The fiscal solution: attracting new residents to southern Europe
What benefit for my assets does it have to change my country of residence?
Have you ever considered moving to another country looking for a better taxation for your assets? Why are there so many cases of athletes or artists who decide to change the country of residence for the benefit of their careers?
Some countries in southern Europe have set up special fiscal solutions for new residents in an attempt to lure wealthy and talented individuals to their shores.
The United Kingdom pioneered the idea of offering such benefits to its residents, or rather to its subjects, since the first non-domiciled tax regime was introduced during the reign of King George III, in 1799. Under the system, individuals who cited another country as their real domicile would only have to pay the demanding tax duties established to finance the country’s war against Napoleon on assets and profits in the United Kingdom.
This tax regime would endure and for decades it has been one of the main factors drawing huge fortunes from all over the world to the United Kingdom. Under the modern version of the non-domiciled regime, such residents only pay taxes on income, properties and investments generated in the United Kingdom and on overseas money remitted to the united kingdom.
Following Europe’s Great Recession earlier this decade, several of the hardest-hit Mediterranean countries took inspiration from the British Islands and introduced fiscal benefits for those setting up residence in their territories. Spain’s own system attracted particular publicity after it was nicknamed for a famous football player (the Beckham Law). There were even rumours that the regime was set up specifically to attract the player to one of the Spanish capital’s teams. Portugal and Italy followed suit, introducing their own special regimes some years later. Coincidentally, another football star opted to move to Italy after the country’s new tax system was established. This came after the football player had faced tax problems in Spain, where he had become an “ordinary” tax resident after 5 years benefiting from the “Beckham Law”.
The key aspects of each regime are set out below:
- Beneficiaries may not have been Spanish residents in the last 10 years
- Duration: year of change of residence + 5 years.
- Reason for a move to Spain:
- Work contract.
- Director of a company but not as a shareholder or holding no more than 25% of shares.
- Fiscal benefits:
- Work income:
- General tax rate of 24% on up to €600,000 and 45% on income over this level (limit introduced in 2015)
- Double taxation deduction for tax paid overseas (limit of 30% of all earned income)
- Interest and dividends of Spanish origin: 19-21%
- Earnings of Spanish origin: 23%
- Property tax on assets located in Spain only (real obligation)
- Other earnings generated overseas are not subject to taxation and there is no obligation to file form 720
- Work income:
- Beneficiaries must not have been Portuguese residents in the last 5 years.
- Duration: 10 years starting from the year subsequent to registration as a taxpayer in Portugal
- Fiscal benefits:
- 20% on earned income or from ‘high value-added’ professional activities performed in Portugal
- 0% on overseas earnings when they are taxed at the origin.
- Exemption for overseas income from
- Professional activity
- Capital gains (except financial assets)
- o 28% on earnings from overseas financial assets
- For those who have not been residents in Italy during at least 9 of the 10 years prior to arrival.
- Duration of 15 years
- €100,000 flat tax on earnings outside of Italy + €25,000 for each family member adhering to the scheme
- Earnings from certain countries may be excluded at will
- The tax transparency regime does not apply to companies controlled in low taxation states
- Not applicable to earnings generated from the sale of majority holdings in companies: 20% of voting rights or 25% of shares in non-listed firms and 2% and 5% in listed companies (anti-fraud measure)
- Only assets located in Italy are subject to inheritance tax
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