At Nomad Capitalist, we’ve often had people come up to us with the impression that they avoid paying taxes by getting dual citizenship. This could not be further from the truth. Of course, by becoming a naturalized citizen of a particular country, you don’t have to worry about many things.
You can live there indefinitely and work wherever you want but to believe that you can avoid taxes by doing so is incorrect.
Of course, every country has its own tax policies, and there are several tax benefits that come with every citizenship, but a refund on your original tax return is not guaranteed. In fact, if you’re not careful, you might end up paying more taxes than you were in the beginning.
So, what can you do in such a situation?
Also, if your tax situation isn’t improving, why are you even bothering with dual citizenship?
Well, there are several reasons you should consider a second passport, especially if you’re an American citizen. In this post, we’re going to focus on the tax-related benefits as well as dispel any myths you’ve heard of.
Additionally, we’re also going to advise you on tax mistakes people commonly make and how to avoid them. So, let us begin.
Why Get a Second Passport?
Before we talk about the most common tax mistakes to avoid, let’s look at some of the main reasons you should get a second citizenship.
As you can already imagine, the main reason behind obtaining dual citizenship is the better economic opportunities available abroad. If you’re a seasoned entrepreneur, you probably understand how important it is to expand your business.
Some countries offer tax credits, some cuts on adjusted gross income, and more for simply bringing your business to their countries. It’s a great business deal, and it shouldn’t take tax experts to tell you that this is a good deal.
Naturally, if so many tax cuts are offered, it’s a smart idea to obtain another citizenship in the process.
Another reason why people prefer second citizenship is because some countries have more freedom than others. This means that as a citizen, you have more rights, more social security, and more wealth than a mere resident or expat.
Therefore, it would be a mistake not to take advantage of the opportunity to become a more independent citizen. After all, most countries make you wait for at least three years before handing over citizenship.
So if a country, like the Caribbean nations, is giving you more freedom and a new passport too, why wouldn’t you take it?
This ties in with the points we’ve already discussed. Second passports open up opportunities you’d never imagined. As a citizen of another country, you may find yourself unable to benefit from specific sectors or tax cuts, making it difficult to operate there. As a foreigner, you may even have to pay tax penalties.
So, wouldn’t it be smarter to just become a citizen instead and be done with the technicalities that come with tax and income filing? Most countries allow citizens to do their tax filing electronically, so it shouldn’t be an issue for locals. But for foreign citizens, it can be a hassle. What’s the best way to avoid unnecessary paperwork?
Well, you’ll have to get it right the first time and gain dual citizenship instead.
Avoid Double Taxation
Lastly, you can avoid paying extra outstanding tax as well as income tax if you get another passport. We’ve mentioned that people often miscategorize what you mean by having to pay no income tax.
The truth is, while you don’t have to worry about any outstanding tax or anything as a citizen of a country like St. Lucia, you will have to be a bit careful. Without the proper certified public accountant to help, you may find yourself making a tax mistake or two, subjecting yourself to various penalties and more tax forms to fill when you could be working.
However, with the correct planning, you won’t have to worry about double payments or extra tax forms at all. Whether you’re an eight-figure entrepreneur or a small business owner, we’re confident that you’ll be one of the luckier citizens of the world.
Common Second Citizenship Tax Mistakes and Misconceptions
Now that you understand why it’s a good idea to have one or multiple second passports, let’s look at some of the mistakes people make when deciding which dual citizenship option suits them best from a tax perspective.
You Don’t Need to Pay Taxes in Some Countries At All
The most common mistake people make is assuming that they won’t be filing any taxes at all. This is especially true in the case of countries that have territorial taxes.
Actually, it is worth knowing that a lot of countries have a territorial tax system which means that you don’t have to deal with any interest and penalties the moment you step out of the said country.
Yes, you would just have to move away to avoid being taxed. It’s as simple as that. But just because you’re living in such a country doesn’t mean it’s as simple as that.
Caribbean citizenships, for example, usually have territorial tax, but you’ll still have to deal with the taxes of the country you’re living in. You don’t automatically stop paying taxes because of your dual citizenship.
It doesn’t work like that.
Moving to Countries with No Taxes Means No Tax Filing
Some countries like the UAE have a no tax policy. So, residents can make as much money as they want to without worrying about what they owe the local government. There’s nothing to file, no social security cost, and no hidden penalties.
This strictly depends on your dual citizenship. If you’re an American, for example, you will still have to file taxes back home. But if you’re from, for example, Malaysia or Egypt, which has a territorial tax plan, you won’t owe anything to your government.
You Don’t Need to Pay Taxes If You’re Overseas
Similar to the previous point, people often think that dual citizenship can avoid double taxes. As mentioned above, many people think that they don’t have to file taxes or worry about social security payments once they’re abroad.
But this is a mistake. Governments always find a way to ensure that you’re making those interest and penalties payment you’ve missed or tried to opt-out of by moving abroad. So, you need to file your taxes and ensure that there’s been no mistake.
Governments can be very strict about any math error made by expats, especially. So, please ensure that your bank account details are accurate, that you’ve filled the correct form, paid interest and penalties, and so on.
Basically, you have to be safe, and the best way to do so is by hiring a certified public accountant. Professionals never make mistakes and can help you get a refund on your income.
Citizenship Programs and the Myths Surrounding Them
Here are some of the most popular citizenship programs and the popular misconceptions around them.
The first country on our list is St. Lucia. Dual citizens often mistake its friendly tax policies and believe that if they live in the country, they won’t be making any kind of income payment to the government. The truth is, it’s a territorial tax system, so you might end up paying if you live there.
Antigua & Barbuda
Like St. Lucia, Antigua and Barbuda is a Caribbean island nation. It has a citizenship by investment program that allows people to become dual citizens. So, as is the reputation of the Caribbean nations, a lot of people think that they need a passport, and they won’t have to file anything. The truth is, you won’t have to file as long as you’re not in Antigua and Barbuda.
If you start living there, you’ll naturally be paying tax to the local government. The only advantage of Caribbean countries is that they have no interest in any income earned abroad, so that you won’t be taxed on that.
Colombia’s tax policy might be of interest to some people. For one, just giving a Colombian passport doesn’t automatically make you a tax resident. You will end up paying tax in the country you’re staying in.
For example, if you’ve got Colombian citizenship and choose to live in Canada, you’re going to file as a Canadian tax resident. Your money won’t go to the Colombian government; instead, it will go to the Canadian one.
Of course, in these cases, you have to ask yourself: can you trust the Colombian government with your money? If so, then how long can you continue to trust them? There’s no refund with passports. So, is this a good one for you? The decision, of course, depends on you.
Let Us Help You Legally Lower Your Taxes
It doesn’t matter whether you own a small business or a large corporation. You need to form your tax plan to ensure that your money is safe. The best way to do so is by getting in touch with professionals who know what they’re doing.
At Nomad Capitalist, we help people like you form their offshore tax strategies, so you won’t have to worry about doing so independently. Investment immigration is an ever-changing field, so it’s vital that you work with someone who’s constantly in the loop to ensure that you form the best tax policy possible.