Best Tax Residence: Choose the Optimal Option

If you are a tax resident of a national state, this means that you are liable to taxation in this state. In what country do you have to pay taxes? Usually, it is the country where you spend most of your time (as a rule, more than 183 days per calendar year). In some cases, you are liable to taxes in the country where you have ‘vital interests’ such as economic interests or some real estate (Switzerland, Austria, Germany, for example). Otherwise, you may be a tax resident of the country that is the country of your citizenship (the USA, for example).

Reasons to change tax residence

Some people do change their tax residence for two main reasons. First, they may have to pay taxes in the jurisdiction where they live even if the taxes are high there. In Spain, for example, the personal income tax is 24% but living in the country is very nice. Thus, a person may put up with high taxes for the sake of living in comfortable conditions.

The second reason why people change their tax residence is the desire to lessen their tax burdens. It is not a secret that some countries charge less in taxes while others charge more. Most Caribbean states, for example, do not levy any personal income tax at all. Besides, they levy neither gift tax nor inheritance tax.

How you can change your tax residence

You cannot acquire tax residence of a foreign country (and pay a 0% income tax) by simply filing an application for tax residence. You have to obtain a residence permit or citizenship of the country before you can become a tax resident there. And this rule holds for any national state.

So what are your options if you are thinking of changing your tax residence and you would like to do it fast? The options are quite diverse, as a matter of fact. First, a large number of countries administer residence-by-investment programs. For instance, you can invest maximum 500,000 euros in real estate in Portugal and you will qualify for legal residence in the country. Or you can invest minimum 500,000 euros in real estate in Spain and this will also make you qualified for a residence card.

Malta, Monaco, Andorra, Greece, Switzerland, and the United Kingdom offer similar opportunities. In some countries, you have to invest more than half a million to obtain a residence permit, in others you have to invest less.

Second, some countries also administer citizenship-by-investment programs. You can find such countries in many parts of the globe including the Caribbean basin, the South Pacific region, the Middle East, and Europe. A Caribbean passport will cost you between US$ 100,000 and US$ 400,000 while a European passport is going to cost you a couple million euros.

Naturally, the cheaper second citizenship options will look more attractive than the costlier ones but the price is not the only thing that matters. For example, if you hold a Caribbean passport and you want to use it to open a bank account in Europe or North America, you might have trouble doing so. This is not because the bankers are whimsical but because they have to follow very strict international regulations. The global campaign against money laundering and terrorism financing is at its peak at the moment and banks have to apply rigid due diligence requirements. Unfortunately, the Caribbean states are not on the list of highly reliable countries.

Thus, the reputability of the country where you want to acquire legal residence or citizenship can also be of importance. If you would like to make investments in foreign states, for example, and deal with foreign banks, you had better use a reputable passport. At the same time, every person will have his or her own preferences and goals so by means you should write off the possibility to apply for the Citizenship of a Caribbean country. Below we describe several countries that welcome foreign investors and issue residence permits to them or even passports. When you become a legal resident or a citizen of any of these countries, you will also become eligible to apply for tax residence there.

Great Britain

We have to admit that the legislation related to acquiring tax residence in the UK is highly complicated. In addition to legally residing in the country for 183 days, the candidate for tax residence in Great Britain has to pass the Statutory Residence Test that is notoriously difficult.

As far as the local investor visa program is concerned, you have to invest from two million pounds to qualify for residence in the UK. We have to note at this point that the British authorities have recently decided to retrospectively check the legality of the investment capital brought by foreign residents in Britain. They are especially interested in learning more about the persons who were engaged in politics in their home countries. Generally speaking, the taxes are high in the United Kingdom.

Greece

You have to spend at least 183 days in Greece to qualify for tax residence there. At the same time, acquiring legal grounds for staying in Greece is quite possible if you are a well-to-do person. The country runs a golden visa program that allows acquiring legal residence in Greece in exchange for an investment. The required investment amount is rather low if you compare it to other residence-by-investment opportunities. Purchase a piece of real estate in the country that is worth at least 250,000 euros and you will qualify for legal residence there. The application processing will take only a bit more than one month.

Spain

As we have noted before, the tax burden is rather heavy in Spain. It is a wonderful country to live in, however, and the requirements for prospective tax residents are similar to those in most other countries: you have to legally stay in Spain for 183 days within a year. What can make your stay legal in the country? The Spanish golden visa program! Purchase a piece of real estate in the country that is worth at least 500,000 euros and you will qualify for legal residence there. If the cost of the property exceeds the said amount, you are welcome to apply for a mortgage to a Spanish bank. The interest rates are quite affordable in the country. 

Monaco

To become a tax resident in Monaco you also have to spend 183 days per year there on legal grounds. Acquiring the legal grounds is quite possible and Monaco is an attractive option to consider indeed because the taxes are low in the principality. The rich and famous like living there.

Portugal

You can also acquire legal residence in Portugal in exchange for an investment. The country offers nearly a dozen investment options, the most popular being investment in real estate. The minimum amount that you can invest to qualify for legal residence in Portugal is 280,000 euros but in this case, it will have to be an old house requiring repairs and located in a rural area. The maximum required investment amount is 500,000 euros. You can buy a livable house or apartment in a nice region of Portugal and you will still qualify for residence there. Please mind, however, that since recently, purchase of real estate in Lisbon, Porto, or the region of Algarve will not make you eligible to apply for a residence permit in Portugal. To acquire tax residence in the country, you will have to spend 183 days per year there.

Switzerland

The conditions that Switzerland puts forward to foreign nationals wishing to acquire tax residence there are a bit different. A wealthy foreigner can obtain a legal residence permit and a tax residence certificate simultaneously. It is possible to acquire legal residence in Switzerland by a tax agreement. If you are prepared to pay a set amount of money to the Swiss budget every year, you can quickly become a legal and a tax resident in the country. At the same time, to preserve your tax resident status you have to spend 183 day per year in Switzerland anyway.

Malta

One of the fastest ways to obtain tax residence in Malta is to apply for citizenship of the country by investment. The required investment amount will exceed 1.2 million euros, which is quite high but the taxation system in Malta is rather liberal in comparison to other European countries. Again, you will have to spend 183 days in the country before you can become its tax resident.

Andorra

A foreign national who spends 90 consecutive days in Andorra on legal grounds can qualify for tax residence in the country. And this is an attractive opportunity indeed because Andorra is almost tax-free. As far as acquiring legal residence is concerned, there are several opportunities that the country offers so this is quite possible to do so too.

Caribbean

As we have noted above, acquiring tax residence in the Caribbean is attractive due to the low taxes charged in many countries in the region. Not only are the citizens of the countries exempt from the personal income tax but the capital gains tax is also not payable there (it is 19% in Spain, for the sake of comparison).

Acquiring the right of abode in the Caribbean is easy too. Five states in the region – the Commonwealth of Dominica, Antigua and Barbuda, Saint Lucia, Saint Kitts and Nevis, and Grenada – administer citizenship-by-investment programs. You can acquire Caribbean citizenship within six weeks to six months, depending on the country. The cost of second citizenship starts at US$ 100,000. No economic citizenship program requires that you should spend time in the Caribbean country in order to retain your passport. To become a tax resident in the Caribbean, however, you have to spend 183 days per year in the respecting country. (We will share some insider information here with you: a couple of the countries mentioned above are considering the possibility of granting instant tax residence to generous foreign investors.)

You can ‘purchase’ citizenship of a Caribbean country at the lowest price if you make a non-returnable donation to the state fund. However, you do not have to give the money away as there are other ways to obtain Caribbean citizenship too. You can make a returnable investment in real estate, in state bonds, or in a business venture in one of the countries and this will make you qualified for citizenship too. The required investment amounts are going to be a bit higher but you will be making a returnable investment instead of a non-returnable donation. So these options are certainly worth considering.

Second citizenship and tax residence in a foreign country

We would like to make it very clear: if you acquire citizenship of a foreign country, you do not have to become its tax resident. You can if you wish but you don’t have to. Many foreign investors ‘buy’ citizenship in the Caribbean to be able to use more than one passport. For instance, they take their Caribbean passports on their trips to foreign countries because it is easier to enter some national states with a Caribbean passport rather than with the passport of their home country.

Whether you would like to change your tax residence without becoming a citizen of a foreign country or you would like to acquire second citizenship without becoming a tax resident of a foreign country or you would like to obtain a second passport and change your tax residence, we will be happy to assist you in any case. Please mind, however, that you have to acquire a residence permit in a foreign state before you can become a tax resident there. And we can help you do this too!

Please write to info@offshore-pro.info or get in touch with us in any other way (click on the ‘Contact us’ icon above) if you would like to ask us any questions related to foreign citizenship or legal tax residence as well as foreign bank accounts and foreign company registration. Our expertise in these areas would be of great assistance to you if you are considering any of these opportunities.