Tax and Expatriates
- Because of the complexity of the rules relating to the taxation of expatriates, this section is not seeking to give specific advice, but to create awareness of possible scenarios that might be unknown to you.
- We would recommend that you seek professional advice when it comes to filing your tax return. It is important to find a professional, who is able to recognise and act upon the advantages of your expatriate situation.
Most of us have an instinctive aversion to tax returns and anything tax-related.
Well, you should change that attitude! Many expats have a very good reason to change their attitude towards tax authorities, and start thinking of their tax situation not as a problem, but as an opportunity. Of all those falling within the tax net, expatriates probably have the greatest scope for planning their affairs to pay the least amount of tax. Some tax treaties or conventions between countries entitle residents of some countries to certain credits, deductions, exemptions and reduced foreign tax rates. This is a way to pay less tax to these host countries.
In case your first question is, “Is it possible to be a tax resident in two countries at the same time?” The answer is, " Yes". Also, it might be possible to NOT be tax resident anywhere, but it is unlikely it will ever happen to you.
When you are tax resident in two countries a measure of relief is usually available against double taxation through agreement between countries.
Expats, despite still being subjects to their home country tax, may also have certain income tax benefits if they meet certain requirements while living abroad. Make sure to know what are the requirements prior leaving your home country.
You may be able to exclude from your income a limited amount of your foreign earned income. You also may be able either to exclude or to deduct from gross income your housing amount. To claim these benefits, you must file a tax return in your home country. There are a number of tax agreements that may affect the taxes of an expatriate. Some of these are host country specific, so you should always check the tax status based on the country you live in. You may be able to claim a tax credit or an itemized deduction for the foreign income taxes that you pay. Also, under tax treaties or conventions that your home country has with foreign countries, you may be able to reduce your foreign tax liability.
What Can You Do?
The first step is to make sure your home country has a Double Taxation Treaty with the country of your residence. Each treaty is different (also these agreements are being updated constantly), so be careful not to take anything for granted, and seek out an expert, who understands the implications to you. When your tax affairs straddle two countries, things can get rather complicated so it is important to plan your affairs in advance.
Step number two is planning. Planning may involve the timing of:
- your departure from, or arrival in your home country or new assignment (TIP : it can happen that relocating to a new country coincides with a relocation lump sum paid to you by your employer. Arriving at year end might be a way of avoiding a year salary surge to an impossible amount along with the taxes to pay on it).
- the timing of sale of assets
Step number three, review the situation of your spouse and what kind of tax responsibility your partner has in the new country.
- Buzzacott Livingstone Ltd
One of the leading independent specialists in expatriate tax and