Working abroad and living outside of your home country requires you to be knowledgeable about the tax laws and requirements where you are residing. The regulations surrounding when to file, exceptions for foreign earned income, and how long you have to live somewhere before owing taxes to its government vary from country to country. While the intricacies of international tax planning can be complex, keeping these tips in mind will help simplify the process.
Understand Your Home Country’s Tax Laws
Most countries provide guidance surrounding the tax allowances and requirements for taxpayers living abroad. It’s important to understand your home country’s tax laws before earning income from a foreign employer—failure to comply can have serious consequences, such as additional tax penalties and even revoked citizenship.
Most countries will continue to tax you even if you are living and working abroad. For example, the United States requires citizens to file taxes on worldwide income. This means no matter where a U.S. citizen is working or for how long, they’re required to report their income to the IRS until they establish a full-time residency in another country (being physically present there for 330 full days over a 12-month period). However, to avoid double taxation for citizens living abroad or with dual citizenship, many countries allow you to file a claim for foreign income earned and tax-free exemptions.
Learn the Details Surrounding Foreign Earned Income
If you aren’t settling abroad permanently, many countries will offer you special tax allowances and exemptions. Foreign income earned (any income earned outside of the country where you are a tax resident) often qualifies as tax-free as long as that money is kept abroad—entering your home country with foreign earnings will likely make them subject to taxes. Certain expenses, like housing in a foreign country, may qualify as tax-exempt as well.
Don’t Wait Until It’s Too Late
Filing taxes on foreign income can be a lengthy and complicated process, making it crucial to solidify a tax plan and strategy beforehand. Many countries require proper documentation and detailed information from citizens when filing an income tax return. Be prepared to show all the necessary documents, such as your passport, previous taxes paid, assets, and income earned. Research all of the possible tax exemptions you might qualify for in the country where you are filing, and be prepared to show proof to support why you are eligible. Don’t wait until the last minute to start thinking about filing your taxes while working abroad—allow yourself time to resolve any last-minute confusion.
CFR’s Expertise with Hiring Internationally
Governments all over the world change their tax laws and create new regulations every year. It’s difficult to keep up with your own country’s rules, let alone those of another nation. If you’re considering taking a job in a country where you don’t hold citizenship, the knowledgeable recruiters at CFR Global Executive Search can help you navigate the various tax complications so both governments get their due and your paycheck retains as much as possible.