For many investors, the concept of “tax optimization” has become crucial in recent years. Simply put, it means finding ways to reduce the tax burden you have to pay through laws, benefits, incentives, etc.
In this regard, Europe offers a variety of tax regimes designed to attract foreign capital, encourage investment, and stimulate economic growth. In some countries, these regimes also aim to promote scientific research, cultural fields, and more.
Before diving into the details, let’s review some concepts that are useful for this topic.
What is Fiscal Domicile (or Tax Residency)?
This determines the country where we pay our taxes and other obligations to the Treasury. As a general rule, anyone who stays in a territory for more than 183 days a year is considered fiscally domiciled in that country.
What is Double Taxation?
The same income or economic gain can be subject to taxes in more than one country. To avoid paying taxes twice, Double Taxation Agreements exist. Chile has agreements with 25 countries, including Spain, Portugal, and a dozen European nations.
Let’s now look at some of the most interesting European regimes for investors, such as those in Portugal, Spain, Greece, Cyprus, and Italy.
Portugal and the New Non-Habitual Residence
Recently, the Portuguese government announced the relaunch of the “Non-Habitual Resident” (NHR) tax regime. It focuses on attracting professionals and entrepreneurs. They can benefit from a flat income tax rate of 20% on income earned in the country for a period of ten years. Additionally, some types of foreign income may be exempt from taxes. To qualify, you must have tax residency in Portugal.
Spain and the “Beckham Law”
In 2005, Spain implemented the Special Regime for Displaced Workers, known as the “Beckham Law” after the famous footballer who played for Real Madrid at the time. It allows highly qualified foreign workers to be taxed only on income earned in Spain at a flat rate of 24% for income up to 600,000 euros. For higher incomes, the rate is 47%. This regime applies for a period of six years.
Cyprus and Its Non-Domiciled Resident Regime
This regime allows residents without tax domicile in Cyprus to be exempt from taxes on passive income such as dividends, interest, and royalties for a period of 17 years. To qualify, you must own or rent a property, engage in work or economic activity in Cyprus, spend at least 60 days in the country, and not have had tax residency on the island for the past 17 years.
Italy and Its Regime for New Residents
This tax system targets individuals who have not been fiscally resident in the country for at least 9 of the last 10 years. The main benefit is that high-net-worth individuals who move their tax domicile to Italy can apply a substitute tax on their foreign income, amounting to 200,000 euros per fiscal year. The regime can be extended to family members (25,000 euros per member). It is valid for 15 years.
Behind these tax regimes are specific strategies to attract foreign capital by offering competitive tax incentives and favorable conditions for businesses.
At AIM Global, we seek out the investment options that best suit your profile and guide you through the process of accessing available tax benefits. Schedule a meeting with our team now and start making your international mobility projects a reality.
