The way I see it, high tax countries (HT) treat tax residence like a metal scanner. They make you pass through the scanner, and flag you if they find evidence of connection to the country. They are divided in several tiers of increasing sensitivity.
Tier 1: The presence test, usually 183 days within one year
Tier 2: Tier 1 OR being a citizen/visa holder with social/economic ties to the country
Tier 3: Tier 2 OR being a citizen/visa holder unable to demonstrate tax residence in another country
Tier 4: The scanner is defective and you're always flagged
Examples:
Tier 1: Brazil, Argentina, most non-EU countries
Tier 2: United Kingdom
Tier 3: ?
Tier 4: United States
Conversely, most low/zero tax countries (LT) treat tax residence like an exclusive club. You must be invited to the club or pay dearly to get in, but once inside, the foods and drinks are complimentary. Usually, LT countries will sell "memberships" (a residence visa or even a citizenship) by various means (e.g. start a company, buy real estate, etc.) and then apply the presence test. If your result is positive to the presence test, they will treat you as a VIP member - not only a resident but also a tax resident.
Some HT countries (Tiers 2 and 3) don't like the LT clubs and will put officers holding metal detectors near the the clubs. Thus club members could be flagged, in certain cases, as tax residents of both a LT and a HT country, or worse, of two HT countries! In the later case, the conflicting countries sometimes have a gentlemen's agreement (a tax treaty) in which they decide to what country the person belongs for tax purposes.
A question that often arises is whether one can be a tax resident of nowhere. This is a kind of a grey area, but my guess is that the answer would be yes for citizens of Tier 1 HT countries that live like digital nomads, since their countries don't send officers near the clubs. But since it's a grey area, other institutions such as banks won't take "nowhere" for an answer. They want to know a specific country where your tax matters belong, or they won't deal with you. And the answer can't be Liberland.
Thus people that go for schemes such as permanent residence visa in Panama (LT country with a 0% income tax), generally don't want to stay in Panama for long enough to pass the presence test. They want a shinny Panamanian ID card they can use for opening bank accounts and escaping the gray area, even if technically they aren't tax resident there. Or worse, they could be simply living in their home HT countries but using their IDs to claim to the banks that they live and pay taxes in Panama (a criminal offense).
There are some cases which I'm not sure of. Suppose you were granted the right to live in the UAE, a LT country, and you effectively live there for most of the year, thus passing the presence test. However, your residence visa was issued as an extension to that of your husband or wife, who work in the UAE or have a business there - and the extension explicitly rules out the right to tax residence, which means that, if asked, UAE won't issue a tax residence certificate for you. Does it prevent, however, that you declare UAE as your tax residence to your bank, and effectively live tax free?
Do you agree with the above or have anything to add?
Tier 1: The presence test, usually 183 days within one year
Tier 2: Tier 1 OR being a citizen/visa holder with social/economic ties to the country
Tier 3: Tier 2 OR being a citizen/visa holder unable to demonstrate tax residence in another country
Tier 4: The scanner is defective and you're always flagged
Examples:
Tier 1: Brazil, Argentina, most non-EU countries
Tier 2: United Kingdom
Tier 3: ?
Tier 4: United States
Conversely, most low/zero tax countries (LT) treat tax residence like an exclusive club. You must be invited to the club or pay dearly to get in, but once inside, the foods and drinks are complimentary. Usually, LT countries will sell "memberships" (a residence visa or even a citizenship) by various means (e.g. start a company, buy real estate, etc.) and then apply the presence test. If your result is positive to the presence test, they will treat you as a VIP member - not only a resident but also a tax resident.
Some HT countries (Tiers 2 and 3) don't like the LT clubs and will put officers holding metal detectors near the the clubs. Thus club members could be flagged, in certain cases, as tax residents of both a LT and a HT country, or worse, of two HT countries! In the later case, the conflicting countries sometimes have a gentlemen's agreement (a tax treaty) in which they decide to what country the person belongs for tax purposes.
A question that often arises is whether one can be a tax resident of nowhere. This is a kind of a grey area, but my guess is that the answer would be yes for citizens of Tier 1 HT countries that live like digital nomads, since their countries don't send officers near the clubs. But since it's a grey area, other institutions such as banks won't take "nowhere" for an answer. They want to know a specific country where your tax matters belong, or they won't deal with you. And the answer can't be Liberland.
Thus people that go for schemes such as permanent residence visa in Panama (LT country with a 0% income tax), generally don't want to stay in Panama for long enough to pass the presence test. They want a shinny Panamanian ID card they can use for opening bank accounts and escaping the gray area, even if technically they aren't tax resident there. Or worse, they could be simply living in their home HT countries but using their IDs to claim to the banks that they live and pay taxes in Panama (a criminal offense).
There are some cases which I'm not sure of. Suppose you were granted the right to live in the UAE, a LT country, and you effectively live there for most of the year, thus passing the presence test. However, your residence visa was issued as an extension to that of your husband or wife, who work in the UAE or have a business there - and the extension explicitly rules out the right to tax residence, which means that, if asked, UAE won't issue a tax residence certificate for you. Does it prevent, however, that you declare UAE as your tax residence to your bank, and effectively live tax free?
Do you agree with the above or have anything to add?
