How a Second Citizenship Can Affect Your Tax Planning

A number of countries worldwide allow for dual citizenship. The advantages of dual citizenship are no doubt numerous. In many cases, it makes travel easier, expands property ownership possibilities, and provides access to two social service systems. Although double citizenship might mean double the rights, it also means double the responsibilities, particularly when it comes to taxes. So, how can a second citizenship affect your tax planning? It largely boils down to the countries that you are a citizen of and the tax treaties between these two countries. Let’s take a look.

First and foremost, the way in which a second citizenship will affect your tax planning largely depends on which countries you are a citizen of. In the United States, for example, citizens are taxed on worldwide income. That means that even if a United States citizen has been living and working in Australia for the past decade, he or she is taxed on the income generated in Australia.

However, this doesn’t necessarily mean that you will be taxed on this income by both the Australian government and the U.S. government. This will depend on the specific tax treaties between the two countries. In this case, if there is a treaty between the two countries, it will reduce or perhaps even eliminate a U.S. citizen’s tax liability in the United States.

The key is to always pay your taxes on time if you have a second citizenship — and that means planning appropriately. If you are behind are your taxes, you will want to rectify it as soon as possible. In the United States, the IRS has recently instituted a new procedure, IR-2012-65, for those behind on taxes. This allows you to file back tax returns for the previous three years plus FBARs for the previous six years.

In conclusion, if you have dual citizenship, it may be a good idea to consult a tax professional in order to gain a complete understanding of your tax obligations. Even if there are treaties that exempt you from double taxation, you still may be required to file a tax return in both countries. Things can get especially complicated if you’ve inherited money. Because tax laws can be so convoluted and often change from year to year, navigating them by yourself can be complicated. All in all, it’s best to get some professional guidance.