What are the lowest Tax Countries in Europe?

Updated on May 3, 2022

This article will focus on the countries with the lowest taxes in Europe. While this is not tax advice and these tax rates are subject to change, it does provide basic guidance on some lower tax options in Europe.

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Introduction

Many of us have dreamed of living in Europe. But Europe’s stereotypically high tax rates have turned many successful entrepreneurs and investors away from the idea in search of zero-tax countries in the Caribbean, the Middle East or the Pacific.

Here’s the thing: while living in Europe and paying zero income tax is a rare achievement, almost anyone can live in Europe full-time and pay low taxes on their income, even if they’re not a millionaire.

As long as you don’t make tax connections in any one country, your only concern is to make sure you don’t get hooked on taxes in your home country. For many successful people, lugging a suitcase around the world is simply not their thing. They want a (nearly) permanent home and the benefits of minimal taxation. This is where low-tax countries come in.

The good news is that you don’t have to move to the Bahamas or Dubai to enjoy the countries’ low tax rates if you can invest some of your money in Europe.

While some countries, such as France, will always be closed to those looking for great tax planning, so we have made a list of almost a dozen European countries with favorable tax rates.

Stretching from Western Europe to the Caucasus, countries as diverse as Switzerland and the Republic of Georgia host many tax havens. These countries provide a haven from income taxes, capital gains taxes and corporate taxes. As a consequence, they have attracted many tax refugees, including large companies and private investors seeking to ease oppressive tax regimes in their countries. We will study 6 such tax havens on the European continent.

Andorra

The Principality of Andorra is isolated in the Pyrenees between Spain and France. Until 2015, he had no income tax, but he succumbed to pressure from the European Union (of which he is not a member, although his official currency is the euro).

However, it remains a low-tax region sandwiched between two countries with very high tax rates. Its tax policy puts it in a better position to attract people of more modest means than countries like Monaco, which provide tax havens for the very wealthy.

Andorra is considered one of the safest places in Europe and has one of the best healthcare systems in Southern Europe. The cost of living here is at the level of Spain and much lower than in the UK, France or Germany.

There is no wealth tax, inheritance tax or gift tax in Andorra, and only capital gains tax is levied on the sale of Andorran real estate, the purchase of which will be necessary if you want to obtain tax residency in the Principality. Income tax rates range from 0% to 10% and come into effect when income exceeds EUR 40,000. There is a generous standard exemption of €24,000. Corporate tax rates range from 2% to 10%.

There are two ways to obtain Andorran tax resident status. One is investment and the other is company formation. Both require a person to live in Andorra for at least 90 days a year and buy property, keep a deposit, and purchase Andorran health insurance.

If you want to set up a company, you need to have identification documents, business references and a resume, and for one applicant, a deposit of 50,000 euros. If you prefer to be a passive resident rather than running a business, you can do so by investing €400,000 in Andorra, which may include the purchase of a property. Active and passive residence permits are issued for 2 years for the first three renewable cycles, then for 10 years for the fourth cycle and beyond.

Andorran citizenship is the only way to obtain a residence permit that does not require renewal. To apply for citizenship, you must either have been a resident (active or passive) for 20 years, or have been educated in the Andorran school system and lived there for 10 years. Of course, you also should not have a criminal record anywhere.

In addition, you will have to renounce your citizenship in your country of birth and in any other country in which you hold citizenship, because Andorra does not allow dual citizenship. If you are not fully committed to being an Andorran citizen, and only an Andorran citizen, it would be better to simply extend your stay according to the set schedule.

Bulgaria

Bulgaria has the lowest personal and corporate tax rates in the European Union (Andorra is not a member), both flat rates of 10%. Although you will also pay capital gains tax of 10% on profits from the sale of property, there is no capital gains tax on your profits if you have investments or trade in the stock market in the EU.

You can become a tax resident in Bulgaria in one of two ways: (1) reside there for at least 183 days a year; or (2) demonstrate to the tax office that Bulgaria is your vital center of interest by providing proof of your place of work or business, your social security contributions, residency permits, property ownership and family relationships. The preferred way for foreigners to prove vital interests is through the purchase of real estate.

Foreign investors wishing to set up a company in Bulgaria can choose from a variety of business structures: sole proprietorships with limited liability, LLC, joint-stock companies, limited partnerships and general partnerships. Other than the incorporation process and share capital for joint stock companies, there are no special requirements for foreigners setting up a company in Bulgaria.

The country has low corporate tax rates, low operating costs and lower labor costs comparing to other EU countries. On the other hand, if the investor just wants to open a private LLC, there is a quick registration process that takes less than two weeks and the symbolic minimum capitalization required is 2 leva (1.25 USD).

If you want to get a permanent residence permit in Bulgaria, the fastest way is through investment and it includes only one visit to Bulgaria. If an investor buys €512,000 worth of government bonds with the intention of keeping the investment for at least 5 years, a permanent residence permit is granted after 6 months. It can be upgraded to Bulgarian citizenship after 5 years or, if €1,024,000 is invested, Bulgarian citizenship can be obtained after a year.

Of course, permanent residence and citizenship can be obtained without investment by moving to Bulgaria on a temporary visa, which is renewed annually for a period of five years, and living in the country for at least for 30 months.

A person doing any of these activities not only obtains Bulgarian tax residency, but also becomes an EU resident with access to free education and health care throughout the European Union, although this is coming to an end for the investment path to citizenship.

The European Commission, in accordance with Article 4(3) of the Treaty on European Union, opposes citizenship by investment programs as they provide non-EU residents with access to EU benefits without proven ties to any member state, which they consider contrary to the principles of fiduciary cooperation.

Czech Republic

The Czech Republic (Czech Republic) has simplified both personal and corporate taxes and should be considered as a place to start a foreign business. EU citizens may find it particularly attractive as a residence permit location because the 15% flat tax rate allows for deductions which, especially for business owners, can reduce the effective rate to 6-9% for self-employed entrepreneurs.

A sole trader LLC can be established by a foreigner in the country for 1 euro; other legal entities require more capital, especially joint-stock companies, which require at least 75,000 euros. The financial statements of enterprises must be submitted to the tax authority every year, but an external audit is required only if at least two of the following three criteria are met: (1) the company’s balance sheet shows assets of more than 1.5 million euros; (2) the annual turnover of revenue exceeds 3 million euros; or (3) the company has more than 50 employees.

Permanent residence in the Czech Republic is easily obtained by EU citizens who can freely move there and report their presence to the Aliens Police within 30 days. After living in the country for 5 years, they are eligible to apply for permanent residence.

For non-EU citizens, the process is a bit more complicated. A work visa must be obtained, which requires a work permit from the Czech employment office, although scientists, artists, students, athletes, and service workers are exempt from this requirement.

If after that you live in the country for eight years, except for short holidays, you are eligible to apply for a permanent residence permit. Applying for permanent residence as a non-EU citizen will require you to pass an exam in the Czech language. If you have a permanent residence permit for 5 years or have lived in the country continuously (except for short holidays) for 10 years, you can apply for Czech citizenship.

Wealthy investors have another path to residency and citizenship in the Czech Republic from August 2017. A long-term residence permit for an investor and his or her family, which is valid for two years and renewable indefinitely, can be obtained without mandatory residence requirements for investment in a business in the Czech Republic worth at least 2.8 million euros when this business creates at least 20 jobs in the country for EU citizens. The granting of a residence permit entails the right to work. You can apply for citizenship after 10 years.

Republic of Georgia

The Republic of Georgia is located in the Caucasus between Asia and Europe on the eastern edge of the Black Sea. As it is the only European country with a predominantly territorial tax system, i.e. a tax system that excludes income earned abroad from its tax base, correctly structured income from foreign sources is not taxed for persons who are tax residents of Georgia.

For anyone who lives in a country that does not tax foreign income, especially if you do not live in your own country, it is quite easy not to pay income tax if you are a tax resident of Georgia. If you are a wealthy person, you can also become a tax resident of Georgia without even living there.

On the other hand, the cost of living in Georgia is really low, and moreover it is a very safe country. Note that there are not many financial regulations that can make the population’s life difficult, so this might be a good option for many expats.

Of course, if you are a US citizen (citizen or foreigner), you are out of luck across the board because the US taxes your income no matter where it is earned or where you live, and Georgia has committed to tax transparency with foreign countries by 2023.

The tax system in the Republic of Georgia works favorably for both individuals and corporations. Specifically, the income tax is 1% for individuals with an annual income of up to 500,000 Georgian lari (Lari), which is about 145,000 US dollars, with 0% income tax on income outside of Georgia or from the resale of cryptocurrencies.

Corporate income tax of 15% is payable only after the payment of dividends to shareholders and receipt of money in the company’s bank account; if the money is reinvested, there is no tax. Georgian legal entities are not taxed on profits received from foreign subsidiaries, unless these subsidiaries are registered in tax havens.

There are also income tax incentives for IT companies providing services outside of Georgia, and “free industrial zones” offering tax incentives within Georgia. Banking services in Georgia are also at the level of world standards.

Residence permit in Georgia can be obtained in four ways: (1) temporary residence through investment in real estate; (2) permanent residence by investment; (3) High Net Worth Individual Tax Residency (HNWI); and (4) visiting and staying in the country for more than 183 days, filing a tax return in Georgia, and then applying for a tax certificate (thus obtaining tax residency).

When buying real estate in Georgia for at least $100,000, for an additional fee, you can get a residence permit for yourself and family members. This temporary residence card is valid for one year, but can be renewed.

In the case of permanent residence, if you invest at least $300,000 in Georgian real estate, you are eligible for a 5-year investor visa if you keep the property for that period or replace it with a property of similar value. After 5 years, you are eligible for permanent residence, and if you stay for 10 years, you can apply for citizenship, although this is a more complicated process.

If you are a wealthy person and can prove that you have at least 25,000 ($7,250) in annual income from Georgia, then you are eligible for special tax residency as a wealthy person if you can prove that you have you have at least 3,000,000 ($870,000) in assets worldwide, or you earn at least 200,000 ($58,000) per year.

As you can see, Georgian standards for HNWI are available to many middle-class Americans. The difficulty is that if you meet the criteria, you must spend at least 3 weeks a year in Georgia in order to obtain a tax certificate, which is only valid for one year. If you wish to maintain your tax status, you must do so every year.

Setting up a sole proprietorship in Georgia is a path that many individual investors follow. This is relatively easy to do with the services available for this purpose and it gives you a brand identity in Georgia that is only taxed at 1% on turnover up to 500,000 ($145,000) and 3% on amounts in excess of income . within Georgia. Income from outside of Georgia is not taxed.

Jersey (Channel Islands)

One of the Channel Islands, Jersey, which is a UK self-governing territory, has had a reputation as a tax haven for many years. Although its status as a tax haven has been tarnished by the signing of over thirty TIEAs under pressure from the OECD, it nonetheless still offers benefits, especially for businesses that obtain tax residency in its jurisdiction.

When it comes to individual taxes, Jersey’s income tax rates are hardly worth the effort. Jersey draws 20% from the high net worth individuals (HNWI) who have settled there. From 2021, prospective HNWI residents must contribute at least £145,000 ($201,000) to the island annually and meet a minimum income requirement of £725,000 ($1,000,000) per year. If the income exceeds the minimum, an additional tax of 1% is charged. In addition to all this, if you live on the island, a 5% goods and services tax was introduced in 2011, a stamp duty of 10.5% is levied on the sale of land and real estate within the jurisdiction, and individual parishes levy a property tax. These last taxes, of course, also affect business. The only remaining benefit of Jersey tax residency for individuals is the absence of capital gains tax, as well as the absence of tax on capital transfers to and from the island.

With regard to corporate taxes, in 2008 Jersey removed all taxes for corporations doing business on the island, with the exception of financial services companies, which are taxed at 10% on profits, as well as utilities, rentals and development projects, which are taxed at a rate of 20%. For this reason, Jersey is still a good place to start a foreign business, although Jersey is starting to focus on dormant shell companies used as places to store wealth without engaging in significant business activity and is starting to require these firms to actually run some kind of business. that’s business. .

There are two types of foreign companies in Jersey. The first type includes companies owned by foreigners, but which are managed and controlled in Jersey by local directors and boards of directors. Such companies are considered residents of Jersey and are subject to local income taxes depending on the type of their activity. The second type of companies are companies that are owned and operated by foreigners but conduct their business through permanent tax residency in Jersey. These latter companies only pay taxes on the income of their Jersey branch, according to their business classification.

Liechtenstein

In a history spanning more than three centuries, Liechtenstein’s landlocked prosperity is relatively modern. Bouncing on the brink of bankruptcy after World War I, in 1924 he entered into a customs and exchange agreement with Switzerland, which marked the beginning of his journey into a modern industrial and service economy.

One of its key advantages was low taxes. In 1955, he described himself as a country where citizens could live almost tax-free (at the time, the highest category paid 1.4%) and foreign corporations could receive only minimal taxation. Although the country went through difficult financial times in the 1960s when the ruling family was forced to sell off their collection of old master paintings at the highest price, by the 1970s its free enterprise economy was booming, with a vibrant industrial sector and a vibrant financial sector. sector.

At the time of its 300th anniversary in 2019, Liechtenstein was the richest country in the world per capita, with one of the lowest corporate tax rates on the European continent of 12.5% ​​and very flexible and inexpensive registration laws that led to the creation many holdings. companies in their jurisdiction.

More recently, especially after the 2008 tax scandal (see discussion in section 4.5 above), the Principality has come under international pressure due to the lack of transparency in its banking and tax systems.

Until 2009, for example, it made a clear distinction between tax evasion and tax fraud and refused to provide any data to foreign countries except in clear cases of tax fraud. Even though the situation has worsened somewhat due to the scandal, and Liechtenstein has softened on some laws initiated by the OECD, it still remains a very useful tax haven.

The maximum tax rate in Liechtenstein is 8% for individuals earning over CHF 200,000 ($219,000). However, there are local communities in Liechtenstein that levy a surcharge on the national tax, which raises the effective tax rates in different national groups from 2.5% at the bottom to 22.4% at the top. There is also a value-added tax of 7.7% on many goods and services, a capital gains tax of 3-4%, a property tax of 4% on the fair market value of assets, and a tax on charitable donations that otherwise case would reduce the wealth tax paid.

On the other hand, there are no inheritance, property or gift taxes in Liechtenstein, and capital gains from the sale of shares in local or foreign corporations are not taxed. In general, there are better places than Liechtenstein for individuals seeking tax relief for tax residency.

On top of that, there is fierce competition for the 89 residence permits that are offered annually, and if you want to get an investor visa, it will cost you at least $110,000 and requires you to create new jobs for residents. And note that your temporary residence will be converted to permanent residence only after 5 years and you will be eligible to apply for citizenship after living in the country for 30 years.

The most useful thing to do on the corporate side is to set up a holding company in Liechtenstein that acts as an umbrella company for another company. There are four types of holding companies: operating, managerial, financial and organizational.

Only the first (incumbent) is allowed to do business in Liechtenstein and is the preferred type of holding company for large corporations seeking tax advantages by establishing a base in Liechtenstein. The sole function of managing holding companies is to own the shares or assets of their subsidiaries and control their cash flows. Financial and organizational holdings are not so common.

The financial holding company simply sits on its assets (!), not managing foreign operations from its base in Liechtenstein, and the organizational holding company exists for the sole purpose of launching and acquiring other companies. Any of these holding companies can take the form of a fund, trust or institution, the latter being the only one allowed to engage in commercial activity and requiring a minimum share capital of CHF 30,000 ($33,000).

All types of holding companies enjoy tax benefits, including no tax on capital gains or dividends, as well as special tax deductions associated with the ownership of intellectual property. If any taxes are payable in the jurisdiction of the resident, the flat corporate tax rate is 12.5%.

While the procedure for setting up a holding company in Liechtenstein is quite quick and efficient, if you are in a hurry, there are various ready-made companies available to you, usually an LLC, that are already registered and ready to buy.

Adam es un autor reconocido internacionalmente en temas financieros, con más de 830 millones de respuestas en Quora, un libro muy vendido en Amazon y colaborador de Forbes.