Citizens living abroad should be up to speed on the tax code that applies to them. Tax laws will vary from country to country and even citizen to citizen in the same tax jurisdiction. Taxable foreign income and the amount of foreign income that is tax-free or eligible for foreign income tax credit will depend on your country’s tax rules and regulations.
Many counties have double taxation agreements and income tax treaties with foreign countries to avoid double taxation, providing some tax relief on income earned abroad.
Worldwide tax liabilities will vary, so ensure you know the rules when completing your tax return. Some counties will have citizen-based taxation, while others will have residency-based taxation.
For example, there are different tax rules for what are known as “non-resident aliens” and “resident aliens” in the US. Non-resident aliens are only liable to pay taxes on income earned from business activities within the US, whereas resident aliens and citizens must pay taxes on worldwide income.
Many jurisdictions impose rules limiting the amount of tax you need to pay in certain circumstances, and some countries may have more lenient tax laws than others.
It is best to be well-versed in tax affairs. Tax havens like the Cayman Islands have very low tax rates for companies and foreign investors in certain circumstances. Speaking to international tax specialists can help you better understand the law regarding international tax.