A double citizenship may grant you a lot of perks, while also being a real headache when it comes to taxes.
For most states, the main criteria for determining the level of taxation of an individual’s income aren’t at all based on citizenship, but on the amount of time spent within the state during the tax period (year) and this person’s so-called “center of vital interests”. This usually means the place where the person has formed the closest personal and economic ties.
These criteria are used to determine whether an individual is or isn’t a tax resident. The payment of both taxes is applied only if the use of the above criteria does not produce results (it is impossible to surely determine the permanent place of residence of an individual or where the center of his vital interests is located).
Does a dual citizenship imply lower taxes?
Although dual citizenship can be an important part of your tax strategy, obtaining it does not automatically lead to savings in tax payments. The ability to effectively use your hypothetical dual citizenship to reduce the tax burden depends on the type of tax system of each of the countries of citizenship.
US citizens, for example, cannot completely escape the influence of the American tax system. This is because the United States uses a citizenship-based taxation system that defines all US citizens as taxable, even if they have not visited the States for years.
In addition, although the term “citizenship taxation” implies that the US charges only its citizens, there is more to know here. Permanent residents of the United States, known as holders of green cards, also become tax subjects until they give up their green cards.
Moreover, most banks in the world are linked to the US via the Foreign Account Tax Compliance Act. Therefore, if an US citizen moves abroad and pretends that he is not a US citizen, this will not lead to anything good. “Uncle Sam” will sooner or later take a part of the money of such a “fugitive”.
If we leave out the USA (and Eritrea), any other country most certainly implies a resident-based tax system, where you must meet certain requirements in order to be considered a tax resident, (for example, spend a certain number of days within its territory).
The tax requirements in each country are different, and if you live somewhere in Canada, the UK or Australia, you may need the help of a specialist to successfully get out of the “networks” of the local tax system.
In some cases, you may need to obtain a tax residency somewhere else — preferably in a jurisdiction with low fiscal fees or no taxes at all. But you do not have to apply for a second citizenship to obtain tax residency elsewhere, if you are not a US citizen.
Obtaining a dual citizenship will not necessarily lead to a reduction in the taxes you pay. However, additional citizenship can serve as an insurance policy if your home country changes its tax policy. You can always renounce the citizenship of a country with an aggressive fiscal policy in favor of a low-tax jurisdiction passport. This will not immediately fix your tax problems — first you will have to become a tax resident in your new homeland. But investing in citizenship can really come in handy if such tax movements start to develop.
Want more information on how to start your business offshore and go where you’re treated best? Feel free to contact us right away!
https://bizonaire.com/en/blog/article/does-dual-citizenship-lower-your-taxes---123.html
