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The Legality of Avoiding Taxes

18 March 2010By Louisa Cowan

Some yachties faithfully file their tax returns each year while others simply pretend that living aboard a yacht makes them completely exempt from the responsibility of being a tax-paying citizen. But whether you think you should or should not have to contribute to your nation’s coffers, the bottom line remains the same – tax isn’t something you can run away from.

Professional advice is not only a good idea, but it’s also a way to ensure that you aren’t making costly mistakes when it comes to taxes and your finances. The tax regulations for persons working overseas are different for every country, but all are equally complicated.

If you’re an American citizen, the payment of tax is fairly cut and dried. The Internal Revenue Service states, “If you are a U.S. citizen or resident alien, you must report income from all sources within and outside the U.S.” It goes on to say, “As a U.S. citizen, the rules for filing income, estate and gift tax returns and for paying estimated tax are generally the same whether you are living in the U.S. or abroad.”

There is a chance you may be entitled to a reduced tax rate if you’re out of the country for more than 330 days in a year, but you will still have to complete your tax return. If you’re a U.S. citizen and need some tax guidance, contact AvMar Accounting Services at +1 954 764 0404 or for more information on U.S. tax go to www.irs.gov.

The big issue in many nations with regard to tax is residency. Establishing yourself as a non-resident makes all the difference when it comes to paying the tax man – or not, as the case may be. This isn’t as easy as you would think and simply not being present in your home country for more than a certain number of days a year isn’t enough. The UK, Australia, New Zealand and South Africa all are some of the countries with a “residency based taxation system.” They all perform rigorous testing to establish residency.

The New Zealand Tax Office determines residency based on whether the individual has an “enduring relationship with New Zealand” (www.ird.govt.nz). The South African Revenue Service (www.sars.gov.za) states that South African nationals must be deemed as “exclusively resident of another country” or “physically outside South Africa for a continuous period of at least 330 full days.” Whereas the UK’s Inland Revenue requires you to clearly establish that your life is based overseas and there is very little connection with the UK.

Dockwalk.com highlighted the recent case of a UK national who had lived in the Seychelles since 1976 and had not been in the UK for more than the allotted 91 days in any one year. He was still deemed to be a UK resident due to his UK connections and is now facing a bill for 12 years of back taxes.

Ties with your home nation are determined through addresses, bank accounts, family connections and even whether you have a phone registered there or not. Again, you undoubtedly will need some help determining your resident or non-resident status. This is well worth seeking as it could end up saving you, literally, thousands.

In the UK, there is the additional factor that you may qualify as being registered as a “seafarer.” This would allow you to claim the “Seafarer’s Earnings Deduction” giving you a 100 percent rebate of the tax you have paid on your yearly earnings. Being classified as a seafarer depends on the length of time you’re out of the UK, how many voyages you make a year and where these start and finish. You also must be able to prove that you are employed on a ship. For more information, visit the Inland Revenue website: www.hmrc.gov.uk.

The flag of the vessel you work on is also a factor to be taken into consideration. Even if you are offshore, a UK citizen working on a British-registered boat would most likely be liable to pay tax. Similarly, an Australian working on an Australian boat in foreign waters would be liable to pay some tax. Visit www.ato.gov.au for more information on Australian tax legislation.

Finally, don’t get caught out if you are land-based. You could be well established away from your own country and even registered as a non-resident, but it may be necessary for you to start paying taxes in the country where you’re living.

As a yachtie, you may be a “tax nomad” but whatever you do, don’t assume this means that you won’t be tracked down. Professional advice and account maintenance will help you stay legal.