Choosing a Fixed Base in a Foreign Country
With so many countries to choose from, where on Earth do you start?
For expats looking to set up a “home” base overseas—and thereby lower or eliminate their tax bill—we’ve listed the top thirty-three tax-advantaged countries in the world above. Under this option, you’ll be choosing a country that does not tax your income—a good thing!
What is residency?
“Residency” is essentially legal permission to reside within a country's borders beyond that of a short-term tourist. Is a must for anyone seeking to spend more than about 30 days back in the USA during the year. This typically involves a longer-term visa or residency program.
In one step in qualifying for lucrative expat tax breaks, you must prove you lived abroad
So, you must meet one the two following tests:
• 1) The 330-Day Test (aka Physical Presence Test). Used by digital nomads who are always on the move—and it’s an option for expats living in a foreign country; OR
• 2) The Foreign Resident Test (aka Bona Fide Resident Test). Limited to expats living in a foreign country.
A) The 330-Day Test requires you to demonstrate that you spent at least 330 ‘full’ days in one or more foreign countries during any 365-day period. This means you must document your days abroad.
B) The Foreign Resident Test involves demonstrating that you are a resident in another country for at least one calendar year. You show that you are a resident by passing an 11-Question foreign ‘Resident’ Test—including having no immediate intention of moving back to the US and keeping strong paperwork support.
What is the difference between the 330-Day Test and the Foreign Resident Test?
The main difference between the two tests is that the more challenging ‘Foreign Resident Test’ allows expats to spend substantially more time working or vacationing back in the USA. How much more time? Broken up over multiple brief trips, you can spend a total of three to four months a year back in the USA under the Foreign Resident Test, versus less than 35 days using the 330-Day Test.
Thus, having residency in a foreign country allows you far more time back in the USA. This includes the many nearby tax-advantage countries.
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