This link from wikipedia is very informative. It lists all the countries in the world, where if you become legally resident, you’re technically liable to pay taxes on any foreign income that you have. I assume that means even if you leave the income offshore. It appears to me that one’s only option is to select one’s future residency from the very limited list of countries that follow the concept of Territorial Taxation. If income is earned in Country A and one resides in Country B, and if there is a tax information exchange agreement between A and B, I would imagine that you are stuck in the reporting requirement in your country of residence.
Almost all countries tax based on residency, so I’m not sure this will be that helpful.
Some countries also tax based in citizenship or domicile. Taxation based on citizenship (US is the prime example) means a wider net is cast for your tax dollars. Taxation based on domicile, where you are considered a non-resident, means that you generally aren’t taxed on externally sourced earnings (UK, Ireland, Malta and Barbados come to mind).
Generally spending more than 182 (6 months) in a country makes you a tax resident. You can even be tax resident in multiple countries at the same time (something I’d avoid ).
International tax is a complex area and is highly dependent on your sources of income, residency, citizenship, domicile, tax code, structure (individual, trust, corporate, LLC … ) and lets not leave out withholding taxes and tax treaties.
In my case I purposely became a tax resident in a “non-haven” country that taxes residents, but not foreign earnings, while reducing withholding tax to a minimum through treaty. See - tax residency is good sometimes!
I was a professional in this particular space and could therefore do it myself. If I weren’t I would highly suggest you seek one out. FWIW I don’t view this as a “do it yourself” area.
Thanks for responding! I also received this informative link (w/YouTube video) in my e-mail today, as well, which goes into more detail on the subject.
Yes, I think that link is MUCH better. Only a very minor quibble with example of a Canadian family becoming non-resident. Likely correct “eventually”, but clean breaks are difficult during a transition and “intent” comes into play along with ties like bank accounts, licenses, clubs, children in school there etc. Expect scrutiny in direct proportion to your value. I’ve got my off-shore tax residency , my whole family has moved, and yet I’m constantly surprised at how many ties remain that could have caused a fight with tax authorities.
For protection I rely on tax treaties and their tie-breaker rules. Meet the criteria set out and there is no argument on where you are tax resident. This generally means not having a home available in your high tax jurisdiction. After a few years there, with the high-tax jurisdiction safely out of the way, then make the jump to no-tax jurisdiction (although in my case I would get little benefit in doing so).
Tax is now the least of my problems. Bigger issues are health insurance, travel insurance, driver’s license(s), quality of medical systems. quality of life and maybe back-up residency or even an elusive second passport if I can find one for very low cost.
Appreciate forums and users like yourself on Nomadgate, for a little research on those topics
In addition to what @C-tax mentioned, I’d add a few more comments on that article:
I think it would be beneficial to distinguish between taxation based on residency and domicile. It’s primarily countries using the latter model (typically common law jurisdictions) that are super strict about establishing close ties to the country where you move (e.g. Canada, Australia, etc).
Countries with purely residency based tax laws (typically civil law jurisdictions) can be less strict (e.g. Denmark, Germany, etc)—simply moving from the country and cutting the required ties is enough to stop paying taxes, no new tax residency is technically required.
It seems the author confuses tax residency and legal residency himself when talking about Portugal. Or at the very least he had some misleading formulations. He writes the following about the NHR program:
That tax residence is good for 10 years. There is little if any obligation in those years to visit or live in Portugal for any part of the year in order to maintain that status.
While it’s true that you can keep the NHR status for 10 years, it only applies in the years where you otherwise meet the tax residence requirements of Portugal (e.g. by spending enough time in the country or having a habitual abode there).
Mixing in the Golden Visa program in the same section adds to the confusion, as it’s primarily a program for those who don’t necessarily want to become tax resident in Portugal:
Portugal’s Golden Visa program is still running today and becoming a tax resident in the country has some very specific tax benefits that you can add to your offshore strategy.
Another thing to keep in mind when deciding on your own residency is the type of income you have. In theory (while not necessarily always in practice), you’d still be liable for tax in a territorial tax country for income you get by e.g. working for a foreign employer (or having your own company registered abroad), as long as you do day-to-day work in the country.
If you live off capital income things are easier than if you live off “earned income”.
Yet another thing to keep in mind when cutting ties to your current tax home is any exit taxes that may apply. Many countries will tax you on your investments and other assets at the time you seize being a tax resident there (as if you had sold the assets at current market price). Sometimes there are ways to avoid or reduce this impact, other times you just have to bite the bullet.
Your statement on residency vs domicile needs clarification. We may be speaking at cross purposes.
Canada and Australia both tax based on residency. What I expect you are saying is that the definition of what residency is, is different for common/civil law countries. (Not a civil law expert, so I can’t compare). You would be correct in saying that where your home/domicile is, plays a huge part in determining residency in common law countries.
A domicile (or home) however is different than where you are “domiciled” for tax purposes (generally where you are born and have roots). This perhaps explains it better in a UK context
Note: With respect to all my comments, while I might be someone’s accountant/lawyer, I’m not your lawyer/accountant, so please engage professional counsel that isn’t me.
You are right that I could have been more clear, and also that the mentioned countries are indeed taxing people based on residency—but in many cases they also see you as fully tax resident based on domicile. While as the link you shared demonstrates, the UK doesn’t in most cases (although it may still affect some aspects of taxation, such as inheritance tax), which is why I left the UK out of my list of examples.
I think Australia’s rules more clearly demonstrate what I am referring to:
See the “domicile test” (emphasis mine):
You’re an Australian resident if your domicile (the place that is your permanent home) is in Australia, unless we are satisfied that your permanent place of abode is outside Australia.
A domicile is a place that is considered to be your permanent home by law. For example, it may be a domicile by origin (where you were born) or by choice (where you have changed your home with the intent of making it permanent).
While many western countries let you off the hook relatively easily (though they may apply exit tax before doing so)—by simply leaving and cutting the right ties with the country or at worst demonstrating that you’ve become tax resident somewhere else (with no regard to whether you remain tax resident there over time)—countries like Australia will always deem you a tax resident if you were born there (domicile of origin) unless you have an “active” domicile of choice elsewhere.
If you’re born in Australia, and move to Country A, to get off the hook in Australia you’ll need to establish strong ties to Country A and also demonstrate an intention of making it your home indefinitely (this intention bit is crucial in the countries using domicile as one way of determining your tax residency, while often not relevant in other countries with residency based taxation). If you ever leave Country A indefinitely (e.g. if you want to become a digital nomad or PT) without establishing another domicile by choice, you’ll revert to your domicile by origin (which is again Australia). Not until you establish a new domicile of choice (e.g. in country B), will Australia stop considering you their tax resident according to their domestic law.
Of course, tax treaties may come in helpful in cases where you are indeed resident for tax purposes elsewhere, but perhaps not with strong enough ties to meet a domicile of choice test.
The legal concept of domicile of origin and of choice isn’t usually a concept in civil law jurisdictions, but it’s a core concept in common law. Still, even in most common law countries the importance seem to be diminishing.
I hope this helped clarify what I was referring to
Perfect - and I like your comment on tax treaties.
You’ve done this before
Apart from personal tax residency, one needs to be aware of the Place of Effective Management rule as well, because this will trigger the tax residency for your foreign corporation.