A common tax misunderstanding explained

[image]() {NAME}, I recently spoke with Javier, a Spanish guy who was referred to me by a friend I had helped before. Javier provides consulting services under his own name, and he’s been CRUSHED by the high taxes in Spain. If you think 40% or 50% is bad, try paying 58% in taxes the way Javier did. As you can imagine, these sky-high tax rates had a substantial impact on his ability to grow his business… …let alone, well, LIVE. Anyway, I helped Javier create a simple nine-step Plan that includes him moving his tax residence to low-tax Europe for living now, and getting a “paper residence” in Central America for future citizenship. He won’t need to spend more than one week per year in that Central American country to qualify for citizenship, and in about four years he’ll have dual citizenship… just in case Spain decides to do something silly. We’re executing this Plan for Javier now, but just after we started, he asked my team… “Once I become a resident of that Central American country, won’t I have to pay taxes there?” This reflects a common misunderstanding of the difference between SECOND RESIDENCY and TAX RESIDENCY. [image] For the average expat, getting a residence permit in a new country may indeed create a tax residency issue because they’ll be living there. They don’t diversify their life the way we suggest. For example, when an old friend of mine moved from Germany to Spain, she not only changed her residence status to Spain, but doing so opened up a whole series of tax issues in Spain as well. Because she was actually living in Spain, she’d be liable for tax on her worldwide income. She was getting herself into the same situation Javier was getting out of. Here’s the rub, though… If you don’t plan to live there full-time, most countries don't tax you just for having a residence permit. The “tax tests” each country uses are different; European countries tend to be more difficult to deal with than most Latin American countries as an example This isn’t formal tax advice, but keeping a residence permit in your back pocket won’t lead to a tax obligation in most cases. In some countries, even if you did decide to live there you wouldn’t owe taxes, or you could at least control them. (These could be territorial, lump sum, non-dom, or tax exemption countries.) For example, I hold residence permits in several countries where I spend minimal time, and I have no tax filing or payment obligations whatsoever. One such country has a strict “days test”, where the only test they apply is whether I spent 183 days there. As long as I don’t, I don’t owe any tax. Being a resident in a country doesn’t necessarily make you a tax resident. This is especially confusing to US citizens who are taxed no matter where they live, but don’t realize they can still reduce their taxes dramatically. And this is where the Nomad Capitalist approach differs from traditional expat tax planning. We believe in using multiple countries in your strategy, where each one is used for what it’s best at. In the same way you might love your favorite sushi restaurant for hosomaki, you wouldn’t go there when craving a hamburger. Understanding the difference in international tax terminology is something my Strategy Team and our network of international tax accountants and lawyers do every day. If you don’t understand these terms, you’re not alone; we can help you clarify so that you can protect and enhance your wealth and freedom using all of the best options available. Yours in freedom and prosperity, [image] [image]() = = [Unsubscribe]( Nomad Capitalist LLC Kidnah, Block A Plot 4 Fujairah, Al Fujayrah United Arab Emirates (the) +1 (979) 966-6623