Why do I need ANY tax residency?

[Dagobert Duckson]

I currently live in a typical OECD country with high taxes (A). I'm a citizen of another OECD country just like that (B). Country A is outside the EU and is not the US, country B is inside the EU. I make my money with an online-based business and with customers around the world. Most of them are neither in A or B. I currently run my business through a local company in A but can easily shift this to an offshore company.

Suppose I give up my current residency in A, set up an offshore company for business, and live as a "nomad", changing location every three months. So I'd be in four different locations each year. Of those, two would be A and B, always, and always just under three months. The others would vary from year to year.

Why do I need any tax residency anywhere? With this nomad lifestyle, I am in actual fact not a resident of anywhere, so I shouldn't be taxable anywhere. What am I missing?

 

[Tax Cow]

What is your home country? Most high tax EU countries do not let you register as tax non-resident unless you have taken another residency. Furthermore, your home country may wish to tax you for 1,2,3 or 5 years, even after you've left, if your new country of tax residency is a tax haven.

 

[fshore]

I currently live in a typical OECD country with high taxes (A). I'm a citizen of another OECD country just like that (B). Country A is outside the EU and is not the US, country B is inside the EU. I make my money with an online-based business and with customers around the world. Most of them are neither in A or B. I currently run my business through a local company in A but can easily shift this to an offshore company.

Suppose I give up my current residency in A, set up an offshore company for business, and live as a "nomad", changing location every three months. So I'd be in four different locations each year. Of those, two would be A and B, always, and always just under three months. The others would vary from year to year.

Why do I need any tax residency anywhere? With this nomad lifestyle, I am in actual fact not a resident of anywhere, so I shouldn't be taxable anywhere. What am I missing?

You don't unless your previous tax resident countries require you to have one for them to consider you non tax resident.

 

[Dagobert Duckson]

Furthermore, your home country may wish to tax you for 1,2,3 or 5 years, even after you've left, if your new country of tax residency is a tax haven.

What is my home country? Where I currently live, or where my passport says I'm from? I have lived in A for twenty years. As far as I know, there is only an exit tax of sorts that applies to unrealized capital gains but no attempt to tax income earned after departing (although they may argue that I remain a resident of A if, for example, I still own a home there, or my family continues to live there or some such thing; assume that none of this is the case.) I haven't lived in country B for twenty years, since I moved to country A. I don't think B would attempt to tax me so long as I don't spend more than 3 months per year there. Pretty sure about that.

 

[fshore]

To be sure you should check the laws of both country a and b.

 

[Dagobert Duckson]

OK, I mean, I have already checked, as far as that's possible online. I'll definitely consult a tax accountant when I take action. But let's assume neither A nor B will attempt to tax me after I've departed from A, even if I spend up to three months there each year. Any other reasons why I need tax residency anywhere else? Like, practical reasons such as being able to open or keeping bank accounts, credit cards, etc?

 

[fshore]

OK, I mean, I have already checked, as far as that's possible online. I'll definitely consult a tax accountant when I take action. But let's assume neither A nor B will attempt to tax me after I've departed from A, even if I spend up to three months there each year. Any other reasons why I need tax residency anywhere else? Like, practical reasons such as being able to open or keeping bank accounts, credit cards, etc?

You will need an address, and also you need to give a tax number to your banks. You can use your previous country's tax number. If you are not tax resident there then it shouldn't matter that they receive your accounts info every year.

 

[Sols]

If for no other reason, it's at least very practical to have tax residency somewhere. It makes it easier to deal with banks and other financial institutions, and if you are ever audited by a tax authority or otherwise investigated by an authority. If you can show tax returns, even if they show legally zero tax paid, it can help explain where your money came from.

That said, you can set up this tax residency in some place where your income isn't taxed or only a very small portion of it is taxed. It's more about ticking a checkbox.

 

[fshore]

However tax residency is not equal to residency, and many countries will not even give you a tax residency certificate until the next year when you can prove that you've been tax resident the previous year according to its rules, and then still it might be complicated and troublesome to get the certificate. Many countries don't require you to file tax returns, and it might not be possible to file if you didn't have any taxable income.

It might be equally useful If you can prove you have residency somewhere.

 

[romashkavarashka]

My question:

In some countries it's easy to obtain a local TaxID as an individual non-resident/tourist. And with it, I may or may not want to go futher and open a bank account in that country. I don't plan stay more than a few months per year, nor work.

Once TaxID is obtained, do I become automatically a TaxID resident in that country? What does TaxID obliges me to do once it's obtained?

If I open a local bank with TaxID and use a bank account, does this begin to play some role in regards to TaxID?

Note that I mean the countries that require a local TaxID in order to allow you to open a local bank account. And TaxID is easily obtainable by a tourist.

 

[fshore]

This might differ between countries, I can't answer for all countries in the world. But generally obtaining a personal tax id if has no filing requirements.

 

[romashkavarashka]

Hmmmm.

Once I get TaxID and open a bank account and begin using it, TaxID still won't oblige me to do anything?

What is it for then?

 

[fshore]

What is it for then?

It is for the bank to report to the authorities.

 

[blockchain4ever]

Checking TaxID validity should be similar to checking VAT id validity. You need an online lookup-system for this, and it's generally not available to the public.

Given a fake Tax id, it should be detected during data exchange. However, then it also must be traced back to the account holder in the bank, as it is not the bank that does the data exchange, but the government.

Also the receiving government might not even want to provide this information at all.

Anyone with insights on how this is implemented at the systems level?

 

[romashkavarashka]

It is for the bank to report to the authorities.

what for?

 

[GrumpyMess]

Why do I need any tax residency anywhere? With this nomad lifestyle, I am in actual fact not a resident of anywhere, so I shouldn't be taxable anywhere. What am I missing?

Very good question. There are a lot of countries which do not force their citizens to have a tax residence anywhere. I think it's enough to have a simple residence elsewhere, but not a tax residence.

 

[Martin Everson]

Why do I need any tax residency anywhere?

Banks

With this nomad lifestyle, I am in actual fact not a resident of anywhere, so I shouldn't be taxable anywhere. What am I missing?

Banks


The people that ask about nomad lifestyle have never really changed address or dealt with banks often enough. With CRS you will be reported to ever country after ever change of address with a bank. Even if no tax is owed you could end up with i.e half a dozen countries you moved too asking you to file blank tax returns which can be stressful. Yes you could choose in that case to bank in a non-CRS country and use a single address and cross your fingers but nomad lifestyle does not work in 2019. You would be storing up problems for your future without a proper residency.

In your case you need a tax free residency address for banking purposes and then move around and live anywhere you want making sure you pass any local non-resident test .

 

[GrumpyMess]

The people that ask about nomad lifestyle have never really changed address or dealt with banks often enough. With CRS you will be reported to ever country after ever change of address with a bank. Even if no tax is owed you could end up with i.e half a dozen countries you moved too asking you to file blank tax returns which can be stressful. Yes you could choose in that case to bank in a non-CRS country and use a single address and cross your fingers but nomad lifestyle does not work in 2019. You would be storing up problems for your future without a proper residency.

In your case you need a tax free residency address for banking purposes and then move around and live anywhere you want making sure you pass any local non-resident test .

Do you mean tax residency with obtaining a tax residence certificate or just a tax id number? You can get a tax id number in a country with territorial taxation but you'll be not taxed there since you are not living there, is this enough? Because otherwise with 180 days presence rule nomadic lifestyle is out of the question

 

[romashkavarashka]

The people that ask about nomad lifestyle have never really changed address or dealt with banks often enough. With CRS you will be reported to ever country after ever change of address with a bank.

1) who forces you to report every change of your address to your bank? No one. What if you have multiple bank accounts in multiple countries, would you really report to each of them your address change each time?

2) Not all banks require a real documented proof of your address.

 

[Martin Everson]

Do you mean tax residency with obtaining a tax residence certificate or just a tax id number?

Tax ID is all that's required along with proof of address etc for banking purposes....for now until residence certificate proof starts to be asked for by banks .

You can get a tax id number in a country with territorial taxation but you'll be not taxed there since you are not living there, is this enough?

Yes. Many people with holiday homes or winter vacation homes make use of this fact .