Buying real estate before changing tax residency

[dziter]

Hi everyone,

I am from a high taxed western Europe country.
I am reading and interested about investing in real estate from many years but I couldn’t before.

I truly believe than using bank mortgage is a great way to be richer faster because you can make your tenant paying your mortgage and continue to invest.

Before changing my tax residency for a low tax country, I probably have the possibility to have a mortgage and buy a flat/house in my home high tax country.

Do you think it’s a good move or too risky for tax residency purpose?
The goal is to buy and rent directly. Pure investment.

I read on some topics than it’s risky to buy on your personal name and some of you prefer to setup companies to own the real estate.
Could it be useful/better in my case?

When you have a company/income somewhere, it’s most of the time this bank country which will accept to give you loans (you don’t have tie with other countries so they don’t want to help you).
But if you want to own real estate at the name at the company and not on your personal name, how you are doing to get the loan?

The loan is at your personal name and you send the money to your new company which is buying the flat/house?
Or you can have a mortgage directly to your company?

Thanks in advance for your answer, I would really like to understand more stuff and process and take the move to start to invest.

 

[fshore]

This will depend on your country, you need to study those laws closely, there is not a general answer.
If a company own the property then it probably need to be a local company, or if foreign to register as a local branch. This will add complexity and costs, and you'd need to local corporate bank account with the complications and costs that brings.
Also, houses has increased in value, but as with everything else there is no guarantee that the same will continue in the future.

 

[Konstanz]

Home mortgage in some European countries is considered to be very close tie to home country.
You should consider local laws. You should build as many ties with other country as possible and reduce ties in your home country.
I would not advise to take mortgage in home country if you do emigration for tax purpose

 

[JustAnotherNomad]

As @Konstanz mentioned, it is extremely likely that owning real estate (or owning a company, for example one that holds real estate) will create additional tax liability.
Even if there is no formal additional tax liability for your worldwide income (due to strong ties to the country), then you will have to submit tax returns every year for your rental income. And then they will of course ask for all information about you: Where do you live, what is your income, where do you pay your taxes? So every year, there is a risk that they will audit you and ruin your plans. If you ask me, it’s better to just cut all ties and invest into real estate somewhere else. Yes, it will be more difficult to get access to financing as a non-resident foreigner, but it lowers your exposure considerably.
I also think one must be crazy to invest into real estate in your home country - don’t they even charge social security tax on rental income?!
If you really want to invest, you can consider something like giving a loan or gift to your parents, so they have the funds required to buy the real estate. Then it’ll be your parents’ property and not yours.
@CaptK also described an interesting approach where you form a local company with a nominee director and then give a loan to the company from an offshore company. But again, I don’t think you would be able to get a loan for such a company and there is still the issue that you’d need a nominee shareholder. You would probably be better off just asking your parents to buy the property for you.

 

[CaptK]

You can not buy a house and then leave the country for tax purposes, it wont work.
In the UK we have buy to let mortgages that are a bit more expensive approximately 0.5% more but they allow you to rent the property where a normal mortgage you can only rent a room out and not the whole house.

Loaning the funds to a parent or someone you trust can be the way forward and securing the loan via a offshore company. You will have to be diligent in making sure you are not seen anywhere in the structure because that will be another tie to the home country.

In your case leave and when you have the funds come back and buy something.

 

[JustAnotherNomad]

In your case leave and when you have the funds come back and buy something.

Nah, that’s a great way to trigger an audit.

And yes, in many countries, you can leave the country for tax purposes and still own real estate. But the problem is that you will be watched the whole time. They may ask you to prove you’re tax resident where you claim you are, and that could pretty quickly lead to trouble, unless you spend all of your time there.

 

[dziter]

If a company own the property then it probably need to be a local company, or if foreign to register as a local branch. This will add complexity and costs, and you'd need to local corporate bank account with the complications and costs that brings.

Complexity and costs, I agree.
But is it not risky to own at personal name?
Reading and reading the forum and other sources, it seems important and smart to think this business lifestyle setup from beginning to avoid problems later.

I would not advise to take mortgage in home country if you do emigration for tax purpose

Sure, I get it. The thing is: it's almost impossible to get abroad to invest overseas.
I think it's possible to get a loan overseas if only you already own a property in this country (totally paid).

It means, before to be able to invest, I need to buy the first one in cash?
I am really interested how to start to invest quickly because time is the key of success in real estate investment from my point of view too.

Please pm me.

I can't..

Yes, it will be more difficult to get access to financing as a non-resident foreigner, but it lowers your exposure considerably.

I get it yes. If you have some idea for financing, don't hesitate to share.

 

[JustAnotherNomad]

You can talk to a tax lawyer in your home country about what will happen if you buy real estate there and then move away.
It definitely creates a tie - but let’s say the tax code is completely clear that if you don’t spent time in the country, you only pay tax on the property and nothing else (limited tax liability). But you will need to submit tax returns every year. So one day they may come and audit you and ask for proof where you live. If you really live in, say, Cyprus, no problem. But you wrote that you were thinking about spending most of your time in Poland.
What will you tell the tax authorities then? How can you prove you don’t live in your home country, when at the same time you don’t want to tell them the truth about where you are living? You are setting yourself up for a lot of trouble.
Yes, it’s a lot more difficult to invest somewhere else. So why don’t you invest in the country where you are resident then? Invest in a property in Cyprus. Or simply lend the money to your parents to buy the house.
a company won’t save you because you will still be the UBO, so it probably won’t have any advantages in that regard: You would still be at risk of an audit.
If anything, maybe a foundation or trust could save you, but I’m not even sure and it could come with problems of its own.
Or just don’t invest in real estate and invest into the stock market or gold or crypto instead. Or buy a real estate ETF.

 

[dziter]

You can talk to a tax lawyer in your home country about what will happen if you buy real estate there and then move away.

Already done, and advocate too. Most of them they don't say exactly the same thing.
Different interpretation because code is complicated.

I even called myself tax government.
They were clear about what kind of bank accounts I can keep, need to close etc.
No problem to have properties in France for example, I will have to submit tax returns for it and if rental income.

But as you said, even if everything is legit on paper, it's increasing the audit risk.

However, if I am telling them I am living in Cyprus or Poland or whatever, if I am somewhere else and I can prove it with a rent or some bank statements (not in France), I don't see why it will be a problem for them. It could be a problem for Cyprus or Poland or whatever but not for France I guess.

 

[JustAnotherNomad]

There are also some swiss banks which finance foreign real estate.

In which countries? Finance how many percent? At what interest rate?

 

[JustAnotherNomad]

However, if I am telling them I am living in Cyprus or Poland or whatever, if I am somewhere else and I can prove it with a rent or some bank statements (not in France), I don't see why it will be a problem for them. It could be a problem for Cyprus or Poland or whatever but not for France I guess.

If you really live there, yes.
Say you tell them you live in Cyprus. Cyprus is a big red flag, you can bet lots of French people move to Cyprus on paper, but really stay in France. So what will you do if they demand to see bank statements for the last 4-5 months as an example? And all you can show is rental payments for your apartment in Cyprus and some food that you bought that one weekend you were there? Otherwise there are no transactions in your Cyprus bank account. Or they even see lots and lots and lots of transactions from Poland. Hmmm...
Probably they will just let it go. But maybe you have someone who wants to get a promotion and he requests more documents. And he sees the same pattern: Almost nothing from Cyprus, everything from Poland... Maybe he will stop at that point. Or maybe he will ask the Polish authorities to take a look.
None of this is very likely, but the risk increases. The more time passes, the higher the risk that something like that happens.
Why don’t you want to ask your parents to buy the apartment for you? Or other close family members?
I also don’t know if French real estate is such a good investment with all the French taxes you have to pay.