Tax Residency in the UAE: Your Convenient Way Out in the Post-Pandemic World

Everywhere around the world, people are looking forward to migrating to countries with better social and economic security. The post-COVID world has created a need among investors to find a safe abode for their businesses. They are also looking for residency options that would bring them tax benefits, visa alternatives, and most importantly, an optional get away from their native countries.

In the aftermath of Covid-19, many countries are looking to offer tax residencies at a lower cost to attract investments and boost their economies: the UAE is not an exception. More to our surprise, the Emirate has proposed to offer residencies to foreign nationals if they invest a minimum of $272,000 million (nearly DH 1 million) in properties. But to actually get the surprise element, we have to understand the concept and the offer in detail.

Tax Residency — Meaning and Implication

The layman’s understanding of the Tax Residency and the actual process of obtaining it through investment might vary when it comes to practicality. ‘Tax residency” or “Fiscal residency” or “Residency for tax purposes” — whichever name we call it — remains an important scope of business for taxpayers from all over the world.

Every individual is legally obliged to pay taxes to some country: the one that receives your personal taxes is your tax residence. But it’s not a one-sided offer. Every country has certain deals that would benefit the tax-payer and UAE tops the list as it not only gives you the economic welfare but also provide you with a vibrant market for expansion. All these come to you at a cost that is much cheaper than the other countries.

The actual extent of the relationship between the individual and the country is guided by the legalities of the region, also determining the expected treatment from the state.

Difference Between a Tax Resident and a Citizen

The two terms — Tax Resident and Citizen — should not be confused as they contain different legal connotations. For example, an Indian, when working in the USA, becomes a tax resident of the USA. however, his tax residency has nothing to do with his citizenship as he continues to be an Indian citizen. Simply put, you are a citizen of a country when you derive your legal identity from its constitution. And, to become a tax resident, you have to live and work there in legal terms.

In most countries, to be a tax resident, one has to stay in the country for at least 183 days and work in any sector thereof. More than half of the world’s population are tax residents and citizens of the same country since they live and work in their native countries.

The Easy Way to Earn Tax Residency

Those who keep themselves updated about the new investment patterns around the world would know about ‘Citizenship by Investment’ (CBI): a program that many major countries have adopted to make space for investors in their economies. Presently, CBI is becoming increasingly popular among both the parties: governments and new-age investors. While the States draw money into their economies, the investors gain a second passport along with tax benefits and steady returns.

However, as wise men already know, benefits and risks come hand in hand. Thus, in this article, we have a dedicated section in the end which explains in great detail, all the risks involved and things one must keep in mind while opting for the CBI program. For now, let’s take a look at the benefits.

Benefits of Tax Residency and CBI Program

The pandemic has especially made CBI a very popular choice among the investors. Let us discuss the reasons.

COVID-19 has wreaked havoc in the global economy and governments are coming up with new strategies to keep the economy afloat in these trying times. For example, Uruguay, to revamp its economy through foreign investments, has relaxed its taxation rules, to attract more businesses for tax residency. From July, the new regulations would allow any foreigner who lives for a period of 60 days in a year (earlier 183 days) and buys real estate property worth $378,000 (Dh 1.4 million), to obtain tax-residency.

Uruguay is not alone and won’t certainly be among the few who have chosen this program. As per economists, more and more countries are getting ready to follow this line of action which would increase their economic growth and create more employment. Thus, a crucial task for the investors is to know both about the countries that are already on board with this project and also about the specific details and legalities of the program.

Tax Residency in Your Dream Countries

Many of us secretly nurture the dream to live in a country with scenic landscapes, lush greeneries, hustling cities, soothing mountains, and serene beaches. Tax residency can be an alternative that lets you fulfill your dream, but obviously with a cost. Following are the list of countries that lets you cherish your dream but at a lower price.

  • Saint Lucia — To become a citizen of St. Lucia, you either have to donate $100,000 (Dh 367,300) to the national economic fund or invest $300.000 (Dh1.1 million) in real estate. Along with several tax benefits, you are entitled to visa-free travels to many countries.
  • Thailand — With an expenditure as low as $3000 dollars (Dh11,109) per year, you can get a residency visa in Thailand as a foreigner.
  • Dominica — The two options that are at your disposal to become a citizen of Dominica are, one, a donation worth $100,000 (Dh367,300) to the National Transformation Fund, two, an investment worth 200,000 (Dh734,600) in the real estate sector.
  • Moldova — For a single applicant, Moldova requires a minimum of 100,000 euros (Dh622,000) as a non-refundable contribution to the Public Investment Fund (PIF).
  • Latvia — A residency in Latvia would cost a minimum investment of $333,000 (Dh1.2 million) over a period of five years in a credit institution.
  • Cambodia — The numbers for getting citizenship of Cambodia is a donation worth $245,230 (Dh900,729) made for rebooting its economy.
  • Turkey — There are many options to avail citizenship in Turkey and the price varies accordingly. One has to pay a minimum of $250,000 (Dh918,250) or purchase a property worth the same to legally become a citizen.
  • Greece — In order to obtain a Greek residency, a minimum investment of 250,000 euros (Dh1 million) to Greek properties is what you need.
  • Portugal/Spain — For both countries, one has to invest 500,000 euros (Dh2 million) in real estate and in return would get ‘Golden Visa’ and residency.

Apart from Turkey, mostly all countries require you to invest in real estate with government pre-approval.

Risks of Attaining Citizenship Through Real Estate Investments

Though the Caribbean islands are emerging as one of the most attractive tourist destinations, the problem lies in the nature of ownership of the property. You are not the absolute owner of the real estate that you purchase there. The CBI program in the Caribbeans allows joint ownership: sort of a time-sharing scheme in which each owner can use the property as a holiday home. To become the sole proprietor of the properties, one has to pay millions as government fees. This is not a case unique to the Caribbean, as there are other countries that have the same offer in store.

For example, in Dominica, one can choose to invest $220,000 (Dh808,060) in real estate instead of making a donation worth $100,000 (Dh367,300) to the government to save money and ensure returns. Yet, it can not be done without the mandatory payment of fees to the government. Fees worth $35,000 (Dh128,555) have to be paid in Dominica and the number gets bigger for other countries. Thus saving the donation money is not entirely possible.

The market to resell real estate property of an island nation is limited and the only buyer that you can get hold of is someone with a future plan to opt for the CBI program. Turkey is an exception to this risk as you can buy almost every property. The only condition that needs to be fulfilled to get citizenship is that you have to meet the required amount of investment. It doesn’t matter in which real estate you choose to do it.

Barring Turkey, real estate investments in other countries can be over-priced as the properties are pre-approved by the government.

Some European countries also have complicated multi-tier investment programs, in which different kinds of investments are to be made to qualify for citizenship.

However, in some countries, investments are not enough.

For example, in Malta, getting residency or citizenship is not an easy process. Along with a huge donation, one has to buy government bonds, rent or purchase a home and also live in the country for a year. In case you are wondering what makes Malta ask for such a huge price, it’s nothing but the country’s membership to the European Union. An EU passport has a higher value, although not without a downside. Apart from the country, the passport also has to abide by the rules of the EU. For Saint Lucia, staying in the country is not mandatory and you can simply be done with the whole process bu just investing the amount required. However, a Saint Lucian passport does not bring much to your table.

Cyprus and Montenegro are the countries that also have the multi-tier model of the program in place which requires both investments as well as donations to the state fund. These models are not without its benefits, it’s just that the expenditure is greater than the others.

What Does CBI Entail for Investors from No or Low-Tax Countries?

There are many countries in which citizens enjoy little to no taxation. The Bahamas, Monaco, Bermuda, UAE, and Andorra are the names of those very popular countries where there is no extra burden of the tax.

For those who are already residents of a zero-tax country, CBI or Tax Residency programs would not be very profitable for them, at least in terms of tax savings. But there are many who desire second citizenship, not for taxes only, but for a beautiful beach home and luxurious retirements abodes in their dream countries.

Residency Via Investment in the No-Tax Countries

For the countries with no tax burden, the program of residency via investment is not exactly applicable. However, similar systems are in place to accommodate ex-pat and foreign investors who are set to gain attractive interests. To gain residency in the UAE through investments, a minimum of Dh1 million has to be made. In the Bahamas, the real estate investment laws dictate international buyers, aspiring for permanent residency, to purchase homes worth a minimum of $750,000 (Dh2.7 million).

The UAE: Investment Benefits & Why It’s Your Best Option

Instead of granting permanent residency to expatriates, UAE allows multi-entry residency visas. A six-month multi-entry residency visa is granted to those who invest less than Dh1 million. These are like tourist visas with the benefit of making multiple entries over a period of six months.

For investments more than Dh1 million, three years of property investor visa is granted. Investments crossing the Dh5 million mark are eligible for a five-year residency visa. If you agree to invest a higher amount of money, then you can also enjoy a three and five-year multiple entry Dubai property visa. To obtain a golden visa, the price of investment has to be more than Dh10 million of which only 40% can be engaged in real estate.

Tax residency or CBI program is an easy and feasible option for investment. But if you are thinking about shifting to another country or moving your base to foreign, the process might not be just as simple as packing your bags and leaving for a holiday. It involves a great deal of paperwork and preparation.

It’s Not the Same Everywhere!

CBI and tax residency is becoming popular, but not every country is up for it. There are also those whose programs are too lengthy and expensive for most people. It’s also a strategy of the countries to attract only the highest bidder by making it unaffordable for the rest.

Yet, the pandemic is changing the outlook of many governments. With reshuffled priorities, maintaining the consistency of the cash flow has become one of the most essential. With a decrease in demand for goods, the struggle is to strengthen the pillars of the economy. And thus there are many who are drafting policies that are more flexible for the investors and lets the market function at its normal pace. Citizenship is about to get much cheaper than we can ever expect.

The reality is not exactly how we read it in books. And in our case, this article. The process requires patience, time, and diligence. Thus, before setting out on this new endeavor, you better consult an expert for guidance and advice.