The one constant theme that Human Resource professionals emphasize when it come to international assignments (expatriate employees) is that the experience costs a great deal of money. Most of you reading this will simply nod your head at such a cautionary warning, yet not fully understand the why of it. Perhaps the topic doesn’t concern you, for now, but as managers who may become involved in such adventures down the road, you need to know the cause if you ever hope to manage this expensive proposition.
While companies continue to try new strategies for employing talent overseas (shorter assignments, use of third country nationals, extended business trips, shared responsibilities, etc.) two central premises remain; 1) companies will continue sending employees on overseas assignments, and 2) the cost of those assignments continues to be a big pill to swallow.
Fueling Persistent Cost
If you accept the premise that an employee sent overseas should be kept “whole” (expense-wise) with their home country situation (maintaining their income and expense exposure as if they had never left the U.S.), then certain incurred liabilities naturally fall to the company.
This premise is an important point, and a foundation for future planning. The assumption is that the employee should not economically suffer, but neither should they receive a windfall. To the employee the experience should be cost-neutral. However the same cannot be said for the organization. They often have to shoulder a sizeable burden.
First of all, the U.S. is one of the few countries in the world where – no matter where you work – you continue to incur a tax liability on your earnings – while also being liable for earned income taxes in the host country as well. Uncle Sam demands his share, and will follow you around the globe.
The difference is though, that any additional tax liability would ultimately be paid by the company.
And the second dark cloud over expats? When establishing the terms and conditions that will govern an international assignment, remember that whatever the company provides the employee beyond what they would have received had they remained in the US, is considered taxable income to the employee.
For example, such taxable items would include, but not be limited to:
- Home leave transportation: A personal expense (vs. a business trip) that includes air fare, taxis, meals enroute, etc. Terms and conditions usually allow for one trip per calendar year – though that can be negotiable.
- Cost of living allowances: That monthly allowance you receive to make up the difference in living costs . . . it’s taxable.
- Housing allowances: If you continue to maintain a U.S. residence (usually advised) the company will provide accommodations, but the cost of that residence is taxable to you.
- Utility payments: From electric to water to phone to garbage collection and more, if the company pays for it then it’s a taxable item.
- Supplementary benefits (host country): Additional local coverage (i.e., National Health Service) to ensure immediacy of care wherever you might find yourself overseas.
And don’t forget the family. Those expenses paid out to provide dependents with programs or services are also deemed as taxable income of the employee. For example:
- Language lessons: English may be the international language of business, but not so much in the supermarket.
- Orientation: Teaching the expat and family members about the local culture, how to get along, how to fit in and what to expect, while always useful, is especially important when the local language is not English.
- American-style schooling: Usually a point of insistence for expats with school age children, the concern here is to ensure that the children are educated in a fashion that would be recognized (credit received) by school authorities back home.
You Don’t Know What You Don’t Know
To compound the internal challenges, too many managers know too little about the true costs of expat assignments. This ignorance leads to misconceptions, misleading comments to employees and in some cases a too casual consideration of costs.
- “They speak English, so just get on the plane.” It’s a common refrain, as if we all have the same legal system, health care, work attitudes, etc., and any minor differences could be solved by a short conversation.
- “The money’s been budgeted.” A classic excuse, as if that in any way justifies an expense.
- “Let’s go around company policy to save money. ” Short term thinking (and shortcuts) that more often results in a failed assignment. And how expensive is that going to be?
Having spent five years overseas on an expatriate assignment, here are a few “takeaways” from that experience.
- My first W-2: The amount was a shock, insofar as the tax preparers lumped together as taxable income everything that the company had provided for me. That was my first realization of exactly how expensive an expat assignment was to the company. This is where the 2x and 3x annual salary cost guesstimates were born.
- Local confusion: My UK Controller was unable to determine the expat costs for his business unit. Lines of communication between the host country and the corporate-sponsored tax preparers broke down often. That’s when the finger pointing starts.
- Lost information: After extensive investigation it seemed that data regarding assignment costs and local liabilities were buried among several budget line items. Highlighted cost metrics were absent, and no one was watching the store.
- Taxation: There are many confusing aspects of foreign service credits and reciprocity tax treaties. Not my area of expertise, but even several years after returning from overseas my tax advisor was still dealing with foreign tax credits. The back and forth of determining corporate tax liabilities, or avoiding them, is a science unto itself.
So yes, international assignments for your employees can be a very expensive proposition. But those expenses can be monitored; they can be controlled.
Remember this formula for getting into financial trouble: if you take unknown assignment costs and add the lack of stated assignment ROIs, plus throw in a bit of insensitivity for the realities that expats (and their families) face, that recipe will blow up in your face every time.
That you can take to the bank – for withdrawal, not deposit.
Comparing Credit Card Offers with No Foreign Transaction Fee
Updated: March 1, 2018
CreditCards.com's Best International Credit Cards with No Foreign Transaction Fee of 2018
- Capital One® Venture® Rewards Credit Card
- Chase Sapphire Preferred® Card
- Capital One® VentureOne® Rewards Credit Card
- HSBC Cash Rewards Mastercard® credit card
- Capital One® Quicksilver® Cash Rewards Credit Card
- Discover it® Cashback Match™
- Capital One® Savor℠ Cash Rewards Credit Card
- Chase Sapphire Reserve℠ Card
- Discover it® Miles
- Barclaycard Arrival Plus® World Elite Mastercard®
Many credit cards charge a foreign transaction fee, but there are some that don’t. If you are a frequent traveler or shop online with overseas vendors, it might be worth your while to find a card without a foreign transaction fee. But there are some things to know, which we explain here:
- What is a foreign transaction fee?
- What counts as a foreign transaction?
- Tips for spending internationally
- How to choose the right credit card with no foreign transaction fee
We not only explain what you need to know about foreign transaction fees, but also overseas travel and picking the right card. Take a look here:
What is a foreign transaction fee?
Foreign transaction fees are charges many credit card issuers placed on purchases made in a foreign currency or on purchases that involve a foreign bank. Most foreign transaction fees are 2%-3% of the purchase. There are actually 2 fees: One from the payment network and one from the card issuer. Networks Visa and Mastercard typically charge a 1 percent fee for each foreign transaction. Then, issuers might charge an additional 1%-2%. American Express, which doesn’t use Visa or Mastercard’s payment system, often has a foreign transaction fee of 2.7% on its cards.
What counts as a foreign transaction?
A foreign transaction can be a purchase processed through a foreign bank or when you travel overseas, including when you use ATM machines. (Note that there can actually be multiple fees at a foreign ATM machine, including a flat-rate international ATM surcharge and an ATM access fee.) The foreign transaction fee is a charge that is processed by a foreign bank or is in a foreign currency. Heads up that even if the charge is in U.S. dollars, if it passes through a foreign bank, there can be a foreign transaction fee.
Tips for spending internationally
- Diversify. “My biggest tip for spending overseas is to diversify; always carry both cash and credit,” says Lyn Alden, world traveler and founder of Lyn Alden Investment Strategy. “Credit cards are safer, more convenient and give better rewards, so I use them as my primary spending method. But when you're outside of your country, it's critical to have backups, and to have alternate ways to spend.” Some travel experts recommend that you carry 2 cards with different issuers and different networks.
- Know your card terms. If you can't readily find information about foreign transaction fees, pick up the phone and call the number on the back of your card. It should also be displayed with your “rates and fees” clause. Note that terms of cards from the same issuer can vary. If you travel frequently, it may make sense to apply for a credit card that does not charge foreign transaction fees.
- Research your overseas bank network. Check if your bank is part of a global ATM network that you can use to access cash overseas for free – or at least at a lower cost.
- Always pay in the local currency. Sometimes, foreign merchants will offer to convert your purchase to U.S. dollars before you pay with your card. Decline so that you avoid dynamic currency conversion costs that you’ll have to shoulder. “So many places try to say ‘convenience,’ but the rate is not favorable to the traveler,” says travel blogger Suzanne Wolko of PhilaTravelGirl.com.
- About those traveler's checks. “Don’t bother; they are too much of a hassle,” says Wolko.
- Call your bank. Make sure they are aware that you may use your ATM card in the country you will be traveling to, says Wolko.
- Use only credit abroad. Some travel experts actually advise that you not use a debit card in a foreign country. That’s because you are protected when there is an unauthorized charge on your credit card, and you might be protected if a product isn’t delivered as promised. A debit card, with your PIN, can mean free money for the bad guys, if your bank doesn’t have protections in place for you. Check with your financial institution.
- Try local apps. Wolko advises that you use apps tied to your credit card to avoid dealing with cash or credit cards, such as Uber, Lyft or MyTaxi.
How to choose the right credit card with no foreign transaction fee
- Does the card fit your lifestyle? OneSavvyDollar.com founder Ogechi Igbokwe says he knew that once he graduated from grad school, he planned to travel overseas, so a card with no foreign transaction fee made sense.
- Does it come with an annual fee? Says Igbokwe: “Golden rule when making a purchase: The cost of getting a thing must never outweigh the benefit.” So, make sure you will recoup on the annual fee or that the card has an advantage that makes the fee worthwhile.
- Is it widely accepted? “A no foreign transaction fee card is only good if it is accepted everywhere you go,” says Natasha Rachel Smith of TopCashback.com. For example, she says, while 2 of the major card networks are less common outside of the U.S., Visa and Mastercard are more popular overseas.
- Any rewards? Because there is such a wide range of cards offering no foreign transaction fee, you’ll want to look at rewards that are offered. However, “prior to applying for any card, check the terms and conditions to make sure the card allows you to receive rewards on international purchases,” says Smith.
- What other features are there? Krista Canfield McNish, of travel website and blog FoodWaterShoes.com, has a card that covers up to $1,500 in trip cancellation/trip interruption insurance per trip for non-refundable expenses due to personal or family injury, illness, or death if you booked your trip with your card, which she says is a handy bonus. “I also love that the card doesn’t require me to call [the issuer] or to log in online to notify them of upcoming travel before I take off,” McNish says.
- Chip and PIN or chip and signature? Most U.S.-based cards are chip and signature (for now), while in other parts of the world, such as Europe, they use chip and PIN. Both are designed for increased safety. (If your card is exclusively magnetic stripe, [the old common system] that could be an issue for overseas travel – best to apply for a card that carries the chip technology, called EMV.) For the most part, chip and signature will work fine overseas, provided there is a cashier, but if this is an issue for you, check with your bank to see if your card uses a PIN.
- Have you done your research? “Keep in mind that not every country is U.S. credit card-friendly (for example, European cards are more likely to work in countries like Cuba than U.S. credit cards), so it's a good idea to do your homework before you take off,” says McNish.
Recap - The Best No Foreign Transaction Fee Credit Cards of 2018
|Card||Rewards Rate||Welcome Bonus||Bonus Requirement|
|Capital One® Venture® Rewards Credit Card||Unlimited 2X miles per dollar on every purchase, every day||50,000 Miles||Spend $3,000 on purchases within 3 months from account opening|
|Chase Sapphire Preferred® Card||2X points on travel and dining at restaurants worldwide & 1 point per dollar spent on all other purchases||50,000 Bonus Points||Spend $4,000 on purchases in the first 3 months from account opening|
|Capital One® VentureOne® Rewards Credit Card||Unlimited 1.25 miles per dollar on every purchase, every day||20,000 Miles||Spend $1,000 on purchases within 3 months from account opening|
|HSBC Cash Rewards Mastercard® credit card||1.5% cash rewards on all purchases||$150 cash rewards||Spend $500 in the first 3 months|
|Capital One® Quicksilver® Cash Rewards Credit Card||Earn unlimited 1.5% cash back on every purchase, every day||$150 Cash Bonus||Spend $500 on purchases within 3 months from account opening|
|Discover it® Cashback Match™||Earn 5% cash back at different places each quarter like gas stations, grocery stores, restaurants, Amazon.com, or wholesale clubs up to the quarterly maximum each time you activate.||Discover will match all the cash back earned at the end of your first year, automatically||Automatic|
|Capital One® SavorSM Cash Rewards Credit Card||Earn unlimited 3% cash back on dining, 2% on groceries and 1% on all other purchases||$150 Cash Bonus||Spend $500 on purchases within the first 3 months from account opening|
|Chase Sapphire Reserve℠ Card||3X points on travel and dining at restaurants worldwide & 1 point per dollar spent on all other purchases||50,000 Bonus Points||Make at least $4,000 in purchases in the first 90 days|
|Discover it® Miles||Unlimited 1.5x Miles per dollar on all purchases, every day||Match Mile For Mile: We'll match all the Miles you've earned at the end of your first year||Automatic|
|Barclaycard Arrival Plus® World Elite Mastercard®||2x miles on all purchases||40,000 bonus miles||Spend $3,000 in the first 3 months|
Want more information?
Once you narrow your choice down to a few products, you can find product-specific reviews for travel cards, hotel cards and airline cards. Use these reviews to help make your final application decisions!
By: Laura Mohammad
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