Buying or renting a long-term “holiday home” residence in another country requires planning on many fronts.

A holiday home is a home purchased in another country where the owner intends to reside for part of a year and perhaps renting it out when not used personally.  A holiday home could also be a home that you rent for a specified period.  A summer home or winter home are examples.

In this month’s blog, I will cover four important areas of planning when buying or renting a long-term residence overseas: VISAs, Health Insurance, Tax Liabilities, and Foreign Exchange.

1. VISAs

In the European Union, most of the 27 countries have tourist visas allowing a stay of up to 90 days.  Many other countries also allow 90 days stay for tourists.  Usually, the 90 days clock starts when you go through your entry customs check and you receive a tourist stamp on your Passport.  To be clear, because this is a bit confusing, the 90 days period does not have to be consecutive, but rather, over the course of 180 days from that initial date of entry.

To be clear, because this is a bit confusing, the 90 days period does not have to be consecutive, but rather, over the course of 180 days from that initial date of entry.

If your plan is to have a summer or winter holiday home and plan to stay 90 days or less, then no additional visa is required.  If your plan is to stay longer than 90 days, or if you plan to work there as a self-employed, or do business, typically a residence or work permit is required.

  • Know the rules — Every country in the world has its own policies on tourism and residence.  It is always a good idea to check on whether a visa or permit is required.   You can do that by checking with the country’s embassy or consulate in the U.S.  Make sure you allow enough time because some country’s visa and permit applications take longer than others do.
  • Follow the rules — By the way, it is not a good idea to overstay your time limit.  If you get caught by Customs you may be pulled aside in the line, get a reprimand, or your passport may get stamped as an immigration violator requiring you to apply to get access in the future.  It is just too much risk to overstay your time limit.  Leave when you are supposed to, then you get to come back when you want.

2. Health Insurance

If you are planning to spend considerable time outside the United States, you might want to consider whether your health insurance plans will cover you while you are overseas.   If you are under the age of Medicare eligibility (age 65) you should talk to your existing health insurance carrier to look at options.

Many health insurance carriers now have world-wide coverage but sometimes it is limited to emergency or urgent care (no elective benefits) and may have travel time limits.  If you are Medicare eligible, you have several options.

  • Medicare and Supplements — Traditional Medicare does not provide coverage outside the U.S.A., but if you have a Medicare supplement plan (a tie-in) you should check with that carrier.  They may provide $50,000 or so of emergency or urgent care benefit while you are overseas but not elective coverage.

Years ago, my mother broke both her ankles on her final day of a trip to Ireland (talk about bad luck).  One ankle required surgery and she was in hospital there for 5 days.  When she got back, her supplemental carrier reimbursed her for the expenses there.

Many of the Medicare Advantage plans now offer world-wide coverage and provide similar emergency and urgent care benefits. There is some recent good news about this for people thinking about spending longer than 6 months overseas.  As of the 2019 benefit year many Medicare Advantage Plans began to allow their beneficiaries to stay out of the country for up to 12 months per trip.

As of the 2019 benefit year many Medicare Advantage Plans began to allow their beneficiaries to stay out of the country for up to 12 months per trip.

  • Trip Cancellation and Travel Insurance — Trip cancellation and travel insurance plans can provide cash for emergency medical needs along with some level of service, and cash for evacuation from a country when required.  I have a friend who got stuck in Europe during a volcano eruption that grounded all the airlines there.  He hired a taxi to drive across Europe to a city where a flight was available (that was expensive).  It was he who introduced me to Medjet.  It isn’t health insurance but if you need emergency travel aid, medical emergency cash anytime you’re more than 150 miles from your home this might be a service to consider.  There is an annual membership fee, but I feel it is well worth it.  Once you’re age 75 and over the available plans are limited but it is still worth considering.
  • Long Term Residence — If you are planning to establish a long-term residence in another country (each country has its own requirements) you must be careful about Medicare eligibility.  To retain Medicare, you must be a resident of the U.S.A. and Medicare has several ways to identify that.  They can check your mailing address, where and how you vote and your driver’s license.  The thing is if you live overseas and you don’t maintain a residence (not a PO Box) in the U.S. you may find yourself without health insurance.

 

  • Resident Status — If you establish resident status in another country, you might be eligible for their health insurance program.  If you access health insurance in another country it may be tempting to think about dropping your Medicare Plan B coverage to save money on Medicare premiums, but be careful.  The cost savings may be offset by late fees, disqualifying pre-existing conditions for supplemental carriers and the potential loss of coverage or delays when you want to or need to come back to the states.

If you access health insurance in another country it may be tempting to think about dropping your Medicare Plan B coverage to save money on Medicare premiums, but be careful.

It is something to consider certainly but requires incredibly careful planning.  This isn’t a problem for younger adventurers wanting to live overseas or younger retirees not yet eligible for Medicare.  If you maintain Medicare coverage and combine that with either travel insurance or join a Medjet type benefit group, you may have a combination providing ongoing care through Medicare along with enough cash to get you home if you need to for medical care.

3. Taxes

As Americans we have one of the more complex tax laws in the world in that we are taxed on income we earn anywhere in the world.  So long as we are just a tourist in another country, we are not affected by their taxes, but should we want to invest abroad, hold accounts, own property like a holiday home, start or work for a business or even be a self-employed gig worker you will want to spend time considering taxes both abroad, and in the U.S.

You could spend only 90 days in your holiday home, but if you choose to rent it or own it in a foreign entity (corporation or LLC) you will create a more complex tax situation. Of course, there are always pros and cons.  The point is to understand in advance how your actions may affect your tax liability.  So, it is best to think about the effect of income taxes at three levels:

  • U.S. federal taxes
  • Taxes of the country where property or a business is located
  • State and local taxes

There are also laws about reporting the holding of accounts in a foreign country (Forms FinCEN 114 to the Treasure (not the IRS) and IRS Form 8938 just to name a couple).  Violate reporting requirements and you could subject yourself to seriously expensive penalties.

Bottom line, if you are planning to invest or work in another country make sure to engage a professional experienced in international taxation to guide you before engaging in income bearing activities.  For those thinking about starting a business venture in another country you would be advised to have professionals there as well.

…make sure to engage a professional experienced in international taxation to guide you before engaging in income bearing activities.

4. Foreign Exchange

Years ago, a friend of mine was visiting Canada to attend a Canadian business conference.  My friend had no idea that other countries transact business in their own currencies.  So, when presented with a bill for lunch he was told they don’t take American dollars.  Well, a lot of the places I’ve travelled to will in fact accept dollars in lieu of their own currency especially in heavily touristed areas but you should have an awareness of what currencies are and how one currency might vary to the value of another currency.

While it may be just fine to buy lunch with US dollars in Canada it will not be fine to try to pay a mortgage or rent using US dollars in another country.  A means of exchanging dollars for another currency is needed.

  • Understanding Exchange Rates —Think of it this way, what happens if you are going to buy a holiday home in Italy and the price is set at E200,000 (euros).  At the time you sign the agreement to purchase the exchange rate is 1.22 euros for each dollar or $245,000.  Now, let’s say by the time you have to pay the E200,000 the exchange rate is now 1.25 euros for each dollar.  Suddenly you find you need to pay $250,000, a loss of $5,000.  This can throw a real estate closing into a tizzy and might at best cause a delay. You can see that a slight change in exchange rate can have a material affect on your purchases in dollars.  Wouldn’t it be nice to lock in an exchange rate to protect against this?

 

  • Bank Locally – If you’re living overseas you will need access to cash or to pay bills and will likely establish a local bank account.  Having a simple and safe way to transfer funds from your U.S. accounts to your other local account would be desirable.  There are companies that specialize in the movement of funds between accounts of multiple nations and providing protection for currency exchange risk amongst other services.
  • Consult Professionals — Whether buying a home or renting a home there is one essential thing to keep in mind – Hire reputable professionals to help you!  Attorneys, tax specialists, financial planners, and real estate agents you choose should have solid experience in any country you want to explore.  Though buying or renting in another country is somewhat similar to buying or renting in the U.S.A. there are differences you should have advice about before committing.  You can sign up here to receive future articles from me. https://aspyrewealth.typeform.com/to/JmJl91Mc

If you have an idea that you may be interested in considering living abroad whether temporarily or permanently then look for future articles from me. 

Stewart S. Koesten, M.S.F.S., CFP®, CIMA®. is Executive Chairman of Aspyre Wealth Partners with more than 35 years of experience as a wealth management advisor. Stew especially enjoys working with people who travel or live abroad, or those who want to travel or live abroad. Contact Stewart Koesten at (913) 345-1881 or visit our website at AspyreWealth.com. We are here to help
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