Money Sense Overseas

How to secure your finances when on assignment abroad.

In the course of his 26-year finance career, Dean Gardner has lived in Europe, Africa, Asia, and South America, for a total of 9 years abroad. While it may sound surprising, Gardner, a partner with Tatum LLC who is the current CFO of International Garden Products, says he found the posts to be “lucrative,” in more ways than one.

“My overseas assignments resulted in a much quicker learning curve,” says Gardner, who worked outside the United States for both Schlumberger Ltd. and Tektronix Inc. Not only did he get broader experience in treasury, tax, and international accounting, but the experiences equipped him with “additional languages and the ability to live, conduct business, and manage in multicultural environments.”

Gardner cautions, however, that there are a host of decisions regarding current and future assets that must be addressed before accepting such an assignment. Given that international assignments are on the rise — almost 40 percent of respondents to KPMG’s 2007 Survey on Global Assignment Policies and Practices expect to use expatriate employees more in the next five years — resolving those issues means more time devoted to the job at hand and less time worrying about the impact of the job on your personal finances.

Before You Go

These days, says Achim Mossmann, national director of global mobility advisory services at KPMG’s International Executive Services Practice, the falling dollar and the high cost of international assignments are shortening the nature of such postings and encouraging companies to bring finance talent into the United States rather than export it. Still, for the executive accepting any overseas job, “the first step is to really understand the economics of the deal,” says Brent Lipschultz, a tax principal with the New York office of Eisner LLP.

The details are typically outlined in an assignment letter, which spells out the base compensation, as well as any foreign-service premium and relocation allowance. U.S. companies, says Mossmann, usually follow their home-country compensation structure, with additional provisions for housing and cost-of-living increases based on third-party indexes. But in countries with strong currencies, like Japan or the United Kingdom, dollar-based compensation might not be enough, says Lipschultz. Consequently, he says, “some employers will compensate for the foreign-currency exposure by setting an exchange rate that’s fair and adjusting it quarterly or annually.”

Still, executives should be most concerned about the tax-equalization provision, given that Americans working abroad are subject to income taxes — on compensation and additional allowances, such as for housing and schooling — levied by both the United States and the host country. “An equalization policy reimburses the employee for taxes over and above what he would have paid had he not taken the overseas assignment,” explains Lipschultz.

That’s particularly important in the wake of federal legislation passed last year that changed the maximum amount of foreign-earned income expatriates can exclude from gross income. That same bill imposes taxes on the rent assistance many companies provide to overseas employees, especially in such cities as Hong Kong and Tokyo. Taken together, says Mark Petti, manager of consulting services at global relocation firm Cartus, overseas executives’ tax bills can be significantly higher.

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