Tax havens remain extremely popular with international businesses and wealthy individuals, as they offer many benefits that are hardly found elsewhere. These jurisdictions are appreciated for their favorable tax rates, reliable confidentiality protection, and less stringent administrative requirements. They seek a balance, trying to comply with international regulations and give non-residents less headache. Let’s look at the history of tax havens and their main characteristics to understand why entrepreneurs from all over the world flock here. We will provide a list of European tax havens that are definitely worth your attention to help you make an informed decision in the present-day business landscape.
What Are Tax Havens?
A tax haven (or fiscal paradise) is a country that offers advantageous conditions to entrepreneurs and wealthy people to attract foreign capital. These jurisdictions used to be zero-tax jurisdictions, but they are gradually becoming low-tax ones under the pressure of international regulators. These destinations are also known for reliable asset protection and stable political and economic conditions.
A Brief History of Tax Havens
We may think that tax havens were created fairly recently, but they are actually centuries old! They originated in medieval times as trading hubs that encouraged trade and investment. In the 19th century, Luxembourg and Liechtenstein were low-tax jurisdictions that offered reliable financial confidentiality to attract European capital, and then the UK and its territories followed suit.
In the 1960s and 1970s, the Caribbean region had a considerable influence on the business landscape. Jurisdictions like Bermuda or the Cayman Islands emerged as important offshore business players. By the end of the 20th century, Asian countries lowered their taxes to become more attractive for entrepreneurs and investors. Singapore and Hong Kong stood out as especially prominent destinations that offered excellent business conditions.
However, issues of tax evasion, financing terrorism, and too much financial secrecy emerged, marking the start of efforts to make offshore jurisdictions more transparent. Global regulators made many countries, from traditional tax havens like Switzerland to Caribbean states, reconsider their laws and rules. One of the best-known initiatives is BEPS (Base Erosion & Profit Shifting), which was proposed by the OECD. Its main goal is to do away with aggressive tax optimization practices.
Key Features of Tax Havens
Let’s take a look at the main characteristics of tax havens and their influence on the global economy:
- Tax havens are secure and predictable, making them favorable destinations for financial activities.
- You will not have to jump through too many administrative hoops to set up a company or a corporate account.
- Your financial and personal data will enjoy reliable protection.
- Tax havens charge minimal taxes (or even zero in some cases), which makes them financially advantageous.
In the next section, we would like to focus on European tax havens, as they offer not only financial benefits but also a luxury lifestyle and high living standards. You will have access to advanced facilities, high safety standards, high-quality healthcare and education, and other features that will make your life here truly enjoyable.
European Tax Havens
Please check the list of notable European tax havens in Europe that we have compiled for you.
Malta
The Mediterranean paradise is known for its favorable tax rates, which can’t but attract global companies and investors. And though this is not a traditional offshore destination, its tax benefits are worth considering. The standard corporate tax rate is 35%, but you can practically lower it to 5-10% by using shareholder refunds.
If you are thinking of relocating to Malta, you can obtain a residency by investment. Several options will make you eligible:
- Buying real estate that costs at least 300,000 euros.
- Renting a property for at least 10,000 euros annually.
- Contribution to government funds.
- Donations to charity.
Furthermore, applicants are required to prove that they have at least 500,000 euros in their bank account and overall financial assets equal to at least 15,000,000 euros.
Cyprus
Cyprus is an eastern Mediterranean jurisdiction that offers attractive tax rates to non-resident entrepreneurs. The corporate tax rate of 12.5% is one of the lowest in Europe. What is more, you will not have to pay the capital gains tax in most cases unless you deal with buying/selling local real estate.
The local government offers specially elaborated tax incentives to stimulate relocation, especially among retirees and HNWIs. Cyprus is an EU member, so it fights tax evasion and complies with international taxation principles. It also adheres to all required transparency principles.
Portugal
Portugal offers tax incentives considerable tax incentives through its NHR (Non-Habitual Resident) program. It attracts investors, retirees, and foreign employees by providing benefits for ten years. Under the HNR scheme, any foreign income (royalties, interest, dividends, etc.) is exempt from Portuguese taxes if it was paid in the country of origin. Still, you will have to pay a tax of 21% if you generate income in Portugal.
You can also take advantage of the Portuguese residence by investment program called the Golden Visa. You will be offered several options to invest in (but not real estate).
Monaco
Monaco residents are not liable for personal taxes, with French residents being the only exception. Your company set up in Monaco will not have to pay any taxes if it generates at least 75% of its profits abroad. These favorable tax rates make the kingdom an attractive destination for entrepreneurs worldwide.
Andorra
Andorra is located between France and Spain in the Pyrenees. It offers beneficial tax rates to entrepreneurs who wish to set up a company in this jurisdiction. You will pay the lowest income tax rate among European countries (10%). And if you want to relocate, Andorra offers a lot of residency programs, including a residence-by-investment option under which foreign nationals can buy or invest in local stocks or businesses. The investment limit is set to 600,000 euros.
Switzerland
Switzerland is a well-known leader in wealth management and the European lifestyle. The country offers a unique cantonal tax system, and you can choose the canton that suits you best, as each offers its own tax rates and incentives. Enjoy the destination’s stable political and economic system and a transparent and efficient financial system.
Present-Day Tax Havens
Tax havens have evolved from medieval trading centers to present-day hubs that offer beneficial conditions to individuals and legal entities alike. They are evolving along with the global economy and changing requirements that affect the business landscape worldwide. While they no longer allow absolute anonymity, they still allow you to keep your money out of the public eye in the best way possible.