ProACT Sam clarifies the inter connected factors involved in expat tax residency.
3 THINGS
There are 3 Considerations in determining an expat tax status
- One their residence
- two the tax residence
- three the domicile
Residence is where you live. Domicile is where you are from, usually your country of citizenship. Your tax residence is a place where you are liable to pay tax on some, or all, of your worldwide income.
Expats can be resident in a country without being a tax resident.
To be tax resident you need to spend more than six months living in that country for that tax year.
To be non-resident you must be meet the non-resident tax rules of your country of domicile in the tax year in question.
TAX LIABILITY
Your domicile is not your tax residence. While you can change your tax residence during or at the end of a tax year, domicile takes up to 20 years to be changed.
This means that expats living and working abroad retain potential liability for worldwide tax in their home country as well as their expat country of residence.
TAX SAVING
The great challenge for expats is to not be taxed in both countries. While double taxation treaties protect expats from paying tax twice, they do ensure that expats pay the highest tax rate available depending upon your domicile, tax residence and residence status.
Different countries and types of income are taxed in different ways. Some types of income or movable and hence taxed in the expats country of tax residence.
Some types of income and gains are fixed and taxable in the country of domicile, or the country where they arise.
A double taxation treaty between two countries allows the expat to pay tax once but to pay tax the rate of the taxing country.
NON RESIDENT
If you meet non-resident tax rules then an expat will be taxed in their country of tax residence on movable income and gains worldwide including their country of tax residence.
If an expat does not meet the rules of non-residence for their country of domicile, the country of domicile has the right to tax them on their worldwide income alongside taxation in their country of tax residence.
This won’t mean double tax, but it will mean tax at the highest rate of either the country of residence or your domicile home country.
CYPRUS
Retired expats living and working in Cyprus can enjoy a flat rate to 5% tax on pension income and 0% tax on worldwide dividends. If that expat does not meet non-residence rules for the UK the UK domicile retain the right to tax their worldwide income including any local Cyprus or Cyprus income as well as dividends and pensions worldwide.
ProACT Know How
ProACT Partnership offer Expatriate Advice and an annual tax service for expats living and working abroad.
Annual tax returns are now due for expats for calendar year and UK tax years.
ProACT offer an Annual Tax Return Service for expats that includes a full consultant review and guidance of resident and non resident status around the world. We then are able to complete a tax preparation and submit returns for expats living and working abroad.
Subscribe to ProACT’s annual tax return service online at:
www.proactpartnership.com/shop/annual-tax-service
For more information and guidance you can also contact us at www.proactpartnership.com
Follow us on YouTube, find the ProACT Partnership channel for Living and Working Abroad :
www.YouTube.com/ProACTPartnership
and subscribe and share and comment and follow live webinars and other information on our you tube channel.
