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Have Passport, Will Travel

How to secure your finances when on assignment abroad.
Art Detman, CFO Europe Magazine
December 10, 2007

In the course of his 26-year finance career, Dean Gardner has lived in Europe, Africa, Asia and South America, for a total of nine years outside his native United States. Looking back, Gardner, CFO of horticultural company 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 U.S. for both Schlumberger and Tektronix. 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% 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
Overseas assignments have become more frequent and flexible in recent years. Jonathan Farn, founder of European recruitment firm Farn Williams, cites the rise of what he calls "regional expats" — European executives who are happy to move from country to country as new opportunities arise.

Nevertheless, understanding the various financial aspects of a post and its pay is as important for well-traveled executives as for those heading overseas for the first time.

Compensation is typically structured as a post's home base salary, plus cost-of-living allowance and any hardship premium, minus hypothetical tax (a tax deduction made by the company). The end result, Farn estimates, is normally a net pay from 5% to 15% greater than the post's equivalent domestic gross package.

There is also a long list of extras that executives should request when offered an overseas job. Nothing is guaranteed, and Farn adds that an executive receiving all he asks for depends on whether the employer can find an equally suitable but cheaper candidate closer to home. But they should aim to secure perks ranging from the obvious, such as housing and health cover, to the more specific, such as repatriation costs at the end of the assignment and access to a country audit manager to help minimize tax during their stay.

The latter can be a significant financial fillip, especially in the case of European executives, for whom different tax regimes across the Continent can lead to some beneficial outcomes. For example, a British executive taking an assignment in France at a multinational company should sign a British contract through the group's UK subsidiary if it has one, Farn advises. Due to different tax laws, he says, the executive would then pay social security in the UK, where it's lower than in France, but pay income tax in France, where it's lower than in the UK. "You end up with a double win," Farn says.

Once Abroad
Other issues can be more complex. For example, executives have to decide what to do with their residential property before going overseas as well as where to look for property in their new home. Most global companies work with relocation specialists such as Cartus and NEI Global Relocation Services to handle the selling or renting of executive housing.

Mark Petti, a manager of Cartus, 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 60% 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 Gregg Yaeger, a senior vice president at financial services group Northern Trust, 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."

To further guard those assets, Petti recommends that executives update their wills before going. And Yeager adds that for US executives, granting power of attorney — which is like having "an extension of yourself" — can be crucial to finalizing everything from tax returns to purchase and sales agreements.


Tangible Benefits
Typically, says Achim Mossmann, U.S. national director of global mobility advisory services at KPMG's international executive services practice, companies send executives overseas for three reasons: personal development, management need and knowledge transfer. Calculating the ROI of these assignments, however, "is like [finding] the holy grail," says Petti.

While companies closely track the costs of these assignments, which are typically three to five times salary, measuring the benefits is elusive. Instead, Petti says, companies look at the "effectiveness of the overall expatriate program" in terms such as how much more revenue now comes from overseas, how many new products have been launched overseas and so forth.

For Gardner, however, there is no question that the overseas experience both enhanced his career and proved financially beneficial. That was especially true early on, he says, when he accepted so-called hardship assignments in places such as Lagos, Nigeria, where most other executives did not want to be stationed. Some 33% of companies in the KPMG survey, in fact, do not cap their hardship allowances.

For all the benefits, however, there is one downside: not all companies excel at repatriating employees after the assignments are over. In fact, 36% of respondents to the KPMG survey said that those who leave the company do so because there is no appropriate job for them back home. For any overseas post to be truly financially sound, cautions Gardner, you need to guard against being "out of sight, out of mind."

Art Detman is a freelancer at CFO. Additional reporting by Tim Burke, a senior staff writer at CFO Europe.




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