LIVESTREAM- Let’s Talk About Austria Taxes, Crypto, and Migration (5th December 2022)

VOICEOVER:

We invite you to attend the January 2023 Nomad Offshore Summit here in Lisbon, Portugal.

This podcast channel is about you, successful international entrepreneurs, successful expats, successful investors. Sponsored by HTJ.tax.

DERREN JOSEPH:

Welcome to this week’s live stream with HTJ.tax. We do these live streams every week, just go to HTJ.tax/events to see what’s coming up next. We’re also doing an in-person conference after such a long hiatus suite. We’re having an in-person conference at the end of January, so that’s just next month in Portugal. We’re gonna have a conversation, we’re gonna have many conversations about offshore structuring, visas, citizenships, investment migration, all stuff like that for you to live your life by design, put together the lifestyle that you want to enjoy your freedoms.

So without further ado, I’m going to introduce you to a special guest, Niklas. Niklas, would you like to introduce yourself?

NIKLAS SCHMIDT:

Yeah. Hi, Derren, It is very kind of you to interview me. We met, I think twice at tax conferences and I am a tax practitioner here in Austria. I deal with high-network individuals, so people moving around, families, individuals and so on.

DERREN JOSEPH:

Yeah, of course. You know, just to, to add to a very modest introduction, you are the tax partner in the largest tax practice in Austria, Germany. Am I correct in saying that?

NIKLAS SCHMIDT:

50% of that is correct. I am a partner in Austria’s largest firm, but we are only in Austria, not in Germany. Okay. But in addition, we’re also in Eastern Europe. So, we have I think 350 lawyers in 13 countries. The bulk of the lawyers is in Vienna. And yeah, the firm is called Wolf Theiss. For your listeners, it’s some European distant firm, but here in Europe it’s one of the larger firms, I would say.

DERREN JOSEPH:

Okay, wonderful. Of course, you know, as I always say that this is just a general conversation. Nobody’s giving tax advice, so please no one listens and thinks they’re gonna get some sort of actionable intelligence. Hopefully what you’ll walk away with are general principles and general concepts that you wanna keep in mind as you engage an advisor to work on your specific situation. So this is not advised general conversation. And of course Nicholas, you are an author-editor as well. Can you tell us a bit about that?

NIKLAS SCHMIDT:

Yeah, I have published a few books, three actually, on the topic of Crypto. So I always say that I’m a lawyer and I do like these really boring things, these really boring things, Taxes, and the only thing, the only aspect which is a bit more exciting is Crypto. And Crypto is really, really a wild and crazy area and it’s so, so different from the tech side. Yeah,

DERREN JOSEPH:

Well actually, well since that is probably the hottest topic right now, maybe we could just jump right in. Obviously, there’s been quite a, there’s been a disruptive year in the Crypto space. I mean it always is, but, so I guess it’s never a typical year, but this year will probably be marked in history as disruption to the extent that institutions and exchanges or players that one thought were, you know, like the emblem of stability and growth and progress turned out to be the opposite.

So most recently we had the high profile, well, I’d use the term failure. I know it’s still, you know, it’s still an illegal process going on. So we don’t wanna jump to conclusions, but FTX in The Bahamas in the US is, is going through a situation right now. I mean, not to comment on them specifically, but generally speaking, what do you think the implications would be in the state of the industry? I mean, there is a school of thought that it would be used as an impetus for greater regulation in the sector. What are your thoughts?

NIKLAS SCHMIDT:

Yeah, I mean, what we have always been saying is this mantra, not your keys, not your Crypto. So just think of the origins of Bitcoin invented by this autonomous state at the height of the global financial crisis when we did not trust banks. We did not trust these central counterparties. And we had this money that you hold yourself, you hold it on an address which is controlled by the corresponding private key.

And now since these times since 2009 when Bitcoin started, you’ve had tons of people actually leaving their Crypto with somebody else leaving their Crypto with mostly exchanges. Yeah, it started off with Mount Go in 2014. Yeah. And it has been going on every year there have been exchanges or other custodians who went belly up and took customers’ funds. Yeah, it was, I mean some of these cases are really intriguing. Think of the Canadian case, Riga cx, this guy did a trip, a vacation to India and suddenly died.

DERREN JOSEPH:

Was sold Netflix. Yeah.

NIKLAS SCHMIDT:

Yeah. There’s a Netflix series and Netflix documentary on this story. So we have always been saying hold your Crypto yourself. Yeah. Self-sovereign, you hold it on your address, you have a hardware wallet and you store the Crypto assets that you own. Otherwise, it’s just sort of a promise by an exchange that they will, that they might honor or not honor depending on their, on their solvency. And I mean, in 2022, you said at the beginning it was a, what did you say it was?

Did you say disastrous or you, you, you, disruptive, disruptive, disruptive, yeah. I was thinking Derren is really robbing it in here. I was feeling the pin myself. Yeah. But anyway, so it was really a bad year and it started off, I mean we are in the midst of a bear winter since, since time Memorial. And, and then we had this, this terror luma, this terror SD collapse, which had a ripple effect.

And then you had, for example, one of these basic banks, you can call them not really being a bank, but basically a corporation. You send your Crypto assets to an address of theirs, they pay out juicy interest. Why can they do that? Because they engage in super risky activities, which generate an even higher interest rate so that they can basically keep a margin and pay off and pay off your interest. But sales went bankrupt and people who had not heard of this mantra, not your keys, not your Crypto, really should have understood it at that point in time.

So if you have an account with FTX in May of 2022, actually that should have been the time you woke up and said, FTX is a super brand, and Sam bang Free seems to be a cool guy. I don’t like his hairstyle, but he’s making a ton of money. And so, so everything looks, looks good, looks great, but nevertheless, let’s be on the safe side and let’s withdraw our Crypto assets because you only need them on an exchange if you’re doing trading.

So if you buy and sell the whole day, then, of course, the assets have to be on, on an address of the exchange. But if you’re just using the exchange to buy, then you should, it’s like a public toilet. You go in there, you do what you have to do, and then as fast as possible, you go out, you don’t spend too much time there. Why would you instead of spending too much time there? Yeah. So it’s exactly the same with these Crypto exchanges. You ask about regulation. Yeah. So I think this will come and actually, I’m very much in favor because these companies are in favor of this regulation, there are other types of regulation, I’m not so much in favor of, but these, these are basically central intermediaries holding assets.

We have no insight, there’s no transpareabout ncy what they’re doing. I mean, we, we looked at the bankruptcy filing by, by, by this, I forgot his name, spectacular things that we now learn about what was going to fix FTX, but we did not have an, have any insights into the company. They, they’re kind of black box. And so regulation is really something that should exist here. So these centralized players where there’s a risk for consumers, they belong regulated, they should not be treated differently from a normal bank where there’s also certain regulation, you cannot commingle assets, you cannot pledge your customers funds to take out out loans to engage in speculation. So all of this is, is actually coming in Europe, it’s called Mika Marketing Crypto Assets Regulation. And I think in the US you have your 100th proposal in Congress Kong. Is it the 200th? At some point, they would also come to the US.

DERREN JOSEPH:

Right. So, it’s the exchange as well, but also marketing is a key point, right? Because what has come out is, well, you know, there’s been a laundry list of so-called influencers in the, in the social media space who, you know, receive money as, you know, as they do for other products as well. But perhaps they’ve been, they found themselves promoting a product or a service that they didn’t fully understand themselves and they weren’t perfect, you know, up to speed with the risk involved.

You know, and it’s not just in Crypto, but in the general financial services space. Like there’s this one influencer based in Dubai and he, another, well, I wouldn’t say another controversy erupted in the last couple weeks was online, I dunno what you wanna describe them, they’re called established titles. So they, they, their marketing pitch was you, you pay them a certain amount and they give you a piece of land in Scotland, like one square foot of one square foot or whatever.

And based on some law in Scotland that they believe existed or they claimed existed, you were therefore entitled to call yourself a lord or a lady. So, and they were, they were spreading money around quite lavishly to influencers in order to promote this. And apparently, they did pretty well. But one, there’s a, there are a number of scam busters online, but one of them just, you know, did the check and they said, look, I’m pulling up the law for, for Scotland is available online.

And this, what they’re saying is not possible. Furthermore, I’ve done further checks on this company and it’s not even based in Scotland, it’s based in Hong Kong. So it does seem to be a scam. So I mentioned that because some of the same influences who were involved in FTX were also involved in established titles as well as promoting other tax benefits and tax schemes and so on. So I’m wondering if it is, these guys aren’t up to speed or they aren’t professional enough to read, to do, perform basic due diligence, then do they have any, any space or do they have the right to promote any financial service at all? And would they, the legislation that you see coming around the corner for Crypto in particular address situations like this?

NIKLAS SCHMIDT:

Yeah, I mean that’s a great point. Yeah. And you’re right, we should not only focus on these exchanges, these big names but there are these individuals out there promoting all sorts of shitty investments, be they Crypto or the real world. I had not heard of this Scottish scheme to become an Earl or Lord or whatever, a lady, but it sounds, like one of these typical things. Yeah, yeah, it is. If you just sort of open YouTube and type Crypto, you will see these small images of YouTubers with distorted faces.

It’s just Yeah, exactly. Exactly. That’s it. For the people only listening to this podcast, cannot, they have to just imagine the faces we are just doing now. But basically, I mean, it’s full of these people selling things and, and not disclosing that they, that they have purchased these coins and tokens and whatever. And so these are classic pump and dump schemes. This is classic market manipulation, sometimes this is classic insider trading. And, and the only thing that helps these people on the telegram groups, on YouTube, on, on, on, on these WhatsApp groups that are out there and, and so on.

The only thing that, that sort of, that still works for these, these people now is that most of these instruments might not be financial instruments. There might be some, there might be something, something different, or the countries where the countries that they’re targeting do not sort of classify these, these Crypto assets as falling under these normally existing regulations for financial instruments and, therefore they, they, they will not be prosecuted.

But in Europe, the tide is shifting again with liquor. So if you, if you do advice, if you advise on buying Crypto assets or portfolio management or similar services. So if you do something that, that, that is normally regulated in the traditional financial world, this will also be regulated now with Mika and also, I mean the SCC has, and, and the SCC is an entire topic of its own Gansler, but the SCC has, I think, opened the case against two or three Coinbase employees who are acting on inside information, which coins and tokens Coinbase was going to list.

And they purchased these tokens and these coins and tokens before the announcement at a low price and after the announcement, they sold them. So a very, very simple scheme. They did even not, they don’t not even make a lot of money with that, but they were arrested. And, the secs is, is going to sort of prosecute them based on insider trading. So the SEC is using the statutes that exist for stocks. Coinbase vigorously sorts of denying that these are stocks because it’ll also be a problem for Coinbase that they have listed stocks without the necessary registration and whatever’s necessary on the US laws.

So, I think this is like the whole space is full of shady players and, and these influences, most of them are really untrustworthy. You have to really watch out, you should not believe it. And they’re always saying this is not financial advice. And then they’re giving financial advice. So it always begins with this is not financial advice and then it goes on for 30 minutes about what you should buy.

DERREN JOSEPH:

Yeah, and of course, some pretty famous names like Kim Kardashian got pulled into that, but okay, so, so you know, it is what it is. So watch this space basically because regulation is now inevitable and we’ll see over the next few years or so, a completely different approach to the way these services or products are being marketed. Okay, fair enough. So, so that’s it for Crypto. So let’s, let’s jump to another interesting topic cuz this, these are all quite interesting and this is investment Migration.

So this is another space that is more or less the wow west. It is completely unregulated, aside from some jurisdictions, notably, I think Australia and Canada for the most part, investment Migration, anyone can just get a flashy website or get a great YouTube channel going and they can sell the hell out of it. And you’ve heard no end of horror stories that that’s on the selling side and on the actual product side, some jurisdictions, some major jurisdictions don’t like it.

I mean the North Americans don’t like it too much. The Europeans clearly do not like it. And we’ve seen that in the last few years. We’ve seen the Cyprus program being shut down. At least it’s the citizenship part, you can still get a visa, but citizenship no longer. And we’ve seen multi being taken to the European court, you know, over their citizenship program. So within that context, how does Austria fit in? Is it different and how

NIKLAS SCHMIDT:

Yeah, yeah. So maybe to sort of, let’s take a step back and see what is happening multi, because it’s like really interesting to understand and to then contrast that to the, to the Austin program. To the program in my country. So basically how Europe works and it Europe is like really very complicated or the EU yeah, it’s sometimes very complicated to understand. And of course, you know that the EU is not the same as Europe. So there are some countries like the UK or Switzerland that do not even belong to the EU.

But basically in the EU, you have the member states that 27 member states, and they have rules on citizenship. So for example, if you’re born with parents from that country one or two parents from that country will get a passport. There, there, there are rules in some countries that you can get citizenship based on merit. For example, if you join the foreign legion in France, I understand then you can get citizenship or if, you do something spectacular in some other country, then that country might grant your citizenship as, as a gesture of appreciation for what you have done for this country.

But at the same time, there’s also EU citizenship. So having a passport from an EU member state actually also means having an EU passport. And it gives you several rights that come from the EU treaties. So for example, you can then go to any other member state and live there under certain, certain prerequisites are fulfilled. You can buy real estate, you can open up a business, can buy a business, open a bank account, and so on.

So life gets a lot easier having an EU passport. And now the thing is that the European Commission, they have a bit of a centralizing tendency, and I think all of this is, you would call it a power grab. So, what they are saying for many years is that programs through which member states hand out passports to applicants under so-called citizenship investment programs fundamentally violate EU law.

And the citizenship and vestment program is basically a program where somebody, where an investor you can call him, buys real estate in a country, makes a charitable, makes a contribution to the government. And under a special program, these two steps enable him then after going through a very extensive diligence process, enable him to become a citizen of that country. And as a consequence, a citizen of the EU and EU citizen.

So, the European commissioner really has targeted these citizenship-by-investment programs and has been saying that while they acknowledge the right of member states to grant citizenship, they do not acknowledge the right of member states to grant citizenship under citizenship investment programs. Because the fear is that tons, that thousand, tens of thousands of money launderers will basically use this route to park their illegal proceeds in Europe to enter our territories.

This is a totally overblown fear on the one hand that the numbers that we are speaking of, this is a mere hundred in all of the countries concerned. On the other hand, as you know, we have the Mediterranean, which is an open border, and you have the Ukraine, which is also an open border. And the vast amount of people coming through these borders on an undocumented basis is just incredible. And the citizenship investment program numbers, really pale in comparison.

So the fear of the European Commission is totally overblown. And there are also no legal arguments. Nevertheless, the European Commission has pressured member states. So Bulgaria had a program, and this program was halted, Cypress had a program, and Cyprus was a lot more well known than Bulgaria. The C program was halted and now the European Commission is taking Malta to the Ecj.

So a case has been filed. Our firm is probably going to also make a submission to the court a brief explaining why we feel that this is, that if the court would follow the European Commission’s side by this would be totally in violation of the ec treaty of the competency of member states. It is a question of what is a central competency and what is a competency of the member states. So the the the multis program is a citizenship by investment program.

And in Austria, and this is like a really long answer for a short question. No, that’s fine. In Austria, yeah, in Austria, we have a provision in the citizenship act, which says that if a foreigner, if an alien does something, which is in the interest of the public of Austria, if he has done something and if there’s also the expectation that he will be doing something in the interest of, of Austria, then the government, the, the federal government may pass a, a decision.

It’s totally discretionary may pass a decision, it may waive the application of all the normal requirements that that typically apply if you want to get citizenship. So you don’t have to have lived here, you don’t have to have a knowledge of the German language, which is not that easy for, for non-German speakers. You don’t have to do a culture and history test, you don’t have to give up other passports, and so on. So we are currently as a firm doing a fuel, not many, but this is a very special program.

We are doing a few of this pro a few of these where a few of these clients, they are all very special. They all do very sort of customized things. I cannot mention what these projects are, but basically, the idea is something that sort of really contributes to Austria can be in the area of business. So you might set up a business, you might sort of expand your existing operations to Austria create jobs.

It might be just a simple donation to one of one of Vienna’s fantastic museums. It might be that you, I don’t know that you bring to the table, I dunno, maybe you are a scientist and you have a whole laboratory which you uproot from one country and, and basically set the booth in Austria, bring all these people, all the knowhow, all the research capability to Austria. So they are, they are, it’s it’s an interesting program. It is very expensive.

So it’s not, it’s not like some programs, I don’t know, you’ve probably heard of Monte Negro. It’s basically four 50 K, so it’s 200 K for the donation and two 50 k the cheapest casefor the real estate. So basically it’s four 50 outlay and, and that’s it. And I mean you have the real estate, you can sell that hopefully in a few years time. So it’s cheap. Whereas the Austria program is like discretionary. It is, it is sort of very tailor-made for the client.

It really has to fit to its story and it is, takes long time, but it is an Austin passport and it, an Austin passport is I think number seven or something on, on this well known list of passports. Right. So it’s really a strong passport. It’s a passport which allows you lots of things. Yeah.

DERREN JOSEPH:

Okay. Okay, that’s good to know. So it is definitely unique and it is not the typical investment Migration package product. Right, okay, I got that now. But again, you know, to borrow your phrase, taking a step back and looking at what’s going on in the industry, I, I get what you’re saying and if I’m understanding you correctly, you don’t think that the European courts have a, a basis really for the action they may be taking against Malta, but regardless that sentiment is still there.

Right. And there’s still a, you know, some sort of dislike of of, of those types of products. And even though they may not have a basis, they have successfully dealt with at least two or three other European countries who had similar types of programs. So with, with that in mind, it seems, you know, one can speculate that where there’s a will, there’s a way and they will figure out some sort of angle to get it curtailed. Now once that’s done, you know, I’m looking at the bigger picture.

I saw what happened to Vanuatu where they lost access area. And I know that there’s also like in the Caribbean programs, so, you know, my position is that these things have a limited life. You know, at some point in time they’re gonna be probably not completely shut down because as you pointed out, you really can’t take away the base, you know,the ability of a country to give citizenship, especially in exceptional circumstances. But the package product side of it, I kinda see that disappearing. What are your thoughts on that? What, what is your perspective on the future

NIKLAS SCHMIDT:

Holds? Yeah, I mean, as I said, as you, as you repeated, basically there is no merit in the U commission’s case. Yeah. But that does not mean that the Ecj will decide in exactly this way because the ecj, the European Court of Justice very often sees his role less in an arbiter of truth unless in sort of analyzing statutes, but maybe you could say he’s a kind of mode of integration trying to sort of integrate the European Union and in many cases, basically helping the European Commission to strengthen its sort of ITSs base.

Yeah. And so it might well be that this battle is lost on political grounds, on legal grounds. The cases is quite clear. I’ve read a number of articles and, and assessments on this that there’s a, there’s a group which deals with investment Migration, and they have also a kind statement on the MALS case. We’ll see. But it’s, it definitely, I think on the sort of horizon for the European Commission, regardless of how this case ends, to somehow maybe pass a kind of directive which sort of harmonizes these rules.

Yeah. And the big thing, the big topic actually is because you, you know, that, I mean corporate taxation here,the sort of the role of, of the EU is really strong. Yeah. So there’s, this is getting more and more harmonized. You have the OECD initiatives and so on. So probably the next thing, the next frontier that the European Commission will want to tackle is the individual are this individual, these special regimes for high network individuals in the eu in, in your member states. So for example, I mean originally you had the UK it was, it’s not anymore a member state with the resident non regime, you had Switzerland with the lump sum for fair regime. But in the EU you have, I mean you have the Portuguese NHR.

DERREN JOSEPH:

And HR Spain we have.

NIKLAS SCHMIDT:

In Spain law, yeah.

DERREN JOSEPH:

Ireland flat tax in Italy.

NIKLAS SCHMIDT:

Europe, and Greece, which is a copy of Italy. So there, there is a lot of, in Italy you have also other regimes. So there’s, there’s a lot of, a lot of systems. There are a lot of systems in place which want to attract high net individuals from other countries. The idea being of course, it’s unfair to tax this guy and have him, he only has to pay a hundred thousand euros. Whereas I am an Italian living here for decades, since my birth actually, and I pay five times as much tax that he does.

But the idea is always okay, but basically he’s not, he has no Italian connection. He will not be paying any tax and we are bringing him here. So this will benefit us because he does not, not only pay the hundred thousand Euros, he will have staff and he will pay value tax for his cars and villa. And I don’t know what gadgets, so there will be a lot of revenue coming from this and the EU commission, I think they fear that these regimes, they somehow distort the movement of people.

They make tax a factor in moving. And I think they, the European Commission wants only, for example, the weather and the foods to be factors, but not tax for people who think about moving around. Yeah, maybe I’m just sort of,

DERREN JOSEPH:

Okay, so I get that because I remember, and the NR in Portugal had to be modified because people were living there basically tax-free with European pensions. And now there’s a 10%, I remember that when Britain was in Europe, they were put under pressure to modify their res non dom regime as well. So I, I see some modification but are you thinking, you know, are you theorizing that perhaps in the years to come they will be completely removed or

NIKLAS SCHMIDT:

No, i I don’t see anything concrete happening. But like if we look into the future, right, this is probably something that the European Commission will be thinking about. Yeah, I see. And there’s nothing like going on, there’s no proposal for a directive on this, but, but it is, it is obvious that once the multi-case is true, they will have sort of time to, to think of other topics. And that could be one of these other topics.

DERREN JOSEPH:

That’s a fair point. But in between that, in between the citizenship by investment and the, the special regime. The special regime, for individual taxpayers, I see like the in between of the next step perhaps being the golden visas, because essentially it gives you that, right? You know, you pay a certain amount and you are resident, but as long as you play with your days, you’re not tax residents who basically best yet, I mean, you’re tax-free if, depending on your days, right?

So, you know, I think there’s been the, there was a statement by a minister in Portugal, you know, it can be interpreted in different ways when you really read it, but some people interpreted it to say, Hey, the golden visa may be in danger in Portugal, it may be they’re revising it, they’re thinking about it and it may be phased out and, and, you know, given the, the pressure that the investment Migration, I mean the citizenships are under, I would’ve thought. Yeah, that’s probably the next, that’s probably the next logical step from, from an EU perspective. What are your thoughts on that?

NIKLAS SCHMIDT:

Yeah, I mean the, this Migration topic, there’s like two parts and you mentioned one is the citizenship hub, which is what we spoke about in the beginning. Meaning you get a passport, which enables you to go to this country and you can even vote in elections. You’re like really a member of this community. And the other is residency, which is just the right to live there and to work there. And residency is also not; there’s not one kind of residency, but you have different kinds. There might be residency without working, you can stay there, live there, spending money there, but you’re not allowed to, to be employed or self-employed or might be something which is generally tied to some specific employment contract or totally open.

You can just work for anybody or on yourself. So residency is this sort of less, right, compared to citizenship. And where citizenship programs are rare, there are basically few in Europe getting fewer, as I said with the US actions, many countries have these residency schemes Yeah. And have sort of schemes which allow attracting skills foreigners to come to the country.

So people who really bring something to the table, a specific kind of know-how or or trade, which, which is not, which is not sufficiently existent in, in that country. So this is something that many countries have, and I think this is less, less problematic because it is more established, whereas the, the citizenship programs, you have these outliers, you have multi cys, Bulgaria and, and, and, and, and more or less, that’s it. Yeah. And these are all, these are all countries which are not strong. Yeah, yeah. Whereas I mean a residency program that also exist in Germany and France and Spain (Searching for a trustworthy US tax accountant in Spain? We’re here to assist you) and, and so on. So I think there’s less pressure to be expected on this front. Mm.

DERREN JOSEPH:

Okay. Gotcha. That’s a fair point. Now implicit, when I, when I look at the logic of it from, for example, as you as we were talking perhaps what the European Commission may have been thinking on what they may be thinking and what some of the promoters push, there seems to be somehow the underlying assumption that low tax or some special tax regime would indeed be sufficient to attract those high net worth individuals. And I think of that, you know, the conference you and I attended and not, we are not promoting any one particular entity over the others.

But it just so happens in Heley and partners, you know, they, they’re pretty dominant in, in this space and they, they publish a ranking, which gets a lot of publicity and so forth. So you got, you got help but pay attention to what they’re doing. And when they published earlier this year, their ranking of the cities in the world with the highest number of high net worth as they’ve defined it, individuals, they’re not necessarily low tax cities, right? You would’ve expected, oh, well maybe Dubai is at the top or you know, some other zero-tax place. But in the US it’s, you know,it’s LA and New York and Chicago and, and those two coastal cities on are.

NIKLAS SCHMIDT:

Really high-tax cities.

DERREN JOSEPH:

Are the highest tax states in the US.

NIKLAS SCHMIDT:

Not Florida.

DERREN JOSEPH:

Yeah, it’s not Florida. So, so exactly. And there was this other academic that I’ve been reading, he was at Cornell, but I think he’s at Stanford now, Chris Ball Young, and he’s took anonymized tax data from the Internal Revenue Service. And he is showing clearly that people do not move for tax reasons. And, there was this other, someone else’s referencing a billionaire guy called Pepper.

NIKLAS SCHMIDT:

I’ve heard of him.

DERREN JOSEPH:

Yeah. You know who he is. And he was also making the point, you know what tax, you know, just ignore that. It’s, it’s, it’s a non-factory decision because when you move to a particular city or a particular state or jurisdiction, you do that for so many non-tax factors in mind, mind, you know, what are the capital markets like, you know, what is the ecosystem, what is the networking like, you know, and, and, and things like that. Who can factor that? Because when you’re playing with your wealth, you can try to increase revenue. You’re trying to reduce costs and the highest cost for many, you know, business owners, Investors will be taxed.

So I get that. But you have, there’s only so much you can do with tax, whereas if you focus on revenue, it’s infinite. Right. You know, if you can scale your business, if you get it in the right infra ecosystem, that, that’s amazing. So to me, it seems to be misplaced even to, to just focus so much on taxation as this, this key factor in, you know, you know, allowing how many high net people to move from party to part B, point A to point B. What are your thoughts on that?

NIKLAS SCHMIDT:

Yeah, Derren, I totally agree and I have, I have one case in, in, in my, had one case in my practice, which was really illuminating because this was a 70-year-old client, already retired from Germany having an operating business in Germany near it. And, and there was this plan by a very well-known firm, which basically wanted to solve his inheritance tax issue by having this gentleman move out of Germany.

But there were so many complications due to German tax law. Yeah. That he could not basically move from the country where he was living from Germany directly to Singapore, but he had to basically spend a seven-year period outside of Germany, but in an EU country. Yeah. So the plan was for the 17-year-old guy to move for seven years to Austria stay there and not die this seven years. So he must be on life support until the end of the seven years and then to move to Singapore, which is very different climatically from Germany.

Germany and Austria is very close. Yeah. So it is a similar culture, similar climate, a similar food, similar lifestyle. And Singapore on the other hand is like, it’s humid. It is, it is, it is very fast moving. It’s not like a German city. It’s, it’s a totally different lifestyle. So I thought when I read that, that all of this makes really sense from a tax planning perspective. And we are really proud as tax practitioners to come up with something that shows so much genius.

It’s just incredible the sweat that went into this paper, all these associates who’ve been working day and night to come up with this fantastic tax optimized solution. But at the end of the day I thought, he’s never going to do that. And exactly that happened. His wife said, no way, I’m not going to move twice. And certainly not to Singapore, even with the best even we did this super rigid analysis and came up with all the possibilities, embedded them and so on. So taxi is not, is not the most important factor because people really, they have a life and they want to have, I mean the most important thing is of course your, your relations.

Yeah. If you move that already is a problem. You will be cut off from your friends, from your family, all of the activities that, that you carry out will be somehow impaired. And if you then move to a different country with a very different culture, even if it’s like fantastic from a tax perspective to buy no income tax yet, you really have to weigh that. So, so I am, I’m also, I think also that you said people going to LA or to, to New York, like these beacons of high taxes in the US Yeah.

So the thing is that just, it is not always the case that if you move to a high tax jurisdiction that it means that you’re going to pay a high amount of tax. You can do a bit of premigration planning. You might put something, you might shelter income into a structure that is non-transparent or look through and then do not pay out anything while you’re there. So they’re always the same for Austria. It’s, it’s basically not like the super efficient jurisdictions not to buy or Singapore or I don’t know, some other country with a special regime.

But there are some things you can do. And if people call us on time and not like I’m coming here tomorrow, then we can, then we can fix things then we can sort of set things up. We might incorporate a foundation for the, for the client to put in his income-generating assets, I don’t know, his portfolio or whatever and, and sort of shelter that. Yeah. There will be no income tax consequences for him while he’s living in Austria.

We might take a look at whether should he move out again. We’ll try to reduce the impact of exit taxation. We, we have, we have a few benefits. We have no inheritance tax, for example, no gift texts. That, that is cool. And for the income tax. Yeah. Cause we have high rates, but you can also structure things sometimes. And so a high tax count is not automatically a high tax bill. It really depends sometimes on your advisor. Yeah. What he can come up with.

DERREN JOSEPH:

Yeah, that’s a fantastic point. And, and, and I guess those promoters who focus on, you know, investment Migration obviously to guy with a hammer, everything looks like a nail. So for them the solution is just always to move. Whereas you’re right, you know what you and I do would, you know, they, you know, tax optimization, wealth protection, there’s so many angles or opportunities from, you know, from a planning perspective, if things are done well in advance to, I mean probably not get to zero, but you know, to be more efficient than whatever the headline rate is.

So the different angles. Right. And, and the point, so the point that you raised about still being taxable to Germany enough to leaving, it seems to be an increasing trend in Europe, isn’t it? Because I know Spain has that as well. Italy has it, you know, I’m talking about like if you move to a so-called tax haven that there some for back rules would apply and you’ll still be subject to tax in a European country of origin, do you see that as an increasing trend? Is that something you observe?

NIKLAS SCHMIDT:

Yeah, I mean there, there, there are various sort of possibilities here.So we have in all of the EU countries, we have exit taxations since a few years on companies. So if companies relocate, then basically at the border you have to pay tax on your unrealized gains. And a few countries have also introduced, introduced that for individuals. So also has that, Germany has that, other countries have that as well.

And, and that makes planning more complicated. It’s something that has been existing in the US I think for many years. So you’re deemed when you move out, or even if you give up citizenship in the US example, you’re deemed have sold all of your assets. Now you can, you can, there are, there are ways to work around this. You can put them into the structure if you don’t hold them. So when you move out, you’re not realizing again, or you can wrap them up into some, some derivatives or whatever that, that do not fall technically under these rules.

So there are few things you can do, but yeah, it is, it is, it is definitely an aspect. And the second exactly, I forgot the second is when you move to a low tax jurisdiction, some, some country’s tax inspectors are more aggressive than others. And France, Germany, they’re probably the most aggressive in, in Europe, they would closely monitor where you’re going to. So if you’re going from France to Germany, then no big deal.

But if you’re going from France to, I don’t know, Singapore for example, or to Dubai a bit closer, if you’re going to Dubai, then they would really see whether you have moved in fact or have you kept your ties with France? Did you, are you sort of, do you have mobile telecommunications bills, mobile phone bills showing that you were speaking in France for so many days? Do you have utility bills showing that you were actually living in this, this house?

Have your neighbors seen you, you, you, there, there’s a lot of information that can be, that can be obtained by tax inspectors and they would do that when you go to an, to an obvious, when you, when you say you’re moving to an obvious tax haven. So yeah, you, you have to be sort of aware dealing with tax havens increases the heat, increases the sort of level of scrutiny that you have to then, then bear.

DERREN JOSEPH:

Okay. Those are, you know, incredible points. And as you mentioned that I’m reminded of the situation where I think it was barred back in Germany, right, where he was caught by virtue of having his toothbrush right in his sister’s apartment. So yeah, I mean, I mean it’s, it’s humorous, but the point is a serious one that the tax authorities in certain jurisdictions take these things super seriously. So you just, you just don’t mess with them. Another point again with this, the whole narrative being popularized by those of vested interests about the whole world moving to either Dubai or to Singapore.

You know, I’m coming on my 10th year as a resident of Singapore, which is where I am right now. I’m also a resident of Dubai. So I’m, I’m there probably every month, every other month. And to my mind, yes, there’s a movement, there are those jurisdictions that are more popular than ever, but perhaps due to non-tax factors. So for example, Singapore, it’s super attractive for those who would want to avoid the sensitive political situation in Hong Kong, Taiwan, and mainland China.

And you know, in, in Dubai there’s also a large influx from Russia and from Ukraine. So again, it’s not necessarily around tax, but you know about other non-tax factors in your practice, which jurisdictions you see, you know, just anecdotally are more popular, than before. And that, you know, they seem to be attracting that high net with the individual.

NIKLAS SCHMIDT:

Yeah, I mean Dubai has, Dubai is, Dubai has attracted an incredible amount of Russians. Yeah, there’s no question about that. If you’re Russian, then the world has become really a complicated place to maneuver. And Dubai is one of the few countries, which have open arms and welcomed, welcomed Russians. So there has been a huge influx of clients, advisors and other sorts of people who provide services to Russians.

So that has really, that was really one of the big, big events in 22. Singapore on the other hand obviously benefited from, from the relationship, the deteriorating relationship between China and Hong Kong. So Hong Kong becoming more and more sucked into this, I think it was called one Country, two systems, but it’s more like one country, one system thing. And you had this before covid, these, these demonstrations and a clamp down on, on on on rights, which have been guaranteed to the citizens of Hong Kong and which were basically trampled.

So there has been, as you said, quite also quite an exodus of people. And, Singapore is just around the corner, but not really. It’s a few hours, but it’s more or less around the corner. And it is a fantastically liberal, liberal economic system. And yeah, it has English, its main language, and it is at a great sort of ecosystem of advisors and, and banks and, and family offices and private wealth managers. So everything is there. It’s really a fantastic place and envy that you are.

DERREN JOSEPH:

So, in terms of trends, you see those jurisdictions as particularly popular in recent times as well.

NIKLAS SCHMIDT:

Okay. Yeah, definitely. Definitely.

DERREN JOSEPH:

Right. My last question, cause I know that, we trying to keep this within an hour is about the Shell directive. I just see it as just one of, you know, the many rules that have been being phased in, in all, you know, in so many spaces and so many jurisdictions and even at a, a supernational level that basically the message that we are getting is that if a structure does not serve a commercial purpose, you know, it’s not gonna be looked upon favorably.

So there must be some commercial benefit, not just a tax benefit for whatever it is you’re trying to structure. So, you know, so I see it as, you know, this, this huge, huge push and it, it’s gonna make, you know, the whole space of tax planning, it’s gonna become even more restrictive than it already is because it’s, it’s trending in that direction. So it’s being really pushed in, in, you know, in, in that direction. And people who make it sound easy, they just go on again, social media and say, all you need to do is form a company and X, Y, Z and you automatically have all these benefits.

They just seem to be missing the point of this huge wave of regulation from all the major jurisdictions, from the North Americans, from the Europeans, from the major Asian economies as well that are all heading in the same direction. What are your thoughts on the on-shell directive in particular and the major push in, you know, in general?

NIKLAS SCHMIDT:

Yeah. Well, Derren, as you said the EU un shell directive as it is colloquially called the directive against shell companies, will make the life of a tax plan a lot harder. The goal is basically to get rid of companies that have no economic, as I said, purpose, which is just used for tax planning. And the directive is very complicated and tries to sort of establish a kind of filter system where you filter out those companies, which are shell entities.

The European Commission is saying that do not worry because this co this directive only applies to 0.3% of all of EU companies. So it’s just a very tiny set of companies that will be affected. Okay. That is very myopic because actually every company in the EU must go through the filter and see whether it fulfills the test and whether it belongs to the 0.3% check companies or not. So it will, it’ll create a lot of compliance, a lot of requirements, a lot of bureaucracy for EU companies.

It only applies to EU companies. And the commission is also thinking of extending that to non-EU companies. But that is, that is sort of still a crystal ball thing. Yeah. So, it’ll definitely make planning a lot more complicated. And it will if you have a company you probably have that is a shell company, you either have to get rid of it as soon as possible or beef it up or give it some kind of commercial purpose. Give it briefly in life, make it like, make it real and not, not a share. Yeah.

DERREN JOSEPH:

But, do you think, I sound like a bit of a conspiracy theorist thinking that, hey, this is part of a wider push when you know, you know, the economic substance rules all over and, and you know, the EU uses this bully pulpit of the gray list and the blacklist to put pressure on jurisdictions like Hong Kong is reviewing, its Offshore companies. I think that’s perhaps part of the reason why the Gulf, the UAE, the Arab Emirates, including Dubai (US tax Dubai), of course now they’re phasing in Taxes, they’re gonna have a 9% first time in history.

And those two think that is gonna apply to domestic companies only. And those Offshore companies gonna be left untouched, they have another thing coming. So my point is I see it as, you know, they, the registries, they, I know that the public access is being but the existence of essential registry. So I see it as a wider confluence of political and policy forces. Do you think I’m being a bit too paranoid?

NIKLAS SCHMIDT:

Yeah, I think it sort of, there’s a clear trend discernable, which, which started a decade or one and a half decades ago before that the tax authorities were like totally, how you say, they were not really cooperating or speaking, which with each other, not exchanging views on planning. Whereas we were advisors, we were chatting around and meeting each other, hashing out plans and ideas, but they were isolated.

And this has changed the OECD, which is the Club of tax administrations, they have organized all sorts of initiatives. It began with an exchange of information, which was beefed up and has become automatic with common reporting standards. It went on with these registers, so u registers, which can be used by the tax authorities, which became public in the EU, but they are now not public in the EU.

It went on the ods instrument, which closed all sorts of gaps in the application of double taxation treaties, the on-shell directive. So it is, it is just one theme that these tax administrations are sort of working together, coming up with ideas. They have lots of smart people and it is no question that we are sort of doing an uphill battle.

In the past, not-so-smart people and they did not even speak English. But now you have lots of people who are in the OECD end who are very, very intelligent. And also in the European Commission, I have to make a small caveat, the text of the un shell directive seems as if it had been prepared by an intern. It is not really written by somebody who is very fluent. The ideas are very sophisticated, but I would say the wording of the text is the wording of the directive is sometimes a bit lacking in sophistication. But yeah, definitely there’s a theme of more cooperation between tax authorities.

DERREN JOSEPH:

Gotcha. Well, on that note, and Niklass, thank you so much for your time. We really appreciate you sharing your time and your profound insights on some of the wider trends that are going on in the investment migration space, crypto, and of course the fun world of taxation. Thank you so much.

NIKLAS SCHMIDT:

So Derren, thank you. Thank you too.

DERREN JOSEPH:

Right, and to those who’ve been dipping in and out and watching this Livestream, this is being recorded and it’s available on our website within a day or so, HTJ.tax, as well as on YouTube, SoundCloud, Spotify basically around 23 or 24 platforms where you get your favorite podcast. So wherever you wanna get your favorite podcast, if you missed part of this, you’ve just tuned in, you want hear the entire thing, just visit and you should be able to find it pretty easily. And for the next time you’re gonna do a live stream, just have a look at HTJ.tax/events. Niklas, thank you for your time. Thank you for those who have joined us on Zoom and on Facebook and on LinkedIn and wherever else we be streaming this livestream and we will see you next time. Bye-bye.

VOICEOVER:

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Table of Contents: LIVESTREAM- Let’s Talk About Austria Taxes, Crypto, and Migration (5th December 2022)

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