Expat Tax Issues

[crhomebuilder]

Is Costa Rica no longer a "Tax Haven"? Written for Brits, but some points apply to Americans.

 

Expat Taxation Issues

 

By Andrew Wood --- Your Money ---12 Nov 07

 

Tax mitigation strategies can come in many different forms. They

can also come from diverse sources of wisdom. One of the

earliest recorded examples of the existence of professional tax

advice being given can be found in ancient Sanskrit writings,

which continue to be observed in some regions for probably very

prudent reasons.

 

This counsels the need to protect oneself and possessions by

keeping them out of harm's way and at a suitable distance such

as: "Keep five yards from a carriage, 10 yards from a horse, and

a hundred yards from any elephants. But the distances one should

keep from predators cannot be measured." Horses and carriages

may no longer present a problem to foreign workers and property

owners, but other predators lurk.

 

Consider the EU Tax Directive for example. This was created two

years ago after EU member tax authorities decided to co-operate

by exchanging information about investors in each member

countries to a central database. Certain countries objected on

the basis that their businesses and ultimately economies would

be adversely affected. Obviously jurisdictions such as the Isle

of Man, Jersey, Guernsey, Switzerland and Luxembourg among

others would be concerned as they are world-renowned financial

centres. It was thus decided that a withholding tax would be

imposed on interest paid to account holders for those countries

that decided not to exchange information.

 

There are ways to obviate this. Each individual is unique and

thus you should seek professional advice if you feel you want to

find out about your own situation.

 

It is true that there is growing collaboration among colleagues

in tax departments in the US, Canada, Australia and a host of

others. Nationals of these three countries, along with UK expat

communities scattered around the globe, continue to be monitored

and examined.

 

Tax mitigation and inheritance protection stratagems, like all

other issues of asset protection and indemnity, must always be

revised and rebalanced on a regular basis to ensure that

investments and family unit interests continue to stay abreast

of the times and ahead of ever-changing markets and taxation

issues. A quarterly review of your total situation is a good

start.

 

Tax issues and effective measures to negate problems need not

necessarily be complex or expensive to implement. Neither should

they be dismissed as immaterial or unnecessary.

 

One area of concern is whether private banking is a safe method

to conduct transactions. This is an area where fiction can

easily merge with fact and vice-versa. Having won a number of

Supreme Court cases in various US states, American expats

holding assets in the favorite offshore tax havens of Costa

Rica, the US Virgin Islands and formerly safe harbours of the

Caribbean, will find that the banks there are far from private.

UK tax inspectors have now been granted similar powers to force

banks to disclose confidential account records of individuals

who hold deposits above certain limits. Smaller investors are

still potential subjects of these scrutiny exercises. though

perhaps down the queue behind the larger account holders now

being checked.

 

A recent change in the "dead day" rule has been applied in the

United Kingdom. This rule relates to the treatment of the days

you arrive and depart from the UK. Until recently the days of

arrival and departure did not count as days in the UK for

taxation residence. Recent changes have reversed this. It may

seem a little insignificant but if you travel many times per

year to the UK you could end up exceeding the time period for

qualifying as non-resident for tax purposes. This is an average

of 90 days per calendar year and no more than 180 days in any

single tax year (April 6 to April 5). Similarly if you have an

extended visit to the UK and plan the days exactly, you could

get caught out if you consider the days of arrival and departure

as days outside the country.

 

Inheritance taxes (IHT) are also a popular discussion point and

raise many issues. Numerous British subjects seem to think that

they can "resign" from the UK and are immediately non-domiciled,

thus being exempt from IHT. This is not so. In a number of cases

they have not actually severed all ties from the UK and leave

such things as owning a property, belonging to a club or society

or perhaps having a bank account. These simple facts will ensure

that you remain domiciled. Many people are also not aware that

if you have a foreign spouse who is not domiciled in the UK,

your estate will be subject to IHT. There are ways to minimize

this liability.

 

The message is clear. Engage a professional adviser to review

your affairs and keep you abreast of all the developments

affecting you as an individual.