Citizenship and tax residence are distinct – Ernst & Young recently published their findings on citizenship programmes concluding that “citizenship should be distinguished from tax residence”.
Ernst & Young examined the concept of citizenship and tax residence
Smith & Williamson also examined the Caribbean offering further supporting EYs findings.
Ernst & Young inspected 4 key elements based from the OECD Model Tax Convention on Income and on Capital. It investigated the elements of physical presence (e.g. 180 day rule), the permanent residence element, having vital interests and /or having habitual abode in the country.
Citizenship is a concept distinct from tax residency. Citizenship should not give rise to tax avoidance and evasion opportunities, as the reporting rules [under the Common Reporting Standard] are explicit in not using citizenship as a test.
Issues surrounding tax residency are particularly relevant in the context of Residency by Investment (RBI) programmes, where applicants or investors are typically required to spend a designated amount of time
physically present in the host country to qualify for and maintain their residency status.
These requirements vary from one jurisdiction to another, but they often include minimum stay obligations, which can influence the investor’s global tax obligations, especially if they risk triggering tax residency in the new country or complicating their tax status in their home jurisdiction.
Some countries require presence for 183 days or more, which could deem the investor a tax resident and subject them to local income taxes. As such, careful tax planning is essential before choosing an RBI route.
By way of example, Caribbean CBI programs such as St. Kitts and Nevis is one of the longest-running in the world, does not impose physical presence, residency, or visitation requirements on applicants.
Consequently, concerns related to tax residency are less relevant under this programme, making it a more flexible option for high-net-worth individuals seeking greater global mobility and asset protection without altering their tax residency status.
Read more: Italian Tax Updates
Findings on Caribbean CBI programs and tax residency
Smith and Williamson further examined the Caribbean programmes and also supported the findings that indeed, Citizenship and Tax Residency are in almost all cases (save specific terms in the US) not linked.
Obtaining a second passport therefore does not have a direct correlation to tax avoidance/evasion as has so notably been misconstrued in criticisms by professionals and government bodies that oppose the RCBI industry’s offering.
