The chance to stop paying taxes (or, at least, income tax,) is within your grasp, and that means more time to yourself, more money in your account, and less bureaucracy.
Of course, you also won’t have to deal with the anger of seeing the money disappear from your account into the vaults of the State, to be used for who-knows-what (subsidies for the sale of cars, windows, or whatever the government’s latest whim is), or even to end up directly in the pockets of the politicians and their friends.
This article will explain not only how to transfer your personal tax residence, but also, if you choose the right country to live in as a permanent tourist, how to set up your company anywhere (we’ll discuss how to transfer your company abroad without changing your personal tax residence in a future post).
These are the things we’ll cover in today´s article:
- What does the 183 day rule consist of?
- Differences between domicile and residence
- Transferring tax residence from the UK
- Tax residency in Ireland
- How to transfer your tax residence from Canada
- Terminating tax residence in Australia
- How tax residency works in New Zealand
- How conflicts between tax residences in different states are resolved
- Exit Tax
- Conclusions on deregistering your tax residence
- The life of a perpetual tourist: never pay taxes again
- Some thoughts on the morality of taxes and tax avoidance
Escaping direct taxes isn’t easy, especially if you live in a country with a high tax burden. However, it’s perfectly possible once you understand the 183 day rule (and some others) and transfer your tax residence abroad. This rule allows you to avoid taxes totally legally and escape the obligations imposed by your State.
Applying the 183 day rule correctly will free you from income tax, leaving you with:
- More time for you and your things. You can now earn the same amount of money for a lot less work.
- More money in your account. You can invest your extra time in developing new ideas.
- Less stress and paperwork. You won’t have to fill out a tax return or waste time on other State-imposed rules and obligations.
- A general good feeling. You won’t have any more fits of rage when you see what your taxes are being used for.
Sound interesting? Then read on…
What does the 183 day rule consist of?
In general, the 183 day rule dictates that you have to pay taxes in the country you live in if you spend over half the year there (the count is based on the calendar year).
The 183 day rule is just one of the conditions you have to meet in order not to pay taxes. To escape the tax office legally, you have to bear a few more complementary points in mind.
Differences between domicile and residence
Before beginning to discuss how you can lose your tax-resident status in different countries, it’s important to explain some basic terms, in this case ‘domicile’ and ‘residence’.
Domicile and residence do not have to be the same: your domicile does not actually need to be where you reside fiscally.
You will find it is harder to transfer your tax residence from your home country (country of origin) than if you had been living there as a foreigner, since you are considered domiciled in your home country, even if you leave your home and spend fewer than 183 days there.
To change your domicile from that of your home country, you’ll need to prove beyond any doubt that you have severed all economic and social ties with it. Generally, this can only be accomplished if you have already settled in another country and established new ties.
This is where the concept of a ‘bridge country’ comes in: a country in which you spend a year and obtain a tax certificate or another piece of convincing proof that’ll help you severe your ties with your home country.
Generally, leaving the country in which you have been domiciled your whole life and travelling like a nomad will not help you terminate your tax residence, especially in countries with a high tax burden.
How to deregister as tax-resident in the UK
In the UK you’ll come across the ‘automatic test’ that can directly make you a tax resident or non-resident.
You will not be a UK tax resident unless you meet one of the following (automatic overseas tests):
- You were resident in the UK for 1 or more of the 3 previous fiscal years, but have spent under 16 days in the UK in the current fiscal year.
- You were resident in the UK for none of the 3 previous fiscal years and have spent under 46 days in the UK in the current fiscal year.
- You work full-time overseas and spend fewer than 91 days in the UK, and the number of days on which you have worked for more than 3 hours in the UK does not exceed 31.
You will automatically become a UK tax resident if you meet one of the following (automatic UK test):
- You have spent 183 days or more in the UK
- You have had a home in the UK for over 90 days of the year, in which you have spent at least 30 days. You are also not allowed to have a home in any other country, unless you have spent less than 30 days in it.
- You have worked without any significant breaks for 365 days or more in the UK. (This automatic test usually concerns two or more years.)
If you do not meet any of the automatic tests, you should use the sufficient ties test. This test takes personal ties into account. These consist of family, accommodation, work, 90-day and, finally, nationality ties.
If you are a UK tax resident but do not have a UK passport, you can generally claim non-dom status. You would thus benefit from the ‘remittance basis’. As a non-dom resident you would have to pay tax on income coming from the UK, as well as income from outside the UK that is brought into the country.
In order to deregister as tax-resident in the UK, it is important that you do not have any accommodation available to you there, and that if you do, that you have spent 30 days or more in it. Nor must you have spent more than 90 days in the UK.
If you work in the UK or have resided there for the last 3 years, it is important that you do not spend more than 15 days there.
Tax residency in Ireland
In Ireland, the most important consideration is the amount of time you have spent in the country. So, you’ll be considered a tax resident in Ireland if you’ve spent 183 days or more in the country.
You would also become a taxpayer if the sum of the duration spent in Ireland for the previous and current fiscal years exceeded 280 days, of which at least 30 days were spent in each year.
In other words, if you spent 300 days in Ireland in 2017, but you only spend 29 or fewer days there in 2018, you would be tax-resident in Ireland in 2017 but not in 2018.
If you spent 150 days in Ireland in 2017 and also in 2018, you would be tax-resident in 2018.
It’s important to bear in mind that the concept of ‘ordinary residence’ exists in Ireland. You become ordinarily resident if you spend three consecutive years residing fiscally in Ireland.
The ordinary residence status does not expire until three years have passed since you stopped being tax-resident in Ireland.
If you are not tax-resident in Ireland, but you are ordinarily resident, you will have to keep paying tax on your domestic and foreign income. You will not pay tax in Ireland on only the following forms of income:
- Income from trades or professions operating outside of Ireland.
- Income from employment (excluding self-employment) that takes place in its totality outside of Ireland.
- Other foreign income, provided that the sum is lower than 3.811€
If you are ordinarily resident, you’ve paid tax in the country in which you reside and there is a double taxation treaty, the sum paid will be taken into account in such a way as not to result in double taxation. Conflicts of residence between states will be resolved in accordance with the double taxation treaty.
If you have just arrived in Ireland and you want to be considered tax-resident this fiscal year (to thereby terminate your status as taxpayer in another country), you can make a request to Ireland’s Revenue Commissioners, even if you do not meet the required minimum stay in the country.
In order to successfully obtain tax-residency it is essential that you also be tax-resident in Ireland the following year (i.e., that you meet the minimum stay requirement in Ireland the following year).
In Ireland, as in the UK, you can be a non-domiciled tax resident (non-dom). In this case the ‘remittance basis of assessment’ applies, i.e., you only pay tax on the income generated in or brought into Ireland. Read more about this in our article on residency in non-dom countries.
In order to deregister as tax-resident in Ireland, the most important thing is to leave your home and to not spend more than 183 days in the country.
In the year that you leave Ireland, you must also bear in mind the 280 day rule. If between the previous and current year you reach or exceed this amount of time, spending 30 days or more in Ireland during the current year would make you a tax resident again.
If you leave Ireland after the year has started, you can request split year treatment. This special treatment only applies to income as an employee.
Starting the tax year you will only pay tax in Ireland until you leave the country. From the departure date you would no longer pay tax in Ireland on your income as an employee.
How to transfer tax residency from Canada
In Canada, tax residency depends on where you work, live, receive mail, and have your family and social life.
Anyone who spends 183 days or more there per calendar year will be considered a tax resident for that year.
Even if you spend fewer than 183 days in Canada, you can still be as a taxpayer there as long as you maintain ties with the country (unless you have stronger ties with another state and can prove it).
The ties most taken into consideration for the residency test are the home, the spouse’s residence and dependent children.
Other points that are considered are social ties, economic ties (your work, business and personal assets), membership in organisations, whether or not you have a car registered in Canada and even health insurance (whether or not you are covered in Canada).
If you want to lose tax-resident status in Canada, the first thing you need to do is ensure you no longer have a home available to you in Canada, and leave the country.
It is fundamental that you are in Canada for fewer than 183 days (in fact, if Canada is your home country it’s better to stay well below this limit) and that, if you are married and/or have dependent children, they do not live there either.
The weaker the ties you have with Canada, the closer you can get to the 183-day limit without becoming tax-resident for it.
Losing tax-residency in Australia
Anyone who lives in Australia for more than 6 months is generally considered to be tax-resident there (unless they are a habitual resident of another country and do not intend to reside in Australia), as are those domiciled in Australia who do not have a permanent residence outside the country.
In order to deregister as tax-resident in Australia it is important that you do not own a property there, that you spend no more than 183 days in the country (it is actually better not to get too close to this maximum limit), and that you have no vital interests in Australia. In other words, you cannot maintain subscriptions to services or publications in Australia, nor should there be any consumer bills in your name, nor is it generally a good idea to continue shopping at local shops. Accounts and card payments are also taken into account.
Since even the simple fact of continuing to receive mail or paying a family member’s consumer bills can pose a problem, in the end the simplest way to stop paying taxes in Australia as a national of country is (at least at first) to get permanent residence or even a tax certificate from another country.
How tax residency works in New Zealand
You are tax-resident in New Zealand if one of the following tests is positive:
- You have a property in New Zealand permanently available to you. Should you also have a property available to you in another country and there is no double taxation treaty, New Zealand will consider you to be a tax resident. If there is a double taxation treaty the tie breaker rules will apply.
- You have spent 183 days or more of the year in the country. Should this be the case, you will be considered tax-resident from the date of entry into New Zealand.
How conflicts between tax residences in different states are resolved
Should you be considered tax-resident by two different states, either because you have spent more than the minimum time there from which you become a taxpayer, because you have a property available to you in more than one country, or because you meet any other condition, you may have to pay tax in both countries.
To avoid double taxation there are treaties between countries that stipulate in which cases you would pay taxes in one place or another.
It is important to bear in mind that if there is no such treaty, the Double Taxation Treaties (DTT), you could end up paying taxes twice (in practice this does not usually happen, because if there is no treaty it’s usually because one of the countries is considered to be a tax haven by the other).
The following is usually stipulated in DTTs:
- If two countries dispute the tax residence of the individual, the individual will be considered to be a tax resident of the state in which they have a permanent home (a permanent home is considered one that is fully equipped and can be occupied without any warning).
- If you own permanent property in both countries, the place where you have the strongest personal and economic ties will be taken into account.
- If it is not possible to clarify the previous point, the place you live in for a longer period of time will be taken into account, even if you do not reach 183 days.
- If you do not habitually reside in either of the two countries, or it is not possible to decide which of the two you spend more time in, your nationality is considered.
- If you are not a national of any country, the countries will have to reach an agreement.
Incidentally, bear in mind that in order for the DTT to apply, you must be a tax resident of the country, it is not enough to have a residence permit.
Of course, if there is no reason for the other country to consider you tax-resident, there is no tax residency conflict either, and therefore the above rules do not apply (i.e. if you have not spent a day in Mexico and have no interests there, even if you have a Mexican passport you will not be considered a tax resident there.).
In some countries, when you transfer your tax residence and cease to be domiciled, you might face an exit tax.
This tax is usually levied on large fortunes and consists of a tax on the capital gains that would have arisen if you sold at that precise moment all the assets you have at the time of leaving the country.
You can find different forms of exit tax in Canada, the US, South Africa, Germany and Spain.
Conclusions on deregistering your tax residence
As you can see, deregistering your tax residence is far from impossible, but there are a few things you need to bear in mind. Especially in countries where, as a national, you cannot simply deregister just like that, you will have to complete several formalities and register in a bridge country before you can successfully deregister as a taxpayer.
As long as you are not a US citizen or an Eritrean citizen, you will not have to pay your taxes according to your nationality, but according to your place of residence (always taking into account double taxation treaties).
So, thanks to the 183-days rule, you can escape the obligation of paying taxes in your home country as long as you manage to deregister from the taxpayer census and move to a country that is not on the blacklist of the last country in which you lived.
If you have a home abroad, you may have to pay taxes there. But if you live by the philosophy of the Perpetual Traveller, without spending more than four months anywhere (and without applying for residence in that country), you can live a tax-free life, completely free.
If you ever decided to reside somewhere, you can apply Flag Theory and choose an interesting country fiscally-speaking to reduce the tax burden to a minimum.
Bear in mind that there are many countries like Australia, the UK and others that limit the time you can spend in them to under 183 days.
These countries can quickly make you residents if you don’t pay attention to your social and economic ties there.
The best way to avoid becoming tax-resident in these states is to obtain a second residence. The visa or residence permit can help you in this situation, as can having a home, paying Social Security tax, having a car, contracted local services, stamps in your passport…Every detail counts.
The life of a perpetual tourist: never pay taxes again
Once you’ve managed to deregister as a tax resident in your country and don’t have any ties there, you’ll have overcome all the obstacles preventing you from leading a tax-free life.
You now have to make sure not to breach the 183 day rule or make your ex-country the centre of your interests, whether economic (i.e. the origin of the majority of your income) or personal (i.e. your partner and children).
To enjoy perpetual tourist “status”, you have to live with a tourist visa in other countries, without exceeding the maximum six-month stay. Bear in mind that most countries use similar regulations to the 183 day rule.
This way of life has a few disadvantages:
- Tourist visa: since tourist visas aren’t valid for more than 6 months, you have to move around fairly often.
- Bank accounts: without a fixed residence, opening an account can be difficult or even impossible, since you have to present certain documents (such as energy bills) that you may not have. It could be a good idea to acquire a bank account before starting your nomadic lifestyle (and inform your branch that you’ll be travelling for a few years).
- Companies: registering a company without a fixed residence can be problematic in some countries. The best option is to set up your company before losing your residence (make sure to choose a country with favorable legislation).
- Vote: I personally don’t vote or believe in the whole charade, but your case may be different. To be able to vote, you need to register far enough in advance with the consulate of your current country.
- Official documents: to request official documents such as passports, you have to sign up to the Consular Register.
- Physical address: not having a physical address can be a problem in certain cases. The easiest alternative is to use the address of a friend or family member.
- Insurance: You should get your hands on international health insurance.
Some thoughts on the morality of taxes and tax avoidance
At Tax Free Today, we don’t deny the consequences of the information we give you, or tell you not to quit the system after we’ve shown you how. And why would we?
Avoiding taxes is totally legal if you consider and respect the law.
What’s more, I think taking advantage of the 183 day rule and never paying taxes again is a wonderful idea. I wholeheartedly support you taking this step towards a life where you no longer have to rely on the State.
Why would I want you to continue living as you do now?
- You’re giving up almost half of the money you earn to an institution you play a mandatory role for because of your birth, an institution you have no real control over.
- You’re financing the lives of other people and businesses who take advantage of state subsidies.
- You’re supporting the oppression of other cultures and civilizations with your taxes.
- You’re letting politicians and bureaucrats exploit your entire life.
- You’re having to pay for the privilege of working.
- Your money is being used to indoctrinate and control you.
- You’re contributing to the survival of a decadent State that is marching towards its own demise.
One of the greatest myths invented by governments is that paying taxes we you’re “contributing” to the common good.
No one is obligated to give anyone else anything if they don’t want to, and there’s no morally acceptable reason why you should have to share your earnings with the State, however much it tries to intimidate and force you to.
Your life is yours to lead, and no one has the right to profit from it without your consent.
Remember that not only is it the State who is acting immorally, but that as long as you support this institution with your taxes, obedience, and passivity, you are too. Following the 183 day rule and transferring your tax residence are legal opportunities to escape this situation and act in good conscience.
Because your life belongs to you!
If you decide to change your tax residence, in most cases you can do so yourself with the information provided here. However, if you would like us to help you, you can book a consultation or take a look at our emigrating service.