Opinion by World Citizenship Council
Many often confuse between citizenship and tax residence. Citizenship is not tax residence and does not automatically lead to tax residency.
CBI schemes are often misunderstood, leading to believe these schemes facilitate tax evasion or present risks to crs reporting.
While residence based taxation is quite common in many countries, physical presence is the main test. Some jurisdictions, determine tax residency of an individual based on ownership of a home or availability of accommodation, family, and financial interests. Some even levy tax on worldwide income based on permanent residence status of a resident.
The tax residency status depends on “183 days” physical presence rule. Physically present for at least 183 days of a year, irrespective of citizenship in a particular country, you are counted as a resident for tax purposes.
CBI schemes do not facilitate tax avoidance or evasion. Many often automatically link citizenship to tax residence. This is not true. CBI citizens are not automatically considered as tax residents.
While many ninety percent of CBI citizens do not visit or live outside the jurisdiction after acquiring citizenship through investment, it is impossible to establish tax residence in the jurisdiction. CBI citizens pay taxes where they call home. The proliferation citizenship by investment schemes created an interesting class of diaspora population known as “CBI citizens”
The Finance ministry of Malta issued a statement in response to OECD clarified persons benefiting under the IIP and the MRVP do not automatically become resident for tax purposes in Malta nor are they granted any tax-related benefits once a person obtains citizenship/residence through such schemes”. For the purposes of the CRS, therefore, Malta Financial Institutions cannot conclude that an individual is tax resident in Malta, and consequently not disclose information, purely on the basis of such individual’s qualification under any of the Malta Programmes. Under the Maltese Income Tax Act, an individual would be considered resident for tax purposes in Malta depending on that person’s physical presence in Malta.
The Dominica CBIU citizenship unit clarifies in their website page that “citizenship does not constitute tax residency”.
All CBI jurisdictions signed treaties with international countries to comply with laws on tax evasion and avoidance
CBI JURISDICTIONS PARTICIPATING IN THE CONVENTION ON MUTUAL ADMINISTRATIVE ASSISTANCE IN TAX MATTERS AMONG 128 JURISDICTIONS
- Malta (amended convention entry into force 01-09-2013)
- Cyprus (amended entry into force 01-04-2015 )
- Antigua and Barbuda (amendments entry into force 01-02-2019 )
- Dominica (amendments entry into force 01-08-2019)
- Grenada (amendments entry into force 01-09-2018)
- St Kitts and Nevis (amendments entry into force 01-12-2016)
- Saint Lucia (amendment conventions entry in force 01-03-2017)
- Turkey (entry in force 01-07-2018 )
- Vanuatu (amended conventions entry into force 01-12-2018)
Status as of 30 April 2019
CBI SIGNATORIES ON AUTOMATIC EXCHANGE OF FINANCIAL ACCOUNT INFORMATION AMONG 105 JURISDICTIONS
- Malta – September 2017
- Cyprus – September 2017
- Antigua and Barbuda – September 2018
- Dominica – September 2020
- Grenada – September 2018
- St Kitts and Nevis – September 2018
- Saint Lucia – September 2018
- Turkey – September 2018
- Vanuatu – September 2018
Status as of 25 April 2019
Double taxation treaties
- Antigua and Barbuda two double taxation agreements in force with the United Kingdom and the United Arab Emirates, .
- Dominica has a tax treaty with Great Britain, the United States, and CARICOM countries to prevent double taxation of income earned in Dominica.
- Cyprus has concluded double tax treaties with 65 countries
- Grenada is party to two double tax treaties: United Kingdom, United States of America.
- Malta has double taxation treaties with over 70 countries
- St Kitts and Nevis is party to double taxation treaties with Denmark, Norway, Sweden, Switzerland, the United Kingdom and the United States of America
- Turkey has double taxation treaties over 80 countries
- Saint Lucia has no double taxation treaties with other countries except for CARICOM
Besides these CARICOM member countries participate in double taxation avoidance.
Citizenship based tax
Citizenship based taxation is very unique only exists in United States and Ethiopia. The US taxes its citizens, resident non-citizens on worldwide income. While tax obligation of US citizens who renounce citizenship exist for 10 years, it is impossible to renounce ethiopian citizenship and tax obligations.
Double taxation
It is possible to be a tax resident in several countries in the same period. However, if their governments have entered into a DTA (double taxation avoidance agreement), this treaty usually serves to ensure that people are considered fiscal residents in only one of these countries. In this way, you will not be taxed on the same income twice.
Taxes on Worldwide income
The United States taxes all U.S. persons on their worldwide income. This includes Green card holders, Citizens or residents who spend 183 days per year. Other countries that tax worldwide income include Libya, North Korea, Eritrea and the Philippines. In some countries non-citizens who are resident with permanent residence status automatically liable to worldwide income.
OECD
While OECD did not itself criticize CBI schemes, it only said CRS reporting is undermined because those who are tax resident in several countries do not accurately report their tax residence status to banks or financial institutions. Banks in several countries, currently require its client to report tax residence declarations along with KYC/AML.
CRS reporting is based on tax residence and not linked to citizenship.
