Living in a Tax Haven
The tax systems of most OECD and developed countries are very similar. Generally, individuals who are deemed to reside in their country will be tax residents and taxed on their worldwide income. For example, an individual is an Australian tax resident if they either reside in Australia or satisfy one of three statutory residence tests (the domicile test, 183-day test or the Commonwealth super fund test).
Individuals moving their permanent residency to tax havens can definitely save tax. For Australians moving their permanent residence overseas the following factors detailed in IT2650 would support a taxpayer’s case with the ATO that they have been a non-resident for tax purposes:
- Intention to leave Australia permanently.
- The establishment of a home outside Australia (ideally renting long-term accommodation or purchasing a residence).
- The abandonment of any residence or place of abode the individual may have had in Australia (ideally sold or rented out).
- Closing Australian bank accounts and selling Australian investments.
- Any children are schooled overseas.
Becoming a non-resident of Australia for tax purposes, and residing in a tax haven, has the following advantages:
- Income generated through tax haven entities is generally tax-free.
- Foreign source income of non-residents is not subject to Australian tax.
- Fringe benefits provided to a non-resident with foreign source remuneration does not give rise to FBT liability in Australia.
- Interest, dividends and royalties paid to a non-resident are subject to a final withholding tax (at rates between 0 – 30%).
- An employer is not required to pay superannuation guarantee contributions if the employee is a non-resident working outside AustraliaNo capital gains tax paid on Australian shares—only taxable Australian property (essentially Australia real property).
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"You’d be stupid not to try to cut your tax bill and those that don’t are stupid in business"
- Bono: U2