Why Levon decided to change the tax residency
Levon and his wife obtained Dominica citizenship by investment in 2020. They made a non-refundable contribution to the Dominica Economy Diversification Fund. Immigrant Invest lawyers were the ones who helped the couple get second passports.
In January of 2021, Levon transferred his business to Dominica, following the advice of his tax and business consultants. The businessman earned most of his income as dividends from the company. After the business transfer, Levon had to pay income taxes twice, both in Armenia and Dominica, as there was no Double Taxation Treaty (DTT) between the countries.
Levon started looking for a way to reduce the tax burden. He studied tax rates and decided to become a Dominica tax resident.
Comparison of tax rates and payable sums with Dominica and Armenian tax residency
Levon received income from two sources. The biggest income part came from dividends paid by the company he transferred to Dominica. In the meantime, Levon collaborated with various Armenian companies as a business consultant and received payments for his services.
Tax on dividends. Dominica tax residents don’t pay taxes on dividends, while non-residents pay the tax at 15%.
In Armenia, the tax rate on dividends is the same for residents and non-residents — 5%.
Personal income tax on consulting services. Dominica has a progressive scale of 15 to 35% for the personal income tax. The rate depends on the annual income amount.
The personal income tax rate is flat in Armenia — 22%.
In both countries, residents pay taxes on global income, while non-residents pay taxes only on income earned in the country.
Tax rates in Dominica and Armenia
|On dividends in the amount of $90,000||0%|
For tax residents
For tax residents and non-residents
|On income from consulting services in the amount of $25,000||15%|
On income up to EC$20,000 ($7,400)
On income EC$20,001 to EC$50,000 ($7,401 to $18,500)
On income exceeding EC$50,001 ($18,501)
Levon’s tax consultants calculated how much taxes he would pay after transferring business to Dominica.
The consultants took 51 mln drams as the standard annual income. 40 mln drams were earned as dividends and 11 mln drams as payments under the contracts on business consulting services. The sums were converted to US dollars for ease of comparison.
The total amount of payable taxes was a sum of both income sources. Another point to consider was that there was no DTT between Dominica and Armenia, so each tax had to be paid twice.
The calculation showed that Levon’s tax payments would reduce almost 1.5 times if he became a Dominica tax resident.
Taxes amount for payment in 2021
|Tax||If Levon changed his tax residency to Dominica||If Levon stayed an Armenian tax resident|
|On dividends, payable in Dominica||$0||$13,500|
|On dividends, payable in Armenia||$4,500||$4,500|
|On income from consulting services, payable in Dominica||$6,073||$0|
|On income from consulting services, payable in Armenia||$5,450||$5,450|
How to become a Dominica tax resident
On February 22nd, 2021, Levon consulted Immigrant Invest lawyers. He wanted to understand how one becomes a tax resident of a second citizenship country.
Obtaining tax residency in Dominica is a three-step process. It is not required to live on the island for more than 183 days per year at the registration stage.
Registration on the island is required. The tax documents indicate the address of permanent residence in Dominica. To register, it is enough to rent a house for a long period of time, for example, for a year.
Tax ID is an individual taxpayer number. Upon receipt of the Tax ID, the person is entered into the electronic database of Dominica taxpayers. However, Tax ID still does not give the right to pay taxes to the Caribbean country’s budget.
Dominica Tax ID is also useful for opening an account with a European or American bank. Financial institutions conduct Due Diligence and identity checks on new customers. Checks on Caribbean taxpayers are twice as fast because Caribbean countries provide comprehensive information on their citizens and tax residents upon request from banks.
Tax Code is received to start paying taxes in Dominica. The tax resident can submit a return to the tax office only after receiving the Tax Code.
Lawyers warned Levon that he would need to live on the island for more than 183 days a year to be able to pay taxes in Dominica.
The couple already spent two months in Dominica in 2020. They loved the warm climate, sandy beaches, and the island's untouched nature. Therefore, Levon was not hesitant about the prospect of spending a few more months in the Caribbean.
Renting a house in Dominica
An investor needs to have a house on the island to register. Prices for buying a house or villa start at $130,000. Renting is several times cheaper: a three-bedroom apartment in the capital costs $900 per month.
Levon did not plan to buy real estate or permanently live in Dominica, so he decided to rent a house.
Immigrant Invest real estate specialists selected several properties for Levon to choose from. The couple liked a two-storey cottage on the coast with two bedrooms and a balcony overlooking the sea.
The lawyers contacted the landlord in Dominica to check the legal transparency of the contract and the property’s clean title. Levon signed a lease for a year for $14,400.
Levon did not have to open a bank account in Dominica to pay the rent. He transferred the payment from his bank account in Germany.
Tax residency of Dominica in a week
Tax ID. Immigrant Invest lawyers started preparing an application for Tax ID as soon as they received a copy of the rental agreement. They filled out an application form for the tax office of Dominica, which indicated the investor’s mailing address on the island. The lawyers also attached copies of the lease agreement and Levon's Caribbean passport to the application.
The investor or his representative personally submits documents to the tax office of the island. Therefore, the lawyers transferred Levon’s documents to a local agent in Dominica, who could continue to act on behalf of the investor by proxy.
The Dominica IRS approved Levon’s application in four days. He was entered into the register of taxpayers and issued a confirmation certificate with a unique number. The investor also got a personal account on the website of the Dominica tax service.
The Tax Code is issued upon request to the Dominica Tax Office. The request is sent through a personal account on the tax service website.
The lawyers helped Levon fill out an application for assignment of the Tax Code. Two days later, the investor received a notification that he was successfully assigned a taxpayer ID for filing returns and paying Dominica taxes.
When applying for tax residency, we worked with the same lawyer through whom we applied for citizenship. Therefore, collecting and verifying documents took minimal time; all the necessary copies with a notary certification were already in our hands.
If an investor were to register his tax status himself, he would have to fly to the Caribbean to apply to the tax office personally. Or, once again, come to an intermediary to certify copies of documents. Through us, he immediately received a Tax ID and Tax Code.
The head of the Legal Department at Immigrant Invest
New opportunities for a tax resident of Dominica
Levon became a full-fledged tax resident of Dominica on March 10th, 2021 — two weeks after contacting the Immigrant Invest lawyers.
In April, the investor and his wife will fly to the Caribbean. In Dominica, the couple plans to sunbathe on volcanic sandy beaches, hike in the jungle and admire other local attractions. They will visit their children and grandchildren in Germany on Christmas and New Year’s Eve to celebrate the holidays together.
The investor will submit a tax return for 2021 in Dominica: the country's tax service accepts documents until March 31st of the year following the reporting year. Levon will complete and submit the declaration through a secure internet portal.
Levon assumes that he will earn about 60 mln drams, or about $137,000, in 2021. Of these, 48.5 mln drams ($110,000) as dividends from the Dominican business. They are not taxable for the country's tax residents. Levon would pay $9,640 less than if he stayed an Armenian tax resident.
Income tax amount that Levon will pay for 2021
|Tax||Payment for a Dominica tax resident||Payment for an Armenian tax resident|
|On dividends of $110,000, payable in Dominica||$0||$16,500|
|On dividends of $110,000, payable in Armenia||$5,500||$5,500|
|On income from consulting services of $27,000, payable in Dominica||$6,860||$0|
|On income from consulting services of $27,000, payable in Armenia||$5,940||$5,940|
Levon will retain the status of a Dominica tax resident even if he is not living on the island permanently. With a Caribbean passport, the investor and his wife can travel to Dominica passport visa-free countries, including the Schengen Area, the UK, Singapore and Indonesia.
The couple plans to travel constantly as soon as the borders open. They will arrange specific travel plans to not be in one country for more than six months.
All the opportunities that opened up for the investor after receiving the Caribbean passport are explained in “Citizenship of Dominica: all about the program".