What Is My Jurisdiction of Tax Residence? Tax Planning for Expats with Mundo

Once again, we touch upon the topic of taxes and the related basic concepts. Asking ourselves what is tax residency is the first step towards tax planning, especially if one has structures or connections across different jurisdictions.

We've discussed this topic on several occasions: we've clarified the myths about territorial taxation, we've established the three main questions to ask ourselves when finding the proper country, and we have specified the difference between legal and tax residency. 

Today, we address the question from a different angle to understand the sore points relating to expat taxes or to those who have global interests. 

What Is My Jurisdiction of Tax Residence? Navigating What Is Tax Residency on a Global Scale

Expat Taxes: What Is Tax Residency According to the 183 Rule

If you're born in one place and have your business and personal life in that same place, the matter is simple. You don't need to ask yourself “what is my jurisdiction of tax residence” if you never leave the country for more than a vacation. 

However, when establishing businesses or spending time abroad for personal reasons, tax planning becomes more complicated. According to the 183-day rule, most countries consider you a tax resident if you spend more than six months a year, so what happens if you overstay your visit?

According to this rule, a person can become a tax resident in a country without even knowing it, and this is something we should address carefully. Even without intending it, you may end up owing your share. 

Expat Taxes: Beware of Extended Stays or Regular Visits

Without proper tax planning, expats or frequent travelers can face severe consequences. Some high-net-worth individuals, such as the artist Shakira, have experienced this in the flesh.

What Is My Jurisdiction of Tax Residence If I Move out of My Home Country

As we've recently established, legal residency is not the same as tax residency, which means two things: a) you may be a legal resident of a country and not a tax resident, b) you may become a tax resident without even knowing it.

What Is My Jurisdiction of Tax Residence: Example A

Mundo readers are well aware of the residency options available in Panama. The Qualified Investor Visa, for example, allows you to apply for permanent residency in exchange for an investment. Parallelly, other options offer temporary permits. 

Panama is known for being flexible in terms of minimum stays, i.e., you can maintain residency by visiting a few days a year. This is a clear example of having legal residency but not tax residency.

Where Is My Jurisdiction of Tax Residence: Example B

Shakira, the Colombian singer, resides in the United States, and it's well known that she maintained a relationship with the soccer player Gerard Piqué. Since the player had a contract with a club in Barcelona, he had to live in his country, and the artist had to visit him. 

For two years, the singer was simply a girl who visited her boyfriend, but she ended up in court because, allegedly, she had spent over six months a year, from 2012 to 2014, without paying taxes. In 2023, she finally pleaded guilty and had to pay a multimillion-dollar sum to Hacienda. 

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If we can learn anything from this story, it’s that tax planning is vital. Sometimes, regular visits to any country, even if for personal reasons, can turn a person into a tax resident without them even knowing it.

One may wonder how many people fall in love abroad and visit often. Are they all taken to court and investigated for tax evasion? Somehow, Shakira, whose fortune is estimated to surpass the $300 million, was taken to court and held accountable. 

Either way, the lesson is clear: if you're having an international life, don't take things for granted and don't risk it. Ask yourself if you may be a tax resident, consult with a certified professional, and focus on tax planning.

Expat Taxes: Know The Rules of Your Home Country

There are different types of tax residence, which can be based on physical residence, on territorial taxation, or nationality. 

It is highly advisable to find out your home country's approach to taxation, and the same applies to all the countries in which you are a citizen. While having multiple citizenships can be an advantage, it requires careful tax planning, which must be done with professional and reliable advice.

One might think that if you have lived abroad for years, you're not taxable in your home country, but this is not always the case. For example, the United States and Eritrea tax all citizens despite their place of residency. In simple words, Americans can live abroad, but they will still have to pay taxes to Uncle Sam, and this applies to their assets worldwide. 

Disclaimer: this article is published to share general information; therefore, this article should not be taken as financial or tax advice. Before making any decisions regarding relocation, and decisions which may involve a change in tax residency, make sure to consult with a certified professional.

The Importance of Careful Tax Planning for Expats and Frequent Visitors

Expat taxation is complex because it involves different jurisdictions and legislations. In order to avoid unpleasant surprises, it's vital to consult with certified professionals. One may be at peace in a country like Panama that doesn't tax foreign income, however, it does require declaration of assets even if they are taxed at a 0% rate. 

Another aspect of tax planning consists of asking yourself “what is my country of tax residence?”. If you have traveled frequently to a country for personal reasons, even without the intention of staying, you may be caught in a legal dispute and end up paying much more than was originally necessary.

Mundo is an online magazine discussing topics such as relocation, expat living, residency and citizenship by investment, banking and corporate abroad, trusts and asset protection, and investment, especially in real estate. We work closely with lawyers, agents, developers, and experts, and we can introduce you to the best services in these fields. If you're interested in any of these tools, please write, and we will be pleased to assist you. 

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