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Tax Residency: How to Reduce Risks in Times of Uncertainty

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What currently happens in the world has never happened before. No one knows exactly how long the coronavirus epidemic will last. It is very hard to predict the consequences the global economy. Uncertainty increases risks for investment, business, and even personal security. But there is a way to lessen the impact of this crisis. It is about time to think about tax planning, capital and family protection.

International mobility, second passports and residency programs become even more valuable during unstable times, caused by COVID-19. They stand out against market volatility. Nobody can tell how long will it take for stability to come back in our lives, therefore you can use this period to take action and protect yourself from such situations in the future. 

Some ways of investment can be considered as safe. For example, alternative resident permits, citizenship, gold and bonds with credit ratings of Aaa are great to keep your capital and even protect your family. Investors can diversify risks via getting a residential status for tax and business purposes. Such an option guarantees protection from economic and political volatility. And of course, second passport allows you to travel without borders and expand the boundaries of business and education.

One of the most popular ways of tax planning is changing tax residency. This is especially true now, when there is an automatic exchange of financial information between many jurisdictions. Let’s look at several countries with the most attractive tax conditions for new residents.

The United Kingdom

Tax residents of the UK can switch to the remittance basis of taxation, if they do not have a domicile within the country. According to it, only income received in the UK or transferred to its territory is subject to taxation. There is an inheritance tax in the UK, but there are no taxes on wealth and on the acquisition of property.

How to become a resident? One of the options is called Tier 1 Investor. It requires £2,000,000 of minimal investment. You can also get Tier 1 Innovator visa with investment into business starting from £50,000.

Italy

Italy began a new regime of fixed taxation back in 2017, which provides for a tax in the amount of €100,000 per year for global income. The fixed tax regime can be used for 15 years. Only those who have not been a tax resident of Italy for 9 out of the last 10 years can claim for special tax option.

How to become a tax resident? Foreigners with a special tax regime can obtain the status of elective resident. It allows you to live in the country, but does not give you the right to work.

Cyprus

Cyprus brought in the status called ‘non-domiciled resident’ in 2015 for legal and individual entities. This basically means that those, who want to move to Cyprus to become tax residents there and have passive income only (for example, dividends, royalties, and interest), will be liberated from the income tax and Special Contribution to the Defence Fund for 17 years. 

How to become a resident? Foreigners can get a residence permit or Cypriot citizenship via investment. The main requirement for the residence permit is acquisition of real estate for €300,000 or more on the primary market (including VAT). And you have to invest €2,000,000 or more to get the citizenship.

Malta

Individuals can become tax residents of Malta under the special tax regime of the Global Residence Program. In this case, income tax is paid at a fixed rate of 15% on foreign income that is transferred to Malta. Other types of income are also taxed at a fixed rate of 15%. Beneficiaries of the regime are required to pay an annual tax of at least €15,000.

How to become a resident? Malta offers 2 investment programs. You have  to invest €350,000 for a residence permit, and €1,000,000 or more to get citizenship.

Portugal

Individuals can apply for special non-habitual status, if they haven’t been tax residents of Portugal in the past 5 tax periods. It allows to avoid paying taxes on your income from foreign sources for 10 years.

How to become a resident? Foreign citizens can get a residence permit (‘Golden visa’) through investments from €250,000. The program has been repeatedly recognized as one of the best investment programs in the Henley & Partners rating due to the timing and quality of application processing, investment requirements and standard of living.

Greece

In December 2019, the Greek government approved changes to tax legislation.

New tax residents are offered to pay an annual fixed tax of €100,000 on all income abroad. Participants of the program can also be exempt from inheritance and gift tax for assets outside of Greece. Tax benefits will be valid for up to 15 years. The program may be interesting as a non-domicile for those, who want to obtain tax residency and stay in Greece for at least 183 days per year.

If you invest €500,000, then your annual tax on global income will be €100,000, with an investment of €1,000,000 the annual tax will be €50,000. And if the investment is €1,500,000, then the tax on all global income will be only €25,000 per year.

How to become a resident? Foreign citizens can get a residence permit (‘Golden visa’) in Greece through investment from €250,000. You can also invest in real estate or land. A program participant can invest as an individual or legal entity into an investment project that has a positive effect on national development and the country's economy. The process of obtaining a residence permit takes 2 months or more, depending on the region of application.

Switzerland

Taxation in Switzerland is regulated on a federal, cantonal and municipal levels. Personal income tax is collected on a progressive scale, with a ma federal rate of 11.5%. Cantons can set their own rates, which range from 1.8% to 26.0%. If a taxpayer closes a special agreement with the Swiss tax authorities, then their taxes are collected from the estimated income, which is determined based on expenses and the cost of living in Switzerland.

How to become a resident? Citizens of countries outside the EU/EFTA can only obtain a Swiss residence permit in the immigration category: for employees; entrepreneurs; pensioners, who can prove close ties with Switzerland; financially independent individuals, who are ready to pay a fixed tax on personal income agreed with the tax authorities each year. The last option is especially popular among wealthy people, since it does not require significant time expenditures and is not subject to quotas.

Usually, to become a tax resident of a particular country you need to spend a certain significant amount of time there (from 90 to 180 days at least). This is not enough for a tourist or business visa. You must be either a citizen or a resident with a residence permit or permanent residence.

But a residence permit restricts the holder in choosing a place of permanent residence on the territory of the country that issued the residence permit, or in countries with special agreements. Moreover, the residence permit must be extended from time to time. In this sense, citizenship (and preferably European citizenship) is a more valuable investment tool, which not only allows you to choose a place to live, but is also passed onto future generations. 

Author: Irina Simonyan
Director of marketing
Henley & Partners

Quoting conditions of Prian materials

Tags: Residence permit and citizenship, Immigration, Investment, Immigration programs

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