Skip to content 
VOICE-OVER:
This podcast channel it’s about you, successful international entrepreneurs, successful ex-pats, successful investors. Sponsored by HTJ.tax
DERREN JOSEPH:
Okay. So thank you for joining us, HTJ.tax. For those who are new, we do this every week. If you have a look at our website at HTJ.tax/events. You can see what the topic is each week. So the topic is slightly different each week, and we’re open to suggestions. If there’s an area that you want us to dive into and we haven’t been doing it, just send us a message. That’s okay. We’ll definitely be guided by what you guys want to explore for those who are repeats, get to see you again. So, right. Okay, great. So we’re again, just for the sake of clarity. So, we’re going to talk about topics related to tax. We’re going to talk about nomad tax, digital nomads, location, independent entrepreneurs, remote workers, whatever the term is, more or less the same thing, but please be advised that we’re not giving advice. What we’re doing is we’re having a general conversation about general principles. The idea is that you’re going to walk away, equipped with the concepts needed to engage with your preferred tax team. Again, this is not advice. You can look at it as entertainment. You can look can at it as education, but it certainly is not advice.
We’re legally, because we’re licensed, we can’t give advice right, without knowing the full facts, which can never be gleaned in a couple of minutes over zoom or over social media, right? This is being recorded for those of you joining on zoom. If you do not want your image to be captured, it’s simple. Keep your cameras switched off. We invited you to submit questions in advance. Thank you to those that did to those that did not feel free to type in the box below. You can type below whether you zoom or on YouTube or whatever I’m going to get to them in the order in which we received them.
Those who are asking yes, everything is being recorded and it will be available on YouTube, SoundCloud, iTunes, Amazon, Google play, basically wherever you get your preferred podcast. So without further ado, let’s just jump in. So first question to Joe is asking, has there been updates on the U S moving to an RBT system? I’m assuming Joe, you mean that residents based taxation there have been there and they will continue to be challenges, whether it’s politicians, posturing or legal, you know, legal positions being adopted or legal action being taken and, and whatever.
But the long and short is I doubt that that will ever happen. I know there are people who are strongly advocating the opposite. Maybe they have political motors. We’re not into politics. We just call it like we see it. If it is, you actually take a step back and look at what’s going on in the macro level, not just in the US, but globally tax to the tax landscape is obviously evolving, right? And more and more countries are actually moving towards global reach. Transparency’s now the norm, the days of being able to hide a long gone for those who take this seriously.
And yeah, and then a lot of countries, especially the wealthier countries are looking for taxes. A means of plugging holes in their balance sheets, which have been caused by a lot of factors, including the health crisis that we’ve been going through over the past couple of years. So there’s a need for revenue collection. There’s a movement to seeing Dita as super important. When you, when you look at a us tax code in particular with international taxes, it’s less about revenue collection. And it’s more about data collection. We know this because when we look at the penalties that are applied, weirdly enough, the harshest penalties are for nondisclosure of international positions, transactions, investments, as opposed to not just paying your taxes.
So if you don’t disclose them some sort of bank account, you may have a C’s and maybe up to 50% of the unreported balance per year, plus interest plus penalties plus possible jail time. So it’s civil and criminal. So I don’t think that that’s going to unwind. I don’t think the US is going to unwind the position. And more importantly, when you look at other countries, they may be following suit. A lot of typically the US and another country called Eritrea are the only two countries in the world, which have citizenship-based taxation. But increasingly a number of wealthy countries are saying, and not even wealthy countries like European. So,but other emerging markets also saying there are circumstances where even though you’ve left your country of citizenship, there may be fallback rules about apply, and you still maintain their reach there.
You still within the reach of that tax net, even though you no longer reside there. So situations where you could have separate tax residency before and no longer being allowed. And this is a trend that we’ve been seeing for decades now. And therefore, I don’t think the world is suddenly going to reverse track. And I don’t think the US is going to either. There’s no, there’s no political mileage in it. There’s too much to be gained by continuing in the present trajectory. Sorry, sorry to be the conveyor of bad news Jo, moving on. Okay. This is an interesting question, which is the best possible. And so for those who are internationally mobile, you have the opportunity to pick up a resonant, pick a residence in many countries.
And you know, an increasing number of nations jurisdictions want to attract remote workers, location, independent entrepreneurs want to attract nomads and they incentivize you to do so with various visas incentives around long-term residency, as well as potentially citizenship. So there’s that. And then of course there is the investment migration programs where you can, if you have the funds and it’s a good fit for you for what you’re looking for, it’s also an option of manager restrictions. So, which is the best one, obviously that depends. I’m not selling residency, I’m not selling citizenship. We, help people make that decision, especially from a tax perspective, we help people with pre-immigration planning and pre expatriation planning.
So if you leaving syndrome addictions, we can help you. But, you know, we swim in our lane, which is tax, right? So we have no dog in this fight. But in terms, if you define best as a passport, which will give you access to many of the more popular jurisdictions, at least from a Western perspective. And of course everyone is unique, right? Depending on what kind of business you are and what you’re into. But I think Ireland is really strong contender right now because our land is part of the common travel agreement or area with the UK. So even though the UK has left, the EU is still freedom of women between the Republic of Ireland and the UK.
And of course, Ireland is part of the EU. So there’s freedom of movement within the EU with the Irish passport. So it is probably one of the strongest travel documents. Of course you have a relatively easier access to the big English speaking countries, Canada, the us Australia, New Zealand. So yeah, I think that that is, yeah, probably would be my vote, but of course everyone’s situation is different. You need to speak to someone who will understand your situation inside out and can advise you accordingly. Next question, where should I set up an offshore company?
We get this all the time. You know, like every week we get that question asked, and I think, you know, I was talking to another tax advisor. I think it was a couple of weeks ago when we were doing a live stream on Australia, US taxes. And as we, you know, just chit-chat with they, my Australian counterpart and we’re thinking, what is it? Is it the movies? We think it’s like the media that gives us the impression that, hey, if I get an offshore company, I’m going to be able to save so much money and whatever. No, that’s not the way it works. Maybe historically up until maybe the early eighties, that was potentially an option.
You, the worst decided tax advantages. And then there was super privacy. But now in the age of transparency, the modern tax rules that we have, and the modern banking rules that we have, those many of those so called advantages are gone. So that’s the way you should set up an offshore company. It really depends. It really depends if it is that you try to hide, then you can try that. I’m sure, unfortunately, there are less reputable unlicensed professionals who tend to not be in any regulation jurisdiction. So there won’t be in Western Europe, Eastern Europe, there will be in Singapore, there’ll be somewhere unregulated.
And thereby there will be north America, there’ll be in central and south America. So they don’t have to worry about regulation. They, they pay, they play fast and furious with the rules and, and that’s a choice you can make, but we believe that that’s not, long-term thinking what you need to do is understand. We need to understand what is your overall strategy? What is your business model? What type of investments you have and whatever. So if it is an opportunity for asset protection, I think yeah, asset protection and maybe sometimes offshore structures would work in that, in that situation, or maybe for better compliance and maybe for some tax optimization.
So it may be, there may be cases where first and foremost, the structure must have commercial benefit because most advanced economies have anti-avoidance rules. So if you set up a structure just for the purpose of evading tax or avoiding tax, or just, or perhaps under some circumstances, reducing tax more times than non-antibiotic as rules checks in and they, the structure can be challenged. So there must be an overriding commercial benefit to a structure that may or may not involve an Austra company. And then if secondary to that, there is a tax benefit then yeah.
I mean, tax optimization could be thrown in there, but if it is, you go into a situation saying, Hey, how can I, you know, minimize my tax without being conscious of the, the commercial benefits and the anti-avoidance rules and the management and control rules, then you’re probably gonna get in trouble in longterm right after that advisor takes your money and does whatever it is you think you want done. And they’d disappear into the sunset and stop answering your calls and your emails. That’s when the tax offices start knocking on your door. So just by having a company in another jurisdiction, doesn’t necessarily mean that the substance of the real-world transaction changes, because you may still, if you, especially, if you’re the key decision-maker, you’re running that company from wherever it is, you’re located.
So even though it’s incorporated elsewhere, there’s something called a place of effective management or management and control rules or permanent establishment rules or nexus rules. There are lots of terms used to describe the same thing that you create a taxable presence by where you are as a key decision-maker, where your team, your key decision-makers are needed, the team may be. So I would say the question, where should I set up an offshore company may not be the best one, but it should be here’s my business model. How can I optimize my business model for commercial reasons, asset protection reasons. I may have some IP that I want to protect to provide better customer service or to be more tax efficient.
Yeah. And, and better able to comply with certain local rules and jurisdictions in which you play. So that’s my thinking, sorry. I know that’s not what you want to hear moving on. Someone’s asking about inheritance taxes and Portugal. Right. Okay. I like that kind of question because it does show like long-term strategic thinking and could see that this person is a thinker that other people aren’t thinkers, but this person is really thinking long term. If you thinking in terms of what is going to, I mean, we all getting older, right? So at some point in time, you, you know, you think about what is happening to your assets that you’ve built over your working life, or on the other hand, if for those, with parents that are getting older, there’s your parents situations or friends or siblings or, or whatever.
So you may be conscious that, Hey, it’s not the most exciting topic, but it needs to be thought about. So, in Portugal, like in many jurisdictions, there are kind of inheritance taxes, but they do get particularly complex. At least we did. We had some questions on that. I think a couple of weeks ago, last week when we, before, when we did a live stream on Portugal taxes and, and you can find all the previous live streams on issues at our tax, or if you could just go to YouTube and look for tax and you can do a search and it’ll pop up. So it was asked quite a few times by some people.
So, you know, just that alone longer-term perspective. So it is to answer your question. It is relatively complex. Yes, there, it does exist, but it depends. It depends on, you know, what the assets, so whether it’s Portugal status or worldwide, where you based obviously, and who’s it going to, because the different rules for if it’s going to like a friend, as opposed to direct dissidents, like kids or your spouse, your surviving spouse. So, so the different rules that would apply. So, it is something worth sitting with an estate planning team who is experienced and quantified in the jurisdictions, in which you do have exposure for the most part, those jurisdictions that have estate planning, estate taxes, they are just that.
So even though nominally, they may be termed and inheritance tax. It’s actually not a tax on the person. Who’s the beneficiary who’s receiving it, but it’s on the estate of the person who’s passed away. I think one of the notable exceptions, at least in the developed world would be Ireland where there is a genuine, I believe inheritance tax. And again, we do live streams on Irish tax as well with Damian. So again, you can have a look at HTJ.tax for that, but so Ireland aside, so I’m thinking about the UK, I’m thinking about Europe, obviously north America, you’re looking at taxes on the estate.
So whoever the executive or the administration of your estate or the estate in question would, that would be part of their responsibilities for Thailand filing tax returns and making sure that everything is settled before it goes on to, to whoever the beneficiaries are. In addition to which, you know, for those who are thinking strategically, which is, which, as I said is a good thing. And the last couple of years has been an OECD report on wealth and inequality. And, and yeah, so basically there seems to be consensus among the OECD nations. So these are the basically grouping of the wealthy countries, and they are really conscious of the fact that Hey, income inequality is growing and they’re looking at so-called inheritance taxes as well as well, taxes as a way to address it.
So, so from a policy position using it as a way to address this, this, this metric. Yeah. I mean, we have judgements as to whether that’s a good thing or a bad thing, whether it’s double tax or triple toxo or whatever the case may be, but Hey, it is what it is. So it is a reality and something that you need to factor into, into your follow-up planning. So I think it was Warren Buffett who says something to the effect that you should leave your kids with enough so that they can do anything, but never leave them enough so that they can do nothing. So I think that is really informing some of, some of the thinking there.
So again, something to think about in your follow-up planning, as you choose writing to help you work through that next question, seizing passports. Yes. So someone’s asking from, I guess you ask them, you have from your American, the idea that it’s true, it’s not a rumor. If it is that you have a or taxes, there is now a connection between the the treasury department, which a part of which is the IRS internal revenue service, as well as the state department, which is responsible for passports. So there are circumstances if you have a tax liability above a certain amount, and you’re not in touch with the IRS, and you’re not trying to deal with that, you try to, you know, they can’t reach you or that you don’t want to be contacted you’re non-responsive then you, they can issue some sort of directive order so that you have problems with your passport.
So we have had clients with that situation. So essentially historically, you’re correct? The internal revenue service, which is part of the treasury department didn’t necessarily communicate with the state department. So treasury and state didn’t really talk to each other, but now they do rules have been P rules have been instituted more importantly policies and procedures on place, which means it’s happening more often than ever before. So we have had clients who, for whatever reason, they, you know, when you’re traveling, especially if it’s super important to be on top of your mail, it’s really, really important to be on top of me, email, whatever mailing address you provided, the internal revenue service within your loss filed return, make sure that there’s someone there who’s paying attention.
And we’ve had situations where people are traveling or working remotely. And they left their brothers, sister, parents, whoever it is paying attention to the mail. And they don’t, something comes, they think it’s junk mail. They don’t open it. They don’t check. And you know what, it could be a bill and it gets worse. And, and once they, I think once he liabilities over $50,000 and they are, is not hearing from you. And they, it seems like it’s almost automatic that something goes to state and people have problems with their passport. So we’ve not seen any situation where your passport is just canceled. But what happens is when you go into the embassy in whatever country you in, and especially you’d routinely go in to get your passport renewed, or maybe it’s been lost or damaged or whatever that case may be.
And you go in and you’re able to verify your identity and there, and the embassies telling you, sorry, we can’t help you because there’s an issue with, with your taxes. So it is, it is very, very real. It’s not a rumor. It has happened and it is happening and it will increasingly get worse. So please, please, please stay on top of your mail if it is that you are no longer at whatever address you were in, in the US and I’m speaking to U S exposed persons, make sure that you there’s a form that you can fill out to update the IRS, let them know that you change the address. There’s also a new facility with the IRS website, where you can log in.
And, you know, there’s obviously a lot of identity, very key verification, but you can log in and you can see all the correspondence. You can see your prior tax returns. You can see what’s been processed, what’s in the queue, whatever. So get onto the IRS website, irs.gov and register your account. Just, you know, I think it’s definitely, definitely worth it to stay on top of things, especially with the whole health situation, which I can’t use the name. Otherwise we get censored. So we know that there’s a health situation going on. And as a result, IRS processing has just got worse. So people are not, we have had clients abroad in the Philippines and Australia and Singapore, and, you know, parts of Western Europe where they’re missing RS notices.
So, and they will get a notice of a lien or asset seizure. And then they’re like, we didn’t even get a warning. We don’t even know what’s going on. We didn’t get the prior notice as it’s happening all the time to many people. It’s not just you. So the point is get on terrorist.gov register and stay on top of all those IRS notices that may or may not be going to you hope that helps moving down. Okay. Someone has a long question. Okay. I’m a 64 year old us citizen. And I’m far from the six figure income crowd since 2005, I’ve lived and worked overseas.
So I have not been paying into us social security during those years, I’m eligible for social security income, but I don’t plan to access it before 67. In addition to the above last year, I became an independent contractor for a US-based company and started paying social security and self-employment taxes. Again, I’m planning to move to Portugal. Yeah, I know really popular right now. I’m planning to move to Portugal and <em></em> based solely on my savings, social security and brokerage investments, not my work, my remote work, because I’ve been told my work as an international language assessor no longer qualifies me for the NHR, thus blah, blah, blah.
If I declare my digital artwork, my digital work and puts you on looking at Portugal tasks is around 28%. And I don’t think that includes social security as well. Right? Portugal in the U S have a social security tax treaty, which is actually called a totalization agreement and stipulates that I should only pay a social security tax in one jurisdiction. So the jurisdiction which you want, but, okay. So my question is we’ve got to the question. Is there a workaround? Can I hide my us digital income for remote working by depositing into a separate us account where I would continue to pay us taxes on my independent contract work?
Or would this be a big risk with high consequences when filing taxes in Portugal bottom line, if I’m paying almost 50% tax in Portugal, well, 28% plus the social charges, I might, it might not be worth doing the work at all. I hope not. I love my work many. Thanks for your insights. Okay. Portugal, like most European countries, taxes, union related income, like many European countries. There are carve-outs. So in Spain, there’s a backroom law in Ireland and the UK there’s resonant dumb.
I Italy has it. Switzerland has a flat tax Portugal’s version of a Aqaba is in our habitual residence program, which allows certain categories of income to either be taxed lower than normal or not taxable at all. Unfortunately, it’s a great scheme. I mean, it’s good, but it doesn’t really favor business owners or people who are still working. So that is something to consider and you, and you’re right, even if you were to qualify under the NHR as a high value added professional, and you get the flat tax at 20%, then you you’re right.
You have to add social security onto that. So you see you’re looking at 40, over 40%. And if you don’t get the benefit of being a high value added professional, then you could be looking at closer to 50%. So you’re absolutely correct. It may not be worth at week cannot. And I don’t think any serious qualified professional would advocate hiding the income. It needs to be declared. If it is that work is being performed within Portugal, it needs to be declared to Portugal. It will be taxable to Portugal, just like with the us, you have to file something called an AF bar, a foreign bank account report, or FinCEN for one, one for Portugal has the equivalent as well.
So we’re Portugal. When you become tax resident Portugal, you need to declare all your foreign accounts. It’s not as intrusive or as not as explicit as the U S disclosure, where you have to look at maximum balances. You have to disclose all of that. The us is probably one of the biggest ones, but yeah, but it does mean that you need to declare the accounts. So I would, you know, just don’t go to Portugal with anything, but an intent to just follow that a hundred percent of the rules. And maybe if it is that it’s going to be a huge tax burden to you. Maybe it’s worth looking at other jurisdictions is Spain next door under the backroom law, although that has some, you know, Spain has some, it’s not the perfect solution.
Ready to manage US tax returns in Spain? Our experienced team is here for you.
There’s no panacea. There’s no perfect jurisdiction in Europe. There’s always some catch somewhere somehow. But you know, for the five-year duration, the Beckham loan, maybe about to deal for you and it’s as close to Portugal anyway, but definitely go in there thinking full disclosure. There is no workaround. It needs to be declared once you are spending your time in Portugal. Sorry about that. But yeah, hope that helps. Next question. I’m a us citizen who recently decided to pick up my work and move to somewhere with a better climate. Good for you. I placed myself in Costa Rica for several months.
I have confirmed that Costa Rica does not have any tax implications for non residents working remotely for non Costa Rican companies. So this would be once you’re not tax resident in Costa Rica. So you’re not staying long enough to trigger tax residency. Okay. That’s fine. I have both 10 99 and W2 income from the U S while I’m working remotely. Okay, fine. I have not lived abroad for more than 330 days. I left in June, 2021. How this affect my 2021 U S taxes, if at all, how would it affect my 2022 taxes if I choose to stay abroad for the rest of the year?
Okay, Dana. So great question. Great question. So from a US perspective, assuming that you have not. Yeah, so you’ve been outside for more than, for less than six months. You can. I know you, when you, when you mentioned the three engine in 30 days, you, you thinking of the section nine 11 foreign earned income exclusion, which perhaps is one of the best benefits for us exposed persons who are abroad. So the amount moves with inflation. I think right now for 2021, it’s 112,000. So like the first $112,000 of income is completely protected.
You declare it on your tax return, but using a form 25 55, it is more or less sheltered from us tax. Now that applies to the W2 income. So generally speaking, once you qualify for that, if you had W2 withholding, it could be refunded to you, but it does not work with 10 99 income. So with 10 99, you’d still, I mean, be enjoying the section nine 11 exclusion on the income tax. But remember, as an independent contractor, 10 99 contractor, you also subject to self-employment taxes of 15.3%, that will still apply.
Now, the thing is in order to qualify for the foreign income exclusion, you do some, one of two ways. I have a really long article on this, on our website and she’s with our tax. We have like 2000 articles on international tax and probably like a thousand videos, but you can qualify in terms of the bonafide residents test, which is subjective and qualitative and a physical presence test, which is objective and quantitative. So the basically just being very, very brief, they bought residents tests in order to qualify for that, you need to be a bonafide resident of another jurisdiction. You need to have a home there, a place of a board.
You need to be paying taxes. There. It’d be great if you have family there. So, you know, you paint, you know, you visa allows you to be there for awhile. So you are definitely a bonafide resident of a jurisdiction outside of the us. So you qualify that way. Other ways on a physical presence, gas, which is three 30 days, right? So you need to stay out of the US you can get a partial potentially. I mean, I’m not giving advice, but this is something to take you a tax team. You can get a partial, partial benefit based on the foreign income exclusion because the physical presence test is three 30 days, but it doesn’t have to be in the same calendar year.
So you can do a form 48 68 and apply for an extension. And that may give you time to come through 30 days and extension to you going to extension to October, right? And based on that, you can get a partial. So you can do this, and there’s potential for tax optimization there. So speak to you. You prefer a tax team around a partial exclusion based on filing an extension. But of course, regardless of what you do remember an extension is an extension of time to file a time to pay taxes are still due in April 15, April 18, so many April regardless.
Right? So hope that helps Dana. Next question. Okay. I’m going to jump into another platform and put some more questions out there. Sorry. When, when my zoom, when my wifi crashed, I lost some of the questions that were asked. So those who are in the zoom, if you asked a question before Kelly, please put it back because it’s no longer in my feed. Anyway. So the IRS sent a letter to my address for receipts. It took over four months to get to you. You’re lucky. We know people that took way longer. It’s not right now, right? I mean, Asia, it was stamped through Estonia.
Yes. You’re not alone. It’s just a way it’s working. It’s being printed and mailed from other parts of the world. Okay. So I filled out and said, send a form in December. Okay. It still hasn’t changed. Okay. All right. So you have an issue with the IRS. You’ve reached out to them. If it is that you type something. Okay. Right. So best bet is to give them a call, right? Because right now we’re applying by mail. Like when w I mean, we’re in taxis already in January last month, they had something like 6 or 7 million pieces of unopened mail.
So this includes, we have clients whose 2020 returns have yet to be processed because they pay profiled. So sending something in the mail right now that is not going to be processed in a hurry. And if, if whatever, the notice that you got is time-sensitive. You need to get on that phone. I know it’s hard because the stats show that the IRS answers less than 10% of its calls. So, yeah, it’s going to be a long way. You’re looking at two, maybe three hours on the phone, but you need to speak to somebody. If this thing is time-sensitive, you need to get through to them. Writing a letter may not be enough because things are sometimes automated.
So some of these notices just get done automatically and whatever they do, the escalation will be automated as well. So let me hear from you and X number of days, whatever it is that time that they’ve given, they move up to the next stage, whether it be a notice of intention to freeze your bank accounts. And, you know, it gets really, really messy and interest and penalties are being calculated as well. So I’m sorry. There’s no way to get on the phone and really get this thing sorted out. Remember that you can also get full visibility of whatever the correspondence trail has been by going to irs.gov and registering for your tax account.
You can, now it’s a new feature using it now. So once you’re able to verify your ID, I did it. You know you do a video call with somebody, you hold up your ID, your driver’s license, or whatever they verify you, and they give you access to all your records. So you don’t even need to wait on the mail. It’s kind of like email, right? Cause you can see what the latest notices. So get on that. Do not let it slide. Especially if you go outside of the US and it’s, maybe it’s a big bill, your passport can be affected. So please I would get on that as soon as possible, moving down. Okay. So someone’s asking and tend to spend one year UK next year.
If I work remotely for a company in LATAM or the U S Latin America, the us should I have to pay any taxes in the UK or my home country. So why should I, that income is not from a US source. I’ll be kind of a tourist that I’m okay. So I know that sometimes the tax rules seem counterintuitive, and it’s not how we would logically see things, but it is what it is, right? So this gives the UK HMRC, which is like the RS and UK. So who might just do registered revenue and customs, they have something called a, your residents to task, right? So based on the number of days, if you are in the UK, and there’s a test, you can go to hmrc.gov that UK, and you can do a detach.
You just answer a bunch of questions and they will spit out an answer. So, based on that, if it says that you are a tax resident, you are taxable on your world wide income, or repeat your taxable and your worldwide income. Now, remember earlier, we were speaking about Portugal with the NHR as a carve-out on that. So we have, you know, being a little bit more tax-efficient, the UK does have something like it, where your resonant Damo your resident, non-domiciles. So you can be taxed on a remittance basis. So you can be taxed on only income that is earned in the UK, as opposed to something that’s earned outside of the UK.
:
And you may have seen that somewhere in as you do your searches, but that really is designed for investment income, not for earned income, because you know, you are exercising this, you’re working in the US even though you’re working for someone that’s outside of the US this, I’m sorry, I’m sorry. In UK, even though you’re working with someone outside of the UK, you’re performing those services in the UK. And if you’re a tax resident in the UK, you need to pay taxes on that. Even if it’s on the remittance basis because it’s being earned there, it’s not investment income, it’s earned income, right.
So yes, then, then your question is, well, you know, how are they going to know? Right. Well, technology, right? So if it is that you are there for an extended period of time where you trigger a resident’s tax residence in, in, in the UK. And, you know, there’s the money’s being wide back and forth using a credit card, whatever the case may be, HMRC can find out they can, I would not mess with HMRC. I suggest that you speak with a UK accountant and, you know, work.
And, and you know, if it is that you intense, you’re not yet in the UK. Maybe there’s an opportunity for task planning. Maybe you can speak with, because once you’re there and you trigger residents, it’s probably kind of too late. But if it isn’t, you plan to go, I think you should speak with a UK tax team. So, and see if there’s any way of optimizing your position, because once the clock starts ticking any trigger on residents, it’s, it’s, it’s done. Right. But we cannot. And I don’t think any, again, like I said before, no qualified professional in this day and age advocate, we’re living the age of transparency. You know, you have tax authorities that monitor social media of as residents, right?
You, if you playing fast and loose with the rules, they’re going to figure it out. All right, next question, scrolling down. If a us citizen renounces the residency, a us citizen, or announces your us residency. So I guess you announced is there China? Okay. So as a us citizen, you cannot renounce your US residency, even if you’re not resident. So before I get to the rest of your question, I just want to stop then as a, as a point, right? Even if you’re not resident in the us, if you move from Louisiana to London, the IRS does not care that you no longer live in Louisiana.
If you move from Miami to Milan, the IRS does not care that you’re no longer living in Miami. You’re going to be taxed on your robot income. Regardless. The only way around that is if you move to Puerto Rico, or if you give up your us passport. So once you give up you in your us passport, that’s that, that renunciation of your citizenship, then you would only be sought a task when you us source income survey. If you have rental property or U S investments that may be subject to us taxes, but whatever you do outside of the U S after you, that renunciation is normally out of the reach of the IRS. So that’s how it works, right? Is that, so I’m going to the rest of your question now.
So is there a taxable transaction? If there are property owners, is there a taxable? So, okay. I’m not too sure what you mean, but his has how I see it. So in the process of renouncing of renouncing, there is something called an exit tax. The exit tax will be triggered if you will, what we call a covered X-Box. So when you become a covered ex-pat in three ways, the two most ways would be if your liability, your average tax liability over the past five years is over a certain threshold. So, so let’s say it’s more than 172,000 per year on average, or if your net assets are in excess of 2 million.
So then you may be a covered ex-pat and you will be subject to an exit tax. If you want, we can go into how that’s calculated, but you will be subject to an exit tax, assuming that you are not a covered back then, once you renounce and you walk away, you subject to US source and conservatives that you do have rental properties and rental income will be taxable. If it is that you, you sell your home or sell a home, then that transaction will be taxable as well, capital gains tax. So in terms of US real estate, basically you will still be subject to tax and whatever income that arises from you as real estate, there are exceptions as there always is. Right?
You know, I think we recently with speaking to clients about the portfolio interest exemption, so there are exceptions, there are workarounds, but they’re not easy. They’re pretty, relatively complex, but generally speaking, yes, your us real estate will still be subject to us taxes. Even when you renounce moving down, have you heard of any new upcoming digital nomad visa countries? Yes. Kelly. And that list is getting longer every day because countries are catching on, Hey, this health crisis that we going through, the name that I can’t mention, otherwise, we get censored.
This isn’t going away. Therefore we need to attract longer-term visitors, as opposed to people just come in for a weekend or one or two weeks of vacation, right. We need to look for longer stays. And one of the pioneers in that space of course has been Barbados, but there have been others as well in Bermuda. There’s a whole list is getting long. I think Brazil just recently announced one South Africa is thinking about one, you know, Thailand, Indonesia, therefore Bali. So the list is pretty long. You just need to work with you, work out, you know, what your options are.
And once you have decided, and you’ve narrowed them down to a few, maybe then you can speak with your preferred advisor about the tax consequences to you moving. Because last thing you want is to go and get trapped in a tax situation, right? Although there are, you know, like Bobby owes being one of their forward thinking ones, they have passed local legislation so that you will not be taxed. Even if you working remotely, whatever it is that arises from you being there, not subject to tax, even when you are there for a year are not welcome. These are you not going to be taxed? So, so yeah. Good luck, Kelly.
Okay. All right. Lusa Andra. Fantastic. So any more questions? Okay. Somebody’s asking about being a resident. No, not being tax resident anywhere. So I’m assuming that you’re not American, right? Because as I mentioned, once, you’re a us person you’re subject to taxes and you were lighting regardless of where you are. Right. It doesn’t matter if it isn’t, you’re not American then. Yeah. It’s not as easy as people make it out to be on the internet, but it is possible. It is. You just need to keep moving. I used to be constantly moving, but it is possible. But what we’ve found with our clients, you know, our clients are six and seven-figure earners, right?
So they, you know, their situation is as important then they, and if something happens, the consequences could be dire for them. So even though people talk about bang about taxes, when it comes to being a perpetual nomad, they don’t often think about banking and banking rules. So what the governments have been doing are you they’ve been using financial institutions as police more or less. So you’ve heard about FATCA from Americans. There’s something called CRS, the common reporting standard, or the automatic exchange of information for non-Americans. But basically they also under that debt.
And so these are just free modes for information exchange. So even though you think that you kid doesn’t know what you’re doing in Bali, that bank account, that bank, that you’re banking in, in managerial, whichever bank you’re using in Bali, maybe reporting you to the UK, or, you know, if you’re doing something in Singapore, but your tax resident in Bali, then the bank in Singapore is probably maybe reporting you to the Indonesian tax office. So there’s that exchange of information going on, but there’s also the they, so the tax authorities, if it is that you are tax resonant on doing the right thing, they can catch up with you, but they banking rules, the AML rules and client KYC rules.
So anti-money laundering and know your customer rules. So they always need to know how you’re earning money. So if it is that you are independently wealthy and all you’re doing is living off interest. Well, that’s fine. But if it is your money being earned in some way, shape or form, the bank would need to verify that it’s legit and you know, banks feel very uncomfortable. And when you can give them a fixed place of a board, they get very, very nervous. And the knee-jerk reaction is just to close their accounts and getting rid of you. Alternatively, sometimes, you know, when there’s an audit or whatever, and they just want to update their records, making sure the QIC stuff is being done and they don’t know where you’re being taxed.
Cause that is a question they’re gonna ask you where your tax resident, they get very uncomfortable if you can’t tell them. And you know, I give a story all the time that several clients in Southeast Asia who have been living there for a while, and obviously we’re banking there. And they’re originally from parts of Europe. At some point in time, they want to return to Europe. Whether in one case, one PR one guy wanted his mom was not doing well health wise. So he wanted to go back to his European country of origin. You know, he gets back home and he’s trying to wire money from his Southeast Asian bank to his European bank. And they’re blocking it.
Why? Because they need to verify this transaction. How was this money earned? And if he can’t demonstrate that and no, nobody, no bank really would accept an invoice really? Because give anybody five minutes on Microsoft Excel and they have an invoice, right? What they look for to make them feel comfortable, they’ll ask for different things. But I think one thing that makes most banks feel very comfortable as a tax return, a tax return from a government, you know, it’s a government document that says this money has been declared. This money has been taxed. It’s clean, it’s legit, nothing to see here. So circling back to your question, you can be a perpetual nomad. You can be resident nowhere, but be conscious of the banking rules and you may be blocked or, you know, prevented, you mean maybe kicked out to the banking system, you know, or unable to transfer your money internationally because you can’t prove it.
Right. And even that bandwidth stomach or where it’s being held right now, they may eventually have problems. So just a heads up next question. So I’m just going to check some of the other platforms for any questions that maybe okay. Nothing here, the thing there. Okay. So one more okay. For those who were trapped well, unable to travel because of COVID sorry, I can’t use our, because of the health crisis and okay, so you may have triggered tax residency.
So it really depends. Some countries were better than others. I think one of the best in class was probably Australia. So the ETO, the Australian tax office, they were pretty proactive. So they knew that flights were, you know, flights weren’t happening. And basically the borders were closed. You needed to get permission to enter Australia, leave Australia. And for those who were in Australia, unable to leave and trigger tax residents, as a result we get to you has been pretty understanding. I mean, they’re probably one of the better actors. And then on the flip side you had Spain. So Spain doesn’t care, Spain doesn’t care.
Spain is probably one of the more aggressive tax authorities to do what? So they don’t care why you were there. You couldn’t leave. They don’t want to hear all of that. They just want their money. So it really depends on the jurisdictions that were triggered by you being there and unable to move on. So you were there longer than you intended to be because of circumstances, circumstances beyond your control. So again, you probably want to speak with a tax professional in a qualified in jurisdiction in which you are having challenges and they can perhaps help you work through whatever the tax office is telling you.
So good luck with that. Okay. On that note, any more questions? No. All right. So thanks for your time. Appreciate it. Sorry about the technical issues, I’m having issues with the hotel wifi. Again, HTJ.tax. We have these live streams every week. Feel free to join us at any time or send us any questions and me happy to speak with you. Okay. Thank you, Kelly. Thank you, Dana. This has been recorded and it will be available on your preferred podcast platform.
See you next time. Bye-bye.
VOICEOVER:
Here are four ways we can help you.
1. We offer HOLISTIC strategies to help you live that international life. Tax + MIGRATION options.
2. We help you MODEL the tax impact of moving to a new jurisdiction
3. CONTACT us for tax optimization consults over Zoom
4. High Net Worth? We can QUOTE for doing your “US – International” tax returns
Our books and upcoming events are available at HTJ.tax. Please subscribe like, share and comment down below or email us at help@htj.tax to engage us to advice on international tax or business matters.
