What is Exit Tax?
Exit Tax is a tax applied on accrued capital gains by certain Jurisdictions to those tax residents who voluntarily stop being a tax resident in that Jurisdiction either because they are moving out of the country, giving up their center of vital interest, or when they give up their citizenship.​
About Exit Tax
There are jurisdictions where in order to stop being a tax resident, you need to either give up your center of vital interest andpay any capital gains and income tax accrued, or both.
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Let’s take Canada or the U.K. as an example. Unlike the U.S. you don’t need to give up your tax passport to stop being a tax resident, but you need to stop having your center of vital interest in that jurisdiction, and to pay any capital gains tax accrued.
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Let’s say one year you bought some shares of Offshore Affairs INC at 10 USD per share., and now these shares are worth 1,000 USD each, and you haven’t sold these shares yet. If you want to stop being a tax resident in Canada, or the U.K., you would have to pay an exit tax where the tax authority will deem that you sold the shares (which you didn’t and still hold the shares), and they are deemed as being sold.
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Not all jurisdictions have an exit tax procedure. This depends from jurisdictions to jurisdictions tax codes.
This does not only apply to shares, this also applies to any other type of property subject to capital gains tax, as cryptocurrency, your home or any other property, brands, etc.
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That is why is it recommended to plan ahead and buy these shares under a tax shelter or strategy so when your assets increase in value they will not be subject to capital gains tax once you do an exit tax procedure. By planning ahead, you can legally avoid this capital gains tax when doing an exit tax procedure.
Besides paying taxes on any accrued capital gains, these jurisdictions might also require you to close any company, personal or business bank account, even gym memberships, located in that jurisdiction.
Which assets are covered by the Exit Tax?
Generally, the Exit Tax covers any asset subject to Capital Gains tax, regardless if this asset is located abroad or in a foreign jurisdiction.
Some ways to avoid exit tax
You can either avoid or reduce exit tax by:
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Holding your assets under a trust.
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Perfoming your exit tax procedure before your assets have a considerable increase in value.
Counseling Service
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