Tag Archives: Domicile

United Kingdom to clamp down on tax exiles

Tax exiles who emigrate overseas and wealthy people who live here but avoid British taxes by registering as ‘non-doms’ are likely to be targeted by new rules the Treasury begins consulting on today according to The Telegraph.

Wealthy foreigners who have lived in Britain for 12 or more years are already due to be charged £ 50,000 a year from next April, if they wish to retain ‘non-domiciled’ status. This enables them to avoid paying tax here on their worldwide income and gains – an option few other countries offer foreign residents.

But recent litigation has revealed confusion about when Britons who have moved overseas can legally avoid UK income, capital gains and inheritance taxes. Now leading accountants say the Treasury must modernise fiscal statutes and ensure everyone pays their fair share.

John Whiting, a director of the Chartered Institute of Taxation, said: “The rules on tax residence are jumbled and uncertain and are far from what we need for a modern tax system. The aim must be for a statutory test to give businesses and individuals certainty in this increasingly mobile world.

“A statutory test needs to make sure there is proper recognition of those who go abroad to work, who need to be outside the UK net, and clear rules that tell those who come to the UK when they will be in the UK tax net.”

Richard Mannion, a director at Smith & Williamson, pointed out: “Much of the law regarding an individual’s tax residence status in UK is based on case law that was laid down nearly 100 years ago at a time when Indian civil servants retired to live in hotels in Europe and sea captains embarked on circumnavigations that took a whole year.

“There was no concept than of airline pilots or businessmen with interests in different countries throughout the world who flew in and out of the country on a regular basis. There were few new tax cases on residence until recently, when there have been several which have captured the headlines including Mr Robert Gaines-Cooper, a jet setting businessman, and Mr Lyle Grace, an airline pilot.

“These cases have shown how ill-equipped the old case law is in terms of dealing with the modern world and they have demonstrated the need for a more modern test.”

For example, married couples should be freed from antiquated rules, said George Bull of Baker Tilly: “The Government should abolish the £55,000 IHT inter-spouse exemption limit for mixed domicile couples which is petty, unnecessary and potentially illegal under European Union law.
“It should also remove the rule which treats women married before 1974 as having their husband’s domicile. In 2011, women are not chattels.”

David Kilshaw, chair of private client advisory at KPMG in the UK, added that residency rules differ for different taxes: “For income tax, you can be non-resident in the UK if you are working abroad under a full time contract of employment for a complete tax year. You can also be non- resident if you leave the UK ‘permanently or indefinitely’.

“Capital gains tax is more difficult as this requires at least five complete tax years out of the UK. If an individual returns to the UK within the five tax years following departure some capital gains made in this period become chargeable to tax in the year of return to the UK.

“But domicile – not residence – is the determining factor when considering inheritance tax. Domicile is governed by general law and there are special provisions that deem an individual to be domiciled in the UK for inheritance tax purposes where they have been resident in the UK for at least 17 out of the last 20 tax years.” See the full story in The Telegraph.


Hong Kong – Adaption to the Chinese Renminbi (RMB) currency

During a speech on the development of the renminbi market in Hong Kong at the China Economic Development Forum, the Secretary for Financial Services and the Treasury, Professor K C Chan, said that RMB internationalization represented the ‘most exciting topic’ in the development of Hong Kong’s financial markets.

He pointed out that RMB internationalization “represents a policy choice in the gradual process of the opening of the capital account. There is no question of whether the capital account will be liberalized. It will. The only question is when.”

He confirmed, however, that: “Even in the current stage of development, if the capital account is closed or mostly closed, there are still many benefits associated with RMB internationalization. As RMB is becoming accepted as an investment asset, in addition to a currency for trade settlement, it leads to a diversification of currency risks for investors as well as Mainland borrowers.”

“The current approach to RMB internationalization is through the encouragement of an offshore market,” he continued. “Although the trade settlement in RMB can be done through correspondent banking arrangement between domestic banks and foreign traders, we won’t have the benefits of having an offshore market that allows foreign traders and investors to trade and invest in RMB. An offshore market will allow market forces to work to build up the demand for RMB as a currency for trade settlement as well as a currency for investment.”

“Hong Kong is the most natural and the most competitive offshore RMB market in our country,” he concluded. “We have been a testing ground for new products and new ideas for China and now we are a testing ground for financial market reform for the country. There is much cooperation between the regulators on the Mainland and Hong Kong, and we can ring-fence the market with the capital flows being regulated to safeguard the financial security of the nation.”

Chan added that he expects there will be further development and more offering of investment products, including RMB-denominated bonds, in Hong Kong, which will contribute to “a much more interesting and diversified investment product market in Hong Kong. These will contribute to the growth of the offshore RMB market.”

To date, there have been 38 RMB bond issues, with a total issuance of over RMB 80bn. The offshore RMB bond market has taken off with the issue of so called “dim sum bonds” issued by a large range of issuers and available to institutional investors. The issuers range from Chinese corporations to bond corporations of foreign agencies.

Chan said that a base case forecast puts the issuance of offshore RMB bonds at RMB 60bn in 2011, as against RMB42bn last year, which would bring the total outstanding “dim sum bonds” to over RMB 100bn.


Belize – Offshore corporations, offshore banking and residency possibilites with no taxes.

Belize (formerly British Honduras) is the only English-speaking nation in Central America, its offshore laws ensure maximum financial privacy. These laws allow asset-protection trusts, maritime registration and encourage international business and banking.


The Great Blue Hole in Belize. Picture courtesy of guyspeed.com. Click on the image for larger picture.

There are no local income taxes, either personal or corporate, and no currency exchange controls. So it’s a place where you can arrange your affairs so you gain residency here but pay no taxes locally. And one of the most attractive benefits is that you can maintain your residency in Belize without actually spending much time there.

In Belize people are friendly, oceanfront real estate is still relatively cheap, and Belize’s parliament, courts and government are low tax and pro-offshore.

Designed to attract foreigners as residents, Belize’s “qualified retired persons” (QRP) program resembles Panama’s popular pensionado program. The QRP (administered by the Belize Tourism Board) offers significant tax incentives to those who become permanent residents of Belize, but not full citizens. The program is mostly aimed at residents of the U.S., Canada and the U.K., but it’s open to all.

When you qualify, you’re exempted from all taxes on income from sources outside Belize. QRPs pay no import duties on personal effects, household goods or on a motor vehicle or other transport, such as an airplane or boat.

There’s no minimum time you have to spend in Belize and you can maintain your status so long as you maintain a permanent local residence, such as a small apartment or condo. You must be 45 years of age or older to qualify and be able to prove personal financial ability to support yourself and any dependents.

Initial fees for the program are $700, plus $100 for an ID card upon application approval. The minimum financial requirements include an annual income of at least $24,000 from a pension, annuity or other sources outside Belize.


Singapore – more tax benefits for both businesses and households

Finance Minister, Tharman Shanmugaratnam, delivered Singapore’s budget statement for the 2011/12 fiscal year on February 18, and announced tax benefits to households and businesses totalling some SGD 13bn (USD 10.2bn).

Shanmugaratnam said that the government’s long-term aim is to raise incomes by 30% in real terms over the next ten years by growing the economy, and helping businesses to invest, restructure and developing skills, while also introducing measures to expand support for lower and middle-income Singaporeans. He pointed out that Singapore’s economy had done exceptionally well in the past year. After two weak years in 2008 and 2009, when growth was close to zero, its gross domestic product (GDP) grew by a record 14.5% in 2010, and is forecast to grow by up to 6% this year. Due to the improved economic growth, the originally expected budget deficit of SGD 3.0bn, or 1% of GDP, in 2010/11, has been transformed into a much lower deficit of SGD 0.3bn, or only 0.1% of GDP.

Shanmugaratnam was therefore able to announce that, in 2011/12, companies will receive a 20% income tax rebate, capped at SGD 10,000, or a small and medium-sized enterprises (SME) cash grant of 5% of a company’s revenue, capped at SGD 5,000. Companies will automatically receive the higher of the tax rebate or the grant when Inland Revenue Authority of Singapore assesses 2011/12 tax returns.

To further encourage pervasive innovation and raise productivity efforts, the productivity and innovation credit (PIC) scheme will be simplified and enhanced. The amount of tax deduction or allowance will be increased to 400% (from 250%) of research and development (R&D) expenditure, for the first SGD 400,000 (increased from SGD 300,000) spent on each qualifying activity.

PIC benefits will also be made available to R&D made abroad; businesses will be allowed to combine the SGD400,000 expenditure cap per year for 2013 to 2015 into a new ceiling of SGD 1.2m over the three years; and there will be an enhanced cash conversion option where taxpayers can opt to receive, in lieu of tax deduction benefits, a cash payout of 30% of the first SGD100,000 of qualifying expenditure, up to a maximum of SGD 30,000.

In addition, Shanmugaratnam is to simplify and reduce the taxation of foreign income, so as to support companies that are globalised and earning a larger share of their income overseas. Foreign tax credit (FTC) pooling is to be introduced to give businesses greater flexibility in their claim of FTCs, reduce their Singapore taxes payable on remitted foreign income (FI), as well as to simplify tax compliance.

Under the FTC pooling system, FTC is to be computed on a pooled basis, rather than on a source-by-source and country-by-country basis for each particular stream of income. The amount of FTC to be granted will be based on the lower of the pooled foreign taxes paid on the FI and the pooled Singapore tax payable on such FI. This will take effect from the 2012 assessment year.

Shanmugaratnam then said that, while Singapore is making good progress to becoming a location of choice in Asia for global companies as well as a launch-pad for Asian enterprises to globalize, he has made other tax changes in strategic business sectors to enhance its overall competitiveness as such a hub.

For example, to facilitate access to a wider range of funding sources for their lending business and strengthen Singapore’s position as a regional funding centre, enhancements will be made to the withholding tax exemption (WHT) exemption regime for banks, finance companies and investment banks with effect from April 1, 2011. WHT exemption will be granted on interest payments made to all non-resident persons (including funding from non-bank sources, such as hedge funds and insurers).

With effect from June 1, 2011, existing maritime incentives will be streamlined and enhanced. New tax benefits, such as certainty of WHT exemption for interest payments on loans to build or buy ships, will be introduced to further entrench international ship operators and encourage the growth of the shipping-related services sector in Singapore.

There will also be a package of individual income tax benefits for all Singaporeans. All resident individual taxpayers will be given a one-off personal income tax rebate of 20%, capped at SGD 2,000 per taxpayer, in 2011/12, and a new personal income tax rate structure will take effect from 2012/13. Marginal tax rates will be reduced for the first SGD 120,000 of chargeable income. While all taxpayers benefit, middle-income earners will enjoy the largest percentage reduction in taxes under the new rates. Shanmugaratnam disclosed that the government will continue to review Singapore’s top personal income tax rate, but saw no pressing competitive need for it to be reduced at present. After factoring in the various tax and other measures announced in his budget, he still expected a basic fiscal deficit of only SGD 2.2bn, or about 0.7% of GDP, in 2011/12.


Paraguay – Dollar economy – Still no personal income tax

Paraguay has a number of advantages going for it like 10% VAT (the lowest in South America), no personal income tax, 10% corporate tax (the lowest in South America), low labor cost, young population, plenty of commodities and enormous fresh water resources. In addition the capital Asunción has the lowest general price level in the world of any capital.

The personal “no income tax” regime should last at least to 2013 and very likely beyond. Bolivia and Guatemala are other countries in the region with “low or almost no” personal income tax. The employer’s contribution to social security is 16.5% of an employee’s (worker) total salary which includes bonuses. The employee’s (worker) portion is 9%

However, dividend distributions are subject to a 5% corporate income tax. Dividends distributed to non residents are subject to a 15% withholding tax.

Paraguay has a high degree of openness in the economy and a high degree of dollarization. There is no foreign exchange control in Paraguay.

Paraguay is a member of Mercosur. Other members of this trade organization are Argentine, Brazil and Uruguay. Venezuela is in the process of being a future member. The purpose of Mercosur is free trade with limited or no custom between its member countries as well as visa free travelling. Mercosur is planning to introduce the same “car plate” among its members.

See more in IMF research document regarding Paraguay here