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Harvey Jones
23.01.2019

Do you still have tax responsibilities back home?

You may feel like a freewheeling internationally mobile expat but the tax authorities back home are likely to take a rather less romantic view of your status. Even if you are living, working and resident overseas, or based in a tax-free jurisdiction such as Dubai, you may still face regular tax demands from your home country.

The good news is that with careful planning, you can limit the damage and reduce the danger of a shock tax bill or hefty financial penalties.

One of the easiest ways of doing this is to hold shares, funds and other investments in an offshore account based in a reputable and regulated international centre such as Luxembourg. That way your income and growth can roll up free of tax until you are ready to withdraw it.

However, if you have assets back home, especially property, you are likely to have tax and reporting obligations over there.

It is worth brushing up on your home country's rules, as every tax authority takes a different view

Investments

You can make your portfolio more tax efficient by using an investment platform operating in a stable, well-regulated offshore centre.

For example, Internaxx is based in Luxembourg, an ‘AAA’ rated financial centre known for its stable economy and strong investor protection, so your assets will be safe.

Investing offshore allows any income and growth to roll up free of tax, with your gains only becoming taxable when you cash in your investments.

This puts you in control as you can realise those gains at a time of your choosing and in the most tax-efficient jurisdiction, whether your home country or anywhere else. If you also generate savings interest or royalties back home, or dividend income and capital growth from shares or funds, you will probably have to pay local taxes on them and need to plan for the cost.

Paying tax back home

As a general rule, property is taxed in its physical location, rather than where you are resident.

So if you own property back home then you are likely to pay tax on any rental income, capital gains from a profitable sale, and local authority and property taxes, no matter how long you have been living away.

Tax rules can change from year to year so you need to keep up to date with the latest developments, which may change over time.

Those with multi-jurisdictional estates should make sure they have written a proper will, to avoid a shock inheritance or estate tax bill when they die.

Expat earnings

Expats typically pay income tax on their employment earnings in their country of residence, with a few exceptions.

In most cases, residency is determined by the 183-day rule, which states that if you spend more than six months in a particular country, you are resident there and subject to local taxes.

As always when it comes to tax, there are exceptions to every rule. Other factors may come into play, such as where your main work or business is based, where your bank accounts are held, the location of your property and other assets, and whether your family is living with you.

A handful of countries take a tougher line, by taxing non-residents as well, the US being the most glaring example.

It is one of the few lands that claims the right to tax its citizens wherever they reside in the world. Expats can exclude a certain amount of foreign earnings to avoid double taxation, but must nonetheless file a return to the Internal Revenue Service.

From March 2020, South Africa is planning to charge its expats income tax at up to 45% on their foreign employment earnings, if they exceed one million rand. These are now two of the most punitive tax regimes in the world for expats.

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Avoid paying tax twice

Check whether your country of residence has drawn up a double tax agreement with your home nation, as then you shouldn’t have to pay tax on the same money twice. It should reduce or eliminate withholding tax, which is charged on dividend and saving interests from your home country at rates of up to 30 per cent. Some double tax treaties also cover pensions, reducing the bill on retirement income paid by your home country.

Beware domiciliary trap

There is another twist to beware. As well as residency, you may also have to consider where you are domiciled, which put simply means the country considered to be your permanent home.

Even if you have lived abroad for years the tax authorities may consider you are still domiciled in your country of origin if you have family or financial interests there and are likely to return. Your worldwide estate could then be subject to local inheritance taxes when you die.

Domiciliary is harder to change than residency, as you have to show you plan to settle permanently in your new location, and minimise links to your old one.

Meet your obligations

The onus is on you to understand your obligations and comply with them. Ignorance is not an excuse. The penalties can be severe, with fines and possibly even a criminal conviction.

Global tax authorities are clamping down on avoidance, while common reporting standards allow them to exchange financial information across borders.

If you have made an honest mistake and want to come clean, it may be wiser to disclose and correct your errors, and pay all outstanding taxes, before the tax authorities find out for themselves. The longer you wait to put things right, the worse it will get.

And if you do have any tax bills remember to pay them in full and on time, to avoid interest charges and penalties.

World of tax

Many new expats breathe a sigh of relief after leaving their heavily taxed home country, only to find themselves paying tax in two (or more) countries instead of one. It is worth taking professional advice to make sure you get it right in every jurisdiction where you have a tax exposure.


 

Internaxx Bank S.A. accepts no responsibility for the content of this report and makes no warranty as to its accuracy of completeness. This report is not intended to be financial advice, or a recommendation for any investment or investment strategy. The information is prepared for general information only, and as such, the specific needs, investment objectives or financial situation of any particular user have not been taken into consideration. Opinions expressed are those of the author, not Internaxx Bank and Internaxx Bank accepts no liability for any loss caused by the use of this information. This report contains information produced by a third party that has been remunerated by Internaxx Bank.

Please note the value of investments can go down as well as up, and you may not get back all the money that you invest. Past performance is no guarantee of future results.

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