Global Residence and Citizenship Handbook. Christian H. Kälin
means that the only sensible advice is to comply, or move out.
1.1Why become resident in another country?
Whatever your situation, there are however many more reasons why you should consider becoming a resident of another country, or holding a residence permit from more than just one. However, anyone thinking seriously about moving their main residence abroad, or obtaining residence rights in more than one country, faces a series of questions which are not always easy to answer. Residence planning analyzes those questions, reasons and possibilities.
Historically, since the invention of agriculture led to more permanent settlements, it was not easy for people to move their place of residence, and immigration as we know it today was not possible. Generally only natives of the land had full rights, and various rules prevented the movement of people even from one district to another. Only wars, extraordinary abilities or contributions to society and other special factors enabled people to move within a societal structure, and across territorial borders.
In today’s globalized world, moving from one’s native country to another, possibly more attractive, country has become increasingly easy and commonplace. Although language differences continue to be a barrier, the global dominance of English provides a linguistic infrastructure that parallels the technological infrastructure of the cosmopolitan era we live in1. The advances in communications and computer technology have made it possible for “knowledge workers” to work and live almost anywhere, and for entrepreneurs and investors to operate and supervise their businesses and investments 24 hours a day from virtually anywhere in the world. In this borderless global economy, capital and to some extent also labor, has lost its link to individual countries.
Particularly for wealthy individuals and families, and business owners and investors with an international lifestyle, today’s globalized world offers tremendous opportunity to optimize personal and business planning. This includes in particular tax and estate planning, increasing international freedom of travel, and diversification not just of business, but also on a personal level, by having multiple residences and possibly multiple citizenships.
Moving to a more attractive country of course means different things to different people: for refugees, this may mean bare survival, personal safety and escape from war, violence and starvation; for an economic migrant, more job opportunities; business opportunities for entrepreneurs who are looking beyond their country’s borders; investment opportunities for international investors looking to diversify not only their assets but also their life and family ties geographically; or retirement and lifestyle options, combined ideally with tax and other benefits, for wealthy individuals and families with a global outlook. In Asia for example, since the 1960s, ethnic Chinese from Hong Kong and throughout Southeast Asia have sought residence rights in Western countries – in particular Canada, the US, Australia and the UK – to escape political discrimination and anticipated upheavals that could disrupt their businesses and threaten family security. With the rising affluence of Asian countries and the relative decline of the West, however, they increasingly found that economic opportunity and personal security are not both available in the same location, or even in the same part of the world.2
An alternative residence is also an effective tool for international tax planning, and facilitates more privacy in investment and banking as many reporting and exchange of information requirements are based on (tax) residence. This can be very relevant for Europeans, who increasingly move their place of residence within Europe: wealthy families from the Netherlands move to Belgium, Germans move to Switzerland, French move to the UK and to Switzerland, British high-income earners move to Switzerland, Monaco and Portugal, and so on.
Depending on your current position, an alternative residence can also mean a better quality of life for your family, a good education for your children, and a safe haven in times of political instability in your home country. In fact, political instability in many countries now leads to a need for wealthy individuals and families to seek a safe place outside their home countries in which to establish an alternative residence for reasons of security and personal flexibility. Canada, Dubai, Singapore, Switzerland and the UK, for example, play an important role as bases for such wealthy people to establish a safe second residence, which may well become the primary residence for some family members.
In view of the increasingly aggressive fiscal and regulatory environment in some otherwise reasonably stable high-tax countries such as Canada, France, Germany, the Netherlands, the UK, the US and others, a move of residence to a country with a milder tax regime is an attractive option for many who feel they have to pay more than their fair share, and who do not like the constant erosion of their privacy.
In fact, often the only way to reduce the tax burden and regulatory restrictions legally and in a significant manner is to move.
In Germany, for example, the government has direct access to all bank accounts of all taxpayers. This intrusion in privacy is rather uncomfortable. Whenever there is access to information, such information is prone to leaks, to the information being sold to anyone interested and offering sufficient money in exchange for the information (for example kidnappers, who are already a serious problem in many countries around the world). The only way to avoid this is to move your residence to another country with a less invasive environment, providing more personal privacy.
In the US the erosion of privacy has reached even further, and especially if you are an entrepreneur and investor with international exposure, your tax return can become very complicated, to the point where you are never really sure whether you have complied with all the rules and regulations. You have to employ expensive tax lawyers to ensure you do not become a criminal merely by overlooking the filing of the right form.
In many countries, rules and regulations are mushrooming and so the legal environment is becoming increasingly vague, leaving lots of room for interpretation by the authorities and thereby leaving you vulnerable. This leads to a situation where effectively everyone is potentially a criminal because there are so many different tax laws, regulations and rules that it is practically impossible to comply with all of them. This is already the case in countries like Italy, where it is impossible to run a small business and comply with all the regulations imposed by the state because the burden and cost of compliance is so high. Therefore, practically all smaller and medium-sized businesses, and most large ones as well, operate in some kind of grey zone. This is hardly a good environment to thrive in.
However, you should never move for tax reasons alone. Even if the tax and other burdens are heavy, you should look at your overall life situation: where your friends are, the environment you feel comfortable with, etc. Therefore, it only makes sense to consider residence planning if you already have a sufficiently international situation, lifestyle and outlook.
If your life is already international, then of course a change of residence may not only reduce one’s income-tax burden significantly, it usually also has a major impact on the inheritance tax situation.
Effective planning and advice is particularly important with regard to inheritance taxes, as in many countries the distinction between residence and domicile is relevant here. The person may well be tax resident in a jurisdiction which levies no inheritance tax, but upon their death their former country of residence (for example the UK) may claim that they were in fact domiciled in that country and consequently subject their worldwide estate to inheritance taxes. Furthermore, inheritance and gift taxes can also apply to heirs and beneficiaries of gifts (as in Germany), or to the property that is transferred (as almost always in the case of immovable property if not placed in an appropriate structure), and may thus be levied irrespective of the residence and domicile of the deceased. Trusts, foundations or life insurance structures may be used in such cases to mitigate adverse consequences.
A change of residence is a significant, very personal and multifaceted decision for any individual or family. Whilst this decision may have a direct impact on one’s business interests, a range of social, political, economic and personal issues should also be considered to determine the best jurisdiction in which to reside or hold a residence permit for reasons of security or personal flexibility. Therefore it is imperative to understand the advantages