Worldwide Tax Implications (LehmanBrown, Montpelier & Buzzacott)
The world may be smaller but it is a much more transparent place now with new disclosure rules such as the recent US FATCA. Soon to be followed by the G20 agreement GATCA. Worldwide taxation laws are here to stay, as is disclosure. Governments talk to each other especially when it comes to TAX.
So what is this thing called TAX?
An involuntary fee levied on corporations or individuals that is enforced by a level of government in order to finance government activities such as building and improving the infrastructure we live in, such a schools, hospitals, roads and defense. TAX NEEDS TO BE PAID BY ALL OF US!
Tax Evasion or Tax Avoidance.
(You NEED to know the difference)
Tax Evasion is a Criminal Offence; Penalties include Prison, Seizing of Assets, and Heavy Fines
Tax Avoidance is planning legally through the use of Tax Allowances and Exemptions
Individuals are more complicated in today’s world with assets held in multiple jurisdictions across the globe. Residence is key to taxation as is your domicile. Many though believe that having a Residence Visa overseas will benefit them with lower taxation, BUT this is not always the case and unless you spend enough time in that country you will still could be liable for tax in your country of domicile
Types of tax planning solutions to consider
Wills, Domicile, Residence, Trusts, Offshore bank accounts, Offshore Companies, Offshore bonds/Investment platforms, Insurance, Real Estate, Charities.
A person’s Last Will and Testament will outline what to do with possessions, such as custody of dependents and assets. People who do not leave a last Will and Testament are at risk of losing their hard earned wealth or creating unnecessary delays, arguments and suffering to their family.
Key to the international investor is the fact that a Will needs to be legally registered in each jurisdiction that any assets are owned.
Many jurisdictions have far-reaching Death Duty laws that give them tax rights when people inherit property from another country or where the deceased or the heirs are resident, domiciled or hold nationality in another jurisdiction. Frequently, two or more countries may apply death tax on the same asset. Cross-border inheritance tax problems do not just affect individuals either, businesses can often face transfer difficulties upon the death of their owners.
Trusts can provide a large range of tax and estate planning opportunities. The challenge is which trust as there are many to consider and you will need to be clear on the rules of the country that your beneficiary are domiciled. Also, some countries do not recognize trusts.
Perhaps the best solution for you is a offshore company overseas to buy your assets through! But which location should you choose?
A few Questions to ask yourself to see if you are at Risk?
Are you paying to much Tax or are you liable to pay more?
Are your affairs correctly structured so that you have taken advantage of all your available options?
Have you put in place structures to secure and protect your wealth?
You work hard for your money, is it working hard for you?
Things to be aware of if you are resident in China!
1) Are you counting your days in China and other countries, and do you know what is classified as a day for tax purposes.
2) Have you structured your employment package to take advantage of China’s beneficial tax allowances?
3) Do you have an overseas role or responsibility with your employer or a company, and are you structure your remuneration optimally between onshore and offshore, different jurisdictions and nature of remuneration.
4) Do you know the 5 year rule, is it included in your employment contract that the company will allow you to break it.
Worldwide tax considerations
Take advice before you act!
The political environment surrounding taxation has changed dramatically since the worldwide banking crisis – great efforts are being made to make tax avoidance socially and morally undesirable. This does not mean that planning is not necessary or acceptable and here are some areas that anybody with cross border affairs should take advice on:
1) Even in the current tax climate expats can often have very beneficial tax and social security arrangements available to them when working abroad, so long as they plan in advance and stick to the plan.
2) Tax residence is a local issue – different states have different rules and different tax years. Double Tax Treaties can prevent double taxation, but Treaty networks vary.
a. Do not assume that double taxation is not possible.
b. Do not assume that you cannot be tax resident in more than one country.
c. Do not assume that citizenship or a right of residence in one country will prevent tax in a second country.
d. You must count your days in every country, but days alone may not determine your tax residence.
3) The USA taxes on citizenship (which includes green card holders); Obtaining a US green card or passport makes you liable for US tax on your worldwide income, chargeable gains and assets (on death). FATCA is making it easy for the US to identify non-filers.
For example, the Mayor of London is a UK resident dual UK/US citizen and recently had to pay US tax on a transaction that was exempt from UK tax.
4) Countries take different views on taxing non-residents; some do not tax them, some tax only certain income (typically local source business, employment or rental income), some tax local property gains and some tax all local income and gains.
5) Beware of death duties and wealth taxes – non-residents are often taxable on local assets or, for example, in the US (citizens and green card holders) and UK (UK domiciled individuals) on worldwide assets.
6) There are a number of ‘investor visa’ programs available, particularly in Europe and the USA – ensure that you understand the tax implications of entering a program before committing. For example, the US program creates a US tax liability on worldwide income and gains and the UK program requires UK tax residence (albeit on a non-domiciled basis).
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