May News and Updates: Brokerage closing American expats’ accounts, Changes in expat pay levels, Dynasty Trusts on the rise and more

By June 20, 2018Expat, News

Expat pay in China, Singapore drops, Hong Kong rises, according to ECA survey

The average cost of hiring an expatriate middle manager in Singapore has dropped to US$220,095 from US$235,545, a 5% drop, according to MyExpatriate Market Pay, published by ECA International. “Singapore saw one of the most dramatic falls in expatriate costs in Asia, with the average pay package falling US$12,450 on the result of lower salaries being provided and also a fall in the costs of various benefits,“ said Lee Quane, regional director – Asia at ECA International. China also dropped significantly by about US$6,000 to US$276,387.

In contrast, expatriate pay packages in Hong Kong rose in 2017, after hitting a five-year low in 2016. The pay package for a middle manager in Hong Kong last year was US$268,514, a rise of US$3,027 compared to 2016. Malaysia also fell significantly by US$17,188 resulting in an average pay package of US$150,868. Cheaper accommodation than its Asian neighbors, and a low tax regime were the main factors cited for the lower pay rates. Japan topped the list globally as the most expensive place to hire expats.

US brokerages close accounts of American expats

According to a report on the website, American expatriates are being informed by their US brokerages that their accounts are being frozen or that they need to close down their accounts. Brokerages such as Fidelity, Wells-Fargo and Merrill Lynch no longer wish to do business with non-US residents through their US offices, according to the report. Merrill Lynch and Morgan Stanley have been sending out letters to clients informing them of the need to close their accounts by a particular date, and to either find alternative managers or cash out the assets under management. However, overseas branches in the countries of the client often have little knowledge of, or the ability to handle IRAs or 401(k) plans through which many US clients are investing. Nor do they have sufficient knowledge of the US investment landscape. The reluctance to do such business is largely a result of the increased due diligence required, and its consequent costs, under the “Know Your Customer” rules and Foreign Account Tax Compliance Act (FATCA). As a result, unless expats have large sums to invest, their business is viewed as not being sufficiently commercial by brokerages.

US civilians working for US military lose relocation expenses tax break

US expats working overseas for the US military are discovering that they no longer can offset their relocation expenses against tax unless they are in active service. Although the change took effect back in January as part of the Tax Cuts and Jobs Act of 2017, for some employees, their HR department has only recently informed them of the change. In April, nine federal employee associations submitted a letter to the US General Services Administration (GSA) seeking for the issue to be addressed, which was soon followed by a letter to the GSA from Mark Warner and Tim Kaine, Democratic Senators from Virginia, asking that the agency’s administrator “rectify this situation immediately”. In the meantime while the matter is resolved, some US government agencies are already deducting relevant taxes from payrolls in the absence of an official instruction to the contrary.

Dynasty trusts boom as rich US citizens take advantage of new tax ceilings

Under the Tax Cuts and Jobs Act of 2017, the amount that can be passed to heirs has doubled to about US$22 million per married couple, but the new threshold is only good until 2025. As a result, the use of a ‘dynasty trust’ is becoming popular as a means by which Americans can pass on their wealth to future generations in a tax efficient manner beyond that date.

Dynasty trusts can be funded tax free with assets up to about US$11 million, and with complex tax planning for even higher amounts. According to the Los Angeles Times 12 of the top US wealth planners say they are seeing increased interest in the trusts. Although the trusts can only be set up in a few states that allow for trusts without expiration dates such as South Dakota or Delaware, state residency is not required. The trust then pays out some of the returns on the assets to the nominated heirs, while the remainder is reinvested within the trust. Recipients enjoy the income free of estate and gift taxes, although taxes may be due on the operations of the underlying assets. The trust also controls how its assets are managed and to whom the returns are paid, and thus may be used to shield assets from the heirs’ creditors or former spouses.

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