The contrasts between citizenship, residency and tax residency aren’t always obvious. However, they can make a profound difference to your living costs and security as an expat.
Let’s clarify each status and the associated rights that they afford.
Defining Citizenship Rights
As a UK national, you’ll have automatic British citizenship. In essence, your allegiance is to your country of birth which comes with several rights (and an obligation or two).
British citizens can:
- Leave and re-enter the country whenever they wish, without needing a permit.
- Vote, and hold positions in public office.
- Claim rights to things like social security benefits and healthcare.
We mentioned obligations, and as a citizen, you can be called on to serve on a jury. Aside from the need to comply with laws and national regulations, there aren’t any other fundamental requirements.
Citizenship by Naturalisation
You can hold a passport for a different country from the one you were born in by applying for citizenship through naturalisation or investment.
Citizenship is usually granted because:
- You have lived in the country for a minimum number of years.
- You have been a permanent resident for a requisite period.
- You have family members who hold citizenship.
- You have been granted citizenship through an investment programme.
Many countries require citizenship applicants to take a language test or pass examinations in local history or customs. You can also be asked to attend an oath swearing ceremony. Once you have become a citizen, it’s improbable that status could ever be taken away – unless you renounce your citizenship or commit a serious crime that gives the government a reason to strip your rights.
The Difference Between Residency and Citizenship
The most significant contrast between residency and citizenship is that you don’t have a second passport as a resident. There are limitations on things you can do. For example, a resident cannot vote or hold public office positions, but a citizen can. However, an expat living in another country as a permanent resident has pretty much the same freedoms as citizens and can work, live, start a business and use all public services.
Permanent residency is often available after five to seven years of living in the country. You’re still a resident, as opposed to a citizen, but won’t need to renew your permit.
If you wanted to have full citizenship rights, including a domestic passport, you’d need to apply for citizenship after a minimum number of years.
The Difference Between Being a Resident and a Tax Resident
To complicate matters, you can be a tax resident in two countries or hold a residence permit without being considered a tax resident. Tax residency is a technical definition used to establish which country you are obliged to file returns and pay taxes in.
As a rule of thumb, you become a tax resident if:
- You live in a country for 183 days (six months) or more in the year.
- Your primary residence or business is in the country.
- Your income derives from work of trade within the same country.
Now, it’s worth pointing out that you can be a tax-resident in two countries simultaneously. Say you have a primary home in two places and spend an equal six months in each; you could potentially fit the criteria for tax residency in both.
In that situation, your tax position will depend on factors such as:
- Double tax treaties – many countries have bilateral agreements not to tax the same individual twice on the same income or activities.
- Tiebreaker rules – these look closely at your activities and income structure to make a call on which country you are a tax-resident of if you meet the criteria for both.
Understanding your tax residency status is crucial for expat financial planning.
If you intend to live in a country most of the time and wish to take advantage of beneficial tax regimes, it’s worth seeking guidance to ensure you fit soundly within the rules. You may also have to continue filing returns with HMRC in the UK and can be liable for British taxes on some income, depending on the nature of the revenue and where it originates.
Residency in Multiple Countries
Just as expats can be dual tax-residents, they can also be dual residents and dual citizens – although not all at once.
- Dual citizenship means you hold two passports. Most countries recognise dual citizenship, although some don’t permit foreign nationals to enter with two passports.
- Dual tax-residency means you meet the rules for tax-residency in two countries, and therefore need to apply double tax treaty rules to establish the right place to declare and pay your taxes.
- Dual residency means you hold two simultaneous resident permits for two different countries.
Note that understanding tax treaties can become highly complex, so you should seek professional tax planning advice to ensure your affairs are properly managed.
The Rules on EU Travel as a UK Citizen
One of the common questions the Chase Buchanan team deals with is confusion over travel permits, tourist visas, residency rights and long-term citizenship eligibility for EU countries. The good news is that if you were lawfully resident in a European country before Brexit, you have ongoing rights protected by the Withdrawal Agreement. However, you may need to re-register for residency or apply for a permit, even if you haven’t been required to carry one before.
Now, the Schengen area offers short-term travel access with the same rules across the bloc. You can travel to an EU member country for up to 90 days of any 180, without needing a visa or tourist permit. That 90-day limit applies throughout the participating countries, so a series of shorter trips would all count towards the limit.
However, you will need a residence permit to move to the EU from now on. As a UK citizen, you aren’t an automatic EU citizen anymore, so that would involve a longer process, which we’ll run through below.
Securing Citizenship Rights as an Expat
If you’re interested in the typical system to progress from residency through to citizenship, this is how it usually works:
- An expat applies for a residency permit to live in another country for a fixed number of years.
- That permit is usually renewable and can be transferred to a permanent residency permit after a set period.
- Usually, after five years or more, a permanent resident can apply for full citizenship.
Long-term citizenship rights are the most secure, but if you aren’t sure whether you intend to live permanently in another country, permanent residency affords most of the rights and entitlements available. If you are keen to apply for citizenship status, a final option is to look at citizenship by immigration programmes. You can obtain a second passport by donating a value to the government or investing in real estate or business over a threshold – depending on where you wish to live.
The Portuguese Golden Visa is one such initiative, offering a renewable residency permit for two years with an investment of €500,000 (depending on the area). After five years, permit holders can apply for permanent residency and citizenship, although the latter requires evidence of ties with the country and basic language abilities.
Understanding your position as a tax resident, resident or citizen can be crucial when looking at factors such as inheritance planning. If you’re in any doubt, it’s essential to review your current visa or permit and look at the available options.
For more details about any information discussed here, please contact the Chase Buchanan team for personalised guidance.
*Information correct as at August 2021