Choosing the most suitable country of residence - 08.01.2019
Choosing the most suitable country of residence
Culture, climate, quality of life may be some of the drivers when we consider a move abroad. However, where we put down roots not only has long-lasting implications for our family, but also for our wealth and tax situation.
Tax aspects of a moving
In principle, moving to another country implies a change in your tax residence and as a result a change in your tax burden and reporting obligations.
Your new tax residence will also be considered by your private bankers for choosing tax efficient and compliant investments and for their reporting duties within the OECD international automatic exchange of information system.
Taxation varies greatly from country to country, so if you are contemplating living in another country, take plenty of time to find out what lies ahead.
1. Make an audit of your tax situation
▪ Understanding your tax situation in the country you intend to leave will help you to identify precisely your current tax burden and any exit tax due.
▪ To get your affairs in order before you move, it may be beneficial to structure your wealth differently to mitigate the risk of any adverse tax consequences in your future country of residence.
2. Deep-dive into the taxation system of your future country of residence
The next step is to find out how taxation works in your desired new country of residence. Be sure to get professional guidance to answer the following questions:
▪ Does local taxation apply to locally-sourced income and assets only or also worldwide income and assets?
▪ If a worldwide tax system applies, are there any exceptions or specific rules (e.g. remittance basis rule in the UK) restricting the taxation of foreign income and assets?
▪ Is there a special tax regime for new, incoming residents (e.g. Portugal, France, Italy)?
▪ Is there a double tax treaty in place between your current and future countries of residence? If yes, what exactly is covered by the treaty?
Find out how your income will be taxed, including:
▪ Taxation on professional income, employee incentives (e.g. carried interest shares for investment fund managers, stock options plans, bonus shares) and retirement benefits
▪ Taxation on financial investments (e.g. dividends, interests, investment funds, structured products, capital gains) where the assets are held directly by the individual or indirectly through a legal entity (e.g. partnership, corporation, trust, life insurance solution)
▪ Taxation on rental income on properties’ capital gains
▪ Any favourable tax allowances (e.g. tax credits)
▪ Any specific extra tax or social charge
3. Then dive even deeper…
▪ Is there any wealth tax or property tax applicable locally?
▪ If yes, how is property taxed: which assets are subject to tax? what is the taxation threshold? is there any tax allowance? what are the calculation basis and the tax rates?
▪ Will local tax treatment be affected by any double tax agreement in place?
▪ Is there any transfer tax applicable on properties?
4. Think about succession of wealth
▪ How are gifts and inheritance taxed locally? If a double tax treaty exists, what will that mean for you and your family?
▪ If you have already started to plan your succession before moving, how could it be affected by a move abroad?
▪ Under local civil law: who (e.g. spouse, children) may receive a gift or a portion of your estate and to what extent?
▪ What can be done to ensure your wealth is passed on in line with your wishes (e.g. choosing an applicable civil law, creating a will, setting up life insurance solutions)?
Given the complexity of the applicable rules in this matter, it is highly recommended to get advice from qualified advisers.
Other aspects to consider for choosing a new residence
1. Legal and financial aspects
▪ The quality of the local banking and wealth management services
▪ The potential restrictions to the free movement of capital (e.g. local exchange control)
▪ The local legislation on real property
▪ The local housing market and the living costs
▪ The social taxes
2. Subjective criteria
As a change of domicile implies an actual settlement in another country, it is very important to consider your current lifestyle and priorities. That’s why the following factors may be taken into account:
▪ The business opportunities
▪ Your local family and social relationships if any
▪ The local spoken language
▪ The local social security system and the quality of medical care
▪ The local infrastructure quality (e.g. international airports)
▪ The cultural life
▪ The climate
In conclusion, choosing the most suitable residence depends on your individual situation. While taxation forms a central part of one’s final decision to move abroad, it is important to balance head and heart, and form a clear vision of where and how you want to live your life.