How to Get Around Taxes as a Latin American
Table of Contents
How to Get Around Taxes as a Latin American 1
Use Tax Treaties to Your Advantage 1
Leverage Tax Credits and Exemptions 2
Plan Your Income Strategically 2
Stay Compliant with Reporting Obligations 2
Avoid Common Myths About Tax Avoidance 2
How to Get Around Taxes as a Latin American
Being a Latin American myself, I know managing taxes can be overwhelming(abrumador). It gets really complicated, particularly when dealing with cross-border earnings or investments.
The processes are not simple, and you must sweat a lot to work around your tax obligations. But say no more. I have created this expanded guide to help you wrap your head around (envuelve tu cabeza alrededor) the rulings on taxes effectively while staying within legal boundaries.
So, without much ado, let us talk about that.
Understanding Tax Residency
Tax residency rules determine where you’re obligated to pay taxes. In Latin America, most countries use factors like days spent in the country (often 183 days or more), your primary residence, or the location of your primary economic activities.
Take for example:
Argentina: Defines tax residency based on permanent residency status or significant physical presence.
Brazil: Considers you a tax resident if you stay more than 183 days within 12 months.
Understanding these rules can help you clarify obligations and potentially avoid being taxed in multiple jurisdictions. If you have dual residency, you may need to rely on tax treaties to determine primary residency.
Use Tax Treaties to Your Advantage
Tax treaties simplify tax obligations by avoiding double taxation and offering reduced rates on certain types of income. These agreements are particularly beneficial for those earning income or holding investments abroad.
Reduced withholding taxes, clear guidelines, and mutual benefits are some key advantages of these tax treaties.
With reduced withholding taxes, tax is often lower on dividends, interest, or royalties. As for clear guidelines, it helps define which country has the primary right to tax specific types of income. Last but not least, through mutual benefits, treaties are reciprocal which ensures fairness for the citizens of both countries involved.
For instance, Chile has comprehensive agreements with the U.S. and many EU countries, which can significantly reduce tax burdens for its residents engaged in international trade or investment.
Leverage Tax Credits and Exemptions
Foreign tax credits can offset taxes you pay abroad against domestic liabilities.
This is especially useful if you have income sourced from multiple countries. For example, if you are a Colombian resident, earning income in the U.S. can use Colombia’s foreign tax credit rules to avoid double taxation.
Also, some countries exclude specific types of income, such as remittances, pensions, or foreign-earned income, provided you meet residency or income limits.
Understanding these opportunities requires familiarity with local tax codes and international agreements.
Plan Your Income Strategically
Tax efficiency often lies in how you structure and time your income.
For example:
Deferral: Reinvesting earnings instead of taking payouts can delay taxes until a more favorable period.
Diversification: Distributing income across multiple streams or jurisdictions may optimize tax outcomes.
Tax-Friendly Investments: Countries like Panama or Costa Rica offer tax incentives for businesses in free trade zones or eco-friendly industries.
The best workaround here is to hire a financial planner to help you align your financial goals with tax efficiency.
Stay Compliant with Reporting Obligations
Governments worldwide are cracking down on unreported income, particularly in offshore accounts. In Latin America, countries participate in global initiatives like the Common Reporting Standard (CRS), ensuring transparency.
With that said, you must report foreign bank accounts, property, and investments (if any). Non-compliance can lead to fines, interest charges, or even criminal prosecution. So, make sure to avoid that by using tools like the U.S. FBAR or its equivalent in your country, which can help you stay on top of these obligations.
Avoid Common Myths About Tax Avoidance
It’s tempting to believe that setting up an offshore account or using cryptocurrency makes taxes disappear. However, tax authorities have become adept at tracking these activities.
Legal tax planning involves using deductions, credits, and treaties—not hiding assets. Focus on understanding legal options rather than falling for shortcuts that can backfire.
Seek Professional Advice
The intricacies of tax laws vary greatly between countries and income types. As a first-timer, you might not be able to do everything on your own effectively. Hiring a tax advisor familiar with Latin American systems and international rules can save you time, stress, and money.
I myself seek professional advice too. I found a reliable international tax attorney by searching ‘international tax lawyers near me’ on Google.
Just make sure you don’t end up looking at a loading screen because of weak internet. I use alta velocidad Spectrum Internet, which offers affordable plans, a wide coverage area, and servicio al cliente tailored for Spanish speakers living in the US.
Tax attorneys can help you ensure compliance with local and international laws, identify applicable deductions and credits, and assist in filing necessary documents accurately and on time.
So, take some time to find the one that understands your needs and can help you stay compliant with tax laws.
Frequently Asked Questions
Q: What happens if I don’t report foreign income or assets?
Failure to report foreign income or assets can lead to hefty fines, legal penalties, or audits. Many countries, including Latin American nations, now exchange tax information under CRS agreements to track undeclared income.
Q: Can I avoid double taxation if I work in a different country?
Yes, tax treaties and foreign tax credits are designed to avoid double taxation. These allow you to offset taxes paid abroad against what you owe domestically, provided proper documentation is filed.
Q: Are offshore accounts illegal?
No, offshore accounts are legal as long as they’re reported to the tax authorities in your country. Transparency is key to avoiding penalties associated with perceived evasion.