Europe has a reputation for high taxes… but this isn’t always fair. In fact, there are many low-tax and even-no tax schemes in place in various countries, which investors, businesses, retirees, and even remote workers can take advantage of.
These schemes are always subject to change or even cancelation… so I always advise people to move quickly if they want “in” on a particular program.
Portugal is a case in point.
Hot on the heels of major changes to its Golden Visa program—which mean that property is no longer a qualifying investment to gain residency—Portugal is considering another major change that will affect expats. Specifically, how expats are taxed.
Portugal’s Golden Visa changes have been reported by some as a ban or total cancellation of the Golden Visa regime. In fact, in the end, the final bill approved by parliament keeps the Portuguese Golden Visa in place, but takes away what was by far the most popular form of investment to get the visa… purchasing a property. Options to invest in Portuguese business, culture, or a fund remain.
But Portugal’s latest proposed change could hurt the country’s attractiveness for expats even more…
Portugal’s prime minister, António Costa, told CNN that it “no longer makes sense to continue” a special tax incentive program that benefits expats, and said his government would seek to end the regime after 2024.
Portugal’s “NHR” Program
Portugal’s Non-Habitual Resident (NHR) tax program offers a flat tax of 20% on employment income for 10 years, for those who move to the country, among other benefits. There’s zero tax on most forms of income from outside Portugal.
The NHR, like the Golden Visa, is being blamed for contributing to Portugal’s housing crisis, with prices pushed up for locals because of an influx of wealthy foreigners. And so the government wants to abolish it.
I spoke with Portuguese attorney João G. Gil Figueira, who deals with a lot of expat issues, and this was his take…
“In truth, I am still thinking about it. There are obvious implications in terms of attracting new residents to Portugal if the program ends. We have now seen the first proposal of the State Budget and the new regime that should replace the NHR is extremely limited in scope, to a point it’s not comparable at all. The State Budget will grandfather-in existing beneficiaries and applicants, so in the last week we have seen an influx of people trying to secure the status.”
“Even some left-wingers say terminating the NHR is not going to tackle the housing situation. It’s too late now. Credible experts converge on the opinion that the housing crisis is a supply and demand problem created by the lack of new construction. Even Mário Centeno, our left-wing ex-Minister of Finance, thinks that this plan does not make any sense. This is pure politics.”
Since the prime minister’s remarks, his government has submitted its budget proposals for 2024 and it includes plans to end the NHR. The final vote on the budget is at the end of November.
But, as we know, there was months of back and forth on the Golden Visa issue before Portugal decided to keep the Golden Visa but with major changes… Gil Figueira says it’s not out of the question that the same thing happens with the NHR: “We could see a messy back and forth, a fruitless tête-à-tête similar to the charade we had going on for almost a year regarding the Golden Visa. The regime could have been fine-tuned, for instance introducing low flat tax rates for otherwise exempt income, preserving some of its alure. No study was conducted to assess the real impact of terminating the NHR regime and I fear there will be a considerable fiscal and brain loss for the country.”
If the measure passes, there’s likely to continue to be a big rush to acquire the NHR status before the opportunity runs out…
Assuming Portugal does end the NHR regime, the country is likely to put in place some other tax incentives to attract foreigners, which may or may not be as attractive, as Gil Figueira indicates.
Indeed, the budget proposal includes details on a new regime that would give new Portuguese tax residents a 50% reduction in personal income taxes for five years (capped at €250,000 per year).
According to the budget proposals, anyone who meets the criteria for the NHR on or before Dec. 31, 2023 and registers before Mar. 31, 2024, can continue to avail of the scheme.
So, in short, move very quickly if you want to live in Portugal and enjoy benefits like zero tax on foreign-source income…
However, Portugal is not the only country in Europe to offer generous tax incentives for expats who relocate there.
You do have other options…
Italy’s 7% Tax For Expats
Italy introduced a highly enticing tax incentive for foreigners in 2020…
If you’ve lived outside of Italy for the previous five years, and hail from a country with a tax treaty with Italy (such as the United States and Canada), you can move to Italy and pay a 7% flat tax on foreign-source income.
So, if you receive a foreign pension, you can avail of this rate—but you have to move to a town with a population of less than 20,000 in the south of Italy, in a region such as Abruzzo, Basilicata, Calabria, Campania, or Puglia, or the islands of Sicily or Sardinia.
These are some of the most laidback, beautiful, and culture-rich parts of the country… so relocating there is hardly a chore…
You can avail of the 7% tax rate for up to 10 years. When your time is up, your income will be taxed at standard Italian rates, between 23% and 43%.
Italy has another scheme for businesses which means you can establish a business presence in Italy while owing no tax there…
Called the “Representative Office Visa,” this scheme allows you to open a business office in Italy and pay no tax on that operation—and you don’t have to invest any money in Italy either. Just open an office.
With this visa, you can stay in Italy, and you can even bring your family… but you don’t have to stay. There are no “minimum presence requirements” in order to keep the visa.
However, the criteria are very specific. You are not doing business in Italy, but rather promoting your business within Italy… make sure you have a good local lawyer on your side to structure the operation properly.
Two Options In Greece
Like Italy, Greece boasts an enviable lifestyle… sumptuous food and stunning beaches… and one of the lowest costs of living in Europe…
And, like Italy, Greece introduced a 7% flat tax for certain eligible expats.
The scheme is aimed at retirees, but the 7% flat rate applies to whatever income a person might have, be that rents or dividends as well as pensions. Again like Italy’s program, however, it only applies to those from countries with which Greece has a double taxation treaty (that includes the United States and Canada).
You must have been non-tax-resident in Greece for five of the previous six years.
Athina Kalyva, head of Tax Policy at the Greek Finance Ministry, said the following, when introducing the 7% rate in 2020: “The logic is very simple: we want pensioners to relocate here, we have a beautiful country, a very good climate, so why not? We hope that pensioners benefiting from this attractive rate will spend most of their time in Greece.”
You can avail of the 7% rate for up to 15 years.
The above scheme is called the Greek Non-Dom Regime for Retirees. Greece also has a Non-Dom Regime for Investors, where if you invest €500,000, you pay a lump sump sum tax of €100,000 per year, regardless of how high your income goes or your level of wealth. Best of all, foreign-source income is not taxed at all under this regime.
Spain’s Lower Tax For Remote Workers
Spain is one of many countries to introduce a digital nomad visa in the wake of the recent boom in remote working (Greece and Portugal have nomad visas too). The aim is to attract mobile workers from around the world.
And the visa also comes with special tax incentives. You’ll pay a flat tax rate of 24% on income up to €600,000, and 48% above that. Under Spain’s regular tax regime, by contrast, you hit 30% on income over €22,000… 45% above €60,000… and 47% above €300,000…
So, nomad workers in Spain can save big…
You’ll also save on other taxes. For example, Spain’s standard freelancer visa—but not the nomad visa—obliges the holder to pay up to nearly €300 a month toward public health cover and a pension.
Under the digital nomad visa, you must have a contract with a company that has been operating for at least a year, and have been continuously employed by them for at least three months.
You must be a graduate of a university or business school or have three years of previous work experience.
After five years on the digital nomad visa, you can apply for long-term residency.