Expat Essentials

Expat Essentials: Portugal, Bulgaria rank as top European tax havens for expats

(Editor’s note: This was posted originally on LinkedIn, part of our early content test. It’s reposted here with updated information.)

Expat life in Europe is full of benefits. French cuisine. Shopping in London. Italian fashion. Skiing in Austria.

The tax breaks in Bulgaria.

It’s true! Many European nations have outstanding tax structures for expats, and Bulgaria is one of the best.

That’s according to AIRINC Workforce Globalization, a Cambridge, Mass.-based business research company that tracks such things, including comparative marginal tax rates of various countries.

What AIRINC found in its 2015 report is that many European countries offer a lower tax rate to encourage expats to settle there.

And Bulgaria is the best. Also Kazakhstan in Central Asia. Both have a flat 10 percent income tax rate, but we know which we’d choose as expats. Dispatches just ran a long post about the many virtues of Bulgaria’s capital Sofia, a post that got tens of thousands of views from around the world. That said, low taxes come at a cost … the local mafia can make life perilous.

The worst country is Slovenia, with a 61.1 percent marginal rate for married taxpayers, followed by Belgium, with a 59.6 percent rate.

You might also want to consider Portugal

Portugal has been aggressively tailoring its tax program to make it attractive to expats. It offers new tax residents an income tax-free holiday for 10 years.

Portugal also has a range of double-tax treaties to protect the income from being taxed in the country of origin. However, most capital gains remain taxable in Portugal, except gains on the sale of U.K. property by a Portuguese resident. (Of course this, like much of the information here, is likely to change after the United Kingdom leaves the European Union.)

Spain allows qualifying expats to pay a flat 24.75 percent tax on gross income for the first five years. Spain recently introduced the “Beckham Provisions” (yes, named after the famous footballer) to significantly reduce the taxes on incoming employees.

 

Here are some interesting facts and figures from AIRINC research:

• France grants a five-year wealth tax holiday for Brits (also Canadians and Germans) to exclude non-French assets from wealth tax. Again, Brits can kiss this goodbye once the UK leaves the EU.

• Great Britain remains a tax haven for U.K. non-domiciles, although after seven years of tax residence in the U.K. the new remittance basis charge of £30,000 per annum becomes payable. Even then, there are alternative tax-saving possibilities after the seventh year. Of course, all this will change after Brexit, where the sentiment increasinly is to discourage immigration, even from EU nations.

• Though Germany is regarded as having high taxes for high-income earners (a combined 47.5 percent maximum rate), it is a bit more generous when it comes to allowing income-related deductions. Germany allows relocation expense deductions for expatriates moving there, including all travel costs for the employee and his or her family, including flights to search for a home in Germany, the expense for rental contracts, broker fees and even the costs of childcare.

• The Netherlands has introduced a special “30 percent ruling” tax incentive to cover additional expenses (called “extraterritorial expenses”) for an expat employee who comes there to work. These extraterritorial expenses may include the costs of utilities if Dutch rates are higher than in the country of origin; application costs for residence permit, visa, driving license, etc.; hotel expenses for expats still maintaining a primary residence in their homelands; various housing costs (especially in the initial stage); traveling expenses and/or telephone calls to his/her country of origin; the cost of Dutch-language courses for the expat and his/her family; and additional tax-free reimbursement for certain expenses (such as fees for international schools for expatriates’ children).

• Sweden has abolished both wealth tax and inheritance and gift tax. Still, Sweden has higher-than-average tax rates (once the highest in the world) and is considered one of the worst locations according to the AIRINC study. But the country also has unusually generous social services, such as health care and education.

A few of the smaller European countries also offer powerful tax advantages.

Cyprus frees expatriates from nearly all capital gains taxes. And Malta taxes expatriates on a remittance basis charge of just 15 percent, so there’s no tax on income kept or spent offshore. Offshore capital gains are also tax-free.

Monaco has no income taxes. But who can afford the luxurious cost of living there?!

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