Residency

Shedding Previous Residency
It is vital to note that the taking up of residency in one country does not, of itself, shed any previous residency. Frequently it is much harder to dispose of a previous residency than to acquire a new one. Since there is motivation on behalf of an inbound country to make registration as simple as possible and on behalf of an outbound country to keep tax residents as far as possible it is vital to seek advice in both inbound and outbound country.

Dual Residency
Where residency has not been shedded in the outbound country the result may be dual residency. In cases of dual residency taxes may be apportioned between countries either on a split-year basis or there may be treaties between the countries dealing with the attribution of income or credit in one country given for tax paid in the other. The aim of these treaties is to prevent dual taxation of the same income which is achieved by giving credit for tax paid but this has the effect of negating tax advantage in a lower tax country until previous residency has been shed.

Distinguishing Residence and Domicile Most countries use the terms ‘residence’ and ‘domicile’ interchangeably however in countries which distinguish between these two terms the difference is often crucial as some taxes are applied to residents only, some to domiciles only and others are applied only to people who are both resident and domicile. In countries which do not distinguish between residency and domicile taxes tend to be applied to the worldwide income of all residency (whether born in that country or not) whereas in countries where the distinction exists it is likely to tax locally born people on worldwide income but foreigners on locally derived income only.The difference generally applies to common law countries such as England, the United States and not to civil law countries and is explained below. Residence Residency is determined by where a person was located between any two dates. The tests vary from country to country but are usually straightforward. For example, a person may be resident in country A if they spend more than 90 days in a calendar year in that country. Residency is a matter of fact and can usually be established fairly easily. Domicile Domicile has been described as the country which is the centre of one’s interest or being. Excepting dual nationality this is likely to be the country which issued the person’s passport. How (and in some cases whether) one can renounce domicile is a matter of debate and varies from country to country. Domicile is generally tied in to taxes over worldwide income and death.

Reasons for Change of Tax Residency
A change of tax residency may arise necessarily out of moving to another country to live or work or may be the result of tax planning.

Non-Tax Motivated Change in Residency
In the first instance it will be necessary to assess local rules regarding taxation of income arising locally and internationally and any restrictions on the movement of capital. The aim will be a reduction in taxation cost in the country of residency as far as possible which may be achieved by the transfer of assets or income away from the person perhaps to a corporate vehicle. In such cases a restriction may exist on the right to work and it may be necessary to obtain local work permits. Where work permits are required advice may be beneficial in order to compare the various work permit schemes and their applicable tax rates and entry criteria.

Tax-Motivated Change in Residency
Where residency is changed for tax reasons it will be necessary to assess the various competing programs and their benefits as well as ensuring that residency has been effectively shed in the outbound country. The tax advantage of a change of country may be the benefit of a lower rate of income tax or it may be that although taxed at a similar rate income tax is applied less widely than in the country of departure (such as only on locally arising or remitted income rather than worldwide). Other tax motivated changes in residency may be made with a view to disposing of assets free from capital gains taxes and with consideration to the estate planning, death duties and inheritance issues.

Citizenship Programmes Most migrant workers will not intend to become citizens and will retain their original citizenship however in some cases there will be tax based reasons for a change in citizenship or in the obtaining of a second citizenship. Where citizenship programmes exist the eligibility for membership will depend on a number of factors including the nationality of the application, their language skills, their background, their wealth, their medical status and may be based on property ownership or the making of a financial contribution to a government project. Reasons for joining a second citizenship program are explored below: Reputation Many clients’ main motivation for a second citizenship or change in citizenship is reputational.

Banking/Commerce
Clients finding that their current passport makes banking or other commercial matters difficult may benefit from a change in citizenship or second passport.

Travel
Traveling may be impossible based on the passport holder or it may merely be difficult and attract unwanted attention or delays. A second passport may increase the number of countries which the holder can visit, the amount of time they can spend there or may simply attract less attention when travelling.

Right to Work
Citizenship programmes may include a right to work or alternatively a prohibition or restriction on working (at least in the country of citizenship).

Bolt-Hole Citizenship
A second citizenship may be maintained by citizens of a politically uncertain country in order to allow for the accumulation of capital in a safer country and the possibility of leaving quickly in the case of civil or political unrest or upheaval.