Some people feel attached to their home country. They tend to invest more in domestic equities, even if foreign ones offer a better return. However good the quality of life abroad may be, they will always trust home-country doctors and teachers more.
Others look deeper into the real reason for migration: lack of opportunities. Changing residence is thus seen as a chance to overcome:
- lack of opportunities for business
- complicated bureaucratic procedures
- monstrous tax rates
- lack of political stability and security
- low level of asset protection
- travel restrictions
- low quality of healthcare and education
Let us see, step by step, how to choose the most attractive destination in terms of lifestyle – and avoid paying unnecessary taxes.
- Countries with zero income tax
Countries with 0% tax are a double-edged sword. The flip side is usually the cost of living.
- Monaco does not tax its residents’ income. Yet, it has the highest real estate costs worldwide that create real estate transfer tax. Furthermore, VAT comes from high living costs and tourism.
- UAE residents pay no income tax, but the visa and license are subject to an annual fee. Also, property and services like notarisation are rather expensive.
- Island states worldwide attract businessmen through 0% corporate tax schemes, earning on corporate services and/or citizenship by investment schemes. However, they are difficult to reach and sometimes have a less developed legal environment.
- Countries with beneficial taxation for residents without domicile
These economically vibrant states tax only local-sourced income and/or remitted foreign income.
- In Europe: Malta, Cyprus, Ireland, and the UK
- In Asia: Singapore and Hong Kong
- Countries with special temporary regimes
- Portugal (NHR scheme, Golden Visa)
- Spain (Royal Decree 687/2005, also known as the “Beckham Law”)
- Greece and Italy (flat tax rate of 100.000 Euro on all foreign–sourced income)
- Countries with beneficial taxation and distribution of corporate income
- Romania (1% tax rate for companies with revenue < 1 million euro per year employing at least 1 Romanian citizen)
- Latvia (the tax system taxes local corporate profits when they are distributed on a corporate level; there is tax exemption on dividends distributed from a white-listed foreign company)
- Georgia (foreign-source income exemption from personal income tax; 0% corporate and dividend tax in case of a Virtual Zone Person)
|💡 You can first move to a zero-tax country, collect assets, and then move to another destination. In this case, you will have a capital to live from, while new profits will stay accumulated in a corporate structure.|
Avoid costs when you leave the original country of residence
Depending on the jurisdiction, an exit tax can take the following forms:
- taxation on a deemed dividend (delayed within EU)
- valuation of intellectual property on the future value
- delayed taxation
Moreover, some local assets can remain subject to tax (for instance, real estate or income of local partnerships). Citizens of countries such as the US need to pay the worldwide tax regardless of their residence.
Important note: article 4 of double taxation agreements defines residency criteria, which may overrule national regulations:
- Real estate back home may be seen as a permanent home. It is recommended to sell or rent it out to third parties.
- Married individuals with underage children have their residency where their core family is. Therefore, it is advised to move together with the family.
- Spending much time in the original country may trigger the 183-day rule. A suggestion: stay in a bordering country where possible.
Protect assets until it is too late
Think ahead. Private and corporate funds are exposed to claims from family members, governments, and potential creditors. Also, inheritance laws often allow family members to receive a mandatory share. It is better to have assets protected beforehand.
Separate ownership. Starting a trust or a foundation requires separating the assets from the original beneficial owner. Losing control may scare wealthy individuals away, but there are some ways to please everyone. For instance, a foundation is founded by a legal person, which is then taken over by this foundation, and this legal entity appoints the advisory board. The advisory board thus can appoint and discharge the board members, approve investments, and propose contributions. As long as the original persons do not receive any contribution, it will be difficult to claim beneficial ownership.
|🤔 An ex-wife of a Russian billionaire has not managed to get billions of dollars in divorce settlement, because his assets were acquired by limited liability companies owned by trusts.|
Open many bank accounts. Banks can be shut down by governments, defrauded, change terms of service, terminate a relationship, or block accounts. Therefore, it is indispensable to have bank accounts in different banks and countries.
Withdraw funds from corporate to private level smartly
Be prepared. In case someone plans to move to a high-tax country, it may be a good idea to jump into a low–tax country, to withdraw assets from corporate to private level or to convert them into capital. This capital can then be reinvested in a corporate structure as loans or hybrid instruments. In this way, the payback of capital will be tax–exempt in most new countries of residence (unlike income).
If there are not sufficient liquid funds, you can sell some intellectual property that allows future revenues and receive in turn debit notes for a discount. You can then receive the payments for the debit notes in a new country of residence.
Use a holding or an intermediary unit:
- If there is a withholding tax on dividends, interests, or royalties, a holding in another country can ensure their tax-free transfer to a company that can then distribute them tax-free to a shareholder.
- Selling an entity requires a holding in a country where capital gains and outgoing dividends are tax-free.
- Directors’ fees or service income received outside the country require a careful check:
- whether there are social charges and a withholding tax in the source country
- whether there is an income tax in the country of residence
Use a partnership:
- If a partnership is established in a country with a residence–without–domicile scheme, it can opt to be taxed transparently (at the level of the partners in the country of the company). The partners can live in a tax-free country or in a country where they are residents without domicile. The partnership can create profits outside the country and have some activities in the country. Art. 7 of the double tax agreements allocates the right to tax to the country of the partnership, which applies the territorial principle. So, income that is earned outside the country of the partnership sometimes remains tax-free both on corporate and on private levels.
- In some high–tax countries, shareholders can use participating loans to receive a profit share instead of a fixed interest. The company can deduct these variable interests, and the recipient may receive it tax–free outside his country of residence.
- If a company is established in a low–tax country and the founder joins its profit centre as a silent partner, he will receive a profit share outside the country of residence. In many places, companies can deduct such expenses, so that they are not shown as a profit in the final financial statement.
Use other entities:
A foundation or a trust can help separate ownership from the person – for example, to avoid exit tax. Later, it can declare contributions that are received by the person tax-free in or outside the new country of residence, depending on the constellation.
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