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What to Consider as an American Expat Moving to Saudi Arabia

Makkah Tower in Saudi Arabia

The Kingdom of Saudi Arabia offers a unique opportunity for American expats to work in a country without an income tax regime. However, it is important to be aware of other financial complexities that come with being an American expat living in Saudi. Read on to learn seven points that every American expat should consider prior to moving to Saudi Arabia:

#1. Taxes don’t go away completely.

While income tax is not imposed on an individual’s earnings by Saudi Arabia, if they are derived from employment in Saudi Arabia, American expats are taxed on a citizenship basis. Having no tax filing or liability in Saudi is a great perk, but American citizens and permanent residents are uniquely subject to citizenship-based taxation. That means you’ll be required to file taxes on an annual basis and stay compliant with U.S. tax regulations.

Luckily, the Foreign Earned Income Exclusion can help to offset (or even eliminate) U.S. taxes due. In 2022 (amount indexed for inflation) each U.S. taxpayer can exclude $112,000 in income. Earned income that exceeds this threshold is taxed based on applicable U.S. income tax rates. Eligibility for use of the Foreign Earned Income Exclusion is dependent on a residency or physical presence test. If you’re only working in Saudi Arabia part-time or contractually, you may not be eligible.

#2. Saving for retirement becomes more complex.

While many international jobs in Saudi Arabia (ex. Aramco, Exxon, etc.) include options for Traditional or Roth 401(k) savings, what if your employment arrangement does not? Can you still save in U.S. retirement vehicles? The answer depends on your adjusted gross income, filing status, and use of the Foreign Earned Income Exclusion. Depending on your situation, you may still be able to fund Traditional or Roth IRAs while working and living in Saudi Arabia. Luckily, the ability to fund after-tax savings remains available no matter the aforementioned factors.

#3. Your foreign address may be an issue for brokers.

Post 9/11, laws were put into place relating to brokerage firms ensuring that they ‘know their client.’ Due to compliance issues, many firms found it easiest to stop working with clients who do not have a permanent U.S. address. You may find that upon your relocation to Saudi Arabia, if you do not have a U.S. address, your broker or advisor can no longer work with you. Expats often face restrictive trading or account closures upon updating their address to a non-U.S. location. It is important that you work with a firm who understands your status and can maintain or establish a relationship, despite your address.

#4. Expat estate planning may be more difficult in Saudi Arabia.

While Saudi Arabia is generally very favorable from a tax perspective, as it has no wealth, inheritance, estate, or gift taxes, estate planning for expats in Saudi Arabia is complicated by the fact that your estate plan is subject to Sharia law. Sharia law is based on the Quran and the teachings and practices of the Prophet Muhammad.

Inheritance between non-Muslims is free and governed by a will. That will must be registered with the Sharia Court or witnessed by two adult Muslims. Establishing a will is important in case of death while in Kingdom. The U.S. consular office will play a key role in this situation. They attempt to notify next-of-kin or another legal representative (i.e., the individual/s named in the will). If no legal representative is in the country, the consular assists with further arrangements for personal effects and transportation of the body. It is important to note the consular cannot have any say in the deceased person’s financial accounts, which is another reason to have a legal representative clearly named in a will. Again, much of this will also depend on if you are a full-time employee living on a compound, or a temporary worker. Our Guide to International Estate Planning for Cross-Border Families may help you better understand the ins and outs of estate planning as an American expat living abroad.

#5. U.S. estate documents may still be important.

A U.S.-based trust may expedite the transfer of your American assets and help to avoid probate. Saudi Arabia will not attempt to probate a non-Saudi’s U.S. assets; therefore, it remains important to determine if you need U.S. estate planning documents. A few scenarios to consider: If you retain property in the U.S. that does not pass by beneficiary (e.g., 401k, IRA, life insurance), a trust will ensure those assets pass to your heirs without a lengthy and costly probate process. Or, if you maintain financial assets in the U.S. a Financial Power of Attorney may also be appropriate. Additionally, if you visit Saudi frequently, you may benefit from a Health Care Power of Attorney. Lastly, inheriting U.S. based assets while living abroad also has unique considerations. It is important to work with an International Wealth Manager who can help you determine which of these key documents are recommended for your situation.

#6. Owning property as an American expat in Saudi Arabia is possible, but it may be difficult if you need a mortgage.

Before 2019, foreigners could not own property in Saudi Arabia. Now, foreign residents can purchase property in most parts of Saudi Arabia. Your ability to purchase property as an expat living in Saudi will be subject to approvals from the licensing authority and excludes property in the holy cities of Mecca and Medina. Given the relatively new ability for a foreigner to own property, mortgage availability is limited for expats.

#7. Banking, investing, and insurance in Saudi Arabia all have their own quirks.

Americans abroad often struggle with opening foreign bank accounts. In recent years, many brokerage houses will even proactively close your U.S. account if they discover that you live abroad. In Saudi Arabia, opening an account is simple. Expats are free to open accounts at any of the 30 retail banks in Saudi Arabia. But don’t expect to earn interest. Account holders will often receive a ‘profit rate’ which falls in line with the rules that govern Islam. Many banks are now offering investment options for expats as well.

As an American, it is important to understand Passive Foreign Investment Companies (PFICs). If you buy a non-U.S. mutual fund, this will likely be classified as a PFIC. They are extremely complex to report, and capital can be taxed at a rate of up to 50%. It’s for these reasons that we generally say American expats should avoid non-U.S. mutual funds. You should work with an advisor who can help you understand the nature of your non-U.S. based investments, should you choose to hold some.

Finally, certain insurance is compulsory in Saudi Arabia – motor, health, and social (with exceptions for certain employees). Other insurance, such as home, life, or disability, is optional but available in a growing industry. You should always check where your various insurance policies will cover you. Many U.S. life insurance policies will not cover expats living abroad, and foreign health insurance may not always cover U.S. health expenses.

Moving to Saudi Arabia as an American expat may be financially advantageous—if you take care to consult with an experienced professional with deep expertise in international financial planning. Request a meeting with a wealth manager from Creative Planning International to discuss your unique situation as an American expat in Saudi Arabia and get the comprehensive wealth management solutions you deserve.

This commentary is provided for general information purposes only, should not be construed as investment, tax or legal advice, and does not constitute an attorney/client relationship. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.


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