'Tax residency' or 'residency for tax purposes' simply means that a person or corporate entity operates within and is subject to the fiscal system of a particular country.
The vast majority of individuals are by default tax residents of the country of origin. However, millions of individuals around the world have more than one tax residency - sometimes accidentally or without their knowledge.
Assuming you want to pay the smallest amount of tax required by law, it's very important that offshore and international individuals are aware of their tax residency status rather than leaving it to chance. That is what this important section of the International Wealth portal is all about!
Tax residency is a totally different concept from residency for immigration purposes. Many countries set up a high bar for issuing residence permits, but they are keen to have as many tax residents as possible. For example, the United States' Internal Revenue Service (IRS) uses 183 days as a threshold in the "substantial presence test," which determines whether people who are not permanent residents should still be considered residents for taxation. Just because you are a tourist or even an illegal immigrant, doesn't mean you are not a resident for tax purposes.
Can you have multiple tax residencies? Absolutely. There is no limit to the number of tax residencies you can have. As you can imagine, though, with competing reporting and filing requirements you can quickly create a huge international mess if you are not careful!
This is where double tax treaties (DTTs) kick in, supposedly to avoid the need for you to pay tax on the same income in two or more countries at the same time.
The good news is that changing tax residency status is quite feasible, 100% legal and, quite often, very profitable. It is extremely important to make the right choice of tax residency for an individual, since this allows you to solve two important problems:
- First, it becomes possible to minimize taxes on income from various sources (interest charges, salaries, dividends, royalties ...), as well as taxes on gifts, inheritance, capital gains, wealth.
- Secondly, an individual is often able to achieve an increase in financial privacy by becoming a resident for tax purposes in certain countries.
When choosing a tax residency for an individual, there are many factors to consider, including, but not limited to, the following:
- Rules for determining tax status by the country of current residence / country of destination;
- Tax rates in the country of destination;
- The presence / absence of special fiscal incentives (non-dom, non-habitual residence, territorial tax systems, benefits for new residents) and investment immigration programs in the country of interest;
- Family composition of the candidate, sources of income and the presence / absence of ownership of residential real estate.
Once you are tax resident in a country, you might need a certificate of tax residency. In most cases, you can apply for this from the tax authorities in the country in question.
Arranging your tax residency is not an easy task. Advice from experts is essential.
You can start by studying this section, which includes practical materials and guides for applicants for tax residence and a tax resident certificate from different countries.
It's important to note that Offshore Pro Group does not offer tax advice, but we can refer you to suitably qualified experts that we have known and trusted for years. Our consultants can however help you with formalities for obtaining permanent residence permits in many tax-friendly countries from Andorra to Zambia, with many countries in between!
Set up a free online consultation with Offshore Pro trusted experts, saving time and money, as well as saving your nerves and getting what you want!
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