We Americans have it relatively easy when it comes to moving money in and out of our accounts.
You can wire $150,000 to Belize for the purchase of a beach house or receive $200,000 from the sale of a home in Mexico without anyone asking you to explain where the money came from.
That’s not the case in the rest of the world, and restrictions on currency movements are becoming more common. Virtually all banks everywhere now ask for proof of the source of funds for large transfers and increasingly even for small ones. If you’re buying or selling real estate, a copy of the sales contract generally satisfies the inquiry.
Additional hoops must be jumped through in countries that impose capital and/or exchange restrictions to control the flow of money coming and going.
This is the case in Brazil and Colombia, for example. It’s not that you can’t send investment dollars into these two countries. It’s that you must be careful when doing so to register the incoming funds properly. Failure to comply with the required protocols and paperwork risks complications and potentially unnecessary taxes when you eventually want to repatriate the capital and any associated investment return.
In the case of Belize, you’ll have no problem sending money into the country. Belize does not impose exchange controls, per se. However, the Central Bank of Belize has only so many U.S. dollars at its disposal at any given time. When you decide you would like to send dollars out of the country, you must make a request for an outbound transfer and hope enough currency is available to fulfill it. If not, you wait in line.
Ecuador’s capital-flow policies are liberal, as the country uses the U.S. dollar as its currency, and you’ll have no problem bringing money across this border, neither coming nor going. When you want to transfer money out of the country, however, you’ll face a 5% capital outflow tax. Called the “Impuesto a la Salida de Divisas” (ISD), Ecuador imposes it on all outbound transfers that exceed three times the minimum wage (that is, $1,158 for 2018).
These controls may seem intimidating, and, yes, Ecuador’s capital outflow tax isn’t very investor-friendly. However, none of these kinds of currency-related restrictions is a reason not to think about spending time or money in a country imposing them.
In practice, the restrictions are not difficult to navigate. In every case, it’s simply a bureaucratic process. The key is to understand the rules, which differ country to country, and to be careful following them. When in doubt, consult a local attorney.
For Day-to-Day Cash, Use Your ATM Card
If you’re traveling to a foreign country and even if you’re intending to stick around a while, as a part-time retiree or expat, you can keep things low key by using your ATM card to access cash as you need it. This is an effective strategy even in countries that impose capital or exchange controls. It can also be efficient, as ATM exchange rates are typically better than those you’d get exchanging your base currency at a bank.
For more flexibility, consider a prepaid Visa or Mastercard. You fund the prepaid card at home, then use it for purchases (large and small) in the foreign country.
Another option is a simple bank transfer. However, wire fees today can be as much as $35 or more, and you can incur them both from the sending bank and the receiving one.
For frequent or large transfers, you need a different strategy.
The Benefits of Working With a Transfer Agency
The most efficient way to manage large or recurrent money movements can be via a transfer agency. This usually results in a better exchange rate and lower fees compared with a standard bank transfer.
The rates are good because often the agency doesn’t really transfer the money. An agency will have (for example) a pile of money in the United States and a pile in Brazil. When you make your transfer request, they add your dollars to the pile in the States and disburse your Brazilian currency from the pile in Brazil. For Brazilian clients buying dollars, they do the reverse.
How should you pick among all the money transfer agencies operating? Consider these five things:
- Transfers are generally most efficient and less expensive when the money transfer service has a physical presence in both your sending and receiving countries.
- Confirm that the agency will be exchanging your originating currency with your target currency without exchanging first to an intermediate currency. Using an intermediate currency greatly increases the cost of an exchange.
- Some agencies work better for large transfers, some are better for small transfers, and some are best for recurring transfers. Take time to do some online comparison shopping focusing on the specific types of transfers you’ll be making.
- Some companies quote a good exchange rate but then charge a fee on top. Some charge no fee but then give you a lousy exchange rate. Evaluate your options based on your specific needs, and get a quote before committing.
- Ask if the agency allows you to “lock in” a rate. Some let you lock in an exchange rate for later use. So you can buy, say, euros when the dollar is strong, even though you won’t be actually transferring the funds to Europe until sometime in the future.
A few companies also make it possible to place a “limit order.” This allows you to place a standing order at a given exchange rate. The order is executed when (if) that rate is struck.
View Original Post