Where do you pay your taxes? From banks to brokerage accounts, being asked where you’re a tax resident is now a common question. This follows years of banks asking, ‘Are you a US citizen or permanent resident?’ to ensure you both comply with the Foreign Account Tax Compliance Act (FATCA).
All this because of one regulation: the Common Reporting Standard (CRS), which is shorthand for the international crackdown on undisclosed offshore bank accounts.
These are complicated financial waters to sail in so, if you’re looking to protect your wealth with a tax strategy designed specifically for your needs, why not become a Nomad Capitalist client?
Working as the architects and general contractors of your holistic offshore strategy, we will help you go where you are treated best.
What is the Common Reporting Standard?
The CRS system allows entire countries to mandate their banks to share financial data with other nations to keep tabs on their citizens. It means that the so-called ‘undisclosed’ Swiss bank accounts the media likes to speak about no longer really exist.
CRS requires banks to perform financial information-gathering and reporting, as well as participate in the automatic exchange of information. The purpose of CRS is to help fight tax evasion and protect the integrity of tax systems. This includes reporting to the local tax authority.
So far, around 120 countries, including most tax havens and offshore banking havens, have signed up, and most are already exchanging data.
So banks must ask you where you are a tax resident, and they no longer accept ‘nowhere’ as an answer. Banks never understood the perpetual traveller or digital nomad concept anyway but CRS elevates their suspicion to a whole new level.
Being a resident of nowhere is becoming quite challenging to pull off, both from a tax perspective and an operational perspective.
For wealthy entrepreneurs, the answer is increasingly to create a base and secure a tax residence certificate in a country that doesn’t tax them.
That’s difficult to do if you’re a perpetual traveller without a home or enjoy some form of banking privacy. Fortunately, there is a possible workaround in the form of non-CRS countries.
If 120 countries are taking part in CRS, that means plenty of others aren’t. Many of these countries are places you probably wouldn’t want to visit, let alone bank in (Sierra Leone comes to mind). However, a few quality countries have yet to take a proverbial sledgehammer to their own tradition of banking secrecy.
How to Legally Avoid CRS
It can’t be stressed enough that here at Nomad Capitalist, our only goal is to help people remain fully legally compliant as they strive for more freedom and privacy. Note that we are not advising you as a professional tax advisor and strongly urge you to follow all applicable laws. Unless you retain our services, we cannot provide specific tax advice.
Keep in mind:
- US citizens and resident aliens are subject to a separate set of tax residency rules called the Foreign Account Tax Compliance Act (FATCA), under which international banks report information on American account owners to the US government and the Internal Revenue Service (IRS).
- Almost every country that doesn’t report under CRS still reports under FATCA. Remember, as a US citizen, it’s your responsibility to report your annual accounts through form FBAR and possibly Form 8938. If you’re a US citizen, it’s your responsibility to report all foreign accounts.
- Residents of some countries are also required to report foreign bank accounts, even if the information isn’t automatically exchanged. If you live in a developed country, chances are you have some obligation to report your offshore bank accounts, even if the bank doesn’t do it for you.
- The difference between, say, a British citizen and a US citizen is that the British citizen can declare themselves non-resident in their country and move to a nation that doesn’t require reporting if they wish. On the other hand, a US citizen must renounce their citizenship to achieve that.
- Although it’s legal for most people, including US persons, to open an offshore bank account, some governments ban their citizens from banking in other countries, so always double-check.
Diversifying our Finances Legally
While FATCA and CRS could be described as regulatory oversteps, they do promote the idea of being compliant. Here at Nomad Capitalist, it’s our firm conviction that it’s high time we banish the notion that banking offshore automatically makes you a criminal. It doesn’t – plain and simple.
To achieve a more positive image for offshore banking, we need to transition away from the idea of ‘hiding’ money towards the concept of legal diversification of our finances.
But there remains a bottom line to all of this: The world is becoming a more difficult place to go offshore. The existing rules relating to offshoring are being enforced more strictly and more often and new rules are constantly being introduced. Merely hiding money is not a realistic strategy – it’s a one-way ticket to legal difficulties. Real international diversification relies on experience and expertise underpinning legal strategy. If you’d like help with a full-scale diversification plan, apply to become a Nomad Capitalist client today.
CRS Countries Today
This list is taken directly from the OECD, the friendly folks whose mission is to take as much of your money and know as much about you as possible, all for the greater good.
As of December 2023, the OECD claims the following countries are participating in automatic information exchanges:
Albania, Andorra, Anguilla, Antigua and Barbuda, Argentina, Aruba, Australia, Austria, Azerbaijan, The Bahamas, Bahrain, Barbados, Belgium, Belize, Bermuda, Brazil, British Virgin Islands, Brunei, Bulgaria, Canada, Cayman Islands, Chile, China, Colombia, Cook Islands, Costa Rica, Croatia, Curacao, Cyprus, Czech Republic, Denmark, Dominica, Ecuador, Estonia, Faroe Islands, Finland, France, Georgia, Germany, Ghana, Gibraltar, Greece, Greenland, Grenada, Guernsey, Hong Kong, Hungary, Iceland, India, Indonesia, Ireland, Isle of Man, Israel, Italy, Jamaica, Japan, Jersey, Jordan, Kazakhstan, Kenya, Korea, Kuwait, Latvia, Lebanon, Liberia, Liechtenstein, Lithuania, Luxembourg, Macau, Malaysia, Maldives, Malta, Marshall Islands, Mauritius, Mexico, Monaco, Montserrat, Montenegro, Morocco, Nauru, Netherlands, New Zealand, Nigeria, Niue, Norway, Oman, Pakistan, Panama, Peru, Poland, Portugal, Qatar, Romania, Russia, Rwanda, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Samoa, San Marino, Saudi Arabia, Seychelles, Singapore, Sint Maarten, Slovakia, Slovenia, South Africa, Spain, Sweden, Switzerland, Thailand, Trinidad and Tobago, Turkey, Turks and Caicos Islands, Uganda, Ukraine, United Arab Emirates, United Kingdom, Uruguay, Vanuatu.
Basically, that’s the entire European Union, almost every Citizenship-by-Investment country, most of the developed world and just about anywhere else most people would think to bank offshore.
Non-CRS Countries Today
The OECD also lists 40+ developing countries that have not yet signed on to CRS. With 206 sovereign countries and other non-sovereign territories (like Anguilla or the Cayman Islands), that leaves a number of jurisdictions which appear on neither list.
Here are some of the highlights of non-CRS countries:
Armenia is an excellent emerging banking destination with or without CRS, though it is set to join in 2025. Opening an account there is relatively straightforward, and banks like Ameriabank and Evoca Bank have an excellent customer experience that is better than many Western banks.
Interest rates on local currencies are high and you can gain exposure to both Western (think USD and euros) and Eastern (think rubles) currencies.
Armenia’s arch-rival Azerbaijan has signed on, but our experience there tells us they’re not handling things up to par.
Cambodia may be one of the final frontier economies in the world, but that status is changing. Unlike Asian counterparts such as Myanmar, which have failed to deliver on high expectations, Cambodia’s economy hasn’t been in recession since the 1990s and a lot of capital is pouring into the country, including strong local and international banks.
Many Malaysian banks and some Western banks now have a presence in Cambodia. Nomad Capitalist’s founder, Andrew Henderson, has discussed the country as a safe haven for many years, and we still believe in its potential. Cambodian banks also pay among the highest interest rates on US dollars, but you may need a business visa to apply for an account.
Many Canadian and US expats move to the Dominican Republic, some getting permanent residence permits that require deposits in Dominican banks. While expats may be concerned about banking in developing world institutions, the Dominican Republic is one of the non-CRS countries with decent banking.
There are a lot of banks and savings institutions in the Dominican Republic, many of which are locally owned. However, Scotiabank – a sizeable Canadian player in the region – has a presence there and continues expanding its local operation.
Guatemala is often overlooked as a destination for Central American expats, but it’s been on our radar for some time. Its neighbour, Belize, tends to get a lot more attention, but that could quickly change.
Local Guatemalan banks like Agromercantil and Azteca Bank dominate the market, although banks like Citi also have a presence. It’s generally not advisable to move all your money to Guatemala City, mainly due to the banks’ ownership of mediocre government bonds. It might, however, be a place to explore as part of a greater internationalisation and immigration strategy.
North Macedonia is one of the most pro-business countries in the Balkans and Europe, with low flat tax rates and incentives for business.
It’s another one of the non-CRS countries worth considering. The banking system in North Macedonia isn’t quite as developed as in Serbia or Montenegro, but it’s improving. In addition to less attractive Greek banks, there are local banks now owned by large European banks such as Societe Generale, Erste Group and ProCredit Bank.
As a popular expat destination, the Philippines is an easy place to open a bank account. The island chain has plenty of larger international banks as well as strong local banks and interest rates are reasonably decent.
Most people in the know will tell you that the banks in Manilla couldn’t handle CRS very well, even if they were onboard. That said, the Philippines is very friendly with the United States, and banks are highly FATCA compliant.
Big banks like HSBC are common in the Philippines but lesser-known local banks like Metrobank are preferable for most expats.
Notably, the country that introduced the concept of unilateral bank information sharing with FATCA is not a party to CRS itself. What’s that saying involving a gander, goose and some sauce?
Still, the OECD and the CRS system walk a tightrope with the United States and explain the US situation thus:
‘The United States has undertaken automatic information exchanges pursuant to FATCA since 2015 and entered into intergovernmental agreements with other jurisdictions to do so.
‘The Model 1A IGAs entered into by the United States acknowledge the need to achieve equivalent levels of reciprocal information exchange with partner countries. It’s also a political commitment to adopt and support relevant legislation to achieve equivalent levels of reciprocal automatic exchange.’
All of which boils down to the following: the US does share some information but on its own terms. The United States, particularly states like Delaware, have long been known as ‘the world’s largest tax haven’, which is all the more ironic considering the amount of time Washington spends chasing minor players like Belize.
In reality, much of the world’s hot money is in American banks, although the government does claim it’s increasingly taking action to curb such practices, such as requiring Form 5472 for foreign-owned LLCs.
De Facto Non-CRS Countries
Here’s a harsh reality – some countries really don’t want to be part of CRS but sign up because they were intimidated and want to get off some financial ‘grey list’ they’d been placed on. Other states are sceptical that all the participating countries are actually able to exchange information.
For example, you can find banks where the FATCA compliance forms are a total mess or where both checkboxes say ‘No’ – i.e., ‘Are you a US citizen? Check “No” or “No” here.’
Other countries claim that while they have signed up, there’s no local mechanism to utilise. You’d imagine this will change over time, but expect Belgium to enforce things more strictly than Vanuatu.
Again, compliance with local laws is the most crucial element in all of this. ‘Hiding’ money is a thing of the past and will almost certainly catch up with you, so follow your requirements or find a legal way to change them.
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Remember, at Nomad Capitalist, we create holistic strategies for high-net-worth individuals to protect all their assets, including high-yielding investment options. We advise on the best jurisdictions for second citizenship, investments combined within a tax, and asset protection strategy designed specifically for your needs.