Tax Emigration

At SAIL we spend a lot of time on the intricacies of global tax laws and regulations.

Different jurisdictions have taxation rights over your income and assets, and understanding these can help mitigate double taxation issues. Double Taxation Agreements (DTAs) and unilateral relief provisions are designed to alleviate the tax burden on individuals by providing mechanisms to claim tax credits or exemptions. It is essential to stay informed about the tax laws and regulations in both your home country and the country you’re working or emigrating to. Seeking professional advice and maintaining proper compliance can help you avoid these scenarios and their associated consequences.

When considering emigration, it is important to understand the diverse income tax systems worldwide. Some countries, like the United States and Eritrea, employ citizenship-based taxation, requiring individuals to report global income regardless of residence. Others, including over 130 nations, utilize residence-based taxation, taxing residents on their worldwide income once they establish tax residency. Alternatively, countries like Panama and Paraguay adopt territorial taxation, only taxing income generated within their borders.

Additionally, systems like the Non-Dom-System in the UK (being phased out) and Cyprus offer unique opportunities for tax optimization based on domicile and residence. Finally, a few nations forgo direct taxes altogether, although they may pose challenges such as lower quality of life or strict immigration policies.

Our team of tax specialists offer guidance on complex multi-jurisdictional issues with the aim of minimising your tax leakage and in many cases identifying tax saving opportunities.

Below are some common scenarios that we can help with:

Unreported Foreign Income

Scenario: You earn income in a foreign country but fail to report it to your home country’s tax authority.
Consequences: You may face penalties, back taxes, and interest charges. Tax authorities may also audit your financial records.

Tax Residency Issues

Scenario: You don’t properly establish non-residency with your home country’s tax authority, even though you’re living and working abroad.
Consequences: You could be considered a tax resident in both your home country and your new country, leading to double taxation.

Failure to Declare Assets

Scenario: You don’t declare foreign assets, such as foreign bank accounts or property.
Consequences: Non-disclosure could lead to hefty fines and criminal charges in some cases.

Not Reporting Foreign Exchange Control Violations

Scenario: You violate foreign exchange control regulations by transferring funds without proper approval.
Consequences: Tax authorities can impose penalties, and you might face difficulties in transferring money in the future.

Non-compliance with Reporting Requirements

Scenario: You don’t comply with your home country’s reporting requirements for foreign income, investments, or assets.
Consequences: You may be subject to penalties, audits, and legal action.

Working Without Proper Work Permits

Scenario: You work abroad without obtaining the necessary work permits and visas.
Consequences: You could face deportation or legal action in the host country, and your home country’s tax authority might not recognize your income or allow deductions.

Not Adhering to Tax Treaty Provisions

Scenario: You don’t take advantage of tax treaties between your home country and the country where you’re working.
Consequences: You may miss out on tax benefits, leading to higher tax liabilities. Additionally, you may face legal issues if you don’t meet treaty requirements.

Ignoring Reporting Deadlines

Scenario: You miss deadlines for tax filings and declarations.
Consequences: Late filings can result in penalties and interest charges, and authorities may closely scrutinize your financial affairs.

Inadequate Record Keeping

Scenario: You fail to maintain proper financial and travel records.
Consequences: Authorities may disallow deductions, leading to higher tax liabilities. Audits may also be more challenging.

Failure to Seek Professional Advice

Scenario: You don’t consult with a tax advisor or attorney to understand your tax obligations when working abroad or emigrating.
Consequences: You may miss out on opportunities to minimize your tax liability and could face costly errors.

International Tax Case Studies

Scenario: You receive an inheritance from South Africa but have not ceased your tax residency

Consequences: In South Africa, inheritance tax, known as estate duty, is levied on the estate of a deceased person if its total value exceeds a certain threshold. However, if you have not formalised your non-resident status with the local authorities you will not be able to receive your inheritance abroad.

Scenario: You move out of a country (like the United Kingdom) to another country midway through the tax year.

Tax Treatment: In the UK for example, if you become a non-resident for tax purposes during the tax year, you are usually taxed on your worldwide income for the full tax year. However you can apply for a split year treatment and have your worldwide income only taxed until the you leave.

Scenario: You have pension accounts in multiple countries due to working and living abroad.

Tax Treatment: The taxation of pensions varies depending on the country where the pension was earned, the country where you reside, and any tax treaties in place between those countries. For example, some countries tax pensions at source, while others may allow for tax deferral or provide exemptions for pension income. Properly structuring your pension withdrawals and understanding the tax implications in each jurisdiction can help minimize tax liabilities and maximize retirement income.

Scenario: John, a long-time resident and taxpayer in Australia, decides to emigrate to Canada for a new job opportunity.

Consequences: Upon emigration, John may face a departure or ‘exit’ tax on his Australian assets, potential complexities regarding his superannuation, the need to determine his tax residency status, the risk of double taxation between Australia and Canada, and ongoing compliance obligations to the Australian Taxation Office (ATO) for any outstanding tax matters

“There is nothing better than good advice, and nothing worse than not listening to it.”

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