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Citizens worldwide all face taxation from their own countries,

but unlike most other countries, the U.S. taxes the worldwide

income of U.S. citizens and resident aliens. This is the single

biggest obstacle when implementing tax strategies. You can avoid

this problem if you successfully renounce your U.S. citizenship. In

any event, your objective is to beat the tax octopus to minimize your

tax obligations and responsibilities regardless of where you are a

citizen. The challenge is to avoid the following eight ways in which

you could find yourself subject to taxes in other countries:

1. Residence

2. Domicile

3. Citizenship

4. Marital status

5. Income source

6. Location of assets

7. Timing

8. Status of beneficiaries


Many countries permit you to stay up to 182 days of the year without

being subject to their national income tax. At some point, every country

defines how many days constitute your being a resident for tax purposes.

When switching citizenships, it would be advantageous to

select a country like Dominica or Saint Kitts and Nevis where no income

tax is imposed on new citizens. You can still travel and live elsewhere

as desired, at which time you will want to consider the

residence criteria.


Your domicile of origin is the country where you became a citizen at

your birth, as opposed to your residence, which is where you live. The

latter can f luctuate frequently, and for tax reasons is usually redetermined

annually. For tax purposes, the definition for domicile can

vary greatly between countries and affect your tax situation. Know before

you go what to expect in your intended country of arrival so you

can plan your tax strategy.


It is important to remember that as a U.S. citizen, it does not matter

where your residence is—you are subject to U.S. taxes on money

earned anywhere in the world. The only way out of this would be to renounce

your U.S. citizenship. But first, you had best have an alternative

citizenship in place or you will find yourself without a country

and in a strange and difficult legal quagmire. This happened to Garry

Davis in 1948, founder of World Service Authority, in Washington,

DC, and author of My Country Is the World (New York: G. P. Putnam’s

Sons, 1961). An American citizen can legally obtain dual citizenship

and a second passport. At one time, this act alone would automatically

cause you to lose your U.S. citizenship, but not any longer. Your tax

dollars are too important!


This can affect your tax situation and your ability to be a tax exile.

Likely, you and your spouse will need to be on the same page if you

want to successfully expatriate and implement some of these taxreduction

strategies. And, further, if your marriage took place in a

community property state or a foreign jurisdiction with community

property laws, or if you had a marital home in one of these places,

then your efforts to avoid taxes as an expatriate may be hindered and

require professional planning.


When considering living in another country, you should know how

that government taxes earned income. Governments usually levy taxes

based on the source of income, so there must be a source test to determine

what is taxable. One method is to tax all sources of income from

within the country no matter where the earner resides at the time. If

the recipient is a nonresident, then the government requires the payor

to withhold taxes and remit them directly to the tax-revenue folks.

Other countries determine whether the income was earned within the

country, and if so, tax accordingly, and then exempt foreign-source

income. This territorial method is common in tax haven countries.


Assets can be taxed by virtue of their physical location rather than

where the owner resides or is a citizen. Be sure to locate assets in

friendly no-tax or low-tax jurisdictions. Often it is best to keep assets

in a favorable venue outside your own country of citizenship or residence

to avoid more than just taxation—such as lawsuits, creditors, or

confiscation. Sometimes it is wise to hold assets in a corporation or

trust and not in your own name. Certain assets such as real estate and

physical business operations are difficult or impossible to relocate,

but these can be owned by an offshore entity if everything makes

sense. Even so, these assets can still be easier to attack legally as they

pose a physical challenge to relocate. Assets such as securities, precious

metals, and personal effects are easily movable and can be relocated

at will. Ownership can be structured to your advantage and

valuables can be stored in secure bank vaults or private vaults in foreign

countries, or other safe places out of the grasp of others.


As in the United States, taxes in virtually every venue worldwide are

based on established periods for which taxes are due and payable. It

may be that you can postpone receiving income until you make your

next move and thus are no longer subject to the tax. It is better still if

you can stay in no-tax haven countries and avoid taxes altogether.

Also, it can work to your advantage if you have several taxable foreign

entities with different tax deadlines. This could give you some

f lexibility among these countries. You may even deliberately divert

more income into one source than another, or from sources you control

to yourself, because of tax deadlines or a tax rate that is more advantageous

in one country over another.


At the time of death or when assets are distributed to your designated

beneficiaries, they will likely be subject to taxation regardless of

whether you expatriated or renounced your U.S. citizenship. This is

true if your beneficiaries are U.S. citizens, or the citizens of other

high-tax countries, because they will still be exposed to the taxes of

their own country. You can avoid this if family members renounced

their citizenship at the same time you did and thus are no longer taxpayers

of that country. Advance offshore estate planning can also reduce

or eliminate your heirs’ tax liability. Consult a competent

professional in this area as you execute your expatriating plans.

If you seek expert advise in areas such as legal, tax, investment,

and expatriating, many competent professionals can be found

throughout the pages of this book and by referring to the Offshore

Evaluation Service (OES) in Part Four and the Appendix.