“Monaco, Hungary, and Panama are underrated in terms of tax benefits,” says DH Private Clients CEO Milan Cimbolinec

About the company: DH Private Clients is a professional migration company, specializing both in the field of migration of large business owners and in comprehensive migration services for institutional clients and corporations.

Milan Cimbolinec

Alexander Semenov, GWO: What trends are currently observed in the legislation of countries regarding tax residency?

Milan: Prior to 2020, the general pattern was for governments to target wealthy foreigners.

In 2021, the situation has changed. Countries began to hunt talented, educated, qualified people. The best of them.

Now the pattern may change again. In Western countries, the focus will shift precisely to ordinary specialists. Not the best ones, but simply the talented, educated, and qualified.

A very recent change in Portuguese law may herald just that. A few weeks ago, the country carried out what I think is a colossal tax reform, which is aimed specifically at such professionals.

Editorial note: Last month, the Portugal government approved an income tax reduction for citizens aged 18-35, lowering the average rate by two-thirds to prevent the outflow of young talent from the country. As the country’s Prime Minister pointed out, the vast majority will pay between 4.4% and 8% and the maximum rate for people earning up to €5,800 a month will be 15%.

So we’re seeing tax breaks coming into effect.

And Portugal is not the only country to come up with such an initiative; we’re seeing changes in other jurisdictions. For example, Hungary has reduced the tax burden for employees and business owners in certain sectors by 2-3x compared to others.

Could this be the reason for the growing interest in Hungary among businesses operating in the IT market?

Milan: Yes, the country has tax breaks for certain categories of business. IT is one of them.

Unfortunately, I cannot give you the names, but there are several very large Russian IT companies that have fully relocated to Hungary in 2021-2023.

As for Hungarian residency itself, it is the top residency program that currently exists on the global migration market in terms of its technical characteristics. Not the best in history (the previous Hungarian permanent residency by investment program was the top tier), but in many aspects it is far superior to other existing ones.

At the same time, I think that this area is underrated.

I wonder what other countries are greatly underrated in terms of tax residency?

Milan: The second location that can be considered underrated is Monaco. There is an opinion that it is an expensive and pretentious place, but it is not the case. The real effective tax rate for business in Monaco is one of the lowest in Europe. For business owners who are residents of Monaco, there are no taxes on dividends or personal income.

And the third underrated jurisdiction is Malta. This is a infrastructurally well developed small country with a good corporate tax climate, an excellent personal tax benefits, low payroll taxes, and additional fees for both businesses and individuals.

And what countries, on the contrary, are overrated?

Milan: I cannot say that there are any countries or jurisdictions where the demand for business relocation currently prevails. The situation has more or less calmed down. Those companies that wanted to relocate have already relocated. Everything has settled down. Things are different from 2021-2023, when everyone stormed the United Arab Emirates and Cyprus.

However, I would like to point out that businesses use not only new directions, but also those old classic jurisdictions that were resorted to long before 2021. This is due to the fact that over the past two years both the beneficiaries of the business and the management managed to acquire second citizenships and alternative residences, and cut business and / or personal ties with countries of their first citizenship and / or permanent residency as China, UK, Russia, US, North and Western European Countries.

Should we expect the emergence of new locations that are attractive in terms of investment and taxes in the foreseeable future?

Milan: As for new jurisdictions, where some special conditions may be created at the moment, I have no such expectations. I don’t see anything new emerging in the next two years.

However, the situation that is developing in the world economy, in particular in Western economies, should lead to the creation of either special economic zones or special conditions for certain types of businesses that are either leaving the market or stagnating. But this is not happening today or tomorrow. This is in the future for three to five years.

We talked about tax residency a lot. So the following question arose: in what percentage of cases does the decision to change residence result in a change of citizenship?

Milan: This used to be not just a rare, but an extremely rare occurrence. Prior to 2021, few people set themselves the goal of moving somewhere in order to obtain a passport in the future. We only had a few such clients.

In 2022, many witnessed how a person’s fate changes in an instant depending on their passport, so they became interested in the possibility of so-called second citizenship planning. This is a situation where a foreigner first receives a residence permit, moves, lives, and then receives a passport.

If we look at statistics, only 1-3% of clients approached us with planning a second citizenship in, and their share increased to 20-25% in 2020-2023. The trend has changed.

I even gave this trend a name. “Advena Cōnscius,” a conscious migrant.

Perhaps, if we look at migrants from Russia and Belarus, the percentage would be even higher, because some of them start a foreign business with the hope of obtaining a new citizenship. But the opposite scenario is also possible: “First the passport, then the business.” For example, your website offers citizenship in Vanuatu, an island country in the Pacific Ocean. What problems does registration of its citizenship solve?

Milan: Until recently, this passport also served as a travel document. Until the European Union suspended the visa-free regime for citizens of this island country. And until the UK abolished the visa-free regime.

But after these two events happened, the demand for this citizenship only increased. Nobody in the industry understands why.

This citizenship is mainly acquired by representatives of the IT industry. This passport is used for further structuring of the current business, setting up new structures, as well as obtaining both residency and tax residency using an alternative passport. That is, people build the foundation for creating the entire future structure.

Since we discussed situation in different locations, let’s end the conversation with some advice to our readers. What should people pay attention to when changing their tax residence, including when relocation their game studio?

Milan: Well, first of all, you should remember the set of tax obligations:

• Corporate tax;
• Capital gains tax;
• Tax on dividends;
• Tax on retained earnings;
• Payroll tax;
• Additional social charges.

The second thing you should pay attention to is the presence of real infrastructure for doing business in a particular new jurisdiction.

For example, in Serbia, where many tech companies relocated their businesses in 2022, many had nowhere to physically place people, because there was practically no such thing as an office center in Belgrade. And the situation practically remains the same.

The same goes for Cyprus, which seems to be much more developed from a business point of view. Russian and Belarusian companies faced a lack of office spaces in 2022. In 2023, Israeli companies, which relocated their senior staff and the highest stratum of their qualified employees en masse, faced the same problem. All of them had nowhere to place their staff. As a result, the vast majority of people ended up working from home.

Very useful info. Thanks for the interview.