Tax is where confident newcomers most often come unstuck. The rules are not especially complicated, but they are unforgiving of assumptions, and the assumptions people bring from home are usually wrong in at least one important respect. The consequences arrive a year or two later, with interest.
Tax residence is not the same as immigration status
This is the foundation and the most common misunderstanding. Your visa determines where you may live. Your tax residence determines which country taxes your income, and the two are decided by different rules.
Most European countries treat you as tax resident if you spend more than 183 days there in a tax year, or if your permanent home or centre of vital interests is there. Several apply additional tests. The consequence of becoming tax resident is significant: you generally become taxable on your worldwide income, not merely on what you earn locally.
That means rental income from a property at home, dividends from investments abroad, interest on foreign savings, and freelance income from foreign clients may all become reportable in your new country. People routinely do not declare these, believing they are already taxed at home and therefore of no concern. Automatic exchange of financial information between tax authorities has made that assumption dangerous; European tax offices receive data on foreign accounts held by their residents as a matter of routine.
The year you move is the messiest one
In the year of arrival you may be tax resident in two countries, or in neither, or resident in one for part of the year. Most countries apply split-year treatment, taxing you as a resident only from the date of arrival, but the mechanics vary and some require you to claim it.
Double taxation agreements exist between most country pairs and are designed to ensure the same income is not taxed twice. They work by assigning taxing rights and by providing either an exemption or a credit for tax paid elsewhere. They do not, however, apply themselves. You usually have to claim relief, with documentation, and a claim made two years later is harder than one made at the time.
The practical action is simple: keep your final payslips and tax documents from your home country, note your exact date of arrival, and mention the move explicitly on your first return.
Understanding what is actually deducted
European payslips confuse newcomers because income tax is only part of the story. Social contributions — pension, health, unemployment, long-term care — are often as large as the tax itself, and they are what fund the public services people associate with Europe.
A few country-specific points cause repeated confusion:
- Germany assigns tax classes that change your monthly deduction substantially depending on marital status and whether your spouse works. Married couples are frequently on the wrong combination and overpay all year. There is also a church tax, deducted automatically if you declare a religion on registration, which surprises many people who ticked the box without thinking.
- France historically taxed households rather than individuals and applies a family quotient that reduces the burden for couples and families considerably.
- The Netherlands operates the 30 per cent ruling, which allows qualifying skilled migrants to receive a portion of salary tax-free for a limited period. It must be applied for jointly with the employer within a deadline, and missing it is expensive.
- Spain has a special regime, informally the Beckham law, taxing qualifying inbound workers at a flat rate on Spanish income for several years. It requires an application within six months of registration.
- Portugal, Italy and Greece have all operated inbound-resident regimes with substantial reductions, though terms have changed repeatedly in recent years.
These regimes are among the most valuable things a newcomer can know about, and they share a common feature: they are time-limited, application-based, and lost if you miss the window. Check on arrival, not at the first tax return.
Deductions people fail to claim
European tax systems allow more deductions than most newcomers realise, and many countries require you to claim them actively.
- Commuting costs, often at a per-kilometre rate, are deductible in Germany, Austria and elsewhere and are frequently the largest single deduction for an ordinary employee.
- Relocation expenses in the year of the move, including shipping, travel and temporary accommodation, are deductible in several countries.
- Language courses and professional training connected to your work.
- Home office costs, with rules that expanded considerably in recent years.
- Childcare costs, often deductible or credited at a generous rate.
- Maintenance payments to dependent relatives abroad, which Germany in particular allows under specific conditions and which is highly relevant to migrants supporting family at home.
In Germany, the average tax refund for an employee who files a return is in the hundreds of euros, and a large share of employees who are not obliged to file never do.
Filing: obligation, deadlines and help
Whether you must file varies. In some systems, employees with a single job and no other income are not required to, though filing voluntarily usually produces a refund. In others, filing is compulsory for everyone. Self-employed people must file everywhere.
Deadlines are generally between March and July for the previous calendar year, with extensions where a registered adviser files on your behalf. Penalties for late filing are automatic in several countries and accumulate monthly.
For a straightforward employee situation, the online filing tools most countries provide are adequate, and commercial software aimed at employees is inexpensive and available in English in Germany and the Netherlands. For anything involving foreign income, property abroad, self-employment or the first year of a move, a local adviser is worth the fee. In Germany, wage tax assistance associations offer help to employees at a low annual membership rate, which is the best value available to most people.
The obligations that outlive your move
Two categories of people carry ongoing obligations elsewhere. United States citizens and green card holders must file US returns and report foreign accounts regardless of where they live. And anyone retaining property, business interests or accounts in their home country may have filing duties there even after becoming non-resident.
Neither is difficult if handled from the start. Both become expensive when discovered five years late.
