Editor's note: There are many reasons why an American may seek to relocate to Europe, chief among them retirement, work opportunities or simply a better work-life balance. This is the first article of a four-part series in which we discuss key financial considerations Americans should keep in mind when considering a move to Europe and zoom in on three countries in particular: France, Italy and Portugal.
Americans are moving to Europe in ever-increasing numbers, often seeking a better work-life balance but, increasingly, for a sense of safety and reprieve from political tensions.
That said, as important as it is to be clear on the "why" behind a desire to move, I've found it's equally important to seek clarity around the "how."
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How will you navigate the language barrier, reconcile cultural norms in your adopted country with classic American expectations of efficiency and good service and build community?
These questions will all surface in different contexts depending on the country you move to.
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Living abroad is different than visiting abroad
It's important to remember that living somewhere as a foreign resident is very different from visiting as a tourist. This particularly applies to working-age Americans, who may be interested in obtaining a remote job that allows them to work in Europe or are intending to move abroad with business operations in the U.S.
While the Schengen visa unofficially enables foreign visitors who work remotely to enjoy "workcations" for up to 90 days, activating tax residency in a European country (i.e., actually moving to a country like France or Spain) without having your tax and financial ducks in a row is asking for trouble.
The social infrastructure and services that make many European countries desirable to live in relies heavily on high public taxes. Therefore, foreign tax offices are not known for their leniency should they feel they're being evaded.
Evaluating tax circumstances
Several countries have positioned themselves as favorable destinations for certain foreigners via visas that offer long-term residency and (in some cases) citizenship pathways.
Others, like Spain, have leaped to the forefront of public consciousness due to widespread publicity.
However, Americans should be aware that Spain lacks a supportive tax infrastructure for retirees, making cross-border planning complicated and the country much less tax-efficient than other countries. Americans living in Spain could face taxes as high as 47%, and certain retirees could trigger the Spanish wealth tax.
That's not to say that retiring in Spain is a terrible idea. The financial aspect is just one of many personal factors that contribute to where someone wants to live, and everyone weighs that aspect differently.
However, if you are country-agnostic and simply interested in "living in Europe," it's good to be aware of options in other countries.
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To give a couple of examples, Italy offers a 7% tax rate for people who draw a foreign pension and want to live in southern Italy.
In France, the double-taxation agreement enables ongoing financial planning via familiar retirement vehicles, such as Roth IRAs and traditional IRAs.
Assessing the cost of living and financial planning
Figuring out the cost of living in a new country can be more complex than you may expect. An online tool such as Numbeo can help, but broadly speaking, the cost of living in Europe is lower than in the U.S.
Moreover, while major cities such as Paris and Lisbon are unsurprisingly expensive, it's worth considering how the introduction and evolution of tax regimes may impact the cost of living.
For example, the Portuguese government sunset its Non-Habitual Residence (NHR) Scheme at the end of 2023 in a first step toward addressing the housing crisis in Lisbon and Porto caused by an influx of wealthy foreigners who qualified for this special tax regime.
While Portugal remains an attractive country to live in for many reasons, the affordability of its major cities is no longer definitively one of them, and the financial planning calculus for prospective U.S. immigrants to Portugal has changed dramatically.
Also, it is important for Americans to consider the long-term implications that moving abroad may have on their financial assets.
For instance, U.S. investment products may be treated differently abroad. The value of an American's asset base in Europe will depend on three critical factors:
- Whether your new country has a double-taxation agreement with the U.S.
- How the details of that agreement affect your particular assets
- Whether you intend to live in one or multiple European countries
Timing your move abroad
Those who move abroad often do so to reconnect with or re-establish priorities that may have been lost in the U.S. Whether you plan to move to a major European city or a quaint village, however, the best time to begin planning is typically at least two years in advance.
This timeframe allows you to research your target country, connect with experts who can support you with all the logistics of your move and ultimately create a financially sustainable road map to live out your golden years in comfort and ease.
Finally, giving yourself a long runway allows you to dig into the finer details of moving, including finding answers to questions you may not have been aware of at the beginning.
For example: Can you continue to use your U.S. driver's license?
One significant difference between traveling and living somewhere involves your driver's license. Many U.S. licenses may be valid for only a certain period.
In some places, such as France, most long-term residents have up to one year to exchange their U.S. license for a French one, but only if they hold a valid license from a qualifying state.
This problem can vary according to where you plan to live. Living in a small, bucolic family home in the Tuscan countryside has vastly different implications for driving than living in an apartment in the center of Paris or Barcelona.
Moreover, if your driver's license is not recognized, you will need to invest time and money to acquire a new one.
In the next article, we take an in-depth look at the specific considerations Americans must bear in mind when evaluating a potential move to France.
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