First, we'll find out who the "tax resident" is. The tax resident means that person (both physical and legal) belongs to a tax system of a certain country. By default, a person is a tax resident of his/her home country.
There are a number of reasons why many successful entrepreneurs change their tax residency. The article examines the possibilities of changing the tax residence over to international programs for attracting investments and obtaining investor visa.
It is important not to confuse the concept of "citizen" and "tax resident." Even if you obtained second citizenship, this does not mean that you automatically receive the status of a tax resident of this country and may pay taxes in two countries.
So, what happens when you move a tax residence from one country to another? First, in different countries, there are different criteria and rules for changing the tax residence of an individuals. For example, if you are present in the country for the total of 183 days (that is more than six months), or you have economic and personal interests, or housing (for example, in Germany and Austria), or you have a country passport (valid for the USA) – these are the criteria used to determine the tax status of a resident.
A tax resident must pay taxes from his/her income, for example, from income in the form of dividends from the company, from the rental of real estate, wages, fees and other income received in the country of the tax residence and abroad. The tax burden in different countries is very different. For example, there are countries with a tax rate of 0% (Dubai, UAE), and there are others with an income tax rate of up to 45% (France and the UK and others).
The procedure for determining the tax resident
As it was noted, by default, every person is a tax resident of his/her native country. But in the modern world, people can stay abroad longer than in their home country, and the tax status can be determined by different indicators.
In most countries, the main criterion for obtaining such status is staying on the territory of the country for more than 183 calendar days. This indicator is calculated as the total number of days, including vacation, or, for example, business trip.
Another factor determining the tax residence is the availability of real estate in the country - in ownership or lease. This rule works in a number of European countries – for example, in Austria, Germany, and the Netherlands.
The next criterion for obtaining residency is a personal interest in the country, for example, business, or residence in the country of the family. This rule is applied, for example, in Belgium, France, and Italy. And in case the family members (children, spouse) live in the country, the person is considered to be a resident, even if he/she comes to this country only for a couple of days a year.
It is not always possible to determine the place of interests of a particular person precisely, and in this case, the tax residence is determined by the place of residence (permanent residence). And if the person is not living in the territory of the country where he/she has a permanent residence, sufficient time, the tax residence is determined by citizenship.
The presence of US citizenship, for example, explicitly determines the tax residence in the country of citizenship, and no matter where and for how long this person is, that is, a person can live and work in another country, but still he/she will pay taxes to the US budget.
And surely, having a business on the territory of the country is an important factor in obtaining a tax residency. This works, for example in the UK – if the company is registered on the territory of the country, or there is a central office located here, and the management is carried out from this place.
It should be noted that the change of the tax residence via obtaining investor visa is an absolutely legal procedure. Next, we study the available options and what can individuals do about that.
Reasons for changing the tax residency
Probably the most important factor influencing the decision to change the tax residence is the size of the tax burden. As it was already noted, the income tax rate in different countries may differ even in several times, besides some taxes may be absent at all, say, in Dubai, the UAE there is no inheritance tax, no tax on donation and no personal income tax.
Employees of financial institutions strengthen the requirements for their clients within the global efforts on the worldwide tax regulation system that will allow tax authorities from different countries to effectively exchange data on residents and monitor each citizen, given that a person can freely move and conduct business in different countries. By the way, it should be noted that another reason for changing the tax residence and getting investor visa is the desire to circumvent such control.
Note that the automatic exchange of financial information has already started among the countries participating in this interstate agreement, that is, the tax service of the country of your residence can receive information about your accounts in banks of other countries if an appropriate agreement is in effect. When you change the tax residency, you have a legal opportunity to save your money thanks to different tax treatment, but you should definitely take into account a number of factors, especially the rates and conditions of residing in the country the resident of which you are going to become. Having estimated all the advantages and drawbacks, you can get noticeable benefits.
The process of tax residence is changing. The simplicity of the procedure is one of the most important factors
So, now we consider another factor that influences the choice of a tax residence – how easy and fast you can become a resident of a given country over the solution of obtaining investor visa and what are the technical complications along the way (procedures, terms).
Often the decisive factor is the possibility of obtaining a certificate of a tax resident, and not only a number of various instruments and various fiscal preferences. To re-register for a tax residence, you need to obtain a resident visa (residence permit) in the selected country, and in this regard, you should also consider the procedure for issuing a residence permit – the simpler and faster it is, the better. Therefore, this factor will be important in choosing tax jurisdiction.
There are options when you can get a residence permit over investment absolutely legally and quickly. We are talking about special programs that provide for a resident visa for a foreign investor.
There are a number of countries where you can literally get a residence permit within a few months if you invest in its economy a certain amount. For example, in the Caribbean countries, it is required to invest about 400 thousand dollars, in the EU countries this amount will be up to 2 million euros, but there are also countries where it will be sufficient to invest just a bit more than 10 thousand dollars – Dubai, UAE, for example.
To the choice of tax residence
And now we turn to a consideration of specific options for choosing the optimal tax jurisdiction for getting residence over investment, taking into account tax rates, conditions and cost of registration of residence permit, the amount of necessary investment for potential tax residents.
When choosing a country for tax residency, you need to take into account the following components
- Available programs and the degree of complexity of the requirements that must be met to get the investor visa.
- The total expenses for the registration of tax residency that can vary significantly depending on the country and range from 10 thousand to one million US dollars and more.
- The time required to complete the procedure.
- The need to live in the country for more than 180 days.
The United Arab Emirates is the leader in all these points. For example, to obtain a residence permit over investment in the UK, you will have to undergo the whole range of different checks. Regarding cost, Dubai, UAE is also the leader. About the time for obtaining residence permit - the whole process takes in total just a little more than a month in the United Arab Emirates. In Greece, for example, the same process will last for 3-4 months. In terms of residency requirements in the country for obtaining a certificate of tax residence such countries as Greece, the United Kingdom, Spain, etc., require you to be present in the country for at least 183 days a year. In the case of the UAE, there is no such requirement at all.
Tax residency over investments in Dubai, UAE
The UAE is definitely one of the best countries for registering a tax residence – very low taxes, quick and simple obtaining procedure of the residence permits, minimum requirements for investment. So, the first step in obtaining investor visa and tax status is to obtain a resident visa. To do this, you must either open a company in the country or buy a property.
The only income tax that applies in Dubai, the UAE for residents is a tax on income from the rental of real estate (only 5%), there is no other income tax. The certificate of the country's tax resident is issued by the Ministry of Finance of the UAE for a period of one year (can be renewed annually) to individuals and companies.
Particulars of obtaining tax residence status
There is a widely spread opinion that if you have dual citizenship, you are required to pay taxes in several countries. But it's not all that simple – the existence of a passport does not necessarily make you a tax resident of the country. For example, in the EU countries, the existence of dual citizenship does not imply the existence of the double tax residence, while a set of specific requirements must be fulfilled.
Although many countries have joined the Organization of Economic Cooperation and Development (OECD), this is not yet the case for all countries in the world.
Receiving the tax status of the resident over investments is related rather not to citizenship (a citizen can be absent in the country all the time, do not conduct business here and have no property), but rather to the actual stay in the country. For example, a rule of 183 days automatically makes you a tax resident in the EU countries.
The optimal solution from the point of view of taxes minimization is the registration of a tax residence over investment in a country where the tax consequences are minimal, and you will be able to stay in the country for as long as you want. For example, residence permits in Dubai, the UAE will allow you to easily get the status of a tax resident and feel all the advantages of zero tax on all types of your income.
Another significant advantage of investing in Dubai, UAE is the simplicity and speed of obtaining all the necessary documents - here all the processes are completed much faster than for example similar ones in Europe. And as a result, the number of requests for residence permits, and as a result the number of tax residents in the UAE is constantly growing - the country annually attracts thousands of businessmen from all over the world with its attractive tax conditions and clear procedure of obtaining investor visa.
Freedom, security, stability, and minimum taxes - that's what any business needs for rapid growth and prosperity. And all this can be found in Dubai, UAE.
For all further questions on obtaining residence over investments, please contact our specialists at the main office in Dubai. With their help, you can quickly go through all the procedures and get the anticipated results.