Common Investing Questions From Expats

Whether you’ve been living abroad for years or just settling into expat life, getting a handle on your finances is essential—but it’s not always clear where to start. From understanding unfamiliar tax laws and navigating cross-border regulations to figuring out how to secure your retirement in a different country, it’s easy to feel overwhelmed.

In a recent webinar hosted by SJB Global, investment pros Jake Barber and Ben Eccles broke down some of the biggest challenges and common questions expats face when managing their money abroad.

Here’s what you need to know to take control of your investments, plan for the future, and make smart financial moves while enjoying life overseas.

Essential Financial Terms for Expats

Capital Gains: In the Netherlands, capital gains are generally not taxed for private individuals, except under specific circumstances. For example, gains on the sale of a primary residence are exempt from taxation, as long as the proceeds are reinvested in another home. However, if assets are held for investment purposes, their value is taxed annually.

Income: Income in the Netherlands is divided into three categories (Boxes) for tax purposes:

• Box 1: Taxable income from work and homeownership. This includes wages, self-employment income, and income from a primary residence.
• Box 2: Income from substantial shareholdings (typically owning at least 5% of shares in a company).
• Box 3: Income from savings and investments, taxed based on an assumed return rather than actual returns.

Inheritance Tax: The Netherlands taxes estates passed to heirs. The tax rate varies based on the relationship between the deceased and the beneficiary, ranging from 10-20% for close family members and up to 40% for distant relatives or non-family.

Double Taxation Agreements (DTAs): The Netherlands has an extensive network of DTAs with other countries to avoid double taxation. These agreements determine which country has the right to tax certain types of income, such as pensions, dividends, or wages.

Private Pensions: Private pensions are typically tax-deductible (up to certain limits), and the investment growth is tax-deferred. However, withdrawals during retirement are taxed as income under Box 1.

Passive Foreign Investment Company (PFIC): PFIC rules apply to U.S. expats investing in non-U.S.-domiciled mutual funds or ETFs. These funds are subject to high U.S. taxes and strict reporting rules.

Tax-Neutral Jurisdictions: These jurisdictions, like Luxembourg, provide investment options without additional layers of taxation. In the Netherlands, expats often use these jurisdictions to structure their portfolios and lower tax burdens across borders.

Offshore Investments: Offshore investing refers to placing funds in financial products or accounts located outside one’s country of residence. In the Netherlands, offshore accounts must be declared under Box 3, and any income derived is subject to Dutch tax rules unless exempted by a DTA.

Tax-Deferred Products: Products like life insurance policies (e.g., French “assurance vie”) or collective investment bonds may allow investments to grow tax-free until withdrawal. In the Netherlands, these products can sometimes fall under favorable tax rules if structured properly.

Investment Strategies and Wealth-Building

What are the best low-risk investment options for expats?

Low-risk investments include cash, bonds, or diversified portfolios. Over the last 20 years, cash has returned an annualized 0.8% after adjusting for inflation, bonds have provided about 2%, and stocks have yielded between 5-6%, depending on the region.

While cash and bonds may seem safer, their lower returns often fail to keep up with inflation, which reduces your purchasing power over time. For long-term goals, investing globally and adding higher-return options like stocks can reduce risks and grow your wealth.

Should I invest now when markets are at an all-time high?

Market timing is challenging. A better approach is to use strategies like dollar-cost averaging, where you invest the same amount on a regular schedule. This helps balance out the ups and downs of the market over time. Remember, inflation guarantees a loss if you hold cash. Historically, markets have usually grown, so sticking to a steady, long-term investing plan is safer than trying to guess the best times to buy or sell.

How can I build wealth for retirement as an expat?

Starting early is one of the most effective ways to build wealth for retirement. The earlier you begin saving, the less you need to contribute each month to reach your goals, thanks to the power of compounding. But how much do you actually need to save? That depends on when you start.

Savings Breakdown for a €1 Million Goal (assuming a rate of 2% return per year compounded, which can be considered conservative):

• Starting 30 years before retirement → Save €2,100 per month
• Starting 10 years before retirement → Save €8,000 per month

The key is discipline—setting a goal, sticking to a plan, and adjusting as needed to stay on track.

What are the pros and cons of private pensions?

Private pensions offer several benefits that make them a smart choice for expats. They provide tax advantages, simplify estate planning, and help grow retirement savings efficiently.

Pros:

• Tax benefits – Contributions can lower taxable income, allowing you to save more.
• Estate planning advantages – Private pensions bypass probate, reducing legal costs and delays.
• Long-term growth – Funds grow tax-deferred, maximizing retirement savings.

However, access to these funds is usually restricted until retirement, and governments may change tax rules or contribution limits over time. Despite these drawbacks, the long-term advantages of private pensions often outweigh the challenges.

Why do expats invest offshore? Is it legal?

Offshore investing is legal and a common way for expats to manage their money across borders. For example, many expats turn to jurisdictions like Luxembourg, Isle of Man, Jersey or the Cayman Islands which provide tax-neutral investment options that offer both flexibility and portability. These jurisdictions help expats avoid double taxation while making it easier to manage their wealth across borders.

How can I minimize taxes on investments?

To minimize taxes on investments, you first need to understand the allowances in your host country, such as personal income and capital gains tax exemptions. For example, tax-deferred products like Spanish collective bonds or French assurance vie, let investments grow tax-free until withdrawn, usually at lower rates for long-term holdings. You should also check for expat-friendly tax schemes with added benefits —for example, Portugal’s former Non-Habitual Residency (NHR) program reduced taxes for 10 years. These options can help you better manage your finances while living abroad.

Key Considerations for UK Pensions and Retirement Overseas

Where will my UK pension be taxed if I live abroad?

Your UK pension will generally be taxed in the country where you are a tax resident, as long as there’s a double taxation agreement (DTA) between that country and the UK. However, UK pensions are often subject to UK tax unless you’ve applied for a zero-tax code through HMRC, so it’s important that you understand how tax codes work or talk to an expert for help.

What strategies can expats use to manage inheritance tax?

Inheritance tax rules vary widely depending on the country. In the UK, the tax-free allowance is £325,000 for individuals and £650,000 for couples, with anything above that taxed at 40%. US expats benefit from significantly higher estate tax exemptions, but managing cross-border estates can be complicated.

To reduce liabilities, expats can consider strategies such as:

• Using pensions with nomination forms – This ensures funds go directly to beneficiaries without being subject to inheritance tax.
• Moving assets to tax-neutral jurisdictions – Countries like Luxembourg offer structures that help minimize taxation.
• Gifting assets during your lifetime – Some jurisdictions allow tax-free or reduced-tax gifts if done within a certain timeframe.

Because inheritance tax laws vary, working with an expert familiar with both your home and host country’s regulations is crucial for effective planning.

Navigating US Investment and Tax Challenges as an Expat

What are the tax implications for US expats investing in the Netherlands?

US expats face additional challenges when investing abroad because of restrictions under the Passive Foreign Investment Company (PFIC) rules. PFIC imposes punitive taxes on non-US domiciled funds (investment funds that are based or registered outside the United States), so Americans should invest in US-based funds to avoid unnecessary taxes. Tools like Interactive Brokers help US expats manage their money and follow IRS rules. Always consult a tax advisor familiar with US and Dutch laws to avoid complications.

How can I avoid double taxation on my investments?

Double Taxation Agreements (DTAs) help prevent being taxed twice on the same income. For example, if you invest in US-domiciled funds, you may face withholding taxes in the US, but a DTA allows you to claim back or offset those taxes in your country of residence. Understanding these agreements can help you avoid unnecessary tax burdens. Investing in tax-neutral jurisdictions is another way to simplify taxation and minimizes potential issues when moving between countries.

Conclusion

Investing as an expat comes with unique challenges, but it also offers opportunities for tax optimization, diversification, and wealth building. By understanding local rules, taking advantage of double taxation agreements, and working with experienced advisors, you can navigate the complexities of expat investing with confidence.

If you have more questions or need personalized advice, SJB Global offers free consultations to guide you through your investment journey.