Governments have been trying to increase financial transparency and combat tax evasion for a while now. They would like to peek into all your financial affairs and then tell you if they think you have calculated your taxes correctly. In order to achieve their goals an OECD initiative of automatically exchanging information (of persons who directly or indirectly hold accounts at foreign banks) will be going into effect in 2017. This initiative is the Standard for Automatic Exchange of Financial Information in Tax Matters, also referred to as the Common Reporting Standard (CRS).
Information such as the investment income, account balances and turnover will be automatically shared. Sharing this information will enable tax administrations to obtain information held by foreign financial institutions which is potentially relevant to the tax liability of the residents of its country. Most states in the world, with the notable exception of one elephant in the room, have committed to implement the necessary measures in order to facilitate the exchange of financial information. Among the states that will start with exchanging information in 2017 on information held by financial institutions in 2016 (starting from January 1st) are all EU member states and all members of the G20. Other countries such as the UAE have signed up to exchanging information in 2018 (exchanging 2017 information), while yet others such as Panama have not signed up at all. The United States have not signed up to the Common Reporting Standard. They have what they need already through FATCA which provides citizenship based information, rather then residence based information. Much though remains to be done. The countries that have committed to implementation still have to negotiate, sign and ratify bilateral treaties to give effect to what at this point is just an intention. Moreover there are a few get outs, namely a country may decide that it will not exchange information on the grounds that it is too corrupt and hence the information exchanged is not safe there. For instance Belgium might decide that it isn’t going to exchange information with say Nigeria (not picking on Nigeria in particular here!), meaning there will not be a bilateral agreement and no information will flow either way. Some pundits expect that the whole OECD effort will still be derailed because of these issues, also because the full force and might of the United States government is not behind this. The United States has only committed to provide information under the few bilateral Foreign Account Tax Compliance Act (FATCA) agreements that require it, for which the United States accordingly “committed” to advocate for domestic legal changes that would create the necessary beneficial ownership transparency.
However it is probably wise for persons who may be affected by the implementation of this measure may to restructure their affairs.
The most straightforward way to ensure that your tax affairs are fully compliant in your residence country is to move your residence to a place where there is either no tax, or where foreign income is not taxed. The UAE falls into the first category. Panama falls into the second category, and Cyprus since July
this year for most intents and purposes for non-domiciled persons falls into the second category too. For instance for a non-domiciled person dividends and interest would not be taxed, also salary from an employment carried out abroad for a at least 3 months a year for a foreign employer would not be taxed, nor would activities which can be attributed to a permanent establishment abroad. In other words each of these jurisdictions are the perfect base for any internationally operating entrepreneur. In all three countries we can assist with establishing residence and arranging the appropriate residence permit for you and your family. In all three countries this can be done fairly quickly, and in Cyprus we can assist you with processing citizenship applications.
For more information on acquiring the Cypriot nationality click here
Feel free to contact us with your enquiries.