Author Topic: Multi-Citizenship Arbitrage Opportunities?  (Read 4345 times)

andystkilda

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Multi-Citizenship Arbitrage Opportunities?
« on: October 12, 2015, 11:29:48 PM »
Hi everyone,

I wanted to post a general question to see if anyone could come up with ideas I might be missing in this situation, given it is quite complex and others may have similar circumstances.

My wife and I (and our children) basically have 4 citizenships between us - US, Australia, Hungary and Israel. We have passports for all of these and plan to live in all of them at some point (currently in Australia, next move is the the US late next year or early 2017. We plan to stay there for at least a couple years.

The fact that we've gathered all of these citizenships over the last few years means I now see that there are distinct advantages/disadvantages to do with timing and exchange rates, as well as tax laws, that may be strong advantages for us in our quest to FIRE.

Examples of what I've come up with so far:
- With the AUD currently quite low, earning money in USD is now ~50% more valuable than it was a couple of years ago. For this reason I'm trying to ramp up some freelancing that I do on the side which is all in USD.
- On the same note we now have less apprehension about leaving Australia next year - if the exchange rate is still something close to what it is now we would be basically getting huge pay rises just by moving to the US and earning a similar nominal wage - given the exchange rate.
- Tax Implications - obviously the above will have significant influence on where we place our assets and earn passive income when we exit the full-time job market - this is something I'm still yet to research in detail - i.e. where would be the best place to earn income, and what are the residency and non-tax resident regulations etc.

Basically I'm looking to take advantage of the different citizenships and our ability to live in the different countries at different points - I'm looking for ultimate flexibility - i.e. when one country's dollar goes high, sell assets and transfer some money from that country to one of the weaker ones, then wait a couple years and if the weak one recovers to the opposite etc.

Please give me your thoughts and comments and thanks in advance for the feedback!

Andy

Butterfingers

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Re: Multi-Citizenship Arbitrage Opportunities?
« Reply #1 on: October 13, 2015, 04:29:02 AM »
It seems your idea relies on your four countries oscillating around a historical mean. Let's say that Hungary under Orbán keeps heading ever fascist-ward, and it eventually causes expulsion from the EU, collapse of the economy, calamity. You have the same issue as timing the stock market – you don't know when it's going to get worse or better. And if Hungary tanks, any wealth you had moved there to take advantage of the cheap environment could be devalued for a decade or more (or might have to be written off altogether, in extreme cases). For each of your four countries, I'm sure you can paint horror scenarios that are pretty plausible (though the US is obviously the most diversified and therefore stable). Australia: faltering Chinese economy, end of the commodities boom, housing bubble collapse, lost decade. Israel: potential for worsening intifada, international sanctions, conflict with Arab nations/Iran.

However, keeping yourself invested in a balanced, diverse portfolio while choosing the best place to live from a cost-of-living perspective is a significant advantage of being multinational.

jlajr

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Re: Multi-Citizenship Arbitrage Opportunities?
« Reply #2 on: October 13, 2015, 05:09:00 AM »
Hi. I have US and Israeli citizenship, and I've been living in Israel since early 1997.

You've raised some interesting questions, and I wish had some insights.

I think I agree with what Butterfingers wrote regarding having the same issue as timing the stock market.

I have so far decided not to invest directly in non-shekel denominated instruments, because my current active income and the gross majority of my expenses are in Israel and shekel-denominated, and even though I see traveling as a significant part of my financial independence plan and these investments would presumably at least partially pay for that travel.

Even though I think I have a relatively simple personal and financial situation right now - single, no children, one full-time salaried job - it still boggles my mind how complicated my respective governments have made it to abide by their laws and regulations. Therefore, this year for the first time, I hired a US CPA to prepare my US income tax return.

I don't want to even imagine trying to factor in investment instruments or an income in another country or currency, but if you can figure out how to leverage your multiple citizenships, I salute you.

MMMaybe

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Re: Multi-Citizenship Arbitrage Opportunities?
« Reply #3 on: October 13, 2015, 06:02:48 AM »
US citizenship just opens up a whole world of pain and tax obligations. I assume you know that already though, via the damage to your wallet.

The most interesting one of the bunch is the Hungarian one because you can move to Europe :)

I think the key to having multiple citizenships and using them to their best advantage is to have them from countries which do not have aggressive global and/or overlapping taxation policies. If you plan on being globally mobile, keeping up with finances in multiple countries gets old very fast.

I currently have two passports myself (both acquired, not through birth) and could also return to my country of birth to live permanently even though I no longer hold citizenship there.


andystkilda

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Re: Multi-Citizenship Arbitrage Opportunities?
« Reply #4 on: October 13, 2015, 03:25:26 PM »

The most interesting one of the bunch is the Hungarian one because you can move to Europe :)


Yes - there are many places in Europe we would consider living at some point (and they don't include Hungary).

andystkilda

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Re: Multi-Citizenship Arbitrage Opportunities?
« Reply #5 on: October 13, 2015, 03:36:01 PM »
It seems your idea relies on your four countries oscillating around a historical mean.

I suppose you're right in terms of trying to bet on future strength in any one of the different countries (continents) that we hold citizenships in. Earning income though, is one that doesn't rely on predicting the future - i.e. right now I can put more focus on earning US denominated income which means an automatic 35-40% gift when it is exchanged into AUD.

Another side of things that I see as not dependent on predicting the future really is remaining flexible in terms of capital needs - one example of this is that we may want to build a house at some point, so be able to rent cheaply or stay with family for a flexible period (1-12 months) will enable us to wait to see if an unfavorable exchange rate improves and then transfer money over at a time of relative strength.

marty998

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Re: Multi-Citizenship Arbitrage Opportunities?
« Reply #6 on: October 14, 2015, 05:17:09 AM »
I'm watching ABC's The World program right now. They're discussing Israeli soldiers firing live rounds at Palestinian protesters in Bethlehem.

The words "potential 3rd intefada" were bandied about by the reporter. I don't believe everything I hear but geez it seems like peace is like the small interlude between a perpetual state of war.

Might not be a great time to go over there. jlajr - you've probably got a birds eye view of what is going on...

john c

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Re: Multi-Citizenship Arbitrage Opportunities?
« Reply #7 on: October 14, 2015, 05:31:55 AM »
Being a US citizen pretty much negates any of the true advantages.  We have a global tax system, which means income earned anywhere is taxed by the US, with certain exclusions.  The only way to game the US tax code in the way you're describing would be to move to a place that has no income tax, and then earn enough locally to max out the foreign earned income exclusion, standard/schedule A deductions, and exemptions.  The countries without income tax are either really poor, so that's hard to do, or have extremely HCOL (Cayman Islands), so you're not getting much for your high earnings.

On a basic level, what you're getting at is basic arbitrage.  Earn high US salaries in low cost areas.  This might mean living in Croatia and working remotely at a high tech company in San Francisco.  This isn't fundamentally much different from doing the same thing from Biloxi, Mississippi.  Or, as you mention, get that tech job and live in Australia because the currency is low.  In theory, you could move around and follow the misfortunes of the countries where you want to go as their economies crash, but you're fundamentally going to rely on a HCOL US job to arbitrage.

One thing that I find interesting is keeping US dollars overseas.  I know a retired guy who lives in Costa Rica, and gets 8% interest on a money market account in local banks.  The account is dollar denominated, so there is no currency conversion risk.  There is solvency (and other) risk; there's no FDIC to back up that account.  Are there options like this in other countries?

parkette

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Re: Multi-Citizenship Arbitrage Opportunities?
« Reply #8 on: October 14, 2015, 06:19:04 AM »
I don't know the intricacies of this, but we are doing a simple leverage. My husband is Australian and I am Canadian; we own property in both countries. I've moved money from our Canadian HELOCs at 2.7%, at a gain due to interest rates, and have it offsetting our Australian mortgage at 4.78%. It has me monitoring exchange rates much more closely than I have in the past- it would be great to have another gain should the rate shift in the opposite direction. Still trying to figure out the tax implications though.

fa

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Re: Multi-Citizenship Arbitrage Opportunities?
« Reply #9 on: October 14, 2015, 06:21:38 AM »
@John C    Your points are well taken.  Geographic arbitrage as discussed by OP come with huge tax headaches.  Also, international moves are not necessarily easy or cheap.  Being a true minimalist would really help, but there are many unavoidable complexities that generate expenses.  I have 2 passports and even just keeping those current for my family members and myself is not dirt cheap.

The Costa Rica bank account reminds me of interest rates basically compensating you for risk.  A dollar demoninated account can still be punitively taxed or confiscated.  I would leave my money in the US and enjoy Costa Rica with an ATM card or credit card.  There is geoarbitrage and then there is geopolitical risk.  Both have to be considered when moving physically or moving your investments.

patrickza

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Re: Multi-Citizenship Arbitrage Opportunities?
« Reply #10 on: October 14, 2015, 06:32:23 AM »
I agree with the others, find the place with the greatest saving potential before FIRE, then move to the country with the best quality of life at the best price! My wife has a Portuguese passport, and incidentally Portugal has low cost of living and good standards, so once I have enough saved up I think it would be great to live there. Hopefully by then I can qualify for the passport too.

We're both South African, so a european passport is like gold to us!

jlajr

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Re: Multi-Citizenship Arbitrage Opportunities?
« Reply #11 on: October 15, 2015, 06:14:54 AM »
I'm watching ABC's The World program right now. They're discussing Israeli soldiers firing live rounds at Palestinian protesters in Bethlehem.

The words "potential 3rd intefada" were bandied about by the reporter. I don't believe everything I hear but geez it seems like peace is like the small interlude between a perpetual state of war.

Might not be a great time to go over there. jlajr - you've probably got a birds eye view of what is going on...

If we read, see, or listen to news only about violence, then there might not ever be a great time to go anywhere... :)

I'm on a strict low-information diet (http://www.mrmoneymustache.com/2013/10/01/the-low-information-diet/), and I take with a grain of salt most of what does get through my heavy filters.

Last Saturday, even with the knowledge that violence had been occurring in and around Jerusalem, I did not think twice about driving from Ein Gedi on the (Israeli) northern shore of the Dead Sea into Jerusalem - that is, through part of Palestine (aka the West Bank or Judea and Samaria, depending on who is describing it). I went to the zoo, and then later that evening I went to a national soccer (football) game in Jerusalem Saturday night. No problems. Lots of extra security, but believe it or not, there did not appear to be any security checks when we got on the shuttle buses to the stadium. Weird.

That's not to dismiss the senseless loss of life, injuries, et al. suffered by all, last week or any other week.

For me, violence is violence is violence. While I try to avoid it whether I'm walking around the city where I live, or traveling within Israel or abroad, it can happen anywhere at any time. Actually, I think there are statistics that show we are more likely to be injured or killed as a result of a family member or friend than by anything or anyone else...

jlajr

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Re: Multi-Citizenship Arbitrage Opportunities?
« Reply #12 on: October 15, 2015, 06:23:59 AM »
Being a US citizen pretty much negates any of the true advantages.  We have a global tax system, which means income earned anywhere is taxed by the US, with certain exclusions.  The only way to game the US tax code in the way you're describing would be to move to a place that has no income tax, and then earn enough locally to max out the foreign earned income exclusion, standard/schedule A deductions, and exemptions.  The countries without income tax are either really poor, so that's hard to do, or have extremely HCOL (Cayman Islands), so you're not getting much for your high earnings.

On a basic level, what you're getting at is basic arbitrage.  Earn high US salaries in low cost areas.  This might mean living in Croatia and working remotely at a high tech company in San Francisco.  This isn't fundamentally much different from doing the same thing from Biloxi, Mississippi.  Or, as you mention, get that tech job and live in Australia because the currency is low.  In theory, you could move around and follow the misfortunes of the countries where you want to go as their economies crash, but you're fundamentally going to rely on a HCOL US job to arbitrage.

One thing that I find interesting is keeping US dollars overseas.  I know a retired guy who lives in Costa Rica, and gets 8% interest on a money market account in local banks.  The account is dollar denominated, so there is no currency conversion risk.  There is solvency (and other) risk; there's no FDIC to back up that account.  Are there options like this in other countries?

I agree with this.

I might argue that the retired guy in Costa Rica is exposed to currency conversion risk because he is living in Costa Rica and his savings is in US dollars, unless most or all of is spending is also in US dollars.

To answer your question about whether there are options like that in other countries, I know that Israeli banks do offer savings accounts denominated in currencies other than shekels (the local currency), but they almost certainly do not pay 8% interest in this environment.

Paul der Krake

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Re: Multi-Citizenship Arbitrage Opportunities?
« Reply #13 on: October 15, 2015, 07:27:20 AM »
I am a citizen of France, born there but left a long time ago, now a tourist in my own land. I could have applied for a bunch of other passports in my youth (UK, Germany), but honestly once you have one EU passport having another one adds very little so I never bothered. We fully intend to leverage the crap out of it to live/visit in all of the EU, and the overseas territories (west indies anyone?). The worldwide income taxation doesn't bother me as we intend on having income well below the exemption levels. Nearly all our assets are already tied to the USA in one way or another.

One major perk is that my American wife will become eligible for French citizenship in a few years just by being married to me, without ever setting foot on French soil. I don't know of any other first world country that offers this. There are quite a few places in the world where traveling on a US passport is a drawback, so redundancy is good.

On top of this, any future children will be able to study or live or study wherever they want in the developed world. I can't think of a better graduation gift.
« Last Edit: October 15, 2015, 07:30:34 AM by Paul der Krake »

andystkilda

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Re: Multi-Citizenship Arbitrage Opportunities?
« Reply #14 on: October 16, 2015, 05:06:23 AM »
Being a US citizen pretty much negates...

Thanks for the perspective @John /C - some good points.

andystkilda

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Re: Multi-Citizenship Arbitrage Opportunities?
« Reply #15 on: October 16, 2015, 05:08:20 AM »
On top of this, any future children will be able to study or live or study wherever they want in the developed world. I can't think of a better graduation gift.

Yes - our kids will have citizenship and passports on 4 different continents! Could they get any luckier?

jlajr

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Re: Multi-Citizenship Arbitrage Opportunities?
« Reply #16 on: October 17, 2015, 05:23:59 AM »
...The worldwide income taxation doesn't bother me as we intend on having income well below the exemption levels.

I suggest keeping in mind that the foreign earned income exclusion applies only to active income, I believe. You cannot exclude passive income such as dividends and interest from investments. I don't know or remember whether rental income from property is considered active or passive income.