Selecting a haven in which to weather taxing times

PUBLISHED : Sunday, 06 September, 2009, 12:00am
UPDATED : Sunday, 06 September, 2009, 12:00am

Many Hong Kong residents choose to move abroad upon retirement or at the end of their work contract. The most popular destinations have been the United States, Canada, Australia and the UK. To varying degrees, all these have been affected by the credit crisis and either have or will raise taxes to levels that many think are confiscatory.

A recent survey of world property prices found that prices had fallen dramatically in most onshore countries but had actually risen in some of the offshore centres. The reason is not hard to understand. As onshore countries increase taxes, more of their rich residents move away to escape them. So where is it possible to live tax-free? One of the most popular places is Monaco, which has a reputation of being the home of choice for the fabulously wealthy. It is, but the entry criteria do not require you to be a millionaire. A one-year residency will be issued as long as you can show that you have purchased or leased a property and have sufficient means to support yourself. The latter requirement is normally met by depositing Euro400,000 (HK$4.43 million) in a bank and have the bank produce a statement saying you have sufficient money to live in Monaco for the duration of your permit.

The one-year permit can be renewed twice. You can then apply for a three-year permit and have that renewed once, and then apply for a 10-year permit and citizenship. There are no personal taxes in Monaco.

It is necessary to spend at least 90 days in Monaco for legal residency to be maintained. Such famous individuals as Michael Schumacher have been caught out by this, so beware of the minimum stay requirement. There are services available which go into your apartment/house and switch on the lights, make telephone calls and generally make it appear as though you are there. That appears to be tax evasion and isn't recommended.

Another popular destination is Gibraltar, a British colony on the southern tip of Spain. It is just five square kilometres, but it has a fabulous climate and all locations are within 10 minutes of the airport.

Gibraltar has created a special Category 2 residency permit that allows the holder to pay tax only on the first GBP70,000 (HK$885,000) of their income, subject to a minimum annual tax payment of GBP20,000. At current rates, this works out as a maximum annual tax of GBP25,880.

To qualify, you must have approved accommodation available for your use throughout the tax year - you can rent or buy - and must prove a net worth of Euro2 million. There is no minimum stay requirement, and you may choose to maintain residence in Gibraltar but live across the border in Spain - particularly in the rather fabulous environment of Sotogrande. Stay in Gibraltar for five years and you can apply for a UK passport.

Malta, a beautiful island in the Mediterranean Sea, offers a low tax option, too. Only income actually remitted to Malta is taxable. Residents must remit a minimum of Euro14,000 income plus a further Euro2,300 for each dependant family member. This income is taxed at 15 per cent, so the minimum tax bill per annum is Euro4,200 for the head of the household and an additional Euro345 for each dependant family member.

To qualify, you must prove you have an annual income of Euro25,000 or capital of Euro350,400. You must either purchase a house valued at Euro116,430 or a flat of at least Euro69,900, or lease a property for a minimum of Euro4,200 per annum. As with Gibraltar, no minimum stay is required to maintain residency.

Andorra is another choice. A small principality in the Pyrenees between France and Spain, it has no personal income tax. You must reside in Andorra for six months of the year to maintain residency, which can be obtained if you buy a property, have an income of Euro30,000 per annum and deposit an amount with the central government of Euro24,000 per head of household and an additional Euro6,000 per dependant.

The Bahamas, Cayman Islands and Turks & Caicos Islands all offer a relatively straightforward processes to become a resident, and none charge any income tax. In the Turks & Caicos Islands, residency can be obtained by investing US$500,000 in a business or home in Providenciales (the largest and most attractive of the islands) or US$125,000 in the other islands. No minimum stay is required.

In the past it was possible to be a 'perpetual traveller' - those who travel so much that they do not spend sufficient time in any one country to establish a tax residency. Most countries are becoming intolerant of such arrangements and try and establish with which place a person has the closest connection and make them liable to be taxed there.

The above jurisdictions offer a solution that allows someone to base themselves in that country and then travel with reduced fear of falling foul of the tax rules of another country.