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Tax considerations before moving abroad

Tax considerations before moving abroad

One of the most difficult things that some of us may come across is moving overseas.

In many ways, moving to a different country to work and live is going to be an entirely strange yet exciting experience. As there are so many practical difficulties to overcome, tax preparation often gets put off until after you arrive in the new country.

Of course, it’s much too late by that point.

This article discusses a few things to think about before you leave your home country.

Entry Taxes

The problem of “exit tax,” in which the act of leaving one country may cause the deemed sale of all your assets held in your home country, is an example of a problem that frequently arises.

Therefore, it is important to be aware of any “exit taxes” in the country you are leaving because they may have potential negative impacts on you.

Tax Voting

When leaving your home country, it’s important to think about whether you can take advantage of any “tax elections” that would allow you to pay less in taxes.

Consider whether you want to be treated for tax purposes as “retaining some of your assets” in Australia, for instance, depending on the specific asset.

Even though you might relocate abroad, not all of your assets necessarily have to follow.

You may have a little more flexibility regarding the tax treatment that will be applied when you decide to sell some of your assets if you make an election to keep them for domestic tax purposes.

Establishing a Trust in a Foreign Country

Many people want to hold their assets in a third country through some kind of trust for a variety of reasons, including international tax planning, asset protection, and risk mitigation.

Consider if you should set up a pre-migration trust in a third nation before moving to the one where you will be employed as part of the preparation you may decide to perform before your relocation to a new country.

Instead of “taking all your assets with you,” this will sometimes result in a better tax outcome.

As some nations lack tax laws that apply to foreign trusts, any income that accumulates there is not subject to taxation in the nation where you choose to file your taxes.

Tax System For Expats

Consider if the nation you are heading to has a “concessional” or “modified” tax system for expats throughout the planning process of where you could travel to.


Several nations have exceptionally welcoming tax systems for foreign residents.

For instance, several countries with generous tax policies, such Belgium, Japan, and Korea to mention a few, may only tax expats on income generated there for the first five years of their tax residency.

In general, these transitional regulations are designed to encourage people to work and reside in these countries.

Some nations, like the US, tax expatriates who reside there on passive income accumulated inside their home nation’s legal frameworks.

Unique Residency Status

The kind of residency you, the “departing expat,” will take up in your new country is another thing you should think about when planning your move abroad.

There are distinct residency statuses in some nations, and depending on which one you have, your tax situation may change.

The status of “temporary resident” in Australia serves as a good example of this.

Compared to permanent residence, temporary residence status imposes a different tax outcome and can give you a little more tax flexibility once you get there.

Reorganizing Your Current Corporation or Trusts

It’s crucial to understand how your current tax structures might need to be “restructured” before you leave the country.

In some circumstances, a restructure might only entail changing the trustee of a trust or the officers of a company.

For instance, a trust’s residency status in Australia is determined by the trustee’s residence.

The current trustee (the departing expat) can simply resign and be replaced by someone who will stay in Australia if the goal is to maintain the trust’s status as an Australian tax resident.

In other situations, it might be possible to issue or transfer shares to a relative in order to make sure that your home country’s company is exempt from the controlled foreign corporation regulations when you move to a new country.

For more information on International tax, send an inquiry to the Bates Cosgrave team.