As more and more countries are introducing CFC-related regulations and the CRS network is growing wider, an increasing number of people start thinking about changing the country of their tax residence. How could you pay less in taxes?
Acquiring second citizenship by investment in Europe or the Caribbean would facilitate achieving this goal but it would not solve the problem completely. If you keep living in your home country while holding two passports, you will have to report your CFCs and foreign bank accounts to your home country’s authorities anyway. The way you can start paying less in taxes is changing your tax residence.
Without doubt, it would be very nice to relocate to a comfortable European country with a nice climate and settle down there with your family. The matter is, however, that countries such as Germany, France, and Spain, among others, charge taxes at progressive scales. You may have to give away almost half of your income if you are an affluent individual and you decide to relocate to one of the countries mentioned above. Below we discuss a few countries that are comfortable enough to live in and that do not charge too much in taxes at the same time. Some options may prove less obvious than others.
Panama
For years, Panama has been a key offshore zone. It’s rather affordable: registering a company in Panama costs much less than registering a company in Bermuda, for instance. The banking sector is one of the pillars of the Panamanian economy and the country offers a large choice of banks.
What makes Panama worth considering for acquiring tax residence there is the territorial taxation system applied in the country. The income tax in Panama is paid only by locally registered companies and locally employed individuals working for companies making profits in the country. Companies and individuals deriving profits from abroad are not taxed in Panama.
The following organizations are exempted from income tax in Panama:
- Institutions where foreign languages are taught;
- Export companies;
- Consulting firms.
Even if a company works in Panama, its income tax cannot exceed 25%. Besides,
- The first 11,000 US dollars per year are tax-exempt;
- Income between 11,001 and 50,000 dollars is taxed at 15%;
- Income that exceeds 50,000 dollars is taxed at 25%.
The capital gains tax is 10% in Panama but it is payable if the capital has been gained in the country. There is a nice benefit for foreign nationals buying real property in Panama: they are exempted from property tax for 20 years. There is no inheritance tax nor wealth tax in the country. Interest and dividends from foreign countries are also not taxed in Panama.
Panama is an attractive option from the fiscal point of view but it is certainly not the only option. You can choose your tax haven with International Wealth experts who know everything about tax regimes in different countries.
Bulgaria
Personal income is taxed at a flat rate of 10% regardless of the source of income. This is the lowest personal income tax rate that you can find in the EU (Bulgaria is a member of the Union). Another advantage that the country offers is a low cost of living (Bulgaria is outside the EuroZone).
Malta
A Global Residence Scheme has been available in Malta since 2013. This is a legal and tax residence scheme for people living outside the EU and wishing to relocate to Europe. A foreign national can buy a piece of property in Malta that costs at least 275,000 euros to qualify for legal residence in the country. Alternatively, he or she can sign a rent agreement and the contract price has to be at least 9,600 euros per year. If you purchase property not on the main island of Valletta, the required investment amounts are even lower.
The residence permit that you will be issued in exchange for your investment is not going to serve as a work permit. You will have to pay a flat tax of 15,000 euros per year and the amount remains the same if you apply for residence in Malta with your family. To be able to use these benefits, you have to make Malta your ‘main place of residence’, which means that you have to spend at least half a year in the country.
This residence scheme is similar to the one available in Switzerland: there you can also pay a fixed tax every year but the amount of the tax is several times lower in Malta than it is in Switzerland. Thus, if you would like to live in a comfortable European country on the money earned elsewhere, you should probably opt for Malta rather than Switzerland: it’s just much more affordable. Please note that you will have to pass a test in spoken English if you would like to settle down in Malta.
Monaco
Wealthy foreigners can acquire legal residence in Monaco without the right to work in the principality. To qualify for a residence permit, you have to buy or rent residential accommodations in Monaco, put at least a million euros in a local bank, and buy medical insurance. Living in Monaco is extremely expensive but the matter is that no income tax is charged in the country at all. The same holds for capital gains tax. To become a fiscal resident of Monaco, you have to spend more than 183 days per year in the principality.
Greece
Foreign investors can pay a fixed tax of 100,000 euros per year in Greece regardless of how high their income is. This tax benefit can be granted for not more than 15 years. To be able to use this opportunity, you have to acquire a golden visa to Greece or invest at least 500,000 euros in Greek securities or companies. An additional 20,000 euros per year is due for every family member if you are relocating to Greece with your family.
Uruguay
Since July 1, 2020, a residence scheme has been available to foreign nationals in Uruguay that brings substantial tax benefits. You have to meet two requirements to qualify for the tax benefits: spend 60 days per year in Uruguay and buy property in the country that costs at least 377,000 US dollars. If you do, you will be exempted from income tax as well as property tax for 10 years. Formally, the scheme is available to all foreign nationals, but when it was launched it primarily targeted wealthy Argentines and citizens of other Latin American countries.
As you can see, there are legal ways of reducing your tax burden by changing the country of your fiscal residence. If you would like to use this opportunity, please seek professional support because changing your tax residence is not a trivial task.
