What are options for tax residency as a digital nomad that never spends more than 3 months in a country?

[jackfrost]

Overwriting the home country IRS especially in Germany sounds so simple with the DTA.

If i look at the Germany-Malta DTA the article 4 would be:

"
2. Where by reason of the provisions of paragraph 1 an indi-vidual is a resident of both Contracting States, then his statusshall be determined as follows:

a) he shall be deemed to be a resident of the State in which hehas a permanent home available to him; if he has a perma-nent home available to him in both States, he shall bedeemed to be a resident of the State with which his personaland economic relations are closer (centre of vital interests);

b) if the State in which he has his centre of vital interests cannotbe determined, or if he has not a permanent home availableto him in either State, he shall be deemed to be a resident ofthe State in which he has an habitual abode;

c) if he has an habitual abode in both States or in neither ofthem, he shall be deemed to be a resident of the State ofwhich he is a national;

d) if he is a national of both States or of neither of them, thecompetent authorities of the Contracting States shall settlethe question by mutual agreement.


3. Where by reason of the provisions of paragraph 1 a compa-ny is a resident of both Contracting States, then it shall bedeemed to be a resident of the State in which its place of effec-tive management is situated.

"

If you rent/buy in the foreign country and do not rent/own real estate in your home country, do not have a key etc it should be clear that a) would be Malta. Economic interests with a local company should also clearly be in Malta then.

Question is b/c if those are only relevant if a) is not conclusive. Abitual abode can be a lot of things. c) would favor Germany then if a) does not already overwrite b/c/d.

a) would even overwrite a lot of other things which are known to be critical (center of vital interests) unless you have a key to a German apartment.

 

[Dandyline]

Overwriting the home country IRS especially in Germany sounds so simple with the DTA.

If i look at the Germany-Malta DTA the article 4 would be:

"
2. Where by reason of the provisions of paragraph 1 an indi-vidual is a resident of both Contracting States, then his statusshall be determined as follows:

a) he shall be deemed to be a resident of the State in which hehas a permanent home available to him; if he has a perma-nent home available to him in both States, he shall bedeemed to be a resident of the State with which his personaland economic relations are closer (centre of vital interests);

b) if the State in which he has his centre of vital interests cannotbe determined, or if he has not a permanent home availableto him in either State, he shall be deemed to be a resident ofthe State in which he has an habitual abode;

c) if he has an habitual abode in both States or in neither ofthem, he shall be deemed to be a resident of the State ofwhich he is a national;

d) if he is a national of both States or of neither of them, thecompetent authorities of the Contracting States shall settlethe question by mutual agreement.


3. Where by reason of the provisions of paragraph 1 a compa-ny is a resident of both Contracting States, then it shall bedeemed to be a resident of the State in which its place of effec-tive management is situated.

"

If you rent/buy in the foreign country and do not rent/own real estate in your home country, do not have a key etc it should be clear that a) would be Malta. Economic interests with a local company should also clearly be in Malta then.

Question is b/c if those are only relevant if a) is not conclusive. Abitual abode can be a lot of things. c) would favor Germany then if a) does not already overwrite b/c/d.

a) would even overwrite a lot of other things which are known to be critical (center of vital interests) unless you have a key to a German apartment.

As i understand, if the tax is lower in Malta than in Germany, you usually need to pay the difference in germany.

So the tax cant be lower or higher than the country with the highest tax rate due to DTA.

 

[jackfrost]

No that would be tax credit system like the US usually uses.

 

[JustAnotherNomad]

As i understand, if the tax is lower in Malta than in Germany, you usually need to pay the difference in germany.

That can happen when the other country still has a right to tax the income. Check the other relevant articles in the DTA, e.g. taxation of dividends.

 

[Dandyline]

That can happen when the other country still has a right to tax the income. Check the other relevant articles in the DTA, e.g. taxation of dividends.

Yes, and only because he dont rent apartment in his home country as the post above states, doesnt make him non tax in his home country. Germany has right to tax his worldwide income. So he would probably need to pay the tax difference in germany.

 

[jackfrost]

Yes, and only because he dont rent apartment in his home country as the post above states, doesnt make him non tax in his home country. Germany has right to tax his worldwide income. So he would probably need to pay the tax difference in germany.

we are talking 183+ days, local company, only residence etc in the other country here not simply renting an appartment somwhere and no germany does not consider you tax resident if you really leave the country. only thing up for discussion there is which little details throw a wrench in that "leave"

 

[Dandyline]

we are talking 183+ days, local company, only residence etc in the other country here not simply renting an appartment somwhere and no germany does not consider you tax resident if you really leave the country. only thing up for discussion there is which little details throw a wrench in that "leave"

Thats different. If you move for real, cut all ties with your home country and not spend to much time in your home country (3 months during summer + 2-3 weeks is ok) then DTA doesnt matter. You will not pay taxes in your home country regardless.

 

[jackfrost]

Thats different. If you move for real, cut all ties with your home country and not spend to much time in your home country (3 months during summer + 2-3 weeks is ok) then DTA doesnt matter. You will not pay taxes in your home country regardless.

Yes then German IRS stepped into the room... Its not quite as easy but yes that is the general theme. The problem here is what "ties" are and what your tax agents thinks they are.

I agree with you btw that if you do not have that proper tax residency including the days etc then Germany would likely tax you and it would be like you said that they would credit you tax payed outside of Germany (if there is a DBA) and you would have to pay the difference.

 

[JustAnotherNomad]

Yes, and only because he dont rent apartment in his home country as the post above states, doesnt make him non tax in his home country. Germany has right to tax his worldwide income. So he would probably need to pay the tax difference in germany.

No. Sigh. I’ll explain it again.

Every country has laws for what kinds of income it taxes. Typically, in high-tax countries, the rules are something like this: “We tax the worldwide income of our tax residents. For people who aren’t tax resident, we only tax the income that they have earned while physically present in our country.”

Logically, you’ll then want to know what makes you a tax resident. Those rules vary from country to country. Some countries (like the UK) have very clear rules. Others (like Germany or France) have very vague rules.
Vague rules could be something like this: “You are tax resident if you have a place of dwelling in our country or if you stay more than 183 days in our country or if your center of social and economic life is in our country.”

But to make it a bit easier to understand, let’s say that the country is called Blondistan and its tax residency rules are: “You are tax resident if you have blonde hair.”
As long as you have blonde hair, that country considers you tax resident. Even if you don’t live there. Assuming the country uses the typical rules for taxation mentioned above, as long as you have blonde hair, you will have to pay tax on your worldwide income to Blondistan. If you don’t have blonde hair, you will not be considered tax resident and thus will only have to pay tax to Blondistan on money earned in Blondistan. So if you don’t work in Blondistan and you dye your hair blue, you will no longer have to pay tax to Blondistan, per Blondistan’s own law. It does not matter if your hair is blue or red, you simply don’t meet any of the criteria that Blondistan applies to determine if they can tax you.

Now let’s say that you want to keep your blonde hair. But you don’t work in Blondistan. You live in the beautiful country of Offshoreland. Offshoreland’s tax code states: “Tax residents pay taxes on the income they remit to Offshoreland. Other people pay tax on money earned in Offshoreland. You are tax resident if you spend at least 42 days per year in Offshoreland and you can sing our national anthem.”

Now it is easy to see is there can be a conflict:
Imagine that you are blonde, you spend 287 days per year in Offshoreland (whose anthem you can sing) and you only go to Blondistan for your grandmother’s birthday. You have a Hong Kong company that pays you a salary of $1M, but you only remit $10k per year to Offshoreland, the rest is kept in a bank account in Singapore.
Offshoreland clearly considers you tax resident since you spend more than 42 days there. Offshoreland demands that you pay tax on the $10k that you remit, but doesn’t care about the money in Singapore.
Now at the same time, Blondistan also considers you tax resident since you are still blonde. Blondistan doesn’t care that you spend almost the whole year in Offshoreland and that you don’t work in Blondistan. The color of your hair is enough for Blondistan to tax you. So in this case you will have to pay tax on the $10k to Offshoreland, but you will also have to pay tax on the $1M to Blondistan, which taxes worldwide income. The $10k is even taxed twice (double taxation), by both countries.

If Blondistan and Offshoreland have signed a tax treaty, the situation is different. Article 4 would contain a clause that reads something like: “If an individual is tax resident in both countries, then he/she shall only be considered tax resident where ...” and then some rules follow. The rules could be something like “...where he spends more than 183 days.”
In this case it would mean that since you spend more than 183 days in Offshoreland, you are only tax resident in Offshoreland, even if you keep your blonde hair. The tax treaty overrides the national law of Blondistan.
(Unfortunately, under new anti-avoidance action, most tax treaties have been updated with vaguer rules that say the tax authorities of both countries should reach a decision “in mutual agreement,” to make it harder for people to escape tax residency rules. But even with such new wording in the treaty, Blondistan and Offshoreland should agree that you are tax resident in Offshoreland since that’s where your life is now.)

Anyway, even if you are clearly tax resident of one country, there can still be double taxation.
One example would be if you (as a tax resident of Offshoreland) work in Blondistan and then remit that money to Offshoreland. Offshoreland would tax it since it is remitted by a tax resident. Blondistan would tax it since it is earned in Blondistan (by someone who is not tax resident, that doesn’t matter in this case).
For such cases, the tax treaty usually defines which country shall have the right to tax this income. But even in such cases, there may still be a situation where double taxation occurs. For such cases, the treaty contains a final rule that either says “If you have already paid taxes on some specific amount in the other country, you don’t pay tax on the same money again” (exemption method) or “If you have already paid taxes on some specific amount in the other country, we will still tax it again, but you can deduct the taxes you already paid in the other country” (credit method).

What this all boils down to is how vague the rules of your home country are, in this case the hair color rule. Germany and France are known to have extremely vague rules that basically say: “If we think you’re still one of us, then you’re still tax resident.”
That’s why a DTA is useful, as it takes precedence. But even then, if you have zero ties to your home country, you would even escape their strangest rules, such as if you dye your hair blue. Hope this made it a bit clearer.

 

[Dandyline]

Yes then German IRS stepped into the room... Its not quite as easy but yes that is the general theme. The problem here is what "ties" are and what your tax agents thinks they are.

I agree with you btw that if you do not have that proper tax residency including the days etc then Germany would likely tax you and it would be like you said that they would credit you tax payed outside of Germany (if there is a DBA) and you would have to pay the difference.

The main things that decides wether you have close ties or not are mainly:

- If the person is a citizen
- If the person is not permanently resident in a particular foreign place.
- If the person owns/rents a home in the home country
- If the person has their family in home country.
- If the person conducts business in home country.
- If the person is financially involved in home country by owning assets, companies
- If the person has real estate in home country

So just make sure to avoid above, then you can be 99% sure in regards to "ties".

Its actually not that complicated, just fix a residence permit in a new country, sell your home, sell your company and cancel everything back home and register your foreign adress to your government/move out the country. Spend no more than 3-4 months a year in your home country at least during the first 1-2 years.

 

[xipoid]

Its actually not that complicated, just fix a residence permit in a new country, sell your home, sell your company and cancel everything back home and register your foreign adress to your government/move out the country. Spend no more than 3-4 months a year in your home country at least during the first 1-2 years.

3-4 months could kill you if you're moving from the UK, especially given its unorthodox April-April tax year. https://assets.kpmg/content/dam/kpmg/pdf/2016/01/statutory-residence-test-flowchart.pdf

Suppose in tax year 19-20 you were tax resident in the UK. In July 21 (three months in to tax year 20-21) you cut all ties with the UK insofar as you can, because the mere fact of having spent three months there with a home available is a tie, move to Cyprus, rent a place, stay 60 days, open a company, and ask for tax residency.

Then you fly to Asia for the winter, spending 30 days in Thailand/Singapore/Malaysia/etc. until it gets a bit warmer in April and you fly back to Cyprus. In this scenario you would be a tax resident of both the UK and Cyprus for 20-21 and 20 respectively. You'd want to wait until the new tax year of 21-22, spend less than 16 days in the UK, and be absolutely assured of Cyprus tax residency before any big moves.

 

[DaveFischer]

Is there any advantage for moving from Northern Europe to Cyprus and then to Georgia instead of directly to Georgia?
Just because EU regulation enforces that EU countries play nicely with each other?
Georgian tax residency does seem like a dream.

The main things that decides wether you have close ties or not are mainly:

- If the person is a citizen
- If the person is not permanently resident in a particular foreign place.
- If the person owns/rents a home in the home country
- If the person has their family in home country.
- If the person conducts business in home country.
- If the person is financially involved in home country by owning assets, companies
- If the person has real estate in home country

So just make sure to avoid above, then you can be 99% sure in regards to "ties".

Its actually not that complicated, just fix a residence permit in a new country, sell your home, sell your company and cancel everything back home and register your foreign adress to your government/move out the country. Spend no more than 3-4 months a year in your home country at least during the first 1-2 years.

Thanks, I regularly have clients from the EU, but I'll make sure to avoid clients from my home country.

Our government regularly hires freelancers for €90/100 hourly on a full-time freelance basis and the productivity is almost 0 working at the governments, so it's easy money, but I guess I should avoid clients from my home country. It's ok, I'm from a small EU country, so I'll make sure to find customers in different EU countries. London has been great for me, I've also lived and worked there for a few years, so I have many contacts there.

I don't have any homes, my parents do. I'd just like to visit my family 2 weeks a year, although they are pensioned and retired and I could also just see them in their holiday beach house abroad, where they spend half of the year.

 

[kkein]

Is there any advantage for moving from Northern Europe to Cyprus and then to Georgia instead of directly to Georgia?
Just because EU regulation enforces that EU countries play nicely with each other?
Georgian tax residency does seem like a dream.

Thanks, I regularly have clients from the EU, but I'll make sure to avoid clients from my home country.

Our government regularly hires freelancers for €90/100 hourly on a full-time freelance basis and the productivity is almost 0 working at the governments, so it's easy money, but I guess I should avoid clients from my home country. It's ok, I'm from a small EU country, so I'll make sure to find customers in different EU countries. London has been great for me, I've also lived and worked there for a few years, so I have many contacts there.

I don't have any homes, my parents do. I'd just like to visit my family 2 weeks a year, although they are pensioned and retired and I could also just see them in their holiday beach house abroad, where they spend half of the year.

Have you ever seen Georgian language? You'd be living in a country where it's either that or russian. English is for when you get lucky.

 

[Konstanz]

Have you ever seen Georgian language? You'd be living in a country where it's either that or russian. English is for when you get lucky.

I have been in Georgia. It would be very strange to live there as an expat if you don't speak Russian.
Cyprus is much more international and weather is better in Cyprus. Yes, it's an island but it's EU country with widely English sppoken etc..

 

[DaveFischer]

That's the thing... there is no minimum time you have to live in the country. You don't need to live 6 months per year in the country. Also, I read that most young people in Tbilisi do speak English. I haven't been there, but apparently it's not like in Ukraine, Thailand, etc.

But I'm looking for a country that gives tax residence without having to stay 6 months per year. I am aware that I also cannot spend 183+ days in any different country as that will most likely make me a tax resident in that new country, with precedence over my Georgian tax residency.

 

[xipoid]

But I'm looking for a country that gives tax residence without having to stay 6 months per year. I am aware that I also cannot spend 183+ days in any different country as that will most likely make me a tax resident in that new country, with precedence over my Georgian tax residency.

+ all the DTA conditions from your home country that will just consider you tax resident there if you don't have compelling alternatives.

The '183 days' thing is only the most obvious rule, but you typically can't escape a detailed consideration of home, habitual abode, centre of interests, and nationality.

 

[DaveFischer]

I was planning to live in South America and Southeast Asia, not spend more than 2 weeks yearly in my home country or possibly not visit at all anymore. I don't have any clients from my home country, nor a house.

 

[xipoid]

I was planning to live in South America and Southeast Asia, not spend more than 2 weeks yearly in my home country or possibly not visit at all anymore. I don't have any clients from my home country, nor a house.

Have you gone carefully through section 4 of the relevant DTAs? If you don't have a home in Georgia, or in South America or Southeast Asia, what's to stop them taxing you based on nationality (usually the last of the tiebreakers)? It seems very brave to risk this in order to save a few K.

 

[GiGoGo]

I find HK a good place for a digital nomad who wants to stay for three month periods in Thailand, Vietnam, Bali and other SEA locations. You only need to be at least once in HK every six months to keep your visa until you get the permanent residency. You only need to pay taxes for the work you do while physically present in HK.

 

[JustAnotherNomad]

If you don't have a home in Georgia, or in South America or Southeast Asia, what's to stop them taxing you based on nationality (usually the last of the tiebreakers)?

Their own national law, as I explained above... Article 4 is irrelevant if you don’t trigger tax residency rules in the first place. I would still recommend to rent an apartment for additional protection.