Cross-border financial challenges
For more than 400 years, Bermuda residents have been habitual border crossers. You can label us “puddle-jumpers” “pondstraddlers”, “nomads,” “global explorers” or “inveterate wanderers,” but the fact remains that there is no unequivocal choice.
We physically have to leave this island dot to get to where we want to go. While there may be a few Bermudians who have never left the dear island in their entire lives, we can assume that almost everyone travels elsewhere, building relationships, investments, business and links of all sorts to countries with different regulations and tax regimes.
And are we connected! United States, United Kingdom, Ireland, Canada, Caribbean, Mexico, Brazil, Honduras, Guatemala, Aruba, Germany, France, Italy, Spain, Greece, Australia, New Zealand, Hong Kong, Switzerland, Eastern Europe, Ukraine, Croatia, Philippines, Thailand, Sri Lanka. Can you name more?
Mobility is not limited to physical activity transitions. Finances of all sorts are incredibly electronically mobile today, too. Open an investment account in your account in your home country; the security assets may be derived from or sited in a second country, while the custodians may be located in third, fourth, and fifth country.
Every border crossing has a consequence. Mobility affects one’s finances as each country that considers you a resident if you have stayed there for a legally-defined time period (or overstayed as a “visitor”) wants to tax you for the benefits you are presumed to have received. The one (of two) exceptions to residence-based taxation is the citizenship-based taxation structure of the US where US persons are taxed on world-wide assets no matter where they reside.
Other mobile circumstances generate tax accountability. Moving abroad for a lengthy career — under Canadian tax regulations, certain of your assets are deemed to have been sold with the tax assessed then remitted to the government’s revenue agency. Leaving a country permanently while also relinquishing US citizenship in the process, could also find you facing a exit tax (if above certain ordained financial / legal thresholds) computed on phantom sales of your current and future assets (ie pensions, etc). Multinational families / dual-triple citizens with residences and assets in multiple jurisdictions just added an additional complexity multiplier to the tax equation.
Taxes for government coffers. The United States citizenship-based taxation structure still tends to receive criticism for its world-wide tax and reporting positions. However, in the age of global information exchanges, along with implementation of various cooperative reporting schemes between countries (i.e. FATCA and its emulators, EU Directive, etc.), the taxation of non-resident citizens and residents of a country has become more fluid and flexible. Cooperative agreements of various types have given global taxing authorities tremendous jurisdictional reach and ability to monitor, analyse, compare and track the financial lives of their residents and citizens.
Recent border activities, transitions to other jurisdictions, and unknown taxation issues for multinationals have netted the following headlines:
1 Boris Johnson, aka the Mayor of London, defiant initially in a stanch refusal to pay a little understood tax liability to the United States, eventually paid the tax bill once it was rumored that he could be arrested upon arrival in the United States. Mr. Johnson is a dual citizen of the United States and the United Kingdom. He left the US when he was five years old. http://www.forbes.com/sites/robertwood/2015/01/22/escaping-jfk-arrest-londons-mayor-boris-johnson-pays-irs/
2 Topsnik v the Commissioner. A German citizen with a US green card, who did not formally revoked, abandoned or relinquish his green card, was found subject to significant US capital gains tax, interest, penalties (estimate $500,000+) years after he had long returned to Germany for permanent residence. http://azworld.com/officially-abandon-your-green-card-or-you-may-have-tax-consequences/
3 Japan announces it is considering an exit tax on the wealthy moving elsewhere. http://blogs.wsj.com/japanrealtime/2014/12/18/japan-targets-wealthy-with-exit-tax/
4 China has been reported as considering enforcing world-wide tax on its citizens. http://www.nytimes.com/2015/01/08/business/international/china-starts-enforcing-tax-law-for-citizens-working-abroad.html?_r=0
5 And, finally, Bitcoin Jesus denied a US visa after renouncing his US citizenship. Roger Ver, a Bitcoin entrepreneur also known as Bitcoin Jesus, became a citizen of St Kitts and Nevis, then later gave up his US citizenship. He later applied to attend a conference in the United States, but despite several applications, was denied a non-immigrant visa to visit the US. http://www.businessinsider.com/bitcoin-jesus-visa-application-denied-2015-1
Global mobility is here to stay. Mobility-linked family and business ties to other countries has the potential to make your personal situation more difficult, particularly when possible tax liability situations are ignored. It is now becoming a paramount part of any financial plan that individuals carefully consider the impact of decisions on where they are now, who they (and their multiple family parties) are, what they’ve invested in, how long they’ve been resident in a country (day counting), how their estate should be formalized, and what residency / citizenship they want to assume or formally relinquish - in order to avoid complicated costly financial situations going forward.
I’ve been warning Bermuda residents of these inevitable tax regime actions for many years. Time to take care of your affairs and keep very good records of your border crossings.
As an attorney friend of mine said the other day, after we both shook our electronic heads over the Bitcoin Jesus story, in reference to the global taxation strategies “All the cool kids (countries) are doing it.” But, unfortunately hot issues for those individuals stuck sorting them out.
Martha Harris Myron CPA PFS CFP JSM, Masters of Law: International Tax and Financial Services; appointed to the Professional Tax Advisory Council, American Citizens Abroad, Geneva, Switzerland; The Pondstraddler Life Consultancy provides planning for international tax, immigration, investment, retirement, legacy, and related financial challenges to the lifestyles of internationally mobile individuals and their businesses residing, working, crossing borders, and straddling ponds in the North Atlantic Quadrangle. Specific focus for residents of Bermuda, the premier international finance centre. Contact: firstname.lastname@example.org