VideoIn 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.
Dealing with housing, however, is complex even without the tax issues. Executives have to decide what to do with their primary residences before going overseas, and "there's no rule of thumb," says Gregg Yaeger, a senior vice president at Northern Trust. "A lot of people like to return to something that is familiar, so in those cases they are inclined to rent the house. Others want to get a fresh start when they come back, so they work with human resources to get the house sold." In Gardner's case, he always sold his homes before shipping out. Why? "I was quite sure I was never going to be transferred back [to the same location]," he says.
Once Abroad
Luckily, most global companies work with relocation specialists such as Cartus to handle the details of selling or renting executive housing. But Petti recommends that executives negotiate a preassignment visit to evaluate neighborhoods, and also give the relocation firms a list of likes and dislikes. According to the KPMG survey, some 62 percent of companies authorize such visits for assignees and their spouses.
Once housing is settled, the biggest issue then becomes "the daily financial affairs," says Chris Merrywell, wealth adviser at Harris Private Bank's Seattle office, adding that it is crucial to establish credit in the host country. "Time and again we see instances where people travel overseas and try to do everything using their American-domiciled accounts," he says, "which creates difficulties with respect to exchange rates, fees for exchange transactions, and so forth." One solution, says Northern Trust's Yaeger, is to find a bank with branches in both your hometown and your new overseas location.
What happens to your money back home is another issue entirely. "While you are overseas, you really don't have much time to focus on what is happening in the investment world," says Yaeger. "If you align yourself with an appropriate investment professional, then somebody is minding the store." This is particularly true for executives who prefer an actively managed portfolio, says Merrywell, who notes that "selecting someone with discretionary trading power is a [wise] choice."
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