EU Entry/Exit System: How the New Surveillance System Threatens Your Tax Strategy
Every border crossing is now meticulously recorded—the EU’s Entry/Exit System (EES) allows authorities to monitor your movements with ease. Learn how this impacts your tax obligations and what proactive steps you can take to safeguard your strategy.
By Alexander Erber, Senior Consultant, No Borders Founder
A New Reality for Entrepreneurs – Global Surveillance That Crosses Borders
In 2024, the freedom to travel internationally feels more accessible than ever. If you’re an entrepreneur or high-net-worth individual (HNWI) moving between homes in Dubai, Monaco, or the Maldives, you might think you’ve mastered the art of global mobility. But here’s the catch: this freedom is being quietly yet powerfully restricted by the EU’s Entry/Exit System (EES). Every time you cross an EU border—whether arriving or departing—your movement is tracked and recorded. You no longer have control over what data the authorities collect about you. And the worst part? This data could be used to challenge your tax residency and bring you under the scrutiny of tax authorities.
This isn’t just speculation; it’s a new reality. On November 10, 2024, the EES will officially go live, marking the start of a new era. In my years of consulting at No Borders Founder, I’ve guided many entrepreneurs through tax-optimized relocation strategies. But now, I must be clear: the rules have changed. What worked before—switching residencies, so-called “paper migrations,” or avoiding the 183-day rule—will soon become ineffective.
EES: Another Piece of the Global Surveillance Puzzle
While the EU Entry/Exit System is presented as a security measure to combat illegal migration, it’s much more than that. It’s a comprehensive system designed to track all movements within the Schengen Area. The EES records every border crossing, and your biometric data—fingerprints and facial recognition—are stored alongside your travel details.
The system holds this information for up to three years. Officially, the goal is to streamline border processes, but it’s only a matter of time before this data is accessible to tax authorities and other government bodies. Imagine this scenario: you declare your primary residence is in Dubai, yet the EES shows you’ve spent 200 days in the EU. The EES allows authorities to quickly identify potential tax evasion.
The 183-Day Rule: A Hidden Trap for Entrepreneurs
The 183-day rule is a cornerstone of international tax law, determining that a person is considered tax resident in a country if they spend more than 183 days there in a calendar year. For years, many entrepreneurs and HNWIs have used this rule to minimize their tax obligations. But what happens when the EES can accurately log every single movement? The days of strategically distributing your stays to avoid tax residency are over.
Here’s an example: you claim Dubai as your primary residence, but you spend most of your time in France or Germany. In the past, it was possible to fly under the radar by traveling back and forth. But now, the EES records every entry and exit, leaving no room to obscure your movements. Suddenly, what was once a clever tax strategy becomes a significant tax risk.
Tax Authorities and Data Sharing: The Real Threat
While the EES is officially intended for better border control, it’s clear that this data will soon find its way into the hands of tax authorities. The EU has already established extensive cooperation among its tax bodies to increase transparency. The Common Reporting Standard (CRS) and the OECD’s anti-tax evasion initiatives are just a few examples of how financial data and tax residency information are shared across borders.
With the EES, tax authorities will not only have access to your financial transactions but also your exact location history. They’ll know not only how much you’re moving, but where you are spending your time. This could trigger an avalanche of tax audits and reassessments, especially if your declared tax residency doesn’t match your actual travel patterns.
What does this mean for you? You’ll need to monitor not just your financial transactions but your physical movements as well. Ensure your travel data aligns with your tax filings, or risk being deemed a resident and facing substantial back taxes.
The New Reality for Entrepreneurs: More Control, Less Freedom
For entrepreneurs and self-employed individuals who have relied on flexible tax strategies, the EES is a game changer. The days of minimizing tax liabilities through clever residency planning or offshore companies are coming to an end. The EES makes it impossible to obscure your time in certain countries or cross borders undetected.
This poses a particular challenge for those operating as digital nomads or global citizens. The ability to move freely between countries while avoiding tax obligations is becoming a thing of the past.
Real-World Threats: Scenarios You Need to Avoid
Scenario 1: The Entrepreneur with a Dubai Residency
You’ve officially deregistered from Germany and now live in Dubai. But in reality, you spend 200 days a year in the EU, meeting clients, conducting business, and visiting family. This was once manageable, but the EES now tracks every day you spend in the EU. The result? You could be retroactively deemed tax resident, leading to significant tax penalties.
Scenario 2: The Digital Nomad
You work remotely, constantly moving between different countries. Up until now, you’ve managed to sidestep the 183-day rule by carefully timing your stays. But with the EES recording every trip, tax authorities can easily trace your movements and determine you owe taxes.
Key Recommendations from Alexander Erber
Prioritize Transparent Tax Strategies: Opt for clear, legal tax solutions that meet the new EES requirements. Avoid trying to game the system—the risks are too great.
Track Your Stays: Maintain detailed records of every day you spend in the EU. Use digital tools to ensure your records match the EES data.
Seek Early Professional Advice: Don’t wait until problems arise. No Borders Founder offers customized advice to help you adapt your tax strategy to these new realities and avoid costly mistakes.
FAQs: How the EU Entry/Exit System Impacts Your Tax Obligations
What is the EU Entry/Exit System (EES)?
The EES is a new digital system designed to record the entry and exit of non-EU citizens in the Schengen Area. It stores biometric data like fingerprints and facial scans, along with passport details, to track travelers’ movements within the EU.
When does the EES start?
The EES goes into effect on November 10, 2024. From that date, all non-EU citizens entering or leaving the Schengen Area will have their data recorded and stored for up to three years.
How does the EES affect the 183-day rule?
The 183-day rule determines where you are considered tax resident. The EES makes it much easier for authorities to verify whether you’ve exceeded the 183-day limit.
What data does the EES collect?
The EES collects biometric data such as fingerprints and facial recognition, along with your passport details, entry and exit dates, and travel history. This data is stored for up to three years.
Who has access to EES data?
While the primary users are border authorities, it’s likely that tax authorities and other government bodies will also access this information to verify tax residency and ensure compliance.
What happens if I exceed the 183-day rule?
If you stay in the EU longer than allowed, tax authorities may determine that you are tax resident in the EU, which could result in back taxes, fines, and even legal action.
How can I ensure my travels comply with tax laws?
Maintain a precise record of your travels and make sure they match your tax filings. Use digital tools and professional advice to avoid discrepancies and tax risks.
What should I do to optimize my international tax strategy?
To stay compliant and optimize your taxes, seek professional guidance from specialists in international tax planning. No Borders Founder offers tailored solutions to help you reduce your tax burden while staying within the law. Book a consultation to discuss your specific needs.
The Shift in Tax Planning: Transparency is Key
The EU Entry/Exit System marks the end of the era where entrepreneurs could strategically manage their time and taxes without close oversight. With every movement now tracked and recorded, adopting transparent, legal tax strategies is more important than ever. At No Borders Founder, we are here to help you navigate this changing landscape and ensure your tax strategy remains effective in the years to come.
Let’s talk. Schedule a personal consultation with me, Alexander Erber, Senior Consultant at No Borders Founder. Together, we’ll analyze your situation and develop a tailored strategy to meet these new requirements. Take advantage of my extensive experience to secure your financial future and tax safety. Click here to book your consultation—before it’s too late!
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