World Wide Taxation
The UK domicile (more specifically, non-domicile) system has been the subject of much criticism over the years. Seen as a means of attracting wealthy individuals to a country, yet allowing them to retain their overseas residency, there are many pros and cons. Those under the impression that the UK is the only country to operate such a domicile system will be surprised.
While the details and formalities may be different, we will now look at similar schemes across the world.
The Portuguese system, known as the Non-Habitually Resident (NHR) tax regime, was introduced in 2009. The scheme lasts for ten years and targets high net worth individuals, pensioners and professionals with skills that are scarce in Portugal from time to time. Under the qualification criteria, you must not:-
- Be classed as a tax resident under Portuguese domestic legislation
- Not have been taxed as a Portuguese resident during the previous five years
In order to qualify as a tax resident in Portugal, you must fulfil at least one of the following two conditions:-
- Remain in Portugal for more than 183 days during the relevant fiscal year
- Have a residence in Portugal on 31 December of the year of your application, to hold this as your habitual residency
To make the NHR scheme attractive, there need to be tax benefits. These are as follows:-
- You will be charged a flat rate of 20% on income from high-value jobs
- Where tax is paid at source, or there is a double taxation arrangement, there is no additional tax charge on global income
Those who follow the Portuguese tax system will be aware that in the past, the government has used what is known as the “Golden Visa” to attract wealthy individuals willing to invest in Portugal. This is a different scheme from the NHR.
It is fair to say that the Irish government has been controversial regarding individual and company taxation in previous years. Indeed, there is an ongoing case brought by the EU against Apple and the Irish government regarding a favourable tax scheme. However, when it comes to non-domicile status in Ireland, there are numerous benefits for individuals:-
- Tax is only charged on Irish sources of income
- Only when remitted to Ireland will overseas income be taxed
- Overseas income earned while a non-resident of Ireland is not taxed if sent to Ireland at a later date
- Individuals with non-dom status living in Ireland can use overseas funds for everyday living expenses with no tax liability
- Those resident in Ireland, but holding non-dom status, will pay capital gains on Irish and UK disposals
Those domiciled in Ireland will be required to pay the €200,000 domicile levy if they meet the following conditions:-
- Global annual income of more than €1 million
- Income tax paid on global earnings
- Own Irish property worth in excess of €5 million
- Irish sourced income of less than €200,000 in a tax year
It is important to note that any Irish income tax charges in a fiscal year can be offset against the €200,000 domicile levy.
There is a general misconception that Cyprus is considered a tax haven. After increasing corporation tax to 12.5% in 2019, the Organisation for Economic Co-Operation and Development (OECD) afforded Cyprus the same status as many other European countries. However, there are still several issues to be aware of concerning domicile and non-domicile tax status.
If you’re domiciled in Cyprus, the tax regulations are very straightforward:-
- Cyprus income tax applies to worldwide income
- A Special Defence Contribution (SDC) will be imposed on worldwide dividends, interest and rental income
So, those who saw Cyprus as some form of tax haven may need to think again. Those who switch their tax residency to Cyprus will automatically receive non-dom status for a maximum of 17 years. As a non-dom, there are issues to consider, such as:-
- Income tax will only be charged on Cyprus income
- There is no SDC on worldwide income
The tax system in Cyprus, along with many other countries, is used to attract inward investment for the long-term benefit of the country.
While Cyprus is seen by many as a tax haven, although not officially recognised as such, Malta is officially recognised as a tax haven along with Luxembourg and Ireland. There are specific differences regarding tax liabilities for those with domicile and non-domicile status. Those with domicile status in Malta will be taxed on:-
- Worldwide income
- Certain capital gains crystallised in Malta
The situation regarding non-dom status is very different, and there are many issues to be aware of, such as:-
- Taxed on Malta income
- Taxed on certain capital gains in the country
- Taxed on foreign income remitted to Malta
- Overseas capital gains are not subject to tax in Malta, even if received in the country
- Optional flat 15% tax rate on all income remitted to Malta
- Minimum tax liability of €5000 per annum for non-domiciled individuals when remitting overseas funds to Malta
There are some anomalies to consider, such as “certain” capital gains. Therefore professional advice should be taken at all times.
The tax situation for domiciled, non-domiciled and expats living in Belgium varies widely. It would be advisable to take professional advice before making any move. We will take a look at the various tax obligations starting with those domiciled in Belgium:-
- Belgium income tax is paid on worldwide income
- There is a wealth tax of 0.15% charged on securities accounts with an average annual balance exceeding €1 million
It is important to note that capital gains are not taxable to individuals in Belgium if carried out within the typical framework of an individual’s private estate. That will surprise many people!
Non-domicile status tax considerations:-
- Income tax is only charged on Belgium income
- If at least 75% of worldwide income is sourced in Belgium, individuals can make use of the personal tax allowance
The Belgian authorities also have a third tax status which relates to expats working in the country temporarily:-
- These rules only apply to overseas nationals earning more than €75,000 per annum
- Benefits are available, including tax-free reimbursement of living and housing expenses
- Expats working in Belgium will have 30% of their Belgium income shielded from tax, up to a maximum of €90,000
- These rules only apply to expats working in Belgium on a temporary basis, but resident in another country
It is fair to say that while very useful, the Belgium tax system for those domiciled, non-domicile and expats working temporarily is a little more complicated than usual.
The Netherlands income tax system is one of the more complicated in Europe, with taxable income split into three different groups. These groups are:-
- Taxable income from profits, employment, homeownership, wages, pensions, social benefits and value of owner-occupied property
- Taxable income from substantial interests
- Taxable income from savings and investments
Now, if we look at the specific tax status of individuals and their liabilities, we find that those with a domicile status:-
- Pay tax on their entire worldwide income
- All three income groups apply
The situation for those with non-domicile status is very different:-
- Individuals are only taxed on Netherlands income
- On occasion, some types of overseas income can be taxed (take advice)
Then we have qualifying non-resident taxpayers who live outside of the country:-
- Those who live outside Holland but pay taxes in the country may be eligible for qualifying non-resident taxpayer status
- The one condition is that they pay Dutch tax on more than 90% of their worldwide income
- Those who qualify will enjoy the same tax deductions, tax credits and tax-free allowances as taxpayers resident in Holland
There is more! There’s also what is known as a 30% ruling with the following criteria:-
- Those who bring “specific and scarce skills” to Holland may be eligible for benefits associated with the 30% ruling
- The ruling will shield 30% of the individual’s income from taxation for five years (previously eight years)
While the system is complex and sometimes difficult to follow, there is better news on global double taxation arrangements. Those who may be eligible to pay Dutch tax on their overseas income will not need to do so if tax is already deducted at source.
When you consider the much covered Italian pension time-bomb, not to mention the enormous VAT gap, you might have expected a relatively harsh Italian income tax system. In what is a fairly straightforward system, those with domicile status:-
- Pay Italian tax on their worldwide income
- Will be charged a wealth tax covering overseas real estate and financial investments
Those with non-domicile status will abide by the following tax rules:-
- Only income produced in Italy will be susceptible to Italian income tax
- Worldwide income will not be included in any tax liability calculations
However, there is an Italian levy to consider for those looking at switching their tax residency. They can either:-
- Apply for non-Italian sourced income to be taxed at a flat €100,000 per annum
- Apply for overseas income/assets to be taxed in line with Italian residents
For those with significant assets, income and investments overseas, it may be worth considering the Italian levy. However, professional advice should be taken if you are considering changing your tax status.
Despite the perceived complexities of the Swiss taxation system, residency and non-residency, the system is relatively straightforward. There is the added input from federal, cantonal and municipal bodies, but the system is reasonably easy to understand. Those with a domicile status will be:-
- Taxed on worldwide income
- Taxed on worldwide wealth (only at cantonal and municipal levels)
- Taxed on income at three levels, federal, cantonal and municipal
- Able to opt for a lump sum taxation payment, based on seven times annual rent/deemed rentable value of an owned property
So a lot to think about there! However, for those with non-domicile status, the situation is much clearer:-
- Taxed on Swiss sources of income
- Taxed on Swiss sources of wealth
Many of the historic tax benefits associated with the likes of Switzerland have been eroded in the worldwide quest to clamp down on tax avoidance and tax evasion.
The complicated world of personal taxation
While many countries appear to “sing from the same tax hymn sheet”, the devil is in the detail when you delve a little deeper. It is essential to take professional financial advice if you are considering moving your residency and tax status. As individual country tax regulations tend to change regularly, it is also crucial to monitor any announcements which may impact your situation.