Tax residence Part II: Dubai, Paraguay and Panama
In the case of foreign income or residence, it can sometimes be difficult to adjust tax liability. You may have tax liabilities in several countries at the same time. In a previous article, we have already discussed the criteria for determining the tax residence.
Now we will give you concrete examples of how your tax liability as a private individual is affected if you are in a country with a double tax treaty or if the two countries have not concluded such a treaty.
Tax residence: double taxation convention
Fortunately, if you are taxed in two countries and there is a double taxation convention between them, you only have to pay tax in one of them. However, it depends on the treaty as to how the two countries decide where you are taxed. It's also important to know that each country will decide what type of income qualifies as income under its own local rules. Thus, the double tax convention gives precise guidance on tax residence, failing which it is possible to determine which country an individual is tax resident in and which income is taxable in based on their permanent residence, habitual residence, personal family and economic ties, closest family ties, centre of vital interests, nationality.
Tax residence in Dubai
From Double Taxation Avoidance Convention between the United Arab Emirates and Hungary is in force. You should know that you don't have to pay tax in Dubai as an individual. So, if you are an employee, your wages will not be subject to personal income tax, social security or SZOCHO, for example, as in Hungary.
In principle, you will be taxed in the UAE if you are resident in the country. If you are resident in both countries, or would otherwise be considered a resident in both places for other reasons, the following factors may determine your choice under the Double Taxation Convention, in order:
- Permanent residence,
- Family and economic relations,
- Habitual residence: it's worth knowing that as a private individual, you are tax resident in the country if you stay for more than 183 days a year,
- Citizenship.
For example, if you have a habitual residence in both countries, or in neither, you will only be considered a resident for tax purposes in the country of which you are a national. In the case of dual nationality, the two countries settle the issue individually.
Find out more about Dubai tax residence in connection with.
Tax residence: without a double tax treaty
If you are staying abroad for 183 days or more or have a permanent residence abroad, you may also be subject to foreign tax in addition to Hungarian tax residence.
This issue is more difficult to resolve if we do not have a double tax treaty with the country. Examples are Panama and Paraguay.
In these cases, you will also have to pay tax in Hungary on your foreign income. Even if you do not live in Hungary. But the 90% of the tax paid abroad can be offset against your Hungarian tax. If we are talking about separately taxable income and the tax residence is Hungary, we will be liable for 15% SZJA on our income, in which the tax paid abroad can be offset against the 90% tax paid, but we will still have to pay a minimum of 5% tax to the NAV.
Source: freepik.com
So, for tax purposes, you will have to pay Hungarian income tax on your foreign income unless you earn income or settle in a treaty country that allows you to do so. In a country without a convention, the only way around this is to be a dual national. This is why many people choose, for example Panama resettlement and later citizenship.
If you are unsure about your non-resident status, you can contact the tax authorities of the foreign country and ask for a certificate of residence for the period in question. If the country's tax authority issues a certificate of residence, you can establish that you are resident in the foreign country. If the foreign country refuses to issue a certificate, it means that you have not yet acquired tax residence there.
The certificate can be useful to prove that you earned the income as a foreigner in the event of a possible NAV audit.
Tax residence Panama
In Panama, income from abroad is tax-free. However, as a Panamanian resident or citizen, you will be taxed on your Panamanian income. Interest on Panamanian government securities, interest on savings accounts and time deposits held in Panamanian banks are exempt from tax. Your income is also not subject to local government taxes. There is no wealth tax, inheritance, estate or gift tax in Panama.
Find out more about Panama company formation and taxation where you will also find information for individuals.
Tax residence Paraguay
You must pay tax in Paraguay on employment in Paraguay or on capital and real estate income earned in the country. By default, you will have to pay an income tax of 10% on your income if the amount exceeds 36 times the minimum wage per month, which is currently 13 000 $ per year. In order to avoid double taxation, it is advisable to seek advice from a team of experts with extensive experience in both establishment and taxation.
Find out more about Paraguay taxation in connection with.
Tax residence for tax purposes
If you do not plan to bring the money you earn back to Hungary, but want to spend it abroad, banks will always ask and check your tax eligibility.
Tax eligibility is usually determined by the bank on the basis of the personal documents and certificates submitted. These may be an identity card, permanent residence permit, bank account statement, entrepreneur's identity card, proof of address.
Source: freepik.com
Taxability of income from real estate investments
It's important to know that income from real estate investments is only taxed in the source country if there is a double tax treaty between the two countries. So income from the sale or rental of your foreign home is not taxable in Hungary.
If there is no double tax treaty with that country and you are clearly a Hungarian tax resident, then the gain on sale of propertyis considered as other income, so 15% VAT + 13% SOCHO was charged to.
Under Hungarian law, regardless of whether the property is located abroad, the for rent is considered as separately taxable income, 15% VAT is charged to your income, which can be counted 90% of the tax paid abroad, but you still have to pay at least 5% in Hungary.
Experienced and professional help with foreign tax liabilities
If you still have questions about your tax status or you're looking to set up in a tax-friendly country and want to make sure you're compliant, our expert team can help you.
Why choose the OrderOffshore team?
- The strategy we advocate and practice is the result of the work of several tax advisors and international experts.
- We guarantee fast, professional and legally sound solutions at a low cost and high quality.
- We have an essential network of contacts for foreign establishment, including many renowned international tax planning and advisory firms.
- We focus on the best international tax solutions, so we keep you up to date with the latest information.
- You can count on 100% discretion from us.
- If you want to grow your wealth more efficiently and safely, contact us for legal and personalised solutions and fill in the form or contact us.
