Tax exile

A tax exile is a person who leaves a country to avoid the payment of income tax or other taxes. It is a person who already owes money to the tax authorities or wishes to avoid being liable in the future to taxation at what they consider high tax rates, instead choosing to reside in a foreign country or jurisdiction which has no taxes or lower tax rates. In general, there is no extradition agreement between countries which covers extradition for outstanding tax liabilities. Going into tax exile is a form of tax mitigation or avoidance. A tax exile normally cannot return to their home country without being subject to outstanding tax liabilities, which may prevent them from leaving the country until they have been paid.

Most countries tax individuals who are resident in their jurisdiction. Though residency rules vary, most commonly individuals are resident in a country for taxation purposes if they spend at least six months (or some other period) in any one tax year in the country, and/or have an abiding attachment to the country, such as owning a fixed property.

National rulesEdit

United KingdomEdit

Under UK law a person is "tax resident" if that person meets any of the residency tests set out under the Statutory Residency Test introduced on 6 April 2014.[1]

The Statutory Residence Test states that a person will be non-resident if they meet one of the three Automatic Overseas Tests.[2] The Automatic Overseas Tests focus on how much time a person spends visiting the UK. For example, the first Automatic Overseas Test states that if a person spends less than 16 days in the UK in a tax year, then that person will be non-resident.[3]

If a person is not able to meet any of the Automatic Overseas Tests, then they can still be non-resident under the Statutory Residence Test, but to do so they must ensure (a) they do not meet the Automatic Residence Tests, and (b) they are categorised as non-resident under the Sufficient Ties Test.[4][5] The Sufficient Ties Test determines whether a person is resident or non-resident by reference to their UK ties and their UK visits. The fewer ties a person has to the UK, and the less time the person spends in the UK, the more likely they are to be UK non-resident.

United StatesEdit

 
The worldwide income thresholds that determine whether an individual must file a U.S. tax return are exactly the same no matter where in the world a "U.S. person" lives.

Under the Internal Revenue Code, a "U.S. person" (including United States citizens and U.S. permanent residents) is taxed on his or her worldwide income regardless of place of residence. U.S. persons can avoid U.S. tax liability on non-U.S. source income only by moving abroad, renouncing citizenship (or terminating or losing permanent residence), documenting that renunciation/termination/loss, and (as often required) formally exiting the U.S. tax system via IRS Form 8854. Exiting high net worth and high income individuals may owe an expatriation tax. However, if they continue to receive income from any U.S. sources, they will still be liable for U.S. taxes, often on a tax withholding basis and sometimes with less favorable tax rates (such as dividend tax rates). U.S. states and municipalities with their own tax systems sometimes have different exit rules.

U.S. persons living abroad are often entitled to substantial U.S. tax relief principally through the foreign earned income exclusion, foreign housing exclusion, and/or foreign tax credit (claimed via IRS Forms 2555 and 1116). Moreover, effective U.S. income tax rates can occasionally be negative: in principle, some U.S. persons can qualify for refundable tax credits (net cash payments from the IRS) on non-excluded income even while living outside the U.S., such as the past Making Work Pay tax credit. All other U.S. tax advantages remain available in principle, such as U.S. tax-advantaged retirement and education savings accounts. No matter where they live, U.S. persons must file all required financial reports such as U.S. FinCEN Form 114.

As mentioned above, a permanent resident in the United States is generally treated as a citizen for tax purposes unless his or her residency lapses or otherwise ends. Former "long-term" permanent residents remain liable for U.S. taxes unless and until they formally exit the U.S. tax system via IRS Form 8854. An immigrant not legally admitted for permanent residence (such as a guest worker) generally becomes liable for U.S. taxes on worldwide income after spending a certain number of days in the U.S. within a certain time period, as described in IRS Publication 519.

Notable tax exilesEdit

In popular cultureEdit

  • The V.I.P.s (1963) is a motion picture that has characters (e.g., Orson Welles as Max Buda) stranded at London Airport due to weather who are in fear of taxation if unable to depart within the day.
  • The Tax Exile (1989) is the title of a novel by Guy Bellamy.
  • In various versions of The Hitchhiker's Guide to the Galaxy by Douglas Adams, the rock star Hotblack Desiato is reported as "spending a year dead for tax reasons." Also, the character Veet Voojagig "was finally sent into tax exile, which is the usual fate reserved for those who are determined to make a fool of themselves in public."
  • Characters in Michael Frayn's play Noises Off (1982) have to sneak into their home in England because they are tax exiles and will lose their status if it becomes known they are in the country.
  • In Mad Men Season 2, Episode 11: "The Jet Set" (airdate October 12, 2008), Don Draper meets and spends time in Palm Springs with a group of tax exiles.[23][24]

See alsoEdit

ReferencesEdit

  1. ^ "Finance Act 2013, Schedule 45". UK Government Legislation. Retrieved 20 November 2020.
  2. ^ "RDR3: Statutory Residence Test (SRT) notes". HM Revenue & Customs. Retrieved 20 November 2020.
  3. ^ "Residence: The SRT: First automatic overseas test". HM Revenue & Customs. Retrieved 20 November 2020.
  4. ^ "How do I become UK non-resident for tax purposes?". Tax Residence Guide. Retrieved 20 November 2020.
  5. ^ Tolley's Statutory Residence Test. LexisNexis UK. 2017. pp. Chapter 2. ISBN 978-0754554097.
  6. ^ "Mick Ralphs Biography". Mickralphs.co.uk. Retrieved 2013-01-23.
  7. ^ Chris Tryhorn, City correspondent (2004-06-23). "Who are the Barclay brothers? | Media | MediaGuardian". Guardian. Retrieved 2013-01-23.
  8. ^ Farndale, Nigel (9 May 2003). "The minute she walked in the joint". The Daily Telegraph. London. Retrieved 23 May 2010.
  9. ^ Roman (6 May 2004). "See CD sleeve notes by Chris White, Something album". Home.arcor.de. Archived from the original on 7 March 2014. Retrieved 28 January 2011.
  10. ^ "David Bowie". Montreuxmusic. Archived from the original on 2011-08-22. Retrieved 2013-01-23.
  11. ^ "Michael Caine comes full circle". WalesOnline. 2009-11-02. Retrieved 2013-01-23.
  12. ^ Corbett, Ronnie. And it's goodnight from him.... Penguin, 2006. ISBN 978-0-7181-4964-2. p. 194.
  13. ^ Lesley, p. 355
  14. ^ Lesley, Cole (1976). The Life of Noël Coward. Cape. p. 395. ISBN 0-224-01288-6.
  15. ^ Fraser, Christian (17 December 2012). "Depardieu: French film star stirs tax row". Bbc.co.uk. Retrieved 25 January 2013.
  16. ^ "Depardieu 'to give up passport' in tax exile row". BBC news. 16 December 2012.
  17. ^ "Gérard Depardieu : "Je rends mon passeport"". lejdd.fr. 15 December 2012.
  18. ^ "Executive Order on granting Russian citizenship to Gerard Depardieu". Russian Presidential Executive Office. January 3, 2013.
  19. ^ Boffey, Daniel (17 August 2019). "Seafront healing: Marvin Gaye museum mooted in Belgian town he loved". The Guardian. Retrieved 1 September 2021.
  20. ^ "Rocker-actor Lenny Kravitz has reportedly been tapped to portray Marvin Gaye in filmmaker Julien Temple's forthcoming biopic". WENN. Nov 20, 2012.
  21. ^ Leigh, David Leigh (July 10, 2006). The Guardian.
  22. ^ Williamson, Nigel (29 March 2005). "Music is Part of God's Universe". The Guardian. Interview with Yusuf Islam. UK. Retrieved 1 February 2010.
  23. ^ Franich, Darren (May 15, 2015). "'Mad Men' and the California Dream (Entertainment Geekly: The City of Angels is Don's Heaven and Hell)". EW.
  24. ^ Murray, Noel (October 12, 2008). "Mad Men: 'The Jet Set'". AVClub TV Reviews.