Expats looking for a low tax environment but do not want to live in the zero tax jurisdictions in the Caribbean, Middle East, or the Pacific Ocean which are mostly remote, will be surprised to learn that it is possible for almost anyone to live in Europe full-time and pay low taxes on their income without having to be a millionaire.
For many successful people, dragging a suitcase around the world just isn’t their thing. They want a (nearly) full-time home in bustling city with the benefits of minimal taxation.
The good news is that you don’t have to move to the Bahamas or Dubai to enjoy low tax countries rates so long as you’re able to invest some of your money in Europe.
Below is a list of some European countries with favorable tax policies for expats that could lessen your tax burden
- Andorra: This medieval village nestled into the mountainside not far from Barcelona is a countryside jurisdiction famous for its skiing and amazing mountain views. Pressure from the European Union caused Andorra to implement its first-ever income tax in 2015, but Andorra still remains a low tax haven conveniently nestled between high-tax Spain and France. Andorra is perfect for those with capital gains or generational wealth; it has no wealth tax, no gift tax, no inheritance tax, and the only capital gains tax is assessed on sales of local real estate. Income tax is exempt up to 24,000 Euros and the top rate is 10%. There are two ways to qualify for residence, make an investment or start a company. You need to live in Andorra for at least 90 days a year or own a property and maintain health insurance. To start a company you must present your CV, and deposit 50,000 Euros in a local bond. If you want to choose the alternative and invest you need to invest 400,000 Euros which can also be in Real Estate.
- Bulgaria: Bulgaria offers Eastern European city charm, plenty of beach resorts on the Black Sea, and a flat 10% tax rate with no minimum. Payroll taxes are capped at 19.6%. In order to become a tax resident you need to live in Bulgaria for 183 days a year or persuade the local tax Authority that Bulgaria is your center of Life.
- Czech Republic: Despite being a top tourist destination in Europe, Prague has one of the cheapest costs of living in central Europe. EU Citizens choosing to redomicile themselves to the Czech Republic enjoy a flat tax rate of 15% and can claim a deduction for actual expenses. For most business owners, the lump sum can reduce the flat tax by 40% or 60%, leaving an effective tax rate of 6% to 9% on self-employed entrepreneurs. The Czech Tax authorities requires you or own an actual home but this is surprisingly favorably priced.
- Georgia: Georgia has a diverse tourism landscape. For instance, Mtskheta, Georgia is home to a UNESCO world heritage site. Georgia also happens to be the only European country with a largely territorial tax system, meaning properly structured foreign source income is not taxed in most circumstances. Georgia’s income tax is set at 1% for individuals with an annual income of up to $164,000 U.S. with 0% personal income tax on foreign-sourced income. You can even become a tax resident without living in Georgia if you can prove wealth or high income. While Georgia’s capital of Tbilisi is not Paris, Georgia is one of the safest countries in the world.
- Malta: Malta allows foreign citizens to pay an annual flat fee and exempt their foreign income from Malta tax. The island nation has developed some of the EU’s most tax-friendly programs for both individual residents and corporations, with corporate tax rates as low as 5% possible for non-resident companies. Unlike Andorra and Monaco, Malta does not require any physical presence on its two Mediterranean islands, meaning you can establish residency but not live there at all. Maltese residents are not subject to tax in Malta on foreign-sourced income that is kept outside of the country. What’s more, they are not subject to tax on foreign capital gains even if those gains are sent to a Malta bank account. Other income, including pensions, can be taxed once at a flat 15% thanks to Malta’s tax treaty network. The cost of maintaining the residence in Malta is a flat 15,000 euro “minimum tax” payable each year. With proper planning, this should also be the maximum tax. It is also possible to obtain a tax residence certificate.
- Monaco: Monaco does not have any personal income tax. You can establish residence in Monaco just by proving wealth. Monaco’s personal income tax still stands at a 0% tax rate, while its corporate income taxes are now set at 25% since the start of January of 2022. To become a tax resident you are required to make a bank deposit of 500,000 Euros and purchase or rent a property there.
- Montenegro: Montenegro has low corporate taxes and is one of the least expensive countries in Europe to start a company. Montenegro boasts about being one of the lowest personal income tax and corporate income tax rates in Europe, both pegged at a flat 9% for 2022. Montenegro allows foreigners who buy residential property to obtain a temporary residence card, renewable yearly. If you spend fewer than 183 days in Montenegro, you will generally not be taxed. If you live in Montenegro the majority of the time, you will become a tax resident and be liable to pay the flat 9% rate on your income. It also has a citizenship by investment program if you’re looking into expanding your passport portfolio and your investment portfolio.
- Portugal: Even though Portugal is a high tax country, foreigners can take advantage of a ten-year Non-Habitual Resident Tax exemption that exempts up to 100% of their income from Portuguese tax. While this exemption doesn’t allow you to live in Portugal tax-free forever, it is long enough to allow you to claim Portugal citizenship if you meet the rather lenient physical stay requirements. The first step to living in Portugal is to obtain Portuguese residency; this can be done by purchasing real estate through the well-known Golden Visa program but can be done more easily by hiring people or by merely proving you have rental income overseas.
- Switzerland: Switzerland was one of the first countries to allow wealthy taxpayers to negotiate a flat annual tax with its cantons at a maximum of 11.5%. Swiss residency offers an air of legitimacy that many other low-tax residencies can’t match. Foreigners have two residency options to choose from:
- The first is to form a new company in Switzerland and hire local employees.
- The more common and lower tax method to living in Switzerland is the Lump Sum Taxation method, which requires flat annual tax. Expect to pay at least $150,000 and up to $1 million in flat tax each year, depending on which canton you want to live in. If your income is in the millions, Switzerland could reduce your tax rate below 10%.
- The United Kingdom: The UK is far from a tax haven, but there are certain exemptions from the rule when it comes to tax rates, which you can take advantage of if you’re a wealthy entrepreneur. By exploiting the difference between domicile and residence, certain foreign citizens can live in London and pay an annual flat tax. This “non-dom” system has been popularized thanks to Middle Eastern, Indian and Russian billionaires who take up residence in the United Kingdom yet claim they are not running their businesses from Kensington. Because their income is a foreign source, it is eligible to be taxed on a remittance basis; keep the income out of the UK and it is not taxed. Obtaining residency in Britain requires a substantial investment, but for the right person, the tax benefits outweigh the initial costs. Claiming non-dom tax benefits may be free for up to six years, after which the remittance basis charge is anywhere from £30,000 to £90,000, depending on how long you’ve been a resident.
- Italy: Recently, Italy introduced a massive expat tax relief known as “Decree of Growth”, a bill seeking to help workers regardless of skill level willing to relocate to Italy. Under this law, during the first five years of employment in Italy, only 30% of your income is taxable, leaving 70% of your gross income as yours to keep. This bill increases the untaxed income bracket to 90% if you seek to relocate to southern Italy or the islands of Sicily or Sardinia, which are southern islands under the Italian domain. Furthermore, house ownership/mortgage or dependent children will extend this grant for an extra five years, with taxable income remaining at 50% for those extra five years. However, if three or more children are dependent on you, the five-year extra grant will stay at 90%. If you live in Italy as a non-resident, you’re only taxed on income earned in Italy. However, if you’re an Italian resident, spend more than 183 days a year in Italy, and your “centre of economic interest” (i.e. your business and investments) is in Italy, your worldwide income is subject to Italian taxes.
Italian flat-rate tax for expat retirees
Italy offers a 7% flat tax incentive for retirees moving to Southern Italy. To qualify, you must officially transfer your tax residency in a municipality with a population less than 20,000 that’s located in a region of Southern Italy (Sicily, Calabria, Sardinia, Campania, Basilicata, Abruzzo, Molise and Puglia). Under this regime, pensioners with a foreign-sourced income are taxed at a flat rate of 7% for the first 9 years of residency. You will also be exempt from tax on property and financial assets, if you haven’t been a tax resident in the past 5 years and come from a country that has a Tax Information Exchange Agreement, Double Taxation agreement, or Foreign Account Tax Compliance Agreement with Italy. Fortunately, the UK, USA, Canada and most other countries are valid.
Italian Non-Dom Tax Status
In 2017, Italy introduced a special tax regime for higher net-worth foreigners willing to relocate to Italy.
This regime allows Italian non-domiciled residents to pay a flat rate of €100,000 per year on all foreign income for a maximum of fifteen years.
You are entitled to this benefit if:
- You have transferred your tax residence in Italy. This favourable tax regime can be enjoyed for a maximum of fifteen years, and you may revoke it at any time.
- You have not been a tax resident for 9 of the previous 10 years prior to the introduction or application of the bill.
- Italian Tax Authorities formally approve your request.