Taxes and Tax Residency

Don't be afraid to optimize your taxes: Get Healthy Advice on How to Make the Most of Your Finances

4/14/2023 8:00:00 AM
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If you ever wonder how to pay less tax, you're not alone. In one way or the other, nobody is happy about paying taxes because they can translate into a serious decrease in your wealth. So how to stop paying taxes? Is this even possible? How to generate some tax savings so that the overall burden is lightened?

The reader will probably find many providers and plenty of aggressive advertisements about how to stop paying taxes or how to reduce the tax rate to zero. However, one must be careful and always ask for the best tax advice before making any important decisions. The promise of zero tax is tempting, but it's only possible under very specific circumstances.

All in all, tax strategies must be designed under certain principles that are vital if one wants to optimize finances and do it legally. The editorial team has put together this article presenting the basics of legal and effective tax optimization.

Ultimate wealth management through tax savings: important aspects to consider 

Do everything legally

The number one rule in tax advice is: never to avoid taxes. Evasion is a lousy strategy simply because it generates the opposite effect. Wealth management and tax strategies are about achieving financial freedom, and you won't have this if you are thrown into jail. Illegal procedures about how to pay less tax can backfire because you may end up paying enormous fees and, in some cases, more often than one can imagine, you can go to prison.

So, the keyword in “how to pay zero tax legally” is the last one. Therefore, the best tax advice is the one that helps you achieve this without proposing any shady moves. 

You would be surprised to know how many legal strategies are out there to help you make the best out of your fortune.

Don’t get too greedy

“Zero tax” is a great selling line but it's not always the most optimal option. Sometimes, in the rush of optimizing taxes to zero, one can make mistakes or simply overlook perfectly good wealth management tools.

The best tax strategies are the ones that intend to reduce a person's tax burden as much as possible. The reader must understand that a 0-tax strategy entails major life changes and requires adapting to certain conditions.

How to pay zero tax legally: territorial taxation

Some countries have established a territorial taxation system. Simply put, this means that residents don't pay taxes for their income or assets derived abroad. This may sound like the best of tax strategies, and it probably is. However, the reader should consider the following aspects.

Getting residency and living in the country

What many people don't know about “how to stop paying taxes” through territorial taxation is that they have to actually live in the country. Many jurisdictions, especially low-tax ones, offer the possibility of being a resident with flexible stay requirements. For example, in Panama, you can maintain your residency and only be in the country for a couple of days a year. 

But there's a difference between legal residency (permission to stay in the country) and tax residency, and these two should not be mixed up.

Usually, to qualify as a tax resident of a country you must live there for at least six months each year. Moreover, this can't be faked because you'll have to present your passport, with its entry and exit stamps, utility bills, local invoices for expenses like groceries, tuition fees, etc.

This is why we stated that this tax savings strategy requires a major life change because you have to live in the country of choice with your family.

What income is exempted and what income is not

Also, we must consider that territorial jurisdictions don't tax assets abroad but they do tax what you receive domestically, even if you receive it from a foreign jurisdiction. For example, this is the case with Panama. 

To live in the country, you will have certain expenses that you have to cover somehow. This can be done in three possible ways:

  • Generate some income in the country through business or work in which case you'll need to pay taxes.
  • Receive money in the country from your investments abroad, in which case you'll also have to pay taxes.
  • Pay through credit cards. This option is not always viable because some things require cash, moreover, the fees for using a foreign credit card can be higher and it will be harder to access your money if you have an emergency.

From these three points, we can conclude that zero tax is virtually impossible because, either way, you'll have to pay something. This is why, for Mundo, the best tax advice is to organize matters in a way that you pay as little tax as possible. By considering this, you’ll have a healthy and realistic wealth management, tax savings strategy in your hands.

Tax residency certificate and how other governments will interpret it

Let's suppose that you moved to the country, you organized your affairs in order to get the minimum amount in the said country for your expenses so that your tax burden is fully optimized. The bad news is that this is still not enough.

If you have assets in foreign countries, they will probably want you to demonstrate that you're not tax liable there, hence you have to prove that you're a tax resident of the country with territorial taxation.

For this, you will need a tax certificate. All in all, if you're wondering how to pay less tax this is vital. Your tax certificate is the document that, figuratively speaking, gives you the right not to pay taxes in the said country. In many cases, it may also exempt you abroad, especially when it comes to reporting.

Nonetheless, here we encounter a very fine line. Legislations are quite different in each jurisdiction, and you should not be too relaxed about having the certificate. It's possible that you're still taxable in other jurisdictions, for example, where you have a passport. This is the case with governments such as The United States because they tax worldwide income no matter where you live. You may also be taxable in the place where you have businesses or investments.

Moreover, you have to set things right with your country of origin. If you spend more than six months a year in the country, you may become automatically tax liable. Some countries, like Argentina, may still consider you a tax resident even if you live abroad as you could still have emotional and financial ties to your motherland.

Disclaimer: this article reflects the author’s opinion and should not be taken as legal tax advice. Always consult with an expert before making important tax and financial decisions.

Always get the best tax advice

In conclusion, the question “how to stop paying taxes” should not be taken lightly. Considering the point made in this article, it is clear that paying zero tax is virtually impossible and should not be the main goal of a tax savings strategy. What you can do is organize your affairs in such a way that you reduce your tax burden to the minimum. For this, you'll need a solid team of experts in global taxation and finances, and probably you'll need more than one expert depending on how many jurisdictions your plan covers.

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