A lot of professionals moving overseas for the first time suffer from the misconception that if you are a non-native resident in a country, you have tax exemptions, according to an expert.
Steve Wade, a director in the International Executive Services Practice of KPMG, says that this is evidently not the case and expats should bear in mind as a general rule that they will be taxed on “sources of income arising in that country”.
It is also about timing. He explains that, depending on how long a professional is living abroad and the kind of consultation they have had beforehand, they can end up with two tax liabilities – one in their country of birth (basically a tax on worldwide income) and one for their current place of residence.
To avoid this, many companies hire people like Mr Wade, whose expertise on employment and personal tax implications of international assignment can not only help individuals save money, but businesses also.
“They [companies] don’t want their employees to be worrying about their taxes, they want them to be concentrating on the assignment,” he highlights. “They also want to be compliant with the relevant tax regime.”
Another variable factor international movers have to appreciate is that each country has its own unique approach to taxes. As an extreme example, many regions in the Middle East, by nature of their sovereignty, don’t actually employ income tax.
Navigating taxes internationally can be especially tricky, hence the importance of obtaining advice from specialists. Mr Wade again elucidates. In Europe, organising taxes tends to be easier because of a common agreement that most countries have signed up to. Here there is consensus and transparency.
“Whereas, if you went to Brazil for example, we do not have a tax treaty with Brazil and we don’t have social security agreements,” he adds.
Now bearing all this in mind is important, but, it is often complicated due to the fact that taxes tend to be, from Mr Wade’s own experience, something that a lot of expats forget all about when moving abroad.
This can arise in situations where the move is last minute. Booking a hotel, sorting out accommodation, working out what to do with an existing property – these are the kinds of things that people get caught up on.
Mr Wade says that in the majority of cases he deals with where expats have not properly made suitable tax arrangements, the main reason for it is due to “businesses driving the move abroad”.
Given the prevalence of it, businesses would be wise to have in place some sort of strategy to alleviate any tax burden should they need to send employees to a foreign country on a last minute assignment.