Foreign Investing: Everything You Need to Know

Investing in foreign markets can be a good way to diversify your portfolio, save for retirement and even have a vacation home, but there are some important things you should know before you get out the checkbook and some good tips to follow for the best experience. For instance, you will want to talk to both foreign and domestic experts to determine which laws to look out for, what the best investments are for your individual needs and even how to get all the paperwork done correctly.

Why Should You Foreign Invest?

Knowing why you want to make an investment, as well as where and how you want to make it, gives you a good place to start looking for experts here and abroad to help get it done. For example, once you know that the growing Bahrain economy means good returns on property investments, you can work with real estate lawyers and agents in that country to find the best property to purchase as well as domestic lawyers and accountants to smooth out the legalities and budget.

Laws to Know

Each country will have its own laws regarding who can invest, and which investments can be made. You will need to follow not only the US laws regarding making foreign investments, but also the laws of the country where you want to make an investment. For instance, foreigners are not allowed to own coastal property in Mexico unless they go through a trust or a corporation and US citizens are still required to declare rental income from foreign properties on their taxes. This is why it is a good idea to work with two lawyers for foreign investments, one with experience in US laws on the subject and one with experience in the laws of your target nation.

Taxes

Your personal and business taxes on domestic investments will be different than your taxes on foreign investments. The laws surround tax exemptions and declarations are complex and you may be able to claim foreign mortgage interest as a write-off or you may have to declare income if you rent out your vacation home in Bahrain when not using it. It is a good idea to find a tax professional with experience in foreign investments to help you navigate the process before you make the investment to ensure that you set it up for the least tax liability possible.

Diversification

Not only should a diverse investment portfolio represent different types of investments in a number of markets, it should also have a diverse number of nations represented. When the market in one country falters, markets in other countries may hold strong or grow. The markets of Bahrain, for example, may not be affected by economic or political insecurity in the EU or the US. The more diverse your portfolio is, the better protected your nest egg is from a loss in one investment.

Culture

Many investors who look overseas experience culture shock on their first real estate purchase. Since different cultures place value on different things, an investment which would do well in US culture may falter in Spain. It is a good idea to spend time on the ground in the countries you are interested in investing in so you can get to know which things the local culture values, which markets are doing the best and even where you can carve out a niche for your ideas. This can help you diversify your life experiences as you are diversifying your investment portfolio by meeting new people and learning about new cultures.

Foreign investing can be a good way to diversify your portfolio, lower your tax burden and learn about new cultures. You can even invest in growing economies and innovative technologies to raise global standards of living while benefiting from a large return. It is a good idea to learn about investment laws both domestically and internationally before you make an investment, however, to ensure that you are following all applicable laws as well as making a good and lasting investment.