International Families on the Move: Tax Considerations for Global Citizens

The rise in global uncertainties and post-pandemic recovery has led to a revival of global mobility in the past year, both from a corporate perspective and an individual one. 2024 will see nearly half of the world’s adult population vote in elections, and for those who might not like the potential outcome, several attractive destinations are poised for relocation, but where to? Tax is always one of the key considerations for a move, and while it is usually one of the initial drivers, it often gets overtaken in the decision process by the equally important quality of life and practicality issues. Nevertheless, it is always an important aspect to review prior to any move to ensure that any legal tidying up can be done to prevent surprises later.

Many countries with investment migration programs also have attractive tax regimes, either with low levels of income tax (like Portugal and Spain) or even zero tax (like some of the Caribbean citizenship countries such as Antigua and Barbuda), a capped maximum tax (Greece), or exemptions on inheritance tax and a low tax rate for pension income (Malta, Greece). So the choice of where to go will be driven by what tax issues are most important at a stage of the taxpayer’s life.

How relocation may (or may not) affect tax residence

In many cases, a full relocation will result in a change in tax residence, either in-year during the tax year of the move, or potentially from the beginning of the next fiscal year, depending on the ‘day counts’ in the year of move. Moving tax residence is more a question of facts and circumstances, as many countries start with a physical presence test. As such, being eligible for residence by investment doesn’t usually create tax residence automatically — that comes as a second step, often based on physical presence.

Countries count days of presence in different ways. For example, any day where you are in the country at any point, or days when you’re present at midnight, or including days of arrival but excluding days of departure. And several counties have an additional test as to whether the taxpayer’s center of interests has shifted; in those cases, residence may apply even if the day count hasn’t been met.

Double tax agreements will provide a tie-break in cases where both countries claim residence, but not every pair of countries has an extensive treaty network.

Also, in some cases, ceasing tax residence can lead to an ‘exit charge’ as if the taxpayer has sold all of their assets as at the point of departure, so taxing accrued capital gains, even without those being realised. Therefore, before making a move, it makes sense to review these kinds of issues.

Inevitably, a relocation may leave behind assets or income sources in the previous country, and those may still be taxable because there is a source in that country. This is especially true of real estate, which is almost always taxable in the country where it is located, rather than where the owner of the income is tax resident.

Reporting for property owners, digital nomads, and social security payers

As important as the tax liability is the difference between filing deadlines and reporting standards. Real estate might generate a low tax charge at the moment, but if you move to a country that doesn’t allow a deduction for interest, that tax loss can become a profit and give you a nasty surprise as there won’t be enough double tax relief to offset the income.

Separately, the trend for remote working continues. More countries continue to introduce digital nomad visas or their equivalent (Spain’s was a very popular addition to the list in 2023). Some of these kinds of visas will give a tax exemption or a reduced rate of tax, but for people who are nomadic enough not to establish tax residence, or keep residence in their home country, that might not deliver the tax saving that’s expected.

It’s also easy to overlook social security, which will likely still apply. Some of the lower tax countries have a higher social security charge, and that is often not realised until too late. There may also be unexpected payroll requirements, especially where social security charges are due. Fortunately, bilateral or multilateral social security agreements can help, but many of those only cover assignments or multistate workers, and not those that relocate voluntarily or of their own accord.

Before a move, everything can be reviewed in advance and decisions only made as to where to relocate when the full implications are known. And while tax laws do change regularly, this is often a tweak to the rates or bands rather than a wholesale rewrite of the system, so it is possible to get some level of certainty before relocating.

Relocations will continue to happen as the world continues to change. Ensuring that tax is taken care of can make the process much smoother.