Tax Nomads – No Tax!?

Jan 18, 2024
Author: David Cairns
David is our senior tax partner and has extensive knowledge of business and personal taxes. David specialises in providing international tax advice to our clients.

No Tax !?

Here’s a list of questions that I get asked regularly

  • How can I avoid paying taxes?
  • What is the best way to pay no tax?
  • What is the most tax efficient way to pay less tax?
  • How can I reduce my tax?

I am now prepared to share an answer for FREE. 

Don’t live anywhere or more specifically don’t become tax resident in a country.

Of course, if you’re an American citizen, this can’t happen, the IRS wants to tax you no matter where you are – even outer space.

 

The Tax Nomad

If you are not resident for tax purposes anywhere, you might not pay tax anywhere. The concept has various names: Flag Theory, Perpetual Traveller, Permanent Tourist,  I call them tax Nomads.

 

How does it work?

Most countries typically work on a 6 months basis for tax residency.  If you live there for more than 6 months, in any particular country, they tend to treat you as a tax resident and subject you to their tax regime.

The answer is therefore restrict your stay in a country to typically less than 90 days.  This may require you to rotate 4 or 5 countries depending on their local rules.  You might therefore not be taxed as a resident anywhere.

 

Can you get caught out?

Even if you stay for a short time and don’t specifically become a tax resident, you can sometimes get taxed on your activities in a country.

  • Performing duties as a director or employee, for a business resident in that country.
  • Many overseas sportspeople are subject to tax on their prize winnings in a country even though they may be here for only a week. https://www.gov.uk/guidance/pay-tax-in-the-uk-as-a-foreign-performer

 

Withholding Taxes and local taxation

Even though you may not be tax resident, you may still be a subject to a variety of local taxes which can come in the form of direct taxation and withholding taxes.

  • The UK and many other countries subject non residents to capital gains tax on the disposal of property in that country.
  • Various types of payments out of a country are subject to withholding taxes. This could be in relation to dividends, interest and royalties. Even some services if they are supplied to countries like China.
  • Whilst various countries will tax income generated from a country through permanent establishments, property, trades and employments.
  • If you sell goods and services into a country, you may still have to register for VAT there.

There are a variety of Double Tax Agreements to help reduce this, but unless you live somewhere, you might not be able to rely them.

 

Other things

If you do not live anywhere there are always a few admin and practical matters to take into account. For instance: where you keep your assets, passports, visas, bank accounts, family, social security, health insurance, medical entitlement etc etc.

 

Overall

If you have the wealth, means and motivation you can achieve the Utopia of non tax residence.  However, it’s usually better to have a country that you call home but has a generous tax regime.

David Cairns

Tax Partner, Northampton

DavidCairns@hawsons.co.uk

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More from our tax experts

You can find all of our latest tax articles and tax resources here.

If you are looking for advice in a particular area, please get in touch with your usual Hawsons contact.

Alternatively, we offer all new clients a free initial meeting to have a discussion about their own personal circumstances – find out more or book your free initial meeting here. We have offices in Sheffield, Doncaster and Northampton.

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