A strict division between the formal economy and the informal economy cannot be made and every economic actor has in certain situations a propensity to engage in informal economic activities. The formal, as well as informal economy may lead to economic growth which is essential for a broad welfare policy, under which social benefits are categorized. A person’s economic contribution to a state should entail some possibility of getting economic and social benefits from it. The article shows that a person, who is liable to tax in a state, by staying in its territory, should not be excluded from the social welfare system. There is often a lack of congruence between tax liability and right to residence-based social benefits. A typical example is that of undocumented migrants. Welfare policy is to a large extent governed by a mix of rules linked to taxation, social contributions and social benefits. It could be expected that the policy be well devised, leading to well-coordinated systems. European states having a social policy with roots in a Beveridge model (such as Sweden), should be obliged to integrate undocumented migrants in their social benefit system. Regardless of any declared income they should be part of basic social benefits scheme by virtue of territoriality alone.