OMI unveils int’l investment wrapper for expat Americans

Old Mutual International is to market a new investment wrapper it says is designed to accommodate the special tax requirements of expatriate Americans, who aren’t able to take advantage of most investment products designed for British and other non-American expats.

The product – essentially a Malta-domiciled investment wrapper that is designed to be used inside an industry standard “international pension” supplied by another company, as OMI doesn’t offer international pensions itself – is being promoted by OMI’s Asia regional head, Mark Christal, who is also chief executive of the company’s Hong Kong operation, although it is available to Americans in other jurisdictions around the world, according to the company.

According to Christal, there are around 85,000 US nationals resident in Hong Kong, including “native born Americans as well as Hong Kong emigrants to the US who have returned to Hong Kong after gaining [US] citizenship”.

Globally, there are around 8.7 million Americans who live outside of the US, according to US State Department estimates.

American expats have – technically – always needed to approach the business of managing their money, investments and savings in a very different way from other expatriate nationals, as they are taxed on the basis of their citizenship rather than residence, unlike any other nationality besides Eritreans.

Citizenship-based tax system

As a result of this citizenship-based tax system, every American who is above a certain age and income level must file a US tax return annually, however long they have lived outside the US; more recently, foreign bank account reports (FBARs) have also been required.

In addition, the US regards many non-US investment products as “Passive Foreign Investment Companies”, or PFICs, and taxes them harshly.

But it has only been for the last five years or so that large numbers of American expats began to experience problems. That’s because President Obama, in an effort to crack down on the use of offshore bank accounts for tax evasion purposes, signed into law in 2010 the so-called Foreign Account Tax Compliance Act (FATCA), which obliges banks and other financial institutions around the world to report to the US tax authorities on any accounts held by American citizens.

FATCA compliance

As growing numbers of American expatriates began to comply with FATCA, and the US tax authorities in turn began to become more aggressive in their enforcement of the new and existing regulations,  significant problems with non-US-compliant offshore investment products began to emerge.

With this in mind, Old Mutual International says, its new investment wrapper, held inside an international pension, “can help defer annual US federal income tax liability on growth from both dividends and interest”, while at the same time being IRS-compliant. It is also able to pay out lump sum benefits and/or regular income, and offers investors a “wide range of funding options, a large choice of assets and investments, and flexible access to capital and growth”.

‘Peace of mind’

“Holding multiple assets in one wrapper can offer simplified reporting, resulting in cost savings and peace of mind,” the company points out, and it says that, compared to the two traditional US retirement plans, “an international pension solution has no maximum cap on contribution levels, which can help optimise retirement potential”.

Ian Kloss, OMI area sales manager for Hong Kong – and an American expat himself – says the company is “very aware of the challenges that non-resident US passport holders have” as they look to set money aside for their retirement while living abroad, since there are so few options available to them in the offshore markets.

For this reason, he adds, “an Old Mutual International investment wrapper, used in conjunction with an international pension solution, enables non-resident US passport holders to make the most of offshore earnings, save for retirement and make sure their money works as hard as they do”.

To read an explanation of PFICs by American expat specialist David Kuenzi, of Thun Financial, and why they are a problem for American expats, click here.

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