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Becoming an expat engineer for an international company has been a boon for my retirement savings. I got aboard the expat freedom rocket and have not looked back. It has certainly poured the jet fuel on my path towards personal and financial freedom. I have been able to pay off $50,000 in student loans in very short order and raise my net worth to nearly $300,000 in the 2 years I have been an expat.
This post is about the financial aspect of being an expat. If you want to read about my experience as an expat, there will be much more in the coming weeks.
Disclaimer: I use expat to mean those that work for an international or multinational company, in which the company moved the employee to a new location outside of their home country. There are many more definitions out there for expat, but for the sake of this article, it is this.
The Financial Benefits
In order for companies to attract the best and brightest to the far corners of the globe, large multi-national companies offer an “expat package”. This package is to incentivize employees to leave what they know and journey to the unknown that is expat life. My company has put together a very good expat package that is based upon the US State Department’s expat package. I have had discussions with many other expats where I am based in China, and have found my package to be better, but not much better, than most of the other expats.
In order for a company to incentivize their employees to pull up anchor and move across the world requires a great deal of incentives. We did not need the incentives because we wanted to explore the world from outside the US, but most need some financial incentive to get them on their way.
Our Expat Package Before Moving
To start with my company provided an all expense paid trip to China, so we could fully understand what we were getting ourselves into. On this one week trip, I was brought around China by my future boss, but did not ever go to work. We looked around at apartments and tried to get the feel of the city we were moving to, so we could decide for ourselves whether this new location would be a good fit for us for the next 4 years.
After this initial trip, we were sent over again, all expenses paid, on a house hunting and work trip. I had to work this time, training employees at the new facility, but had lots of time during the 3 weeks to explore the local areas and check out housing. In the end, the housing we found on this trip didn’t work out, but we could not have known this at the time. The downside of working for a large multinational company is definitely the team of lawyers that write up ridiculously long contracts that the prospective landlords have to sign. These contracts were a huge headache for us while we searched for apartments. When we finally got to contract negotiation, most landlords backed out.
After our 2 trips to China in 2014, it was time to move in 2015 and it was again an all expense paid move. The company paid for all of our stuff to be boxed up and moved around the world, as well as giving us an extra month’s pay for the hassle and extra expenses that occur whenever you move. This was a boon for savings, since we didn’t spend much of the extra money. The travel over to China was already covered along with $100 per diem for food and covered hotel stay until we were able to move into an apartment. It took us nearly 2.5 weeks to find an apartment when we arrived, so we received $1,700 for food when we actually spent less than $400. Obviously, this amount would have differed had we moved to a different part of the world, but with the location we moved to, food cost at restaurants is cheap.
There were several other side benefits of moving abroad. First, we were able to sell our cars and get reimbursed for loss on sale up to Kelly Blue Book value. This made selling the cars very easy and hassle free. It just does not make sense to keep cars in the US for 4 years while you go away. They would just sit there idle and rot away, so they wouldn’t work upon return.
Second, we were given a one day cross-cultural training to help with our transition to living abroad. Living abroad is definitely an eye-opening experience, and this training beforehand helped us to know what we were getting ready to be plunged into.
Third, they took care of all of the incidental costs associated with moving to another country. We had to go the doctor many times for various vaccinations that were all covered. They also paid and supported the acquisition of visas and passports as we got married and passports changed.
The last part the company did for us prior to departure was to give us a tax consultation with the tax preparation company that would be servicing us while we were gone on assignment. At the time, I was naive and very happy with the black box explanation they gave me for taxes. They told me, all I had to do was just fill in the forms they sent me throughout the year and they would take care of the rest.
The Expat Package On Location
There are many facets to our package while on location in China. The company’s intent is to make the cost similar to what it was while we were living in the US, while also incentivizing us to live here. In order to accomplish this goal it all starts with the hazard pay.
The location premium, hazard pay in expat vernacular, is an incentive paid by the company to get you to move abroad. The amount is a percentage of my salary and the percentage was defined by an expat consulting firm that does market research. They rate different areas around the globe and give a hazard assessment of living there.
This hazard assessment translates into a percentage of income that is added on to our salary tax free! I get a raise of 20% for living in China, which is ~$15,000 per year. When you take into account that it is tax free, at 25% it is equivalent to a $20,000 raise.
How many other ways do you know of to get a $20,000 raise?
Goods and Services Differential
The G&S differential is a small amount each month, also tax-free that is to offset for food and normal services costing more in your destination country than in your home country. I thought it was pretty nice that they were giving us $200 per month when we started over here for the G&S, but over the past 2 years, it has been lowered every 6 months down to its new value of $0. It really costs a lot less for us to live and eat here than it does in the US, but having the extra income is never going to be questioned by us.
The tax equalization policy provided by the company is very complex and is why we have a professional tax preparation company do our taxes for us. The basis behind tax equalization is for us to pay no more and no fewer taxes than we would have while based in the US making our base salary plus bonuses. The hazard pay and G&S differential are exempt from taxes from our point of view.
During my initial tax consultation while we were still in the US, I was happy with the black box approach, but since then my perspective has changed. I do not believe that taxes are nearly as complicated as everyone makes them out to be. I did a detailed analysis of my hypothetical 1040 for 2016 and 2017 so that I could get my monthly salary tax deductions reduced. My ability to do this shows that it is not as complicated as the professionals want you to believe.
The problem with expats is that we now owe taxes to multiple countries, especially being US citizens. The US has a terrible policy of universal taxation. No matter where you are in the world, or where your money came from, if you are a US citizen, you owe US taxes.
Because of this, the company pays all of our Chinese tax and all of our US tax. In return, we pay a hypothetical US tax and state tax to the company. At the end of the year, when tax preparation is completed, the tax preparation company fills out all the right forms to make this work. There will be a future post on tax equalization and how it is applied to me.
While abroad the company would like you to continue paying for your housing. They accomplish this with a housing normalization policy. What that really means, is if I continue to own or rent a house in the US, then the company will pay for my house/apartment in my destination country. However, if we decide to sell or cancel our rental agreement in the US, then we will have to pay the company a housing norm to compensate it for housing expenses incurred on our part. Either way, the company pays for housing in the destination country.
I was not happy about this policy, since we did not have a house and they originally said that the housing norm cost was $1,500 per month! $1,500 comes from a nationwide average monthly housing cost while I came from a rural poor location where housing cost was very cheap. I talked with the HR expat manager about this and showed that I had spent $325 on rent per month the entire time I had been out of college working for the company. He agreed that the $1,500 per month was not applicable to my situation, so it was written in my contract the agreed upon $325 per month. I was ecstatic with this result, and it has motivated me to always ask for more when it comes to the company.
We live in a $2,500 per month apartment for $325 per month. If we had to pay ourselves, we would be living somewhere around the $500 per month range in our city. At that price range you get a big apartment, but not the fancy name that goes along with where we are located.
Another part of housing that the company provides is utilities. They pay all of our normal utility costs besides phone and internet, which are purely discretionary expenses. Many would argue nowadays phone and internet are normal and necessary, but it is not worth arguing about when we have so much covered for us. They provide our gas, electric, water, trash, and complex fees. I was surprised during my $325 per month negotiation, he did not ask for my normal utility cost, since those would be covered while in China. In that way, I saved another $150+ per month on utility cost over living in the US.
One last hidden perk we got out of our contract was a total of 5 appliances or $5,000 worth of appliances for living in China, whichever comes first. We managed to convince our moving company that a 55″ 4K UHD TV was an appliance, since our old TV could not be brought to China without power converters. This TV was a huge upgrade, but a pure splurge and would not have been purchased except for this lenient policy.
In the contract, it states that they will provide a means for transportation in the destination country. I brought my own transportation in the form of bikes, however, that is not the intent of their contract. They were either to provide a personal driver and car, or they would provide a car for us to drive and assistance with insurance and licensing in the destination country.
In the end, we have our own personal driver. He is always on call and takes us wherever we want to go within reason. He has driven us as far as 4 hours away for bike races, but mostly his driving consists of taking me back and forth to work 2-3 times per week, while the other 2-3 days I ride my bike 44 km each way.
It took a long time to adjust to having a personal driver. It seems like a glamorous lifestyle, and for the most part it is. However, we have to schedule our driver to come pick us up whenever we need him, so we cannot be quite as spontaneous. The bikes have certainly given us our freedom while we are here in China.
This particular benefit seems to be the main difference between the good and just okay expat packages around this area. We have a dedicated driver while others have pooled drivers, so they only have priority on certain days of the week and their drivers are limited to specific locations. We have certainly grown to like our driver and definitely enjoy the novelty of not driving for ourselves.
Another benefit of life over seas is one free trip home each year. The company will pay for flights and travel from our current country of residence home to see family every year while we are away on assignment. This is very nice and makes going home to see family easier. However, we took this assignment because we wanted to see the world. We have already seen the US and there will be all the time in the world to see it later when we move back and settle down one day.
Our first home leave trip was to Greece during our first year abroad. Originally the contract said we could take our home leave wherever as long as the cost was the same or less than going home, but they changed the contract on us without ever letting us know. I appealed to the company board and eventually got approval for travelling to Greece. Plans for this year’s home leave are to head to Italy to visit family, so I see no conflict with the new policy. We are going to a family reunion in Italy!
The company also affords us the opportunity to learn the local language. This is a monumental task when it comes to learning Mandarin.
普通话不容易。(Mandarin is not easy)
We were allotted $6,000 per person to learn the language. Mrs. Atypical took full advantage of this, and learned Mandarin to a conversational level of HSK4 (Levels are 1-6). I have been at work for 2 years and the first was extremely busy. The 2nd year on assignment, I finally got approval to bring a teacher out to work for 4 hours per week, so I could have language instruction during work hours. This proved great for me, but my coworkers that were also learning from this teacher found it hard to leave work aside for an hour or 2 each time the teacher came to work on language skills. I gained a lot from the 120 hours of instruction and can now understand a good amount, though the speaking lags behind.
Language learning is essential to assimilating into society when abroad and makes the experience much better. I am very appreciative that the company was so committed to allowing us to learn the language.
There are many other facets to the expat package, but most do not apply to us currently. In the future they will again pay for us to return home to the US. Also, if we had kids, they would pay for education in international schools while abroad. I am not sure if they would hire me for the job if we had kids, so this one is up for debate.
A nice benefit, though hopefully never needed, is emergency trips home in case family passes away. They will allot us time off and travel expenses to go support our family in hard times of family loss.
The final benefit afforded to us, often overlooked by my coworkers, is the family assistance benefit. In it, they afford us $1,500 per year for Mrs. Atypical to maintain working qualifications, take courses to further her knowledge, sign up for gym membership, travel for her work, etc. We have used all of this allowance each year. We were recently able to use it to purchase many blogging and photography courses that hopefully will allow us to monetize our blogs and achieve personal freedom sooner.
At the end of the assignment, the company will again pay us an extra month’s salary plus move all of our goods back to the US for us. The same package that came for moving abroad applies to moving home and should really help in returning to US life.
The one catch in the expat package, one that any “good” lawyer would put in is their ability to change it at any time without prior notice. This is what they did to us when they changed the home leave policy without notification. They also have written in that they can change the hazard pay and G&S differential every 6 months. Hopefully going forward, there will be no more changes to our expat policy and we can finish our contract under known terms. Our HR team now seems to want to help us out, but it is a constant struggle to know when to ask for more and when to lay low. You will never get anything if you don’t ask.
Becoming an expat is rocket fuel to our savings. I would highly encourage other engineers and business majors to seek foreign assignments to achieve financial independence sooner. One word of caution: If you take this assignment for the money, you will be miserable. But, if you want to explore the world while still being paid a huge salary, then the expat assignment could be your answer.
I was looking for an expat assignment since I started working, and it happened to fall in my lap. You just need to make it known you are looking for one and the chance may come around. We are way better off now since we took this assignment than before it. Hopefully by the end, we can be free, because that is what life is all about.