International tax legislation is constantly undergoing major changes, and is becoming ever more complex to interpret. Many people therefore experience an increasing need for advice on taxation. Especially in connection with a move to live abroad, it is important to know about tax legislation in the intended country of residence, to be aware of the tax consequences of moving to live in a new country and to organise your finances to suit tax legislation in the new country of residence.
Inwema Switzerland collaborates with Inwema Denmark on international tax matters. Inwema Denmark is highly specialised in the field of international tax consultancy for wealthy private individuals.
Below are some of the general problems that can arise when moving across national borders. Inwema Switzerland and Inwema Denmark recommend that you identify the actual consequences before you move abroad.
• Cessation and commencement of full tax liability.
• Residence and/or staying in your current country of residence after moving out of the country.
• Transfer taxation.
• Taxation in the new country of residence.
Cessation and commencement of full tax liability
As a general rule, the first matter that should be clarified when moving out of your current country is which tax status (tax liability) will subsequently apply in both the old and the new country of residence. Full tax liability does not stop automatically in all countries when you move away, and full tax liability in the new country does not always commence from Day One. This can have the consequence that for a period of the year in which you move you might be treated as having a tax liability in both countries, or the reverse, that you have no tax liability at all in any country for part of the tax year.
Residence and/or staying in your current country of residence after moving out of the country
After moving away, many people wish to retain some connection with their previous country of residence, and perhaps even to keep a home or to buy a new holiday home in the country.
In some countries the acquisition of a home in the country will mean that full tax liability resumes. In other countries there are limitations on how much time you may spend in the country. Before moving away you should therefore make sure that the time you want to spend in your previous country of residence does not mean retaining or restoring full tax liability to the country.
In the case of retention or restoration of full tax liability to the country, in certain instances you can be exempted from taxation of your global income in accordance with a double taxation agreement between your new country of residence and your old one.
In some countries there is taxation on unrealised share profits, regained depreciation, pension schemes, etc. when full tax liability ceases. In other countries full tax liability can cease without tax consequences (apart from the actual cessation of tax liability).
In the first instance it is important to clarify the tax consequences of the cessation of tax liability, and any opportunities to reduce transfer tax. In the latter instance you should investigate whether there is an opportunity to achieve benefits on the basis of the absence of transfer tax.
Taxation in the new country of residence
Tax in your new country of residence can be broadly divided into income tax, tax on profits and capital tax. There can also be taxes in your country of residence in the form of social taxes, inheritance taxes, VAT, duties, etc. Some countries have no income taxes, others have no taxes on profits, others no capital tax, etc. However, one thing that all countries have in common is a need for continuous revenue streams.
It is therefore crucial that you investigate the tax consequences in the country to which you are moving. The ideal country for you to move to depends on how your capital is structured and where it is invested. Inwema Denmark can identify the tax consequences for you and find the ideal country of residence, and also recommend how your capital should be invested to achieve an optimal net yield on your capital.
Optimal tax advice requires planning, so please contact Inwema Switzerland or Inwema Denmark in plenty of time ahead of your planned move.