Financial Jargon-Busting For Expats

FYI, IMHO, there are far too many opaque acronyms in the world of finance.

For many banks and financial service providers, the use of acronyms and jargon seems to be a thinly veiled attempt to make everything we do seem complicated and difficult. That might help lots of financial professionals feel clever, but we believe transparency and clarity is much better for building trust between clients and institutions.

This list, therefore, is designed to give you a better understanding of some of the terms that you might have seen or heard applied to the financial circumstances of expats and international professionals like yourself.

Of course, this is far from a complete list or glossary of terms. We could go on for days with acronyms and euphemisms from throughout the industry, but I’m trying to focus on some of the most commonly misunderstood examples in very simple terms.

If you read or hear a financial word, phrase or acronym that you don’t understand and you would like some help in clearer language, feel free to drop us an email at info@extinvestments.com and include the words ‘Jargon Busting’ in the subject of your message.

General terms

Stocks/shares/equities/actions – All different ways of saying a small portion of a big company that you can buy or sell.

Bonds/debt instruments/fixed interest – Different ways of saying that you are lending money in return for pre-agreed returns.

Funds/collectives – Companies made up of a selection of investment assets. You can buy and sell shares of these companies.

ETFs/index funds – ‘Exchange Traded Funds’ and index funds are usually set up to follow the performance of a particular stock market index or sector without active decision-making.

Liquidity – Access to immediate cash.

Volatility – Likelihood of a price going up and down.

Asset – Anything you own with a positive financial value.

Liability – Anything you own (owe) with a negative financial value.

DTA/DTT – Double Taxation Agreement/Treaty – A formal agreement between two countries stating how taxes will be applied to expats, internationals and people with assets or income in both countries.

AMC – Annual Management Charge – The fees each year for a financial product or service.

TER – Total Expense Ratio – The overall cost of an investment relative to its total assets.

US Expats

FATCA – ‘Foreign Accounts Tax Compliance Act’ – The agreement by countries and companies around the world that they will pass the details of US-connected clients to the United States tax authorities.

FBAR – Foreign Bank Account Reporting – The requirement for US-taxpayers to report any overseas account with a value of $10,000 or more.

PFIC – Passive Foreign Investment Company – Any fund or managed portfolio that is based outside the US and has not reported all data to the IRS (US tax authority) since its first year of trading. These are aggressively taxed in the USA.

QEF – Qualified Election Fund – A PFIC that has volunteered all data to the IRS since year one of trading. These are not so aggressively taxed.

UK Expats

DB/DC pension – ‘Defined Benefit’ (your statement says how much you will receive for each year of work) or ‘Defined Contribution’ (your statement says how much you have put in, investment performance defines how much you will get out).

SIPP – Self-Invested Personal Pension – This is just what it sounds like. A UK pension under your own control based on money you have personally added. Some DB/DC pensions can be transferred into these.

QROPS – Qualified Recognised Overseas Pension Scheme – This is a lot like a SIPP, but based in an EU country, rather than the UK. Some DB/DC or SIPP pensions can be transferred into these.

EU Jurisdictions

DRA/ARD – Deferred Retirement Annuity – A tax-efficient option of drawing pension benefits in many EU countries.

ESTD/EUSD – European Savings Tax Directive – Law that enforces sharing of data about accounts held by European residents/citizens and withholding tax on some savings assets.

CRS – Common Reporting Standard – A bit like a European FATCA. Enforces sharing of account information for EU citizens.

And finally, we are often told that the difference between citizenship and residency for tax and investment purposes can be confusing, so here’s a quick breakdown for you:

Residency = Where you live.

(Primary) Residency for tax purposes = Your financial centre of life. The country that has the first (and usually biggest) claim for your regular taxes on income, investments, inheritance etc.

Tax residency = Any country where you have a tax liability.

Citizenship = The country that provides your passport.

You can be a tax resident or citizen of more than one place, particularly if you work cross-border and earn or save money in more than one place. If your country of citizenship charges tax worldwide (eg. The USA) then this does not necessarily count as tax residency while you are living and working somewhere else in the world, but must always be considered in financial plans.