Global Residence & Citizenship Handbook. Christian H. Kälin

and gift taxes, which depend primarily on the testator’s last residence, may also be relevant. If a taxpayer who moves abroad has considerable income and assets, experience shows that the tax authorities concerned are particularly interested in the deceased’s last tax residence, as this leads in most countries to unrestricted tax liability on his or her estate. However, relatively few tax treaties concern inheritance and gift taxes; generally when speaking about double-tax treaties, therefore, these relate to income and possibly wealth taxes only.

      It may happen that two countries – according to their respective tax laws – simultaneously consider a particular taxpayer as fiscally resident and unrestrictedly tax liable. This could result in him being taxed on his global income and possibly also on his assets by both countries on the basis of their domestic tax regimes. But if a double taxation agreement exists between the two countries, it will help to determine where the taxpayer is fiscally resident and thus liable to unrestricted taxation, and which country is to merely apply restricted taxation – namely on any assets or income located within its territory.

      Residence in one of the two contractual states is normally the precondition for the application of the relevant double-taxation treaty and all claims on its protection. The treaty formulates precise rules to determine in which of the two contractual countries a taxpayer is deemed to be fiscally resident. They are known as tie-breaker rules and in the majority of double-taxation treaties they follow the OECD Model Convention.

      Accordingly, most double-taxation agreements define the country of tax residence as the place where the taxpayer has his main permanent home. If he has homes in both countries, the crucial point is where his personal and/or economic activities are centered. His habitual place of living is then in third place, and citizenship is considered only in fourth place. If the tax residence cannot be determined on the basis of these criteria, it is decided by mutual agreement between the countries concerned.

      Double taxation agreements can also be useful in terminating tax residence in the country of emigration more quickly. If someone no longer wishes to count as a UK tax resident, for instance to avoid paying capital gains tax, UK domestic law stipulates that certain taxes apply up to five years even after moving abroad. But if he moves the tax residence to a country which has a suitable double taxation agreement with the UK, such as Belgium, he can bypass such domestic tax regulations and may be able to reduce the period during which certain UK taxes still apply after a change of residence.

      In the absence of a double taxation agreement between the previous and new country of residence (such as when moving for example from the Netherlands to Monaco), only the respective domestic fiscal regulations apply. These are, as a rule, stricter – at least for high-tax countries – i.e. it is more difficult to terminate one’s former tax residence if you directly move to a no-tax jurisdiction and there is no tax treaty. In order to avoid continuing to pay tax on one’s global income and possibly assets there too, often all links to one’s former country of fiscal residence must be severed, and even then extended taxation may apply for some time after emigration.

       1.6 Financial planning and insurance

      For many wealthy people, an alternative residence is an effective tool for international tax planning, but it also increases the financial planning options and facilitates more privacy in investment and banking.

      Anyone who is transferring their residence to another jurisdiction will certainly have to revisit their financial and estate planning. It is implicit that the various parameters of the financial aspects of one’s estate will be affected. You may be familiar with the legal and fiscal situation and general framework conditions prevailing in your home country but you must become adept with a new framework.

      It may make sense to retain investments in other currencies, for example if one moves from the US to Europe, where the local reference currency is the Euro. As a rule, however, a move of a person’s regular activities to a new currency area will also lead to different weighting of the currencies in their personal investment portfolio and will require a re-thinking of their financial planning and asset management arrangements. It may be wise to consult a specialized investment advisor familiar with clients with cross-border issues.

      It is also sensible to obtain advice from a tax advisor in the original jurisdiction as there may be some interesting financial and tax planning options, or in a less favorable case, there may be exit taxes due that need to be calculated.

      A move abroad also offers the opportunity for more flexible pension planning, as capital tied to government-regulated pension funds can often be released. Previous retirement provisions may have to be reorganized, liquidated or taken out prematurely (e.g. life insurance policies, pension claims, tied-up assurance funds etc.). It is particularly important to consider withholding taxes when receiving payouts from pension institutions and any tax concessions when drawing any benefits in the form of pensions or capital payouts. As a rule, different costs of living also change the provision requirement and usually make it necessary to adapt one’s cash planning.

      A move will also require careful examination of previous estate or succession planning (partnerships, foundations, trusts, family holding companies and the like). Here too, considerable scope may be available for optimization depending on one’s destination. Thus anyone moving for example to Malta, the United Kingdom, Ireland, St. Kitts or the Bahamas, can structure their assets by means of suitable succession structures so that they – or lifetime enjoyment thereof – are transferred without restrictions and in many cases also in tax-neutral form to freely designated heirs. The situation will be quite different when moving to a country such as France or Spain, although here too various opportunities for optimization usually exist. In any case, existing estate-planning strategies should be checked and their adaptation to the new conditions and opportunities examined. Professional support is usually indispensable in this domain too.

      It is also important to include the aspect of asset protection, especially in the US. In view of the peculiarities of the American legal system, which is characterized by a relatively low threshold of civil litigation, suitable measures to avoid excessive exposure of one’s personal assets are indispensable. But when moving to other countries, it may also make sense to structure at least part of one’s assets – perhaps including real estate – so that they are safe from seizure. Suitably designed asset protection trusts as well as specially structured Swiss annuities and life insurance policies are sensible options for this purpose.

       1.7 International health insurance ¹⁴

      International health cover is a highly relevant topic for anyone thinking of moving abroad, and yet it is scarcely considered and hardly mentioned at all by advisors. Admittedly, it is not the job of a lawyer specializing in international inheritance law or an international tax advisor to know all about insurance as well – and especially about international health insurance. There is consequently relatively little specialist competence in this sector available to private clients. Most advisors and insurance brokers worldwide with such expertise merely represent a single insurer. Only very few offer more than a small number of products and are able to provide really comprehensive advice.

      Trying to find ideal health cover is no easy task even without moving abroad, but it is of particular importance when moving to another country or even staying there for a limited period. The risks of sickness and accident must be covered comprehensively in an international context in order to avoid unpleasant surprises. A few important points must be considered in view of the wide choice of diverse solutions and different insurance products.

      Anyone who lives or works abroad, runs a company or retires there should arrange insurance cover that is extensive and applicable around the world. Health insurance in particular should allow the patient to choose his preferred doctor and hospital with as few restrictions as possible, and ideally none at all.

       A question of residence