Last Updated on June 11, 2021 by Hakan Samuelsson
In a previous article I wrote about the advantages and disadvantages about living in Eastern Europe. By moving you might stumble into tax problems. This article tries to explain very short the implications. However, I am not a tax accountant so please do your own research. This article is just an indication. But by doing some simple research yourself you can get a lot of info and understanding of how to proceed.
I have already moved to Latvia from Norway, and have been through the tax buraucracy (although not completely finished yet, and most likely will not until 2015 or 2016). Underneath you will find the points I have learned:
My experience is that you can do a lot of research yourself. Doing that you can ask a tax advicer more precise questions. I used a tax adviser myself but it was more or less wasted money. I think I know just as much now myself as he did. On other option is to contact the tax office/government. At least in Norway you can ask them to write an indication before you move how they will assess your situation. There is no reason to believe they will look at you unfavorably.
Here are the main points to remember:
- The tax authorities first look at if you are tax liable to their internal law. I am for example both liable to latvian AND norwegian taxes, even though I live in Latvia. Put short, I am a tax resident in two countries.
- If you are a tax resident in two countries, the double taxation agreement comes into play for item of income mentioned in the treaty. For traders the article about capital gains will be of importance (for trading profits). As far as I know, the general rule is that profits in shares listed on public exchange is only taxable in the place where you reside. BUT, certain tax treaties are different.
- The tax treaty always trumps a country’s internal law.
Of importance when looking at the tax treaty is where you reside. That is most likely in this order (this is when you are a tax resident in two countries according to internal laws). Here is an excerpt from the treaty between Norway and Latvia:
- He/she shall be deemed to be a resident of the State in which he has a permanent home available to him
- If he/she has a permanent home available to him in both states, he/she shall be deemed to be a resident of the state with which his personal and economic relations are closer (centre of vital interests)
- If the State in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either State, he shall be deemed to be a resident of the State in which he has an habitual abode
- If he has an habitual abode in both States or in neither of them, he shall be deemed to be a resident of the State of which he is a national
- If he is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.
For example: If you trade stocks and the tax treaty says that capital gains shall be taxable only in the country where you reside according to the treaty, and that country is for example Latvia, then Norway cannot tax that gain. However, that happens when Norway agrees that you reside in Latvia.
Norway has introduced a lot of barriers for emigration taxwise: as long as you own an apartment in Norway, you will be a tax resident of Norway. Also, if you have lived in Norway 10 years before you emigrate, you can only be regarded as emigrated after 3 years (and you have to stay maximum 60 days in Norway per calendar year and not own an apartment or house). If you are emigrated taxwisw, then there is no need to declare taxes there. But as long as you are a tax resident to their internal law, you have to declare taxes, even though the tax treaty says you are a resident in another country.
So by moving from Norway to a country without a tax treaty, you risk paying norwegian taxes 3 years after you move even though you spend no time in Norway. So for many it makes sense to move to a country with a tax treaty. Norway has a wealth tax, and that can be avoided by moving to a tax treaty country (but not always, not a Scandinavian country, for example). The tax treaties are not identical, but in general do not differ much.
- Find out where you will be tax resident according to internal laws. You have to declare taxes and hand in papers as long as the internal law says so. When you are completely out of the system (emigrated tax wise, which takes 3 years in Norway), you are “free”.
- If tax resident in two countries, check the tax treaty. The tax treaty may give you favorable tax rates.