the best on-line information sources you are somehow missing knowledge you might have had if you were present. These more exotic types of investment are not for the faint-hearted!

Pensions Investment

Whilst you are thinking about offshore investment, it may be worth giving some thought to your pension. Although pensions investment is usually tax-privileged in high-tax countries, as an expat, you face additional problems, namely that while non-resident, you will probably not be able to continue taking advantage of the tax incentives 'at home', even if you want to retire there.

Pensions investment is a tricky area for expatriates, and more than ever you will need to consult with an independent professional. However, you can consider your basic options prior to doing so, and these will depend greatly on the circumstances surrounding your expatriation.

If you are employed by a company in your home country (and are part of an in-house pension scheme), and you are moving abroad to work for that same company, then in some countries you may be able to continue contributing to that plan; in the UK for instance you can continue to contribute for a maximum of 10 years.

If you are moving abroad to work for a company with no ties to your home country, then you may be allowed to join their local pension scheme. Only in a few cases will you be able to transfer the pension rights back to your country of residence when you return, unless you continue to work for the same company; and usually the terms of transfer are highly unattractive.

If you have been contributing to a personal pension scheme, however, the news is usually worse, as in certain countries, for example the UK, you are only allowed to contribute to your pension plan for as long as you are taxable there.

The right decision will obviously depend on your personal circumstances. If however you are going abroad for an extended period, and especially if there is a good chance that you will retire to some other part of the world, there may be an argument for transferring your home pension assets offshore straightaway, even though that may (probably will) entail a tax penalty if your contributions have been tax-privileged. On the other hand, the tax penalty of transfer taken together with the exit penalty from your scheme may combine to make a transfer very costly. If you are lucky, you may find that your pensions provider has an offshore branch, and you may be able to induce them to make the transfer on favourable terms in order to keep your business.

Some countries, including the UK, will only allow the transfer of an existing tax-privileged pension fund to another country if it applies similar rules, ie restricting investment options and limiting cash-outs to 25% of the fund. To some extent the QROPS mechanism (Qualified Recognized Offshore Pension Schemes) permits bona-fide long-term non-residents to bypass the restrictions, but you need highly qualified professional advice before undertaking this route.

Whatever you decide to do about your existing pensions arrangements, once you have established non-residence (and non-tax-paying) in your home country, you will have many options open to you to make retirement provision offshore, in order to take advantage of the peace of mind of knowing that your assets are secure however your circumstances change, and the greater flexibility over retirement date, payments, etc, which could be so important to you as an expat.

These options can't be examined in this brief primer; however, there are two broad categories of pensions provision to choose between:

• Designated pension or retirement schemes. There are many of these available now, and they usually accept payment in a wider range of currencies, and generally require less maintenance on your part. However, they do require a longer term commitment (not ideal if your personal circumstances are uncertain), and the penalties for early withdrawal can be punitive. Although they may appear to offer less generous rates of return than on-shore schemes, remember that this is because they don't assume tax relief on contributions. Instead, you will receive the benefits tax-free if you remain offshore.
  
• The DIY approach. You can opt for a more diverse portfolio made up of different types of investment. This is obviously less of a safe bet, but it does mean that you can retain greater control over your assets, and there are no penalties should you need to withdraw for any reason.

Offshore companies

If you are going to work in a country which wants to tax your world-wide income, or are going to return to your home country to a world-wide taxation regime, then you may want to consider establishing an offshore company.

This is another complex area in which professional help is needed, but the interpolation of a company can sometimes distance you from your income sufficiently to avoid taxation. In some countries there are plenty of rules to prevent this; but not in all, by any means.

The following may be of especial interest if you are providing a personal service (for example in the finance or engineering industry), or if you have a substantial investment portfolio.

• Holding Company. This can be used to hold investment portfolios, and is useful in providing enhanced privacy. It can be particularly useful in some offshore jurisdictions if you want to become locally resident, and need not to receive income yourself, although you may have a problem with ownership restrictions on residents. (This leads people to set up strings of holding companies in different jurisdictions). If the income of a holding company is used to make further investments, it may be that you won't be taxed on it even when you return to a high-tax domicile.
  
• Personal Service Company. If you are engaged in providing a personal or professional service, you may be able to achieve considerable tax savings, as you can contract to supply the service regardless of residence, and the fees earned can accumulate offshore while you work for a low salary in the country where you are taxed. It only works in some countries, and you may have to do something more complicated than just owning the company yourself, if it is not to be 'looked through' by the taxman.

There are, of course, many other types of offshore company that can be formed to deal with the needs of large corporations, or expats with very specific needs, eg globetrotting entertainers or sportsmen.

Offshore Trusts

An offshore trust can be set up by an expat to serve the same basic purposes as an offshore company, namely confidentiality, tax minimisation, asset protection, and estate planning.

The principal difference between the two structures is that with an offshore company, ownership is maintained, whereas with an offshore trust, ownership is transferred. This has the effect of creating more distance between you and your wealth, so that it's harder for creditors, the taxman or your ex-spouse to get at it!

Trusts used to be primarily aimed at tax avoidance, but in recent years the tax authorities in many high-tax countries have passed 'anti-avoidance' legislation that lets them attack trust assets while you are alive, although they are still effective against inheritance taxes. Trust assets won't be taken into account during the probate process, so that the death of the settlor does not affect the administration of the trust, which still remains under the custodianship of the trustees. This also allows a settlor to maintain confidentiality over the size of the estate, and avoid the delays and possible publicity which would come as the result of a lengthy probate procedure, not to mention the saving on inheritance tax.

Trust assets will remain in the trust for as long as the original Trust Deed prescribed (in perpetuity, if necessary, or for lesser periods), or until the terms of the trust permit or require the Trustees to distribute them.

Another area in which the use of trusts is growing is asset protection, so if you have a fairly substantial liquid net worth that you would like to protect, before, during, and after your expatriation, an offshore trust may be the way to go.

• A basic trust structure consists of three entities; the settlor, who sets up the trust, the trustee, who acts as custodian, and the beneficiary/ies, who can receive income from it.

Trusts originated in England, and most of the ex-British offshore islands have trust legislation. Civil law countries on the other hand tend not to have trust laws, although some of them have copied the concept of a trust in order to compete effectively.

Choosing Your Jurisdiction

There are several factors to consider when choosing an offshore jurisdiction from which to bank, invest, or trade as an expatriate. The following are areas that you will need to look at in order to make a considered and profitable decision:

• Political and economic stablity. This is a basic, but important concern.
  
• Legislature. The situation with regard to banking secrecy, for example, is undergoing changes at present, and it is worth keeping abreast of any issues which may impact on your investment, before, during, and after expatriation.
  
• Professional infrastructure. This will need to be up to a good standard, in order for you to receive the support and services that you require, so you will need to check the banking, professional and advisory services available, whether the jurisdiction is well equipped to deal with the particular offshore structure that you wish to set up, and the general standard of the business infrastructure in the jurisdiction. For a comprehensive guide to the relative strengths and weaknesses of jurisdictions, and contact details for service providers in each, please click here to visit the Lowtax jurisdictions guide.
  
• Communications network. This is an obvious concern, but needs addressing. As an expat, you will presumably not be resident in the offshore jurisdiction itself, and may be moving around on a regular basis. You therefore need to check that effective communication between yourself and your advisor, bank, or custodian will always be possible (and preferably that you all speak the same language with at least a reasonable degree of proficiency!)
  
• Geographical location. This needs looking at carefully, as it is of especial concern to expatriates. Assuming that your expatriation is of fixed duration, you do not want to have to move your money from jurisdiction to jurisdiction as you move around, or repatriate. The idea of investing it offshore is that it is safe, and easily accessible from anywhere in the world, in keeping with your global lifestyle. It is therefore important that you consider the time zone in which your offshore structure is based. For example, an expatriate based in Australia would find a relationship with a Hong Kong bank very easy to maintain, but an offshore structure established in Jersey or Ireland virtually inaccessible, during normal business hours at least. Online banking makes this a little less of a concern, but it still needs to be looked at.

As you can see, even from this basic guide, the offshore options for you as an expatriate are many and varied, and there is something for any situation and pocket. However, it is always advisable to seek one-to-one financial advice before making a decision about the type of investment that is right for you.