When working abroad - which country can tax you?
You might be thinking either about working abroad or moving abroad to work.
... If so, you may benefit from reading our review of the rules for income tax abroad. It is complicated material, but it is also important to follow your dreams...
... and help is always available.
You pay tax in your home country if you live and work there. That is quite simple. But, we can reveal that it is not quite that simple, because there are not any common EU rules that state how EU citizens who are living, working or staying outside their home countries must be taxed on their income.
Although there are no common EU rules for income taxation, if you work, or live and work abroad, there are still a number of similarities and "normalities".
Usually, the country where you are a tax resident can tax your total – let's call it: global income. Your global income is your total income, including salary, pensions, other benefits, income from property or from other sources and capital gains from the sale of property, in all countries throughout the world.
Different definitions of tax residence
To further complicate matters, each country also has its own definition of tax residence. So, if you are already thinking about giving up, you might want to scroll down to the bottom and find either your local tax office or your local accountant.
If you are still with us, we can tell that you will usually:
be considered a resident for tax purposes in the country where you stay for more than 6 months a year
remain resident for tax purposes in your home country if you stay less than 6 months a year in another EU country.
Double accommodation
In some cases, two countries may consider you resident for tax purposes at the same time, and both countries may require you to pay tax on your total, "global income". Fortunately, many countries have so-called double taxation agreements which means you can avoid double taxation.
You can read the individual agreements here
If you cannot find a solution, or if your situation is particularly complicated, you can contact the tax authorities directly or find an adviser who can help you with the formalities.
Expatriate workers/jobseekers may risk double taxation
If you are stationed abroad for a limited period of time, or if you are looking for a new job abroad, you may be considered a double taxpayer and thus be liable for tax in your home country as well, even if you stay abroad for more than 6 months.
This can happen if you keep your permanent residence in your home country and your personal and financial ties to that country are stronger. In these cases, you may find that your host country (i.e., the country you live and work in) also taxes you. This may happen when your local employer deducts tax from your salary payment.
Please note that regardless of whether you are still a resident in your home country or not, the home country can tax relevant income - e.g., from real estate.
Again, it is important to familiarize yourself with the rules, as there are usually solutions for avoiding double taxation - there is really no reason for your income to be taxed twice - especially when not necessary.
Fictitious tax residence - cross-border commuters
Under some double taxation treaties, the country where you earn all, or nearly all, of your income will treat you as resident for tax purposes, even if you do not live there. This status of fictitious tax resident is given to some countries to cross-border commuters.
“Of course, you cannot expect to receive all allowances and deductions in both countries, and you must be aware that the respective tax authorities can exchange information with each other.”
Under EU rules, each country still has some leeway in determining what percentage of your income represents "almost all of your income", and regardless of whether the country where you earn all or almost all of your income treats you as tax resident or not, it will in any case be obliged to grant you the same terms (allowances and tax deductions) as it grants all other tax residents in that country.
Of course, you cannot expect to receive all allowances and deductions in both countries, and you must be aware that the respective tax authorities can exchange information with each other.
Equal treatment
There are several EU rules on so-called equal treatment, and this means that, regardless of which EU country you are considered to be a resident for tax purposes, you must be taxed in the same way as citizens of that country under the same conditions.
Among other things, this means that in the country where you are resident for tax purposes, or where you earn all or most of your income share of your income, you should be entitled to, for example:
any child benefits and tax deductions for childcare costs, even if the costs are incurred in another EU country
any tax deductions for interest on mortgage loans, also for a house you own in another EU country
joint taxation with your spouse if this is possible in the country in question
You can - just like in Denmark - complain about a tax decision if you do not think it meets the rules.
We are happy to help you achieve your goals, also through our worldwide collaboration with GGI Geneva Group International, which is an association of some of the leading accountants and lawyers in the world.
Welcome to your possible new working life abroad - welcome to your local, global accountant.