Selling post-relocation

[liroyb]

John Doe is a resident of country A.

John creates a product while residing in country A (No income from the product at this point).

John relocates to country B (Completely genuine, and even received tax certificates every year).

While being resident of country B, John sells the product he created (including intellectual property rights) to a third-party company.

In a nutshell:
Created the product as a resident of country A.
Sold the product as a resident of country B.

In which country the sale proceeds should be taxed?

 

[Sols]

Depends on the laws of Country A and Country B.

Generally speaking, though...

John might‌ be required to pay tax in Country A for some period until he ceases to‍ be tax resident in Country A.
John might be required to pay tax in Country⁠ B right away and definitely once he becomes tax resident in Country B.

If John⁤ sells the product while still tax resident in Country A, Country A can seek to⁣ tax him.

If there is a period during which John must pay tax in both⁢ countries, John can hopefully leverage a tax treaty or tax credit law to avoid paying︀ double tax.

 

[daniels27]

I would say it really depends on the countries. What you are talking about is‌ the typical case of exit tax on (corporate) goodwill. When moving out of A, your‍ company would be taxed on the goodwill created. Upon taking up corporate residence in country⁠ B, you may be granted an immigration step-up whereby your goodwill will result in a⁤ tax credit that can be applied for a certain number of years post migration.

 

[liroyb]

Thank you for clarifying.

Assuming that John fulfilled︁ the requirements to be considered tax non resident at country A from the very first︂ day he left and start selling the product only after he left, does country A︃ can seek to tax John just because he was resident there while creating the product︄ (Basically solely based on being the place of product creation)?

 

[daniels27]

I have answered last year and it still stands as of today: yes,‍ they can tax you. But we need to know which country and what IP we⁠ are talking about. Have you came up with a new clothing embroidery pattern while stitching⁤ for your mother in Peru or have you patented a hypersonic airplane during your PhD⁣ at MIT? Both fit your description but will lead to a very different answer.

Many countries have exit tax targeting unrealised gains and goodwill. Some of personal level, some on⁢ corporate level.

But if you create a product in A, maybe even deducting development costs︀ from your tax bill, you create IP which is a form of goodwill in your︁ company or in case of lack thereof as self-employed person. Moving away leads to the︂ termination of tax residence of such entity and may trigger one or the other form︃ of exit tax.

You may have to check the laws of country A on how︄ they can tax you.

 

[bubbledouble]

and that's what going to happen‍ if John does not is careful with how and what he is doing in tax⁠ matters.

 

[liroyb]

The country was a 1st world western country︄ with a typical 1st world western country taxation laws.
John was just an individual and︅ did not registered a company.
The product was book.
The writing was outsourced.
Selling started︆ post-relocation.

 

[daniels27]

Still does not help much. Exit tax substantially‍ differs even between European countries. I would recommend Google, a local lawyer or buying a⁠ Mentor Group Gold membership and asking your question there with the proper name of the⁤ jurisdiction concerned. For the general rule, see my previous posts, you can safely assume that⁣ they can and will tax you. The question is just how.

Dude! Do you really⁢ expect us to discuss the possibility of an exit tax for all 50 western countries︀ just because you are too lazy to name it?

How much did he pay to the fiverr guy? Did he claim︃ tax deductions for those expenses?

Has been︄ mentioned many times already, makes matter a bit better, but does not yet rule out︅ the possibility to be taxed.

 

[manukahoney]

Generally speaking, if no sales were made there wasn't any business activity, so what John‌ did was basically research with no intrinsic commercial value.
So when John moved to another‍ country, developed a product based on his research and sold the IP rights - he⁠ will be taxed only in the country of his current residency.
I know someone who⁤ did something similar being a UK resident and moving to the US. However UK doesn't⁣ have any exit tax, so there were no ways HMRC would question that.

 

[manukahoney]

UPD: as many mentioned above - the whole thing depends very much on taxation rules‌ of countries A and B.