This article, like much of what I write, does not apply to American and Eritrean citizens. In this particular case, it is because these jurisdictions are unique in that they (may) tax non-resident citizens, according to a 2011 report by E&Y.
This is a subject that is as popular as it is broad. It is unlikely that I will manage to cover everything here. This article will just be an introduction to the concept. I know many of you were expecting a deep dive, but we have to cater to the new-comers first.
Your feedback is especially important in deciding how follow-up articles turn out.
Tax residence is the jurisdiction – or jurisdictions – in which you owe tax on a particular source of income.
For the vast majority of people in the world, this is simply the jurisdiction in which they live. The conditions under which tax residency is determined varies between jurisdictions.
As a general rule, if you are resident in a country for more than 183 days in a year, you are tax resident there. However, there are plenty of jurisdictions with shorter residence or other requirements to become a taxable person there.
I am not going to dig deeply into specific jurisdictions in this article, but for a quick overview of what the definitions of tax residency for personal income tax are, refer to the Deloitte’s tax guides. In the Highlights documents, look under Personal Taxation and Basis and Residence.
What is a Permanent Traveller?
On my glossary page, I have written the following definition of a Permanent Traveller: “A natural person who does not reside in any jurisdiction for a long enough period to be deemed tax resident, thus avoiding tax liability.”
As the name implies, a permanent traveller (PT for short) is someone who travels, permanently — or at least permanently enough so that they are not tax resident anywhere, or only in jurisdictions that lack income tax or only tax local income.
A typical PT runs a location-independent business or has income from investments. They will travel from one country to the next, often using just tourist visas or, in the case of EU nationals and comparable international agreements, travelling across country borders completely unhindered.
While being a permanent traveller in and of itself is legal, most PTs technically break laws.
They break laws by working in a country whilst on a tourist visa and or by failing to file tax return (even if they owe zero tax) for these activities.
Virtually zero PTs end up facing consequences and there are no real efforts being made to go after them. A PT is not a migrant workers with no papers; it’s someone with every intent to move on.
For example, suppose that a PT arrives on a sunny islands somewhere and has a citizenship that gives them 90 days visa free. During those 90 days, the PT works on their (often internet-based) business from a hotel or AirBNB apartment wifi. They then leave the sunny island not to return again, at least not until after 366 days since last arrival.
In many cases, the PT was not allowed to conduct business whilst on a tourist visa. This typically includes businesses that aren’t even operating or trading in the jurisdiction.
Now, you may think – but I visited a sunny island on a tourist visa recently and answered a couple of emails from my phone whilst on the beach. Am I going to jail?
No, you’re not. The primary purpose of your stay was tourism and you entered the jurisdiction with the intention to be a tourist. You may have to explain yourself to your spouse who’s upset because you spent all day at the hotel answering emails, but that’s a completely different topic.
But a PT who enters a country with intent to work is in many cases technically violating the law.
Second, even if you are a non-resident (for tax purposes), any income earned from work that took place in a jurisdiction should generally be submitted on a tax return. Failing to do so may be a crime. However, chances are no one is going to go after you for failing to submit a tax return that states you owe no tax.
This is one of the most common questions about being a PT.
Although I realize not everyone is well versed in how the international financial services sector works, I continue to be surprised when people ask why a bank insists on clients providing a residence address when opening an account. For various reasons, mainly related to tax and prevention of money laundering and other financial crimes, banks need to know where you live.
What if you don’t live anywhere?
You still need an address. If you cannot provide an address, do not expect any bank to take you on as a client.
Residence vs. Domicile
Here we enter unchartered territories because the words mean different things in different contexts and across different languages.
- Residence is where you live.
- Domicile is where you belong.
In the absence of a true residence, a domicile is sought. This can be the country where the PT spends most of their time, even if they don’t qualify as resident there, or a country to which they have the strongest ties. For some, this ends up being their country of citizenship.
Others seek to establish a domicile in a tax-favourable jurisdiction. In many cases, a domicile is set up by obtaining a permanent residence visa with minimal requirements on physical presence, such as Panama, UAE, Costa Rica, Paraguay, Cyprus, Malta, and a handful other jurisdictions.
A permanent residence permit is obtained and an address is established, either by the PT renting an apartment, buying property as an investment, sharing a residence, or using a law or accounting firm’s office or other property.
This address can then be used for opening bank accounts, form companies, and so on.
Taxation and Costs
A PT with correctly structured finances pays zero or extremely little tax. They may break laws but doing so at essentially zero risk, provided no abusive activities take place.
Costs, however, can be significant. Aside from costs related to travel and temporary accomodation, the costs of private health insurance (PTs rarely qualify for universal healthcare anywhere, except possibly country of citizenship), foreign currency exchange related costs, and the cost of a domicile quickly ramp up.