What are expat regimes?
During this age of growing globalization and e-commerce, the need to have a physical office to execute business activities has grown less and less. This in combination with the regulations created in many countries around the globe during the COVID epidemic, has people grown attached to the ease and pleasantness of working at home/on the go. Nowadays, it is easy to have a company you own or are working for while you are traveling/settled throughout the world. Especially in the service sector, where a high percentage of activities are executed on the internet. When you combine this with the option of having structures optimizing your tax status whilst doing work as an expat, it creates a very favorable situation.
To delve further into the subject of expat regimes, we need to identify what an expat is exactly in the first place. An expat or more commonly known as an expatriate, is an individual living/working in a country other than their country of origin/citizenship, often for work reasons and temporarily. An individual who relinquishes their citizenship in their home country to become a citizen of another is also viewed as an expat.
Examples of expat regimes
Mexico has a long history of welcoming expats and foreign workers into its rich cultural heritage. Moving to Mexico will be rewarding, as there are a lot of expats in Mexico already. It’s seen as an important gateway into world markets for many multinational companies within the tech, finance, advertising and HR industries.
Income tax on personal income depends on how much you earn and your residency status. Non-residents living in Mexico are only taxed on the income they earn in Mexico. To give you a broad idea of income tax rates, residents can pay anywhere from 2 to 35%, while non-residents and people on a work visa will pay between 15 to 30%.
Mexico is one of the easiest countries to get a residency visa. The process is very straightforward and inexpensive. You simply have to prove you have enough funds to cover your cost of living and pass a simple immigration interview done at the Mexican Consulate nearest you. There are two types of residency visas: Permanent or temporary. The main difference between the two visas comes down to income requirements.
During your interview, you will be asked by Mexican immigration officials subjects such as how you plan to cover your expenses in Mexico, if you receive a pension or social security, whether you are gainfully employed, how you earn a living, and what your reason for wanting to live in Mexico is.
It is advised to hire an attorney or facilitator during this process. This because some of the paperwork does require to be translated to Spanish.
Indonesia is a popular destination for digital nomads due to the low cost of living and abundance of cafes with good internet connections. Nomads/Expats often settle in Bali, which has turned into one of the world’s most popular hotspots in recent years.
As an expat, it will be easier to find employment with an Indonesian employer before you enter the country to give you enough time to apply for your visa and work permit, and for your employer to sponsor your visa application.
Bali has officially finalized a new digital nomad visa ( September, 2022), which will allow remote workers to reside there tax-free for up to six months. A five-year iteration is currently being discussed.
An expatriate working in Indonesia has the option to apply for a territorial income basis with several requirements. For example, the expatriate must have particular expertise. In addition, it is only valid within 4 fiscal years from obtaining a Tax ID, does not apply to expatriates who utilize Tax Treaty, and the expatriate has to apply and provide the supporting documents to the Tax Office to receive this benefit.
Additionally, non-residents are only liable to pay personal income tax (PIT) for Indonesian-owned income, unlike their tax-resident counterparts who are taxed on the income they earn in Indonesia and abroad; unless there is a Double Taxation Avoidance Agreement between the individual’s country of residence and the Indonesian government.
The Dutch tax regime for people working in employment is quite rigid if it comes to deductions of expenses. The general rule of thumb is that employee costs can not constitute a tax-deductible item. However, an employer can decide to compensate the expat employee tax-free for certain conditions. A good example would be a travel and stay allowance for staying in a foreign country.
In the Netherlands, there is a kind of tax called the 30% ruling. This means if you are hired abroad to work in the Netherlands. Your employer can pay 30% of your salary as a tax-free allowance. If you meet the conditions of the ruling. The employee must reside abroad and work for a company that is registered with the Dutch tax office, their salary needs to meet the minimum requirement of €38,347 (in 2020).
The notable feature of this regime is that the employer does not have the obligation to substantiate the exact amount of expenses made by the employee.
Portugal in particular is highly regarded as a country for expats for its tax incentives available to expats and its low living cost. In 2021, Portugal ranked 4th in the top 5 countries for expats. Above 80% of the expats that traveled there were satisfied with their lives.
Expats must register themselves as taxpayers before they can start earning money. A NIF (Numero de Identicacao Fiscal) will then be obtained. It is required to submit an annual income tax return.
The NHR, a non-habitual residence tax regime, was set up in 2009. The non-habitual residence has tax benefits for the first 10 years. A flat rate of 25% is calculated, it does not matter what level the income is. There is a reduced tax on dividends, and other income from investment, and in some cases the income can be exempt from tax. There is no inheritance, gift, or wealth tax regarding expats.
Top 10 expat regimes ( 2021)
6. United Arab Emirates
What can we do for you?
We offer full compliance packages for employers and employees. For most of the standard payroll work and employer’s assistance, fixed price lists apply.
We advise employers and employees on tax issues concerning secondment daily and handle associated compliance matters.
We can amongst others handle the following:
- Tax registration of employers and employees
- Applying the 30% regulation (Netherlands)
- Drafting Employment Agreements and Employment Manuals
- Deal with required adjustments in the employee’s labor agreement
- Application procedure for work and/or resident permits
- Dealing with registration formalities.
- Dealing with expatriate tax compliance matters, such as filing the annual income tax return, checking assessments, etc.
If you wish to receive more information, please feel free to contact us via e-mail, call us at +31 6 185 202 99 or fill in the web form at www.doing-business-international.com/contact/