With the UK announcing new tax rules for foreigners living in the country, the government has been careful not to damage the country’s appeal to wealthy foreigners.
The “non-dom” tax status “plays an important role in allowing those from abroad to contribute to our economy”, says George Osborne, the UK’s Chancellor of the Exchequer.
Along with the UK, Portugal, Switzerland, Israel and France have special tax rules to attract rich foreigners, with Cyprus recently announcing plans to introduce the concept of “domicile” into its taxation system.
Countries which try to draw in wealthy foreigners are starting to offer more than just tax concessions. Several countries, including many EU nations, have started to sell residence permits, while a few even offer passports. The number of citizenship by investment schemes have surged since the recent financial recession, with Cyprus even going as far as to offer foreign investors full citizenship as compensation for the loss of their bank deposits.
The Caribbean island of Antigua offers one such scheme, marketing itself to prospective citizens as a tropical island “with some 365 beaches of clean turquoise waters” that offers visa-free travel to 130 countries. Another selling point is that it only requires its new citizens to visit for five days every five years. Since the scheme started in 2014, Antigua has sold more than 500 passports to mainly Chinese nationals, bringing in $65.9m in much needed revenue.
The International Monetary Fund confirmed that citizenship by investment programs were seeing “a surge in clients from China, followed by Russia, and a steady rise in clients from the Middle East, although to a much lesser degree. A significant number of citizens from “advanced countries” were also using these schemes mostly to maximise their tax savings, it said, with several countries citing “their favourable tax treatment in an attempt to attract high net-worth clients seeking global tax planning”.
The IMF highlighted the preferential tax regimes offered with investor residency programs in Bulgaria, Hungary, Ireland and Portugal, as well as the economic citizenship programs in Cyprus and Malta.
But despite their growing popularity, controversy continues to dog the sale of residency and citizenship rights, with critics claiming that they pose a threat to international security, and also compromise the integrity and national identity of the countries offering the schemes.
In 2014, Malta came under fire for its citizenship by investment scheme, with the European Parliament passing a resolution criticising the Mediterranean island nation for selling EU passports. The passport scheme of St. Kitts and Nevis attracted the ire of the US government, who warned that it was being used by Iranian nationals seeking to avoid the sanctions imposed on Iran. And in Portugal several government officials were arrested following widespread corruption affecting its “golden visa” program.
Another criticism levelled at these schemes is that they promote tax evasion. The Tax Justice Network believes that residency rights are being targeted at people who want to dodge new transparency rules. With banks starting to share tax related information to their clients’ country of residence, tax evaders now have a huge incentive to adopt a tax haven as their country of residence.
“Selling residency and special tax treatment is contagious. It is creating a new tax loophole that will spread geographically,” says John Christensen, director of the Tax Justice Network.
However, the IMF believes that the global crackdown on tax evasion may reduce the usefulness of citizenship and residency investment schemes to that end. It believes their use “may become increasingly difficult as more advanced countries adopt anti-avoidance provisions in their tax legislation and enact financial transparency laws”.
Source: ft.com