International relocation of private individuals to tax-friendly countries is a commonly used (tax) planning tool by (U)HNWIs and their family offices. Most family offices in Switzerland support their clients with international relocation services and with the obtainment of residence permits.
International relocation is increasingly popular
Already for decades wealthy individuals and families have relocated to more tax-friendly countries such as Switzerland, the United Kingdom, Monaco, Dubai, Malta, Singapore, Hong Kong, Gibraltar and other jurisdictions alike. Especially in the past decade international relocation has become increasingly popular as a tax planning tool. The reasons for that are improved ways of communication (e.g. mobile internet, Skype, etc.) making it easier to stay connected to relatives and the business, as well as thoroughly improved, more regular and cheaper international flight connections making it easier to travel between the country of origin and the country of choice.
Relocation to optimise one's life
For (U)HNWIs the main benefit of permanent emigration lies in the fact that in most cases it creates a substantial tax benefit. Often it is also a necessary condition for the protection of the assets of the family and the family members. Sometimes it is best if a whole family relocates, and sometimes interesting tax planning possibilities may already arise if only one or a few of the family members relocate to another country. The family, supported by the family office, may of course also select a new country to reside in based on elements such as climate, infrastructure and a secure political environment. And we also come across international relocation for reasons of children of (U)HNW families visiting schools and universities in countries such as Switzerland, the United Kingdom and the United States of America. Often a family office can also support you with this last issue quite well.
Tax planning is a necessity when you relocate internationally
(U)HNW families often relocate to the United Kingdom or Switzerland. There are other attractive alternatives, but they are less well-known. For persons having European Union (EU) citizenship, relocating within the EU or to Switzerland is not a problem. But for an (U)HNWI living outside the EU or Switzerland, international relocation to those countries could prove more difficult. In all cases of international relocation careful planning is necessary, especially when it is primarily done for tax reasons. All persons who intend to relocate for that reason will therefore need to obtain appropriate tax advice from a reputable (tax) law firm before they actually relocate. Some countries do not require tax planning before you enter them. However, especially in the case of business owners it will be necessary for the family office to plan the exit out of the country of origin in order to avoid negative tax consequences, or to create the positive tax results planned. Structures often used in connection with international relocation are Trusts and Life Insurance solutions. Regularly it is also necessary to plan in advance to obtain the necessary residence permits.
International relocation to Switzerland
A considerable number of Cantons in Switzerland offer (U)HNWIs who want to relocate to Switzerland the possibility to - before entry into Switzerland - negotiate a fixed annual level of income and wealth tax with the tax authorities, independent of the actual annual income and wealth of the person. The main basis for negotiation with the tax authorities is the annual expenditure of the person. This arrangement is called lump-sum taxation. It means in a nutshell that a certain amount of taxable income is agreed with the Swiss tax authorities upfront, based on several criteria (i.e. worldwide expenditure, rental value of the new residence in Switzerland and the Cantonal minimum). The tax due on the negotiated amount of taxable income is paid annually to the Swiss tax authorities. The financial agreement can range from CHF 50'000 to over CHF 250'000 tax payable every year, depending on your citizenship, your specific personal situation and the Canton of choice. Under the agreement you are not allowed to carry out any gainful activity in Switzerland. Persons wanting to take up residence in Switzerland need to obtain a residence permit. One of many family office services is to assist you in obtaining a residence permit and to support you in negotiating an attractive lump sum.
International relocation to the United Kingdom
When you are relocating to the United Kingdom it is possible to benefit from the UK non-domiciled taxation. Under the non-domiciled taxation rules, foreigners who have internationally relocated to the UK will only be taxed on income and gains that arise or accrue in the UK, on assets they hold in the UK (including UK bank accounts), and on the income they generate outside the UK and subsequently remit to the UK. This option is only open to persons who are not born and raised in the UK (non-domiciled). As a result of this system it is in theory possible to live fully tax exempt in the UK. It is possible to use the non-domiciled rules during the first seven years of residency in the UK without any costs. After seven years a minimum annual amount will be levied of £ 30'000 up to £ 50'000 in case you want to keep enjoying the non-domiciled regulations.
International relocation to other jurisdictions
Swiss family offices may also assist you with relocation to other tax-friendly countries. International relocation to countries such as Gibraltar, Malta and Portugal offers the possibility to use specially developed schemes for (U)HNWIs. Under these schemes there is little to no tax to be paid. You receive a residence permit and in most cases access to Schengen countries becomes available without any visa requirements.
Hong Kong and Singapore have a so-called territorial tax system. In such a system only income generated on the territory of the countries is taxed. Since neither of the countries levies wealth tax or gift and inheritance tax, both provide an excellent base for (U)HNW families to reside in. International relocation to tax havens such as Dubai, Monaco and several tropical islands such as Bermuda are also an option, since they do not levy any tax at all on income, wealth or gifts and inheritances.
Although international relocation to the above-mentioned countries comes with great tax benefits, relocating to other countries may also come with severely negative tax consequences. Some examples of these countries are the United States of America, France and Germany.
Last but not least many countries offer very good opportunities to structure the family's assets, before relocation, in such a way (via trusts, life insurance, etc.) that the overall tax burden of the family will decrease significantly.
A Swiss family office can support you with international relocation planning strategies and support you in complying with the local rules and legislation. As (U)HNW families become more internationally exposed every year this should normally be one of the most important services of a family office of high quality in Switzerland.