In a bid to fight tax evasion and money laundering, the OECD has developed the CRS and managed to convince most of the world’s developed countries to implement it. Starting this year (2017), financial institutions will have to report every accounts / transactions to the country of tax residency of the account holder. While this may not sound like a big deal, especially if you are already tax compliant, it is. In this post, I explain why.
Common Reporting Standard (CRS) explained
Tax Information Exchange Agreements (TIEA) are fairly common and have been used for many years by countries in their fight against tax evasion. They allow one country to request another country to hand over the financial information of a tax payer, often to help a tax investigation. It is important to understand that TIEAs work on a pull basis. In plain English, they are not automatic. CRS on the other hand is automatic and its scope is broader, much broader. If you have a financial account (bank, brokerage etc) in one of the signatory countries, you automatically fall within its scope. All your balances / transactions will automatically be reported to the tax authority of the country in which you are a tax resident.
There are two main implications in the context of location independence, one obvious and one surprising. The obvious one is that it is now crucial to ensure full compliance with tax law. Non-reporting or hiding funds is no longer an option, for most people at least. The surprising one is that it is now necessary to have a tax residency. Even if it were legal from a tax perspective, it is now practically impossible be a tax resident of nowhere, unless you can get by without any financial accounts (or by banking in the Congo). Banks will simply not accept “resident of nowhere” as an answer and telling them that you are the tax resident of your home country when you are not is deception and a crime in most countries. In most countries, the penalty for providing false information to a financial institution is A LOT more severe than that for tax evasion.
The best way to mitigate the impact of the implementation of CRS is to become the tax resident of a low/no-tax country. As a tax resident, you will legally be entitled to use a tax ID from that country when opening new financial accounts (or updating existing accounts). If properly structured, you can also significantly reduce your tax burden (or eliminate it entirely). You can find a list of the best low/no-tax residencies here. You can also ask for personalized help directly from the Insiders Club homepage.
An easy, legal workaround
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