Most countries across the globe adhere to one of the following four primary tax systems, ranked here from most to least beneficial: NO personal income tax, territorial taxation, residence-based taxation, and finally, citizenship-based taxation.
Additionally, some countries choose to combine these systems as they wish.
For example, several countries offer the so-called remittance-based taxation model. In this system, a government only taxes the worldwide income you bring (remit) into the country, leaving untouched any other foreign income that you keep abroad.
This unique approach is adopted by a select group of countries, including the UK, Ireland, and former English colonies like Malta and Cyprus.
However, there's a catch. Only a specific category of people — individuals not domiciled in the country — can take advantage of this arrangement.
The concept of “domicile” has its roots in Britain, tracing back more than 220 years and has nothing to do with your citizenship, legal residency, or even tax residency.
And while an ordinary Englishman born and raised in the UK will no doubt be domiciled there — and thus, subject to the country’s full taxation — most foreigners are not domiciled even if they spend many years living and working in the UK.
This holds true even for individuals with multiple ties to England, such as having a British spouse or owning a UK property. Quite often, they manage to maintain their domicile outside of Britain.
This can lead to a potentially very appealing no-tax situation for your worldwide income.
This report delves into the intricacies of the remittance-based taxation model, with the pioneer of the system — the United Kingdom — as our focus.
(We plan to detail the aspects of other countries’ remittance-based systems in a future report.)
“What is the difference between a taxidermist and a tax collector? The taxidermist takes only your skin.” Just like many other witty sayings, this one is attributed to Mark Twain. And while we don’t know whether Twain actually said this, it’s hard to argue with it. In another story, a famous US judge Learned Hand…
