Practically, you can move when your documents are ready, but it’s best to prepare in advance to avoid double taxation. A little bit of planning can save you a great deal of headache, or at least some money which is never a bad thing.
What should you do?
- Read a double taxation agreement between a country where you currently live and the country you relocate to, to check the conditions of tax residence. Usually, it is over 183 day a year.
- Move only when you secure your tax residency - at the end of August, September or October, depending on how much you’ve traveled in the current year and how many days you have spent outside of the country of your current residence. Another good time to move is the beginning of the year. January sounds good, doesn't it?
- Withdraw all you have to pay yourself before you enter the new country. It’s best to liquidate an old company as soon as you can. This will allow you to pay out second-time dividends, which is by far the easiest option.
- Do not pay yourself from a new company and from a new country during the year when you're a tax resident of your previous country. In case you’re moving in the beginning of the year, pay all you have to before the last year has ended.
As you can see, you may use two different strategies to avoid most of the headache:
- Stop paying yourself a salary in June to July. Liquidate the company, and pay out dividends in August to September. Move to a new country when your tax residence is secured and all company funds are withdrawn - September to October, but in some cases it may also be August or November. Start paying a salary from a new company from 1st January. You will have a few months to get all the paperworks in order.
- Stop paying yourself a salary in September to October. Liquidate the company and pay out dividends up to the middle of December. November would be perfect to be on the safer side. Move to a new home in January - February, and start paying a salary from the new company as soon as you would like to.
A few notes:
- After liquidation and paying the final dividends, a company may still formally exist and you may still account for liability. This will depend on the local laws and regulations.
- The first option will save you time, but will require showing your income from the current country of residence to the tax office of your destination. You won't pay taxes at the new place, but you should still send all tax-related forms and proof that your tax payments are up to date, and how much you’ve been paying.
- The second option will require more cash because once you move, your new company may not have enough funds to pay a salary. Also, you run a risk of delays, which could mean that if you pay dividends in January, you would have to pay taxes in both countries.
What did I go for? I'm planning to move to my next country around August, or at least have all the documents ready by then. Occasionally it takes longer than I expected but still in the calendar's year.
And filling in just one extra form it isn't a big deal compared to waiting for months until he calendar's year is finished.