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Our last Newsletter answered the question Is Offshore a Risk Management Tool? and provided some (hopefully) insightful thoughts about how to manage risks by investing at least a portion of your portfolio offshore. Considering the recent financial mayhem in the streets, the temptation is to strong not to take a fresh look at that overwhelming urge about now to make a personal move offshore ….. “just in case”, of course.
Today’s newsletter addresses the question:
What Do I Need to Know About Offshore Domicile, Residency & Citizenship?
Here is the skinny on what you need to know before moving yourself offshore..... and then some.
First, understand there is a difference between domicile, residency and citizenship..... all with important legal and tax ramifications.
Domicile is where you call home and live. Even with multiple places of abode, with equal time spent between them, only one will be called your domicile. Domicile can be determined “as a matter of fact”, or as a “legal fiction.” Your domicile gives rise to many legal issues, like rights upon divorce, death, inheritances, and more.
Residency has basically two faces: legal residency and tax residency.
Legal residency gives you a right to reside or spend time in a place or country. You can have legal residency in one or more countries at the same time. By contrast, when you travel as a visitor or tourist to another country, depending where you are going, you are granted a Visa or right to reside or visit that destination temporarily.
Those countries where Visa free travel has not been negotiated by treaty require you to make a Visa application in advance for permission to come across the political boundaries for a permitted duration of stay.
Depending on your purpose, i.e. business or tourism, the Visa can vary in length. These Visas are generally one to three months in length, but under special business or working classifications, I have seen them as long as one or two years.
Legal residency can also be obtained for longer durations of stay, for purposes of living in a country. A country looking to acquire a class of immigrants sets a standard or criteria for interested immigrants to migrate. For example, a typical situation would be a shortage of skilled or professional workers in a growing country looking to attract people with those skills and the entry requirements for those immigrants are relaxed.
And too, a common classification is the business or investor category Visa where an investor agrees to invest certain amounts of money for a minimum amount of time – or start a new business - in a certain category of investments or business in the host country.
Retired persons can have an advantage in one country looking to attract immigrants, or be a detriment in another country which is looking for younger, skilled workers that can contribute to their country’s growth. There are other classifications, and the entry requirements change - sometimes frequently - as targets are reached and new government goals are obtained.
Under legal residency, you obtain permission to stay for a set term.
Then, so long as you have been a good guest in the host country (i.e. stay out of legal problems and satisfy the residency requirements), after the initial term you would typically obtain permanent or indefinite residency. Think of the temporary residency as a “courtship” for you and your host country to get to know each other more intimately.
Then there is tax residency.
Tax residency is entirely different from legal residency and one is not necessarily dependent upon the other. Tax residency is generally defined as being acquired if you live within a country for a term which is more than a set number of days. Thereafter you become obligated to pay income taxes to the host country.
It is very common for countries to declare you a tax resident if you live 183 days or more in a calendar or running year.
Tax residency becomes a very complex issue, as you have probably guessed.
In most countries around the world - even if you are a citizen or permanent resident of that country - you would not be obligated to pay taxes unless you actually live in the country or earn income in the country for a set period of time. This is the general rule, worldwide.
And too, even if you are currently a tax resident you can move out of the country and no longer be considered a tax resident after a certain duration and be tax free from the former country…. but if you are a U.S. citizen, disregard this opportunity if you wish to leave America.
Unfortunately, the USA is the rare exception where mobility and changing tax status is not a freedom…no other country has such onerous and draconian tax laws as found in America.
Tax residency income tax obligations are designed to be lessened by certain tax provisions or through bi-lateral and multi-lateral tax treaties that countries enter into together to allow “tax free mobility” of its working citizens abroad. Unfortunately, this term is sometimes no more than an oxymoron, and the full benefit can be difficult to achieve at times.
Living in another country doesn't require citizenship, only a Visa for a short or long term residency in that country. Moreover, Visa requirements varies from country to country - it’s always a moving target - but obtaining a Visa is the easiest way to move and live “offshore”, wherever that might be.
For example, in just one year New Zealand changed its pass mark requirements for obtaining a Visa 5 or 6 times, going from relatively easy to very difficult. As new immigration targets were made, and objectives reached, the pass marks changed. After you spend a certain amount of time as a resident, then you can become a citizen of New Zealand (see Links page for more information).
In general, countries define citizenship based on one's descent, place of birth, marriage, and/or naturalization. That is, you might have a right to citizenship with a new country based upon one or more reasons. So there are various routes to obtaining a new citizenship.
No one knows for sure how many Americans are also citizens of other lands, because neither the U.S. nor other governments keep track. Estimates range from 500,000 to over 5 million people.
 About 40 million Americans are eligible for dual citizenship in another country, usually because of family ties. Legally, dual citizenship for U.S. citizens is clearly available. This right occurred in 1967 when the U.S. Supreme Court struck down U.S. laws forbidding dual citizenship.
And if you do obtain dual citizenship, with U.S. being one of your citizenships, then keep in mind that U.S. Federal Law requires, in general, that any U.S. citizen who is either leaving or entering the U.S. must be in possession of a valid U.S. passport. Certain exceptions to the U.S. passport requirement are spelled out in Section 53 of Title 22 of the Code of Federal Regulations.
The U.S. does not currently have official "exit controls" at its borders, but this too is evolving. Needing to obtain DHS prior “permission” to enter or depart would constitute an exit control rule for all practical purposes, as far as I am concerned.
If your objective is to simply give up citizenship to stop paying U.S. taxes, this presents an entirely new and complicated set of issues.
For example, in the U.S. there are specific U.S. tax laws enacted over recent years to discourage (read prevent) U.S. citizens from expatriating for tax reasons. Previously, if your assets and/or income were over a certain level you could continue to pay income taxes on certain income into the future, but this too is evolving.
And too, watch out for the “Exit Tax” which continues on the agenda in Congress.
Suffice it to say these are entirely new, complicated issues that may affect you, depending on assets and income....... but advance planning to work around the issues can help make your goal of moving offshore reachable.
For years we have used international trusts for asset protection (see How to Legally Protect Your Assets for more information), but international trusts are also an excellent tool for pre-migration planning, before making a move to a new destination.
Once you make a move to a new country you have to consider the implications of paying taxes in your adopted homeland. When living in another country there are bilateral tax treaties to supposedly prevent you from paying double taxes on the same income. However, AMT (alternative minimum tax) creates some challenges to foreign tax credits.
Too often I have seen expats completely ignore the tax aspect of an international move, getting hammered with double taxation, and some even returning to their home jurisdiction in frustration over the dual tax systems.
Is there a way for expatriating citizens to avoid the double tax problem? Yes.
(Hint: The best plans for avoiding these problems are often a pre-migration type trust… these topics and more are covered in Offshore Living & Investing.)
If your goal is to begin anew a different life or invest outside of your home country, you have a world of options available to you.
However, it does take some forethought to decide what you want to accomplish, spend some time doing your homework, make a plan, and then make the commitment to make it work. It is definitely worthwhile.
Our family has thrived upon the new experiences and our children have opened their eyes to a whole new world beyond the narrow perspectives of where they began. I am proud to say our two daughters are truly citizens of the world.
I don't want to overwhelm you with details, but if some 200,000 Americans per year emigrate from the U.S. alone, so can you. The world population today is indeed increasingly mobile, notwithstanding new draconian laws to hinder the free movement of people and property.
So there you have it in a nutshell.
There is a spot waiting for you on the beach if you are committed to starting a new and exciting life. Perhaps your lifestyle would be enhanced with dual citizenship and a second passport…. a topic I intend to explore in later newsletters.
David A Tanzer, Esq.
JD, BSc, Ph.D (Hon)

(C) Copyright 2008 David Tanzer all rights reserved. For more information visit or email to David is the author of “How to Legally Protect Your Assets” and “Offshore Living and Investing.”

David A Tanzer & Assoc., PC.

Vail, CO USA:
Tel. (970) 476-6100
Fax (720) 293-2272

Auckland, New Zealand:
Tel. (64) 9 353-1328
Fax (64) 9 353-1328

Brisbane, Australia:
Tel. (61) 7 3319 6999
Fax (61) 7 3319 6999

(Licensed to Practice Law in U.S. States & Federal Courts;
Assoc. Member Auckland, N.Z. District Law Society - Foreign Lawyer; &
Assoc. Member Queensland Law Society, AU - Foreign Lawyer)
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