Maybe you have considered taking your career overseas. It’s an attractive prospect for many: small ‘offshore’ jurisdictions generally offer short commutes, good salaries, great prospects (particularly in finance, law, remote gaming, and technology), and an amazing quality of life – whether that is the Mediterranean appeal of Gibraltar and Malta, the warmth of Jersey and Guernsey, or the rugged outdoors of the Isle of Man. Yet whilst most of these jurisdictions don’t make a big deal out if it anymore (for fear of a bad reputation they absolutely don’t deserve), there will also probably be a big benefit to your wallet in the form of your take-home salary.
If you are currently working in the UK or mainland Europe, you are probably paying anywhere between 30% and 60% total tax, once you include not only income tax but also national insurance contributions and other direct taxes. In many cases your total tax bill may be even higher if you think about indirect taxes such as VAT and duty. Because their personal tax regimes are much lighter, moving to live in an offshore financial centre can often substantially increase your disposable income, even if your salary remains the same. So, how does your current home compare to each of the major offshore centres for tax? Let’s find out.
Jersey, Guernsey, and the Isle of Man: Broadly, the maximum % rate of income tax paid in all three of these jurisdictions is 20%, which is applied after any pre-tax allowances including a generous, basic personal allowance as well as relief for payments such as loan interest paid on a person’s home. Such allowances and reliefs tend to range between £10,000 and £15,000 per individual but can be higher dependent on the jurisdiction and an individual’s personal circumstances. For very high earners, each of the three Crown Dependencies offers a personal tax cap, varying slightly between each jurisdiction, but which in the Isle of Man, for example, currently limits the amount of tax paid by a resident individual in a tax year to a maximum of £125,000. Each jurisdiction also has its own National Insurance or Social Security system similar to that operated in the UK. None of them, however, have any wealth taxes such as capital gains or inheritance taxes. However, there are substantial differences when it comes to sales taxes with the Isle of Man essentially being a part of the UK VAT system and operating current VAT rates of 20%, Jersey operating a system of GST at a rate of 5% and Guernsey applying no VAT or sales tax at all.
Gibraltar: Gibraltar has two systems of individual taxation to choose from which complicates a direct comparison to the UK or mainland Europe. However, the two systems operate in parallel to each other with the possibility of the individual electing to use the system which gives them the lower tax outcome! Under the ‘gross income based system’ flat tax rates for higher earners currently range in bands between 16% and 28% for earnings up to £0.5M. Under this system, certain tax deductions are restricted. Under the ‘allowance based system’ a high earner will typically pay tax at 39% but with access to the full range of allowances and deductions the actual, effective tax rate is usually much lower. There is no VAT and employees’ National Insurance contributions only rise as high as around £120 per month. There are no capital gains or inheritance taxes in Gibraltar.
Malta: Income is taxable at graduated rates. For residents, on income earned locally, like your salary, Maltese income tax is applied at rates of between 0% and 25% on earnings up to €60,000 – the tax blended rate equating to approximately 20%. Annual income above €60,000 is taxed at a flat rate of 35%. All tax is applied after personal allowances and other reliefs. A system of National Insurance/Social Security contributions applies in Malta and a standard VAT rate of 18% currently applies to most goods and services.
That’s just a very simple rundown of the key taxes in each jurisdiction. The impact that a 10% difference in tax rates can make on an average income is quite sizable, particularly when you start to add up the cumulative effect over several months and years. It’s also worth pointing out that despite the lower taxes, all of these jurisdictions still have excellent public services and infrastructure.
We’re not tax experts (although our partners at Boston Multi Family Office are, if you need one!) but we do relocate a lot of people offshore, helping them find the right job in the right jurisdiction. As such, we can help you work these things out if you are considering a move.