Living Abroad for a While? Shakira Case Shows Taxes Matter — Wherever

Grammy-winning Columbian singer Shakira reached a last-minute deal with Spanish prosecutors on Nov. 20, the opening day of her trial for alleged tax fraud. The settlement, which will allow the singer to avoid jail time, follows a multiyear investigation into the singer's tax affairs. (One investigation in Barcelona reportedly involved two alleged counts of tax fraud in 2018. The Spanish trial centered on allegations of tax evasion amounting to about $16 million from 2012, 2013, and 2014.) 

Shakira, who is known for hits including "Whenever, Wherever" and "Hips Don't Lie," has throughout the years, denied the charges and previously paid millions to settle a portion of the alleged tax debt. The current deal involves a three-year suspended sentence and a fine of about 7.6 million dollars (7 million euros).

Shakira tax fraud settlement

Shakira, originally from Colombia but now residing in Miami, has previously said she followed the advice of tax professionals and complied with the law.  However, Spanish prosecutors in the tax case sought up to eight years in prison.

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In a statement, Shakira said that she resolved the case "with the best interest of my kids at heart, who do not want to see their mom sacrifice her personal well-being in this fight."

Why does it matter? This case highlights the impact residency and living in a different country, even temporarily, can have on an individual's tax liability — even when you’re not a pop star. So, here's what else you need to know if you're living abroad for a while.

Residency 183-day rule: Do you pay taxes if you live abroad?

• According to Spanish tax authorities, Shakira resided in Spain for over 200 days annually from 2012 to 2014, making her liable to pay taxes there.
• If you spend more than 183 days in Spain during a calendar year, you are considered a resident for tax purposes. 

Spain isn’t the only country that uses the “183-day rule” to determine whether you are a “resident” for tax purposes. (The 183-day rule generally says that if you spent 183 days or more in a country during a year you are considered a tax resident of that country for that year.) Different countries use different criteria to determine whether a person living there should be taxed as a resident.

For example, the United States has “tests” (a "green card test" and a "substantial presence test") for determining tax residency status. The calculations can be confusing because the substantial presence formula has a 31-day component, a 183-day component spread over three years, and numerous exceptions.

Some U.S. states also have residency requirements based on the 183-day rule. But each state varies in terms of how it calculates the time you spend there and how that time factors into whether you have to pay that state's income taxes. For example, establishing residency for tax purposes in Florida, a state with no income tax, might not be easy. (Residency and taxes can be a factor when you live in one state and work in another.)

Taxes for U.S. citizens living abroad

As for U.S. citizens and "resident aliens" (the IRS term for non-U.S. citizens who meet either the green card or substantial presence tests), the IRS says your worldwide income is subject to U.S. income tax — no matter where you live. However, some tax breaks are available to taxpayers that qualify, like the foreign earned income exclusion and foreign income tax credits.

If you’re living abroad and are unsure about your tax liability, consult a trusted professional tax or financial advisor before tax season. You can also visit the IRS page on resident and non-resident tax status to learn more. You don’t want to be caught off guard by a tax bill you can’t shake.

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