Failing to understand expat tax is costly for anyone moving to a new country who ignores how the complicated rules impact their finances.
Expats need to plan for the financial affairs in the country that they are leaving as well as in their new home.
Although expats should take personal advice in both countries, there are some general rules of thumb they should bear in mind.
Plan, plan and plan again
It’s no use waiting for the authorities to catch up – expats should start their tax planning at home and abroad months before the departure date.
Tax normally follows residence, so don’t forget to make sure where you are likely to be tax resident so you follow the correct rules.
Good advice is expensive
Expats shouldn’t try to navigate tax rules on their own – it’s a minefield.
Advice is costly, but make sure the adviser is regulated, qualified and has professional indemnity cover or the equivalent in their home country.
Check currency restrictions and exit taxes
Expats want to move their money freely, but some countries impose strict rules about taking foreign currency beyond the borders and impose exit taxes on residents leaving the country for good.
Social benefits are a stealth tax
The cost of living and taxes on income may be cheap, but many expat destinations will want to see money in the bank and expensive private healthcare are covered on entry – Dubai and Australia are two such places.
Check how tax impacts salary before you go
Avoid nasty surprises in pay packets by asking employers how tax affects take home pay. A tax equalisation deal should mean expats should pay no more tax than they would at home.
Home is not where you hang your hat
Family homes can cause all sorts of tax issues for expats as keeping a property in the country you are leaving can make you unexpectedly tax resident. Many countries, including the UK, also have strict capital gains tax rules for expats selling a home once they have moved overseas.
Lastly, not all moves abroad run smoothly. Many expats cut short their foreign assignments because of family issues (54%), poor health (42%) or culture shock (28%), according to data from the Legatum Institute Foundation. These reasons can play havoc with tax and financial planning, so expats should ensure they know how tax will hit their finances if they return home early.