It’s said that the only two things in life that are certain are death and taxes, but you don’t have to be scared of either, especially taxes. At some point in our lives, we all have to fill out a tax return, but are you aware of all the different things that can affect your taxes? They’re not all bad, so let our handy guide fill you in.
Tax in Different Countries
Most countries have tax, but they don’t necessarily affect things in the same way. Here are just a few examples of countries with unusual tax quirks.
1. United Kingdom
The UK has Value Added Tax (VAT) of 15%, which isn’t included in the price of all products and services. Basic food such as bread, cheese, and fruit isn’t taxed, so it’s possible to eat healthy in England and save a few pennies!
2. Colombia
Impuesto Valor Añadido (IVA) is the South American equivalent of VAT but at a rate of 19%. It’s included in the price of most goods and services, including (controversially) hotel reservations made by anyone who lives in Colombia but not by foreigners.
3. Canada
The consensus is that the US has one of the highest tax rates in the world when it’s their neighbor, Canada, that has a potentially higher rate. Citizens in the Great White North pay what’s called a progressive tax, which means it depends entirely on your circumstances. In other words, some people only have to pay 15%, others up to 29%.
4. Tax Havens
Perhaps you’ve heard of these: countries (or islands) in which the residents pay extremely low taxes. Examples include Gibraltar, the Bahamas, Hong Kong, and Panama. Often, these places are used by savvy individuals to make their money go further as taxes only affect locally-sourced income.
Tax Agencies/Benefits
What if you can’t afford to invest in one of these countries? There are usually various tax benefits available in most countries, provided you fall into the right age or income gap. For example, in the UK, pensioners can claim money back, or not pay any tax at all, on their various utility bills. It all depends on which agency is in charge.
North America’s Internal Revenue Service (IRS) is one of the most famous (and feared) tax agencies around, but every country has an equivalent. In Canada, it’s the Canada Revenue Agency (CRA); Colombia has the Dirección de Impuestos y AduanasNacionales (DIAN); the UK has Her Majesty’s Revenue and Customs office (HMRC).
Deductions
Typically, a tax agency allows expenses to be tax-deductible (you can claim the money back). For example, say you’re a long-distance truck driver who’s always on the road; your gas is an expense. Or perhaps you’re a businessman who has to fly across the country for essential meetings; your plane tickets would be an expense.
Living Abroad
Expats (people from one country who live in another) are affected by taxes in different ways. For example, if you’re British but live in Colombia, instead of using your cedula (Colombian ID) to book a hotel, you can use your British passport. This prevents you from being charged ‘City Tax’, whereas showing you’re a Colombian resident means you have to pay an additional 19%.
Potential Tax Problems
We all make mistakes: sometimes you might file your tax report late, or even fill it out incorrectly. Unfortunately, the repercussions can be quite severe.
Unreported Offshore Income
Even though tax havens are not illegal, earning or investing money in one without informing your country’s tax agency can be a crime. What makes this tricky is that you may not even realize you’re doing it. For example, if you rent out a property in another country, that’s offshore income.
Audits
Possibly one of the scariest words in the English language, audits (sometimes referred to as ‘compliance checks’) happen to an individual or business when an agency wants to double-check finances. There are many reasons why they happen, including if a person or company has been recurring losses, claimed 100% vehicle use for business, or made significant funds transfers.
There Are Answers!
If you’re unlucky enough to find yourself facing one of the above tax problems, don’t worry! Some countries have a Voluntary Disclosure program. If you have made a mistake with your taxes, you can tell the relevant agency and possibly avoid severe consequences.
Of course, it’s always a good idea to find a tax specialist. For example, in Canada, you could click to view listing names of lawyers who specialize in what is known as ‘tax amnesty’. This is like any other kind of amnesty, in that individuals have a limited amount of time to rectify a problem without suffering specific penalties.
In short, taxes can be scary, but they don’t have to be. As long as you stay informed, you can stay out of trouble.
Article Submitted By Community Writer