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Expatriate tax advisory is a specialized professional service that provides tax planning and compliance guidance to individuals who are living outside their home country. The service is designed to address the unique and complex tax challenges faced by expatriates, such as the requirement to file tax returns in two different countries. The primary goals are to ensure the individual is fully compliant with all applicable tax laws and to legally minimize their global tax burden by avoiding double taxation.

Tax residency is the key factor that determines how a country’s tax laws apply to you. It’s a legal status established by a nation’s domestic rules, often based on factors like the amount of time you are physically present there or the location of your main home. Your status is crucial because it defines what income a country can tax: a tax resident is generally taxed on their global income, while a non-resident is typically taxed only on income sourced from within that country.

Double taxation, where the same income is taxed by both your home and host countries, is typically avoided through two main legal mechanisms. The first is a bilateral tax treaty, which is an agreement between two countries that allocates taxing rights to prevent this outcome. The second common mechanism is a foreign tax credit. This is a provision in a country’s domestic tax law that allows a taxpayer to reduce their home country tax liability by the amount of income taxes they have already paid to a foreign government.

A Foreign Tax Credit is a non-refundable tax credit that allows a taxpayer to reduce their domestic income tax liability for income taxes they have already paid to a foreign government on their foreign-sourced income. Its purpose is to directly mitigate the effects of double taxation for individuals and businesses who operate internationally. The credit is typically limited to the amount of domestic tax owed on that same income, ensuring the taxpayer is not taxed twice on the same earnings.