Tax exile

Tax exile

A tax exile is one who chooses to leave a country and instead to reside in a foreign nation or jurisdiction because personal taxes there are appreciably lower or even nil. Going into tax exile is a means of tax mitigation or avoidance.

Legal status

In most countries one becomes liable to be taxed in that country if one is resident there. For taxation purposes residence is often defined as spending 6 months (or some other length of time) in any one year in the country, and/or having an abiding attachment to the country, such as fixed property.

UK rules

Under UK law a person is "tax resident" if that person visits the country for 183 days or more in the tax year or for 91 days or more on average in any four consecutive tax years. []

U.S. rules

Under the Internal Revenue Code, the income of a U.S. citizen is taxable without regard to the citizen's place of residence, and, significantly, without regard to where the income is earned or produced. Hence, a US citizen can only eliminate his tax liability by both moving abroad and renouncing citizenship.

The process of renunciation requires the US citizen to appear at a foreign US embassy or consulate, prove that another citizenship has already been obtained (so that the renunciation will not make one a stateless person), and sign various documents which basically state that you are of good mental health, acting without force or duress, and realize that the renunciation is irrevocable. The State Department then reviews the documentation and may decide to permanently bar the person from entering the US - even for visits. This decision is based upon whether or not State decides that the person renouncing is or is not doing so for tax reasons alone. For the purposes of the IRS, the effective date of the renunciation becomes the final day that US income taxes are due - assuming that all US assets are liquidated and have left US jurisdiction.

An immigrant who has been granted permanent resident status in the U.S. is generally treated as a citizen for tax purposes. An immigrant not legally admitted for permanent residence (such as a guest worker) becomes liable for U.S. taxes if he spends more than 122 days in the year in the United States.

The US tax law, at the state and federal level -- broadly speaking -- only tolerates Americans taking money outside the US. As long as money taken outside the US is never brought back into the US there is no violation of the law. It is broadly understood that Americans can use corporations or trusts to cover moving money outside the US, providing that said corporations or trusts are not based in nations that would raise suspicion.

Broadly speaking, the US taxation rules encourage people to move their assets offshore -- and to retire offshore. This creates a permanent outflow of USD into other currency zones.

Famous tax exiles

* Noel Coward lived in Jamaica and Switzerland
* Ronnie Corbett living in Australia
* Sean Connery and Shakira living in the Bahamas
* Paula Radcliffe, David Coulthard, Jenson Button, Roger Moore, Ringo Starr, Wafic Said, Ken Bates and Julian Lennon in Monaco
* Peter Ebdon living in the United Arab Emirates
* Stelios Haji-Ioannou who was quoted as saying: "I have no UK income to be taxed in the UK." Source: David Leigh, Monday, July 10, 2006, The Guardian.
* Mick Jagger (and at one point in the early 1970s, the rest of the Rolling Stones as well)
* Led Zeppelin living in Malibu and Jersey
* Mick Fleetwood living in California
* Michael Schumacher, Kimi Räikkönen, Fernando Alonso, Lewis Hamilton, Phil Collins, Boris Becker, Tina Turner, Ingvar Kamprad and Shania Twain living in Switzerland
* Ralf Schumacher living in Austria
* Sir Richard Branson UK resident living in British Virgin IslandsFact|date=August 2008
* Douglas Adams did a lot of traveling to avoid tax problems, eventually settling in Santa Barbara, California
* Ozzy Osbourne living in Beverly Hills, CA and Florida
* Tony Ryan living in Monte Carlo
* Freddie Mercury lived in Munich during the late 1970s then in New York City during the early 1980s
* Pat Rafter, living in Bermuda
* K. C. Irving owner of most media in the Canadian province of New Brunswick (lived in Bermuda from the 1970s until his death in the 1990s. Willed his empire to his sons on the condition that they become non-residents of Canada for tax avoidance).
* The Spice Girls, who spent enough time away from the UK during their Spiceworld Tour to mean they were tax exempt, reportedly saving them over £1m each.

ee also

* Tax haven
* Perpetual tourist


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