Things you must know about tax havens
Tax havens are jurisdictions that provide significant advantages to foreign companies and individuals through minimal or non-existent tax rates. Contrary to the belief that tax havens are found only on exotic islands or Caribbean retreats, tax-free countries in Europe are genuine, offering similar benefits with the added convenience of proximity.
Tax Havens: Characteristics
Let’s take a closer look at the main features of tax havens and their role in the global economy:
- Lenient tax systems
- Strong data protection
- Simplified business and account setup procedures
- Stable political and economic climates
Benefits Beyond Taxes
In addition to fiscal perks, European tax havens offer advanced infrastructure, high safety standards, and accessible healthcare and education, which makes them highly attractive to international entrepreneurs.
European Tax Havens
For your convenience, here’s a list of tax havens in Europe as of 2024.
Malta
Malta is renowned for its favorable tax environment. Though not a typical offshore haven, it offers significant tax advantages. The standard corporate rate for companies is 35%, but foreign corporations can see effective rates as low as 5% to 10% after shareholder tax refunds.
The Malta Permanent Residence Programme (MPRP) allows foreigners and their families to gain residency through investment. Applicants must purchase property priced at EUR 300,000 or rent real estate for at least EUR 10,000 annually, contribute to a government fund, and make a charitable donation. They must also show at least EUR 500,000 in capital, including a minimum of EUR 150,000 in financial assets.
Cyprus
Cyprus stands out with its favorable tax system, boasting a corporate tax rate of just 12.5%, one of the EU’s lowest, and the absence of capital gains tax on most assets (except property sales within Cyprus).
In addition, Cyprus offers temporary tax incentives for high-net-worth individuals (HNWIs). As an EU member, Cyprus adheres to international tax standards, combats tax evasion, and promotes financial transparency, maintaining its reputable status.
Portugal
Portugal offers notable tax advantages, especially through its Non-Habitual Resident (NHR) program. Launched in 2009, the NHR regime aims to attract foreign professionals, retirees, and investors with tax benefits for up to 10 years. Foreign-sourced income like dividends, interest, and royalties may be exempt from Portuguese tax if taxed in the country of origin. For income earned in Portugal, a flat tax rate of 21% applies.
Portugal also offers the Golden Visa residency-by-investment program. While changes in 2024 will limit real estate investment options, the program will continue through investments in approved funds and cultural heritage donations.
Monaco
Monaco imposes no personal income tax except for French residents. For businesses, corporate taxes are waived if at least 75% of revenue is generated abroad, making Monaco attractive for international corporations and holding entities.
Andorra
Andorra has a favorable tax environment for international entrepreneurs. Its corporate income tax rate is only 10%, the lowest in Europe. Andorra provides various residency schemes, including a Residency by Investment program. The program allows foreign investors to invest in property, local banks, or businesses with a threshold of EUR 600,000.
Switzerland
Switzerland is an excellent choice for residency and wealth management in Europe. The country’s unique cantonal tax system allows each canton to set its tax rates and incentives independently. Switzerland is renowned for its political and economic stability, transparent and efficient financial system, and advanced banking system.
Luxembourg
As a leading financial center in Europe, Luxembourg offers a corporate income tax rate of 24.94%, including national and municipal business taxes. The country provides reduced tax rates for small and medium-sized enterprises (SMEs) and encourages startups by offering lower tax rates on intellectual property income, tax credits, and subsidies to stimulate research and development.
Ireland
Ireland is notable for its competitive corporate tax rate of 12.5%, well below the European average. This attractive rate has drawn leading companies like Google, Apple, and Facebook to establish their European headquarters in Ireland. Specialized tax regimes, like the Knowledge Development Box (KDB) regime, offer a tax rate of 6.25% on income from locally developed intellectual property.
Liechtenstein
Despite its small size, Liechtenstein offers a corporate tax rate of 12.5%, one of the lowest in Europe. The principality’s financial sector is vital, providing private banking and investment services with high levels of privacy and asset security. Liechtenstein is also a leader in fund and trust administration.
Gibraltar
Gibraltar, often overlooked as a tax haven, introduced a competitive corporate tax rate of 12.5% in 2021, making it appealing for incorporation. Gibraltar’s policy of not taxing overseas income allows international corporations to reduce their tax liabilities efficiently.
European Tax Havens: Comparison
| Country | CIT Rate | PIT Rate |
|---|---|---|
| Malta | 35%, with benefits for companies | Progressive rate from 0% to 35% |
| Cyprus | 12.5% | 0% to 33% |
| Portugal | 21% on mainland, 14.7% in Madeira/Azores | Progressive rate from 13.25% to 48% |
| Monaco | 0% to 33.33% | No PIT for citizens and foreign residents, except French |
| Andorra | 10% | 10% |
| Switzerland | 8.5% federal, plus cantonal rates | Varies based on federal, cantonal, and municipal levels |
| Luxembourg | 15%, 17%, plus additional taxes | Progressive rate from 8% to 42% |
| Ireland | 12.5%, higher rates for certain companies | 20% or 40% depending on income |
| Liechtenstein | 12.5% | Tax on worldwide income, with certain exemptions |
| Gibraltar | 12.5%, higher for certain activities | Levied on Gibraltar income, rate depends on system |
Conclusion
The countries mentioned above offer some of the most advantageous personal income tax rates in Europe. These tax havens comply with international regulations and provide appealing tax terms while preventing money laundering and tax base erosion. If you are considering a tax haven, you need to remember that no single tax haven fits all needs. Each one is designed for different situations and purposes, making it essential to seek advice from experts.
At International Wealth, we offer services for forming offshore companies. We have accumulated unique experience and knowledge in starting overseas bank accounts, opening various types of trusts, and assisting our clients in obtaining permanent residencies by investment in different countries. Contact us today to get a personal consultation about our services and your opportunities.