Government tax announcements frequently raise concerns and set the course for economic and social policies. Will there be greater aid for individuals or raised taxes for particular groups? Concurrently, inflation worries everyone, impacting populations differently and shaping expatriates' financial plans. Here's an overview of the tax changes expatriates can anticipate in 2024 across favored destinations.
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The first adjustment concerns Canada Pension Plan (CPP) contributions for both Canadian and foreign workers. Starting January 1, 2024, eligible workers will have a higher percentage of their earnings directed toward the CPP. This change aligns with the federal government's decision to implement a second earnings threshold to the plan. The CPP serves as a retirement pension scheme.
To qualify, individuals must be under 60 and have made at least one valid CPP contribution, typically through employment in Canada. The contribution rate remains unchanged for workers earning CA$68,500 per year or less. However, those earning above this threshold are now subject to a second tier of contributions, capped at CA$73,200. They will be required to pay an additional 4% in contributions. Employers note that this change imposes both administrative and financial burdens.
Moreover, foreigners will still encounter a waiting period before they can purchase properties in Canada. Deputy Finance Minister Chrystia Freeland announced in a press release on February 4, 2024, that the ban on foreign individuals purchasing real estate in Canada would be extended by two years. Initially set to expire on January 1, 2025, the measure will be effective until January 1, 2027.
United States
In an election year, significant changes or tax increases seem unlikely. As of November 2023, the Internal Revenue Service (IRS) has announced a revision of federal tax rates to accommodate inflation. Meanwhile, expatriates continue to be subject to U.S. taxation on their worldwide income. Nevertheless, several methods are available to reduce this tax burden, such as deducting a portion of foreign-earned income. However, it's crucial to verify eligibility for these deductions before applying for them.
There are a few new features for 2024:
The foreign income exclusion will rise to $126,500, compared with $120,000 in 2023.
In 2024, married couples filing jointly enjoy a $1,500 boost in their standard deduction compared to 2023, bringing it to $29,200. For separate returns, the increase is smaller at $750, resulting in a standard deduction of $14,600. On the other hand, affluent individuals earning over $609,350 annually maintain the highest tax rate of 37%.
Great news for parents eligible for the Child Tax Credit (CTC)! The House of Representatives has passed a bill to extend the program, aiming to reach more taxpayers, especially those in vulnerable situations. The update includes considering the current or previous year's income when calculating the CTC. Previously, only the current year's income was considered (requiring at least $2,500 in annual income), excluding families with minimal or no income. If the bill gets Senate approval, the CTC would increase to $1,800 per child reimbursed in 2023, $1,900 in 2024, and $2,000 in 2025.
Germany
Expatriate homeowners in Germany face new requirements following the reform of the property tax regulations. Residents in Bavaria, Hamburg, and Lower Saxony must submit a new property tax return by March 31, 2024, for any property changes in 2023 resulting in a value increase or decrease of more than €15,000. These modifications include property extensions, construction on undeveloped land, plot size reductions, and more. The deadline for homeowners in other regions was January 31, 2024. Foreign individuals who own a property in Germany but live elsewhere must declare their rental income in Germany.
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France has updated its calculations to factor in inflation. The income tax (IR) thresholds for 2024 (based on 2023 income) will be raised by 4.8% to accommodate the increased cost of living. The 2024 Finance Bill has revealed the updated tax bracket thresholds:
- Tranche 1: from 0 to 11,294 euros;
- Tranche 2: from 11,295 to 28,797 euros;
- Tranche 3: from 28,798 to 82,341 euros;
- Tranche 4: from 82,342 to 177,106 euros;
- Tranche 5: over 177,107 euros.
Expatriates residing in France are subject to income tax on all income from local sources. This includes salaries, unemployment benefits, self-employment earnings, daily allowances (such as sickness benefits), pensions, retirement income, savings interest, investments administered by a French institution, rental income from properties within France, and capital gains from property sales. While many expatriates and local taxpayers may benefit from the modest adjustment in figures, as salaries have increased at a slower rate than inflation, high-income earners will face a more significant impact.
Anticipated increases in property and electricity taxes are on the horizon. The rise in property tax is another consequence of inflation, with an expected average increase of 3.9%. However, the extent of this increase ultimately depends on the decisions made by local municipalities, as property tax is a levy based on the property's rental value. Amidst the energy crisis in 2022, the government introduced the "tariff shield," significantly reducing the electricity tax to ease the burden on residents, from 32 euros to 1 euro per megawatt-hour (MWh). The prolonged fall in electricity prices has prompted the government to lift the tariff shield, although an exact figure has yet to be determined. While the French government has set a target of 15 euros per MWh, it promises an increase of less than 10%.
Additional tips on expatriation and taxation
In general, expat taxation is determined by tax residency. Expatriates residing and working in their host country must report all their income to the local tax authorities. However, be aware of the laws specific to each country. For example, in the U.S., worldwide income, including both income earned domestically and abroad, may be subject to taxation.
It's important to understand the distinction between tax resident and non-tax resident status. Expatriates are typically considered non-tax residents in their home country. However, they might still have tax obligations there, particularly if they continue to earn income from sources in their home country, such as rental income. Additionally, expatriates who are declared tax residents in both their home and host countries may also face tax responsibilities in both jurisdictions.
Expatriates with overseas bank accounts must declare them to the tax authorities in the country where they currently reside.
Many countries have signed tax treaties to prevent double taxation. Before relocating abroad, it's advisable to research the tax situation in your chosen country.
Regardless of the circumstances, it is wise to consult a tax advisor in your host country for accurate information on your situation and to assist with filing your tax return.
