What is a Non-Dom (Non-Domiciled) Tax Program for Low Tax?

Non-dom or non-domiciled individual tax programs have gained a lot of attention recently. After the revelation that UK Prime Minister Rishi Sunak’s wife, Akshata Murty, claims non-dom status through her Indian citizenship, the conservatives have come under renewed pressure to drop the scheme. 

Significant tax benefits exist, especially for high-net-worth individuals who claim Non-dom status. At the end of 2002, 68,800 people claimed non-domiciled taxpayer status in the UK, and other schemes are available in European countries. So, plenty of opportunities exist to avail of this tax incentive. 

This article explains what Non-dom status is, how you can get it, and the benefits. 

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What is a Non-Dom Tax Program?

Non-dom is used when a resident of a county that offers the program has a permanent home or domicile in another country. It allows them not to have to pay tax on foreign income in the country where they reside. 

Taking the UK example:

Under these circumstances, the person claiming Non-dom status does not even have to report them to the tax authorities; they do nothing. However, if your foreign income amounts to £2,000 or more, you must report it, or any cash you bring to the  UK, by self-assessment in your tax return.

If this is the case, you can decide to either pay UK tax on your foreign income, with the potential to claim it back or claim the remittance basis.

The remittance basis allows you only to pay domestic tax on the income or gains that you bring in. However, you lose tax-free allowances for Income and Capital Gains Tax and pay an annual fee if you reside in the UK for a certain period. 

The charge amounts to: check if the numbers are still correct

• £30,000 if resident for at least seven of the previous nine tax years
• £60,000 for at least 12 of the previous 14 tax years

There’s no doubt that claiming the remittance basis is complex and usually requires getting professional tax advice. 

The rules were changed in 2017, and you can no longer claim Non-dom status in the UK if you’ve been there for 15 out of the previous 20 years. If you were born in the United Kingdom, your original domicile was there, and you were a UK resident for at least a year after 2017, you are excluded from the scheme.

Why would someone claim Non-Dom Status?

Non-dom is a perfectly legal way to operate your tax affairs – especially if you’re living in the country and, in the longer term, do not intend to stay there. Another reason for choosing Non-Don is if your home country does not allow second citizenship, as in the case of Akshata Murty and India. 

The controversy surrounding her case stems from the claim that because India does not allow citizens to have citizenship of another country simultaneously, she is treated as a Non-dom for UK tax purposes. Critics argued that this is not why Murty is taxed as Non-Dom, but instead because of her active choice.  

There was a good reason when you consider that Murty’s share in her family’s Indian IT business empire is said to be worth £690 million. Her non-dom tax savings play out to the tune of £4.4 million, or a 38.1% share of £11.6 million in dividends from her foreign income. 

By choosing the remittance basis, Murty could legally avoid paying tax on a significant amount of foreign income. Still, her mistake was claiming that this resulted from her nationality. As contradictory as it may seem, non-dom status has little to do with nationality, residence, or citizenship, as many foreign citizens who live in Britain do not claim it and pay tax as usual.

Non-dom is an arrangement you actively choose, especially if you have a significant foreign income or come from a country with a lower tax regime. So, despite the controversy, it’s a choice you can make if you’re a seven-eight-figure entrepreneur or investor to protect more of your wealth. 

The reason high-net-worth individuals choose Non-dim Status instead of being regular tax residents is that they can and will pay far less on their worldwide income. Plain and simple. 

They even avoid paying national insurance contributions, which can be sizable if you’re a high earner. But the real nugget is that if your foreign income is earned or taxed in a country with low or no taxes, you can legally avoid paying any taxes. What’s not to like?

Benefits of being Non-Dom 

If you make the bulk of your income abroad, you can benefit from living in countries like Ireland, Malta, and Cyprus and pay very little in taxes. Of course, you will still contribute if you employ service providers, pay taxes on any income you earn there, and VAT on goods and services.

Remember, you will be resident in the country for up to 15 years if you want to continue enjoying the maximum tax incentive. A legal loophole that allowed you to vacate for five years and then claim another 15-year allowance has been closed. 

Before we look at the Non-Dom Program in the countries mentioned above, be aware that it has become a political hot potato in the UK. With a general election due no later than 28 January 2025, the Conservative Government is coming under pressure to reform or even scrap the scheme, and the opposition Labour Party has publicly stated that they will if elected. 

Despite the fallout, the Conservatives appear committed to keeping ‘an important feature of our internationally competitive tax system.” While Labour would replace it with “a different type of beneficial tax regime for incoming workers..those who genuinely live in the UK.. and top international talent.” Time and the ballot box will tell. 

Where to find non-dom programs?

We’ve discussed the UK Non-dom program, which remains the most popular, particularly around London. As the UK contemplates change, it could be time to look elsewhere. Below are some of the best Non-dom schemes. 

Ireland

Ireland is a beautiful country and the only English-speaking EU member state. Its favorable corporate and wealth tax regime makes it a popular destination for nigh-net-worth individuals. 

Its Non-dom tax system works on a Remittance basis. It means that if you’re a resident in Ireland but are not Irish-domiciled, you pay tax on all income and gains made there but are not taxed on foreign income as long as that money is not remitted to Ireland. 

To be considered a tax resident of Ireland, you must spend 183 days or more there in the tax year. While the Irish program is similar to the UK’s, there is no time limit on Non-dom status and no time-based levy so you can claim it indefinitely without any penalties. 

Malta

Malta is a tourist-friendly, sunny, south Mediterranean island once a British territory. It is now an independent country and a full member of the EU. 

As a non-dom Malta resident, an individual must pay tax on any income arising there, including local source capital gains arising from transferring capital assets and only foreign sources remitted to Malta.

The main difference from the UK is that the remittance basis only applies a minimum charge of €5,000 per year. Like Ireland, no limit exists on how long you can be non-dom. There is also no requirement to be a tax resident for any period. The minimum charge doesn’t apply to those earning less than €35,000 in foreign income yearly.

Cyprus 

Cyprus is a Mediterranean island with a population nearing 1.25 million; it is sunny all year round and famous for its wine, mineral wealth, and natural beauty. Non-dom status allows anyone who resides there for more than 183 days or 60 days to be taxed according to the Cyprus Tax regime and benefit from tax incentives on worldwide income.

The 60-day rule applies to those who:

• Do not reside in another state for a period exceeding 183 days.
• They aren’t considered tax residents by any other state.
• Reside in Cyprus for at least 60 days.
• Have other defined Cyprus ties.

Consequently, you can qualify as Non-Dom if you have lived in Cyprus for fewer than 17 years but spend more than 60 days there yearly. 

In Cyprus, non-domiciled tax residents can reduce their taxes by being exempt from Special Defense Contribution for 17 years. The exemption means no tax on worldwide dividends, interest, and rental income. Another benefit is the favorable tax treatment of pension income and personal income tax on those who earn more than €100,000 per year through employment there. For ten years, it exempts half of that income from taxation. 

Other countries have introduced tax systems that are similar to non-dom to attract wealthy and talented individuals. Spain’s ‘Beckham rule’ was implemented for the English footballer and similar individuals and applies to many foreign workers. Portugal’s non-habitual resident scheme is a non-dom type tax system, and Italy’s has a tax regime referred to as their version of Non-dom.

How Do You Become Non-Dom?

Non-dom is a legal status that is different and distinct from residence. Every single one of us has a domicile, even those who are stateless, and you cannot be domiciled in more than one country. 

Domicile is determined in one of two ways. The first is by origin, the country of your birth, or, if different, your father’s. If you can prove that your permanent home is your domicile of origin and you will return there eventually, you can keep it in a different country. 

The other option is domicile by choice, where you ‘choose’ to move from your domicile of origin and acquire domicile in a new country. Non-domiciled individuals who reside in the UK, Ireland, Malta, or Cyprus, for example, need to meet certain conditions to be ‘deemed’ domiciled there and liable for income tax, capital gains, and inheritance tax if UK resident for tax purposes for 15 of the last 20 tax years. This doesn’t impact their domicile of origin. 

If you’re a UK resident but have non-dom status, you can choose to be taxed on income in the tax year in which it ‘arises’ – it makes no difference if it is worldwide income and gains. This portion of your foreign income is still taxed. 

Alternatively, you can choose a remittance basis and, as we know, only pay tax on what you bring back either directly to a bank account or indirectly, for example, paying a mortgage. All other foreign income and gains kept outside are tax-free in the country where you claim non-dom status. The same applies to inheritance assets that are held outside the country. 

In conclusion, if you have a large amount of assets and foreign-sourced money in banks worldwide, the remittance basis will save you a fortune in tax and allow you to keep more generational wealth. 

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