Is Anguilla REALLY Income-Tax Free for Service Providers?
Janice's Home Office Nook in Anguilla
I've been reading your articles about moving to and living in Anguilla with interest.
If it were possible for a Canadian to move to Anguilla, start a global on-line IT business, and be deemed a non-resident by the Canada Revenue Agency (CRA), that would be fantastic!
But what if the majority of the income came from U.S. sources? I mean, as a Canadian the U.S./Canada tax treaty covers the following scenario...
If you provide services to U.S. companies on Canadian soil, you won't get double taxed. You pay Canadian income tax only.
But if you are a Canadian that moves to Anguilla as a non-resident, there is no tax treaty to protect you from the good old IRS wanting a cut, or is there?
I'm very interested to find out your thoughts on this, as I'd like to bring my Canadian IT company to Anguilla, and make it an Anguillian company (as per your other articles). But if 100% of the income I receive is from U.S. based sources, is Anguilla really tax free?
Great question, Trevor. It's a good example of what I've been talking about. People who earn their living on a computer should look at countries as if they were products on a shelf. Pick the one that best matches your needs and wants.
After all, you are free to live where you want when you have a skill that is not critical for local meetings or provision of goods or services.
Before I answer your questions, I should note that I will assume that you only have ONE tax nexus. In other words, you do not have branches in the U.S. If you do, that changes the answer.
So let's establish that you not only live in Ontario, but your ONLY place of business is in Ontario, too. That would be the case for most "solopreneurs."
In your case, then, there are 3 important pieces of information...
1) you sell a service
2) you sell it remotely, from Ontario, Canada
3) your business is almost 100% to Americans.
Trevor, the general principle is that services are taxed according to where they are provided, NOT according to where your client resides. From your letter, it seems that your IT services are provided remotely, from Ontario.
In that case, if you were to move to Anguilla and arrange your affairs so as to become an Anguillian resident (but still a Canadian citizen) and your place of business became Anguilla (by forming an Anguillian company), then you should be able to work tax-free if you are providing your services from Anguilla (most likely simply by working from home).
However, if you provide services in the U.S., that work would, I believe, be taxable by the United States. If you travel to the U.S. on business, some part of your income may become taxable in their eyes.
It is not necessary for the U.S. to have a treaty. Double taxation applies mostly to Americans who move to Canada and vice-versa. In your case, you are simply LIVING in Anguilla and providing a service remotely. Where your clients are is irrelevant as long as you do not physically visit them.
Now for a caveat...
Remember, the advice here should not be considered final legal advice upon which to form life-changing decisions. To the best of my understanding, things are looking pretty good for you. But...
You MUST consult a Canadian tax attorney who can advise you...
1) how to sever all ties and become considered a non-resident by the CRA (ex., you would terminate your Canadian business), and
2) with absolute certainty, especially considering any business details which may not be in your letter.
And, of course, that attorney should also mention what you canNOT do. For example, if you return to Canada to work with a friend on a special project, you will be taxable in Canada for that and you put some risk on your non-residency status. Or, as regards the U.S., what happens in various scenarios where you do travel to the U.S. for business purposes (ex., provide a service, or simply to meet a client)?
A final general principle: When leaving Canada, it should be with the underlying motive of never coming back. If it's just to avoid tax for a year or two, you will most likely be reassessed when you come back. But if it is truly because you want to live a warm, friendly and tax-free country for the rest of your life, you will be fine as long as all your actions are consistent with that decision.
Best of luck to you. I hope to see you on the beach one day!