Taxation is a fact of life. It is something we cannot escape. However, with the help of a financial advisor or tax professional, there are ways to mitigate tax liabilities on financial portfolios through structuring and moving tax jurisdictions.

Many expats living and working abroad face complex tax situations with assets in multiple countries. Finding the best tax mitigation solutions can be daunting. It is vital to find a financial advisor qualified in the jurisdictions where you hold assets.

What are Tax jurisdictions?

A tax jurisdiction is an area with a designated tax authority. These areas could include a country, states or provinces in a country or even local municipal districts. For example, in Switzerland, each canton (State) has its own tax liabilities, meaning taxation could be lower or higher depending on which canton you live in, and the EU has a common tax jurisdiction for collecting VAT. Tax levels could include income tax, corporate tax or even tax on pensions. Elon Musk moved Tesla’s headquarters to Texas to reduce tax liabilities for himself and his company.

Many professionals move their financial portfolios to other countries to mitigate taxes and receive more retirement and pension savings tax benefits. Some countries offer a low or even zero corporate tax regime to encourage companies to move their headquarters. For example, the Cayman Islands has a zero corporate and income tax regime, while countries like UAE, Barbados, Andorra, Gibraltar, and Cyprus offer favourable corporate taxation. Some countries offer lower corporate tax rates to financials, banking, and technology sectors to attract companies and skilled labour and boost innovation.

Tax liabilities for personal financial portfolios often depend on the type of assets held, how they are held, and the platform used for asset management, such as a PPB (personal portfolio bond) or within a pension. These factors contribute to the individual’s tax liability in the tax regime or jurisdiction.

Tax on investments and retirement pensions

Depending on the jurisdiction, tax relief on pension contributions is possible; some jurisdictions do not tax the income being taken, while others tax the fund but not the pension income.

What are tax-free benefits?

Some jurisdictions offer tax-free or limited tax options on retirement annuities and pensions. Retirement annuities often allow a tax-free lump sum (depending on the country) at retirement. It could be as much as 25% of the total value of the annuity.

Ways to reduce tax liabilities on investments and retirement savings

First and foremost, consult with a financial advisor. They can choose the best financial solutions to suit your needs/objectivesand structure your portfolio in such a way as to mitigate tax liabilities and ensure your financial plan meets your needs.

• Tax-free investments are savings or investment accounts that are not taxed on the initial amount or any earnings. Governments occasionally promote these kinds of savings to encourage saving. The downside is that they often have an annual or lifetime limit on deposits. This is a great way to supplement retirement savings.
• Deferred investments—These investments are only taxed on withdrawal instead of being charged beforehand or during contributions.
• Tax-free allowances—These are usually a set savings limit on which no tax is charged or a tax-free lump sum allowed when cashing in retirement savings.
• Gifting—Giving away cash has tax-free benefits up to a limit. This can benefit when trying to reduce the total inheritance tax on an estate. For example, you can give your children cash in advance from your assets so that they will not be liable for tax on it. There is also a set limit to how much can be gifted.
• Tax relief on pension contributions—Certain retirement or pension products allow for tax relief on contributions that can be claimed back.
• Life assurance policies—In some jurisdictions, Life assurance policies are considered tax-free, and beneficiaries will not be taxed on a claim. This is an excellent way to increase the cash beneficiaries receive without paying taxes. An investment element to life assurance can also help increase cash and reduce tax liabilities.
• Pension transfers—Transferring pensions into one efficient solution, like a QROPS, for example, can help mitigate tax liabilities at retirement. Also, consolidating pensions into one place allows for a larger investment amount and investment choices that can earn better interest.  
• Move tax jurisdictions—Moving asserts into a different tax jurisdiction can lower taxes charged.
• Structuring portfolios—Moving assets into a structured portfolio like a trust, portfolio bond or pension could significantly lower tax liability

Chat with a financial advisor today to find solutions to mitigate taxation on your financial portfolio.

Please note that the above is for educational purposes only and does not constitute advice. You should always contact your advisor for a personal consultation.

* No liability can be accepted for any actions taken or refrained from being taken, as a result of reading the above.