It is said that making your first million is the hardest. But when it comes to ultra-high net worth (UHNW) individuals, holding on to those millions from generation to generation is actually much more difficult.
The figures speak for themselves. Studies suggest that just 2.4 percent of billionaire families manage to avoid the wealth from getting eroded.
It’s a major problem for financial dynasties, especially in China which is home to the world’s 3rd largest population of UHNW individuals. Playing a major role in boosting the ranks of the world’s super-rich, China had more than 16,000 UHNW individuals in 2016, up 3.6 percent from the year before. Their combined wealth rose 2.2 percent last year, according to the World Ultra Wealth Report 2017.
Traditionally, that wealth has been parked in investments, ranging from successful businesses to property and even commodities. However, while these are safe, they are unimaginative, and they don’t add very much to life of the beneficiaries apart from cold cash.
Considering another country
Beginning the legacy planning early and broadening the scope can pay tremendous dividends. Especially when it comes to an increasingly important consideration: residency and citizenship.
There are a variety of residence- and citizenship-by-investment programs available today that provide greater mobility to the wealthy. The relocation spots can also offer other benefits, such as advanced healthcare, a wider range of lifestyle choices, and better-quality education for the next generation.
Many UHNW individuals are making the move. Demand for new nationalities is high in Russia and the Middle East, but even higher China.
Despite the outcome of its presidential election, the most popular destination is still the United States, where Chinese nationals are said to account for 80 percent of all the EB-5 immigrant investment program visas.
Canada is the second most popular citizenship destination, overtaking the United King. Australia is in fourth place globally.
Interestingly, high net-worth individuals from China’s South and East regions prefer the economically developed coastal cities of the United States, including Seattle (13.1 percent), San Francisco (10.4 percent), New York (9.9 percent) and Boston (7.8 percent). Those from the North and West prefer destinations with clean air and access to nature such as New Zealand (5.4 percent) and Sydney (4.3 percent), Hurun said in a recent report.
But less well-known locations, such as Malta, are joining top 10 list of preferred citizenship countries. And for good reason.
As well as satisfying lifestyle considerations, such as education, environment and access to excellent medical care, they also reduce or eliminate many of the top challenges that Chinese high net worth individuals face. These include application issues and long waiting times, language barriers and difficulties integrating into mainstream society, inability to migrate with the families and, last but not necessarily least, high costs.
Safety and security in an EU member state
Driven by its reputation for stability, predictability, and security, the former British colony of Malta has become one of Europe’s leading investment locations. This has made the Malta Individual Investor Program (MIIP) the most exclusive and sought-after citizenship-by-investment program in the world, with applications capped at just 1,800.
Malta has the world’s 10th most powerful passport, with visa-free access to 167 countries, including all EU member states, the US, Australia, and Switzerland. As a former British colony, Malta inherited a remittance-based tax system that provides benefits to foreign individuals who become tax resident there.
In addition, Malta does not levy inheritance tax, gift tax or wealth tax, which are serious additional advantages. Stamp duty is only paid on transfers of Maltese real estate (5 percent) and on transfers of certain shares in Maltese companies (2 percent).
Moreover, the acquisition of Maltese citizenship does not trigger tax residence and, even if you decide to move and take up permanent residence in Malta, you would normally still retain the status of a non-domiciled person insofar as taxation is concerned.
Attractive alternative in Southeast Asia
Another residence option that has gained considerable attention from international investors and mobile entrepreneurs is the Southeast Asian hub of Thailand.
Renowned for its natural beauty, temperate climate, and outstanding leisure facilities, more and more foreign nationals are considering making Thailand their second home and taking advantage of the attractive tax benefits associated with being a Thai tax resident.
Earlier this year, Henley & Partners was awarded the global concession to promote Thailand’s unique residence program.
It’s the first of its kind worldwide as it allows successful applicants to live in the country for up to 20 years and experience exclusive VIP privileges and benefits. The program was initiated by the Thai government to attract wealthy global citizens, families, investors and entrepreneurs who want to spend extended periods of time in the country and take advantage of its beneficial tax regime and affordable but exceptionally high standard of living.
In Thailand, taxpayers are classified as either ‘resident’ or ‘non-resident’. Resident means any person residing in Thailand for a period (or periods) aggregating more than 180 days in any tax year. A Thai resident is liable to pay tax on income from sources in Thailand as well as on the portion of income from foreign sources that is remitted to Thailand in the same year of earning.
Extending the payment of tax on earned income to Thailand to the following year is, therefore, an attractive tax benefit to a resident.
A non-resident, on the other hand, is only subject to tax on income from sources within Thailand and may transfer foreign-sourced income to Thailand without restriction. Personal income tax rates are progressive up to a maximum of 35 percent.
Planning for a secure future
While investment migration programs are an attractive option for wealthy individuals wanting more physical flexibility and maximizing their business growth, it is vitally important that the unique financial and lifestyle requirements of each individual are taken into account before making a decision regarding alternative residence.
Consulting with professionals experienced in both tax planning and citizenship planning can help wealthy individuals and their families make informed decisions regarding the future of their financial security and growth, wherever they — and their children and grandchildren — decide to live.