Relocation for Latin American High Net-worth Individuals – Searching for security and certainty
Recently we have seen an increasing number of high net-worth individual clients resident in various Latin American countries interested in relocating to a new domicile country, due to economic, political, legal and tax uncertainty as well as world-wide exchange of information initiative resulting in financial information reaching their domestic tax authorities (see also: Millionaires in Latin America Weigh Moving to Sidestep Tax Grab and https://www.willkie.com/-/media/files/publications/2023/the_current_state_of_taxes_on_wealth_in_latin_american_countries.pdf). A trend which the COVID-19 pandemic has increased.
According to our experience the most frequently used schemes attracting interest from HNWI clients in Latin America are:
Costa Rica:
An investment of minimum USD 200’000.- in real estate in Costa Rica. Alternatively for an entire family a regular monthly income of at least USD 2’500.- certified by a local or foreign bank. Alternatively, a life-time pension plan, social security or government pension plan of USD 1’000.- will enable the beneficiary to obtain a residency permit. A real estate ransfer ax of 1.5% is applicable.
Income taxes of up to 25% on Costa Rican source income are applicable. A capital gains tax of 15% is applicable on real estate sales in Costa Rica which are not primary residence. A 0% capital gains tax for Costa Rican habitual source gains may be applicable. No inheritance or wealth taxes. There may be an obligation to contribute to the social security system.
Italy:
Citizens from the EU have the right to live in Italy. The fast-track investor investment visa for non-EU nationals requires an investment of EUR 1 million in a local Company or EUR 2 million in Italian public bonds.
Quality of Life Index ranked number 36 of 82 Quality of Life Index by Country 2021.
New resident individuals may apply for a lump-sum substitute tax of EUR 100’000.- and a tax of EUR 25’000.- for relatives on all of their non-Italian source income, wealth abroad and inheritance and gift tax exemption on foreign assets. Such an agreement can be prolonged for up to 15 years.
Part of the Schengen Zone, permitting residents to travel freely to most parts of the European Union and Switzerland.
Monaco:
Non-EU nationals need to apply for a long-term visa before applying for the residence permit. For residency permit, proof of wealth without gainful employment. Open a bank account in onaco with a minimum EUR 500’000.–. During the first nine years requirement to spend at least three months per year in Monaco.
There are no income, capital gains or wealth taxes in Monaco, except for French nationals who have to pay French income taxes. There are however inheritance and gift taxes up to 16%, but only on assets situated in Monaco, but not for direct line heirs such as parents, spouse and children.
Not part of the Schengen Zone.
Panama:
An investment of minimum USD 300’000.- in real estate or time deposit in a bank in Panama, plus USD 2’000.- per additional dependent included in the visa. Alternatively persons with a lifetime annuity or pension of at least USD 1’000.- per month.
Quality of Life Index ranked number 57 of 82 Quality of Life Index by Country 2021
Residents are taxed on their Panamanian source revenues only. Income taxes are up to 25%, and local capital gains are taxed at 10%. There are no inheritance or gift taxes in Panama. There are no wealth taxes, but a real estate tax of up to 1% p.a.
Portugal:
Golden visa program for non-EU, EFTA and/or Swiss citizens. Amongst other requirements to qualify for the program, an investment of EUR 500’000.- into any real estate, EUR 350’000 into a real estate more than 30 years old with the obligation of renovating it, transferring assets of EUR 1 million to Portugal, an investment of EUR 350’000.- into a qualifying fund, or the reation of ten new full-time jobs are necessary.
Quality of Life Index ranked number 18 of 82 Quality of Life Index by Country 2021.
Non-habitual resident status available providing tax-exemptions for up to ten years. Exemptions from Portuguese taxation include most income from foreign sources, including revenues from non-Portuguese investments, and employment income. Incomes from foreign pensions however are taxed at a 10% flat rate.
Part of the Schengen Zone, permitting residents to travel freely to most parts of the European Union and Switzerland.
Spain:
Currently relatively easy immigration process for high net-worth individuals with a golden visa process requiring an investment in real estate worth at least EUR 500’000.- (other programs with higher minimums available).
Quality of Life Index ranked number 16 of 82 Quality of Life Index by Country 2021.
Upon becoming tax resident: high taxes (income tax depending on the autonomous region, for example the maximum marginal tax rate of 43.5% for an individual resident in Madrid and 48% for a resident in Catalonia). Inheritance and wealth taxes according to the applicable autonomous region. Spanish tax residents and non-residents are subject to tax on dividends, interest and apital gains at a maximum rate of 23%.
Limited tax planning opportunities, for example by obtaining a special fiscal residence permit, paying 24% on local income as non-resident on the first EUR 600’000.- income.
Part of the Schengen Zone, permitting residents to travel freely to most parts of the European Union and Switzerland.
Switzerland:
EU-28 nationals are entitled to a residence permit. For non-EU nationals some additional restrictions like minimum age of 55 may apply.
Quality of Life Index ranked number 2 of 82 Quality of Life Index by Country 2021.
Based on a tax ruling, a so called lump sum taxation is available, which essentially fixes the tax base at 7 times annual rent for accommodation, with a minimum base of CHF 400’000.- for federal tax purposes. Depending on the place of residence within Switzerland this may generate yearly taxation starting at some CHF 140’000.-. Social security payments may be applicable. Depending on the Canton of residence, your estate may be subject to inheritance taxes.
Part of the Schengen Zone, permitting residents to travel freely to most parts of the European Union.
United Kingdom:
Most citizens from the EU, EFTA and Switzerland have the right to live in the UK. For other citizens the investor (minimum investment of GBP 2 million) or entrepreneur (minimum investment of GBP 200’000.-) routes may be available.
Quality of Life Index ranked number 19 of 82 Quality of Life Index by Country 2021).
You may apply for a UK resident non-domiciled status, enabling you to opt to apply a remittance basis druing the first 15 years, taxing your UK income and gains and your foreign income and gains of GBP 2’000 or more per year that you bring back to the UK. For the first six years of UK residency the claiming remittance basis is free, from the seventh year onward, a basic charge of GBP 30’000.- is applicable which will be increased to GBP 60’000.- after 12 years. Maximum income taxes for taxable income are up to 45% for incomes over GBP 150’000.-; maximum capital gains tax rates are 28%; the inheritance tax rate above GBP 325’000.- is 40%. Trusts may offer capital gains tax and inheritance tax opportunities.
Not part of the Schengen Zone.
United States of America:
EB-5 Investors’ visa available for an investment of minimum USD 1.8 million, or USD 900’000.- for investments in target employment areas.
Quality of Life Index ranked number 15 of 82 Quality of Life Index by Country 2021.
High taxes [federal income tax up to 37%, US estate (inheritance) tax of currently up to 40%], capital gains taxes up to 20%.
Limited tax planning opportunities for individuals setting up irrevocable trusts 5 years before migrating to the US may exempt the trust assets from US estate taxes upon the death of the settlor and subsequent US beneficiaries.
Uruguay:
Residency permit may be granted by making a real estate investment of more than UYU 3.5 million (approx. USD 380’000 which are indexed), requiring a minimum presence of 60 days (per year?). Alternatively a residence permit with no minimum presence can be obtained by investing UYU 15 million (approx. USD 1.6 million).
Quality of Life Index ranked number 47 of 82 Quality of Life Index by Country 2021.
Income tax on resident individuals from employment is taxed up to 36%, however new residents may opt for a tax holiday during the first ten years of obtaining residency from foreign passive income and thereafter having it taxed at 7% (instead of 12%). There is an annual personal net-wealth tax on assets situated in Uruguay of up to 0.6%. There are no gift or inheritance taxes.
Some additional points have to be taken into consideration when planning a relocation: The current country of residence may impose an exit tax on your leaving the country. Lately quite a number of countries have enacted laws trying to deter individuals or companies from leaving their tax jurisdiction. In many cases the tax authorities of the jurisdiction which is being left will also monitor or even audit the individual leaving or his family as to the substance of the relocation, i.e. check whether the center of vital interest as such has really moved away from their jurisdiction or not. The center of vital interest includes establishing where the family of the individual in question is, where the social ties including club memberships are, the positions held, participation in political and cultural events, places of business and management of the family wealth, including where the pets are kept. They may also check whether the personal and economic relations to the new jurisdictions are in fact closer than to the jurisdictions being left. If the tax authorities come to the conclusion that the relocation does not have enough substance, i.e. that the center of vital interest and/or the personal and economic relations to the new jurisdiction are less than to their own jurisdiction, they may try to continue to tax the individual leaving as if he still remained resident.
Entrepreneurs may also encounter the following issues: If there are participations in the jurisdictions being left, dividend distributions may be subject to a withholding tax. Depending on a potential double tax treaty with the new jurisdiction, the impact of this withholding may however be reduced. Further, if the individual relocating to the new jurisdiction remains in full control, the new jurisdiction may want to tax the company as a local company due to place of effective management rules: The place of effective management is the place where key management and commercial decisions of a business are effectively made. The place of effective management will usually be where the most senior person or group of persons (for example a board of directors) takes its decisions.
Whereas many of these relocation programs provide considerable tax advantages, careful prerelocation tax planning based on tax advice obtained in the old and the new jurisdiction is strongly recommended.
Copyright by René M. La Barre, Global Wealth Management Consulting GmbH, www.gwmc.ch, July 2020. All rights reserved.
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