Being informed about your money transfer is a sensible choice for any sum, but if you are sending large amounts of money abroad, you need to make sure that you comply with the law. That includes any regulations that may apply to large transfers for both the sending and receiving country. In this guide, we'll cover the various tax implications of sending money abroad.
Quick Summary: Are Money Transfers Taxed?
The straightforward answer is, it depends. Your nationality, residency, the tax laws of the country you are in, the reason you are receiving international payments, and the sum you are receiving can all affect whether or not a money transfer is taxable. The best way to ensure you're paying the correct tax - and filing the correct payments as exempt from taxation - is to seek the help of a professional accountant or tax expert.
What factors might affect whether your money transfer is taxed?
Not all money transfers will be taxed, but it's essential to be aware of the circumstances where you may need to pay tax and report your money transfer to remain in compliance with the law. Of course, these factors can all change depending on where you are located and where you are sending funds to:
The source of the funds – Are the funds from a pension, overseas gift, selling your home abroad or inheritance fund? The source can be a huge factor in whether or not your money transfer will be taxed.
Your residency status – Are you a resident of the country you are sending money to?
The tax laws of both countries – Different countries have several laws regarding tax implications, such as regulations on what sum must be reported to the relevant tax authorities and regulatory bodies to ensure the funds were acquired legally.
The amount of money transferred – Does the amount you send exceed that country's tax limit?
Money transfers and taxes
Whether your international money transfer is taxable depends on the reason behind the transfer. That, and the amount you are sending/receiving. For example, a money transfer from overseas may be taxable (depending on your location) if it is:
An inheritance
A foreign property purchase
A foreign investment
Income from overseas
Different countries have different laws on what will be taxed when you receive money from overseas, so to break this question down, we'll need to look at country-specific laws and regulations.
Regulations and Taxes from Different Countries and Regions
United States
In the USA, the law dictates that all banks and money transfer providers must report all cash transactions exceeding $10,000. Additionally, banks will also report any suspicious transactions to prevent fraudulent activity such as money laundering.
It's worth noting, however, that money transfer companies sending money between companies are sometimes required to report transactions from $1,000 upwards. The Bank Secrecy Act permits the Department of Justice and the IRS to investigate large money transfers to determine whether any illegal activity has occurred.
Money transfers in the United States are processed through numbering systems, making it easy for the government to track funds even if the money is sent to an overseas account.
US taxes on money transfers
For those receiving financial gifts through an international money transfer, you won't pay taxes, but you may be required to report the gift to the IRS. If the gift exceeds $100,000, you must fill out an IRS Form 3520. Gifts from a business or a partnership that exceed $15,797 also require that you file form 3520. You are not required to pay taxes on this amount; however, if you fail to file this information, you could incur a fine of up to $10,000.
Over the course of a lifetime, every person can gift up to $11.8 million without incurring any taxes. This figure includes gifts on inheritance money you plan on leaving in the future, even if the money is stored overseas and transferred back to the US. There are two options available when filing gift returns; you can either pay the gift tax or bypass the payment and select the gift to your lifetime exemption limit.
There is an additional twist to gift law taxes; in the majority of cases, you are not required to pay tax on funds sent to a spouse regardless of the amount of money spent. However, this only applies if your spouse is a United States citizen. If not, the maximum amount you can gift is $148,000 without being taxed. Since the laws in America regarding taxes for money transfers are so complex, it is advised that you contact a tax professional or the IRS for further assistance.
Australia
According to the Australian Tax Office (ATO), if you are emigrating to Australia, the amount of money you bring into the country is not taxable. However, all residents of Australia are eligible to pay taxes on money transfers to Australia, depending on the amount.
In general, transferring an inheritance from overseas is not taxable, but if those funds are put towards an investment, any earnings and income generated from that investment will be taxed as income tax.
Money transferred as a gift is not taxable in Australia as gifts are seen as a one-time payment. However, the ATO does not view all international money transfer payments as gifts, so it's a good idea to inform yourself of the regulations that will apply to your transfer specifically. You can contact the ATO for additional advice.
United Kingdom
Whether or not your international money transfer is taxed depends mainly on your residency. If you are a non-resident of the UK, you will not have to pay tax for foreign income. However, if you are a resident of the UK, there are some circumstances in which a foreign money transfer will be taxable:
Income tax
You are usually expected to declare a foreign income on a Self Assessment tax return. Money transferred from abroad may be subject to income tax if it is a salary from working abroad, income from investments and savings held abroad, income through any pensions you may hold in a foreign country, and earnings from a rented property in another country.
Gift tax
The United Kingdom does not charge a gift tax for international money transfers; however, they do impose inheritance taxes on large gifts. When the transfer falls under UK inheritance tax laws, failure to pay taxes will incur interest charges until the taxes are paid. There is no standard amount because the interest rate you will pay typically fluctuates with the market.
To get a better understanding of tax requirements in the United Kingdom, hire an accountant or contact HMRC.
European Union
All countries in Europe have their own laws for gift taxes; money sent for business purposes is taxable as a foreign income. If a recipient in Europe fails to report a large remittance on their tax returns, they risk paying huge penalties, and, in some cases, a violation can lead to a prison sentence.
Reducing Your Tax Bill
To reduce your tax bill, you must ensure that all funds transferred from overseas have been accurately declared, even if you're not necessarily expecting to have to pay tax on those sums. Working with an accountant is one of the best ways to ensure you are always in keeping with your country's tax regulations, but it will also give you more clarity on which foreign transfers should be exempt from tax.
Depending on where you reside, you will likely have to fill out certain forms for your foreign money transfer to be certified as exempt from any tax, so having a professional to help you with these steps is essential. In addition to this, it is important to file taxes on time as late payments can result in a hefty fine:
Summary: are money transfers taxed?
In short, it depends. Whether your international money transfer is taxable depends on how much you are receiving (large sums are more likely to be classed as income or gifts that may be taxable), the reason you're receiving money from abroad (is it a foreign income, inheritance, a remittance payment from a family member abroad?), and the specific tax laws in your own country.
Tax laws and regulations in all countries are highly complex; although there is a lot of free information online, you don't want to take any risks. Therefore, to ensure you do not violate the law, contact a tax expert in your country to assist you further. Ultimately, getting expert guidance from an expert in your country is the best way to ensure you stay within the law when receiving payments from overseas.
