Taxes are the bane of everyone’s existence whether they are private individuals or entrepreneurs. Navigating the many types of taxation liable on expats can be a considerable undertaking in itself. For US expats still need to file their annual tax returns with the IRS and report every possible source of income.
Some other countries however may not have the same rules and may hold expats exempt from state taxes on their existing income if it originates from another country. Territorial taxation which is the tax levied only on income earned within a certain location is also what many countries follow.
Ascertain The Exact Income In Every Location
In an expat’s home country they will definitely be liable to pay tax on the full scale of their income whether it be from investments, salaries, dividends, rent, or interest. Before an expat makes the move abroad they need to ascertain how much of their income is still being generated passively in the home country because regardless of where they access that income in the world they will still need to pay taxes back home.
If your move to another country is for the long term or foreseeable future and you are moving your money or shutting down an enterprise, then the income from the home country will understandably diminish and no longer be taxable. Most states will render an expat a non-resident if they have not visited in six months. You can contact a US tax CPA in the United Kingdom or the country where you have moved for a full list of taxes liable there including the paperwork that needs to be filed. Ideally, you should do your full research about taxes abroad before you book a flight.
Criterion For Residence
The following criteria can determine the status of your residence when you are an expat in another country.
- If you still have your voting rights in the home country and maintain a valid ID and other documents required by the state.
- If you currently own one or more than one home or other property in the state.
- If you visit and stay for several months at a time and have family and relatives living permanently in the state.
- You have been living in the state for any period of time within the tax year.
Lessen The Burden
If you are moving to another country you should do some fail-safe measures to reduce your taxable income and take as much income out of the tax net as possible so you are only paying taxes abroad. Consider selling your home or other property or purchasing property instead in an income tax-free state if you are from the US. Open a foreign bank account and close all accounts in the state you are moving away from. Repositioning various large assets like an expensive car or a major investment into a new country can also help you avoid needless taxation back home.
