What’s the difference between a temporary residence, a permanent residence, and citizenship? And what do these choices mean for your tax affairs?
At Nomad Capitalist, we hear these questions all the time, and we tailor our bespoke plans to help people go where they are treated best, not where they can simply avoid taxes. In fact, we never recommend hiding from the tax authorities.
The Golden Visa Program has many significant advantages for expats, but it’s not going to keep the tax authorities at bay. In this article we explain why, and weigh up the pros and cons.
As always, this article is not professional tax advice. If you want the benefits of our bespoke offshore tax planning, second citizenship, and asset protection strategies, feel free to reach out here.
What Is a Golden Visa?
In a nutshell, Golden visas offer the opportunity for high-net-worth people to buy residency in a country. A Golden Visa or residence by investment scheme, allows you to obtain a residency permit by buying a house, or making a sizable investment. In some cases, you don’t even have to live there.
So it’s a very attractive immigration program for people who have the money to invest, because Golden Visas generally don’t require you to change your lifestyle.
Although, they do require you to invest €250,000 in real estate in Greece or perhaps €500,000 in Portugal, or €500,000 in Spain.
The Benefits of a Golden Visa
As an EU resident you have visa-free access to over 26 European countries. As well as travel and lifestyle benefits, these programs can lead to new investment opportunities, and eventually to citizenship.
As well as the fallback of a secure place to live and legally work should circumstances change, EU Golden Visa’s open up new tax strategies and offshore possibilities.
The trouble is, however, that the tax authorities can still come after you.
What a Golden Visa Won’t Do
It’s important to be aware that most Golden Visa programs don’t waive the taxation requirements for investor residents.
However, if you obtain residence without physically moving to a country, a Golden Visa will not tax you, because they only do so if you live in the country. Some schemes, like Portugal’s non-habitual tax residence) allow you to live there and only pay tax on money that you earn there, and exempt income from abroad.
But, if you spend enough time there to qualify as a tax resident, usually 183 days, they will definitely tax you.
And even in jurisdictions where it’s possible to avoid taxes, your personal and business affairs have to be structured correctly. For example, you can’t simply place your money in another no-tax country, like the Cayman Islands, then go to Portugal and claim tax exemption.
Alternatives to A European Golden Visa
Apart from a Golden Visa, there are other ways to achieve residence in Europe. Such as a property investment visa, real estate investment, physical presence, bank deposits, skills, savings, among others.
In fact, there are numerous ways to get a residence permit. You can try opening a bank account somewhere, opening a company, or paying a flat amount of tax to prove that you have the wealth. You could also confirm that you have the income to buy bits and pieces of real estate. There are different ways to do it!
Some of these ways are very expensive. Although, this is to be expected when you’re planning on diversifying your second passport portfolio.
A Golden Visa is a more expensive investor visa that most European countries are offering. In some cases, it’s easier where you don’t have to live in the country for six months to keep the resident permit active.
Although, you should only be there for a few days per year. In comparison to schemes like the Golden Visa Portugal, a residence permit is a faster way to get citizenship without living there all the time.
When we talk about the Golden Visa Scheme, it’s mostly between European countries.
So you can get these in Portugal, Spain, Latvia, Greece, Ireland, and they sometimes apply the same terms with their Investor Program. But does having a Golden Visa save you on taxes?
Not necessarily.
Why You Shouldn’t Leave Without Paying Taxes
The Golden Visa Program has advantages, but it won’t let you leave your own country and not pay taxes.
Today, Elizabeth Warren wants to increase the enforcement of the IRS Tax Authorities – and they’re also going after people with cryptocurrencies.
Sure, it might take them years to find you if you simply stop paying taxes. However, they will find you in the end. You don’t want the hassle of constantly having to look over your shoulder, right?
You have to bear in mind that just getting a Portugal Golden Visa by meeting the immigration criteria will keep your resident permit active. However, it’s not going to keep any countries’ tax authorities at bay.
So what you want is to take your assets and find a way to legally move outside of your current tax system to a more tax-friendly place.
If you’re a business owner and you have the foreign earned income exclusion, then there are numerous ways that you can legally reduce your taxes as an American. You can do this if you have an active income, and you can also move to Puerto Rico.
This is a good solution for business owners and those with passive income capital gains. But, truthfully, there aren’t as many options for Americans.
What most people don’t understand is that you can’t spend seven days a year in Portugal, then go back and spend 358 days in Atlanta or Adelaide and say, “Oh, I’m a Golden Visa holder, so I don’t have to pay.”
If you want to move to the country of your Golden Visa, only then can you legally reduce your taxes.
How Do You Get Tax Benefits?
If you want tax benefits, you’re generally looking at spending a significant part of the year in that particular country.
Portugal, for example, has a non-habitual residence program. It’s not bad for many people. Although we call it the “Swiss cheese of tax exemptions,” there are several things that you should be aware of. It’s not perfect.
However, it’s not just moving somewhere else to pay zero taxes – it’s not that simple.
Non-Americans can simply go and change their tax home to Portugal. Greece is another great option, and so is Italy! Ireland and the United Kingdom have specific tax incentives if you’re getting one of their investor visas.
You might want to live there for six months a year. Especially if you’re not an American and you could just move your tax home to Portugal.
However, American’s always have a tax home in the US. So it does matter how you move between these two systems.
So if you’re from the US, the idea of getting an immigration product to solve a tax problem isn’t going to work.
Solving Your Tax Problem
If you don’t want to be a taxpayer in a new country and just want the immigration benefits, this is possible, but you have to make sure you don’t become a tax resident.
You have to know that Europe has a number of tax provisions beyond just spending six months in the region. There could be other ways that you could become taxed.
So if you want to avoid that, then make sure that you get proper tax planning. Here at Nomad Capitalist, we can help you with this.
Once you’ve spent a great deal of time in these countries, you can now develop those connections to set up your tax home. Then you can potentially break free from where you’re currently being taxed.
So Golden Visas get you in the door, but it’s not a catch-all. Yes, it’s part of the solution, but you still have to separate tax and immigration.
Don’t assume that getting a Golden Visa will solve your tax problems. This is just one area where people get confused about citizenship or tax residence. They are different and have to be used appropriately.
With so many countries competing for your business, there’s no need to stay in a country that’s doing its best to snatch your profits. If you’re a US citizen and this article has struck a chord with you, you may want to explore your options. If so, you can reach out here.
