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What are options for tax residency as a digital nomad that never spends more than 3 months in a country?
- Thread starter DaveFischer
- Start date
How double tax treaty would save you from tax? If you are considered tax resident in home country. Double tax treaty is useless unless you paid tax in your new country..
You should read a treaty, especially article 4. The treaty takes precedence over domestic law.
Most high-tax countries tax the worldwide income of tax residents, but only the local income of non-residents.
Say you own a Malta company that has proper substance in Malta. This company pays you in dividends.
You are tax resident in Georgia as a HNWI where you can receive the dividends from the Malta company tax free. Now your home country claims that you still meet their rules for tax residency (for example, access to an apartment all year), so they consider you tax resident as well and say you should pay tax there on your worldwide income, including the dividends from Malta.
If there is a tax treaty between Georgia and your home country, it will usually define tie-breakers, for example that you should be considered tax resident where you have your habitual abode/closer ties. If you can prove that you spend 300 days per year in Georgia, that you have friends and a partner there, an apartment, your life in in Georgia - then they should leave you alone. (The article on taxation of dividends will usually say that dividends can only be taxed in your country of tax residency, unless there is a permanent establishment in the other country.) Even if, for example, your home country considers all residents also tax residents and they claim/can prove that you still have access to an apartment in your home country.
Now consider the same case with Panama: Like Georgia, Panama doesn’t tax foreign-sourced income. But Panama has signed very few tax treaties. You can spend 300 days per year in Panama, all your life can be there. But if your home country can show that you still meet the domestic rules (access to an apartment for example), then they can still ALSO consider you tax resident, and then they can still tax your worldwide income, even if your habitual abode is clearly not in your home country.
That’s why tax treaties are so important. Of course if you don’t meet the domestic tax residency rules of any country, it doesn’t matter very much.
If you have no proof of being taxed somewhere (else) where you claim you live, your previous country of residency or your home country will tax you, treaty or not.
Then go hire a lawyer and try to argue with tax offices.
Thats why there are a gazillion of providers offering "substance".
Something that would be interesting to know in connection to the DTTs and this whole topic:
1) If they consider you still tax resident e.g. in Germany how will they consider your e.g. Maltese company and its profits?
2) Gets even more tricky with holding in one of the usual places like Gibraltar which usually do not have DTTs or do not apply them if you are a non-taxed non resident company. Since the flow of money would usually be MT Ltd -> Gib Ltd -> Owner it would mean the dividend comes from the Gib Ltd which has not DTT you can fall back to in case Germany tries to argue against you?
1) If they consider you still tax resident e.g. in Germany how will they consider your e.g. Maltese company and its profits?
2) Gets even more tricky with holding in one of the usual places like Gibraltar which usually do not have DTTs or do not apply them if you are a non-taxed non resident company. Since the flow of money would usually be MT Ltd -> Gib Ltd -> Owner it would mean the dividend comes from the Gib Ltd which has not DTT you can fall back to in case Germany tries to argue against you?
you should still be able to receive a tax certificate. how / how much things are then being taxed is only relevant in certain cases. e.g. Germany has provisions for moving into a country where the tax is lower than a certain percentage of the tax you would have paid in Germany but those are usually for if you still have assets in Germany and are being partly taxed i think
Double tax treaty - even the name of it tells what it is. It means let's say your home country A income tax rate is 20%. your new country B tax rate is 15%. If you receive income in country B at 15% rate and let's say country A say that you are still a resident, they can still tax you the difference of 5% and you still have to provide proof that you paid 15% at country B. So, basically double tax treaty would not help you to reduce your tax in most cases.
Make sure you have more substance in Panama than in your home country and they would not win the legal fight. They will look at the whole situation.
If they clearly see that you moved to Panama and you are not resident in your home country they cannot tax you even if you have apartment/house in your name in most cases.
Many rich people have homes apartments in multiple countries, including home country. Of course rules differ country by country. So, usually is better to not have apartments/houses in your own name.
Double tax treaties will not help you to reduce tax... Yes, it's true that the rules are more clear, but if you don't want to pay tax the only way is to structure your life in such way your home country cannot legally claim you are resident.
If you have an apartment/house in your name which isn’t rented out, you would usually be considered resident. And that would usually mean you are tax resident as well.
In such cases it is the tax treaty that makes sure you will not be tax resident - in most cases. If you look at the updated Germany-UAE tax treaty, they implicitly (by switching from the exemption to the credit method) put a clause there that if you have double residency, even if your life is in the UAE and you spend no time in your apartment in Germany, your worldwide income will be subject to tax in Germany. If they had no intention of taxing your worldwide income, why would they explicitly make a change in the treaty? And it is the same result when there is no tax treaty. They may not always enforce the law, but the law is perfectly clear.
If you are not at risk of triggering any tax liability, it is completely irrelevant where you live. But if there is any sort of risk, it’s much safer to have tax residency in a country that has signed a tax treaty with your home country. That doesn’t mean you shouldn’t move to Panama if that’s where you want to live. But if you are living a nomad lifestyle (which this thread is about), Panama is a poor choice due to the small number of tax treaties, as other countries won’t care about your Panamanian tax residency certificate. They will only care about their domestic rules (whose interpretation probably will be different depending on whether you spend 350 days or 15 days per year in Panama).
We are otherwise on the same page, I completely agree that one should not just get residency on paper.
In such cases it is the tax treaty that makes sure you will not be tax resident - in most cases. If you look at the updated Germany-UAE tax treaty, they implicitly (by switching from the exemption to the credit method) put a clause there that if you have double residency, even if your life is in the UAE and you spend no time in your apartment in Germany, your worldwide income will be subject to tax in Germany. If they had no intention of taxing your worldwide income, why would they explicitly make a change in the treaty? And it is the same result when there is no tax treaty. They may not always enforce the law, but the law is perfectly clear.
If you are not at risk of triggering any tax liability, it is completely irrelevant where you live. But if there is any sort of risk, it’s much safer to have tax residency in a country that has signed a tax treaty with your home country. That doesn’t mean you shouldn’t move to Panama if that’s where you want to live. But if you are living a nomad lifestyle (which this thread is about), Panama is a poor choice due to the small number of tax treaties, as other countries won’t care about your Panamanian tax residency certificate. They will only care about their domestic rules (whose interpretation probably will be different depending on whether you spend 350 days or 15 days per year in Panama).
We are otherwise on the same page, I completely agree that one should not just get residency on paper.
If I have to spend a large number of days in Panama/Georgia to prove tax residency there, the 10k outlay for Cyprus, given its wealth of DTTs, starts to seem less of a problem.
Georgia has signed quite a lot of DTA’s and they have their HNWI program that doesn’t require you to spend a specific number of days.
I don't say DTT is not helpful for clarity. But as you mentioned above you say that if you are considered resident in Germany , even if you don't live there , you would be taxed despite DTT.
The same is for other, if you don't pay tax in your new country and you would be considered resident in the home country. You would still have to pay tax.
I see only safe way to reduce ties with home country to minimum and build substance in new country.
The same is for other, if you don't pay tax in your new country and you would be considered resident in the home country. You would still have to pay tax.
I see only safe way to reduce ties with home country to minimum and build substance in new country.
If you spend no time in Georgia, and nomad it around for the rest of the time (say max of 60-90 days per place, not including your home country), if home country ask where your centre of interests has shifted to, what do you reply and how do you prove it? 'I spend 60-90 days in each place / I hotel-hop a couple of weeks here and there all over the place.' 'OK, send us exhaustive documentation to that effect. How do you explain this or that gap?' Hassle. The fact that you need to rent a place in Cyprus year-round makes the whole thing potentially easier to administrate.
I agree. This nomad thing with Georgia will not work. You have to have a normal residence place in your new country. With utility bill , your stuff and etc. You have to spend some decent time there.
Other way they just say you are domicile fraud despite DTTs... They will tax you and you can go to courts if you wish.
Agree. Pay the £10k or whatever and have a solid, defensible case that your centre of interests has really shifted to Cyprus (or Georgia, if you prefer). Spend 60-90d in Cyprus and rent year-round there. Don't spend more than that in any single other country (perhaps this is more important if the other countries are particularly tax-aggressive).
It depends on the tax treaty. A tax treaty is no magical solution to all your problems, but it does offer additional protection because it limits the taxes a country can charge. With no treaty, it does not matter if you have substance in the other country.
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