Anyone leaving Europe and permanently relocating their residence to another country usually starts by dealing with very practical matters. A residence permit, finding a place to live, perhaps a new bank account – those are the items that tend to top the list. The tax side of leaving often only comes up later. Sometimes not until the first tax return after the move becomes due.
However, the tax relationship with your former home country in Europe does not normally end automatically when you deregister with the residents’ registration office. For tax authorities, a move abroad is an event that is examined more closely. After all, the key question is how a person’s tax position changes once they no longer live in the country.
The authorities are mainly interested in a few basic points: Exactly when did the move take place? Is there still income in the former home state? And are there assets or shareholdings in companies that could remain tax-relevant?
For this reason, many European countries require additional information as part of the final tax return. The move abroad is, in effect, documented “officially” there.
In Germany, for example, this is done via the WA-ESt annex, a form titled “Further details and applications in cases with a foreign connection”. It forms part of the income tax return and is used whenever international circumstances apply – such as moving abroad.
Other European countries use different forms or procedures. The underlying principle, however, is similar: anyone moving abroad must explain how their tax situation has changed.
This becomes particularly important if someone moves to a country with lower taxes. Incorrect or incomplete information can later lead to queries from the authorities or to additional tax assessments.
There are several reasons why tax authorities pay more attention to emigration today than they used to. One is simply the increasing mobility within Europe.
More and more people work internationally, set up businesses abroad or spend part of their lives in another country. Entrepreneurs and investors in particular are far more mobile today than they were twenty years ago.
This most commonly affects countries with large economies. States from which comparatively many people emigrate include, for example:
Germany
France
Italy
Spain
United Kingdom
For these countries, the same question comes up again and again: what happens for tax purposes to people who move their residence abroad?
The answer is usually found in the tax return for the year of departure.
For such cases, Germany uses the WA-ESt annex mentioned above. It forms part of the income tax return and is completed when a move abroad has taken place or other international matters are relevant.
Various pieces of information are submitted to the tax office via this form. This includes, for example, the date of departure or the new address abroad.
Possible foreign income is also queried. Shareholdings in corporations must be declared as well.
This point in particular is of special interest to the tax office. Anyone holding significant company stakes when leaving may, in certain circumstances, be affected by so-called exit taxation.
The form therefore serves two functions: it informs the authorities of the move abroad and, at the same time, helps them check whether specific tax rules apply.
Anyone leaving France must file a final income tax return with the French tax authority (Direction Générale des Finances Publiques). In this return, the following points must be stated, among others:
the exact date of departure
income earned in France up to the point of departure
income that continues to arise from France
People with substantial shareholdings in companies may also be affected by the French exit tax.
Italian citizens who move abroad permanently must register with AIRE (Anagrafe degli Italiani Residenti all'Estero). This registration is completed via the municipality or the relevant Italian consulate.
In addition, the Italian tax return must state:
when the move took place
what income was earned before leaving
whether income from Italy still exists
Without AIRE registration, Italy may continue to assume tax residence.
Anyone leaving Spain must declare this in their tax return to the Spanish tax authority (Agencia Tributaria). This sets the point in time at which Spanish tax residence ends.
After leaving, tax may still arise in Spain if, for example:
there are properties in Spain
income is earned from Spain
a business is operated in the country
Such income is then subject to non-resident income tax (IRNR).
People leaving the United Kingdom must report their departure in their Self Assessment tax return.
Under certain conditions, the tax year is split under the so-called split-year treatment. HMRC then distinguishes between:
the period as a tax resident
the period after departure
On that basis, HMRC decides which income remains taxable in the United Kingdom.
Another reason why moves abroad are scrutinised more closely today is the growing level of international data exchange.
Banks and financial institutions report certain financial information to tax authorities. That data is then exchanged between states.
Programmes such as the OECD Common Reporting Standard (CRS) ensure that international financial information is now far easier to trace than it used to be.
That does not mean that moving abroad is problematic. But tax authorities now have more information than they did a few years ago.
Moving abroad brings many organisational changes. The tax side is often underestimated in the process.
In most European countries, the move abroad must be declared to the tax authorities. Germany, for example, uses the WA-ESt annex for this, while other states use their own procedures or forms.
The details differ from country to country. The underlying principle remains the same: tax authorities want to be able to determine when tax liability ends and which income remains relevant.
Anyone planning a move abroad should therefore think not only about visas, accommodation or a bank account. The tax consequences also deserve attention.
Careful preparation helps to avoid later conflicts with tax authorities and to ensure the transition abroad is handled cleanly from a tax perspective.
