Obtaining a second citizenship has become a sought-after investment by wealthy individuals around the world. High net worth families and individuals are resorting to their advisors to determine how to best protect their assets and manage generational wealth and citizenship programs have increasingly become part of their valuable advice. Holding a second nationality allows a better preservation of wealth, presenting amongst other advantages a variety of beneficial tax policies to choose from.
How exactly a high net worth individual can protect his wealth through a second citizenship? Some of the most popular ‘fast track citizenship programs’ are from some of the Caribbean which are considered tax havens, with no wealth, gift, foreign income or inheritance tax. Cyprus, which holds the fastest citizenship programme to obtain an EU passport in six months, is one of the few European countries with lowest taxation. Wealthy individuals from India, Pakistan, Afghanistan, South Korea, Indonesia, Malaysia, as well as several countries in the Middle East, seek a Cypriot citizenship given the many benefits it offers. One of these benefits is that tax payers can utilise Double Taxation Agreements to place themselves under Cyprus’ generous tax regime.
Here we highlight some of the wealth protection strategies that could be achieved through obtaining a second citizenship.
Personal tax planning
Effective use of Double Taxation Agreements (DTAs) can reduce your personal tax if not eliminate it entirely. A second citizenship from a country with better tax policies may benefit Individuals from certain countries with high tax rates as to shift their tax liabilities to the country of their second citizenship.
Choosing to be liable for Cyprus’ tax policy provides the advantages of a better personal tax plan that does not include tax on income, wealth, gift, inheritance, or capital gains tax if non-resident. For example a Cyprus tax resident pays zero taxes on the profit from the sale of securities and with the implementation of the non-domicile principle in Cyprus, anyone with a non-Cyprus domicile who elects to be tax resident in the country pays zero taxes on dividend income as well.
Better banking and financial service
The ability to act fast and freely with money is imperative to everyone. Many nationals around the world face problems of government-imposed capital controls. In case of an emergency, being able to transfer or use your money internationally is key.
Savvy businessmen also understand the impact of interest rates. A second citizenship conveniently allows the person choose from international banks that could be more applicable to individual financial requirements. Also, banks in stable economies that have low debt and are more conservative with customer deposits are considered safer rather than banks in politically disturbed regions.
Improved fiduciary and trust planning
Trusts have been used for decades in succession and estate planning. Smooth and effective inter-generation transfer of assets to family members is essential. For example, with Cypriot citizenship, the passport holder is eligible to use sophisticated wealth structures to protect their current and generational wealth or to separate personal and business assets avoiding any contamination effects. Certain countries like the U.S or Canada do not allow their citizens to open trust accounts. On the contrary, an Indian national can open a trust in India but is required, by law, to state the nationality of the beneficiary, which would make the beneficiary liable for tax in the future. In a scenario, where the beneficiary has a second citizenship from a country with a better tax regime, then the beneficiary has the possibility to claim domicile in the country of his second citizenship and have their wealth structured around more beneficial tax regimes.
Access to the world
In this day and age, the ability for a businessman to move freely is critical. Having a second passport gives the opportunity to grow a business internationally. It facilitates a much easier expansion process in terms of opening offshore companies and bank accounts in various key locations. This opens an array of opportunities while simultaneously conserving your tax liabilities in terms of wealth, transfer and inheritance tax.
Inherited generational citizenship
A second citizenship is today’s concept of wealth preservation, legacy continuity, and freedom of decision making. One of the many advantages of second citizenship programs is the capability of passing your citizenship on to your descendants. The true benefit of having a European citizenship is the ability to use these benefits for decades to come. Your children and grandchildren, who will also be European citizens by naturalisation will be able to follow in your footsteps and carry on with the family’s business and wealth.
Business tax planning and increased business opportunities
Corporate and business owners with plans of starting businesses in Europe, could learn about how being national of a certain country could further their desires. For example Cyprus offers one of the lowest corporate tax rates in Europe and a resident with a Cypriot passport is subject to tax under the Cyprus personal tax regime, which is regarded as one of the most generous tax regimes in Europe. There are special incentives in the country for relocating. For instance, 50 per cent of the salary income is exempted from income tax for the first ten years provided that the annual emoluments are over 100,000 Euros.
Saying this, you do not necessarily have to start a business in Cyprus. You can benefit from being a non-resident in the country while investing in Cyprus’ lucrative property market. This doesn’t make you liable to immovable property tax which has been abolished this year and allows you to profit from Cyprus’ increasing property prices.
A second citizenship enables experiencing the world from a different perspective and living with less restrictions, with less uncertainty. Most importantly, citizenship by investment programmes provide the possibility of passing these valuable benefits onto future generations and truly leave a meaningful legacy.
(By Veronica Cotdemiey, CEO of Citizenship Invest)