When it comes to understanding tax liabilities, many yacht crew still believe that they don't need to declare their income. Even if you bank offshore, are non-resident, are not resident anywhere, spend less than 183 days anywhere or live on a foreign flagged vessel - there are rules to follow and often positive financial benefits in filing a return.
If you are a UK seafarer, you may be able to take advantage of HMRC’s best kept secret, the Seafarers Earnings Deduction (SED), which enables individuals to claim 100% tax exemption.
It seems crazy to hide money when you can declare it tax free, and make the most of your hard earned cash. If you told a non-Brit crewmember you had this option and weren’t using it, they'd probably want to swap passports.
Let's look at the scenarios one by one:
“I bank offshore"
Due to the growing list of countries signing up to the Automatic Exchange of Information (AEI), you are no longer protected by keeping your money in an offshore account. In any case, is it really an advantage in the greater scheme of things? As well as not earning interest, your money is just sitting there rather than working for you via investments or other initiatives. By declaring your income you can start to reap the benefits of bringing it onshore, earning interest and yielding a return.
“I’m not resident anywhere”
Contrary to popular myth, very few yacht crew really are non-resident anywhere. Most people believe the 183 day rule overides any other aspect of residency, however, according to the OECD model tax convention (Organization for Economic Cooperation and Development), permanent home and socioeconomic ties carry equal weight.
The implementation of CRS (Common Reporting Standard) and FATCA (Foreign Account Tax Compliance Act - a 2010 United States federal law to enforce the requirement for United States persons including those living outside the US to file yearly reports on their non-U.S. financial accounts) require all banks to contact account holders to obtain verification of details, including their tax number and residency.
Unless you can prove you are truly non-resident anywhere - which is extremely difficult even for yacht crew - you must provide this information or risk being reported to your tax authority.
“I do file a tax return - I declare my income from rental property.”
Unfortunately, this is another common myth that does not stack up. You need to be seen to declare all your foreign earnings, and by making only a partial declaration, not only are you filing incorrectly, but you will also prevent yourself from obtaining a mortgage as banks want to see your earned income, not just gains from rental property.
“Maybe it’s time to become tax resident in Monaco or Panama.”
Yes, technically you could choose to hide your funds in Monaco or Panama. However concealing funds in this way is an illegal practice and these days tax authorities take a very dim view on tax evasion. It's also worth considering just how long Monaco or Panama can hold out against growing pressure to join the list of 97+ countries who already freely exchange information on foreign accounts.
The best solution is to take professional tax advice on the options available for declaring your income while keeping as much of your money as you can.
As I said, crew who can declare their income in the UK under the SED can claim 100% tax relief, and the only reason for not doing so is not realising how easy it is to set up. Not only will financial products be more accessible but, when it comes to tax, it's much better to be proactive than to wait to be asked for information.
If you would like further advice on any of the points raised in this article please contact me at: firstname.lastname@example.org
Any tax advice in this article is not intended or written by Marine Accounts to be used by a client or entity for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing or recommending to another party.
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