This article will discuss capital gains taxes for expats. Whilst it shouldn’t be considered as tax advice, it gives you a general guide about rates which might apply.
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Tax – Tax is a type of mandatory fee imposed on an individual living in a country by that country’s government, which can be at a local level, state level, or national level.
The funds that have been collected in the form of taxes will be used by the government to fund developmental activities and expenses.
Taxes are levied on various sources of income such as earnings, properties, wealth, etc., on individuals as well as businesses.
There are different types of taxes such as income tax, business tax, wealth tax, property tax, capital gains tax, inheritance tax, value-added tax, and many more.
Taxes may or may not be imposed on an individual based on many key factors such as the country, income, residency status of a person, and others.
So, in order to concentrate on our topic for today, which is about the capital gains tax for expats, we will be concentrating mostly on the capital gains tax.
Capital Gains Tax – So, what exactly is a capital gains tax? In order to have a better understanding of this term, let us first have a look at capital gains.
Capital gain is a rise in the value of capital (principal amount) of an asset. It is determined by the value of the asset during the time of its sale.
Usually, capital gains are applicable are determined on the sale of assets such as stocks, bonds, precious metals, properties (excluding gifts and inherited properties), and real estate.
The tax that is charged on the capital gains, which can be either for individuals or corporations, is known as ‘Capital Gains Tax’.
Not all the countries in the world impose capital gains tax on an individual. Different countries have different tax rates for people and companies. However, some countries do not impose capital gains tax, out of which some notable examples are:
- Cayman Islands
- Isle of the Man
- New Zealand
- Sierra Leone, etc.
Generally, the tax rate for capital gains tax is calculated on the basis of the income that has been earned and also on the annual income of that party (individual or corporation).
Expat – In simple words, an expat is a person, who has left their country of residence to live in another country. There are many reasons for a person to leave their country of residence such as employment, education, retirement, etc.
Expats could live in abroad countries on a temporary basis or they can be able to renounce their citizenship in their country of origin to get the citizenship of the country in which they currently reside.
Expats are subjected to tax in the country of current residence as well as their country of origin, depending on the country they are from and the country they are residing in.
For example, ‘United States’, along with ‘Hungary’ and ‘Eritrea’, imposes taxes on its citizens even after they obtain permanent residency status in another country.
This is done because these countries do not individuals to get away without paying taxes by giving up the country’s citizenship, especially people having higher net worth or earning more money.
Countries like Canada impose a tax (known as Departure Tax in Canada) on capital gains if the person wants to sell their assets after leaving the country.
Capital Gains Tax for Expats:
Coming to our topic which is about the capital gains tax for expats, we will have a look at the situations in some major countries (regarding capital gains tax).
In any of the below-mentioned situations, if it hasn’t been specifically determined whether the situation is for residents or expat, please notice that all these details are explained keeping expats in mind.
In some cases, we haven’t been specific because the situation is similar for expats as well as residents.
We will also be having a more detailed look at this situation for expats in the UK.
Australia – The Capital Gains Tax is applicable to the Australian residents in such a way that they will be charged on the capital gains arisen from the sale of assets (worldwide), which are personal property, real estate property, and shares.
Any sort of profits made from these capital assets would be concluded as income and will be taxed as per the marginal tax rates in that specific year.
If the asset has been held for at least 12 months by a certain individual, then the gains would be eligible for a discount of 50%.
Temporary non-residents, as well as permanent non-residents, will be charged on the capital gains arising from the sale of an Australian Property that is taxable.
Taxable Australian Property generally includes, but is not limited to, the direct and indirect gains made from an Australian Real Estate Property.
Austria – Generally, capital gains are considered as taxable income regardless of the holding period, such as income obtained from capital investments, dividends, and others.
The capital gains tax rate is 27.5%, however, this can be reduced in case of certain types of capital gains like interest obtained from a savings account/current account.
In the majority of the cases, the capital gains tax in Austria is deductible at source. for example, this can be observed while dealing with the Austrian Banks.
Belgium – Normally, capital gains tax is not applicable to individuals in Belgium. Anyhow, the capital gains arisen from the Belgian Real Estate, especially short-term, might be taxable based on certain circumstances.
Brazil – Based on the income tax code of Brazil, the tax rate for capital gains is around 15% to 22.5%.
If a person has purchased the capital asset before becoming a resident of Brazil, then he or she won’t be subjected to this tax in Brazil.
Canada – Only half of the overall capital gains made from the sale of a capital asset are included while calculating the taxable income in Canada.
Allowable capital losses, which is half of the capital loss, can be made applicable against the capital gains that are taxable, and couldn’t be deducted against any other channel of income in the respective year.
Allowable capital losses, which couldn’t be claimed in the current year to offset the capital gains, can be carried three years to be made applicable against the capital gains (that are taxable) if any were to occur.
Capital gains made from the sale of a person’s primary residence won’t be subjected to capital gains tax. This primary residence can even be located outside of Canada.
It should be taken into consideration that people are only able to choose only one property to be their primary residence as per the calendar year.
An amount of around $883,384 can be excluded from the capital gains made by the disposal of Canadian Private Controlled Corporations (CPCC).
Given below is the information about the capital gains tax rates in Canada, which is combined with the federal as well as provincial taxes.
- British Columbia: 24.9%
- Alberta: 24%
- Saskatchewan: 23.75%
- Manitoba: 25.2%
- Ontario: 26.76%
- Quebec: 26.65%
- New Brunswick: 26.65%
- Prince Edward Island:25.69%
- Nova Scotia: 27%
- Newfoundland and Labrador: 25.65%
- Northwest Territories: 23.53%
- Yukon: 24%
- Nunavut: 22.25%
China – In China, capital gains tax is generally subject as per the tax rate of individual income tax (IIT), which is stated as income from the transfer of property.
As per the up-to-date data, there are no concessions in the case of expats on the standard deduction.
However, a tax credit is made available to the individuals where the foreign-sourced income is also subject to the Individual Income Tax. Therefore, this credit is only for domiciled people or people who have lived for more than 6 years in China.
The IIT tax rates for non-residents are given below. For people who are responsible for their own IIT, the tax rates are as follows:
‘Note’ – It should be noticed that QRD (Quick Reckon Deduction) is the amount that will be deducted from the tax rate to determine the final monthly IIT.
It is calculated as Monthly IIT = tax rate – QRD
|Monthly Taxable Income (RMB)||IIT||QRD (RMB)|
|3,001 – 12,000||10%||210|
|12,001 – 25,000||20%||1,410|
|25,001 – 35,000||25%||2,660|
|35,001 – 55,000||30%||4,410|
|55,001 – 80,000||35%||7,160|
|More than 80,000||45%||15,160|
In the case of non-residents, for whom the monthly IIT is supported by their employer, the tax rates are as follows:
It is calculated as Monthly IIT = (taxable income – QRD) ÷ (1-tax rate) x tax rate – QRD1 – tax rate.
|Monthly Taxable Income (RMB)||IIT||QRD (RMB)|
|2,911 – 11,010||10%||210|
|11,011 – 21,410||20%||1,410|
|21,411 – 28,910||25%||2,660|
|28,911 – 42,910||30%||4,410|
|42,911 – 59,160||35%||7,160|
|More than 59,160||45%||15,160|
- These rates are provided as per the data obtained on 31st October 2020 and may vary by the time you read this article.
Czech Republic – Capital gains occurring from the sale of stocks, bonds, or real estate are usually taxed as the income that has been obtained for companies as well as individuals in the Czech Republic.
In general, the tax rate for capital gains in the Czech Republic is 15% for people and 19% for corporations.
The profits gained by a shareholder from the sale of shares which belong to a Czech company are determined as Czech-based income.
Anyhow, the Czech Republic has a double taxation treaty with many countries, which might relieve the individuals from the Czech tax implications.
The sale of a person’s primary residence will be excluded from the capital gains tax if the individual has been owning that asset for at least two years.
If the asset has been held by the person for around 5 years, then the property is exempt from the capital gains tax, even if it is not their primary residence.
France – In France, the capital gains on shares are taxable at a flat tax rate of 12.8%, which is also applicable to any other sort of investment income.
On the other hand, a taxpayer is able to choose the application of a progressive tax rate in the case of taxation for capital gains.
These aforesaid tax rebates are only applicable if the shares have been purchased prior to 1st January 2018, when the flat rate has been made applicable to the shares.
These rebates apply at a 50% rate after the person owns the shares for at least 2 years and 65% after owning for a period of 8 years.
There is also an incentivized tax regime in effect, which allows an individual to have a benefit of 50% after one year, 65% after 4 years, and up to 85% after an 8-year period (subject to certain terms and conditions).
As for the capital gains on real estate, while calculating the capital gains, the individual is entitled to tax allowance per year of ownership after owning the property for at least 5 years.
This allows the individual to be exempt from the capital gains tax after 22 years of ownership of the asset.
Germany – In Germany, individuals are subjected to a withholding tax of 25% along with a solidarity surcharge of 5.5% and church tax (if any exists). This is applicable to the income earned from investments and on capital gains as a flat tax.
Ireland – The capital gains tax is applicable to the disposal of assets in Ireland as well as capital gains from worldwide assets.
The assessment is done on the basis of remittance which is applicable to the specific individual’s domicile and residency status.
The current tax rate for capital gains in Ireland is 33% and can be around 40% in certain cases such as gains from foreign policies or foreign investment products.
Italy – Capital gains or losses are equal to the difference that occurred between the proceeding of a sale and a purchase cost. The capital gains obtained after 1st January 2018 are entirely subjected to tax.
The tax rate of capital gains in Italy is a flat rate of 26% and is applicable when the capital belonging to investments that are held in black-list countries are laid open to progressive taxation.
In a case where the losses exceed the gains, the difference can be carried forward for a period of up to five years to be used against the future capital gains that will occur within these five years.
Anyhow, the losses couldn’t be deducted against any other sources of income in that year.
Japan – Capital gains (on stocks and real estate property) are taxed separately from other sources of taxable income. Residents are subject to higher tax rates because of the Local Inhabitant Tax.
Capital gains on real property, which has been held for a time period of more than 5 years (as of 1st January of that year) will be taxed at a long-term rate of 20%, which includes 15% National Income Tax and 5% Local Inhabitant Tax.
Real properties held for a period less than 5 years are taxed on a short-term basis at a rate of 39%, which includes 30% National Income Tax and 9% Local Inhabitant Tax.
There is also an additional surtax of 2.1%, which will be applied to the National Income Tax.
Capital losses on the real property can be deducted against the capital gains on real property only, which can be carried forward for three years on the primary residence of an individual.
On the sale of foreign listed shares, the tax rate is 20% (which includes 15% National Income Tax and 5% Local Income Tax), along with a 2.1% surtax on National Income Tax.
Capital losses from the sale of shares can be made deductible against the capital gains of the shares in the same year.
Malaysia – There is no specific capital gains tax in Malaysia, however, Malaysia levies capital gains in form of real property gains tax (RPGT).
This is applicable to the sale of real properties in Malaysia and gains on the shares from the closely controlled companies that are invested in real properties.
Portugal – The capital gains tax in Portugal is applicable to the sale of real estate properties, shares, etc.
For the non-residents who obtained gains from selling a property located in Portuguese, a flat rate of 28% is applicable.
If 24 months have passed between the date of acquiring the property and the date of selling the property, then changes can be made to the acquisition price by a coefficient to cope with inflation in that particular period.
Capital gains on the sale of shares have a flat tax rate of 28%, which is the same rate for residents as well as expats.
Puerto Rico – Long-term capital gains have (more than one year) tax rates are subjected to a flat tax rate of 15% and short-term capital gains (less than a year) are subject to the tax rates of regular income tax.
An expat is subjected to tax on capital gains depending on their residency status and source of the asset from which the capital gains have occurred.
Singapore – Singapore does not have a specific capital gains tax, however, income from trading and transactions (capital) are subjected to taxation.
Spain – Non-residents are taxed on the interest, dividends, and capital gains at a tax rate of 19%, while Spain also has Double Taxation Treaties with some countries.
Switzerland – Assets that are movable properties (excluding business) are exempt from taxes. Immovable properties are subjected to real estate capital gains tax.
Based on the municipality of location, real estate taxes are imposed on a cantonal level or a municipal level and sometimes even both.
The UK – Her Majesty’s Revenue and Customs (HMRC) has made some new rules on capital gains, which have been in effect since 6th April 2020.
These rules are primarily concentrated upon the buy-to-let landlords and people who own a second home, in both these cases are selling their homes which are not listed as their primary residence.
It has also been made clear that these capital gains taxes would have been paid within 30 days after the sale takes place.
Previously, if a person was selling their primary residential property, they could become eligible for tax relief for the period that they have lived in that property considering all the time in their ownership period.
Non-UK residents selling UK property have the option for a chargeable gain on the sale assessed against the market value of the property (as of 5th April 2015).
While opting for this, a tax relief of 9 months is available for the total period of ownership starting from 6th April 2015 up to the date of sale (only if that property was the primary residence of that particular person).
Before 6th April 2015, no capital gains tax should be due regarding the sale of a UK property by a non-UK resident.
This rule is known to have a high amount of impact, especially on British expats and non-UK residents owning a property in the UK. Adding to which, people who have buy-to-let agreements in order to generate annual income are also affected.
If you are an expat, it is better to consult and take suggestions from a professional tax advisor, so that you can have a more detailed idea on this aspect. You should also try to find the information about the property value as of 5th April 2015.
- ‘Capital Assets subjected to capital gains in the UK’:
Capital Gains are imposed on all types of properties, certain types of gifts, inherited assets, shares, assets obtained on the basis of divorce or dissolved civil partnerships, etc.
- ‘Tax Rates in the UK’:
For the taxable gains and income ranging more than the basic income tax rate band, the rate for capital gains tax is 28%. For gains ranging lesser than this limit, the tax rate is 18%.
People who acted as representatives or are trustees of a deceased individual are taxed at a rate of 28% as well.
For properties that are non-residential and other types of assets, the tax rates are 10% and 20%.
- ‘Capital Gains in the UK for British expats’:
Previously, people could leave the UK for a year and then sell any of the profitable assets without having to pay the capital gains tax. However, this has been changed and now the person is required to be a non-resident for at least 5 complete years.
Even though a person can be deemed as a non-resident for income tax purposes, he or she would be still treated as a non-resident on a temporary basis for capital gains tax purposes for a time period of up to 5 years.
Gains made during this specific time period will be taxed if the individual was ever to return again to the UK within these 5 years.
Any asset such as a portfolio investment, which is not related to property, if acquired after leaving the UK, then the gains obtained are not subject to the capital gains tax if the residency status was maintained as a non-resident.
If the country of current residency has a double taxation treaty with the UK, then that person won’t be charged with the capital gains tax in the UK. Instead, they will be taxed for capital gains in the current country of residence.
- ‘Tax Reliefs’:
There are different types of tax reliefs that can be helpful for an individual to reduce their chargeable gain.
Rollover or Holdover relief on the replacement of a business asset – This allows a person to reduce the chargeable gains on a business asset if they invest in a new business asset within one year.
Business incorporation relief – When a business is transferred in exchange for shares.
Holdover gift relief – this is available on gifts of business assets or gifts in the form of trusts until the person who received them (or a trustee) won’t be charged until they sell it.
Entrepreneur’s relief – this allows the sale of a specific part of the business or the entire business for reducing the CGT rate to 10%. The lifetime limit from 6th April 2020 is £1 million, which used to be £10 million previously.
- ‘Deductible Capital Losses’:
Capital losses on an asset can be used against the capital gains made in the same year. In case of unused capital losses, they can be carried forward up to a time period of 5 years and 10 months from the year that they occurred.
- ‘Tax Allowance’:
A tax allowance of £12,300 is available for the tax year 2020 – 2021, therefore, gains up to this limit are exempt from the capital gains tax.
- ‘Other Exemptions’:
- Sale of the main residence (which is chargeable in some conditions).
- Transfer of assets between spouse or civil partners.
- Wasting assets.
- Non-wasting business chattels for which the gains don’t exceed £6,000.
- Certain cars.
- Gifts to charities/sports clubs.
- SAYE contracts, certificates of savings, and premium bonds.
- Winnings from betting or lottery prizes.
- Life assurance policies.
- Company reorganizations and takeovers having a share for share exchange policy.
- Compensations for damages or injuries (either professional or personal).
- Some types of compensation pay-outs for pensions that have been missed.
- ‘Tax declarations while selling property as a non-resident in the UK’:
While selling a UK residential property as a non-resident, a person is required to report to the HMRC, even when there are no capital gains to declare. This is also applicable when a person is selling or has sold their primary residence.
In failure to do so within 30 days after the transfer of ownership, a penalty is likely to occur even when there is capital gains tax that is needed to pay.
The USA – In the United States, long-term capital gains tax (sale of assets held for more than 12 months) range between 0% – 20% based on the taxable income of an individual. Short-term gains are taxed at a higher rate than this.
People owning property abroad while being an American citizen are not subjected to a capital gains tax.
Sales of properties in the United States, which exceed $250,000 are subject to taxation. Anything under this limit won’t be subjected to a capital gains tax.
People who pay capital gains tax in a foreign country can make use of the IRS Foreign Tax Credit while filing for tax returns for each and every dollar they paid in other countries.
This lets the American expats to be relieved of the double taxation on their capital gains.
This article covered a lot of situations on the aspect of capital gains tax in various countries. If you require more information or guidance on this topic, you can approach us.
That being said, if you are searching for a professional financial advisor/wealth manager, you can be able to avail of the expert financial services offered by us.
We hope that you have successfully found the relevant information that you have been searching for, with the help of this article.