Before going through the tips for saving taxes while you are living abroad, we must go through the working of taxes first.
No matter where you are working, paying taxes is an important part of your life. In case you try to evade taxes, well think twice as the IRS will track you down irrespective of the fact that you are in your own country or abroad. Different countries have different tax policies it is always advisable for all the citizens to be loyal to the government and never try to evade taxes because eventually the taxes that you pay will be utilized by the government to provide a better lifestyle for all the residents of the country.
Talking about UAE, there is no tax at all. The Arabs do not believe in collecting taxes as it is free money. As the country is a Muslim country, the income from taxes is unjust or it’s of ‘haram’ in Muslim law. In such a scenario the United States tax exclusions come into play. To make this point more clear, if a married couple is earning a salary which is above the US tax exclusion, they could save the first $ 180,000 of the income that they have earned, and they will only have to pay taxes on the surplus money exceeding the exclusion cap. Similarly, if you are a citizen of the United States, who is earning $ 180,000 then you need to pay no tax.
The United States government levy taxes on a global basis so if you are a citizen of the US, it would not be so beneficial for you to work in Dubai. On the other hand, if you are a citizen of the Philippines, and you choose to go and work in UAE, you only have to pay taxes which are applicable in UAE as. This is because the Philippines do not charge tax on a global basis. Now as we have discussed that in UAE the tax policy is not considered, it is good news that every bit you make in UAE will be saved.
Moving on to the tips by which you can save your taxable, you need to understand the taxing system first. The following will surely be helpful for all:
1.Foreign Earned Income Exclusions: Different countries have different laws. In Dubai, VAT registration has become vital for all business persons in order to be eligible for taxes and returns. Firstly, it is important to note that the income that you have earned is through the job you are doing either as a contractor or an employee. Secondly, this income must not apply to passive earnings such as interest, pensions, income from rent or dividends. Also, when you choose VAT registration online, you will know the slab for which you will be charged and how much you will have to pay. As per current tax rules, an online VAT registration process is done and the VAT to be paid is 5 percent.
- Get settled abroad: The next tip to save tax is to permanently shift abroad. Leave everything that you own in your home country and get migrated to the country where you are working. By selling out your apartment, canceling your contracts, you will be showing the urge to leave.
- Take up a Bonefide residence test: This test verifies that you are a bona fide resident of the foreign country for an entire tax year. To be saving tax, it is essential for you to be bonafide of the country and to prove it; you will have to stay in the country where you work for almost a year. It is not that you need to stay in a country by feeling like staying in jail, but your intentions must be shown through this. To make it easier for you the following examples have been listed:
- Firstly, you need to establish a temporary home which can be done by having a lease for a long period of time or by owning a home in a foreign country.
- You can get indulged in social activities that are available in the country. Like getting a library card for a long one year or having a gym membership for a long time.
- As per certain rules, you are required to be physically available in the country which means you have to live there for the specific time mentioned in the policy.
So, all the above-mentioned details will surely help you with saving taxes while you are living abroad. For other details, you can simply opt for VAT registration and read the terms and conditions of that particular country.