In a recent briefing on tax residence issues, we mentioned in passing that it is possible to be resident for tax purposes nowhere; and we promised a further instalment. This is it.
If you are a US citizen, stop reading now: none of what follows applies to you in the same way since – sorry to rub it in – you have the almost unique privilege of being obliged to file for taxes in the US regardless of your residence status.
Residence is relevant to tax liability inasmuch as, very broadly, a person who is tax-resident in a given country will generally be liable to pay tax in that country in respect of worldwide income and gains (though special rules sometimes apply, as in the UK, to mitigate the charge in respect of overseas income and gains derived by ‘foreigners’ whose residence is in some sense only temporary).
By contrast, a person who is not tax-resident in a given country is likely to be liable to tax in that country, if at all, only in respect of income or gains arising within that country.
Thus if you are able to combine being a ‘tax nomad’, resident nowhere, with ensuring that your income and gains arise in a country that does not levy tax on non-residents, it is in principle possible to escape liability to tax altogether.
Different countries have different rules on residence. Some, like the UK, have a set of codified rules that determine objectively how many days’ presence in a tax year render you tax-resident. And, crucially, since the introduction of the ‘Statutory Residence Test’ in 2013, residence (or not) in some other country has not been a factor in determining residence for UK tax purposes. In some other countries, the rules are less well-defined and there may be more room for judgment. But, in principle, becoming a tax nomad will require that you limit the amount of time that you spend in any one country.
Being a nomad has some drawbacks. For example, you will not be within the scope of any double taxation agreement; as a result you will (in theory at least) be liable to UK tax on earnings for work undertaken in the UK during even the briefest of visits here; and you will be subject to tax on business profits that arise in the UK even if you have no office or other ‘permanent establishment’ in the UK. Similar rules may apply in other countries in which you are present at any time: one of the costs of tax nomadicity is the need to be aware of the tax regimes of any countries in which you spend time. And, outside of tax, the requirement to be continually on the move may be tedious after a while and may take its toll on personal and family relationships.
Nonetheless, with careful planning and a recognition of what is involved, tax nomad status will undoubtedly suit some.
For more information, please get in touch with your usual BKL contact or use our enquiry form.
