Investment, Wealth Planning | 12 September, 2018

What benefit for my assets does it have to change my country of residence?

Ricardo Ramírez Wealth Planning

Have you ever considered moving to another country looking for a better taxation for your assets? Why are there so many cases of athletes or artists who decide to change the country of residence for the benefit of their careers?

Cristiano Ronaldo has found the solution to his tax problems by signing up for an Italian team.

At the beginning of the summer we got the news that Cristian Ronaldo left Real Madrid, a team in which he has achieved success numbers since 2009, to sign for an Italian team. This happens while the Spanish tax authorities claimed the soccer player a multi million debt for avoiding paying taxes. According to the specialized press, the football player would have been negotiating with his old team to receive his salary net of taxes, so that the team would assume the fiscal invoice.

To understand what is happening, we must go back to 2009 with the arrival of the player to Spain, where there was a special tax regime for professionals who move their fiscal residence from another country. For five years, CR7 has been paying a reduced income tax rate of 24% for the returns earned in Spain. However, according to tax authorities, he missed to declare the international income gained during the period.

This special tax regime ended in 2014 and since then, his problems with the tax authorities began. The tax rate applied in Madrid goes up to 43.5%. Also, an additional ‘Exit Tax’ was established in Spain, whereby the tax authorities requires taxpayers who leave the country to pay taxes on the profits accumulated in their assets. In order to activate the exit tax, it is necessary to have been resident in Spain for 10 of the last 15 years. CR7 would celebrate 10 years in Spain in 2019.

In his new Italian residence, the tax on income generated outside is reduced to a single payment of one hundred thousand Euros. Revenues generated within Italy pay taxes at half the official rates established for the rest of Italians during the first 5 years of residence.

There are other European countries that also have beneficial regimens

Switzerland, which does not belong to the European Union but is part of the territory of the free movement agreement known as the ‘Schengen Agreement’ allows in some of its cantons that newcomers negotiate a flat rate that absorbs all their taxes.

Other countries, such as Portugal and Malta, have also established special rules that facilitate obtaining permanent residence by investing in financial or real estate assets. This is known as obtaining a “Golden Visa” and is highly valued by citizens of countries that do not have free entry agreements to Europe because it allows them to move freely within European territory.

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The benefits for new residents in a country have their origin in the ‘Non Domiciled Resident Regime’ introduced in England in 1799 by King George III to prevent the already high British taxes from taxing the extensive foreign patrimony of the Bourbons who fled France revolutionary.