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How the countries stack up for tax residency seekers

Posted on January 29, 2009
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Belgium: It is often chosen because of the ease in travel as a EU resident and physical presence in the country accrues time towards obtaining nationality.

Belgian residence rights can be acquired in connection with a business that has to be established and maintained in Belgium. The Belgian business also has the advantage of low corporate taxes in Belgium, but on the other hand personal income tax is high in Belgium. Switzerland: Few uber rich individuals acquire residence status in Switzerland just for the prestige value, quality of life and more recently for the ease of travel within the EU as Switzerland recently became a part of the Schengen visa programme.

Swiss residence rights, however, are expensive involving an annual fee to the government but no stipulations regarding investments or business operations. Al-though Switzerland continues to attract HNIs, it is still an expensive jurisdiction and only a few Indians prefer to take residency there.

UAE: The UAE does not levy any income tax which makes it attractive. However, the country does not offer citizenship for foreigners no matter how long they may have resided there. Besides, the applicability of inheritance laws (sharia law) to foreigners holding UAE property is somewhat unclear. In the middle east, most of the countries do not grant citizenship by birth to children born to foreign nationals in their country.

Many NRIs residing in the middle east, in fact, seek other residence and citizenship options, primarily because they get used to an ‘international’ lifestyle with access to modern amenities and world class education for their children. Such families usually prefer the US with Canada coming a close second along with Australia and New Zealand.

Hong Kong & Singapore are popular from a business and personal perspective as the corporate and individual taxes are both relatively low in this region. This is in addition to the good quality of life with excel-lent infrastructure.

Singapore has been attracting a large number of talented and high net worth individuals, but after seceding to China, Indians don’t find Hong Kong that attractive. Due to a very scarce treaty network, at times it may not help to stay in HK and be globally employed. Once again, citizenship may be difficult to obtain.

Austria: Some even consider Austrian citizenship because it has the advantage of having multiple citizenships. It is important to note that one cannot acquire any more citizenships after obtaining Austrian citizenship but can retain any citizenships held prior to that.

Canada: Canadian residence rights acquired through the investment category are attractive as they have very few limitations. The children of investor category residents can avail of preferential fees in the Canadian educational institutions.

America: The US, once the ‘land of opportunity’ is slowly losing its shine. Often many HNIs are not well aware of the tax complications of being a resident of the US. In the US income tax is levied at the federal, state and sometimes at the city level (eg. New York City). The combined federal, state and city level taxes could be as high as about 52%. Gift and estate taxes at federal and state levels could go as high at approximately 48%.

These taxes are imposed on US citizens, green card holders and persons who spend substantial time in the US. The US seems to be losing its attractiveness more so now as its tax laws make it very difficult to give up citizenship or the green card. Even after giving it up, the US continues to tax such persons. Under the recently introduced law, the giving up of US citizenship, may trigger a deemed disposal of assets and a capital gains-like tax liability may arise.

A transfer tax is also imposed on US citizens or residents acquiring property by bequest or gift from an expatriate. These provisions have been incorporated into the Internal Revenue Code pursuant to the enactment of the Heroes Earnings Assistance and Relief Tax Act, 2008. In fact, many foreign individuals may not know that if they hold US company shares or real estate individually, they could also be subjected to high levels of estate taxes, although there is no capital gains tax on the sale of shares by non-resident aliens.

This makes it attractive to stay a non-resident and invest in the US through an offshore holding company. However, the Foreign Investment in Real Property Tax Act, 1980 provides for special income tax rules with respect to investment in real estate by foreign companies owned by non-residents.

UK: The UK, like the US, was the most sought after country in the 80s, but has now lost its charm. The personal income tax and estate duty could be as high as around 40%. The UK also has a concept of deemed domicile which makes a person subject to inheritance taxes if he has had a substantial presence in the UK, irrespective of whether he is currently domiciled elsewhere.

Further, all non-domiciled persons (called, non-doms), who have been resident in the UK for more than 7 of the past 10 years may avail of the remittance basis of taxation only if they pay a pound 30,000 annual tax charge in respect of the foreign income and gains left outside the UK.

Mauritius: Attracting foreign capital has always been a major objective in the country’s economic development strategy. Numerous advantages, including tax incentives are already offered to foreign investors. As a means to further encourage investors to seize business and in-vestment opportunities in Mauritius, the government has introduced a permanent residence scheme for eligible foreign businessmen.

Upon a minimum investment of $500,000, the investor will be eligible for permanent residence status. He will be exempt from work and residence permits. He can also apply for PR status for his spouse, children and next of kin.

India : India has great potential to attract HNIs and talent. We should create a special regime for this category of people. For example, several aged Japanese HNIs may find it quite a viable proposition to reside in a place like Bodhgaya. We now have several opportunities to create legitimate wealth in India. Our philosophy of non-violence and the multicultural underpinnings of our society where people of all religions and beliefs can stay harmoniously could also be a relevant factor in favour of residence in India.

We have seen significant migration to India, not only of people of Indian descent but also of foreign origin. In fact in the recent past, many NRIs moving back to India from the US have opted to give up US citizenship or green card. It should be appreciated that HNIs not only bring wealth but also valuable experience and a global network along with them. India can certainly emerge as a haven for HNIs by making the tax and regulatory regime more conducive.

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Xavier Augustin

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