Expatriate tax and finances
An Introduction
These following quick articles are some of the issues that affect non-residents living and working offshore in Nigeria and other high risk areas. Despite living the good life in Lagos there are still events in the financial sector that have implications for many nationalities should they ever intend to return home.
Time spent working in emerging markets can be highly profitable and allows many expatriates the funds and time to plan their financial future and amount significant savings. However, everyone should be aware of the events currently unfolding and, where they feel necessary, seek advice on the best way to mitigate risk and ensure that funds are working effectively to produce real growth.
The key rule of thumb to remember if you are based away from home is: ABC. If you are resident of country A, work in country B, then you must bank and invest in country C.
Anyone is entitled to open an offshore account, as it is up to the client to declare their tax status and returns, meaning that any bank will be happy to provide this service for you. However, as highlighted below, this also means that the bank can pass your information to any tax authority that it sees fit, to ensure that they have no liability, making it very important to pay close attention to how your finances are structured from the start of your time overseas:
Non Residency - The truth behind the fiction.
The UK Special Commissioner ruled that visiting the UK for less than 90 days a year is not the only determinant of whether a person is UK resident for tax purposes. In Shepard v HMRC, the revenue issued a notice of determination
that Shepard was resident and ordinarily resident in the UK for the tax year 1999/2000. Shepard appealed as he had only spent 80 days in the UK. Dismissing his appeal, the Commissioner held that Shepard's absences from the UK were temporary. He returned to the UK house which he shared with his wife, had no evidence of paying tax elsewhere in the world, and intended to return to the UK.
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It is not sufficient to appear to have left the UK by signing a P85 or getting an accountants letter. You also need to break your connection with the UK and establish a substantial connection somewhere else with a contract that covers an entire year. The Inland Revenue can always make a case if a person's visit to the UK are habitual and substantial and they cannot point to a contractual or tax residency elsewhere. When combined with the above changes to UK linked offshore banks this creates serious difficulties for many contractors who may have believed themselves impervious to tax. Tax penalties and back payments for the contractors who are caught out are likely to run into more than double the original tax bill. With the right planning and advice, anyone can gain maximum protection against these issues.
Banks Report offshore accounts to UK Inland Revenue
UK residents with undeclared offshore accounts have come under a serious threat of exposure after the UK's Special Commissioner forced Barclays Offshore to reveal the details of 9,300 offshore accounts. The objections of the bank were overruled as some of the UK-based employees held the necessary passwords to access the account details. The investigation is now to be expanded and other UK mainland- linked banks will follow - including Lloyds Overseas Club, HSBC International and Nat West Offshore.
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It should come as no surprise that simplistic tax evasion can lead to problems. I have long been advising that any offshore arrangements that rely upon these major UK linked banks are ill advised. The comfort of a well known high street brand will be of little use should the Inland Revenue Service start to chase you. This in turn may have implications for any offshore investments that you have based from your account, negating the tax savings you have made and severely compromising the planning that you may have already undertaken.
AUSTRALIA AND NEW ZEALAND
Australia and New Zealand have completely different tax rules to other countries and indeed each other. Not knowing how these effect you as an international worker can cost you 50% of the value of your hard earned assets.
In most cases the tax status of all your assets (including pensions) will change depending on whether you are resident in your country of departure, resident in your destination country, or for that matter treated as a non-resident in either of these countries for tax purposes. Further, different tax years in different countries means that the timing of your moves are important to ensure you are not caught out. For example, the Australian tax year runs from 1st July to 30th June and New Zealand from 1st April to 31st March. Knowing your entitlements, the best systems to use, and the most efficient way to structure things - all makes a massive difference especially in the face of new legislation being introduced in New Zealand relating to offshore investments.
SOUTH AFRICA
29th August - South Africa's National Assembly approved a radical law requiring that citizens working as security staff abroad must seek
permission from the government.
In sweeping new legislation the South African government has moved closer to alienating and outlawing the estimated 4, 000 South African citizens working in hostile regions of the world. The legislation is seen as a reaction to the tumultuous recent history in Africa - with high profile cases such as the attempted coup in Equitorial Guinea making many African leaders nervous of well funded political opponents, a very valid and current point with the forthcoming elections.
This legislation is aimed at removing the threat of armed conflict within the continent and pays no attention to the valuable humanitarian contribution that South African contractors provide around the world. As such it is more important than ever for operators to pay attention to their financial situation, ensuring that the appropriate systems are in place to allow them to utilize their skills without compromising their nationality.
UNITED STATES
The renewal of the US Patriot Act by President Bush on 9th March this year has many far reaching implications, some of which effect contractors working abroad. The primary aim of the Act is to curb terrorist activity through intelligence sharing between agencies within and outside of the US. However, the Act can also be extended to allow tax authorities a greater insight into the accounts of private individuals and US citizens, meaning that the correct tax framework must be in place in order for overseas citizens to be able to make the most of their time abroad and gain the greatest returns from their investments before returning home.
Establishing this structure and making the most of the tax benefits that overseas workers are entitled to is quick and easy.
Becoming an expatriate can often be the economic opportunity of a lifetime, awarding very lucrative wages and allowing you access to thousands of offshore, tax free funds that can boast far higher levels of return and flexibility.
However ignoring new legislation or events at home can endanger this and frustrate the best efforts to build for a future or retirement.
Do shop around and pay close attention to the details of any policy as, if they appear too good to be true, they often are, though anyone living in Nigeria is more than familiar with "419's", so I may already be preaching to the converted!
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