InVinoVeritas

I know I should probably put this in the read me section but that seems to be the kiss of death to a thread so I am sticking it here for the time being.

Hopefully I shall get my MM2H visa in the next month or two so I’m starting to think about what happens next. It is mentioned time and again that MM2H’ers do not have to pay tax on overseas funds remitted to Malaysia and I’m sure that’s quite correct but it’s perhaps a bit of a leap to assume that such overseas funds are themselves free of any tax.

Let me explain, there is a principle that everybody is resident somewhere, it’s normally (but not always) wherever they spend more than 182 days of the year. If you are an MM2H’er but you spend less than 183 days in Malaysia then technically you are not resident. Maybe the same is also true if you spend more than 182 days in Malaysia but do not submit a Malaysian tax return since you would not then be in a position to obtain a certificate of residency.

This seems to be a bit of a Catch 22 as I imagine plenty of MM2H’ers don’t (or don’t plan to) spend over half the year in Malaysia. In such cases where are they resident and who is going to be looking to tax the income produced by any overseas funds? Assuming they are not in any other country for more than half the year does residency revert to Malaysia or to the country of birth or the country of last residence.

This brings me on to death duties, which is often an opportunity for the taxman to catch up an any unpaid dues (since he can make assumptions which, by virtue of being dead, you are unable to challenge). What happens if you die while resident in Malaysia in the case where (i) you do have a residency certificate, (ii) you don’t have a residency certificate and (iii) where you didn’t actually spend more than 183 days in Malaysia in the last year? Also what inheritance taxes are due if the beneficiaries live outside Malaysia?

In expectation of some interesting replies......IVV

bakedbean

Great topic IVV and I imagine you will get a lot of different answers as we all have different incomes, taxes, residence etc.

Are we talking about if one is British (for a start off)?

Re death duties
I think I am correct in saying (but someone please say so if they disagree) that even if you are "resident in Malaysia" your assets, if you have any, in the UK will fall,under the UK inheritance laws.

I remember reading somewhere that it's good (makes life easier) if you have a Will or Trust drawn up in each country where you have sizeable assets.

In Malaysia there isn't any inheritance tax but presumably beneficiaries, if not in Malaysia, would have to check with their own tax authorities re taxation I think.

Not part of your question I know, but probate is very slow in Malaysia.... I hear at least 6 months so, if you do a will, you need to,think of the implications of that. If you do a Trust in Malaysia (only covers assets in Malaysia) it is a lot quicker. I am told 10 days maximum.

bakedbean

I believe it is where the assets are, and not where you are resident, that counts re Inheritance....at least for Brits.

Heretic

No, there isn't. It's always a matter of the country or countries you spend time in and in rare cases, your citizenship and/or family ties and/or even where you have the majority of your investments.

Often (but not always) you can spend 90 days a year in e.g. four countries and a few days in a fifth and be resident nowhere for tax purposes.


Where are they resident? Depends (usually) on where they spend their time and the domestic laws of that country or those countries. Double tax treaties can have an impact too where two countries claim you as a resident.

Who will look to task? Usually the country of residence.

If not in any other country for half the year - - depends on the country they are in. Residency would not 'revert' to Malaysia - there is no default place of residency (except for US and Eritrean citizens who are always residents of their respective countries).

Residency is decided by the countries or country where you spend time (generally) and is done so each year. The trap here is different countries have different tax years - that can be good, or bad, depending on you.


Death duties - or IHT in the UK - is dependent (usually) on domicile and location of your assets. HMRC's website has more on that.

You can technically be resident outside the UK for 80, 90 years even and still have your worldwide assets subject to UK IHT if you remain UK domiciled.

So if you die whilst resident in Malaysia - your position re death duties often depends on domicile, not residence. Domicile, residence and citizenship are entirely different concepts.

IHT due if beneficiaries live outside Malaysia? - depends on your domicile and where your assets are located.

Heretic

UK situated assets are always subject to UK IHT, regardless of your domicile or residence.

Heretic

Assuming the Brit is UK domiciled, it doesn't matter where the assets are.

If you have a UK domicile (or technically an English, Welsh or Scottish domicile), your worldwide assets are subject to UK IHT.

Bluenose1

It's funny. I am sure I have read that too! However, my wife and I had occasion to visit a lawyer in Malaysia recently and amongst other things, this question cropped up. The lawyer was quite firmly of the opinion that you only need 1 Will, and that it is applicable Worldwide.

I guess though it will all come down to individual circumstances and if there is any dispute, which Legal System would have jurisdiction if it is not indicated in the Will? Unfortunately prevailing circumstances during that conversation prevented us from raising that question. However, if you think about it, normally you start off by saying "This is the final Will and Testament" - if you have a Will in more than one country, which of them is "final"?

I guess the way around that is to be very specific about which assets, and in what location, you are bequeathing. I think this is where you would definitely need advice from a lawyer well versed in International Testacy Law!

InVinoVeritas

Well thanks very much for all the input so far on this topic which is very helpful.

Firstly, BB, thanks for the tip-off regarding having different wills for different jurisdictions - I hadn’t even thought of that and yet it seems so obvious. A quick Google suggests this is a good idea and that to avoid the problem which Bluenose foresees it’s best to avoid any clauses which appear to revoke other valid wills.

My main assets are held in offshore funds in places I have never visited nor intend to, so making a will in those jurisdictions is something I will have to look into!

Welcome to the forum Heretic and thanks for the points you raise.

I’m sure you’re right, technically, that based on all the residency rules of the countries where you spend your time you might avoid becoming a de facto resident in any of them but I’m equally sure that no tax inspector would be very impressed by this argument. Whether they would ever know is another matter but, after death, I guess it depends on whether the executor of the will (or wills) feels bound to inform any relevant tax authorities. At that point, of course, the fun starts as they try to determine if there are any other taxes which they believe should have been paid during the lifetime of the testor and which therefore need to be recovered from the estate before inheritance taxes are dealt with.

I should underline here that, in my judgement, I do not have, at the present time, any unresolved tax issues. My concern is that after death I am hardly in a position to argue my case and I doubt my beneficiaries would want to indulge in a lengthy and perhaps costly debate with HMRC or others; they would much rather get their inheritance.

Being a Brit, even though non-resident for over 20 years and with no assets in the UK, I think I should be outside the orbit of HMRC but I expect I would have beneficiaries who are themselves UK resident.

I ‘m thinking that doing a tax return in Malaysia, even if there is no tax to pay, would be sensible if only to establish a starting point, if not a preference, as to which jurisdiction should take precedence. I hope they would not be too concerned about whether or not I have been in Malaysia the requisite 183 days especially as with an MM2H visa there is no more stamping of passports. Does that sound right and have any MM2H’ers tried it yet?

I hope I don’t sound too paranoid on this subject as I’m sure many people really don’t give it too much thought. I really don’t want to leave a mess behind me and I do worry that many tax authorities, out of desperation, are using every opportunity to collect more and more tax, including criminalising those who have planned their affairs to minimise their taxes.

Bluenose1

You cannot just do a Malaysian Tax Return. First you have to register with the Tax Authorities.

I knew that I should be able to get my UK private pensions paid free of tax in the UK (under the Double Taxation Ruling) and that it would be treated as non-taxable here in Malaysia. I also had applied to HMRC, but they sent me a letter requesting confirmation, and Certificate of Residency for Tax Purposes from Malaysia. I went to the tax office at Ayer Keroh (Melaka) and tried to register but, because I was not employed and not going to be paying any tax, had a few problems the first time I went. We then telephoned a couple of different tax offices and when I was able to point out that I actually HAD registered and paid tax (while I was working here in 2006) and had a Malaysian Tax reference, they were fine. I took the form from HMRC and not only did they sign and chop (put their official stamp on it) they actually gave me certificates of residency covering both 2013/14 and 2014/15 tax years.

What I was also able to establish, though, is that I could have registered for tax using their online application and, once registered call into the tax office armed with the tax reference number. However, I believe they won't just give you a certificate of residency, I understand you would need an application form from, in my case, HMRC. Not sure how you will get on! Good luck, though IVV!

InVinoVeritas

This doesn't really sound right, though I'm not doubting what you say, in that after all the hoops you have to jump through to get MM2H you should be able to get a certificate of residency (provided you own or rent a property, of course) otherwise really all it provides is the right to stay more than 90 days and to buy a tax-free car.

bakedbean

The Certificate of residency for tax purposes....you can definitely get if on MM2H and been in the country for the correct number of days. I know someone who did this, then sent it off to HMRC. Bluenose is not on MM2H so it's a bit different for him.

Must admit I haven't done it yet, though I am pretty much 365 days a year in Malaysia these days. I haven't bothered to do as I have no assets or income from UK currently, so,nothing to tax there and I've been out of the UK for more than 5 UK tax years which.....um...means something (Heretic will probably know)

....and Welcome from me to Heretic too good and interesting posts....thanks

InVinoVeritas

Ah, good point BB, I forgot he was not travelling on the same ticket.

bakedbean

Yes you can do that but, if you had say substantial assets in say the UK, might be easier and quicker to have a UK will covering just those. Bearing in mind that probate in Malaysia is slow slow slow.

Though..again....maybe one might not be bothered after one has popped clogs.

JC3

Hi,

Two good starting points for Brits when it comes to tax planning are:

The KPMG Statutory Residence Test flowchart, that relates to the new (2013) rules (see attached PDF)

And the book: Non-Resident & Offshore Tax Planning 2014/2015: How to Cut Your Tax to Zero by L Hadnum (available from Amazon).

Also if you have a second property in the UK (i.e. not your PPR) that is potentially liable to Capital Gains Tax, and you plan to avoid CGT by being not resident for at least 5 full tax years, take professional advice now! The CGT rules will change in April 2015, and are currently in consultation. It is not clear whether any gains accrued up to April 2015 will be "grandfathered", and the 5 year rule will disappear.

JC3

Heretic

Thanks for the welcome, folks!

I've read opinions from lawyers where they say the opposite i.e. a will per jurisdiction.

e.g. France has forced heirship. No foreign will could override this. If you have French-situated assets, of course.

Given the complexities of each country's intestacy and inheritance law, a single will but with assets in different jurisdictions is asking for trouble.