To become tax resident somewhere or not?

Hey everyone,

I’m from the UK but I have been living abroad and travelling for the last few years. During that time I have become a tax resident in another country only once and don’t qualify for UK tax residency according to the SRT guidelines. During that time I have also purchased property in the UK.

I’m trying to evaluate the benefit of becoming a tax resident in Thailand, Portugal, Costa Rica where foreign income is not taxed by spending 6 months/ year there vs continuing to spend 4-5 months in other countries (not UK) and travelling the rest of the year.

I’d also like to know if it is not necessary to become tax resident somewhere is it necessary to have a permanent home abroad either owning or renting vs short term rentals, hotels, hostels etc.

I’m particularly interested in Portugal as a long term solution as it seems 6 months on the ground might not be required to become tax resident.

Any insights are much appreciated
Thanks,
Thomas

I think you know your answer :slight_smile: Tax Residency usually comes with mainly obligations so if you do become a Tax Resident of Portugal then you need to look into what these tax obligations will be.

Being on the road though in hostels and short term rentals, is a drag. I don’t know. Maybe if you’re with someone else consider doing long-term rental and putting only their name on the contract? Otherwise, I guess you’ll eventually need to registered and you’ll eventually need to be taxed - if you have a company based in another country, then be sure to read on Permanent Establishment and Dual Residence / Tax Residence:

Golden visa in Portugal would get around this.

Malta is another option and is where I have been for the last couple of years. I am tax resident here and only pay tax on locally earned income and any locally remitted payments.

I then have property in the UK which I let plus am contracted to a company for work not performed in Malta.

My locally earned income in Malta satisfies the newish requirement here to pay €5k tax on worldwide income and the other income is remitted offshore and not subject to Maltese tax.

Although I comply with the 183 day rule here, as it suits me, there seem to be lots who just use addresses once they have got set up.

With regards to not being tax resident anywhere I had that option but chose against it due to property and family ties in the UK and some anecdotal accounts I have heard of your country of origin claiming the right to tax you if you are not tax resident anywhere.

Prior to Malta I had been tax resident in Gibraltar for several years, but without letting the UK know through ignorance on my part, but then decided to get everything in order when I relocated to Malta as I expect to be moving back to the UK in the next couple of years and don’t want any unexpected issues.

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Thanks for your insights. Do you know if there is actually a legal requirement to let HMRC know you are no longer resident and if there is that legal right in the UK. As far as I understand it and from what I have been advised if you don’t meet the criteria in SRT tests then the UK doesn’t really go after you. It does get a bit more tricky when you have property in the UK though. Did you become resident in Malta to allow you to spend more days in the UK?

Hey Peter,
Thanks for the tip. I’m looking into the GV. How would you recommend I utilize it, what would be your strategy?

Thanks for the links

Gov.uk states that if you are leaving the UK to live abroad permanently, or to work full time for at least one full tax year, then you must inform HMRC.

I hadn’t originally realised the above, although I found out after a while. Around the time my UK income became liable for tax it also coincided with me becoming resident in Malta so I informed HMRC and, apart from a small fine for late filing of the first year’s self assessment, all seems to be going okay.

I was also advised not to worry too much about the SRTs but you never know! The UK could be looking to claw back monies from wherever they can to try and pay for all the recent pandemic related expenses!

The reasoning for becoming resident in Malta was all to do with their ordinary resident tax requirements suiting my situation very well and that I could be secure in the knowledge that I would have been fully compliant when I do return to the UK. So no nasty shocks with any offshore funds that I may transfer back there.

The number of UK days hasn’t really been a concern as I have been well inside the allowed numbers although will be careful this year as I spent much of the lockdown in the UK.

Hey,

In most cases, tax residency will not be challenged by the country in which you have local registration and tax identification number, since this country does not have any reasons to challenge it (you report your worldwide income there even part of them are not taxes due to applicable intensive). What can challenge tax residency is another country in which you spend a significant part of the time, or have social/economic interest. In most cases, all problems come from citizenship country, when it starts asking questions in which country you are tax resident and ask to provide proves. Then either your proves will be sufficient or not. There are a lot of important circumstances, including if these countries have DTT if you can obtain a tax residency certificate (not the same as TIN) from a country in which you have “residency papers” and many more. So each case should be analyzed separately.

At least our experience in Portugal is bad. This country most likely will not challenge your tax residency but it might try to tax a part of your foreign income. Portuguese residency regime is not straightforward (as for example in Cyprus) and requires quite a detail analysis of the business. Portugal usually requires that income you derive in foreign countries would be subject to local tax. So various non-resident companies and similar structuring solutions do not work.

Hope this helps :wink:

If you want to set up a tax residency in one country to avoid getting taxed in another, you’ll probably need to establish some kind of “ties” to the preferred country - otherwise you may still be deemed tax-resident by whatever greedy, self-destructing, high-tax country you’ve spent time in.

So in other words, just spending 183+ days or whatever per year in the preferred country might not be enough. You may want to consult someone who knows what they’re talking about :slight_smile:

Of course, you could always contact the relevant tax authorities directly.