Nowadays, when many countries are announcing an increase in taxes due to the coronavirus pandemic, surely a lot of individuals are or will be looking to do some tax planning by changing their tax residence to somewhere where there is low or no taxation. This is not unreasonable at all, considering the risks, but it is also their right to seek a place where they are going to receive a better treatment, perhaps a greater level of legal certainty. But, one important thing – which a lot of these individuals do not take into account is consulting with tax professionals about establishing a clear and; above all, legal strategy, to stop being considered a tax resident in their current country of residence.
One example is the case of the famous singer Shakira, who is under scrutiny by the Spanish Tax Authorities. The Authorities have now been able to show that Shakira was a tax resident of Spain for the three years she claimed to be resident in the Bahamas. She also claimed she was not tax resident anywhere due to her extensive travel schedule, effectively telling a Spanish Judge she was a "nomad with no roots". But the investigation has put that aside, stating she was in Spain for more than 184 days in 2012, 2013 and 2014. More importantly, they have evidence that her life – her center of vital interests, was and presently is in Spain.1
In many cases, when we are advising a client looking to establish his tax residence in Panama, we ask him if he is in the process of giving up or has already given up his current tax residence, and he says "no". But, if the goal is to minimize taxation or eliminate altogether tax planning by using a tax residence in a low-tax or no-tax country, it is important that the client relinquishes his present tax residence. On the other hand, it is of utmost importance that the client complies with the requirements of the low-tax or no-tax country for becoming tax resident, which often demands a stay of more than 90 days or even 183 days residence in a fiscal year.
In regards to the statement made by Shakira to the Judge about being a "nomad", that is something we are seeing more and more these days, especially with the younger generations that are fully mobile and work out of their personal computers or even their smartphones. However, being a nomad does not mean you do not need to comply with reporting requirements or filing returns if your country of tax residence demands it. And also, if a nomad is not tax resident anywhere, that may play against him, if a bank wants more evidence of tax residence, especially if his passport is from a high tax country. In that context, the OECD came out with a report whereby they indicate "residence and citizenship by investment (CBI/RBI) schemes allow individuals to obtain citizenship or residence rights through local investments or against a flat fee for perfectly legitimate reasons. But they can also be potentially misused to hide their assets offshore by escaping reporting under the OECD/G20 Common Reporting Standard (CRS). Consequently, the OECD has listed several jurisdictions that have these programs and that "potentially pose a high-risk to the integrity of CRS."2
The criteria of the OECD is to consider a jurisdiction with residency programs "potentially posing a high risk", if such jurisdiction offers "low personal income tax rate of less than 10% on offshore financial assets and does not require significant physical presence of at least 90 days in the jurisdiction.
That said, it is very much recommended to "nomads" – to everyone really looking for a change in tax residence, to do a more in depth due diligence and perhaps choose a country that is not on the list of the OECD. As things progress on the international tax arena, organizations like the OECD and the countries that are OECD members, will continue to put more and more pressure on banks and other financial institutions. The financial information of "nomads" is at risk of being shared with their country of nationality and so be open to what may be a very unpleasant tax investigation. Therefore, do your planning right, consult with a professional before you leave your current place of tax residence and consult with a professional in the country you choose for your residence, in order to structure and keep your affairs in order.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.