French Finance Committee has announced the implementation of citizenship-based taxation, meaning that its citizens will need to pay taxes to France even though their country of residency may be different. To prevent double taxation, France has also introduced tax credits.
However, this news arouses many concerns regarding the challenges and the complexity of administrative work and tax treaties.
The best alternative to this situation is applying for citizenship by investment programs which come with benefits like a favorable tax system and global mobility.
In this article, we’ll cover more about the countries that tax citizens abroad, and what are the best alternatives to that.
Key Takeaways
- The main concept of citizenship-based taxation is that the citizen of a country is obligated to pay taxes to his/her home country, even if he/she resides in another place.
- Some of the biggest challenges that citizenship-based taxation comes with are double taxation, increased complexity in tax treaties and administrative work, and potential reunification of citizenship.
- The greatest alternative to countries with citizenship-based taxation is citizenship by investment programs. Some of the key benefits of these programs include a favorable tax system, increased global mobility, the feeling of safety, investment returns, and business opportunities.
- When choosing between citizenship or residency-based taxation, you need to consider the tax obligations on global income, double taxation, exit taxes, reunification costs, and administrative complexity.
What is citizenship-based taxation?
Citizenship-based taxation is a tax system that obliges citizens to pay taxes on their worldwide income despite the place of residency. This means that even if you reside outside your home country, or even if your income is from another country, you’ll still need to pay taxes for your country of citizenship. Countries like the US and France have already adopted this policy. Of course, there are certain exclusions, tax credits, and deductions to avoid double taxation, however, you still need to pay citizenship-based taxation, which can be a bit tough and costly.
French Finance Committee’s Bill on Citizenship-Based Taxation
French Finance Committee has announced the introduction of a proposal for a “targeted universal tax” designed for French citizens who live abroad. The proposal applies to low-tax jurisdictions that are going to be shifted to citizenship-based taxation. The targeted people are French nationals who have resided in France for 3 years in the past ten years.
Taxed income, inheritance, capital gains, and dividends need to be paid as if the people are still residing in France. France’s proposal applies only to those in jurisdictions with tax rates at least 50% below France’s. This program also aims to prevent double taxation. To do so, it has implemented a tax credit system, which means that individuals will pay taxes as if they still reside in France, and get credits for any taxes already paid in their country of residence.
However, this proposal has raised many concerns internationally. Some countries are afraid of the complexities and challenges regarding administrative work and tax treaties that taxation based on citizenship may come with.
How Does Citizenship-Based Taxation Affect Global Citizens?
People who are citizens of countries with citizenship-based taxation, need to pay taxes to their home country even though they reside in another country. For global citizens, it can lead to:
- Double Taxation: Without some tax credits or exclusions, the individuals might pay taxes twice - once for their home town, and once for their country of residency.
- Increased Complexity: Even if the countries implement some tax credits or exclusions, it’ll still be a tough challenge, especially in administrative work and tax treaties.
- Potential Renunciation of Citizenship: Because of the challenges and complexities of double taxation, many people prefer to renounce their citizenship.
Best Alternatives: Citizenship by Investment Programs
Citizenship by investment (CBI) programs are a great choice for people who want to obtain a second passport. These programs require a specific amount of investment in their country (often in the form of buying real estate) and as an exchange grant the applicants with citizenship. CBI programs are especially popular for their following benefits:
Favorable Tax System
Many countries that offer citizenship by investment programs, come with many tax benefits such as no taxation on income or capital gains, making it an ideal option for foreigners.
Global Mobility
Many countries offer a wide range of other countries that can be accessed without a visa or with a visa-on-arrival. One good example is Malta, which has the 5th strongest passport in the world, granting you visa-free or visa-on-arrival access to 190 countries. Another great example is Antigua & Barbuda, whose passport will grant you access to 150 countries, incl. Schengen, Singapore, Hong Kong and many more.
Feeling of Safety
Applying for a second citizenship gives you an additional feeling of safety. This means that whenever your first country experiences instability, you can always have a plan B.
Investment Returns and Business Opportunities
As we’ve already mentioned before, the most famous type of investment to be granted second citizenship is buying real estate. Another popular option is investing in business (establishing your own business, opening new jobs, etc.). All of this can bring you high returns. For example, you can rent your real estate, or grow your business and make it profitable. To find out which investment option fits you best, you’ll need to contact a consulting agency, which will provide you with full information and guidance about the whole process.
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Top Countries with Attractive Citizenship by Investment Programs
Here is a list of the countries with attractive citizenship by investment programs:
Malta
Launched in 2020, Malta's citizenship by investment program aims to attract foreign investments in exchange for citizenship. The main requirements for the program are making an investment of at least €600,000 if you completed 36 months of residency in Malta, or €750,000 if you completed 12 months of residency, buy a property in Malta that costs at least €700,000, or lease a property that has a minimum annual rent of €16,000, make a charity donation worth at least €10,000. This program comes with many benefits such as free and high-quality education and health care services, business opportunities, and an option of family reunification.
Saint Lucia
St. Lucia has also created a citizenship-by-investment program for those, who want to obtain a second passport. As an investor, you’ll have 4 main options of how to get St. Lucia citizenship, which are contributing to the National Economic Fund (NEF), investing in government-approved real estate, participating in an approved enterprise project, and investing in government bonds. Depending on the option you choose, the minimum amount of investment will vary.
For example, if you want to make a contribution to NEF, you’ll need to donate at least $200,000, while investing in government real estate requires at least $200,000. The main benefits of a St. Lucia passport are visa-free or visa-on-arrival access to 148 countries, no minimum stay requirement, family reunification, and varied investment types.
Antigua and Barbuda
One of the fastest ways to get a second passport is by applying for Antigua and Barbuda’s citizenship-by-investment program. As an applicant, you’ll need to invest at least $250,000 in the National Development Fund, approved real estate, or other government-supported initiatives. The citizenship is typically granted within 3-6 months. Antigua and Barbuda suggests benefits such as a favorable tax system, minimal residency requirements, and an opportunity to pass your citizenship to future generations.
Key Considerations When Choosing Between Citizenship or Residency-Based Taxation
Tax Obligations on Global Income
Citizenship-based Taxation: You’ll need to pay taxes based on citizenship, meaning that you’ll be taxed on your worldwide income, despite the fact that your country of residency may be different.
Residency-based Taxation: Only taxes income that has been earned within the country or by its residents. This means, that as a foreigner you typically won’t need to pay taxes.
Double Taxation
Citizenship-based Taxation: This can lead to double taxation if there aren’t implemented any tax credits or exclusions.
Residency-based Taxation: This doesn’t typically lead to double taxation, as the foreign income isn’t generally taxed.
Exit Taxes and Renunciation Costs
Citizenship-based Taxation: If you’re dissatisfied because of the double taxation or high tax rates, pay attention to how much you’ll need to pay to renounce your citizenship.
Residency-based Taxation: Residing in a country that offers lower tax rates is beneficial, as you’ll end up paying less taxes and not renouncing your citizenship.
Administrative Complexity
Citizenship-based Taxation: Even if you live abroad, you’ll always need to be in paperwork, to make sure that you don’t miss any taxes that need to be paid to your home country.
Residency-based Taxation: Taxes are filed only if you have a local income source or are a resident.
Conclusion
To sum it up, in this article, we’ve talked about the French Committee’s new proposal regarding citizenship-based taxation, and what are the main concerns of this program. As the best alternative, we’ve mentioned citizenship by investment programs (CBI) and top countries with an attractive CBI. The rise of citizenship-based taxation highlights the importance of flexible citizenship options and the growing demand for strategic investment in a globalized world.
FAQ
Yes, you can give up your citizenship to avoid citizenship-based taxation. However, it’s important to mention that it won’t immediately cancel your tax obligations and may require you to pay even higher fees.
Depending on the country, the time required to get citizenship through investment will vary. For example, in countries like St. Kitts and Nevis or Antigua and Barbuda, it usually takes 3-6 months, whereas getting Maltese citizenship requires 1-3 years.
Some of the most popular countries that don’t tax their non-resident citizens are France, Canada, Australia, and New Zealand.
Yes, residency by investment is a good option for minimizing taxes, because many countries come with favorable tax systems for the people who apply for residency by investment programs (e.g. low taxes on foreign income, capital gains, or inheritance.)
