Under the Scheme, a Cypriot company can purchase a pleasure yacht and enter into a lease-sale agreement for the yacht with a third-party lessee - an individual or company irrespective of their location. Since this is a service deemed to be supplied in Cyprus, VAT is due on the lease at the normal rates of VAT in Cyprus - currently 17% - but is payable only on that portion of the lease which the yacht spends in EU waters.
To avoid the difficulty of establishing the exact length of stays in EU waters, the VAT Service has issued its own percentage scales based upon "presumed" lengths of stay for different types and lengths of yacht. Motor and sailing boats over 24-metres in length are deemed to spend only 20% of their time in EU waters (compared to 30% under the Malta equivalent scheme) to give an effective VAT rate of 3.4%, while motor boats below 8-metres and sailing boats below 10-metres are deemed to spend 60%, giving an effective VAT rate of 10.2%.
The yacht, which can be registered anywhere within the EU, must arrive in Cyprus within one month of the date of inception of the lease agreement and the initial lease payment must amount to at least 40% of the value of the yacht. Further lease payments are payable on a monthly basis, and the lease period must under no circumstances exceed the period of 48 months (36 months in Malta).
The lessee may purchase the yacht at the end of the lease period, for a final consideration of not less than 5% of the initial value of the yacht. The VAT authorities will then issue a certificate to the lessee confirming full payment of the total VAT liability. The lessor is expected to make a total profit from the leasing agreement of at least 10% on the initial value of the yacht.
Prior approval from the VAT Commissioner is required for every application of the Yacht Leasing Guidelines.
Friday, April 27, 2012
Thursday, April 12, 2012
Getting into the time Zone
For as long as I can remember I have always been fascinated by the quirks of geography and in particular, different time zones and unusual facts relating to dates. I am always looking out for the oddities around the world that make unusual exceptions. For example, did you know that not only are some time zones measured in ½ hours from CET – India is actually four and a half hours ahead, while neighbouring Nepal goes one better and is four and three-quarters hours in advance. Try explaining that to your gap year teenager when they are trying to ring home from Kathmandu!
Another example is brought home every New Year’s Eve when half way through our day we see news coverage of the fireworks in Auckland, then Sydney and Hong Kong before we even think about going out to begin our nochevieja celebrations. And of course even the longest lasting parties in Europe will be over before Honolulu finally gets to greet the same New Year.
And it doesn’t end simply with one day at a time. Readers may recall the publicity generated when the western-most islands of the Samoan chain skipped Friday 30 December 2011 altogether. The population went to bed on a Thursday and woke up on Saturday morning – but why? Read on.
Further back in history the change from the Julian calendar to the Gregorian version began in the 16th Century – although some countries took several decades to catch up. As a result, to this day, the Orthodox church celebrates festivals a full fortnight after the rest of us. In Britain, the change wasn’t implemented until 1752. By then, unfortunate Britons missed out on 11 whole days – they went to sleep on Wednesday, 2 September, and woke up on Thursday, 14 September.
Except, that is, in Pembrokeshire’s Gwaun Valley where they ignored this decree and carried on ringing in the Julian New Year regardless. To this day children in the valley still walk from house to house on 13 January and sing traditional songs in Welsh that have not altered for centuries. In return, householders shower them with sweets and money – or "calennig", literally "New Year gift or celebration".
I could go on to cite many other examples of such international oddities and eccentricities that survive to this day. That’s all very interesting, I hear you say, but other than helping one show off at Trivial Pursuit why does all this matter?
Let us consider time zones first. As the globalisation of international business becomes ever more important, it is vital that we work to take advantage of the opportunities offered and minimise any disruption caused by the fact that many of us work on a daily basis with people all over the world. For international groups such as the one for which I work, active steps are taken to ensure that someone is available throughout the working day – wherever that may be.
Some of the larger institutions, such as global banks, seek to avoid any such difficulties by offering clients online services 24-hours a day. Some even allow you to speak to a human being at all hours of the day and night – heaven forfend! – although you can be sure extra fees are involved for that kind of attention.
But despite all this, markets are still open only for limited periods. By the time the European bourses start their daily trading – typically at 9 a.m. CET, the Far East is already closing and the Americas are nowhere near awake. In these days of 24-hour non-stop news it can take these markets quite a while to catch up. Readers may have noticed how very common it now is for important corporate announcements to be made on Friday evening – the “Friday Night Drop” in PR parlance. This means that everyone has the weekend to digest the story before relevant stock markets open again on Monday morning. For the same reason, much of the work relating to the bailout of the British banking system was conducted over several weekends; there are many more such examples in recent years.
Turning to dates in the calendar, these can be even more critical. For example, every company will have a “year end” and it’s very common, particularly in those countries whose systems are based on English law, for such dates to be spread out across the year. Indeed using alternative year-end dates can be a real boon for anyone working in financial services who, like me, has toiled until late on several New Year’s Eves so that important transactions be completed – and when most of the world is already out partying,
But such niceties are not limited to the corporate world. For most individuals too, year-ends – and in particular fiscal or tax year dates – can throw up both real challenges and useful opportunities. Consider this simple example. Suppose Mr Brown of England decides that the climate, austerity and Sky News has become too much for him. He decides to move to Spain for a year or two. Then, having read some of these fascinating finance columns in the Gibraltar Magazine, he decides to move again – to Gibraltar. Depending on the dates chosen for all this gallivanting, he may be in for an unpleasant shock. But with some careful planning and help from his professional adviser, the result could be the opposite. Why? It’s all to do with tax years.
In the UK, the tax year for individuals starts on 6 April. This is because while the British moved to the Gregorian calendar (as mentioned above), the tax year remained tied to the Julian version. So the date for the tax year jumped from 25 March to 5 April. The tax year then moved to its current 6 April after a Julian leap year in 1800 – but didn’t change to the 7th after the 1900 Julian leap year. Easy isn’t it? You can see why tax planners charge fees?
Spain, in common with many civil law jurisdictions, works to the altogether more convenient and readily understandable calendar year – ending on 31 December. Here in Gibraltar, as in so many things, we like to be a little different. Our tax year starts on 1 July. Readers can readily see how with careful thought, one’s personal tax affairs, at least during the year or two following an initial move away from home could be managed using periods of residence across these jurisdictions.
You should not however make the mistake of believing that the oft-used phrase “I don’t pay tax anywhere” – what we might refer to as attempting to become a long-term “fiscal nomad” – is going to work. It won’t. Someone somewhere is going to want to tie you down to at least one domestic taxation system. But there is certainly no harm in exploiting the intricacies of the different tax years to your benefit from the outset. As with anything involving tax, get advice as soon as possible once you have decided to take the plunge.And to finish, let’s go back to the unfortunate burghers in Samoa and Tokelau who missed out on 30 December last year. What was all that about? Put simply, it was to do with the commercial realities of world trade in the 21st Century. By remaining east of the International Date Line – around the same time as Hawaii – when Sydney and Auckland woke up on Monday morning, Samoans were still enjoying Sunday breakfast. And of course the same thing happened at the end of the working week – while Samoans downed tools on Friday evening, New Zealanders were already playing rugby (or whatever it is they do on Saturday nights). This may have made commercial sense at the end of the 19th Century when the overwhelming majority of Samoan trade was with the US – but it did not make sense today. The decision was therefore taken that the Date Line should simply be re-drawn such that Samoa moved to the same day as Australia and New Zealand.
Sadly such options are not open to individuals – but, with careful thought and advance planning, it is possible to exploit the opportunities that arise from such differences. And not just in time zones, but in dates themselves. As for whether the UK should adopt Central European Time, that’s all about milking times for Scottish farmers. Don’t get me started!
Another example is brought home every New Year’s Eve when half way through our day we see news coverage of the fireworks in Auckland, then Sydney and Hong Kong before we even think about going out to begin our nochevieja celebrations. And of course even the longest lasting parties in Europe will be over before Honolulu finally gets to greet the same New Year.
And it doesn’t end simply with one day at a time. Readers may recall the publicity generated when the western-most islands of the Samoan chain skipped Friday 30 December 2011 altogether. The population went to bed on a Thursday and woke up on Saturday morning – but why? Read on.
Further back in history the change from the Julian calendar to the Gregorian version began in the 16th Century – although some countries took several decades to catch up. As a result, to this day, the Orthodox church celebrates festivals a full fortnight after the rest of us. In Britain, the change wasn’t implemented until 1752. By then, unfortunate Britons missed out on 11 whole days – they went to sleep on Wednesday, 2 September, and woke up on Thursday, 14 September.
Except, that is, in Pembrokeshire’s Gwaun Valley where they ignored this decree and carried on ringing in the Julian New Year regardless. To this day children in the valley still walk from house to house on 13 January and sing traditional songs in Welsh that have not altered for centuries. In return, householders shower them with sweets and money – or "calennig", literally "New Year gift or celebration".
I could go on to cite many other examples of such international oddities and eccentricities that survive to this day. That’s all very interesting, I hear you say, but other than helping one show off at Trivial Pursuit why does all this matter?
Let us consider time zones first. As the globalisation of international business becomes ever more important, it is vital that we work to take advantage of the opportunities offered and minimise any disruption caused by the fact that many of us work on a daily basis with people all over the world. For international groups such as the one for which I work, active steps are taken to ensure that someone is available throughout the working day – wherever that may be.
Some of the larger institutions, such as global banks, seek to avoid any such difficulties by offering clients online services 24-hours a day. Some even allow you to speak to a human being at all hours of the day and night – heaven forfend! – although you can be sure extra fees are involved for that kind of attention.
But despite all this, markets are still open only for limited periods. By the time the European bourses start their daily trading – typically at 9 a.m. CET, the Far East is already closing and the Americas are nowhere near awake. In these days of 24-hour non-stop news it can take these markets quite a while to catch up. Readers may have noticed how very common it now is for important corporate announcements to be made on Friday evening – the “Friday Night Drop” in PR parlance. This means that everyone has the weekend to digest the story before relevant stock markets open again on Monday morning. For the same reason, much of the work relating to the bailout of the British banking system was conducted over several weekends; there are many more such examples in recent years.
Turning to dates in the calendar, these can be even more critical. For example, every company will have a “year end” and it’s very common, particularly in those countries whose systems are based on English law, for such dates to be spread out across the year. Indeed using alternative year-end dates can be a real boon for anyone working in financial services who, like me, has toiled until late on several New Year’s Eves so that important transactions be completed – and when most of the world is already out partying,
But such niceties are not limited to the corporate world. For most individuals too, year-ends – and in particular fiscal or tax year dates – can throw up both real challenges and useful opportunities. Consider this simple example. Suppose Mr Brown of England decides that the climate, austerity and Sky News has become too much for him. He decides to move to Spain for a year or two. Then, having read some of these fascinating finance columns in the Gibraltar Magazine, he decides to move again – to Gibraltar. Depending on the dates chosen for all this gallivanting, he may be in for an unpleasant shock. But with some careful planning and help from his professional adviser, the result could be the opposite. Why? It’s all to do with tax years.
In the UK, the tax year for individuals starts on 6 April. This is because while the British moved to the Gregorian calendar (as mentioned above), the tax year remained tied to the Julian version. So the date for the tax year jumped from 25 March to 5 April. The tax year then moved to its current 6 April after a Julian leap year in 1800 – but didn’t change to the 7th after the 1900 Julian leap year. Easy isn’t it? You can see why tax planners charge fees?
Spain, in common with many civil law jurisdictions, works to the altogether more convenient and readily understandable calendar year – ending on 31 December. Here in Gibraltar, as in so many things, we like to be a little different. Our tax year starts on 1 July. Readers can readily see how with careful thought, one’s personal tax affairs, at least during the year or two following an initial move away from home could be managed using periods of residence across these jurisdictions.
You should not however make the mistake of believing that the oft-used phrase “I don’t pay tax anywhere” – what we might refer to as attempting to become a long-term “fiscal nomad” – is going to work. It won’t. Someone somewhere is going to want to tie you down to at least one domestic taxation system. But there is certainly no harm in exploiting the intricacies of the different tax years to your benefit from the outset. As with anything involving tax, get advice as soon as possible once you have decided to take the plunge.And to finish, let’s go back to the unfortunate burghers in Samoa and Tokelau who missed out on 30 December last year. What was all that about? Put simply, it was to do with the commercial realities of world trade in the 21st Century. By remaining east of the International Date Line – around the same time as Hawaii – when Sydney and Auckland woke up on Monday morning, Samoans were still enjoying Sunday breakfast. And of course the same thing happened at the end of the working week – while Samoans downed tools on Friday evening, New Zealanders were already playing rugby (or whatever it is they do on Saturday nights). This may have made commercial sense at the end of the 19th Century when the overwhelming majority of Samoan trade was with the US – but it did not make sense today. The decision was therefore taken that the Date Line should simply be re-drawn such that Samoa moved to the same day as Australia and New Zealand.
Sadly such options are not open to individuals – but, with careful thought and advance planning, it is possible to exploit the opportunities that arise from such differences. And not just in time zones, but in dates themselves. As for whether the UK should adopt Central European Time, that’s all about milking times for Scottish farmers. Don’t get me started!
Friday, March 23, 2012
Exponential growth necessitates new premises for Sovereign
EXPONENTIAL growth continues in the Guernsey branch of Sovereign Trust with five new members of staff and an extension into a new office.
The global company opened its local operation in April 2010 with four members of staff at Sarnia House in Le Truchot. Only a year and a half later, the organisation now employs 27 people.
Staff moved to a larger office in St Peter Port House in Sausmerez Street earlier this year but the recent addition of five new employees necessitated an expansion into another office within the same building complex.
Since setting up in the island in 2010, Sovereign Trust has seen unprecedented demand for both international and domestic pensions services.
Managing director Rob Shipman said it had been a whirlwind couple of years and he saw no end to the expansion.
‘We are an independent company rather than being affiliated with a law, bank or accountancy firm, which means we give our clients complete freedom. We do not try to guide them towards any particular pension product.
‘Qualifying Recognised Overseas Pensions Schemes (QROPS) and Qualifying Non-UK Pensions Schemes (QNUPS) are services that have been very popular and we now enjoy a significant percentage of the market in those areas.
‘This as well as our expertise and commitment to providing a first class service is what I attribute our success to. We have taken on some very talented staff members and will be looking to hire more in the coming year,’ he added.
Sovereign Trust provides both internal and external training for new recruits and is determined to invest in their young people as they begin their careers.
‘It’s a very exciting time. It has been a huge success story and we are exceptionally pleased,’ said Mr Shipman.
The global company opened its local operation in April 2010 with four members of staff at Sarnia House in Le Truchot. Only a year and a half later, the organisation now employs 27 people.
Staff moved to a larger office in St Peter Port House in Sausmerez Street earlier this year but the recent addition of five new employees necessitated an expansion into another office within the same building complex.
Since setting up in the island in 2010, Sovereign Trust has seen unprecedented demand for both international and domestic pensions services.
Managing director Rob Shipman said it had been a whirlwind couple of years and he saw no end to the expansion.
‘We are an independent company rather than being affiliated with a law, bank or accountancy firm, which means we give our clients complete freedom. We do not try to guide them towards any particular pension product.
‘Qualifying Recognised Overseas Pensions Schemes (QROPS) and Qualifying Non-UK Pensions Schemes (QNUPS) are services that have been very popular and we now enjoy a significant percentage of the market in those areas.
‘This as well as our expertise and commitment to providing a first class service is what I attribute our success to. We have taken on some very talented staff members and will be looking to hire more in the coming year,’ he added.
Sovereign Trust provides both internal and external training for new recruits and is determined to invest in their young people as they begin their careers.
‘It’s a very exciting time. It has been a huge success story and we are exceptionally pleased,’ said Mr Shipman.
Monday, March 12, 2012
Nationality by Investment
Countries who sell their passports are often frowned upon but the reality is that all countries try to encourage immigration by the wealthy by granting residency which leads to nationality, or nationality itself, in return for investment – it is just the price and timescale that differs. Many of you will recall the rush by Hong Kong persons to obtain the insurance of a right to abode elsewhere in the lead up to 1997. Canada and Australia were the favoured jurisdictions as they had relatively clear rules and a relatively modest level of investment required in order to grant foreign nationals a residency. And those new residents had to wait only a relatively short time before becoming eligible for, and normally being granted, citizenship. Many of those taking out these residencies did not necessarily want to emigrate but did want to know that they could do so if things didn’t work out for them in Hong Kong after 1997. In the end things turned out swimmingly and lovely and many of those who moved abroad came back or shelved any plans they might have had to move away. There are still many countries where the future is uncertain either politically or economically and this encourages their citizens to either emigrate or take out an alternative residency or citizenship as an insurance policy in case things get worse. There are many from the more troubled areas of the world who fear for the future and may more who have money to invest and choose to do so in countries which will give them some kind of formal status in return.
If you are considering a second residency or passport then there are factors worthy of consideration:1. How much do you need to invest to get residency (if anything) 2. How long does it take before you are eligible for citizenship? 3. Do you have to remain in the new country for a certain minimum number of days in order to be eligible for citizenship?4. Does your new country allow you to maintain your old citizenship or prohibit dual citizenship?5. Does your old country allow you to keep your existing passport or does it prohibit dual citizenship?6. Does the passport issued by your new country give you easy travel i.e. does it have arrangements with lots of other countries for visa free entry?7. Are there any requirements for national service (joining the army)?8. What are the costs of living including the tax rates and tax incidence?
Imagine being offered immediate citizenship by Rumbabwe only to find that they do not allow you to keep your old passport, their citizens are unwelcome everywhere else in the world so you need a visa to go anywhere and visas are not necessarily readily available because Rumbabwe freely offer citizenship to other nationalities, that you immediately have to sign up for the army and they are currently engaging war with Freestate and their taxes are 95% on worldwide income and capital gains with no planning opportunities to avoid those taxes.
One of the more interesting possibilities for immediate, well the process takes about 3 months, citizenship is currently available from St. Kitts and Nevis. They have run a successful “nationality by investment” programme since 1984 which allows citizens of other countries to become passport holders in St. Kitts and Nevis in return for a one off investment of US$350,000 in a qualifying property. Applicants must continue to own the property for 5 years or risk losing citizenship. After that they are free to sell the property if they wish. And there is no difficulty in financing the purchase so applicants need only put up about US$200,000 in cash with the rest of the purchase price being borrowed from a bank. There are conditions attached but they are not unattractive. One property developer even offers a scheme whereby applicants can buy a share in a company which owns property for US$400,000 and the developer will buy back those shares for the same US$400,000 after 5 years. This scheme qualifies the purchaser for citizenship. In all cases expect government and other fees of about US$100,000.
St. Kitts and Nevis allows dual nationality and is an UK commonwealth country which many think makes the place rather credible. Their passport gives visa free access to around 190 countries and allows visa free travel within Europe as it has signed agreements with the Schengen countries which is all of Europe apart from the UK. The UK allows visa free access for all Commonwealth citizens. This seems pretty attractive.
The only equivalent programme that we can find is the Economic Citizenship programme run by the Commonwealth of Dominica (do not confuse this with the neighboring Republic of Dominica) where they will offer immediate citizenship in return for an investment in government bonds of US$75,000. Unfortunately the visa free access is much more limited. This programme that has been running quite successfully for quite some time but has recently fallen out of favour as St. Kitts has gained favour.
No other countries seem to legitimately offer the same immediate citizenship program. From time to time I have been approached by others purporting to represent countries which are now offering economic citizenships but the first question to them is to show us the clause in the nationality law which allows citizenship by registration in return for investment. Frequently the laws do not allow it so the scheme seems to rely upon something rather more sinister and should be avoided at all costs.
Other countries offer a swift route to residency in return for a relatively modest investment which in time will lead to citizenship. Canada continues to attract new immigrants under its investment program which requires US$800,000 in investment. This can be financed so the cash contribution is only US$200,000. Citizenship should follow within five years.
Bulgaria has recently announced an interesting program. Bulgaria is full member of the European Union and will grant residency in return for an investment on BGN 1,000,000 which is about US$500,000. Once residency has been granted it is relatively easy to travel freely within Europe. Citizenship should follow 2 years after residency and once granted the EU principle of free movement of labour and right of establishment should allow the new immigrant to live and work anywhere within the European Union without further authorization. This could be very attractive and has attracted many non-EU immigrants. The US, of course, still has many different ways to enter. Each year, 50,000 immigrant visas are made available through a lottery to people who come from countries with low rates of immigration to the United States. None of these visas are available for people who come from countries that have sent more than 50,000 immigrants to the United States in the past five years. Anyone who is selected under this lottery will be given the opportunity to apply for permanent residence (a Green Card). If permanent residence is granted, then the individual will be authorized to live and work permanently in the United States. Successful applicants are allowed to bring their spouse and any unmarried children under the age of 21 with them. The number of places are awarded according to quotas for each country but they treat it as a form of foreign aid so award different countries different quotas depending on their close connection with the US and then the perceived need to help their citizens. One of the biggest recipients is the Philippines so if you are a Philippine citizen you have the biggest chance of winning a green card if you enter the lottery. It is free to enter although many offer to assist with the entry process for substantial fees.
Thursday, March 8, 2012
The financial impact of considering residency abroad
It may seem that I have written nothing but doom and gloom stories – the state of the global economy or the crisis in the eurozone – during the past few months. And we have all seen government announcements across many of the industrialised countries about increased rates of personal taxation or savage cuts in public spending.
As just one example, our neighbours in Spain are going to have to get used to a top income tax rate of 55% - one of the highest in Europe. And it’s not much better in the UK – we are told that the highest income tax rate of 50% is likely to stay until at least 2015 and a recent study showed that up to a third of the population has, at one point or another, considered leaving the country.
Whilst accurate information is difficult to obtain, it was estimated in 2010 that some 200 million people were living as expatriates around the world. Of course for most people, leaving their home country is just not economically or politically viable but, for those who are in a position to do so, the financial impact of any such move is likely to be the most critical factor in any final decision.
In my day job -–when not penning magazine articles, that is – I have to deal with these issues on a regular basis; in recent months it is noteworthy how much more frequently I am being asked for advice and practical help. So for readers who might be considering Gibraltar as one of the places where they could live, what suggestions could I make from a financial perspective? And indeed, what are the alternatives?
It’s no secret that I am an avid supporter of Gibraltar and of course I moved here myself more than seven years ago. So how does Gibraltar compare to other jurisdictions around the world seeking to attract new residents? It’s not all about tax and the other financial implications of moving of course, but that’s the area where most people require advice.
Most people probably daydream about just “upping sticks” and moving somewhere else. After all, the grass is always greener. But how practical is it and what must be taken into consideration? As always, the answers will depend on the personal circumstances of the individual concerned, as well as what they are trying to achieve.
In recent years, we have seen an increasing number of predominantly younger people moving abroad for work reasons. And once the initial break with a home country is made, it is so much easier to remain abroad. We all know people who have made the “expat life” a permanent feature of their existence. Indeed having left my home island of Jersey over 25 years ago and lived in several countries since, I am a prime example – although if my boss is reading this, I should emphasise that I am very settled here in Gibraltar!
But there are also many people who are not just considering their next career move. They could be retired and looking for a different lifestyle or, having enjoyed commercial success in their home country, they may be seeking new challenges, markets and horizons. There is clear evidence that more people in their forties and fifties are now looking at where they want to live in a different way and it is generally people in this demographic that I am called upon most often to assist.
What is driving this and how do I advise such people when they start making enquiries? Without doubt, TV and other media play their part. The 24-hour news culture tends to focus on the negative aspects of social and economic landscape, while at the same time programme makers churn out endless programmes on travel and overseas property. All of this whets the appetite of the northern European who may well be seduced by images of 365 day-a-year sunshine, sangria and a low tax existence. Add to that the seemingly inexorable rise of low cost flying, especially here in Europe, and one can easily believe that moving abroad is easy. Everyone else seems to be doing it, so why not take the plunge?
The fact is that uprooting one’s life and moving abroad is just not for everyone and the reality is often very different from the media images. It’s one thing for the super rich who can simply globetrot from one of their homes to another as the mood suits, but for most of us a serious reality check is normally to be prescribed.
But when it becomes more serious and someone really wants to take the idea forward, what should they consider? It’s tempting to say that the tax rate is so high in one’s home country that they are being “forced” to move overseas but there is much, much more to it than that – family, work, assets, income, healthcare, pensions, language, culture, living costs, banking and legal systems, and the ever present currency risks, will all need to be carefully considered.
European law permits EU citizens to live in any one of the 27 countries that make up the Union. With a combined population far greater than the US, Europeans tend to forget that despite the EU’s problems we do all enjoy these rights – unparalleled in the rest of the world – to live in any of the diverse nation states that make up our continent. But in fiscal terms, there is often little to choose between them so other factors must come into consideration.
Instead, let us consider a couple of countries that actively encourage inward immigration by using specific residency rules. In Gibraltar high net worth residents – defined as those with assets of at least £2 million – can apply for a special “Category 2” status. In addition those with special skills not commonly available may also live here under the HEPSS rules, again where taxation is capped.
Other countries in Europe offer alternative solutions including the Channel Islands and the Isle of Man. Malta’s residency rules were tightened up during 2011 but remain attractive. It is possible but becoming more difficult to take up residency in Switzerland, whilst property prices in Monaco put that principality out of reach of most ordinary folk. Both in Europe and further afield, there are many other places one might consider.
For example, tempting alternatives exist in the Caribbean. St. Kitts & Nevis offers citizenship with a passport to incoming residents who invest a minimum amount into the economy. Depending on personal circumstances this can be extremely useful. Moving across oceans rather than within Europe won’t suit everyone, but such opportunities exist across the world.
Readers will expect me to conclude that there is nowhere better to live than Gibraltar. I happen to think that might be true, especially for British expatriates. After all we have the sun, familiar legal and banking systems, a common language and, compared to other European countries, very low taxes (or none at all) on succession, capital gains etc. – and there’s no VAT. But the Rock may not be for everyone and there are many alternatives available, as I have set out above.
As always though, it’s the overall picture that counts and professional advice should be sought at the outset. Although the rewards can be outstanding, moving to a new life overseas can also be extremely challenging and potential émigrés should always proceed with caution. However, given the current state of the world this might very well be the time to consider taking the plunge.
As just one example, our neighbours in Spain are going to have to get used to a top income tax rate of 55% - one of the highest in Europe. And it’s not much better in the UK – we are told that the highest income tax rate of 50% is likely to stay until at least 2015 and a recent study showed that up to a third of the population has, at one point or another, considered leaving the country.
Whilst accurate information is difficult to obtain, it was estimated in 2010 that some 200 million people were living as expatriates around the world. Of course for most people, leaving their home country is just not economically or politically viable but, for those who are in a position to do so, the financial impact of any such move is likely to be the most critical factor in any final decision.
In my day job -–when not penning magazine articles, that is – I have to deal with these issues on a regular basis; in recent months it is noteworthy how much more frequently I am being asked for advice and practical help. So for readers who might be considering Gibraltar as one of the places where they could live, what suggestions could I make from a financial perspective? And indeed, what are the alternatives?
It’s no secret that I am an avid supporter of Gibraltar and of course I moved here myself more than seven years ago. So how does Gibraltar compare to other jurisdictions around the world seeking to attract new residents? It’s not all about tax and the other financial implications of moving of course, but that’s the area where most people require advice.
Most people probably daydream about just “upping sticks” and moving somewhere else. After all, the grass is always greener. But how practical is it and what must be taken into consideration? As always, the answers will depend on the personal circumstances of the individual concerned, as well as what they are trying to achieve.
In recent years, we have seen an increasing number of predominantly younger people moving abroad for work reasons. And once the initial break with a home country is made, it is so much easier to remain abroad. We all know people who have made the “expat life” a permanent feature of their existence. Indeed having left my home island of Jersey over 25 years ago and lived in several countries since, I am a prime example – although if my boss is reading this, I should emphasise that I am very settled here in Gibraltar!
But there are also many people who are not just considering their next career move. They could be retired and looking for a different lifestyle or, having enjoyed commercial success in their home country, they may be seeking new challenges, markets and horizons. There is clear evidence that more people in their forties and fifties are now looking at where they want to live in a different way and it is generally people in this demographic that I am called upon most often to assist.
What is driving this and how do I advise such people when they start making enquiries? Without doubt, TV and other media play their part. The 24-hour news culture tends to focus on the negative aspects of social and economic landscape, while at the same time programme makers churn out endless programmes on travel and overseas property. All of this whets the appetite of the northern European who may well be seduced by images of 365 day-a-year sunshine, sangria and a low tax existence. Add to that the seemingly inexorable rise of low cost flying, especially here in Europe, and one can easily believe that moving abroad is easy. Everyone else seems to be doing it, so why not take the plunge?
The fact is that uprooting one’s life and moving abroad is just not for everyone and the reality is often very different from the media images. It’s one thing for the super rich who can simply globetrot from one of their homes to another as the mood suits, but for most of us a serious reality check is normally to be prescribed.
But when it becomes more serious and someone really wants to take the idea forward, what should they consider? It’s tempting to say that the tax rate is so high in one’s home country that they are being “forced” to move overseas but there is much, much more to it than that – family, work, assets, income, healthcare, pensions, language, culture, living costs, banking and legal systems, and the ever present currency risks, will all need to be carefully considered.
European law permits EU citizens to live in any one of the 27 countries that make up the Union. With a combined population far greater than the US, Europeans tend to forget that despite the EU’s problems we do all enjoy these rights – unparalleled in the rest of the world – to live in any of the diverse nation states that make up our continent. But in fiscal terms, there is often little to choose between them so other factors must come into consideration.
Instead, let us consider a couple of countries that actively encourage inward immigration by using specific residency rules. In Gibraltar high net worth residents – defined as those with assets of at least £2 million – can apply for a special “Category 2” status. In addition those with special skills not commonly available may also live here under the HEPSS rules, again where taxation is capped.
Other countries in Europe offer alternative solutions including the Channel Islands and the Isle of Man. Malta’s residency rules were tightened up during 2011 but remain attractive. It is possible but becoming more difficult to take up residency in Switzerland, whilst property prices in Monaco put that principality out of reach of most ordinary folk. Both in Europe and further afield, there are many other places one might consider.
For example, tempting alternatives exist in the Caribbean. St. Kitts & Nevis offers citizenship with a passport to incoming residents who invest a minimum amount into the economy. Depending on personal circumstances this can be extremely useful. Moving across oceans rather than within Europe won’t suit everyone, but such opportunities exist across the world.
Readers will expect me to conclude that there is nowhere better to live than Gibraltar. I happen to think that might be true, especially for British expatriates. After all we have the sun, familiar legal and banking systems, a common language and, compared to other European countries, very low taxes (or none at all) on succession, capital gains etc. – and there’s no VAT. But the Rock may not be for everyone and there are many alternatives available, as I have set out above.
As always though, it’s the overall picture that counts and professional advice should be sought at the outset. Although the rewards can be outstanding, moving to a new life overseas can also be extremely challenging and potential émigrés should always proceed with caution. However, given the current state of the world this might very well be the time to consider taking the plunge.
Tuesday, February 28, 2012
Seeking financial reassurance
It is always reassuring to discover that these ramblings of mine are being read – at least by a couple of people. One of my regular correspondents told me that she had read last month’s article on residency and some of the key points to bear in mind when choosing one country over another. Since my article appeared, the result of a survey of British expats conducted by Lloyds TSB International has been published. It appears that 46% of those questioned cited missing the British countryside as their chief regret about moving abroad – although the same study quotes 68% as saying they are happier abroad.
As my friend is considering her own residency plans at the moment, she asked if I could expand on the topic this time. What she wanted to know was how she could be assured that life would be as she expected if and when she took the plunge and moved country. I misheard her and thought she had said “insured” and off I went on one of my tangential monologues. She stopped me just in time and reminded me she was looking for some overall comfort although she realised an important part was to sort out her various insurance policies.
The conversation got me thinking. Actually insurance of one type or another is one of the vital components in setting up home in a new country, be it here in Gibraltar or elsewhere. But so is that overall comfort level – the “assurance” expatriates seek that overall the right decision is being made. As this is the Gibraltar Magazine’s finance column I thought I should restrict myself to some of the more important financial choices to be made when moving abroad – wherever abroad may be – concentrating on insurance in general and a word on pensions.
There are several types of insurance that should be considered when looking at setting up home in a new country, of which private health cover is without doubt the most important. Now that winter is in full swing and people are coughing and sneezing all around me, health care is the first insurance issue I wanted to consider. This is an increasingly competitive area and several articles have been published recently in the local media on the subject.
But in a prosperous place such as Gibraltar, is private health insurance really needed? After all, we have a health authority that provides good general care based on the UK NHS model and a state of the art hospital at St. Bernard’s. In 2010, my partner needed a few days as an inpatient and we were impressed with both the level of care offered, professionalism of the staff and the facilities available. But as in the UK, publically funded health care has its limitations. For specialist care, waiting lists can be an issue, together with the need when necessary to obtain treatment elsewhere, maybe in nearby Spain or perhaps in the UK. For incoming expats, the position can be even more serious as it is often the case that their terms of employment only allow for emergency treatment. This leaves the individual at risk of not being able to access important, albeit non-emergency, treatment when it may be required.
There are a number of options available on the market that might cover an incoming new resident in their new country. However it is generally true that someone becoming an “expat” is likely to require health cover in other places too. One only need look at our own existence here in Gibraltar. It would be a most badly advised expat resident who did not consider being covered should they happen to cross the border into Spain – or perhaps when they go even further, maybe by driving home to the UK. The sheer common sense of having an international private medical insurance (IPMI) plan becomes self-evident.
The cover available is very wide and will of course need to be considered along with the relevant premium. Issues to consider are not just the overall insured amount but also whether out-patient and chronic conditions are covered together with evacuation and repatriation and so on. As I noted earlier, there has been a spate of articles on this subject locally and not without good reason. In one of them, my colleague Geoff Trew of Sovereign Insurance Services reported that local demand for such IPMI cover is growing. “Gibraltar is attracting increasing numbers of businesses from the UK and the rest of Europe. Their employees expect relocation packages and benefits that include giving them and their families the most comprehensive healthcare insurance protection available in the market,” he said.
But in seeking the same type of assurance you feel in your home country, your car and valuables must also be insured. This is not such a subjective area as health care where one gets to choose the level of cover required. One’s car is either insured or it is not, so price becomes a very important factor. Here in Gibraltar we are well used to the cross border issues – whether one is allowed to drive a “G” registered vehicle, or if one can come into Gibraltar with a Spanish hire car etc. Drive further afield to Portugal or perhaps even Morocco, and choosing the right international insurance becomes that much more important.
Home contents insurance is another area that needs to be considered carefully when moving abroad – particularly if another language is involved. It surprises me how lackadaisical people can be, especially in regard to holiday homes that might be left for weeks or months unattended. Of course there are no such language difficulties here in Gibraltar and home contents are insured in the same way as Britain. But there are some things to think about. Until I moved here nearly eight years ago, I had not come across the use of salt water for flushing. A great idea I thought – until my first leak. Water damage however it is caused creates problems but when the water is salty they escalate. “You’ll soon find out there’s nothing as bad or damaging as salt water” said my plumber cheerily as I looked at the mess and contemplated the bill. Some policies will cover you for damage caused by the water damage but not the costs involved in finding the trouble. Caveat emptor indeed. You might be very happy with the cover but it’s worth reading the small print at the outset so you know in advance what to expect should a claim arise.
Lastly and moving away from insurance but still rather ensuring the security of one’s financial future, the question of pension provision must be considered. Given the reduced value of the euro against the British pound in recent years, expats all over Europe have found their spending power significantly reduced through no fault of their own. In recent weeks, the pound has recovered somewhat but the days of GBP1/€1.60 are probably long gone (although don’t quote me). Moreover, not a day seems to go by without some new scare story about the latest pension scheme closing and so on. As always, the best thing to do is seek professional advice as soon as possible in order to exploit the options available to an expatriate. The English language press in Spain and Portugal are full of adverts and articles relating to QROPS, where someone leaving the UK may transfer their pension into an overseas version offering significant benefits. Less well known are QNUPS which relate to assets that have not received UK tax relief. Again this is another product that offers great potential but the area is complex so seek the right advice every time.
I concluded last months’ article with my normal suggestion that potential émigrés should always get the right advice and be careful etc. I went on to say that the rewards of an expat life can far outweigh the disadvantages – for people with the right mind set. My lady correspondent who started me off on this article is right to be concerned – she needs that assurance – but things won’t be the same as back home and I think that’s part of the attraction. Provided one is aware that areas such as insurance and pensions differ once you’ve gone through passport control, all will be fine. Assurance brings peace of mind and lets you get on with the important bit away from all that finance talk – simply enjoying the new life you have chosen.
As my friend is considering her own residency plans at the moment, she asked if I could expand on the topic this time. What she wanted to know was how she could be assured that life would be as she expected if and when she took the plunge and moved country. I misheard her and thought she had said “insured” and off I went on one of my tangential monologues. She stopped me just in time and reminded me she was looking for some overall comfort although she realised an important part was to sort out her various insurance policies.
The conversation got me thinking. Actually insurance of one type or another is one of the vital components in setting up home in a new country, be it here in Gibraltar or elsewhere. But so is that overall comfort level – the “assurance” expatriates seek that overall the right decision is being made. As this is the Gibraltar Magazine’s finance column I thought I should restrict myself to some of the more important financial choices to be made when moving abroad – wherever abroad may be – concentrating on insurance in general and a word on pensions.
There are several types of insurance that should be considered when looking at setting up home in a new country, of which private health cover is without doubt the most important. Now that winter is in full swing and people are coughing and sneezing all around me, health care is the first insurance issue I wanted to consider. This is an increasingly competitive area and several articles have been published recently in the local media on the subject.
But in a prosperous place such as Gibraltar, is private health insurance really needed? After all, we have a health authority that provides good general care based on the UK NHS model and a state of the art hospital at St. Bernard’s. In 2010, my partner needed a few days as an inpatient and we were impressed with both the level of care offered, professionalism of the staff and the facilities available. But as in the UK, publically funded health care has its limitations. For specialist care, waiting lists can be an issue, together with the need when necessary to obtain treatment elsewhere, maybe in nearby Spain or perhaps in the UK. For incoming expats, the position can be even more serious as it is often the case that their terms of employment only allow for emergency treatment. This leaves the individual at risk of not being able to access important, albeit non-emergency, treatment when it may be required.
There are a number of options available on the market that might cover an incoming new resident in their new country. However it is generally true that someone becoming an “expat” is likely to require health cover in other places too. One only need look at our own existence here in Gibraltar. It would be a most badly advised expat resident who did not consider being covered should they happen to cross the border into Spain – or perhaps when they go even further, maybe by driving home to the UK. The sheer common sense of having an international private medical insurance (IPMI) plan becomes self-evident.
The cover available is very wide and will of course need to be considered along with the relevant premium. Issues to consider are not just the overall insured amount but also whether out-patient and chronic conditions are covered together with evacuation and repatriation and so on. As I noted earlier, there has been a spate of articles on this subject locally and not without good reason. In one of them, my colleague Geoff Trew of Sovereign Insurance Services reported that local demand for such IPMI cover is growing. “Gibraltar is attracting increasing numbers of businesses from the UK and the rest of Europe. Their employees expect relocation packages and benefits that include giving them and their families the most comprehensive healthcare insurance protection available in the market,” he said.
But in seeking the same type of assurance you feel in your home country, your car and valuables must also be insured. This is not such a subjective area as health care where one gets to choose the level of cover required. One’s car is either insured or it is not, so price becomes a very important factor. Here in Gibraltar we are well used to the cross border issues – whether one is allowed to drive a “G” registered vehicle, or if one can come into Gibraltar with a Spanish hire car etc. Drive further afield to Portugal or perhaps even Morocco, and choosing the right international insurance becomes that much more important.
Home contents insurance is another area that needs to be considered carefully when moving abroad – particularly if another language is involved. It surprises me how lackadaisical people can be, especially in regard to holiday homes that might be left for weeks or months unattended. Of course there are no such language difficulties here in Gibraltar and home contents are insured in the same way as Britain. But there are some things to think about. Until I moved here nearly eight years ago, I had not come across the use of salt water for flushing. A great idea I thought – until my first leak. Water damage however it is caused creates problems but when the water is salty they escalate. “You’ll soon find out there’s nothing as bad or damaging as salt water” said my plumber cheerily as I looked at the mess and contemplated the bill. Some policies will cover you for damage caused by the water damage but not the costs involved in finding the trouble. Caveat emptor indeed. You might be very happy with the cover but it’s worth reading the small print at the outset so you know in advance what to expect should a claim arise.
Lastly and moving away from insurance but still rather ensuring the security of one’s financial future, the question of pension provision must be considered. Given the reduced value of the euro against the British pound in recent years, expats all over Europe have found their spending power significantly reduced through no fault of their own. In recent weeks, the pound has recovered somewhat but the days of GBP1/€1.60 are probably long gone (although don’t quote me). Moreover, not a day seems to go by without some new scare story about the latest pension scheme closing and so on. As always, the best thing to do is seek professional advice as soon as possible in order to exploit the options available to an expatriate. The English language press in Spain and Portugal are full of adverts and articles relating to QROPS, where someone leaving the UK may transfer their pension into an overseas version offering significant benefits. Less well known are QNUPS which relate to assets that have not received UK tax relief. Again this is another product that offers great potential but the area is complex so seek the right advice every time.
I concluded last months’ article with my normal suggestion that potential émigrés should always get the right advice and be careful etc. I went on to say that the rewards of an expat life can far outweigh the disadvantages – for people with the right mind set. My lady correspondent who started me off on this article is right to be concerned – she needs that assurance – but things won’t be the same as back home and I think that’s part of the attraction. Provided one is aware that areas such as insurance and pensions differ once you’ve gone through passport control, all will be fine. Assurance brings peace of mind and lets you get on with the important bit away from all that finance talk – simply enjoying the new life you have chosen.
Wednesday, January 4, 2012
2012 – Another New Year, and a review of the one just gone
As you read this column, another year has just turned the corner – and probably not one that many people will be sad to leave behind; so perhaps it’s a hearty goodbye to 2011 from most of us, and a warm hello to 2012.
Although 2011 was in all manner of ways a difficult year, it was also a momentous one. With general elections behind us in both Gibraltar and Spain, together with several new governments in other European countries, we are all going to have to get used to the new order. And that is not to mention the ongoing convolutions of the “Arab Spring” which rumbled inexorably into an Arab summer, autumn and winter as it moved from Tunisia and Egypt, through Libya, the Yemen and Syria. And not just in political terms; there will be economic consequences too.
And talking of economics, 2011 was certainly a year to remember – or, I guess, forget depending on your point of view. In several respects I believe history may record that it was the most challenging year from a financial perspective since the world went into economic crisis in 2008. And it would not be surprising if 2012 doesn’t continue along a similar track.
So what happened in 2011 that turned life on its head for so many countries? Simply put, the fact that there was too much unaffordable debt around started to dawn on the markets, the speculators and eventually the people. Several countries in Europe came close to defaulting; others, specifically Greece, avoided a formal default only through a clever form of words and the necessity for the rest of the Eurozone to start bailing out before the ship sunk.
The underlying incentive was that by helping out, the other European governments were acting to prevent the “contagion” spreading to other states, including their own. As it happened, the EU’s inability to move quickly enough meant that this contagion occurred anyway, so we ended the year with several countries at risk of a Greek-style crisis. At the same time various ratings’ agencies chose to reassess the economic prospects of a number of sovereign states with the result that the debt rating of several was downgraded.
Nor was this limited to Europe – even the national debt of the US, the largest economy of them all, was downgraded during the past year as their politicians indulged in a ruinous “Mexican stand-off”.
Across the world, but particularly in the Eurozone, banks continued to struggle. They were simultaneously expected to repair their balance sheets and pressured to increase their lending book. Time and again over the last year we have seen this same contradiction: state sponsored bailouts of banks across Europe whilst those same institutions were being “encouraged” to bolster economic recovery by lending to domestic customers. It is no wonder that little forward progress was achieved.
Economic growth rates in Europe are very low at best and in several cases, they ended the year in negative territory. For countries such as Greece, negative growth – or recession – appears to be an almost permanent feature of their economy. It is difficult to see how recovery is going to come any time soon to such countries.
Commodity prices have risen – and in the case of energy in particular, this has had a dramatic effect for domestic and business consumers as they have suffered enormous increases in costs. Taken with the resulting increases in food bills as well as fuel, many consumers struggle to understand how the official – and relatively low – inflation rate is calculated.
As investors will know only too well, 2011 saw many of the world’s major stock markets languish. Currency exchange rates have also been in the news during the year just past. For those of us here in Gibraltar who generally earn pounds but also spend euro over the border in Spain, we have seen the exchange rate locked in a tight range during most of the year. Despite all its problems, the euro has remained stubbornly strong against certain currencies, including sterling. Looking at the same issue from a global perspective, exchange rate “pairs” such as the US dollar/ Chinese yuan have become far more significant as the US struggles to work its way out of recession and China seeks to maintain high rates of growth.
It is also interesting to see the spectre of the Europeans approaching countries such as China and Brazil for assistance by buying Eurozone bonds. It’s an example of the new world, or at least a couple of the emerging BRIC economies, coming to the rescue of the old. Who would have thought it?
So what does 2012 hold? As regular readers will know, I am wary of making detailed predictions. You won’t be reading my guesstimates of the exchange rate or the price of gold in these columns. Still less will I get involved in politics and you certainly won’t catch me predicting a royal baby in the year ahead!
But as I write this at the end of 2011, there are some areas in the financial world in which I can predict developments in the year to come with some confidence.
First of all, what lies in store for us here in Gibraltar? For some time, I have been writing that although we are in no way immune to the financial crisis engulfing Europe, overall we have proved to be fairly resilient given the modest size of our economy. I don’t see any reason why this should change in the year to come although we may experience a greater impact from developments in Spain. A new Spanish government was elected last November and how Spain deals with its economic woes is going to be critically important.
In Europe as a whole, it’s clear that the national leaders will have to continue fire fighting across the continent. With some exceptions, most countries are in a similar position. Staggering levels of national debt combined with low or negative growth rates are likely to dominate the headlines in 2012 as they have in the year just past. As a result interest rates are likely to remain low for the foreseeable future although, should the spectre of inflation return, increasing rates cannot be ruled out.
In Gibraltar our other main concern is the state of the UK economy, for that is what determines important issues for us – interest rates and the crucial exchange rate with the euro, and indeed other currencies. In Britain, as elsewhere in Europe, the government will continue its efforts to reduce the burden of national debt whilst seeking to inject some much needed growth into the economy. It will be a difficult juggling act.
Once the winter months are behind us, the Diamond Jubilee should cheer everyone up across the Commonwealth. Later in the summer, the London Olympics should provide an enormous boost to the economy and hopefully to Britain’s standing around the world. Early reports are very favourable; the infrastructure appears to be ahead of schedule. We must all hope for a decent haul of medals and records too.
And speaking of records, your diligent scribe is due to hit a significant personal milestone in the coming year that no amount of denial can do anything to alleviate. One wonders where the last 50 years have gone!
So as we all recover from the excesses of Christmas and New Year, welcome back to Gibraltar in January. Let’s all hope that the winter – and indeed the economic freeze – will be short and sweet. From the viewpoint of the financial world it must be goodbye, and good riddance to 2011. Hello and welcome to 2012; please be kinder to us all.
Whatever 2012 brings, I hope sincerely that it proves to be a good one for you. On behalf of all my colleagues at Sovereign Trust here in Gibraltar, I wish you and your families a very happy and indeed prosperous New Year.
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