International relocation to tax-friendly countries is commonly used as a tax-planning tool by (U)HNWIs and their family offices. Most family offices in Switzerland support their clients international relocation and help them obtain residence permits.
International relocation is increasingly popular
For decades, wealthy individuals and families have been relocating 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. There are many reasons for this, such as improved communications media, for example, mobile Internet and Skype, which makes it easier to stay in touch with relatives and business, as well as thoroughly improved, more regular and cheaper international flight connections, making it simpler to travel between one’s country of origin and the country of choice.
Relocation to optimise one's life
The main benefit of permanent emigration for (U)HNWIs lies in the fact that in most cases it creates a substantial tax benefit. Often, it is also a necessary condition for protecting the assets of a family and its members. Sometimes it is best if a whole family relocates, and sometimes interesting tax-planning possibilities may 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 factors such as climate, infrastructure and a secure political environment. We also encounter international relocation when children of (U)HNW families attend schools and universities in countries such as Switzerland, the United Kingdom and the United States of America. A multi-family office can often 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 people with European Union (EU) citizenship, relocating within the EU or to Switzerland is not a problem, but for an (U)HNWI who is not an EU or Swiss national, international relocation to these countries could prove more difficult. In all cases of international relocation, careful planning is necessary, especially when it is done primarily for tax reasons. Anyone who intends to relocate for tax reasons will therefore need to obtain appropriate tax advice from a reputable law firm specialising in fiscal matters before they actually relocate. Some countries do not require tax planning before you enter them. However, and especially in the case of business owners, it will be necessary for the family office to plan the departure from the country of origin in order to avoid negative tax consequences, or to generate the positive tax results as planned. Structures often proposed by multi-family offices in connection with international relocation are trusts and life-insurance solutions. It is also often necessary to plan in advance to obtain the necessary residence permits.
International relocation to Switzerland
A considerable number of Swiss cantons offer (U)HNWIs who want to relocate to Switzerland the possibility, before entering into Switzerland, of negotiating 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 person’s annual expenditure. This arrangement is called lump-sum taxation. Put simply, it means that a certain amount of taxable income is agreed with the Swiss tax authorities upfront, based on several criteria, such as 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 of tax each year, depending on your citizenship, your personal situation and the canton you choose. Under this arrangement, you are not allowed to carry out any gainful activity in Switzerland. People who wish to take up residence in Switzerland need to obtain a residence permit. Helping you to obtain a residence permit and to negotiate an attractive lump-sum are two of the many multi-family office services on offer.
International relocation to the United Kingdom
When you are relocating to the United Kingdom, it is possible to benefit from 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 the 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 people who are not born and raised in the UK (i.e. non-domiciled people). Under this system, it is theoretically possible to live fully tax-exempt in the UK: the non-domiciled rules can be used during the first seven years of residency in the UK without any costs; after seven years, a minimum annual amount of GBP 30,000 and up to GBP 50,000 will be levied should you wish to continue enjoying the non-domiciled benefits.
International relocation to other jurisdictions
Swiss family offices may also assist you to relocate to other tax-friendly countries. International relocation to countries such as Gibraltar, Malta and Portugal offers the possibility of using schemes specially developed for (U)HNWIs. Under these schemes, there is little to no tax to be paid; you are granted a residence permit and, in most cases, access to Schengen countries without any visa requirements.
Hong Kong and Singapore have a so-called territorial tax system. Under such a system, only income generated on the countries’ territory is taxed. Since neither country levies wealth, gift or 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, given that they do not levy any tax at all on income, wealth, gifts or inheritances.
Although international relocation to these 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 excellent opportunities to structure a family’s assets before relocation, in such a way (such as via trusts and life insurance) so that the overall tax burden of the family will decrease significantly.
A Swiss family office can support you with international relocation planning strategies and help you to comply with 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 quality Swiss family office.