Tax in the Context of Residency and Citizenship by Investment


An individual may decide to change residence or acquire a second citizenship for a variety of reasons. These may range from wanting a better education for their children to wishing to boost travel opportunities. It may quite simply be the natural desire to secure a more stable living environment for their family. Whatever the individual or family’s circumstances, whether as a primary motive for such decisions, or as their direct consequence, tax issues and implications will always play an extremely important role.


For this reason, the importance of obtaining sound tax advice at every step of this process cannot be underestimated, both from professionals in the exiting country as well as in the country of immigration. When looking at the requirements in the exiting country, one has to ensure compliance with any administrative procedures, particularly in the context of de-registration, in order to ensure that the tax authorities are aware of the day when the individual was last subject to tax in that particular jurisdiction. More importantly, it is critical to ascertain whether any possible exit taxes will apply to the wealth or value of the assets held by the individual in the exiting jurisdiction.


There are also matters that need to be examined when it comes to the jurisdiction of entry. Firstly, it is important to note that investing in residence or citizenship programmes does not automatically lead to obtaining tax residence in that jurisdiction – one cannot simply assume this to be part of the deal. The main criteria for a country to impose a tax liability on an individual, apart from source, is residence and, in this regard, by residence we mean ‘tax residence’ which may not necessarily equate to ‘residence’ or ‘ordinary residence’. On the other hand, there are certain residence programmes which are actual tax residence programmes, meaning that the individual would be considered to be ‘tax resident’ simply through obtaining residence through a particular residence by investment programme.


Complications escalate if acquiring a new residence results in a dual tax residence situation on the basis of the number of days being spent in another jurisdiction or any other relevant criteria, such as the individual’s centre of vital interests. A few jurisdictions, such as the US, also tax on the basis of citizenship and therefore, while the acquisition of a secondary citizenship provides certain benefits, others may also result in unanticipated burdens, including taxation. Bearing in mind that obtaining residence or being taxed on citizenship could often result in taxation on one’s global income, it is therefore very clear that acting on the basis of professional advice is key to avoiding some very nasty surprises.


A further development to consider is that the OECD has also been looking at such programmes in order to ensure that they are managed in accordance with the Common Reporting Standards and that they are not being used to circumvent automatic exchanges of information with an individual’s country of tax residence.


This very brief overview confirms that tax in the context of residence and citizenship by investment is an extremely complex topic that must be carefully considered at every stage, from formulating the best option for one’s individual circumstances, to steering the process to a beneficial final outcome. Therefore, it is extremely important that one does not only look at the specific requirements of the residence or citizenship by investment programme but, more importantly, at the tax implications of exiting and entering a jurisdiction as well as the tax implications of any related investment.


Author:  Nicholas Gouder, Tax & Private Clients Partner at ARQ Group



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