The Cheat Code to Financial Independence

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I first heard about making big bucks overseas from Andrew Hallam, a self-proclaimed “Millionaire Teacher” and author.

That was way before I discovered FIRE, and now that I know about both, combining them to create a “cheat code” to FI makes perfect sense. The trick is to find a job in a country with something called a “territorial taxation” system, enabling you to keep 100% of your earnings, tax-free! Bonus points if your employer also covers your accommodations.

After learning about this strategy from friends who became FI without a STEM degree or 6-figured salary, I realized that it’s a lot more accessible than people think. In fact, the people in real life whom I know that have done it are teachers, marketers, and a librarian. None of them made 6-figure salaries, but they still got to FI by paying little to no taxes, while living an exciting life of adventure abroad (paid for by their overseas employers).

In fact, it’s mainstream enough now that there’s even a Reddit thread with 15K members called ExpatFIRE.

Today, we’re going to meet a friend of mine who fast tracked his time to FI by teaching in Qatar:


1) Your teaching job had excellent pension and job security in Canada, why would you throw it all away to go to teach in Qatar?

I think the primary reason that my wife and I “threw it all away” was that we simply wanted more adventure.  I had taught for ten years in the same rural prairie community – which was quite similar to the one that I’d grown up in.  There are many great things about rural life, but we just felt we were ready to try something new, and there were limited options to “try something new” within the context of small rural schools.  We also have some major philosophical differences with the direction of public education in many Canadian provinces at the moment, to be honest.

But of course that only explains why we wanted to leave – not why we chose Qatar.  The facilities at our new school are absolutely incredible.  They would not be out of place at the most elite universities in the world.  Our living accommodations are provided to us as part of the overall compensation package and are very nice (let’s call it a solid “B”) medium-density housing options.  The primary reason that we considered Qatar (as well as the UAE) was the lucrative compensation packages available.


2) How much can you expect to earn as an expat teacher in Qatar compared to teaching in Canada?

The short answer to this question is: My wife and I saved 4x what we would have saved annually in Canada.

Why the indirect answer?  It’s a bit difficult to compare salaries between North American-style teaching contracts, and the majority of those at international schools.

Most schools in Qatar (and most of the schools in the Middle East or Asia) will not only pay you a salary, but also take care of your housing needs and insurance plans, pay for a round-trip flight home each year, give your children free tuition at excellent schools, and usually some sort of year-end bonus and/or an end-of-contract bonus.  

So overall, depending on the exchange rate (we get paid in Qatari Riyals – which are pegged to the US Dollar) we make roughly the same on paper as we did in Canada: roughly $90,000 CAD.  However, we have no deductions (like… literally $0, our first pay stubs shocked us) on our paycheques AND we pay nothing for housing or utilities.  We don’t have children, but many of our colleagues’ children attend schools where the annual tuition would be $30,000+.  All told, I would think our entire net compensation package would be at least 50% larger than at home.  When you consider expenses like home maintenance, house insurance, land tax – or alternatively, rent payments – you come out pretty far ahead. 


3) Wow, at $90,000 CAD/year combined with no taxes, that is the equivalent of a $120,000 pre-tax salary! Plus, they pay for your rent and utilities, so that’s another $20,000/year. So, with a move to Qatar, you’ve essentially given yourselves a raise to the equivalent of a $140,000 combined pre-tax salary! So, you’re right, it’s like getting a 50%+ raise!

Are you really paying ZERO taxes? How does that work?

When I say there are no deductions on our paycheques – I mean that quite literally.  There is no income tax in places like Qatar, the UAE, Bahrain, Kuwait, Saudi Arabia or Bermuda.  Many other international schools are located in ultra-low tax jurisdictions like Singapore or Hong Kong.  We also don’t pay any union dues (which my wife and I were paying a combined $4,000+ toward each year) and our insurance payments don’t come out of our salary.  Now, we don’t make pension contributions either, but that is a double-edge sword as there is no “pension match” or anything like that either.  (The end-of-contract bonus is often pointed to as the replacement.)

The hidden difference-maker when it comes to FIRE for Canadian expats though, is the fact that your investment portfolio basically becomes one big TFSA if you live in a country with either a territorial tax policy or no investment taxes of any kind.  What does a territorial tax code look like you might ask?  

The basic idea is that a country only taxes the investments made within the country itself.  For example, if you own shares in a local company, you would pay tax on the company’s profits, but you would NOT pay tax on any shares of Canadian, American, or European companies purchased on the usual stock exchanges.  Nor would you owe taxes to your new country’s territorial-taxing government from broad ETFs listed on those same stock exchanges (generally speaking).  Now, you may owe withholding taxes levied by the governments in which your investments are based.  Usually withholding taxes are only applied to dividend payments, but there are some case-specific details involving international tax treaties that you’ll need to look up for each country.

All that to say: In places like Qatar, the UAE, Bermuda, Singapore, etc., your investment portfolio can grow essentially tax free.


4) How do you invest abroad as an expat?

This is where the real beauty of the options available to Canadian expats kicks in.  While Canada taxes dividends paid to non-residents to the tune of a 25% withholding tax, it doesn’t have similar taxes in place when it comes to capital gains.

Consequently, if there was a product available that magically turned dividend payments into tax-free capital gains – that would be pretty sweet for expats, right?

It turns out that the Horizons swap-based family of ETFs does exactly that.  

We use our Canadian discount brokerage account to buy ETFs such as HXT and HXS.  These ETFs are unique in that they don’t actually own the underlying equities in the ETFs.  What they essentially do is extract a promise from a partner to trade them the equivalent of the total gains in that particular market.  So if the TSX 60 index goes up by 7.5% and the average dividend of the component companies is 2.5%, then HXT would trade assets in order to record a 10% capital gain – thus accomplishing a really nice tax reduction for an expat investor.


5) Did you have to pay departure taxes when you gave up your Canadian residency?

My wife and I had to pay a fairly small amount of departure taxes when we chose to become non-residents of Canada.  Basically, departure tax is applied to areas where there would be a capital gain if you were to sell the asset.  (It is a bit more complicated than this, but that’s the idea.)  So, for example, our investments in our RRSP and TFSA, as well as our Teacher pensions, were not taxed upon our departure.  We did not own rental housing, so we didn’t have to worry about a capital gain there either.  We did owe some tax on our non-registered portfolio, but considering that we only earned an income in Canada for six months in the year that we became non-residents (and that capital gains are only taxed at 50% of someone’s marginal tax rate) the tax hit was quite manageable.

Now, clearly if you had a substantial non-registered portfolio and/or rental properties that had escalated in value, this tax hit would have to factor more heavily into your calculations.


6) Do you ever plan to come back to Canada and become a resident again? If so, how does that affect your taxes?

It’s tough to say at this point if we will decide to become residents in Canada again.  We certainly have no immediate plans to do so.  As Canadian Citizens we have the luxury/privileged option to visit Canada whenever we wish, so we can still see friends and family during the beautiful Canadian summer.  We’re keeping a close eye on what tax changes are proposed in the next few years before making any lifelong decisions, for sure.  I have a sneaking suspicion that capital gains taxes are going to go up, and if they make additional changes beyond that it would certainly be a major factor in our decision.

There are always two separate categories to think about when it comes to taxes and changing residency.  The first category is the country you’re moving from, the second category is the country you’re moving to.  The country you’re moving from may wish to charge you some version of a departure tax if they are not a no-tax or territorial tax jurisdiction.  In our personal case, Qatar is not interested in taxing our investments upon leaving.

When it comes to the Canadian tax code, if you failed to sever your residency properly (please check out the free eBook I wrote that goes into detail on topics like this) then you’re going to have problems throughout your time abroad – but they might only realize this when you return home.  (Not a nice welcome back gift to receive!)  As long as you fully severed your residential ties however, you’re in the clear when it comes to moving back home.

You will NOT pay taxes on money earned abroad if you move back to Canada – as long as you declared yourself a non-resident and severed your residential ties correctly.


7) What does your family think about your plan to teach in Qatar?

At first our families had the usual Western reflexive reaction when the Middle East was mentioned, but upon actually learning more about Qatar (and finding out how safe the country is) they were much more relaxed.  By the time we left, I think they were very excited on our behalf about the opportunity to explore an entirely different part of the world.


8) Do you feel any culture shock from moving to Qatar? Anything we should know about in terms of the customs and culture that will take some getting used to?

I think if someone had not done any research at all before moving to the country there might be a few things that would catch them by surprise.  But I mean, if you spend an hour on Google, you’ll learn the basics pretty quick.  If you take a second to consider that you’re moving to a predominantly Muslim country, most of it is common sense.  

Truthfully, I was quite surprised by just how “Western” our new country seemed at times.  When you can go to the Cheesecake Factory for supper and then shop next door at Ikea, it feels pretty familiar! 


9) How long would it have taken you to reach FI by staying in Canada versus teaching abroad?

There are a few variables such as investment returns that make it impossible to know the answer to this with 100% certainty.  To put it in Kristy Shen terms – it makes it difficult to “Math Shit Up”.  I would say it probably shaved 5-8 years off of our quest for “Side FI”.  (My wife and I are probably going to work online 10ish hours per week for the foreseeable future just to stay busy and fund a little more “cherry on top” in life.)

Now, the more relevant question might be, if we had gone international right from Day 1 of our teaching careers, what would our FI quest have looked like?  Again, there are a lot of variables there, but I think it’s safe to say that for the average Canadian teacher – who spends years working part-time contracts or substitute teaching at the beginning of their career (and then pays thousands of dollars per year in union dues, taxes, and long-term disability) – you could reach FI much, much faster in an international setting.  Like 10-15 years faster.  If you embrace extra income opportunities like tutoring and/or are married to another teacher, the difference could be even more drastic than that.  The $0 in housing/utilities costs (which not all international schools offer, but many do) can really add up fast for a young couple.

Most Canadian teachers reach FI by working until 55 and then enjoying a well-earned pension.  If you go the international route, you’ll likely need somewhere in the neighborhood of a $1.25M portfolio to secure the equivalent of an 55-year-old teacher retiree pension – but that portfolio would be a much more flexible asset going forward.

If you can avoid lifestyle inflation, taking an expat gig allows you to stack advantages like little-to-no housing/utilities costs, very little investment taxes, deduction-free paycheques, and generous bonuses, in order to hit FI at a much quicker pace.


10) What advice do you have for others who want to fast track their time to FI with international teaching jobs?

If you happen to be in a profession where expat opportunities exist, such as education, medicine, law, or finance, going the expat route is certainly a fast track to FI.  That said, it’s only a fast track if you can stay away from the free-spending “expat-itis” lifestyle that is so prominent in many of these low-tax countries.  I’ve heard countless accounts of teachers living paycheque to paycheque despite the earnings advantages that I’ve listed.  It doesn’t really matter how investments are taxed if you can’t save any money to begin building your nest egg!

Obviously these opportunities exist at any age, but I really think the advantages compound if you’re a young person just exiting university.

***

Thanks, Kyle, for telling us about your experience using ExpatFIRE as cheat code to FI! If anyone wants to find out more about Kyle and read his e-book on how to use ExpatFIRE to your benefit, download it for free here. Honestly, I read this book before it was published and it’s such a valuable resource I can’t believe Kyle’s giving it away for free! You can’t afford not to get it.

What do you think? Would you ever use this “cheat code” to get to FI faster? Have you ever worked overseas and saved on taxes?


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39 thoughts on “The Cheat Code to Financial Independence”

  1. Nice story. Very well done ! Given the very poor conditions of our school system here in Canada, going to another country where children really want to learn seems like a no-brainer.

    On another note : I would take the 1.25M$ portfolio anytime compared to a 55 yo fixed-pension !

    People underestimate the effect inflation on a fixed-pension. A 40K$ pension becomes only 25K$ annually after 25 years (80 yo) if real interest rate are at minus -2% (real interest = nominal interest – inflation). The 40K$ pension does not decrease in $ received (nominally), but in the amount of stuff you can buy with it (purchasing power).

    And that get even worse if we have periods with inflation at 3-5% with interest rates at 0% … !

    1. Hi Manuel,

      Thanks for the kind words! You know, when it comes to the teaching side of things, I think kids are kids everywhere. I generally cut teenagers a lot of slack. It’s the adults in the school system that really get to me.

      Just a quick note on the pensions. Teacher pensions are generally partially indexed to inflation. It depends on the specific province, but I know that Manitoba’s was 2/3rds the CPI. So that’s pretty nice.

      1. Thanks for your answer. And happy to hear you have had mostly good students in both places !

        On the pensions, we also have to take into consideration that there are complex rules to indexation, like cap rates and conditional indexation and also that rules can be changed by the sponsor of the plan at any time in the future.
        And since there is no way to “opt out” of a plan once you are in, this is a pretty bad situation to be in.
        On my own experience, I’ve been inside two different pension plans. Both of them have changed the rules – in a negative way – while I was employed. I’ve withdraw the money from both – through resignation – and I manage the funds myself today.

        I think indexation is more of a “marketing tool” than a real protection against inflation.

        The reality is that if there is really high inflation for a sustained period of time and that the investments inside the plan can’t keep up with it, or that the funds incur severe losses, there is always a possibility that the benefits are cuts at some point in the future or that you lose purchasing power over time.

        I don’t think pensions are a good tool to “build wealth”, with high indexation rate for example. They are mainly designed to provide a “adequate income” for a very long period of time, given than they still have the funds to do so.

        If I have the choice between managing my investments myself or be reliant on someone else to do it for me, I choose the first option without any hesitation ! 😉

  2. Working in finance in the Cayman Islands at the moment , couldn’t agree more.
    – Higher salary than US / Canada positions,
    – no tax income or disposals of investments
    – very relaxed work atmosphere and hours
    – direct flights to Toronto and major is hubs in under 4 hours to visit home regularly
    – ability to live a great life without spending money if the ocean / sport etc are your thing
    – first world amenities
    – no major culture shock, loads of friendly expats to make friends with

    If you’re in finance, it’s basically FI on easy mode

    1. hey “cayman expat”

      very nice to her about Cayman’s work culture and benefits. I am a Canadian CPA (Chartered Professional Accountants of Canada) and looking for similar opportunities that you mentioned and Cayman sounds too good to miss. Is there any way you can help me or guide me to get a job there.

  3. So this story is bang on from. I immigrated from Bahrain to Canada about 23 yrs ago. My parents were expats in Bahrain from India for over 25 yrs and I was born there.

    My parents were essentially given a 2 year work permit that was renewed every 2 years. There was always the risk that they pulled your work visa for any reason.

    My professionally educated parents didn’t experience this story with everything taken care of but thier high school educated bosses did who were Caucasian. Sorry to bring it to this.

    I’d love to go back to Bahrain. It was an awesome childhood.

    What I’d like to ask the FIRE community is if anyone other than a Caucasian would have the same experience as this story if you went to work in the Middle East?

  4. I notice it’s not mentioned anywhere in this interview that most of the countries listed have appalling human rights records. Personally I can’t say I’m in such a hurry to achieve FI that I want to support a regime that uses slave labour.

    1. There’s definitely a reason why you’ll meet countless South Asians and Filipinos/Filipinas who leave the Middle East for Canada.

      You definitely get a different experience if you’re Caucasian.

      For a short period (1 to 3 years), it may make economic sense to boost your portfolio with Middle Eastern opportunities – especially if you don’t have kids. However, long term, if you’re non-Caucasian, probably not the greatest lifestyle. $ isn’t everything.

    2. Well said Shaun. Sure you may reach FI faster, but at what cost? And for me, independence doesn’t just mean financial, I prefer to live in a country with our Western values and freedoms. If that comes with a price-tag called taxes, that’s fine by me. But that’s personal of course. Plus the heat in places like Qatar… But if you love to live in the UAE for example and feel at home there, why not.

  5. You can never escape Canadian taxes. Where are you holding your earnings? In a Canadian brokerage account?
    There Could be some nasty surprises coming up. If you have a large balance in your Canadian brokerage account, are Canadian citizens despite being non residents then you still could be considered a deemed resident of Canada by CRA when and if you decide to move back to Canada .
    You never obtained PR/ citizenship of the other country you were resident of so the CRA could say your intention was always returning to Canada. Although it’s impossible to obtain PR of superstitious fundamentalist Qatar.

    Anyway , morally and ethically, if you want to benefit and take advantage of Canada and it’s social and health programs , what problem do you have with helping to pay for them through taxes? Everyone else has to, why are you so special?

    1. Yes you can. If they have properly planned their departure, like it seems they did, they won’t be liable for Canadian taxes after their departure (except for non-resident witholding taxes).

      https://www.cpacanada.ca/en/news/canada/2021-05-31-departure-tax

      Since they are not living in Canada, they are not entitled to any benefits (retirement, healthcare, education, unemployment, COVID aid, etc.). That apply for the entirety of their stay abroad as “non-residents”.

  6. My expat teacher etc colleagues and former ones are in similar gigs around Asia , Switzerland, … and the middle east doing various versions of the above blog following the Millionaire Expat book,s formula by Andrew Hallam…. helped me become FI in several years by my early 40,s…I have lived in Asia virtually for free or low cost and have travelled the world….

  7. This strategy only works if you do not hold American citizenship. As an American citizen you are required to report your worldwide income. Because these countries in the Middle East don’t tax your income, it will be subject to US tax. You can certainly negotiate a higher salary to offset the taxes (and many corporations in the Middle East expect their American hires to do so) but it can still complicate things from a tax perspective.

    1. That’s true. But as an American, you also pay much less taxes than in other countries. In Canada, income taxes are insanely high, even for low income earners (below 40K$). For high income earners (above 100K$), you are litterally volunteering of the Canadian governement…

      1. “if you make less than $84,200 [US] and do not own a home, you will most likely pay less tax north of the border [in Canada than in US].” (Investopedia)

        1. Do you have the link ? I would be interested in reading more about what they say.

          Marginal rates in US below 84 200$ are 22%. Lowest rate is 10%.
          State income taxes are between 0% and 10%, except for California that is higher.
          So you pay anywhere between 10% to 32% depending on your income / location.

          Marginal rates in Canada below 105 250$ are 20.5%. Lowest rate is 15%.
          Provincial income taxes are between 9% and 17% (for income close to 105 250$). Lowest rates are between 5% and 11%.
          For a total tax rate anywhere between 20% to 37.5%.

          So, it’s very hard to pay less taxes in Canada if you make under 105 250$CAD compared to the US.

          Houses have to be taken into account. If you “cherry-pick” particular situations, you can always find some situations that will be better in one places when the opposite is true for the rest of the population.

            1. Ok. That’s an interesting article. However, I don’t know how they can come to the conclusion that taxes are lower in Canada for people earning below 84 200$US.
              I think this can only be possible if we take only the federal taxes into consideration, which would obviously be wrong because a lot more taxes are collected at the provincial level in Canada.

              But I agree with their conclusion :
              “The Bottom Line
              Comparing income taxes in the United States and Canada requires an analysis of the benefits received for those taxes and any other out-of-pocket costs outside of taxes. Along with many other factors, each taxpayer’s individual situation can help determine whether they would be financially better off in one country or the other.”

      1. I believe this is only the case if that income is already taxed. I am not sure it applies if the income isn’t taxed in the foreign country in question, but I would be happy to be corrected.

        Also, it’s important to note that other benefits (accommodations, education, home leave, etc) also count as earned income according to the IRS.

  8. Hello, I have a question regarding inheritance money. What do you recommend I should invest inherited money in the form of cash? I’m confused of what to do with it because from what I understand, inheritance money can’t be invested in IRAs. Would love to hear your thoughts. Thank you so much.

  9. Kyleeeeee! Knew it was you from the intro once I read “Qatar”. Glad to see you over here sharing your story 🙂 This is definitely a route to FI that I’ll be telling our kiddos about someday

  10. Statistically, 99% of the people who leave the comfort of highly developed countries such as the United States and Canada to work for foreign employers (less developed countries) will fail to achieve Financial Independence for the following reasons…

    1. The novelty of the foreign-exotic will wear out within a year
    2. You will miss the family and friends or social niches you have accustomed
    overtime.
    3. You will miss the conveniences you have taken for granted. The feeling is similar
    to the first time you left the security and comfort of your parents
    4. A job will always be a laborious job anywhere in the world if you don’t enjoy the
    work

    It is so much easier to design a FIRE game plan the United States or Canada as there is so much money to be earned here at home

    Statistically, most games are won on home turf!!!

    1. I think this is a fair point. It wouldn’t be for me. But most people don’t reach early FI whether they’re in their home country or not. So we’re talking about a motivated subset of the population here.

    2. I think it’s fair to say there are many different paths to FI TE.

      Care to share where you got this statistic on expats from?

      I can tell you I live in a community of hundreds of expats in the education niche – almost all of whom have been here for 3+ years and find it more than worth the tradeoffs.

      Definitely not for everyone though – and you really have to watch that “Keeping up with the expat Jonses” mentality.

      1. Sure…

        The statistic is derived from deduction!

        In any population there is a clear line that separates the 1% from the 99%.

        The 1Percenters is blessed with the genetics endowment along with the optimal environment that clearly defined their lifelong path right at puberty.

        The 99Percenters were confused and distracted at the same time frame!

        As the 99Percenters grow up and caught the shiny object from the distance (oversea) and made a mad dash over without realizing that he/she is leaving behind the “Optimal Environment”.

        An optimal environment is packed with cultures and laws that in most cases enhance the natives with capability to compete with the outsiders.

        I may have been generous with the statistic that 99% of the 99Percenters will fail oversea competition!

        Please don’t encourage the next generation of young adults to teach English, Blog or Youtube in a foreign lands to scale the FIRE Himalaya (unless he/she truly enjoys teach, blogs and vblogs).

  11. I’d also recommend Andrew Hallam’s ‘Millionaire Expat’ for any expats. Kind of like ‘the simple path to wealth’ but for an international audience.

    Whilst I think there can be huge financial benefits to being an expat (if you choose a country with a favorable tax regime), its the lifestyle / cultural benefits that are much more valuable. You really can’t put a price on those.

  12. I spent a year in Saudi Arabia on a US military deployment in Riyadh. Work was 100% administrative, the opposite of my previous deployments to Iraq and Afghanistan. The Saudi government spared no expense, and it was an exotic time for me. Private villa, SUV, free gas, travel around the Middle East, and still saved a lot of money towards FI. I met so many expats from Europe and the United States who lived in these beautiful gated compounds. I also know it was not the same experience if you were a worker from India, Pakistan and The Philippines, it was much harder for them.

  13. “(Beirut, March 29, 2021) – Qatar’s discriminatory male guardianship system denies women the right to make many key decisions about their lives, Human Rights Watch said in a report released today.”

    Yeah, Qatar is hard for women.

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