Are you FUTURE ready?
Methods to maximise your after-tax income and minimise estate taxes
Tax Authorities are on the prowl!
It is inevitable that the “TAXMAN” will be looking for additional revenue, and EXPAT workers living offshore, whose primary tax residency is back home , may be in for a shock, when the TAXMAN demands more tax comments Costas Souris of the Quality Group. Why? Most countries have incurred astronomical debts in the financial fight to keep essential services going and to keep food on the table for citizens whilst in lockdown.
Before your tax year end ensure your financial affairs are in order and that you are maximising your after-tax income says Costas.
The general rule is that if you are physically present more than 183 days in a country, it is regarded as your primary tax residency, and with most countries having adopted the rule that worldwide income is taxable; even though you are an expat working in say Kuwait, your total income is reportable to your primary tax residency and any tax benefits that you may have enjoyed by working offshore are negated.
The TAXMANS Primary source of TAXES
Direct Tax: Income which includes salary, dividends, interest, royalties, rentals …
Indirect Tax on income & expenditure: VAT/GST, rates, fuel levies, social security services …
Tax on Assets (Whilst Alive/On Death): Capital gains, donations, gifts, inheritances …
Methods to Reduce Tax
There are two primary options:
1. Use all the available tax planning tools to reduce the various forms of tax
Retirement annuities (RAs)
Tax free interest
Structuring estates; trusts/companies local/offshore …
2. Switch primary tax residency to a “friendlier TAXMAN”
This does not mean you lose your home citizenship or rights to residency!
You are only switching your primary tax residency!
A. Expat workers
> on an oil rig
> a miner in Africa
> teacher in UAE
(Out the country more than
183 days per tax cycle)
Local tax residents and non-Local tax residents are usually taxed differently.
• Local tax residents are required to pay tax on income earned locally and offshore. For example: Earn $50 000 locally plus the $150 000 earned offshore. The expat worker is taxed on $200 000 of income.
- Non-Local tax resident owns a property in South Africa or Zambia and earns rent, tax will need to be paid in South Africa or Zambia on the income earned from the rentals.
Previously, in many tax jurisdictions, the $150 000pa was not taxed locally and only, and rarely taxed in the country where the work was-is performed.
To attract expat workers such countries, like many in the Middle East, did not tax expat workers. This has all changed. Firstly, many expat workers because of pandemics and the drive to use local workers are not renewing work permits and due to government debt are beginning to tax expats.
So not only are expats having to relocate home, but also are facing taxes that they never paid before!
> Your primary tax residency is Cyprus (60-day rule)
> Continue as an expat worker, foreign income earned is tax free
> Pay tax on local assets and income.
> No inheritance, donations or gift taxes
> Excellent healthcare & social services
> Former British colony, drive on left, 90% speak English
> Excellent education & British universities incl. medicine
> Obtain permanent residency for life
> Obtain EU Citizenship immediately or by naturalisation
> Visit home for 180 days or less pa, “be a tax swallow”
Cyprus is a country that has emerged from lockdown without mortgaging the future
Cyprus Taxes in Brief
> Local Income/rentals … under €19 500pa tax free
> No Inheritance taxes
> 17 year tax holiday on worldwide dividends, rentals and interest
> 12,5% less expenses
> Dividends tax free
> Establish a Business. Trade through Cyprus an EU Country and all its trade advantages
B. High Net Worth Estates
(On death primary tax residency determines the total inheritance tax bill, with credit for taxes paid on assets in other countries)
Presently many countries still tax deceased estates and or the beneficiaries
South Africa 20-25% less R3,5 million per estate
Botswana 25% on all value over US$14,400
UK Inheritance 40% less ₤325 000 per taxpayer
USA max. 40% on assets topping $11.4 million for 2019 ($22.8 million for married couples)
If we take a case study and assume an estate of $20 million and assume an Inheritance tax rate of 20%. Cash of $4 million will need to be paid to the taxman before beneficiaries inherit. If Cyprus were the primary tax residency and these assets were linked to Cyprus, there would be a saving of $4 million as Cyprus has no IHT taxes!