Introduction:
Entrepreneurs, investors, and high fixed income officials seek to reduce their expenses and earn more as this is the only way to get rich. But expenses like tax expenses are those that are arguably quite difficult to cut off. Therefore, to reduce those expenses they tend to take their businesses offshore, in order to reduce their tax expenses and save more.
What is a Lump-Sum tax?
A businessman who seeks to go offshore, can either take your business to tax-free countries such as UAE, Monaco, etc. Or shift somewhere where you can reside there, do business elsewhere and receive your income tax-free in the country of residence. Other options include, which is rarely talked about, known as a lump-sum tax strategy.
A lump-sum tax is a fixed tax amount no matter the change in circumstances and the tax entity. it is one of the most various modes of taxation. It is a regressive tax, such that the lower the income is, the higher the percentage of the income applicable to the tax. Examples include taxes on property, or cars that are fixed no matter the income of the owner.
Lump-sum tax strategy is a cost reduction strategy that allows a businessman to pay some years’ tax at one point in time and hence get what some might call a discounted tax expense. In this article we will discuss countries that offer lump-sum tax strategies and how to avail them:
1. Switzerland:
Back in the 19th century, if one intended to live in some of the cantons of Switzerland, the government would strike a lump-sum tax deal with them w.r.t their assets, expenses, and income. Although this practice has been streamlined by some of the cantons that are german-speaking of course!
it should be noted that Switzerland doesn’t have inheritance & wealth tax hence more than 5000 families live under the lump=sum taxation strategy.
The process of lump-sum taxation lists down all our belongings including expenses and miscellaneous income to the Swiss government by which your annual cost of living will be noted and the number 7 will be multiplied by all our gross income which should take it up to at least 400,000 swiss francs federally although it may not be the case in some smaller cantons as living expenses vary at various cantons in Switzerland.
2. Italy
Apart from Switzerland, Italy has also come up with a lump-sum tax strategy to attract high-income foreign individuals. Italy’s strategy may prove even more attractive as it gives you an open hand to live in any part of Italy, unlike Switzerland’s cantons.
Italian government charges 100,000 euros per year as tax obligation, and 25000 euros for child, spouse, or other family members under your custody. The Italians are less strict compared to their neighbour in the North. Though Italians have to follow the EU guidelines even if it is lenient to investors’ businesses, they must adhere to the laws and regulations being implemented in Brussels that might cause some obstacles to the freedom of tax via lump-sum tax strategy.
3. Anguilla
A British overseas colony based in the Caribbean. Anguilla may not have its own passport but the government has its authority in its sphere. Which makes it more like a tax-free zone with high standards of living as you can expect from a British colony.
It has two types of tax schemes that are offered. Permanent residence scheme and tax residence program. To be a permanent resident one must purchase real estate worth 750,000 dollars at least. On the other hand, you could also donate $150,000 plus $50,000 to any person under your custodianship. This way you can live in the country for as long as you like free of income tax. Once you are a permanent resident you can live forever in Anguilla free from direct tax.
4. Jersey
Located in the Channel Islands, the jersey is yet another British-owned island between UK and France. Even though it is a small island with a very limited number of people, the living standards for education and health care are a class apart.
The special tax strategy offered by Jersey authorities lets you pay 145000 pounds on your first 725000 pounds gross income and then 1% thereafter. In this way, your lump-sum tax is fixed at 145000 pounds yearly despite higher changes in your gross income. Jersey also offers 0% corporate tax to those businessmen who would set their corporations in Jersey.
To work for British citizenship and live a standardized stable and safe life, Jersey is the place you would want to live.
5. Gibraltar
Yet another overseas territory of the British crown. Gibraltar is a small island located at the southern precipice of Spain. It is best known for its rocky terrains and monkeys.
So this is how it is, Gibraltar has two lump-sum tax strategies for foreigners, due to its Spanish influence, it is a bit cheaper than living in Jersey. Recently Gibraltar has changed its status from a tax haven to a low-tax country, it is still popular for its openness to different varieties of income such as crypto-currency in parallel with typical monetary income. Therefore no matter what sort of business you are up to in the country you need not pay any tax.
The second option of the lump-sum tax strategy is to allow foreign businessmen living in Gibraltar to pay a flat tax depending on the foreign income of the businessman. You pay a minimum of 22000 pounds tax on the first 80000 pounds income.
6. Greece
Greece has initiated the lump-sum tax strategy in the most recent times. The country tends to attract high net worth individuals to reside in Greece. The authorities will exempt the reporting of any sort on foreign income of individuals under the banner of lump-sum taxation. In addition to this, foreigners living inside Greece for the past 7 years, can get away from reporting of any sort just by paying 100,000 euros and an additional 20000 euros for a custodian each year. Although all Greek source income will be subjected to taxation despite paying a lump-sum tax on foreign income.
Lump-sum tax strategy and citizenship
It may generally seem very absurd to move to a high-tax country while already living in a high-tax country, without having any proper planning, such a move could cause our expenses to increase by more than 50%. Lump-sum tax strategy lets you reside in a high tax country with the advantage of saving your expenses legally. Although for the means to have a 2nd passport and while not losing your money by paying high progressive taxes, one can opt for lump-sum taxation and save on your income while hoping to wait in queue for that desired citizenship
To begin with:
One must take all necessary precautions before stepping up to avail of lump-sum taxation in foreign countries. Especially US citizens, as US tax obligations will find you anywhere and make you file no matter what!
For non-US citizens, one must make sure it is following in adherence to CFC rules, PE rules, and other common tax practices. And to make sure that your business is not in blacklist jurisdictions.
All in all, it is a great puzzle to move from country to country and limit your expenses while being a citizen of one country and residing in another and doing business globally needs a lot of research and careful management of all your assets and potential threats.
Contact us if you want to know more about taxes!