Taxes are inevitable, but where we pay our taxes and how much we are taxed is within our control. When considering your personal and business finances, tax efficiency is vital, and a second residency can play a major role in what taxes you will owe.
Simply put, changing tax residences is an opportunity to increase efficiency as an individual or corporation.
By obtaining residency for yourself or your company in another country, you can pay lower taxes and increase your privacy.
Depending on the country, tax residency may be obtained by spending a certain amount of days in the country, incorporating a company, or investing.
Every country has a different tax system with unique advantages and disadvantages and requirements and regulations. In this blog, we will analyze the tax benefits of three nations: The United Arab Emirates, Cyprus, and Panama.
The United Arab Emirates is another nation worth considering when changing tax residency as it has zero income taxes. Only oil companies and foreign banks pay corporate taxes in the UAE.
One thing that you should consider avoiding when managing your tax efficiency is double taxation. This is when income, assets, or financial securities are taxed twice by two or more different jurisdictions.
Luckily, The United Arab Emirates has Double Taxation Treaties with 94 countries which protect the taxpayer from double taxation.
Additionally, the treaties protect the flow of goods and investments between borders, which increases confidence between international markets.
There are a few ways to achieve tax residency in The United Arab Emirates via a UAE Residence Certificate. Potential paths to residency include an employment contract, the purchase of property, or by registering a free zone company.
The Republic of Cyprus has noteworthy tax advantages for individuals and corporations. While Cyprus does have a national income tax, they offer numerous income tax reductions and exemptions.
Tax exemptions and reductions are important in understanding the benefits of the Cyprus tax system. Crucially, some streams of income are completely exempt from taxation for everyone (except for Cyprus natives and residents who have spent 17 years or more in Cyprus).
For example, dividend income, interest income, and profits from sold securities such as bonds, shares, and debentures are all free from income tax.
In addition to exemptions, the Cyprus tax code offers tax reductions for donations to charities, gross rental income, and more.
Furthermore, Cyprus also offers tax deductions on expenses such as social insurance, medical funds, and life insurance premiums.
Alternatively, employment outside of Cyprus is exempt from Cyprus income tax as long the employment exercised exceeds 90 days per tax year.
In terms of corporate taxes, Cyprus has some major benefits for corporations who are seeking tax efficiency. With a relatively low corporate tax rate of 12.5%, Cyprus also offers corporations a variety of tax exemptions. Businesses can claim exemptions on: profits from disposable securities; earnings from interest and dividends; foreign exchange differences arising from transactions and more.
An exemption on foreign exchange difference can be a major benefit for corporations that do business internationally.
In 2017, the Cyprus Parliament added criteria called the 60-day rule to clarify an individual’s status as a tax resident or not.
To become a tax resident in Cyprus under the 60-day rule you must have spent at least 60 days in Cyprus during the tax year in question and not have resided in a different single nation for 183 days.
Additionally, you must not be a tax resident in another state. You also need to be involved in business activities, direct, or work at a company that is a tax resident in Cyprus. Lastly, you must maintain a permanent residence in Cyprus.
As a citizen of the EU, the entire process for Cypriot residency can take as little as three weeks.
Overall, Cyprus has many advantages to those searching for a new tax residency despite its income tax due to its many exemptions and reductions for both individuals and businesses.
On the other side of the globe is Panama, a nation internationally known for its advantageous tax codes and regulations.
In Panama, the government does not levy taxes on income, capital gains, corporate, or estate taxes on business entities that are outside of the nation’s jurisdiction.
In other words, companies that are offshore may owe no tax at all. When an offshore company engages in local business, they will be taxed on such operations.
Due to its very low tax rates, financers and lawyers often refer to Panama as a pure tax haven. Panama also has robust laws for financial security and privacy.
In addition to these advantages, Panama has no tax treaties with other nations.
Another powerful draw to Panama is that there are a variety of ways to gain Panamanian residency, and thus, tax residency as well.
One of the most popular options is the Friendly Nations Visa. This visa allows a citizen from one of 47 friendly nations quick access to Panamanian Residency as long as they meet a few requirements.
To apply for the Friendly Nations Visa, you need to open a Panamanian bank account, make a deposit in the account, and incorporate a Panamanian company. In addition, you will need a criminal background check, five passport photos, and a health certificate from a local doctor. With this visa, you can receive permanent residency in less than six months.
Retirees who receive a monthly government pension of at least $1,000 (or the equivalent in another currency) from their home country can also apply for Panamanian residency. This visa is known as the Pensionado Visa.
Lastly, if you are not from a friendly nation or a retiree, you can receive Panamanian residency through investments in reforestation projects, certificates of deposits, real estate, and more. Residency by investment programs in Panama start at $80,000.
Keep in mind that if you are applying for Panamanian residency with a spouse or dependents, there are extra requirements.
Every nation has advantages and disadvantages built into its tax code. But it is important to understand that a tax residency can significantly increase your tax efficiency and financial security.
Whether you value tax reductions, no income tax at all, or robust financial privacy, a second residency could be advantageous for you or your business. Anyone who is serious about tax optimization and wealth management must at least consider a second residency.
But choosing the right jurisdiction for your residency can be complex and a variety of factors come into play. Because of this, working with an expert to plan your tax residency strategy is essential.
To evaluate which tax residency is best for you and your company, schedule a complimentary consultation with our team here.
If you’re running an offshore business, you may have heard about controlled foreign corporation and permanent establishment regulations. While these rules may seem complex, they are vital to understanding where you will pay taxes and how much you will pay.