Our guest today is Dmitry Zapol, a dual-qualified international tax advisor who currently works at IFS Consultants in London. He specialises in wealth management and cross-border business planning. We speak to him about finance diversification and Citizenship by Investment.
DZ: Wealth diversification means that you are managing your risks. If one investment fails, then the others will make up for the loss. Or, equally, if too much risk is put into one basket, if I may call it so, then the baskets will even out the risk profile of your overall wealth and your Investments.
Why it’s important to stress towards it? Well, for the simple reason that if you are looking to keep your nest egg safe. Even better, if you believe that it will be safe, it might suffer from unexpected taxation on death or disposal. It is always better to do all different assets to make sure that you know of different tax obligations, which will apply to those assets, and if one falls on the end increased tax building, you will know that the rest of the assets are safe. When you diversify your assets, you minimize your risks, and you make sure that you don’t have any nasty surprises going forward.
DZ: The basics, of course, is to have a wide array of different assets at the moment. I see different clients from different walks of life trying to achieve this balance. And if you feel that too much of your wealth is concentrated in one basket in my view, which is necessary to make sure that there’s an even distribution. Traditionally, people have attempted to invest in stocks, shares, bonds, and also real estate, which has been relatively low risk, and you would kind of expect certain yields from disposals and also from cash generated from such investment, such as income and dividends.
Some, of course, would delve into risky securities, such as new shares or start-ups where they would try to claim the enterprise investment scheme. Well, then, on the one hand, such investments would help people achieve great tax savings. But, on the other hand, if such investment fails, then, of course, you will have the tax–saving, but you will lose your original investment. But in the last few years, I have seen people investing in Krypton. Assets like Bitcoin etc.
And if before such crypto assets would form a reasonably insignificant part of someone’s Investments, now that the cost of Bitcoin, for example, has shot up tremendously more than two or three–fold. All of a sudden, the value of their crypto investments in their portfolio has become huge, so a prudent investor who is risk-averse would seek to redistribute the wealth elsewhere.
DZ: The Caribbean passport, by itself, does not give you any benefits. However, it allows you to spend a longer period of time in a particular country than had you not had such a passport.
However, from what I know, the spirit is limited. However, of course, if you have a European passport, such as a Maltese or Cypress passport, then, of course, using such a passport, you can live in a low tax European country and obtain such benefits.
It’s important to know many such countries that offer golden visas are not. I’m unfortunately not sure whether such golden visas would give you any immigration advantages outside these countries. Of course, last but not least, I must mention Italian known domicile taxation, which is quite beneficial.
DZ: This question is to be approached from a few angles. In answer to your direct question, investing in a real estate portfolio is just part of your investment strategy, which is rather conservative. And if you invest, it will give you constant yields and a constant stream of income.
However, from the point of view of tax diversification, there’s something to be said. To begin with, if you’re looking to receive a stream of rental income. You should know that such rental income will always be subject to tax at the place where the real estate is located now. This will probably not burn a hole in your bucket, but you must be aware of the domestic tax rates you will pay regarding your rental income.
If you are receiving such rental income at a place where you are a resident, you must be aware of your residence, taxation. And of course, you can normally credit foreign taxes paid at the place where the real estate is located against your domestic tax liability and to this extent, you should compare taxes of different kinds of income. If, for example, dividends are taxed at a lower rate than cell rental income, then of course, strictly from the diversification of your tax liability, both of you may choose to invest in the dividend producing assets. Also, one thing to consider is that when you own real estate, if you die, you often pay inheritance tax or wealth tax or gift tax. Of course, when you die, or I just posed of such assets and especially if you’re UK domiciled, that investing such as real estate could in principle cause quite significant risk from the inheritance tax point of view.
DZ: Any Citizenship by investment advice begins with anti-money laundering and know your client procedures. The next concern that many have is that it is not sufficient to move to a low tax country that happens to have the Citizenship by Investment regime. To give an example, it’s not enough just to move to Spain, Portugal or Switzerland or Malta or Cypress and payload taxes there.
You must also become a non-resident in the country whose taxes you are looking to avoid. In your example, it was Russia. So, you would have to spend fewer than 183 days in any year in Russia to really benefit from such cross-border planning.
And the final issues that I’ve seen is really not tax-related, but it’s just common sense related: how are you to live in a country which could be unfamiliar, sometimes far away from your family, sometimes not having any social circles. I’m always trying to persuade the clients to follow the gut feeling as opposed to seeking the tax benefits. But of course, this difference from client to client.