Why U.S. Expat Finances Are Different… And What You Can Do About It
For most expats, managing finances abroad primarily involves local taxes, banking, and investment opportunities in their new country of residence.
For American expats, however, the picture is far more complicated. The United States is one of only two countries in the world that uses a citizenship-based taxation system as opposed to a residence-based taxation system. That means a U.S. passport comes with a set of financial obligations that don’t disappear just because you’ve moved abroad.
Taxes Abroad: Exclusions, Credits, and Refunds
The good news is that the U.S. tax system does provide some relief. Tax exclusions and credits often allow Americans abroad to reduce their liability when they earn income outside the U.S. This can sometimes be as low as zero.
In certain cases, families with children may even qualify for refundable credits, resulting in a refund even if they have paid no U.S. tax. But understanding how to navigate these benefits requires care, and mistakes can be costly.
Staying Compliant is Not Optional
Current U.S. tax penalties can be steep, particularly for failing to report foreign bank accounts, assets, or income. Many Americans living abroad are surprised to learn that even seemingly innocent oversights, such as not filing an FBAR (Foreign Bank Account Report), can result in significant fines.
The Challenge of Investing Abroad
Taxes are only half the challenge. Investing as a U.S. citizen living overseas can feel like navigating a minefield. Many foreign banks and brokerage firms hesitate or outright refuse to take on American clients. As the American Expat Financial News Journal notes:
“The problem for all financial institutions that wish to offer banking services to Americans who live outside of the U.S. is the costs they face in complying [with] FATCA.”
FATCA, the Foreign Account Tax Compliance Act, places heavy reporting requirements on financial institutions. For many, the compliance burden isn’t worth the effort, leaving expats with fewer choices.
U.S. financial institutions are also becoming more strict in dealing with Americans once they move overseas. Some companies are placing restrictions on accounts, while others are going so far as to force the closure of these accounts due to non-U.S. residence status.
Options for Americans in Malaysia
Despite the hurdles, there are ways for U.S. expats in Malaysia to invest and build wealth without triggering penalties. Understanding what types of accounts are acceptable under U.S. law and how cross-border taxation works is essential. Missteps can lead to severe restrictions, penalties, and tax traps, making quality financial advice not only helpful but also vital.
That’s why AAM is partnering with Melbourne Capital Group to provide guidance and resources tailored specifically for U.S. expats. Together, we’re helping Americans in Malaysia make informed decisions about taxes, banking, and investments. Contact Michael Garcia below – U.S. citizen, Malaysian resident, and Melbourne Capital Group senior advisor – to learn more.