Countries may now be open to relaxing its prior stance on costs relating to tax residency, particularly in the aftermath of COVID-19. The article discusses what migration opportunities this entails.
If bustling Dubai is more to your taste for retirement or a holiday home, you'll be pleased to learn it's not excessively expensive to qualify for residency there. The emirate offers visas to foreign nationals who invest a minimum $272,000 (nearly Dh1 million) in property.
The reason why this is interesting for many is because there has been a bit of bustle recently surrounding places that have been looking to offer tax residencies at a lower cost in the aftermath of COVID-19.
But what is 'tax residency'?
Right off the bat, it is vital to understand what the term 'tax residency' means to an everyday reader and how does this differ from obtaining tax residency through investment in real estate or through any other means.
Tax residency, also known popularly as ‘fiscal residency’ or ‘residence for tax purposes’, is undoubtedly an important concept for all tax payers living and working abroad.
Your tax residence, simply put, is the country, in which you are legally obligated to pay personal income tax.
It essentially determines how you are treated with regard to taxation in a particular country. The criteria for ‘residence for tax purposes’ or ‘tax residency’ vary considerably from jurisdiction to jurisdiction.
Today, 'citizen' tends to specify a person who legally belongs to a country, and 'resident' is used, generally, for a person who is legally living or working in a particular locality.
For example, an Indian expat living in Australia, is a citizen of India but a tax resident of Australia – as long as he lives and works there.
What legally makes you a tax resident in any country?
Often, a major determinant of an individual's status as a resident for tax purposes is whether he or she maintains an abode in the country and are “present" for 183 days or more (one-half of the tax year) – a thumb rule followed by almost every major country.
For the vast majority of the global population, their tax residency is identical to their home country. The country in which they were born, where they live, and where they work. And as long as the last two factors do not change, the tax residence will not change.
A major determinant of an individual's status as a resident for tax purposes is whether he or she maintains an abode in a country.
Is there an alternative way of getting tax residency status in a country?
A number of countries also offer ‘citizenship by investment’, programs where money — normally invested in real estate — can actually get you a second passport, and the status that comes along with owning citizenship or tax residency in another country.
However, when obtaining tax residency this way there a number of risks involved, which we will discuss in detail below.
Starting in July, foreigners who live at least 60 days a year (earlier 183 days) in Uruguay and buy real estate valued above the local currently equivalent of $378,000 (Dh1.4 million) - will qualify for tax residency.
Economists say many more countries could follow suit in relaxing their respective investment-cum-citizenship criteria as the pandemic currently forces many countries to implement measures that will attract more foreign investment.
So it would hence be beneficial to know which countries currently provide tax residency cheaply and what the migration possibilities are there if more such opportunities arise in the coming future, and most important of all - what are the risks!
You can qualify for tax residency in other popular destinations – at a cost, of course!
Whether you choose to splash out for full citizenship or you invest in tax residency, here are some countries where lesser money can buy you a tax residency or a second passport, or at least a chance to live long-term abroad — alongside the investment costs associated with them.
• In Thailand, the government offers residency visas for foreign citizens, allowing them to live in the country for around $3,000 (Dh11,019) a year
• Citizenship in Saint Lucia costs $100,000 (Dh367,300) in the form of a donation to the National Economic Fund, or you should invest at least $300,000 (Dh1.1 million) in real estate
• In Dominica, a similar donation to the National Transformation Fund of $100,000 (Dh367,300) or a real estate investment of $200,000 (Dh734,600) will give you citizenship
• In Moldova, a minimum non-refundable contribution to the Public Investment Fund (PIF) of 100,000 euros (Dh622,000) for a single applicant is required.
Whether you choose to splash out for full citizenship or you invest in tax residency, there are some countries where lesser money can buy you a tax residency or a second passport!
• For residency in Latvia, you will need to invest a minimum of $333,000 (Dh1.2 million) over a period of five years in a credit institution.
• In Cambodia, citizenship involves a cost of about $245,230 (Dh900,729), in the form of again a donation made towards ‘restoring and rebuilding its economy’.
• In Turkey, citizenship can be given from a cost starting from $250,000 (Dh918,250), if you purchase a property valued as much, among other options.
• To gain residency in Greece, you need to invest a minimum of 250,000 euros (Dh1 million) in Greek properties.
• To gain residency in Portugal or Spain, real estate purchase of at least 500,000 euros (Dh2 million) will give you a ‘Golden Visa’.
Almost all 'citizenship by investment' programs – with the exception of Turkey – require you to buy real estate that has been pre-approved by the government.
Now let's get into the key aspect of the story, which is what are the key risks associated with getting citizenship or tax residency status through real estate investments.
Risks associated with getting tax residency through real estate investments
With most Caribbean 'citizenship by investment' programs, the real estate isn’t solely yours. It’s a timesharing scheme wherein several joint owners have the right to use a property as a holiday home.
And even if it is yours, you’ll end up paying a major part of the donation as government fees. This applies to a lot of other countries.
In Dominica, the fee is $35,000 (Dh128,555) and the amount only goes up from there in other countries.
So, essentially you’re not saving the full amount of the donation.
And here’s the next key risk - let's say you do decide to buy real estate in an island nation, the question you need to ask yourself is where’s the market to resell it? - Your only opportunity to resell is probably to a new buyer who’s also doing the citizenship by investment program.
The one exception, as mentioned, is Turkey. You can buy almost any property in Turkey, and as long as you meet the investment amount, you can qualify for Turkish citizenship.
Other than Turkey, experts don’t recommend the real estate investment as it must be pre-approved by the government and, consequently, is overpriced.
Some countries like to complicate things and will require applicants to make several types of investments to qualify for citizenship. Most of such multi-tier programs can be found in Europe.
This, of course, is because Malta is in the European Union, which means that its passport is much more valuable but also subject to third-party oversight from the European Union itself.
In Saint Lucia, any connection to the country is not widely much valued. Although you can be done with the process after making the investment, their passport is not considered to be extremely valuable.
Other countries that practise similar multi-tier models include Cyprus, which has both a real estate investment requirement and a mandatory donation to the state fund, and Montenegro, which has both a donation and real estate requirement.
There are benefits to both type of programs, but you will be required to invest more of your cash to get them.
How does this benefit if you live in a country with no or low taxes?
There are a number of countries without the burden of income taxes, and many of them are very pleasant countries in which to live.
Some popular countries that offer the financial benefit of having no income tax are Bermuda, Monaco, the Bahamas, Andorra and the United Arab Emirates (UAE).
Some of the most popular countries that offer the financial benefit of having no income tax are Bermuda, Monaco, the Bahamas, Andorra and the United Arab Emirates (UAE).
Bahamas real estate investment laws offer international home buyers the opportunity to acquire permanent residency in the Bahamas when purchasing a home valued at a minimum of $750,000 (Dh2.7 million).
Although the textbook definition of tax residency does not directly apply to a resident in these countries as they don't pay income tax in these countries, all these countries offer the option of expats or foreigners abroad to gain citizenship by investments.
For real estate investments lesser than Dh1 million, you are granted a six-month multi-entry residency visa. It is much like having a tourist visa, but with the ability to make multiple entries over a six month period.
Three-year property investor visa is granted for those that invest Dh1 million and more, and for those who invest in property worth over Dh5 million are eligible for a five-year residency visa.
Apart from that there are also three- and five-year multiple entry Dubai property visa that comes at a higher investment cost.
Golden visa is available to those who provide a minimum investment of Dh10 million, but only 40 per cent of that can be in real estate.
If you already reside in a zero-tax country, opting for countries that offer you cheaper tax residency alternatives or citizenship through investment may not benefit you tax-wise, but maybe the perk of staying in a place that appeals to you aesthetically or if you are seeking a holiday home with a second citizenship are reasons why you may go for it. Or you are looking to retire.
If you already reside in a zero-tax country, opting for countries that offer you cheaper tax residency alternatives or citizenship through investment may not benefit you tax-wise.
BEWARE: Keep in mind taking advantage of living in a no-income-tax country is not as easy as packing a suitcase and buying a plane ticket. There is a lenghty process involved before you move.
Some countries will purposefully keep the barrier of entry high so as to only attract top investment.
But with the onset of the pandemic and as most countries are teetering on the edge of recession-induced collapse, countries - desperate for more foreign investment, may now be turning flexible and open to making citizenship available through cheaper investments.
But remember, even if they do, it doesn't come easy - unless you have a whole lot of time and energy to spare! So, please do the due diligence needed prior to taking a decision.