Once you have settled yourself into the path of tax reduction, you will find a myriad of ways to accomplish it, legally and safely. For example, there are plenty of tax-free countries like Monaco, the United Arab Emirates, or the Bahamas that can perfectly receive you and your money for it to be exempted from the tax burden. Or, also, you could pursue residential benefits in tax havens and travel the world in the meantime.
However, there is another option out there for you that can just as well work for your objective of optimizing tax strategies: lump-sum countries. As you probably already know, Switzerland is regarded as the lump-sum tax country par excellence, but recently, and especially after the success so many have had in said country, the same tax benefits are being offered in many countries around the world.
Throughout this article, we will show you how exactly how this kind of country successfully offers to entrepreneurs, high-level cryptocurrency traders, and HNWI a fantastic tax opportunity if trusting them, their legislation, and the overall financial environment
WHAT’S BEHIND LUMP-SUM COUNTRIES?
The first thing you have to know is that lump-sum is a term that refers to a specific type of tax regime that has at its core an attractive system aimed at investors. It doesn’t translate into a tax legislation appliable to every single individual currently living under a particular jurisdiction, which means that the whole tax system can appear to be unattractive.
However, this type of tax system is thought of as a way to offer capital holders, from entrepreneurs to high-net-worth individuals of all kinds, a way to optimize their finances. That being said, it’s important to highlight that these aren’t tax-free countries nor do they offer tax incentives.
The trick behind this attractive system lies not in the tax benefits of a particular country, but rather in the specific tax legislation aimed at investor-like individuals or companies. This means that while they can be highly beneficial to some, regular populations are not a subject of the incentives.
While tax rates for regular citizens might be high, even amongst the highest of the region, the lump-sum approach enables investors from other countries to come and spend their capital. In other words, they offer an environment that you wouldn’t pick if you weren’t an HNWI.
This means that lump-sum countries cannot be put along with the so-called “tax havens”, as they aren’t subject to thorough scrutiny procedures carried out by both national or international financial entities.
Of course, there are standard requirements for a country to consider you as the target audience for their specific tax system. These often can imply that you keep a minimum amount of money in a local bank, along with a housing situation that is coherent with your wealth.
This is a key difference between lump-sum and tax-free countries like, for example, Dubai, as the latter is more oriented towards people that aspire to wealth rather than those who have already achieved it. Is normal for these countries offering lump-sum approaches to be sophisticated ones, which accounts for having Italy and British territories as part of the list.
BEST LUMP-SUM COUNTRIES FOR HNWI INDIVIDUALS
Lump-sum taxation has a long-standing tradition in Switzerland. It was first introduced in 1862 in the Canton of Vaud, secondly, in the canton of Geneva in 1928, and applied nationally in 1934.
Each of the 26 Swiss cantons (which is their way of naming regions) has its lump-sum approach when high-income individuals go looking for tax benefits. Usually, each person dialogues with local authorities to settle on a particular set of payments according to their assets. Afterward, an agreement is signed, as has been the norm since the 19th century.
As times have evolved, so has the mechanism. For example, in cantons where the lump-sum approach is highly unpopular (which are also those with a majority of German-speaking populations), the system has been removed. This means you won’t be able to live in Zurich under the system, but rather in other world-renown cities like Geneva.
It’s important to highlight that this system is thought for individuals who aren’t carrying any type of professional or commercial-related business within the country, nor it’s available for high-income employees of Swiss companies. The offer is for you to manage your capital once you have gathered through a well-thought savings mindset or international investments.
Of course, as you have to prove to Swiss authorities the source of your capital, you will be asked to disclose your assets. However, all the information you give to them is exclusively confidential, and they aren’t allowed to share with any kind of financial entity unless there is a probable cause for it. Also, they will proceed to calculate the so-called “annual rent expense”.
After those calculations and overall paperwork are done, the lump-sum tax can be as low as 400,000 francs (or roughly €380,000). However, each case is specific and it will be up to your consultant team to negotiate with the cantonal tax office and be granted the best conditions possible.
It should be taken into account that Swiss authorities do enforce an inheritance tax, and that said enforcement usually is activated for wealth tax when based on actuarial tables.
There are many successful businessmen and overall millionaires and celebrities that have chosen this system of taxation. To cite a few, there are Formula One drivers Sebastian Vettel and Michael Schumacher or singers such as Phil Collins and Tina Turner. The most interesting places where to get a good lump-sum opportunity are Lausanne (Canton Vaud), St. Moritz (Canton Graubünden), Lugano (Canton Ticino), Crans-Montana (Canton Valais), and the city of Geneva.
This beautiful Mediterranean country is one of the most recent European nations to implement a lump-sum approach. For the sake of reaching out to international investors from all over the world, authorities carried out this policy with great enthusiasm. Besides, the fact that Italy is one of the most romantic and history-fueled nations in the world, the project possesses a great deal of potential.
One key difference with Switzerland’s lump-sum policy is that you could live anywhere in Italy, including its capital or any of their beach cities. From the island of Sardinia to Rome, Milan and Lake Como, Florence and the amazingly beautiful Venice. Every Italian location is available if you choose this country, which of course adds the enchantment.
There is a degree of simplicity to the Italian way of offering its lump-sum policy: you just enter the country and make a one-year-round €100,000. This will account for your entire tax responsibility within Italian soil, and you can include family members in your plan (partners, children, etc.) for only €25,000 annually.
This is a great opportunity as this country’s progressive tax rate only applies from 43% on income over €50,000, which translates into a much easier path towards gathering savings. And the best is that said 43% is applied before levies and local-based taxation.
The lump-sum policy allows you to be exempted from both national and local taxes, along with forgetting about inheritance tax for at least 15 years. And if that wasn’t enough, taxes on the income you generate from international businesses are not enforceable, which means practically you’ll have the benefits of double taxation agreements.
Maybe the only thing that can be unappealing about Italy’s lump-sump policy is the fact the country is currently a member of the European Union. Unlike Switzerland, Italy has the obligation to comply with certain regulations from the EU’s financial entities, which obviously makes this kind of approach to tax incentives an unpopular one.
Obviously, the solution here is to have a well-structured business that doesn’t need to be checked by European institutions constantly, as Italy itself does promote the creation of enterprises by said tax benefits for foreigners.
On top of it, even when its Golden Visa program is amongst the most expensive in the world, Italy has a path towards residence through a self-sufficient program, which could be easily attainable is finding the proper legal and financial guidance.
As a matter of fact, one particular recent case stands out: Cristiano Ronaldo. When leaving Real Madrid, he deliberately chose Juventus of Turin to be his next club in part because he was presented with the opportunity of lump-sump taxation. Ronaldo went on and paid €100,000 (a penny to his fortune), and accomplished to score yet another fantastic goal, only this time was outside a football pitch and rather in the financial world.
Another recent country to implement lump-sum policies, Greece has enacted new legislation related to its non-domicile tax regime, which actually appears to be modeled after the Italian system.
This country already has in place a number of double taxation agreements that are really attractive to the wealthy, encouraging them to set residence in one of the most culture-rich nations on earth.
If picking Greece, you will not be enforced to pay local taxes on foreign-generated income, as well as not be obliged to disclose some financial information.
The latest legislation allows individuals to avoid taxation on foreign income by paying a standard €100,000 if the resident didn’t have such condition in the last 8 years. Also, you can add extra family members to the plan through a €20,000 payment per person.
However, if you have a business or any source of income within Greece, you will be subject to taxation, with progressive tax rates of up to 54%. Luckily enough, any foreign source of income (whether inheritance or donation-related revenue), is tax exempted.
The availability of the lump-sum program lasts 15 years, and the applications must be submitted before the end of March of every year. In order to be eligible, the person must have at least €500,000 invested in local properties, businesses, or shares. The latter requirement could be omitted if the person already possesses a residence permit of any kind that also requires an investment of the same nature.
The similarities with the Italian model are there, and it will be a matter of whether you chose to live on a small and quiet island like Mykonos or go after the cosmopolitan life of a world-renowned city like Milan.
Being a non-independent country, this British nation in the Caribbean does maintain a certain degree of autonomy in certain sectors of its internal affairs. One of them, for example, is their tax policy, which also offers lump-sum opportunities for investors from all around the world.
The nation’s government says that Anguilla’s approach is to offer the investor the very highest level of a luxurious life on top of the utmost financial freedom in the Western hemisphere. The nearest example could be that found in the Cayman Islands, as it improves the current tax-free offers from countries like Antigua and St. Kitts.
As happens with the Greek situation, you must invest a minimum amount in local real estate in order to qualify for this particular type of tax incentive. At least €650,000 must be deployed in the purchase of the property, and you must hold ownership of it for at least the 5 following years after the transaction.
The alternative to said investment, as it can be too much for certain individuals, is to donate €130,000 plus €40,000 per immediate family member to any of the approved investment funds offered by the national government.
If following proper advice, in the end, you’ll be taxed up to about €65,000, as long as you remain within Anguilla’s border for at least 6 months of the year.
Another British-dependent territory has a lump-sum taxation system that it’s up for grabs. This minuscule stretch near the south of Spain is full of mountains, monkeys, and incentives for international investors.
Actually, this tiny country offers two types of lump-sum strategies for capital holders. There are ways in which you could be paying a low amount of taxes when compared to some countries in this list, as for example, Gibraltar has no type of tax regime against crypto-generated income. Therefore, if you are a stock trader or a crypto-investor, this should be your target.
So-called “Category 2” of the strategy relates to that internationally-generated income from an individual’s business, which offers to enforce only €26,000 per year (with a top of €30,000). Only the first €95,000 will be subject to tax in an ordinary manner, and there are a number of high-net-worth employees based in the country that could be enforced to pay ordinary taxes.
Gibraltar’s requirements are pretty much standard: you have to rent or purchase local property although you are not forced to actually live in the country. You will only need to travel there some days in a year to comply with its tax regulations.
GET YOUR SECOND CITIZENSHIP BY GOING IN FULL LUMP-SUM
Whether you are keen to move to one of the beautiful countries on this list, having the lump-sum option available is, of course, an unmissable chance. Maybe picking these countries just by their living standards would be a mistake, but being able to make full-year payments regardless of your income makes everything much more accessible.
There are several conditions you must be aware of before making a decision of this nature. For example, having foreign-based businesses always requires following certain parameters to avoid any kind of legal issue, like being compliant with CFC and PE rulings.
Any type of financial planning set in these environments must be properly designed and arranged, whether your goal is to fulfill financial goals, go on family adventures or just travel the world.
In order to increase the probabilities of your success, we highly encourage you to contact our team at Centurion Capital, as they will offer a pathway to maximize and optimize your wealth as no other financial firm can.
Warning: The content of this article does not constitute legal or tax advice. It is provided for general informational purposes only and not for the purpose of offering any warranty or guarantee. As laws change frequently, personalized professional advice is absolutely necessary.
Article written by: Fabrice Barra is a cosmopolitan entrepreneur, lawyer, fiduciary and author, one of the world’s leading experts on offshore strategies, corporate haven, international investments and global mindset lifestyles. He is the personal trusted advisor of well-known entrepreneurs, UHNWI, Forbes Global 2000 companies, professional sportsmen, aristocrats, celebrities, investors, people with a net wealth of 7- to 8- or more figures, and he has access to a network of influential people around the world.