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The main tax havens of Europe, how are they luring the rich?

2024-09-27 10:29:17Biznes SHKRUAR NGA REDAKSIA VOX

The main tax havens of Europe, how are they luring the rich?

According to the EU Tax Observatory, top personal income tax rates in the EU have stopped falling since the financial crisis of 2008. Instead, the group notes that governments have introduced "a growing number of tax regimes preferential tax rates targeting foreign individuals'', hoping to lure wealthy immigrants to their territories.

When thinking about Europe's main tax havens, however, there is no "one size fits all" approach. In other words, a low-tax jurisdiction for one person may not be a tax haven for another. "It really depends on where that wealth comes from," said Jason Piper, head of Tax and Business Law at the Society of Certified Public Accountants.

“For example, if you have a lot of capital tied up somewhere, then you will be much more interested in a regime that has 0% capital gains tax on remittances than if you still have a lot more. active income coming in.” Hoping to reduce their tax burden, a number of wealthy individuals may choose to up sticks and emigrate.

Ital

Italy is a popular destination with expats not only for its culture and climate, but also for its tax benefits. At first glance, the country has relatively high personal and corporate income taxes, although there are tax incentives available to foreigners.

One of the most popular is its flat tax regime, which allows wealthy individuals to pay a flat rate on all foreign-sourced income. This is regardless of the amount earned. The annual fixed fee has recently been increased to €200,000, from the previous €100,000.

The advantage is available for up to 15 years and is also only open to those who have not been tax resident in Italy for at least 9 of the last 10 years. Given the cost of the flat tax, it is only interesting for very high net worth individuals.

Switzerland

Switzerland also has a type of lump sum scheme (forfait fiscal), although the Swiss state claims that less than 0.1% of its taxpayers are taxed using this method. The way it works is that, instead of collecting fees based on income or wealth, some Swiss regions calculate a fee based on an individual's spending. While the lump sum scheme may be interesting to the super rich, the state has set a minimum fee. This is the higher of two figures: either seven times your annual rent or the rental value of your main property, or the higher of CHF 429,100 (around €455,000).

These thresholds apply at the federal level, although specific regions may increase the minimum amount. You are entitled to the tax benefit if you do not have Swiss citizenship and if you come to live in the country for the first time – or after an absence of 10 years or more. Beneficiaries are also prohibited from holding a job or running a business in Switzerland. This means that the scheme aims to attract a small number of wealthy expats who have passive income.

Portugal

Tax breaks have become a controversial topic in Portugal due to rising house prices, which have been fueled by the arrival of wealthy foreigners. However, after slashing benefits last year, the Portuguese government is now reintroducing tax breaks for expats. Portugal had the NHR regime which allowed you to live in Portugal for up to 10 years and not pay much tax on foreign income. In particular, this attracted a large number of pensioners, who decided to move to Portugal and not pay tax on their foreign pension income.

For those generating income in Portugal, specific activities were taxed at a favorable rate of 20%. Besides upsetting the locals, the NHR system drew criticism from the Nordic states, which were watching an exodus of their elderly citizens. Finland and Sweden in particular made official requests to change the rules of the double tax treaty with Portugal. This would allow them to levy taxes on their expats' pensions.

In response to the pressure, Portugal has now changed its tax cuts to "focus on educated people who can really contribute something to the Portuguese economy", explained Goossens. Earlier this year, Portugal's Finance Minister Joaquim Miranda Sarmento told the Financial Times that wages and professional income would be eligible for tax breaks under the new rules. It appears that pensions, dividends and capital gains will be excluded.

Another way that wealthy individuals can enjoy low effective tax rates is through the use of holding companies, according to the EU Tax Observatory. The body notes that these firms are "in a gray area between avoidance and evasion" in the sense that they are set up to avoid income tax. Individuals who house assets in this way decide to place their wealth in the name of a company they control, rather than classifying it as personal income.

Withdrawals from the company are taxed at normal rates, although the taxpayer may retain the balance in the holding company. Creating such a structure is particularly profitable in countries where the corporate tax rate is low. Interesting countries are, therefore, Ireland (12.5%), Hungary (9%), Bulgaria (10%) and Cyprus (12.5%).

While the OECD has worked with member states to introduce a global minimum corporate tax rate of 15%, this only applies to firms earning more than €750 million. More than 140 countries have signed the agreement, but implementation is still a work in progress.

Tax planning cannot simply revolve around one or two types of rates, but must consider a host of factors, experts said. Charges to keep in mind include personal and corporate income taxes, capital gains, inheritance and estate taxes, and social security charges. In addition to the locations listed above, countries such as Malta, the UK and Monaco can all be considered fiscally advantageous, but it all depends on the nature of one's income. In some cases, this means that even famously high-tax areas like Belgium can be called havens.

As the OECD continues efforts to raise corporate tax, it remains to be seen whether this will encourage talk of other tariffs and reduce tax benefits. Arrangements to withdraw wealthy foreigners is a question that continues to dominate political debate, with the push and pull set to continue.


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