The global political and economic climate over recent years has, to put it mildly, been tumultuous. It has affected governments and societies from the top down and, contrary to popular belief, this also includes ultra-high-net-worth individuals (UHNWIs).
When surveying the rapidly changing environment, UNHWIs have many things to consider. These range from their asset portfolios and investment options, through to their family plans and where they want to live, as well as how to properly manage the multiple tax rules their families and assets are exposed to. It is insufficient for them to simply look at the outcome of a public referendum or a presidential election and immediately know how to anticipate the trends in order to plan for the future.
Instead, it is about understanding what these outcomes mean for them in the near and long-term, accounting for legal and regulatory developments across different jurisdictions, while ensuring their family lifestyle requirements can also be met before taking the next step. And, with these considerations in mind, the appeal of the United States as a destination has grown.
Stability beneath the headlines
It’s easy to look at the state of political affairs in the US and conclude that, because it is chaotic and in a flux, that it should fall to the bottom of any list of potential UHNWI destinations. At surface level, there are a wide variety of factors feeding into these concerns.
On the administration’s side, there’s the protracted trade rift with China and the frequent yet unpredictable disruption of trade relations with allies in Europe and Canada. In addition, the general rhetoric on immigration can heighten anxieties among foreign entrepreneurs. Meanwhile, the rise of a different variety of populism on the other side of the political aisle, calling for greater financial regulation and higher tax rates for high-income individuals, only adds to this sense of uncertainty.
Yet beneath the headlines, the US economy has remained remarkably stable and there is a growing understanding that many of these concerns have been overstated. The stock market has continued to soar, GDP growth has remained strong and the administration’s tax reforms have all served to reassure investors, entrepreneurs and UHNWIs. By contrast, Europe looks set for a lengthy period of uncertainty, largely due the painful and protracted Brexit saga.
Benefits of reporting and transparency
Of course, it’s not simply about the level of taxation foreign entrepreneurs face. When it comes to the financial element of their priorities, UHNWIs’ main focus tends to be on the need for capital preservation – the constant challenge of maintaining wealth, rather than building it.
For many years, the US was widely regarded as one of the least attractive destinations for foreign UHNWIs. This was partly due to high tax rates in the past, but also because the US has a long-standing reputation for strenuous reporting and transparency requirements. This significantly increases the cost of remaining compliant on a yearly basis, as you need to engage a dedicated team of advisors to ensure everything is properly classified, reported and disclosed.
There is a growing understanding that the most efficient approach to capital preservation is not by seeking relaxed measures on reporting and low tax rates. What they want is stability, and to achieve that, the right standards need to be in place.
On these fronts, the US has always acted as the global leader. It created the Foreign Account Tax Compliance Act (FATCA) system, which requires all foreign financial institutions entities report on the foreign assets held by their US account holders. It also provoked the creation of the information exchange system in OECD countries.
While these requirements may initially seem burdensome, they bring enormous value by ensuring a level of stability and peace of mind. It requires structures to be properly categorised according to key concepts such as tax residency, asset management investment control and decision-making. Ultimately, it is clear that the investment required to avoid disclosure of certain elements to the appropriate tax agency always ends up costing more and carries significant risk.
The US’s history of heavy reporting has kept a clear distinction between disclosure to a tax or government agency, versus public and duplicate reporting of multiple concepts. It may seem counter-intuitive, but the comprehensive measures the US has in place makes it
a more appealing destination. Additionally, for a specialised advisor that understands the relocation of UHNWIs, the US’s clear position on controversial aspects adds stability to a complex challenge, which ultimately allows for better planning.
We all know that it is never simply about financial matters for UHNWIs when it comes to relocation. Everything from neighbourhoods and education systems, through to achieving the optimal work-life balance, all factor into the equation.
It goes without saying that the US can offer as much, and sometimes more, than every other developed economy in the world on all these counts. But it’s also true that the US is almost a world unto itself. It has 50 states that offer a broad variety of options when it comes to elite higher education, recreational opportunities,
and even weather.
However, when it comes to their financial affairs, UHNWIs prioritise stability more than anything else. On lifestyle matters, they want variety. It has become increasingly clear to them that the US offers both. With the current swell of political uncertainty all around the developed world, it may come as a surprise to many that the US has maintained its role as the stable guardian of the international order. ν
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