What steps might an individual be advised to consider before establishing residence in (or becoming otherwise connected for tax purposes with) the jurisdiction?
Private Client (2nd edition)
An individual may elect (within 90 days form his arrival) an adjustment year under which he would still be considered as a non-Israeli tax resident during the first year of arrival. Also, certain individuals that came for Israel as students or lecturers, for a certain period, may still be considered as a non-Israeli tax resident, under certain terms. Foreign individual may also restructure their holdings prior to their arrival to Israel and in particular engage in planning for their compensation.
The key steps that a non-Irish domicile individual should take are as follows:
- Segregate capital value and accumulated income and gains arising prior to the tax year in which the individual becomes Irish tax resident. These funds should not be mixed with income and gains arising in subsequent tax years, as they will collectively be considered as ‘clean capital’, which the individual can remit tax-free into Ireland.
- Rebase assets which have latent capital gains, to get an uplift in the base cost of the asset, provided it can be done in a tax neutral manner in the country of tax residence pre-entry.
- Receiving / gifting non-Irish situs assets to non-Irish resident individuals within the initial 5 years of Irish tax residence so as to avoid an Irish CAT charge arising.
Before emigrating to Belgium, one might consider the impact of the so-called ‘Cayman tax’ on his rights or entitlements towards trusts and low-taxed foreign legal entities (cf. question 23). Given the differences between the Regions with respect to inheritance and gift tax legislation, one might also consider the implications of settling in a certain Region.
An individual should consider contributing assets to a foreign trust prior to entering the US. If done more than 5 years prior to becoming a US Person, the trust assets in most cases will not be subject to US income taxation. If an individual is very wealthy (more than $10 million of liquid assets), the individual may want to consider investing through a private placement life insurance policy, which is not subject to US income tax. If the individual is moving to a US state that imposes an income tax, the individual may want to establish a trust in a US state that does not impose income tax to avoid state income tax on those assets.
The Cyprus International Trust, established under the International Trusts Laws of 1992 to 2013, is a very valuable and effective tool for asset protection, succession planning and tax planning. In order to establish a Cyprus International Trust, the settlor must not have been a resident of Cyprus for the calendar year prior to the creation of the trust. It is therefore prudent to establish any Cyprus International Trust prior to arrival in Cyprus.
As the Cyprus tax system is flexible and taxpayer-friendly, any other pre-entry planning that might usefully be undertaken would generally relate to overseas taxes.
First, the assets and income of the individual have to be determined. Depending on which income the individual predominantly earns, advantageous structures may be available from an Austrian tax perspective.
Residence is not prone to sudden, single step, changes. Becoming a Bulgarian resident is a process during which a person should establish sufficient links to Bulgaria and cut (lower the intensity of) any existing links to such person’s prior residence state as a potential change of residence is going to affect the taxing rights of that state. Therefore, it should be done carefully so that a person does not end up in the net of two different tax systems and absent a tax treaty be subjected to double taxation.
This is why, before establishing residence in Bulgaria, individuals are advised to consider whether or not there is a tax treaty between Bulgaria and their current state of residence, as well as the treaty’s applicability to their particular situation (some of the older Bulgarian tax treaties apply to Bulgarian nationals only thereby denying access to treaty relief to non-Bulgarian nationals). Hence, individuals considering Bulgarian residence as an option should consult a tax adviser beforehand.
An individual must consider that upon becoming an Argentine tax resident he/she will be subject to personal income tax (Ganancias Personas Físicas) on their worldwide income and if he/she becomes Argentine domiciled (as the case might be) he/she will be subject to Personal Asset Tax assessed on those assets located in Argentina and abroad as of 31st December each year. In this sense, he/she should be advised that Argentina has one of the highest tax burdens in Latin America.
The individual should consider too that Argentina have faced cyclical economic and political crisis (basically, every ten years) and that whenever a crisis arises, the right of ownership is at risk. Devaluation, asymmetric pesification, foreign exchange restrictions are a few examples of this. Insecurity is another important issue to consider.
Having said this, it would be advisable that if the person analyzing the possibility of establishing residence in Argentina is a High-net-worth Individual, he/she shall previously settle up a structure in order to tackle asset protection, avoid disclosure of assets in the relevant tax returns (mainly for insecurity reasons), and ease their eventual tax burden.
An individual who intends to establish residence in Monaco must obtain a residence card.
In certain cases, foreign tax authorities may request from individuals a proof of residence in Monaco.
The residence certificate is a proof of an individual’s current residence in the Principality. It is issued by the Monegasque authorities to residents of the Principality who reside in Monaco for at least 6 months a year or have their main centre of activities in Monaco.
Individuals moving to Italy under the forfait tax regime must consider the filing of a ruling on the entitlement to such special regime and its application to their specific facts and circumstances, and must consider any restructuring of their foreign assets that may help minimizing taxation of source since foreign taxes will not be creditable in Italy.
Individual moving to Italy under the ordinary tax regime may consider to reorganise their ownership structure to make them more tax effective in the light of Italian tax laws and to try to obtain a step-up the tax basis of assets.
As no direct taxes are applied in Bermuda, there are no particular steps an individual might consider before establishing residence from a tax perspective. However, appropriate immigration permission should be obtained.
11.1 Before becoming UK-resident (§1.5-1.7), an individual should consider certain preparatory steps. In view of the territorial limits described in §1.2, such steps should normally be carried out in a tax year (§2.13) before the tax year in which the individual first becomes UK resident, and reliance should not be placed on split year treatment (§2.13). It is assumed below that the individual is not domiciled (§1.9), deemed domiciled (§1.10) or deemed domiciled for inheritance tax purposes (§5.9) in the UK, and is not temporarily non-resident (§1.8). Before taking any step such as mentioned below, the tax consequences of the step in any non UK jurisdiction should be considered.
11.2 The individual should consider realising income or capital gains so as to create a cash fund (often called "clean capital"), which he should be able to use in the UK without giving rise to UK tax charges, and placing that clean capital in a separate non UK bank account. Arrangements could be made with the bank for any income produced by the clean capital to be paid into a separate account and not remitted to the UK (§10.3), with all remittances to the UK being from the clean capital account only.
11.3 The individual should review his worldwide property, including shareholdings in companies and life insurance policies, and the terms (and historical income and capital gains) of existing trusts (§19.2) and foundations, to ensure that his becoming UK-resident (§1.5-1.7) will not give rise to adverse tax treatment of these structures. The individual might consider steps to rebase the value of any assets standing at a capital gain. Consideration should be given to taking a substantial dividend from a wholly-owned company, or winding up such a company or an existing family trust, to create clean capital (§11.2) and avoid heavy UK tax charges that might arise on distributions from such structures during the individual's period of UK residency. Funds extracted in this way and not required for expenditure during the period of UK residency might be used to establish a new trust or foundation structure, potentially allowing those funds to be held tax-efficiently on a long-term basis for the benefit of future generations.
11.4 The individual should ensure that any directorships do not give rise to UK tax charges, as the exercise in the UK of control over a non UK company may bring any profits of that company within the scope of UK taxation and cause various UK tax regimes to apply in relation to that company.
11.5 Assuming the individual has a non UK domicile (§1.9), he should protect this status by ensuring that at all times he has evidence of a plan, and of practical preparation, to leave the UK after a limited period or on the occurrence of an event such as retirement.
This must be analysed on a case-by-case basis. It is always advisable to analyse the ultimate beneficial owner's (UBO) applicable tax rules according to the UBO's tax residence and the situs assets' tax rules.
The individual should consider the impact of their liability to taxation regimes of other jurisdictions. For example, an American citizen may still be liable to pay taxes to the United States by virtue of their citizenship.
As there’s no automatic step-up for assets held by an individual moving to Germany (safe for the case of shareholdings in corporations of at least 1% if the state of expatriation levies an exit tax), it may be advisable to check the options of a tax efficient step up before becoming tax resident in Germany. As German gift tax will apply once the donor or donee has become tax resident, it should also be considered to make inter-vivos gifts before moving. Furthermore, as Germany has quite unfavourable rules on the taxation of settlors or beneficiaries of foreign trusts, also trusts structures should be checked with respect to the potential tax consequences for German residents.
As set out at Question 1, residence does not, on its own, give rise to tax liability in Singapore. Singapore-sourced income and foreign-sourced income received in Singapore are, prima facie, subject to tax in Singapore.
Nevertheless, on acquiring tax residence in Singapore, the individual may consider making use of the NOR scheme set out at Question 10.
It is of the most relevance to note that the entry and permanence in Portuguese territory is a matter of emigration law and tax residency is a matter of tax law. This said, before becoming a registered tax resident, the individual must determine whether he/she already has a right to reside in Portuguese territory or if that right must be acquired.
If the individual is (a Portuguese or) European citizen he/she has the right to reside in Portugal (which, in any case, must be formalized by means of the acquisition of a certificate of residency with the Portuguese municipal authorities of his/her area of residency). If the individual is a third State citizen, he/she must acquire a Portuguese residency permit.
Before becoming French residents, individuals may contemplate setting up trusts in order to hold their assets (see § 22, 23, 24 and 25) and plan the transfer of their estate upon their death without the intervention of a French “notaire”. They may also contemplate deferring the payment of French income tax. Other estate planning arrangements including intermediate holding and/or operational companies should be considered in order to mitigate the legal consequences of becoming resident in a Civil law jurisdiction.
All steps involved in the structuring of ownership should however be properly handled with adequate substance. They should also have another purpose than avoiding taxes. Otherwise they might be challenged under the doctrine of abuse of law.
As a first step the assets and income of the individual have to be determined. Depending on which income the individual predominantly earns, advantageous structures may be available from Liechtenstein tax perspective.
Before establishing their tax residence in Mexico, individuals must take into consideration the following aspects:
- Once they establish their tax residence in Mexico, individuals must pay income tax on all of their worldwide income, regardless of the origin of said income. In this virtue, individuals must pay taxes in Mexico with respect to all income that is received abroad (including any income derived from the alienation of goods located abroad), which may lead to a double taxation event if the country in which the income is received does not have a tax treaty with Mexico.
- The individual must consider which activities are performed abroad, since activities that are exempted abroad may not be exempted in Mexico. In the same sense, and related to the previous point, it should be considered that the income received from activities held abroad will also be taxed in Mexico.
- The tax base of the property owned by the individual must be considered, since once the individual is considered as a resident in Mexico, it will be necessary to determine the tax value of said assets in the event of a possible transfer.
Even though Brazil taxes its residents on world-wide income, income earned abroad by individuals that are resident in Brazil is only taxed when received by them. Therefore, if individual’s assets that pay periodic income are contributed to the capital of an offshore company, this income will only be taxed in Brazil when the offshore company distributes dividends to its shareholder. In a sense, this mechanism allows the deferral of Brazilian income tax to the moment when profits of the offshore are paid to the Brazilian resident. However, when profits are distributed, taxpayer resident in Brazil has to pay income tax in Brazil at tax rate that varies from 0% to 27,5%.
Considering the tax deferral structure described, before establishing residence in Brazil, it is recommended to an individual to establish a company in a low tax jurisdiction (“offshore”) in order to set up the control of all the assets the individual have abroad, so that Brazilian income tax will be deferral on income derived from those resources.