Tax on a Salary Earned Abroad: Tax Residence and What to Do

Where the salary is paid does not decide where tax is due

People often assume that tax follows the employer: salary paid abroad, tax paid abroad. Reality is more nuanced. Each state sets its own criteria for deciding who is a tax resident, and it may tax its residents on all their income, including income from foreign sources.

As a result, an employee can end up taxable in two countries on the same income, or be treated as resident by neither, depending on the rules and on any treaty. For this reason the first issue to settle is residence, before you even look at the amount of the salary or the way it is paid.

• country of tax residence
• country where the income arises
• any treaty between the two
• filing formalities

The facts used to determine tax residence

The usual tests look at your home, your main place of stay, the centre of your economic interests and where you carry out your work. Each state uses its own list and its own order of priority. To prepare, gather concrete evidence: a lease or proof of ownership of your home, your family situation, your children’s schooling and the time you have spent in each country.

Also record your dates of entry into and exit from each territory, your employment contracts, your bank accounts and any other sources of income. This information helps you answer the authorities and justify your position if you are audited. A file built up through the year spares you from reconstructing the facts in a hurry.

Tax treaties: a tool that must be read precisely

Many countries have signed agreements to prevent double taxation. They allocate the right to tax according to the type of income and set tie-breaker rules for cases where a person is considered resident in both states. Every treaty is specific, and how it applies depends on your exact situation.

Do not settle for a general conclusion such as “the treaty prevents any double tax”. It does not remove the duty to file a return, and the method of relief, whether an exemption or a tax credit, varies. European information sheets on double taxation give a first orientation before you approach the competent offices.

Foreign withholding and filing a return are two different things

A salary may have tax withheld by the foreign employer. That withholding does not necessarily settle all your obligations. Depending on your country of residence, you may have to report the income, convert it into your own currency and claim credit for the tax already paid.

Keep your payslips, withholding certificates and proof of payment. Find out which exchange-rate method applies and what the calendar is: filing and payment dates differ widely from one country to another, and some authorities charge penalties for late filing even when the tax turns out to be due in another country.

Papers to file when you leave, while abroad and when you return

When you leave, keep the documents showing the end of your previous situation: your last tax return, tax assessment notice, proof of change of address and any departure declaration made to the tax office. They help demonstrate that you left one tax system and joined another.

While you are abroad, file contracts, amendments, payslips, account statements and proof of housing. On your return, keep evidence that you left the country of employment and documents showing your resettlement. Filing everything in chronological order makes exchanges with tax offices, and with any adviser, much simpler.

Asking the right questions of each country’s tax office

Word your questions carefully: your starting situation, the countries concerned, the dates, the type of income, any treaty and exactly what you want to know. In France, the Direction générale des Finances publiques can inform residents and people leaving the country about their obligations. Foreign authorities have their own services.

Ask for a written answer whenever possible and keep it with the date and the name of the department. A verbal reply does not always bind the authority. If the answers from two countries contradict each other, that is a sign your situation needs professional help suited to this cross-border tax relationship.

When to call in a specialist tax adviser

An adviser is useful when you have income in several countries, a home in each, substantial assets, self-employed activity on top of your salary or an unclear status. It also helps on a first expatriation, when the rules for leaving and returning pile up.

Choose a professional who knows both systems involved, ask what the engagement covers and how the fees are set. Beware of promises of spectacular tax savings. An adviser’s job is to make your position secure, not to make it opaque.

A yearly calendar so nothing slips through

At the start of the year, reread the filing rules of the countries concerned and note the deadlines. In spring or summer, depending on the country, prepare your income documents. Throughout the year, update your table of days spent in each place and your list of changes in circumstances.

At year end, check that the amounts withheld match your payslips, request the certificates you need and keep proof of payment. This regular rhythm avoids last-minute rushes and lets you spot an anomaly early, such as an incorrect withholding or a period of residence recorded wrongly.