How to avoid taxing times working abroad

Once upon a time Kiwis were urged to see their own country, before heading overseas to travel. These days it's probably more important to see a sharp accountant before you take up a juicy job offer.

Salaries in countries such as Australia, Britain, USA and Dubai are enticing Kiwis overseas - especially to 'tax free' ones such as Dubai. But the headline figure doesn't tell you how much you'll have in your hand at the end of the month.

If you are going on an overseas assignment with your firm, the chances are they'll employ a relocation specialist - which will help make the transition easy. But if you've spotted a job in Dubai (and there were 26 listed when we checked on search4jobs.co.nz) then you'll need to do some detailed legwork - finding out how much you'll really have in your hand at the end of each month.

Rebecca Grbin, associate tax partner at Deloitte says she has seen potential migrants change their minds about leaving New Zealand when the tax implications were spelled out to them.

"If for example they are going to Dubai and are only going for a year, they are not going to lose New Zealand tax residency."

That means that you pay tax at New Zealand rates here. Or at least you do if you ever want to return.

While you may have rocked up in Sydney or London on your OE and then sorted out the details. Taking this approach mid career might be bad for your wallet, says Juliet Connolly, director of UK Expat, a tax specialist based in Britain.

"Many people often do not appreciate that most tax planning should have been done prior to arriving," says Connolly. "(For example) bringing money into Britain can inadvertently cause a British tax bill to arise."

In Britain, she says, depending on your tax residence and domicile (a legal term used to describe the place where a person has chosen to make a fixed and permanent home) there are a number of expatriate tax reliefs available to you.

If you do qualify, and many Kiwis get caught with this because Britain's domicile will depend on your father's domicile, you can save thousands or even tens of thousands of pounds each year for time you spend travelling for work and days worked overseas while you are in Britain thanks to the "detached duty relief" and "overseas workdays relief".

Your accommodation and food costs while in Britain can be included as well. You may also avoid British national insurance contributions (a tax towards health and social security benefits) for part or all of your assignment.

Grbin says tax-wise Dubai and Britain are also "pretty favourable" for Kiwis to move to - providing their tax affairs are correctly structured before they leave New Zealand. The US is not as attractive. From July Australia is introducing incentives for foreign workers to go there.

You won't just need to consider personal income tax. Capital gains tax on your investments can be an unexpected killer. Each country is different. In the US, for example, says Grbin you will pay capital gains tax on all of your world-wide investments, which isn't currently the case here in New Zealand.

Australia's new rules will mean that anyone on a temporary residents visa - which is effectively most Kiwi passport holders, will only pay tax on their Australian-sourced income, not international income. That means that providing you're no longer tax resident in New Zealand, then any investments you keep out of Australia won't be taxed.

Should you leave rental property or shares in New Zealand, says Grbin, then you'll need to pay foreign resident with-holding tax on income from those investments, which is usually less than you'd pay as a resident. However, if you were to move your capital to a tax haven such as the British Virgin Islands or the Channel Islands, then you'd receive your income and capital gains gross.

Tax breaks are also important and it can be difficult to calculate the overall value to you. In Britain, for example, there are numerous tax breaks ranging from annual capital gains tax exemptions, currently £8,800 ($26,000) for 2006/7, tax-free individual savings accounts that allow you to invest £7,000 a year tax-free in shares, generous pensions rebates, which mean private pension contributions are tax-free - which is worth 40 per cent for higher rate tax payers.

Another factor that needs to be considered is "double taxation" treaties. With the US, Britain, Australia, and Dubai, the governments have reciprocal agreements with New Zealand which mean you may not be taxed twice on the same income. However, if you had a temporary assignment in Hong Kong, that doesn't have a double taxation agreement, you could end up paying the equivalent of PAYE in both countries on your income, if you haven't broken New Zealand residency.

Connolly warns that there are certain conditions which need to be satisfied to obtain treaty relief/exemption and workers can get a nasty shock.

All the tax experts the Herald spoke to said it is worth getting expert tax advice in both the countries of origin and the country you planned to move to in order to take advantage of sometimes little-known tax breaks.

In Australia, says Grbin there are tax-free 'living away from home allowances', which reduce your overall tax bill. In the case of someone being offered A$100,000 salary, for example, it might be more tax efficient to reduce the salary to A$80,000 with an A$20,000 tax-free living away from home allowance.

Then there's the question of the cost of living in the country you're going to. A number of companies provide this information for clients.

Someone seriously considering a move might want to get a report from US-based Economic Research Institute (ERI) or a similar organisation. ERI reports cost from US$200 and compare the cost of living in hundreds of international cities.

Or for a light-hearted look at what your cost of living will be in your desired country, see the Economist magazine's Big Mac Index. The Big Mac prices are a takeaway guide to how much goods cost in other countries.

Major exchange rate movements can also devalue your earning power. And unless you're lucky enough to have your company paying for the move, you'll need to pay for air-fares, shipping and also insurances. At the other end you'll probably need to buy new items such as cars, white goods, furniture and even small household goods such as gardening equipment,

There are other questions to be considered. Whether you rent or buy property in your new location. And whether your spouse will be able to work is another.

Tax tips for working abroad

* Get tax advice before you leave. It could save you many thousands of dollars.

* Don't just consider income taxes. Capital gains tax can be a killer.

* Check if your spouse can work in the country of destination. This could have a major impact on your family income.

* A 50 per cent rise in salary means little if your living expenses go up by 75 per cent

* Quality of living is also important

* New tax rules from July make Australia more attractive