Questions of personal tax as new concept is floated

A staff reporter May 15, 2002

Questions of personal tax as new concept is floated

The madcap world of the perpetual traveller is highlighted on thousands of web sites and in millions of spam messages. The theory is that a ...

The madcap world of the perpetual traveller is highlighted on thousands of web sites and in millions of spam messages. The theory is that a taxpayer can remove his liability to income and capital taxes by living nowhere in particular.

Different countries have different rules: anyone spending more than x days a year in their country is liable to tax on their income and, in some cases capital growth or, even, retained wealth.

So the principle of the perpetual traveller (or "PT" in the argot of the web sites that claim to have the secrets) is simple: find out how long you can stay in a country and leave before time is up. It's even easy, apparently, to own property. Set up a company in a country that allows non-residents to pay no tax on their assets or income and use that to own houses in the places you would like to spend a significant part of the time.

It is a surprise for some people to realise that it is possible to live without being recorded for tax anywhere. The principle is more than "domicile" and one can be domiciled in a country without being a taxpayer there. It is also possible to be domiciled in a country while being a national of another.

Readers will recall several schemes for new countries, some even being virtual countries based on the internet rather than having specific and fixed geographical presence. And ventures such as the plan to build a city on concrete pillars atop an undersea mountain range. These are all mad but one that is less so pulled up to park as near as possible to the centre of time as possible.

Arriving in Greenwich, The World is a ship, a grand idea that breaks down into some simple concepts. At its most basic, it is nothing more than a floating apartment hotel. Its cabins are for sale at prices ranging from $1m to $5m for what amounts to a 50 years' lease. It can be used as a full time home and will sail the world calling at more than 100 countries in its first year. The owners do not want it to be seen as a floating tax haven although inevitably there are those that will seek to test the boundaries.

But one has to consider the point of all of these schemes.

What are taxes? If one ignores the use of tax for political and social engineering objectives (which significant numbers of people find abhorrent) then the principle of tax is simple—it's the government mark-up on goods and services that pays for the infrastructure that all countries must provide. Whether that tax is raised on income or by duty or sales tax is irrelevant. The principle is the same; in any case, income tax might be regarded as nothing more than a means tested membership fee.

So, those who think that living on board a ship will mean no taxes are, in reality, doing nothing more than buying into a non-democratic regime which sets prices at a level that makes profits for those in control of the scheme and pays for the infrastructure that they enjoy. It's not tax-free at all. It's merely a question of definition. However you look at it someone somewhere is taking a margin on your expenditure. And, ironically, the end result is more, not less egalitarian. Everyone on board has access to a minimum level of services no matter how much they paid for their cabins. Once the initial buy-in has been made, only additional services will differentiate between the residents. The house rules are, essentially, a constitution.

The World may be "first of breed" as a way of avoiding permanent residence in any one country but its principles do not go anywhere near so far as those of other planned floating ventures that intend to become geographically, legally and politically independent. If those ideas get off the ground, things will become even less clear.

As it is, there is no absolute clarification of when a person is regarded as being present in a country. Is it when the ship arrives in territorial waters, when the ship docks or when the passenger disembarks? Under the laws of many countries, a ship registered in a country is subject to that country's laws. Does that include tax laws and are those resident on a ship counted as subject to the tax laws of the country in which it is registered?

The issues of the ultimate in offshore living are not at all simple.

Register for FamilyWealthReport today

Gain access to regular and exclusive research on the global wealth management sector along with the opportunity to attend industry events such as exclusive invites to Breakfast Briefings and Summits in the major wealth management centres and industry leading awards programmes