How can you legally benefit from your tax residence? One way is to become a fiscal resident abroad where you can enjoy some tax allowances and incentives. However, it is not easy to make the right choice. To get what you expect to achieve, you need to know how to choose the right jurisdiction for tax purposes and estimate its benefits, requirements, procedures and possible challenges.
While many countries grant the tax resident status to qualifying applicants, only a handful of jurisdictions offer genuinely benign tax regimes ( zero or low rates of certain taxes). Moreover, many governments have designed special programs that make it easier for foreigners to obtain the status of fiscal residents plus the tax privileges that come with it. If you need both benefits and simplicity, this article will guide you on many meaningful details. Besides, we offer you a private online consultation for customized expert advice.
You are welcome to take advantage of the FREE private consultations with our experts specialized in tax residence issues, jurisdictions, and application procedures. Please book an online session by writing to the e-mail address or messengers given at the top of this page. You can also fill in and submit the clickable form given below. Your information will help our experts prepare and tailor for you the most relevant tax planning recommendations and offer practical help.
Jurisdictions’ Criteria Set for Applicants Seeking the Tax Residency
The mere fact of someone residing in a given jurisdiction (permanently or temporarily) or holding its citizenship does not automatically mean that a person will receive the status of a tax resident in such a jurisdiction. Besides, a person may qualify as a tax resident under the tax residence rules of more than one jurisdiction.
The residence status can be chosen by individuals for tax purposes and a variety of other legitimate reasons, including the intentions to launch a new offshore business, enjoy greater mobility and visa-free travel to many countries, have better access to international education and job opportunities, or the desire to move to a country with political stability.
Tax residence is assigned to a person meeting certain criteria set by the host jurisdiction. The criteria and rules for granting residence for tax purposes are different across jurisdictions. Besides, the criteria for residence in double taxation treaties are often different from those of domestic law. However, there are also some common regularities.
All jurisdictions’ approaches to tax residence can be roughly divided into the following 2 types.
Conventional schemes are based on the standard requirements for every eligible applicant
- to have a documented real, permanent physical residence address in some rented or owned property (and not just a PO box or in-care-of address) in the host jurisdiction
- to have resided in the host country for more than 183 days during the fiscal year (days of entry/exit are considered days of stay in the host jurisdiction; periods of stay for the sole purpose of education/medical treatment are often not included in the period of stay for purposes of determining fiscal residency status)
- to have vital interests in the host jurisdiction (ownership of the local property and/or business, development of professional activities, membership in clubs/charities, etc.)
- to pay fiscal duties to the treasury of the relevant country.
Country-specific schemes involve reference to a variety of other factors, such as the requirements
- to submit some evidence of the applicant’s willingness to contribute certain amounts to the economy of the host state (this can be an investment or donation to some national project)
- to pay a one-time flat tax.
How to Choose the Jurisdiction by the Reasons to Swap Tax Residency
Some taxpayers have long dreamed of a utopia in which ordinary people would legally avoid paying income tax and save their earnings in full – down to the cent, penny, or shilling. To most people living in high-tax jurisdictions, including, for example, the United States of America and Australia, such a possibility seems too good to be true, and in their case, the idea of changing tax residency is out of the question. However, such an opportunity is quite feasible and legally justified in some jurisdictions with zero/very low taxes often called ‘tax havens’, offshores, Offshore/International Financial Centres.
The history of such tax havens goes back to old times. However, over recent decades, the general public’s perception of such jurisdictions has become mostly negative. Their fiscal policies are often blamed as elaborate frauds plotted by large corporations and the dodgy rich. Why so? The point is, this negativity is powered by international organizations and governments or some high-tax jurisdictions. They have realized their weaknesses in the eyes of wealthy taxpayers, who prefer to invest in low-tax jurisdictions. And so they have launched their campaign against tax havens and their incentives for potential investors.
Nevertheless, every year, tens of thousands of high-net-worth individuals in search of favourable fiscal solutions resort to other tax residencies. There are different reasons for that.
- A lot of people swap tax residency because they are repulsed by the ongoing discussions of politicians in their home jurisdictions about the virtues of increasing income taxes.
- Many individuals are unwilling to accept the loss of their right to privacy while the tightening control over the personal data (including financial information) of individuals becomes more and more pronounced under the OECD’s proposed Automatic Tax Information Exchange (see below) and other tools.
Having recognized this trend, some jurisdictions are shifting into the low-tax category, abandoning the taxation of fiscal residents on their incomes. This is how they try to attract the foreign investment/human capital needed to stimulate the economy.
In other words, many countries today offer a path to financial freedom and allow their residents to keep their earnings. The benefits of such an approach outweigh the gains from the personal income tax. Low-tax jurisdictions offer minimal rates or no tax on wealth, capital gains, gifts, inheritance… All one has to do to enjoy such perks is to analyze the facts and make the right choice of tax residency.
How to Choose the Jurisdiction by Assessing the Maximum Possible Benefit from the Tax Residence
Dozens of states nowadays lure foreigners with zero income tax and other fiscal incentives. But to obtain the relevant benefits, it is not usually enough just to choose the tax residency of a particular jurisdiction and express a desire to get the appropriate status.
One will have to venture a full-scale relocation for long-term residence, meet the standard criteria set for tax purposes by OECD. In this case, you can choose tax residency from the following list of countries that do not charge personal income tax:
Antigua is a Caribbean nation with attractive immigration rules (see below) and liberal fiscal laws. By choosing the tax residency in Antigua and moving to the islands for most of the year, you can legally avoid paying personal income tax on worldwide income.
Bahamas is one of the most popular tourist destinations on the planet. The jurisdiction does not tax individuals on income/capital gains. The islands are heavily reliant on the financial sector and the tourism industry.
Bahrain. Among the Gulf states, Bahrain is probably the most favorable place for nomadic professionals. However, it is extremely difficult for outsiders to obtain Bahraini citizenship for permanent legal residence.
Bermuda is a popular tax haven, known as a luxury vacation spot for the wealthy due to the extremely high cost of goods/services. Generates income from tourism and the financial sector.
British Virgin Islands is an island nation located in the Caribbean known for its picturesque beaches and vibrant nightlife. The popularity of the tourist industry allows the government not to tax residents. Only after twenty years of residency can one apply for permanent residency.
Brunei is a small country with the highest per capita incomes due to its huge oil reserves. Most of Brunei’s wealth is concentrated in the hands of the Sultan and his associates. It is under a dictatorship, with very limited personal, social, and economic freedoms. It is virtually impossible to obtain permanent residency/citizenship.
Cayman Islands is a British Overseas Territory enjoying tax-free jurisdiction status due to tourism and a thriving financial sector, attracting high net worth expats. Such status makes the jurisdiction one of the most expensive places to live in.
Kuwait. Like neighboring states, Kuwait’s economy relies primarily on oil, which alllows it to exempt all incomes from personal income tax. Despite the presence of a large number of migrants, it is difficult to obtain a Kuwaiti residence permit. For example, a sponsorship visa from an employer would be required. Such a system has been heavily criticized as a means of incentivizing forced labor. In the case of digital nomads whose business does not need to be tied to its location, it is simply impossible to obtain a long-term visa under the current legislation.
Maldives. This is a small island nation known for its expensive resorts. Although a short vacation trip to the islands may not seem too expensive, a permanent residence in the Maldives will cost a pretty penny. Only Sunni Muslims may become permanent residents of this island jurisdiction. Citizenship is not available even to foreign Muslims. The islands are subject to the negative effects of the global warming and suffer from huge debts.
Monaco is an interesting option for tax residency. One of the most chic resort destinations. Located on the French Riviera, Monaco is known for luxury casinos and the Formula One circuit. The absence of personal income tax is overshadowed by exorbitant real estate prices, as well as the high prices for goods and services.
Nauru. This island jurisdiction was once one of the richest in the world because of its active phosphate mining industry. However, the depletion of fertilizer reserves has turned this jurisdiction into a declining economy. Today its territiry is used by Australia as a temporary detention center for asylum seekers. There is nothing attractive about the island, and the lack of taxes is practically the only advantage.
Oman is a Middle East country rich in oil. Oman is rapidly developing its tourism and shipping industry. The government is working hard to attract highly skilled migrants to fill the vacancies.
Pitcairn. The Pitcairn Islands are a British overseas territory with a tiny population. Located in the middle of the Pacific Ocean, the jurisdiction is known as the most isolated sovereign state. Its economy is based on fishing. Immigration procedures are extremely easy, but residents have nothing to engage themselves in on the islands, and you have to get there by ship.
Qatar. Vast reserves of fossil hydrocarbons have allowed Qataris to achieve the highest per capita income, making the taxation of individuals unnecessary. Visa and immigration rules are quite strict.
St. Barts. Saint Barthelemy, a French-speaking Caribbean island commonly known as St. Barts is an overseas collectivity of France in the Caribbean known for luxury tourism. The cost of living is much higher compared to other Caribbean island jurisdictions. It is not difficult to obtain a residence permit if the candidate is a citizen of the European Union. During the first five years of residence the new resident is subject to a 30% personal income tax, and then it will be possible to live tax-free on the island.
St. Kitts and Nevis is a Caribbean tourist country with no resident income tax. It is located near Antigua and offers liberal immigration laws (see below).
Turks and Caicos islands have the status of a British Overseas Territory. It is heavily dependent on tourism and financial services. Immigration laws are not overly strict and require applicants to demonstrate financial independence.
United Arab Emirates. The UAE is a group of emirates including Dubai and Abu Dhabi. The jurisdiction has huge oil and gas reserves. Besides, it is seeking to diversify the economy through the development of tourism, construction and financial services sectors. In particular, Dubai today is known for impressive megaprojects, from skyscrapers to artificial islands. The country receives a huge number of migrants sponsored by employers. It is possible to get a residence permit by opening a company in the UAE.
Vanuatu is an island nation with zero income tax, relying on tourism and the financial sector. The disadvantage is its rather low level of infrastructure development compared to other tropical resort destinations. The geographical location is far from optimal: it is quite difficult to get to the islands.
Vatican is a very specific state. It is impossible to obtain Vatican residency status without being a high-ranking member of the Catholic Church. With its micro-state status, the Vatican generates its income mainly from donations from religious organizations, pilgrimage and religious tourism, and investments. There are no taxes at all.
Wallis and Futuna. These islands are French Overseas Territories. This circumstance allows EU citizens to enter and leave the territory easily, as immigration laws are similar to those of France. Non-EU citizens have to put up with stricter procedures. The islands are financed by France and make their living through fishing. Tourism is virtually underdeveloped, but expats can easily find beautiful beaches and other places to relax in. The local prices are rather moderate, so the cost of living is not high.
When choosing the tax residency jurisdiction that does not have a personal income tax, lifestyle factors should be taken into account. According to the information above, many low-tax jurisdictions are located on small islands miles and miles away from the continents. This is the main reason for high prices and shortage and inavailability of many familiar goods/services. As the popularity of some jurisdictions is growing with wealthy individuals, the local prices increase. In other words, when planninga relocation, one has to put up with the high cost of living in some host destinations!
Our experts warn that low-tax countries have concluded some agreements on automatic exchange of fiscal information, so this may imply additional complications for tax residents (see below).
How to Choose the Jurisdiction by Assessing the Ease of the Tax Residency Transition
Some of the above options may seem really tempting. On the other hand, most low- or tax-free countries maintain very sophisticated rules for obtaining residence permits, permanent residency, itizenship, and tax residency.
Please note that many low-tax states offer liberal immigration laws. However, immigration rules in some countries deprive strangers of their chance to acquire their tax residency. Besides, jurisdictions’ remote geographical location and challenging travel routes may also become a big hurdle. That is why it is important, when choosing a tax residency jurisdiction, to assess the existing rules and procedures for their convenience and possible challenges.
Economic Immigration Programs
We recommend countries offering rather conventional investment immigration programs that facilitate the entry of expats and long-term residents into the host countries, and the subsequent acquisition of residency status for tax purposes.
For example, Turkey is a particularly attractive destination in this respect offering a second passport to buyers of real estate worth a quarter million euros or more. The property is allowed to be rented out and resold after the mandatory three year period of ownership.
Of no less interest are the countries that allow you to obtain a residence permit or permanent residence by investment (often called the Golden Visas). Such schemes are available, for example, in New Zealand, Brazil, and Canada.
On our portal you can find many articles detailing the benefits and availability of citizenship-by-investment (CBI) programs maintained by several jurisdictions in Europe and the Caribbean. There are also dozens of similar options across the world.OECD refers them to the conventional immigration tools.
Country-Specific Programs for HNWIs Seeking Tax Residency
Some countries, including Greece, Italy, and Uruguay, for example, offer unique solutions and terms for obtaining their fiscal residency.
For example, to obtain the tax resident status in such jurisdictions, it is necessary to obtain the residence-by-investment (RBI) status by making an investment in the purchace or long-term rent of some approved real estate, pay the annual flat tax, and reside in the country during a certain mandatory period. The investment is quite profitable, as the property can be resold or rented out after some time.
Such options are particularly popular with super-wealthy individuals and families, because the flat tax rates are often much lower than the base rates of personal income tax. Some expenses (i.e. maintenance and repair) are deductible. Under certain conditions, the overall fiscal burden can be considerably smaller if the host country offers the exemption from the worldwide personal income tax.
Portugal, Cyprus and several other jurisdictions offer special fiscal schemes with reduced income tax rates. For example, Portugal’s Residente Não Habitual program is aimed at attracting individuals who have not previously held the status of a fiscal resident in that country. Beneficiaries receive the right not to pay personal income tax on certain types of income or pay income tax at a reduced rate.
Bridging Simplicity and Profitability
Are there tax-free / low-tax jurisdictions that offer particularly friendly and profitable fiscal / immigration schemes? The answer is yes! For example, citizenship by investment is granted by some countries with zero personal income tax for fiscal residents:
Antigua grants citizenship for a donation or a real estate purchase at the value of USD 100,000 and USD 200,000, respectively. The enture procedures lasts from a quarter to six months.
St. Kitts and Nevis. This jurisdiction offers economic citizenship for a grant of at least USD 150,000 or a refundable 7-year real estate investment of over USD 200,000. Caribbean passport procedures will take on the average from a month and a half to six months.
Vanuatu passport is granted for a donation of USD 145,000 or more. The wait time is from a month and a half to three months.
Here are examples of tax-free countries issuing residence permits on very favorable terms:
Bahamas. To get a residence permit for one year you would need to buy some local real estate. The minimum required value depends on the location and several other factors.
Monaco is a tax residency option for multimillionaires/billionaires. The status of a resident is available through the purchase of some luxury real estate for one’s own residence plus a mandatory deposit of EUR 500,000 in one of Monaco’s commercial banks.
Bahrain. The process of obtaining a residence permit is easier if you invest in real estate worth more than 50,000 Bahrain dinars and earn more than 500 dinars per month (residence permit for the financially self-sufficient).
Cayman Islands. The permanent residency-by-investment in the Cayman Islands is a luxury available to applicants who can prove the source of the annual income of USD 145,000 or more and invest at least USD 600,000 in local real estate (when buying an asset on the island of Grand Cayman).
Apart from the above-listed examples, you should also consider some the low-tax countries.
For example, in Montenegro the personal income tax rate is 9%, and a residence permit is granted for the purchase of almost any property. This option involves a mandatory residence in this Balkan country for at least 183 days each year.
How to Choose the Tax Residence Jurisdiction for the Sake of Temporary or Permanent Resudency Status
Some countries permit expats to do the opposite. For example, in Switzerland, instead of using investment / physical residence as the grounds for tax residency, it is possible to use the fiscal residency status to qualify for residence permit / permanent residence / citizenship.
The local legislation allows applicants to become residents in Switzerland by means of a fiscal agreement with the selected canton. The applicant will need to demonstrate willingness to pay a fixed amount of tax into the treasury of the respective canton. The amount to be paid varies in different cantons.
Please note: Switzerland is considered a low-tax jurisdiction (by European standards), offering the highest quality of life, a developed banking sector and geographical proximity to the key European financial and business centers. Nevertheless, the local prices for goods and services are quite high.
The Impact of the Automatic Exchange of Fiscal Information on the Choice of Tax Residency
If privacy of personal / fiscal data is your concern, your choice of jurisdictions is getting narrow. Let’s look at the situation in detail. The Common Reporting Standard (CRS), introduced by the OECD, which covers the automatic exchange of fiscal information (AEFI) between individual jurisdictions in order to identify and prevent abuses and violations of the law by individuals, is becoming increasingly common.
As of March 2021, more than 4.2 thousand bilateral exchanges have been activated, covering more than one hundred jurisdictions committed to the CRS concept. The next exchanges between such jurisdictions will take place at the end of September 2021.
However, some individuals seek to conceal income, often acting illegally and moving capital/assets to low tax jurisdictions not covered or covered only partially by CRS / AEFI, not notifying the relevant authorities in the states of fiscal residence about such moves.
We do not encourage such practices. Moreover, we have to acknowledge that applications from dubious persons for financial services in low-tax jurisdictions discredit the latter, making it more difficult for decent clients to obtain a residence permit / permanent residence permit / passport of the respective countries (including the states issuing citizenship by investment). That is why we provide expert guidance and counseling as a profound support to our trustworthy customers.
Influence of DTA Agreements on How You Choose the Jurisdiction for Tax Residency
When choosing between jurisdictions, one should also consider Double Taxation Treaties (DTAs). If an individual receives income in one place, but transfers the funds abroad, there is a risk of being liable to pay tax on the respective income in both places.
To avoid double taxation, countries enter into double taxation treaties that allow individuals to qualify for exemptions. Antigua and Barbuda, for example, has bilateral tax treaties with Denmark, Norway, Sweden, Switzerland and the UK, as well as DTAs with the UAE and the UK.
Comprehensive Tax Residence Consultations on How to Choose the Jurisdiction – for Free
There are many reasons why individuals consider opportunities for changing tax residency.
Are you in this group and ready to act? Just do it! But please note that it is difficult to compare jurisdictions and their special programs, tax rates, lifestyle, other aspects on your own. It is especially hard if you try to forecast the possible long-term trends and opportunities, as the abundance of variables is confusing.
You are welcome to refer your questions to our experts at InternationalWealth and ask for advice on choosing tax residency.
Our experienced experts always review the client’s profile, specific needs, opportunities, and circumstances to assist in the selection and actual use of the best solutions in the best possible manner.
You can book a FREE one-on-one web consultation by writing to our e-mail address or messengers given at the top of this page.
Your freedom to choose your tax residence is your privilege. Your investment immigration will be a door to your better tomorrow. However, such decisions need to be based on thorough research and forecast. Though the financial aspects and issues of your tax residency change may seem confusing now, you may rely on our expert help. A sound professional consultation in choosing a jurisdiction will guarantee you long-lasting benefits!