An insight into expat taxes

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Published 2020-01-30 08:00

From March 1st, 2020, South African expatriates will have to pay an “Expat Tax” following recent amendments to the Income Tax Law. Hence, South Africans will only be exempt from taxes on the first R1 million threshold – following which they will be required to pay tax on their global income. Tax laws eventually vary from one country to another. Generally, you have to pay income tax, whether you are an employee, an entrepreneur or a retiree. You should also watch out for double taxation. Here are some tips to help you get started.

Defining your residency status

Have you just bagged a long term or short term employment contract abroad? Are you looking for a job or planning to start a business? The first thing to do is to define your residency status according to the duration of your stay. You are considered a tax resident in the country where you have been a habitual or permanent resident, where you exercise a professional activity and where your economic activities are focused. Obviously, conditions will vary from one country to another, so make sure to seek all relevant information about your host country's tax system beforehand.

This will allow you to define in which country you have tax obligations. Income obtained in your country of tax residence will be subject to income tax, whether it is from local or foreign sources.

How do you qualify as a tax resident?

Generally, you are considered a tax resident if you are staying for more than six months in your host country. In this case, you only have to pay tax in your host country. This also applies to foreign retirees and entrepreneurs. Retirees staying more than six months abroad will have to pay tax in their host country on income from foreign sources, including their retirement pension. However, exceptions do apply. In the case of public service retirees within the European Union, tax is levied by the administration which employed them. Same applies to EU citizens entitled to unemployment benefits – income tax will be levied in their host country.

Learn about double taxation treaties

Make sure to check whether your country of origin has signed a double taxation agreement with your host country before taking the leap. This agreement aims at reducing taxes paid by residents of the signatory countries – which means that you will have to pay income tax either in your home country or in your host country. Note that double taxation treaties cover not only income tax but also other taxes like Value Added Tax (VAT).

How to pay income tax as an expat

The rule of thumb is to seek adequate information from tax authorities both in your home and host countries. While in some countries income tax is withheld at source, in others you will have to file a tax return. Inquire on tax exemptions you might be eligible for, depending on your residency status. You can usually file your tax return online, but make sure to respect deadlines to avoid penalties, and to have all supporting documents within hand reach.

When moving back home

You still have tax obligations upon moving back to your home country, so make sure to inform your bank and any other financial institution or retirement fund. Besides your income, you also have to declare any bank account you might have opened in your host country. Some countries also apply an "Exit Tax", so you have to be prepared for all this.

Article translated from Zoom sur la fiscalité des expatriés