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Home arrow Tax Articles arrow Becoming non resident

Becoming non resident

You need to be particularly careful as to whether you  can avoid income taxes in your home country by simply living offshore. 

While many high tax countries tax the  worldwide income of their residents, they do not tax the worldwide  income of non-resident citizens. Thus, a citizen can escape from  a high tax country by moving to a low tax country. In many  countries of the world, income earned by a trust or corporation that is resident in another country is not subject to tax by the  owner of the corporation (or by the grantors or beneficiaries of  the foreign trust). There can therefore be useful tax planning opportunities.

Most developed countries permit an  indivual to be non resident if they are absent from the country for 6-9 months.However this  is not always the case. In particular certain countres such as  the US, Eritrea, the Philippines, Finland, Greece and the Netherlands impose income and estate  taxes on citizens and residents based on their world wide income  - regardles of where they live  and you would therefore  need to relinquish citizenship and acquire another nationality  to avoid their tax net.

Therefore if you lived in the US you could  leave the U.S. and reside in the UK , Canada, the Bahamas or any  other country for ten years or more and you will still owe U.S.  income taxes on all your earned income and investment income -  unless some of that income is specifically exempted from tax.

One common  option here is to acquire dual citizenship. Acquiring ciizenship  in one of the countries that are members of the European Union  will give you the right to live and work in any of the EU countries.

Note that non US residents  and citizens can invest their money in U.S. treasury bills, certain  U.S. bank deposits and in U.S. growth (non-dividend paying) stocks  without paying any taxes on the income or the gains. Non residents  would however be required to pay US income tax on US dividends. 

Similarly, even though  you may escape a taxmans clutches by becoming non resident, certain  countries make it more difficult than others to cease to be resident. Taking Sweden as an example, if you are resident in Sweden  you are taxable on your world-wide income and capital gains as  is the case in most high tax countries.

However, abandoning Swedish tax residence is not straightforward.  You are resident in Sweden if one of the following applies:

- Your 'real home and dwelling' is in Sweden; or
- Your 'habitual abode' is in Sweden - or
- You have no habitual abode in Sweden, but you formerly had  a 'real home and dwelling' there, and you have an 'essential connection'  with Sweden.

'Essential connection'  means, for instance, that you have real property, a business or  a family in Sweden.

Another big  hit is that anyone who has spent more then 10 years resident in Sweden  is deemed to remain resident for 5 years after departure, unless  they can prove that they have no 'essential connection' to the country.

Therefore in order to establish non Swedish residence, you  will be looking at surrendering all ties with Sweden.

Similar rules apply to Holland. The criteria to establish non residence include  the length of time spent in Holland during a tax year, ownership  of real property, family or other personal connections.

If a Dutch resident becomes non-resident, then any companies in which he holds more than 5% are subject to an assessment of  capital gains tax, which is not collected as long as the shares  are not alienated within 10 years of departure.

In addition Dutch inheritance tax applies to the world-wide  assets of a Dutch resident for up to 10 years after residence has  ceased. After the ten year period has expired it applies only to  his Dutch assets.

When an individual becomes Australian resident any non-Australian  property they own is usually taken as disposed of and reacquired  at the date of entry. This means that your base cost will be increased.

However the drawback to this is that on ceasing residence in Australia these assets  are deemed to be disposed of.

There is  however a concession (known as the '5-in-10' concession) that exempts  assets held by anyone who has resided in Austalia for less than  5 out of the previous 10 years on their departure. Therefore most  expat workers in Australia on short term contracts will be excluded.

 

 
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