Legal compliance for non-resident PTs (utility bills, tax number and KYC procedures)

In Tax Free Today, we’ve already talked about what you can do to live like a perpetual tourist or traveller, without formal residence.

Some people claim it’s impossible to live like a perpetual tourist and to stop legally paying tax, but, if you’re familiar with the 183 days rule and you know how to deregister as a tax resident you’ll have already discovered that this isn’t true.

However, non-resident perpetual tourists face some other difficulties.

In today’s article, we’ll explain how to meet formal requirements while living as a perpetual tourist, especially with respect to utility bills, taxes, and the KYC procedure (know your customer, i.e. identification procedures with regard to financial institutions).

People who cease to have a fixed place of residence often ask themselves about what to answer when asked where they live. The question is, what address should you give?

If all you need is a place to receive your mail, there’s a wide range of possibilities and suppliers. You can receive mail in a friend or family member’s house, or you can use one of the many services that scan or forward your mail.

However, this isn’t what we’ll be looking at today. We’re going to focus more on legal compliance and the question of how to survive the ‘due diligence’ (identification procedures) of company formation agencies, banks, brokers, and other financial service providers when we do not have a permanent residence.

Why I wouldn’t recommend the (ostensibly) simplest way

The automatic exchange of information allows ever closer monitoring of tax evaders. However, this is something everyone ends up suffering, including those who, completely legally, don’t have to pay taxes.

The Perpetual Tourist status isn’t acquired officially (in fact it is rather the absence of other statuses), but skillfully takes advantage of various laws, such as the 183-day law.

The secondary effect of all this is that there are certain procedures that don’t pose a problem to normal citizens, but do for someone living as a nomad (e.g. registering a car). Who knows, maybe states are intentionally using some of these procedures to make things harder for the perpetual traveller.

I’m specifically referring to the utility bill, with which you must certify your residence when you require the services of virtually any financial institution, even if you only want to open a bank account, start a company or the like.

Aside from asking for the utility bill and passport (sometimes credit card receipts or bank statements work too), regulators continually manage to find new obstacles, which we’ll also discuss here.

These include, for example, tax identification numbers, which have become increasingly common in verification.

What’s more, some suppliers now ask for a tax return or geotagging, which means sending a photo of your passport and a utility bill from the same address as the one at which the photo was taken (I won’t go into detail on this because it’s very easy to get round).

The KYC procedures of regulated financial service providers are increasingly extravagant. Nowadays, a simple passport, identity card or driver’s license is virtually useless. And there will come a time in the not-so-distant future when not even a utility bill will suffice.

So, the question is: how do you manage in an increasingly regulated world if you’re a lover of freedom?

It’s easy: First, you need to keep reading this article, and second, sign up and follow Tax Free Today’s blog.

As regards the utility bill, the easiest option for some people is to use Photoshop or other image editing applications. But let me tell you something first:

Falsifying a utility bill is a highly inadvisable option.

Banks have long had software capable of recognising such counterfeits by the number of pixels and the like. Sometimes they even call the provider of the bill to verify the information, allowing even the best counterfeits to be discovered.

But most importantly, falsifying documents is illegal, and you would be prosecuted for forging documents submitted to financial institutions, as well as probably for money laundering or tax evasion.

What if I invent a tax identification number?

The same goes for anyone who thinks a tax identification number can simply be invented.

There are quite simple ways of checking if the number is valid,

So, I don’t advise taking the easy route, especially considering that there are other options to certify your residence as a perpetual traveller that are legal, although sometimes it involves a trick.

I’ll show you some of these forms below, but not before mentioning what certifying a residence entails.

Reasons for certifying your residence

Firstly, it’s useful to remember why all financial service providers require verification of personal data.

We must bear in mind that very few providers really want to do this verification. They’d undoubtedly get much more clients and save a lot in expenses if they didn’t have to apply increasingly stringent KYC procedures.

However, since they work in regulated state sectors, they have to verify their clients’ identity.

Very few financial services can still be used anonymously. Until recently, you could use prepaid cards with a $1,000 limit per transaction anonymously if you reloaded them with Bitcoin, but this is no longer possible.

Now you need at least to verify your passport in order to be granted certain limits.

The official story is that the purpose is to fight against terrorism and criminality.

This may be true and be their intention (at least with respect to voters), but the reality is that terrorists and criminals will always find ways of organizing their cashflow despite such regulations. Just as they’ve always had access to weapons despite strict prohibitions in many countries.

Ultimately, these types of anti-terrorism laws are really only a pretext for achieving total transparency of the individual. Financial matters are very closely monitored, especially for citizens of countries with high tax burdens.

Several years ago, the standard for automatic exchange of information was implemented for this purpose, which means everyone’s account information is shared with local tax authorities.

Although almost the entire world’s most attractive financial centres have signed up to this initiative, also known as the Common Reporting Standard (CRS), it has more holes than Swiss cheese.

Among the many loopholes, the fact that the exchange is with the country from which the address has been verified stands out in particular. Other factors like nationality, registration certificate and such are not currently taken into account.

So, if you have a utility bill for a property abroad, you can easily register with as many financial service providers as you want. Thus information is exchanged, but not necessarily with the country in which you’re tax-resident.

You can avoid information being exchanged entirely if the property is in a country that does not participate in the CRS. Despite there being barely a single attractive jurisdiction that hasn’t signed the agreement, there are still many countries outside the CRS where it’s worth buying property by way of investment.

For example, most of the world’s developing countries are out of the information exchange because such a system would be too large for their banking infrastructure and their costs would be too high. In addition, these countries have a low risk of tax evasion.

The fact that a country does not participate in the exchange not only means that it does not share information, but also that it doesn’t receive it. In this sense, utility bills from such attractive places as Thailand, Peru, Paraguay, Ukraine or the Dominican Republic are interesting, because they don’t on their own entail an exchange of information.

The following link shows other countries which are currently not part of the CRS.

No tax liability despite exchange of information

Even if in the not-so-distant-future virtually every country is part of the CRS and your property is in a CRS country, this won’t be necessarily a problem.

After all, although there is a danger that the information received could be forwarded to another country, this is highly unlikely, as there are no reasons for it either. Especially outside conglomerates like the European Union, financial information received will presumably not be sent and compared to other countries to verify its veracity.

Of course we must ask ourselves how countries in which you are not tax-resident will evaluate the information received. If someone verifies their place of residence in one of the countries mentioned above (Thailand, etc.), but never or almost never lives there, in most cases it’s likely that nothing will happen.

This could happen because the country has a tax system that exempts foreign income and therefore has no reason to intervene. Even if it’s a country in which you would have to pay tax, they’ll consider that the property is simply used as a holiday home or that it’s rented out and bought as an investment.

As long as you comply with your local tax obligations regarding the property and its possible rental, you shouldn’t have any kind of problem.

Very exceptionally this type of situation could induce the state in which you own the property to investigate the case more closely, and even try to build you a tax residence case.

However, this is highly unlikely and could only happen if the information received through the CRS made the case very appealing. To avoid it you’ll need to know the conditions which could make you a tax resident or choose a country in which you wouldn’t have to pay tax anyway.

In this way, if you use or have used an address in your home country (whether it’s Ireland, the UK, Australia, New Zealand, Canada, or any other country with a high tax burden) and you do the bank identification process with your old home address or you use your old tax identification number, this could lead to an investigation of the case.

The verification could be seen as an indication that your habitual residence is still in your home country and could lead to a tax inspector or private investigator monitoring the property to see if someone really lives there and if it turns out that you’re actually still living there.

In general, your actual circumstances are decisive in deciding your tax residence, which do not include your mailing address, bank accounts, credit cards or any pre-departure checks of your address.

In other words, if you have a bank account in your home country, you can generally use bank statements stating you still live there in the KYC process as long as the provider accepts them.

However, this approach has its risks, especially if you continue to spend relatively long periods of time in your home country (even if you stay below 183 days).

For this reason, it’s only recommended to those who after deregistering their habitual residence are not really going to spend much time at all in their home country and can plausibly prove that they’ve been abroad.

However the problems don’t stop there.

More and more banks and financial service providers demand utility bills after the bank account has already been opened, once a year, or in extreme cases, even quarterly. And, if you don’t want to put your account at risk, you must meet this requirement.

Unfortunately, utility bills expire. In general, an electricity bill can be submitted up to 3 months old.

In the next section we’re going to talk a little bit more about these documents. What actually is a utility bill? Are there other ways of getting it legally?

The utility bill for the perpetual tourist (without habitual residence)

In general, utility bills consist of a monthly bill for the previous month’s consumption. They are usually issued for electricity, gas or water costs. Landline, cable TV or flat rate internet bills are usually also considered utility bills.

To make misuse harder, mobile phone bills are generally not accepted. This is because it is considered that with a flat rate for internet or cable TV, you need a residence in which to install the relevant connection, while with mobile phones this isn’t necessary.

Depending on the regulating country and the provider’s criteria, bank statements, credit card bills, bank references, insurance certificates or similar documentation may also be valid, as long as the residence address is visible.

Documents created or generated online are usually not accepted. It must always be an original hard copy, although in most countries very few providers still send bills in paper form. However, printing and scanning the utility bill or document asked of you can solve the problem.

Regulators have classified some countries as ‘high risk countries’ when it comes to money laundering. These also include tax havens, like Panama. Although in this case you will usually be able to open a bank account, you’ll find yourself with certain additional requirements. Most of the time you will have to certify your passport and utility bill.

For certification you will have to present the original document, although in most cases it is almost impossible to differentiate the original document of the utility bill from a copy created from the printed digital file.

For a simple certification, solicitors, accountants, banks, notaries and certain state bodies can be used.  In some cases, notarial certification is obligatory.

This certificate must include the following:

• Stamp or commercial address and contact number
• Registration number / employee number (if applicable)
• Name
• Signature
• Certification date

But we’ve got a little bit ahead of ourselves here.  Now you’ll be wondering: with or without certification, how can a perpetual tourist without a fixed residence access a utility bill without falsifying it?

Although renting or owning a property is the best option in the long term (see below), there is another alternative if you have few resources and do not want to be tied to a specifc place.

It’s possible to set up and pay a utility bill even if you don’t live in the corresponding country.

Almost everyone knows someone in another country they can turn to. The perpetual tourist can, for example, simply pay a friend or acquaintance’s internet bill and ask to be named. Additionally, and in exchange for the monthly payment, you can ask your friend to forward any parcel or letter that they receive (your first PIN number and credit card will definitely be sent there).

If the addressee of the bill can’t easily be changed, you could set up an additional service, perhaps a second phone line or something similar.

There are undoubtedly many options for the ingenious perpetual traveller. It often doesn’t even have to be a good friend; sometimes just asking the owner of the hotel or guesthouse in the country you’re in is enough.

Someone or another with an enterprising soul might be wondering why someone hasn’t already made a business out of this, perhaps even Tax Free Today itself.

The problem is the high risk involved in this business, versus a relatively low return. At the end of the day, such utility bills are not only popular with perpetual tourists without a residence. There are also all kinds of criminal that would love to take advantage of such a service.

And if you don’t know the person asking you for the utility bill, nor can that person give you information to verify their identity and address (if they could, they wouldn’t be asking you for help with your consumer bill), you could end up having problems.

If this utility bill is used to commit a crime, you could very quickly end up in prison for complicity in terrorism, money laundering, tax evasion and the like.

For this reason, I advise using the trick of obtaining a utility bill only for legal purposes.

As you can see, there are creative ways of obtaining a utility bill and avoiding having to rent or buy a flat. The cost of services for which you receive a utility bill is usually around €50 to €100, but the truth is that it is cheaper than paying rent.

In any case, there are other reasons for which you might prefer to rent or buy a property.

Tax identification number and tax return – the best long-term option for the perpetual traveller

Nowadays, even the least alert officials and bureaucrats have understood that it’s possible to get a utility bill without having an actual residence. As a result, financial institutions are increasingly demanding (at the request of regulators) proof that you reside in the indicated country.

One of the novelties is that attention is paid to the tax identification number.

There are various options when it comes to obtaining a tax identification number in the corresponding country.

Apart from inventing one (something you shouldn’t do on any account), you have two more options: Getting a permanent residence permit or generating tax liabilities.

The best option in the long term would be to combine both options, since it’s likely that at some point they’ll ask you for a national identity document or a copy of your residence permit.

Having a residence permit doesn’t always mean you automatically have a tax identification number as well.

There are many countries with territorial taxation systems in which it is not so easy to obtain a tax identification number, at least not if you don’t work in the country or pay tax there in any form.

You should thus find out beforehand whether the country in which you want to apply for a permanent residence permit assigns a tax identification number.

For example, although on paper Paraguay generally offers residency more easily, obtaining a tax identification number is not without difficulties when you have nothing to pay tax on.

However, with the residence permit in Panama you get a tax identification number with the national identity card (which you must make a third visit to the country in order to obtain), but you’re only obligated to present a tax return if you spend 183 days or more of the year in Panama.

Permanent residence doesn’t always entail a tax liability, but in most cases it is sufficient as long as you avoid having a habitual residence in other countries.

On the other hand, having a tax identification number does not necessarily mean that you’ve filed a tax return.

More and more banks ask for a tax return when opening a bank account at the beginning, and then annually, even when in your country of residence the law does not oblige you to do so.

Banks and states are not only interested in knowing whether you’ve paid your taxes, but also want to know what income you’ve generated.

The tax return generally cannot be falsified as it can be verified.  It also provides an accurate picture of the income and financial situation of the person filing it.

Knowing your assets and income lets the state to know whether it’s worth working on ways to build you a tax residency in the country.

Although combining a permanent residence with a tax identification number and utility bill through third parties is a viable solution for the moment, it is not the ne plus ultra.

In the long term, the entrepreneur or investor without a fixed residence should choose to acquire property, due to the advantages it brings.

Why a foreign property is the best way of meeting formal requirements.

Buying property abroad is not something to be done lightly.  Migrants are often tricked into paying prices that are much too high or buying properties to which others are already entitled.

In addition, the consequential costs of administration and maintenance should not be underestimated, especially if you are not in that place.

However, a foreign property is the best way for a perpetual tourist to comply in the long term with all current and future regulations. All this without incurring a cost or even making money.

It doesn’t have to be an expensive chalet in a privileged location. Even a small one-bedroom apartment in a prefabricated building in the outskirts of a city will do the trick.

Why buy a property?

Well, with your own property you’ll generally have all the electricity and water bills you need. If for some reason these costs are in the name of a third party, you can probably at least have an Internet, television or telephone bill in that house.

Of course, such a flat can also fulfill other functions. It can be used for storage, to receive mail or as an alternative home in an emergency. You can also rent it out and get some money.

Renting out your flat abroad is not only interesting because of the money you can earn. Renting generates a local benefit, which in every country in the world falls under the tax liability on national income.

Although many landlords (illegally) do not declare their income from rent and some countries do not tax them, rental income will in principle always be taxed in the country in which the property is, even as a non-resident.

Renting a flat, therefore, lets us have a tax identification number, which in this case entails having to pay taxes.

The advantage: It only involves filing a tax return as a non-resident. In other words, not all of your income appears at the universal level, but only that which you have generated in that country. In this way you avoid that the state in which you have the property falls into the temptation of making you a tax resident.

As we’ve already said, it doesn’t have to be an expensive apartment, in many developing countries there are interesting options for €10,000 or €20,000. As a general rule, it won’t take long to recover your investment and you’ll enjoy an additional source of passive income. However, you’ll have to make an effort to find a suitable country and get a reliable person to take care of the management of the property.

Investing in property abroad is a topic on its own, so we’ll talk about in more depth another time.

Again, bear in mind that this isn’t just interesting from an investment perspective or because you’d like to have a second home. Generally, this investment offers you full legal compliance and security with KYC procedures, as you can use it to generate a utility bill, a tax identification number and possibly even a tax return.

If one day you also had to register your residence, having the property is usually useful in obtaining a residence permit, as in many countries having a property of a certain value is a prerequisite.

All this means that perpetual travellers who do not want to be tied down to any country can qualify to set up companies and open bank accounts.

And what more requirements could states invent?  I suppose it’s only a question of time before the automatic exchange of information is also linked to nationality. But in this case there are also solutions.

This is ultimately what most scares politicians and bureaucrats around the world. The perpetual traveller, a mobile individual who crosses borders as they please whenever things go wrong and states increase the pressure on their citizens. This is the reason why they make a concerted effort to limit the freedom of movement of the individual (at least if it’s an individual with money).

If they don’t let us make money (with a business), save it (in an account) and multiply it (broker), we aren’t left with many options for living without being tied to a place. Only in this way do they manage to keep people living in countries with a high tax burden.

That is why there are so many formal requirements and identification procedures, not just to stop criminals and terrorists.

I hope my article has given you some ideas as to how to overcome all these obstacles imposed on us by states through banks and other financial institutions.

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