As we confront the impact of COVID-19, rightly there is an intense focus on the health and well-being of people and society.
During a period of shifting priorities, it may be natural for attention to shift away from financial and other issues that families and individuals have cared for meticulously. One such area is an individual’s taxable residency status.
Each country has its own laws for determining when an individual is a resident for tax purposes. For those who are residents in more than one country, the country that has the taxation rights over specific types of income is governed primarily through double-taxation agreements and related protocols.
Individuals and families living across a number of destinations will be familiar with the need to maintain clear and ordered evidence of their taxable presence in a country. This could include the total amount of time spent in that country; how much of that time was at their home; the number of days they spent working; and several additional factors and will depend on each country’s specific residency requirements.
Some will have worked with their Family Office or advisors to carefully plan their time and ensure they are complying with the residency requirements. In specific circumstances, individuals will also carefully spend the requisite number of days in a particular country in order to qualify for residency status for tax purposes.
As borders begin to close and citizens are encouraged to self-isolate, these plans may begin to feel less relevant. However, there are several actions that are worth examining to reduce the impact of quarantines and other social-safety initiatives on your residence plans. Now may be the time to review such plans or consult with your advisor to consider these four possibilities:
1. Is there a country to which you can safely travel or base yourself where you plan to be considered a resident for tax purposes, or where you can spend a significant amount of time without being classed as a resident?
2. Have temporary relief restrictions been introduced in certain countries that will not lead to you being taxed as a resident or could reduce some burdensome tax compliance and filing requirements? Some countries, for example, allow you to ignore reasons beyond your control as days that count towards your taxable presence. Others may not be so generous, and it will be interesting to see how tax authorities around the world respond to what will hopefully be a once-in-a-generation pandemic.
3. Do you need to consider the specific tax laws of the country in which you are spending time? Your advisors or Family Office should be able to assist you with this.
4. Lastly, what evidence will you need to collect to support your position if you are unable to leave a country and exemptions apply? Have you gathered sufficient evidence to support your position?
Health, well-being, and safety will continue to supersede most other concerns as we navigate these days of unprecedented change and unpredictability. To help prepare for a more stable future, however, it may be worth considering some actions that you can take now to reduce the longer-term impact.
We at KPMG Private Enterprise understand the potential consequences of the current global health situation for Family Offices. I encourage you to follow our regular series of blog posts to stay informed about how COVID-19 may affect your Family Office strategies and operations. Please reach out at any time to the KPMG Private Enterprise and Family Office and Private Client advisors in your country or territory for their guidance.
Please visit the KPMG website for our business overview and action checklist entitled “Understanding the Implications of COVID-19 for private companies”.