Why Expats Need a Tax Residency Certificate

So you’ve decided to go where you’re treated best. 

You’re leaving your high-tax country and looking forward to earning business income, capital gains and dividends with zero or very low taxes. 

Now what? What’s the next step to eliminating your taxes and staying compliant?

It should be getting a tax residence certificate. 

So, the Nomad Capitalist team has put together this comprehensive guide to explain the details of tax residence certificates and why expats need them.

Offshore Tax Planning and Getting a Tax Residency Certificate

There’s a lot you need to consider when changing your tax resident status. 

You can’t simply arrive in a new zero-tax jurisdiction and suddenly stop all of your tax reporting and obligations. Yes, you might not be required to pay taxes anymore, but there’s still going to be admin involved in becoming fully compliant. 

However, when you get it all set up, living a zero-tax lifestyle has immense benefits.

Let’s say you’re finally taking control of your money, and you realise that reinvesting your money and putting it to work for you, either back in your business or into the market, will have a vast compounding effect.

This means you can increase your wealth and create generational wealth far faster than anyone staying back in Las Vegas, Los Angeles or London.

Most clients who come to us at Nomad Capitalist think that going offshore is easy. Some of the basic elements are:

• You wind down your business in one country 
• You file your final tax return
• Pay your final tax bill.

However, significant planning is involved when moving your business to a new jurisdiction. We help our clients complete this process successfully. 

People often underestimate how many aspects of their lives they have to recreate when they go offshore, and if not done properly, the harmful consequences are significant. 

Case in point, if you want to put your money anywhere in the world, you are going to have a very hard time doing that if you are not a tax resident of a country. To do this, you need a tax residency certificate.

What is a Tax Resident?

Many people confuse residency with tax residency. 

Residency requirements for taxation purposes vary from one jurisdiction to the next, and the definition of ‘residency’ may also differ for non-taxation purposes. 

A residence permit gives you the option to live in a country temporarily. For example, a golden visa lets you become a resident of that country. Similarly, a US Green Card is a permanent residence permit requiring you to live there for a specific period. 

Once you have become a legal resident in a country for a set time, usually 183 days, you become a tax resident.

As a general rule, physical presence is the main factor in determining an individual’s residency, but others include property ownership, family ties and financial interests.

Let’s clear up the first misconception: being a tax resident does not mean you actually have to pay taxes there. 

Some countries charge you a low flat tax fee, in some cases, US$5,000, US$15,000 or US$20,000. 

Other territories might charge you only money you remit to their country, for example, a non-dom country, which gives you control over how much money you want to remit. 

This figure could be zero or a small percentage of your business income for living expenses.

Other countries have no tax at all. So, being a tax resident doesn’t necessarily mean you owe any tax, and if you do, it’s probably 80-90% less than what you pay now.

Being a tax resident also doesn’t mean that you need to live in that country full-time. But, if you are going to move overseas, you need tax residence, and here’s why.

Why Tax Residency Matters to Entrepreneurs

Walk into any bank or brokerage firm, and the very first question they are going to ask you is, ‘Where do you pay tax?’

Nomad Capitalist founder Andrew Henderson routinely meets with numerous banks. When he recently swung through Europe, he stopped in Switzerland and Monaco, the top banking and lifestyle spots where people go to be treated best. 

When visiting banks in these financial hubs, they don’t even say hello or offer you a coffee; they first want to know where you pay tax. 

Many banks now want your tax jurisdiction before they even set up a meeting and will sometimes reject you as a customer if you pay tax in the wrong place. 

Thanks to the Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS), tax residence is increasingly on the radar, and where you want to put your money matters. 

Countries like the US feel threatened that you have the right to go where you’re treated best. 

They can never entirely shut that down, but they can make it a little harder, and they’re using the banks and brokerages to do that. 

Maybe, with the exception of bitcoin and crypto exchanges, there is more and more talk of crypto regulations also coming into effect.

Because of increasing regulations, if you want any kind of bank, financing or brokerage account, they want to know your tax info, as countries worldwide want people to pay taxes.

There are still plenty of countries that have 100% legal tax loopholes. 

Again, there are high-tax countries that have lump sum programs, like Italy, or non-dom programs, like Ireland, Malta and Cyprus, which are high-tax countries. However, you don’t need to pay high taxes if you become a tax resident in them. 

In the long run, zero and low-tax countries like the UAE are caving to the new global minimum tax, not because they need the 15%, but because they want to get along with the rest of the world. 

That being said, there are still free zones, so it’s possible to have a tax-free company in Dubai (even though the UAE now has a 9% corporate tax rate). 

Salaries (i.e., the salary you take or the dividend you take from your UAE-free zone) will still be tax-free. So, even though the UAE and other countries are going along with the global pitch to raise taxes, it does not have to affect you. 

You may still be able to live a very tax-free life, and even if you need to pay 2% or 3%, it would be simpler and far less than the 40% or 50% that you pay now.

What is a Tax Residency Certificate?

A tax residency certificate is an official document issued by a country’s tax authority that certifies an individual or business as a tax resident of that jurisdiction. 

This certificate is crucial for expats and international entrepreneurs, as it serves as proof of tax residency when dealing with foreign banks, investment platforms and tax authorities. 

It allows you to access tax treaty benefits, avoid double taxation and demonstrate compliance with global financial regulations like FATCA and CRS.

Without this certificate, you may face higher withholding taxes on income such as dividends, royalties or capital gains, as many countries require proof of tax residency to apply treaty benefits.

Choosing Your Tax Residency

When choosing tax residency, you need to consider how you’re taxed on certain assets situated in specific countries. 

For example, if you invest in US dividend stocks, you may be remote and tax-free, but those investments are in US companies. 

Your tax liability here depends on your country of residence. The US imposes a standard 30% withholding tax on dividends paid to foreign investors, but tax treaties can reduce this rate.

For instance, Ireland has a tax treaty with the US that may reduce the withholding tax on dividends. So, while living in Ireland under the non-dom program, you could pay 15%.

However, the UAE does not have a tax treaty with the US, so UAE residents are subject to the full 30% withholding tax – even though the withholding tax rate in the UAE is 0%. 

So, where you are a tax resident very much matters. 

To illustrate this point further, if you earn royalties from a book or other intellectual property, taxation depends on where you are a tax resident. 

Under Ireland’s non-domiciled tax regime, foreign royalties are only taxable if remitted to Ireland.

Let’s say you live in Dubai: The UAE does not impose personal income tax, but if the royalties come from a country that applies withholding tax and has no treaty with the UAE, you may face taxation at the source. So, you would pay 30%.

If your business involves consulting or if you earn all your income from affiliate marketing and selling products, then tax treaties may not be a significant concern. 

However, your tax residency will still affect issues such as stock dividends. 

Tax treaties become relevant if you have a multinational company with employees and offices in various countries. Typically, this is resolved at a corporate level rather than on a personal level. 

So, where you are tax resident matters. 

The bottom line is that you need to be a tax resident somewhere because when you go to banks, they’re going to check where you pay taxes. 

You can get tax residence in some Caribbean countries for US$20,000 and spend just 30 days in the country or as little as US$5,000 a year and only a few weeks in the country. 

Choosing a treaty option is, of course, better. However, you will need to buy a home or maintain an apartment for twelve months of the year. There are other countries where you only need to be there one day per year to be a tax resident. 

When choosing your residence, you must thoroughly review your situation and income types to get the best tax residence option. 

But you need to be prepared to tell banks where you pay taxes so that they can report it and withhold the right amount of tax. 

This is applicable whether you open an account for yourself, your business or a brokerage account to trade stocks. 

Taking our book royalties example, you may pay 0% on book royalties, but if there is no treaty on US dividends, you will pay 30% on any money you receive for those. However, if you become a tax resident in Ireland as a non-dom, you would pay 5%. 

So, if you wanted to have a multimillion-dollar portfolio of US dividend stocks, which is your main income source, it equates to substantial savings.

Tax Residency Certificate: FAQs

Final Tax Residency Considerations

Once you’ve chosen your new tax residence, you need to make sure you’re not a tax resident in your country anymore. 

If you are a US citizen, you’re always going to be a tax resident (unless you renounce your US citizenship). 

That’s why we often recommend US persons go to strictly tax-free or tax-neutral countries like territorial or tax-free countries where there’s no additional tax levied on that side. 

If you move to Ireland, for example, and you pay some tax in Ireland and something to the US, you can do that, but it costs more to plan, as the US systems negatively overlap with other systems.

It’s not just as simple as getting residence. 

For example, you can get a residence permit in the UAE and go for as little as one day per year, but that makes you an immigration resident, not a tax resident. 

If you want to be a tax resident in the UAE, you need to make sure you spend more time there than anywhere else so that no other country sucks you into their tax net. 

It’s critical not to confuse immigration residence, which gives you the option to live somewhere, with tax residence, where you must file a tax return, even if it just says zero.

You can still theoretically live nomadically, but it shouldn’t be between high-tax countries as they could easily try to drag you into the system.

So don’t just think the qualifying bar for tax residency is 183 days, and that is all that counts; where you go also matters. 

A high-level country that understands the global system may issue you a tax residence certificate: That’s what you would take and show any country where you are opening a bank account. If you give up US citizenship, you’ll take your certificate of loss of nationality.  

It’s clear that navigating tax residence is not simple – far from it. But become a client, and we will help you move your tax residence to a country that allows you to pay less and gives you the tax certificate you need.