SAIL International’s Global Tax Specialists are here to help you navigate your cross-border tax position.
Moving abroad, accepting an international assignment or working remotely from another country can have tax consequences that extend far beyond your personal tax residency.
Understanding these cross-border tax implications before making a move is essential. What may appear to be a straightforward personal or business decision can have unexpected consequences for employment income, investments, company structures and ongoing tax compliance.
Executive Summary
- Moving abroad does not automatically end your tax obligations at home. Domestic residency rules and applicable double taxation agreements (DTAs) determine how your position is assessed.
- Where you live and work matters. The location of your employment duties can affect taxing rights and payroll obligations.
- Your employer or company may be affected too. Relocation can raise permanent establishment and corporate tax residency concerns.
- Your assets and investments need attention. Investments, pensions, property and other wealth structures may have cross-border tax implications.
- Planning before you move is essential. Reviewing your circumstances before moving can help identify potential liabilities and compliance requirements.
The Question: If I move abroad, do I only pay tax in my new country?
No, not necessarily.
Moving abroad does not automatically end your tax obligations in your country of origin, nor does becoming tax resident in a new country eliminate your obligations elsewhere.
Each country applies its own residency rules. Where two countries regard you as tax resident, an applicable DTA may help determine treaty residence and allocate taxing rights.
The important distinction is that where you live, where you work, where your income arises and where your business is managed are related but separate tax questions.
What You Need to Know About Cross-Border Tax Implications
1. Tax residency is only the starting point
Countries use different rules to determine tax residency. Where both countries regard an individual as resident, a DTA may contain tie-breaker rules that consider factors such as a permanent home, centre of vital interests, habitual abode and nationality.
For South Africans, ceasing tax residency also requires consideration of section 9H of the Income Tax Act, which may trigger a deemed disposal of certain assets and a potential capital gains tax liability.
2. Where you perform your work can affect where you pay tax
An individual may continue working for an employer based in their home country while physically performing their duties abroad.
The location of those duties can influence which country has the right to tax employment income, subject to domestic legislation and any applicable DTA.
A South African employee accepting an assignment in the UK, for example, may have tax obligations in both countries depending on their residency, working arrangements and the relevant treaty provisions. The employer’s location alone does not determine where the income is taxable.
3. Remote working can create unexpected obligations for employers
An employee may relocate abroad while continuing to work for a company in their home country. Although the employment arrangement may appear unchanged, the employer’s tax position could be affected.
Potential consequences include payroll withholding, social security contributions, local registrations and reporting obligations. There may also be a question of whether the employee’s activities create a permanent establishment (PE) in the foreign country.
A permanent establishment is broadly a taxable business presence in another jurisdiction under the applicable law and treaty. The nature and duration of the employee’s activities, use of a place of business and authority to conclude contracts may all be relevant.
Remote working does not automatically create a permanent establishment. Employers should assess the specific circumstances before approving cross-border working arrangements.
4. Your company’s tax residency may also change
A company can face tax residency questions even if it remains incorporated in its original country.
If a business owner or director relocates abroad and begins making strategic decisions, negotiating contracts and managing company finances from the new country, the location of those activities may affect the company’s tax position.
Corporate residency and permanent establishment are separate issues. A company may remain tax resident in one country while also having a taxable presence in another.
5. Pensions, investments and intellectual property need separate consideration
The tax treatment of pensions and investments depends on the relevant domestic rules, residency status, nature of the asset or payment and any applicable treaty.
For South Africans, ceasing tax residency may trigger a deemed disposal of certain assets under section 9H, even if they have not actually been sold. The treatment depends on the assets involved and the applicable exclusions.
Businesses should also consider cross-border implications for intellectual property, including ownership, transfer pricing, royalty withholding taxes and the relocation of intellectual property rights.
Practical Case Study: When a Move Abroad Affects More Than One Taxpayer
The following is an illustrative example based on the scenarios explored in SAIL International’s webinar.
Sarah is originally tax resident in South Africa and works for a South African company. She moves to the UK, becomes UK tax resident, retains South African investments and property, and remains a director of the South African company.
Several questions arise:
- Personal residency: How do the domestic rules of both countries and the relevant DTA apply?
- Employment income: Where are her duties performed, and which country has the right to tax her earnings?
- South African assets: What ongoing tax and reporting obligations apply, and are there consequences if she ceases South African tax residency?
- Company obligations: Could making key business decisions from the UK affect the company’s tax residency or create a taxable presence there?
- Compliance: What registrations, tax returns, payroll arrangements and reporting requirements need attention?
The move does not automatically mean Sarah or her employer will face double taxation or additional corporate tax. However, these issues need to be assessed before the correct treatment can be established.
So What? Why Getting It Wrong Matters
Overlooking cross-border tax implications can result in unexpected tax liabilities, double taxation disputes, penalties, interest and missed planning opportunities.
Employers may face new payroll, social security and reporting obligations, while businesses could encounter unexpected corporate tax exposure or additional administrative costs.
The consequences are interconnected: one relocation decision can affect the individual, their employer, their company and their assets.
How SAIL International Can Help
SAIL International helps individuals and businesses navigate the tax implications of operating across borders.
Whether you are a professional planning a move abroad, a business owner managing a company internationally or an employer considering cross-border working arrangements, early advice can help you make informed decisions and reduce the risk of unexpected tax consequences.
Crossing a border is easy. Understanding which tax lines you have crossed is not.
Speak to SAIL International before making your next cross-border move. Book a free 15-minute introductory call to discuss your circumstances and the advice you may need.