Tax exile
Encyclopedia
A tax exile is one who chooses to leave a country with a high tax burden and instead to reside in a foreign nation or jurisdiction which takes a lower portion of earnings. Going into tax exile is a means of tax mitigation or avoidance
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" if that person visits the country for 183 days or more in the tax year or for 91 days or more on average in any four consecutive tax years. The reality of the matter is far more complex and unclear.
, the income of a U.S. citizen is taxable without regard to the citizen's place of residence, and, significantly, without regard to where the income is earned or produced. U.S. citizens can eliminate tax liability only by both moving abroad and renouncing citizenship, but if they continue to earn money inside the United States, they will still be liable for taxes as if they were guest workers.
The process of renunciation requires the citizen to appear at a U.S. embassy or consulate, prove that another citizenship has already been obtained (so that the renunciation will not make one a stateless person
), and sign various documents stating he or she is of good mental health, is acting without force or duress, and realizes that the renunciation is irrevocable. The State Department then reviews the documentation and may decide to bar the person from entering the United States - even for visits. This decision is based upon whether or not the person renouncing is or is not doing so for tax reasons alone. For the purposes of the IRS, the effective date of the renunciation becomes the final day that income taxes are due -- assuming that all U.S. assets are liquidated and have left U.S. jurisdiction.
An immigrant who has been granted permanent resident status in the United States is generally treated as a citizen for tax purposes unless their residency lapses. An immigrant not legally admitted for permanent residence (such as a guest worker) becomes liable for U.S. taxes if he spends more than 122 days in the year in the United States.
Tax avoidance
Tax avoidance is the legal utilization of the tax regime to one's own advantage, to reduce the amount of tax that is payable by means that are within the law. The term tax mitigation is a synonym for tax avoidance. Its original use was by tax advisors as an alternative to the pejorative term tax...
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Legal status
In most countries one becomes liable to be taxed in that country if one is resident there. For taxation purposes residence is often defined as spending 6 months (or some other length of time) in any one year in the country, and/or having an abiding attachment to the country, such as fixed property.UK rules
A very simplified 'rule of thumb' is that under UK law a person is "tax residentTax residence
Definitions of residence for tax purposes vary considerably from state to state. For individuals, physical presence in a state is an important factor. Some states also determine residency of an individual by reference to a variety of other factors, such as the ownership of a home or availability...
" if that person visits the country for 183 days or more in the tax year or for 91 days or more on average in any four consecutive tax years. The reality of the matter is far more complex and unclear.
U.S. rules
Under the Internal Revenue CodeInternal Revenue Code
The Internal Revenue Code is the domestic portion of Federal statutory tax law in the United States, published in various volumes of the United States Statutes at Large, and separately as Title 26 of the United States Code...
, the income of a U.S. citizen is taxable without regard to the citizen's place of residence, and, significantly, without regard to where the income is earned or produced. U.S. citizens can eliminate tax liability only by both moving abroad and renouncing citizenship, but if they continue to earn money inside the United States, they will still be liable for taxes as if they were guest workers.
The process of renunciation requires the citizen to appear at a U.S. embassy or consulate, prove that another citizenship has already been obtained (so that the renunciation will not make one a stateless person
Statelessness
Statelessness is a legal concept describing the lack of any nationality. It is the absence of a recognized link between an individual and any state....
), and sign various documents stating he or she is of good mental health, is acting without force or duress, and realizes that the renunciation is irrevocable. The State Department then reviews the documentation and may decide to bar the person from entering the United States - even for visits. This decision is based upon whether or not the person renouncing is or is not doing so for tax reasons alone. For the purposes of the IRS, the effective date of the renunciation becomes the final day that income taxes are due -- assuming that all U.S. assets are liquidated and have left U.S. jurisdiction.
An immigrant who has been granted permanent resident status in the United States is generally treated as a citizen for tax purposes unless their residency lapses. An immigrant not legally admitted for permanent residence (such as a guest worker) becomes liable for U.S. taxes if he spends more than 122 days in the year in the United States.
Famous tax exiles
- Ronnie CorbettRonnie CorbettRonald Balfour "Ronnie" Corbett, OBE is a Scottish actor and comedian of Scottish and English parentage who had a long association with Ronnie Barker in the British television comedy series The Two Ronnies...
and Ronnie BarkerRonnie BarkerRonald William George "Ronnie" Barker, OBE was a British actor, comedian, writer, critic, broadcaster and businessman...
spent 1979 in Australia to avoid taxation on their previous year's income. - David and Frederick BarclayDavid and Frederick BarclaySir David Rowat Barclay and Sir Frederick Hugh Barclay are British businessmen. The identical twin brothers have very substantial business interests primarily in media, retail and property. The Sunday Times Rich List of 2007 estimated their wealth at £1.8 billion...
live on BrecqhouBrecqhouBrecqhou is one of the Channel Islands and part of the Bailiwick of Guernsey. It is located just west of Sark and has a surface area of approximately...
, one of the Channel IslandsChannel IslandsThe Channel Islands are an archipelago of British Crown Dependencies in the English Channel, off the French coast of Normandy. They include two separate bailiwicks: the Bailiwick of Guernsey and the Bailiwick of Jersey...
, located just west of SarkSarkSark is a small island in the Channel Islands in southwestern English Channel, off the French coast of Normandy. It is a royal fief, geographically located in the Channel Islands in the Bailiwick of Guernsey, with its own set of laws based on Norman law and its own parliament. It has a population...
, and give their address as Avenue de Grande-Bretagne, Monte-Carlo. - Stelios Haji-IoannouStelios Haji-IoannouSir Stelios Haji-Ioannou , born 14 February 1967) is a British entrepreneur of Greek Cypriot origin, currently a resident of Monaco. He is the scion of a wealthy, shipowning family, but is best known for setting up easyJet, a highly successful and profitable low-cost airline, with start-up funds...
who was quoted as saying: "I have no UK income to be taxed in the UK." Source: David Leigh, Monday, July 10, 2006, The GuardianThe GuardianThe Guardian, formerly known as The Manchester Guardian , is a British national daily newspaper in the Berliner format...
. - Noël CowardNoël CowardSir Noël Peirce Coward was an English playwright, composer, director, actor and singer, known for his wit, flamboyance, and what Time magazine called "a sense of personal style, a combination of cheek and chic, pose and poise".Born in Teddington, a suburb of London, Coward attended a dance academy...
left the UK for tax reasons in the 1950s, receiving harsh criticism in the press. He first settled in BermudaBermudaBermuda is a British overseas territory in the North Atlantic Ocean. Located off the east coast of the United States, its nearest landmass is Cape Hatteras, North Carolina, about to the west-northwest. It is about south of Halifax, Nova Scotia, Canada, and northeast of Miami, Florida...
but later bought houses in Jamaica and Switzerland (in the village of Les AvantsLes AvantsLes Avants is a village in the canton of Vaud in Switzerland. It is located in the municipality of Montreux, in the east of the canton, in the district of Vevey. It lies north-east of the town of Montreux and east of Lausanne....
, near MontreuxMontreuxMontreux is a municipality in the district of Riviera-Pays-d'Enhaut in the canton of Vaud in Switzerland.It is located on Lake Geneva at the foot of the Alps and has a population, , of and nearly 90,000 in the agglomeration.- History :...
), which remained his homes for the rest of his life. - During the early 1970s The Rolling StonesThe Rolling StonesThe Rolling Stones are an English rock band, formed in London in April 1962 by Brian Jones , Ian Stewart , Mick Jagger , and Keith Richards . Bassist Bill Wyman and drummer Charlie Watts completed the early line-up...
became tax exiles. Their experience inspired the title to their famous album Exile on Main St.Exile on Main St.Exile on Main St. is the tenth British and 12th American studio album by English rock band The Rolling Stones. Released as a double LP in May 1972, it draws on many genres including rock and roll, blues, soul, R&B, gospel and country. The release of Exile on Main St. met with mixed reviews, but is...
According to Comcast Music, "The British rockers have managed to pay just 1.6% tax on their earnings of £242million over the past 20 years." - Cat StevensCat StevensYusuf Islam , commonly known by his former stage name Cat Stevens, is an English singer-songwriter, multi-instrumentalist, educator, philanthropist, and prominent convert to Islam....
became a tax exile within the first years of the 1970s, moving to Brazil. The result of this was the creation of his album ForeignerForeigner (Cat Stevens album)Foreigner is an album released by English singer-songwriter, Cat Stevens in July 1973. In addition to the minor hit "The Hurt", which received a moderate amount of airplay, Foreigner also included such songs as "100 I Dream" and the 18-minute-long "Foreigner Suite", which took up the entirety of...
, the title song referring to his self-imposed move to South America. - In 1978, the members of the band Pink FloydPink FloydPink Floyd were an English rock band that achieved worldwide success with their progressive and psychedelic rock music. Their work is marked by the use of philosophical lyrics, sonic experimentation, innovative album art, and elaborate live shows. Pink Floyd are one of the most commercially...
spent exactly one year outside of the United Kingdom, also for tax reasons. - In 1968, Shirley BasseyShirley BasseyDame Shirley Bassey, DBE , is a Welsh singer. She found fame in the late 1950s and was "one of the most popular female vocalists in Britain during the last half of the 20th century"...
started living as a tax exile, and currently lives in Monte CarloMonte CarloMonte Carlo is an administrative area of the Principality of Monaco....
. - David BowieDavid BowieDavid Bowie is an English musician, actor, record producer and arranger. A major figure for over four decades in the world of popular music, Bowie is widely regarded as an innovator, particularly for his work in the 1970s...
moved to SwitzerlandSwitzerlandSwitzerland name of one of the Swiss cantons. ; ; ; or ), in its full name the Swiss Confederation , is a federal republic consisting of 26 cantons, with Bern as the seat of the federal authorities. The country is situated in Western Europe,Or Central Europe depending on the definition....
in 1976, first settling in BlonayBlonayBlonay is a municipality in the district of Riviera-Pays-d'Enhaut in the canton of Vaud in Switzerland.-History:Blonay is first mentioned in 861 as Blodennaco. In 1108 it was mentioned as Bloniaco. During the 13th Century it was known as Blonay, Blonai and Blunai.-Geography:Blonay has an area, ,...
and then LausanneLausanneLausanne is a city in Romandy, the French-speaking part of Switzerland, and is the capital of the canton of Vaud. The seat of the district of Lausanne, the city is situated on the shores of Lake Geneva . It faces the French town of Évian-les-Bains, with the Jura mountains to its north-west...
in 1982. - Michael CaineMichael CaineSir Michael Caine, CBE is an English actor. He won Academy Awards for best supporting actor in both Hannah and Her Sisters and The Cider House Rules ....
moved to the United StatesUnited StatesThe United States of America is a federal constitutional republic comprising fifty states and a federal district...
in the late 1970s to avoid the 83% tax on top earners that existed in Britain at the time. He spent several years in the United States before returning to Britain. - Bad CompanyBad CompanyBad Company were an English rock supergroup founded in 1973, consisting of two former Free band members — singer Paul Rodgers and drummer Simon Kirke — as well as Mott the Hoople guitarist Mick Ralphs and King Crimson bassist Boz Burrell. Peter Grant, who, in years prior, was a key component of...
moved to Malibu, California, in 1975 to avoid what Mick RalphsMick RalphsMichael Geoffrey "Mick" Ralphs is an English guitarist and songwriter, who was a founding member of rock bands Mott the Hoople and Bad Company.-Career:...
described as “ridiculously high tax in England”. - Rod StewartRod StewartRoderick David "Rod" Stewart, CBE is a British singer-songwriter and musician, born and raised in North London, England and currently residing in Epping. He is of Scottish and English ancestry....
left Britain for Los Angeles in 1975 because 83% of his income was going in tax. The title of Stewart's 1975 album Atlantic CrossingAtlantic CrossingAtlantic Crossing is Rod Stewart's sixth album, released in 1975, and peaking at number nine on the Billboard Top Pop Albums chart. On June 30, 2009, Rhino released a two-disc version with bonus tracks....
is a reference to his repatriation in the U.S. - Tom JonesTom Jones (singer)Sir Thomas John Woodward, OBE , known by his stage name Tom Jones, is a Welsh singer.Since the mid 1960s, Jones has sung many styles of popular music – pop, rock, R&B, show tunes, country, dance, techno, soul and gospel – and sold over 100 million records...
also moved to Los Angeles for tax purposes following the election of Harold WilsonHarold WilsonJames Harold Wilson, Baron Wilson of Rievaulx, KG, OBE, FRS, FSS, PC was a British Labour Member of Parliament, Leader of the Labour Party. He was twice Prime Minister of the United Kingdom during the 1960s and 1970s, winning four general elections, including a minority government after the...
as British prime minister in 1974, who put income tax up to 83% for top earners.
In popular culture
- "The Tax Exile" was the title of a 1989 novel by Guy Bellamy.
- In various versions of The Hitchhiker's Guide to the GalaxyThe Hitchhiker's Guide to the GalaxyThe Hitchhiker's Guide to the Galaxy is a science fiction comedy series created by Douglas Adams. Originally a radio comedy broadcast on BBC Radio 4 in 1978, it was later adapted to other formats, and over several years it gradually became an international multi-media phenomenon...
, by Douglas AdamsDouglas AdamsDouglas Noel Adams was an English writer and dramatist. He is best known as the author of The Hitchhiker's Guide to the Galaxy, which started life in 1978 as a BBC radio comedy before developing into a "trilogy" of five books that sold over 15 million copies in his lifetime, a television...
, the rock star Hotblack Desiato is reported as "spending a year dead for tax reasons". - Also in The Hitchhiker's Guide to the GalaxyThe Hitchhiker's Guide to the GalaxyThe Hitchhiker's Guide to the Galaxy is a science fiction comedy series created by Douglas Adams. Originally a radio comedy broadcast on BBC Radio 4 in 1978, it was later adapted to other formats, and over several years it gradually became an international multi-media phenomenon...
, the character of Veet Voojagig "was finally sent into tax exile, which is the usual fate reserved for those who are determined to make a fool of themselves in public."