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Taxation is a hugely important factor to consider when moving abroad. In most cases it is worth taking professional advice on tax matters, especially in countries where taxation is complicated or where there is little guidance available in English. Without the right advice, you may find yourself paying more - sometimes much more - than you need to.

Some people who move abroad do so for tax reasons. These range from wealthy people who find that much of their income is being taken up by various taxes in their home country, to those who have a much lower income but who are looking to find a better quality of life for what they can afford. For example, some expats find that a low income in their home country is not enough for them to be able to afford a home of their own so they look to property markets abroad instead.

You may wish to begin by taking the income tax rate into account when considering a move to a particular country, or when working out your monthly income if you have alreeady decided to make the move. Find out if you will be liable for income tax in your new country and at what rate. In most cases, you have to pay tax if you are living and working in the country for a specified minimum number of days in a tax year. Conversely, you will usually only have to pay tax in your country of origin if you reside in that country for a minimum number of days in the tax year. Make sure that you keep a record of all your relocation expenses, as some of these may be deductible against tax.

Some countries, such as Belgium, have very high tax rates which can amount to almost 50% of monthly salaries. On the other hand, some expatriates benefit considerably from living in a tax-free country or specified zone, or one where the foreign workers of overseas-owned companies are exempt from tax, such as Saudi Arabia. If you fall into this category you should still check your liability for tax in your home country. Find out if you are required to file an annual tax return in your home country while living abroad. US nationals, for example, have to file a tax return in April every year, regardless of their employment status or geographical location, unless specific arrangements have been made for an extension.

Most countries have some form of progressive tax system after a tax free allowance, but there are often special rules and rates which apply to the income of foreign nationals. Check the website of the Inland Revenue Department in your new country for specific information on the current rules. It is important to establish whether you will be taxed on all of your income, or just the income earned locally. Find out whether your employer will be dealing with your tax return or whether you have to submit it yourself, and if so what the deadline and paperwork requirements are.

If there is a double taxation agreement between your home country and host country you will only be taxed once on your income, but you will need to notify the relevant tax departments and deal with the necessary paperwork.

Investigate what other taxes and charges are imposed on residents in your destination country, such as property taxes and Value Added Tax. Be aware that some countries add service charges and government taxes to restaurant and hotel bills; these may increase the price by as much as 20%.

Double Taxation Agreements

Double taxation agreements are designed to protect people or businesses from paying tax in two different countries on the same income. Double taxation treaties are drawn up to protect the rights of the governments involved and allow for information to be exchanged between the two countries involved if a tax information exchange agreement is in place.

A double taxation agreement will protect, for example, a person in receipt of a state pension from their country of origin. The country that issues the pension has the right to tax it but the country that you are living in has the right to tax you on any income that you receive while you are there. The agreement is put in place to confirm which state you will pay tax to while you are receiving the money in question.

Some employees may be subject to a double contribution agreement which allows a company to send a worker to another country for a period of time but continue to pay the taxes and social security contributions of the home country.

In order to find out if your country has similar agreements in place with the country you plan to move the best course of action is usually to contact your local tax office or professional tax adviser.

Expat Tax Breaks

Popular expat destinations such as some countries in the Middle East provide options for paying less or even no tax. In fact, many workers who go to the Middle East do so because of the tax breaks. They often enjoy a good standard of living while earning a salary equal to or higher than the one they earned in their home country while being able to save more of their disposable income.

Hong Kong is another example of a country attractive to those who wish to pay less tax, as those with families actually take home around 91% of their salary due to the country’s special allowances for those who are married and have children.

Those who wish to live in Europe will find that Ireland has similar tax breaks for families and those who are married. In France, the more children you have, the less tax you pay (though the limit is capped at six and the general level of taxation in France is high).

Of course there are a number of countries which have very high income tax rates, examples being Belgium, Finland and Germany to name but a few. As always, the key is to take taxation into account whichever country you wish to live in to ensure you can afford the standard of living you desire.

A word of caution - there have always been some who believe that by moving abroad and using an offshore bank they can hide money from tax authorities. However, expats should be aware that most offshore banks now have procedures (put in place to combat money laundering and tax evasion) for sharing information with governmental departments.

Capital Gains Tax

Capital Gains Tax is variable between countries and if you have only been away from your country of origin for a short time and then decide to sell a property that you purchased there before you moved, you may find that you are still liable for taxes on that sale. Speak to a professional tax adviser to clarify the situation.

Inheritance Tax

Inheritance tax can be complicated if you own assets in more than one country when you die and without a will your beneficiaries may find that inheritance tax is payable in more than one country.

A properly drawn up will can determine which country’s regulations will be used when determining inheritance tax. Most countries will apply the law of the country of domicile, which is usually where you were born (the actual laws regarding domicile are more complicated but this is normally true for most people). Even if you are a long term resident of another country it may be considered that you have retained the domicile of your country of origin and therefore should you inherit you would be bound by the regulations of that country. For example, a UK national living in Spain is likely to be bound by UK regulations when it comes to inheritance tax.

You can take on domicile of another country and how you go about this depends where you are coming from and going to. For example, a UK resident moving to another country needs to be away for a minimum of three years before they can apply to have their domicile status removed, but will also need to be able to prove that they have no intention of moving back. They would then need to apply for domicile status in their new country. Once you have domicile status of another country you are then bound by the regulations of that country and any inheritance taxes that you have to pay are usually determined by the amount that you have inherited.

UK Taxation Notes

Case Study: Staying non-UK resident

“I am British and I have been living in Nigeria for the last 4 years and have returned temporarily to UK. I am due to take up a new post in Angola, but on rotation. My home base is the UK, can I claim UK non-residence so the company can pay me without deducting PAYE if I intend to spend less than 90 days per year?”

4 or 5 years ago this expat would have been fine, provided that they met the 90 day rule and the other normal conditions of UK non-residence. However the rules have been slowly tightened by the courts in recent years.

Relevant extracts from the main HMRC manual HMRC6 published 2010 to consider:

1.5.13 Non-resident

If you do not meet the requirements to be resident in the UK for Income and Capital Gains Tax purposes, you will be ‘non-resident’. If you are not resident in the UK you might not have to pay UK tax on some of your income and gains.
If your normal home is outside the UK and you are in the UK for fewer than
183 days in the tax year you may be non-resident. But you might still be resident even if you spend fewer than 183 days in a tax year in the UK (see 1.5.22). Being resident in the UK is not simply a question of the number of days you spend in the country.


If you have been resident and ordinarily resident in the UK, the act of leaving the UK to go abroad does not mean that you will automatically become non-resident and/or not ordinarily resident. After you leave the country, your UK residence and ordinary residence position will be affected by a number of factors which include:

• the reason you have left the UK (for example to work or live abroad permanently)

• what visits you make to the UK after you have left

• what connections you keep in the UK such as family, property, business and social connections.

If you normally live in the UK and go abroad for short periods – for example on holidays and business trips – you will continue to be resident here.

Case Study: Ceasing to pay UK income tax

“I am UK resident and thinking about taking a job in Manila. I am worried about having to pay UK tax as the contract is only for 2 years.”

If someone goes to work abroad full time for more than a complete tax year, they can cease to be UK resident. The Manila employment income in this case should avoid UK income tax, provided that the tax year test and a few other tests are met. It is important to investigate the possibility of a departure UK tax refund (the “split year tax return”) in cases like this - it is often worth hundreds of pounds

US Taxation Notes

Many people who move overseas for a new job or to retire may be under the impression that they are no longer responsible for filing American income taxes. It’s a (somewhat) reasonable assumption. There are 194 countries in the world, but only two of them require that their citizens declare income from anywhere world-wide (citizenship-based taxation), rather than just paying taxes on income where it is earned. And, you guessed it, the United States is one (Libya is the other, but even that could change with their political situation).

Simply put, Americans must continue to file tax forms no matter where they reside in the world. The main exception to this would be if their income is below the statutory amounts required to file, which is basically the standard deduction amount plus one exemption, $9,350 for 2010. Even this income level could require filing a return if the taxpayer has stock sales (even at a loss, since the gross amount received would all be considered profit until filing a Schedule D); has self-employment income (self-employment taxes required for a profit of $400 or more), or some other circumstances.

Also, the IRS has in recent years added more forms that are required by residents overseas, many of which most expats may not be aware of. In some cases, these include forms that have been on the books for years, but have only recently been enforced by the IRS. So here is a list of requirements to keep in mind:

1. Not a “form “ per se, but one requirement is that US tax laws apply to US citizens, but also to dual citizens and to green-card holders. In the case of dual citizens, there may be cases where they were born to one American parent and one foreign parent, may have never obtained a US passport or even set foot in the US, but their citizenship does require them to file US tax forms. [This is not the same thing as saying they will have to pay US taxes, but it does create a duty to file the forms.]

2. You do have to file a 1040 tax return, and include Form 2555, to exclude income earned overseas. There are certain requirements to be met, and limitations of amounts that can be excluded, but this exclusion is not “automatic” just because you are working overseas. This may mean filing many back returns, which could end up owing no taxes, but the IRS does reserve the right to deny the Foreign Earned Income Exclusion if it is not filed on a “timely” basis. Basically, you have to comply with the rules before they come looking for you, and it is better to file back returns to keep yourself in compliance.

If you are self-employed, you will still owe self-employment taxes on your net profit, just not regular income taxes to the US, again calculated through the Form 2555.

3. Americans with financial accounts overseas may have to file the Foreign Bank Account Report (Form TDF 90-22.1) if they have any account (bank, securities, annuities, currency accounts, etc.) valued at $10,000 in the aggregate of all accounts, using highest value at any time during the year. This is for any account over which you have ‘signatory power’, including a corporate account, signing as an officer of a charity, joint accounts even with a non-US citizen, plus all personal accounts. This is a form separate from the tax return, is due by June 30th each year with no extensions for time, and is sent to a Detroit address. There is also a box on Schedule B, Interest and Dividends, which should be checked, and the country for the account(s) listed. If you have an account under $10,000, you are only required to check the box but not file the FBAR.

4. Do you have an interest in a foreign business, such as a partnership or foreign corporation? There is Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, that is required to be filed with your tax return. This is a complicated form, taking a foreign entity, often with a different currency and a different set of accounting rules, and putting it into American corporate return requirements. There is a possible $10,000 fine for not submitting these forms.

5. If you hold property in the form of a trust, Form 3520 is for reporting activities related to the trust.

6. The IRS has added a new form this year, Form 8938, Statement of Specified Foreign Financial Assets. A total value of foreign assets as low as $50,000 can trigger the requirement to file this form, if not already covered by other forms mentioned above.

As you can see, there may be more requirements than just a Form 1040 Tax Return. If you have recently moved overseas, you may owe a state tax return to your former home for the part of the year you lived there. Living outside the U.S. does allow you an automatic extension until June 15th to file your tax forms, but only if you do not owe any money. A formal extension (lasting until October 15th) and any money owed must be submitted by April 15th, or the clock will start running on interest charges.

Complying with American tax requirements as an expatriate can be a complicated business, and it is highly recommended that you seek professional help to make sure you are submitting all forms required by those living overseas.

Social Security

If your destination country has a social security system you may be required to contribute to this if you are employed or self-employed. Some countries will also require you to hold a private medical insurance policy as a condition of entry, so allow for the cost of the insurance premiums.

If you are going to be working and paying taxes in a country that has a social security system, you may be eligible to receive state benefits such as free medical care, unemployment benefits or child allowances. In general, EU nationals moving to another EU country are eligible for benefits in the new country if they have paid sufficient contributions in their country of origin (although there are currently restrictions applying to the new Eastern European EU countries and their nationals), and there are also many bi-lateral social security agreements between countries which mean that social security contributions made in one can count towards pensions or other benefits in the other.

In many countries that have social security schemes, employers deduct their employees’ social security contributions directly from their salaries, while the self-employed are required to pay their contributions to an organisation that operates the scheme.

In some countries, however, you may be excluded from the social security system as a foreign national and will need to consider taking out personal insurance against risks to your livelihood while also ensuring that you have sufficient savings for the future.


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