New report outlines tax regimes for expats in Europe

by Ray Clancy on November 4, 2013

Despite a global move towards the sharing of tax information there are still huge differences between different tax systems in Europe, according to a new report.

The Global Opportunities Report from UK based firm BDO, says expats should pay particular attention to tax implications of moving to a new country including different types of taxes, especially if they have substantial investments.

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Expats should pay particular attention to tax implications of moving to a new country including differences in tax systems

In Europe alone, there are considerable variations in tax regimes. For example, Cyprus has long been a popular holding company jurisdiction for global corporate groups as well as an attractive, family friendly destination for individuals looking to relocate or retire to the sun.

‘The island boasts a favourable tax regime, with relatively low income tax rates, capital gains tax generally restricted to disposals of immovable property situated in Cyprus, no gift or inheritance taxes, no withholding taxes on investment income, although a special defence contribution is levied on bank deposit interest and dividends and an extensive Double Tax Treaty network,’ the report says.

Whilst it is does not have a reputation for being a low tax jurisdiction, the UK can provide foreigners moving to the UK with an opportunity to live very tax efficiently under its remittance basis tax regime, the report says.

The report points out that the Channel Islands are not classified as being part of the UK and therefore do not follow the complex UK tax legislation. They operate a flat rate 20 per cent income tax system with the potential for a capped tax liability in Guernsey and a very low 1 per cent marginal rate in Jersey for qualifying High Net Worth Individuals with annual income over £625,000.

Denmark is not usually are the forefront in terms of attracting expats due to high tax rates, but the report points out that there are several tax incentives of living and/or working in Denmark which may not be widely known.

‘Denmark allows a tax free uplift in the base cost of directly held assets once an individual becomes resident in Denmark. Any taxable gain on the disposal of an asset will therefore be mitigated to the increase in the value of the asset from the date of arrival in Denmark,’ it states.

‘In addition, Denmark has a special tax regime where an individual may opt for a (reduced) flat rate income tax charge on employment income for the first five tax years of residence, subject to meeting certain conditions. Further, there is no wealth tax in Denmark and exemptions/lower rates of tax apply to gifts/inheritances by a spouse and close family members,’ it adds.

Gibraltar is also regarded as an attractive jurisdiction for those looking to structure their affairs in a tax efficient manner. There are tax advantages to owning property, income tax is capped, subject to a fixed minimum liability of £22,000, and there is no inheritance tax or capital gains tax.

Ireland has a favourable tax regime for inward expats. ‘Irish tax resident non-domiciled individuals have the option of limiting their Irish tax liability to Irish source income,’ according to the report.

Malta is described as having ‘a very attractive tax regime.’ Foreign source income is only taxable if remitted to Malta. Foreign capital gains are entirely outside the scope of Maltese tax and there is no wealth tax, inheritance or gift tax or real estate tax and a low capital gains tax rate applies to disposals of immoveable property in Malta.

Monaco is one of the top 10 choices for wealthy expats as it has no income tax and low business taxes. Although not part of the European Union, Monaco complies with many European laws and regulations and has a strong international presence.

The report points out that Portugal has a favourable tax regime for new residents who either have a particular area of expertise or who wish to retire to the country. The ‘Non-habitual Residents (NHR)’ regime was initially introduced in 2009 to attract highly skilled workers to Portugal and to boost the business sector. ‘However, it has a much wider reach than that, providing pensioners with an attractive option when considering tax efficient retirement destinations,’ it explains.

 

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