Today let’s tackle an issue which some people are asking about these days: Paying taxes while you are overseas. Now there seems to be a few misconceptions about a person’s tax obligations while they are overseas. The most common misconception is that people working overseas still have to pay taxes to their home country.
You actually don’t pay taxes back home if you are working overseas… generally speaking.
But I’ll explain that in a while. For now, let’s start off by answering some common questions about this overseas tax thingy:
Do I have to pay taxes back home if I’m working overseas?
First of all you need to determine if you are a tax resident of your home country.
What does tax resident mean?
Tax resident DOES NOT mean the same thing as being a permanent resident of the country. It simply means that you have spent a certain amount of time in that country and hence are eligible to pay taxes.
In NZ, if you are in the country for more than 183 days in a 12 month period, then you are a tax resident.
Malaysia has a similar ruling in that you need to be in the country for more than 182 days in a basis year (12 months).
Australia has a similar ruling that states that if you are in the country for less than 6 months, you are a foreign resident for tax purposes.
Basically, in most cases, you WOULD be a tax resident of your home country.
Now, when do you stop being a tax resident?
According to NZ rules, if your permanent place of abode is outside of NZ or you have been away from NZ for more than 325 days in a 12-month period, you become a non-resident for tax purposes.
The rulings on this one differ from country to country, so probably best to have a read on what your local rulings are.
So, with that being said, let’s take a look at an example:
Gin is a NZ tax resident and they get employed as an English teacher in Malaysia. At the start of the first year while they are in Malaysia, they are still a NZ tax resident. By the end of their first year in Malaysia, they are ALSO tax resident in Malaysia.
This means that it is possible to be tax resident in more than one country. So what does that mean? Do you pay DOUBLE TAXES???
Fear not, intrepid traveler – there is a thing called ‘Double Taxation Agreements’ that are agreements between two countries that allow for taxes paid in one country to offset the taxes dues from another country. In effect, you only pay taxes once. So no worries there. Also, once you’ve been overseas long enough, you stop paying taxes to your home country (generally speaking, there are some exceptions though) and will only be paying taxes to the country you are working in.
But what if I’m working in my home country and earning income overseas?
It depends on which country you are in.
If you are in NZ and you are a tax resident then any foreign income earned will be taxed. There are some exceptions to this rule though. In NZ, foreign income from interest, dividends and sales on property are generally exempt from tax (but they are likely to be taxed at the source in the country of origin – so no, you can’t really run away from taxes).
Territorial based tax systems like Singapore have a slight exemption on this, provided that income derived from overseas is not part of the business you are running based in Singapore. Malaysia also exempts foreign earned income from taxation
But what if I’m a US citizen?
Sorry buddy, you still have to file taxes (apparently) but there is such a thing called the Foreign Earned Income Exclusion which allows you to exclude foreign income from your tax return for up to USD $107,600 per person. So unless you are raking in the mega bucks, you wouldn’t actually need to pay anything.
So there you have it – as simplified an article I can write on taxes paid by people working overseas. Although given the current global climate (COVID-19…. brrrr…) it’s unlikely anyone will be taking overseas positions, it is still good to clear misconceptions that some people may have about those of us who have been working overseas for a length of time.
Stay safe! And of course,
Stay positive!