LONDON, April 26, 2019 /PRNewswire/ — A second, internationally-leading tax advisory firm has compiled a report finding that St Kitts and Nevis’ Citizenship by Investment (CBI) Programme does not threaten tax collection or reporting under the CRS. Smith & Williamson, headquartered in London, confirmed the conclusions drawn by global tax advisory group Ernst & Young (EY) last month. Indeed, both debunk the myth that the Programme has the potential to facilitate tax evasion.
Citizenship is Not Tax Residence
St Kitts and Nevis’ CBI Programme is sometimes vilified as a route to a new tax residency. This, says Smith & Williamson, is the result of confusion as to the meaning of citizenship and tax residency. Whilst citizenship is “the position or status of being a citizen,” a tax resident of the islands must “spend at least six months in the country and have the intention of establishing permanent residence.” Economic citizens, like any other citizen of the Federation, have the right to reside in St Kitts and Nevis if they wish to, but there is no requirement that they do so, or even that they visit. Moreover, even when a person becomes a resident of the Federation, there is a “clear distinction” between residents and tax residents.
Tax Evasion and CRS Reporting
Tax residency is neither an automatic result of nor attainable via participation in the St Kitts and Nevis Programme. Therefore, persons could not use their status as economic citizens of the Federation to show that they are tax residents of it. This severely limits any opportunity for tax evasion that could flow from economic citizenship. Unsurprisingly, EY asserts that “Any tax concerns that might arise around the interaction of citizenship with exchange of [tax] information would naturally be addressed through tax provisions rather than restricting citizenship.”
St Kitts and Nevis’ Programme also does not present a risk to reporting under the CRS. The Smith & Williamson report explains that “Reporting under the CRS is also based on tax residence and not on citizenship or the right to reside in a jurisdiction.” EY too, stresses that the CRS “reporting rules are explicit in not using citizenship as a test.” Thus, to condemn the St Kitts and Nevis CBI Programme – a scheme that affords citizenship but not tax residence – would be to overlook the legal and practical realities of CRS reporting.
Dual Tax Residency
Smith & Williamson analyses what benefits an economic citizen could draw from becoming a tax resident both of St Kitts and Nevis and of his or her country of origin. Largely, the answer is none. “Tax residence of St Kitts and Nevis alone,” says the firm, “is not sufficient to prevent an individual being taxed on income of any kind… by other foreign countries.” In fact, it “does not create an undue tax advantage and in many cases can result in the individual being exposed to double taxation that cannot be mitigated…”
Dual tax residence of the United Kingdom and of St Kitts and Nevis is provided as an example. A person liable for tax in both of these nations is reliant on their Double Taxation Agreement for tax relief. This allows relief in one country only, and only for tax actually suffered in the other country. As a result, the effect of the Agreement is simply to prevent double taxation on the same capital – not to relieve the individual of their tax liability or to hinder the other country’s right to tax.
Last year, Prime Minister Timothy Harris introduced a new investment channel under the CBI, called the Sustainable Growth Fund, followed by a series of measures that strengthen the Programme’s due diligence.
The insight this report brings, particularly following EY, comes at an important time for the CBI industry. Recently, CBI programmes have been maligned by bodies such as the OECD and the European Commission for supposedly posing a risk to the CRS and having the potential to assist tax evasion. To expose these ideas as mistaken not only sets the record straight on St Kitts and Nevis’ Programme, but illustrates that such criticism is ill-founded, unwarranted, and in need of reevaluation.