- 1 Five Important Tax Lessons for Offshore Success
- 2 Testing the Offshore Waters First
- 3 Evaluate Your Plan with a Certified Tax Law Specialist Before Moving
- 4 Expat vs Expatriate & Exit Tax Planning
- 5 You Will Still Owe some Tax
- 6 Planning for More than Just Tax
- 7 Interested in Expatriation from the U.S.?
Five Important Tax Lessons for Offshore Success
When a US Taxpayer wants to move overseas and reside in a foreign country, there are many factors to take into consideration. There are the lifestyle changes, health and education – – along with the tax implications. By relocating to another country, the taxpayer will become a resident of that foreign country and presumably will be subject to income tax in that country. Not all foreign tax systems operate the same as the United States – – for better or for worse. While some countries may have limited income tax requirements, they may have additional other taxes on real estate, transfer of wealth, etc. Thus, before moving overseas and living the imagined offshore nomad lifestyle, it is important that taxpayer take heed of five (5) important tax lessons.
Testing the Offshore Waters First
While it may sound great after a few cocktails to throw caution to the wind and take off for overseas, you must be cognizant of the boomerang effect. Before you just pick up and relocate to a foreign country, it is important to make sure you have a strong understanding of the particular tax implications of living in a particular jurisdiction that you are considering. Therefore, taxpayers should consider residing in a foreign country for smaller stints before taking the plunge and making a full relocation.
Evaluate Your Plan with a Certified Tax Law Specialist Before Moving
It is important to evaluate your own tax situation and what it will be in that foreign country before relocating overseas. For example, the foreign country may have some hidden taxes that you were not aware of and they may not be considered income tax per se from a US standpoint — which would mean there are no foreign tax credits in the United States to offset this type of income. In addition, if you are planning on investing in foreign assets then you have to be aware of PFIC taxes and elections.
Expat vs Expatriate & Exit Tax Planning
When a US person simply moves overseas, they are considered an expat — and are still considered a US person. This means that they are still subject to US tax on their worldwide income, even if they reside in a foreign country and all of their income is foreign-sourced. Likewise, if a person is going to formally expatriate from the United States so that they are no longer a US person — there may be exit tax implications if the person is a covered expatriate, and once the expatriating acts performed, they cannot just go back and undo it — which is why tax planning is crucial.
You Will Still Owe some Tax
Be wary of online tax snake oil salesman that contrives make-believe theories about how you can simply avoid all taxes by hopscotching from one foreign jurisdiction to the next without establishing permanent residency. That is not how tax laws work — and oftentimes in foreign countries, if the government believes you were trying to circumvent permanent residence tax rules while implementing different treaties to avoid taxes, it could lead to some significant tax consequences and even worse.
Planning for More than Just Tax
While the tax implications of moving overseas are significant, it is only one of several different factors to consider when picking you up and relocating your entire life to a foreign country. It is important to have a good understanding of the particular foreign country or countries you want to reside.
Interested in Expatriation from the U.S.?
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