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Which is the ‘Best’ Second Passport for a Nomadic Lifestyle?
Which is the ‘Best’ Second Passport
At Golding & Golding, our International Tax Law Specialist team assists high-net taxpayers across the globe with expatriation. The process of expatriation is the process of formally renouncing your U.S. citizenship or terminating your Lawful Permanent Resident for LPRs who are considered to be Long Term, Lawful Permanent Residents. But, for U.S. citizens they must have citizenship in another country before they start the process because the US government will not grant an expatriation application unless the taxpayer can show that they have a second citizenship already — this is to prevent the taxpayer from becoming an orphan or ‘stateless.’ A common question we receive is whether or not there is a best second passport or citizenship. Unfortunately, depending on where your research takes you, you may find yourself listening to individuals who have no legal background and no tax background and are just trying to sell you on whichever passport strategy will help them make the most money off you — and not developing an individualized plan tailored to your needs. Let’s look at a few different things to consider.
Will You Be Residing in that Country?
Oftentimes, you will find in your research that one passport will be deemed better than another because it offers better travel benefits, or you can obtain that citizenship without becoming a resident of that country. But, it is important to note that for many of these countries once you become a citizen of that country and you reside in that country you are going to be taxed on your worldwide income the same as you would in the United States. And, as bad as the U.S. tax system may seem to you now, when you later realize that you could end up paying significantly more tax than a foreign country you may wish you did not go down this rabbit hole to begin with.
So, the first order of business is to determine whether you plan on actually living in that country.
Do You Plan on Traveling, and Where?
More often than not, a passport will be deemed better than another passport because of the access it has to different travel opportunities. For example, some taxpayers may want to visit the Schengen Area for 90 days at a time and other taxpayers may want to travel to the Schengen Area often and 90 days per country. Thus, taxpayers will want to review the specifics of each different passport to assess the benefits and limitations.
Will You Have Assets in That Country?
Many of these countries do not tax you if you are not a resident of that country. However, the country may still levy certain taxes and ‘fees’ depending on whether you are going to maintain assets in that country. Especially high-net-worth individuals who may want to spread their assets across different countries (and since citizenship-by-investment programs typically require the taxpayer to acquire assets in that jurisdiction), they will want to be careful to determine whether or not they will be maintaining assets in that foreign country or not.
Beware of Foreign Treaty Manipulations
Some taxpayers are under the impression that if they spend less than 183 days in any particular country, then they are not considered to be a permanent resident of that country — and thus no country will be taxing them on their worldwide income because most countries only tax individuals on their worldwide income when they are considered to be a permanent resident of that country (+183 days of residence). It is important to note, that many countries have their own rules and reciprocity agreements contained which require the taxpayer to be deemed a resident of at least one country. Therefore, taxpayers, who are considering this strategy should research very carefully into the different countries they will be traveling to, whether or not there are any treaties/reciprocity agreements, and whether that foreign country is a place the taxpayer would want to live.
About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically expatriation and IRS offshore disclosure.
Contact our firm for assistance.