Taxes For Expats: What You Should Know When Moving Abroad

Living and working outside your home country? Curious about when you become a tax resident or what taxes you’ll need to pay?

Expat tax matters can get tricky. That’s why we’ve put together this guide to help you navigate tax requirements for expats abroad. Here we’ll look at the different types of tax systems around the world, which taxes expats pay, how double taxation might affect you living abroad, and which countries have the highest and lowest tax.

Do expats have to pay personal taxes?

When we talk about personal tax, we’re talking about tax paid on the income you earn. Personal tax rates and requirements vary tremendously from country to country, and it’s not uncommon for expats to have to pay income tax in two countries in the same year, a situation known as double taxation – more on this later.

Personal tax rules can be categorised under four key systems:

1. Residential taxation
2. Citizen-based taxation
3. Territorial taxation
4. Zero taxation

Let’s take a look at these in more detail.

1/ Residential taxation

The majority of countries base taxation on residence. The specific details of how this works varies, but it very broadly means that if you’re resident of a country, you have to pay personal tax on income earned both inside and outside that country. That said, in many cases you can be a tax resident of a country, without being a legal resident.

Countries with residential tax systems will have clear requirements to determine whether a person is a tax resident or not. As a standard, many countries go by the rule that if a person has lived in the country for more than 180 days, they must pay residential tax.

Other forms of tax residency might include owning a home in the country, holding a valid driving licence or being registered to vote.

Countries that use residential taxation include: the UK, Australia, New Zealand, Canada, Mexico, Japan and most of the EU.

2/ Citizen-based taxation

In countries where taxation is based on citizenship, all citizens must pay some form of tax every year regardless of how much time they spend in the country.

In some cases, citizen-based tax forms a flat tax on worldwide income. However, in other cases different types of incomes are taxed separately depending on the source. In the US, for example, there is an exclusion on citizen-based tax for foreign-earned income under US$120,000 per person, though citizens will still need to file a US tax return every year.

It should also be noted that countries with citizen-based taxation are not restricted to taxing only citizens. Non-citizens who meet certain requirements can also be pulled into the tax system.

3/ Territorial taxation

Other countries have a system of territorial taxation, where you only pay taxes on income earned in that location. All other income is exempt from that country’s tax.

Territorial taxation is one of the more common tax systems, and tends to work in favour of digital nomads. It allows them to live and work remotely for long periods in a territorial tax country without paying tax on money earned from other regions, such as their home country.

That said, there are exemptions from territorial taxation and some countries are starting to crack down on expats’ income derived from other regions – particularly if they are offshore companies.

Countries that use territorial taxation include: Hong Kong, Malaysia, the Philippines, Panama, Malta, Poland, Ireland and Costa Rica.

4/ Zero taxation

There are a few countries worldwide that don’t charge individual taxes at all, regardless of whether you’re a resident or non-resident.

In zero tax countries, non-citizens can live and work in the country for as long as their visa will allow them to stay, without paying a penny of tax from their personal income.

Of course, while personal taxes don’t apply, that doesn’t mean you won’t pay certain other types of tax, such as VAT on everyday spending, and Real Property and Stamp Duty taxes if you’re looking to buy. You can also expect the ordinary cost of living to be significantly higher.

Countries with zero taxation include: UAE, Bahamas, Cayman Islands, Brunei and Monaco.

What is double taxation?

Double taxation is a situation where both your home country and the country where you live and work require you to pay income taxes. There are several ways this could happen.

One of the most common causes of double taxation is where your home country has a residency-based tax system, requiring you to pay personal tax wherever you are in the world. Under a residency-based tax system, like the UK’s, you will only be relieved of tax obligations in your home country when you are no longer considered a permanent resident, i.e. when you become a permanent resident of another country.

However, it’s also important to remember that residency requirements vary between countries. It is therefore possible to meet the residency requirements of two countries simultaneously. In other words, just because you become a tax resident of one country, does not necessarily mean that your residency ends in another.

In citizen-based taxation countries, the only way to escape personal taxation is to renounce your citizenship.

Tax treaties

To help offset the burden of double taxation, many countries have tax treaties, also known as double taxation agreements.

Tax treaties are agreements between two countries that help prevent double taxation on individuals and businesses who earn income across borders. Their primary purpose is to ensure that income is not taxed twice – once in the country where it’s earned and again in the taxpayer’s home country.

Double taxation agreements typically allocate taxing rights based on the type of income. For example:

• Employment income: Usually, your employment income is taxed in the country where you perform the work. However, if you’re there for a short period, you may only be taxed in your home country.
• Business profits: Business income is generally taxed where the business has a permanent establishment – like a branch or office – unless the treaty specifies otherwise.
• Investment income: Dividends, interest, and royalties often receive special treatment, with reduced tax rates or exemptions in one of the countries, depending on the agreement.
• Pensions: Retirement income is often taxed only in the country where the recipient resides, though specific provisions vary by treaty.
• Capital gains: Profits gained from selling assets are typically taxed in your country of residence, with some exceptions for real estate or significant shareholdings.

To understand specific double taxation agreements between countries, your best bet is referring to your home government’s website. For UK residents, you can find details of all the UK’s tax treaties at Gov.UK.

Countries with the highest tax rates in the world

There are various types of taxes – from income and sales taxes to property and social security contributions – and each country structures and imposes these differently.

Let’s take a look at which countries in the world have the highest personal income tax, the highest corporation tax and the highest rates for VAT.

Countries with the highest personal income tax

1/ Finland

Finland’s tax rates peak around 55% for residents and 35% for non-residents. Like other Nordic countries, Finland’s high taxes fund free education, healthcare, and various family benefits, contributing to a high standard of living – and making it one of our top 10 countries to live and work.

2/ Austria

In Austria, the top personal income tax rate can reach 55%. Austrian taxpayers contribute to a well-funded welfare system that covers healthcare, education, and extensive social benefits.

3/ Denmark

In Denmark, personal income taxes can reach around 52%. Like Finland, Denmark uses these high tax revenues to provide robust social services, such as healthcare, education, and retirement benefits, making it one of the world’s happiest countries.

4/ Belgium

Belgium is renowned for its high tax rates, with individuals paying up to 50% on their income. Belgian taxes support extensive social protections, including a robust social care system, family allowances, healthcare, and unemployment benefits.

5/ Japan

Japan has a progressive tax system with a top marginal income tax rate of around 47% when combining national and local taxes. These funds support Japan’s healthcare system, social security, and pension plans, which are essential given Japan’s ageing population – but also make it a fantastic destination for expats.

Source: PwC

Countries with the highest corporation tax

1/ Comoros

Comoros has one of the highest corporate tax rates in the world, set at 50%. This high rate reflects the country’s reliance on corporate taxation as a significant source of government revenue, as Comoros has a relatively small economy with limited diversification.

2/ Puerto Rico

Puerto Rico has a high standard corporation rate of 37.5%. While the country also offers various tax incentives to attract business, its high business tax rate reflects efforts to generate government revenue, offsetting the country’s reliance on US support.

3/ Suriname

Suriname’s corporate tax rate stands at 36%, one of the highest in South America. This rate helps fund the country’s public services but can be challenging for businesses operating in Suriname’s developing economy, where infrastructure and investment are still growing.

4/ Colombia

Colombia imposes a 35% corporate tax rate on businesses. This rate aims to support the country’s economic development and fund social programs, though the government has recently introduced tax incentives to attract foreign investment in certain sectors, such as technology and infrastructure.

5/ Malta

Malta’s corporate tax rate is 35%, but the country also offers one of the most favourable tax rebate systems for foreign businesses. While the standard rate is high, foreign shareholders can often benefit from a refund system that effectively reduces the tax burden, making Malta an attractive base for international companies despite the high standard rate – and one of the easiest countries in the world to move to.

Source: World Population Review

Countries with the highest VAT

1/ Hungary

Hungary has the highest standard VAT rate in the world at 27%. This high rate is intended to support the country’s public services, healthcare, and social welfare programs. That said, Hungary does offer a slightly lower VAT rate on essential goods, such as food and medicine, which range from 5-18%.

2/ Finland

Second in the running is Finland, with a VAT rate of 25.5%. Like their high income tax rate, VAT helps fund Finland’s extensive social welfare system, which includes universal healthcare, free education, and other public services.

3/ Sweden

Sweden’s VAT is set at 25%, reflecting the country’s commitment to funding its renowned welfare state. High VAT revenue supports Sweden’s healthcare, education, and social security systems, which are among the most comprehensive globally and likely contribute to Sweden’s position as both one of happiest and healthiest countries in the world.

4/ Croatia

Croatia’s VAT rate of 25% generates necessary funds for a developing economy that relies on tax revenue to improve infrastructure, healthcare, and public services. Croatia’s VAT structure includes reduced rates on essential goods, which helps alleviate the impact on low-income residents while still raising substantial revenue.

5/ Denmark

Denmark’s VAT rate is also set at 25%, a common rate in Scandinavian countries. The happiest country in the world in 2024, Danish VAT revenue funds Denmark’s extensive social welfare system, which includes free healthcare, education, and generous social benefits designed to create a high quality of life.

Source: PwC

Countries with the lowest tax rates in the world

If one of your motivations for moving abroad is escaping the ongoing cost of living crisis, considering which countries have the lowest tax rates could be a good place to start.

Let’s take a look at which countries in the world have the lowest personal income tax, the lowest corporation tax and the lowest rates for VAT.

Countries with the lowest personal income tax

There are currently 17 countries and territories in the world with zero income tax. These are:

• Antigua and Barbuda
• Bahamas
• Bahrain
• Bermuda
• British Virgin Islands
• Brunei
• Cayman Islands
• Kuwait
• Monaco
• Qatar
• Saudi Arabia
• St. Kitts and Nevis
• Somalia
• Turks and Caicos Islands
• United Arab Emirates
• Vanuatu
• Western Sahara

Besides these, the following countries have some of the lowest personal income tax rates:

1/ Guatemala

Known for its stunning landscapes and rich Mayan history, Guatemala offers an attractive tax environment with a low personal income tax rate of just 7%, making it an attractive destination for expats and digital nomads.

2/ Paraguay

Paraguay boasts a low personal income tax rate of 10%, alongside a cost of living that is generally lower than in many other South American countries. The country’s vibrant culture and welcoming atmosphere make it an attractive choice for expats looking for an affordable lifestyle with minimal tax obligations.

3/ North Macedonia

North Macedonia’s personal income tax rate is also 10%. A Balkan country with a rich history and unique culture, North Macedonia’s low tax environment is an increasingly attractive destination for expats.

4/ Kosovo

Kosovo has a personal income tax rate of 10%. As Europe’s youngest nation, Kosovo is emerging as a vibrant hub with a mix of cultures and a growing economy, appealing to expats and entrepreneurs alike.

5/ Montenegro

Montenegro has a personal income tax rate of 15%, one of the lowest in Europe. Known for its stunning Adriatic coastline and mountainous landscapes, Montenegro’s competitive tax rates are part of the country’s strategy to attract new residents and foreign investment.

Source: PwC

Countries with the lowest corporation tax

1/ Barbados

At just 5.5%, Barbados has the lowest corporation tax rate in the world. Designed to attract foreign investment and stimulate economic growth, this low rate makes Barbados an appealing destination for businesses looking to establish a presence in the Caribbean.

2/ Turkmenistan

Turkmenistan’s competitive corporation tax rate sits at just 8%. This low rate is part of the country’s efforts to foster a favourable business environment, encouraging both local and international enterprises to start up there.

3/ Hungary

Despite having the highest VAT rate in the world, Hungary’s corporation tax rate comes in low at just 9%. This is one of the lowest rates in the European Union, and is aimed at promoting economic development and attracting multinational companies to set up in the region.

4/ United Arab Emirates (UAE)

The UAE has a corporation tax rate of 9%. Introduced to diversify its economy, this rate is still relatively low compared to many other countries, making the UAE an attractive hub for businesses and expats in the Middle East.

5/ Andorra

Andorra’s corporation tax rate sits at 10%, far lower than its immediate neighbours France and Spain (both 25%). This low rate, combined with the country’s favourable business regulations and low VAT, positions Andorra as a competitive option for companies looking to set up a European base.

Source: World Population Review

Countries with the lowest VAT

Not including countries with 0% VAT: Brunei, Bermuda, Cayman Islands, Gibraltar, Hong Kong and Qatar – these countries have some of the lowest VAT rates in the world.

1/ Andorra

Andorra’s VAT, known as the IGI (Impost General Indirecte), is set at just 4.5%. Andorra maintains this low rate to attract shoppers and tourists, given its location between high-VAT countries Spain and France. Its low VAT rate, combined with Andorra’s tax-friendly policies, makes it a popular destination for cross-border shopping and business.

2/ Canada

Canada’s VAT, called the Goods and Services Tax (GST), is set at a relatively low federal rate of 5%. Some provinces add their own taxes, but the combined rate still tends to be lower than VAT in most European countries.

3/ USA

The US does not have a national VAT or GST. Instead, individual states set their own sales tax rates, which can range from 0% in states like Oregon and Delaware to around 7-10% in states with higher rates.

4/ UAE

The UAE introduced VAT in 2018 at a rate of 5%. This relatively low rate was implemented to diversify government revenue, as part of a regional tax initiative among Gulf Cooperation Council countries, while remaining attractive to tourists and businesses.

5/ Taiwan

Taiwan’s VAT is set at 5%, one of the lowest in Asia. This low rate makes it affordable for consumers and businesses, and helps keep costs down in Taiwan’s export-driven economy.

Source: PwC

Frequently asked questions about expat taxes

When do I become a tax resident?

Countries have different rules about when you become a resident for tax purposes. In some countries, you become a tax resident from day one of setting your permanent home there.

In other countries, you are considered a tax resident if you spend more than half a year in that country. In Spain, for example, you’ll be a tax resident if you spend more than 183 days in the country in a calendar year.

In the UK, there’s a Statutory Residence Test for working out your residence status for a tax year. In the USA, you’ll be considered a US resident for tax purposes under conditions set out in a ‘substantial presence test’, which looks at how many days you’re physically present in the country.

What if I am resident in more than one country?

It’s possible to be a dual resident for tax purposes. If this is the case, you’ll need to make sure you understand both countries’ residency rules, when their tax years begin and end, and any double taxation agreements.

What are my tax return filing requirements?

You may have to fill in a tax return for your country of citizenship even if you’re not resident there. For example, UK expats may have to complete a UK tax return if they carry out work in the UK or get rental income from UK properties. If you’re a US citizen, you’ll need to file taxes if your gross income is over the filing threshold set by the IRS.

What if I don’t earn an income?

It may not be compulsory to complete a tax return if you’ve earned under a certain amount, if your income is taxed at source, or if you have no income. However, you might choose to do so to see if you’re eligible for a tax return or to claim other tax reliefs.

What if I am retiring abroad as a British expat?

Lots of countries have taxation agreements in place for retirees claiming pensions abroad. Read our full guide on UK pensions.

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