‘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 comply with FATCA.
It’s all because of one regulation, the Common Reporting Standard, or CRS – the crack down on undisclosed offshore bank accounts.
Don’t despair, however, this article (while it’s definitely not tax advice) explores how to legally avoid CRS, by highlighting some countries that don’t currently exchange information.
If you’re looking to protect your wealth, with a tax strategy designed specifically for your needs, why not become a Nomad Capitalist client? To apply for your bespoke action plan, click here.
What is the Common Reporting Standard?
By allowing entire countries to mandate their banks to share data, it gets fed to every other country to keep tabs on its citizens. It means that the so-called ‘undisclosed’ Swiss bank account the media likes to speak about, no longer really exists.
CRS requires banks to perform financial information-gathering and reporting and participate in 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 110 countries – including most tax havens and offshore banking havens – have signed up, and most of those are already exchanging data.
Banks have to ask you where you are a tax resident, and they won’t take “nowhere” for an answer anymore. Banks never understood the perpetual traveler or digital nomad concept, and CRS takes it to a whole new level.
Potential Workarounds
A few years back, we created a video called “The Nomad Tax Trap,” explaining why being a resident of nowhere is becoming quite hard to pull off, both from a tax perspective and an operational perspective.
For wealthy entrepreneurs, the answer is increasingly to create a base and get a tax residence certificate in a country that doesn’t tax them.
However, if you are a perpetual traveler and have no home – or enjoy some form of banking privacy – there is a possible workaround in the form of non-CRS countries.
With around 110 countries taking part in CRS, plenty 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, there are a few quality countries that have yet to take a proverbial sledgehammer to banking secrecy.
How to Legally Avoid CRS
This article is designed to help people to be fully legally compliant yet still achieve more privacy. In what follows, we are not speaking as a professional tax advisor. We strongly suggest that you follow all applicable laws. Unless you retain our services, we can not provide specific tax advice.
Keep in mind:
- US citizens and resident aliens are subject to a separate set of tax residency rules called FATCA, under which banks around the world report information on American account owners to the US government and the IRS.
Pretty much all countries that don’t report under CRS still report under FATCA, and it’s your responsibility as a US citizen to report your accounts through form FBAR and possibly Form 8938 each year anyway. Basically, if you’re a US citizen, you need to report all foreign accounts no matter what.
- 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 themself non-resident in their country and move to a country that doesn’t require reporting if they wish. Whereas 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 it does promote the idea of being compliant. It’s high time we banish the notion that banking offshore makes you a criminal, because it just doesn’t.
To accomplish a more positive image for offshore banking, we need to transition away from the idea of hiding money and into one of diversifying our finances legally.
Bottom line: the world is becoming a more difficult place to go offshore. There are more and more rules to be considered, and the existing rules are being enforced more strictly and more often. Real International diversification relies on legal strategies, not merely hiding money. If you’d like some help with a full-scale diversification plan, you can click here.
CRS Countries Today
This list is taken directly from the OECD, the friendly folks whose mission in life is to take as much of your money, and know as much about you as possible, all for the greater good.
As of September 2023, the OECD claims these 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, Germany, Ghana, Gibraltar, Greece, Greenland, Grenada, Guernsey, Hong Kong, Hungary, Iceland, India, Indonesia, Ireland, Isle of Man, Israel, Italy, Japan, Jersey, Jordan, Korea, Kazakhstan, Kuwait, Latvia, Lebanon, Liechtenstein, Lithuania, Luxembourg, Macau, Malaysia, Maldives, Malta, Marshall Islands, Mauritius, Mexico, Monaco, Montserrat, Montenegro, Nauru, Netherlands, New Zealand, Nigeria, Niue, Norway, Oman, Pakistan, Panama, Peru, Poland, Portugal, Qatar, Romania, Russia, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Samoa, San Marino, Saudi Arabia, Serbia, Singapore, Seychelles, 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 all of the European Union, almost every citizenship by investment country, most of the developed world, or anywhere most people would think to bank offshore.
Non-CRS Countries
The OECD lists forty-some countries that are developing, and have not signed on to CRS yet. With 206 sovereign countries and other non-sovereign territories (like Anguilla or Cayman Islands), that leaves a number of jurisdictions not on either list.
Here are some of the highlights of non-CRS countries:
Armenia
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 my experience there tells me they’re not handling things up to par. Armenia is a rising destination on my radar and worth a trip.
Cambodia
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, as well as western banks, now have a presence in Cambodia. I’ve been talking about the country as a new safe haven long before Nomad Capitalist, 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.
Dominican Republic
Many Canadian and US expats move to the Dominican Republic, some getting permanent residence permits that require deposits into 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 large Canadian player in the region – does have a presence there, and they continue to expand.
Guatemala
Guatemala is often overlooked as a destination for Central American expats, but has been on our radar for some time. Its neighbor, Belize, tends to get a lot more attention, but that could be about to change.
Local Guatemalan banks like Agromercantil and Azteca Bank dominate the market, although banks like Citi have a presence as well. It’s generally not advisable to move all of 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 internationalization and immigration strategy.
North Macedonia
North Macedonia is one of the most pro-business countries in the Balkans and in Europe as a whole, 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 interesting Greek banks, there are local banks now owned by large European banks such as Societe Generale, Erste Group, and ProCredit Bank.
Georgia
Georgia is possibly one of the easiest places to open a bank account, and it still ranks among the best off-the-radar places in the world for banking. People often tell us they’re in town to open an account at TBC or Bank of Georgia, two of the better banks in this Caucasus nation.
Banking in Georgia has become a bit more difficult as the country follows more and more US and EU directives. In fact, it is set to join the CRS countries next year.
Banks now request additional IRS and internal paperwork for US citizens. Even smaller banks are performing more checks and it’s not unheard of for some of the smallest banks to reject foreigners entirely.
That said, Georgia is still a great place to bank and maintains its position on this list of non-CRS countries with good offshore banks.
Philippines
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 halfway 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.
United States
Well, well… the country that introduced the concept of unilateral bank information sharing with FATCA is actually not a party to CRS. What’s that saying; “what’s good for me, not for thee”?
The OECD and the CRS system have to walk a tightrope with the United States, and explain the situation like this:
The United States has undertaken automatic information exchanges pursuant to FATCA from 2015 and entered into intergovernmental agreements with other jurisdictions to do so.
The Model 1A IGAs entered into by the United States acknowledges 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.
Basically, the US does some information sharing, but on its own terms. The United States, and particularly states like Delaware, have long been known as “the world’s largest tax haven”, which is what made it all the more ironic that Washington spends its time chasing minor players like Belize.
In reality, much of the world’s hot money is in American banks, although the government does claim it is taking greater actions – such as requiring Form 5472 for foreign-owed LLCs – to curb such practices.
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, want to get off some “gray list”, etc. Some are skeptical that all of the participating countries are actually able to exchange information.
For example, you find banks where the FATCA compliance forms are a total mess, or where both checkboxes say “No”. (“Are you a US citizen?”, check “No” or “No” here, please.) Other countries claim that while they have signed, there is no real mechanism in place locally to take part. You’d imagine this will change over time, but expect Belgium to enforce things more strictly than, say, Vanuatu.
Again, compliance with your local laws is the most important element. ‘Hiding’ money is a thing of the past, and will usually catch up with you, so follow your requirements or find a legal way to change them.
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