Are you seeking Immigration Only or Real Tax Residence??

Are you seeking Immigration Only or Real Tax Residence??

The first question to be asked in relation to each asset that integrates personal wealth is whether it is appropriate that it be within said personal assets or if, on the contrary, it would be advantageous to transfer or contribute said assets to a Foundation, Trust or Company.

Obviously, in the case of assets that are decided to maintain within the personal or family property, it must be ensured that they are properly reported to the tax authority of the country in question and that all corresponding taxes are paid.

When we help our clients to structure an immigration and tax strategy for their new lifestyle, we find that there are many people who have a hard time telling the difference between a residence permit – a second residence – and their actual tax residence.

They are two very different things.

A second residence or residence permit gives you the legal right to physically live in a country.

A tax residence is any place where you are legally required to pay taxes.

The two can be connected, but they are separate things. Having a residence permit in a country does not automatically mean that you are a tax resident there as well. And it does not matter if your second residence is temporary or permanent. In some countries, you can even be a citizen without being a tax resident.

A final clarification before starting - contrary to what many customers think, having multiple nationalities in addition to that of the country in which they reside - adds absolutely nothing to the effects of estate planning.

This is so since, except in the cases of the United States where you pay on your worldwide income, tax systems are based on the concept of "residence" rather than "nationality". In most countries, one does not pay taxes according to the nationality that one has but according to the country in which it resides.

How to acquire a new Tax Residence?

It is important to know your status – tax resident status is NOT the same as immigration status.

Acquiring a tax residence is usually not very complex.

An individual’s country of tax residence or residence-based taxation (also called fiscal residence) is the country to which an individual is responsible for paying taxes. What constitutes tax residence in a particular country is determined by that country’s domestic laws, with each country implementing its own definition of tax residence.

There are countries that have seen in this a business and promote that foreigners settle there, facilitating the process as much as it can; and there are others who do not.

Among the first, we can highlight Panama, Malta, Cyprus, several Caribbean jurisdictions like Antigua, St Kitts, Dominica, etc. and even the United States.

Broadly speaking, individuals are considered tax resident in countries -

1. where the person stays continuously or alternated 183 days per year in the territory of that country.
2. where the person establishes its center of life or center of economic interests in that country, in which case it is not usually required to comply with the minimum number of days; or
3. where the person makes an economic investment of a certain magnitude which depends from country to country. In this case, the minimum number of days is not required.

While some countries offer tax advantages to their new residents (lower rates, exemptions, grace periods, etc.), others do not.

How to lose the Original Tax Residence?

The problem is not so much acquiring a new tax residence, but how to lose the one that was had; the one with which the person is not satisfied and which in some way triggered the analysis of the question.

The key here is to lose your tax residence; getting a new one is the simple part of the matter.

This is because obtaining tax residence in a third country does not automatically cause the taxpayer to lose that of the country of origin.

In other words, even if one obtains a tax residence in a third country, if the tax authority of the country in which he originally resided does not grant "tax relief", the only effect that the acquisition of the new residence will generate will be that part of the taxes are paid abroad and then used as local loans for tax purposes; but the total amount of tax paid will not change.

It may even be the case that the country where you originally resided does not accept all taxes paid in the third country, and the total amount of taxes to be paid will be even greater than those paid before obtaining foreign residence tax.

So, whatever happens, it is fundamental to avoid double residency. This would be the worst scenario in terms of tax residence.

In order to lose the original residence in general, it is necessary to show that you no longer have the center of life there and, in some cases, you do not reach a minimum of days per year in the territory of the country. Issues such as having children of school age in that country, being a member of sports clubs there, having property or business, etc. are often taken as signs that the center of life has not really moved abroad.

In Panama, our most recommended options to obtain tax residence are -

1. where the interested person establishes his/her center of business interests in Panama, in which case a minimum number of 183 days is not required; or
2. where the interested person makes an economic investment of a certain magnitude, in which case a minimum number of 183 days is not required.

As an example, we provide with the minimum profile for a Company or a Person wishing to obtain tax residence in Panama -

Every country has its own set of criteria to determine if you can have tax residency there. Those criteria are separate from the requirements to obtain a residence permit. That is why it is entirely possible to meet the criteria to obtain a residence permit without also meeting the criteria to become a tax resident of the country, or both.

Pardini & Asociados together with the BusinessPanama Group provides a One Stop Shop solution offering the following services: 

• Applying for visas and residence permits for expats or foreigners. 
• Real estate agents to find a condo, home, office or property.
• Incorporation of companies, LLCs, trusts, and foundations 
• Advise opening a bank account.
• Advising on how to acquire tax residency.
• Legal services for any other matters
• Relocation
• Others 

Pardini & Asociados has helped 2,000+ customers protect their wealth safe from high taxes with a sound immigration and tax residence strategy.

If you wish to consult this matter further, please contact us.

Pardini & Asociados

clientservices@padela.com