Tax Haven Residency

Most people decide to consider tax haven residency as they begin to build a strong business, after they have amassed a significant investment portfolio, or as they consider their standard of living in future retirement years. By gaining residency in a tax haven or otherwise beneficial, individuals can legally minimise or eliminate their personal taxation.

Don’t be fooled though, making the move to a tax haven is not a simple task. While trying to obtain residency in one of these countries, there can be significant costs, a load of hassles and depending on where you choose, a significant cultural barrier. Let’s start with the basics.

Are You Willing to Leave Your Home Country?

This is the most important question of the topic, because if you’re not willing to physically spend a significant amount of time outside of the country where you are currently a tax resident, it’s pointless going any further. Depending on where you are from, your home country will offer some tax residency tests to determine if you are a resident for tax purposes. The most basic of these tests start with the number of days in which you have spent in that country. As a general rule, if you won’t or can’t leave your home country for the majority of the year, they will consider you a tax resident. Here are some over-simplified examples:

Australia: 183 days
Canada: 183 days
Italy: 183 days
New Zealand: 183 days
Singapore: 183 days
Spain: 183 days
Sweden: 183 days
United Kingdom: 90 days

If you are wondering why the United States isn’t in that list, it’s complicated. We’ll discuss this when we delve deeper into how to become a non-resident for tax purposes. As you can see, if you’re not spending less than half the year away from “home”, it’s not necessarily impossible to claim tax residency elsewhere, but it’s going to take some work.

The real solution here is gain tax haven residency by establishing a home in a new country. If you can genuinely find a happy life in a new country that offers no or low taxation, your holidays to home will be exactly that – holidays, rather than some debatable time that you spend back in your country of prior tax residence.

So What Are Your Options?

It’s time to break out your analysis skills. When considering tax haven residency it’s important to remember that no country is perfect. What works for one person won’t work for another. Start to ask yourself the following questions:

  • What is the climate?
  • Is there a major airport nearby? Is it cheap to fly to home or your favourite destinations?
  • Will I feel safe?
  • How much of the year am I willing to spend in this country?
  • What is the cost of living?
  • Am I willing to pay some tax for the right country?
  • What language is spoken?
  • How welcoming are the people?
  • What religion is practised there? Can I accept that value system?
  • Do I need a work permit in the country, or can I only work for myself?
  • How much (if anything) do I need to invest to gain residency?

This is before you consider subtleties such as whether or not there is a surf beach or golf course nearby, whether or not you can get your favourite snacks in that country or how reliable the internet is. Here are a handful of options you might find worth considering:

Andorra

  • Maximum income tax rate: 10%
  • Residency requirements start with a €400,000 investment with €50,000 bond and only a 90 day requirement, down to the cost of a company formation but the requirement to spend the majority of your year in the country.
  • Said to be one of the safest countries in the world.
  • Cost of living is very reasonable, though real estate is more expensive.
  • The official language is Catalan, though Spanish, French and Portuguese is widely spoken.
  • Andorran citizens only make up around 30% of the population, meaning you’re not going to feel like the odd one out.
  • There is no airport inside Andorra. The nearest practical international airport is Barcelona, around 3 hours drive by car.
  • Andorra could be considered one of the most beautiful tax havens around.
  • Living in Andorra can be cold in Winters as it is high in the mountains.
  • Located between Spain and France, many desirable holiday locations are located nearby.

Panama

  • Panama has a territorial tax system, meaning that both corporate and personal income from outside of the country is tax exempt.
  • Maximum income tax rate: 27%
  • The “Friendly Nations visa” is possibly the cheapest and easiest residency program around, assuming your country is on the list. Setup costs are likely under US$10,000.
  • Panama is claims to be one of the safer countries in Central America. Only you can decide if this is safe enough for you.
  • The climate is warm year round. The wet season can bring torrential rain.
  • Depending on your standard of living and what you like to consume, cost of living can range from very cheap to very expensive. If you want to live in a Casco Viejo townhouse with high quality finishes and eat the same cereal you did at home, it’s going to be an expensive exercise.
  • The official language is Spanish. English is rare outside of the major tourist areas.
  • Panama City airport is well serviced to North America, but less so to the rest of the world. Expect connecting flights.
  • The country has Catholic values, which may suit many expats.
  • Panama is a developing country. There is beauty (and opportunity!) behind the trash, but only you can tell if you are able to look past the imperfections and find a country that you can spend time in.
  • It doesn’t feel much more cosmopolitan than sitting at a rooftop bar in Casco Viejo, the city’s old slums, now reborn.

Malaysia

  • Territorial tax system – offshore tax is exempt
  • Maximum income tax rate: 25%
  • The “Malaysia My Second Home” (MM2H) visa is even easier to get than Panama’s Friendly Nations visa, it does cost more however. Applicants under the age of 50 will need a RM300,000 deposit in a Malaysian bank account to be eligible.
  • There is no time requirement to be in the country to retain your residency status.
  • Flying out of Kuala Lumpur airport is about as well connected as it gets. Worst case scenario, a cheap flight to Singapore will see you on your way.
  • Cost of living is increasing, but if you would be eating our anyway, Malaysia is very affordable. Penang, a popular location for expats is significantly cheaper than Panama City.
  • Though not as regulated as other countries in South East-Asia, the Malaysian real estate market is probably not as free as you are used to.
  • The official language is spoken, however English is widely spoken in much of the country – more so than Panama.
  • Sunny, warm and often humid, you either love or hate the climate in Malaysia.
  • Malaysia is a country with mostly Islamic values.
  • Do yourself a favour and make it to the East coast of Malaysia before it is completely developed. Divers will love to island hop through this area.

New Zealand

  • A short term incentive, New Zealand offers a four year tax exemption on foreign income for new migrants and returning citizens.
  • Maximum income tax rate: 33%
  • Unless you are Australian, like most developed countries, you’ll need to jump through hoops to get a visa.
  • For those that enjoy their space, New Zealand is about as good as it gets. There’s lots of space on the South Island.
  • Cost of living is moderate – to be expected from such a developed country.
  • New Zealand is a very safe, very clean country.
  • Auckland is a very well connected airport.
  • So long as you keep a property for more than two years, there is no capital gains tax.
  • Used to film the Lord of the Rings trilogy, New Zealand is a spectacular country that is well worth the visit.

There Are Plenty of Options for Tax Haven Residency

This is nowhere near an exhaustive list. Tax havens are not necessarily countries that have a 0% tax rate, it all depends on how the individual uses the laws in that country. If you are using flag theory for example, territorial taxation can work very well for you.

Some other options worth considering include:

  • Anguilla
  • The Bahamas
  • British Virgin Islands
  • Brunei
  • Cayman Islands
  • Costa Rica
  • Georgia
  • Gibraltar
  • Guatemala
  • Hong Kong
  • Macau
  • Malta
  • Monaco
  • Nicaragua
  • Norfolk Island
  • Paraguay
  • Philippines
  • Seychelles
  • Singapore
  • Switzerland
  • Turks and Caicos Islands
  • Uruguay
  • United Arab Emirates
  • Vanuatu

 

Make a short list and see these countries for yourself. What works for one person will not work for another and a country on paper is very different to seeing it and living it in person. It’s part of the fun!

Read More

High Impact Low Effort Changes

High impact low effort changes, it’s the stuff dreams are made of. In the workplace, high impact low effort ratios make perfect sense – most businesses will find that a small portion of their customers account for most of their balance sheet. Small tweaks to their website or their marketing strategy can often mean great reward.

Most people are living the high effort, low impact lifestyle

What about your personal life though? How much do you need to earn to sustain your lifestyle? My friends pull figures out of thin air. On the weekend one said that if he could earn $100,000 he’d be happy. “I will do anything to earn that sort of money, even work 80 hour weeks!”

Why is it that when we all started our careers we never had enough money, yet now that we are grown up earning much more, we still “don’t have enough money”? It’s not our fault that we always want more “stuff”, Western children were raised on television and junk mail all asking us to consume. It’s just that it really locks us into a working life.

I have no intentions of working for my whole life. In fact I recently quit my 9-5 job in favour of becoming a consultant. I enjoy my work but I like to work when it suits me (when I’m creative, motivated and productive) rather than when someone tells me I have to work (when I’m unmotivated). I may be the odd one out, but there’s something about getting paid to sit around and do nothing that just doesn’t sit well with me. In order to do this, I have chosen to base my business around a 20 hour week (low effort). During these 20 hours I am highly effective (high impact) and can therefore afford to charge more per hour than I could if I was working on a 40 hour week, as I’d be much less effective during that time.

The leap of faith also took some financial planning but for the most part, it’s been made easy by committing to less recurring costs!

Recurring costs erode your finances and therefore your options

Mobile phone contracts, Internet contracts, cable TV contracts, petrol, car registration and insurance, club membership, Netflix, I could go on. Most people are more committed than they may know. Obviously some things you can’t live without and most people need to spend money to make themselves happy sometimes. For instance, I enjoy using the Internet and I spend more money than most people I know do on Internet, but I get my money’s worth!. I don’t have cable TV, because I don’t really watch much TV. I feel as though I can justify that expense.

The issue is that most people don’t really think before they commit to things (eg, $99 a month on their phone). Before long they are so used to having it, they “need” it. Add up all of those weekly, monthly and yearly financial commitments and combine them with the daily habit of buying things (eg, DVD’s, clothes, expensive food) and sure enough, you’re broke.

The habit of spending less is a high impact, low effort choice that significantly helps your finances in the long term

I explained to my friend that while earning $100,000 a year by working an 80 hour week, he wouldn’t have the time to service his car or paint his house. All of a sudden he would have more costs than he did while earning less money and working less hours. Presumably his quality of life would be greater too!

The best thing about high impact low effort changes is exactly as it sounds. By making small changes in life, you can experience far greater rewards. Slashing your spending is one of many high impact low effort decisions that you can make to give yourself many more options in life. You will likely find that it will open a lot more doors for you too!

Read More

University and College is a Waste of Money

Tertiary education has an important place in many career paths, but for the vast majority university and college is a waste of money. In just 50 years, Australians have gone from a population of early school leavers, to pushing a large number of year 12 graduates into tertiary education. Most Western countries are the same – college has been given an increasing importance in every individual’s life.

For many, College is a Waste of Money

With rapidly rising tuition costs, university and college has tipped the scales from giving graduates a head start to beginning their adult lives with an enormous amount of debt. One needs to do the sums to find out how long it will take to pay off that college degree with the extra money that they may earn. Not only is the cost of college a contributing factor, you also need to remember the cost of not working for the 3+ years you spend studying.

Postured for Tertiary Education

I studied at a great private school, where for years before finishing I was asked “What University degree will you do?” Not one person asked me whether I wanted to finish schooling or IF I wanted to continue studying after finishing school. It was all about the Uni. After being encouraged by teachers, parents and friends to go to uni, I applied and gained entry into a Software Engineering degree. A few months in to the degree, I realised that it wasn’t for me. I’ve never been one to learn by having someone tell me something to my face, I need to do it myself in practice to understand how it works.

More importantly the course content was not for me. It was always my dream to work in the IT industry but my real passion was in Network Administration. As a University degree did not exist for this yet, I was advised to study software engineering instead. I saw out that semester – nothing changed, so I quit and started working full-time.

I was always told that in order to work in the IT industry that I’d need a degree, but it couldn’t have been more from the truth. In fact, a degree would have wasted 3 years of my life and over $20,000. Out in the real world I realise how many people who work in my industry don’t have a degree. Many of them have certifications from companies like Microsoft, Cisco, Novell and so on, but many skipped college – and most that do have a degree have one in Business Management.

College is a Waste of Money
Warm and fuzzy? Me too. It’s a shame that college is a waste of money.

College can be useful

While there is clearly a place for these organisations, I think it is unfair to be encouraging those who aren’t academics to continue studying after they finish school.

Now I’m not disputing that degrees are important. There are many jobs that require a large amount of study to do it well and rightly so. My friend is a dentist, my wife is teacher and some of my friends are lawyers. It just annoys me when I see teenagers convinced that they should go to uni so they can finish an obscure degree that won’t help them at all.

Why encourage your child to start their adult life with even more study after spending the last 13 years in the books? Why encourage them to take on a huge student debt before they truly know what they want to do with their life? If they have 100% direction and know that they want to be a doctor, great. But if they “think” they want to be a personal trainer, there’s no point pushing them into a Science degree only for them to quit after doing it for two and a half years. 2.5 years and no certification at College is a waste of money!

Learning can be done anywhere!

Whatever happened to learning the job that you need to do, on the job? Are employers too cheap to train people nowadays? One can learn from books, other people, the internet and so on. Don’t limit yourself to studying the exact same content that 300 other students learned at the same time. It’s no wonder you will struggle to find employment after finishing your course!

Maybe Tertiary Education isn’t about you?

It’s obvious that universities want (and probably need) more and more money, so they offer more and more courses and degrees to do this. Because of the wider range of degrees, more people are going to uni to study and because more people are considering study, more of the image driven parents are encouraging (and often forcing) their kids to study “with their best interest at heart”. The more people that study these obscure courses perpetuates the fact that college is a waste of money.

Everybody has their own direction and everybody learns differently. If you don’t know what you want to do for the rest of your life don’t stress – get out in the workforce, get some experience and discover what you want to do. Be true to yourself and follow your own path.

Read More