Expat Tax Mistakes by Nationality

Every country's tax system has traps for people who leave. The mistakes are different depending on which passport you hold, and most of them are expensive to fix after the fact.

American mistakes

Not filing at all

The US is one of two countries that taxes citizens on worldwide income regardless of where they live. Many Americans abroad assume that if they live and pay taxes in another country, they don't need to file with the IRS. Wrong. US citizens must file a federal return every year if their income exceeds the filing threshold, no matter where they live.

The penalty for not filing is 5% of unpaid taxes per month, up to 25%. If you've fallen behind, the Streamlined Filing Compliance Procedures let you catch up without penalties if you can certify the failure wasn't willful.

Wrong choice between FEIE and FTC

The Foreign Earned Income Exclusion lets you exclude up to $126,500 (2024) of foreign earned income. The Foreign Tax Credit lets you offset US tax with taxes paid abroad. If you live in a high-tax country (most of Western Europe, Scandinavia, Japan), the FTC often saves more. The FEIE is typically better in low-tax or no-tax countries (UAE, Singapore, Panama).

State tax residency

Moving abroad doesn't automatically end your state tax obligations. California, New York, and South Carolina are notoriously aggressive about maintaining residency claims. If you maintain a California driver's license, voter registration, or bank account, the Franchise Tax Board may argue you're still a resident.

Missing FBAR

If you have foreign financial accounts exceeding $10,000 in aggregate at any point during the year, you must file FinCEN Form 114 by April 15. The penalty for willful failure is up to $100,000 or 50% of the account balance, whichever is greater. This catches many expats because "foreign account" includes your everyday checking account in your new country.

British mistakes

National Insurance contribution gaps

Brits abroad often stop paying National Insurance contributions, not realizing that gaps affect their State Pension entitlement. You need 35 qualifying years for the full State Pension. You can pay voluntary Class 2 NI contributions while abroad for as little as £3.45/week.

Double taxation

The UK has double taxation agreements with over 130 countries, but they don't all work the same way. Some use the credit method, others the exemption method. Assuming the wrong method leads to either overpaying or underreporting.

Pension access

Transferring to a Qualifying Recognised Overseas Pension Scheme (QROPS) can trigger tax charges if the receiving country isn't on HMRC's approved list. The overseas transfer charge is 25%.

German mistakes

Exit tax (Wegzugsbesteuerung)

Germany's exit tax is one of the harshest in the world. If you hold shares in a corporation worth 1% or more, or have been a German tax resident for at least 7 of the past 12 years, Germany taxes the unrealized capital gains when you leave. Moves within the EU/EEA allow deferred payment. Moves outside the EU trigger immediate liability at your personal income tax rate, which can exceed 45%.

Australian mistakes

CGT event on becoming non-resident

When you become a non-resident, you're deemed to have disposed of most assets at market value. This is CGT event I1. Since 2020, Australian expats who sell their home while non-resident can no longer claim the main residence exemption, meaning the full capital gain is taxable.

Canadian mistakes

Departure tax

Canada imposes a deemed disposition on most property when you emigrate. Capital gains tax applies to the deemed gain. Your principal residence is exempt.

Maintaining deemed residency

If you maintain significant residential ties (a home, spouse/dependents still in Canada), the CRA may consider you a deemed resident regardless of where you physically live. Cutting ties cleanly is essential.

tl;dr

Americans: file your return, choose FEIE vs FTC carefully, sever state tax residency formally, never miss the FBAR. Brits: pay voluntary NI contributions, verify which double taxation method applies. Germans: the exit tax taxes unrealized gains when you leave. Australians: a CGT event triggers on becoming non-resident, and the main residence exemption no longer applies if you sell while abroad. Canadians: departure tax deems all assets sold at fair market value. Get professional advice specific to your nationality before you move.