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Taxes for expats: Essential tax information all expats must know

It is essential that everybody understands the tax rules where they live. When you move abroad, understanding taxes for expats is even more important as the complexity increases. This article identifies key areas you need to think about regarding taxes for expats.

Written on 5 November 2018

When planning a move abroad (or even if you’ve already moved abroad), understanding how taxes will affect you as an expat will be essential. Everybody will research all aspects of life before they move abroad, but taxes for expats often change and understanding different tax systems, often in different languages, can be a highly stressful and potentially expensive endeavour.

While Experts for Expats primarily focusses on UK and US nationals living abroad and the potential financial implications from a UK perspective, many of the key considerations apply for all expats, no matter their nationality or country of residence.

This article looks at why taxes for expats can be a complicated affair and identifies ways that, as someone living abroad, you can mitigate the risks and avoid being stung by an unexpected tax bill.

Establish your tax residence status

The first thing you should establish is your tax residence status as this will ensure that you know within which jurisdictions you will be either resident or non-resident for tax purposes.

Every country will have different rules that establish your tax residence status with varying degrees of complexity. However, most countries will base your tax residence status on one of three things:

  • how long you spend in a country;
  • the ties (family or financial) you have in any given country; and
  • where you conduct most of your work

In the UK, the Government established the Statutory Residence Test which will determine your tax residence status in the UK. While it is complex, it clearly defines the rules that will decide whether you are a UK tax resident or not.

Do your research as soon as possible

Even in tax free jurisdictions such as the United Arab Emirates, it is still essential to understand your tax responsibilities, even if at a first glance you have none.

The two most important tax matters are knowing how much tax to pay and the deadlines for when the tax has to be filed/paid.

While the deadlines for taxes rarely change and you can research tax rates online, to ensure you understand exactly what tax is owed and when, you should seek advice from a qualified expert who will be able to run you through what you are likely to have to pay.

They should also be able to provide any services that may be required – although do not leave anything until the last minute because if there is a deadline approaching, they will probably be extremely busy and may have limited availability to assist you.

Know the tax rules back “home”

It is also vital that you understand the tax laws of your “home” countries (i.e. USA for Americans or UK for British expats).

The general (incorrect) opinion is that once you move abroad and become an expat you no longer owe any tax in your home country. This is not the case in many jurisdictions, although the level of tax will vary. For example, under FATCA, American expats are subject to US tax rules on their worldwide income and gains – and financial organisations automatically share financial information with the US IRS. It is also illegal to try to evade or hide tax from the IRS and could result in severe penalties.

Establish all jurisdictions that you may owe tax

If you have financial assets in multiple countries, it is likely that you will be subject to the tax rules where those assets are based, even if you are not a tax resident there.

An excellent example of this is people owning and renting out property in the UK but live abroad. Any income derived from that property (either rent or capital gains) will be subject to UK tax rules. This income could also be taxable in the country where you are deemed a tax resident, so you may be required to pay tax twice.

Thankfully many countries have agreed Double Tax Treaties which will normally ensure that an individual is only required to pay tax on any income once. However, it is important to get advice around any potential double tax treaties because you may still have to report any income or gains, potentially pay tax and then be required to claim a refund.

As each double tax treaty is different, you should always get advice.

Don’t do it all yourself, seek professional advice

Above all else, you should never completely rely on your own research around taxes for expats without seeking professional advice.

Accountants and tax consultants spend years getting qualified to be able to understand the various tax rules, and even longer if they cover multiple jurisdictions. However, in most cases, a consultant will specialise in one particular jurisdiction and then either have general knowledge or be able to refer to someone who is a specialist.

The experts will also understand the intricate complexities of the tax system and be able to offer tax planning advice that will help you legally minimise your tax burden – and at the very least avoid being hit with major penalties.

Is it worth getting tax advice?

When deciding about getting tax advice, the key consideration you should have is: “what if I get this wrong?”

In most cases, incorrectly filing or paying tax, missing a tax deadline or simply doing nothing is likely to lead to fines, penalties and if you are deemed to be evading tax, potentially criminal proceedings. Therefore, the key consideration should not be whether you can afford to seek professional advice, but whether you can afford not to.

Do remember though: tax consultants are highly skilled and therefore can be expensive. It is always prudent to shop around and ensure you are getting advice from the most suitable person, as well as the most cost effective based on your situation.