Tax Residence vs Residence permit vs Second residence
Many people get confused between the concepts of the second residence, residence permit, and actual tax residence. It is essential to understand the deep-rooted meaning of these terms to plan your holistic offshore strategy while taking informed decisions.
Many people assume that second resident and tax resident is an overlapping concepts whereas these two separate concepts altogether. Tax resident means that the individual is subject to tax regulations of that particular country whereas the second resident means that you have a residence permit in that country. You may or may not pay taxes due to being a second resident. This is subject to the many factors and country policies that dictate if the second resident has to pay taxes or not.
Similarly, for being a tax resident you do not necessarily have to live in that country. Many countries impose taxes on individuals who come through golden visa programs. So, knowing about the tax residence concept in detail will help you to design carefully your holistic offshore strategy to live a stress-free life.
Why Tax resident concept matters?
Well, the concept of tax resident matters a lot because it dictates where and how much tax are you obligated to pay. Most individuals try their best to save tax money. Many people even apply for a second residence or second citizenship to save themselves from exploiting tax laws.
The majority of people are willing to leave a country that imposes high taxes on personal living and business. All these people want to move somewhere they are not subject to a high tax bracket. Ideally, individuals look for countries that do not charge any sort of tax so that they can enjoy a luxurious lifestyle and do business without any stress of paying taxes. Countries that do not charge high taxes on lifestyle and business are considered the haven for tax residents.
You might want to leave the country and renounce your citizenship from a country that imposes huge taxes and move to a country with relaxed tax policies. This can be done only if you know the inherent meaning of tax residence and how you can implement it to save yourself from paying high taxes.
So, while choosing an offshore country to move in or applying for a second passport or residential permit, make sure that the tax bracket is app per your preferences and tax-paying needs.
What makes you a tax resident?
Well, different countries have different policies regarding this issue. But a widely implemented policy and rule of thumb say that if you live for 183 days or more within a year in that specific country then you will become a tax resident of that country. It sounds so simple, but it can get complicated if people start to leave the country exactly after 182 days to stay within the limit. Which country will impose a tax on such individuals? Well, in such a complicated scenario the governments will analyze where the majority of assets and family life of that individual.
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