Published on June 9th, 2013 | by Daniel0
The Costs of Living Abroad
Living abroad seems often much cheaper than at home. This is especially the case when you are from a developed country in the western world, where 40 – 50% income tax is not uncommon and a small water bottle costs more than € 2,-. Living in a developing country can become very attractive financially in that case – apart from other reasons of course. In this post I want to provide some pointers to consider for living abroad. Please note that it is written from a Westerner point of view (i.e. me).
Do you have to apply for income tax or corporate tax (plus dividends)? This makes a big difference. In countries as Hong Kong, Singapore, Rumania and Chile income tax is low (see the whole list here). In countries as Virgin Islands, Switzerland, Ireland corporate tax is low. Unless you are a real big earner (i.e. corporate mover) you probably have to concern about income tax. However, there are other costs involved in moving to these countries as well (see further below).
You often hear about the trick of skipping countries every 3 months so you do not have to pay taxes, which can work for some nationalities. As you are not in a country long enough (and you do not register), you will not be eligible for income tax. You will have to deregister from your home country though. Most often this means that you will have to officially message you municipality and tax authorities that you will no longer be a resident in your home country. Make sure you keep your passport though.
It can be difficult to buy a house abroad. First, a lot of countries like Colombia or Thailand you cannot own property as foreigner, and for this you will need a local partner (i.e. a notary). This makes the process a bit more arduous. Second, if you are not present at the place itself and want to buy a house through an agency there are chances you will get a second-rate deals as a non-local. Due diligence is an absolute requirement here. Also look at taxes for buying and owning property. In countries as Singapore these are far above the rates in western countries.
If you cannot buy a house for whatever reason, you will have to rent. While long-term rents can be cheap, for the best deals you will need to speak the local language. If you do not speak the local language, you will fall in “expat- category” which means inflated prices that are normally quoted to uncaring business managers. Short-term rent in foreign countries, considering you want a nice place, can be quite expensive. These expensive monthly can easily outweigh your normal monthly housing costs in the west.
Often in developing countries daily costs are substantially lower. On the other hand tax havens as Singapore or Hong Kong are famous for its high house prices and cost of living. So this can offset the benefits of lower taxes.
Also, if you are a westerner, it can be the case that you would like to have western products from time to time. In most developing countries imported products are much more expensive than local products and sometimes even more expensive than in the west. And if you want to have luxuries like going to the coffee shop every day to drink a fine double espresso this will also increase your cost of living. Or you want to have nice design furniture. And so forth.
Thus, the question here is, do you want to adapt to local way of living or do you still want to retain your western habits somewhat. The latter will cost you more money than the former obviously. So, the cost of living abroad can be substantially lower, but only if you want to pass on western “quality” of living. A western way of living, with all its comforts, can ultimately even be more expensive than in the west itself.
There are some costs you will be incurred as a foreigner in other countries. Most are inevitable. When you do a recurring visa run these can add up in the long term, so take this into account for you financial budget. For instance:
> Residence permit or visas
> Costs for opening and managing bank accounts
> Local insurance
Also, when you do want to do business in other countries sometimes you costs will be higher as foreigner. This includes also “off the record” financial transactions.
In most of the west medical costs are high, but are also covered by government/insurance. So these costs are very structural. However, quality in the medical sector is high on average. In developing countries medical costs are lower, but also average quality of medical care is lower. If you want western-style medical care in these countries, you will have to go to private clinics. These are often only affordable for the wealthiest persons in the country and can thus be very expensive.
So, while average medical costs seems low (and which is often the case for medicines), your actual medical costs can be really high in case something bad happens.
These ones are a bit optional but if you planning to visit your family and/or old friends from time to time you will have to pay more for the transport to go there than is the case if you just stay back home. On the other hand the visit frequency tends to be lower.
All in all it is not to say that everything abroad is cheaper, especially when you take hidden costs into account. If you consider all options sometimes even be more interesting to stay put out of financial reasons. However, the decision to move should be based on a whole array of considerations from which only one is financial, in order to enjoy full happiness abroad.