Countries where expats have to declare their income even when they are no longer residents

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Published on 2022-03-31 at 10:00 by Ester Rodrigues
If expats are thinking about moving to another country to get away from financial and administrative responsibilities, they have to be careful and have a thorough look at their home countries' red tape rules. There are many countries where expats have still to declare their income even if they're no longer a resident. 

For some expats, it is not just about leaving your home country without thinking twice. The failure to report income may result in penalties as high as 50% maximum value of the foreign account. If expats from Europe are moving abroad within the European community, the official EU website gives several pieces of advice on how income and taxes work. While UK residents may not have to if their permanent home ('domicile') is abroad, Americans and Canadians have to. 

Get to know the different types of taxation 

There are two generally used systems of taxation: territorial-based and residence-based taxation. In a territorial-based taxation system, countries like Singapore and Lebanon tax individuals only on income from sources earned inside the country's borders. Expats from these countries don't have to declare their income while living abroad. Under the residence-based taxation system, countries like Germany and France tax their local residents on all income earned from both local and foreign sources. For non-residents in these countries, only income earned locally is taxed, similar to the territorial-based system.

While countries like Monaco and Qatar don't tax income at all, in the EU, expatriates who have received a job offer in another EU country for more than 6 months will have to pay taxes on their salary. In this way, that country would normally consider them as a resident there for tax purposes. This would mean that the host country will tax the income expats earn while working there and will also be entitled to tax their worldwide income. 

Expatriates should, therefore, find out whether they will be considered a tax-resident in their new country and what the applicable rates and tax deductions are. Expats should also check whether the salary they earn there will also be taxed in their home country and what relief, if any, is provided in the double tax agreement between both countries.

France 

Once a resident in France, expats and locals are liable to pay taxes there on their worldwide income. The French social security system is one of the most generous in the world, but it is paid for by high social charges and taxes. According to the French government, French residents must declare income received abroad by all members of their tax household when this income is taxable in France. They must also file return no. 2047 when they receive income, other than salaries and pensions, which are tax-exempt in France but used to calculate the "taux effectif". Basically, i you are a resident of France and have received income outside France, you must fill out return no. 2047.

When income has been received in the currency of a non-Euro area country, it must be converted into euros at the exchange rate on the receipt date. To avoid double taxation, when this income has been taxed under the terms of a treaty in the country or territory from which it originates, the tax paid outside France is not deductible from income but provides entitlement to a tax credit that may be deducted from French tax. 

There are agreements executed with Germany, Belgium, Spain, Italy and eight cantons of the Swiss Confederation to stipulate that their salaries are taxable in their country of residence. Although it borders France, the canton of Geneva has not signed the agreement. The compensation received by workers who live in this canton in Switzerland and who work in France, or are residents of France and work in this canton, is taxed in the country where they work. That is why many French people move to Switzerland, where taxes are lower. In 2017, the whole tennis team from Copa Davis had moved to Switzerland to get away from taxes.  

US

American expats living abroad as US citizens must file a US federal tax return and pay US taxes on their worldwide income no matter where they live at that time. In other words, they are subject to the same rules regarding income taxation as people living stateside. While nearly all of the 244 sovereign territories employ territorial, residence or no income taxation at all, there are two countries, the US and Eritrea, that have citizenship-based taxation systems. 

In the US tax system, foreign income is taxed at the same marginal rate as any income earned inside the country. This means that Americans living abroad or Green Card holders will need to file a US federal tax return this year if their total income in 2021—regardless of where the income was earned (and in what currency)—exceeds any of the following minimum thresholds: for citizens filing as Single: $12,550 if under age 65, $14,250 if age 65 or older. For citizens filing as Married Filing Jointly: $25,100 if both spouses under age 65 and $26,450 if one spouse under age 65 and one age 65 or older.