12 Feb The Definitive Guide To Banking For Saffa Expats

Banking around the globe – the biggest differences and similarities

When considering moving abroad, one of the first questions people ask is how they could open new bank accounts abroad and how these differ from the banking systems in their home country. It’s not easy navigating your way around a foreign financial system, so you’re bound to be a bit confused at first. Not to worry though, as Rand Rescue will give you a few pointers. 

In this article we cover some key differences between banking systems and accounts across the world. 

Opening an account

As with South Africa, many countries require your address – but unlike South Africa this isn’t necessarily a legal requirement as stipulated by FICA (the Financial Intelligence Centre Act) locally. Requesting addresses is usually just a means of ensuring you get your communication and statements from the bank.

It’s for this very reason that many prospective immigrants choose to open their accounts in the country they are moving to before the move. This, of course, is due to the fact that most banks don’t require local proof of residence for foreigners who are not yet residing in their turf.

Even though other countries may not be as strict with laws like FICA, you may still find it quite difficult to open an account in certain places, due mostly to tightening of regulations to counter money-laundering.

In the USA, for instance, you will need to provide your proof of identification, proof of address, debit and/or debit card details for your account back home, your social security number and a minimum deposit as required by the bank. Furthermore, the banks are well within their rights to request your immigration documents, credit history, certification of employment or enrolment form if you’re studying in this country, as well as banking statements for past accounts.

Many countries will request your proof of employment or student enrolment forms much like the US. In Australia you will need to prove that you are either migrating, working or studying locally – or you will need the assistance of an intermediary like Rand Rescue to assist you with the process.

Although Canada isn’t quite as strict as the USA, they do require a personal visit to the country before you can open an account. As a migrant, a local bank account is mandatory to prove that you can afford your expenses, but no initial deposit or minimum amount is required for opening your account.

In France, non-EU citizens are required to provide proof of identity as well as proof of French residence (Carte de séjour) such as a rental agreement, utility bill or property deed. It should be noted that not all banks allow the opening of accounts for non-citizens and EU-citizens will get preference.

The UK makes it easier for non-citizens or -residents to open accounts provided you have the cashflow. You can easily open a sterling account from abroad provided you are 18 years or older and can deposit the minimum amount – which, for Barclays, is currently £5000 or around R84 000. Once you can provide proof of residence in the UK the process is much easier – much like FICA, the UK requires proof of residence or incorporation in the UK under their Know your Customer (KYC) legislation. If you still struggle to open an account, you could opt for a basic account offered by many banks, but as the name suggests it is quite basic. 

Swedish banks will ask for your passport, resident permit (except if you have family members in the EU), employment contract or student enrolment details, proof of Swedish address, your Swedish ID number (Personnummer) and Swedish ID Card. For the Personnummer you will need to visit the Swedish Population Register in Person.

If you’re moving to Namibia, Lesotho or Swaziland, the good news is that you’re within the Common Monetary Area, which means it is not essential to open a local account as you will still be moving within the former Rand Monetary Area (RMA) or current Multilateral Monetary Area (MMA). In Namibia you can simply skip on over to First National Bank, Standard Bank or Nedbank if you don’t want to opt for Bank Windhoek.

Brazil is one of the least complicated places to open a bank account, although it must be noted that foreigners must hold residence visas. If you have this in the bag, then you will need to provide your 12-month minimum residence permit, proof of identity (usually a local equivalent of your ID), tax ID (CPF) and proof of residence – although some requirements are waived for students.

One country which is seen as a safe haven for banking, although not a tax haven, is Georgia. Depending on where you come from you may be required to complete a few tax forms for your previous country, but other than that you simply enter your Georgian bank, pay your minimal deposit (roughly R100) and there you go! And foreign exchange is done with a simple click if you want to convert your Georgian Iari to foreign currency.

One country which may give you some headaches as an expat is undoubtedly Switzerland. Although generally seen as a tax haven, it should be noted that the account-opening process can be quite convoluted. Firstly, Swiss banks don’t offer day-to-day services to account holders outside their borders, which means you may be left out in the cold if you want to transact from abroad. Furthermore, as the Schweizer Franken or Swiss Franc is one of the few currencies not linked to the Euro, you can’t simply pitch up from other European nations and pay in their currency. Furthermore, although banks each have their own requirements for account opening, your documentation will need to be authenticated, as no mere copies are accepted, and accounts can take up to one month to activate.

Strangely, although many people may be sceptical of opening accounts in countries like China, it is one of the easiest places to open an account as a foreigner – no proof of address or anything of the kind. Simply pitch up and pay your 10 to 100 CNY (R18 to R180-ish) and take your passport along in case they want to make a copy. You can even choose to conduct your banking strictly online.

In the UAE, it’s also easy to open an account as foreigner, but they have a stipulation not often required abroad, which is a letter of no-objection from your employer or sponsor. Some other countries in the middle east could prove a bit tricky given the predominance of Islamic faith. Although non-Muslims are allowed to bank with Islamic banks, it should be noted that the banks are required to adhere to Islamic law or Shari`ah principles (fiqh Al-Mua`malat) and the fine print in your banking documents may require you to abide by these principles as well. On the upside you will not be paying any interest under these principles, but on the downside you will not be able to invest in businesses which are directly or indirectly affiliated with causes or practices which oppose these principles such as businesses producing, promoting or selling alcohol or pork, businesses which produce media columns seen as gossip, tobacco companies, gambling or lotteries, those that oppose Islam, showcase nudity, adultery, female disobedience or other things which Shari’ah opposes.

Applying for credit

Firstly, it’s important to remember that you are NOT allowed to use your South African credit card abroad if you’ve relocated. Though many banks fail to mention this to their clients and even issue them new cards while they are abroad, this is against the regulations of the South African Reserve Bank. Though credit and debit cards are allowed to be used abroad for South Africans temporarily abroad, the usage is limited to the year within which the individual left South Africa.

So, given that you’d probably want a new card now that you’re abroad, you probably want to know how difficult it will be to apply for credit.

Most countries won’t have access to your credit history or scoring in your previous home, which may be a good or bad thing. For those with a shady credit history, they can start on a clean slate, whereas individuals with an impeccable credit score would not be able to migrate this score with them, unless they have an international banker with access to all records who can stand surety – and even then, it is a tricky affair.

In countries within the EU, sharing of credit information is much easier, as any payment defaults will see you placed in a special file which is shared with all lenders across Europe. The sharing of credit information in other regions and countries differ quite vastly. How easily and information is shared and what information is shared depends on several factors – this includes legislation pertaining to the granting of credit as well as the storing and sharing of information, the stipulations of the credit bureaus, the operational requirements of the banks and so forth.

Most countries don’t issue credit to non-residents for obvious reasons and the standard age at which credit is granted internationally is eighteen, though such credit is usually limited to student loans.

It should also be noted that some countries, like Switzerland, may require deposits for credit which are only refunded upon settlement of your credit and closing of the accounts. And such deposits could be double the credit limit you’ve applied for.

Furthermore, in line with the credit scoring of the region within which you want to secure credit, you will need to provide proof of income, especially if you don’t have a credit history, and such income will undoubtedly have to be predominantly from local sources. In fact, banks may even choose to discard your foreign sourced income entirely unless you have financially emigrated and the funds are regulated by local taxation laws.

Of course, the difficulty in gaining credit abroad should not be seen as a bad thing. You can consult virtually any financial adviser across the globe and they will tell you that credit is a risky business which could see you live beyond your means and land up with debt up to your ears. Nevertheless, many of us do need credit for larger expenses like property, transport or the odd big buy.

If this is you, then these are the steps you could take to secure credit in a foreign country:

1. Apply for residency as soon as you’ve decided the move is permanent and you’ve satisfied all the residency criteria for the country.
2. Apply for financial emigration and move your funds to your new home. This will allow banks to get a better picture of your income and intention to stay in the new country.
3. Start building your credit record slowly – one way to do this is to ask your landlord to list your rental payments as credit, which will then be sent to the credit bureaus. Another method for building your credit score is through student loans.
4. If you do get credit, be sure to use it sparingly and stay well below your credit limits. Also pay off your credit in full each month as this will improve your credit score.
5. Get a local tax or revenue number which will allow you to list all sources of income on your income tax forms.
6. As a last resort, if you are working or co-habiting with a resident or citizen of the new country, they could give you signing rights on their card. This should be used as a last resort only, as personal relationships are far harder to mend after financial mishaps than your relationship with the bank.
7. If you receive cash payments, deposit these into your bank account before spending the cash. Although you may incur some banking charges, these deposits could prove beneficial when you eventually have to provide proof of income.

Of course, credit-granting could see significant changes after the implementation of Basel III in 2019 (see more under banking fees).

Banking fees and interest rates

Although South African banks have come under fire of late for what some see as exorbitant banking fees, it should be noted that this perception is not necessarily correct. A study conducted in 2015 measuring South Africa’s banking fees against foreign banks indicated that, although our ATM withdrawal fees are still higher than most other countries, we charge significantly less for overdraft fees, returned payment charges and EFT fees.

It should be noted that Basel III or the Basel Three Accord which will be implemented in March 2019, will more than likely cause significant waves in banking fees. Basel III was envisioned after the worldwide financial crisis of 2008 to manage regulatory concerns under the Basel Committee on Banking Supervision (BCBS).

In a nutshell, Basel III is a set of measures which banks should comply with in order to mitigate risk and circumvent governmental bailouts during financial crises. One particularly tricky part of Basel III relates to the Net Stable Funding Ratio (NSFR). The NSFR will impel banks to diversify funding to lower risk by gaining more long-term funding. The problem, of course, is that most banks favour short-term funding which carries higher interest rates and, in a sense, offers lower risk when it comes to credit in particular as clients with less favourable credit scores can be granted credit in the short term. 

This means that banks may be forced to offer longer term loans to higher risk clients (within legal bounds), increase their banking fees and hike interest rates on lending to account for the need for more long-term capital. Since South African banks in particular rely heavily on money-market funds to buy their debt, they will face significant challenges after Basel III implementation. For one – money market funds are not deemed stable funding under the accord, and with up to 30% of banking balance sheets currently funded by money markets, banks would need to make significant changes and implement to account for this shortfall.

Banks across the world have been challenging the regulations suggested under Basel III, which has seen the deadline for its implementation extend once more the March 2019. The accord was first estimated for implementation between 2013 and 2015, before getting an extension to March 2018, and another year’s extension until 2019.

With this in mind, perhaps consumers would be wise to do an in-depth comparison of the current banks where they can prospectively hold accounts, and consider which financial services provider is more readily geared towards Basel III compliance. Such banks may currently charge higher rates and offer more conservative investment portfolios, but they would not face as many hurdles as other banks from April 2019.

The ten countries with the highest interest rates in the world include:

1. Ukraine
2. Uzbekistan
3. Argentina
4. Mongolia
5. Azerbaijan
6. Iran
7. Uganda
8. Georgia
9. Egypt
10. Kazakhstan

With interest rates between 10% and 20% on your savings, which, compared to the US average of 0.24% is quite a nifty amount. But of course many of these countries also have higher risk and banking instability, and are more likely to have high real interest rates. Real interest rates are the lending interest rates which are adjusted for inflation.

The countries with the highest real interest rates ranging from 21.59% to 48.76% are:

1. Madagascar
2. Kuwait
3. Qatar
4. Brazil
5. Azerbaijan
6. Oman
7. Brunei
8. Tajikistan
9. Angola
10. Kyrgyz Republic

Comparably, South Africa’s real interest rate last measured by the World Bank in 2016 is 3.43%, whereas the US offers a 2.44% real interest rate.

The important thing to look at is the benchmark interest rate as well as the banking deposit and transactional rates. For fixed-term deposits, South Africans, for instance, have to pay the world’s 14^th highest rate at 9.38%. Other popular SA expat destinations and their deposit interest rates include;:

• New Zealand: 3.60%
• Australia: 2.79%
• Canada: 2.00%
• United States of America: 2.00%
• Italy: 2.00%
• South Korea: 2.00%
• United Kingdom: 1.90%
• Germany: 0.10%
• Netherlands: 0.05%

Taxation

It’s no surprise that taxation differs across the world, and there are a few things you should be aware of when opening new accounts abroad.

Firstly, it’s important to be aware of double taxation agreements between countries. If you haven’t applied for financial emigration, this means that you could be liable for tax on your worldwide income both in your new country as well as your former home – such as South Africa. In order to accommodate individuals facing this dilemma, many countries have put double taxation agreements in place which would see you paying tax only in your country of residence. Or alternatively you will be taxed by the respective countries on the income generated within their territories only.

Another key thing to remember is that you could pay a lower taxation rate if you declare your income and apply for an income tax number. This is the case in New Zealand, where you are allowed to open an account using your proof of identification and residence, but if you have an interest-bearing account, you will automatically be taxed on the highest taxation rate of 33%. Should you apply for an IRD number, your taxation will be adapted to your income bracket.

Many individuals choose to open accounts in regions known as “tax havens”. They are labelled havens as they tend to charge no or limited tax and have stringent rules about anonymity. Such countries include the Bahamas, Vanuatu, Monaco, Andorra, Switzerland, the Cayman Islands and Costa Rica among others. You should note, however, that these banking systems have come under much scrutiny and pressure and even a failsafe tax haven like Switzerland is now regulated by the Federal Banking Commission.

Saudi Arabia used to be one of the countries which served as a tax haven, but the country recently announced the introduction of a monthly expat levy in 2018 which aims to promote local labour over foreign labour. The fixed expat levy will be increased gradually from 2018 to 2020, with possible aims to increase it even more thereafter. The problem for foreign workers in this area is that the rate is not adapted according to income, and lower-earning employees will need to pay the same rate as higher-earning workers, and companies employing more foreigners than locals will need to fork out an additional excess levy per employee. Since companies will need to deduct this levy for current and prospective foreign employees, this is bound to curb the employment of foreign medium to lower income workers in the region. The levy currently ranges between 300 and 400 Riyal, but will be increased systematically to 700 Riyal in 2020 with an additional 100 Riyals per employee per month payable for companies employing more foreign than local workers.

Irrespective of the availability of tax havens, you should consider the legalities of banking in these regions, and be aware that countries the world over are becoming increasingly adept at catching tax evaders. New measures put in place to clamp down on tax dodgers includes sharing of information between regulators and banks the world over to monitor the flow of money across borders and between countries. This means that even if you were allowed to manage your finances within one of these tax havens relatively easily and with seemingly little or no taxation impact – your finances are still governed by the country within which you reside OR the country where you are deemed a resident for tax purposes. Should you be caught with your purse in the “haven jar”, you could therefore be liable for hefty fines and/or face criminal prosecution.

Rand Rescue can assist with account-opening

As a specialised offshore services provider to South Africans globally, Rand Rescue can assist with all your enquiries, accounts, transfers and applications to make your move abroad as smooth as possible. Talk to us about your needs and we’ll see to it that you make the right move with informed advice, legitimate services, secure transactions and swift service unlike any other!