Author Topic: Be careful of DTA wording if emigrating.  (Read 3710 times)

Orca

  • Hero Member
  • *****
  • Posts: 2264
  • Karma: +54/-3
    • View Profile
Be careful of DTA wording if emigrating.
« on: August 14, 2017, 08:02:46 pm »
A Tax Lawyer sent me this as I was querying my Portugal tax that was supposed to be exempt. I did much research on this beforehand and it seems like estate agent websites and lawyers unscrupulously stated that Portugal is a tax haven and will not pay tax for 10 years. How wrong was I.

I am particularly talking about selling of shares as CGT here.

"It looks as though you just got confused by the wording of the DTA, namely by what "property" means. Colloquially, this word is often used as a substitute for real estate, but legally it means anything that is owned by a person or entity, and it is divided into two types: "real or immovable property" which is any interest in land, real estate, growing plants or the improvements on it, and "personal or movable property", which is everything else, such as securities, pieces of furniture, you name it. Since capital gains are generally made by reselling securities and not other items of movable property, the expression "movable property" is often replaced by the more common word "securities".

Article 13 (5) of the DTA is standard: Gains from the alienation of any property other than that referred to in the preceding paragraphs of this Article, shall be taxable only in the Contracting State of which the alienator is a resident. "Property" here means any type of property, whether immovable (real estate) or movable (securities, such as shares or bonds). Since the preceding paragraphs refer to immovable property (i.e. real estate), property "other than that" mentioned in this paragraph is movable property (securities). So this paragraph stipulates that securities capital gains may only be taxed by the country of residence of the taxpayer.

As I said in my previous email, "The problem is that both the OECD model convention and the vast majority of DTA's state the opposite, i.e. that capital gains on the disposal of securities may only be taxed by the country of residence of the beneficiary. As a result you may say that such capital gains will as a rule be taxed by Portugal in the hands of Portugal-resident taxpayers, whether or not they hold NHR status, at the optional rate of 28% (or at 35% if the source is a blacklisted tax haven) on the balance of gains less losses."
   
So I am afraid that by the looks of it you will have to pay a 12k tax bill on account of a confusion over the meaning of one word! "

No deductions allowed on CGT at all. No exempt amount either. So I will just have to pay it. At least it the fixed rate of 28% is much lower that the 43% odd I would have had to pay in SA.

Looking at relocating to lower CGT countries now.

Belgium 0%

Croatia 12%

Isle of Man 0%

Poland 19%

Spain 23%

UK 11,100 annual exemption



I started here with nothing and still have most of it left.

Patrick

  • Administrator
  • Hero Member
  • *****
  • Posts: 2538
  • Karma: +44/-2
    • View Profile
Re: Be careful of DTA wording if emigrating.
« Reply #1 on: August 15, 2017, 09:01:31 am »
Ouch that hurts. What about taxes on dividends, are you still exempt on those?


Orca

  • Hero Member
  • *****
  • Posts: 2264
  • Karma: +54/-3
    • View Profile
Re: Be careful of DTA wording if emigrating.
« Reply #2 on: August 15, 2017, 10:49:27 am »
The DTA caps tax on dividends at 15%. So, yes. I have been paying 15% withholding tax in SA and nil in Portugal. My foreign dividends in DIVTRAX are tax free and VAT is also 0%.
I started here with nothing and still have most of it left.

PlatinumWealth.co.za

  • Sr. Member
  • ****
  • Posts: 320
  • Karma: +10/-1
  • Weekend Investor
    • View Profile
    • Platinum Wealth Group
Re: Be careful of DTA wording if emigrating.
« Reply #3 on: August 15, 2017, 11:06:46 am »
Thanks for the heads up.
www.PlatinumWealth.co.za <- South African Investment and Finance forum.

Patrick

  • Administrator
  • Hero Member
  • *****
  • Posts: 2538
  • Karma: +44/-2
    • View Profile
Re: Be careful of DTA wording if emigrating.
« Reply #4 on: August 15, 2017, 11:59:36 am »
What did your tax guy say when you left?

Orca

  • Hero Member
  • *****
  • Posts: 2264
  • Karma: +54/-3
    • View Profile
Re: Be careful of DTA wording if emigrating.
« Reply #5 on: August 15, 2017, 02:18:07 pm »
I did my own tax in SA but cannot do so here due to the lingo. The most time consuming is the FX conversions on the date of purchase and sales. They only allow the FIFO method.
No need to keep expense slips like medical insurance, rent, medication, utilities etc as it all goes automatically to your tax page and gets totalized for you.

My accountant merely enters my gains and losses in the correct place and as it only takes 10 minutes she charges me 10.00.
I started here with nothing and still have most of it left.

Mr_Dividend

  • Hero Member
  • *****
  • Posts: 586
  • Karma: +21/-0
    • View Profile
Re: Be careful of DTA wording if emigrating.
« Reply #6 on: August 15, 2017, 02:40:40 pm »
BTW - have also been looking at the UK's tax system.

First 5000 pounds of dividends are tax free.

Also, you only start paying tax on earnings over 11,500 pounds (or thereabouts)

The problem is in SA is that  you often are paying CGT not on capital GAINS, but on a weakening rand.


Orca

  • Hero Member
  • *****
  • Posts: 2264
  • Karma: +54/-3
    • View Profile
Re: Be careful of DTA wording if emigrating.
« Reply #7 on: August 15, 2017, 04:24:19 pm »
The UK is much more tax friendly than Portugal. The DTA's are almost verbatim but the exempt amounts are so high that I will never have to pay tax in the UK on Capital Gains.

Withholding tax on Dividends will still be 15% and paid to SARS.
The only reason we never relocated to the UK is because we cannot afford to live there. Rent is about double compared to here. Food is 3 to 4 times more expensive. The exact same wine that I buy here for 0.64 costs 4.00 at Lidl. What a rip off. Couldn't wait to get back here to start eating and drinking wine again.
I started here with nothing and still have most of it left.

Patrick

  • Administrator
  • Hero Member
  • *****
  • Posts: 2538
  • Karma: +44/-2
    • View Profile
Re: Be careful of DTA wording if emigrating.
« Reply #8 on: August 16, 2017, 08:18:30 am »
I've often wondered if it's possible not to be a tax resident anywhere. Where would you pay taxes if you spent 4 months a year in a different country? Or what if you're living on a boat and spend one month in 12 different countries?

Or what about settling in a country with no taxes or which only taxes local income, there's a big list here: https://en.wikipedia.org/wiki/International_taxation

No income taxes:
Antigua and Barbuda
Bahamas
Bahrain
Bermuda
British Virgin Islands
Brunei
Cayman Islands
Kuwait
Maldives
Monaco
Nauru
Oman
Pitcairn Islands
Qatar
Saint Barthelemy
Saint Kitts and Nevis
Somalia
Turks and Caicos Islands
United Arab Emirates
Vanuatu
Vatican City
Wallis and Futuna
Western Sahara

Only taxes local income:
Angola
Anguilla
Belize
Bhutan
Bolivia
Botswana
Costa Rica
Democratic Republic of the Congo
Djibouti
Georgia
Guatemala
Guinea-Bissau
Hong Kong
Lebanon
Macau
Malawi
Malaysia
Marshall Islands
Micronesia
Namibia
Nicaragua
Palau
Palestinian Authority
Panama
Paraguay
Saint Helena, Ascension and Tristan da Cunha
Seychelles
Singapore
Somaliland
Syria
Tokelau
Tuvalu
Zambia
Philippines
Saudi Arabia

Orca

  • Hero Member
  • *****
  • Posts: 2264
  • Karma: +54/-3
    • View Profile
Re: Be careful of DTA wording if emigrating.
« Reply #9 on: August 16, 2017, 09:37:51 am »
Stay 183 days in a country then you have to register as a tax resident. Some well off people like Cliff Richard spends 180 days in the UK and 180 days in Spain. Then does a 2 week boat cruise. No tax anywhere.

DTA's with countries where only local earnings are taxed will probably have a standard clause stating that income arising in the other state will be taxed in the other state. 
I started here with nothing and still have most of it left.

Hamster

  • Hero Member
  • *****
  • Posts: 535
  • Karma: +13/-0
    • View Profile
    • Off Topic
Re: Be careful of DTA wording if emigrating.
« Reply #10 on: August 16, 2017, 10:16:37 am »
Yeah, about that 183 days... if Treasury has its way that's soon going to come to an end for SA citizens

Patrick

  • Administrator
  • Hero Member
  • *****
  • Posts: 2538
  • Karma: +44/-2
    • View Profile
Re: Be careful of DTA wording if emigrating.
« Reply #11 on: August 16, 2017, 12:59:01 pm »
I know, it seriously sucks. I plan on living in Europe, but don't want to pay CGT so I thought I'd just relocate.

They still have this: In addition, any individual who meets the physical presence test, but is outside South Africa for a continuous period of at least 330 full days, will not be regarded as a resident from the day on which that individual ceased to be physically present.

Any idea if that triggers CGT?

The only issue I don't like about that is I wanted to be able to travel back here to see family.

Orca

  • Hero Member
  • *****
  • Posts: 2264
  • Karma: +54/-3
    • View Profile
Re: Be careful of DTA wording if emigrating.
« Reply #12 on: August 16, 2017, 02:15:14 pm »
Yeah, about that 183 days... if Treasury has its way that's soon going to come to an end for SA citizens

Not quite so. It will come to an end for SA residents working abroad not citizens working abroad.

You can work for years in Dubai and not become a resident of Dubai if you consider SA your home. ie. If you pass the residency test whereby you come "home" often enough to see family or to your wife and have a home in SA.

To overcome the above you can "Formally" emigrate via SARS and SARB and get Tax Residency in your new country. You will be issued an "International Tax Residency" certificate that you send to SARS and your tax books will close.
The downside is that all your shares will be deemed as sold on the day you left and CGT will have to be paid. Your bank account will be blocked and your broker account will be moved into a new blocked rand account with a new base cost.
I started here with nothing and still have most of it left.

Mr_Dividend

  • Hero Member
  • *****
  • Posts: 586
  • Karma: +21/-0
    • View Profile
Re: Be careful of DTA wording if emigrating.
« Reply #13 on: August 16, 2017, 02:30:16 pm »
The UK is much more tax friendly than Portugal. The DTA's are almost verbatim but the exempt amounts are so high that I will never have to pay tax in the UK on Capital Gains.

Withholding tax on Dividends will still be 15% and paid to SARS.
The only reason we never relocated to the UK is because we cannot afford to live there. Rent is about double compared to here. Food is 3 to 4 times more expensive. The exact same wine that I buy here for 0.64 costs 4.00 at Lidl. What a rip off. Couldn't wait to get back here to start eating and drinking wine again.

Although higher than Portugal, it's not crazy ether. Would be looking at a town in the south around 2 hours from London - thinking Margate, Worthing, Hastings.

Decent 1 bedroom flat 600
Council tax 100
TV/internet 25
Car insurance 50
Elec/gas 70
Food 200

So with a little bit of spending money, 1500 should be ample.  Now although Portugal is cheaper and the weather nicer, language and the fact there is so much work - much of it part time would work in the UK's favour.  I think I would actually enjoy having a couple of part time jobs - not really the money, but more about meeting people.

Orca

  • Hero Member
  • *****
  • Posts: 2264
  • Karma: +54/-3
    • View Profile
Re: Be careful of DTA wording if emigrating.
« Reply #14 on: August 16, 2017, 04:04:55 pm »
That would be for a single person Mr D. We pretty much close to 600 pm but that does not include eating out and beer and wine at all as my wife can't go out due to her stomach feeding tube. So you can add 50 to that for entertainment. That would be R10k pm but our rented apartment is a 2 bed and fully furnished.
A single person could quite easily live on R6K pm here.
I started here with nothing and still have most of it left.