Tax is something we can’t escape from. They say, ‘Nothing is certain except death and taxes.’ But there are ways that we can mitigate or lower the tax that we pay on our investments and assets.
As global citizens, international tax can get complicated as different countries have different tax laws and regulations, but with the help of a qualified professional financial advisor and, in complex cases like in a global business, a tax consultant, your wealth can be protected.
Modern economics and technology have simplified the process for global citizens to work and own assets practically anywhere in the world. But unfortunately, international taxation has not evolved to this level yet.
To understand tax, we need to look at the kinds of taxes paid, tax status, and jurisdiction.
Types of taxes
Taxes can be grouped into three basic categories. The taxes on what you earn, like income tax, the tax on what you buy, like VAT or sales tax, and tax on what you own, like property tax, inheritance tax and wealth tax.
Income tax – This is a tax on any income earned that most are familiar with. Tax on earnings depends on your tax jurisdiction, residence, and citizenship. Determining this can be pretty complex, and specialist advice is needed.
Inheritance tax – This is the tax that many dread, taxes that need to be paid on any inheritance before assets are released. Inheritance tax differs from country to country, and there are ways to mitigate tax.
Capital Gains tax – CGT is a tax paid on any asset that investors sell for a higher value than it was initially bought for, like property, stock, cars, jewellery, art, etc.
Tax Status and Jurisdictions
Your tax responsibilities rely heavily on your tax residency and tax status. Where is your tax residency, according to government regulation? This could determine your tax liability in your home country. If you are a UK citizen, find out if you are UK-domiciled or UK resident – this determines your tax liability.
You can ask yourself specific questions to determine your tax residency and tax status.
- Are you employed and still earning a salary from back home, apart from your salary abroad? Your combined global income might cause higher tax rates.
- Do you own a company, a business, or property back home or in other countries? – there could be national and international tax jurisdictions. The people you employ might have more straightforward tax obligations, but corporate income tax and tax relief are much more complex, especially if extending internationally over several tax jurisdictions.
- Do you frequently travel for work? Find out the exact number of days the government allows in your home country without being considered a tax resident again. The time spent in various countries will determine your tax obligations back home. For example, many countries consider you a tax resident if you have lived there for more than 180 days and vice versa.
- Are you planning on returning to your home country or retiring elsewhere? More and more people choose to retire abroad after spending their working life as a global professional. This could affect the taxation rate on your pension fund back home.
Making use of tax services is the best way to determine this. This question can be answered by your tax advisor for more complex tax challenges.
Does the country you live in have a double taxation treaty with your home country? If not, you might have to pay income tax to revenue services in both countries.
Double taxation is the process of charging income tax twice on the same source of income. This refers to income from a salary, shares, stocks, profits, or dividends acquired. This tax is usually set by two countries, the one you reside in and the one from which you receive your income. Most countries have double taxation treaties to avoid double taxation, meaning you are only taxed in the country from which your income is derived.
You need to check the taxation treaties between the countries you reside and work in. This could have a significant impact on your income.
Your tax advisor can help with information on this.
How to Mitigate Tax
- Ensure you use any personal allowances – This is a tax-free allowance per year or over a lifetime the government grants before imposing tax.
- Try and ensure that, if available, there is a tax deferral on your investment or pension scheme, meaning paying tax at a later stage, like at retirement.
- Check if switching funds available can occur without immediate tax charges.
- Make use of any available tax exemptions. This could save you a lot of money.
- Take advantage of any transfers to spouses without a tax charge.
- Ensure that when taking benefits, timing is key – for example, when markets are low or you have low income for that year and need capital to supplement your pension.
Understanding how taxation on investment works in your country of residence is vital.
Global Tax Services
Navigating the world of cross-border, multi-jurisdictional taxation can be pretty complex. With the help of a qualified financial advisor or tax consultant, you can easily overcome tax obstacles and mitigate global taxation.
Please note, the above is for educational purposes only and does not constitute advice. You should always contact your advisor for a personal consultation.
* No liability can be accepted for any actions taken or refrained from being taken, as a result of reading the above.