The global migration trend in Asia, and the need for greater financial privacy

Global mobility is on the cusp of massive change. Travel bans, visa restrictions and growing support for nationalization – these are just some of the trends that are emerging from the recent shifts in the global political, economic and business landscape. The effects are trickling down to this side of the globe where travel freedom, a much sought-after commodity, is already facing challenges.

Amidst all the uncertainty clouding global mobility, Asia is seeing an increase in entrepreneurs and business magnates looking towards alternative or options on residency and citizenship options. With the interest and uptake of investor migration programs in Asia on a steep rise, what’s behind the trend?

Acquiring an alternative residence or citizenship is often seen as the most worthwhile sustainable investment in family planning that can be made, as it reduces exposure to risk. This is especially crucial for wealthy people as their privacy is of high importance, and for good reason. If their personal information becomes available to the wrong sources, it can threaten their own safety and security as well as that of their families. This is true in developing countries where the regulations and safeguards may be lacking.

Let’s look at the Common Reporting Standard (CRS) which was introduced by the Organisation for Economic Co-operation and Development (OECD). The CRS requires financial institutions to report account holder information to local tax authorities. These authorities automatically exchange that information with the other tax authorities in locations where those account holders are considered residents for tax purposes. The first phase of the CRS was initiated in 2017 and it is now coming into force in virtually every significant economy, apart from the US.

The CRS has also triggered a better understanding and tax planning of high-net worth individuals (HNWIs), ultra-high net worth individuals (UHNWIs) and their families. Apart from hedging against potential financial exposure, data theft and extortion, HNWIs and UHNWIs are also starting to look into reducing their risk profile and provide alternative options for themselves and their families.
Various residence- and citizenship-by-investment programs can provide a bridge for those who wish to physically relocate and become tax resident in a country where the vital controls and regulations around cross-border sharing of information are in place.

The shifting migration map

Traditionally, countries such as Canada and the U.S. topped the list as primary options for international investors and wealthy families. With recent geo-political events such as Brexit and the US administration under President Donald Trump posing possible limitations to global mobility, there has been a significant shift in popular destinations. More and more wealthy individuals are turning to countries such as Cyprus and Malta to leverage their wealth for future family estate and succession planning.

Within Asia, Singapore, Hong Kong and Thailand have grown tremendously to become increasingly popular locations for wealthy individuals to invest in. In addition, there has been a rise in Russian, Indian and Chinese nationals living in Asia who are now also looking for alternative options for residency and citizenship planning. We have also seen a growth in the interest from Korean, Japanese and U.S. nationals, whose passports rank well, but are seeking alternative options in more tax-secure jurisdictions.

Secure tax jurisdictions — Singapore, Hong Kong, Thailand, Cyprus and Malta

Since the CRS is based on tax residence and not citizenship, this offers high net worth individuals room to maneuver. While most countries consider residence as the key criterion for personal income taxation, the definition of who is and who isn’t resident varies considerably, from physical presence and availability of accommodation to where one’s assets are located.

Singapore is considered one of the world’s best places to live due to its excellent infrastructure and public services. It is also one of the wealthiest countries in the world measured by GDP per capita. The island city has a friendly tax regime and has introduced various incentive schemes to attract investment that has enabled the growth of businesses. On an individual level, only local income derived from within the jurisdiction is taxable, and regardless of residence status, all foreign income is exempt, even if remitted to Singapore (unless remitted through a partnership in Singapore). An individual is considered a tax resident if they are physically present or employed for 183 days or more per tax year, and personal income tax rates are low - with levies at progressive rates of up to 20%. Over recent years, its state of the art business and financial facilities has turned Singapore into an international financial hub, and a desirable location for entrepreneurs or investors interested in making substantial investments.

As one of the most cosmopolitan cities and the special administration region in the People’s Republic of China, Hong Kong is the fourth largest financial center in the world, and prides itself as being one of the freest economies. It’s strategic location also acts as a premier gateway for trade and investment to and from mainland China which attracts the world’s elite. Hong Kong has a very attractive taxation system because the income tax rates are low. Taxation in Hong Kong is based on the territorial source principle, and is therefore only levied on income sourced in Hong Kong. Income derived from outside of Hong Kong is exempt for individuals and companies, and there is no distinction made between residents and non-residents. Only specified types of income, namely profits, salaries and properties, are taxable, with personal tax being among the lowest in the world. Expatriate employees who visit the territory for less than 61 days in a tax year are not liable to salaries tax. With world-class educational institutions, along with a well-established legal system based on common law and transparent regulations, Hong Kong offers a safe, convenient and comfortable living environment for residents.

The Southeast Asian hub of Thailand has captured the imagination of international investors and mobile entrepreneurs alike. An individual is deemed to be tax resident in Thailand only if he stays there for an aggregate period of not less than 180 days within a calendar year. A resident of Thailand is liable to personal income tax on assessable income derived in Thailand and only from sources outside Thailand that are remitted into Thailand in the same year in which such income is derived (remittance in the following year is not subject to tax). The Thailand Residence Program was initiated by the Royal Thai Government to attract wealthy global citizens, families, investors and entrepreneurs who want to spend extended periods of time in the country and take advantage of its beneficial tax regime and affordable, but exceptionally high standard of living.

The investment migration programs in Cyprus and Malta offer the highest amount of flexibility to high net worth individuals. Both Cyprus and Malta are members of the European Union (EU), therefore they provide their citizens with the same rights as any EU national, including legal, protection and settlement privileges throughout all 28 EU countries and Switzerland. These programs effectively provide 29 EU-based tax residence options and, therefore, much greater comfort in terms of the security and confidentiality of the information that will be shared as part of the Automatic Exchange of Information.

Driven by its reputation for stability, predictability, and security, Malta has become one of Europe’s leading investment locations. The island nation also provides numerous financial incentives for residence and maintains a tax regime that encourages economic growth.

The application process for the Malta Individual Investor Program (MIIP) applies the world’s strictest due diligence standards and applicant vetting. As a former British colony, Malta inherited a remittance-based tax system that provides foreign individuals who become tax resident with beneficial tax treatment. To be considered tax resident in Malta, individuals must spend more than 183 days per annum in the country.

Cyprus has been a full member of the EU since 2004. The island is located in the southeastern Mediterranean Sea, at the crossroads of Europe, Asia and Africa. The strategic location of the island has played an important role in its development as a financial center. Cyprus offers a corporate tax rate of just 12.5% — one of the 20 lowest corporate tax rates in the world. And its residence- and citizenship-by-investment programs offer individuals access to an investor-friendly tax regime that is underpinned by double taxation protection agreements with 60 countries. Generally, individuals are considered tax resident in Cyprus if they spend more than 183 days per year in the country. In July 2017, however, the Cyprus parliament voted for a Cyprus tax law amendment adding a second test — the ‘60-day rule’ — for the purposes of determining Cyprus tax residence for individuals. As from tax year 2017, an individual will be considered a tax resident of Cyprus if the individual satisfies either the current ‘183-day rule’ or the new ‘60-day rule’ for the tax year.

Strategy for a secure future

There has been a sharp increase worldwide in the number of individuals wanting to acquire a beneficial alternative residence and/or citizenship to globalize their family’s opportunities and expand their business interests in a changing and uncertain world.

The concern of who will ultimately have access to the information exchanged under the CRS and what will be done with that information if it falls into the wrong hands — potential extortion and kidnapping — are very real concerns for high net worth individuals around the world. In many respects, alternative residence and citizenship has become a valuable and strategic asset for talented and wealthy individuals and their families who want to operate globally, reduce their financial exposure and safeguard against external threats.

It is essential that an individual’s international residence and citizenship planning aligns with their business and personal situation and goals. Consulting with professionals, experienced in both tax planning and citizenship planning, can help wealthy individuals and their families make informed decisions regarding the future of their financial security and growth.