Europe’s tax havens offer wealthy individuals a range of preferential tax regimes, each designed to lure in high-net-worth expats and investment. These countries often differ in how they attract the rich, but a common thread is the focus on tax relief for foreign-sourced income or specific types of wealth, such as capital gains or pensions.
Top European Tax Havens and Their Strategies
1. Italy
Italy offers a flat tax regime, allowing individuals to pay a fixed amount of €200,000 annually on foreign-sourced income, irrespective of how much is earned. This scheme is attractive to the ultra-wealthy who have not been tax residents in Italy for the last nine out of ten years. This tax advantage can last for up to 15 years, making it a key draw for expats looking to reduce their tax burden without the complexities of standard tax filing.
2. Switzerland
Switzerland’s forfait fiscal (lump-sum taxation) scheme is based on an individual's expenses rather than their income or wealth. The minimum amount of tax is calculated either as seven times their annual rent or rental value, or a federal minimum of CHF 429,100 (€455,000). The scheme only applies to non-Swiss citizens who are not employed within Switzerland, making it a haven for those with passive income streams.
3. Portugal
Portugal’s Non-Habitual Residence (NHR) regime allows expats to live in the country for up to 10 years and pay little to no tax on foreign income, such as pensions. Although the country scaled back some of these benefits recently, it remains a popular destination for retirees and high-net-worth individuals. However, under pressure from other countries, particularly in the Nordic region, Portugal now limits benefits for pension income, while focusing tax breaks on highly skilled professionals.
4. Holding Companies in Low-Tax Countries
Wealthy individuals often set up holding companies in countries with low corporate tax rates, such as Ireland (12.5%), Hungary (9%), Bulgaria (10%), and Cyprus (12.5%). This allows them to shelter wealth within companies, reducing personal income tax liabilities. These setups occupy a legal grey zone between tax avoidance and evasion, as they are often designed to minimize personal income taxes.
The Political and Economic Pushback
These tax incentives have sparked debate, particularly in countries like Portugal, where locals have voiced concerns about rising housing costs and the impact on the economy. Nordic countries, which saw many retirees relocate to Portugal, have lobbied for changes to double-taxation treaties, allowing them to tax pensions that expats receive abroad.
As global efforts continue to enforce higher corporate tax rates, such as the OECD’s push for a global minimum corporate tax rate of 15%, the debate around preferential tax regimes is likely to intensify. Experts argue that while these regimes attract wealthy individuals, their overall contribution to local economies—through property investments, entrepreneurial activity, and consumer spending—may justify the tax breaks.
Source: Euronews
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