Internationalize

[Last updated January 2014]

gold_international_moving_manThe real profit killer is not buy side taxes such as value-added tax (VAT) or sales tax or even premiums, but rather taxes when you sell your metals. The primary concern here is Capital Gains tax (CGT).

Fortunately it is possible to legally reduce or even completely eliminate your CGT liabilities by internationalizing your financial self. Simply stated, you can change your country of tax liability from a high CGT country to a lower or zero CGT country. Although if you are a US citizen this is harder. Check out our opinions on precious metal friendly and un-friendly countries here.

Keep in mind internationalizing is somewhat of a moving target and the likelihood of tax changes in the future is an important consideration. For example, you may switch your tax residency to a country presently with low or zero CGT rates only to have those rates change later.

Internationalizing will likely involve moving some or all of your metals across international borders. The rules around this vary from country to country, but things are made more complex by the vague, changeable and seemingly arbitrary application of those rules. We discuss international transportation of precious metals here.

If you’re a US citizen your government taxes you wherever you live in the world. This means that a lot of this section will only apply if you revoke your citizenship. For information and strategies specific to you please see our US citizens section


Changing tax residency

Generally speaking, when a citizen of country A becomes a resident of country B, country A forgoes its right to tax you and country B becomes your new tax authority. You become a tax resident in country B as if you were born and lived there your entire life.

Most countries have reciprocal tax treaties with other countries. This formalizes what is depicted in the diagram below and also clarifies what happens in the case of social security payments and benefits. For example, you may start accruing a pension entitlement in you new country or you may need to start paying into a national healthcare plan.

Change your tax residency

 

Details vary but as a basic guidance in order to avail of the CGT rules in your target country you must spend at least half the year there. This will qualify you to submit a tax return in your new country.

While nothing can be guaranteed in the world of government bureaucracy, tax authorities will generally accept your claim of changed tax residency change if either of these two conditions are meet:

  • You have physically moved to your target country either to work, study, open a business or “retire” for at least half of the preceding and current tax year;
  • You have bought residential real estate in your target country and can demonstrate you’ve spent at least half of the preceding and current tax year living there.

In our experience, buying real estate is the best way to approach this. It almost always results in you having to file a local tax return. Depending on the property it may also be an opportunity to store precious metals outside your home country with or without a change of tax residency. This is a particularly attractive option for American citizens as we discuss in our section strategies for US citizens.

At present, the world is a pretty easy place to move around and change tax residency as described. Many countries have specific policies in place to entice you to move there. But it hasn’t always been like this and it may not be like this in the future, and probably not when you most need it.

 

Future taxes

You may change your tax residency only to find your new country introduces or increases CGT on precious metals. Thus, to an extent internationalizing is a moving target. For example, at present Germany has zero CGT on gold and silver but if the European Union (EU) decides to harmonize CGT rules across the eurozone that might change. The EU has already harmonised value-added tax (VAT) rules and Germany raised its VAT on silver from 7% to 19% as of January 2014 in line with EU directives.

Another issue is reciprocal tax treaties. Things may be OK now, but rules can change. Using Germany and UK as an example the present conditions are relatively benign. You could have your metals stored in UK whilst being subject to German tax rules. If you sell your precious metals within the UK your CGT will thus be zero.

But what is to stop the UK and Germany from modifying their tax treaty? They could decide to exclude precious metals or to make any other arbitrary changes. We believe it is both politically and practically easier to change tax treaties rather than domestic tax rules. Therefore unless they’re currently in a tax free zone / bonded warehouse, you should store your metals where you prefer to be liable for CGT.

International tax treaties can change

Some countries have special programs to entice foreigners to move themselves and their assets there. Here are links to two for your further research and due diligence. Your mileage as a precious metal investor will vary but availing of these programs may add an interesting twist to internationalizing your financial self.

http://www.mm2h.gov.my (Malaysia)

http://www.arcr.net (Costa Rica)

 

Foreign residence

Buying foreign residential real estate is a smart approach to internationalizing. Nothing speaks louder to local authorities that you’re a bona fida local resident than owning and living in your own property. Obviously this will not be possible for everyone, but if it is within your reach you should seriously consider this scenario. We would even go so far as to suggest selling a portion of your precious metals to fund a purchase. For most people buying with a mortgage is fine, but for US citizens a foreign mortgage will mean having to comply with FATCA or other IRS reporting requirements. See our section on strategies for US citizens.

Depending on the property it may also be an opportunity to store precious metals outside your home country with or without a change of tax residency. Once again, this is a particularly attractive option for US citizens.

As well as storage there are other potential benefits in terms of better conditions for future disposal (sale) of your precious metals and better future tax environments. You have a better chance of realising these benefits if you buy your property in a precious metals friendly country. We outline what countries we think are precious metal friendly and which are not in this section.

Finally, if you do decide to purchase a foreign property and use it as a storage option then you will likely need to transport your metals there. We cover the international transportation of precious metals here.

Comments or questions are most welcome