How do you Mitigate Re-Entry Shock for Expatriates Returning to their Home Countries?

Brendan Harper, Head of Asia and UHNW Technical Services at Dubai-based Utmost Wealth Solutions, specialises in advising expatriates on a variety of tax planning and wealth structuring objectives. He offered delegates at the Hubbis Wealth Solutions Forum in Dubai on September 20 some advice on tax planning, recommending that wealthy expats plan for their returns home, even while living in zero or minimal tax jurisdictions such as in the UAE. He warned that ignoring tax planning sets the expatriate up for “re-entry shock” should they retire back home. Addressing key expatriate market segments such as citizens from the UK, India, South Africa, Europe, and Australia, his talk addressed some of the key issues to consider and proposed Private Placement Life Insurance as the ideal vehicle to complement trust and estate planning.

Utmost Wealth Solutions is part of the Utmost Group and operates in key markets across the UK, Europe, Latin America, Asia and the Middle East where they see continued, strong demand for their propositions.

Their solutions are based on unit linked insurance policies which are simple, well-regulated and provide a tax-efficient wealth planning vehicle. Utmost Wealth Solutions had over GBP56 billion in assets under administration as of 31 December 2021, some 210,000 clients, an Insurer Financial Strength rating of ‘A’ with a stable outlook from leading global agency, Fitch Ratings, and office locations in the UK, Ireland, Isle of Man, Guernsey, Switzerland, Dubai, Hong Kong, and Singapore.

Tax, he reported, is a vital consideration not only for the wealth plans that are put in place while an expat lives in the UAE, but also with a view to a potential future return to their original country of citizenship, or perhaps retire to another more ‘normal’ tax jurisdiction, such as Portugal for example, far away from the zero or minimal tax environment of the UAE.

“Remember,” he said, “that the majority of the population who live here – actually 88% - are not from here, so they will have footprints in other countries. The vast majority are from India, followed by the UK, the rest of Europe, South Africa, and Australia. For all of them, the portability of wealth planning structures and solutions is really important.”

He explained that in the globalised world we now inhabit, individuals, even if they stay in the UAE for retirement, might also very likely have assets and properties abroad, as well as family members overseas and a web of international commitments and exposures.

If wealthy expats move back ‘home’ later or to another higher tax jurisdiction, Portugal or Australia for example, these individuals and their families must plan for these tax exposures. There is no hint, he said, of any of these countries reducing taxes, and there is a global trend for adding new taxes here and there to add to the tax revenue base of each jurisdiction.

“If you do not plan,” he warned, “you risk your comfortable retirement and future lifestyle, and you risk not being able to pass your wealth to the younger generations later on. And do not forget that in an increasingly transparent world, tax data is now shared between Tax Authorities on an automatic and global basis.”

Portability, he stated, is vital for any robust planning solution. Portability means being able to move to another country safe in the knowledge that the wealth plan in place is legally and tax compliant in that new country of residence. He cautioned that even a basic structure like a pension or mutual fund may not be considered exactly as a pension or a mutual fund in the new country of residence; they may be taxed more punitively.

And he warned that typical structures such as a trust might not work in certain markets. In France, for example, although it is a civil law jurisdiction which does not recognise a trust structure in its legal system, has implemented legislation that seeks to tax trusts punitively. Moreover, not thinking properly and deeply about the transfer of wealth to chosen heirs in keeping with the local succession planning mechanisms in place under the different legal systems can create potential legal conflicts and succession problems ahead.

Thinking about portability, he said, there are many benefits for the clients, but also for the advisors as well in the form of client trust and retention. “Imagine a client heading home to Australia and you have not advised them properly on portability and local compliance issues, those clients will not be happy, and you will lose the client,” he said. “But if you have worked on the right structures and portability, you are in a good position to retain those clients.”

“Can my wealth continue to accumulate tax efficiently if I return?” he pondered. “Can I draw on my wealth tax-efficiently? Can I transfer my wealth tax-efficiently? Is the structure flexible enough to adapt to changing circumstances? If all the answers are yes, then you have a successful and portable wealth plan.”

He shifted his attention directly to the importance of private placement life insurance (PPLI) in such robust and portable planning. He noted that there are some key benefits. Insurance, he said, is a universally recognised concept. Succession planning is easier as via a PPLI the policy creator can nominate beneficiaries, and PPLI is complimentary to other structures such as trusts and another vehicle.

Tax planning is made simpler, as gains on investment are tax free inside the vehicle, meaning tax deferral, and PPLI offers potentially tax free and highly efficient exit strategies, ideal for inheritance tax planning. And PPLI provides simplification in our complex world – there is no need to segregate income and capital and there is drastically simplified reporting under CRS.

He delved into more detail on the structure, before concluding that PPLI is the ideal solution for privacy, for asset protection, for robust governance, for succession planning, for tax planning and very importantly for portability. “Through PPLI,” he concluded, “you have many benefits and for wealthy expats who could in the future move from the UAE to higher tax countries, it is an ideal vehicle to mitigate the tax and regulatory implications and avoid that dreadful ‘re-entry’ shock.”

Brendan concluded

“So just to finish off, and hopefully I've illustrated why tax is important for wealth planning, even if you live in a non-tax environment and the importance of making sure that your wealth plan is portable and compliant with jurisdictions and also to answer the question, does PPLI help to mitigate that re-entry shock that someone is in danger of suffering with no planning to go back to those jurisdictions, then the answer is yes.”