All internationalization communities encourage its readers and participants to move to some supposedly laissez-faire capitalist paradise. Recently, this has been Chile and Paraguay. They also encourage the acquisition of a second passport, from places like Dominica, Antigua and Barbuda, and Saint Kitts and Nevis.
In this post, I will go through something called second residence.
How and Where to get a Second Residence
EU, EEA, and Swiss passport holders are especially lucky in this regard, as they can very easily move around within each others borders. Eastern Europe is full of empty, cheap apartments. This post is not useful to other nationalities unless you already hold a visa or similar permit that allows free movement within the EU.
Below is an indicative list of countries and the rent for a studio or one-room apartment in a decent area, but not city center. Since the main audience for this post will be Europeans, I am listing rent in EUR. If you want something nicer, there is really no upper limit. Add another 50% – 100% for an extra room and/or more central area, but the point here is to find a cheap place. Availability refers to the availability of apartments to rent, based on my own research and experience.
[ws_table id=”38″]All of these countries are within a few hours by plane from almost anywhere in Europe.
It may also be interesting to purchase a property, but then it becomes an investment and not just a second residence.
Advantages of Second Residence
By having a second residence, you can effectively domicile yourself there without maintaining a residence.
This, for example, means you can have an apartment in Malta and form offshore companies and open offshore bank accounts with your Maltese address. Doing this in order to avoid tax may be a crime, depending on the laws of your actual country of residence.
In an end-of-the-world type scenario, having a second residence means you can pick up all your primary belongings and immediately have a new residence available.
Disadvantages of Second Residence
It costs money and you have to go to another country to pick up mail, unless you pay someone to do it, in which case the costs are even greater.
If you spend too much time in your second residence, you may find yourself subject to double taxation. As always, make sure that your decision is an informed one. Speak to a licensed tax adviser.
I am interested in why you say Malta is low tax. I understand their corporate taxation can be interesting. But how can their tax system be interesting for an individual? If I am paying myself dividends (from an offshore company) it will be taxed at 15%, which isn’t particularly high but also not low. Or is there another convenient way to pay yourself more tax efficiently?
If your company is resident in Malta, there usually isn’t much you can do. If it’s considered a foreign company, there are ways to reduce your tax burden. There are a lot of factors that go into determining this. For example, some people reduce their tax burden by only remitting so much into Malta that they need to every-day living costs and keep investments outside of Malta.
Like I’ve said before, though, the Maltese tax code is as clever as it is convoluted. You really need someone holding your hand to do things right there. (A lot of people don’t, though, and the IRD doesn’t exactly spend a lot of time hunting foreign tax dodgers. This has earned Malta a bit of tax laissez-faire reputation.)
I see your point Thanks! I do travel most of the year, but I think not to be liable for tax anywhere you cannot spend more than 90 days in your own country… Do you know if we need to go to the tax man to say that Im not resident of the country anymore?
Also which would be the most convinient country whithin EU to set up a second residence? Taking into account that most important countries such as Germany, France, etc have treaties that have Tax exchange agreements with offshore juristictions… Any ideas?
It varies between jurisdictions, even within EU. In some countries you don’t need to send in anything whereas others mandate (but can’t really enforce) that you always keep them updated about where your residence is.
You can forget about hiding within the EU for tax reasons. Even if you today could find a place that doesn’t exchange information automatically, they are all working towards it and non-compliance will cost a lot more than the benefits thereof. If you have an EU passport, all EU countries are – more or less – equally easy to take up residence in. You’ll need to go registered for a tax number and maybe health insurance et cetera. What it comes down to are rather things like your own financial means (costs of living), language, and your own preferences.
Interesting perspective Streber, but wouldnt banks and juristictions where we incorp will register our names based on our passport and nationality?
When there is tax exchange agreements, which data will flow? Residence or Nationality? Or both? meaning If Im French and I have a residence in Spain, the bank juristicion where my incorp is, will send to both contries my data?
Thanks for you’r thoughts!
Your nationality is – except for a few jurisdictions, such as USA and Eritrea – irrelevant for tax purposes. What matters is tax liability, which is almost uniformly based on residence. If you live in country X, you are liable for tax there and EOI agreements relevant to you are ones between country X and other jurisdictions.
Having a second residence is unlikely to have any tax benefits in and of itself. However, under the right conditions and you do not live full time in any country, you may find yourself in a situation where you are not liable for tax anywhere or only in your country of second residence.
I’m not hugely happy with this post. A lot of information about how to do this legitimately (it has tonnes of illegitimate usage) is missing and I’ll have to come back to it in a follow-up post in the future.