In a world of information exchange (FATCA and CRS), fiscally challenged governments (United States and other Western Democracies) and expanding notions of taxation (GILTI, France Digital Tax, etc.), your “tax residency” matters. In fact, in the 21st Century the most interesting thing about a person is his tax residency (or residencies).
At the same time, we are living in a world of increased Global Mobility. There are more and more opportunities for residency and citizenship. As people and capital have become more global, tax authorities have worried more and more about how human migration impacts their their tax bases. For example, people are severing tax residency with high tax states like New York and California. The level of (and form) of taxation impacts investment and migration decisions.
Taxation matters. Tax residency matters. People must keep track of both their “citizenship” and “tax residency” portfolios. It’s important to understand how the concepts of “citizenship”, “nationality”, “domicile”, “deemed residency”, “actual residency” and “tax residency” relate.
I recently came across the following article that explores these concepts. Please note that the article uses the term “fiscal residency” as synonymous with “tax residency”.
The following post was authored by Marios S. Kalochoritis, Managing Partner of Loggerhead Partners. We are reproducing this with the full permission of Loggerhead Partners.
Loggerhead Partners is a provider of “multi-family office” services including, estate planning, transaction advisory, corporate structuring and tax planning.
Loggerhead Corporate Services is the Dubai-based specialized entity of Loggerhead Partners that optimizes tax and preserves the wealth of its clients, through tailor-made, corporate structuring solutions with a focus in the UAE
Introduction – All The World Is A Multiple Choice Test Q.1 – A tax resident of the United States is taxable on his worldwide income. According to the Internal Revenue Code of the United States, which one of the following is NOT a tax resident of the United States of America?
(A) A Congresswoman “Born In The USA”, head of her household, who does not and has never had a U.S. Passport
(B) An unmarried Green Card Holder who has never filed an FBAR who lives in El Paso Texas
(C) A fifty year old U.S. citizen who is divorced has never set foot in the United States, doesn’t have a U.S. Social Security Number and lives in and pays full taxes in Germany
(D) A citizen of only Canada who lives four months a year in Florida with his U.S. citizen wife, in a house he owns where he parks a car he owns with Florida license plates
(E) A citizen of Grenada who lives full time in the USA with an E1 visa operating a fast food franchise
For help in finding the answer see … https://www.law.cornell.edu/uscode/text/26/1 https://www.law.cornell.edu/uscode/text/26/2 Q. 2 – A tax resident of Canada is taxable on his worldwide income. According to the Income Tax Act Of Canada, which one of the following is a tax resident of Canada?
(A) A Canadian citizen who lives in the United States but has no business, family, social or residential ties to Canada
(B) An individual with a house and family living in Toronto who works and lives in the banking industry in the Middle East
(C) A Massachusetts resident with a summer home in Ontario, Canada in which he visits 180 days every year
(D) An individual who is a legal permanent resident of Canada but actually lives in Hong Kong
(E) A rich Canadian who buys permanent residency in Portugal and uses a tax treaty tie breaker provision to deem himself to be a tax resident of Portugal Continue reading →
Introduction – Two kinds of tax systems – Two kinds of “tax residency”
Title 26, the Internal Revenue Code of the United States is composed of twelve subtitles. Subtitle A deals with “Income Taxes”. Subtitle B deals with “Estate and Gift Taxes” AKA the “transfer tax regime”. The two subtitles are administered separately. They also have different definitions of “tax residence”. Continue reading →
Most people equate residency with physical presence. They assume that where you are physically presence determines where you live. They further assume that where you live is where you pay your taxes. Conclusion: The country where you live is the country where you must be “tax resident”. Not necessarily!
There is no necessary correlation between where one lives and where one is a “tax resident”. In fact, “residency for tax purposes” may be only minimally related to “residency for immigration (where you live) purposes”. It is possible for people to live in only one country and be a tax resident of multiple countries. The most obvious example is “U.S. citizens residing outside the United States”.
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) December 15, 2016
The concept of “tax residency” is fundamental to all systems of taxation. The fundamental question, at the root of all tax systems is:
“what kind of connection to a country is required to assume tax jurisdiction over an “individual”, over “property” or over an “entity”?” Continue reading →
I am guessing (actually I know for sure) that you arrived here because of some aspect of being a U.S. citizen living outside the United States. Maybe you are a Green Card holder. Perhaps you are a former U.S. resident who has just learned that you may still be subject to U.S. “worldwide taxation” even though are a “tax resident” outside the USA. I also know how you are feeling.
“U.S. citizens” and “Green Card holders” are referred to as “U.S. Persons”. So, if you are a “U.S. Person Abroad”, well, life is pretty tough. in fact living as a “U.S. Person” outside the United States is: hard, expensive, confusing and (quite frankly) unsustainable.
Some of you are NOT in compliance with the intricate and (almost) impossible to understand web of tax and reporting requirements. Non-compliance has its share of problems. Some of you ARE in compliance (as far as you know) with the intricate (and almost) impossible to understand web of tax and reporting requirements. Compliance also has its share of problems (stress, expense, anxiety).
Whether you are in compliance or not in compliance, you have problems. This is because: U.S. citizenship is the one citizenship in the world that affects virtually every aspect of your life. in addition to the information on this blog, I help people with the following kinds of specific problems/questions (which include):
1. Are you a U.S. citizen at all? Have you relinquished U.S. citizenship along the way? If you have relinquished U.S. citizenship, are you a “U.S. Person” for FATCA and tax filing purposes?
2. Have you just received a “FATCA Letter” addressed to you as an INDIVIDUAL or to you as an ENTITY (corporation, trust, etc.)? How to respond. What’s a W9? What’s a W-8BEN-E anyway?
3. What about that old Green Card sitting in your drawer? You may still be subject to U.S. taxation, even when you don’t live in the USA! What are the tax obligations of Green Card holders? What to do? ….
4. Renouncing U.S. citizenship – What’s the “right way”? What’s the “wrong way”? The better question is “what’s the safest way”? What about that “back dated” relinquishment?
5. Green Card expatriation – How to exit the tax system and the U.S. immigration system.
6. Oh My God!! The moment many of you will never forget. Yes it’s a problem. No it’s not as much of a problem as you think. Make certain that you respond and not react. If all you want to do is file U.S. taxes …
9. Coming into U.S. tax compliance – What are the various options? Why one option over another? What about “Streamlined” compliance? 99% of you should NEVER use “OVDP”!!
11. Getting a divorce? Are you a U.S. citizen married to a non-citizen? – Your U.S. citizenship will play a role.
Respond, don’t react! – Do NOT make any decisions without understanding the present and FUTURE consequences of those decisions.
So, how do I know this?
First, I am a person (Toronto based lawyer actually) who was born in the United States and has lived almost all of my life outside the United States. In other words, I have lived and do live these problems. Second, I have spent the last few years of my life assisting “U.S. Persons abroad” survive the unjust imposition of FATCA, FBAR and “CBT” (AKA U.S. “place of birth taxation”) on Americans abroad. I work with many groups of people including: “accidental Americans“, long term dual citizens who wish to retain U.S. citizenship, long term dual citizens who feel they must renounce U.S. citizenship, Green Card holders (whether they live in the United States or not) and those who have ONLY U.S. citizenship. It’s what I do.
Third, I have been (and continue to be) actively involved in efforts to oppose FATCA in the courts and in the process of making submissions to the U.S. Treasury. If you want to learn about the Alliance For The Defense of Canadian Sovereignty lawsuit against the Government of Canada, see here.
Anyway, the blog is free. The counselling and assistance require individual consultations. Contact me if you want me to help you solve these problems as they apply to YOUR SITUATION.
