ARTICLE
17 October 2018

The New OECD Report On CBI/RBI And Tax Residence

CL
CLD Legal

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With almost 20 years of service and continuous expansion, CLD Legal has focused its efforts on providing comprehensive legal services characterized by our commitment to work, customized attention, as well as practical and effective solutions for each of our clients. From our headquarters in Panama City, Republic of Panama, we provide a variety of services, through our own structure or affiliate offices, guaranteeing a personalized treatment and the highest quality At CLD Legal we have the knowledge to advise our clients in the areas of Corporate Law, Intellectual Property, Tax Law, Real Estate, Migration Law, Foreign Investment and Registry of Yachts and Ships.
Last year I wrote an article related to tax residence in Panama. On such article I mentioned that the OECD would be closing loopholes and forcing countries and subsequently Banks, to do more due diligence on their clients ...
Panama Wealth Management
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Last year I wrote an article related to tax residence in Panama. On such article I mentioned that the OECD would be closing loopholes and forcing countries and subsequently Banks, to do more due diligence on their clients to determine where is a client tax resident. A year and a few months after I stated this, the OECD comes out with a report whereby they indicate "residence and citizenship by investment (CBI/RBI) schemes allow individuals to obtain citizenship or residence rights through local investments or against a flat fee for perfectly legitimate reasons, they can also be potentially misused to hide their assets offshore by escaping reporting under the OECD/G20 Common Reporting Standard (CRS)". Consequently, the OECD has listed several jurisdictions that have these programs and that "potentially pose a high-risk to the integrity of CRS." It was only a matter of time.

Among the countries listed as potentially posing a high-risk to the integrity of CRS is Panama. However, in my opinion, the assessment of the OECD is incorrect. The latter on its report claims that schemes that are potentially high-risk are those that give a taxpayer access to a low personal income tax rate of less than 10% on offshore financial assets and do not require significant physical presence of at least 90 days in the jurisdiction offering the CBI/RBI scheme.

In the case of the Republic of Panama, the residency schemes the OECD lists as "potentially posing a high risk", namely the Friendly Nations Visa, Economic Solvency Visa and the Reforestation Investor Visa do not provide tax residence status, but merely a permanent residence status from the immigration point of view.

To achieve tax residence in the Republic of Panama, natural persons must comply with one of two elements (one would inevitably lead to the other) and apply for a certificate of tax residence:

  • Remain in the national territory of the Republic of Panama for more than 183 calendar or alternate days in a fiscal year or the year immediately preceding;
  • Establish in the Republic of Panama the center of vital interest;

In my opinion, if the criteria of the OECD is to consider a jurisdiction with residency programs "potentially posing a high risk" if such jurisdiction offers "low personal income tax rate of less than 10% on offshore financial assets and do not require significant physical presence of at least 90 days in the jurisdiction" then the Republic of Panama should not be on this list.

Nevertheless, on its report the OECD calls for financial institutions to consider raising additional questions in order to determine whether the client is providing self-certification or documentary evidence that is incorrect or unreliable. In this sense, showing a bank that you have a utility bill with an address from X country will not be enough. Therefore, you should start planning how to become tax resident in a country that offers you stability, good communications, good infrastructure and flexibility tax wise.

I reiterate that faking a relocation will not work, it will not be enough as you will need to prove you actually live in that new country you say you are resident of, you will effectively have to choose between playing by the new rules or leave your country and relocate to countries that are friendly to you.

And then there are those individuals that do not spend more than 183 days in any country. More and more people are living like this, specially the "digital nomads" but banks are getting more and more interested in knowing where these people are tax residents. In some cases, we have heard that banks have refused to open a bank account because the client is not a tax resident anywhere. Sounds ridiculous, right? Well, it's happening.

If you did not believe it before, you can believe it now. You can read the report by clicking the following link: http://www.oecd.org/tax/automatic-exchange/crs-implementation-and-assistance/residence-citizenship-by-investment/

We hope this article enlightens a lot of you out there that are looking for a safe and stable country to relocate and become tax residents of, thus we encourage you to do your research and consider Panama. We remain at your disposal for any queries you have on this matter.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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