Moving Abroad: Tax Implications for Day traders

One of the advantages of making a living investing in stocks is that you can live wherever you like. However, when you move abroad you might face tax problems if you reside in another country. Almost all countries force you to become a tax resident if you spend more than 183 days in the country.

On the positive side, if your home country lets you emigrate, this opens up new opportunities for tax planning.

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 bureaucracy (although not completely finished yet, and most likely will not until 2015 or 2016). Underneath you will find the points I have learned:

Things to consider when moving abroad:

You can do a lot of research yourself and even make more qualified questions to a tax advisor. I used a tax adviser myself but it was more or less wasted money. My knowledge was just as good as his.

Another option is to contact the tax office/government. At least in Norway, you can ask them to assess your situation before you move. There is no reason to believe they will look at you unfavorably.

Internal law vs. tax agreements

1. The tax authorities first evaluate if you are tax liable according 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 US citizen and a green card holder, you are a US tax resident for life (so much for the “land of the free”).
2. If you are a tax resident in two countries, the double taxation agreement comes into play for items of income mentioned in the treaty (probably at least 90% of most investors’ income). For traders, the article about capital gains will be of importance (for trading profits) or independent services. As far as I know, the general rule is that profits in shares listed on a public exchange are only taxable in the place where you reside. BUT, certain tax treaties are different.
3. 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:

1. He/she shall be deemed to be a resident of the State in which he has a permanent home available to him.
2. 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 (center of vital interests).
3. If the State in which he has his center 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 a habitual abode.
4. If he has a 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.
5. 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.

Tax exit from Norway

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 for a number of years before they accept your emigration. 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 a maximum of 60 days in Norway per calendar year and not own an apartment or house during the period).

If you have managed to emigrate, 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 all tax treaties are amended so that you need to pay this tax for at least three years after you move.

Summary:

1. Find out where you will be a tax resident according to internal laws. You have to declare taxes and hand in papers as long as the internal law says so. If not you are risking penalties (perhaps even prison in grave cases). When you are completely out of the system (emigrated), you are “free”.
2. If you are a tax resident in two countries, check the tax treaty. The tax treaty may give you favorable tax rates.

Good luck!