A few weeks ago, Taxlinked hosted its webinar on Non-Dom Tax Regimes in Europe, closely studying the efforts set forth by Cyprus, the UK, Italy, Portugal and Malta.
Despite some technical difficulties during the first twenty minutes, the event was highly successful as our group of five panelists presented plenty of information on these jurisdictions’ non-dom tax regimes.
Once again, Taxlinked would like to thank our panelists for taking the time to talk to our community about non-dom tax regimes.
Our panelists were:
- Claudio Todesco, Chartered Accountant & Auditor, lawpartners Studio Legale e Tributario (Italy)
- João Gil Figueira, Country Manager, Lugna (Portugal)
- Laszlo Kiss, Managing Director, Discus Holdings Ltd (Malta)
- Demis Ioannou, International Tax Advisor & Director, Taxatelier Ltd (Cyprus)
- Dmitry Zapol, International Tax Advisor & Partner, Interfis (IFS) Consultants (UK)
If you missed the event, please make sure to read or download the full transcript below.
If you have any follow-up questions for our panelists, feel free to submit them on the relevant forum linked to below.
For now, here is a quick summary of what was presented on each regime!
Italy’s Non Dom Tax Regime
- This regime was introduced in 2017 as “a new optional regime for individuals who transfer their tax residence to Italy” and is “valid for 15 years.”
- According to Claudio Todesco, “the regime has cleared from taxation any income generated or produced abroad by an individual.”
- As part of this regime, “the individual has to pay an annual lump sum of 100,000 Euros and…has the opportunity to extend the application of the regime to any family member who would have to pay an annual lump sum of 25,000 Euros.”
- Who can apply for this regime? Two conditions must be met: 1) The “transfer of tax residence to Italy,” and; 2) “the individual has to have been a resident in Italy the time period before the application of the regime at maximum for one year.”
- As part of this program, “the taxpayer has an additional opportunity, which is the potential exclusion of one or more countries from the application of the regime. This is a sort of ‘cherry picking’ principal according to which the individual has the opportunity to apply ordinary taxation to one or more countries.”
- Other benefits include “the non-application of wealth taxes applied to real estate properties located abroad and on financial assets held abroad,” “the exclusion from the tax monitoring obligation,” and “the exclusion from the inheritance tax of assets and rights held abroad by the individual.”
Portugal’s Non Dom Tax Regime
- In Portugal, as explained by João Gil Figueira, the regime is known as “non-habitual tax residency.”
- “Who can apply for non-habitual residency in Portugal? Any individual, Portuguese or foreigner, no limitations on nationality whatsoever, that has not been a resident of Portugal for the last five years.”
- Applicants should first “enroll into the tax registry of Portugal as a resident taxpayer,” and, second, “meet one of the criteria for residency, which is pretty straightforward and pretty common all throughout the world…either stay more than 183 days in Portugal” or “hold a dwelling, a house in Portugal, [which] can either be a rental or can be owned by the individual.”
- Under this regime, “most types of foreign source income are not taxable in Portugal, are exempt…from tax.”
- “Salaries, however, must be taxed at source…In fact, the taxpayer needs to pay some type of income tax at source to be exempt in Portugal. Anything that is paid in Portugal will not be exempt. However, if it is a high value added activity, there is a flat tax of twenty percent.”
- One negative of this regime pertains to “capital gains on the sale of securities because this is a regime based on the interaction between Portuguese domestic provisions and its tax treaties. And we know the taxation of capital gains on the sale of securities, shares and bonds at source is something that is unusual, to say the least. This matters because Portugal has a rule that if it's taxed at source it will be exempt. But the fact is no one taxes these at the source, nor the conventions foresee for taxation of capital gains on the sale of shares at source. Hence, Portugal will have to tax it and we're talking about a twenty-eight percent tax rate.”
Malta’s Non Dom Tax Regime
- To start off, Laszlo Kiss says, “the Maltese model of non-doms is based on the UK model.”
- In general, “anyone who takes up normal residency in Malta would be considered as resident, but if they can show the ties to another country, not to become domiciled in Malta, then they would really enjoy this system.” In other words, “if you move to Malta even for ten years but you keep your relations back home and you do not cut your ties, then you will not be domiciled in Malta.”
- Non-domiciled in Malta are “not taxable on the income arising outside of Malta. Only if it is remitted to or received in Malta.”
- “Dividends are not taxable in Malta if they are not remitted to Malta, but that applies obviously only to non-Maltese personal dividends. Dividends coming from Maltese companies obviously are considered as local income and would be fully taxable as a normal personal income.”
- Similarly, “interest income…is also taxed on a remittance basis, but resident individuals may choose a fifteen percent withholding tax on that interest. There is also the question of what to do with property rental income and leasing income; generally, if the amount is coming from a Maltese property, then obviously it is taxed as part of the ordinary income with ordinary tax rates. And also a fifteen percent withholding tax can be chosen, which is based on the gross income so you cannot deduct costs concerning the rental in this respect.”
- “The anti-abuse system is not as strong as in many other countries yet, obviously. For example, the CFC legislation is not really used in Malta, which means that structuring international income coming from a low tax jurisdiction is easier in Malta than maybe in other countries which have a special tax system.”
Cyprus’ Non Dom Tax Regime
- According to Demis Ioannou, “in Cyprus, if you are a resident, you are excluded from income tax on dividends and interest, and then you are taxed under a different legislation, which is called SDC or Special Contribution for Defense.”
- Non-doms in Cyprus “are excluded from this SDC,” as well as “for dividends and interest on income tax.”
- In the case of rental income, “there is taxation there that you cannot avoid.” Hence, for rental income, “you could be taxed under income tax and SDC. However, SDC is only three percent, and that would be the only thing that you are avoiding if you are a non-domicile.”
- As explained by Demis, “the main benefit of this regime is for people that have dividends and interest worldwide; you are not taxed in Cyprus…The intention of the Cyprus government was to attract high net worth individuals and people that can increase the substance of international companies. The government needed to find a way for these people…not to be taxed worldwide under SDC law that we had in place.”
- There is only one anti-avoidance rule in Cyprus for non-domicile: “If you are a non-domicile, you come into Cyprus and you become a Cyprus tax resident then. If you are here seventeen years out of the last twenty, then you are deemed to become a domicile, and then the non-domicile doesn't exist for you anymore.”
- Finally, if you combine this non-dom regime and the fact that “in Cyprus selling or owning a company 100 percent and that company is selling shares or bonds, which is also excluded, then you can have a corporation tax of 12.5 percent. And you get the dividends again, which are also excluded. So people are using this because Cyprus is very well known as a jurisdiction supporting companies apart from this non-dom regime.”
The UK’s Non Dom Tax Regime
- In the UK’s case, says Dmitry Zapol, “nationality or tax residence does not directly affect the domicile finding. Broadly, there are three kind of domicile. Domicile of origin, which required birth and which, normally, passes from father to the children. Domicile of dependency, which is relevant for minor children and for mentally incapable persons. And there's domicile of choice, where a person after being, say, UK domicile by origin, moves to a different country and acquires a domicile of choice there.”
- Overall, “non-dom is a very prized status that everybody wants to keep. On its own, domicile is only relevant for the inheritance tax liability because if a person is UK domiciled, on their death, their assets around the world are subject to UK's forty percent inheritance tax. However, if the person is not domiciled then if they die, only the assets that they have in the UK are subject to inheritance tax, not their foreign assets.”
- “For everything else, mainly for income tax and for capital gains, we have to combine domicile with residence. So we have to see if the person is UK resident or not in a particular tax year.”
- “There are very broad anti-avoidance rules, which effectively prevents you from enjoying your foreign income or gains in any way possible in the UK without paying tax on them. In other words, no matter what the average client might think of or how they can use their foreign money in the UK, it's already been provided for and prohibited.”
- Dmitry suggests, “the key planning aspects before coming to the UK is making sure that you have enough funds that you can fund your life in the UK. And this is what we call clean capital. Clean capital income or gains that the person has earned before he becomes a UK resident. Essentially, it means that if they sell the assets they crystalize any gains.”
- Finally, a person “could remain non UK domiciled for as long as you lived provided that after seven years of living in the UK you had to make a payment to avoid being taxed on your foreign income or gains. The payment is called the remittance basis charge” and it amounts to “30,000 pounds after seven years of life in the UK.”